Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: June 13, 2017

Whether Subsequent Agreement Between the Insurance Company and the Insured Affected Arbitrability of Dispute Is A Question for the Arbitrator

On June 1, 2017, the Court of Appeals issued a decision in Town of Amherst v. Granite State Insurance Company, 2017 NY Slip Op 04321, ruling that the effect of a subsequent agreement to “litigate” on the arbitrability of a dispute under an insurance agreement should be decided by the arbitrator, rather than the Court. Our previous post about this case, which includes a link to the Fourth Department decision, is available here.

Town of Amherst arose from an insurance coverage dispute. The policy at issue mandated arbitration before the American Arbitration Association of any “disagreement as to the interpretation of this Policy.” In the context of settling a lawsuit against an indemnitor, Amherst and the insurance carrier signed a separate agreement to “litigate” of the disposition of the settlement proceeds. The Town of Amherst argued that this was a modification of the arbitration agreement in the policy. The trial court agreed and denied a motion to compel arbitration, but the Fourth Department reversed, finding that the effect of the subsequent agreement to “litigate” on the arbitrability of the dispute was for the arbitrator to decide.

The Court of Appeals, in a brief decision, affirmed, explaining:

Under the facts of this case, including the terms of the parties’ insurance policy, which incorporated the rules of the American Arbitration Association, the issue of whether the later agreement between the parties affected the arbitrability of the dispute should be resolved by the arbitrator.

Judge Stein issued an equally terse dissent, stating:

Unlike the majority, I interpret the arbitration clause at issue here as narrow, rather than broad. In my view, under the facts of this case and that interpretation of the policy, the determination of the arbitrability of the parties’ dispute should be made by the courts.

The law on the issue of who determines arbitrability (the Court or the arbitrator) is sometimes murky. The general rule is that arbitrability is determined by the Court, but there are some recognized exceptions to this rule. We recently blogged about a decision by Justice Ostrager, holding that the parties’ incorporation of the AAA Commercial Arbitration Rules (under which the arbitrator has the power to determine his own jurisdiction) reflects an intent to have the arbitrator decide questions of arbitrability. The majority in Town of Amherst relied in part on the AAA rules (an issue that does not appear to have been raised by the parties themselves). On the other hand, arguably the question before the Court was not arbitrability, but rather the existence of an arbitration agreement in the first place (an issue typically reserved for the Court), given that the parties had agreed to “litigate.”

Posted: June 12, 2017

Spanish Defendant’s Travel to, and Failure to Pay Commissions in, New York Creates Jurisdiction

On June 8, 2017, the Court of Appeals issued a decision in D&R Global Selections, S.L. v. Bodega Olegario Falcon Pineiro, 2017 NY Slip Op. 04494, holding that a defendant’s travel to, and failure to pay commissions in, New York was sufficient to create personal jurisdiction in New York, explaining:

CPLR 302 (a) (1) requires us to first determine if defendant purposefully availed itself of the privilege of conducting activities in the State by transacting business in New York. A non-domiciliary defendant transacts business in New York when on his or her own initiative, the non-domiciliary projects himself or herself into this state to engage in a sustained and substantial transaction of business. The primary consideration is the quality of the non-domiciliary’s New York contacts. As relevant here, purposeful availment occurs when the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship.

The Appellate Division properly determined that defendant transacted business in New York. The oral agreement between the parties required plaintiff to locate a United States distributor to import defendant’s wine. In furtherance of their agreement, defendant accompanied plaintiff to New York several times between May 2005 and January 2006 to attend wine industry events. Plaintiff introduced defendant to Kobrand, a New York-based distributor, at the Great Match Event in New York, and defendant returned to New York at least twice to promote its wine alongside plaintiff and Kobrand. Defendant eventually entered into an exclusive distribution agreement with Kobrand for the importation of its wine into the United States.

Thus, not only was defendant physically present in New York on several occasions, but its activities here resulted in the purposeful creation of a continuing relationship with a New York corporation. Defendant’s contacts with New York establish that defendant purposefully availed itself of the privilege of conducting activities within New York, thus invoking the benefits and protections of its laws.

It is not enough that a non-domiciliary defendant transact business in New York to confer long-arm jurisdiction. In addition, the plaintiff’s cause of action must have an articulable nexus or substantial relationship with the defendant’s transaction of business here. At the very least, there must be a relatedness between the transaction and the legal claim such that the latter is not completely unmoored from the former, regardless of the ultimate merits of the claim. This inquiry is relatively permissive and an articulable nexus or substantial relationship exists where at least one element arises from the New York contacts rather than every element of the cause of action pleaded. The nexus is insufficient where the relationship between the claim and transaction is too attenuated or merely coincidental.

Plaintiff asserts that defendant breached the parties’ oral agreement by not paying commissions on wine sales to Kobrand. To prevail on this claim, plaintiff must show that defendant failed to pay commissions due on sales to a distributor that plaintiff identified and solicited for defendant. Plaintiff’s claim has a substantial relationship to defendant’s business activities in New York. Defendant traveled to New York to attend the Great Match Event where plaintiff introduced defendant to Kobrand. Defendant then joined plaintiff in attending two promotional events hosted by Kobrand in New York, which resulted in Kobrand purchasing defendant’s wine and, eventually, entering an exclusive distribution agreement for defendant’s wine in the United States. Those sales to Kobrand — and the unpaid commissions thereon — are at the heart of plaintiff’s claim.

(Internal quotations and citations omitted).

Posted: June 11, 2017

Court Finds Subject Matter Waiver of Attorney-Client Privilege

On June 5, 2017, Justice Oing of the New York County Commercial Division issued a decision in Siras Partners LLC v. Activity Kuafu Hudson Yards LLC, 2017 NY Slip Op. 31216(U), holding that a party had waived the attorney-client privilege, explaining:

[The plaintiff] proffers an email dated March 24, 2016 from Dai to a third-party investor, Lou Ceruzzi, concerning the UBS loan:

I was about to write to you this email last Friday but I decided to wait until we all sit down with attorneys this morning. It is concluded by legal counsels that we have no choice but buying the note from UBS immediately to cleanup the mess at Hudson Rise. Otherwise, all the equity we invested is at risk to be wiped out.

[The plaintiff] contends that this communication is a waiver of the attorney-client privilege regarding 462-470’s acquisition of the UBS loan.

The principle is well settled that communications between an attorney and a client that are subsequently disclosed to third parties are not protected by the attorney-client privilege. I find that Dai waived the attorney-client privilege as to any communications and documents dealing with his counsel’s advice that “we have no choice but buying the note from UBS immediately to clean up the mess at Hudson Rise. Otherwise, all the equity we invested is at risk to be wiped out.” Contrary to the cases defendants’ rely upon, Dai’s communication to Ceruzzi goes beyond a client conveying to a third-party the decision to settle an action or withdraw a claim based on advice of counsel. Dai’s communication provided a detailed description of specific legal advice and the course of action given to him by his attorneys, which he voluntarily divulged to a third party. Accordingly, defendants are directed to produce any communications and documents pertaining to the subject matter of the email.

(Internal quotations and citations omitted).

Posted: June 10, 2017

Questions of Fact Preclude Summary Judgment on Reformation Claim

On June 8, 2017, the First Department issued a decision in Warberg Opportunistic Trading Fund L.P. v. GeoResources, Inc., 2017 NY Slip Op. 04537, discussing the requirements for establishing a claim for reformation.

In Warberg Opportunistic Trading Fund L.P., the plaintiff sought reformation of a contract. The First Department held that there were questions of fact regarding the claim, explaining:

A claim for reformation of a written agreement must be grounded upon either mutual mistake or fraudulently induced unilateral mistake, and to succeed, the party seeking relief must establish by clear, positive and convincing evidence that the agreement does not accurately express the parties’ intentions. Reformation based upon a scrivener’s error requires proof of a prior agreement between the parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement. The parties’ course of performance under the contract, or their practical interpretation of a contract for any considerable period of time, is the most persuasive evidence of the agreed intention of the parties.

Given the need for clear, positive and convincing evidence of mutual mistake, we find that issues of fact are present that should have prevented summary judgment from being awarded to Waterstone. The evidence does not unequivocally show that either Waterstone or defendant believed the agreed upon floor price was $28.07. To be sure, defendant relied heavily on Wachovia to handle the warrant transaction, including the setting of the floor price, and Wachovia employees testified that they believed the floor price was intended to be $28.07. However, the evidence shows that defendant had a hand in the drafting process. Thus, we may not entirely disregard the deposition testimony of defendant’s employees and counsel that they did not consider the $32.43 floor price in the final warrants to be the result of a mistake.

In any event, mutual mistake requires that both parties to an agreement have the same belief, and the evidence with respect to Waterstone’s belief is too tenuous to justify summary judgment. For example, that Wachovia circulated a draft warrant with $28.07 as the floor price is surely supportive of Waterstone’s theory. However, without any documentary evidence reflecting any prior communications concerning the price, or any testimony from Waterstone indicating what it believed the floor price was to be, it is impossible to find as a matter of law that Waterstone expected the true floor price to be $28.07. In addition to the absence of clear evidence of Waterstone’s belief, its failure over the course of several years to affirmatively articulate a belief that the final floor price was a mistake, also militates against a grant of summary judgment. Although, as it argues, Waterstone might not have been able to allege all the circumstances of the purported floor price mistake until it obtained discovery in this action, it knew, or should have known from the outset, that the floor price in the final warrant was set at $32.43, which rendered the anti-dilution provision meaningless. Its failure to claim mutual mistake until 2013, even after it sought an adjustment in the exercise price in 2011 and initiated this lawsuit in 2012 based on the separate theory that the anti-dilution provision was merely being misinterpreted, undermines its claim that it believed that it had agreed to the $28.07 floor price and that there had been a drafting error.

(Internal quotations and citations omitted).

Posted: June 9, 2017

Legal Malpractice Claim Based on Allegedly Faulty Tax Advice Survives Summary Judgment

On June 1, 2017, the First Department issued a decision in Leggiadro, Ltd. v. Winston & Strawn, LLP, 2017 NY Slip Op. 04361, holding that a legal malpractice claim based on allegedly faulty tax advice should survive summary judgment, explaining:

The court properly declined to dismiss the corporate plaintiff’s claim that it would not have accepted the landlord’s buyout offer of the remaining six years on its commercial lease if it had been properly advised by W & S of a $400,000 New York City corporate tax obligation it would have to pay on the buyout figure. Deposition testimony and affidavits offered from the corporate plaintiff’s principal assert that it was W & S’s responsibility to ensure that the negotiated buyout covered all of plaintiff’s anticipated relocation expenses and attendant tax obligations such that plaintiff would not be out of pocket financially when relocating to allow the nonparty landlord to undertake a major renovation of its building. Under the circumstances presented, triable issues exist as to whether, but for W & S’s failure to inform plaintiff of the corporate tax obligation, plaintiff would have declined the buyout offer, remained in its existing leasehold and avoided any damages associated with having to pay, out of pocket, a corporate tax on the buyout sum.

Another branch of the malpractice claim alleged that but for counsel’s negligence in failing to raise the tax issue, the landlord would have offered a higher buyout figure to cover the New York City corporate tax obligation. This branch of the claim is also viable. Although the claim is founded upon a discretionary decision residing in another over whom the corporate plaintiff had no control, the circumstances support plaintiff’s contention that the landlord would have agreed to satisfy the tax liability. As we opined in sustaining the malpractice cause of action in the complaint on defendant’s motion to dismiss, plaintiff had a strong bargaining position because the amount of time left on the lease, as well as the importance of the leased space to the landlord’s conversion plans, would have pressured the landlord to acquiesce to plaintiff’s relatively minor request. W & S has not proffered any new probative evidence to counter this aspect of plaintiff’s legal malpractice claim.

(Internal quotations and citations omitted).

Posted: June 8, 2017

Complaint States Claim for Wrongful Eviction Based on Intent to Revive Lease

On June 1, 2017, the First Department issued a decision in Mephisto Management, LLC v. Moon 170 Mercer, Inc., 2017 NY Slip Op. 04365, holding that the plaintiff had stated a claim for wrongful eviction based on the defendant’s alleged intent to revive the lease, explaining:

The complaint states a cause of action for wrongful eviction based on an invalid warrant. Defendant Moon 170 Mercer, Inc.’s service of a 10-day notice to cure a default, commencement of a new holdover proceeding, and filing of a petition alleging that the tenancy had recently been terminated arguably reflect an intent to revive the lease after the issuance of a warrant of eviction in an earlier proceeding.

(Internal quotations and citations omitted).

Posted: June 7, 2017

Fraud Claim Dismissed as Time-Barred; Plaintiffs Were on Inquiry Notice

On June 1, 2017, the First Department issued a decision in MBI International Holdings Inc. v. Barclays Bank PLC, 2017 NY Slip Op. 04381, affirming the dismissal of a fraud claim as time-barred because the plaintiffs were on inquiry notice of their claim more than two years before they brought suit, explaining:

An action in New York based upon fraud must be commenced within the greater of six years from the date of the fraud or within two years from the time plaintiffs discovered, or with reasonable diligence, could have discovered the fraud. Here, the parties do not dispute that the alleged fraud occurred in or around July 2006, the date of the 2006 Settlement, more than six years prior to the commencement of plaintiffs’ action. Therefore, the question we face is whether plaintiffs commenced their action within two years from the time they discovered, or could have discovered the alleged fraud with reasonable diligence. Under this inquiry, when the plaintiffs have knowledge of facts from which the fraud could be reasonably inferred, they will be held to have discovered the fraud.

Plaintiffs allege that they first discovered the facts underlying their fraud-based claims after the Financial Times articles were published in May 2013; they argue they could not have reasonably discovered these facts until then. However, as persuasively argued by defendant, plaintiffs’ own complaint establishes that they were on inquiry notice by at least 2008.

. . .

Plaintiffs’ own allegations, which we must accept as true on a motion to dismiss, establish that plaintiffs were apprised of facts from which fraud could have been reasonably inferred by at least 2008. Accordingly, by at least 2008, New York law imposed on plaintiffs a duty to inquire, and plaintiffs’ subsequent failure to pursue a reasonable investigation triggered the running of the statute of limitations at that time.

(Internal quotations and citations omitted) (emphasis added).

Posted: June 6, 2017

Promise Made With Preconceived Intention of Not Performing Supports Fraudulent Inducement Claim

On May 30, 2017, the First Department issued a decision in White v. Davidson, 2017 NY Slip Op. 04219, holding that allegations of a promise made with the present and undisclosed intention of non-performance is sufficient to state a claim for fraudulent inducement, explaining:

With respect to the other four alleged promises or claims, the complaint adequately alleges that defendants made specific representations concerning the actions that they would undertake to promote plaintiff’s single in order to induce him to self-fund their promotional campaign while never intending to perform, and were, in effect, engaging in a Ponzi scheme. Although mere promissory statements as to what will be done in the future are not actionable, if a promise was actually made with a preconceived and undisclosed intention of not performing it, it constitutes a misrepresentation of a material existing fact upon which an action for rescission may be predicated. Such misrepresentations are collateral to the agreement, and can form the basis of a fraudulent inducement claim.

(Internal quotations and citations omitted).

Posted: June 5, 2017

Questions of Fact Precluded Dismissal of Duress Defense on Summary Judgment

On May 25, 2017, the First Department issued a decision in Yoon Jung Kim v. An, 2017 NY Slip Op. 04201, holding that questions of fact precluded dismissal of a duress defense by summary judgment, explaining:

The defense of duress is established upon the showing of a wrongful threat precluding the exercise of free will. The threat of criminal prosecution is sufficient for that purpose. Here, defendants alleged that there was such a threat, as well as the additional threat of deportation, which has also been held to constitute duress. Accordingly, the court erred in holding that defendants did not establish that they signed the note and mortgage under a state of duress.

Plaintiff argues that, even if defendants raised an issue of fact as to whether defendants were under duress when they executed the note and mortgage, their failure to disaffirm those documents before the commencement of litigation is fatal to their claim. The failure to act promptly to disaffirm a contract entered into under duress can be fatal to the defense. However, where during the period of acquiescence or at the time of the alleged ratification the disaffirming party is still under the same continuing duress, he has no obligation to repudiate until the duress has ceased. Here, in her counterclaim, defendant An related events through at least June 2012, only two months before plaintiff commenced the initial action, that constituted a continued, and continuing, pattern of harassment that a finder of fact could determine was part of the same duress that compelled her and her husband to execute the mortgage in the first place.

(Internal quotations and citations omitted).

Posted: June 4, 2017

Release Did Not Bar Derivative Claims, But Bringing Claims Might Violate Covenant Not to Sue

On May 23, 2017, the First Department issued a decision in Ridinger v. West Chelsea Development Partners LLC, 2017 NY Slip Op. 04067, holding that while a release did not bar derivative claims, bringing such claims might constitute a violation of the covenant not to sue, explaining:

Plaintiff’s individual claims were barred by a prior release. However, plaintiff could not and did not release the derivative claims on behalf of the unit owners. Plaintiff was nevertheless bound by a covenant not to sue, in which she promised not to bring any claim regarding the unit, the building or the condominium, including in a derivative capacity. This did not bar the instant suit on derivative claims, but it does expose plaintiff to a possible claim for damages for breach of the covenant.

(Internal citations omitted).