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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: October 10, 2017

Plaintiff Fails to Provide Evidence Showing Jurisdiction Over Foreign Shipping Company

On September 26, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Sonic Finance Inc. v. Prima Bulkship Partnership Ltd., 2017 NY Slip Op. 32033(U), dismissing parties because of the plaintiff’s failure to provide evidence showing that the court had personal jurisdiction over the defendants, explaining:

Here, plaintiffs do not submit any affidavits in opposition to the Moving Defendants showing of lack of long-arm jurisdiction, relying solely on their complaint, which was alleged on information and belief and which fails to identify the source of that information and-belief. Plaintiffs do not allege that the Agreements at issue were negotiated or executed in New York, and there is no allegation that there were meetings here between these Moving Defendants, defendants Prima and Star, and the plaintiffs, involving the Agreements to buy SUNRAY and MOONRA Y.

In fact, the Moving Defendants had no agreements with plaintiffs. The complaint only references a web address, http://halimazmin.com/about-us/business-activities, which indicates that HMB owns and operates vessels that conduct substantial business throughout the East Coast of the United States; according to plaintiffs, this presumably includes New York ports. The website indicates that HMB’s address is in Malaysia, and that its vessels are Malaysian flagged. It also refers to HMB’s unrelated joint venture with nonparty Kawasaki Kisen Kaisha, Ltd., which, according to plaintiffs’ opposition brief, allegedly owns and operates approximately 350 vessels with regular trading destinations in the state of New York. Even if these speculative allegations about some potential New York activity, which do not directly involve HMB, could qualify as a transaction of business, plaintiffs fail to make any connection between this alleged shipping activity, and the claims in the complaint, to warrant the exercise of jurisdiction over these defendants. Plaintiffs’ claims involve the purchase of the two vessels, the SUNRAY and the MOONRA Y, by Prima and Star, and the arbitration of Prima’s and Star’s breach of their obligation to pay for the vessels. HMB’s involvement, with a completely unrelated party, in the business of shipping vessels that may potentially use New York ports is wholly incidental to those claims. Plaintiffs’ internet reference fails to make even a sufficient start to entitle plaintiffs to jurisdictional discovery to oppose defendants’ motion to dismiss. Plaintiffs have not alleged facts which would support jurisdiction under CPLR 301 or 302(a)(1), and, therefore, have failed to show how further discovery might lead to evidence that personal jurisdiction over the Moving Defendants exists here.

(Internal quotations and citations omitted).

Posted: October 9, 2017

CPLR 205(a) Statute of Limitations Extension Does Not Apply to Voluntarily Discontinued Action

On October 4, 2017, the Second Department issued a decision in EB Brands Holdings, Inc. v. McGladrey, LLP, 2017 NY Slip Op. 06923, holding that CPLR 305’s extension of the statute of limitations does not apply to actions that are voluntarily discontinued.

In EB Brands Holdings, “the plaintiff brought an action against the defendant in the Supreme Court, New York County . . . asserting similar contentions” as it brought in a later-filed action in Supreme Court, Westchester County. In 2014, “the New York County action granted the defendant’s motion for summary judgment dismissing that complaint, without prejudice, on the ground that the complaint failed to state a cause of action. The court granted the plaintiff leave to replead in that action. . . . [R]ather than amending its complaint in the New York County action, on September 8, 2014, the plaintiff commenced this action in the Supreme Court, Westchester County. In a judgment entered January 26, 2015, the Supreme Court, New York County, dismissed the New York County action pursuant to the plaintiff’s voluntary discontinuance of that action without prejudice.”

The defendant moved to dismiss the Westchester County action as time-barred. The trial court granted the motion and the Second Department affirmed, explaining: “The Supreme Court properly dismissed this action as time-barred. The plaintiff’s contention that the statute of limitations was extended pursuant to CPLR 205(a) is without merit, as the time extension provisions of CPLR 205(a) are inapplicable when, as here, a prior, timely commenced action was terminated by voluntary discontinuance.” (Internal citations omitted) (emphasis added).

Posted: October 8, 2017

Court Refuses to Dismiss Malpractice Claim By Non-Party to Engagement Letter

On September 26, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Scopia Windmill LP v. Olshan Frome Wolosky LLP, 2017 NY Slip Op. 32031(U), refusing to dismiss a malpractice claim made by a plaintiff that was not a party to the firm’s engagement letter, explaining:

On the legal malpractice claim, Olshan claims that it is not in privity with either Windmill or Holdings, thus, their malpractice claims must be dismissed. As Scopia concedes, only SCM signed the retainer agreement with Olshan. Thus, for Windmill and Holdings to maintain this action, they must plead facts showing near privity to Olshan. To show near privity, a plaintiff must allege that the attorney was aware that its services were used for a specific purpose, that the plaintiff relied upon those services, and that the attorney demonstrated an understanding of the plaintiffs reliance.

Scopia alleges that, although SCM retained Olshan, Windmill, the actual lender to WTG, was a foreseeable third-party beneficiary of the retainer agreement between Olshan and SCM. The 2012 loan documents submitted show that Windmill was the lender for whom Olshan prepared and/or reviewed loan documents. These documents support Scopia’s allegation that Windmill was in near privity with Olshan.

However, there are no similar factual allegations with respect to Holdings. Scopia fails to allege any facts showing that Olshan was aware that it was providing legal
services to Holdings, that Holdings relied upon those legal services, and that Olshan understood that Holdings was relying on Olshan’s legal advice. Accordingly, I dismiss Holding’s malpractice claim against Olshan.

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

Posted: October 7, 2017

Reaching Out to New York Bank to Negotiate Loan Agreements Created Personal Jurisdiction

On September 25, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Bank of India, N.Y. Branch v. Essar Steel Holdings Ltd., 2017 NY Slip Op. 32032(U), holding that reaching out to New York to negotiate loan agreements created personal jurisdiction, explaining:

In this case, BOI-NY has met its prima facie burden of demonstrating that its claim arose from Essar’s transaction of business in New York under CPLR 302(a)(1). It has presented proof, not contradicted by Essar, that Essar reached into New York to negotiate the contracts, and executed them in New York. In fact, the SLC Agreement clearly states, at the top of the first page, “Place: NEW YORK,” indicating that it was executed here. In addition, BOI-NY presented proof that, in connection with the pledge and security agreement, which was part of the parties’ transaction, Essar pledged its interest in a certificate of deposit, in the principal amount of $1.5 million, maintained in Essar’s account at BOI-NY, as partial security for its obligations under the SLC.

Moreover, for seven years after the initial transaction, Essar reached out to BOINY to negotiate modifications and extensions of those agreements. The transaction was the foundation for the continuing relationship between the parties, which lasted for seven years, with Essar reaching out to BOI-NY by phone and email to negotiate for the modifications and extensions of the SLC Agreement. Further, the letter of credit security agreement, and the security agreement for the pledge of the certificate of deposit, both provided for the application of New York law. In sum, Essar purposefully availed itself of New York law by engaging in those negotiations, executing the contracts in New York, and establishing a continuing relationship between the parties. Thus, viewing the transaction as a whole, and based on the totality of the circumstances, Essar can be said to have transacted business in New York.

As to the second prong of the test, BOI-NY’s claim clearly arises from Essar’s New York transactions. The standard only requires a plaintiff to show that in light of all the circumstances, there is an articulable nexus or substantial relationship between the business transaction and the claim asserted. BOI-NY’s claims arise from the SLC, and all of Essar’s New York contacts are related to that agreement.

Finally, a finding that New York courts have personal jurisdiction over Essar also comports with due process. So long as a party avails itself of the benefits of the forum, has sufficient minimum contacts with it, and should reasonably expect to defend its actions there, due process is not offended if that party is subjected to jurisdiction. Here, Essar had sufficient minimum contacts with New York by purposefully entering the state to negotiate and execute contracts with BOI-NY, a New York entity, and those contracts established an ongoing relationship between the parties that lasted seven years. The nature and quality of Essar’s New York activities are sufficient to satisfy due process.

(Internal quotations and citations omitted).

Posted: October 6, 2017

Breach of Contract Claim Dismissed for Failure to Identify Particular Provision That was Breached

On October 6, 2017, the Fourth Department issued a decision in Barrett v. Grenda, 2017 NY Slip Op. 07031, holding that the trial court erred in not dismissing a breach of contract claim that did not identify the contract terms that had been breached, explaining:

Plaintiff was required to set forth in that cause of action the provisions of the contract upon which the claim is based. While plaintiff broadly alleged that she had a contract with all defendants to provide prudent financial advice for her benefit and that the TD Ameritrade defendants were obligated to have supervisory and compliance procedures in place, she failed to identify the particular contractual provision that was breached. In addition, the documentary evidence submitted by the TD Ameritrade defendants, i.e., the IRA Application and Client Agreement, conclusively refutes plaintiff’s allegation that the TD Ameritrade defendants owed any such contractual obligations to her. Consequently, we agree with the TD Ameritrade defendants that the court erred in failing to dismiss the breach of contract cause of action against them.

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

Posted: October 5, 2017

Destroyed Evidence Presumed Relevant When it is Intentionally Deleted

On October 5, 2017, the First Department issued a decision in Zacharius v. Kensington Publishing Corp., 2017 NY Slip Op. 06995, holding that evidence is presumed to be relevant when it is intentionally destroyed, explaining:

Spoliation sanctions were providently granted. The record demonstrated that plaintiff was in control of her own email account; was aware, as an attorney, of her obligation to preserve it at the time it was destroyed, with or without service of defendants’ litigation hold notice upon her, since she commenced the action; and had a culpable state of mind, as she admitted that she intentionally deleted well over 3,000 emails during the pendency of the action. Destroyed evidence is automatically presumed relevant to the spoliator’s claims when it is intentionally deleted. While plaintiff asserted that she only intentionally deleted irrelevant emails, her own emails evidenced intentional deletion of thousands of emails, and defendants recovered at least one email that was pertinent to the allegations in the complaint.

Under the circumstances, the court providently exercised its discretion in limiting the sanction against plaintiff to costs and attorneys’ fees, rather than the drastic remedy of striking plaintiff’s complaint. While plaintiff’s actions were intentional, defendants were not entirely bereft of evidence tending to establish its position.

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

Posted: October 4, 2017

Unsigned Employment Agreement Void Under Statute of Frauds

On September 20, 2017, Justice Platkin of the Albany County Commercial Division issued a decision in Gonick v. Adirondack Research & Management, Inc., 2017 NY Slip Op. 51216(U), holding that an unsigned employment agreement was void under the statute of frauds, explaining:

To be an effective and valid employment contract, all the essential elements thereof must be shown. These elements consist of the identity of the parties, the terms of employment, which include the commencement date, the duration of the contract and the salary.

Under New York law, the rule is settled that unless a definite period of service is specified in the contract, the hiring is at will and the employer has the right to discharge and the employee to leave at any time. Thus, absent an agreement establishing a fixed duration, an employment relationship is presumed to be a hiring at will, terminable at any time by either party. The at-will presumption may be triggered when an employment agreement fails to state a definite period of employment, fix employment of a definite duration, establish a fixed duration or is otherwise indefinite.

In addition, where the alleged employment contract by its terms is not to be performed within one year from the making thereof or the performance of which is not to be completed before the end of a lifetime, a writing must identify the parties, describe the subject matter, state all the essential terms of an agreement, and be signed by the party to be charged. In order to remove an agreement from the application of the statute of frauds, both parties must be able to complete their performance of the contract within one year.

Under the alleged employment contract sued upon by Gonick, there is no period of service defined by fixed commencement and termination dates. Rather, ARMI’s purported obligation to employ and compensate Gonick continues for the life of the Fund. According to Gonick’s own testimony, there is no set formula for determining the life of the Fund, there is no way to know when or if the Fund will dissolve, and there is no way to say whether the Fund will remain in existence for the rest of Gonick’s lifetime (or even beyond). Thus, defendants have shown, prima facie, that the alleged 2010 Agreement does not fix Gonick’s employment to any definite period of service.

. . .

To be sure, an agreement can establish a fixed duration even if its duration cannot be determined ab initio, as long as the duration is delimited by legally and realistically cognizable boundaries. In the Court’s view, ARMI’s alleged contractual promise to employ and compensate Gonick for the life of a third-party mutual fund lacks the type of legally and realistically cognizable boundaries that are experientially limited and ascertainable by objective benchmarks. In other words, whatever the precise limits of the doctrine enunciated in Rooney, the promise allegedly made to Gonick clearly lies outside of them. Based on the foregoing, the Court concludes that the term “life of the Fund” lacks sufficient definiteness to render inapplicable the presumption of at-will employment.

Moreover, even if the alleged 2010 Agreement were construed as a valid employment contract for a definite period of employment, which it is not, defendants have established that the unsigned agreement is void under the statute of frauds. It has long been the law of New York that the statute of frauds is applicable to employment contracts to pay commissions on customer accounts brought in by an employee for so long as the account remained active with the employer. In holding that a contract to pay post-termination commissions is not by its terms performable within a year, the Court of Appeals emphasized that performance is dependent, not upon the will of the parties to the contract, but upon that of a third party.

Here, ARMI’s alleged obligation to pay commissions to Gonick under the 2010 Agreement encompasses customers placed in the Fund through Gonick’s efforts, and there is nothing in the 2010 Agreement that allows the parties to terminate the alleged contract for cause or convenience. ARMI’s alleged obligation to employ and compensate Gonick continues until the Fund is dissolved, a contingency that is dependent not on the actions of the parties to this case, but solely on the actions of third parties, including Adirondack Funds, its trustees, governmental regulators and, of course, the Fund’s customers. And while it is theoretically possible that the Fund could have terminated its existence within one year of the alleged making of the 2010 Agreement, the same is true of cases like Zupan, since the third-party customers brought in by the plaintiff were free to have terminated their accounts with the defendant-employer within one year of the alleged oral employment agreement. And while termination of the contract within a year might result if defendant’s business were dissolved or otherwise ended, termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.

(Internal quotations and citations omitted).

Posted: October 3, 2017

Upcoming Arguments in the Court of Appeals in October

Upcoming argument in the Court of Appeals that may be of interest to commercial litigators include:

  1. Davis v Scottish Re Group Limited (No. 111) (to be argued Tuesday, October 10, 2017) (“Corporations–Merger–Action by minority shareholder asserting both direct and derivative causes of action arising out of allegedly undervalued cash-out merger that unfairly prejudiced minority shareholders; standing; choice of law; jurisdiction; dismissal of certain causes of action.”) See our post on the First Department’s decision in this action here.
Posted: October 2, 2017

Commercial General Liability Insurance Policy Did Not Cover Breach of Contract Claim

On September 27, 2017, the Second Department issued a decision in J.W. Mays, Inc. v. Liberty Mutual Insurance Co., 2017 NY Slip Op, 06639, holding that a commercial general liability policy did not afford coverage for a breach of contract claim, explaining:

The general rule is that a commercial general liability insurance policy does not afford coverage for breach of contract, but rather for bodily injury and property damage. To hold otherwise would render an insurance carrier a surety for the performance of its insured’s work. The determination of an insurer’s duty to defend must be drawn from allegations of the underlying complaint. Here, the complaint in the Owens action sounds exclusively in breach of contract and unjust enrichment, and seeks to foreclose on mechanic’s liens. There is no claim for bodily injury, property damage, or personal and advertising injury as is required to trigger coverage under the policies herein. Accordingly, the Supreme Court properly granted that branch of the defendants’ motion pursuant to CPLR 3211(a) which was, in effect, for a judgment declaring that they are not obligated to defend or indemnify the plaintiff in the Owens action.

(Citations omitted).

Posted: October 1, 2017

Transcripts and Videos of Arguments in the Court of Appeals for September 2017 Now Available

On August 11, 2017, we noted three cases of interest from the oral arguments before the Court of Appeals in September 2017:

  • Princes Point v. Muss Development (argued on Tuesday, September 5, 2017) (“Vendor and Purchaser–Contract for Sale of Real Property–Whether prospective purchaser of real property commits anticipatory breach of contract by commencing an action against sellers for rescission of the contract before the closing date–Whether sellers are required to establish that they are ready, willing and able to close after buyer’s anticipatory breach in order to retain the deposit and certain other payments as liquidated damages.”). See the transcript and the video.
  • Excess Line Association of New York (ELANY) v. Waldorf & Associates (argued on Thursday, September 7, 2017) (“Parties–Capacity to Sue–Governmental entities–Whether plaintiff association has capacity and standing to sue one of its members to compel compliance with its plan of operation or to recover stamping fees.”) See the transcript and the video.
  • Garthon Business v. Stein (argued on Tuesday, September 12, 2017) (“Arbitration–Agreement to Arbitrate–Successive agreements–whether the Appellate Division correctly held that, as to claims that arose when the first agreement at issue was in force, the forum selection clause in the first agreement, which stated that disputes would be resolved in the courts of the United States of America, survived certain subsequent agreements that terminated prior agreements, contained merger clauses and clauses requiring arbitration of disputes–whether claims that otherwise would be subject to arbitration should be litigated in court because they are ‘inextricably bound’ to claims arising under the first agreement–whether court or arbitrators should decide issue of arbitrability; whether the Appellate Division correctly granted plaintiffs’ motion for discovery on the issues of personal jurisdiction and alter ego.”). See the transcript and the video.