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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 4, 2017

Collateral Holder’s Disposition of Collateral Was Reasonable

On April 27, 2017, the First Department issued a decision in Bank Leumi USA v. GM Diamonds, Inc., 2017 NY Slip Op. 03266, affirming a holding that a collateral holder’s disposition of collateral was reasonable, explaining:

In opposition, defendants failed to raise a triable issue of fact, relying on defendant Gilad’s disagreement with plaintiff’s expert concerning the valuation of the inventory and his assertion that plaintiff had unreasonably rejected a better offer made to GM Diamonds for only a portion of the inventory before plaintiff took possession of the collateral. However, even if such an offer were made, the fact that a greater amount could have been obtained by a collection, enforcement, disposition, or acceptance at a different time or in a different method from that selected by the secured party is not of itself sufficient to preclude the secured party from establishing that the collection, enforcement, disposition, or acceptance was made in a commercially reasonable manner.

While defendants argue that the collateral had a book value over twice as high as the accepted offer, it is well settled that a significant discrepancy between the original purchase price and the sales price does not, by itself, create a triable issue of fact.

(Internal quotations and citations omitted).

Posted: May 3, 2017

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on two proposed changes to the Commercial Division rules:

First, the OCA has proposed amendments of Commercial Division Practice Rules 10 and 11:

to require counsel for each party to certify to the court that they have discussed with their clients the availability of Alternative Dispute Resolution (“ADR”) options – through the Commercial Division ADR programs or otherwise – by the date of the preliminary conference, and indicate, on a form to be submitted at the preliminary conference ( and at each subsequent compliance or status conference), whether their clients presently wish to pursue mediation at some point during the litigation. If the parties are willing to mediate, counsel would then be required to jointly propose in the preliminary ( or compliance or status) conference order a date by which a mediator shall be identified for assistance with resolution of the action. T

Second, the OCA has proposed a model Commercial Division Compliance Conference Stipulation and Order Form.

E-mail comments on these proposals to rulecomments@nycourts.gov by June 5, 2017, for the proposed rule regarding ADR and May 30, 2017, for the proposed model Compliance Conference order.

Posted: May 3, 2017

Court Enforces Settlement Agreement Where Defendants Accepted the Benefits Despite Parties’ Non-Compliance With a Contract Provision

On April 6, 2017, Justice Kornreich of the New York County Commercial Division issued a decision in GEM Holdco, LLC v. RDX Technologies Corp., 2017 NY Slip Op. 30668(U), holding that the defendants ratified their settlement agreement with plaintiffs by accepting the benefits of the agreement, notwithstanding non-compliance with one of the agreement’s terms.

In GEM Holdco, the plaintiff sued the defendants for breaching a settlement agreement by failing to make required payments. The defendants argued that the agreement could not be enforced because the parties had not satisfied a provision which stated that the agreement would be “null and void” if the Toronto Venture Exchange had not given a formal approval within three business days of its execution. The court rejected this argument and found that the defendants had ratified the settlement agreement by accepting the benefits, explaining:

[U]nder these circumstances, no reasonable finder of fact could conclude that the RDX Parties did not ratify the Settlement Agreement despite non-compliance with section 1(b)(iii). For more than two years, the RDX Parties accepted the benefits of GEM ceasing its litigation of the claims it asserted in the Prior Action. After accepting the benefits of the Settlement Agreement for that long, the RDX Parties have no right to now repudiate it. As a matter of law, the RDX Parties “implicitly ratified” the Settlement Agreement by accepting it benefits for more than two years.

(Citations omitted).

Note: Schlam Stone & Dolan LLP represents the plaintiffs in this action.

Posted: May 2, 2017

Arbitration Provisions in Agreements Enforced Despite Claim That Agreements Were Invalid

On April 14, 2017, Justice Singh of the New York County Commercial Division issued a decision in Southport Lane Management, LLC v. Adler, 2017 NY Slip Op. 30715(U), enforcing arbitration clauses notwithstanding the allegations that the agreements containing the clauses were invalid, explaining:

Even if the employment agreements or separation agreements are not valid, the arbitration provisions within therm are valid. To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme.

. . . The language in the parties’ arbitration agreements is unambiguous and easily interpreted from the language, within the defendants’ employment contracts. There is no evidence that the arbitration provisions were permeated by fraud. In interpreting arbitration agreements, courts will give effect to the parties’ intent and reasonable expectations based on the language used in the agreement. Not only did the defendants’ employment agreements include arbitration provisions, but the separation agreements also included an arbitration provision signifying Southport’s intention to arbitrate employment matters in JAMS. Moreover, pursuant to CPLR 7503(b), in order to stay arbitration, a significant issue must arise that a valid agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502. It should be emphasized that in the absence of a compelling public policy, arbitration is a preferred means for the settlement of disputes.

The parties executed valid employment agreements and separation agreements requiring that all employment issues that arise between the parties are arbitrated by JAMS. Therefore, pursuant to the arbitration provisions in the agreements, all of plaintiffs’ claims and defendants’ counterclaims are to be arbitrated.

(Internal quotations and citations omitted).

Posted: May 1, 2017

Settlement Agreement’s Release and Integration Clause Barred Fraudulent Inducement Claims

On April 18, 2017, Justice Singh of the New York County Commercial Division issued a decision in Glodek v. Kadmon Holdings, LLC, 2017 NY Slip Op. 30749(U), holding that a settlement agreement’s release and integration clause barred a fraudulent inducement claim, explaining:

Defendants’ motion to dismiss plaintiffs causes of action for fraudulent inducement and breach of the duty of good faith and fair dealing on the grounds that the general release bars the present action is granted. Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release. If the language of a release is clear and unambiguous, the signing of a release is a jural act binding on the parties. A release is governed by principles of contract law and one that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms.

. . .

Plaintiff has not adequately alleged that the release at issue is ambiguous on its face. Here, the release states

Any claims … whatsoever … of any type or kind, whether known or unknown … which [Glodek] ever had, now have or hereafter shall have against [Defendants] … for, upon or by reason of any … thing whatsoever and without limitation, from the beginning of time to the date of this Settlement Agreement.

Accepting the allegations of the complaint as true and providing plaintiff the benefit of every possible favorable inference, as this court must on a motion to dismiss, plaintiffs claims are barred by the release. Plaintiff unequivocally accepted and assumed the risk of some possible difference in fact from the facts now believed by them to be true. Additionally, Glodek represented that he is not relying on any representations not expressly set forth in this Settlement Agreement and received no representations or warranties from the Kadmon Parties, with respect to the Settlement Securities, including the value of the Settlement Securities. Finally, Glodek warranted that no Party to the Settlement Agreement has made any promise, representation or warranty, express or implied, not contained in the Settlement Agreement to induce any Party to execute this Settlement Agreement and that he was not relying on any promise; representation or warranty not contained in this Settlement Agreement.

In other words, the release encompassed any and all negotiations up to and including the date of the Settlement Agreement. This language encompassed statements made during negotiations of the Settlement Agreement. A release may encompass unknown claims, including unknown fraud claims, if the parties so intend and the agreement is fairly and knowingly made.

(Internal quotations and citations omitted).

Posted: April 30, 2017

Breach of Contract Claim Dismissed: Counteroffer Extinguished Offer

On April 17, 2017, Justice Ramos of the New York County Commercial Division issued a decision in Keitel v. E*Trade Financial Corp., 2017 NY Slip Op. 50531(U), holding that a counter-offer by the plaintiff extinguished the defendant’s offer.

In Keitel, the plaintiff alleged that a term sheet sent to his agent constituted a binding agreement and that in any event, the term sheet constituted an offer, which the plaintiff accepted. In deciding the defendant’s motion to dismiss, the court held that the term sheet was not a binding agreement and, as to the offer and acceptance argument, it dismissed the plaintiff’s claim, explaining:

E*Trade alleges that even if the Term Sheet constituted an offer, Ms. Sellars failed to clearly and unequivocally accept its terms. After receiving the Term Sheet, Ms. Sellars not only requested a long form contract, but also asked for further information on the days and location of shooting, rehearsal time, and the director. E*Trade contends that a request for additional clarification of material terms cannot be an unequivocal acceptance of an offer.

. . . Even if the Court were to find that the Term Sheet constituted an offer, Mr. Keitel has failed to establish an unqualified acceptance of such offer, extinguishing the initial provisions of the Term Sheet. Ms. Sellar’s recognition of Mr. Keitel’s agreement to do the three E*Trade commercials is insufficient to constitute an acceptance. In that same email, Ms. Sellars not only asked for more information regarding material terms, but also did not acknowledge and therefore could not accept the terms regarding the production of two sixty second radio commercials.

In addition, Ms. Sellar’s statement that she intended to provide a redline memorializing additional terms that were very important to Mr. Keitel does not demonstrate acceptance of the Term Sheet language. These additional requests and conditions are equivalent to a rejection or a counteroffer.

(Internal quotations and citations omitted).

Posted: April 29, 2017

Fraudulent Inducement Claim Dismissed For Failure to Allege Due Diligence

On April 7, 2017, Justice Bransten of the New York County Commercial Division issued a decision in Drummond Decatur & State Properties, LLC v. 10500 Drummond Road Partners LP, 2017 NY Slip Op. 30727(U), dismissing a fraudulent inducement claim for failure adequately to allege due diligence, explaining:

A representation of present facts is collateral to the contract and therefore involves a separate breach of duty. Accordingly, Plaintiffs fraudulent inducement claim is not duplicative of the breach of contract claim. However, Plaintiff fails to allege its reliance on Defendants’ alleged misrepresentation was reasonable, as is required to allege fraud under New York law. Plaintiff merely provides conclusory allegations that it reasonably relied on Defendants’ representations without alleging facts or evidence indicating that its reliance was reasonable. Plaintiff does not allege it conducted due diligence inspections of the properties prior to the Closing. Moreover, as a condition precedent to Closing under the Agreement, Defendants were required to hire a licensed roof company to inspect and repair the roof of each property, and provide a five year guarantee as to the continued use of the roofs. Plaintiff concedes Defendants never provided the roof guarantee at Closing, yet; Plaintiff nevertheless purchased the Properties without it. Plaintiff does not allege, nor does the Court find, Plaintiffs reliance on Defendants’ representation was reasonable. Therefore, Defendants’ motion to dismiss the fraudulent inducement claim is granted.

(Internal quotations and citations omitted).

Posted: April 28, 2017

Continuous Representation Doctrine Inapplicable if Limitation Period Set By Contract, Not Statute

On April 20, 2017, the First Department issued a decision in Aaron v. Deloitte Tax LLP, 2017 NY Slip Op. 03051, holding that the continuous representation tolling doctrine did not apply to an accounting malpractice claim where the limitations period applicable to the claim was set by contract, not statute, explaining:

The engagement letter, which stated that it covered a period of seven months, provided that any action brought relating to the engagement must be commenced within one year of the accrual of the cause of action. The accrual of plaintiffs’ accounting malpractice claim was on January 21, 2009, the date decedent signed the last document that was part of the estate tax plan formulated by defendant. This action was not commenced until September 2015, and is untimely.

Plaintiffs may not avail themselves of the continuous representation tolling doctrine because the limitations period was contractual, not statutory, and was reasonable. The engagement letter indicated that decedent, a sophisticated and experienced businessman, and defendant, did not necessarily expect the representation to continue after the plan was in place, since the engagement expressly ended approximately seven months after the agreement was signed.

(Internal quotations and citations omitted).