Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 2, 2018

Whether Signature on Agreement Containing Arbitration Clause Was Forged is for Court to Determine

April 25, 2018, the Second Department issued a decision in Alam v. Uddin, 2018 NY Slip Op. 02763, holding that the question of whether the signature on an agreement containing an arbitration clause was forged was for the court, not an arbitrator, to determine, explaining:

Where a party has applied for an order compelling arbitration, the court shall direct the parties to arbitrate if, among other conditions, there is no substantial question whether a valid agreement was made. Here, the defendant alleged that his signature on the purported partnership agreement was a forgery and thus no valid agreement was made. Contrary to the defendant’s contention, the question of forgery is a threshold question for the court and not an arbitrator to determine. Therefore, the defendant failed to establish his entitlement to an order compelling arbitration and staying all proceedings in the action pending arbitration.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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Posted: May 1, 2018

First Department Reaffirms Doctrine of Personal Jurisdiction Based on Acts of Co-Conspirators

On April 26, 2018, the First Department issued a decision in Wimbledon Financing Master Fund, Ltd. v. Weston Capital Management LLC, 2018 NY Slip Op. 02903, reaffirming the doctrine of personal jurisdiction based on the acts of co-conspirators, explaining:

The Supreme Court properly concluded that defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York. Defendants were directors on Gerova’s board during most of the time when Gerova was involved in a fraudulent scheme. The amended complaint details the conspiracy to commit fraud using Gerova, the agreements between Gerova and Weston board members and insiders, among others, to loot Wimbledon, and Wimbledon’s resulting insolvency. Although defendants did not reside or do business in New York, other Gerova defendants were in New York or interacted regularly with New York, including one of the masterminds of the fraudulent scheme, John Galanis. Regarding their overt acts in furtherance of the conspiracy, defendants’ approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of “hush money” to ignore certain red flags at Gerova, and their failure to correct misrepresentations or disclose material information to the public sufficed at this stage. Although defendants did not mastermind the conspiracy, their receipt of hush money allows the reasonable inference that they exerted control to the extent that the fraud could not have been accomplished without their acquiescence to the proxy and other misconduct.

(Internal quotations and citations omitted).
This decision illustrates an issue that often arises in commercial litigation in New York. Whether the defendant is located on the other side of the world or across the Hudson in New Jersey, a New York court cannot assert jurisdiction over the defendant (that is, hear a case against it) unless there is a proper connection between the defendant and New York. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether there is jurisdiction over you, or over a party with which you are having a dispute, in New York.

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Posted: April 30, 2018

Arbitral Award Vacated Based on Failure to Disclose that Arbitrator Was Party’s Fact Witness and Was Under Indictment

On April 26, 2018, the First Department issued a decision in Policy Administration Solutions, Inc. v. QBE Holdings, Inc., 2018 NY Slip Op. 02878, affirming the dismissal of an arbitral award for failure to disclose that an arbitrator was a party’s fact witness and was under indictment, explaining:

Defendants’ failure to disclose to the arbitrator that one of their testifying fact witnesses who was known to be under criminal indictment had agreed to plead guilty to charges in the indictment days before he testified at the arbitration hearing warranted a finding that the arbitration award was procured by misconduct and that further proceedings before the arbitrator are necessary.

(Internal citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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Posted: April 29, 2018

Upcoming Arguments in the Court of Appeals in April/May 2018

Upcoming argument in the Court of Appeals in April/May 2018 that may be of interest to commercial litigators:

  1. Ontario v Samsung (No. 57) (to be argued Tuesday, April 24, 2018) (“Conflict of Laws — Law Governing Contract Action — in breach of contract action brought by nonresident alleging economic claim that accrued outside New York, whether a contract provision specifying that the agreement is to be “governed by, construed and enforced” in accordance with New York law renders inapplicable New York’s borrowing statute, CPLR 202.”)

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Posted: April 28, 2018

Filing Interpleader Action Rather Than Choosing Which Claimant Was Entitled to Funds Not a Breach of Contract

On April 16, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in SPV-LS LLC v. Citron, 2018 NY Slip Op. 30681(U), holding that it was not a breach of contract to file an interpleader action, explaining:

Plaintiffs’ argument that Transamerica conceded that it breached its contract with SPY by utilizing statutory interpleader rather than choosing which adverse claimant is entitled to the Policy proceeds is not supported by facts or law.

Moreover, Plaintiffs have failed to allege any breach of contract based on an independent claim of liability. While a stakeholder may be independently liable to an adverse claimant for a breach of a legal duty, any independent’ claims for relief must be based on wrongful conduct independent from the filing of an interpleader, or the retention of interpleaded assets pending direction from the court. Plaintiffs’ allegations that Transamerica should have paid SPV the Policy proceeds rather than instituting the interpleader is not an independent claim — it is a claim to the stake itself. Accordingly, Plaintiffs’ first cause of action for tortious interference with contract is dismissed in its entirety.

(Internal quotations and citations omitted).

In simple terms, an interpleader action is where the holder of assets makes an application to the court saying: “These assets do not belong to me. Please figure out whom they belong to.” As this decision shows, it is not a breach of any contractual or other duty to ask the court to determine the rightful owner of assets you are holding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute over assets you hold that belong to others.

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Posted: April 27, 2018

Choice of New York Law Provision Does Not Make Compliance With New York Statutory Law a Contractual Requirement

On April 26, 2018, the Court of Appeals issued a decision in Skanska USA Bldg. Inc. v. Atlantic Yards B2 Owner, LLC, 2018 NY Slip Op. 02828, holding that the inclusion of a choice of New York law provision in a contract does not make compliance with New York statutory law a contractual requirement, explaining:

Plaintiff nevertheless maintains that section 5 of the Lien Law should be “read into” the CM Agreement because the contract is governed by New York law. Specifically, plaintiff points to section 17.3 of the CM Agreement, which provides that the construction, validity and performance of the CM Agreement shall be exclusively governed by the laws of the State of New York, excluding any provisions or principles thereof which would require the application of the laws of a different jurisdiction. However, this is a typical choice-of-law provision that we do not read as imposing a contractual obligation here. The mere fact that an agreement, and disputes arising thereunder, are governed by the law of a particular jurisdiction does not transform all statutory requirements that may otherwise be imposed under that body of law into contractual obligations, and we decline to interpret the CM Agreement as impliedly stating something which plaintiff and B2 Owner have neglected to specifically include.

(Internal quotations and citations omitted).

This decision illustrates one the many rules for interpreting contracts. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a dispute over the interpretation of a contract.

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Posted: April 26, 2018

Parties Waived Contract’s Choice of Law Provision By Arguing New York Law Rather than Chosen Law

On April 13, 2018, Justice Masley of the New York County Commercial Division issued a decision in Duncan-Watt v. Rockefeller, 2018 NY Slip Op. 30678(U), holding that the parties to a lawsuit had waived the choice of law provision in their contract by failing to cite the chosen law in their arguments, explaining:

The parties also dispute whether, by relying on New York law for this motion, defendants waived their right to enforce the Australian choice-of-law provision contained in the License Agreement. Choice of law clauses are enforced absent a strong showing that the clause is a product of fraud or overreaching, or that enforcement would contravene strong public policy of the forum. The parties may, however, by conduct or consent, waive their choice of law provision by reliance on the law of another state.

For this motion only, both parties have waived the choice of law provision in the Licensing Agreement by relying solely on New York law in their memoranda of law. Defendants’ footnote, that they are not waiving the choice of law provision by citing New York law, does not require a contrary finding. The parties have failed to make any effort to explain the law of the New South Wales, as it applies to the claims arising from the Licensing Agreement, or cite any law from that jurisdiction. Thus, the court applies New York law to these claims in reviewing this motion to dismiss.

(Internal quotations and citations omitted).

The parties to commercial contracts often chose both the forum in which any dispute over the contract will heard and the law governing the interpretation of the contract. New York courts typically enforce such provisions. However, where, as here, the parties waive their rights under a choice of law clause, the court can decline to enforce it. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding which law governs on contract and in which forum a dispute over the contract may be heard.

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Posted: April 25, 2018

Whether Metes and Bounds Description, Street Address or Tax Lot Numbers Determines What Property is Encumbered by Mortgage is a Question of Fact

On April 18, 2018, the Second Department issued a decision in JPMorgan Chase Bank, N.A. v. Zhan Hua Cao, 2018 NY Slip Op. 02603, holding that where the property descriptions in a mortgage were inconsistent, which description was meant to be binding was a question of fact, not law, explaining:

Real Property Law § 240(3) provides that an instrument creating, transferring, assigning or surrendering an estate or interest in real property must be construed according to the intent of the parties, so far as such intent can be gathered from the whole instrument, and is consistent with the rules of law. Where the language used in a mortgage is ambiguous such that it is susceptible of more than one interpretation, the courts will look beyond the written instrument to the surrounding circumstances.

Contrary to the plaintiff’s contention, there is no rule that it is the metes and bounds description that determines what property is encumbered by any mortgage and not the street address or tax lot numbers. Rather, where, as here, there is a conflict between the metes and bounds description and the street address and/or tax lot numbers given in the mortgage, there is an ambiguity that requires consideration of parol evidence. Here, the WAMU mortgage was ambiguous on its face, because it referred to one lot, but contained a metes and bounds description for two lots. In support of its motion for summary judgment, the plaintiff failed to submit evidence resolving that ambiguity one way or the other. The affidavit of its expert was based on purported assumed facts that were neither assumed by E.R. nor supported by the evidence. Since the expert affidavit submitted by the plaintiff contained conclusory assertions unsupported by evidentiary facts, and the plaintiff failed to submit any other evidence establishing, prima facie, that the parties to the WAMU mortgage intended it to cover both lots, a triable issue of fact remained regarding that issue.

(Internal quotations and citations omitted).

We frequently litigate disputes over the purchase and sale of commercial property. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you are involved in a dispute regarding a commercial real estate transaction.

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Posted: April 24, 2018

Plaintiffs Waived Right to Arbitrate By Initiating Lawsuit

On April 17, 2018, the First Department issued a decision in Black Rhino Investments LLC v. Wilson, 2018 NY Slip Op. 02582, holding that the plaintiffs in a lawsuit had waived their right to arbitrate their dispute by bringing the lawsuit, explaining:

Plaintiffs commenced this action upon an alleged oral agreement entered into in October 2015 involving the ownership of plaintiff Black Rhino and the licensing of defendant’s intellectual property. Upon defendant’s motion to dismiss the complaint, plaintiffs claimed for the first time that the controversy had to be arbitrated, pursuant to a separate agreement entered into in April 2015 involving services to be performed for Black Rhino by plaintiff Levitt. We find that plaintiffs waived their right, if any, to arbitration.

(Internal citations omitted).

Commercial litigation involves more than courts. Disputes often are–by agreement–decided by private arbitrators. But as this decision shows, a party can lose the right to arbitrate if it litigates in court instead. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a dispute that is subject to an arbitration agreement.

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