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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: April 23, 2018

Written Acknowledgment of Debt by Agent of Party Can Extend Statute of Limitations

On April 17, 2018, the First Department issued a decision in Nelux Holdings Intl., N.V. v. Dweck, 2018 NY Slip Op. 02569, holding that a written acknowledgement of a debt by a party’s agent can extend the statute of limitation, explaining:

Defendant borrower established prima facie through the loan agreement and the notes that the loan was due to be paid by May 10, 2004, and that the six-year statute of limitations for a breach of contract claim expired on May 10, 2010. In opposition, plaintiff lender raised an issue of fact as to whether the statute of limitations was extended by a new or continuing contract pursuant to General Obligations Law § 17-101. Plaintiff submitted emails that it had received in 2009 from a law firm seeking to discuss repayment of defendant’s loan. This Court and other Departments of the Appellate Division have recognized that a written acknowledgment of a debt signed by the agent of the party to be charged may be sufficient to invoke the statute. An issue of fact arises from the conflicting evidence in the record as to whether the law firm was acting as defendant’s agent when it sent the emails to plaintiff.

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

NOTE: Schlam Stone & Dolan LLP was counsel for the prevailing party in this appeal.

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.

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Posted: April 22, 2018

Fraudulent Inducement Claim Dismissed on Summary Judgment for Lack of Reasonable Reliance

On April 9, 2018, Justice Kornreich of the New York County Commercial Division issued a decision in INTL FCStone Markets, LLC v. Corrib Oil Co. Ltd., 2018 NY Slip Op. 30646(U), dismissing a fraudulent inducement claim on summary judgment for lack of reasonable reliance, explaining:

Corrib also cannot maintain a cause of action for fraud or fraudulent inducement because it cannot show justifiable reliance. Corrib’ s fraud claims are based on alleged representations about the terms of the trades and FCStone’s supposed promise not to serve as a counterparty. However, the terms of the trades are set forth in the Confirmations, which clearly disclose that FCStone was the counterparty. This was not an aberration. FCStone appears to have been a counterparty to virtually all of the transactions, a fact clearly disclosed in the Confirmations. Corrib never objected. Where, as here, a simple review of contracts would have revealed the falsity of the alleged misrepresentation, a fraud claim cannot stand because a party claiming fraudulent inducement cannot be said to have justifiably relied on a representation when that very representation is negated by the terms of a contract. As discussed, the Schedule provides Corrib two days to review and challenge terms of a Confirmation. Having failed to do so, Corrib cannot now claim it was justified in not noticing that terms in the Confirmations conflicted with oral assurances allegedly provided by FCStone. And to the extent Corrib alleges that it was fraudulent for FCStone not to explicitly inform Corrib that it was the counterparty, such a claim for fraudulent omission cannot be maintained where, as here, the parties are not in a fiduciary relationship.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule that a sophsticated businessperson’s reliance on a false statement must be reasonable. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.

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Posted: April 21, 2018

Conversion Claim Cannot be Based on Deleting E-Mail Absent Evidence That No Copies Remained

On April 11, 2018, Justice Kornreich of the New York County Commercial Division issued a decision in Young Adult Inst., Inc. v. Corporate Source, Inc., 2018 NY Slip Op. 30640(U), holding that deleting e-mails could not be the basis for a conversion claim absent evidence that no copies of the e-mails remained, explaining:

YAI’s cause of action for conversion also is dismissed. A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession. Two key elements of conversion are (1) plaintiffs possessory right or interest in the property and (2) defendant’s dominion over the property or interference with it, in derogation of plaintiffs rights. YAI alleges that Quinn converted her YAI work emails and other electronic files by deleting them before she left the company. Electronic files can be converted. Nonetheless, just because one deletes electronic files does not mean they cease to exist. Indeed, it appears from the allegations in the AC that YAI managed to get access to some of these files. To state a claim for conversion, whether for tangible or intangible property, the plaintiff must plead it was deprived of access to its property. The deletion of emails by a departing employee is not, in the court’s experience, an uncommon allegation in commercial cases. To state a claim against the former employee for conversion, this court believes the employer should have to unequivocally allege in the complaint that, as a result of the deletion, it actually lost access to the files. If such access was not lost, the employer has suffered no deprivation and, therefore, cannot maintain a claim for conversion. Since the AC does not clearly allege that YAI lost access to Quinn’s emails and files, its conversion claim is dismissed without prejudice and with leave to replead.

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

Commercial litigation often involves conversion claims. As this decision shows, conversion can involve not just physical objects, but also electronic data. However, as this decision also shows, not just any interference with electronic data can constitute a conversion. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding one person depriving another of her property, whether that property is tangible or intangible, or even involves money or electronic files.

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Posted: April 20, 2018

Law Office Error Excused; Motion to Compel Plaintiff to Accept Answer Granted

On April 12, 2018, the First Department issued a decision in Naber Electric v. Triton Structural Concrete, Inc., 2018 NY Slip Op. 02562, upholding the grant of a motion to compel a plaintiff to accept a late-filed answer, explaining:

The motion court providently exercised its discretion in denying plaintiffs’ motion and granting defendants’ cross motion to compel plaintiffs to accept their answer, which was served two weeks late. Defendants’ attorney explained that the brief delay in answering resulted from his mistake in calendaring the date the response was due, after he mistakenly requested an extension of time to April 7, rather than May 7. Since defendants’ time to answer, without any extension, was April 17th, his mistake should have been apparent to plaintiffs’ attorney, who agreed to the requested extension. Defense counsel’s inadvertent mistake in calendaring his deadline provided a reasonable excuse for the minimal delay in answering.

Although the affidavit of merit provided by defendants’ executive lacked any detail concerning their potential defenses to plaintiffs’ claims for payment for work performed on three subcontracts, an affidavit of merit is “not essential to the relief sought” by defendants before entry of a default order or judgment. Accordingly, given the shortness of the delay and absence of evidence of willfulness or prejudice to plaintiffs, as well as the State’s policy of resolving disputes on the merits, defendants were properly granted an opportunity to defend plaintiffs’ claims on the merits.

(Internal citations omitted).

If you fail to appear in an action after having been properly served, you run the risk that the court will enter judgment against you (a default judgment). This decision shows that sometimes a court will excuse a failure timely to answer, particularly where there is a reasonable explanation for the failure. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have not timely responded to a summons or someone has moved for default judgment against you.

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Posted: April 19, 2018

Fraudulent Inducement Claim Against Lawyer Upheld; Client Was Reasonable in Relying on Counsel Rather Than Reading Agreement Closely

On April 10, 2018, the First Department issued a decision in Suttongate Holdings Ltd. v. Laconm Management N.V., 2018 NY Slip Op. 02424, upholding a fraudulent inducement claim against a lawyer, explaining:

The allegations of the complaint state a cause of action for fraudulent inducement. The well settled principle relied on by David that a party claiming fraudulent inducement cannot be said to have justifiably relied on a representation negated by the plain terms of the contract they signed does not apply here, since his alleged assurances and fraud were the very cause of defendants’ failure to review the documents carefully. As it was reasonable for defendants to rely on the advice of counsel, we also reject David’s arguments premised on the plain language of the agreements that defendants admit they did not read carefully.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule that a sophsticated businessperson’s reliance on a false statement must be reasonable. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.

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Posted: April 18, 2018

Fraudulent Conveyance Claim Dismissed For Failure to Plead with Particularity

On April 10, 2018, the First Department issued a decision in Carlyle, LLC v. Quik Park 1633 Garage LLC, 2018 NY Slip Op. 02436, dismissing a fraudulent conveyance claim for failure to plead the claim with particularity, explaining:

The actual fraudulent conveyance claims, under the common law and Debtor and Creditor Law (DCL) § 276, should be dismissed because plaintiff failed to allege fraudulent intent with the particularity required by CPLR 3016(b). The key allegations were made upon information and belief, without identifying the source of the information. Moreover, the timing of the allegedly fraudulent transfers – beginning two years before the judgment debtors incurred the subject debts – undermines the claim of fraudulent intent.

(Internal quotations and citations omitted).

We have substantial experience in helping judgment creditors collect on judgments and search for and attach assets worldwide. A big part of that effort is using the legal tools–such as claims for fraudulent conveyance discussed in this opinion–for recovering property that has been transferred to a third party to avoid its being seized to satisfy a judgment. As this decision shows, there are special pleading requirements for fraud-related claims. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client need help collecting on a judgment.

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Posted: April 17, 2018

Continuous Representation Doctrine Applies Only to Representations Specifically Related to the Malpractice Claim

On April 12, 2018, the First Department issued a decision in Davis v. Cohen & Gresser, LLP, 2018 NY Slip Op. 02542, affirming the dismissal of a legal malpractice claim as time-barred because the continuous representation doctrine does not apply to representations unrelated to the malpractice claim, explaining:

Davis cannot rely on the continuous representation doctrine to toll the statute of limitations as the doctrine tolls the Statute of Limitations only where the continuing representation pertains specifically to the matter in which the attorney committed the alleged malpractice.

The documentary evidence establishes that following decedent’s death, defendant did not represent the estate in the Devine action. The retainer agreements executed with defendant after the decedent’s death were explicitly limited to representing the estate in other litigation and not the Devine litigation. In addition, the evidence demonstrated that following decedent’s passing defendant never entered an appearance on the estate’s behalf while other law firms were substituted as counsel in the Devine action, made a motion to substitute the estate as plaintiff, and appeared on behalf of the estate, and ultimately settled with the Devine parties in May 2014.

Further, the continuous representation doctrine does not apply where there is only a vague ongoing representation. For the doctrine to apply, the representation must be specifically related to the subject matter underlying the malpractice claim, and there must be a mutual understanding of need for further services in connection with that same subject matter.

Contrary to purported ongoing representation by decedent’s family and advisors, the record evidence demonstrates the lack of a mutual understanding that defendant would continue to represent the estate in the Devine action, even if there was a continuation of a general professional relationship.

Defendant never appeared in the Devine action after decedent’s death, and when the estate was later substituted as plaintiff, this matter was handled by different counsel. In fact, defendant filed a “Suggestion of Death Upon the Record” advising the court in the Devine action of decedent’s death, in which defendant identified itself as “Former Attorneys for C. Robert Allen, III.” As such, there was no concrete task defendant was likely to perform, and while there was certainly the possibility that the need for future legal work would be required, decedent’s representatives could not have acutely anticipated the need for further counsel from defendant that would trigger the continuous representation toll.

The fact that defendant represented the estate in related matters is not sufficient to establish continuous representation, as these matters were sufficiently distinct as to not be part of a continuing, interconnected representation. The continuous representation doctrine is limited to ongoing representation pertaining specifically to the matter in which the attorney committed the alleged malpractice” and is not applicable to a client’s continuing general relationship with a lawyer.

(Internal quotations and citations omitted).

We both bring and defend professional malpractice claims and other claims relating to the duties of professionals such as lawyers, accountants and architects to their clients. This decision is about a rule–the continuous representation doctrine–that sometimes can extend the statute of limitations to bring a legal malpractice claim. Contact us if you have questions regarding whether a legal malpractice claim is timely.

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Posted: April 16, 2018

Sexual Harassment of Employees is Not a Breach of an Executive’s Fiduciary Duties to His Employer

On April 2, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Pozner v. Fox Broadcasting Co., 2018 NY Slip Op. 30581(U), holding that an executive did not breach his fiduciary duty to his employer by sexually harassing employees, explaining:

Fox’s breach of fiduciary duty counterclaim, however, is not tenable. Pozner had a contractual employment relationship with Fox. As a Fox executive and employee, he owed a duty of loyalty to Fox, which bound him to exercise the utmost good faith and loyalty in the performance of his duties. Further, he was prohibited from acting in any manner that was inconsistent with his agency.

This duty of loyalty, however, has only been extended to cases where the employee acts directly against the employer’s interests – as in embezzlement, improperly competing with the current employer, or usurping business opportunities. There are no such allegations against Pozner in the breach of fiduciary counterclaim.

Fox has failed to present, and I haven’t found any New York case, in which sexual harassment by an executive, without more, forms the basis for a breach of the duty of loyalty claim, resulting in the employer’s recovery of the employee’s salary for the entire term of such conduct. Rather, Fox relies only on cases in other non-controlling jurisdictions, that are clearly distinguishable on their facts.

(Internal quotations and citations omitted).

Fiduciaries have special duties, but the question of whether a defendant is a fiduciary, and thus can be liable for a breach of fiduciary duty, is sometimes a complicated one. And, as this decision shows, not every kind of misconduct is a breach of fiduciary duty (note that in a different part of this decision, the court held that the alleged sexual harassment was a breach of the executive’s employment contract). We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of trustees and professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding such claims or appeals of such claims.

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Posted: April 15, 2018

Counterclaims for Mutual Mistake and Unilateral Mistake Survive Summary Judgment

On April 3, 2018, Justice Scarpulla of the New York County Commercial Division issued a decision in Securitized Asset Funding 2011-2, Ltd. v. Canadian Imperial Bank of Commerce, 2018 NY Slip Op. 30582(U), holding that counterclaims for mutual mistake and unilateral mistake survived summary judgment because of questions of fact, explaining:

Cerberus argues that CIBC’s counterclaim for mutual mistake must be dismissed because it fails to allege with particularity, pursuant to CPLR 3016(b), exactly what was agreed upon between the parties that was not reflected in the A Note and B Certificate. Cerberus also argues that mutual mistake is not supported by the facts when the counterclaim depends on a mistake unknown to either party, and the agreements at issue were negotiated by sophisticated parties represented by counsel.

Upon review, I find that CIBC sufficiently alleges that the terms of the A Note should have specifically reflected that payments for Synthetic Libor and Synthetic Interest would be reduced by various means, including principal payments. The ambiguity and issues of fact discussed inji-a relates to CIBC’s alleged mistake. I sustain CIBC’s counterclaim for mutual mistake because the parties’ meeting of the minds is not clear. Moreover, CIBC’s course of performance also raises an issue of fact regarding how the parties intended to calculate payments, which may show an intent contrary to Cerberus’s litigation position now.

In the case of unilateral mistake, it must be alleged that one party to the agreement fraudulently misled the other, and that the subsequent writing does not express the intended agreement.
Here, CIBC alleges that the Cash and Synthetic Assets in the A Note were identical to the those in the B Certificate, and that CIBC represented that the B Certificate would have the same provisions regarding payment calculations as the A Note. CIBC further alleges that if Cerberus’s contractual interpretation is correct, i.e., that the basis for calculating payments of Synthetic Libo~ and Synthetic Interest froze in June 2010, then it misrepresented the substance of how the B Certificate would operate as a limited recourse note, and wrongfully induced CiBC to rely on Cerberus’s course of performance.

Cerberus argues that as a sophisticated party represented by counsel, CIBC is unable to establish justifiable reliance when it had the access to same information and terms of the B Certificate. However, Cerberus’s contentions are premature when resolution of how to calculate payments cannot be resolved as a matter of law. Evidence of the parties’ intentions is necessary to resolve that issue, and summary judgment dismissal should not be granted if there is any doubt as to the existence of factual issues.

Moreover, Cerberus submits a May 11, 2011 letter, in which Cerberus states that the B Certificate will have the same terms and provisions as the A Note relating to the identical assets underlying the A Note. At the time Cerberus made this representation, it had already accepted nearly a year of reduced payments for Alfais without asserting that payment amounts froze in June 2010. Even assuming CIBC was not justified in relying on the ambiguous agreement, I find that Cerberus’s representations, coupled with its course of performance, raise an issue of fact as to fraud vis-a-vis unilateral mistake. Accordingly, I also deny Cerberus’s motion for summary judgment dismissing CIBC’s counterclaim for unilateral mistake.

(Internal quotations and citations omitted).

The doctrines of mutual and unilateral mistake are a way to have a court throw a contract out because there was no meeting of the minds by the parties. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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Posted: April 14, 2018

Theft of Trade Secrets Claim Dismissed for Failure to Allege Wrongful Means

On April 3, 2018, the First Department issued a decision in BGC Partners, Inc. v. Avison Young (Canada) Inc., 2018 NY Slip Op. 02290, holding that a theft of trade secrets claim should have been dismissed for failure to allege the use of wrongful means in obtaining the trade secrets, explaining:

The cause of action for theft of trade secrets should be dismissed since in the circumstances the means by which defendants allegedly lured the brokers away from nonparty Grubb & Ellis, i.e., offering them competitive compensation, are not wrongful or improper.

(Internal citations omitted).

The law protects intellectual property in a number of ways, but that protection is not unlimited; indeed, as this decision shows. We frequently litigate intellectual property claims, including trademark, copyright and trade secret claims. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about whether you have, or face, a claim for theft or infringement of intellectual property.

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