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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 23, 2019

Non-Client Adequately Alleged Fiduciary Duty Claims Against Law Firm

On June 11, 2019, the First Department issued a decision in Devlin v. Greenberg Traurig, LLP, 2019 NY Slip Op. 04653, holding that a non-client had adequately alleged breach of fiduciary claims against a law firm, explaining:

The court dismissed the fiduciary duty claim on the ground that there was no fiduciary relationship between the parties. However, plaintiff alleges that he — as well as Fiore Films LLC — was defendant’s client. He does not base his claim of an attorney-client relationship solely on the fact that he paid the bills that defendant sent to Fiore Films and was a part owner of that entity. The amended complaint alleges that defendant knew that plaintiff was dependent and was relying on it to provide honest and diligent advice with respect to escrow funds. In addition, the affirmation by plaintiff’s lawyer Gerard Keogh, which plaintiff submitted in opposition to defendant’s motion, says, As early as 2011, Steven Beer the partner at defendant responsible for the engagement knew that he had to advise and counsel Plaintiff individually.

Defendant suggests that it could not have represented plaintiff because he was already represented by Keogh. However, Keogh said, Since I did not have experience in the Entertainment Sector, I advised plaintiff to secure the representation of an experienced Entertainment lawyer. It is certainly possible for a client to have more than one lawyer.

(Internal quotations and citations omitted).

We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of 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: June 22, 2019

Changing a Draft Contract Proffered by Counterparty Extinguishes Offered Contract and Represents a Counteroffer

On June 13, 2019, the First Department issued a decision in Brown v. Cerberus Capital Mgt., L.P., 2019 NY Slip Op. 04772, holding that changing a draft contract proffered by a counterparty extinguishes the offered contract and only represents a counteroffer, explaining:

Contrary to defendants’ contention, Brown did not release her claims. The purported release appears in a Repurchase Agreement that defendants Covis Pharmaceuticals, Inc. (CPI), Covis Management Investors US LLC (Management Investors US), and Covis US Holdings, LLC (Covis US) sent Brown. These defendants had not yet signed it when they sent it to her. Brown signed it but made a handwritten change. Hence, the document that she returned was a counteroffer and a rejection of the offer made by these defendants. None of the defendants signed the Repurchase Agreement as modified by Brown, so it was not a binding contract.

(Internal citations omitted).

Sometimes in commercial litigation, the parties cannot even decide whether a contract was formed. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the formation of a contract under New York law.

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Posted: June 21, 2019

GBL 13 Claim for Malicious Service of Process on the Sabbath Dismissed for Lack of Allegations of Malice

On May 28, 2019 Justice Knipel of the Kings County Commercial Division issued a decision in Hargrove v. Hargrove-Boynton, 2019 NY Slip Op. 31632(U), dismissing a GBL 13 claim for malicious service on the sabbath for lack of allegations of malice, explaining:

Contrary to defendant’s contention, she is not entitled to a hearing on whether service of process violated General Business Law (GBL) § 13. That statute provides, in relevant part, that:

Whoever maliciously procures any process in a civil action to be served on Saturday, upon any person who keeps Saturday as holy lime, and does not labor on that day, is guilty of a misdemeanor. Service of process in violation of GBL 13 is void, and personal jurisdiction is not obtained over the party so served. To establish a violation of GBL 13, malicious intent must be shown.

Here, defendant has not met her burden under GBL 13 by failing to submit any evidence to demonstrate. malicious intent by plaintiff or his counsel in serving her on a Saturday. Unlike Lilker, defendant has submitted no evidence that plaintiff or his counsel was aware that she observed a Saturday as holy time and did not labor on that day. Rather, defendant merely avers in her affidavit that:

Brenda Hargrove, my mother, is also a Hebrew Israelite and knows our tradition well. My attorney tells me that Brenda purportedly has a power of attorney from Mr. Hargrove and engineered the commencement of this action. Given that Ms. Hargrove knows of our religious tradition, it was inappropriate to serve us process … on a Sabbath.

This statement, without any evidence to demonstrate malicious intent by plaintiff or his counsel, is insufficient to establish a prima facie violation of GBL 13, necessitating a hearing.

(Internal quotations and citations omitted).

Who knew?

There also is GBL 11, which, in general, prohibits service on Sundays:

All service or execution of legal process, of any kind whatever, on the first day of the week is prohibited, except in criminal proceedings or where service or execution is specially authorized by statute. Service or execution of any process upon said day except as herein permitted is absolutely void for any and every purpose whatsoever.

The rules regarding how you start a lawsuit and bring the defendants into it can sometimes be esoteric. As shown here, there are rules regarding when a plaintiff can serve a defendant. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding the proper way to serve a defendant, bringing them into a lawsuit.

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Posted: June 20, 2019

Group Pleading Renders Fraud Claim Insufficient

On June 7, 2019, Justice Cohen of the New York County Commercial Division issued a decision in Arent Fox LLP v. JDN AA, LLC, 2019 NY Slip Op. 31593(U), holding that group pleading rendered a fraud claim insufficient, explaining:

The newly added causes of action reference alleged conduct by “Defendant” or “Defendants,” without distinguishing between or among the Original and Proposed Additional Defendants. It does not indicate which “Defendant” was a transferee in any particular transaction in which “Defendants” are transferors. Such group pleading fails to give each defendant fair notice of what it is alleged to have done, which is particularly important when it comes to allegations of fraudulent behavior. The affidavit submitted in support of the motion does not remedy these deficiencies.

Pludeman v. N. Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008), is distinguishable. In that case, the nature of the fraud gave rise to a reasonable inference that the officers, as individuals were involved in the fraud. Accordingly, the Court of Appeals held that it was not necessary to state the details of the individual defendants’ personal participation in, or actual knowledge of, the alleged concealment. Similarly, in 47-53 Chrystie Holdings LLC v. Thuan Tam Realty Corp., 167 A.D.3d 405 (1st Dep’t 2018), the court found that it was reasonable to infer that each of the defendants were involved with the alleged fraud and that the specific act was common among the individuals. Accordingly, the reference in the complaint to “individual defendants” clearly referred to the eight shareholders of the defendant corporation. By contrast, the proposed amended complaint in this case does not address or establish a connection between the individuals amongst the Proposed Additional Defendants and the Defendant companies. The proposed amended complaint does not allege which corporate assets allegedly were transferred to or from which Defendant. The group pleading concerns extend beyond the new fraud claims. Because the defendants are grouped together, the complaint does not clearly articulate whether the five previous causes of action apply broadly to the Proposed Additional Defendants. The claims are asserted against “Defendants.” Thus, it is unclear whether and to what extent the Proposed Additional Defendants are incorporated into the existing claims for relief and the basis upon which such claims might properly be made against them.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.

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Posted: June 19, 2019

Court Denies Default Judgment for Lack of Evidence Supporting Plaintiff’s Claim

On June 6, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Stone & Broad Inc. v. Nextel of N.Y., Inc., 2019 NY Slip Op. 31600(U), denying a motion for default judgment for lack of evidence supporting the plaintiff’s claims, explaining:

In this motion, plaintiff seeks a default judgment in that entire amount against defendants Benjamin-Park, Inc., Guliano-Park 88 Broad Street, Inc., Robert Park and Kui Sun Park (“the Defaulting Defendants”). Plaintiff has adequately established service of the Summons and Complaint on these parties and the failure of any of those defendants to answer. However, plaintiff has failed to establish that it served the moving papers or that it is entitled to a judgment for liability or damages against the Defaulting Defendants.

The procedure for obtaining a default judgment is governed by CPLR 3215. Pursuant to CPLR 3215(f), the application for a judgment by default must be accompanied proof of the facts constituting the claim, the default and the amount due by affidavit made by the party. However, plaintiff has failed to provide any affidavit from an individual with personal knowledge, nor even a Verified Complaint. The sole support is the Affirmation from counsel, which merely documents the service of the Summons and Complaint on the Defaulting Defendants and their failure to answer. The papers do not even recite the background facts set forth at the beginning of this opinion; the Court relied on its March 1, 2019 decision granting a motion to dismiss by other defendants for that information.

Based on the lack of proof, the Court is compelled to deny the motion without prejudice. The Complaint asserts four causes of action, some of which apply to all defendants and some of which apply only to some of the defendants. Plaintiff has failed to indicate the claims on which it is relying for relief. Further, some of the causes of action are based in contract, but no contract has been provided. Nor has plaintiff provided the stipulation in the underlying action, any documentation of its right to attorney’s fees, or any proof of the amount claimed and its reasonableness. Further, many of the causes of action suffer from the same infirmities the Court discussed in its March 1 decision, but plaintiff has not explained how, if at all, the claims against the Defaulting Defendants escape the infirmities previously found by the Court.

(Internal quotations omitted).

If you are served with a complaint and fail timely to answer, the court can enter judgment against you: a default judgment. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether you have been properly served or if a default judgment has been entered against you.

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Posted: June 15, 2019

Remedy for Motion Court’s Refusal to Sign Order to Show Cause is Appeal, Not Re-submission to a Different Judge

On June 12, 2019, the Second Department issued a decision in Cypress Hills Mgt., Inc. v. Lempenski, 2019 NY Slip Op. 04677, holding that a litigant’s remedy if a judge refuses to sign an order to show cause is an appeal, not to resubmit the order to a different judge, explaining:

After defaulting in this action, the defendant attempted to move by order to show cause to vacate his default, asserting that the Supreme Court did not have jurisdiction over him because he had never been served. The Supreme Court, Kings County (Devin P. Cohen, J.), did not sign the order to show cause, but nevertheless purported to deny the application on the merits in an order dated July 5, 2017. The defendant then filed a second order to show cause, seeking the same relief as his prior application. The Supreme Court, Kings County (Lawrence Knipel, J.), signed the order to show cause and allowed the motion to proceed. However, the court subsequently denied the motion on the ground that it could not overrule the decision of another Supreme Court Justice. The defendant appeals.

By declining to sign the first order to show cause, Justice Cohen, in effect, refused to permit the defendant to bring on that motion seeking to vacate his default. Consequently, the order dated July 5, 2017, purporting to deny that motion on the merits, was improper because there was no pending motion. While the defendant could have sought to have this Court review Justice Cohen’s refusal to sign the order to show cause, he instead chose to simply re-apply for an order to show cause before a different Supreme Court Justice. One Supreme Court Justice should not sign an order to show cause refused by a colleague, assuming that the supporting papers are the same. Nevertheless, under the circumstances of this case, the order to show cause having been signed by a different Supreme Court Justice, the motion thus allowed should have been determined on its merits as the order dated July 5, 2017, did not represent the determination of a prior motion by a Justice of coordinate jurisdiction.

The procedural morass which occurred here is the result of two fundamental errors. First, a court which declines to sign an order to show cause, and thus refuses to allow that motion to be made, should not proceed to act as if the motion had in fact been made. If the court declines to sign an order to show cause, that is all it should do. Second, a remedy of a party whose proposed order to show cause has been refused is to seek relief from the Appellate Division pursuant to CPLR 5704(a). The remedy is not to simply re-submit the same application to the same or a different Supreme Court Justice.

(Internal citations omitted).

The New York court are (usually) very practical, hence the Second Department’s impatience with a litigant trying to get two bites at the apple rather than appealing an adverse decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding procedure in the New York state courts, particularly in the courts’ Commercial Divisions.

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Posted: June 14, 2019

Continuous Representation Doctrine Allegations Insufficient to Save Professional Malpractice Claims

On June 3, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Board of Mgrs. of 141 Fifth Ave. Condominium v. 141 Acquisition Assoc. LLC, 2019 NY Slip Op. 31555(U), holding that continuous representation doctrine allegations were insufficient to save a professional malpractice claim, explaining:

On a motion to dismiss a claim pursuant to CPLR 3211 (a) (5), the defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired. The three-year limitation of CPLR 214 (6) controls in a negligence action against a professional, such as an architect or engineer. The claim accrues when the professional relationship ends, usually upon issuance of the final payment certificate under the contract. If the action is commenced after the statute of limitations expires, a plaintiff may be able to avoid dismissal by asserting that the statute of limitations is tolled by the continuous representation doctrine, or at least showing that there is an issue of fact as to its application. The doctrine of continuous representation applies when a plaintiff shows that he or she relied upon an uninterrupted course of services related to the particular duty breached.

Here, both GACE and MG demonstrate, prima facie, that the professional negligence claims against them are barred by the three-year statute of limitations. GACE presents the affidavit of its office administrator, who provides a copy of an invoice, dated July 15, 2010, stating that it was the final invoice and that GACE completed all work on the Project in 2010. MG’s principal, also annexes a copy of an invoice, dated January 31, 2012, to his affidavit and states that it “was the final invoice … for services provided at the Project.” This evidence shows that they completed all work on the Project more than three years before J Construction commenced the instant third-party action in August 2017.

In opposition, J Construction fails to raise a question of fact as to whether the statute of limitations for professional negligence was tolled or is otherwise inapplicable. It simply argues that, in light of Board of Manager’s allegation that, as of 2014, work on the Building was ongoing, discovery may reveal that GACE and MG continued to provide services beyond the dates of their purported final invoices. J Construction’s unsupported surmise is insufficient to defeat the motions to dismiss, as there is no indication that GACE or MG were part of such work. If the statute is to be avoided, there should be some factual demonstration in the answering papers.

To the extent J Construction claims that discovery may reveal grounds to toll the statute of limitations under the application of the continuous treatment doctrine, it overlooks that an argument of continuous treatment based on evidence newly discovered is inconsistent with the requisite showing of reliance upon the continued services related to the particular duty breached.

Accordingly, the professional negligence claims against GACE and MG are dismissed as time-barred. Because I dismiss the claim as time-barred, I do not address GACE’ s and MG’ s independent ground for dismissal for failure to plead facts sufficient to state functional privity.

(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. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you have questions regarding such claims or appeals of such claims.

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Posted: June 13, 2019

Court Should Have Vacated Note of Issue Where Discovery Not Complete

On June 7, 2019, the Fourth Department issued a decision in Backer & Assoc., LLC v. PPB Eng’g & Sys. Design, Inc., 2019 NY Slip Op. 04541, holding that a court should have vacated a Note of Issue because discovery was not complete, explaining:

We agree with defendants that Supreme Court erred in denying that part of their motion seeking to vacate the note of issue and certificate of readiness. It is well established that a note of issue should be vacated when it is based upon a certificate of readiness that contains erroneous facts. Here, contrary to the statements on the certificate of readiness, discovery was incomplete when the note of issue and certificate of readiness were filed. Thus, a material fact in the certificate of readiness was incorrect, and the note of issue and certificate of readiness must be vacated. We therefore modify the order accordingly.

(Internal quotations and citations omitted).

New York procedural law (including the special rules applying to litigation in the Commercial Division of the New York courts) is not particularly complex. Still, there are special procedural requirements, such as the requirement to file a Note of Issue and certification that discovery is complete. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding New York practice, and particularly regarding the rules governing practice in the Commercial Division.

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Posted: June 13, 2019

Apparent Authority Created by Acts of the Principal, Not the Agent

On April 16, 2019, Justice Grays of the Queens County Commercial Division issued a decision in 45-34 Pearson St. LIC, LLC v. Ohana, 2019 NY Slip Op. 31565(U), holding that apparent authority is created by the principal, not the agent, explaining:

One who deals with an agent does so at his or her peril, and must make the necessary effort to discover the actual scope of authority. Essential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his own acts imbue himself with apparent authority. It is axiomatic that apparent authority must be based on the actions or statements of the principal Here, the Lender defendants failed to identify any act or word by which Pearson LIC conferred apparent authority upon Ohana. Moreover, the Lender defendants failed to make a prima facie showing that they had conducted due diligence on the transactions. Accordingly, the branches of the motion by the Lender defendants which are for summary judgment dismissing the tenth and eleventh causes of action against Pearson Street, are denied.

(Internal quotations and citations omitted).

A question that sometimes arises in commercial litigation is whether an individual had authority to act on behalf of a business entity, such as a corporation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a person has authority to bind a company on behalf of which he or she purports to speak.

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