On February 8, 2019, the Fourth Department issued a decision in Southwestern Invs. Group, LLC v. JH Portfolio Debt Equities, LLC, 2019 NY Slip Op. 01035, dismissing a fraud claim for failure to show out-of-pocket damages, explaining:

To allege a cause of action based on fraud, plaintiff must assert a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong or what is known as the out-of-pocket rule. Under this rule, the loss is computed by ascertaining the difference between the value of the bargain which plaintiff was induced by fraud to make and the amount or value of the consideration exacted as the price of the bargain.

Here, we conclude that, even as supplemented by the affidavit of plaintiff’s president, plaintiff’s pleading is fatally deficient because it did not assert compensable damages resulting from defendants’ alleged fraud. With respect to the purchase of the subject portfolios, plaintiff received an interest therein worth more than the amount of its alleged investment. Further, contrary to plaintiff’s contention, the allegation that it lost the enhanced collections on the portfolios that defendants purportedly told it that it could receive under the terms of the financing arrangement is a quintessential lost opportunity, which is not a recoverable out-of-pocket loss. Damages are to be calculated to compensate plaintiff for what was lost because of the fraud, not to compensate for what might have been gained. There can be no recovery of profits which would have been realized in the absence of fraud. Plaintiff’s remaining allegations do not assert compensable damages resulting from defendants’ alleged fraud.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule discussed here that a fraud claim can seek only money lost through the fraud (out-of-pocket damages), not the profits the plaintiff hoped to have earned in the absence of the fraud. 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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On January 30, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Dakota, Inc. v. Nicholson & Galloway, Inc., 2019 NY Slip Op. 30270(U), enforcing the Prompt Payment Act’s provisions making agreements to resolve disputes by litigation rather than arbitration unenforceable, explaining:

Here, the plain language of the PPA makes void and unenforceable the parties’ purported agreement to litigate disputes arising out of the Agreement to the extent the Agreement precludes the PPA’s expedited arbitration procedure. The PPA provides that a provision, covenant, clause or understanding in, collateral to or affecting a construction contract stating that expedited arbitration as expressly provided for in the manner established by section 756-b of this article is unavailable to one or both parties is void and unenforceable.

The Third Department’s decision in Matter of Capital Siding & Constr., LLC is particularly instructive. There, a construction contract dispute arose when a contractor withheld certain payments from a subcontractor. The subcontractor sought expedited arbitration pursuant to the PPA and the contractor commenced a CPLR § 7503 proceeding to stay the arbitration. Petitioner contractor argued that the agreement at issue expressly states that litigation, not arbitration, is the parties’ chosen method of dispute resolution.

The Third Department held that petitioner’s reading of the PPA ignores the existence of General Business Law § 757(3), which unambiguously voids and renders unenforceable any contractual provision that makes expedited arbitration unavailable to one or both parties. Likewise, here, the parties’ agreement to litigate, and not arbitrate, disputes is void and unenforceable to the extent it precludes N&G from properly invoking the PPA’s expedited arbitration procedure.

(Internal quotations and citations omitted).

Commercial litigation involves more than courts. Disputes often are–usually by agreement but sometimes by statute–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 or law.

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On January 28, 2019, Justice Cohen of the New York County Commercial Division issued a decision in Manhattan Mech. Contrs., Inc. v. Nissan N. Am., Inc., 2019 NY Slip Op. 30223(U), holding that a mechanic’s lien was unenforceable because it was not timely filed, explaining:

A mechanic’s lien foreclosure action cannot be maintained when the lien is invalid. To be timely, a notice of lien on a private commercial project such as the one at issue here must be filed within eight months of the completion of the contract, or the final performance of work or furnishing of materials under the contract. A lien that has not been filed within this time limit must be cancelled and discharged pursuant to Lien Law§ 19(6). Moreover, the work referenced in the lien must be performed under the contract. Thus, for example, warranty or repair work, or new work performed outside the original contract, does not extend the time to file a lien with respect to the original contract..

In this case, it is undisputed and supported by documentary evidence that general contractor Magin (which was represented by the same counsel representing MMC here) filed a lien against Georgetown in which it indicated that work on the project ceased as of April 13, 2017. Notwithstanding that fact, MMC asserts in its lien that its work as a subcontractor on the same project continued until July 18, 2017, in the form of certain unspecified work on a steam pipe.

MMC filed its lien on January 31, 2018. Accordingly, the lien is timely if MMC’s work under the contract ended on July 18, 2017, but untimely if it ended in April 13, 2017 when the general contractor terminated work on the project.

The Court need not resolve any factual disputes as to what work MMC performed on the premises after Magin terminated work on the project as a whole, and whether Georgetown and/or Nissan approved or were aware of such work. The salient point is that any work undertaken by MMC after termination of the project by Magin (the only entity with which MMC is in contractual privity) cannot have been pursuant to its subcontract, which by definition is subject to the scope of the general contract. In Locke v. Goode, 10 Misc.2d 65 (N.Y. Sup. Ct. Suffolk Cnty. 1957), the Court concluded that work by a subcontractor undertaken after abandonment of the main project by the general contractor is deemed to have been purely voluntary, and thus cannot be considered in determining the timeliness of the lien. This Court would phrase it somewhat differently. Any work done after the conclusion of the general contract could, depending on the facts, be subject to compensation – and a separate lien – as a distinct project by the lienor in its own right (i.e., not as Magin’s subcontractor under the original project). But MMC cannot bootstrap that follow-on work to extend the time period for filing a lien in connection with the original contract that was terminated by the general contractor. Because MMC’s work under its subcontract necessarily was completed when the general contractor terminated the project, that is April 13, 2018, MMC’s lien obtained on January 31, 2018 was not timely and is subject to being discharged.

Even assuming there could be a circumstance in which follow-on subcontract work was so substantively connected to the original project as to warrant tacking it on for purposes of extending the time for obtaining a lien, this is not such a case. The Complaint is conclusory as to the nature of the work, and the information submitted by MMC in responding to the instant motion adds little. The affidavit by Mr. Collis simply asserts without elaboration that additional work was done on a pipe several months after the end of the project. In support, MMC produces only a receipt for the purchase of batteries and miscellaneous items with no explanation how either purchase was related to the original project. In sum, MMC offers no more than conclusory assertions that are insufficient to support the dubious assertion that work done months after the general contractor terminated the project should extend the statutory deadline for obtaining a lien with respect to its earlier work as a subcontractor.

(Internal quotations and citations omitted).

We frequently litigate disputes over the sale or leasing of, or construction relating to, 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 or construction.

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On February 14, 2019, the Court of Appeals issued a decision in Arrowhead Capital Fin., Ltd. v. Cheyne Specialty Fin. Fund L.P., 2019 NY Slip Op. 01124, holding that a lawyer’s failure to have an office in New York does not render void actions filed by that lawyer, explaining:

An attorney who is regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although residing in an adjoining state. This statute, first enacted in 1862, requires that nonresident attorneys maintain a physical office in New York in order to practice law here. Whether an action, such as filing a complaint, taken by a lawyer duly admitted to the bar of this State but without the required New York office, is a nullity is an issue of first impression for this Court. Arrowhead contends that this Court’s holding in Dunn v Eickhoff, that the disbarment of a lawyer creates no nullities,’ the person involved simply loses all license to practice law, is dispositive. If an action of a disbarred lawyer is not a nullity, Arrowhead argues, neither is an action taken by a duly admitted attorney who fails to maintain a physical office in New York. This is essentially the approach taken by the Second and Third Departments, which have expressly rejected the nullity rule. These courts, relying on our holding in Dunn, have extrapolated a general rule, namely, given that representation of a party by a person who was not authorized or admitted to practice law under the Judiciary Law — whether a disbarred attorney or a person practicing law without a license — does not create a nullity or render all prior proceedings void per se, then the same principle should apply when a party is represented by an attorney who, although a member in good standing of the Bar of State of New York, has failed to demonstrate compliance with Judiciary Law § 470. Instead, these courts have held that a party may cure a section 470 violation with the appearance of compliant counsel or an application for admission pro hac vice by appropriate counsel.

Defendants counter that Dunn involved plaintiffs’ affirmative use of the disbarment of their own attorney for strategic reasons and should therefore not control the present case. Instead, defendants urge us to adopt the First Department’s approach, which requires that a court dismiss the complaint without prejudice after finding a section 470 violation. Without such a deterrent, defendants argue, Judiciary Law § 470 would itself be a nullity.

We agree with the Second and Third Departments that, given our holding in Dunn, it would be incongruous to conclude that, unlike the acts of a disbarred attorney, actions taken by an attorney duly admitted to the New York bar who has not satisfied Judiciary Law § 470’s office requirement are a nullity. We therefore hold that a violation of Judiciary Law § 470 does not render the actions taken by the attorney involved a nullity. Instead, the party may cure the section 470 violation with the appearance of compliant counsel or an application for admission pro hac vice by appropriate counsel. Where further relief is warranted, the trial court has discretion to consider any resulting prejudice and fashion an appropriate remedy. This approach ensures that violations are appropriately addressed without disproportionately punishing an unwitting client for an attorney’s failure to comply with section 470.

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

The practice of law in New York is subject to various regulations, including the rule discussed here, which requires an attorney regularly admitted in New York to maintain an office in New York. The question here is whether a breach of that rule makes a lawsuit filed by a lawyer a nullity. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the laws governing lawyers in New York.

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On December 4, 2018, Justice Grays of the Queens County Commercial Division issued a decision in Silver Oak Realty Group., Inc. v Yan Kam Yeung, 2018 NY Slip Op. 33481(U), rejecting an account stated claim for lack of evidence that the defendant received the invoices and did not object within a reasonable time, explaining:

An account stated is an account balanced and rendered, with an assent to the balance express or implied; so that the demand is essentially the same as if a promissory note had been given for the balance. An essential element to an account stated cause of action is that the parties came to an agreement with respect to the amount of the balance due. While the mere silence and failure to object to an account stated cannot be construed as an agreement to the correctness of the account, the factual situation attending the particular transaction may be such that, in the absence of an objection made within a reasonable time, an implied account stated may be found.

In support of the within motion for partial summary judgment, plaintiff submits an affidavit from Steven Wu Kuo, a shareholder and Vice-President of said corporation; copies of the invoices attached to the complaint; a copy of the pleadings; and a copy of the lease and rider agreement. Mr. Kuo’s affidavit is devoid of any facts and is offered solely as a vehicle for the submission of said invoices.

. . .

Plaintiff has also failed to establish its prima facie entitlement to judgment as a matter of law on the cause of action to recover on an account stated, as it submitted no evidence that the parties had come to an agreement with respect to the amount of the balance due. In addition, plaintiff has not submitted any evidence establishing that the subject invoices were mailed to the defendants, that the defendants received said invoices, and that the defendants retained said invoices for an unreasonable period of time without objection such that the only reasonable inference would be that they assented to the correctness of the account items and balance due.

(Internal quotations and citations omitted).

People sometimes are surprised to learn that if they do not complain about a bill they receive, they can be found to have agreed to it. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about a claim based on un-objected-to invoices.

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On December 12, 2018, Justice Grays of the Queens County Commercial Division issued a decision in Rubinoff v Yunatanov, 2018 NY Slip Op. 33482(U),dismissing a third-party complaint because the third-party defendants were not allged to be liable for all or pat of the plaintiff’s claims against the defendant, explaining:

The plaintiffs began the instant action by the filing of a Summons with Notice on June 15, 2017, and they subsequently filed a complaint on June 22, 2017. The plaintiffs’ first cause of action, which is for conversion, alleges that Yunatov converted the Mr. Flawless trademark and other things for his own personal use and for use in his new business venture. The second cause of action, which is for, inter alia, breach of fiduciary duty, alleges that Yunatov, in violation of his fiduciary duty as a shareholder and officer of Mr. Flawless, diverted corporate opportunities for his own personal gain and committed other acts of unfair competition and, moreover, in violation of his duty of good faith and loyalty as an employee of Flawless, committed acts of unfair competition. The Third cause of action, which is for unjust enrichment, alleges that defendant Yunatov was unjustly enriched by the capital investment made by Edward and Flawless in Mr. Flawless.

. . . The third-party complaint alleges the following: Gregory Yunatov is a “world renowned lifestyle influencer, creative director, jewelry designer, manufacturer and salesperson with an avid customer base.” He founded Mr. Flawless and registered a trademark for the company, He did not enter into an employment agreement or non-competition agreement with Flawless, and he did not assign his name, likeness, trademark or any of his intellectual property rights to the plaintiffs. Third-party defendant Michael Rubinoff is the father Edward and the uncle of defendant Yunatov. Third-party defendant Ilanit Rafaelov is the wife of Edward and an attorney associated with third-party defendant David J. Broderick, PC, a law firm. The First cause of action in the third-party complaint is brought under the Fair Labor Standards Act (FSLA)(29 USC 201 et seq) for an alleged failure to pay Yunatov minimum wages and commissions. The Second cause of action is brought pursuant to the New York State Labor Law for an alleged failure to pay minimum wages and commissions. The Third cause of action is brought pursuant to the FSLA for an alleged failure to pay overtime wages. The Fourth cause of action is brought under the common law ofNew York State for an alleged failure to pay overtime wages. The Fifth cause of action alleges breach of contract for an alleged failure to pay commissions. The Sixth cause of action is brought in quantum meruit for the value of the services Yunatov rendered. The Seventh cause of action is for unjust enrichment, the Eighth cause of action is for fraud, the Ninth cause of action is for attorney misconduct and deception, the Tenth cause of action is for an equitable accounting, the Eleventh cause of action is for conversion, the Twelfth cause of action is for trademark infringement and dilution, and the Thirteenth cause of action is for violations of the General Business Law.

The moving third-party defendant and plaintiffs submitted the instant motion for an Order dismissing the third-party complaint on the ground that it is procedurally improper. CPLR §1007, “When third-party practice allowed,” provides in relevant part: “After the service of his answer, a defendant may proceed against a person not a party who is or may be liable to that defendant for all or part of the plaintiffs claim against that defendant, by filing pursuant to section three hundred four of this chapter a third-party summons and complaint with the Clerk of the Court in the county in which the main action is pending***” In the case at bar, the third-party complaint does not adequately allege that Michael Rubinoff or the plaintiffs are liable to Yunatov in whole or in part for the claims against Yunatov. The interposition of the third-party complaint is procedurally improper for that reason. The third-party claim must be sufficiently related to the main action to at least raise the question of whether the third-party defendant may be liable to defendant-third-party plaintiff, for whatever reason, for the damages for which the latter may be liable to plaintiff. The precept is that the liability sought to be imposed upon a third-party defendant must arise from or be conditioned upon the liability asserted against the third-party plaintiff in the main action. In other words, the third party defendant must be under some type of claim over liability that is dependent upon the defendant’s liability to the plaintiff. The liability must be one rooted in indemnity or contribution. Finally, CPLR §1007 states that a third-party action may be maintained against a person not a party. The third-party complaint brought against the plaintiffs’, who are already parties and the subject of counterclaims, is not proper for this additional reason. Yunatov’s arguments that there is a danger of a waste of judicial resources or inconsistent results if his third party complaint is dismissed have no merit. CPLR §3019, “Counterclaims and cross-claims,” provides in relevant part: “(a) Subject of counterclaims. A counterclaim may be any cause of action in favor of one or more defendants ***against one or more plaintiffs ***or a plaintiff and other persons alleged to be liable.”. Indeed, Yunatov has already served an answer containing counterclaims against the plaintiffs and at least some other parties alleged to be liable. Moreover, multiple cases involving common questions of law and fact may be consolidated, and set-offs may be raised in the defendant’s answer.

(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 procedural rules and as this decision illustrates, if a litigant ignores them, it can pay a price. 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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On February 1, 2019, the Fourth Department issued a decision in Cohen & Lombardo, P.C. v. Connors, 2019 NY Slip Op. 00755, dismissing a conspiracy to breach a fiduciary duty claim for failure to allege facts relating to acts in support of the conspiracy, explaining:

[T]he court properly granted that part of the motion dismissing each of the causes of action for conspiracy to violate fiduciary duties. First, those causes of action against defendants-appellants are duplicative of the breach of fiduciary duty causes of action asserted against them. Next, with respect to the associate defendants, while it is true that New York does not recognize civil conspiracy to commit a tort as an independent cause of action, allegations of conspiracy are permitted to connect the actions of separate defendants with an otherwise actionable tort. Such a conspiracy claim may be asserted where there are allegations of a primary tort, plus the following four elements: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties’ intentional participation in the furtherance of a plan or purpose; and (4) resulting damage or injury. Here, however, the complaint merely recites those elements and fails to assert any supporting factual allegations with respect to the associate defendants’ overt acts in furtherance of the agreement and intentional participation in the furtherance of a plan or purpose. Thus, even applying the requisite liberal construction to the complaint, we conclude that the court properly dismissed the conspiracy causes of action against each of the associate defendants.

(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, someone who is not a fiduciary can nonetheless be liable for conspiring with a fiduciary to facilitate the fiduciary’s breach of his or her duties. 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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On January 28, 2019, Justice Ash of the Kings County Commercial Division issued a decision in A.J. Richard & Sons, Inc. v. Forest City Ratner Cos., LLC, 2019 NY Slip Op. 30215(U),holding that a letter of intent was a binding agreement to negotiate and consummate a sale transaction, explaining:

In determining whether the parties intended to enter into a binding contract, an objective test is generally to be applied, which means that the manifestation of a party’s intention rather than the actual or real intention is ordinarily controlling. The manifestation of a party’s intention to be bound by an agreement is evidenced by its language and terms. On a motion for summary judgment, the construction of an unambiguous contract is a question of law for the court, and the intention of the parties is to be gathered from the language and terms of the instrument itself.

Here, the language and terms of the LOI manifest the parties’ intention to be bound by the LOI. The LOI set forth all of the material terms of the agreed-upon transaction, including the parties, purchase price, location, and size of the Replacement Property; mortgage arrangements; Go Dark Payments; assumption of costs; and terms of delivery. The LOI further included detailed specifications with respect to the Replacement Property, including parking spaces, loading dock requirements, and a preliminary floor plan which could only be changed upon the reasonable approval” of A.J. Richard. In addition, the LOI provided that Forest City will deliver the Replacement Property to [A.J.] Richard substantially complete in ‘vanilla box’ condition,” which is defined therein as meaning that Forest City shall provide,” among other things, specified electrical system capacity, and meet certain air conditioning system requirements, accessibility requirements, and requirements for plumbing, sprinklers, and modes of ingress and egress.

Forest City asserts that the LOI requires the parties to negotiate the specific terms and conditions of the sale of the property be set forth in a purchase and sale agreement and a development agreement, i.e., the Implementing Documents, and that the LOI also calls for the preparation of a condominium offering plan, declaration and condominium bylaws. Forest City argues that this renders the LOI a non-binding agreement to agree and unenforceable as a contract.

Forest City’s argument is rejected. A contract does not necessarily lack all effect merely because it expresses the idea that something is left to future agreement. Where an agreement contains all of the essential terms of the contract, the fact that the parties intended to negotiate a fuller agreement does not negate its legal effect. Thus, an agreement is not rendered ineffective simply because certain non-material terms are left for future negotiation or because the agreement states that the parties will execute a furthermore formal agreement. Where the parties have manifested an intention to make a binding agreement, the mere fact of open terms will not permit them to disavow it.

While it is true that if an agreement leaves open terms of too fundamental importance, it may be incapable of sustaining binding legal obligation, here, the matters to be negotiated are non-essential terms that concern fine details, which may still be decided by the parties without effecting the viability of the contract. Such terms are by no means incompatible with the intention to be bound.

With respect to the fact that the LOI requires Forest City to prepare and deliver Implementing Documents (i.e., the purchase agreement and the development agreement), this does not render the LOI unenforceable. The LOI contains all of the essential terms of a binding contract, and does not contain an express reservation by either party of the right not to be bound until a more formal agreement is signed. The fact that there would be a preparation of a condominium offering plan, declaration and condominium bylaws before A.J. Richard could take possession of the Replacement Property also does not affect the binding nature of the LOI.

. . .

Forest City asserts that the LOI did not state that the parties intended to be legally bound. However, there is no requirement in a contract that it state that the parties are bound by it. Rather, it is the fact that the language of the agreement evinces a binding contract which determines that the parties are bound.

(Internal quotations and citations omitted).

In New York, a contract must contain the material terms of the agreement to be binding. As this decision shows, there sometimes are disputes over whether all the material terms of the contract are embodied in the agreement being sued upon. 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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On January 4, 2019, Justice Masley of the New York County Commercial Division issued a decision in Latin Mkts. Brazil, LLC v. Salsinha, 2019 NY Slip Op. 30201(U), allowing a plaintiff to correct a case caption when the plaintiff mistakenly sued under the incorrect name, explaining:

Defendant objects to the original plaintiff Markets Group, Inc. as an improper plaintiff. However, Markets Group, Inc. is not a party to the Employment Agreement, and thus, has no standing to sue in this action. Defendant objects to Latin Markets’ attempted cure of its lack of standing by changing Markets Group, Inc. in the original complaint to Latin Markets Brazil, LLC D/B/A Markets Group in the Amended Complaint. Defendant contends that this substitution is not proper without leave of this Court. In opposition, Latin Markets claimed at Oral Argument on September 25, 2018 that the caption in the original complaint is a typographical error, and it timely amended under CPLR 3025 as a matter of right.

Misnomers may be remedied by amending the caption so long as the parties are fairly apprised of the misnomer and are not prejudiced. In the context of misnomers, amendment of the caption does not amount to a change in parties. Markets Group is the assumed name of Latin Markets according to a certificate issued by the New York State Department of State Division of Corporations. Latin Markets also submits the affidavit of its Chief Executive Officer who states that Markets Group is the assumed name of Latin Markets. Furthermore, Defendant has not shown how it was prejudiced by this misnomer. Defendants argument that Latin Markets’ amendment was improper is belied by the very case Defendant cites insofar as that court explicitly stated that amending the caption was improper because it did not involve the correction of a mere misnomer. While a motion to amend is good practice, given the convoluted procedural posture of this case, the amendment was timely. Accordingly. dismissal on the grounds that Plaintiff lacks standing is denied.

(Internal quotations and citations omitted).

This decision shows that sometimes (but not always) a court will excuse mistakes, but there must be a reasonable explanation for the failure. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have made a mistake that you want a court to fix.

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Justices Saliann Scarpulla and Jennifer Schecter of the New York County Commercial Division recently updated their individual practices.