Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.



Posted: June 12, 2019

Court Refused to Void Contract Because of Economic Duress

On June 4, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Snyder v. JP Morgan Sec. LLC, 2019 NY Slip Op. 31582(U), refusing to void a contract because of economic duress, explaining:

In the First Cause of Action, plaintiff seeks to have the Agreement, or at least the release sections, declared unenforceable, as he was forced to sign it under extreme duress. In order to justify the  intervention of equity to rescind a contract, a party must allege fraud in the inducement of the contract; failure of consideration; an inability to perform the contract after it is made; or a breach in the contract which substantially defeats the purpose thereof.

The complaint does not allege economic duress, as it does not allege that plaintiff was compelled to sign the Agreement by means of a wrongful threat which precluded the exercise of his free will.

As far as plaintiff alleges this claim based on a theory of economic duress, the claim fails because the mere threat not to correct the allegedly false FINRA filing and the threat to continue to disparage Snyder to his clients are insufficient to support the claim. Economic duress, like duress, generally, provides an injured party with grounds to void a contract. Proof of the existence of economic duress requires a showing that one party to a contract has threatened to breach the agreement by withholding performance unless the other party agrees to some further demand. A party cannot be guilty of economic duress, however, for refusing to do that which it is not legally required to do or for threatening to do that which it is legally authorized to do. Thus, a plaintiff is not entitled to rescind a contract on the ground of economic duress where the menace alleged by the plaintiffs is the exercise of a legal right.

Economic duress is also not present where one party offers the other a business arrangement that the offeree is free to accept or reject. Plaintiff was represented by counsel in the negotiations culminating in signing of the Agreement and was free to accept or reject the Agreement, and does not claim otherwise.

In this case, plaintiff signed the release and accepted the benefits of the Agreement almost three years prior to commencing this action. Having accepted the benefits of the bargain and waited for years before taking action to repudiate it, Snyder has ratified the contract and is barred from asserting duress now.

(Internal quotations and citations omitted).

As this decisions discusses, a claim of duress can relate to economic duress, and not just the paradigm case of someone being forced to sign a contract with a gun to their head. But, as this decision also shows, the standards for pleading duress are demanding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a contract entered into under duress.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: June 11, 2019

Public Policy Does Not Bar Indemnification for Prior Criminal Acts

On June 3, 2019, Justice Ostrager of the New York County Commercial Division issued a decision in Arici v. Poma, 2019 NY Slip Op. 31586(U),  holding that public policy does not bar indemnification for prior criminal acts, explaining:

Defendant argues that the SPA obligates Plaintiff to indemnify Defendant for damages associated with that tax crime in the amount of $710,186.29-Plaintiff s pro rata share of the liability.

In general, public policy considerations preclude either indemnification or contribution for the consequences of illegal acts. Thus, it is the longstanding rule in New York that one may not contract for indemnification for the consequences of a criminal or illegal act to occur in the future. However, there is an exception to this rule regarding an agreement to indemnify for criminal conduct that preceded the agreement. One may make an agreement to be indemnified or to indemnify with respect to a crime or illegal act which occurred prior to the making of the agreement. This has been the law for many years throughout the United States and in this State. Here, Defendant seeks contractual indemnity for criminal conduct that occurred prior to execution of the SPA, and thus the public policy concerns Plaintiff raises are not applicable. Therefore, Plaintiff’s motion to dismiss Defendant’s first counterclaim is denied.

(Internal quotations and citations omitted).

We frequently litigate issues relating to the advancement or indemnification of litigation expenses such as attorneys’ fees to corporate officers, directors and employees. Such litigation involves both statutory law and parsing the terms of employment agreements and corporate documents. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding indemnification for, or advancement of, the costs of litigation.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: June 10, 2019

Trademark Cannot be the Subject of a Conversion Claim

On May 30, 2019, Justice Masley of the New York County Commercial Division issued a decision in Kim v. Francis, 2019 NY Slip Op. 31554(U), holding that a trademark cannot be the subject of a claim for conversion, explaining:

Kim maintains that defendants “converted the trademark … to their own name by wrongfully and improperly removing [Kim’s] name from … [the] trademark.” Conversion is the unauthorized assumption and exercise of the right of ownership over another’s property to the exclusion of the owner’s rights. The elements of a conversion claim are (1) plaintiff had legal ownership or immediate superior right of possession to specific identifiable personal property and (2) defendant exercised unauthorized dominion over property to the exclusion of plaintiff’s rights.  However, a trademark cannot support a claim of conversion because it is intangible intellectual property having no existence apart from the good will of the product or service it symbolizes. Here, Kim alleges that the defendants converted the trademark, and therefore, this cause of action is dismissed against BOG, Arabov, and San Pedro.

(Internal quotations and citations omitted).

Commercial litigation often involves conversion claims. As this decision shows, a claim for conversion cannot be based on intangible intellectual property rights. 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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: June 9, 2019

Appellants Who Were Not Parties to Arbitration Waived Right to Challenge Award

On June 6, 2019, the First Department issued a decision in Matter of Capital Enters. Co. v. Dworman, 2019 NY Slip Op. 04494, holding that appellants who did not participate in an arbitration lacked standing to challenge the award, explaining:

Nonparty appellants, which are partners in petitioner, lack standing to challenge this arbitration, as they could not have brought the claims (in any forum) originally. Further, they waived any objection to the arbitration by failing to take any action, despite knowing of the arbitration and monitoring it from its inception.

(Internal citations omitted) (emphasis added).

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.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.

Posted: June 8, 2019

Despite Alleged Participation of New York Parties in Fraud, New York Found to be Inconvenient Forum

On June 4, 2019, the First Department issued a decision in Rodionov v Redfern, 2019 NY Slip Op. 04328, holding that notwithstanding the alleged participation of New York parties in a fraud, New York as an inconvenient forum, explaining:

The court correctly dismissed the complaint on grounds of forum non conveniens. The court properly balanced the factors set forth in Islamic Republic of Iran v Pahlavi (62 NY2d 474, 479 [1984], cert denied 469 US 1108 [1985]) in finding New York to be an inconvenient forum for the dispute. Although defendants employed a New York limited liability company and a New York investment account in carrying out the alleged fraudulent scheme, the bulk of the fraudulent transactions occurred in Cyprus, with most of the litigants and witnesses being domiciled or located there. Given the lack of a substantial nexus to New York, litigating the dispute here would impose a burden on New York courts. Further, Cyprus is an adequate alternative forum for litigating the dispute.

(Internal citations omitted).

Disputes regarding commercial contracts involving international parties end up being heard in New York courts. Even if the court has the power to assert jurisdiction of the parties, it can, under the forum non conveniens doctrine discussed above, dismiss the dispute so it can be heard in a forum that is more convenient for 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 whether New York is the appropriate forum in which a dispute should be heard.

Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.