On June 12, 2018, the Court of Appeals issued a decision in 2138747 Ontario, Inc. v. Samsung C&T Corp., 2018 NY Slip Op. 04274, holding that when a contract provides that it will be enforced according to New York law, the New York borrowing statute will be used to determine the appropriate statute of limitations, explaining:

CPLR 202 provides:

An action based upon a cause of action accruing without the state cannot be commenced after the expiration of the time limited by the laws of either the state or the place without the state where the cause of action accrued, except that where the cause of action accrued in favor of a resident of the state the time limited by the laws of the state shall apply.

In other words, when a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitation periods of both New York and the jurisdiction where the cause of action accrued. The parties agree that plaintiff’s claims asserted on behalf of SkyPower accrued in Ontario. Application of the borrowing statute would therefore require plaintiff’s action to be timely under Ontario’s two-year statute of limitations. Plaintiff contends, however, that the NDA’s broad contractual choice-of-law provision encompasses a choice of New York’s procedural law, including New York’s general six-year statute of limitations in CPLR 213 (2), to the exclusion of CPLR 202, which plaintiff equates to a statutory choice-of-law directive of the kind that we held should not be applied in Ministers and Missionaries Benefit Board v Snow (26 NY3d 466 [2015].

. . .

Contractual choice of law provisions typically apply to only substantive issues and statutes of limitations are considered procedural because they are deemed as pertaining to the remedy rather than the right. Here, however, the parties agree with the Appellate Division’s determination that the contract should be interpreted as reflecting the parties’ intent to apply both the substantive and procedural law of New York State to their disputes.

CPLR 202 is an abiding part of New York’s procedural law. CPLR 202 is a reenactment, without substantive change, of section 13 of the Civil Practice Act which in turn substantially reenacted section 390-a of the Code of Civil Procedure, added in 1902 (L 1902, ch 193). Earlier iterations of the borrowing statute predate the substantive choice-of-law interest analysis test used in tort cases and the grouping of contacts or center of gravity approach used in contract cases.

It is undisputed that had the NDA’s choice-of-law provision incorporated only New York substantive law and contained a New York forum selection clause, New York would apply its own procedural law as the law of the forum, including CPLR 202. Indeed, where the Court has held that parties have opted into New York procedural law in the past, it has suggested that CPLR 202 may apply. Thus, in Matter of Smith Barney, Harris Upham & Co. v Luckie (85 NY2d 193 [1995]), which involved contractual choice of law provisions similar to that at issue here, the Court remitted to the Appellate Division for a determination regarding statute of limitations issues and instructed the Appellate Division to consider, among other things, the applicability of the borrowing statute in making that determination.

Plaintiff argues that because the contract in this case specified that it would be enforced according to New York law, the parties intended to apply New York’s procedural law except for its statutory choice-of-law provisions, which, plaintiff alleges, includes CPLR 202. We conclude, however, that the mere addition of the word enforced to the NDA’s choice-of-law provision does not demonstrate the intent of the contracting parties to apply solely New York’s six-year statute of limitations in CPLR 213(2) to the exclusion of CPLR 202. Rather, the parties have agreed that the use of the word enforced evinces the parties’ intent to apply New York’s procedural law. CPLR 202 is part of that procedural law, and the statute therefore applies here.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. And the particular issue here–the rule in CPLR 202 that the statute of limitations used by a New York court sometimes is the statute of limitations of another state (or even country)–is an issue our clients, which are located all over the world, sometimes face. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding which statute of limitations applies to an action brought by a non-New York litigant.

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On June 12, 2018, the First Department issued a decision in Shawmut Woodworking & Supply, Inc. v. ASICS America Corp., 2018 NY Slip Op. 04291, holding that veil piercing claims should have been dismissed, explaining:

There is no basis in the complaint and supporting materials for applying the doctrine of piercing the corporate veil, which indeed plaintiff did not rely on. The complaint does not allege that ASICS and Windsor had any corporate relationship or overlapping ownership. It does not allege that Windsor was a dummy corporation or that ASICS had complete control over Windsor and used that control to perpetrate a fraud or wrong against plaintiff.

To the extent plaintiff relies on agency principles to hold ASICS liable on the contract with Windsor, the complaint fails to allege actual or apparent agency. It does not allege that ASICS actually authorized Windsor to enter into the contract on behalf of ASICS. To the contrary, the master retail agreement between ASICS and Windsor makes clear that Windsor was an independent contractor, did not have the authority to bind ASICS, and was not authorized to act as ASICS’s agent, and that ASICS would not assume Windsor’s liabilities.

Nor does the complaint allege that plaintiff relied on any representations or conduct by ASICS that would give rise to the appearance and belief that Windsor possessed authority to enter into the contract on ASICS’s behalf.

(Internal quotations and citations omitted).

An issue that is not uncommon in commercial litigation is how do you collect on a judgment when the counter-party to your contract or the business that defrauded you has no assets. In certain circumstances, discussed in this decision, you can attempt to pierce the corporate veil and recover from a business’s owner or operators. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding whether you can seek to hold a business’s owner or operators liable for the business’s debts.

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On June 6, 2018, Justice Ostrager of the New York County Commercial Division issued a decision in Gorayeb & Associates, P.C. v. Toledo, 2018 NY Slip Op. 31153(U), holding that inducing a client to switch lawyers cannot be the basis for a claim of tortious interference with contract, explaining:

Plaintiff Gorayeb law firm is entitled to a judgment of liability on the first cause of action for tortious interference with prospective economic relations based on proof that defendant intentionally interfered with the law firm’s business relations with clients by persuading some clients to discharge Gorayeb and retain Zaremba, causing financial injury to Gorayeb. The law firm’s request for judgment on the second cause of action for tortious interference with contract is denied. An essential element is the defendant’s intentional procuring of a breach of a contract between Gorayeb and a third party, that contract being the retainer agreement between Gorayeb and the client. However, as a party always has a right to discharge his counsel, the client’s decision to change counsel does not constitute a breach of contract.

(Internal citations omitted).

In this decision, the defendant was found liable for interfering with a law firm’s business by persuading some of its clients to discharge the firm, but the court dismissed the very similar claim that the defendant caused the clients to breach their contracts with the law firm. This is because a client always has a right to terminate a law firm, so the dismissal of the firm was not a breach of the client’s contract with the law firm. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a competitor improperly interfering with a business relationship.

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On May 19, 2018, we noted a case of interest from the oral arguments before the Court of Appeals in June 2018:

1. Ambac Assurance Corporation v. Countrywide Home Loans (No. 79) (argued Wednesday, June 6, 2018) (“Fraud–Fraud in Inducement–Alleged fraudulent inducement to issue financial guaranty insurance policies for residential mortgage-backed securitizations–elements to establish cause of action for fraudulent inducement–justifiable reliance–applicability of Insurance Law § 3105; recovery of claims payments made by insurer–contractual repurchase protocol; recovery of attorneys’ fees; summary judgment.”) See the transcript and the video.

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On June 5, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Sciame Construction, LLC v. Trustees of Columbia University in the City of N.Y., 2018 NY Slip Op. 31167(U), dismissing a claim based on a construction contract’s no damages for delay clause, explaining:

With respect to the third cause of action, entitled “Extra Work,” that claim is barred only to the extent that it seeks delay damages on behalf of Sciame’s subcontractors Di Fama and Permasteelisa. Columbia contends that the claims of Di Fama and Permasteelisa are delay claims, barred by the agreement’s “no damages for delay” clause, and that Sciame fails to allege any basis for an exception to enforcing such a clause. Sciame asserts that these claims were submitted to Columbia, which discussed and negotiated the claims with Sciame, and the claims were carried on Sciame’s cost reports that were reviewed by Columbia.

In Article 10.2.4 of the General Conditions, the parties clearly agreed that all extensions of time granted by Columbia “shall be in lieu of and in liquidation of any claims for compensation of delay damages against [Columbia], except for recovery of the Contractor’s Reimbursable Expenses, resulting from the extension of time”. That clause provided that the time extension and Reimbursable Expenses “shall be the sole remedy” for any delay, hindrance or obstruction in the performance of the work, or loss of productivity, or other similar claims. Such “no damage for delay” clauses are routinely upheld. There are four recognized exceptions to the enforcement of such clauses where: (i) delays are caused by the contracting party’s willful or bad faith, malicious or grossly negligent conduct; (ii) uncontemplated delays; (iii) delays so unreasonable that they constitute intentional abandonment of the contract; and (iv) delays caused by a fundamental breach of a contractual obligation. Delays are not considered uncontemplated if they were reasonably foreseeable, are mentioned in the contract, or arise from the contractor’s work during its performance. The party seeking to enforce these exceptions bears a heavy burden” of proof.

Columbia has submitted a letter dated April 25, 2014, from Di Fama to Sciame referring to its claims for delay, inefficiencies, and nonproductive work in the amount of $344,872.00. Columbia also submitted a claim by Permasteelisa to Sciame from August 2, 2013, seeking an extension of time, and money compensation for delays and loss of productivity, totaling $597,067.00. Even Sciame’s September 28, 2015, change order log, showing change order amounts, contracts, and contractors, indicates that Di Fama and Permasteelisa were making claims for delays. This is sufficient to demonstrate that these claims from these two subcontractors are delay damages, which are barred under Article 10.2.4. Sciame fails to carry its heavy burden. It fails to show any basis for the application of an exception to the “no damage for delay” clause. Therefore, to the extent that the third cause of action is seeking such delay damages regarding amounts sought by Di Fama and Permasteelisa, such claims are dismissed. The remainder of the third cause of action, which seeks payment for extra work approved by change orders for other subcontractors, however, shall continue.

(Internal quotations and citations omitted).

One of the reasons parties often choose to have their contracts governed by New York law is that courts generally enforce agreements as written. 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 June 12, 2018, the Court of Appeals issued a decision in People v. Credit Suisse Sec. (USA) LLC, 2018 NY Slip Op. 04272, holding that Martin Act claims have a three year statute of limitations, explaining:

The first issue before us is whether Martin Act claims are governed by CPLR 214(2), imposing a three-year statute of limitations, or the six-year limitations period in CPLR 213(1) or 213(8). CPLR 214(2) generally imposes a three-year limitation period for “an action to recover upon a liability, penalty or forfeiture created or imposed by statute.” “An action based upon fraud” receives a six-year statute of limitations pursuant to CPLR 213(8). CPLR 213(1) is a residuary provision applicable to “an action for which no limitation is specifically prescribed by law.”

The test for determining the applicability of CPLR 214(2) is well-settled. As explained in Gaidon II:

CPLR 214(2) does not automatically apply to all causes of action in which a statutory remedy is sought, but only where liability would not exist but for a statute. Thus, CPLR 214(2) does not apply to liabilities existing at common law which have been recognized or implemented by statute. When this is the case, the Statute of Limitations for the statutory claim is that for the common-law cause of action which the statute codified or implemented.

When interpreting CPLR 214(2), we have contrasted (1) claims which, although provided for in a statute, merely codify or implement an existing common-law liability with (2) claims which, although akin to common-law causes, would not exist but for the statute in which case CPLR 214(2) applies. For example, we recently held that CPLR 214(2) applies to disputes against a self-insurer with respect to the payment of No-Fault benefits, noting that the obligation to make such payments would not exist but for the No-Fault Law itself.

The Martin Act, codified at General Business Law article 23-A, authorizes the Attorney General to investigate and enjoin fraudulent practices in the marketing of stocks, bonds and other securities within or from New York State. Expansive definitions of the fraudulent practices covered by the article appear in General Business Law §§ 352 and 352-c but prohibitions against fraud, misrepresentation and material omission are found throughout the statutory scheme. Section 353 grants the Attorney General broad authority to investigate, to secure a permanent injunction against any person or entity that has engaged in fraudulent practices and to obtain restitution of money or property wrongfully obtained. Despite the scope and detail of the statutory scheme, there is no provision stating the applicable statute of limitations and, although the Martin Act is nearly a century old, we have never had occasion to consider the issue.

To determine whether the Martin Act creates liabilities that did not exist at common law within the meaning of CPLR 214(2), we start with the statutory scheme — which has evolved significantly over time. The initial version of the Martin Act was adopted in 1921. Five years later, we decided People v Federated Radio Corp. (244 NY 33, 38-39 [1926]), concluding the terms fraud and fraudulent practices — which were not yet defined — should be given a wide meaning so as to include all acts, although not originating in any actual evil design or contrivance to perpetrate fraud or injury upon others, which do by their tendency to deceive or mislead the purchasing public come within the purpose of the law.” After noting that the Penal Law prohibited certain fraudulent practices involving the flotation of worthless securities, we stated:

If the intent of the defendants in engaging in the practice complained of is to sell securities which are in fact worthless or worth substantially less than the asking price, intentional misstatements, as in an action at law to recover damages for fraud and deceit . . . need not be alleged. Material misrepresentations intended to influence the bargain, on which an action might be maintained in equity to rescind a consummated transaction are enough

The Attorney General significantly relies on Federated Radio in asserting that the Martin Act merely codified liabilities existing at common law.

Of course, there have been many material alterations to the Martin Act since 1926, all of which broaden its reach. The statute was amended to incorporate concepts found in the federal Blue Sky statutes, which imposed registration requirements on sellers of securities — requirements unknown to the common law. In 1955, the Martin Act was amended to define fraudulent practices to include any deception, misrepresentation, concealment, suppression, fraud, false pretense or false promise. At the same time, a new section 352-c was added permitting the Attorney General to seek criminal sanctions for conduct violating the Martin Act. Section 352-c, while echoing the new fraudulent practices language, also clarified that the act prohibits any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances as well as any representation or statement which is false, where the person who made such representation or statement: (i) knew the truth; or (ii) with reasonable effort could have known the truth; or (iii) made no reasonable effort to ascertain the truth; or (iv) did not have knowledge concerning the representation or statement made.

The definition of fraudulent practices was expanded again in 1959 when the Legislature added General Business Law § 359-e imposing new registration requirements on dealers and brokers. Section 359-e(14)(l) provides: A violation of this subdivision shall constitute a fraudulent practice as that term is used in this article and a specific reference to section 359-e was added to section 352. In 1960, the law was amended to add section 352-e creating registration and disclosure requirements specifically relating to the sale of security interests in cooperative apartments and condominiums — a provision that has spawned civil enforcement actions by the Attorney General under section 353. We have recognized that section 352-e dramatically altered the common-law rule.

In Rachmani Corp. (71 NY2d 718), an action arising from alleged violations of section 352-e brought under the antifraud provisions of the Martin Act, we addressed what constituted a material omission sufficient to support an injunction under section 353 and Executive Law § 63(12). We answered that question by looking, not to our own common law, but to decisions of the federal courts construing federal securities laws, which are referenced in the Martin Act. We adopted the federal objective test, concluding that an omitted fact is material for purposes of liability under the Martin Act if there is a substantial likelihood that a reasonable investor would consider it important in light of the total mix of information available. We also reaffirmed that the Attorney General need not prove scienter or intentional fraud in a Martin Act enforcement proceeding. It is undisputed that the Attorney General need not prove reliance on the part of any investor.

We have repeatedly held that the Martin Act does not create a private right of action in favor of parties injured by prohibited fraudulent practices and that a private litigant may not pursue a common-law cause of action where the claim is predicated solely on a violation of the Martin Act or its implementing regulations and would not exist but for the statute. The premise of such a holding is, of course, that the Martin Act covers some fraudulent practices not prohibited elsewhere in statutory or common law. That the Martin Act expands upon, rather than codifies, the common law of fraud was further reinforced by our decision in Assured Guaranty, in which we held that the Martin Act does not preempt common law causes of action possessed by injured parties, except where predicated on violations of the Martin Act itself or its implementing regulations.

In sum, the Martin Act imposes numerous obligations — or liabilities — that did not exist at common law, justifying the imposition of a three-year statute of limitations under CPLR 214(2). The broad definition of fraudulent practices, as repeatedly amended by the Legislature and interpreted by the courts, encompasses wrongs not cognizable under the common law and dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors. In this respect, the Martin Act is comparable to a claim brought under General Business Law § 349(h), the statute prohibiting deceptive practices in consumer-oriented marketing and sales, which we addressed in Gaidon II. To be sure, there are distinctions between the Martin Act and General Business Law § 349. Unlike the Martin Act, and in addition to permitting enforcement by the Attorney General, the Legislature specifically authorized a private right of action under section 349 by adding subsection (h) permitting suit by parties injured by deceptive practices. Moreover, the term “deceptive practices” has never been defined by the Legislature. But the term deceptive practices has been interpreted broadly to encompass wrongful conduct not previously actionable on a common law fraud. In Gaidon II, we held that a General Business Law § 349 action is governed by CPLR 214(2), emphasizing the distinctions between such a claim and common law fraud, including that section 349 broadly covers deceptive practices, not just fraudulent marketing and sales practices previously condemned by the courts. The same principles apply here with respect to fraudulent practices claims under the Martin Act. We therefore conclude the three-year statute of limitations in CPLR 241(2) — applicable to a liability, penalty or forfeiture created or imposed by statute — governs Martin Act claims.

(Internal quotations and citations omitted).

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 a claim is barred by the statute of limitations.

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On June 7, 2018, the First Department issued a decision in Robert B. Jetter, M.D., PLLC v. 737 Park Ave. Acquisition LLC, 2018 NY Slip Op 04085, holding that a denial of a lease renewal was not an unjust forfeiture, explaining:

Jetter argues that denial of its renewal option would work an unjust forfeiture within the meaning of J.N.A. Realty Corp. v Cross Bay Chelsea (42 NY2d 392 [1977]) and its progeny. He may raise this argument for the first time on appeal. However, on the merits, it is unavailing. The parties’ lease gives Jetter a renewal option provided that it has not incurred late payment charges more than three times and has not caused, inter alia, any lawsuit to have been commenced against the landlord. Jetter’s incurrence of late fees on more than three occasions was not due to “neglect or inadvertence.” Rather, it was the result of a deliberate choice to withhold rent. The Court of Appeals has cautioned that J.N.A. is a narrow doctrine. Therefore, we decline to extend it to the instant situation, where Jetter is arguing that it was justified in withholding rent. Moreover, even setting late fees aside, Jetter did not satisfy the second condition to renewal, since it has sued the landlord in the instant action.

(Internal quotations and citations omitted).

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

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On June 7, 2018, the First Department issued a decision in Central Amusement International LLC v. Lexington Insurance Co., 2018 NY Slip Op. 04095, holding that a plaintiff was not prejudiced by an amendment to an answer, explaining:

The motion court did not abuse its discretion in granting defendant’s motion to amend its answer. Plaintiff’s argument that it was prejudiced at the time of the amendment because it was time-barred from pursuing a professional malpractice claim against its engineer, is unavailing. The motion court correctly observed that plaintiff had the opportunity and duty to perform its own investigation to uncover potential culpable conduct by its contractors, engineers, or any other party that may have contributed to the loss, but it chose not to do so. Plaintiff has also not established the validity of its prejudice claim, as it never attempted to sue its engineer (or other third party) following the disclosure of defendant’s expert report. The claim that defendant’s production of the expert report was delayed finds no support since it was timely produced during expert discovery.

(Internal citations omitted).

In New York, the courts are very generous in allowing a party to amend its pleadings. However, there are limits to this generosity. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding whether it is too late to amend your claims or answer.

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On June 7, 2018, the First Department issued a decision in Seaport Global Securities LLC v SB Group Holdco, LLC, 2018 NY Slip Op. 04111, holding that whether a trade confirmation is an enforceable agreement is a question of fact, explaining:

The motion court properly denied defendant’s motion to dismiss the amended complaint, as it states a claim for breach of contract, including breach of the implied covenant of good faith and fair dealing. The amended complaint alleges that the parties entered into a binding contract for the sale of stock, that defendant breached the contract by refusing to transfer the shares of such stock and by failing to make commercially reasonable efforts to settle the trade and that such breach caused injury preventing plaintiff from selling the stock to a third party. Indeed, the trade confirmation in this case states that it “shall constitute a binding agreement between the parties.” Defendant has failed to establish at this juncture that the trade confirmation is not enforceable based on its inclusion of language that “in the event that the trade cannot settle as a sale and assignment of the shares, the trade shall settle by a mutually agreeable alternative structure or other arrangement that affords buyer and seller the economic equivalent of the agreed-upon trade,” as courts have found trade confirmations with similar language to be binding agreements. The above case law also makes clear that the issue of whether the trade confirmation is an enforceable agreement is properly determined on a motion for summary judgment and not on a motion to dismiss.

(Internal citations omitted).

Under New York law, the starting point of contract interpretation is the words of the contract. As this decision shows, sometimes those words may be insufficient to establish what the parties intended–if anything. 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 June 7, 2018, the First Department issued a decision in City of New York v. Eastern Shipbuilding Group, Inc., 2018 NY Slip Op. 04113, holding that the plaintiff had alleged the damages element of its breach of contract claim even though a non-party had paid the cost of mitigating the damage, explaining:

In support of dismissing the breach of contract claim, defendant established prima facie that the defects in the fireboats it designed and constructed for plaintiff (the City) did not cause the City to sustain any damages. It submitted testimony by the fire department’s director of grants admitting that the City paid 100% of the fireboat repair costs using federal grant money. In opposition, the City demonstrated that its use of the federal grant money for the fireboat repairs does not place it in the same position as it would have been in if the contract had not been breached. It submitted evidence that, while a small portion of the federal grant money was approved and earmarked for the fireboat repairs, the City was forced to reallocate funds for other projects covered by the grant when the cost of the fireboat repairs exceeded the amount requested. Moreover, the City established that, if it recovers any money from defendant, it will be required either to repay the federal grant money or make a request to keep the money for other necessary projects.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. Most cases hold that this is true even for a claim of breach of contract. As this decision shows, the question of whether a plaintiff was damaged is not always straightforward. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding proving damages.

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