Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
On May 6, 2014, the Court of Appeals issued a decision in Golden v. Citibank, N.A., 2014 NY Slip Op. 03192, holding that a bank must honor its cashier’s checks “unless there is evidence of fraud, or the check is lost, stolen, or destroyed.”
The background to the court’s brief opinion can be found in the Second Department’s decision appealed from:
On December 29, 2009, the defendant, Citibank, N.A. (hereinafter Citibank), issued a cashier’s check in the sum of $300,000, payable to “Richard Golden as attorney.” This check was deposited by the plaintiff, Richard N. Golden, into his attorney escrow account at JP Morgan Chase Bank hereinafter Chase). Subsequently, Citibank issued a stop payment order on the check, and Chase reversed the credit that had been posted to the plaintiff’s account. . . . Citibank did not submit any evidence that the check was fraudulently issued or obtained, [but rather argued] that the check was stopped because a customer of the bank informed the bank that “she made alternate arrangements to have the funds delivered.”
The Court of Appeals held that the bank was not excused from honoring the check, explaining:
A cashier’s check — essentially, a check drawn by a bank on itself — is presumed to have been issued for value, and the issuance of such a check constitutes an acceptance by the issuing bank, which gives rise to an obligation to pay. When a bank has issued a cashier’s check, it cannot stop payment, unless there is evidence of fraud, or the check is lost, stolen, or destroyed. To the extent Gates v Manufacturers Hanover Trust Co./Capital Region (98 AD2d 829 [3d Dept 1983]) holds otherwise, it was wrongly decided and should not be followed.
(Internal quotations and citations omitted).
Justice Oing of the New York County Commercial Division recently updated his Individual Practices.
On April 23, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Patterson v. Wilhelmina Intl., Ltd., 2014 NY Slip Op. 31092(U), dismissing a defamation claim because it was not pled with particularity.
In Patterson, the defendant moved to dismiss the plaintiff’s defamation claim. The court granted the motion because the claim was not sufficiently specific, explaining:
CPLR 3016 (a) requires: In an action for libel or slander, the particular words complained of shall be set forth in the complaint, but their application to the plaintiff may be stated generally. Well-established case law has consistently interpreted this section to require that the alleged defamatory words be set forth in haec verba. This requirement is strictly enforced and the exact words must be set forth. Paraphrasing and other descriptions or summaries of the alleged defamatory words, without stating the words themselves, have been held insufficient to satisfy the particularity requirement of CPLR 3016(a).
Here, there is no doubt that [the plaintiff] did not meet the level of specificity required by CPLR 3016(a) as the complaint contains no in haec verba recitation of the challenged statements. The complaint includes various references to the defamatory statements, but never sets the words forth verbatim. . . . The complaint also fails to state the time, manner, and to whom the alleged defamatory statements were made, which is a further requirement to withstand a motion to dismiss. The complaint’s allegations that [the defendant] made unidentified comments to employees of Wilhelmina is plainly insufficient.
(Internal quotations and citation omitted) (emphasis added). However, the court went on to grant the plaintiff’s motion to amend the complaint to add the required specificity.
This decision is a reminder that it is not just fraud claims that must be pleaded with particularity. Indeed, as the court noted, a defamation claim must contain the exact defamatory words said.
On March 31, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in Peck v. Mitchell, 2014 NY Slip Op. 50715(U), applying the Dead Man’s Statute on a motion for summary judgment.
In Peck, the plaintiff asserted claims relating to ownership of her home. The defendant moved for summary judgment on the plaintiff’s claims. One argument raised by the defendant related to the admissibility of the plaintiff’s affidavit, which described an oral agreement between the plaintiff and her now-deceased son regarding ownership of her home. The court explained:
[T]he court rejects defendant’s assertion that the Dead Man’s Statute bars the plaintiff’s evidence regarding the alleged oral agreement. CPLR 4519 (the Dead Man’s Statute) bars testimony from a person interested in the event or a person from, through or under whom such person derives his or her interest or title with regard to any personal transaction or communication with the decedent. Generally, evidence that is inadmissible at trial under CPLR 4519 cannot be used to support a motion for summary judgment. However, statements of a decedent are not rendered inadmissible under the Deadman’s Statute’ (see CPLR 4519), when offered in opposition to a motion for summary judgment. Indeed, hearsay testimony which violates the Dead Man’s Statute (CPLR 4519) may be admitted for the purpose of opposing a motion for summary judgement. Nonetheless, evidence otherwise excludable at trial may not form the sole basis for a court’s determination, and standing alone, may be insufficient to defeat a motion for summary judgment.
Thus, the primary evidence presented in opposition to defendant’s motion (i.e., statements in the plaintiff’s affidavit referencing the alleged oral agreement) will be deemed admissible for purposes of defeating the summary judgment motion as long as there is some supportive admissible evidence.
(Internal quotations and citations omitted) emphasis added). The court went on to hold that other admissible was present and denied the plaintiff’s motion for summary judgment.
The Dead Man’s Statute does not frequently play a role in commercial litigation, but as this decision illustrates, it can have a significant impact and the rules for its application are not straightforward.
On April 23, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Saxon Technologies, LLC v. Wesley Clover Solutions-North America, Inc., 2014 NY Slip Op. 31056(U), transferring an action to Civil Court after determining on a motion for summary judgment that the plaintiff’s damages were limited to less than $3,000.
In Saxon Technologies, the plaintiff asserted claims for breach of a non-solicitation agreement. In deciding the defendant’s motion for summary judgment, the court found that while the plaintiff had suffered damages for breach of the agreement, they were no more than $2,651.11. The court went on to rule that “[a]t best, this is a Civil Court matter. The action, thus, is transferred to Civil Court pursuant to CPLR 325(d) and 22 NYCRR 202.13(a).”
This decision illustrates the power of a Commercial Division justice to transfer a matter out of the Commercial Division if it is not a significant commercial dispute that should be adjudicated there.
On May 1, 2014, the First Department issued a decision in Mosaic Caribe, Ltd. v. AllSettled Group, Inc., 2014 NY Slip Op. 03024, dismissing a fraud claim because the alleged reliance was not justifiable.
In Mosaic Caribe, the First Department affirmed the denial of the plaintiff’s motion to amend. Among the issues the First Department addressed was whether the plaintiff had “sufficiently allege[d] justifiable reliance on [the defendant’s alleged] misrepresentation.” The First Department agreed that the plaintiff had not done so, explaining:
Plaintiff, who agreed to purchase the policy at issue at least a year after the alleged misrepresentation, should have sought verification of ownership of the policy before agreeing to purchase it for $3 million. Plaintiff cannot credibly claim that it had no available means of verification, as such information would have been available from defendant or the proposed defendants had plaintiff requested it.
(Internal quotations and citations omitted) (emphasis added).
This decision serves as a reminder that the justifiable reliance element of a fraud claim exists and–particularly for sophisticated commercial parties–the courts will not overlook it.
On April 30, 2014, the Second Department issued a decision in George Tsunis Real Estate, Inc. v. Benedict, 2014 NY Slip Op. 02899, discussing types of orders that are not interlocutorily appealable.
In George Tsunis Real Estate, the plaintiff and defendant both appealed the trial court’s denial of the plaintiff’s motion for summary judgment. The Second Department dismissed the defendant’s appeal, explaining:
The appeal from so much of the order as, in effect, denied the plaintiff’s motion for summary judgment on the issue of liability must be dismissed, as the defendants are not aggrieved by that portion of the order (see CPLR 5511). Contrary to the defendants’ contention, the order did not grant the plaintiff’s motion for summary judgment on the issue of liability, but determined that, although the plaintiff made a prima facie showing of its entitlement to judgment as a matter of law, the defendants raised a triable issue of fact as to whether the action is barred by the applicable statute of limitations. To the extent the defendants seek to appeal from the finding that the plaintiff made a prima facie showing of entitlement to judgment as a matter of law, merely because the order appealed from contains language or reasoning that a party deems adverse to its interests does not furnish a basis for standing to take an appeal.
The appeal from so much of the order as denied that branch of the defendants’ cross motion which was to preclude the plaintiff from offering certain evidence at the time of trial must be dismissed because it concerns an evidentiary ruling, which, even when made in advance of a hearing or trial on motion papers, is not appealable as of right or by permission.
(Internal quotations and citations omitted) (emphasis added).
This decision shows that, as broad as the right to take an interlocutory appeal is in New York, it is not unlimited.
Arguments the week of May 5, 2014, in the Court of Appeals that may be of interest to commercial litigators.
- Docket No. 121: Norex Petroleum Limited v. Blavatnik (To be argued Tuesday, May 6, 2014) (addressing whether “CPLR 202, New York’s borrowing statute, which requires a nonresident plaintiff to satisfy the statute of limitations of New York and of the foreign jurisdiction where the claims accrued” trumps 28 USC
§ 1367(d) and CPLR 205(a), which toll the statute of limitations to allow plaintiffs to re-file dismissed federal suits in state court, in situations where the foreign jurisdiction has no analogous tolling statute). See First Department decision here.
- Docket No. 109: Morpheus Capital Advisors LLC v. UBS AG (To be argued Tuesday, May 6, 2014) (considering the effect of an exclusive agency agreement where the buyer was procured by the seller, not a third-party). See First Department decision here.
- Docket No. 110: KeySpan Gas East Corporation v. Munich Reinsurance America, Inc. (To be argued Tuesday, May 6, 2014) (considering whether insurers have a common law duty to make a coverage determination as soon as reasonably possible or forfeit their right to deny coverage).
- Docket No. 112: Quadrant Structured Products Co., Ltd. v. Vertin (To be argued Wednesday, May 7, 2014) (addressing the following question certified from the Delaware Supreme Court: whether, under New York law, the absence of any reference in the no-action clause to the Securities precludes enforcement only of contractual claims arising under the Indenture, or whether the clause also precludes enforcement of all common law and statutory claims that security holders as a group may have).
On April 18, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Matter of Natanel v. Cohen, 2014 NY Slip Op. 50677(U), granting a petition to dissolve an LLC.
In Matter of Natanel, the petitioner sought to dissolve an LLC of which he was a 50% owner. Because there was no operating agreement, the court had to analyze the standard for dissolution under the LLC Law. The court explained the standard:
LLCL § 702 provides for judicial dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement. In Matter of 1545 Ocean Avenue, LLC (72 AD3d 121), the Court examined the proper interpretation to be accorded the statutory standard “not reasonably practicable”. While cautioning that a limited liability company is to be distinguished from both a corporation and a partnership, the Court noted that the language is derived from Revised Partnership Law § 121-802 and Partnership Law § 63(1)(d). As no New York cases had interpreted the statutory standard, relying on the decision of the Delaware Chancery Court in Red Sail Easter Ltd. Partners, LP v. Radio City Music Hall Products, Inc, the Court noted that mere disagreements between partners regarding accounting are insufficient to warrant dissolution. Rejecting the applicability of the more flexible statutory standards for judicial dissolution of both corporations and partnerships, the Court cited Matter of Horning v Horning Construction, LLC (12 Misc 3d 402, 413 [Sup Ct, Monroe County 2006]), in which, in the absence of an operating agreement, the court dismissed the petition for dissolution brought primarily to provide an exit-strategy for the disenchanted member, holding that LLCL § 702 establishes a more stringent standard. Rejecting petitioner’s claim that dissolution was warranted by the parties’ deadlock, in 1545 Ocean, the Appellate Division, Second Department expressly held: for dissolution of a limited liability company pursuant to Limited Liability Company Law § 702, the petitioning member must establish, in the terms of the operating agreement or articles of incorporation, that (1) the management of the entity is unable or unwilling to reasonably permit or promote the stated purpose of the entity to be realized or achieved, or (2) continuing the entity is financially unfeasible. Thus, a petitioner seeking dissolution must demonstrate that the limited liability company is unable to function as intended or that it is failing financially.
(Internal quotations and citations omitted) (emphasis added).
One important lesson in this decision is, as the court explained, “a member desirous of withdrawing from the LLC . . . may not do so just for the asking, especially if there is no operating agreement. Rather, the default provisions of LLCL § 701 require the continuation of the LLC upon the termination of any membership interest, leaving such member at the mercy of other members if the statutory standard of § 702 is not met.” (Emphasis added). The other key lesson, of course, is to have a written operating agreement designed to avoid this situation.
An argument on April 29, 2014, in the Court of Appeals that may be of interest to Commercial Division practitioners is:
- Docket No. 96: IDT Corp. v. Tyco Group, S.A.R.L. (To be argued April 29, 2014) (addressing the duration of a party’s obligation to negotiate final terms of an agreement when they have contractually obligated themselves to negotiate such terms). See First Department decision here.