Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: April 5, 2014

Agency Agreement Within the Statute of Frauds

On March 26, 2014, Justice Ramos of the New York County Commercial Division issued a decision in William Morris Endeavor Entertainment, LLC v. Rivera, 2014 NY Slip Op. 50458(U), dismissing claims against TV personality Geraldo Rivera on Statute of Fraud grounds.

In William Morris, the plaintiff, the well-known William Morris talent agency, sued its former client Geraldo Rivera for unpaid commissions. The complaint alleged that the parties entered into a series of three-year written contracts between 1985 and 1994, and that WME had continued to represent Rivera until he had stopped paying commissions in 2010. Rivera claimed that the last written contract stated that he was to be represented only by one particular agent, and when that agent left WME in 2010, Rivera went with him, continued paying him commissions, and had never been represented or advised by any other WME agent.

Rivera moved to dismiss on the grounds that WME had failed to allege the existence of a written agreement that satisfied the Statute of Frauds. The court agreed, rejecting WME’s argument that the parties’ course of conduct since the last written contract expired in 1997 created an enforceable agreement:

The alleged Agency Agreement is an oral agreement, a logical construct on behalf of WME’s position. The writings executed by the parties in 1985, 1988, 1991 and 1994 all specified a three-year term. After 1997, they followed a consistent course of conduct in their dealings, but no written agreement controlled their behavior. Undoubtedly, the alleged Agency Agreement is unenforceable by application of the statute of frauds, as well-illustrated by a case on point . . . . Therefore, the Court concludes that the parties had no enforceable commission agreement after October 1997, because the statute of frauds requires a written agreement.

(Internal citation and quotation omitted.)

Posted: April 4, 2014

Court of Appeals Invites Amici Curiae on Real Property Law Issue

The Court of Appeals recently posted the following Notice to the Bar – Court Request for Amici Curiae on a real property law issue:

On April 3, 2014, this Court granted leave to appeal in Flushing Savings Bank, FSB v Bitar. The case is being treated as a normal-coursed appeal (see section 500.12 of this Court’s Rules of Practice).

In March 2010, plaintiff commenced this action against the defaulting note obligor and mortgagor, to foreclose a mortgage on certain real property. In June 2010, an order of reference was granted to plaintiff and a referee was appointed to compute the amount due to plaintiff and to conduct the sale of the property. Thereafter, plaintiff was granted a judgment of foreclosure and sale, which provided that should the proceeds of the foreclosure sale be insufficient to pay the amount reported due to plaintiff, that plaintiff may recover the amount of the deficiency from defendant upon a properly made motion for deficiency pursuant to RPAPL 1371.

In August 2011, the property was sold at a public auction to the highest bidder, plaintiff, for $125,000.00. In September 2011, the referee rendered his report of sale, which determined that at the time of sale, plaintiff was owed $793,724.75, leaving a deficiency of $668,724.75.

In October 2011, plaintiff’s certified appraiser inspected the property and determined that the fair market value of the property on the date of sale was $475,000.00. The appraiser prepared a one and a half page affidavit in which he stated that he “made a personal exterior and interior inspection of the [mortgaged] premises” and that he set the value of the property based on this “inspection and after review[] [of] comparable sales, examination of the neighborhood, market and general economic trends, comparable rentals, expense data and subject to the reasonable assumption that there [had] not been substantial changes in occupancy and condition.” Plaintiff moved to confirm the report of sale and for leave to enter a deficiency judgment against defendant in the amount of $318,724.75, which is the alleged amount due pursuant to the judgment minus the fair market value given by the appraiser. Defendant did not oppose plaintiff’s motion.

Supreme Court confirmed the referee’s report of sale but denied the branch of plaintiff’s motion which sought a deficiency judgment. The court held that plaintiff did not establish prima facie proof of fair market value of the property. The court concluded that plaintiff did not submit any appraisal, and instead plaintiff relied on the “appraiser’s conclusory four-paragraph affidavit which [did] not contain any specific information regarding how he reached his fair market value determination.”

Plaintiff appealed from that portion of the April 2012 order that denied its motion for permission to enter a deficiency judgment, and the Appellate Division affirmed. The court determined that plaintiff failed to make a prima facie showing of the value of the mortgaged premises. The court noted that, “the appraiser did not describe the subject premises or the results of his inspection and failed to append any of the evidence of comparable sales and market data upon which he relied in arriving at his opinion. Nor did plaintiff submit an actual appraisal report.”

The issues presented are (1) whether the courts below properly concluded that the affidavit of plaintiff’s appraiser was too conclusory to establish a prima facie showing of the fair market value of the property as of the foreclosure sale date; and (2) assuming that the affidavit was insufficient, whether the courts could deny plaintiff’s unopposed application for a deficiency outright, without making any express finding as to the value of the property, without holding a hearing on the value of the property, or without in some way affording plaintiff an opportunity to cure the alleged insufficiency in its proof.

The Court invites amicus to address these issues. Amicus motions must comply with section 500.23 of the Court’s Rules of Practice. Particular attention should be paid to section 500.23(a)(2) of the Rules. The text of the Rule is available on the Court’s website at:

Questions may be directed by telephone to the Clerk’s Office at (518) 477-7705.

Posted: April 4, 2014

Court of Appeals Clarifies Standard for Quashing Non-Party Subpoenas

On April 3, 2014, the Court of Appeals issued a decision in Matter of Kapon v. Koch, 2014 NY Slip Op. 02327, clarifying a “subpoenaing party’s notice obligation to a non-party” under CPLR 3101(a)(4) and “the witness’s burden when moving to quash the subpoena.”

In Matter of Kapon, the Court of Appeals concluded:

that the subpoenaing party must first sufficiently state the circumstances or reasons underlying the subpoena (either on the face of the subpoena itself or in a notice accompanying it), and the witness, in moving to quash, must establish either that the discovery sought is utterly irrelevant to the action or that the futility of the process to uncover anything legitimate is inevitable or obvious. Should the witness meet this burden, the subpoenaing party must then establish that the discovery sought is material and necessary to the prosecution or defense of an action, i.e., that it is relevant.

(Internal quotations omitted). The Court explained: (more…)

Posted: April 3, 2014

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on another proposed change to the rules of the Commercial Division.

Generally, the proposal:

seeks to promote more efficient, cost-effective pretrial disclosure by establishing a “preference” in the Commercial Division for the use of “categorical designations” rather than document-by-document logging. The parties would be expected to address privilege log issues as part of the meet and confer process, “and to agree, where possible, to employ a categorical approach to privilege designations.” If a party objects to the categorical approach and insists on a document-by-document log, the producing party, “upon a showing of good cause, may apply to the court for the allocation of costs, including attorney’s fees incurred.” To ensure that a party receiving a categorical privilege log receives comprehensible information, a responsible attorney for the producing party would be required to submit a certification under 22 NYCRR § 130-1.I-a setting forth specific facts supporting the privileged status of the materials in each category. The proposal also would treat uninterrupted email chains as a single document.

E-mail comments to by June 2, 2014.

Posted: April 3, 2014

Schlam Stone & Dolan Blogs

Last fall, Schlam Stone & Dolan LLP launched this Commercial Division Blog. We are pleased to announce that today we made our 200th post!

The Commercial Division Blog is just part of what we have been doing. Building on our long years of experience in the U.S. District Court for the Eastern District of New York, including over twenty years of writing the Eastern District Roundup column in the New York Law Journal, we also launched our EDNY Blog.

In light of the success of both the Commercial Division and EDNY blogs, we have now become contributors to It’s behind their paywall (sorry), but for those with access, you can find our posts by searching for our firm name.

Posted: April 3, 2014

Motion to Disqualify Granted Despite Absence of “Significant Harm”

On March 28, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Mayers v. Stone Castle Partners, LLC, 2014 NY Slip Op. 50461(U), granting the plaintiff’s motion to disqualify a law firm from representing the defendants.

In Mayers, the plaintiff’s motion was premised upon a conversation the plaintiff had with a litigator at the law firm before the present action began. The plaintiff made an unsolicited call a lawyer at the firm seeking to have the firm represent him in a related matter. The lawyer declined due to conflicts.

Although that conversation, “on its own, does not warrant disqualifying,” the firm, the lawyer subsequently discussed the call with his colleague, the defendants’ lead counsel, and information regarding the plaintiff’s call to the firm was included in the complaint. Indeed, the complaint specifically mentioned that the plaintiff “contacted an attorney about the possibility of representing him [and] falsely told the attorney that he was no longer with” the defendant. The court found that these disclosures violated the law firm’s fiduciary obligation to preserve the confidential secrets of prospective clients pursuant to Rule 1.18 of the New York Rules of Professional Conduct:

[The law firm’s] use of [its lawyer’s] discussion with [the plaintiff] in paragraph 33 of the Company’s complaint mandates disqualification. This is so even though: [the defendants’ trial lawyer] did not affirmatively seek this information in his discussion with [his colleague]; the information is not particularly damning in the context of the more troubling allegations about [the plaintiff’s] actions; and most of these facts were public knowledge at the time and would have (and indeed did) come to light on their own.

. . .

After carefully scrutinizing the allegations and weighing the strategic motives of the motion, the court concludes that [plaintiff] has not met his heavy burden of establishing a significant harm caused by [the law firm’s] representation of the Company. Nonetheless, [the law firm’s] disqualification is still necessary because, as the appellate courts have long held, the inquiry must go beyond the strict determination of whether a technical violation has occurred. This inquiry arises from the undeniable maxim of the legal profession that an attorney must avoid even the appearance of impropriety . . . . In other words, the movant need not suffer any harm from the violation.

(Internal citations and quotations omitted.) The court acknowledged that “though courts have long paid homage to the notion that gamesmanship may be ground to deny a motion for disqualification, in practice, the movant’s motive is not what tips the scales.”

This opinion recognizes that, in almost every motion to disqualify, the movant will be acting for strategic reasons, but that that is not a sound basis to deny the motion.  Creating a significant appearance of impropriety will, this decision shows, provide a basis for granting the motion.

Posted: April 2, 2014

Lost Re-sale Profits Recoverable as General Damages When Those Profits Were Contemplated By the Contract

On March 27, 2014, the Court of Appeals issued a decision in Biotronik A.G. v. Conor Medsystems Ireland, Ltd., 2014 NY Slip Op. 02101, holding that the plaintiff’s lost re-sale profits were recoverable as “general damages” on a claim for breach of a distribution contract and did not fall within a contract provision that eliminated liability for “consequential damages.”

In Biotronik, the plaintiff (a distributor of medical devices) sued the developer and manufacturer of a “drug-eluting coronary stent” for breaching the parties’ distribution agreement by failing to provide the stent. The lawsuit sought to recover the distributor’s lost profits from sales of the stents. The First Department affirmed the trial court’s dismissal of the claim based on a damages limitation provision in the distribution agreement that restricted the parties to general (as opposed to consequential) damages. In a decision by Judge Rivera (joined by Judges Lippman, Graffeo and Smith), the Court of Appeals reversed, concluding that under the distribution agreement at issue, the distributor’s “lost profits were the direct and probable result of the breach of the parties’ agreement and thus constitute general damages.” The Court explained the sometimes “elusive” distinction between general and consequential damages:

General damages are the natural and probable consequence of the breach of a contract. They include money that the breaching party agreed to pay under the contract. By contrast, consequential, or special, damages do not directly flow from the breach.

The distinction between general and special contract damages is well defined, but its application to specific contracts and controversies is usually more elusive. Lost profits may be either general or consequential damages, depending on whether the non-breaching party bargained for such profits and they are the direct and immediate fruits of the contract. Otherwise, where the damages reflect a loss of profits on collateral business arrangements, they are only recoverable when (1) it is demonstrated with certainty that the damages have been caused by the breach, (2) the extent of the loss is capable of proof with reasonable certainty, and (3) it is established that the damages were fairly within the contemplation of the parties.

Applying these principles, the Court rejected a bright line rule classifying lost resale profits as consequential damages “simply because they involve a third-party transaction.” Instead, employing a “case specific approach,” the Court concluded that the distributor’s lost profits were general damages because the resale of the stents was not a “collateral business arrangement” but an integral part of the distribution agreement:

The agreement was not a simple resale contract, where one party buys a product at a set price to sell at whatever the market may bear. Rather, the price plaintiff paid defendant reflected the actual sales, and sales price, of [the] stents. The agreement required plaintiff to pay defendant a transfer price calculated as a percentage of plaintiff’s net sales . . . . Each quarter, the parties would calculate a minimum price based on net sales during the preceding quarter. Plaintiff remained obligated to pay defendant the full transfer price for its sales, even when the actual sales price exceeded the minimum price. Thus, the contract would only operate if plaintiff sold stents, and the payment defendant received bore a direct relationship to the market price plaintiff could obtain. . . .

[Therefore,] the agreement reflects an arrangement significantly different from a situation where the buyer’s resale to a third party is independent of the underlying agreement.

A dissenting opinion authored by Judge Read (and joined by Judges Pigott and Abdus-Salaam) argued that the distributor’s lost profits fell within the contractual exclusion because “[t]hese damages flow from collateral transactions—[plaintiff’s] contracts with its resale customers—rather than from any provision of the Agreement requiring the breaching party to make a payment to the non-breaching party.” The dissenters contended that the majority’s holding would sow uncertainty as to the meaning of the terms general and consequential damages as used in commercial contracts.

One upshot of this decision is that contracting parties who wish to exclude claims for lost resale profits should do so explicitly and should not assume that any damages arising from the non-breaching party’s loss of business with third parties will automatically be regarded as consequential damages.

Posted: April 1, 2014

Court of Appeals Rules That Limitations Period for Judiciary Law § 487 Claims is Six Years

On April 1, 2014, the Court of Appeals issued a decision in Melcher v. Greenberg Traurig, 2014 NY Slip Op. 02213, holding that the limitations period for claims under Judiciary Law § 487 is six years.

“Judiciary Law § 487 exposes an attorney who is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party to criminal (misdemeanor) liability and treble damages, to be recovered by the injured party in a civil action.” In Melcher, both the trial court and the appellate division decided the defendant’s motion to dismiss the plaintiff’s Judiciary Law § 487 claims based on the premise that they were governed “by the three-year limitations period in CPLR 214(2).” The Court of Appeal reversed, holding that because “a cause of action for attorney deceit therefore existed as part of New York’s common law before the first New York statute governing attorney deceit was enacted in 1787,” “liability for attorney deceit existed at New York common law prior to 1787. As a result, claims for attorney deceit are subject to the six-year statute of limitations in CPLR 213(1).”

(Internal quotations and citations omitted).

Posted: April 1, 2014

Financial Advisor’s Claims Dismissed on Statute of Fraud Grounds

On March 25, 2014, the First Department issued a decision in JF Capital Advisors, LLC v. Lightstone Group, LLC, 2014 NY Slip Op. 01984, affirming the dismissal of quantum meruit and unjust enrichment claims under the statute of frauds.

In JF Capital Advisors, the plaintiff (“an investment advisory firm composed of hotel and hospitality industry experts”) alleged that it had an oral agreement with the defendants (a group of “real estate investment companies”) to provide “financial advisory services . . . in connection with defendants’ acquisition of certain hotels and other investment opportunities.” The plaintiff claimed that the defendants failed to compensate it for a “broad range of advisory services” “in connection with eight different projects that defendants were interested in pursuing.” The court concluded that the plaintiff’s claims for quantum meruit and unjust enrichment were barred by GOL § 5-701(a)(10), which provides that a contract to pay compensation for “negotiating the purchase, sale, exchange, renting or leasing of any real estate or . . . of a business opportunity” is void unless it is in writing:

The motion court correctly granted in part defendants’ motion to dismiss plaintiff’s claims for quantum meruit and unjust enrichment with regard to three of the eight investment opportunities that defendants considered, because plaintiff acknowledged either participating in negotiations or preparing documents for bidding, i.e., assisting in negotiations of business transactions. In those cases, plaintiff plainly acted as an intermediary as the statute of frauds contemplates.

That plaintiff provided other services in addition to negotiating deals is not dispositive here. On the contrary, plaintiff undertook those other services to assist defendants’ negotiations, largely by determining the value to defendants of pursuing the deal. The statute of frauds thus squarely covers the financial advisory services plaintiff performed on those projects.

The statute of frauds also barred plaintiff’s unjust enrichment and quantum meruit claims for the financial advisory services it allegedly performed on the remaining five investment opportunities that defendants considered, for which defendants allegedly requested that plaintiff provide certain investment analyses. At the very least, plaintiff’s services in this context amount to “assisting in the negotiation or consummation of the transaction.” The motion court erroneously declined to dismiss those claims on the basis that the information plaintiff provided defendants was not ultimately used to assist in the negotiation or consummation of those investment opportunities. Indeed, investment analyses and financial advice regarding the possible acquisition of investment opportunities “clearly fall within” GOL § 5-701(a)(10).

This decision illustrates that financial advisory contracts are not enforceable unless in writing, and that the statute of frauds cannot be circumvented by recasting a claim for breach of an oral agreement as a claim for quantum meruit or unjust enrichment.

Posted: March 31, 2014

Summary Judgment Granted in Favor of Veil-Piercing Claim

On March 19, 2014, Justice Friedman of the New York County Commercial Division issued a decision in Webmediabrands, Inc. v. Latinvision, Inc., 2014 NY Slip Op. 30700(U), granting plaintiffs’ motion for summary judgment piercing the defendants’ corporate veil.

In Webmediabrands, the plaintiffs were judgment creditors of defendant Latinvision (“LVI”) who sued LVI’s principal shareholder, officer and director, Vassallo, and another company wholly owned by Vassallo, LVM, seeking to hold them liable for LVI’s obligation. “Vassallo was the principal shareholder and officer of both LVI and LVM.” In support of their motion, the plaintiffs presented undisputed evidence that the three defendants routinely commingled funds, including numerous undocumented “loans” to Vassallo by the entities, as well as the lack of “any documentary evidence showing the existence of corporate governance mechanisms.” Based upon that evidence, the court awarded summary judgment to plaintiffs, explaining:

As a general rule, claims involving alter ego liability are fact-laden and not well suited for summary judgment resolution. Here, however, the undisputed facts establish that LVI and LVM had overlapping owners and directors; LVI, LVM, and Vassallo commingled assets; Vassallo used corporate funds for personal purposes; LVM used LVI’s domain name; and LVM and Vassallo held no corporate meetings and kept no corporate records. Under these circumstances, the court holds as a matter of law that both Vassallo and LVM are liable as alter egos of LVI for the judgment against LVI.

(Internal citations and quotations omitted.)

This decision illustrates the type of situation in which veil piercing is appropriate.