Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
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).
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.
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.
On March 27, 2014, the First Department issued a decision in Getty Properties Corp. v. Getty Petroleum Marketing Inc., 2014 NY Slip Op. 02139, sanctioning a defendant that submitted a deficient record on appeal.
In Getty Properties, the First Department both denied the defendants’ appeal and sanctioned them for submitting a “deficient” record on appeal, writing:
The record filed by defendants’ attorney was so deficient as to amount to frivolous conduct (see 22 NYCRR 130-1.1[c]; Rogovin v. Rogovin, 27 AD3d 233 [1st Dept 2006]). By order entered December 12, 2013, we granted plaintiffs leave to file a supplemental appendix without prejudice to seeking costs and/or sanctions directly on the appeal. We remit the matter to Supreme Court to determine plaintiffs’ actual expenses of printing the supplemental appendix (see CPLR 5528[e]; Fidelity N.Y. v. Madden, 212 AD2d 572, 573-574 [2nd Dept 1995]; Mandell v Grosfeld, 65 AD2d 743 [1st Dept 1978]), as well as reasonable attorneys’ fees incurred in connection with plaintiffs’ motion to dismiss the appeal for the deficient appendix (see 22 NYCRR 130-1.1[c]; Rogovin, 27 AD3d at 235).
To be sure, the cost of preparing the record in a complex case can be significant. This decision shows how not to handle the problem.
On March 20, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Alliance Network, LLC v. Sidley Austin LLP, 2014 NY Slip Op. 50430(U), dismissing Judiciary Law Section 487 claims because they were not brought in the action in which the alleged misconduct occurred.
In Alliance Network, the plaintiffs brought a number of claims relating to a failed real estate development, including claims against several lawyers and law firms alleging that they had violated Judiciary Law § 487 in an earlier, related litigation. The court dismissed those claims, explaining:
Section 487 of the Judiciary Law provides that 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 shall forfeit to the party injured treble damages, to be recovered in a civil action. The Attorney Defendants seek dismissal of Plaintiffs’ Section 487 claim on several grounds, including failure to state a claim. However, before delving into the parties’ arguments as to each of the misrepresentations alleged, there is a threshold issue that troubles the Court and requires dismissal of Plaintiffs’ claims.
Transcripts and videos of arguments in the Court of Appeals for the week of February 17, 2014, are now available on the Court of Appeals website.
On February 10, 2014, we noted two cases of interest from the oral arguments for the week of February 17, 2014:
- Docket No. 63: Matter of Kapon v. Koch (considering whether a court ruling on a motion, under CPLR 3119(e), to quash an out-of-state subpoena to a non-party witness should apply the generally applicable standards under CPLR Article 31, or should instead review the subpoena with “solicitude” to ensure that a New York resident with no stake in the litigation is not unduly burdened). See the transcript and the video.
- Docket No. 54: Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Brothers Company (considering whether a motion to dismiss a third-party action on forum non conveniens grounds, under CPLR 327(a), empowers the court to dismiss the main action on the same ground, even though no party to that action moved for that relief). See the transcript and the video.
On March 27, 2014, the First Department issued a decision in Abreu v. Barkin & Associates Realty, Inc., 2014 NY Slip Op. 02146, clarifying that an offer of judgment under CPLR 3220 entitles the offering party not just to costs but also to its attorneys’ fees related to proving damages.
On March 17, 2014, the New York County Commercial Division announced an experimental program to use hyperlinks and bookmarking in e-filed cases. The full text of the statement is repeated below: (more…)
On March 12, 2014, Justice Kitzes of the Queens County Commercial Division issued a decision in In the Matter of Kassab, Index No. 14428/2013, ruling on two pending motions in a special proceeding involving claims for judicial dissolution of two closely-held entities and related relief.
This post focuses on the resolution of the respondent’s motion to dismiss the petitioner’s third cause of action to withdraw as a member of an LLC.
Section 606(a) of the LLC Law provides that member of an LLC may only withdraw if the right of withdrawal is provided for in the operating agreement “unless an operating agreement provides otherwise, a member may not withdraw from a limited liability company prior to the dissolution and winding up of the limited liability company.”
In Kassab, Justice Kitzes dismissed the petitioner’s claim to withdraw, writing:
Thus, under the statute, a member may withdraw from a limited liability company only as provided in its operating agreement. If the operating agreement is silent, a member may not withdraw prior to the dissolution of the company. Here, [the LLC]’s operating agreement provides, in pertinent part, that “a Member of the Company may withdraw from the Company in accordance with the Limited Liability Company Law.” Therefore, as there has been no dissolution of [the LLC], and as petitioner does not allege the existence of some other agreement or consent, the third cause of action fails to state a claim for withdrawal under the provisions of Limited Liability Company Law § 606. That branch of respondent’s motion which seeks to dismiss the third cause of action, is granted.
(Internal citations omitted.)
NOTE: Schlam Stone & Dolan LLP represents the petitioner in this action.
On March 25, 2014, the First Department issued a decision in Sunrise Capital Partners Management LLC v. Glattstein, 2014 NY Slip Op. 01994, affirming a default judgment.
In Sunrise Capital Partners, the trial court granted the plaintiff judgment by default when the defendants failed to answer and later denied the defendants’ motion to vacate the default judgment. The First Department affirmed, explaining:
Defendants’ excuse that they did not contact outside counsel because they were relying on in-house counsel to resolve the matter is insufficient, as they offered no facts as to how or why they believed in-house counsel was handling the matter. Moreover, defendants’ excuse that they believed plaintiffs did not intend to proceed with the lawsuit is conclusory. Defendants have not alleged any statements made by plaintiffs that would indicate they were not serious about prosecuting their claim. Accordingly, defendant has failed to proffer an acceptable excuse for the default, and the Court need not determine whether a meritorious defense exists.
(Internal citations omitted).
New York courts can be lenient in vacating defaults. However, as this decision shows, that leniency is not unlimited. If your client has an excuse for its default, make sure you take the time fully to explain and document it.