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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 9, 2019

Questions of Fact Preclude Summary Judgment on Claim for Deletion of Work in Construction Contract

On December 28, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Graciano Corp. v. Lanmark Group, Inc., 2018 NY Slip Op. 33388(U), holding that questions of fact precluded summary judgment on a claim for deletion of work from a construction contract, explaining:

Graciano argues that it was justified in stopping work on the Project because Lanmark delayed and interfered with Graciano’s work on the Project, and wrongfully deleted a substantial portion of the masonry work from the Subcontract. Graciano blames the delays on events unrelated to the scaffolding, such as installation of steel by another subcontractor, change orders, and delayed responses to requests for information needed to process submittals and shop drawings, and seeks more than $900,000.00 for, among other things, increased costs.

In opposition, and in support of its motion for summary judgment, Lanmark argues that Article 8.1 of the Subcontract expressly permits it to delete a portion of the work to be performed by Graciano, and that Graciano materially breached the Subcontract by abandoning the Project in response to the deletions outlined in Addendum No. 3. Lanmark also asserts that Graciano’s breach of the Subcontract precludes it from recovering damages, and warrants dismissal of the Complaint. Lanmark further maintains that it is not responsible for Graciano’s increased costs, especially since the scope of the work contemplated by the Subcontract was unchanged and the means and methods of completing the work was solely Graciano’s responsibility.

It is beyond dispute that clauses in a construction contract that permit the deletion of work are commonplace and enforceable. However, courts have generally construed such clauses to permit deletions in contracts so long as they do not alter the essential identity of the main purpose of the contract. Enforcement of an omission clause also requires a finding that defendant’s actions in omitting portions of the contract were not arbitrary or capricious.

Here, as stated, the purpose of the Subcontract was “complete masonry installation.” At the very least, a question of fact exists as to whether Addendum No. 3, which, among other things, deleted the remaining masonry work, eliminated substantial and material portions of the work contracted for, and had the effect of altering the essential identity and main purpose of the Subcontract. As such, Lanmark has not established as a matter of law that Graciano breached the Subcontract by stopping work on the Project after receiving Addendum No. 3, which deleted a majority of the work contemplated by the Subcontract. Furthermore, the numerous disputes between Graciano and Lanmark about events of delay and who caused those delays also raise triable issued of fact regarding the claims for breach of contract. Thus, the branches of Defendants’ and Plaintiffs motions for summary judgment on their breach of contract claims must be denied.

(Internal quotations and citations omitted) (emphasis added).

One of the reasons parties often choose to have their contracts governed by New York law is that New York courts generally enforce agreements as written. However, as this decision shows, in rare circumstances, the courts will look beyond the contract to put the parties’ actions in context. 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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Posted: January 8, 2019

Questions of Fact Preclude Summary Judgment Regarding Whether Plaintiff’s Reliance on Alleged Misrepresentations Was Reasonable

On December 27, 2018, Justice Bransten of the New York County Commercial Division issued a decision Norddeutsche Landesbank Girozentrale v. Tilton, 2018 NY Slip Op. 33386(U), holding that questions of fact precluded summary judgment on a fraud claim based on the issue of the plaintiff’s reliance on the alleged misrepresentations, explaining:

Defendants argue Plaintiffs fail to adequately plead justifiable reliance because they failed to conduct sufficient diligence into the structure and operation of the Funds prior to investing. As sophisticated investors, Plaintiffs had an obligation to conduct their own diligence. However, a sophisticated plaintiffs fraud claim will not be precluded where it has sufficiently alleged that defendant possessed peculiar knowledge of the facts underlying the fraud, and the circumstances present would preclude any investigation by plaintiff conducted with due diligence.

Here, Plaintiffs allege the Zohar Funds were owners of the Portfolio Companies and Tilton hid these facts from Plaintiffs. Moreover, as discussed above, the transaction documents and marketing materials provided to Plaintiffs did not put Plaintiffs on notice of Defendants’ alleged fraud in 2005.

Defendants also argue that the Administrative Law Judge in the SEC Proceeding noted that information relating to loan performance and categorization could be calculated from Trustee Reports using “basic math.” However, the SEC Proceeding concerned Defendants alleged fraud in overcharging investors for management fees, whereby Defendants allegedly miscategorized certain loans in order to value them higher than they were actually worth. The Administrative Law Judge’s determination that investors could have figured out the actual interest rate that had been paid on each individual loan using basic math does not necessarily mean that Plaintiffs in this action should have figured out the Funds were not investing in CDOs. Therefore, Defendants’ motion to dismiss based on failure to allege justifiable reliance is denied.

(Internal citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule that a sophisticated businessperson’s reliance on a false statement must be reasonable. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.

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Posted: January 7, 2019

Tortious Interference Claim Dismissed on Summary Judgment

On December 26, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Capital Stack, LLC v. Raharney Capital, LLC2018 NY Slip Op. 33389(U), dismissing a tortious interference claim on summary judgment, explaining:

Capital Stack also seeks summary judgment with respect to its fifth cause of action, for Rahamey’s tortious interference with its prospective economic relations. This cause of action is premised on allegations that Rahamey and Murray directly harmed Capital Stack, in its relations with Meir Kahtan Public Relations, Capital Stack’s public relations consultant, and PR Newswire, an organization through which Capital Stack published press releases.

Capital Stack alleges Rahamey tortiously interfered by improperly contacting Meir Kahtan and PR Newswire and making misrepresentations to them for the sole purpose of harming Capital Stack’s business relationships with them. Capital Stack also alleges that Chris Murray, who is both defendant Sean Murray’s brother and served as Rahamey’s counsel of record in the New York dissolution action and appeal, contacted Meir Kahtan and, through fraudulent misrepresentations, induced Meir Kahtan to disclose to it nonpublic information about Capital Stack.

Capital Stack also alleges Rahamey interfered with its existing relationship with PR Newswire. Murray is alleged have contacted PR Newswire complaining about a “fake press release” which identified Capital Stack and Daily Funder as companies affiliated with eProdigy.

To prevail on a claim for tortious interference with prospective economic advantage, a party must prove (1) that it had a business relationship with a third party; (2) that the defendant knew of that relationship and intentionally interfered with it; (3) that the defendant acted solely out of malice or used improper or illegal means that amounted to a crime or independent tort; and (4) that the defendant’s interference caused injury to the relationship with the third party.

Tortious interference with prospective economic relations requires an allegation that plaintiff would have entered into an economic relationship but for the defendant’s wrongful conduct. Capital Stack, however, does not allege that Meir Kahtan Public Relations or PR Newswire would have entered, or continued, their economic relationships with Capital Stack, but for Defendants’ wrongdoing.

Rather, Capital Stack asserts that a call from Chris Murray to Meir Kahtan was only one of the factors that led to the termination of the relationship, not the “but for” cause for its termination. Furthermore, although Capital Stack alleges that it had a business relationship with PR Newswire and that Defendants tortiously interfered with it, it fails to allege that this interference had anything to do with the termination of the relationship. Accordingly, Capital Stack fails to state a cause of action for tortious interference with prospective economic relations. Capital Stack’s motion for summary judgement is therefore denied and Defendants’ motion for summary judgment, dismissing Capital Stack’s fifth cause of action, is granted.

(Internal quotations and citations omitted) (emphasis added).

In New York, there are circumstances where someone can be held liable for causing someone else to break their contract with you (tortious interference with contract), and they can even be held liable for causing someone not to enter into a contract with you in the first place (tortious interference with prospective economic advantage). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think someone has interfered with your rights relating to a contract.

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Posted: January 6, 2019

Court Erred in Dismissing GBL Section 349 Claim

On January 3, 2019, the Third Department issued a decision in Belair Care Ctr., Inc. v. Cool Insuring Agency, Inc., 2019 NY Slip Op. 00015, holding that a motion court erred in dismissing a GBL Section 349 claim, explaining:

The threshold requirement of consumer-oriented conduct is met by a showing that the acts or practices have a broader impact on consumers at large in that they are directed to consumers or potentially affect similarly situated consumers. The amended complaint alleged that defendants aggressively marketed and advised the trust and self-insurance trusts to the public at large in general as a safe and less expensive alternative to traditional insurance and that the information disseminated by defendants was likely to mislead reasonable employers. The amended complaint further alleged that defendants’ actions injured and harmed plaintiffs, other members of self-insured trusts and the general public and have jeopardized the workers’ compensation benefits of New York employers and their employees. Construing these allegations liberally, as we must, we find that plaintiffs sufficiently alleged that the misconduct at issue was consumer oriented. Accordingly, the General Business Law § 349 cause of action should not have been dismissed . . . .

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. This decision relates a statute-based fraud claim brought by under General Business Law Section 349. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim, including one brought pursuant to a state or federal statute.

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Posted: January 4, 2019

Court Rejects Conclusory Statements in Party Affidavits Submitted on Summary Judgment

On December 18, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Coast to Coast Energy, Inc. v. Gasarch, 2018 NY Slip Op. 33350(U), rejecting conclusory statements in party affidavits submitted in support of summary judgment, explaining:

[T]he Court notes that many of the Plaintiffs factual contentions are brought by affidavit. Many of the statements in both Plaintiffs and Defendant’s affidavits are utterly without supporting documentation and are conclusory. Mere conclusions, unsubstantiated allegations, or expressions of hope are insufficient.

The proponent of summary judgment must eliminate material issues of fact by producing evidentiary proof in admissible form. It is only the party opposing summary judgment who may, in the alternative, demonstrate acceptable excuse for his failure to meet the strict requirement of tender in admissible form.

Here, questions as to whether statements made by the parties are admissible are apparent throughout their submissions. For example, Plaintiff Spence purportedly conducted an analysis of prior monthly operations summaries. He has not otherwise proffered foundational evidence that he is an expert able to render an expert opinion on the issue, what methods he purportedly used to render an analysis. Similarly, Gasarch occasionally relies upon his own prior affidavits, without further evidentiary support, in support of his summary judgment motion. The insufficiency of these submissions either warrants a finding that a material issue of fact exists, at a minimum, or a finding in favor of the Defendant as a matter of law. The Court will, therefore, analyze the remaining arguments to determine whether material issues of fact exist.

(Internal citations omitted).

Cases in the Commercial Division of the New York courts usually involve a motion to dismiss at the outset and then a motion for summary judgment at the close of discovery, so such motions are a big part of our practice. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about seeking or opposing a motion for pre-trial dismissal of a commercial lawsuit.

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Posted: January 3, 2019

Action Dismissed for Failure Timely to Serve Defendants

On December 17, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Juma Tech. Corp. v. Servidio, 2018 NY Slip Op. 33347(U), dismissing an action for failure timely to serve the defendants, explaining:

CPLR 306-b also states, in relevant part, that service of the summons and complaint shall be made within one hundred twenty days after the commencement of the action or proceeding. Moreover, if service is not made upon a defendant within the time provided in this section, the court, upon motion, shall dismiss the action without prejudice as to that defendant. Plaintiffs commenced this action on November 21, 2017 and, thus, were required to serve Defendants by March 21, 2018.

The affidavits of service reveal that none of the defendants were served within 120 days of November 21, 2017. In their opposition to the instant motions, plaintiffs fail to address their failure to serve defendants within the timeframe set forth in CPLR 306-b. Instead, plaintiffs assert that they intend to cross-move for an extension of time to complete service. To date, plaintiffs have not filed a motion for an extension of time and have not proffered an excuse for failing to do so. Nevertheless, plaintiffs urge the court to permit them additional time to effectuate service.

The court is authorized to dismiss the complaint in the absence of a cross-motion for an extension. As plaintiffs have not cross-moved for an extension of time, the Court concludes service on defendants was untimely and the Complaint is dismissed against the Nectar Holdings, VCAL, VCAF, the Servidio Defendants and Thomson.

(Internal quotations and citations omitted).

The rules regarding how you start a lawsuit and bring the defendants into it can sometimes be esoteric. As shown here, there are rules regarding how long a plaintiff has to serve a defendant. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding the proper way to serve a defendant, bringing them into a lawsuit.

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Posted: January 2, 2019

Belated Complaint About Invoice Does Not Defeat Account Stated Claim

On November 1, 2018, Justice Hudson of the Suffolk County Commercial Division issued a decision in Walter Boss, Inc. v. Cleary, 2018 NY Slip Op. 33194(U), holding that a belated complaint about an invoice does not defeat an account stated claim, explaining:

An account stated is an agreement, express or implied, between the parties to an account based upon prior transactions between them with respect to the correctness of account items and a specific balance due on them which is independent of the original obligation.

Although it is a separate and distinct theory of recovery, it necessarily arises from the same circumstances which bestow the right to sue for breach of contract.

Mr. Boss’ testimony and supporting documentation demonstrates that the following chronology of relevant events occurred: On 02/16/2007, Mr. Boss gave an estimate to Mr. Kohler. On 03/26/2007, a meeting with Mr. Kohler resulted in the preparation of a new invoice being presented to him on 04/07/2007. This invoice reflected an agreed upon price of $501,180.00 which was received without objection. Another invoice was prepared and given to Mr. Kohler on 04/29/2007, with a price of $507,995.00. Again, no objection was made to Mr. Boss’ demands at that time. Ultimately, Mr. Boss prepared, and delivered, a final invoice which indicated adjustments on the as-built structure. This was in August of 2007. It was at this time that the Defendants bestirred themselves to object via an email Mr. Kohler sent to Mr. Boss on August 16, 2007. We note this objection was posed only after the conversation of Mr. Boss and Mr. Cleary at the Fire Island Pines ferry dock in August of 2007.

An essential element of an account stated is that the parties came to an agreement with respect to the amount due. Following the General Rule of Contracts, silence alone cannot be deemed as agreement. In some circumstances, however, in the absence of an objection made within a reasonable time, an implied account stated may be found. As stated in the case of Branch Servs., Inc. v. Cooper, 102 A.D.3d 645, 646, 961 N.Y.S.2d 170, 173 (2nd Dept. 2013):

An agreement may be implied where a defendant retains bills without objecting to them within a reasonable period of time or makes partial payment on the account.

In opposition to Plaintiff’s claim, the Defendants rely on the holding in M & A Const. Corp. v. McTague, 21 A.D.3d 610, 611-12, 800 N.Y.S.2d 235 (3rd Dept. 2005). In that case, the Court reasoned:

Where either no account has been presented or there is any dispute regarding the correctness of the account, the cause of action fails. Here, the Supreme Court found that Defendants disputed aspects of the accounts and informed Plaintiff that payment was being withheld because certain work had not been completed. Moreover, Plaintiff admitted that at least one of the accounts was not correct.

We find the Defendants’ reliance on M & A Const. (and its like) to be misplaced. Once again, this argument presumes the Court giving credence to the testimony of the Defendants. To the contrary. this Court gives full credit to Mr. Boss’ sworn statements at trial.

The Defendants’ partial payments tendered to Boss Inc. are also a factor which we must consider. The Court in Jaffe v. Brown-Jaffe, 98 A.D.3d 898, 951 N.Y.S.2d 142 (151 Dept. 2012) stated either retention of bills without objection or partial payment may give rise to an account stated.

Under these circumstances, the facts at trial, with one exception, are governed by the rule in Bay Ridge Lumber Co. v. Summit Renovation Corp., 271 A.D.2d 559, 706 N.Y.S.2d 155 (2nd Dept. 2000) where the Court stated that since the defendant did not object to the Invoices it received within a reasonable period of time, its retention of them without objection gave rise to an enforceable account stated.

The final, and determinative, question as to whether Plaintiff has proven an account stated concerns the timeliness of Mr. Kohler’s objection. As noted by Mr. Snead: The retention of invoices for a period of several months without dispute has been found sufficient to substantiate an account stated.

The transaction in Jim-Mar was a single invoice submitted over five months prior to the objection. The Court in Marino addressed a scenario where the Defendant retained multiple bills for the unpaid services without objection for several months.

In addition to the above case law provided by Counsel, the Court is guided by the Decision in Herrick, Feinstein., LLP v. Stamm, 297 A.D.2d 477, 746 N.Y.S.2d 712 (1st Dept. 2002). The Appellate Court held that an objection sufficient to defeat a claim for an account stated had been made by the Defendant. The Court specified that the reason for the objection being timely was that the first objection had been made approximately two months after receipt of the first of the invoices.

Applying the rationale of Herrick to the instant case, Mr. Kohler’s first objection, for the purposes of the case, is not measured against the last invoice. Instead it is set against the invoices of 02/16/2007 and 04/07/2007. In either event, his objection came too late to be considered timely.

(Internal quotations and citations omitted).

People sometimes are surprised to learn that if they do not complain about a bill they receive, they can be found to have agreed to it. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about a claim based on un-objected-to invoices.

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Posted: January 1, 2019

Theft of Trade Secret Claims Dismissed Because Information Was Disclosed to the Public

On December 11, 2018, Justice Ash of the Kings County Commercial Division issued a decision in Corporate Transp. Group, Ltd. v. Limosys, LLC, 2018 NY Slip Op. 33282(U), dismissing a theft of trade secrets claim because the alleged trade secret had been disclosed to the public, explaining:

To prevail on a claim for misappropriation of trade secrets, a plaintiff must demonstrate: (l) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means. A trade secret is any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.

An essential prerequisite to legal protection against the misappropriation of a trade secret is the element of secrecy. Generally, where customer information is readily ascertainable outside the plaintiff’s business, trade secret protection will not attach to such information. Conversely, where the customers are not known in the trade or are discoverable only by extraordinary efforts courts have not hesitated to protect customer lists and files as trade secrets.

Here, Plaintiff seeks trade secret protection for its customer and affiliate list as well as its pricing, but fails to allege what measures Plaintiff has employed to keep said information confidential. Moreover, Plaintiff fails to dispute Limosys’s assertion that such information is a matter of public record and that Plaintiff has also freely disclosed said information in other litigation. The complaint also fails to explain how Limosys’s alleged use of CTG’s information provides Limosys an advantage over its competitors that it did not have previously. With regards to Plaintiff’s claim that its trade secrets also pertain to its internal logistical and operational procedures, this claim is too conclusory, especially given the foregoing. Accordingly, Plaintiff’s cause of action for misappropriation of trade secrets must be dismissed.

(Internal quotations and citations omitted).

The law protects intellectual property in a number of ways, but that protection is not unlimited, as this decision shows. We frequently litigate intellectual property claims, including trademark, copyright and trade secret claims. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about whether you have, or face, a claim for theft or infringement of intellectual property.

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Posted: December 31, 2018

Memorandum of Understanding Found to be Unenforceable Agreement to Agree in the Future on Terms Rather Than Binding Contract

On December 20, 2018, the Third Department issued a decision in Doller v. Prescott, 2018 NY Slip Op. 08733, holding that a memorandum of understanding was an unenforceable agreement to agree in the future on terms rather than a binding contract, explaining:

Plaintiff’s first, second, fifth and seventh causes of action for breach of contract, fraud, unjust enrichment and breach of the duty of good faith and fair dealing, respectively, as well as the sixth cause of action for a declaratory judgment, all stem from the MOU and plaintiff’s attempt to purchase the Ryan Trust Shares. The MOU defines the Ryan Trust Shares as those that were in the control of a trust that was a party to litigation involving both Prescott and Integra pending at the time the MOU was executed. In relevant part, the MOU included an “[o]ffer of [e]quity,” specifically, that plaintiff was to “be given a right of first refusal for [e]quity.” The MOU defined equity as “ownership or the rights of ownership in Integra.” The “[o]ffer of [e]quity” provided that plaintiff’s first refusal right “shall include, but not be limited to, the right of first refusal to acquire the Ryan Trust Shares should they become available and/or equity grants or an equity earn in. However, the precise manner in which this [e]quity is offered shall be determined subsequent to the [e]nd of [l]itigation or circumstances deemed mutually sufficient by both Prescott and [plaintiff].” Further, the MOU confirmed the parties’ understanding that “the offer of [e]quity [was] a material inducement to [plaintiff] entering into [the] [a]greement.” Plaintiff alleged that Prescott misrepresented his intention to allow plaintiff to purchase the Ryan Trust Shares, made similar offers of equity to other Integra employees and intentionally refused to issue the Ryan Trust Shares to plaintiff.

We agree with Supreme Court’s determination that the MOU was unenforceable. A contract must be definite in its material terms to be enforceable, and the terms must manifest mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms. This requirement of definiteness assures that courts will not impose contractual obligations when the parties did not intend to conclude a binding agreement. An agreement to agree, in which a material term is left for future negotiations, is unenforceable.

In the MOU — which is documentary evidence that may be considered in the context of a motion pursuant to CPLR 3211(a)(1) — plaintiff and Prescott expressly confirmed that both would proceed diligently and in good faith to satisfy the conditions required in order to enter into definitive agreements to close the offer of equity. Similarly, the parties confirmed that, during the pendency of the trust litigation, the offer of equity was to be held in abeyance, and that once the litigation ended, the two would proceed diligently with a view toward completing, among other transactions, the offer of equity. In our view, the qualifying language in the MOU expressly belies plaintiff’s allegations that he was contractually entitled to purchase the Ryan Trust Shares. To the contrary, the parties left open for future negotiation both the type of equity and the precise manner in which that equity would be offered. In effect, the MOU was an unenforceable agreement to agree in the future on terms of a definitive agreement regarding the offer of equity, and Supreme Court therefore properly granted defendant’s motion to dismiss the first (breach of contract) and sixth (declaratory judgment) causes of action.

(Internal quotations and citations omitted).

In New York, a contract must contain the material terms of the agreement to be binding. As this decision shows, there sometimes are disputes over whether all the material terms of the contract are embodied in the agreement being sued upon. 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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