Commercial Division Blog

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

New York County Case Assignment Changes

The elevation of New York County Commercial Division Justice Kapnick to the First Department has resulted not just in the assignment of Justice Scarpulla to the Commercial Division, it also has resulted in the reassignment of Commercial Division and general assignment cases. The Court’s notice regarding these changes is summarized below:

  • Justice Kapnick began her assignment to the First Department effective February 3, 2014.
  • Justice Kapnick has been succeeded in Commercial Division Part 39 by Justice Scarpulla. Commercial Division cases in Part 39 assigned to Justice Kapnick will be reassigned Justice Scarpulla. Unless parties are notified otherwise, Justice Scarpulla will maintain all dates previously scheduled by Justice Kapnick.
  • General Assignment cases assigned to Justice Scarpulla in Part 19 shall be reassigned as soon as possible to Justices Bannon (Part 42), Moulton (Part 57), and Wright (Part 47).
  • General Assignment cases assigned to Justice Kapnick in Part 39 and to Justice Oing in Part 48 are being reassigned to General Assignment Justices generally.
Posted: February 5, 2014

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on yet another proposed change to the rules of the Commercial Division. In addition to the four proposed rule changes about which we posted on January 1, 2014 (the comment period already has closed for two of the four proposals), the court also is seeking public comment on the proposed creation of a Special Masters pilot program in the Commercial Division of the Supreme Court.

Generally, proposal is that:

one or more Commercial Division Justices would participate in an 18-month pilot involving referral of complex discovery issues to a pool of Special Masters comprised of seasoned former practitioners no longer active in the practice of law. Special Masters would be asked to hear and report to the court on discovery issues, and would serve pro bono. The parties would be required to consent to referral of discovery matters to a Special Master and bear any costs related thereto. Procedures would be instituted to ensure the random assignment of Special Masters and to identify and avoid obvious conflicts.

Email comments to by March 31, 2014.

Posted: February 5, 2014

Fact Witness Not Allowed to Channel Expert’s Opinion

On January 22, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Wathne Imports, Ltd. v. PRL USA, Inc., 2014 NY Slip Op. 30261(U), excluding testimony of the plaintiff’s chief executive and co-owner on damages for lack of personal knowledge.

In Wathne Imports, the plaintiff held exclusive licenses to sell luggage bearing various Polo and Ralph Lauren trademarks. When the defendants discontinued some of the lines, the plaintiff sued for its lost profits. The lost profits were, in turn, the subject of this opinion; after being unable to offer a qualified expert witness on damages, the plaintiff turned to its chief executive, Berge Wathne, claiming that she had sufficient personal knowledge from her day-to-day job that she could testify to lost profits as a lay witness.

Relying on a case from the Third Circuit, Lightning Lube v. Witco Corp., 4 F.3d 1153 (3d Cir. 1993), the court initially permitted Ms. Wathne to testify as a lay witness. However, after her deposition, the defendants again moved to preclude her testimony. The court granted their motion, finding that

Ms. Wathne’s testimony relies heavily on data and calculations provided to her by an expert, Glenn Newman. While much of the information provided is empirical data regarding sales, the calculation of Profit Margin and, to some extent, the calculation of Lost Sales, is a subjective calculation requiring specialized knowledge. In fact, the 25% profit margin to which Ms. Wathne seeks to testify, came entirely from Newman’s calculations.

The court distinguished Lightning Lube—where the business owner also relied on documents provided by his accountant—on the grounds that

the owner in Lightning Lube had demonstrated that he was capable of independently performing the calculation . . . . Conversely, Ms. Wathne’s testimony demonstrates that she lacks personal knowledge of these calculations and would not be capable of making the subjective calculations independent of Newman’s reports and counsel’s guidance.

Accordingly, the court excluded Ms. Wathne’s testimony because it “would merely be a conduit for the opinions of experts not subject to cross examination.”

For practitioners, this opinion shows that even an apparently qualified and knowledgeable lay witness may not be able to testify in the place of an expert. It is also noteworthy that the court relied on a federal appellate decision in initially permitting the testimony, and this should be kept in mind when researching precedents for commercial cases.

Posted: February 4, 2014

Landlord’s Alleged Role in Frustrating Achievement of Contract’s Purpose Allows Claim for Breach of Duty of Good Faith and Fair Dealing to Survive Motion to Dismiss

On January 22, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Gelita, LLC v. 133 Second Ave., LLC, 2014 NY Slip Op. 50064(U), refusing to dismiss a claim for breach of the duty of good faith and fair dealing.

Among the many claims brought by the plaintiff that the defendants sought to dismiss was a claim for breach of the duty of good faith and fair dealing. The court declined to dismiss the claim, explaining:

The seven causes of action asserted against the Owner all attempt to arrive at the same legal conclusion — that, as a result of the Premises being unfit for its intended use, plaintiffs are absolved from paying the balance of rent due under the Lease. The Owner’s primary defense is that the Lease explicitly places the burden of building out the Premises and ensuring the suitability of its intended use on plaintiffs’ shoulders. Moreover, as discussed at length in the June Order, the Lease also explicitly disclaims any liability on the part of the Owner for problems arising from such build out or related legal issues, such as regulatory compliance. . . . .

The covenant of good faith and fair dealing in the course of performance is implied in every contract. This covenant embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract. While the duties of good faith and fair dealing do not imply obligations inconsistent with other terms of the contractual relationship,’ they do encompass any promises which a reasonable person in the position of the promisee would be justified in understanding were included. The duty of good faith and fair dealing may be breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement. However, a claim for breach of the implied covenant of good faith and fair dealing cannot substitute for an unsustainable breach of contract claim. In other words, the covenant of good faith and fair dealing cannot be construed so broadly as to effectively nullify other express terms of the contract, or to create independent contractual rights. Simply put, a plaintiff cannot contend that a defendant has a good faith obligation under a contract when that obligation is expressly disclaimed in the contract itself.

(Internal quotations and citations omitted) (emphasis added).  The court went on to explain that there was a question of fact whether

the Owner [had] committed bad acts in connection with the construction job . . . . Had the Owner done nothing, and left plaintiffs to their own devices, there would be no breach. However, if the Owner had a role in the alleged shoddy construction, the Owner would have played a part in frustrating plaintiffs’ ability to use the Premises and hence would have prevented plaintiffs from reaping the fruits of the contract. . . . Discovery is needed to determine . . . the actual scope of the Owner’s involvement in and responsibility for the alleged shoddy construction.

It is rare to see a claim for the breach of the duty of good faith and fair dealing survive a motion to dismiss. This decision is an example of (alleged) facts establishing such a claim.

Posted: February 3, 2014

Transcripts and Videos of Arguments in the Court of Appeals for the Weeks of January 6 and January 13 Now Available

Transcripts and videos of arguments in the Court of Appeals for the weeks of January 6 and January 13 are now available on the Court of Appeals website.

On January 9, 2014, we noted three cases of interest from the oral arguments for the week of January 6:

  • Docket No. 2: Executive Plaza, LLC v. Peerless Insurance Company (addressing, on a certified question from the Second Circuit, whether a lawsuit under a fire insurance policy is barred by a policy provision that requires any lawsuit be brought within two years of the damage, when a contractual condition precedent to suit could not reasonably be accomplished within two years). The oral argument transcript and video for this case are not available due to “technical difficulties.”
  • Docket No. 8: Biotronik A.G. v. Conor Medsystems Ireland, Ltd. (examining whether the relief sought in an exclusive distributor’s breach of contract claim against a manufacturer for lost profits from sales to third parties constitutes “consequential damages,” and therefore barred under the terms of the distribution agreement, or instead “general damages” given that the distributor’s resale to third parties “was the very purpose of the Agreement”).  See the transcript and the video.
  • Docket No. 11: Voss v. The Netherlands Insurance Company (To be argued Thursday, January 9, 2014) (considering whether the doctrine that an insurance policyholder is “charged with conclusive presumption of knowledge of the terms and limits” of the policy can be invoked to defeat a claim against an insurance broker for negligence in advising the insured as to the adequate amount of insurance).  See the transcript and the video.

On January 14, 2014, we noted four cases of interest to Commercial Division practitioners from the oral arguments for the week of January 13:

  • Docket No. 21: Country-Wide Insurance Company v. Preferred Trucking Services Corp. (concerning the timeliness of a liability carrier’s disclaimer of coverage based on the insured’s non-cooperation in the defense).  See the transcript and the video.
  • Docket No. 24: Melcher v. Greenberg Traurig, LLP (addressing when plaintiff’s claim for “attorney deceit” under Judiciary Law § 487 accrued and therefore whether the claim was timely under the applicable 3-year statute of limitations).  Argument has been rescheduled to February 14, 2014.
  • Docket No. 25: QBE Insurance Corporation v. Jinx-Proof Inc. (concerning whether an insurance carrier’s reservation of rights letters served “as effective written notices of disclaimer” under New York law).  See the transcript and the video.
  • Docket No. 27: Landauer Limited v. Joe Monani Fish Co. (addressing whether an English default judgment is enforceable in New York, despite technical deficiencies in service under CPLR 311, where the parties’ contract provided that any disputes would be litigated in English courts and the defendant had actual notice of the English action before the default judgment was entered).  See the transcript and the video.
Posted: February 3, 2014

Arbitration Clause in E-Mailed Terms and Conditions to Trading Account Agreement Not Sufficient to Bind Parties to Arbitration

On January 30, 2014, the First Department issued a decision in Basis Yield Alpha Fund (Master) v. Goldman Sachs Group, Inc., 2014 NY Slip Op. 00587, affirming a trial court’s refusal to compel arbitration.

In Basis Yield Alpha Fund, the defendant moved to compel arbitration based on a “document entitled ‘General Terms and Conditions’ that was attached to a November 10, 2006 email” to the plaintiff. However, the attachment was never signed by the plaintiff. The First Department affirmed the trial court’s refusal to compel arbitration, explaining:

[The defendant] . . . fails to satisfy the heavy burden of demonstrating that arbitration should be compelled pursuant to CPLR Article 75. As the Court of Appeals has stated, a party will not be compelled to arbitrate absent evidence which affirmatively establishes that the parties expressly agreed to arbitrate their disputes. The agreement must be clear, explicit and unequivocal. An arbitration clause in an unsigned agreement may be enforceable but only when it is evident that the parties intended to be bound by the contract.

Here, there is a substantial question as to whether the parties agreed to arbitrate. In support of its motion to compel arbitration, [the defendant] relied on a mandatory arbitration clause set forth in a document entitled “General Terms and Conditions” that was attached to a November 10, 2006 email. [The defendant] claims to have sent the email to [the plaintiff] in connection with the latter’s opening of a trading account with [the defendant]. It is, however, undisputed that the document was never signed by anyone from [the plaintiff]. More importantly, the director of [the plaintiff’s] managing entity swore in an affidavit that [the plaintiff] never entered into the arbitration agreement [the defendant] proffers.

(Internal quotations and citations omitted).

This decision is a cautionary tale regarding the need to observe formalities in a world of e-mail and Internet communications. There is a substantial body of law regarding the binding effect of e-mail agreements, electronic agreements and the like. Still, when you need to be sure, get a signature.

Posted: February 2, 2014

RMBS Planitiff Moves for Leave to Appeal to Court of Appeals

On December 23, 2013, we blogged about the First Department’s decision in ACE Sec. Corp. v. DB Structured Prods., Inc., 2013 NY Slip Op. 08517, which dismissed a mortgage-backed securities lawsuit as barred by the failure both to give the contractually-required notice and an opportunity to cure and to bring suit before the end of the limitations period.  As reported by Reuter’s Allison Frankel, the plaintiff-appellant filed a motion for re-argument or, alternatively, leave to appeal to the Court of Appeals.  On the brief, a copy of which is available here, plaintiff-appellant’s counsel, Kasowitz, Benson, Torres & Friedman LLP, is joined by former U.S. Solicitor General Paul D. Clement.

Posted: February 1, 2014

Derivative Action Dismissed for Failure Adequately to Plead Demand Futility

On January 21, 2014, Justice Kapnick of the New York County Commercial Division issued a decision in Kebis v. Azzurro Capital Inc., 2014 NY Slip Op. 30171(U), dismissing a derivative action for failure adequately to plead demand futility.

In Kebis, the plaintiff brought a derivative action against a corporation’s board of directors alleging “breaches of fiduciary duties and unjust enrichment” in connection with the sale of a division of the corporation. The court granted the defendants’ motion to dismiss for failing to plead demand futility with particularity as required by Delaware law. The court explained: (more…)

Posted: January 31, 2014

Justice Saliann Scarpulla Appointed to New York County Commercial Division

On January 18, 2014, we posted that Governor Cuomo had announced the appointment of Justice Barbara R. Kapnick of the New York County Commercial Division to the First Department.  We have been informed that Justice Saliann Scarpulla of the New York County Supreme Court has been selected to replace Justice Kapnick as a Justice of the Commercial Division.

Justice Scarpulla currently is a Justice of the Supreme Court, New York County.  She was appointed as an Acting Justice 2009 and was elected in 2013.  Justice Scarpulla also served as Judge, Civil Court of the City of New York, New York County from 2002 to 2008 and as Justice Eileen Bransten’s Court Attorney from 1999 to 2001. From 1997 to 1999 she was Senior Vice President and Bank Counsel at Hudson United Bank and from 1993 to 1997 worked for the FDIC New York Legal Services Office as a Counsel/Senior Litigator. Prior to that she was a litigation associate with the firm of Proskauer Rose Goetz & Mendelsohn and a court attorney for Justice Alvin F. Klein’s. She is a graduate of Brooklyn Law School and Boston University.

Congratulations to Justice Scarpulla.