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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: July 30, 2014

When no Present Claim and a Subsequent Dispute Would be New and Distinct, Party not Necessary Under CPLR 1001

On July 15, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 37 E. 50th St. Corp. v. Restaurant Group Management Services, L.L.C., 2014 NY Slip Op. 31876(U), granting a defendant’s motion to dismiss on the grounds that it was not a necessary party under CPLR 1001(a).
In 37 E. 50th St. Corp. , the owner (37 East) and manager (RGMS) of a restaurant agreed that RGMS would negotiate a lease extension with the landlord (Eurofinch) on behalf of both entities, but the new lease “cut 37 East out as a tenant” and named an affiliate of RGMS as the new tenant. 37 East sued RGMS for breach of contract and fiduciary duties, seeking injunctive relief requiring RGMS to assign the lease to 37 East. Because Eurofinch would be required to give its consent (not to be unreasonably withheld) to the assignment, 37 East also named Eurofinch as a defendant, although no direct claim was asserted against Eurofinch.
Eurofinch moved to dismiss on that basis, and 37 East opposed on the grounds that the landlord was a necessary party in a litigation concerning the assignment of a lease.
The court rejected all of 37 East’s arguments and dismissed Eurofinch.
First, the court noted that, as a general principle of law, “in order for an entity to be a necessary party, it must be one against whom plaintiff can assert a right to relief.” And in this case, 37 East had no present right to relief against Eurofinch, which would only become implicated in the dispute if it unreasonably withheld its consent to an assignment between 37 East and RGMS. The court held that any assertion that Eurofinch would breach its contractual obligations was highly speculative, and also noted that an entity that is merely “required to provide some cooperative acts if a judgment is adverse to the defendants” is not by law a necessary party.
Second, the court held that the general rule that “third parties with an interest in the property underlying the litigation between plaintiff and defendant [are] necessary parties” was inapplicable:

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Posted: July 29, 2014

Analyses Performed by Litigation Counsel Not Work Product When Done to Meet Contractual Obligation

On July 16, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Home Equity Mortgage Trust Series 2006-1 v. DLJ Mortgage Capital, Inc., 2014 NY Slip Op. 31923(U), granting a motion to compel the production of analyses performed by litigation counsel.
In Home Equity Mortgage Trust Series 2006-1, the plaintiff moved to compel the production of loan repurchase analyses performed for the defendant by Orrick, Herrington & Sutcliffe LLP, which was hired by the defendant not just to perform the analyses but also to "advise [the defendant] of any legal liability that may result." Notwithstanding that the analyses were performed by litigation counsel, the court granted the motion to compel, explaining:

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Posted: July 28, 2014

Court Refuses to Order Production of ESI, Finding Previous Productions Sufficient

On July 17, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 2014 NY Slip Op. 31871(U), denying the plaintiff's motion to compel production of electronically stored information (ESI) that it claimed the defendant had improperly withheld as "non-responsive." The court concluded that "based on the ESI produced to date, the parties have received all of the documents necessary, and more, to litigate the merits of their claims and defenses at trial and to ensure that any jury verdict is based on a reliable factual record":

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Posted: July 27, 2014

Class Not Certified When Plaintiff’s Evidence of Class Size is Insufficient

On June 24, 2014, Justice Platkin of the Albany County Commercial Division issued an opinion in Picard v. Bigsbee Enterprises, Inc., 2014 NY Slip Op. 51113(U), denying a motion for class certification for failure to establish numerosity.
In Picard, the plaintiff brought a class action "premised on alleged violations of New York Labor Law § 196-d." The court denied the plaintiff's motion for class certification on the ground that the plaintiff had not established the numerosity element for certification as a class action, explaining:

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Posted: July 26, 2014

Commercial Division Rules Amended to Increase Monetary Thresholds and Encourage Early Exchange of Documents Facilitating Settlement

The Chief Administrative Judge has signed orders (1) raising most of the monetary thresholds for assignment of cases to the Commercial Division and (2) amending Rule 8 to provide for the voluntary exchange of documents that would facilitate early settlement.
The amended NYCRR § 202.70(a), which goes into effect on September 2, 2014, changes the monetary thresholds for assignment of cases to the Commercial Division. Here are the thresholds effective September 2, 2014:

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Posted: July 25, 2014

Even Where CPLR 3211(a)(4) Does Not Require Dismissal, Cases Can be Consolidated

On July 10, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in 11 E. 68th St. LLC v. Madison 68 Realty LLC, 2014 NY Slip Op. 31872(U), analyzing the rules for dismissal or consolidation when there are two pending actions regarding similar subject matter.
In 11 E. 68th St. LLC, the defendant filed an action relating to a real estate deal done bad. The next day, the plaintiff filed a similar action. The defendant moved to dismiss the second-filed action pursuant to CPLR 3211(a)(4). The court ultimately decided to consolidate the actions, rather than dismiss the second-filed on, but in doing so, it explained a number of issues relevant to a motion to dismiss in favor of a prior pending proceeding:

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Posted: July 24, 2014

BCL § 1112 is Controlling for Determining Venue In an Action Seeking Judicial Dissolution

On July 21, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Sicignano v. Hymowitz, 2014 NY Slip Op. 51100(U), refusing to change venue in an action seeking judicial dissolution.
In Sicignano, the defendants in an action seeking "judicial dissolution . . . pursuant to Business Corporation Law § 1104-a" and asserting claims for negligence and breach of fiduciary moved for a change of venue. The court denied the motion, explaining:

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Posted: July 23, 2014

Commercial Division Applies Delaware Demand Futility Pleading Rules

On July 3, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in David Shaev Profit Sharing Account v. Riggio, 2014 NY Slip Op. 31776(U), dismissing a derivative action for failure adequately to plead demand futility. In David Shaev Profit Sharing Account, the plaintiff filed a derivative action against the individual directors of Barnes & Noble, accusing them

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Posted: July 22, 2014

Policy Exclusions Bar Coverage For Banks Sued By Investors Who Lost Funds In Madoff Ponzi Scheme

On June 24, 2014, the First Department issued a decision in Associated Community Bancorp, Inc. v. St. Paul Mercury Ins. Co., 2014 NY Slip Op. 04697, affirming the dismissal of insurance coverage claims by banks that were sued by customers who suffered losses as a result of investments in Bernard L. Madoff Investment Securities through custodial accounts managed by the banks.
In Associated Community Bancorp, the First Department found that several exclusions to the plaintiff banks' "Bankers Professional Liability Insuring Agreements" barred coverage, including (1) an exclusion for claims arising from a loss of "money, securities, property or other items of value" in the possession of the bank, and (2) an exclusion for claims arising from the "insolvency" of any "investment company, investment bank or [] broker dealer":

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Posted in Commercial, Insurance
Posted: July 21, 2014

Court Examines Scope of Claim for Fraudulent Conveyance

On July 7, 2014, Justice Ramos of the New York County Commercial Division issued a decision in 135 E. 57th St., LLC v. 57th St. Day Spa, LLC, 2014 NY Slip Op. 31802(U), examining multiple alleged fraudulent conveyances.
In 135 E. 57th St., LLC, the plaintiff building owner and landlord brought an action to collect a judgment "for rent" obtained "against its former tenant, defendant 57th Street Day Spa, LLC (the Tenant)," "from the owners of the Tenant on theories of piercing the corporate veil, successor liability, civil conspiracy, and pursuant to Debtor and Creditor Law (DCL) § 270, et seq." In deciding a motion for summary judgment brought by several defendants, the court analyzed the plaintiff's fraudulent conveyance claims as follows:

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