Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: November 4, 2014

Second Circuit Asks Court of Appeals to Clarify Power of New York City to Regulate Law Firms Engaged in Debt Collection

On October 29, 2014, in Eric M. Berman, P.C. v. City of New York, 13-CV‐598, the Second Circuit certified two questions to the Court of Appeals regarding the power of the City of New York to regulate law firms engaged in debt collection activities. In Eric M. Berman, P.C., the plaintiff law firms, which "attempt to collect debts," brought an action "seeking, among other remedies, a declaratory judgment that Local Law 15," which regulates law firms that engage in debt collection, "violates Article IX of the New York Constitution, the New York Municipal Home Rule Law, the New York Judiciary Law, and the New York City Charter." The EDNY granted the plaintiffs partial summary judgment, holding that "Local Law 15 conflicted with the State's authority to regulate attorneys," and "violated a provision of the New York City Charter by purporting to provide the City with the effective authority to grant or withhold licenses to practice law, which is a function reserved to the State." The Second Circuit reserved decision and certified the following questions to the Court of Appeals:

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Posted: November 2, 2014

Court Denies Motion to Dismiss Based on Champerty

On October 28, 2014, Justice Friedman of the New York County Commercial Division issued a decision in IKB International S.A. in Liquidation v. Morgan Stanley, 2014 NY Slip Op. 51548(U), refusing to dismiss an action for lack of standing based on champerty. In IKB International, the plaintiffs sued the defendants in connection with the defendants' sale of residential mortgage backed

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Posted: November 1, 2014

Litigation Counsel Disqualified Under Attorney-Witness Rule

On October 20, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Anderson & Anderson LLP-Guangzhou v. North American Foreign Trading Corp., 2014 NY Slip Op. 51530(U), disqualifying plaintiffs’ counsel under the attorney-witness rule and his firm under the former-client rule. The plaintiffs, Chinese law firms and David Buxbaum of Anderson & Anderson LLP, were retained by the defendant, NAFT, to bring proceedings in China to enforce an arbitration award defendant had obtained in New York. The current action involves a dispute between plaintiffs and NAFT about whether the plaintiffs are entitled to a contingency fee based upon their legal work in China. Mr. Buxbaum was serving as the plaintiffs' lead counsel, and when the plaintiffs moved for summary judgment, NAFT moved to disqualify him and Anderson & Anderson LLP under the attorney-witness rule and the former-client rule. Justice Bransten disqualified Mr. Buxbaum as a "necessary witness" because he was the principal drafter of the retainer agreements at the heart of the dispute:

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Posted: October 31, 2014

Court of Appeals Holds That, Absent Express Language, “Affiliate” only Includes Existing Affiliates

On October 23, 2014, the Court of Appeals issued a decision in Ellington v. EMI Music, Inc., 2014 NY Slip Op. 07197, affirming a decision of the First Department affirming a Supreme Court dismissal of an action for breach of contract brought by a grandson of music legend Duke Ellington. Ellington, presented a type of dispute apparently common in the entertainment industry—a creative artist suing a copyright holder/distributor for engaging in some form of self-dealing in order to reduce the amount of royalties to be paid. Here, the plaintiff was a grandson of Duke Ellington, who, along with his heirs, was the First Party to a 1961 copyright renewal agreement. The agreement provided that the Second Parties—various music publishers, including EMI's predecessor in interest as well as "any other affiliate of [the predecessor]," would pay the First Party royalties from the publication of Ellington's works, including 50% "of the net revenue actually received by the Second Party from . . . foreign publication." Plaintiff sued EMI for breach of contract, alleging that EMI had at some point begun distributing Ellington's works through affiliated foreign subpublishers rather than independent foreign subpublishers (as was industry practice when the agreement was signed), thereby effectively increasing EMI's share of the net revenues at plaintiff’s expense. However, the foreign subpublishers were retaining the same 50% share of the overall royalties from foreign sales as the previous, unaffiliated subpublishers had. So, it appears that (although not stated explicitly in the opinion) at the time of the contract, the foreign subpublishers would retain 50% of the foreign royalties, with 25% going to EMI and 25% to Ellington. Under the new arrangement, Ellington is getting the same 25%, but EMI and its affiliates collectively get the entire remaining 75%. In an opinion written by Judge Abdus-Salaam, the majority affirmed the lower courts' dismissal. The majority first held that "net revenue actually received" was clear and unambiguous, and that that term did not preclude the use of affiliated foreign subpublishers. The majority also found that the affiliated foreign subpublishers were not included in the term "any other affiliate" because they were not in existence at the time the contract was signed:

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Posted in Commercial, Contracts
Posted: October 30, 2014

Court Applies Pro Rata “Time on the Risk” Method to Allocate Loss From Environmental Damage Among Liability Insurance Policies

On October 14, 2014, Justice Scarpulla of the New York County Commercial Division issued a decision in Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., 2014 NY Slip Op. 24306, applying a pro rata "time on the risk" allocation to determine damages in an insurance coverage matter arising from an environmental clean-up at two former manufactured gas plant sites located in Hempstead and Rockaway Park New York. Where environmental damages occur over a period of years, triggering coverage under multiple insurance policies, allocating the losses has proved "a nettlesome problem." As Justice Scarpulla explained, courts faced with this dilemma have allocated the loss among the carriers and the insured on a pro rata basis based on their respective "time on the risk":

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Posted in Commercial, Insurance
Posted: October 29, 2014

Appellant’s Arguments Rejected Based on Judicial Estoppel

On October 21, 2014, the First Department issued a decision in Bank Hapoalim B.M. v. Westlb AG, 2014 NY Slip Op. 07092, rejecting arguments made on appeal when the appellants had taken contrary positions at trial. In Bank Hapoalim, the plaintiffs were "investors in a structured investment vehicle" who sued the defendant financial institutions regarding the investment. In reviewing the trial court's decision the First Department noted as an initial matter that:

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Posted: October 28, 2014

No Claim for Breach of Covenant of Good Faith and Fair Dealing When Claim Has Same Basis as Breach of Contract Claim

On October 21, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in J. Kokolakis Contracting Corp. v. Evolution Piping Corp., 2014 NY Slip Op. 24321, dismissing a claim for breach of the covenant of good faith and fair dealing. In J. Kokolakis Contracting Corp., the plaintiff building contractor sued a subcontractor in connection with work the defendant did on a job site, as well as its insurer. The defendant insurer moved to dismiss the plaintiff's causes of action against it for breach of the covenant of good faith and fair dealing and for attorney's fees. In granting the motion, the court explained:

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Posted: October 27, 2014

Account Stated Claim Survives Notwithstanding Plaintiff’s Inability Fully to Document All Charges

On October 23, 2014, the First Department issued a decision in Robson & Miller, LLP v. Sakow, 2014 NY Slip Op. 07263, affirming a grant of summary judgment on a claim for account stated. In Robson & Miller, the plaintiff law firm sued its former client. In affirming the trial court's grant of summary judgment to the plaintiff on its claim for account stated, the First Department explained:

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Posted: October 26, 2014

Court Uses Doctrine of Falsus in Uno, Falsus in Omnibus to Find Whole of Witness’s Testimony Not Credible

On October 2, 2014, Justice Emerson of the Suffolk County Commercial Division issued a decision in Motherway v. Retail Unlimited Maintenance or Remodel, Inc., 2014 NY Slip Op. 32673(U), applying the principle of falsus in uno, falsus in omnibus to disregard the entirety of a witness's testimony. In Motherway, the plaintiff sought damages for the defendants' alleged use of proprietary information. This post focuses on that part of the court's decision after a bench trial that addressed its credibility findings. The court wrote:

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Posted in Commercial, Evidence