Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: November 12, 2014

Class Settlement Providing for a Fee Award to Plaintiff’s Counsel Approved Despite Lack of a Monetary Recovery or any Change in the Terms of the Deal

On October 22, 2014, Justice Friedman of the New York County Commercial Division issued a decision in West Palm Beach Police Pension Fund v. Gottdiener, 2014 NY Slip Op. 32777(U), awarding attorney fees to class counsel. In the underlying action, the plaintiff filed, on behalf of a class of all common stock holders, an action challenging a merger involving the financial

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Posted: November 11, 2014

LLC Law § 407(a) Permits Freeze-Out Mergers to be Approved on Written Consent

On October 30, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Slayton v. Highline Stages, LLC, 2014 NY Slip Op. 24333, granting a partial motion to dismiss. In the underlying special proceeding, the petitioner was (upon this decision) a 13.33% member of Highline Stages, LLC, a New York LLC. In August 2013, she was informed by written notice that every other member of Highline Stages had approved a freeze-out merger by written consent, whereby Highline Stages would be merged into a new entity, HS Merger Partner, LLC, and Slayton would be tendered fair value for her equity in Highline Stages. She was offered $50,000, which she refused. Petitioner commenced a special proceeding, bringing causes of action for declaratory judgment and money damages on the basis that the merger was void because no members’ meeting was held to approve the merger as required by section 1002(c) of the New York LLC Law. (Highline Stages had no LLC agreement.) Alternatively, the petition also sought a judicial determination of fair value, and attorneys’ fees. The respondents moved to dismiss the first two causes of action, arguing that LLCL § 407(a) allows mergers on written consent. The court agreed:

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Posted: November 10, 2014

Defendants’ Indirect Connections to New York Insufficient to Establish Personal Jurisdiction

On November 6, 2014, the First Department issued a decision in Bluewaters Communications Holdings, LLC v. Ecclestone, 2014 NY Slip Op. 07600, affirming a trial court's dismissal of foreign defendants for lack of personal jurisdiction. In Bluewaters Communications Holding, the First Department affirmed the holding that there was not jurisdiction over defendants in New York, explaining:

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Posted: November 9, 2014

Separate Entity Rule Prevents Garnishment of Assets in Foreign Bank Through its New York Branch

On October 23, 2014, the Court of Appeals issued a decision in Motorola Credit Corp. v. Standard Chartered Bank, 2014 NY Slip Op. 07199, upholding the "separate entity rule" to prevent a judgment creditor from ordering a garnishee bank operating branches in New York to restrain a judgment debtor's assets held in foreign branches of the bank. The Motorola decision arose from Motorola Credit Corp.'s efforts to enforce a judgment of the United States District Court for the Southern District of New York, awarding it $2.1 billion in compensatory damages, and an additional $1 billion in punitive damages, against members of the Turkish Uzan family who had "perpetuated a huge fraud" against Motorola relating to the financing of a telecommunications company. The federal "District Court entered an order pursuant to Federal Rules of Civil Procedure 65 and 69 and CPLR 5222 restraining the Uzans and anyone with notice of the order from selling, assigning or transferring their property," which Motorola served on the New York branch of Standard Chartered Bank (SCB). Although the Uzans had no assets at SCB's New York branch, the bank seized approximately $30 million in assets held by the bank in the United Arab Emirates. When regulatory authorities in the UAE quickly intervened by unilaterally debiting the frozen account, SCB sought relief from the District Court's restraining order, contending that, "under New York's separate entity rule, service of the restraining order on SCB's New York branch was effective only as to assets located in accounts at that branch and could not freeze funds situated in foreign branches." Motorola countered that the judge-made "separately entity rule" was abrogated by the Court of Appeals' decision in Koehler v. Bank of Bermuda Ltd., 12 N.Y.3d 533 (2009), which held that a judgment creditor could seek the turnover of stock certificates located outside the country so long as the court had personal jurisdiction over the garnishee. The District Court held that the separate entity rule precluded Motorola from restraining assets at SCB's foreign branches. On appeal, the Second Circuit certified the issue to the Court of Appeals. In a decision by Judge Graffeo (joined by Chief Judge Lippman and Judges Read, Smith and Rivera), the Court of Appeals held that the separate entity rule applied and precluded enforcement of the restraining order against assets at SCB's foreign branches. First, the Court rejected the argument that the separate entity rule had been overturned by Koehler. The Court noted that the doctrine was not raised by the parties, or discussed by the Court, in that decision, and that the rule was, in any event, inapplicable in Koehler because the case did not involve "bank branches" or "assets held in bank accounts." The majority also "decline[d] Motorola's invitation to cast aside the separate entity rule":

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Posted: November 8, 2014

Client’s Failure To Appeal Adverse Decision Bars Legal Malpractice Claim Only Where The Client Was Likely To Have Succeeded On Appeal

On October 21, 2014, the Court of Appeals issued a decision in Grace v. Law, holding that a client's failure to pursue an appeal in an underlying action does not bar a malpractice action arising from that action, unless the client was likely to have succeeded in the appeal. In Grace, the plaintiff, whose medical malpractice claim had been dismissed on statute of limitations ground, brought a legal malpractice claim against his attorneys for failing to timely pursue the lawsuit. The attorneys argued that any malpractice claim against them was barred because the plaintiff had failed to pursue a "nonfrivolous" appeal of the dismissal of the underlying action. The plaintiff countered that the failure to pursue an appeal should not bar a malpractice claim unless the appeal was "likely to succeed." The Court of Appeals agreed:

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Posted: November 7, 2014

Court Applies Rules of Common Law Dissolution to Shareholder Dispute

On October 28, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Cortes v. 3A N. Park Ave Restaurant Corp., 2014 NY Slip Op. 24329, discussing the process of common law dissolution. In Cortes, the plaintiff brought an action relating to his investment in a restaurant. The court wrote a comprehensive decision after trial addressing many interesting issues; it is worth reading in its entirety. This post focuses on the court's discussion of common law dissolution. The court explained that:

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Posted: November 6, 2014

Forum Selection Clause Not Enforced When Neither Parties Nor Agreement Connected to Chosen Forum

On November 5, 2014, the Second Department issued a decision in U.S. Merchandise, Inc. v L&R Distributors, Inc., 2014 NY Slip Op. 07495, refusing to enforce a forum selection clause. In U.S. Merchandise, the Second Department reversed a trial court decision dismissing an action because the parties' contract contained a forum selection clause providing for "the exclusive jurisdiction of the courts of the State of Delaware and the Federal Courts therein." It explained:

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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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