Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: September 18, 2014

Enforcement of Judgment Not Stayed Pending Appeal When Undertaking Not Filed With County Clerk

On September 4, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Vintage Flooring & Tile, Inc. v DCM of NY LLC, 2014 NY Slip Op 51376(U), declining to recognize a stay of enforcement of a judgment under CPLR 5519(a)(2) where the defendant failed to comply with the formal requirements for an undertaking under Article 25 of the CPLR. In Vintage Flooring, the defendant (the general contractor on a construction project at the Kings Plaza Mall in Brooklyn) brought an order to show cause seeking an automatic stay of a judgment pending appeal, under CPLR 5519(a)(2), based on a undertaking that was served on the plaintiff but never filed with the Clerk of the Court. Justice Demarest denied the motion, explaining:

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Posted: September 17, 2014

Appeal Dismissed Due to Deficiencies in Record

On September 17, 2014, the Second Department entered a decision in Green Tree Credit, LLC v. Jelks, 2014 NY Slip Op. 06174, dismissing an action for failure to assemble a proper record on appeal. In Green Tree Credit, the Second Department dismissed the appeal, writing:

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Posted in Commercial, Appeals
Posted: September 16, 2014

Customer Lists Readily Ascertainable from Sources Outside Employer’s Business not Trade Secrets

On August 21, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Chaos Commerce, Inc. v. Khaimov, 2014 NY Slip Op. 32377(U), refusing preliminary to enforce a non-compete clause. In Chaos Commerce, the plaintiff sued the defendants for theft of trade secrets and breach of an employment agreement. The court denied the plaintiff's motion for a preliminary injunction "to enforce non-competition, non-disclosure and non-solicitation covenants," explaining:

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Posted: September 15, 2014

Plaintiff’s Concealment of Fact that Money Owed under a Note had been Repaid by a Third Party Justified Striking the Complaint as a Discovery Sanction

On September 2, 2014, Justice Schweitzer of the New York County Commercial Division issued a Decision and Order in People's Capital & Leasing Corp. v. Color-Web, Inc., 2014 NY Slip Op. 32353(U), granting a CPLR 3126 motion to strike the complaint as a sanction for discovery abuses. In People's Capital & Leasing, the underlying dispute was an action to enforce a promissory note. Plaintiff PCL agreed to finance defendant Color-Web's purchase of a printing press from third party Mitsubishi Lithographic Presses, Inc. PLC paid Mitsubishi $200,000 as a down payment on the press, and Color-Webb executed the Note—also for $200,000—in favor of PCL. The Note was guaranteed by the other defendants. Although PLC did pay Mitsubishi the $200,000, Color-Web never took delivery of the printing press and asked Mitsubishi to cancel their sales agreement for the press due to its economic difficulties. After Color-Web missed a payment due under the Note, PLC alleged that it had defaulted and commenced action against Color-Web and its guarantors. The motion to strike the complaint and for other discovery sanctions came about when the defendants' subpoena to Mitsubishi revealed that Mitsubishi had returned the $200,000 to PCL eight months before the action began, and that PCL had been concealing that fact all along: "in response to discovery requests, PCL had intentionally withheld all documents revealing [Mitsubishi’s] return of the money." Mitsubishi's documents revealed that Mitsubishi and PCL agreed that Mitsubishi would refund the $200,000 to PCL if the press was not delivered, that PLC apparently agreed in exchange to remit all payments it received under the Note back to Mitsubishi, and that "PLC asked [Mitsubishi] to confirm that nobody at [Mitsubishi] had told Color Web about [Mitsubishi's] return of the $200,000 to PCL because 'legal counsel needs this confirmation so that [PCL] can pursue Color Web for reimbursement.'" Although the terms of the side agreement between Mitsubishi and PCL were unclear, defendants' theory was that Mitsubishi repaid the $200,000 in exchange for PCL suing on the Note for Mitsubishi's benefit, and the reason the parties proceeded in this manner was because any direct action by Mitsubishi to enforce its sales agreement with Color-Web could not reach the guarantors, whereas an action on PCL's Note could reach the guarantors. The court found that the information withheld was highly relevant, and that PCL had no excuse for its failure to produce it. "PCL was at pains to hide the re-payment because it arguably satisfied defendants' obligation under the Note (and Guarantees) to repay the $200,000." The Court also largely accepted the defendants' contention that this was part of a scheme by Mitsubishi to pursue the guarantors for damages under a different contract that they did not guarantee. To choose a sanction, the court applied the Court of Appeals' recent holding in CDR Creances S.A.S. v. Cohen (analyzed in this blog on May 9, 2014), and dismissed PCL's complaint. The court found that:

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Posted: September 14, 2014

Shareholders’ Right To Inspect Corporate Books And Records Properly Invoked To Aid Investigation of Misconduct By Management And To Obtain Information In Aid of Litigation

On September 11, 2014, the First Department issued a decision in Retirement Plan for General Employees of the City of North Miami Beach v. The McGraw-Hill Companies, Inc., 2014 NY Slip Op. 06154, reversing a trial court's denial of a shareholder's petition to inspect corporate books and records. Under New York law, shareholders have a statutory right, under BCL 624, to inspect certain categories of corporate records—specifically, "a record of shareholders, shareholder meeting minutes, and profit and loss statements." New York common law, however, also provides a broader inspection right, provided that "the shareholders seek the inspection in good faith and for a valid purpose." In McGraw-Hill, shareholders of The McGraw-Hill Companies brought a petition seeking access to documents that the company's board 'received, prepared, reviewed or distributed . . . concerning the board knowledge about and oversight of [the ratings agency] S&P," a wholly-owned subsidiary of McGraw-Hill, that had been accused of wrongdoing in connection with the rating of mortgage-backed securities. New York County Commercial Division Justice Jeffrey K. Oing denied the petition, and the First Department reversed, finding that the petition stated valid grounds for inspection, and remanded the case for a hearing on the proper scope of the inspection:

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Posted: September 13, 2014

Claim Involving Mandatory Statutory Penalties Cannnot be Brought as a Class Action

On September 10, 2014, the Second Department issued a decision in County of Nassau v. Expedia, Inc., 2014 NY Slip Op. 06050, holding that a claim involving mandatory statutory penalties could not be brought as a class action under CPLR Article 9. In County of Nassau, Nassau County brought a class action "on behalf of itself and 55 New York local governmental entities" against a number of "online sellers or resellers of hotel and motel accommodations" for underpayment of hotel and motel occupancy taxes. The Second Department reversed the trial court's grant of class certification under CPLR Article 9, explaining:

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Posted: September 11, 2014

Air Rights Real Property That Cannot be Converted

On September 3, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Harmit Realties LLC v. 835 Ave. of the Americas, L.P., 2014 NY Slip Op. 51349(U), holding that air rights were real property and thus not a permissible subject of a conversion claim. In Harmit Realties, a dispute regarding air rights, the defendant moved to dismiss on statute of limitations grounds, arguing that notwithstanding how they were styled, the plaintiff's claims were for conversion and for that reason were time barred. The court rejected the argument, explaining that air rights are real property, which is not subject to conversion:

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Posted: September 10, 2014

Fraud Claim Dismissed As Duplicative of Breach of Contract Claim

On September 4, 2014, the First Department issued a decision in Beta Holdings, Inc. v. Goldsmith, 2014 NY Slip Op. 06035, dismissing a fraud counterclaim as duplicative of the counterclaim-plaintiffs' breach of contract claim. In Beta Holdings, the plaintiffs, entities associated with a private equity fund, filed suit against the principals of a company the fund acquired, asserting claims for fraud and breach of contract arising from alleged misrepresentations regarding the financial condition of the company.  The defendants filed counterclaims, including a claim for fraud, arising from the plaintiffs' failure to pay amounts due on a note that was issue in connection with the transaction.  New York Commercial Division Justice Jeffrey K. Oing denied the plaintiffs' motion to dismiss the fraud counterclaim, and the First Department reversed, holding that the fraud claim was duplicative of the breach contract claim because the defendants did not "allege a duty separate from the terms of the agreement that was breached":

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