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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: February 26, 2014

Court of Appeals Rules On Reargument That Liability Insurer’s Breach of Duty To Defend Did Not Preclude The Insurer From Relying On Policy Exclusions To Avoid Duty To Indemnify

On February 18, 2014, the Court of Appeals issued a decision in K2 Investment Group, LLC v. American Guarantee & Liability Ins. Co., 2014 NY Slip Op. 01102, reversing on reargument a decision issued last year regarding the effect of a breach of an insurer's duty to defend. In its earlier decision, the court held that "when a liability insurer has breached its duty to defend its insured, the insurer may not later rely on policy exclusions to escape its duty to indemnify the insured for a judgment against him."  (Emphasis added). The defendant insurance company moved for reargument on the ground that this holding was inconsistent with earlier precedent, Servidone Const. Corp. v. Security Ins. Co. of Hartford, 64 N.Y.2d 419 (1985), which held that an insurer that breached its duty to defend was not precluded from relying on policy exclusions that do not depend on facts established in the underlying litigation to avoid its duty to indemnify the insured for a settlement of the underlying claims.  Although K2 Investment Group involved a judgment against the insured rather than a settlement, the court found that this distinction was not dispositive: ...

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Posted in Commercial, Insurance
Posted: February 25, 2014

Foreign Default Judgment Enforceable in New York Even if the Foreign Court Did Not Have Personal Jurisdiction over Defendant Where Defendant Consented to Jurisdiction

On February 25, 2014, the Court of Appeals issued a decision in Landauer Ltd. v. Joe Monani Fish Co., Inc., 2014 NY Slip Op. 01263, holding a foreign default judgment enforceable in New York even though the foreign court did not have personal jurisdiction over the defendant, because the defendant had consented to jurisdiction and had actual knowledge of the action. In Landauer, the plaintiff "entered into a series of contracts with" the defendant that "included a clause granting the Courts of England exclusive jurisdiction over disputes arising from the transactions. After a controversy arose over the quality of the products [the plaintiff] supplied, [the defendant] refused payment, prompting [the plaintiff] to commence an action for breach of contract in the English High Court . . . . [The defendant] did not appear in the action and a default judgment was entered." When the plaintiff sought to enforce the judgment in New York, the defendant claimed, and the trial court subsequently found, that the defendant had not been properly served and for that reason the judgment was not enforceable under CPLR Article 53, which requires that the foreign court have jurisdiction over the defendant for a foreign judgment to be enforceable in New York. The First Department affirmed the trial court, but the Court of Appeal reversed the decision, explaining: ...

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Posted: February 24, 2014

First Department Rules That Disgorgement May Be Available As An Equitable Remedy For Attorney General Claims Under Martin Act and Executive Law

On February 20, 2014, the First Department issued a decision in People v. Ernst & Young, LLP, 2014 NY Slip Op. 01257, reversing New York County Commercial Division Justice Jeffrey K. Oing's dismissal of the New York Attorney General's claims under the Martin Act and New York's Executive Law for disgorgement of profits earned by Ernst & Young in allegedly facilitating an accounting fraud by its client Lehman Brothers. In urging dismissal of the disgorgement claim, Ernst & Young argued that the Martin Act and the Executive Law provide for particular remedies—namely, injunctive relief, restitution and cancellation of a business certificate—and that disgorgement, which is not mentioned in the statutes, is not an available form a relief. It also argued that disgorgement could be duplicative of restitutionary relief that might be obtained in a class action settlement. The First Department rejected these arguments and concluded that: ...

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Posted: February 23, 2014

Complaint to Reform Contract Dismissed for Failure to Join All Parties to Contract

On February 5, 2014, New York County Commercial Division Justice Bransten issued a decision in Oppenheimerfunds, Inc. v. TD Bank, N.A., 2014 NY Slip Op. 30379(U), granting a motion to dismiss for failure to join necessary parties. Oppenheimerfunds arose from a liquidation relating to an ethanol plant, of which plaintiffs were subordinate bondholders. The plaintiffs alleged that when they purchased their bonds, they relied upon drafts of a Senior Intercreditor Agreement pursuant to which they would share pari passu with the defendants—the senior lenders—in available collateral security. However, when the Senior Intercreditor Agreement was ultimately signed, the pari passu provision had been removed and the Agreement now provided that the plaintiffs' claim to the security would be subordinate to the defendants'. The plaintiffs sued to have the Senior Intercreditor Agreement reformed or rescinded to comply with their understanding of what its provisions were intended to be or should have been. The defendants moved to dismiss on several grounds, among which was the plaintiffs' failure to join necessary parties, namely Wells Fargo and its successor, U.S. Bank, because Wells Fargo also was a signatory of the Senior Intercreditor Agreement, as well as the Bond Trustee for the plaintiffs' bonds, and the priority rank to which the plaintiffs objected was assigned to Wells Fargo in its capacity as Trustee, rather than to the plaintiffs. The Court dismissed the action for failure to join Wells Fargo and U.S. Bank as necessary parties under CPLR 1003, explaining: ...

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Posted: February 22, 2014

Whether Defendants Were “Sellers” Under UCC is Factual Question Precluding Dismissal on Statute of Limitations Grounds

On December 11, 2013, Justice Schmidt of the Kings County Commercial Division issued a decision in Corona Treasures LLC v. Star Home Designs, LLC, 2013 NY Slip Op. 52294(U), denying in part a motion to dismiss because of factual questions regarding whether some defendants were "sellers" for purposes of the UCC. Corona Treasures arose from the breakdown of an agreement by the plaintiff to purchase merchandise from India. Some of the defendants (Universal, the Indian defendant who was the underlying seller, did not join them) moved to dismiss on the ground that because the agreement concerned the sale of goods, UCC § 2-725(1)'s 4-year statute of limitations applied instead of the 6-year limitations period for breach of contract actions. In opposition, the plaintiff asserted that the only "seller" in the relationship was Universal, and that the movants were intermediaries who were paid to facilitate or arrange the plaintiff's relationship with Universal. The court found that, because there were issues of fact as to whether the movants were "sellers," they had not carried their initial burden of establishing that the statute of limitations had expired: ...

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Posted: February 21, 2014

Unwritten Agreement to Arbitrate Enforceable, But Waived by Defendant’s Assertion of Claims in Lawsuit

On February 19, 2014, the Second Department issued a decision in Willer v. Kleinman, 2014 NY Slip Op. 01164, reversing a trial court order compelling arbitration and instead finding that while the parties were bound by their oral agreement to arbitrate, the defendant had waived its rights under that oral agreement. (more…) ...

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Posted: February 20, 2014

First Department Reverses Grant of Renewal For Lack of Diligence in Seeking Evidence

On February 18, 2014, the First Department issued a decision in Orchard Hotel, LLC v. D.A.B. Group, LLC, 2014 NY Slip Op. 01107, reversing a trial court's grant of a motion for renewal. In Orchard Hotel, the trial court granted the defendant's motion for renewal, reinstating its counterclaims. The First Department reversed, both because it found the defendant's new evidence to be without merit and because the defendant should have offered it in the original motion, explaining: ...

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Posted: February 19, 2014

Court Grants Reargument When it Fails to Address Argument Made in Footnote

On February 6, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Eden Roc, LLLP v. Marriott International, Inc., 2014 NY Slip Op. 30377(U), granting a motion for reargument. In Eden Roc, the trial court denied the defendants' motion to dismiss with respect to the plaintiff's cause of action for an accounting. The defendants moved for reargument on the ground that the court had not addressed their arguments on the accounting point. The court granted reargument, explaining: ...

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