Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: December 14, 2013

Lease Amendment Invalid Because Landlord’s President Lacked Authority to Amend Lease

On December 12, 2013, the First Department issued a decision in Site Five Hous. Dev. Fund Corp. v. Bullock, 2013 NY Slip Op. 08344, affirming a decision holding that a corporate landlord’s president lacked the authority to modify a lease, rendering the modification upon which the commercial tenant relied invalid.

In Five Site, the First Department explained that “a December 2001 amendment to a store lease” was “null and void, and awarded plaintiff possession of premises” because:

[Defendant] failed to prove that . . . plaintiff’s president . . . had authority as plaintiff’s agent to enter into the December 2001 amendment. It is undisputed that [plaintiff’s president] did not have express actual authority to enter into the amendment. Nor did he have implied actual authority, since there is no credible evidence in the record that plaintiff performed verbal or other acts that gave Bullock the reasonable impression that he had authority to enter into the amendment.

[Defendant] relies on Riverside Research Inst. v KMGA, Inc. . . . for the proposition that an agency may be implied from the parties’ words and conduct as construed in light of the surrounding circumstances. However, he fails to identify any words, conduct or circumstances from which an agency could be implied here. . . .

As for apparent authority, there is no credible evidence that plaintiff said anything to [defendant] or did anything that would cause [defendant] to believe that [plaintiff’s president] had authority to enter into the amendment.

(Internal quotations and citations omitted).

Five Site shows the importance of being sure that the person making an agreement on behalf of another has the authority to do so. It turns out that even a corporate landlord’s president might not have authority to enter into an agreement on behalf of the landlord.

Posted: December 13, 2013

Dispute Over Authentiticy Precludes Dismissal Based on Documentary Evidence

On December 12, 2013, the First Department issued a decision in Laurel Hill Advisory Group, LLC v. American Stock Transfer & Trust Co., LLC, 2013 NY Slip Op. 08351, illustrating one limit to a motion to dismiss based on documentary evidence: a dispute about the authenticity of the documents relied upon in the motion.

In Laurel Hill, the plaintiff moved to dismiss the counterclaims against it based on documentary evidence–a written operating agreement. The First Department reversed the trial court’s decision to the extent it dismissed the breach of contract counterclaim, writing:

According counterclaim plaintiff . . . the benefit of every favorable inference on the allegations, we find that he has not conceded that the written operating agreement establishing that he is not a member of Laurel Hill was executed before the alleged oral agreement pursuant to which he maintains he is entitled to a 10% membership interest in the company. Rather, he contests the validity of the document, argues that the counterclaim defendants failed to produce it despite his numerous requests for a written agreement, both prior to the commencement of this litigation as well as in his discovery requests in the main action, and only produced it in support of their motion to dismiss his counterclaims. The dispute over the validity of the written agreement and the inconsistent terms between that agreement and the alleged oral agreement raise factual issues that cannot be resolved at this juncture.

(Internal quotations and citations omitted) (emphasis added).

Posted: December 12, 2013

Motion to Compel Denied Because of Delay in Bringing It

On December 10, 2013, the First Department issued a decision in GoSMILE, Inc. v. Levine, 2013 NY Slip Op. 08215, affirming the denial of a motion to compel because of the movant’s delay in making the motion.

In GoSMILE, the plaintiff served a document demand on May 4, 2009. Defendant objected to producing documents generated after January 28, 2009, the date on which the action was commenced. Plaintiff “subsequently served new discovery demands, seeking documents generated before March 29, 2010.” Defendant once again objected to producing documents generated after January 28, 2009. On February 28, 2012–approximately two and a half years after defendant’s initial objection–plaintiff moved to compel the production of the documents withheld based on that objection. The trial court–based on a Special Referee’s recommendation–denied the motion. The First Department affirmed the denial, writing:

The record supports the Special Referee’s conclusion, adopted by Supreme Court, that the delay in seeking to compel, coupled with the absence of any rational reason or excuse, is nothing less than a constructive waiver to compel compliance of an original demand made in June 2009, and rejected by defendant.

(Internal quotations and citations omitted).

There are often good and reasonable reasons for litigators to delay making a motion to compel. As GoSMILE shows, however, without a sound justification, Commercial Division justices may have little patience for such delay.

Posted: December 10, 2013

Counsel and Client Sanctioned For Deposition Misconduct

On December 4, 2013, Justice Bransten of the New York County Commercial Division issued a decision in Freidman v. Fayenson, 2013 NY Slip Op. 52038(U), sanctioning counsel and his client for deposition misconduct.

The decision in Friedman involved several issues, including counsel conduct at depositions. The court stated the basic rule as follows:

Uniform Rule 221.2 addresses the limited context in which a deponent may refuse to answer a question posed at a deposition when an objection is made. It provides that a deponent shall answer all questions at a deposition, except (i) to preserve a privilege or right of confidentiality, (ii) to enforce a limitation set forth in an order of a court, or (iii) when the question is plainly improper and would, if answered, cause significant prejudice to any person. Attorneys may not instruct a deponent not to answer unless CPLR 3115 or 22 NYCRR 221.2 provides a basis for doing so. When a deponent refuses to answer a question, or an attorney instructs a deponent not to answer, such refusal or instruction shall be accompanied by a succinct and clear statement of the basis therefor. Also, where a deponent does not answer a question, the deposition proceeds, and the examining party shall have the right to complete the remainder of the deposition.

(Internal quotations and citations omitted).

The court then listed the alleged instances of misconduct and analyzed whether they were improper (they were) and for that reason sanctioned the offending counsel and his client. The discussion of the misconduct at issue is a long one, but it illustrates many different types of improper deposition conduct that likely will be familiar to most readers. In hopes that it will serve both as a reminder of the sort of conduct that is over the line and a reminder that Rule 221.2 can have teeth, we have repeated the relevant part of the decision below: (more…)

Posted: December 9, 2013

Failure to Give Required Notice of Termination a Failure to Perform a Condition Precedent to Entitlement to Termination Payments

On December 3, 2013, Justice Demarest of the Kings County Commercial Division issued a decision in Sutton v. E&B Giftware LLC, 2013 NY Slip Op. 33019(U), holding that the failure to give a contractually required notice of termination was a failure to perform a condition precedent to the plaintiff’s entitlement to post-termination payments.

In Sutton, the plaintiff alleged that the defendant breached the consulting agreement between them by failing to pay plaintiff “consulting fees and bonus payments . . . following his termination of his retention under the Agreement.” The court found that plaintiff was not entitled to those payments because he had failed to give the required sixty days’ notice required by the agreement. The court explained:

[T]he Agreement leaves no doubt that the provision of 60 days notice under section 5.2(c) is a condition precedent to [defendant] paying post-termination compensation under section 5.2(d). [Plaintiff] argues that the 60 day notice component of section 5.2(c) does not constitute a condition precedent because the mere lapse of time does not create a condition precedent. This case, however, does not involve the mere lapse of time, since section 5.2(d) requires compliance with section 5.2(c) before it becomes applicable. Further, the use of the language “in the event that Consultant terminates his retention hereunder pursuant to Section 5.2(c)” is a form of construction frequently used to establish a condition precedent.

(Internal quotations and citations omitted).

Notice provisions in contracts may look like boilerplate, but as Sutton shows, parties (and counsel) ignore them at their peril.

Posted: December 8, 2013

Agreement to Pay Bonus Unenforcable Without Formula for Computing the Amount of the Bonus

On November 27, 2013, Justice Kornreich of the New York County Commercial Division issued a decision in Gallotti v. Advance Watch Co. Ltd., 2013 NY Slip Op. 33009(U), dismissing a breach of contract claim because there was no standard for determining the amount the plaintiff was owed under the agreement.

The plaintiff in Gallotti entered into an employment agreement with defendant. The agreement provided that plaintiff was

eligible for a Medium Term Incentive based on the increase in the shareholder value of [the defendant]. The objectives and metrics used to define and measure the achievement under this plan will be defined within one month from the approval of the strategic business plan of [defendant].

Defendant “never defined any objectives and metrics, and” plaintiff “was never paid” a Medium Term incentive bonus, even though the required increase in shareholder value allegedly occurred. After defendant terminated plaintiff’s employment, plaintiff brought an action for, among other things, breach of contract for failure to pay the bonus. (more…)

Posted: December 7, 2013

First Department Applies De Facto Merger Doctrine in Reversing Grant of Motion to Dismiss

On November 14, 2013, the First Department issued a decision in ePlus Group Inc. v. SNR Denton LLP, 2013 N.Y. Slip Op. 07566, applying the de facto merger doctrine.

ePlus Group arose “out of the alleged breach of a lease for IT equipment and services entered into by plaintiff and the now defunct law firm of Thacher Profitt & Wood (Thacher) . . . against defendant law firm . . . alleging that it is Thacher’s successor in interest under the doctrine of de facto merger and is therefore liable for Thacher’s non-payment.” The First Department found that plaintiff had alleged a de facto merger, writing:

We find that under New York law, the complaint properly alleges the elements of a de facto merger, including continuity of ownership (equity partners of Thacher became SNR equity partners), Thacher’s cessation of business, and SNR’s opening up at the same location with the same people, clients, management and operations. We note that there is no basis to conclude that the law in this State with respect to de facto mergers does not apply to limited partnerships.

(Internal quotations and citations omitted).

Posted: December 6, 2013

No Negligent Misrepresentation Claim From Arm’s Length Transaction Between Sophisticated Parties

On November 26, 2013, the First Department issued a decision in Zohar CDO 2003-1 Ltd. v. Xinhua Sports & Entertainment Ltd., 2013 N.Y. Slip Op. 07860, affirming a decision finding that there was no “special relationship” between the parties in an arm’s length commercial transaction.

In Zohar, the trial court dismissed a negligent misrepresentation claim, holding that there was no special relationship between the parties. The First Department affirmed, writing:

Where, as here, sophisticated parties expressly state in their heavily negotiated agreement that they are dealing at arm’s-length, such a disclaimer bars a claim for negligent misrepresentation, because it precludes a finding of a special relationship. . . . That defendant had superior knowledge of her company’s business and finances is not the type of special knowledge or expertise that will support this claim.

(Internal quotations and citations omitted).

Zohar illustrates, among other things, the value of contract language relating to due dilligence and the arm’s length nature of a transaction.  Such language may often seem like boilerplate, but it exists just for situations such as this.

Posted: December 5, 2013

First Department Affirms Strict Reading of Rule Requiring Stay and Notice to Retain New Counsel

On November 26, 2013, the First Department issued a decision in Scirica v. Colantonio, 2013 N.Y. Slip Op. 07852, strictly enforcing CPLR 321(c), the rule that provides a thirty-day stay if an attorney is removed from a case.

CPLR 321(c) provides:

If an attorney dies, becomes physically or mentally incapacitated, or is removed, suspended or otherwise becomes disabled at any time before judgment, no further proceeding shall be taken in the action against the party for whom he appeared, without leave of the court, until thirty days after notice to appoint another attorney has been served upon that party either personally or in such manner as the court directs.

In Scirica, “defendants’ counsel was disbarred during the pendency of” the action. The trial court issued an order on October 25, 2012, “directing defendants to appear with or by counsel on December 6, 2012,” but the order did not explicitly “put defendants on notice that they were required to find new counsel.” “Accordingly, the statutory 30–day period never began to run and the automatic stay was in place when the December 6, 2012 conference was held, when the court dismissed defendants’ counterclaims, and when it struck defendant’s answer.” For that reason, the First Department held that the trial court “properly granted defendants'” subsequent “motion to vacate these orders.”

CPLR 321(c) rarely comes up in litigation. Practitioners should remember, however, that if it does, it will be strictly enforced.