Blogs

Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: January 23, 2014

Director Breaches Fiducary Duty in Selling Corporate Shares to Himself

On December 24, 2013, Justice Whelan of the Suffolk County Commercial Division issued a decision in KNET, Inc. v. Ruocco, 2013 NY Slip Op. 33543(U), addressing the propriety of a director's sale of additional shares to himself.
In KNET, Inc., the court addressed a number of issues, including whether a corporate director breached his fiduciary duty by selling additional shares of the corporation to himself. The court held that in light of the facts of that action, he did, explaining:

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Posted: January 22, 2014

Law of the Case Doctrine Bars Evidence on Issue Decided in Earlier Appeal

On January 21, 2014, the First Department issued a decision in Gliklad v. Cherney, 2014 NY Slip Op. 00310, affirming the striking of an affirmative defense based on the law of the case doctrine. "In a prior appeal," the First Department held "that the promissory note" at issue in Gliklad "contained a clause selecting New York as the forum" for the litigation.  In

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Posted: January 21, 2014

Condominium Owners not Third-Party Beneficiaries of Contract Between Sponsor and Architect

On January 6, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Board of Managers of the 125 North 10th Condominium v. 125 North 10, LLC, 2014 NY Slip Op. 50035(U), dismissing a claim by condominium owners for breach of a contract between the building sponsor and an architect.
In Board of Managers of the 125 North 10th Condominium, the plaintiff board of managers of a condominium brought claims against a variety of defendants relating to the "design and construction of" a "luxury condominium" building in Brooklyn. Among the claims was a breach of contract claim against one of the building's architects based on the theory that the condominium owners were third-party beneficiaries of the contract between the sponsor and the architect. The court dismissed the claim, explaining:

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Posted: January 20, 2014

Plaintiff Barred from Recovering Damages Excluded by Contract

On January 15, 2014, Justice Bransten of the New York County Commercial Division issued a decision in U.S. Bank N.A. v. DLJ Mortgage Capital, Inc., 2014 NY Slip Op. 50029(U), enforcing the provisions of a commercial agreement that significantly limited the damages available under a breach of contract claim.
In U.S. Bank, the plaintiff was the trustee of a trust containing mortgage loans that had been securitized by the defendant. The operating agreement contained a series of representations and warranties about the mortgage loans and provided that the sole remedy for a breach of those representations and warranties was that the defendant would have to repurchase the breaching loans.  The plaintiff sued the defendant, alleging (a) numerous breaches of the representations and warranties, and (b) that the defendant had also breached the sole-remedy clause by refusing to repurchase the loans. Accordingly, the plaintiff alleged, it was no longer restricted to the repurchase remedy and was eligible for the full range of contract remedies, including compensatory, consequential, and rescissory damages. In deciding the defendant's motion to dismiss, the court held that the plaintiff was still restricted by the sole-remedy clause:

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Posted: January 19, 2014

Court of Appeals Agrees to Hear Certified Questions Regarding Unfinished Business Doctrine in Second Action

On December 15, 2013, we posted that on December 12, 2013, the Court of Appeals had accepted certified questions of New York law regarding the unfinished business doctrine from the Second Circuit in In re: Thelen LLP. On January 14, 2014, the Court of Appeals accepted the same certified questions from the Second Circuit in In re: Coudert Bros. LLP,

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Posted: January 18, 2014

Second Circuit Asks Court of Appeals to Clarify Application of “Separate Entity Rule” to Post-Judgment Enforcement Proceedings

On January 14, 2014, in Tire Engineering & Distribution, L.L.C., et al. v. Bank of China Ltd., and Motorola Credit Corp. v. Standard Chartered Bank, the Second Circuit certified questions to the New York Court of Appeals concerning the application of the "separate entity rule" to post-judgment enforcement proceedings under CPLR Article 52.
Under a long-standing judge-made rule, even if a foreign bank has a branch in New York (and is therefore subject to personal jurisdiction), other branches of the bank are "treated as separate entities for certain purposes, such as attachments, restraints, and turnover orders." As a result, where the separate entity rule applies, "in order to reach a particular bank account, the branch of the bank where the account in maintained must be served." The Court of Appeals has never decided whether this rule applies to post-judgment enforcement proceedings. However, in a 2009 decision, Koehler v. Bank of Bermuda Ltd., the Court, without expressly addressing the "separate entity rule," held that "a New York court has authority to issue a turnover order pertaining to extraterritorial property [in that case a stock certificate], if it has personal jurisdiction over a judgment debtor in possession of the property." Although some courts have concluded that Koehler "forecloses the application of the separate entity rule to post-judgment enforcement proceedings," the Second Circuit, in Tire Engineering and Motorola, "decline[d] to reach the issue," and instead certified the following two questions to the Court of Appeals:

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Posted: January 17, 2014

Lost Profits Damages Not Available on Fraudulent Inducement Claim

On January 6, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Maesa LLC v. Jouer Cosmetics LLC, 2014 NY Slip Op. 30026(U), dismissing a counterclaim for fraudulent inducement to the extent it sought lost profits damages.
In Maesa, the parties entered into a contract under which the plaintiff manufactured vials in which the defendant packaged lip gloss. A dispute arose over the quality of the vials. In response to the plaintiff's claims, the defendant asserted counterclaims, including a counterclaim for fraudulent inducement for which it sought lost profits damages. In response to the plaintiff's motion to dismiss, the court dismissed the defendant's counterclaim for fraudulent inducement to the extent it sought lost profits damages, explaining:

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Posted in Commercial, Damages
Posted: January 16, 2014

Contract Claim Dismissed For Failure to Plead Non-Speculative Damages

On January 2, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Saxon Technologies, LLC v. Wesley Clover Solutions-North America, Inc., 2014 NY Slip Op. 30002(U), dismissing a breach of contract claim for failure adequately to plead damages.
In Saxon Technologies, the plaintiff's allegations included that the defendant had breached the "Non-Circumvention" clause in its vendor agreement with the plaintiff, which provided that the defendant would "not, directly or indirectly, contact, deal with or otherwise become involved with any entity introduced, directly or indirectly, by or through" plaintiff by entering into a contract directly with the plaintiff's clients once the client's contract with the plaintiff ended. The court dismissed the breach of contract claim, holding that:

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Posted in Commercial, Contracts
Posted: January 15, 2014

Schlam Stone & Dolan Partner Jeffrey Eilender to Speak at State Bar Panel on The Interplay of Delaware and New York Law in Resolving Corporate and Commercial Disputes

On January 29, 2014, Schlam Stone & Dolan partner Jeffrey M. Eilender will be a panelist in a CLE program hosted by the Commercial and Federal Litigation Section of the New York State Bar Association. The panel will be held in conjunction with the association's annual meeting at the Hilton Hotel in Manhattan. The topic of the panel is The Interplay of Delaware

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