Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 15, 2014

Court Refuses to Enforce Alleged Parol Forum Selection Clause

On June 12, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Zucker v Ron Waldmann, Basel, LLC, 2014 NY Slip Op. 50914(U), rejecting an argument that a parol forum selection clause applied to an action on a written contract without a forum selection clause. In Zucker, the defendant moved to dismiss on several grounds, including lack of personal jurisdiction. The trial court held that it lacked personal jurisdiction over the defendants, rejecting the plaintiff's argument that the parties had agreed in a telephone call that any dispute would be litigated in New York. The court explained:


Posted: June 14, 2014

Personal Guaranty Unenforceable Because Loan was Usurious

On June 3, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Sasidharan v. Piverger, 2014 NY Slip Op. 50890(U), refusing to enforce a personal guaranty because the loan it guaranteed was usurious. In Sasidharan, the plaintiffs sued a guarantor for payment on a guaranty. The trial court granted the guarantor's motion to dismiss, explaining:


Posted: June 13, 2014

Liability Insurer did not Waive Defense of Late Notice by Failing to Disclaim Coverage on this Ground “As Soon as Reasonably Possible”

On June 10, 2014, the Court of Appeals issued a decision in KeySpan Gas Electric Corp. v. Munich Reinsurance America, Inc., 2014 NY Slip Op. 04113, holding that the "mere passage of time" does not effect a waiver of a liability insurer's right to disclaim coverage for untimely notice by the insured; rather the insurer's delay must be assessed under the common law doctrines of waiver and estoppel. In KeySpan, the plaintiff brought a declaratory judgment action seeking coverage for losses relating to environmental contamination at sites formerly owned by LILCO. The insurer asserted an affirmative defense based on LILCO's failure to give timely notice of the claim, which was a condition precedent to coverage under the policy. On summary judgment, the Supreme Court rejected LILCO's argument that the insurer waived the untimely notice by failing to disclaim coverage on that basis prior to the lawsuit. The Appellate Division reversed, finding that "issues of fact remain as to whether defendants waived their right to disclaim coverage based on late notice" by "failing to timely issue a disclaimer." The Appellate Division held that, on remand, a jury should consider whether the insurance company "possessed sufficient knowledge to require that they meet the obligation to issue a written notice of disclaimer on the ground of late notice as soon as reasonably possible after first learning of the accident or of grounds for disclaimer of liability." The Court of Appeals held that the Appellate Division applied the wrong standard in evaluating the waiver argument. The Appellate Division's "as soon as reasonably possible" standard derives from a provision of the New York Insurance Law (Section 3420(d)(2) that by its terms is limited to coverage for "death or bodily injury":


Posted in Commercial, Insurance
Posted: June 12, 2014

Claim Dismissed Based on In Pari Delicto Doctrine

On June 4, 2014, the Second Department issued a decision in Burgers Bar Five Towns, LLC v. Burger Holdings Corp., 2014 NY Slip Op. 03970, affirming the dismissal of a Franchise Sales Act claim based on the doctrine of in pari delicto. In Burgers Bar, the plaintiff sued the defendant "inter alia, to recover damages for violation of the Franchise Sales Act (General Business Law § 680 et seq.) and breach of contract." The trial court found the defendant liable for breach of contract but dismissed the plaintiff's Franchise Sales Act claim "based on the doctrine of in pari delicto." The defendant appealed and the plaintiff cross-appealed. The Second Department affirmed the dismissal of the Franchise Sales Act claim, explaining:


Posted: June 11, 2014

Brokerage Agreement Held to Create an Exclusive Agency, not an Exclusive Right to Sell

On June 10, 2014, the Court of Appeals issued a decision in Morpheus Capital Advisors LLC v UBS AG, 2014 NY Slip Op. 04112, interpreting a contract as creating "a standard exclusive agency, not an exclusive right to sell." In Morpheus Capital Advisors, the plaintiff contracted with defendant UBSRE to serve as "financial advisor and investment banker in the proposed sale" of student loan assets owned by UBSRE. The plaintiff ultimately sued UBSRE and its parent for failing to pay it a commission when UBSRE sold "assets to a fund created by the Swiss National Bank as part of a 2008 bailout." The trial court granted the defendants' motion to dismiss "on the ground that the 2008 financial crisis and the bailout by the SNB constituted an unforeseeable event which undermined the basic assumption and purpose of the agreement, i.e., the introduction of UBSRE by Morpheus to a third party buyer." The First Department reversed, holding that while "UBSRE had not established its frustration of purpose defense," the agreement only "confer[ed] an exclusive agency to plaintiff insofar as it does not expressly prohibit UBSRE from finding a buyer for its toxic assets and thereafter engaging in a self-brokered sales transaction." However, the First Department also held that the plaintiff had adequately pleaded a cause of action even under that interpretation. The Court of Appeals granted leave to appeal and reversed the First Department, explaining:


Posted in Commercial, Contracts
Posted: June 10, 2014

Boilerplate Affirmative Defenses are Subject to Dismissal

On June 4, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Amazon Properties US, LLC v. Park Avenue Bank, 2014 NY Slip Op. 50862(U), dismissing boilerplate affirmative defenses. In Amazon Properties, the plaintiff sued for "breach of contract, breach of the implied covenant of good faith and fair dealing, interference with a contractual relationship, and conversion" and subsequently moved for partial summary judgment and to dismiss the defendant's affirmative defenses. The decision in Amazon Properties addresses several topics; this post looks at only one: the court's decision to strike most of the defendant's affirmative defenses. The court explained:


Posted: June 9, 2014

Court of Appeals Grants Leave To Appeal In Case of First Impression Regarding Interpretation of Computer System Fraud Insurance Policy

On June 5, 2014, the New York Court of Appeals granted the plaintiff’s motion for leave to appeal in Universal American Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., Mo. No. 2014-411, a case of first impression regarding the interpretation of a computer systems fraud insurance policy. (NOTE: We represent the plaintiff, Universal American Corp.) Universal American, a large issuer


Posted in Commercial, Insurance
Posted: June 8, 2014

Guarantor Not Liable When Note is Paid, Even if Amount Paid is Less Than Amount Guaranteed

On June 5, 2014, the First Department issued a decision in PAF-PAR LLC v. Silberberg, 2014 NY Slip Op. 04049, holding that a guarantor is not liable to guarantee the full amount of a note when the parties to the note modified the note to provide for a lower amount and that amount was paid. In PAF-PAR LLC, the defendants guaranteed a borrower's obligations under a promissory note. The borrower and the plaintiff entered into a "Loan Modification and Extension Agreement" that decreased the amount due. The borrower paid the modified amount. Notwithstanding, the plaintiff sued the guarantors, claiming that they had guaranteed payment of the full amount. The trial court dismissed the plaintiff's claim. The First Department affirmed, explaining:


Posted: June 7, 2014

Attorney has no Liability to Third Parties for Negligence in Performing Legal Services for Client

On May 20, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Goldin v. Tag Virgin Islands Inc., 2014 NY Slip Op. 31308(U), dismissing an attorney malpractice claim where there was no attorney-client relationship between the plaintiffs and the defendant attorney. In Goldin, the plaintiffs were the beneficiaries or co-trustees of an investment fund that was allegedly defrauded by an investment advisory firm and its principals ("TAG"). The complaint included a malpractice claim against an attorney (Feiner) who represented TAG in drafting certain convertible notes that plaintiffs claim "were a fiction designed by the TAG Defendants and Feiner to defraud the Plaintiffs." The court dismissed the malpractice claim, inter alia, on the grounds that "a cause of action for legal malpractice cannot be stated in the absence of an attorney-client relationship," noting that Feiner was not representing the plaintiffs, but, to the contrary, a counterparty (TAG) in preparing the notes. The court rejected the plaintiffs' attempt to fit their claim within two narrow exceptions to that fundamental rule:


Posted: June 6, 2014

Failure to Issue Litigation Hold Not Per Se Gross Negligence

On June 5, 2014, a divided panel of the First Department issued a decision in Pegasus Aviation I, Inc. v. Varig Logistica S.A., 2014 NY Slip Op. 04047, reversing a decision sanctioning defendants for spoliation of evidence. In Pegasus Aviation, a group of defendants (collectively, the "MP defendants") who were the sole shareholders of the primary defendant, Varig Logistica ("VarigLog") appealed