Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: May 14, 2014

Airbnb Subpoena Quashed as Overbroad

On May 13, 2014, Justice Connolly of the Albany County Supreme Court issued a decision in Airbnb, Inc. v. Schneiderman, Index No. 5393-13, quashing a much-publicized subpoena by the State Attorney General's Office on Airbnb, Inc. seeking information on its clients that rent apartments in New York state. Justice Connolly rejected most of the arguments advanced by Airbnb, including that


Posted: May 13, 2014

Parties Can Modify UCC-Mandated Time for Customer to Notify Bank of Improperly Paid Item if the Modification is Not Manifestly Unreasonable

On May 8, 2014, the Court of Appeals issued a decision in Clemente Brothers Contracting Corp. v. Hafner-Milazzo, 2014 NY Slip Op. 03291, holding that "a bank and its customer may agree to shorten from one year to 14 days the statutory time period under UCC 4-406 (4) within which a customer must notify its bank of an improperly paid item in order to recover the payment thereon" "as long as the modification is not manifestly unreasonable." In Clemente Brothers Contracting Corp., Defendant Aprile Hafner—Milazzo worked as a secretary and bookkeeper for [the plainitff] until it was discovered that she had been forging Clemente's signature on certain CapitalOne bank documents, including drawdown requests on the line of credit and checks paid from one of Clemente Brothers's accounts. According to plaintiffs, Hafner—Milazzo embezzled approximately $386,000 over the course of approximately two years, from January 2008 through December 2009. In February 2010, [the plaintiff] notified [defendant] CapitalOne of Hafner—Milazzo's thefts. Thereafter, CapitalOne determined that an event had occurred that adversely affected [the plaintiff's] ability to repay its debts and, pursuant to a clause in the two promissory notes, declared all amounts due and payable. Plaintiffs subsequently commenced this action against Hafner—Milazzo and CapitalOne to recover damages resulting from Hafner—Milazzo's forgeries and to prevent CapitalOne from forcing repayment on the loans. In its answer, CapitalOne interposed several counterclaims to recover amounts due under the loans and Clemente's personal guaranty. One issue raised by CapitalOne's counterclaims was whether the plaintiff was bound by its account agreement with CapitalOne that shortened from ony year to fourteen days the time the plaintiff had to report forgeries to CapitalOne in order to avoid being liable for the forged check. The Court of Appeals agreed with the courts below that the plaintiff was bound by its agreement, explaining:


Posted: May 12, 2014

Court Recognizes Claim for Negligence/Insurer’s Errors and Omissions

On May 1, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in New Hampshire Insurance Co. v. Fresh Direct Holdings, Inc., 2014 NY Slip Op. 31192(U), allowing a policyholder to amend its complaint to add a claim for "Negligence/Insurer's Errors and Omissions" against an insurer that allegedly failed to tell the policyholder about a regulatory decision that would cause its premium to go up before the policyholder renewed the policy. In New Hampshire Insurance Co., the plaintiff insurer sued the defendant, its insured, to recover premiums due on workers' compensation policies. The policies at issue were issued upon a quoted estimated premium, with the final premium to be determined after the policy period, upon completion of an audit to determine if the assumptions upon which the estimated premium was based were borne out. Among the things that might vary from the assumptions on which the estimated premium was based, were the proper job codes assigned to [the defendant's] workers. In 2002, the New York Compensation Insurance Rating Board (CIRB) assigned a particular job code to a certain class of [the defendant's] employees. The defendant gave this information to the plaintiff, which was told by the CIRB to change coverage accordingly--a change that would have increased the defendant's premiums. The plaintiff did not change the coverage or inform the defendant of the increased premiums. Unaware of the CIRB-mandated coverage change, the defendant renewed its policies with the plaintiff. Only later did the plaintiff tell the defendant that it owed additional premiums because of the coverage change. After discovery disclosed facts showing why the plaintiff failed to tell the defendant about the coverage change, the defendant moved to amend its counterclaims to add a claim for "Negligence/Insurer's Errors and Omissions." The trial court granted the motion over the plaintiff's objection that the claim was duplicative of the defendant's breach of contract counterclaim, explaining:


Posted: May 11, 2014

Contractually-Provided Damages Not Enforceable if They are Mere Penalties

On April 11, 2014, Justice Sherwood of the New York County Commercial Division issued a decision in Maina v. Rapid Funding NYC, 2014 NY Slip Op. 30952(U), refusing to award damages provided by contract on the ground that they were penalties. In Maina, the court found that the plaintiff had breached its contract with the defendant-counterclaimant. The court refused to grant the defendant all of the elements of damages provided in the parties' agreement, explaining:


Posted: May 10, 2014

Former Counsel for Business Associates Disqualified from Representing One Former Client Against Another

On May 7, 2014, the Second Department issued a decision in Gordon v. Ifeanyichukwu Chuba Orakwue Obiakor, 2014 NY Slip Op. 03232, disqualifying trial counsel because of a conflict. In Gordon, the plaintiff moved to disqualify the defendants' counsel on the ground that counsel previously had represented her. The trial court denied the plaintiff's motion. The Second Department reversed, explaining:


Posted: May 9, 2014

Failure Timely to File for Class Certification Mandates Denial of Certification

On April 30, 2014, Justice Bransten of the New York County Commercial Division issued a decision in Egan v. Telomerase Activation Sciences, Inc., 2014 NY Slip Op. 31176(U), denying a motion for class certification as untimely. In Egan, the plaintiffs commenced an action on July 23, 2012. The defendants answered on October 3, 2012, asserting affirmative defenses. On October 21, 2013, the Court granted the defendants' motion to file an Amended Answer, adding a counterclaim. On December 23, 2013, the plaintiffs moved for class certification. The court denied the motion with prejudice as untimely, explaining:


Posted: May 9, 2014

Fraud on the Court Must be Proved by Clear and Convincing Evidence

On May 8, 2014, the Court of Appeals issued a decision in CDR Creances S.A.S. v. Cohen, 2014 NY Slip Op. 03294, adopting a "clear and convincing evidence" standard for motions to strike an adversary’s pleadings under CPLR 3126. CDR Creances S.A.S., concerned theft of loan funds by diverting them to fictitious entities. After two of the defendants were indicted in federal court in Florida for obstruction of justice and subornation of perjury, the plaintiffs moved to strike those defendants' pleadings and for a default judgment. After finding that the defendants had, among other things "suborned perjury by providing [witnesses] with a 'script' containing false answers to be given to their attorneys and at their depositions; created . . . wholly fictitious individuals and intentionally implicated as controlling the defendant corporations; [and] forged the affidavits of others," the Supreme Court granted the motion, struck the defendants' answers, and granted default judgments. The First Department affirmed. The Court of Appeals granted leave to appeal to address the proper evidentiary and legal standards for such a motion. The court reviewed a number of federal cases and imported the federal “clear and convincing evidence” standard into New York law: