Source: https://www.schlamstone.com/commercial/page/205/
Timestamp: 2019-04-19 12:23:31+00:00

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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.
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.
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.
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.
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.
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.
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.
CPLR 321(c) rarely comes up in litigation. Practitioners should remember, however, that if it does, it will be strictly enforced.
On November 26, 2013, the Court of Appeals issued a decision in DeVito v. Feliciano, Docket No. 195, explaining the criteria for issuing a missing witness charge.
DeVito was personal injury litigation, but the Court of Appeals’ decision relates to an issue that affects commercial trials just as much as personal injury trials: the circumstances under which a jury should be instructed to draw a negative inference from a party’s failure to call a key witness at trial.
An “uncalled witness” or “missing witness” charge instructs a jury that it may draw an adverse inference based on the failure of a party to call a witness who would normally be expected to support that party’s version of events. The charge . . . advises a jury that if a party fails to offer a reasonable explanation for its failure to call a witness to testify on a question, then the jury may, although it is not required to, conclude that the testimony of the witness would not support that party’s position on the question and would not contradict the evidence offered by the opposing party on this question. The jury is instructed that it may draw the strongest inference that the opposing evidence permits against a witness who fails to testify in a civil proceeding.
The preconditions for this charge . . . may be set out as follows: (1) the witness’s knowledge is material to the trial; (2) the witness is expected to give noncumulative testimony; (3) the witness is under the control of the party against whom the charge is sought, so that the witness would be expected to testify in that party’s favor; and (4) the witness is available to that party.
. . . [A] person’s testimony properly may be considered cumulative of another’s only when both individuals are testifying in favor of the same party. . . . [T]o hold otherwise would lead to an anomalous result. Indeed, if the testimony of a defense physician who had examined a plaintiff and confirmed the plaintiff’s assertion of a serious injury were deemed to be cumulative to the evidence offered by the plaintiff, thereby precluding the missing witness charge, there would never be an occasion to invoke such charge. Accordingly, our holding is that an uncalled witness’s testimony may properly be considered cumulative only when it is cumulative of testimony or other evidence favoring the party controlling the uncalled witness. In short, a witness’s testimony may not be ruled cumulative simply on the ground that it would be cumulative of the opposing witness’s testimony.
On November 6, 2013, Justice Ramos of the New York County Commercial Division issued a decision in Greystone Funding Corp. v. Kutner, 2013 NY Slip Op. 32980(U), sealing portions of the record in that action.
Under New York law, there is a broad presumption that the public is entitled to access to judicial proceedings and court records. However, the right of access is not absolute.
[e]xcept where otherwise provided by statute or rule, a court shall not enter an order in any action or proceeding sealing the court records, whether in whole or in part, except upon a written finding of good cause, which shall specify the grounds thereof. In determining whether good cause has been shown, the court shall consider the interests of the public as well as of the parties.
Although the term good cause is not defined, a sealing order should clearly be predicated upon a sound basis or legitimate need to take judicial action. A finding of good cause presupposes that public access to the documents at issue will likely result in harm to a compelling interest of the movant.
Exhibit F conclusively contains impressions and contemporaneous notes that could harm Greystone’s competitive advantage by having access to a large compilation of their business leads and their internal and contemporaneous impressions.
In the business context, we have allowed for sealing where trade secrets are involved, or where the release of documents could threaten a business’s competitive advantage. Proprietary information, in the nature of current or future business strategies which are closely guarded by a private corporation, is akin to a trade secret, which, if disclosed, would give a competitor an unearned advantage.
On November 19, 2013, Justice Friedman of the New York County Commercial Division issued a decision in Chlsea, LLC v. Gramercy Fin. Servs., LLC, 2013 NY Slip Op. 32946(U), dismissing fraud and related tort claims on statute of limitations grounds because the plaintiff was on inquiry notice.
[I]n order to start the limitations period regarding discovery, a plaintiff need only be aware of enough operative facts so that, with reasonable diligence, it could have discovered the fraud. Where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.
Here, the IRS’s commencement of the 2005 audit regarding the CHLSEA and BROMLI partnerships, and its specific inquiries regarding Gramercy’s pre-acquisition valuation of the distressed debt, were sufficient to give Kelly actual notice of potential problems with the DAD transaction and to trigger Kelly’s duty of inquiry as to the validity of the debt.
In sum, plaintiffs considering suits against tax advisors and other professionals should be cognizant that the limitations period may be held to run once they receive a notice of a tax inquiry by regulatory authorities.
In determining whether a deed was intended as security, examination may be made not only of the deed and a written agreement executed at the same time, but also of oral testimony bearing on the intent of the parties and to a consideration of the surrounding circumstances and acts of the parties. Thus, a court of equity will treat a deed, absolute in form, as a mortgage, when it is executed as a security for a loan of money. That court looks beyond the terms of the instrument to the real transaction; and when that is shown to be one of security, and not of sale, it will give effect to the actual contract of the parties.
Bouffard serves as a reminder that the law places limits on creative structuring of transactions and if a party skirts too close to the edge, they can end up a big loser, like the defendant in Bouffard , who was left with a loan it could not collect.
On November 27, 2013, the Second Department issued a decision in Gover v. Savyon, 2013 NY Slip Op. 07934, interpreting Judiciary Law § 478 in a situation where an attorney who was not licensed to practice in New York provided legal services both in New York and in another jurisdiction.
Judiciary Law § 478 makes it unlawful for anyone other than a person who has been admitted to practice law in New York and has taken the requisite oath, to practice as an attorney in this state. A contract to provide legal services rendered in violation of Judiciary Law § 478 is unenforceable as a matter of public policy. However, where an agreement consists in part of an unlawful objective and in part of lawful objectives, the court may sever the illegal aspects and enforce the legal ones, so long as the illegal aspects are incidental to the legal aspects and are not the main objective of the agreement.
. . . The legal services that the plaintiff provided to the defendant from outside of New York did not violate Judiciary Law § 478 and, thus, did not violate New York law. Furthermore, the main objective of the subject agreement, which was simply to provide legal services to the defendant, was not illegal. The defendant was aware, at all times, that the plaintiff was not licensed to practice law in New York, and the defendant would be unjustly enriched if allowed to avoid payment for legal services performed by the plaintiff for his benefit which were not in violation of Judiciary Law § 478.
The real lesson here should go without saying–do not practice law where you are not licensed to do so.
On October 7, 2013, we noted that on October 9, 2013, the Court of Appeals would hear argument in Nash v. The Port Authority of New York and New Jersey, Docket No. 238. On November 26, 2013, the Court of Appeals issued its decision in Nash, 2013 NY Slip Op. 07830, clarifying that even final judgments may be vacated under CPLR 5015.
On January 14, 2010, Nash received a judgment for $4.4 million against the Port Authority of New York and New Jersey for injuries she sustained in the 1993 World Trade Center bombing. The First Department affirmed the trial court’s decision on June 2, 2011. The judgment became final on July 13, 2011, “due to the failure of the Port Authority to appeal” the First Department’s affirmance to the Court of Appeals.
The Court of Appeals subsequently issued a decision in In Matter of World Trade Center Bombing Litig. (“Ruiz”), 17 NY3d 428 (2011), holding that “the governmental immunity doctrine insulated the Port Authority from tortious liability for injuries sustained in the” bombing. Four days later, the Port Authority moved to vacate Nash’s judgment against it based on the Ruiz decision. The trial court granted the motion in a decision that a divided First Department affirmed.
Section 5015 applies not only to judgments that are still in the appellate process, . . . but also to those in which appellate review has been exhausted. Save for the one-year requirement in section 5015(a)(1) concerning excusable defaults, motions made pursuant to subdivisions (2), (3) and (5) contain no limitation of time, only a requirement that the time within which the motion is made be reasonable. The determination as to whether such a motion has been made within a reasonable time is within the motion court’s discretion. Notably, section 5015 does not distinguish between final and non-final judgments, or those that have or have not exhausted the appeals process. . . .
[T]he motion court’s determination to vacate a judgment is a discretionary one. It may relieve a litigant from a judgment upon such terms as may be just. This language applies to all five of the enumerated CPLR 5015 (a) subdivisions, in addition to qualifying the court’s common law ability to grant relief from a judgment in the interests of justice. In exercising its discretion, the motion court should consider the facts of the particular case, the equities affecting each party and others affected by the judgment or order, and the grounds for the requested relief.
The Court of Appeals reversed the decision below on a different ground–the trial court’s ruling that it was compelled by Ruiz to vacate the judgment. The Court of Appeals remanded so that the trial court could decide the motion to vacate using its discretion.
The lesson here is that if there is a sufficiently compelling reason, CPLR 5015 provides an avenue to get even a final judgment vacated.
On October 7, 2013, we noted that on October 8, 2013, the Court of Appeals would hear argument in Eujoy Realty Corp. v. Van Wagner Communications, LLC, Docket No. 179. On November 26, 2013, the Court of Appeals issued its decision in Eujoy Realty Corp. v. Van Wagner Communications, LLC, 2013 NY Slip Op. 07823, strictly enforcing the written terms of a lease even though that resulted in a commercial tenant forfeiting almost a year’s rent.
The commercial lease at issue in Eujoy, provided that the yearly rent for a billboard was to be paid “in advance on January 1” and that if the lease were “terminated for any reason prior to the date of its expiration,” the tenant advertising company would “not be entitled to the return of . . . any basic rent paid in advance and covering a period beyond the date on which the Lease is terminated,” with exceptions not relevant here.
“In early January 2007,” the tenant sent the landlord a check for the “annual basic rent,” but soon thereafter stopped payment on the check. A few weeks later, the tenant termminated the lease. The landlord sued for the unpaid rent.
Under the common law, rent is consideration for the right of use and possession of the leased property that a landlord does not earn until the end of the rental period. This presumption may be altered, however, by the express terms of the parties’ lease such that rent is to be paid at the beginning of the rental period rather than the end. When a lease sets a due date for rent, that date is the date on which the tenant’s debt accrues. These rules reflect the strong preference for freedom of contract in the creation of leases, and although it may seem harsh for tenants, the courts assume that the parties have knowingly bargained for the provisions of their agreement. This is especially true in the case of arms-length commercial contracts negotiated by sophisticated and counseled entities.
As to the tenant’s argument that the landlord had orally agreed to return unused rent if the lease were terminated, the Court of Appeals held that the no oral modification clause in the lease prohibited the modification to the lease that the tenant alleged.
Eujoy provides a stark reminder that–for commercial contracts at least–New York’s courts will enforce contracts as written, even if that leads to a harsh result. Moreover, it illustrates the danger of making an oral amendment to a written contract, particularly a contract that prohibits such modifications. Negotiated resolutions of business problems are good; failing properly to document those resolutions is often bad business.

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