Source: http://nycourts.gov/courts/comdiv/lawreport_Vol9No4.shtml
Timestamp: 2019-04-24 02:00:33+00:00

Document:
The following members of the Section contributed to the preparation of summaries contained in this issue: Mark Berman, David L. Carey, Lisa A. Coppola, Deborah Deitsch-Perez, Ian M. Goldrich, Matthew R. Maron, Paul G. Marquez, Ira B. Matetsky, James E. Pfeffer, John Siegal, Mark I. Silberblatt, Colleen M. Tarpey, and Victoria Zaydman, Esqs.
Arbitration; bias of panel member; NASD Code of Arbitration Procedure. Procedure; motion to reargue/renew.
Arbitration; Federal Arbitration Act; confirmation of award; manifest disregard of the law. Contracts; interpretation; termination-for-convenience clause; consequential damages; lost profits.
Arbitration; motion to vacate; FAA; manifest disregard of the law; irrationality; exceeded powers.
Attorney-client privilege; choice of law; inadvertent disclosure; waiver.
In the context of a dispute concerning the scope of documents demanded from a non-party witness and the witness’s failure to provide a privilege log, the witness from whom the documents had been demanded had inadvertently sent to counsel for the party that had issued the subpoena an e-mail that he had intended to send to his own counsel. Thereafter, another party to the litigation took the position that the witness’s e-mail was not protected by the attorney-client privilege because it did not seek legal advice, and, if protected, such protection had been waived when the witness had sent the e-mail to counsel for the subpoenaing party. Counsel for the witness responded that the e-mail was protected because it sought advice concerning disclosure obligations and had clearly been disclosed inadvertently because the salutation of the e-mail specifically indicated that the witness’s counsel – not the subpoenaing party’s counsel – was the intended addressee. The court found that under South Carolina law, the e-mail was protected by the attorney-client privilege and the privilege had not been waived. The court found that South Carolina law applied because the e-mail had been written in South Carolina and New York courts apply the attorney-client privilege law of the jurisdiction in which the assertedly privileged communications were made, which in most cases is also the jurisdiction in which the party that made the communications resides. The court noted that clients must be able to comment and express their reactions to case developments and issues related to the case to their counsel, including discovery issues, without the fear that those comments would be discoverable. Here, the court held that the e-mail was protected by the attorney-client privilege as it was a confidential communication sent to counsel in response to the subpoena. The court also found that there had been no waiver because the e-mail had not been intended to be received by anyone other than the recipient’s counsel, and counsel for the non-party had demanded the return and/or destruction of the e-mail within a reasonable time, one week after the e-mail had been sent. Delta Financial Corp. v. Morrison, Index No. 011118/2003, 10/24/06 (Warshawsky, J.)**.
Contracts; banking; UCC, Article 4-A; good faith and fair dealing; statute of limitations. Corporations; piercing the corporate veil.
Contracts; commercial lease; interpretation; recitals; omissions.
Plaintiff had extended $13.5 million in leasehold financing to defendant’s lessee, which had defaulted on the loan and gone bankrupt shortly before an arbitration award raising the leasehold rent tenfold. Had plaintiff assumed the lease, income from subtenants would not have covered both its own loan repayment and increased rent owed to defendant lessor. Plaintiff sued lessors and agents for breach of contract and other wrongs, claiming that they had unjustly crafted a plan to re-characterize a lease for land only to include the buildings later built on it. Defendants moved to dismiss. The threshold issue was whether an acknowledgment and a certificate signed by lessors represented that only land was being leased. The court found that the documents referred to the lease and could only be construed in conjunction with the lease, which specified that the property included land and any buildings to be built on it. True, the acknowledgment’s description of the property did not include the buildings. Nor did two amendments to the lease. However, the omissions were not deception that would support plaintiff’s desired remedy of equitable estoppel. The acknowledgment did not constitute the terms of the lease. Rather, it was intended to establish plaintiff’s rights under the lease, and it was the lease that plaintiff should have reviewed as a matter of basic diligence. Plaintiff’s claim that by referring to the “Ground Lease” the acknowledgment and certificate falsely suggested that only land was being leased did not persuade the court. Nor did plaintiff have a claim for breach of implied duty of good faith and fair dealing, as defendant lessor had merely exercised its rights under the lease when it had sought to maximize its return on the property. General Electric Capital Corp. v. Bank of New York, Index No. 600993/2006, 12/20/06 (Freedman J.).
Contracts; commercial real estate; leases; interpretation; good faith and fair dealing.
Defendant landlord had leased a commercial property, which included a hotel, to plaintiff tenant. The lease obligated plaintiff to pay monthly rent plus a portion of certain real estate taxes. According to the original lease, plaintiff was responsible for 1/8 of the real estate taxes that were assessed on the entire lot on which the hotel was located. In 1996, the lease was amended, giving defendant the unilateral right to subdivide the lot into two independent tax lots. The lease provided that, upon such a subdivision, plaintiff would become obligated to pay 100 percent of the taxes assessed on the lot on which the hotel was located. In 2003, defendant had subdivided the lot into two separate lots, and in 2005, the State issued a tax bill to defendant. Defendant had advised plaintiff that the lot had been subdivided and that real estate taxes had been imposed and it demanded payment of 100 percent of the amount billed for the lot on which the hotel was located (offset by an amount held in escrow by defendant). Plaintiff paid the amount demanded “under protest” and commenced the instant action, seeking, among other things, a declaratory judgment that it was not obligated to pay the real estate taxes. Defendant moved to dismiss the action in its entirety and plaintiff cross-moved for partial summary judgment. With respect to plaintiff’s claim for a declaratory judgment, the court explained that the only issue bearing on plaintiff’s liability for the taxes was whether there had been an “assessment of taxes” as that term was used in the lease. Defendant argued that the term merely contemplated the issuance of a tax bill from the State. Plaintiff, by contrast, argued that the term referred to an “assessed valuation,” as defined in the New York City Charter, which requires a valuation of the property. Because such an “assessed valuation” was never performed, plaintiff argued that taxes had never been assessed and that its obligation to pay them had never been triggered. Applying principles of contract interpretation, the court found that the “plain and unambiguous meaning” of the term “assessment of taxes” was consistent with defendant’s interpretation of the lease. The court explained that the lease did not refer to the New York City Charter and that the parties’ use of the words “assess” and “assessment” throughout the lease suggested that they intended it to be interchangeable with the words “levy” or “levied.” As a result, the court granted defendant’s motion to dismiss plaintiff’s claim for a declaratory judgment, and it denied plaintiff’s cross-motion for partial summary judgment. The court also granted defendant’s motion to dismiss plaintiff’s second cause of action for breach of contract, which was based on plaintiff’s allegations that defendant had failed to notify plaintiff of the proposed subdivision in advance, that it had failed to give plaintiff an opportunity to submit financial information in connection with the subdivision application, and that it had failed to provide accurate financial information to the State to ensure an accurate apportionment of taxes. The court held that the lease did not impose any explicit or implicit obligation on defendant to provide plaintiff with advance notice of the subdivision or with an opportunity to submit financial information. The court also found that the financial information that defendant had provided to the State was accurate. Accordingly, the court granted defendant’s motion to dismiss plaintiff’s breach of contract claim. JRK Franklin, LLC v. 164 East 87th Street LLC, Index No. 604313/2005, 10/3/06 (Cahn, J.).
Contracts; commercial real property; closing date; waiver; merger clause; parol evidence; misrepresentations; reliance; breach of contract.
Contracts; employment; restrictive covenants; non-compete agreements; enforceability.
Contracts; good faith and fair dealing; statute of limitations; equitable estoppel. Tortious interference with contractual relations.
Plaintiff, a screenwriter, had written a screenplay for a book and negotiated its sale to a film producer. Plaintiff and the film producer had entered into a contract, which provided that, if the producer decided to sell its interest in making a feature film based on plaintiff’s screenplay, plaintiff would have the right to match the sales price that the producer was willing to pay and to acquire the producer’s interest in the film project. The film producer had never produced a film based on the book, nor had it offered to sell plaintiff the film rights. Rather, in 2002, another movie studio had released a film based on the book, which grossed more than $200 million. Plaintiff sued the successor in interest to the film producer, along with the movie studio, the author of the book, and the individual producers of the released film, claiming that the film producer had breached the parties’ contract by selling the film rights to a third party without offering plaintiff the right to match, and that the other defendants had tortiously interfered with the parties’ contract. Some defendants moved to dismiss. First, the film producer defendant moved to dismiss plaintiff’s breach of contract claim based on documentary evidence that allegedly showed that the film producer had never sold the film rights to a third party. More specifically, the film producer defendant alleged that the film rights had reverted back to the author of the book in 1988 pursuant to a series of agreements to which plaintiff had not been a party. The court held that it could not dismiss plaintiff’s breach of contract claim as a matter of law given unresolved questions as to whether all of the agreements at issue had been intended to be part of a single contract. The moving defendants also argued that plaintiff’s breach of contract action was time-barred. However, the court found that plaintiff had brought his claim within three years after the advertisements for the film first appeared and that this delay was not unreasonable as a matter of law. The court also declined to dismiss plaintiff’s tortious interference with contract claim, finding that the claim was adequately pleaded, that it was not duplicative of plaintiff’s breach of contract claim, and that it was timely. Lazzarino v. Warner Bros. Entertainment, Inc., Index No. 602029/2005, 10/30/06 (Fried, J.).
Contracts; guarantee agreements; good faith and fair dealing. Tortious interference with business relations. Breach of fiduciary duty; duty of loyalty; debtor and creditor law.
Plaintiffs, several loan receivable trusts and the servicer of those trusts, had sued defendant, the majority owner of a group of fast food restaurant franchises, to recover the amounts owing under two personal guarantees. Defendant asserted various counterclaims against plaintiffs as well as against two additional counterclaim defendants, a loan servicer and an individual who acted as a director of one of defendant’s companies pursuant to a restructuring agreement. Plaintiffs and counterclaim-defendants moved for summary judgment dismissing defendant’s counterclaims. Plaintiffs also moved for summary judgment on their claim that defendant was liable under the second of the two guarantees. Defendant cross-moved for summary judgment, seeking dismissal of plaintiffs’ claims under the first guaranty. The court granted the motions of plaintiffs and counterclaim defendants to dismiss all of defendant’s counterclaims, it granted plaintiffs’ motion for summary judgment on the second guaranty, and it denied defendant’s cross-motion for summary judgment on the first guaranty. With respect to the motions by plaintiffs and counterclaim defendants for summary judgment on all of defendant’s counterclaims, the court, first, dismissed defendant’s breach of contract claims on the ground that there was no evidence that the lenders had violated the payment priority provisions of the restructuring agreement. The court also rejected defendant’s claims that plaintiffs had breached the implied covenant of good faith and fair dealing, finding no suggestion in the record that plaintiffs had exercised their contractual rights malevolently or as part of a scheme to deprive defendant of the benefits of the restructuring agreement. In any event, the court noted that, because defendant had based both a breach of contract claim and breach of implied covenant claims on the same facts, the breach of implied covenant claims should be dismissed as duplicative. With respect to defendant’s breach of fiduciary duty claims, defendant conceded that there is no fiduciary relationship between creditors and debtors and thus that the claims against plaintiffs and against the loan servicer counterclaim defendant should be dismissed. However, defendant argued that he should be permitted to maintain his breach of fiduciary duty claim as against the individual counterclaim- defendant, who had served as a director of defendant’s company pursuant to the terms of the restructuring agreement, which gave the lenders the right to appoint a director to the company’s board. Defendant argued that the individual counterclaim-defendant had breached his duty of loyalty by favoring the interests of his lender-employer over the interests of defendant. The court rejected this claim, finding no evidence that the individual counterclaim-defendant had acted improperly or illegally. The court also noted that, under Delaware law, when a corporation is operating in the zone or vicinity of insolvency, its directors’ fiduciary duty extends not only to the corporation’s shareholders, but also to its creditors. Thus, the court explained that it would not have been improper for the individual counterclaim-defendant, as a director of defendant’s company, to consider the interests of creditors in deciding how the company’s assets should be used to satisfy its various obligations. Finally, the court dismissed defendant’s claims that plaintiffs and the loan servicer counterclaim-defendant had tortiously interfered with contractual and business relations by wrongfully taking money that was earmarked for defendant’s franchisor, thereby making it impossible for defendant’s company to fulfill its obligations under the franchise agreements. The court held that the record did not support the allegation that plaintiffs or the counterclaim-defendant had intentionally induced the franchisor to terminate its franchise relationship with defendant. Indeed, the court noted that it would have been “economic suicide” for plaintiffs and the counterclaim-defendant to have done such a thing because that would have extinguished any hope of getting repaid on the debts that defendant owed. On plaintiffs’ motion for summary judgment with respect to the second guaranty, the court concluded that defendant was liable, as a matter of law, under the plain language of the agreement. Finally, the court denied the defendant’s cross-motion for summary judgment on the first guaranty on the ground that there were issues of fact concerning whether various “trigger events” had occurred, triggering defendant’s liability under the guaranty. Wilmington Trust Co. v. Strauss, Index No. 601192/2003, 10/30/06 (Fried, J.).
Contracts; investment opportunity commission agreements; interpretation. Procedure summary judgment (CPLR 3212(b)). Partnership law.
Plaintiffs had entered into a commission agreement with defendant. In the agreement, defendant had agreed to pay plaintiffs a commission of up to $ 4 million in return for introducing him to investors for a development property in which defendant held a limited partnership interest. Defendant had agreed to pay a base commission of $2 million, plus an additional percentage commission of up to $ 2 million. Upon an event of default, defined in the agreement to include a transfer by defendant of his interest, the agreement required defendant to pay plaintiffs immediately any outstanding portion of the $ 2 million percentage commission. After the property had been sold for $1.76 billion, plaintiffs had claimed that the sale constituted an event of default. When defendant had refused to pay the balance of the percentage commission owed under the agreement, plaintiffs had sued for breach of contract. Plaintiffs moved for summary judgment. The court denied plaintiffs’ motion and, instead, granted summary judgment for defendant, dismissing the complaint. The court held that, under the plain language of the agreement, a default would occur only if defendant personally transferred his interest in the development property. Because the sale of the development property was consummated not by defendant personally, but rather by the limited partnership and related entities, in which defendant had no control or management authority, the court found that plaintiffs could not establish, as a matter of law, that there had been a default as defined in the agreement. Even though defendant had not cross-moved for summary judgment, the court searched the record and found that defendant was entitled to summary judgment. Specifically, the evidence in the record established that defendant had not disposed of his limited partnership interest in the development property. The court also rejected plaintiffs’ attempt, under agency and partnership law, to attribute the sale of the property by the limited partnership to defendant personally. Corcoran v. Trump, Index No. 604347/2005, 10/24/06 (Lowe, J.).
Contracts; lease and sublease; interpretation; contingent tax rent; liability for taxes accruing before sublessee’s occupancy.
Plaintiff sued sub-tenant NYCHA to recover $600,000 allegedly owed as its share of taxes. The reimbursement sought represented taxes accruing from years prior to NYCHA’s tenancy, but plaintiff argued that NYCHA’s obligation to pay a proportional share of the taxes, or “contingent tax rent,” extended to all such taxes imposed on plaintiff, and was determined by when the City levied the tax and plaintiff paid it. Pursuant to plaintiff’s master lease with landlord, plaintiff had to pay the taxes for the first 20 years of its occupancy when a certain cash flow became available to it. Plaintiff had begun to pay soon after NYCHA’s term under a sublease and occupancy had begun. NYCHA argued that plaintiff was not entitled to seek reimbursement for taxes accruing from years prior to its occupancy and, further, was barred from suing because it had failed to serve notice of default. The parties moved for summary judgment. Plaintiff argued that it had met the sublease requirements of a written default notice by service of the summons and complaint. The court rejected this contention. The court found that a 15-day interval specified by the sublease constituted NYCHA’s opportunity to cure, and that only failing that could notice of default be served. There was also no factual evidence to support plaintiff’s contention that a certain letter had satisfied its notice obligation. The action was premature but the court considered the merits nevertheless. Plaintiff pointed to a section of the sublease that, it argued, defined the contingent tax rent and did not limit NYCHA’s obligation to the years of its lease terms in that it described the taxes as “...all...charges...imposed against the building.” However, elsewhere the sublease specifically stated that NYCHA’s payment was required during “then current” lease years, and defined lease year as an interval within the lease term. The court found that reading the sublease as a whole made clear that the tax was to be prorated according to NYCHA’s lease term, and that if the arrangement were to have been otherwise NYCHA would have had to explicitly agree. The master lease section tying payment obligation to cash flow was not referred to in the sublease, which further clarified that whether payment timing reflected plaintiff’s voluntary deferment or satisfaction of a condition precedent, NYCHA could not be liable for tax accruing before its occupation. One Fordham Plaza, LLC v. New York City Housing Authority, Index No. 603653/2004, 10/11/06 (Ramos, J.).
Contracts; meeting of the minds; more definitive writing.
Contracts; oral agreement to extend closing date; part performance; estoppel. Negligent misrepresentation.
Plaintiffs had contracted with defendants for the sale of three commercial properties. After closing on one, defendants had refused to close on the remaining two, claiming that the contract had terminated on the final scheduled closing date, time having been of the essence. Plaintiffs brought an action to compel defendants to sell them the two properties. Plaintiffs argued that the parties had made an oral agreement to extend the contract and that defendants had partially performed in the preparation for a later closing date. Plaintiffs further argued that the equitable doctrines of waiver, estoppel and part performance barred defendants from reliance on GOL § 15-301 or the contract’s requirement of a writing. Plaintiffs moved for an order preliminarily enjoining defendants from transferring or encumbering the two properties and other relief. Defendants cross-moved for summary judgment. Defendants argued that the contract had automatically terminated on the scheduled closing date and that any oral agreement to extend the contract was unenforceable as the contract had provided that all amendments be in writing and signed by the party to be charged. Defendants further argued that plaintiffs’ claim for specific performance was time-barred as the contract had provided that plaintiffs only had thirty days after the scheduled closing date to sue for specific performance. The court found, first, that the merger provision of the contract controlled and that statements made by defendant’s president to plaintiffs’ representative had not constituted an extension of the contract’s closing date. In any case, the statements did not constitute an extension or waiver. The court further ruled that defendants had not waived the contract’s requirement of a writing since plaintiffs had failed to establish that there had been partial performance by plaintiffs which had been unequivocally referable to the waiver. As to two emails sent by defendants to plaintiffs, the court noted that they were not proof of conduct by plaintiffs. The court determined that the emails were non-committal and merely an inquiry to plaintiffs as to whether or not there would be a closing. The court also pointed out that both emails contained statements that emails were not intended to create binding agreements. The court held that plaintiffs’ estoppel claim failed because plaintiffs had not shown that their conduct had been unequivocally referable to the alleged oral amendment and plaintiffs‘ reliance on the alleged waiver was not reasonable. The court pointed out that plaintiffs were sophisticated investors who had been represented by counsel and had already modified the contract in writing on five previous occasions. The court held that plaintiffs’ claim for negligent misrepresentation was meritless because there had not been any fiduciary or confidential relationship between the parties. The court granted defendant’s cross-motion and denied relief to plaintiffs. Prime Income Asset Management Inc. v. American Real Estate Holdings L.P., Index No. 603164/2005, 11/30/06 (Freedman, J.).
Contracts; oral joint venture agreement; definiteness of terms; intent to be bound; sharing of losses; control over venture; contribution to venture.
Action asserting breach of contract based on an alleged oral agreement to include plaintiff in a joint venture to purchase and exploit commercially certain Trump real estate properties. Plaintiff contended that an e-mail by defendant had confirmed plaintiff’s 15% ownership interest. Oral agreements containing sufficiently definite terms to form a joint venture concerning real property may be enforceable, the court stated. The court found that the e-mail’s statement that the parties had time before they finalized the partnership and funding plan suggested that they had contemplated further negotiation before they had intended to be bound contractually. Also, the complaint did not allege that plaintiff had agreed to share in losses, had undertaken any control over the enterprise, or had contributed anything of value. Plaintiff urged that there had been no reasonable expectation of losses and that joint ventures need not share equal management control. But, the court stated, bare legal conclusions do not suffice. Although joint venturers need not share control equally, the inquiry is limited to whether a member had any measure of control; here the complaint alleged that defendant alone was to direct the enterprise. The court found that plaintiff had not alleged that he had contributed anything of value to the venture, the assertion that he had set aside a sum falling short. A breach of contract claim failed, as did two based on an alleged fiduciary duty. Complaint dismissed. Langer v. Dadabhoy, Index No. 105198/2006, 11/9/06 (Freedman, J.).
Corporations; business judgment rule; excessive compensation; preferred dividends; severance payments; breach of fiduciary duty.
Corporations; de facto merger; continuity of business.
Disability discrimination; "disability" under City and State law; "major life activity;" dismissal of prior federal suit; ADA's numerosity requirement; CPLR 204.
Motion for summary judgment in an action brought under State and City Human Rights Laws (Exec. Law § 290 and Admin. Code § 8-10). While employed by defendant, plaintiff had been diagnosed with breast cancer. After surgery she had undergone chemotherapy and radiation treatment while working full time. She had then been granted six months' unpaid medical leave to undergo further treatment. She had advised defendant that she was ready to return to work prior to the end of her leave. In response, defendant had told her that her job had been eliminated. Subsequently, even though defendant was then recruiting for a new position, defendant had refused to consider plaintiff for employment. Defendant argued that under a 2001 Appellate Division decision, as a matter of law plaintiff was not disabled; that plaintiff's job was eliminated as part of a downsizing program; and that defendant's refusal to consider plaintiff for reemployment was unrelated to her cancer. The Federal ADA expressly provides that to qualify as a "disability," an impairment must substantially limit the claimant in a "major life activity." The State and City statutes contain no such provision, but the cited decision had held that to qualify as a "disability" under the State and City statutes, an impairment must substantially limit the claimant in a "major life activity." The court concluded that the decision was contrary to prior Court of Appeals precedent, but that the court was bound by the Appellate Division's holding. However, the present case was distinguishable. First, subsequent to the 2001 Appellate Division decision, New York City had enacted Local Law 85/2005, which amended the City statute to overrule legislatively cases such as the 2001 decision setting the Federal requirements as a "ceiling above which the local law cannot rise." Second, defendants had failed to demonstrate the lack of a triable issue of fact as to whether plaintiff's chemotherapy had affected a "major life activity." Third, defendants had failed to address the "record of impairment" and the "employer's perception" branches of the statutory definition. The court held that, notwithstanding any issues of downsizing, defendant's own moving papers would permit the conclusion that the decision to eliminate plaintiff's job had been influenced by plaintiff's absence on medical leave, which would support the claim of discrimination. In addition, the motion was based on defendant's manager's thought processes, making summary judgment inappropriate. Rejecting defendant's contention that the action was untimely, the court held that dismissal for lack of Federal subject matter jurisdiction is within the scope of CPLR 204, and in any event, numerosity does not go to Federal subject matter jurisdiction. The court rejected defendant's contention that plaintiff's subsequent employment at a higher salary had canceled out the damages she sustained. Motion denied. Pasaturo v. Home Sewing Association, Index No. 100018/2004, 9/7/06 (Gammerman, JHO).
Employment agreement; termination; physicians. Public Health Law §§ 17, 18(2)(d); right to medical records; medical practice.
Fiduciary duty; limited liability companies. Contract; interpretation; breach. Nursing homes; Department of Health.
Insurance; larger settlement rule; relative exposure rule; allocation clause.
Plaintiffs, two affiliated law firms, had filed with defendant insurance company a claim for reimbursement for the total amount they had paid out under a settlement, plus the amount of all legal fees and expenses they had incurred in excess of $2 million, to resolve litigation that arose after 17 partners from a California law firm had defected to join plaintiffs’ offices. Defendant had reimbursed plaintiffs for only 40% of the settlement amount and denied plaintiffs’ demand for legal fees in its entirety, claiming that the remaining 60% of the settlement and all legal fees and expenses in excess of $2 million were allocable to uninsured parties, namely, the defecting partners from the California law firm. Plaintiffs moved for summary judgment on their sole cause of action for breach of contract. The court denied the motion. Although plaintiffs argued that the “larger settlement rule” precluded defendant, as a matter of law, from allocating a portion of the settlement, as well as all legal expenses in excess of $2 million, to uninsured losses, the court held that that rule, which has never been applied in New York, was inapplicable in this case. In any event, the court noted that the insurance policy at issue here contained an allocation clause, which expressly permitted defendant to allocate losses between insured and uninsured parties. Under that clause, plaintiffs and defendant were required to “use their best efforts to determine a fair and appropriate allocation of Loss between that portion of Loss that is covered under the Policy and that portion of Loss that is not covered under this Policy.” In determining this fair and appropriate allocation, the policy directed the parties to “take into account the relative legal and financial exposures of, and relative benefits obtained in connection with the defense and/or settlement of the Claim by the Insured.” Because determining the relative exposure and weighing the relative benefits of the settlement and the costs incurred was a fact-based analysis, the court held that it could not determine whether, as a matter of law, defendant had properly allocated 60% of the settlement and all of the legal fees in excess of $2 million to uninsured parties. Motion denied. Clifford Chance LLP v. Indian Harbor Insurance Co., Index No. 602862/2005, 12/27/06 (Fried, J.).
Judgment and creditor; property of foreign government; Foreign Sovereign Immunities Act; commercial activity.
Judgments; judgment creditors. Partnerships; limited partnership; dissolution; charging orders; derivative claims; standing. UCC foreclosure; notice. Fraudulent transfer; DCL § 276. Receivership; winding up.
Plaintiffs were judgment creditors who sought to assert claims that their judgment debtors possessed in connection with the judgment debtors’ interest in a limited partnership. In particular, the judgment creditors asserted that the limited and general partners had caused the partnership to transfer all of its assets to a new entity in which the judgment debtors had not been partners. Plaintiffs sought summary judgment on breach of fiduciary claims, seeking either a constructive trust or a declaration that the judgment debtors were members of the new partnership in their pro rata shares of the old partnership. The court denied the motion and dismissed the claims because a judgment creditor has only the rights of an assignee of a partnership interest, and under RLPA § 121-702(a)(2), an assignee cannot exercise the rights and powers of a partner; it only has the assignor’s economic interest. Consequently, plaintiffs, as judgment creditors, lacked the power to bring a derivative action, such as plaintiffs’ breach of fiduciary duty and breach of contract claims. Likewise, the court held, a judgment creditor of a partner has no right to seek satisfaction of its judgment against the individual assets of the partnership. However, the court declined to dismiss plaintiffs’ claim for a charging order, holding that a judgment creditor is entitled to seek satisfaction of its judgment by obtaining a charging order against the debtors’ partnership interests. The court so ruled notwithstanding defendant’s assertion that it had “informally” and/or formally foreclosed on the judgment debtors’ partnership interests prior to the dissolution of the partnership. The court found that any “informal” foreclosure was ineffective because neither the judgment debtors nor any other partnership creditors had been provided with notice. Any formal non-judicial foreclosure attempted was equally ineffective because of defendants’ failure to send an authenticated notification of the disposition to the debtor and any person from which the secured party had received a claim of interest in the collateral. Defendants conceded that they had not sent any such notice and thus the court concluded there was, at a minimum, an issue of fact whether defendants had effectively foreclosed, which precluded summary judgment. The plaintiffs requested leave to add a claim that defendants’ efforts to foreclose had been fraudulent transfers because they had been intended to hinder, delay, and prevent plaintiffs from collecting on their judgment. The court denied leave because plaintiffs had not alleged, as required by DCL § 276, that their debtors had participated in the challenged transactions. Finally, the court granted plaintiffs’ motion to appoint a receiver to wind up the partnership and distribute any remaining assets, finding that the winding up of a dissolved limited partnership is not optional under RLPA § 121-801. The court refused to allow any of the interested parties to be appointed as the receiver, finding that, particularly when some members authorized and benefited from challenged transfers at the arguable expense of other members, an impartial non-party should be appointed instead. Darvesh Holdings, LLC v. Brightwater Towers Assocs., L.P., Index No. 601878/2004, 10/19/06 (Moskowitz, J.).
Procedure; amendment of complaint. Derivative action; limited liability company. Delaware law; waste; material misrepresentation; breach of fiduciary duty; direct versus derivative claims.
Procedure; CPLR § 3213; instrument for payment of money only.
Procedure; forum non conveniens (CPLR 327). Corporations; derivative claims.
Procedure; motion to reargue; CPLR 2221. Preliminary injunction. Contracts; interpretation; parties’ intent and rules of grammar.
Plaintiffs, various insurance companies, moved to reargue the court’s prior decision preliminarily enjoining plaintiffs to provide certain claims and actuarial data to defendants for use in pricing “buy-out” contracts (contracts in which defendants assumed the assigned risk obligations of insurance carriers for a “buy-out” fee). The court granted plaintiffs leave to reargue but, upon reargument, affirmed its prior decision. Plaintiffs argued that the court had erred in concluding that defendants were likely to succeed on the merits of their claim because, according to the parties’ agreement, defendants were not entitled to access and copy the claims and actuarial data at issue. While the court noted that strict grammatical rules, and, in particular, the rules governing proper usage of the terms “which” versus “that,” could lead to the result advocated by plaintiffs, it held that “strict rules of grammar do not have the last word, when a grammatical construction of a contract is inconsistent with the parties’ intent.” The court explained that its “job [was] not to police the rules of grammar,” but rather to interpret the agreement between the parties fairly and consistent with their intent. Thus, although plaintiffs’ reading of the parties’ agreement may have been grammatically correct, the court held that it “clashe[d] with other contextual clues of the parties’ intent,” as well as with the way business is done in the assigned risk industry. As a result, the court affirmed its prior decision, granting defendants a preliminary injunction. AIU Insurance Co. v. Robert Plan Corp., Index No. 603159/2005, 12/26/06 (Fried, J.).
Procedure; personal jurisdiction; CPLR § 302 (a) (1) and (3); business by interactive electronic and telephonic means; substantial client solicitation; unfair competition; tortious act outside state.
A jet charter company sued its answering service and a second charter company for misappropriation of client information, tortious interference with contract and other wrongs. Answering service defendant, based in Indiana, moved to dismiss claims as against it based on lack of personal jurisdiction. The court noted that CPLR § 302 (a) (1) permits a court to exercise personal jurisdiction over a non-domiciliary, even based upon a single act, as long as the party conducts purposeful activities within the state and the claim against it involves a transaction bearing substantial relationship to the activities. Mere solicitation of business in New York does not establish the requisite contacts but, for example, businesses using means such as interactive websites to project themselves into New York to conduct business or substantially solicit clients have been found subject to long-arm jurisdiction. Here, answering service defendant had solicited clients nationally through its interactive website where prospective customers could directly post questions to its employees. This defendant had emailed to plaintiff a service agreement that had been executed in New York, had sent regular invoices to New York, and had collected monies paid from a New York account. Further, defendant had participated in countless telephone calls placed, sent and received to and from New York by its employees, New York residents trying to contact plaintiff, and by plaintiff itself, and although plaintiff’s phone calls had been answered in Indiana, customers had called a New York phone number. Defendant was not only placing interstate phone calls, which may not be sufficient to transact business, but acting as plaintiff’s agent for clients who would do business with plaintiff in New York. Defendant had also done business with other New York clients, including jet charter defendant. The circumstances as a whole made clear that defendant had transacted business within the meaning of CPLR § 302 (a) (1), the court found. Due process was also satisfied as defendant should have reasonably expected to defend actions in this State. Plaintiff’s unfair competition claim also provided a basis for jurisdiction. The claim here was predicated on misapplication of trade secrets and other confidential data, circumstances in which courts have recognized a tortious act outside the state causing injury within it. Motion to dismiss for lack of personal jurisdiction denied. Blue Star Jets, LLC v. Revolution Air, Index No. 600877/2006, 10/4/06 (Freedman, J.).
Plaintiff, pointing to a jurisdiction provision in merger agreement with defendants, moved to enjoin them from proceeding with a California lawsuit. Defendants had brought the California suit claiming breach of contract for failure to make earn-out payments and before answering that complaint plaintiff had brought this suit, which also sought a declaration that defendants were not entitled to the earn-out payments. The merger agreement was clear that New York law was to govern, the court found, but the jurisdiction provision was not an unequivocal forum selection clause. Agreements lacking definitive words such as “shall” or “exclusive jurisdiction” have been held to indicate permissive or inclusive jurisdiction, the court stated. The SDNY considering a comparable provision had deemed it to mean that the parties consented to jurisdiction in State or Federal courts in New York City, but not that New York County was the exclusive jurisdiction. Plaintiff wrongly relied on a case where the provision “expressly waive[d] any privileges contrary to [the] provision.” No similar language appeared in the merger agreement here. The jurisdiction provision was inclusive and permissive, the court held; it allowed process to be served in New York and the parties had agreed to submit to any action brought in New York. But it did not contain specific language of exclusion and hence was not grounds for the injunction plaintiff sought. The court added, though, that an action was pending here and this court clearly had jurisdiction, and noted that it was not deciding whether it would be more appropriate to continue this or the California action.
Investools Inc. v. Waltz, Index No. 6002876/2006,11/28/06 (Cahn, J.).
Procedure; preemption; Federal Communications Act; state consumer protection statutes. GBL § 349; injury; deception, federal regulation safe harbor; passive advertising defense. Executive Law § 63 (12); independent cause of action for Attorney General.
Defendant radio companies moved to dismiss the complaint, which asserted that defendants had engaged in deceptive and fraudulent business activities in violation of GBL § 349 and Exec. Law § 63 (12), on the grounds that the complaint failed to state a cause of action and that the claims were preempted by the Federal Communications Act (“FCA”). The complaint alleged that defendants had broadcast songs in exchange for undisclosed payments by promoters (a practice known as “pay for play” or “payola”) and had also arranged for certain paid-for programming to be broadcast repeatedly late at night so that monitoring services that tracked song popularity would misleadingly report that the paid-for songs were highly requested. Defendants argued that any alleged misconduct concerning radio broadcasts was subject to Federal payola laws and that the New York Attorney General could not supplant the FCC as regulators of the airwaves. The court, however, found that while the Attorney General could not enforce the FCA, Congress had not unambiguously manifested an intent to disallow state deceptive practice claims based on payola. The court further found that while a private claimant under GBL § 349 (h) was required to prove injury, because the Attorney General was authorized by § 349 (b) to bring an action against a party “about to engage” in prohibited acts, injury was not a required element of a claim under § 349 (b). As to the material deception requirement in GBL § 349, the court rejected defendants’ argument that the Attorney General must establish that the payments affected consumer behavior; instead, noting that Section 349 was modeled after its Federal counterpart, the court relied on an FCC news release that lauded the Attorney General’s actions and FTC consent decrees that characterized payola as inherently deceptive – because it misled consumers into believing songs were played because they were popular when in fact they were played for a fee – to find that the alleged acts met the materially deceptive threshold. Defendants next contended that the complaint should be dismissed because their on-air announcements of “sponsorship” of recordings were sufficient to meet federal disclosure requirements. The court disagreed. Because songs were electronically counted for ratings purposes, and there was no disclosure to those electronic counters that the songs were played for a fee, the allegations that the electronic counters were misled and the reports generated for consumers were thus misleading as a result of defendants’ conduct were sufficient to withstand a motion to dismiss. Further, the court rejected defendants’ contention that their conduct was protected by GBL § 349 (d), which provides immunity from liability if the conduct complies with Federal law regulating the area. Although defendants did make on-air sponsorship announcements when the paid-for programming was broadcast, such announcements only insulated the defendants from liability resulting from direct, traditional payola schemes. Defendants’ conduct had also allegedly been designed to deceive the electronic counters that monitored song popularity, and defendants had taken no steps to distinguish for the electronic “popularity” counters that tracked the frequency at which songs had been broadcast which songs were requested and which had been played for pay. Therefore, the court found, the radio stations had not complied with the Federal provision requiring the announcement of “payola.” The court also rejected defendants’ claim that they were exempt from liability under GBL § 349 (e), which protects mere passive purveyors of deceptive advertising. Defendants argued that to the extent that any conduct had been deceptive, it was the record companies that had paid for the programming, not the radio companies, that sought to deceive consumers. However, the court found that the deception was not in the content of the advertisement, but in the failure to inform the “listener” that what was being broadcast (the paid-for music) was, in effect, an advertisement. Finally, the court held that Executive Law § 63 (12) gave the Attorney General an independent cause of action to enjoin or seek damages for fraudulent and/or illegal acts, regardless of whether a separate cause of action could be pled under GBL § 349. Motion to dismiss denied. Spitzer v. Entercom Communications Corp., Index No. 401002/2006, 10/12/06 (Gammerman, JHO).
Tortious interference with prospective economic advantage. Banking. Fiduciary duty. Unjust enrichment. Misrepresentation.
UCC; Art. 2A; finance leases; warranties. Procedure; provisional remedies; CPLR 7102; seizure.

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