Source: https://www.schlamstone.com/commercial/page/197/
Timestamp: 2019-04-18 16:16:58+00:00

Document:
On February 4, 2014, Justice Oing of the New York County Commercial Division issued a decision in Pope Investments II LLC v. Belmont Partners, LLC, 2014 NY Slip Op. 30349(U), dismissing a legal malpractice claim that was based on an alleged breach of a disciplinary rule.
The Group plaintiffs allege that Guzov and Ofsink committed legal malpractice by violating New York Rules of Professional Conduct Rule 1. 7(b)(4). That Rule requires a lawyer who has decided to represent two clients, regardless of an apparent conflict of interest, obtain written consent from each affected client. The Group plaintiffs claim that defendants Guzov and Ofsink represented AAXT and Kamick for the SMT Transactions without their written consent.
In support of dismissal of this claim, defendants Guzov and Ofsink rely on William Kaufman Org., Ltd. v Graham & James LLP, 269 AD2d 171, 173 (1st Dept 2000) to argue that a violation of a disciplinary rule does not generate a cause of action. That reliance is misplaced. That case also stands for the proposition that some of the conduct constituting a violation of a disciplinary rule may also constitute evidence of malpractice. Nonetheless, a violation of a disciplinary rule, standing alone and without more, does not generate a cause of action. The issue, thus, is whether there is more than just a violation of the Rule.
There is a certain appeal to a rule that, as the plaintiffs alleged here, violating a disciplinary rule gives rise to liability to the wronged client (assuming damages result). However, as this decision shows, that is not the law.
As we previously posted, on Monday, February 17, 2014, the monetary threshold for the assignment of a case to the New York County Commercial Division will increase to $500,000.
The problem with the limitation period in this case is not its duration, but its accrual date. It is neither fair nor reasonable to require a suit within two years from the date of the loss, while imposing a condition precedent to the suit — in this case, completion of replacement of the property — that cannot be met within that two-year period. A “limitation period” that expires before suit can be brought is not really a limitation period at all, but simply a nullification of the claim. It is true that nothing required defendant to insure plaintiff for replacement cost in excess of actual cash value, but having chosen to do so defendant may not insist on a “limitation period” that renders the coverage valueless when the repairs are time-consuming.
This decision demonstrates that although contractual limitations periods are generally enforced as written, such provisions must be reasonable, and courts will not enforce a limitations period that effectively nullifies the contract.
[W]e conclude that Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is “truly obnoxious” to New York Public Policy, inasmuch as under New York law, a restrictive covenant that imposes an undue hardship on the employee is invalid and unenforceable for that reason. Furthermore, while New York judicially disfavors such restrictive covenants, and New York courts will carefully scrutinize such agreements and enforce them only to the extent that they are reasonably necessary to protect the legitimate interest of the employer and not unduly harsh or burdensome to the one restrained, Florida law requires courts to construe such restrictive covenants in favor of the party seeking to protect its legitimate business interests.
This decision demonstrates the strong New York public policy disfavoring non-compete agreements and the unwillingness of the New York courts to enforce foreign laws that contravene that policy.
On February 11, 2014, Chief Judge Lippman gave his 2014 State of the Judiciary address. The Court of Appeals has made both a video and the text of the speech available to the public.
On January 21, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Zamore, Zamore & Zamore v. Aloyts, 2014 NY Slip Op. 50139(U), denying a motion for summary judgment in lieu of complaint for payment of a promissory note.
Since the note was obtained as a purchase money note in connection with the Contract of Sale and the entry into the leases for the intended purpose of building and operating a medical office, which was interfered with and frustrated and never occurred, the breach of the lease is inextricably intertwined with the amounts owed under the note. Therefore, with respect to plaintiff’s action to enforce the note, the court must make reference to the Contract of Sale, the lease for the basement space, and the actions taken by plaintiff’s general partner, Zamore, which, defendants assert, constituted bad faith.
It is true that a breach of a related contract is generally not a defense to nonpayment of an instrument for money only. However, where the note and the contract are inextricably intertwined as part of the same transaction, a breach of the related contract may create a defense to payment on the note. Thus, while generally the breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only, that rule does not apply where the contract and instrument are intertwined.
This decision shows an important exception to the rules regarding the enforceability of promissory notes.
Docket No. 24: Melcher v. Greenberg Traurig, LLP (To be argued February 14, 2014) (addressing when plaintiff’s claim for “attorney deceit” under Judiciary Law § 487 accrued and therefore whether the claim was timely under the applicable 3-year statute of limitations). See First Department decision here.
Docket No. 63: Matter of Kapon v. Koch (To be argued February 19, 2014) (considering whether a court ruling on a motion, under CPLR 3119(e), to quash an out-of-state subpoena to a non-party witness should apply the generally applicable standards under CPLR Article 31, or should instead review the subpoena with “solicitude” to ensure that a New York resident with no stake in the litigation is not unduly burdened). See First Department decision here.
Docket No. 54: Mashreqbank PSC v. Ahmed Hamad Al Gosaibi & Brothers Company (To be argued February 19, 2014) (considering whether a motion to dismiss a third-party action on forum non conveniens grounds, under CPLR 327(a), empowers the court to dismiss the main action on the same ground, even though no party to that action moved for that relief). See First Department decision here.
On February 5, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Matter of Guttman v. Diamond, 2014 NY Slip Op. 50138(U), denying a motion to compel arbitration.
The Federal Arbitration Act (the FAA) governs the determination of whether the instant dispute is subject to arbitration because the Settlement affects multi-state litigation concerning storage faculties located in multiple states. Though federal policy strongly favors arbitration, and waiver is not to be lightly inferred, a party may waive its right to compel arbitration where prejudice to the other party is demonstrated. While courts consider certain factors in determining whether the right to arbitration has been waived, there is no bright-line rule as the determination of waiver depends on the particular facts of each case. That being said, it is well settled that the key to a waiver analysis is prejudice. Waiver of the right to compel arbitration due to participation in litigation may be found only when prejudice to the other party is demonstrated.
It is well established that prior litigation of the same legal and factual issues as those the party now wants to arbitrate results in the waiver of the right to arbitrate. Though there is no wavier where a party has previously litigated an unrelated yet arbitrable dispute, wavier occurs when a party has previously litigated the same claims it now seeks to arbitrate.
(Internal quotations and citations omitted) (emphasis added). The court, in a strongly worded opinion, went on to find both waiver and prejudice, as well as laches.
This decision shows the unwillingness of courts to let parties to arbitration agreements use them to try to get a second bite at the apple.
On January 31, 2014, former New York County Commercial Division Justice Barbara Kapnick (now sitting on the First Department) issued a long-awaited decision in Matter of Bank of New York Mellon, 2014 NY Slip Op. 30309(U), approving in most respects an $8.5 billion settlement between Bank of New York Mellon, as trustee of trusts holding mortgage-backed securities issued by Countrywide Financial Corp., and Bank of America, which acquired Countrywide in 2008.
Upon reaching the settlement, which resolved claims for breaches of representations and warranties concerning the underlying mortgages and violations of prudent loan servicing obligations, Bank of New York sought judicial approval of the settlement under Article 77 of the CPLR, which authorizes a special proceeding “to determine a matter relating to any express trust.” A group of institutional investors intervened to support the settlement, and various other investors intervened in opposition and/or to obtain more information about the settlement. (Our firm represented a group of investors who intervened in the proceeding and participated in discovery.) Following extensive discovery and motion practice, Justice Kapnick, on her final day in the Commercial Division, largely approved the settlement as within the bounds of the trustee’s “reasonable judgment.” She did, however, find that the trustee abused its discretion on one point—settling without adequate investigation of potential repurchase claims for modified mortgage loans. This caveat has created significant uncertainty, since the original settlement was contingent on Bank of New York obtaining judicial approval of its actions. The proceeding is now assigned to Justice Scarpulla, who, Reuters reports, has stayed Justice Kapnick’s decision from taking effect until February 19. Given the amounts at stake, further litigation in the trial court and on appeal can be expected.
We welcome suggestions regarding court decisions, upcoming oral arguments or other developments in the area of commercial litigation that we should blog about.

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