CPLR 3211(a)(1) allows a defendant to seek dismissal of a complaint when the defense is “founded upon documentary evidence.” “Documentary evidence”, however, is not defined by the CPLR – leaving many practitioners in the dark as to what qualifies as a sufficient “document” under this paragraph.  Indeed, in a recent blog, we highlighted a case involving whether a termination letter sent by the lawyer was sufficient.

By its plain meaning, “documentary evidence” seems to suggest that any type of evidence that has been reduced to writing could qualify. In reality, however, “documentary evidence” only encompasses certain types of documents, making CPLR 3211(a)(1) a narrow, and sometimes risky, ground upon which to seek dismissal.

That begs the question – what qualifies as documentary evidence under CPLR 3211(a)(1)? New York courts have held that judicial records and documents such as notes, mortgages, and deeds rise to the level of “documentary.” But what about contracts? In Hoeg Corp. v Peebles Corp., the Second Department recently affirmed that contracts can indeed attain the rank of “documentary evidence” under certain circumstances.

In Hoeg, plaintiff and defendant entered into a joint venture and memorialized the terms of their relationship in a written retainer agreement. Specifically, the retainer agreement provided, among other things, that plaintiff would act as a consultant in order to facilitate defendant’s acquisition and development of real property in New York City. The retainer agreement also set forth varying commission structures for work performed by plaintiff in facilitating the defendant’s acquisition of such properties. Notwithstanding the written retainer agreement, plaintiff alleged that it had entered into a prior oral agreement with defendant whereby the parties agreed that plaintiff would retain 25% of the equity in the joint venture.

The plaintiff ultimately commenced an action against the defendant for breach of the oral agreement, alleging that the defendant had failed to honor the terms of the oral agreement after the defendant had sold development rights to a parcel of property in a multimillion dollar deal. The Kings County Supreme Court denied the defendant’s motion to dismiss, but the Second Department reversed, finding that the written retainer agreement qualified as documentary evidence under CPLR 3211(a)(1).

In reaching its conclusion, the Court examined the parties’ written retainer agreement and found that the agreement was “comprehensive in its scope and coverage” that constituted a complete written instrument. Accordingly, the Court held that the parol evidence rule bars any evidence concerning the alleged prior oral agreement. For this reason, the Court ruled that the parties’ contract “conclusively disposed of the plaintiff’s claim alleging breach of the purported oral joint venture agreement.”

This does not necessarily mean that every contract will qualify as documentary evidence under CPLR 3211(a)(1). A document will be considered “documentary evidence” within the meaning of CPLR 3211(a)(1) if it “utterly refutes the plaintiff’s allegations, conclusively establishing a defense as a matter of law” (see, e.g., Eisner v Cusumano Corp.) .  In addition, the documentary evidence must be “unambiguous, authentic, and essentially undeniable” (id.).  

The careful practitioner should be aware of the limited utility of CPLR 3211(a)(1) and be armed with the right evidence before relying solely on the “documentary evidence” ground. Otherwise, it might be wise for a practitioner to invoke CPLR 3211(a)(7) as a ground for dismissal as well.

 

Statutorily imposed deadlines are not optional for commercial litigants; this much should be obvious. Notwithstanding, and despite numerous technological calendaring options available to commercial litigators, deadlines are blown in the Commercial Division, including the mother of all deadlines: the defendant’s time to answer or otherwise move against a complaint (see CPLR 3012). As should also be obvious, the defaulting defendant’s request for a “Get out of Jail Free Card” – a motion to extend the time to appear or plead (see CPLR § 3012 [d]) – will not be taken lightly.

A recent ruling provides such a reminder.  In State Farm Mut. Auto Ins. Co. v. Austin Diagnostic Med., P.C., the Appellate Division, Second Department recently considered the Queen’s County Commercial Division’s (Dufficy, J.) denial of such a motion. State Farm commenced the action seeking a declaratory judgment that it was not obligated to pay certain no-fault insurance benefits to the defendant. The defendant blew its deadline and, three and a half months late, filed its answer. State Farm rejected the answer and the defendant moved to extend its time to answer, “or in the alternative, to compel the plaintiff to accept” it.

In affirming the Commercial Division’s denial of the motion, the Appellate Division offered a clear reminder of the defaulting defendant’s bright-line burden: in addition to providing a reasonable excuse for its delay, it must demonstrate that it has a potentially meritorious defense. The Appellate Division held that the documents offered in support of a potentially meritorious defense – the untimely answer, which was verified by the defendant’s attorney, and an affirmation of the defendant’s attorney – were insufficient because the attorney lacked personal knowledge of the facts.

The take-away here is fundamental, but critical: do what you must to avoid a default and, if you do miss your deadline, be sure your motion for an extension establishes a reasonable excuse for the delay and a potentially meritorious defense, both of which are attested to by someone having personal knowledge of those facts.

Visitors to this blog may recall our recent posts (here and here) concerning the individual practice rules of Manhattan Commercial Division Justice Bransten and Queens County Commercial Division Justices Gray and Livote.  “Check the rules!”, was the cautionary theme of those posts.

But just how much of a stickler for compliance can one expect a judge to be with respect to the part’s individual rules?  And is there any precedent for enforcement – perhaps even some case law that can be cited by a party affected by a non-compliance?

More and more, counsel are being reminded of the importance of following the rules in the Commercial Division.  In at least two decisions this year, Manhattan Commercial Division Justice Shirley Werner Kornreich gave such reminders to the bar when she admonished the parties for violating her part rules in the context of summary judgment motions.

With respect to motion papers filed in her court, particularly motions for summary judgment, Justice Kornreich’s “Practices in Part 54” clearly require, among other things, that:

·       “all e-filed documents must be OCR Text Searchable PDFs”;

·       all memoranda of law must include “cover pages, tables of contents, and tables of authorities, all three of which are mandatory”;

·       “the parties shall . . . prepare and file one joint Rule 19-a statement of material facts at least three weeks before the summary judgment motion is filed” and that “[i]f the parties cannot agree on a joint statement, no Rule 19-a statement of facts may be filed”; and that

·       “[i]f summary judgment briefs cite to deposition testimony, a complete copy of that deposition transcript must be filed.”

Simple enough, right?  Maybe not.

In Lau v Lazar, which involved cross-motions for summary judgment concerning the ownership and operation of an outpatient surgical center, Justice Kornreich reprimanded the parties for “substantially delay[ing] the court in resolving the instant motions” due to their filing of lengthy briefs that “lack[ed] tables of contents and authorities, that [we]re not text-searchable, and that contain[ed] almost no case law in violation of this part’s rules.”  Justice Kornreich also scolded the parties for “submit[ting] fact statements without citations to the record, forcing the court to piece together the factual background from the parties’ exhibits, which . . . did not include complete deposition transcripts.”

In Arizona Premium Fin. Co., Inc. v American Tr. Ins. Co., which involved cross-motions for summary judgment concerning the return of unearned insurance premiums, Justice Kornreich threw out altogether the defendant’s “proposed statement of material facts, which was submitted in violation of this part’s rules,” because the parties otherwise “were unable to agree on a joint statement of undisputed facts.”

You are remembered for the rules you break“, remarked Gen. Douglas MacArthur.  In the Commercial Division, however, you don’t want to be remembered as the one who broke the rules.  Justice Kornreich’s recent Lau and Arizona Premium decisions serve as another, best-practices reminder for the Commercial Division practitioner to first “check the rules”, then follow them!

 

 

 

 

 

In an action brought against a title company for losses in connection with a property sale, Justice Elizabeth H. Emerson, in JBGR LLC v. Chicago Title Ins. Co., denied the title insurer’s motion to amend its answer to add defenses, but also denied plaintiffs’ motion for a protective order concerning a withheld memorandum prepared by plaintiffs’ “expediter”.

This is the latest suit involving a 286-acre parcel of property for the development of homes surrounding a golf course on Long Island.  In an earlier suit, the court awarded $2.97 million in damages against the plaintiffs in the current action based upon a promissory note default.  In turn, plaintiffs sued Chicago Title, title insurer of the sale.  In short, plaintiffs allege they were unaware of a 1997 declaration that restricted development to 140 homes, of which the title insurer failed to advise.  Plaintiffs intended to build another 55 homes on the property, but couldn’t.

After years of discovery and motion practice, the case was certified trial ready, and note of issue filed in December 2016.  Post note of issue motions were then filed.  Defendant filed a motion to amend its answer to withdraw certain defenses, modify others and add six more.  Plaintiffs cross-moved for a protective order, seeking to prevent disclosure of a memorandum produced to defendant, based upon attorney client privilege and work product doctrines.

As to the proposed amendments, the court concluded that the delay, coupled with prejudice, warranted denial.  In considering the prejudice, the court applied the same elements used in the laches context, and noted that once certified as “trial ready”, the court’s discretion “should be discrete, circumspect, prudent, and cautious”.  In this case, the court focused particularly on how long defendant was aware of the facts, which had been since June 2015.

An even more significant ruling, however, was the denial of the motion for a protective order.  The memorandum in question was a memo generated by Joseph Dempsey, an attorney, summarizing a meeting held in 2010, at which the municipal applications for the development were discussed.  Defendant obtained the document through a third-party subpoena served upon one of the participants to the meeting, Victor Prusinowski.  Mr. Prusinowski described in his deposition that he was an expediter or “land-use consultant”.  The court held that the memo was not protected from disclosure on three grounds.  First, Prusinowski’s advice, as a non-lawyer service provider, while “important” to the legal advice given to the clients, was not “given to facilitate such legal advice”, and therefore the agency principle did not apply here and his presence waived any privilege.  Second, even if it were privileged, the court concluded that there was a waiver, since “plaintiffs’ took no concrete steps to obtain a ruling” or seek a claw-back for nearly two years.   Finally, the court concluded that the memo prepared by Dempsey was not considered “work product”, since he wasn’t acting as counsel when prepared.  The memo did not contain “language uniquely reflecting a lawyer’s learning an [sic] professional skills, including legal research, analysis, conclusions, legal theory or strategy”.

And all this means what?  As to amendments, consider amending or seeking leave soon after the new facts arise.  Although there may be strategy in waiting to amend, the courts will focus on how long you knew, and whether you had a reasonable excuse for the delay.  As to privilege, when working with non-lawyer service providers, courts will carefully scrutinize their retention, scope of services and their “necessity” for the rendering or facilitation of legal advice.  Consider whether counsel — and not the client — should retain the provider, and whether a Kovel agreement is needed.

 

 

 

If you have ever looked at a contract’s New York choice-of-law provision or a status conference stipulation and thought to yourself, “Who wrote this darned thing?” then now is your chance to weigh in. The Commercial Division Advisory Council has recommended two new forms—a model choice-of-law provision and a model status conference stipulation and order form—and the Office of Court Administration is soliciting public comments. Comments should be emailed to rulecomments@nycourts.gov by August 25, 2017.

Standard New York Choice-of-Law Provision

The proposed sample choice-of-law provision, which would be appended to the Rules of the Commercial Division, is as follows:

THIS AGREEMENT AND ITS ENFORCEMENT, AND ANY CONTROVERSY ARISING OUT OF OR RELATING TO THE MAKING OR PERFORMANCE OF THIS AGREEMENT, SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO NEW YORK’S PRINCIPLES OF CONFLICTS OF LAW.

The gentle reader must forgive the ALL-CAPS format of the original proposed text (presumably this provision was intended to be read loudly in a New York accent). This proposed uniform provision is intended to (1) assist drafters who wish to choose New York law to govern disputes; (2) reduce litigation over choice-of-law issues; and (3) showcase New York’s “predictable and sensible commercial law” and thereby increase commercial litigation in New York courts. Whether increased commercial litigation in New York’s courts is a desirable goal may be open to debate, but few would object that litigation over sloppily-drafted choice-of-law provisions should be eradicated to the extent possible.

Model Status Conference Stipulation and Order

The Advisory Council has also recommended the adoption of a revised model status conference stipulation and order for use in the Commercial Division. This revised form, which can be viewed here, was designed to incorporate changes in Commercial Division rules and practice since the form was last revised in October 2015. The proposed form has a new section on expert discovery, contains reminders on the finality of discovery deadlines and the availability of alternative dispute resolution, and allows for greater specificity regarding discovery topics. As a model form it is not mandatory, but insofar as it is used as a guide by judges it provides a comprehensive overview of the discovery topics that a court would need to address.

ay a stranger to an arbitration agreement compel arbitration against its signatories? According to the Second Department in Degraw Construction Group v McGowan Builders, Inc., 2017 NY Slip Op 05580 (2nd Dept July 12, 2017), the answer is “sometimes”: a plaintiff cannot avoid arbitration with a company by substituting the company’s employees as defendants.

Our dispute began in the fair County of Queens, renowned for its spicy food and injury-prone athletes, when Degraw Construction Group, Inc. (“Degraw”) agreed to perform construction work for McGowan Builders, Inc. (“McGowan”). McGowan apparently did not pay what Degraw felt was owed, because Degraw brought suit in Supreme Court, Queens County, notwithstanding that the contract, signed by Degraw and McGowan, contained an arbitration clause covering “all disputes arising thereunder.” Degraw also brought causes of action for conversion, unfair competition, and tortious interference against McGowan and several of McGowan’s employees and officers (the “Individual Defendants”). The Supreme Court (Dufficy, J.) granted McGowan’s motion to compel arbitration. However, the Individual Defendants’ corresponding motion was denied because they were not parties to the Contract and therefore had no right to enforce its arbitration provisions.

The Second Department reversed, holding that the individual defendants, although not signatories to the agreement, had the right to enforce it. The Second Department noted first that because “a corporation can only act through its officers and employees […], any breach of the agreement would necessarily have to occur as a result of some action or inaction attributable to an officer or employee of [McGowan].”

This principle girded the Court of Appeals’ 1996 decision in Hirschfeld Prods. v. Mirvish, (cited in the Second Department’s Degraw decision), in which the president and chairman of a theatrical production company were sued in their individual capacities for their unprofitable 1993 production of Hair at the Old Vic Theatre in London (the Spectator’s review: “this was once a great and classic theatre, and what it is doing housing a shoddy, roadshow-like revival of breathtaking inadequacy remains something of a mystery”). As in Degraw, the officers were not signatories to the company’s arbitration agreement. Nevertheless, the Court of Appeal granted their motion to compel arbitration, noting that “a rule allowing corporate officers and employees to enforce arbitration agreements entered into by their corporation is necessary not only to prevent circumvention of arbitration agreements but also to effectuate the intent of the signatory parties to protect individuals acting on behalf of the principal in furtherance of the agreement.”

The Second Department also cited Highland HC, LLC v. Scott, in which the plaintiff sued an architectural and construction company, as well as individual officers of the defendant company, due to alleged “design flaws” and “substandard work.” The contract contained an arbitration provision, but was unsigned by the company’s officers or employees in their individual capacities. Despite this, the Second Department (citing Hirschfeld) compelled arbitration, affirming the rule that non-signatories to arbitration agreements “are entitled to enforce the arbitration clause to the extent that their alleged misconduct relates to their behavior as agents of the [signatory company].”

An important takeaway from these decisions is the close relation between the individual defendants’ alleged conduct and their employers’ performance under the contracts. In Hirschfeld, the individual defendants, as president and chairman, controlled and supervised the company’s role in the production. And in Highland, the individual defendants were charged with completing the architectural and construction work on the company’s behalf.   Thus, a key element of the rule affording non-signatory agents the benefit of arbitration agreements signed by their principals is that the non-signatory’s conduct must relate to the performance of its principal’s contractual obligations.

In light of the general policy favoring arbitration, the holding in Degraw should come as no surprise. Nonetheless, potential litigants should be aware that a clause providing that “all disputes” arising out of an agreement shall be resolved by arbitration cannot be circumvented simply by naming a counter-party’s employees as individual defendants.

* A special thanks to Farrell Fritz Summer Law Clerk Kyle Gruder for his research and drafting assistance with this post. Kyle is a student at Hofstra University School of Law and anticipates receiving his J.D. in 2018.

 

 

The doctrine of equitable recoupment, which is codified in CPLR 203(d) permits a defendant to assert an otherwise untimely defense or counterclaim. The Appellate Division, First Department recently applied the doctrine in California Capital Equity, LLC v. IJKG, LLC, and highlighted a few caveats that a litigator should bear in mind when relying upon the doctrine.   Importantly, one must keep in mind that the doctrine of equitable recoupment is to be used as a shield, not a sword.

Plaintiff California Capital Equity, LLC (“CalCap”) commenced an action against defendants IJKG, LLC (“IJKG”) and Vivek Garipalli (“Garipalli”)¹ (collectively, “Defendants”) asserting claims of breach of contract, fraud, and breaches of fiduciary duty arising out of, among other things, Defendants’ failure to make interest payments to CalCap pursuant to a Note Agreement.   In response, IJKG asserted counterclaims for tortious interference with contract, breach of implied covenant of good faith and fair dealing, and unjust enrichment.

CalCap moved to dismiss IJKG’s counterclaims for tortious interference with contract and unjust enrichment on the ground that these counterclaims were barred by New York’s three-year statute of limitations.   Justice Ramos of the New York County Commercial Division denied CalCap’s motion, finding that the doctrine of equitable recoupment permitted IJKG to assert its otherwise time-barred counterclaims.

The First Department affirmed Justice Ramos’ ruling. The Court explained that the doctrine of equitable recoupment, which is codified in CPLR 203(d), permits a defendant to seek equitable recoupment in an otherwise untimely defense or counterclaim.   However, there are two main caveats with respect to the doctrine: (1) the defense or counterclaim must arise from the same transaction, occurrence, or series of transactions or occurrences as alleged in the complaint; and (2) the doctrine may only be asserted to offset any damage award or deficiency judgment that a plaintiff may obtain in its favor against a defendant.   In other words, the doctrine of equitable recoupment may only be used defensively as a shield for recoupment purposes, and not as a sword for a defendant to obtain affirmative relief on an otherwise stale counterclaim.

Applying these principles, the First Department concluded that IJKG’s tortious interference of with contract counterclaim, if proved, could be used defensively for recoupment purposes, but that IJKG could not obtain any relief from the counterclaims, such as disgorgement. Accordingly, the Court permitted IJKG to assert its counterclaim for tortious interference with contract solely to offset any damage award or deficiency that CalCap may obtain in its favor.

¹  Although Garipalli was named as a defendant in the lawsuit, all claims against him have been dismissed.

As any seasoned commercial litigator knows, courts are generally loathe to overturn the independent decisions of arbitrators.

New York County Commercial Division Justice Charles E. Ramos recently examined the standard for doing so in Daesang Corp. v NutraSweet Co., a dispute arising from Daesang Corporation’s attempted $79,250,000 sale of its aspartame business to iconic sweetener brand NutraSweet.

Daesang commenced the breach of contract action when NutraSweet attempted to exercise its right to rescind the purchase transaction based upon the filing of a suit against the parties by a class of aspartame purchasers for alleged violations of federal antitrust laws. The parties stipulated to the jurisdiction of the International Chamber of Commerce (“ICC”), which ultimately issued a written award dismissing all of NutraSweet’s counterclaims and defenses and awarded Daesang damages of over $100 million. Daesang then commenced the instant proceeding to confirm the ICC’s award, which NutraSweet moved to vacate.

Acknowledging the “presumption in favor of upholding arbitration awards,” Justice Ramos further observed that such deference is not limitless.   The Court explained that an arbitration award may be vacated only if it a) violates a ground set forth in Section 10 of the Federal Arbitration Act; or b) was rendered in “manifest disregard” of the law.

Justice Ramos determined this to be the rare case, finding two exceptional aspects of the ICC’s award to Daesang warranting vacatur. First, the Court held that with respect to NutraSweet’s defense and counterclaim for equitable rescission based on fraud in the inducement, the ICC disregarded, and in fact ignored the “well-established principle that a fraud claim can be based on a breach of contractual warranties where the misrepresentations are of present facts.”

Second, the Court found that the ICC’s outright refusal to consider NutraSweet’s breach of contract counterclaim, which the ICC concluded NutraSweet waived during its closing argument, went “beyond a mere error in law or facts, and amount[ed] to an egregious dereliction of duty.” The Court explained that, beyond the fact that NutraSweet submitted witness statements, live and expert testimony, and took cross-examination on the counterclaim, the portion of the transcript that the ICC based its decision on failed entirely to address the breach of contract counterclaim.

While the Commercial Division’s decision was a sweet success for NutraSweet, this case should serve as a stark reminder to commercial litigators that a successful motion to vacate an arbitration award requires a finding of truly egregious errors and/or “manifest disregard” for well-established law.

 

Several weeks ago, we reported on some recent updates to Manhattan Commercial Division Justice Bransten’s individual practice rules. New York commercial litigators should take note of some recent changes in the Queens County Commercial Division as well.

According to an official announcement from the Queens County Commercial Division, as of April 3, 2017, all Commercial Division motions made before Justices Marguerite A. Grays or Leonard Livote must be made returnable directly before either judge in their respective Commercial Division Parts and on their respective motion days (as opposed to the Queens County’s Centralized Motion Part or “CMP”), with the corresponding Notices of Motion or Proposed Orders to Show Cause bearing the words “COMMERCIAL DIVISION” in boldfaced type.

Justice Grays’s individual practice rules and Justice Livote’s individual practice rules, particularly with respect to Commercial Division motions made before them (again, as opposed to the CMP), are virtually identical. Some specifics worth noting:

• Both judges designate Tuesdays as their motion day, first call at 10:00 a.m.;

• Both judges emphasize the above-referenced “COMMERCIAL DIVISION” marking requirement, cautioning that non-compliance “may result in the motion being calendared in the CMP”;

• Both judges require that all moving papers be filed in hard copy in the Motion Support Office “at least five business days prior to the scheduled return date.” All answering papers, cross-motions, and replies, on the other hand, “will be accepted only on the return date in the Part”;

• Both judges require in-person appearances by counsel or pro se litigants on the return date of all disclosure motions and Orders to Show Cause, cautioning that such “papers will not be accepted from a calendar service”; and

• Both judges require that all applications for adjournment be made in person on the return date. Again, “calendar service or non-attorneys will not be permitted to make applications for adjournments.”

These are welcome distinctions for litigants interested in prosecuting and/or defending their commercial cases expeditiously. Before April 3, 2017, a commercial litigator wishing to make a motion in the Queens County Commercial Division was left to navigate the many and specific procedures of the CMP where motions are seemingly ever subject to the prospect of being “administratively rescheduled,” “marked off,” outright “discarded,” or otherwise delayed because of some other emboldened, highlighted, and/or underscored procedural particularity.