The Second Department recently handed down a harsh reminder of the importance of obtaining an executed broker’s agreement.  Oral agreements for broker fees are apt to run afoul of the statute of frauds, and personal jurisdiction cannot be conferred by the mere insertion of a forum selection clause in the brokered sale agreement.

In Ausch v Sutton, the plaintiff alleged he was owed a broker’s fee pursuant to an oral agreement with the defendants for arranging the sale of the first defendant’s (Defendant 1) interest in a company to Defendant 2. Defendant 3 co-owned the company with Defendant 1 and resided outside New York. Aside from the purchase agreement, which contained a forum selection clause designating New York for the resolution of any disputes arising from the purchase agreement, Defendant 3 had no contacts with New York.

Defendant 3’s motion to dismiss pursuant to CPLR 3211(a)(8) was denied by the Kings County Supreme Court (Knipel, J.) on the ground that the forum selection clause in the purchase agreement conferred jurisdiction over all disputes arising from the purchase agreement, which included alleged oral agreements for related broker fees. But the Appellate Division reversed, citing Magdalena v Lins,  which held that a forum selection clause among defendants was insufficient to confer personal jurisdiction in a suit brought by the plaintiff, where the plaintiff was neither a party to the agreement containing the forum selection clause nor a third party beneficiary. In essence, the Appellate Division distinguished between the purchase agreement and the alleged oral agreement for a broker’s commission–the forum selection clause in the former was insufficient to confer personal jurisdiction with respect to the latter.

If the lack of personal jurisdiction over Defendant 3 were not enough, then the statute of frauds ultimately would have proved fatal to the plaintiff’s causes of action against all three defendants. General Obligations Law § 5-701[a][10] states that an agreement to pay a commission for arranging a sale transaction is void unless in writing. As held by the Court of Appeals, a claim for unjust enrichment or quasi-contract in connection with a brokered transaction cannot be used to get around the statute of frauds (see Snyder v Bronfman).

The bottom line for brokers of sale transactions is that they cannot rely on protections contained within the sale documents unless they are parties to those documents. To ensure that the dispute will be heard in New York and not dismissed out of hand under the statute of frauds, a broker would be well advised to obtain a signed agreement declaring the terms of her commission before engaging in any work to consummate a potential business opportunity.

If you commence an action by way of summons with notice, you must bear in mind the strict time limitations imposed by CPLR 3012(b). When the other party timely serves a written demand for a complaint, you have exactly twenty (20) days from service of the demand to serve the complaint. This is a strict, statutory deadline that should be calendared immediately upon receipt of the demand. If a litigant fails to serve a complaint within the twenty-day period, the action could be dismissed. Statutory Deadlines

This is precisely what occurred in Javoroski v. SelectQuote Ins. Service, Inc., et al., 2017 N.Y. Slip Op 50465(U)(Sup Ct, Albany County Feb. 21, 2017). Ms. Javoroski commenced an action against SelectQuote and other defendants by serving a summons with notice. The summons with notice indicated that Ms. Javoroski would be alleging, among other things, breach of contract as a result of defendants’ alleged failure to pay life insurance proceeds following the death of plaintiff’s husband. Shortly after plaintiff served the summons with notice, defendants SelectQuote and Charan Singh (“Singh”) filed a notice of appearance and demanded service of the complaint. When plaintiff did not serve the complaint within the twenty-day deadline imposed by CPLR 3012(b), Defendants moved to dismiss the action. Ms. Javoroski cross-moved for an extension of time to complete service, claiming that she had both a reasonable excuse for the delay and a meritorious claim.

First, Plaintiff’s counsel argued that his delay in serving the complaint was due to his need to “conduct further research to ascertain the identity of the correct defendant or defendants.” According to Plaintiff, there were multiple entities that included “SelectQuote” in their names and Singh was affiliated with all of them.

Next, Plaintiff’s counsel explained that, upon receiving Defendants’ notice of appearance in the mail, he undertook additional research in order to ascertain whether the appearing SelectQuote was in fact the entity that sold the life insurance policy to Plaintiff’s late husband. Notably, Plaintiff’s attorney admitted that the 20-day notice deadline was never calendared as a result of a “law office failure.”

Defendants pointed out that Plaintiff’s delay in serving the complaint was anything but short. In fact, Plaintiff served her complaint 79 days after Defendants’ demand, 118 days after service of the summons with notice, and two full weeks after Defendants served their motion to dismiss.

Defendants further argued that the excuse for the delay proffered by Plaintiff’s attorney was unreasonable because the notice of appearance identified the correct defendant and hence, there was no need for additional research.

Defendants also pointed out that the complaint pled identical, repetitive allegations against all five SelectQuote entities and hence, it was not necessary for Plaintiff to identify the correct corporate name in order to prepare the complaint.

The Court agreed with Defendants, finding that Plaintiff’s purported excuses were unreasonable under the circumstances. Importantly, the Court noted that “[e]ven if plaintiff’s attorney had a legitimate need to research the name of the correct corporate entity, it did not absolve plaintiff of the obligation to serve a duly demanded complaint within the time allowed by statute.”

Additionally, the Court noted that the complaint Plaintiff finally served “was not limited to allegations against the ‘correct’ SelectQuote defendant” and hence, Plaintiff had all of the necessary information at the time the summons was served to assert the general allegations that were ultimately put into her complaint.

Finally, the Court found that Plaintiff’s affidavit of merit fell “well short” of establishing her prima facie case, and dismissed the action.

Moral of the story? Calendar your deadlines – especially the statutory ones.

New Rules Shutterstock_317335106One aspect of the Commercial Division that makes it a highly desirable forum for litigators and litigants alike is its focus on the efficient administration of justice. The Commercial Division Advisory Council (the “Advisory Council”), established by New York’s Chief Judge to make recommendations to improve and enhance the Commercial Division, recently proposed three amendments to the Rules of the Commercial Division that would each further this objective.

Standard Alternative Forum Selection Clauses

In light of concerns that were raised after the Chief Administrative Judge issued an Administrative Order, dated March 6, 2017, adopting the Advisory Committee’s September 2016 proposal to add a sample forum selection clause designating the Commercial Division as the chosen forum, the Advisory Committee recently issued a revised proposal. The concerns centered on the potential for the original sample forum selection clause to limit commercial litigants’ access to the New York federal courts. The new proposal addresses this by including two sample forum selection clauses: one designates the Commercial Division exclusively as the chosen forum, while the other provides that the parties agree to submit to the exclusive jurisdiction of either the Commercial Division or the New York federal courts.

 Further Support For Commercial Division Justices to Impose Sanctions

Referencing the finding of the Chief Judge’s Task Force on Commercial Litigation in the 21st Century that sanctions are often underutilized in Commercial Division Cases, the Advisory Council proposed an amendment to the Commercial Division Rules intended to provide additional support for Commercial Division judges to impose sanctions. The proposed amendment, which identifies “the need to conserve client resources, to promote efficient resolution of matters, and to increase respect for the integrity of the judicial process” expressly authorizes Commercial Division judges to “impose sanctions . . . against parties (or counsel) who fail to comply with case management deadlines and other discovery orders.”

Attorney Certifications Regarding ADR

Finally, the Advisory Council has also proposed a new rule aimed at increasing ADR utilization in the Commercial Division. The proposed rule would require attorneys to certify at the preliminary conference, and at each compliance or status conference, that they have discussed ADR options with their client(s) and to state whether their client(s) is willing pursue mediation during the litigation.  If the parties are both willing to mediate their dispute, they would be required to jointly propose a date by which they will select a mediator, but does not require that they set a deadline for the mediation to begin.

You’re a commercial litigator in New York. You’ve just been brought in on a case pending in the Commercial Division before a particular Commercial Division judge.  Or maybe you’ve just received an administrative bounce to a Commercial Division RJI Addendum, assigning your case to a particular Commercial Division judge sitting in the county where you recently filed motion papers or requested a preliminary conference. What’s the first thing you do?  You check the rules, of course.

Obviously, that begins with familiarizing (or re-familiarizing as the case may be) yourself with the Commercial Division Rules – particularly Rules 7 through 24, which supersede the Uniform Civil Rules with respect to conferencing your case and engaging in motion practice.

Know the Rules

But you also should look to see whether the particular Commercial Division judge assigned to your case has individual practice rules – which rules, in turn, often supersede or otherwise modify the Commercial Division Rules. Those Commercial Division judges that have individual practice rules update their rules with some regularity, so you also should make a point of checking them periodically.

As a recent example, Manhattan Commercial Division Justice Eileen Bransten, whose practice rules begin with the general principle of application noted above – namely, that “the Commercial [Division] Rules govern all cases before Justice Bransten unless modified or changed below” – updated her rules in March of this year. Some of the more notable updates to Justice Bransten’s “Practices in Part 3” are as follows:

  • Correspondence with the Court:       All letters to Justice Bransten, including pre-motion conference letters under Commercial Division Rule 24, in addition to being e-filed on the NYSCEF system, must be “hand delivered” to her Part Clerk and must conform to the font requirements of “Times New Roman, Size 12.”
  • Court conferences: Justice Bransten’s updated practice rules link to forms for the New Revised Preliminary Conference Stipulation and Order, as well as the New Compliance Conference Stipulation and Order, both of which are required for conferences held in Part 3.
  • Filing under seal: Justice Bransten’s updated practice rules provide for extensive direction concerning the filing of documents under seal:
    • Applications to file under seal must be made by Order to Show Cause;
    • Parties must meet and confer regarding the documents proposed for sealing before making a motion to file under seal;
    • Motions to file under seal will be considered in light of the limitations imposed on sealing as dictated by recent case law; moving parties must propose document redactions “as opposed to the wholesaling sealing of documents”;
    • Any document proposed for sealing must be filed in its original, un-redacted form as an exhibit to the motion, with the proposed redacted version of the document filed “as a subset of that exhibit”;
    • All motions to file under seal must be accompanied by a jointly-created index of the documents proposed for sealing, to include the basis for the proposed sealing and any objection thereto.
  • Motion practice in general:
    • Justice Bransten requires a courtesy (hard) copy of all e-filed motion papers;
    • If a party wishes to submit a deposition/hearing transcript or an arbitration award as an exhibit to a motion, the document must be submitted in its entirety as opposed to excerpts;
    • When submitting a Statement of Material Facts under Commercial Division Rule 19-a in support of a motion for summary judgment, a party must provide specific “references to appropriate documentation” establishing that the facts are undisputed; the party opposing the motion must “first repeat the movant’s claimed undisputed facts followed by its response,” which also must provide “reference to appropriate documentation.”
    • Consistent with her prior rulings on the topic (see e.g. ZV NY, Inc. v Moskowitz 44 Misc 3d 1225[A] [Sup Ct, NY County 2014), attorney affirmations in which counsel present arguments of law – sometimes referred to as “memo-affs” or “brief-adavits” or “brief-irmations” – “will not be considered by the Court.”
  • Trial practice:
    • Justice Bransten will not give parties a trial date unless and until they have attempted some form of ADR, whether privately or through the Commercial Division’s ADR Program.
    • All pre-trial submissions (briefs, witness and exhibit lists, and motions in limine, etc.) must be “both e-filed and hand delivered to the Part in hard copy.”

In an action for breach of contract, Pulp Fiction and Reservoir Dogs star Harvey Keitel sued E*Trade based upon a Term Sheet entered into between Keitel and advertising agency Ogilvey & Mather NY (“Ogilvey”) for the actor to do three commercials.   The case, Keitel v E*Trade Fin. Corp. (Sup Ct, NY County, Apr. 17, 2017) (Ramos, J.),  was filed in 2015 after E*Trade decided not to move forward with Keitel in its advertising campaign.

After the initial motion to dismiss was granted by the Court in March 2016, Keitel was granted leave to amend based upon additional facts learned through discovery. In his amended complaint, Keitel alleged that the totality of circumstances – including exchanges of emails and internal communications between E*Trade and Ogilvey — demonstrated an intent to be bound.

In ruling on E*Trade’s motion to dismiss the amended complaint, Justice Ramos disagreed with Keitel. In granting the motion, the Court noted that the Term Sheet states clearly that, “neither party shall be bound until the parties execute a more formal written agreement”, which was never done.  Since the Court found the Term Sheet unambiguous, resort to extrinsic evidence was unnecessary.  Even looking at the proffered extrinsic evidence, however, the Court observed that there was simply no “meeting of the minds”.  Justice Ramos also noted that this was not like PMJ Capital Corp. v PAF Capital, LLC, where there were negotiations and a finalized term sheet “ready for execution.” Finally, E*Trade’s “kill fees” of $150,000 was considered inadmissible evidence of liability under CPLR 4547.

Query whether, as pleaded in the amended complaint, were the subsequent communications between the parties enough to effectuate a waiver of the “neither party shall be bound” clause?   For a good discussion on when these “neither party shall be bound” clauses should be ignored, see Justice McGuire’s dissenting 0pinion in Jordan Panel Sys. Corp. Turner Constr. Co.

Following the decision, Keitel filed a Notice of Appeal on May 2, so stay tuned for the Appellate ruling.