In a recent decision by the New York County Commercial Division (Borrok, J.), the Court held that New York law, not Swiss law, applies to a dispute involving the ownership of the storied Princie Diamond – an extremely rare and valuable 34.65 carat pink diamond quarried from the legendary Golconda mines of India.  In a wide-ranging, multi-part decision, Justice Borrok applied the “interest analysis” to determine that New York, not Switzerland, clearly has the greatest interest in the litigation.

The Plaintiffs in Angiolillo v Christie’s, Inc., et al.., 2019 NY Slip Op 29122 (Apr. 26, 2019) are the heirs of Renato Angiolillo (“Angiolillo”), an Italian Senator who purchased the Princie Diamond from Van Cleef & Arpels in 1960.  Under Italy’s inheritance laws, Angiolillo’s surviving spouse, Maria Girani Angiolillo (“Girani”) took custody, but not ownership, of the Princie Diamond when Angiolillo died in 1973.  After Girani’s death in 2009, Plaintiff Amedeo Angiolillo (Angiolillo’s eldest son) attempted to contact Girani’s son, Marco Bianchi Milella (“Milella”) for the return of the diamond.  But, Milella claimed he had never seen the Princie Diamond and had no knowledge of its whereabouts.  The Plaintiffs ultimately contacted the Italian authorities, and a criminal investigation of the missing Princie Diamond ensued.

Milella later admitted to taking the Princie Diamond, but maintained that he had lawfully inherited the diamond from his mother.  By this point, however, and unbeknownst to Plaintiffs, the diamond had already been transported from Italy to Switzerland on consignment, and then to New York, where it was consigned and transported to defendant Christie’s, Inc. (“Christie’s”).  Throughout August and September 2010, Christie’s attempted to privately sell the Princie Diamond to prospective buyers from around the world.

In October 2010, while Christie’s was still trying to privately sell the diamond, defendant Investel Finance, Ltd. (“Investel”) purchased the diamond from Milella by wiring $19.2 million into Milella’s Swiss bank account.  The Princie Diamond was located at the Geneva Freeport, a storage facility in Switzerland, at the time of its purchase. Investel then consigned the Princie Diamond to Christie’s for $40 million, and designated Christie’s as the exclusive seller of the diamond.  In 2013, after three years of unsuccessfully attempting to privately sell the Princie Diamond, Christie’s began negotiations to publicly auction the diamond in New York.

Christie’s apparently did not investigate the provenance of the Princie Diamond until March 2013, when it learned of the Italian news articles concerning the investigation of Milella.  In April 2013, Plaintiffs’ counsel contacted Christie’s advising that it was “a great likelihood, almost a certainty” that the diamond was stolen property, and requesting that Christie’s investigate and determine the proper title of the seller.  In response, Christie’s confirmed that the diamond was in fact the missing Princie Diamond, but advised that, under Swiss law, Investel had acquired full title and ownership of the Princie Diamond, including the right to consign the diamond to Christie’s for auction.  In 2013, Christie’s sold the Princie Diamond at an auction for nearly $40 million.  Plaintiffs thereafter sued Christie’s, Investel and others for, inter alia, conversion and replevin.

In August 2018, Plaintiffs moved for summary judgment on their claims.  Defendants cross-moved for summary judgment arguing, among other things, that they acquired good title to the gem as bona fide purchasers under Swiss law.  The issue before the Court was whether New York or Swiss law applied to the claims.

The Court’s Choice of Law Analysis 

Is There A Conflict Between the Two Laws? 

The Court first determined that there is a “well-recognized conflict” between New York and Swiss law with respect to issue of title.  Under New York law, “a thief cannot pass good title,” even if the chattel falls into the possession of a good-faith purchaser for value (Solomon R. Guggenheim Found. v Lubell, 77 NY2d 311, 317 [1991]).  Under Swiss law, however, a bona fide purchaser can become the owner even if the chattel was stolen or otherwise transferred without the authorization of its owner.

Given the Conflict, Which Law Applies? 

In determining which law applies, the Court conducted an “interest analysis,” which essentially asks: which jurisdiction has the greatest interest in the litigation?  Under this test, the Court determined that New York clearly has the greatest interest in the ligation because New York has an “overwhelming interest” in “preserving the integrity of transactions within its borders” and preventing the state from becoming “a marketplace for stolen goods” (Bakalar v Vavra, 619 F3d 136, 144 [2d Cir 2010]; Reif v Nagy, 61 Misc 3d 319, 323 (Sup Ct, NY County 2018]; Gowen v Helly Nahmad Gallery Inc., 60 Misc 3d 963 [Sup Ct, NY County 2018]).  This is particularly so given New York’s reputation as being a world-renowned center for art and culture.  As the Court explained:

“If the Plaintiffs’ claim to the Princie Diamond is credited, a stolen diamond was delivered in New York to a New York auction house, which for a number of years attempted to privately sell it to a buyer in New York and finally did sell it at a well-publicized and public New York auction.  In addition, the defendants availed themselves of New York law in their respective agreements (particularly, the Auction Agreement), brought the Princie Diamond to the Gemological Institute of America in New York for purposes of grading and elevation, and presented it to numerous private buyers in New York for over three years.”

The Court flatly rejected Defendants’ argument that Swiss law should apply since the Princie Diamond was located in Switzerland at the time it was purchased, noting that “New York courts do not concern themselves with the question of where the theft took place.”  In addition, the Court characterized as “inappropriate” what it considered to be Defendants’ “attempt to immunize an otherwise unlawful conversion by, essentially, passing the allegedly converted item through Switzerland.”  As the Court pointed out, “Christie’s was aware of the fact that [Milella] was being investigated in connection with the criminal conversion of the Princie Diamond and, in an attempt to avoid the issues of title and avoid litigation, Christie’s threatened litigation, including over $20 million in damages.  Now they try to claim the benefits of Swiss law under an essential restatement of the situs rule that New York courts have fully rejected.”

The Takeaway:  The traditional “situs” choice of law rule for torts, which applies the law of the jurisdiction where the tort was committed, has been repeatedly rejected by New York courts in favor of the more flexible “interest analysis.”  Under the interest analysis, the court must determine which jurisdiction has the greatest interest in the litigation.  In cases involving title to potentially stolen property, New York’s interest is “overwhelming”: To discourage the illicit trafficking of stolen goods and protect New York’s reputation as a preeminent cultural center.

Luddites beware!  If you’ve been reluctant to introduce technology into the way you practice law, the Commercial Division may soon leave you behind.

Here at New York Commercial Division Practice we regularly report on technological developments in the Commercial Division.  Earlier this year, for example, we reported on the technological proclivities of newly-appointed Manhattan Commercial Division Justice Andrew Borrok, whose individual Practices and Procedures emphasize (and even assume) lawyers’ use of technology when practicing in Part 53.

Last year, we twice reported on the implementation of the Integrated Courtroom Technology (or “ICT”) program in the Commercial Division, beginning with Westchester County (Courtroom 105, Walsh, J.) in January 2018, followed by New York County (Courtroom 208, Scarpulla, J.) in October 2018.  The Business & Commercial Law Committee of the Westchester County Bar Association, as well as NYSBA’s Commercial & Federal Litigation Section both presented CLE programs last year on the “21st Century Courtroom” in White Plains, showcasing many of its new hi-tech features and equipment.

Last week, members of ComFed’s Committee on the Commercial Division (including two of this blog’s authors), along with Administrative Judge Deborah A. Kaplan and Manhattan Commercial Division Justice Saliann Scarpulla, as well as sponsor A.C. Roman & Associates Inc., presented a similar program called “The Electronic Courtroom Comes to 60 Centre Street:  Using Integrated Courtroom Technology in the Commercial Division.”  The program, which took place in Justice Scarpulla’s Part 39, was standing-room only and, by all accounts, very well-received by the 75-plus lawyers, judges, and other court personnel in attendance.

Some of the hi-tech features and equipment showcased during last week’s program — all of which, by the way, are described in how-to detail in “Exhibit A” to Justice Scarpulla’s individual Practices and Procedures — included the following:

  • Interactive Smartboard.  Virtually every technological feature and device in Part 39 interacts with the 86-inch Smartboard, which is displayed prominently to the left of counsel table as one faces the bench.  The presenters showed how practitioners can use their laptops, tablets, and USB drives in conjunction with the Smartboard to display, highlight, and even annotate their motion papers and other documentary evidence during argument before judge and jury.
  • “ELMO” Document Camera.  The ELMO allows practitioners to project virtually any physical item in 3D onto the Smartboard for judge and jury to see.  It’s particularly useful for displaying unique documents or other pieces of evidence that are perhaps less conductive to being converted to electronic format.
  • Business Skype Capabilities.  The use of Skype in the courtroom is a considerable step up from teleconferencing (and even traditional videoconferencing), allowing parties and their counsel to remote into and even appear by video in court from an outside location via their desktop and laptop computers, tablets, and smartphones.  This feature is particularly relevant to practicing in the Commercial Division, which has become one of the premiere, go-to business courts across both nation and globe.

** Attention all Manhattan Commercial Division practitioners **  If you missed the program last week but would like to familiarize yourself with the ICT features in Part 39 beyond the information provided in Justice Scarpulla’s individual rules, fear not.  ComFed’s Committee on Continuing Legal Education was on hand to ensure that the presentation was video recorded, which recording will be spliced and packaged for distribution on the NYSBA’s “CLE Online and On-Demand” site later this year.

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Dismissal of Malpractice CaseNeil Sedaka was right.   “Breaking up is hard to do.”   It’s no easier for law firms.  The saga over the departure of key partners from Quinn Emanuel continues, but this time in arbitration, not the courts.

Justice Saliann Scarpulla was faced with a motion by Quinn Emanuel Urquhart & Sullivan LLP to dismiss the Petition brought by the departing partners to stay arbitration in Selendy v. Quinn Emanuel Urquhart & Sullivan LLP.  The Petition squarely tees up the thorny and controversial issue of whether the partnership agreement’s post-withdrawal non-compete provision violates New York Rule of Professional Conduct 5.6.  The Partnership Agreement provides, in pertinent part, at section 5.1(a)(iii),

[i]f a partner voluntarily withdraws from [Quinn Emanuel], and if, at any time within eighteen (18) months after the effective date of such withdrawal, he, or any enterprise which he joins, performs any legal services in any case or other matter venued within 100 miles of any office of [Quinn Emanuel] for any client who was a client of [Quinn Emanuel] prior to the effective date of such withdrawal, and for which he or his new enterprise performed no legal services prior to the date of the withdrawing partner first became an employee or partner of [Quinn Emanuel], then the partner so withdrawing shall pay to [Quinn Emanuel], as a reasonable estimate of the harm caused to [Quinn Emanuel] and the other partners by his withdrawal as a result of the loss of fees which would otherwise have been received from [Quinn Emanuel’s] clients taken by him, a sum equal to 10% of the total fees billed by him and/or his new enterprise from that client for services rendered by them, or any of them, during the eighteen (18) month period following the effective date of his withdrawal from the partnership.

Rule 5.6(a) of New York’s Rules of Professional Conduct, adopted word for word from the Model Rules, provides,

A lawyer shall not participate in offering or making:

(a) a partnership, shareholder, operating, employment or other similar type of agreement that restricts the right of a lawyer to practice after termination of the relationship, except an agreement concerning benefits upon retirement.

Comment 1 to the Rule notes that the purpose is to avoid contractual limitations that might otherwise “limit[] the freedom of clients to choose their lawyer” and restricts a lawyer’s “professional autonomy.”

The courts in New York have consistently taken a dim view of non-compete clauses contained in law firm partnership agreements (see, e.g., Cohen v. Lord, Day & Lord and Denburg v. Parker, Chapin, Flattau & Klimpl, both of which refused to enforce such provisions), finding the clauses violative of public policy.  So does the court make a threshold decision on the issue, or is an arbitrator empowered to do so?

This is precisely what Justice Scarpulla was called upon to decide.  That is, not the ultimate issue of the validity of the clause, but rather whether an alleged violation of Rule 5.6 that implicates New York public policy should be decided initially by the court or instead in the arbitration proceeding.  Specifically, do the public policy concerns of a non-compete provision contained in a law firm partnership agreement preempt the mandatory arbitration provision in the Partnership Agreement?  Relying on the dyad of Hackett v Milbank Tweed cases (see Hackett I here and Hackett II here), Justice Scarpulla concluded that the public policy concerns raised, namely, whether the clause is “prohibitively anticompetitive,” simply do not override the broad arbitration clause and the state’s strong policy favoring arbitration.  Accordingly, the Court denied and dismissed the petition, directing judgement be entered accordingly.  The parties will now have to proceed to arbitration.

So . . . we’ll have to stay tuned for the motion to confirm or set aside the arbitration award sometime in the future to learn the outcome of the enforceability clause.

Reflecting on your first year of law school, you begrudgingly remember learning about personal jurisdiction and the long-arm statute. As a commercial litigator, one of your first questions in representing a defendant should be: Does this court have jurisdiction over my client? If the answer to that question is no, then of course, you next consider moving to dismiss.

In an interesting decision by Justice Saliann Scarpulla, the Court analyzed whether it had jurisdiction over defendant 400 5th Avenue, L.P (“Defendant”), the owner of the historic Kaufmann’s building in Pittsburg. In AM Pitt Hotel, LLC v 400 5th Ave., L.P., Plaintiff, AM Pitt Hotel, LLC (“Plaintiff” or “AM Pitt”) purchased part of the building from the Defendant to develop a hotel. The parties entered into a sale and development agreement (the “Sale Agreement”).

However, as the adage goes, all good things must come to an end.” Plaintiff commenced this action against the Defendant, in the New York County Commercial Division for breach of contract and implied covenant of good faith and fair dealing arising from a construction dispute over the redevelopment of the historic building. The dispute pertained to Defendant’s delay in completing the construction of the hotel.

Not surprisingly, Defendant, a Pennsylvania limited partnership with a principle place of business in Pennsylvania moved to dismiss Plaintiff’s Complaint for lack of jurisdiction. In response, Plaintiff argued that the Court can exercise jurisdiction over the Defendant pursuant to the long arm statute (CPLR 302(a)(1)). Plaintiff’s main focus in opposition to Defendant’s motion to dismiss was based on that fact that Defendant’s construction manager, Core Realty Inc. met with Melohn Group, a 95% owner of Plaintiff and a New York real estate firm regarding investment in the building, once in New York.

Here, the Court stated, as did your 1L law school professor, that the main inquiry under CPLR 302(a)(1) is whether “defendant purposefully availed itself of the privilege of conducting activities in the state by transacting business in New York,’” The Court further opined that “purposeful availment occurs when the non-domiciliary seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship.”

Unfortunately for Plaintiff, the single meeting in New York between Core and Melohn hardly establishes that Defendant availed itself of the privilege of transacting business in New York. The Court evaluated the following factors:

  • The parties’ contractual relationship was centered in Pennsylvania;
  • Defendant did not return to New York to negotiate the Sale Agreement;
  • The Sale Agreement, which states that Pennsylvania law governs disputes, was executed in Pennsylvania; and
  • Plaintiff traveled to Pennsylvania to evaluate the progress of the construction project.

In other words, all roads lead to Pennsylvania. The Court similarly rejected Plaintiff’s argument that Defendant’s telephonic and electronic communication with Plaintiff relating to the performance and negotiation of the Sale Agreement, while Plaintiff was in New York, conferred jurisdiction over the Defendant. In that regard, the Court stated that Plaintiff’s own New York activities cannot be attributed to the Defendant (see Kennedy v Yousaf).

Takeaway: One meeting in New York is clearly not enough to create personal jurisdiction over a defendant. Remember, even if the defendant is in a nearby state, New York courts will not be able to assert jurisdiction over the defendant unless the plaintiff can establish that the defendant availed itself of the privilege of doing business in New York, thus invoking the benefits and protections of its laws.

The attorney-client privilege is intended to protect communications between an attorney and his/her client.  The Supreme Court stated that the privilege exists to “encourage full and frank communication between attorneys and their clients and thereby promote broader public interests in the observance of law and administration of justice.” See Upjohn Co. v. United States, 449 U.S. 383 (1981).  In Semsysco GMBH, et al. v. Global Foundries Inc. et al., the Honorable Marcy S. Freidman, showed us how that privilege can be easily lost.

So it is important to have an understanding of what constitutes a waiver of the attorney client privilege.  In the Semsyco it was the client, not the attorney who voluntarily disclosed privileged communications.  The court reiterated the “general rule,” which applies to both attorneys and clients:

“A disclosure of a privileged communication will operate as a waiver of the attorney-client privilege is subject to an exception where it is shown that the client intended to maintain the confidentiality of the document, that reasonable steps were taken to prevent disclosure, that the party asserting the privilege acted promptly after discovering the disclosure to remedy the situation, and that the parties who received the documents will not suffer undue prejudice if a protective order against use of the document is issued.”

Further, the Court reiterated that “the party who asserts the privilege has the burden of establishing that it has not waived the privilege.”

Here, the Court found that plaintiffs did not meet their burden in establishing that the privilege was not waived when the CEO forwarded an email chain containing attorney client privileged communications to the opposing side, pre-litigation, seeking a potential settlement.  Instead, the Court found that even by intentionally forwarding the “top email” of the email chain and “inadvertently” forwarding the privileged communications, the CEO waived the privilege.  The forwarding of the email chain was intentional, and the CEO did not state that he was unaware of the privileged communications below the top email.

The plaintiffs also failed to meet their burden of acting promptly to remedy the situation after discovering the disclosure.  Even though plaintiffs’ counsel requested that the email be returned within 48 hours after receipt of a letter from defendants’ counsel advising that they have waived their privilege, the plaintiffs did not make a showing that prior to receipt of the letter, the CEO was unaware  he had forwarded the email chain.  This means the burden to act promptly starts as soon as the party should have knowledge the communication was disclosed, not necessarily when the opposing side puts you on notice.  In this case, that occurred when the email was initially sent.

Takeaway: the lesson here is be careful what you forward.  Whether in litigation or not, attorneys and clients should make sure never to forward privileged communications to anyone outside the attorney-client relationship.  All emails to an outsider should be conveyed in a new email chain.  Nonetheless, mistakes do happen, but you must act promptly to rectify the mistake.  You should not wait until the mistake is pointed out, hoping nobody would notice.  If you don’t act promptly you will lose your privilege.

To the uninitiated litigant, filing documents containing private, potentially embarrassing information under seal might seem like it should be easy and straightforward, especially if the opposing party has agreed to treat the document (or information contained therein) as confidential. In fact, however, New York courts typically will only grant motions to seal in narrow circumstances involving specific types of potential economic injury.

A recent Commercial Division case in the Supreme Court, New York County (2019 NY Slip Op 30880[U]), is illustrative. There, plaintiff New Penn Financial, LLC commenced an action for breach of contract and mutual mistake against defendant 360 Mortgage Group LLC, alleging that 360 Mortgage had provided erroneous calculations in connection with New Penn’s purchase of certain mortgage servicing rights from 360 Mortgage.  360 mortgage moved to dismiss. In connection with this motion, several of the parties’ filings contained confidential information, which both parties moved pursuant to 22 NYCRR § 216.1 to seal from public viewing.

In support of its motion to seal, New Penn argued, among other things, that the mortgage servicing rights purchase agreements (MSRPAs) at issue contained confidentiality provisions intended to keep the negotiated terms of the transactions secret from competitors and potential future transactional counterparties. 360 Mortgage opposed the motion to seal, arguing, among other things, that the MSRPAs allowed confidential information to be disclosed in connection with a legal proceeding arising from the transaction.

The court (Masley, J.) paid short shrift to the parties’ otherwise thorough and thoughtful arguments concerning the interpretation and scope of the MSRPA’s confidentiality provisions, holding the MSRPAs “not relevant with respect to the court’s analysis on this motion to redact.” The court focused instead on whether the movants had met their burden of demonstrating “compelling circumstances to justify restricting public access to the documents,” under the standard set by the Appellate Division, First Department, in Mosallem v Berenson (76 AD3d 345, 348-49). The court described this standard:

The movant must demonstrate good cause to seal records under Rule § 216.1 by submitting “an affidavit from a person with knowledge explaining why the file or certain documents should be sealed.” (Grande Prairie Energy LLC v Alstom Power, Inc., 2004 NY Slip Op 51156 [U], *2 [Sup Ct, NY County 2004]). Good cause must “rest on a sound basis or legitimate need to take judicial action” (Danco Labs. v Chemical Works, 274 AD2d 1, 9 [1st Dept 2000]). Agreements to seal are insufficient as such agreements do not establish “good cause” (MBIA Ins. Corp. v Countrywide Home Loans, Inc., 2012 NY Slip Op 33147[U], * 9 [Sup Ct, NY County 2012]).

Applying these principles, the court found “good cause” to redact information that could “threaten a business’s competitive advantage,” such as the MSRPAs’ economic deal terms, which were subject to and resulted from extensive negotiations between the parties. The court found that disclosure of certain of the MSRPAs’ provisions, “may well threaten New Penn and its parent corporation’s competitive advantage in the mortgage services industry to the extent that they continue to make such purchases,” and that “New Penn has an interest in keeping its financial arrangement private and there is no showing of relevant public interest.” The court further found good cause to redact personal identifying information of the borrowers associated with the mortgages, so as to prevent fraud and identity theft.

Though the court found “good cause” to seal in this case, other decisions emphasize New York’s policy of keeping judicial proceedings open to the public. Notably, for instance, “the mere fact that embarrassing allegations may be made” against a party has been held insufficient to warrant sealing (see In re Hofmann, 284 AD2d 92, 93-94 [1st Dept 2001] [“Confidentiality is clearly the exception, not the rule . . .”]).

Finally, anyone interested in the procedure for e-filing documents under seal in Supreme Court, New York County, may find helpful guidance in Section K of the court’s Protocol on Courthouse Procedures for Electronically Filed Cases.

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A commercial division litigator knows the severity of missing a statutory deadline. We discuss the implications of missing statutory deadlines here. CPLR 306(b) is unique in that it provides a statutory deadline for service of process, yet also provides a bit of a safety net for practitioners. However, in his recent decision in Plank, LLC v. Dutch Vil, LLC, commercial division Justice Richard M. Platkin (Albany County) reminds us that even safety nets may fail if stretched too thin.

CPLR 306(b) requires that service of process be made within 120 days of the filing of the summons and complaint. It also gives a late plaintiff two alternative arguments to bypass this statutory deadline and obtain an extension by demonstrating to the Court: 1) good cause shown for the delay or 2) that in the interest of justice an extension should be given.

Good Cause Standard

Establishing “good cause” requires a showing of reasonable diligence in attempting service. “Good cause will not exist where a plaintiff fails to make any effort at service, or fails to make at least a reasonably diligent effort at service.” (Bumpus v. New York City Tr. Auth., 66 AD3d 26, 32 [2d Dept 2009]). Justice Platkin determined that Plank, LLC’s complete lack of effort to serve defendants within the 120 day period barred its recovery under the good cause standard.

Interest-of-Justice Standard

The interest-of-justice standard is much more flexible and provides plaintiff the most latitude. The court is given discretion to balance the competing interests presented by the parties. The court may consider a variety of factors including expiration of the Statute of Limitations, the meritorious nature of the cause of action, the length of delay in service, the promptness of a plaintiff’s request for the extension of time, and prejudice to the defendant. (Leader v. Maroney, Ponzini & Spencer, 97 NY2d 95, 105-106 [2001]).

While no single factor is determinative, Justice Platkin determined that the following factors weighed against plaintiff’s argument that an extension of time was warranted in the interest of justice:

  • Service of process was not even attempted within the 120 day statutory period;
  • Service of process was eventually completed, although it was six months after the statutory deadline;
  • Plaintiff is a reasonably sophisticated commercial entity with the resources and experience to conduct its litigation matters properly and in compliance with the CPLR;
  • Plaintiff has prior experience participating in litigation; and
  • Plaintiff’s “highly improvident” decision to commence a complex commercial litigation on a pro se basis, in direct contravention of CPLR 321(a) which directs a limited liability company (such as Plaintiff here) to prosecute a civil action through an admitted attorney.

In this instance, neither party demonstrated any prejudice so this factor was neutral to the Court’s determination.

Of note, the Court denied the plaintiff’s request for an extension of time under both standards, despite plaintiff’s attempted service one day prior to the expiration of the statute of limitations.

Takeaway: While CPLR 306(b) provides a commercial litigator a safety net, the net will not hold up against blatant disregard of the statutory requirements set by the court.

Summary judgment plays an important role in litigation.  So important, in fact, that many of our blog posts are devoted to the topic.  Last week, my colleague Matthew Donovan discussed the policy against allowing successive summary judgment motions.  A few weeks prior to that, in Summary Judgment 101, I discussed the basic, yet often forgotten requirement that a summary judgment motion be supported with “evidentiary proof in admissible form.”  This week, I will discuss another member of the summary judgment family: the CPLR 3213 motion for summary judgment in lieu of complaint.  Most are aware of it, but many have trepidation to use it.  So, what is it and when should it be used?

Like a “3212” summary judgment motion, CPLR 3213 provides an accelerated procedure for obtaining a judgment on the merits.  But, unlike CPLR 3212, CPLR 3213 recognizes that some claims have a greater presumption of merit than others, and are permitted to be brought on by a summary judgment motion at the outset of the litigation.  There are no pleadings, and there is no discovery.  Because this procedure is so refreshingly expeditious, many practitioners attempt to use it for claims that fall short of what CPLR 3213 actually contemplates.  Indeed, CPLR 3213 provides only two, narrow bases for such a motion: (1) when it is based upon “an instrument for the payment of money”, or (2) when it is based upon “any judgment.”  This blog post will explore the “money instrument” category, because it is by far the most commonly utilized, and yet, so often misunderstood.  As the late Professor Siegel noted, “[t]he plaintiff waves a paper at the court and insists it’s ‘an instrument for the payment of money only,’ but it often falls short of the mark” (Siegel, NY Practice [6th ed], at 543).

While most CPLR 3213 “money instrument” cases involve promissory notes, other instruments may also be worthy of CPLR 3213’s special treatment.  For example, in Whiteman, Osterman & Hanna, LLP v Preserve Assoc., LLC (2019 NY Slip Op 29056 [Sup Ct, Albany County]), the Commercial Division, Albany County (Platkin, J.) recently considered whether two agreements constituted “money instruments” within the meaning of CPLR 3213.  In Whiteman, the plaintiff law firms each brought separate CPLR 3213 motions pursuant to two written agreements (the “Agreements”) for the payment of past-due legal fees and expenses.  The Agreements recited, in sum and substance:

  • that the plaintiff law firms rendered legal services to defendants in connection with the development of a ski lodge and resort;
  • that the plaintiff law firms agreed to accept deferred payment of their past-due legal fees;
  • that defendants acknowledged and reaffirmed their indebtedness to plaintiffs on an annual basis;
  • that defendants were to repay their debt to each respective law firm by September 2017; and
  • the specific amounts due and owing to each plaintiff.

Critically, the Agreements themselves recited defendants’ explicit acknowledgement that the Agreements were “unconditional instrument[s] for the payment of money only.”  After defendants failed to make payments pursuant to the Agreements, plaintiffs commenced two separate collection actions by filing motions for summary judgment in lieu of complaint.

The threshold issue for the court to decide was whether the Agreements were “for the payment of money only.”  As the court explained, “[i]f an instrument contains an unconditional promise to pay a sum certain over a stated period of time, it is considered an instrument for the payment of money only.”  But, “where the instrument requires something in addition to defendant’s explicit promise to pay a sum of money, CPLR 3213 is unavailable.  Put another way, a document comes within CPLR 3213 if a prima facie case would be made out by the instrument and a failure to make the payments called for by its terms” (citations omitted).

Applying these principles, the court held that the Agreements clearly set forth defendants’ unconditional promise “to pay a specified sum at a prescribed time.”  The court noted that the plaintiff law firms “did not owe any executory performance to defendants, and no proof outside the Agreements is necessary to establish defendants’ defaults or the amounts owed to plaintiffs.”  Furthermore, the Agreements themselves included defendants’ explicit acknowledgement that the Agreements were in fact “unconditional instrument[s] for the payment of money only.”

But, a motion for summary judgment in lieu of complaint cannot always be used to recover outstanding legal fees (see Emery Celli Brinkerhoff & Abady, LLP v Rose, 2010 NY Slip Op 33300 [U] [Sup Ct, NY County Nov, 23, 2010] [denying a CPLR 3213 motion because plaintiff relied on implied account stated, rather than express agreement to pay]; Emperor Industries, Inc. v Rothbaum, 17 Misc 3d 1125 [A] [Sup Ct, NY County 2007] [denying a CPLR 3213 motion on an account stated where the amount of balance could not be determined without reference to outside proof]; compare Barraco v Rosendale, 162 AD2d 899 [3d Dept 1990] [CPLR 3213 could be used to recover legal fees based on signed letter from defendant client to an escrow agent acknowledging that the attorney’s final bill was accurate and authorizing escrow agent to pay sum to principal of law firm]).  These cases show that summary judgment pursuant to CPLR 3213 will be denied where proof outside of the purported instrument is required to prove the movant’s claim.

And so, to qualify as a CPLR 3213 “money instrument,” two things must be shown: (1) the instrument itself, and (2) proof of non-payment.  The instrument does not qualify as a “money instrument” within the meaning of CPLR 3213 if it calls for something in addition to the payment of money, or if outside proof is needed to prove a plaintiff’s claim.  A party contemplating whether or not to bring a motion pursuant to CPLR 3213 should make sure his or her instrument clearly qualifies as a money instrument.  If a plaintiff has any doubt as to whether an instrument qualifies, he or she should instead commence an ordinary action, wait until the defendant interposes an answer, and then make a conventional motion for summary judgment pursuant to CPLR 3212.  Otherwise, time, money and resources may be wasted, and the court may become distracted by a procedural battle over whether CPLR 3213 was properly invoked, rather than focusing on the substantive merits of the claim.

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There is a general policy in New York against allowing multiple or successive motions for summary judgment. And it stands to reason. After all, the word “summary,” from the Latin summa (as in Thomas Aquinas), refers to the essence, epitome, or totality of a thing; to a comprehensive statement that captures the whole, often in a conclusory manner. Summary judgment is “dispositive” by its nature. That is, it tends to be the final word on this or that issue where there is nothing further for the court to consider.

The judges of the Commercial Division generally hold to the policy prohibiting the consideration of successive summary judgment motions. “[A] plaintiff may not make multiple motions for summary judgment,” held former Manhattan Commercial Division Justice Anil C. Singh in Burbridge v Soho Plaza Corp., after the plaintiff sought to make a summary judgment motion nearly two years after the filing of the note of issue. In Northeast Capital & Advisory, Inc. v Delaware Bancshares, Inc., Albany County Commercial Division Justice Richard M. Platkin put the parties on notice in the decretal paragraphs of his decision denying the parties’ cross-motions for partial summary judgment that “the Court does not intend to entertain successive summary judgment motions in this action.” And in Red Zone LLC v Cadwalader, Wickersham & Taft LLP, Manhattan Commercial Division Justice O. Peter Sherwood held that, absent unusual circumstances, “successive motions for summary judgment are not allowed” — the “unusual circumstance” in that case being the fact that the Court of Appeals eventually modified the prior grant of summary judgment to reinstate a statute of limitations defense and directed “further fact development.”

Former Suffolk County Commercial Division Justice Thomas F. Whelan described the rationale behind the policy several years ago in Polo Grounds at Melville, LLC v William J. Schneider Revocable Living Trust: “The rule is intended to deter the interposition of successive motions for summary judgment in the guise of motions to renew where the new material could have been submitted with the original motion.” Former Manhattan Commercial Division Justice Eileen Bransten made a similar point in Colonial Sur. Co. v Millennium Century Constr., Inc. when quoting the oft-cited precedential language: “Parties will not be permitted to make successive fragmentary attacks upon a cause of action but must assert all available grounds when moving for summary judgment.”

But summary doesn’t always mean summary. That is, there exists the possibility that a prior summary judgment decision was insufficiently comprehensive either because an intervening appellate decision changed or clarified the law on this or that issue or because of some newly-discovered evidence. Just this month, the First Department in City Natl. Bank v Morelli Ratner, P.C. affirmed Manhattan Commercial Division Justice Andrea Masley’s consideration and grant of the plaintiff-bank’s second motion for summary judgment “because the motion was supported by at least some new evidence and the policy against multiple summary judgment motions has no application where, as here, the first motion . . . is denied on the ground of the existence of a factual issue which, through later uncovering of the facts, is resolved or eliminated.”

Morelli involved a promissory note on a $10 million loan secured by a written guaranty. After the defendant-borrower defaulted on the note, the parties unsuccessfully attempted to negotiate a work-out for the borrower. The bank eventually commenced an expedited “motion-action” under CPLR 3213, and the borrower defended on the basis of an alleged oral modification of the loan during the work-out period. The court denied the bank’s motion finding issues of fact, the First Department affirmed, and the matter was converted to a plenary action. After the parties engaged in discovery on the oral-modification issue, the bank again moved for summary judgment, this time under CPLR 3212.

In the underlying decision, Justice Masely stated that she would “entertain” the bank’s second motion based on its “showing of newly discovered evidence” on the issue of whether the parties entered into an oral agreement to modify the loan. That evidence consisted primarily of “subsequent written correspondence,” which showed that the parties hadn’t reached a meeting of the minds on any kind of modification but instead had merely “engaged in negotiations.” The court therefore granted the motion, and the bank was successful the second time around.

A pertinent point of procedural interest here: As noted above, the prior summary judgment motion in Morelli was one “in lieu of complaint” under CPLR 3213. Which means that the parties hadn’t engaged in any discovery prior to the court’s denial of the bank’s prior motion. It was only after the case was converted to a plenary action by virtue of the denial of the bank’s prior motion that the dispositive documentary evidence came to light. In other words, the procedural posture of the Morelli was, in a sense, built for the court’s application of the exception to the general policy against successive motions for summary judgment.

 

 

Ever wondered how to effectuate a transfer of venue following your successful motion to change venue in an e-filed case?  Well wonder no more, as the Hon. Robert D. Kalish provides the bench and bar with a useful roadmap of what to do in American Transit A/S/O Sherman Ave. Eight Inc. v. Flour City Bagels, LLC.  Although not a Commercial Division case, a worthy read to all practicing in New York County.

The case is a simple subrogation action arising out of a motor vehicle accident that occurred in 2015.  Defendants moved, pursuant to CPLR 510(3), for a change of venue to Bronx County, which the Court granted.  The Order indicated that the case was “disposed”.  The directive in the Order was straightforward:

“the venue of this action is changed from this Court to Supreme Court, Bronx County, and upon service by movant of a copy of this order with notice of entry and payment of appropriate fees, if any, the Clerk of this Court is directed to transfer the papers on file in this action to the Clerk of the Supreme Court, Bronx County.”

Service of the Order with Notice of Entry was done through e-filing.  Seven months later, counsel for the defendants (movant) advised the Court (New York Supreme) that the case had never been transferred to Bronx County, but in the interim, the companion cases in the Bronx had settled.  Accordingly, defendants requested that the Court “recall” its prior transfer order or advise whether the parties should proceed to effectuate the transfer to the Bronx.  Justice Kalish used this “opportunity to clarify, for the New York County litigants and motion courts alike, the procedure to be followed by the movant whose motion to change venue from New York County to another county is granted.”

First and foremost, “merely e-fling a copy of the order with ‘Notice of Entry’ upon the parties . . . is insufficient to effectuate transfer.”  The movant must e-file form EF-22, Notice to County Clerk, along with the Court’s transfer order.  Next, the notice must be e-filed to the case docket under the category, “Non-Motion Documents>Documents not related to motion/petition/OSC” with a “Document Type” of “Notice to County Clerk CPLR 8019(c).”  According to the Court, “[t]hen, and only then, will the transfer order properly be filed to the New York County Clerk, who will then be properly on notice . . . and will take the appropriate next steps in effectuating the transfer.”