Many litigants are familiar with the well-settled rule that an affirmative defense will be waived if it is not included in a CPLR 3211(a) motion to dismiss or in the answer (see CPLR 3211[e]).   And so, lawyers tasked with drafting an answer will often consult a “checklist” to ensure that all relevant affirmative defenses are sufficiently pleaded.  CPLR 3018(b) contains the following, non-exhaustive list of defenses that should be affirmatively pleaded in an answer:

  • Arbitration and award
  • Collateral Estoppel
  • Culpable conduct of the plaintiff under CPLR Article 14-A
  • Discharge in bankruptcy
  • Illegality
  • Fraud
  • Infancy or other disability of the defendant
  • Payment
  • Release
  • Res Judicata
  • Statute of Frauds
  • Statute of limitations

But, CPLR 3018(b) defines “affirmative defense” robustly as: (i) any matter “which if not pleaded would be likely to take the adverse party by surprise,” or (ii) any matter which “raises issues of fact not appearing on the face of a prior pleading.”  So, defenses other than those listed above have been held to be “affirmative defenses” which must be affirmatively pleaded in the answer, lest they be waived (see Fossella v Dinkins, 66 NY2d 162 [1985] [standing to sue]; Falco v Pollitts, 298 AD2d 838 [4th Dept 2002] [adverse possession]; Fregoe v Fregoe, 33 AD3d 1182 [3d Dept 2006] [truth in a defamation action]).

Nevertheless, courts will, on rare occasions, allow a party to introduce an unpleaded defense on a motion for summary judgment. This is based on the theory that a later amendment of the answer could properly introduce the defense, and that something as drastic as summary judgment should not be predicated on a pleading omission that a simple amendment could correct.

The Suffolk County Commercial Division (Emerson, J.) recently illustrated this principle in Board of Mgrs. of Manhasset Med. Arts Condominium v Integrated Med. Professionals, PLLC, 2019 NY Slip Op 51588(U) (Sup Ct, Suffolk County Oct. 8, 2019). Plaintiff, the owner of eight units in a professional medical condominium, commenced an action against a tenant (among others), alleging that the defendant tenant defaulted under the parties’ lease agreement by failing to pay rent for several months.  After the defendant interposed an answer and cross-claims, the plaintiff moved for summary judgment. The defendant opposed the motion, asserting a “partial-constructive-eviction” defense, and cross-moved for leave to amend its answer to assert two counterclaims against the plaintiff.

On reply, the plaintiff argued that the Court should reject the defendant’s partial-constructive-eviction defense because it was not pleaded as an affirmative defense in the defendant’s answer.  However, Justice Emerson permitted the defense, reiterating the principle that “[a]n unpleaded defense may be invoked to defeat a summary-judgment motion, or to serve as the basis for an affirmative grant of such relief, in the absence of surprise or prejudice, provided that the opposing party has a full opportunity to respond thereto.”

The absence of prejudice or surprise to the plaintiff was the key factor for Justice Emerson in permitting the defendant’s partial-constructive-eviction defense.  Indeed, the plaintiff did not argue that it would be surprised or prejudiced by the defense, and even “fully addressed” the defendant’s partial-constructive-eviction defense in its reply papers.  And so, in the Court’s view, the plaintiff could hardly contend it would be prejudiced or surprised by the defense.

The Takeaway:

Courts will, from time-to-time, consider an unpleaded defense if the adverse party has notice of it through channels other than the answer.  However, a litigant should not depend on judicial discretion to raise a defense on the hope that the defense will be introduced into the case without having been affirmatively pleaded.  A savvy litigator should keep a robust checklist of affirmative defenses, which should include the affirmative defenses listed in CPLR 3018(b), as well as the grounds for dismissal under CPLR 3211(a).  If, however, a litigant fails to raise a particular defense in its answer or CPLR 3211(a) motion, the defendant may still have hope of raising the defense at the summary judgment stage, so long as the defense does not take the adverse party by surprise.

*** Attention all Queens County commercial litigators: If you have a case before Judge Grays, be sure to bring an HDMI cable and a USB drive with you to court from now on! ***

One of the themes that we’ve developed on this blog over the years has been the implementation of technology in the courts of the Commercial Division, as well in the rules that govern the practice of law in those courts.

We’ve regularly reported on such developments in the context of the individual practice rules of certain Commercial Division judges, as well as in certain NYSBA-sponsored events showcasing the new Integrated Courtroom Technology (or “ICT”) program in the Commercial Division, including in Westchester County (Walsh, J.) in June 2018 and New York County (Scarpulla, J.) in April 2019.

This past Tuesday, members of ComFed’s Committee on the Commercial Division (including Hamutal Lieberman and yours truly from this blog), along with Queens County Commercial Division Justice Marguerite A. Grays, presented a similar program called “The Electronic Courtroom: Using Integrated Courtroom Technology,” which took place in Justice Grays’s beautiful, oak-paneled courtroom (Part 4, Room 66).  As with our New York County program in April of this year, the Queens County program was well-attended and well-received by approximately 30 lawyers, judges, and other court personnel.

Many of the same features and equipment were on display during the program, including the 86-inch interactive Smartboard, which works in conjunction with counsel’s laptops, tablets, and USB drives, and on which they are able to display, highlight, and even annotate their documents and videos during oral argument and at trial.  The “ELMO” document camera, which allows counsel to project unique documents and other physical evidence onto the Smartboard for judge and/or jury to see, also was prominently featured during the program.

And if that wasn’t enough courtroom technology for one day, the presenters then promptly Uber’d their way through midday metro traffic back to Manhattan Commercial Division Justice Saliann Scarpulla’s Part 39 for a redux of their April program – this time entitled “The Electronic Courtroom: Using Integrated Courtroom Technology in State and Federal Courts on Motions and at Trial” and sponsored by the Second Circuit Judicial Council and the New York State-Federal Judicial Council.  In addition to demonstrating the existing Smartboard, ELMO, Skype, and audio/visual-impaired technologies, the presenters were given the opportunity to showcase the courtroom’s new, interactive witness-stand monitor, which allows a witness during her testimony to identify, highlight, and annotate with a stylus or her own finger the documents, photos, and other evidence displayed by counsel on the Smartboard.

I’ll say it again:  If you’ve been reluctant to introduce technology into the way you litigate your commercial cases in New York, the Commercial Division may soon leave (indeed, already has left) you behind.


The poet, Robert W. Service once wrote that “a promise made is a debt unpaid.” The question that remains is: Who gets to collect on that unpaid debt?

The issue of standing to collect on a debt owed to a beneficiary of a trust recently arose in Zachariou v Manios where plaintiff (a resident of Cyprus) sued her brother (a resident of Greece) for her share of their jointly held assets.

This family dispute arose after plaintiff’s and defendant’s brother died without a will, leaving the siblings as co-owners of a world-wide shipping company along with U.S. real estate owned by various U.S. companies, which included a New York City apartment building.

Thereafter, the parties executed a settlement agreement in Greece whereby they agreed to joint ownership and defendant’s continued management of the business and properties for the benefit of himself and the plaintiff.

The parties executed a second agreement in London whereby they divided their jointly-held U.S. companies between themselves and appointed a Trustee for the purpose of receiving and distributing the estate’s assets in accordance with the London agreement. As part of this second agreement, plaintiff also agreed to convey her 50% shareholder interest in the U.S. companies to defendant in exchange for $6.5 million, which represented 50% of the value of the NYC apartment building, which was the only remaining asset of the U.S. companies.

The parties also annexed a U.S. agreement to the London agreement which provided for an accounting of the finances of the U.S. companies and permitted for the appointment of an arbitrator to determine if either party should receive additional funds.

In 2006, plaintiff filed an action in New York County Supreme Court alleging that defendant was involved in embezzlement with the president of the U.S. companies to deprive plaintiff of her half of the estate. Ultimately, Justice Lowe dismissed all of the claims, except for breach of contract against defendant, and held that the remaining breach of contract claim fell under the London agreement and should be litigated in Greece. The First Department affirmed the dismissal.

In 2009, plaintiff commenced an arbitration against defendant before the American Arbitration Association International Centre for Dispute Resolution (AAA) to determine if either party should receive additional funds from the U.S. companies. The AAA awarded plaintiff over $10 million to be paid by defendant to the Trustee, who would then distribute the funds to plaintiff pursuant to the London Agreement.

Plaintiff attempted to enforce the arbitration award in Greece but the Greek courts refused to declare the arbitration award enforceable as a money judgment in Greece.

Thereafter, plaintiff brought this action before the New York County Supreme Court seeking an order compelling defendant to pay the Trustee the distribution awarded to plaintiff by the AAA.

Justice Andrea Masley determined that although the U.S. agreement controlled, the provisions of the agreement required the Trustee to collect the funds payable to either party, put the funds in the trust, and thereafter, distribute them between the parties. Plaintiff’s attempt to argue that she was simply seeking to enforce a promise that was made to her to deliver funds to the Trustee was not persuasive. Ultimately, the Court determined that plaintiff did not have standing to compel defendant to pay the AAA award to the Trustee and dismissed the complaint for lack of standing.

Although plaintiff has no standing to force her brother to pay her AAA award into the trust, the Court noted that plaintiff does have standing to sue the Trustee to enforce the procedures of the U.S. agreement.

Stay tune for more litigation arising out of this long-standing sibling rivalry.

Commercial leases are not all boilerplate.  The nature and sophistication of the business or industry of the tenant can lead to lease terms, addenda, riders and exhibits that are complicated and in some cases contain what the parties believe to be sensitive or confidential information not for public consumption.  When a dispute arises between the landlord and tenant that lands in court, are these lease terms and conditions something the parties can shield from the public?  What if both agree the terms should be sealed from the public?

In New York, Judiciary Law § 4 makes clear that judicial proceedings “shall be public.”  That statutory mandate is grounded in the public’s First Amendment right of access to court records, Danco Laboratories, Ltd. v. Chemical Works of Gedeon Richter, Ltd.  In civil cases, Uniform Rules for Trial Courts, section 216.1, empowers the courts to seal documents, but only upon a showing of “good cause.”  A good resource for the standard applied and the mechanics of sealing in both civil and criminal proceedings is found in a guidance memo issued by the Office of Court Administration.   Indeed, earlier this year, we wrote about a decision rendered by Justice Andrea Masley in a breach of contract case where she sealed certain documents, finding good cause existed.  In that case, the motion to seal was opposed.

Now, six months later,  in an unrelated case Coresite 32 Ave. of the Americas LLC v. 32 Sixth Ave. Co. LLC, she was faced with yet another application to seal.  This time, however, the motion was unopposed.  Should that matter?  Not at all — the court must still make findings of good cause, and the application must be supported by an affidavit explaining why sealing is justified.

The case involved a dispute between a landlord and its tenant, CoreSite, which is a high-performance data center.  Notwithstanding that the parties agreed which terms and conditions of the lease should be filed under seal, the court, as it had to, engaged in the analysis of whether good cause existed.  So, what exactly did the court consider persuasive to show good cause to seal?  Recognizing that courts have sealed records in business disputes where trade secrets were involved or when disclosure could pose a threat to a competitive advantage, that’s precisely what was found here.  CoreSite’s competitive advantage would be threatened if the financial terms were not sealed.  CoreSite’s competitors could use the information contained in the financial provisions of the lease to undermine CoreSite.  In addition, the Court made a specific finding that building safety and security could be compromised by disclosure of equipment, access pints, floor plans and locations.

The takeaway?  Consider what you’re filing when it comes to business records and whether such a 216.1 application should be made.  Good cause can exist to seal beyond the classic “trade secrets”.  And even if all sides agree that sealing is warranted, a detailed showing must be made to the court as to “why” to overcome the presumption of public access to court records.


Lawyers often get phone calls from prospective clients seeking guidance on various issues general legal inquiries, asking a variety of general questions about laws, codes, regulations, and statutes, or questions concerning a pending or anticipated litigation. But a brief introductory conversation with a prospective client regarding an issue cannot disqualify the attorney from representing another party in that litigation. Or can it? Stay tuned to see how Justice Andrea Masley recently ruled on this very issue.

In Pizzarotti, LLC v FPG Maiden Lane, LLC et al., plaintiff entered into an agreement with Fortis pursuant to which plaintiff would perform certain construction management services for Fortis for the construction of a high-rise residential building.  Due to plaintiff’s concerns for the safety of the property and for people, Plaintiff stopped performing certain work at the project and commenced an action against Fortis seeking 1) a declaratory judgment that it property terminated its agreement with Fortis; 2) to enjoin Fortis from using plaintiff’s subcontractors or equipment and indemnify plaintiff; 3) damages for breach of contract for payments due under the agreement; 4) fair compensation for additional work; 5) damages for breach of contract by Fortis’ interference with plaintiff’s performance, and relationship; 6) judgment on its lien; and 7) damages for wrongful termination.

Plaintiff moved pursuant to 22 NYCRR § 1200.00, Rules of Professional Conduct 1.18 to disqualify defendant’s counsel, Herrick Feinstein LLP (“Herrick”) based upon the fact that plaintiff had an initial consultation with Herrick, which consisted of two brief telephone calls and the exchange of documents, all of which were provided to the defendant by plaintiff .   Rule 1.18, entitled “duties to prospective clients” governs this initial interview process.  New York law requires disqualification for disclosure of information that “embrace[s] substantive issues related to the” action and that was “made in confidence” to facilitate the provision of legal services, as the Court of Appeals long held in Seeley v. Seeley.

By way of background, in March of 2019, the same month that plaintiff commenced suit, plaintiff’s general counsel emailed a Herrick partner to figure out if he can assist on a “legal matter regarding one of [plaintiff’s] projects.”  Notably, in the brief email exchange between plaintiff and the Herrick partner regarding the scheduling of a call, each of the Herrick partner’s emails contained the following legend: “[t]his email does not constitute a zoning opinion of Herrick, Feinstein LLP and should not be relied upon for investment, tax or real estate transaction purposes.”  During the initial introductory call, the Herrick partner and plaintiff briefly discussed a potential encroachment issue at one of plaintiff’s projects.  According to the Affidavit of the Herrick partner, no confidential information was exchanged during the call.

Following the brief introductory call, plaintiff sent the Herrick partner a follow up email containing information pertaining to the project and providing a list of potentially adverse parties so Herrick can run a conflict check. Plaintiff also attached a three page document, which consisted of a letter from plaintiff to defendant, enclosing surveys of the structure.

A further introductory call was held by plaintiff, the Herrick partner, and another Herrick partner, a commercial litigator with construction litigation experience. Both Herrick partners affirmed in affidavits that the only issues discussed during the call were the misalignment condition and encroachment issue, affirming that “claims against Fortis, the lien law, or a dispute with Fortis related to the development project” were not discussed during the call.  Further, despite plaintiff’s allegations that confidential information and documents were provided to the Herrick partners, both partners affirmed that no confidential information was discussed.  Indeed, this was Herrick’s last conversation with plaintiff and plaintiff did not engage Herrick in connection with either the encroachment issue or any other issue.

Months later, Herrick was retained by Fortis. And so, this motion to disqualify ensued.

In her Decision and Order, Justice Masley determined that plaintiff “has a heavy burden of showing that disqualification is warranted.”  Justice Masley determined that the documentary evidence corroborates the Court’s conclusion that plaintiff’s evidence was insufficient to warrant Herrick’s disqualification due to conflict. The Court held that plaintiff failed to establish that Herrick received any confidential information from plaintiff that could be significantly harmful to plaintiff in the pending litigation. In fact, the Court reasoned that the alleged documents that were provided to Herrick were not confidential because they were intended for and sent to Fortis by plaintiff.

The right to counsel is a “valued right and any restrictions must be carefully scrutinized.” Ullmann-Schneider v. Lacher & Lovell-Taylor PC.  “[W]here the rules relating to professional conduct are invoked not at a disciplinary proceeding but in the context of an ongoing lawsuit, disqualification can create a strategic advantage of one party over another” (id.).  As such, there is fear that parties will use disqualification as a litigation tactic.  As a result, the party seeking to disqualify counsel must meet a heavy burden to justify counsel’s disqualification.  Here, plaintiff did not meet its burden.

A class must satisfy the following prerequisites in order to be certified to proceed in the form of a class action: numerosity, commonality, typicality, adequacy and it must be demonstrated that a class action is superior to other available methods for adjudication of the controversy (see CPLR 901).

New York County Commercial Division Judge Ostrager recently reinforced the importance of the fourth requirement: Adequacy in the Matter of Xerox Corporation of Consolidated Shareholder Litigation. CPLR 901(a)(4) requires that “the representative parties will fairly and adequately protect the interests of the class.”

You may think, but wait a minute, wouldn’t the very nature of being a class representative compel the representative to act fairly to protect the interests of the class because he or she is in fact a class member that shares in the same injuries alleged by the class? Matter of Xerox Corporation of Consolidated Shareholder Litigation provides a reality check to those of us who are hopeless optimists while also exhibiting how the New York Commercial Division got involved to protect the interests of an entire class—while simultaneously blocking Xerox’s merger with Fujifilm.

Four putative class actions were consolidated, each of which sought to enjoin the Board of Directors of Fujifilm from entering into a transaction with Xerox that would, among other things, make Fujifilm a 50.1% owner of Xerox (the “Transaction”). In addition to the consolidated class actions, Mr. Darwin Deason, the second largest individual shareholder of Xerox, also initiated an action to enjoin the Transaction. The first largest individual shareholder of Xerox, Queens-native Mr. Carl Icahn, soon joined Deason’s position.

Judge Ostrager presided over three motions filed by counsel for the purported class: a motion to certify the class and appointment of class representatives, approval of a class settlement, and an award of attorneys’ fees of $7.5 million.

Following an evidentiary hearing, Judge Ostrager determined that the Xerox Board of Directors and its CEO, Jeff Jacobson, had breached their fiduciary duties in agreeing to the proposed Transaction with Fujifilm. After the decision, the Court was advised in open Court by counsel for one of the plaintiffs of a potential settlement between plaintiffs and Xerox. The Court was presented with a fully executed Memorandum of Understanding between the putative class plaintiffs, Darwin Deason and Xerox and was asked to approve a stipulation of discontinuance of the action initiated by Deason as well as the class actions.

In a nutshell, Deason sought to be appointed the class representative of the four class actions and to have the Court approve a settlement that he had allegedly negotiated on both his, and the purported class’ behalf. However, the Court declined to certify the class and to appoint Deason the class representative because Judge Ostrager determined Deason was not acting in the class’ best interest and that the record was devoid of CPLR 901(a)(4)’s requirement that “the representative parties will fairly and adequately protect the interests of the class.”

In a powerfully worded decision, Judge Ostrager reasoned that pursuant to the Memorandum of Understanding, Deason bound a class, that had not been certified, to major corporate actions such as requiring the resignation of a significant number of the Board of Directors, yet providing broad releases for these individuals which effectively shielded the directors from any potential liability for the claims of breach of fiduciary duties.

Judge Ostrager went on to reason that “the Court must consider whether the proposed settlement is in the best interests of the putative class as a while, and whether the settlement is in the best interest of the corporation.” See Gordon v. Verizon Communications, Inc., 148 Ad3d 146 (1st Dept. 2017).

Applying this test, the Court determined that the proposed settlement was not in the best interests of the shareholders “as it achieves no material benefit for shareholders other than Deason and Ichan. On the contrary, the proposed settlement releases any claims the shareholders may have concerning the change of control orchestrated by Deason and Ichan.” “The purported class members will ‘get’ no financial benefit, and they are being asked to ‘give’ broad releases of any derivative claims they may have . . . at a time when this Court held the directors to be faithless fiduciaries, largely in exchange for fees to the purported class counsel of $7.5 million.”

Judge Ostrager ultimately found that the “net result of the actions of the purported class representative and purported class counsel was to transfer control of a public corporation to Mr. Deason and Ichan via a private agreement that offered no tangible benefit to the interests of the class.” As a result, he disapproved the settlement, Deason and Ichan’s requests to be appointed class representatives and denied their counsel the $7.5 million attorneys fees they sought.

While this lawsuit had all the makings of a major motion picture—money, greed, fame—as we have learned, commercial division practitioners should nevertheless remember that not even these elements will allow a party to skirt around CPLR 901(a)(4)’s requirement of adequate representation.


The Commercial Division Advisory Council (the “Advisory Council”) has proposed three new amendments to the Commercial Division Rules: (1) a proposed amendment to Rule 1, which will allow counsel to participate in court conferences remotely, via Skype or other videoconferencing technology; (2) a proposed amendment to Rule 6, which will require proportionally spaced 12-point serif-type font in papers filed with the court; and (3) a proposed amendment to repeal Rule 23 (also known as, the “60-Day Rule”), which currently requires litigants to notify the court and other parties whenever a motion has not been decided within 60 days of its submission or oral argument.

The Proposed Amendment to Rule 1

The proposed amendment to Rule 1 will permit counsel to participate in court proceedings from remote locations via videoconference.  According to the Advisory Council, the proposed amendment “is consistent with the commercial division’s mission to improve efficiency and productivity, eliminate delays, and provide better service to the public” by, among other things, encouraging the avoidance of wasteful attorney travel.  The new proposed subsection (d) states:

Counsel may request the court’s permission to participate in court conferences and oral arguments of motions from remote locations through use of videoconferences or other technologies. Such requests will be granted in the court’s discretion for good cause shown; however, nothing contained in this subsection (d) is intended to limit any rights which counsel may otherwise have to participate in court proceedings by appearing in person.

The proposed amendment does not require counsel to participate in court proceedings from remote locations, and therefore avoids placing any burden on lawyers who lack the technical resources to participate from remote locations.  Moreover, the proposed amendment is limited to court conferences and oral arguments of motions, and is not intended to address the more complex subject of testimony by witnesses at trials or other evidentiary hearings.

Videoconferencing is not a novel concept in the Commercial Division.  Last year, my colleague Viktoriya Liberchuk reported on Justice Scarpulla’s implementation of videoconferencing technology in her courtroom, including the use of Skype for oral argument and other court conferences.  Videoconferencing is also frequently used in other courts, such as the United States circuit courts, and the First and Second Departments.  For example, the Second Department has installed Skype-equipped large screen computers in both its courtroom and consult room, and has started to use Skype for arguments of appeals and motions.

In fact, a Report of a Survey of Videoconferencing in the Courts of Appeals revealed that the benefits of videoconferencing may outweigh the disadvantages.  In that study, many of the appellate court judges who were interviewed cited the following advantages of videoconferencing:

  • Saves travel time and expense;
  • Allows for scheduling flexibility;
  • Reduces the administrative burden on the courts;
  • Decreases litigation costs;
  • Increases access to courts for marginalized litigants whose in-person appearance might otherwise be prohibitively expensive or constitute a hardship; and
  • Allows the court to make special accommodations for judges who may be ill or unable to travel.

Are there any disadvantages to videoconferencing?  Obviously some technical difficulties may occur.  But even so, technical difficulties are usually minor, easily resolved, and infrequent.  Other disadvantages may include decreased personal interactions and “quality of the argument experience.”  But, the judges who were interviewed indicated no difference in their understanding of the legal issues in arguments that were video conferenced.  In fact, one appellate judge even stated that “Videoconferencing is the wave of the future.”

Videoconferencing may prove to be convenient and cost-efficient for many litigators because it enables lawyers and their clients to save time and money.  In the words of the Advisory Council:

The proposed amendment presents an opportunity for the Commercial Division to continue its innovation and leadership in the smart adoption of technology in aid of the efficient administration of justice. The proposed rule confers sufficient discretion on individual Justices to permit participation in court proceedings from remote locations in a way that makes sense for their particular docket, and is calculated to avoid any burden or prejudice to the few lawyers who might not want to use this technology.

Proposed Amendment to Rule 6

A proposed amendment to Rule 6 of the Commercial Division Rules will require proportionally spaced 12-point serif type font in all papers filed with the court.  Rule 6 currently provides that all papers filed with the court shall comply with CPLR 2101 and 22 NYCRR 202.5(a), contain print no smaller than 12-point font, and footnotes no smaller than 10-point font.  But, like CPLR 2101 and 22 NYCRR 202.5(a), Rule 6 is silent as to the particular style of typeface.

Well, apparently some studies have shown that larger point typeface and use of proportionally spaced serif typeface enhances readability, improves comprehension and retention of long passages of text, and makes it easier for the eye to quickly and easily distinguish letters.  For those unfamiliar with typefaces, Serif typefaces are those that have little extensions, or “serifs” at the ends of the strokes of the letters.  By contrast, “sans-serifs” do not have the added stroke.  Some styles of proportionally spaced serif typeface include: Times New Roman, Century Schoolbook, Georgia, and Bookman.

According to the Advisory Council, larger point font and proportionally-spaced serif typeface “would assist the Commercial Division Justices and their staff in dealing with the arduous task of reading and retaining the content of tens of thousands of pages each year, which presumably would lead to greater efficiency.”

Proposed Amendment to Repeal Rule 23

The last proposed amendment to the Commercial Division Rules seeks to repeal Rule 23 in its entirety.  Rule 23, also known as, the “60-Day Rule,” currently requires movant’s counsel to notify the court and other parties whenever a motion has not been decided within 60 days of its submission or oral argument.  The Advisory Council proposes repealing this rule for three reasons:

  • First, the rule puts attorneys in the difficult and sometimes awkward position of reminding judges of their failure to render a decision and, therefore, is rarely followed;
  • Second, an analogous rule applicable more broadly in the Supreme and County court (see 22 NYCRR 202.8[h]) was rescinded in 2006; and
  • Third, most judges already receive notice of unresolved motions through other channels, such as the Office of Court Administration.

Those who wish to comment on these proposals should e-mail their submissions to or write to: John W. McConnell, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, NY 10004.

Comments to the proposed amendment to Rule 1 must be received by September 30, 2019. Comments to the proposed amendment to Rule 6 must be received by October 25, 2019.  Comments to the proposed amendment to repeal Rule 23 must be received by November 1, 2019.

As the name and subject matter of this blog would suggest, we here at Farrell Fritz are big fans of the Commercial Division. It’s where we practice. It’s what we know.

After all, we’ve been reporting on decisions coming out the Com Div on this and our other blogs for more than a decade – including in a post from way back in 2008, which urged New York commercial litigators to Get Thee to the Commercial Division!, in large part because of “the business-law expertise of its judges,” and because “the ability to tap such expertise, and to achieve a relatively fast resolution, is particularly useful to business owners.”

Last month, the Commercial Division Advisory Council issued a report entitled The Benefits of the Commercial Division to the State of New York, which, according to the Com Div’s What’s New news feed, explains how “the Commercial Division has made the business litigation process in New York more cost effective, predictable and expeditious, and has thereby provided a more hospitable and attractive environment for business litigation in New York State.”

The Advisory Council’s report, itself, highlights a number of benefits of the Com Div to New York and its business community, including but not limited to attracting and retaining businesses to the state; generating tax revenues; providing jobs; and … wait for it … generating revenue for the NY legal community and its supporting vendors and suppliers.

The report notes how the Com Div promotes efficiency and productivity by reducing the amount of time and resources NY businesses spend on resolving disputes, and – apropos of the case-reporting we do here at New York Commercial Division Practice – how the Com Div benefits the NY business community by “developing a body of New York commercial law which enables businesses to predict the legal consequences of their business decisions and to thereby avoid having to go to court in the first place.”

Business-court benefits such as these have led to widespread expansion of such courts across the United States, Europe, and beyond. The Advisory Council’s report notes that since the inception of such courts in only three U.S. states in the mid-1990’s, more than 25 states now boast specialized business tribunals. Countries like Canada, England, Ireland, France, and the Netherlands have followed suit, generating robust competition at both the national and international level to attract complex commercial litigation and, in turn, revenue-generating businesses to one’s own locale.

According to the Advisory Council, this courtroom competitiveness “confirms the need, importance, and urgency of a thriving Commercial Division within the New York State Court system.” Put another way, “New York needs to compete with these other governmental entities if it is to continue to attract and retain businesses in New York.”

To be sure, we here at Farrell Fritz and New York Commercial Division Practice will continue to do our part in singing the praises and promoting the bona fides of the Commercial Division.  We urge our fellow commercial practitioners to do the same.

And so we say again:  Get thee to the Commercial Division!

Consider this situation: You are a shareholder of a company who is about to enter into a contract with a third party. But you know that this is a bad deal that will negatively impact the company. Your immediate reaction is to stop this deal from materializing because you have a vested interest in the success of this company. But then you take a step back and consider your exposure to liability. Can you be sued based upon a tortious interference with contract claim? Stay tuned to see what transpired when a third party raised an economic interest defense to a claim for allegedly interfering with a contract between two parties.

In GCA Advisors v Onion, a case pending in the Commercial Division, New York County, plaintiff GCA Advisors, LLC (“GCA”), a financial advisor, brought suit against Univision Communications Inc. (“Univision”) for tortious interference with its contract with Onion, Inc. (“The Onion”), a corporation that publishes satirical news articles.

The Onion and GCA entered into an agreement, which terms included that GCA would act as The Onion’s financial advisor in connection with a possible transaction to sell substantially all of its assets or the majority of the shares. In exchange, The Onion would pay GCA a transaction fee for its advisory services, including a base fee of $2,000,000 if a transaction is completed within 12 months of the contract’s termination. GCA alleged that the Onion terminated the Agreement on April 4, 2015. Nine months after the termination, however, Univision acquired a 40.5% interest in The Onion.  GCA alleged that Univision obtained controlling interest in The Onion and decided not to pay the transactional fee to GCA, but rather, to a third party.

GCA commenced suit for 1) breach of contract against The Onion, alleging that it is owed the transaction fee in the amount of $2,000,000 because the transaction consummated, and 2) tortious interference with contract against Univision, alleging that it “knowingly and intentionally” caused The Onion to breach its contractual obligations under the agreement by deciding to pay the transaction fee to a third party instead of GCA.

Univision moved to dismiss the tortious interference claim for failure to state a cause of action, raising its economic interest in the Onion as a defense. Specifically, Univision argued that even if it engaged in the kinds of actions alleged by GCA in its complaint, because it possessed a financial interest in The Onion, as a stockholder, it was justified in intervening with GSA’s contract with The Onion.

The Court held that the economic interest defense applies in cases where “defendants were significant stockholders in the breaching party’s business.”  The Court opined that because Univision, who possesses a 40.5% interest in the Onion, has a significant economic interest in the Onion, it can successfully make out a defense of economic interest for allegedly interfering with the Onion’s obligation to pay GCA.

The Court determined that in order to overcome Univision’s economic interest defense, GCA must “allege facts showing that Univision acted with malice or employed illegal or fraudulent means.” However, Justice Saliann Scarpulla opined that Univision’s alleged interference with the contract fails to exceed a “minimum level of ethical behavior in the marketplace.”  Justice Scarpulla further stated that even if Univision directed The Onion not to pay GCA the transaction fee, “that conduct alone does not amount to malicious or fraudulent conduct.”

In sum, the economic interest defense may permit shareholders to protect their interests even if it means interfering with a contract.

The economic interest defense is a potential defense available to a tortious interference claim when the complaining conduct was done to protect a party’s own “legal or financial stake” in its business.  As the Court of Appeals recognized in White Plains Coat & Apron Co. v. Cintas Corp., the defense can apply in a wide array of situations — beyond merely shareholder status — “where the defendant and breaching party had a parent-subsidiary relationship, where defendant was the breaching party’s creditor, and where the defendant has a managerial contract with the breaching party at the time defendant induced the breach of contract with plaintiff.”

Sibling relationships are complicated.  All family relationships are.  Look at Hamlet.”  Maurice Saatchi.

 A recent decision in Greenhaus v. Gersh out of the Commercial Division, Suffolk County, is yet another example.  This time, the business is a summer day camp located on the north shore of Long Island in Huntington, New York.  Almost a year to the day following the death of dad — Edward Gersh — two siblings brought a derivative suit against their half-brother Kevin, claiming a variety of misdeeds.  Plaintiffs’ moving papers, reading like a law school exam, sought a bevy of provisional remedies:  receivership, preliminary injunction and pre-judgment attachment and a trial preference under CPLR 3403.   Kevin, in turn, moved for summary judgment to dismiss the complaint in its entirety.  As a threshold argument, he claimed plaintiffs failed to make the required BCL 626(c) demand on the Board and that futility had not been established.  He also challenged each of the claims — unjust enrichment, conversion, constructive trust, fraudulent concealment, “self dealing”, breach of fiduciary duty and an accounting — on the merits and on Statute of Limitations grounds.

   Noting preliminarily that “it is a rare case in which a plaintiff will be permitted to employ more than one provisional remedy”,  Justice Elizabeth H. Emerson ultimately concluded for each that no grounds existed for the extraordinary relief requested.  The complaint seeks essentially money damages, observed the Court, which undermines any claim of “irreparable harm” necessary to support the request for a preliminary injunction.  Similarly, the claim that “it is likely that Kevin is using [corporate] funds” to open new schools outside of New York State, is not enough to warrant attachment or the appointment of a receiver.  “[V]ague and conclusory assertions, without evidentiary facts indicating a fraudulent concealment of assets” simply “raise a suspicion of an intent to defraud”.  They don’t satisfy the burden by “clear and convincing” evidence to justify the provisional relief sought.

Considering the defendant’s motion for summary judgment, the Court granted it in part, paring down the claims remaining for trial by dismissing four of the causes of action—unjust enrichment, conversion, “self dealing” and receivership.  The later two, said the Court, are not recognized causes of action under New York law.  “The court is not aware that New York recognizes “self dealing” as a separate cause of action” (see also Richard Pu, Breach of Fiduciary Duty [self-dealing is a form of breach of fiduciary duty]) and receivership is a provisional remedy under CPLR 6401, not a “cause of action”.

So what’s left for trial?   The threshold issue of whether futility of demand existed, which the court has directed to a “framed-issue hearing” on day one of the trial.  If demand is excused, then the remaining fiduciary duty and accounting claims, along with application of the Business Judgment Rule defense are the issues to be tried.  Trial is currently set for October 15, 2019.