On April 2, 2024, the New York State Bar Association’s (“NYSBA”) Task Force on Artificial Intelligence released a report concerning the use of artificial intelligence (“AI”) in the legal profession (“Report”). New York joins select states, such as Florida and California, whose bar associations have published recommendations on the use of AI. The nearly 90-page Report examined the (1) evolution of AI and generative AI; (2) benefits and risks of AI and generative AI use; (3) impact of the technology on the legal profession; (4) legislative overview and recommendations; and (5) proposed guidelines. To date, the Report is the most comprehensive document provided by a state bar association regarding AI use.

Continue Reading AI Etiquette: A User’s Manual Provided by the NYSBA

As one can easily glean, we here at the New York Commercial Division Practice Blog view New York’s Commercial Division as the heartbeat of business litigation in the United States.  So, we think getting your business litigation in front of the Commercial Division is a big deal.  But what happens when you have a case that meets the requirements for the Commercial Division, and you are not assigned to that Part? 

Generally, there are two ways to be assigned to the Commercial Division under § 202.70[d] of the New York Code of Rules and Regulation (the “Rules”).  The first is for any party to file an RJI with the accompanying Commercial Division Addendum 90 days following service of the complaint.  The second is by consent of the parties via a forum – selection clause in the parties’ contract. 

But what if a party files an RJI before the 90-day period runs without requesting assignment or submitting a Commercial Division Addendum?  The answer lies in § 202.70[e] of the Rules, which permits a party to apply via letter to the Administrative Judge within 10 days of the RJI for transfer to the Commercial Division. 

But what if the request is made outside the time limits in § 202.70[d] and [e] of the Rules? Again, § 202.70[e] of the Rules permits a letter application to the Administrative Judge showing “good cause” for the delay. 

While the timing provisions are relatively simple to work though, the “good cause” standard under CPLR 2004, which requires reasoning for the delay, is a bit more subjective, as a finding of good cause is within the discretion of the Administrative Judge.  It is imperative, therefore, to point the Administrative Judge to applications with analogous issues or facts to support your cause.  As for where to find those decisions, never fear, the Commercial Division itself provides some help in this regard. 

On the New York Courts webpage, the Commercial Division has a page titled Administrative Judge on Transfer Applications. That page provides a list of all the Administrative Judge’s decisions on transfer applications from prior to the effective date of the Commercial Division Rules on January 17, 2006, to the present.

 For example, what if a timely request for Commercial Division assignment was not filed, but you have a related case pending before a Commercial Division Judge?  The Administrative Order in ABG HMX LLC v. Alba Longa Concepts LLC provides precedent for the Administrative Judge granting a transfer for “good cause”, in this context.   And what if a request for Commercial Division assignment is rejected by the clerk’s office but was only a few days late?  Curtis v. Merrill Lynch, et al provides precedent for the Administrative Judge granting a transfer if the request was “untimely albeit only by a matter of days.”  But waiting years before filing a transfer application is not wise.  In ABL Advisor LLC, et al. v. Ian S. Peck, et al, the Administrative Judge denied a transfer application made two years into the litigation, finding that the “rules are designed to ensure that appropriate cases are assigned to the Commercial Division at the inception of the case, not two years into the litigation.”  Finally, what if you have a complex commercial case but one of the issues is arguably excluded from review by the Commercial Division?  In City of New York v. FC 42nd Street Associates, L.P., the Administrative Judge granted transfer of a generally excluded real property case that dealt with the determination of fair market value in relation to rental income, agreeing that while the case “is not an action for the payment of rent only, … the complaint raises complex questions of commercial and arbitration law and belongs in the Commercial Division.”  And there are many more helpful examples for litigators on the Commercial Division’s “Transfer Application” page.  

In short, the next time you find yourself in a position where leave to the Administrative Judge is required for assignment to the Commercial Division, remember the Commercial Division and its readily available resources has you covered. 

Continue Reading Help, I Need to Get My Case into the Commercial Division!! Transfer and Determinations by the Administrative Judge

As one might gather from the title of this blog, we here at New York Commercial Division Practice try to make a more-than-occasional point of extolling the virtues of the Commercial Division. From its well-established reputation as a sophisticated, cost-effective, predictable, and expeditious forum to its related ability to attract businesses nationwide to litigate their disputes in New York State, when it comes to litigating commercial cases in New York, the Commercial Division is the place to be.

Every year around this time, New York’s Chief Administrative Judge publishes an annual report, which “collect[s], compile[s] and publish[es] statistics and other data with respect to the unified court system and submit[s] annually, on or before the fifteenth day of March, to the legislature and governor a report of activities and the state of the unified court system during the preceding year.” The New York State Unified Court System’s 2023 Annual Report, which was just published last week, devoted a section to the Commercial Division under the heading “A Commitment to Society,” in which the Chief Administrator praised the work of the Commercial Division Advisory Council, which, under the leadership of Robert L. Haig, Esq., has helped develop the Commerical Division into becoming “a recognized leader in court system innovation, … demonstrating an unparalleled creativity and flexibility in [the] development of rules and practices.”

Continue Reading The Chief Administrative Judge’s 2023 Annual Report, the State of the Commercial Division, and Other ComDiv Goings-On

As of January 1, 2024, the amended CPLR 2106 concerning affirmations provides that

[t]he statement of any person wherever made, subscribed and affirmed by that person to be true under the penalties of perjury, may be used in an action in New York in lieu of and with the same force and effect as an affidavit.

Before this amendment, only certain non-party New York licensed professionals—namely, attorneys, and certain health-care professionals—and individuals physically located outside the United States could submit affirmations in lieu of affidavits. The new CPLR 2106 has removed these requirements. Any person—whether a party to the litigation or not—can now provide an affirmation in lieu of an affidavit so long as their affirmation contains the following language:

I affirm this ___ day of ______, ____, under the penalties of perjury under the laws of New York, which may include a fine or imprisonment, that the foregoing is true, and I understand that this document may be filed in an action or proceeding in a court of law.

This amendment allowing for affirmations in place of affidavits is like the federal statute, 28 U.S.C. 1746, which allows the use of unsworn declarations under the penalty of perjury. This is a welcome change to many, as it will spare your client the time, cost, and inconvenience of obtaining a notary.

But this rule change raises many other questions. For one, how does it impact the other sections of the CPLR that refer to affidavits? For example, certain CPLR sections authorize the use of affidavits to be submitted in support of pleadings (i.e. CPLR 403[b]) and motions (i.e. CPLR 2214[b], CPLR 3212[b], CPLR 3215). Can a party affirmation now be submitted in place of a fully-executed affidavit? A recent article by Professor Patrick M. Connors entitled CPLR 2106 Amended To Permit Any Person To Submit Affirmation in Lieu of Affidavit appears to answer that question in the affirmative.

Second, how does this rule change impact verifications of pleadings by affidavit? Under CPLR 3020(d) and 3021, a verification must be accompanied by affidavit of a party or nonparty. Professor Connors reasons that although, “one can reasonably conclude that, under the current CPLR 2106, verification can be performed via the affirmation of a party or nonparty . . ., there is disagreement on whether a verification must be performed before a notary.” Professor Connors advises that he has been informed that, while certain county clerks have rejected filings of pleadings that were verified pursuant to the CPLR 2106 affirmation, other clerks have accepted these pleadings. At this point, we can only hope to get more guidance on the use and applicability of CPLR 2106 and proceed with caution as we await decisions addressing the new amendment.

Third, how does this rule impact responses to interrogatories, which, under CPLR 3133, must be “answered in writing under oath by the party served”? Professor Connors concludes that it appears that the required “oath” can be performed by way of an affirmation.

Professor Connors also addressed in his article at least two circumstances that continue to require notarization. First, a notary is required to acknowledge a conveyance of real property under Section 298 of the Real Property Law. Second, under CPLR 3113(b), deposition testimony must be sworn to before a notary, and under CPLR 3116(a) any changes to a deposition transcript must be signed by the witness “before any officer authorized to administer an oath.”

Takeaway:

No doubt there are many questions that need to be answered about the impact of this amendment. And until we get further guidance, practitioners should proceed with caution. We expect that case law will soon address the impact of the new CPLR 2106, and we at the New York Commercial Division Practice will certainly be monitoring any guidance or decisions impacting this rule change.

Commercial litigants often seek the provisional and equitable remedy of a preliminary injunction under Article 63 of the CPLR to protect the client’s rights that are difficult to monetize and quantify. The relief sought typically involves a party restraining from certain conduct and maintaining the status quo where it “appears that the defendant threatens or is about to do, or is doing or procuring or suffering to be done, an act in violation of the plaintiff’s rights respecting the subject of the action” (see CPLR 6301).

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New York courts consider the issuance of a preliminary injunction to be an “extraordinary remedy” that should not be granted as a routine matter. Therefore, in order to meet the high burden for a preliminary injunction, the movant must satisfy the oft-cited tripartite test of (1) likelihood of ultimate success on the merits, (2) irreparable injury if the preliminary injunction is withheld, (3) and a balance of equities tips them in favor of the moving party.

A mandatory preliminary injunction (as opposed to a prohibitory preliminary injunction), is an application by which the movant does not seek to restrain the actions of the opposing party but instead seeks a court mandate that directs the opposing party to engage affirmative, specific conduct during the pendency of an action. As such, a mandatory injunction’s function is to actually disrupt the status quo, requiring the movant to show that the status quo is endangered by the opposing party’s failure to act. Therefore, it requires the movant to satisfy an even more rigorous standard than that of a prohibitory injunction and is only granted under extraordinary or unique circumstances.

In Sebco Dev. v Bldg. Mgmt. Assocs., Bronx County Commercial Division Justice Fidel E. Gomez found such clear-cut extraordinary circumstances to exist, treating the plaintiffs’ motion seeking a preliminary injunction as that which also sought a mandatory injunction and granted them both after finding that the plaintiffs had met both standards. As has come to be a trademark characteristic of his decisions, Justice Gomez in Sebco offered a thorough analysis of the preliminary injunction standard of review and the essential principles and caselaw governing its requirements.

Plaintiff Sebco is a not-for-profit organization that provides affordable housing in the Bronx and sponsored the development of properties for the co-plaintiff property owners, and provided oversight for such properties. Defendant served as property manager for the properties owned by the plaintiffs, which duties included leasing and maintaining the property owners’ properties, requiring that defendant maintain tenant data and tenant files to ensure compliance with city, state, and federal regulatory agreements, as well as hiring and overseeing maintenance staff. In January 2023, the plaintiffs terminated their relationship with the defendant and also appointed Sebco to assume the management of the properties.

A week after that decision was made, the defendant denied the plaintiffs the ability to access their own bank accounts, and despite being terminated, continued to draw management fees from bank accounts belonging to them. Defendant also impeded Sebco’s attempt to assume management functions for the property owners, by refusing to comply with requests that Sebco be provided with information regarding the property owners’ buildings and bank accounts, refusing to relinquish control of millions of dollars belonging to the property owners, and refusing to relinquish control over the plaintiffs’ data.
In their complaint, the plaintiffs asserted multiple causes of action against the defendant, including a cause of action for declaratory judgment wherein the plaintiffs sought a declaration that defendant had been relieved as the property manager and that, as such, they had the right to access to and control of their bank accounts and data. They also asserted a cause of action for conversion where they alleged that they have a possessory interest in their data and the funds in the accounts, which despite demand, the defendant refused to return.
Based on affidavit support and the legion of documents submitted by the plaintiffs, the court found that the plaintiffs clearly demonstrated entitlement to injunctive relief, enjoining the defendant from affirmatively interfering with Sebco’s management of the properties.

The plaintiffs established a likelihood of success on the merits by clear and convincing evidence that the defendant no longer managed the properties; that Sebco assumed that role; and therefore that the defendant had no right to prevent access to and could not control the plaintiffs’ bank accounts or data, to the exclusion of their rights. Regarding irreparable harm, the plaintiffs showed that without injunctive relief allowing Sebco to assume control of the bank accounts and data, Sebco would be unable to properly manage the plaintiffs’ properties and they would lose low-income rental subsidies as a result, forcing Sebco and the plaintiffs to cease operating. With respect to the balancing of the equities, the court surmised that if all defendant is being asked to do is relinquish control of information it can no longer legally control, injunctive relief would hardly prejudice defendant.

The court also founds that insofar as the plaintiffs also sought to compel the defendant to affirmatively take all steps required to allow Sebco to assume management of their properties, which would alter rather than preserve the status quo, a mandatory injunction was justified since preservation of the status quo would afford the plaintiffs insufficient relief.

Although sparingly granted, preliminary injunctions are commonly utilized and effective tools in the commercial litigator’s arsenal. Not only do they offer the remedy of immediately halting (or mandating) certain conduct of the opposing party pending the litigation, but they afford litigants the opportunity to make a good first impression with the court and set the tone for the life of the case.

Misbehaving children?  Blame the parents, right? Not so in the corporate context, at least according to Manhattan Commercial Division Justice Robert R. Reed in a recent decision, Memorial Sloan Kettering Cancer Ctr., v. Bristol Myers Squibb Co., in which he found that parent corporations will not be automatically held liable for the contracts of their subsidiaries.

Background

Memorial Sloan Kettering Cancer Center and Eureka Therapeutics Inc. (“Plaintiffs”) teamed up to develop technology to assist with blood cancer treatment. To assist with the development of this technology, Plaintiffs partnered with Juno, a biopharmaceutical company. Specifically, Plaintiffs entered into an exclusive licensing agreement with Juno that incentivized Juno to use Plaintiffs’ technology for blood cancer treatment.  The agreement provided that if Juno used and commercialized Plaintiffs’ technology, Plaintiffs would be entitled to certain royalties. After execution of the agreement, however, Juno was acquired by Celgene and Bristol Myers Squibb, Co (“BMS”).  As part of the acquisition, Juno “assigned all its right and obligations under the licensing agreement to BMS,” and “BMS acquired and assumed Juno’s rights and obligations under the licensing agreement.”

Further complicating matters between the parties, BMS had a competing blood cancer drug treatment known as Abecma. Instead of promoting Plaintiffs’ blood cancer treatment, BMS started promoting Abecma. Plaintiffs thus alleged that “BMS purportedly abandoned its effort to pursue Plaintiffs’ technology, failed to obtain FDA approval of Plaintiffs’ technology, and failed to develop, manufacture, and commercialize any licensed product as required by. . . the license agreement.”  This led to Plaintiffs bringing a single cause of action for breach of contract against all three parties – Juno, BMS, and Celgene. All three parties moved to dismiss.

Analysis

The crux of Justice Reed’s opinion dealt with whether the claims against BMS and Celgene, the parent companies of Juno, should be dismissed. Citing the First Department in World Wide Packaging, LLC v Cargo Cosms., LLC, Justice Reed noted that a “parent corporation generally cannot be held liable for the debts of its wholly owned subsidiary, nor can it be bound by the contract of that subsidiary.” Further relying on an earlier case from the Manhattan Commercial Division, Capricorn Invs. III, L.P. v. Coolbrands Int’l, Inc., Justice Reed explained that since parent and subsidiary entities are usually considered separate legal entities, “a contract of one does not bind the other.”

Turning again to First Department precedent in Horsehead Indus., Inc. v Metallgesellschaft AG, Justice Reed noted that there are limited circumstances that “a parent company can be held liable as a party to its subsidiary’s contract.” These circumstances exist when either “(1) the parent manifests an intent to be bound by the contract; or (2) if the elements of piercing the corporate veil are present.” Justice Reed explained that “intent is inferable if the parent participated in the negotiation of the contract, if the subsidiary is a dummy for the parent, or if the subsidiary is controlled by the parent for the parent’s own purpose.” Id.

After explaining the circumstances under which a parent company could be liable for a subsidiary’s contract, Justice Reed concluded that BMS and Celgene could not be held liable for the contractual obligations of Juno under the licensing agreement with Plaintiffs, reasoning that for parental liability to attach there must be more than “conclusory allegations of business overlap.” He further stressed that “facts must be alleged that establish an intent to be bound, which may be shown by contract negotiation, use of the subsidiary as a shell and use of the subsidiary.” 

In this case, Plaintiffs set forth no such evidence in their complaint.  Instead, Plaintiffs made bare allegations that BMS and Celgene “assumed” Juno’s contractual obligations and took “exclusive control of performing under the license agreement.” Justice Reed therefore found that there were “no facts plead to support the contention that BMS participated in the relevant contract negotiations, or that Juno was otherwise operated by BMS or Celgene as a dummy corporation.” Thus, Justice Reed dismissed the complaint against BMS and Celgene and severed and continued the action against Juno, individually.

Takeaway

When entering a business transaction with a subsidiary of a parent corporation, in order to successfully blame the parent, the contracting party must allege more than a simple business overlap to attach parental liability for the subsidiary’s contract. Bare allegations, such as the ones in Memorial Sloan Kettering Cancer Ctr., v. Bristol Myers Squibb Co., will result in dismissal of a complaint against parent corporations, leaving the plaintiffs out of luck. So, if you find yourself in a similar situation, it might be wise to ask whether the parents are really to blame?

Nonparty subpoenas are a useful discovery tool in commercial disputes. Particularly when the dispute involves access to or control over funds on deposit with a financial institution, the institution’s account statements, and transaction records may be critical. But stringent requirements are imposed on a party seeking disclosure from a nonparty. If the requesting party does not include sufficient detail in the subpoena to demonstrate its relevance to the pleadings, then its request might prove fruitless. A recent decision from Manhattan Commercial Division Justice Robert Reed in UKI Freedom LLC v Organization for the Defense of Four Freedoms for Ukraine, Inc. exemplifies such a shortfall.

Background

Under CPLR 3101(a)(4), a party may obtain disclosure from a nonparty of “matter material and necessary in the prosecution or defense of an action.” When disclosure is sought from a nonparty, “more stringent requirements are imposed on the party seeking disclosure” (Velez v Hunts Point Multi-Serv. Ctr., Inc., 29 AD3d 104, 108 [1st Dept. 2006]). In practice, these “more stringent requirements” are fairly minimal, but the subpoenaing party must at least “sufficiently state the ‘circumstances or reasons’ underlying the subpoena” (Kapon v Koch, 23 NY3d 32, 34 [2014]).

The nonparty, or another party to the action, may move to quash the subpoena but bears “the initial burden of establishing either that the requested disclosure is utterly irrelevant to the action or that the futility of the process to uncover anything legitimate is inevitable or obvious” (Wells Fargo Bank, N.A. v Confino, 175 AD3d 533, 534-35 [2d Dept. 2019] [internal quotations omitted]). If the movant meets this burden, then the burden shifts to the subpoenaing party to “establish that the discovery sought is material and necessary to the prosecution of the action” (id. at 535).

Continue Reading Don’t Forget the Details: How Conclusory Pleadings Can Thwart Nonparty Disclosure

A confession of judgment has often been viewed as an important tool in settling a litigation or finalizing a transaction.  In 2019, the New York State Legislature made some significant amendments to the Confession of Judgment law (CPLR § 3218), particularly eliminating the ability of creditors to file confessions of judgment against non-New York residents.  As a result, the amended CPLR § 3218 provides that the confession must state the county in which “the defendant resided when it was executed,” and that the confession may only be filed in that county or, if the defendant moved to a different county within New York after signing the confession, “where the defendant resided at the time of filing.”  In a recent decision, Kings County Commercial Division Justice Leon Ruchelsman  addressed the damaging consequences of altering a confession of judgment to meet the “residency” requirements of CPLR § 3218.

Background

In Porges v Kleinman, plaintiff commenced an action stemming from a real estate investment opportunity in New Jersey.  Specifically, plaintiff alleged that defendant pressured plaintiff to obtain a high cost loan to finance the purchase of the property while not allowing plaintiff to conduct any due diligence.  Following the closing, plaintiff alleged that defendant pressured him into signing a promissory note and confession of judgment for $675,000.00.  Approximately a year after the closing, defendant commenced a separate action, which was later consolidated with the present action, to enforce the confession of judgment due to plaintiff’s alleged failure to make any payments towards the promissory note.

During the course of the litigation, plaintiff brought a motion to vacate the confession of judgment, arguing that the confession of judgment (i) did not specify the county in which plaintiff resided; and (ii) was altered by striking out “County of New York” and writing in “County of Kings” in the caption.  In opposition, defendant argued that the alteration of the caption was made at the express instruction of the Kings County Clerk’s office to allow for the confession of judgment to be filed in the appropriate venue.

Continue Reading Altering a Confession of Judgment? Think Again!

A recent decision from Justice Fidel Gomez of the Bronx County Commercial Division, 1125 Morris Ave. Realty LLC v Title Issues Agency LLC, reminds us to closely review the language of general releases as New York courts continue to enforce such releases however broad in scope absent any fraud or wrongful conduct. Failure to do so may not only result in the waiver of certain future claims but also the imposition of sanctions.

Background

Plaintiff 1125 Morris Ave. Realty LLC (“Plaintiff”) obtained a mortgage loan (“2014 Mortgage”) on a property located at 1125 Morris Avenue, Bronx, New York (the “Property”). Defendants Kofman and Lowenthal represented the lender in the transaction. Kofman and Lowenthal transferred the loan proceeds to Defendant Title Company (the “Title Company”) to hold such proceeds in escrow until certain taxes and water/sewer charges for the Property had been settled with the City. Plaintiff thereafter obtained additional mortgages in order to pay off the 2014 Mortgage.

Following the payoff and satisfaction of the 2014 Mortgage, in July 2016 Plaintiff executed a broad general release discharging Defendants Kofman and Lowenthal as well as the Title Company (collectively the “Defendants”) from all “claims and demands whatsoever from the beginning of the world to the day of the date of this RELEASE.”

Plaintiff commenced an action against Defendants alleging, among other things, that Defendants committed fraud by failing to pay Plaintiff’s outstanding tax, water, and sewer charges for the Property, despite assuring Plaintiff that the loan proceeds would be used to satisfy the liens on the Property. Plaintiff further alleged that the Title Company only partially paid out the liens, and that only a portion of the loan proceeds were returned to Plaintiff.

Continue Reading No Deceit, No Defeat: Commercial Division Enforces Broad General Release

When representing an aggrieved plaintiff in a commercial matter, there are certain business torts that I tend to rely on more heavily than others.  If business torts were foods, for example, a claim like breach of contract would be an entrée, while tortious interference with prospective business relations would be more of a side dish.  Those types of tort-lite claims are difficult to plead (and even more difficult to prove) because they require a showing of causation and culpability, the lack of which is fatal if not appropriately pleaded as Justice Robert R. Reed reminds us in Braddock v Shwarts and Vertical Group, Supreme Court, New York County (Index No. 158142/2018).

Continue Reading Where’s the Beef? Causation and Culpability Are Fatal Pitfalls in Zaycon Foods Lawsuit