In a recent Commercial Division decision, Pozner v Fox Broadcasting Company, (2018 NY Slip Op 28102 [Sup Ct, NY County Apr. 2, 2018]), Justice Saliann Scarpulla declined to extend the application of the faithless servant doctrine to a circumstance where no New York court has applied it before.

Cliff Pozner (“Pozner”), a former Executive Vice President at Fox Broadcasting Company (“Fox”), was terminated from his employment based on sexual harassment complaints from several current and former Fox employees.  He then commenced an action against Fox for allegedly breaching his employment agreement and discriminating against him on the basis of his religion.  In response, Fox asserted two counterclaims against Pozner: breach of contract based on Pozner’s alleged failure to abide by the company’s policies regarding sexual harassment, and breach of fiduciary duty, which, according to Fox, included the duty to refrain from conduct inconsistent with Fox’s policies regarding a harassment-free workplace.

Pozner moved to dismiss the counterclaims.  With respect to Fox’s breach of fiduciary duty claim, Pozner argued that he did not violate any duty owed to Fox under the faithless servant doctrine or as a breach of fiduciary duty, since he did not unfairly compete, divert business opportunities, or accept improper kickbacks.

Justice Scarpulla sustained Fox’s first counterclaim for breach of contract, but held that Fox’s breach of fiduciary duty counterclaim was “not tenable.”  As the Court explained, although Pozner, as a Fox executive and employee, owed a duty of loyalty to Fox, that duty “has only been extended to cases where the employee ‘act[s] directly against the employer’s interests – as in embezzlement, improperly competing with the current employer, or usurping business opportunities.’”  Accordingly, the Court held that sexual harassment by an executive, without more, cannot form the basis of a breach of fiduciary duty claim resulting in the employer’s recovery of the employee’s salary under the faithless servant doctrine.

In reaching its conclusion, the Court noted the lack of New York case law on point and easily distinguished the cases relied upon by Fox.  For example, in Astra USA, Inc. v Bildman, (455 Mass 116 [2009]), which the Court acknowledged was not controlling, the Massachusetts court found that the CEO and President of plaintiff’s company had, in addition to engaging in sexual harassment, committed acts directly against the company’s interest, including stealing company funds, financial records and other documents, destroying company property, and erasing data from computers (id. at 123-124, & n 13).

Similarly, in Colliton v Cravath, Swaine & Moore, LLP (2008 WL 4386764, 2008 US Dist LEXIS 74388 [SD NY Sept. 24, 2008]), the Court found the plaintiff’s admitted criminal activity (which resulted in a plea allocution) constituted a violation of his ethical duties under the New York Rules of Professional Responsibility.  Given these ethical violations, the plaintiff in Colliton was not ethically permitted to work as an attorney and thus, “his employment was the product of fraudulent concealment” (id. at *15).

Recognizing Fox’s failure to plead allegations of fraud, financial waste, or embezzlement, Justice Scarpulla declined to extend the faithless servant doctrine to cover instances where the only wrongdoing alleged is sexual harassment.  While it is possible that Fox’s counsel was looking to extend the law in light of recent news events, Justice Scarpulla was not so inclined.

Ian Pai was an early participant in the Blue Man Group (“BMG”).  Between 1989 and 1991, he met and began collaborating with the founders of BMG, namely, Chris Wink, Phillip Stanton and Matt Goldman.  Pai claims to have made significant contributions to BMG’s creative and musical aspects over the decades-long relationship he had with the group, having ultimately assumed the duties of Music Director and Conductor.   In 2014, Pai’s royalty checks were abruptly cut in half without explanation.  Ultimately, Pai filed a  complaint against BMG and its founders, claiming breach of fiduciary duty, breach of contract, accounting, quantum meruit and unjust enrichment.  Following discovery, defendants moved for summary judgment on all counts.  Justice Barry Ostrager denied the motion in part, but granted summary judgment dismissing the two counts premised upon the existence of a fiduciary duty:  breach of fiduciary duty and accounting.  The remaining claims survived the motion, and trial is now scheduled for April 9, 2018.

Pai concedes that his fiduciary duty and accounting claims are not based upon a “formal” fiduciary relationship, but rather on his decades-old personal relationship with the three founders, and the founders’ alleged representations that they would “take care” of him.   In sum, his fiduciary duty claims were based solely upon the close relationship they developed over the years.  The defendants denied a fiduciary relationship ever existed, but did admit they had a long close-knit relationship with Pai.

So, can a mere close personal relationship create a fiduciary duty?   Maybe!  Indeed, as the Court recognized, citing Kohan v. Nehmadi, a fiduciary relationship can be found to exist between close friends under certain circumstances.   Here, the Court considered that “Pai’s age, lack of financial experience, and trust in the Individual Defendants to look out for him” may very well have given rise to a fiduciary relationship.  However, fatal to Pai’s claims was applicable six-year statute of limitations which barred any claims he may have had in the 1990s.  The Court reasoned that since 2009, Pai has been represented by counsel, negotiating agreements between Pai and BMG, all at arms-length.  The result is that the contract-based claims survive for trial, but the fiduciary relationship-based do not.

The concept of a close personal relationship giving rise to fiduciary duty is not new.    Whether a fiduciary relationship exists is, of course, a very fact-intensive inquiry.  The Court in the Pai case recognized this and, in the end, did not have to decide whether the early relationship in fact gave rise to a fiduciary one since it was time barred.  A good overview of this very issue — how New York courts determine the existence of a fiduciary duty — is found in an EDNY case, St. John’s Univ. v. Bolton (Garaufis, J., 2010) (“a fiduciary relationship embraces not only those the law has long adopted . . . but also more informal relationships where it can be readily seen that one party reasonably trusted another”).  The starting point (and maybe the ending one too) is whether there is an agreement between the parties governing their rights and obligations.  In the absence of such, a close personal relationship intertwined with a business one can very well create at least issues of fact whether a fiduciary relationship exists between them.

Perhaps I’m revealing too much about my abilities in a prior life to balance academic and social priorities, but does anyone else remember the “not less than X pages” page requirements for high-school and college term papers and the corresponding font, margin, and line-spacing tricks for getting the assignment over the finish line?

attorney competition

Well, it would appear that lawyers – being the “remarkably insecure and competitive group of people” that they are – suffer from the opposite affliction.  According to a recent proposal from the Commercial Division Advisory Council to amend Commercial Division Rule 17 concerning length of papers, “attorneys have incentives to unfairly squeeze additional content into the allotted pages” and “have developed techniques to ‘cheat’ the limit.”

The Advisory Council’s proposal to amend Rule 17 seeks to eliminate the unfair and disingenuous “incentives” and “techniques” currently utilized by attorneys through the implementation of word rather than page limits on their submissions to the court.

The current Rule 17 provides that “(i) briefs or memoranda of law shall be limited to 25 pages each; (ii) reply memoranda shall be no more than 15 pages and . . . ; (iii) affidavits and affirmations shall be limited to 25 pages each.”

The Advisory Council’s Rule 17 proposal “substitutes word limits in place of the page limits set forth in the current rule:  7000 words (currently 25 pages) in briefs, memoranda of law, affidavits and affirmations; and 4200 words (currently 15 pages) in reply memoranda.”

I’ve seen enough decisions expressly referencing Rule 17 over the years to suggest that the Justices of the Commercial Division would support the change.  Just two months ago, in Domingo v Bidkind, LLC, Manhattan Commercial Division Justice Saliann Scarpulla admonished the defendants’ counsel for “fail[ing] to adhere to the page limits provided in Commercial Division Rule 17 in this motion and in another related action.”  Others, like former Kings County Commercial Division Justice Carolyn E. Demarest, have instituted “appropriate penalties” for Rule 17 violations – including, for example, in her Aish Hatorah NY, Inc. v Fetman decision from 2015 where she flat-out “disregarded” the latter 27 pages of a 52-page brief in support of a motion to renew and reargue.  Former Westchester County and Manhattan Commercial Division Justices Alan D. Scheinkman and Richard B. Lowe, III issued similar penalties number of years ago in Reilly Green Mountain Platform Tennis v Cortese and LaRosa v Arbusman.

According to the Advisory Council, word limits, which are more precise and uniform in application, better serve the purpose and spirit of Rule 17 – namely, to “encourage attorneys to focus on strong, concise arguments, and ensure that judges and opposing counsel are not overwhelmed with meandering, repetitious briefs.”

Word limits on papers submitted in the Commercial Division also would conform to appellate brief-writing parameters currently operative in the First and Second Departments, which require parties to certify in writing that their submissions comply with the applicable word-count requirements.

Anyone interested in commenting on the proposed amendment to Rule 17 may do so by sending or emailing their comments to John W. McConnell, Esq. (rulecomments@nycourts.gov), Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, NY  10004.

In a legal malpractice claim brought by Plaintiff, an Australian investment bank against Morrison & Foester, claiming that the law firm did not conduct due diligence in uncovering material misrepresentations pertaining to Plaintiff’s underwriting of a public stock offering of Puda Coal, Inc., Justice Scarpulla, in the New York County Supreme Court (Index No.: 650988/15) dismissed the suit. Notably, the Supreme Court held that the Plaintiff in Macquarie Capital (USA) Inc. v. Morrison & Foerster LLP was in possession of the information at issue as it had an investigative report, prepared by a private international investigation firm that gave Plaintiff notice of the material misrepresentations. The report produced by the private firm disclosed information regarding the public offering, which contradicted public representations and reports. Upon receipt of the report, Plaintiff forwarded the report to Defendant, neither of which picked up on the misrepresentations in the report that Puda did not own a 90% interest in Shanxi Coal. Instead, the law firm issued an opinion confirming its due diligence and advising Plaintiff that nothing came to its attention that would lead to the conclusion that the offering documents contain false or misleading information. However, the Supreme Court, nevertheless, held that Plaintiff could not claim that the law firm’s representations caused damage to Plaintiff.

However, the Appellate Division, First Department unanimously reversed Justice Scarpulla’s decision and determined that Plaintiff sufficiently demonstrated the “but for” causation element necessary for its legal malpractice claim in defeating Defendant’s pre-answer motion to dismiss. Specifically, the Court held that Plaintiff demonstrated that but for the law firm’s negligence, Plaintiff would have abstained from its involvement in the public offering, thus preventing Plaintiff from acquiring fees, expenses, and other damages.

Further, the Court concluded that the law firm’s argument that Plaintiff possessed the information in an investigative report is unavailing because the information contained in the report cannot be described as explicitly putting Plaintiff on notice and not requiring counsel’s interpretation of the information. Contrarily, in Ableco Fin. LLC v. Hilson, 109 A.D.3d 438 (1st Dep’t 2013), lv denied 22 N.Y.3d 864 (2014) this Court granted defendant’s motion for summary judgment dismissing the legal malpractice claim on the basis that plaintiff indisputably possessed certain information prior to the closing and was aware that it would not receive first priority lien on the inventory and, as such, counsel’s legal interpretation was not required.

 Takeaway: In Macquarie Capital (USA) Inc, the law firm was specifically hired to conduct due diligence and investigate the company’s offering. Ultimately, the Court held that the law firm should not be able to shift legal responsibility it was hired to perform to the client. A law firm cannot release itself from liability by arguing that because its client possessed certain information, that the law firm need not conduct the due diligence it was retained to do in the first instance.

In a thorough opinion last week by Justice Marcy Friedman in Bank of N.Y. Mellon v WMC Mtge., LLC, the New York County Supreme Court upheld the timeliness of “Failure to Notify” claims arising from subprime mortgage-backed securities formed into a trust in 2007. To put it mildly, the mortgages were problematic (go see The Big Short if you have not already done so). The primary issue the court examined was the accrual date of causes of action asserting that the securitizer (Morgan Stanley) had breached its contractual duty to notify the Trustee of any breaches of representations and warranties that it discovered after closing. (Separate causes of action directly asserting breaches of the representations and warranties were previously dismissed as time-barred.)

Did these “Failure to Notify” claims accrue upon the closing of the securitization? Or did the claims accrue when Morgan Stanley discovered the breaches?

The issue was complicated by the Court of Appeals’ landmark decision in ACE Securities Corp. v. DB Structured Products Inc., 25 N.Y.3d 581 (2015), which held that a plaintiff cannot avoid the statute of limitations on a claim for breach of representations and warranties by pleading a separate claim based on the defendant’s failure to repurchase materially breaching loans. The Court in ACE reasoned that the repurchase provision in the parties’ contract was more akin to a remedy for the breach of representations and warranties, rather than a separate and continuing obligation. In addition, the Court in ACE was concerned by the prospect of “accrual dates that cannot be ascertained with any degree of certainty,” especially cumbersome in mortgage-backed securities cases involving representations and warranties relating to thousands of loans per securitization.

Justice Friedman also gave pause to consider New York’s policy against applying the “discovery rule” to statutes of limitations in contract actions. For example, in Deutsche Bank National Trust Co. v. Flagstar Capital Markets Corp., 143 A.D.3d 15 (1st Dept 2016), the First Department held an accrual clause in the governing agreement unenforceable as against public policy, where the clause purported to delay the accrual of claims until three conditions were satisfied: (i) discovery of a breach, (ii) failure to cure or repurchase, and (iii) demand upon the defendant for compliance with the agreement. The First Department held that such a clause “creates an imprecisely ascertainable accrual date—possibly occurring decades in the future, since some of the loans extend for 30 years.”

The court found these policy arguments “compelling,” but ultimately held that it could not impose the same accrual date as the underlying breach of warranty claims, because in Nomura Home Equity Loan, Inc. v. Nomura Credit & Capital, Inc., 133 A.D.3d 96 (1st Dep’t 2015), Morgan Stanley Mortg. Loan Trust 2006-13ARX v. Morgan Stanley Mortg. Capital Holdings LLC, 143 A.D.3d 1 (1st Dep’t 2016), and Bank of NY Mellon v. WMC Mtge., LLC, 151 A.D.3d 72 (1st Dept 2017), the First Department held that a “duty to notify” accrued independent of the securitizers’ obligations with respect to representations and warranties and therefore gave rise to a separate cause of action for damages. Unlike in ACE, this duty to notify could not be characterized as a remedy for the breach, because it was entirely an obligation of the securitizer and did not depend on any prior action by the trustee.

The court limited its holding to only allow “Failure to Notify” claims involving breaches first discovered by Morgan Stanley within the six-year statute of limitations. In other words, Morgan Stanley had no “continuing obligation” to notify past the date of first discovery that would otherwise extend the statute of limitations indefinitely. Nonetheless, the possibility of revising otherwise time-barred claims makes it worthwhile for parties asserting claims based on breaches of representations and warranties in a securitization to carefully read the agreements to evaluate an independent duty to notify post closing.

Generally speaking, a fraud claim that is “duplicative” of a breach of contract claim will be dismissed. But when is a fraud claim sufficiently duplicative of a breach of contract claim so as to warrant its dismissal? The New York County Commercial Division (Sherwood, J.) recently answered this question in xLon Beauty, LLC v Day, 2018 NY Slip Op 30142(U) (Sup Ct, NY County Jan. 24, 2018).

In that case, the plaintiff, xLon Beauty, LLC (“Plaintiff”), a manufacturer of an “anti-aging” product (the “Product”), entered into a series of agreements (collectively, the “Contracts”) with the defendant, Doris Day, M.D. (“Defendant”), a publicly-known dermatologist regularly featured on radio and television shows. Pursuant to the Contracts, Defendant granted Plaintiff the right to license and utilize Defendant’s name and likeness to promote the Product in exchange for a 7% royalty fee.

Defendant ultimately sought to terminate the Contracts on the grounds that she (i) was not being adequately compensated, despite her efforts to promote and market the Product; and (ii) was receiving multiple complaints from customers concerning the quality and efficacy of the Product. Thereafter, Plaintiff commenced an action against Defendant alleging, among other things, breach of contract and fraudulent inducement.

Plaintiff’s breach of contract claim alleged that Defendant failed to “make herself available . . . for photographs, speaking engagements and/or commercials in video format” in accordance with the terms of the Contracts. The fraudulent inducement claim centered on Defendant’s purported representations prior to entering into the first agreement that she would use her business connections and acumen to help promote the Product.

Specifically, Plaintiff alleged that prior to entering into the Contracts, Defendant made certain oral promises to Plaintiff that she would “use her media connections to promote the Product if Plaintiff entered into the [Contracts],” but that Defendant was “insincere” because “she did not intend to fulfill her promises to promote the Product when she made them.” However, in a sworn affidavit, Defendant admitted that during that meeting, Defendant “never made any promises or representations to [Plaintiff] – beyond that which [she] agreed to in the written contracts [the parties] entered – concerning [her] endorsement or promotion of [the Product].”

In dismissing Plaintiff’s fraudulent inducement cause of action as duplicative of the breach of contract claim, the Court explained that a fraud claim may only be asserted in conjunction with a breach of contract claim when the alleged misrepresentation is “extraneous to the contract and involve[s] a duty separate and apart from or in addition to that imposed by the contract.” When the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract, the fraud-based cause of action is duplicative of a breach of contract claim, and will be dismissed. Applying these principles, the Court dismissed Plaintiff’s claims, finding that the “alleged deceit here was integral to the contract, not extraneous or collateral to it as is required in order to make out a claim for fraudulent inducement.”

In sum, a cause of action for fraudulent inducement may be sustained on the basis of an allegation that the defendant made a promise to undertake some action separate and apart from his or her obligations under the contract. However, where a fraud claim arises out of the same facts as the breach of contract claim, and the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract, the fraud claim is duplicative and will be dismissed.

Frequent readers of this blog may recall my post from the end of last year in which I highlighted a decision of the Appellate Division, First Department affirming a decision of New York County Commercial Division Justice Shirley Werner Kornreich, that examined the application of Judiciary Law § 470.  For those needing a refresher, Judiciary Law § 470 provides that an attorney residing in “an adjoining state” may practice New York – without moving for pro hac admission – only if  both (I) admitted in New York and, (ii) more crucially to the Arrowhead Capital decision, maintains a physical law office in New York. In Arrowhead Capital, the Appellate Division affirmed Justice Kornreich’s dismissal of the plaintiff’s complaint due entirely to its non-resident lawyer’s failure, in violation of Judiciary Law § 470, to maintain an office in New York. 

Proving that this is not nearly as esoteric an issue as you might think is Platinum Rapid Funding Group, Ltd. v H D W of Raliegh, Inc., a recent decision out of the Nassau County Supreme Court (Hon. Jerome C. Murphy). While not a Commercial Division decision, Platinum Rapid Funding is valuable to readers of this blog for its additional analysis of Judiciary Law § 470. Before the Court in Platinum Rapid Funding was the plaintiff’s motion brought pursuant to Judiciary Law § 470, seeking disqualification of defendants’ counsel (the firm of Higbee & Associates [“Higbee”] and lawyer Rayminh L. Ngo [“Ngo”]) for failing to maintain an office for the transaction of law in New York, and dismissing the defendants’ counterclaims and affirmative defenses on the same basis. The court’s holding that defendants’ counsel did not maintain a physical office in the State of New York at the time they appeared in the action, relied on the following evidentiary findings:

  1. The defendants’ Verified Answer identified the principal office for Higbee as being in Santa Ana, California;
  2. Ngo identified himself not as an associate or partner of Higbee, but as the principal of his own law practice based in Salt Lake City, Utah;
  3. While Ngo asserted in opposition that he is duly admitted to practice in New York and was serving of counsel to Higbee, which he claimed was a “multijurisdictional law firm based in California” that purportedly leases office space on Wall Street and in Syracuse, neither Ngo nor Higbee asserted that there were attorneys or law firm staff in either location;
  4. The lease agreements subsequently submitted by Ngo as proof of the two New York office locations failed to establish that they were maintained by Higbee at the time Ngo and Higbee appeared in the action; and
  5. The court “[could not] overlook the fact that the defendants . . . failed to offer any competing evidence against the sworn affidavits of . . . process servers who attest[ed] that they physically went to [the Wall Street and Syracuse] addresses . . . and confirmed that neither Ngo nor Higbee had physical offices at th[ose] locations.”

The court further instructed that disqualification under these circumstances is not permissively left to the court’s discretion, but rather a finding that counsel’s violation of Judiciary Law § 470 mandates immediate disqualification from continued representation in the action.  Platinum Rapid Funding offers another stern reminder to non-resident lawyers attempting to practice in New York State courts: be sure to maintain a physical office in New York at the time you first appear in a given action or else be prepared to be disqualified.

For the fifth installment of this blog’s ongoing “Check the Rules” series, we feature the individual practice or part rules of the Justices of the Kings County Commercial Division, particularly those recently instituted by Hon. Sylvia G. Ash.

As hyperlinked within any number of past posts on this blog, the Commercial Division’s official webpage – which encompasses all eight of its statewide locations, including the busy metro counties of New York, Queens, and Kings – provides users with county- and judge-specific practice information, including individual rules and procedures for many of its Justices. Check the Rules

Notably, however, the link to the Kings County Commercial Division, which contains separate links to bibliographical and contact information for its two Justices, Hon. Sylvia G. Ash and Hon. Lawrence Knipel, does not link to the individual rules for either Justice. Their rules can be found elsewhere on the NYCOURTS.GOV site, specifically here (Justice Knipel) and here (Justice Ash).

A couple of Justice Ash’s new rules are worth noting, particularly with respect to motion practice and pre-trial conferencing:

Motions. Justice Ash’s motion calendar, which is designated for Wednesday mornings, consists of two separate calendars – a “general motion calendar” and, to the delight of many practitioners, an “oral argument motion calendar,” which consists only of motions that have been fully briefed and submitted to the court in hard-copy format in advance of the calendar call. As a general rule, “Justice Ash will only hear arguments on motions that are on the oral argument motion calendar.” The bifurcated nature of Justice Ash’s motion calendar – particularly the oral argument motion calendar – presumably will facilitate rulings from the bench, which litigants interested in prosecuting and defending their commercial cases expeditiously no doubt will welcome.

Pre-trial Conferences. Justice Ash’s pre-trial conference calendar, which is designated for Thursday mornings, also is two-fold in nature. At the first pre-trial conference, the court will set a “firm trial date” – generally “three to five months out” – as well as a date for the second pre-trial conference. At the second pre-trial conference, parties must submit witness lists, exhibit books, motions in limine, and pre-trial memoranda, and their failure to do so “will result in an adjournment of the second pre-trial conference as well as the trial.”

Speaking of updates and resources, the webpage for New York’s electronic filing system (NYSCEF), also frequently hyperlinked on this blog, recently was updated to include the following resources:

  • Forms for general use in the Supreme Court, Appellate Division, Court of Claims, and Surrogate’s Court, and for specific use in particular counties;
  • A PDF Checker allowing practitioners to validate acceptable documents for proper e-filing on the NYSCEF system;
  • A statewide list of Authorized Courts and counties for e-filing;
  • Links to Rules and Legislation concerning e-filing, including the Electronic Filing Rules for the Appellate Division, the Uniform Rules for the Trial Courts, and related Amendments and Administrative Orders; and
  • Links to News & Events concerning new features and functions on the NYSCEF system, including production build notes for practitioners, clerks, and administrators alike.

 

That was the issue presented to the Appellate Division, First Department in Electron Trading, LLC v. Morgan Stanley & Co. LLC, which was an appeal from the grant of defendant’s motion to dismiss a contractual claim seeking damages above the amount allowable under the contract’s limitation of liability clause.   Justice Saliann Scarpulla granted defendant’s motion to dismiss that portion of the breach of contract claim, notwithstanding plaintiff’s allegations in the complaint that the defendant engaged in wrongdoing and, as such,  could not avail itself of the limitation of liability clause.  Her decision and order was affirmed by the First Department.

The case involved a developer of an alternative trading system (“ATS”), designed to be operated through a “dark pool”, that is, a “private exchange where investors can make trades anonymously.”  Plaintiff and defendant entered into an exclusive licensing agreement (“ELA”) and a consulting services agreement (“CSA”).  Although neither agreement refers to “dark pools,” plaintiff later claimed defendant breached the ELA based upon defendant’s insistence that it would perform only if plaintiff modified the agreement to allow defendant’s high-frequency traders to use it with other customers.  Although defendant conceded breach for purposes of the motion to dismiss, the ELA provided a limitation of liability clause, limiting total liability to amounts paid under the agreement.

Generally, “limitation of liability” clauses are routinely enforced, letting the parties to such a clause, “lie on the bed they made”, says the Court of Appeals in Metropolitan Life Ins. Co. v. Noble Lowndes Invtl.  There are circumstances, however, when a court will ignore the limitation clause when, for example, there is misconduct that “smacks of intentional wrongdoing”, or involves “gross negligence” displaying a reckless indifference. Id. 

Because the complaint here did not detail factual allegations as to the misconduct and “[a]t most . . . support[ed] a claim of intentional breach”, the Appellate Division unanimously affirmed.   The court reasoned that the allegations did not meet the heightened standard of pleading for fraud claims under CPLR 3016(b).  An interesting side note is that the case decided defendant’s motion to dismiss the complaint, but in effect decided the viability of a “limitation of liability” clause — something that is ordinarily pleaded as an affirmative defense.  The First Department noted, however, that the courts can consider whether documentary evidence (here the clause contained in the contract at issue) establishes an asserted defense.

When faced with a “limitation of liability” clause, consider whether the breaching party’s conduct amounts to “wrongful conduct” sufficient to vitiate the clause.  However, a heightened pleading standard applies.  The courts appear to abide by parties’ agreed upon limitation clause, unless the conduct rises to a significant level of misconduct.  Courts are unlikely to set aside such limitations lightly.  Remember, a mere “intentional breach” is not enough.

 

 

 

Chief Judge Janet DiFiore announced on Tuesday (February 6) in her State of Our Judiciary Address, that the Appellate Divisions in all four Departments will be rolling out electronic filing rules for certain cases.  Of particular interest to commercial litigators is the First and Fourth Departments, in which the rule announcement specifically identifies commercial cases.  As for the Second Department, the rule applies to all appeals originating and electronically filed in Surrogate’s and Supreme Court, Westchester County.   This is a welcome addition and should lead to at least some tangible benefits including, reduced costs and increased efficiency to both the courts and litigants.

Also worthy of note is Chief Judge DiFiore’s recognition that our Commercial Division “has built a reputation for excellence and earned the respect of court and business leaders around the globe.”  Address at 16.  As a result, she has called upon the Advisory Committee on Civil Practice to study the CD rule changes and amendments to explore whether they should be adopted more broadly in other courts.