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

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

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

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

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

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

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

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

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

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

Good Cause Standard

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

Interest-of-Justice Standard

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

You have been engaged in extensive motion practice in the Supreme Court of the State of New York.  You learn that your adversary, it appears, has taken a position contrary to the one taken in a prior proceeding. These “gotcha” moments don’t happen often, but you savor them when they do.  You immediately proceed to seek an order from the court that the non-movant be judicially estopped from taking that contrary position in the current proceeding. Will you be successful in invoking the doctrine? Maybe. A recent decision by Commercial Division Justice Andrew Borrok highlights the difficulty in succeeding on a summary judgment motion premised on judicial estoppel.

The doctrine of judicial estoppel may be invoked when the party takes one position in a prior proceeding, securing a favorable outcome; and a contrary or inconsistent position in a subsequent proceeding.  In Divine Capital, LLC v Legado Inv. Group, LLC, Plaintiff Divine Capital, LLC (“Divine Capital”) attempted to recover $4 million that it transferred to Legado Investment Group, LLC (“LIG”) as a reserve fund to finance an assisted living facility, subject to certain conditions. Two separate agreements were executed, setting forth terms pursuant to which Plaintiff could withdraw the funds, i.e., the Divine Project Equity Reserve Agreement (“Divine PERA”) and the KB Project Equity Reserve Agreement (“KB PERA”).

Plaintiff’s initial complaint alleged breach of the Divine PERA, asserting that it was the governing agreement. The Court denied Plaintiff’s ex parte motion seeking an attachment of the funds for reasons, including that KB Capital was an indispensable party to the action, and LIG represented that it would hold the funds in the LIG Account pending resolution of the case.

Plaintiff then amended its complaint, adding KB Capital as a Plaintiff and adding a cause of action for breach of contract.  The amended pleading alleged an alternative theory; if KB PERA, and not Divine PERA, is the controlling agreement, then Plaintiffs are entitled to a return of the funds by virtue of the terms set forth in that agreement.  Plaintiffs moved by order to show cause seeking an order of attachment of the funds, which the Court denied.

Plaintiffs subsequently moved for summary judgment seeking to invoke the doctrine of judicial estoppel to prevent LIG from taking the position that the KB PERA governs the investment, in light of the fact that they previously argued that the Divine PERA governed. The Court denied the motion because Plaintiffs failed to establish that the Court relied on LIG’s prior position, i.e., that the Divine PERA is the controlling agreement in arriving at its decision.  Indeed, the Court’s decision denying the initial request for an attachment of funds was based on the fact that KB Capital, not a plaintiff in the action until Divine Capital amended its complaint, was an essential party; and because LIG represented that they would hold funds in the LIG Account pending the resolution of the case, thus not warranting the attachment of funds.  Put differently, the Court determined that because the record did not show that the Court relied on LIG’s statements regarding which agreement governed the investment of funds in denying Divine Capital’s ex parte motion, the doctrine of judicial estoppel was inapplicable.

Relying on a New York Court of Appeals’ decision in Stewart v Chautauqua Cty. Bd. of Elections, Justice Borrok held that a party cannot rely on a prior proceeding in which the court “did not unambiguously adopt the prior inconsistent position in some manner.” In Stewart v Chautauqua Cty. Bd. of Elections, the Court similarly determined that the doctrine of judicial estoppel was inapplicable because the record was unclear on whether the petitioner successfully persuaded the Supreme Court to adopt his initial position.

The Takeaway: Judicial estoppel can only be invoked in matters where the “court has relied on or adopted a party’s prior inconsistent position in ruling in that party’s favor.” However, you cannot simply rely on the fact that a non-movant is adopting an inconsistent position in attempting to invoke the doctrine. Rather, you must show that the court relied on the inconsistent position in coming to its decision.

At the New York City Bar Association the evening of February 25th, five recently retired justices of the Commercial Division—Hon. Eileen Bransten, Hon. Shirley W. Kornreich, Hon. Charles E. Ramos, Hon. Melvin L. Schweitzer, and moderator Hon. Carolyn E. Demarest—convened for a panel entitled “The Commercial Division: Past, Present and Future.” Here is a summary of some of the topics discussed by the panel:

History of the Commercial Division. Before the Commercial Division, commercial cases were heard in New York County’s Special Term, Part 1, a forum marked by chaos and disengaged justices. In Special Term, Part 1, there was no continuity and no monitoring of discovery. Opinions were generally drafted by the law department. Several of the panelists remarked that when they were in private practice, they had no faith that their clients would be treated fairly in Special Term, Part 1.

When it was first created, no judges were interested in sitting in the Commercial Division, as it had no rules and had not yet proved successful. Nowadays, by contrast, many view the Commercial Division as a stepping-off point to the Appellate Division. At a recent luncheon with judges from the Southern District, the federal judges complained that the Commercial Division was “taking all the good cases.”

Development of the Commercial Division Rules. The Rules began from discussions among judges about how to resolve certain common problems. The judges had similar, but not identical, part rules. Justice Ramos credited Robert L. Haig (who was in attendance, author of the exhaustive treatise on commercial litigation in New York courts) with creating uniform rules and then forming an advisory council. Justice Bransten emphasized that each new Rule is carefully considered and debated before it is enacted, going through multiple rounds of input from the advisory council, the chief counsel of court administration, board of judges, and public comment.

Effectiveness of the Rules. The panel generally agreed that the Rules have been effective because they allow individualism and flexibility to each part. For example, Justice Kornreich noted that the flexibility afforded by the Rules allowed her to make her procedures conform to the expectations of practitioners accustomed to the federal courts. The justices also discussed variations in their part rules concerning affidavits for direct examination and resolution of discovery disputes.

Common Mistakes Made by Practitioners. Throughout the evening, as well as in response to a specific question from the audience, the panelists shared the following tidbits of advice for attorneys in the Commercial Division:

  • Motions to dismiss should be utilized as much as possible, to clean the pleadings (and the scope of discovery) of non-meritorious claims, as well as to give the judge a “feel” for the case.
  • Unsolicited letters to the court should be avoided—if in doubt about whether a letter should be sent to chambers, ask the clerk in advance.
  • Preliminary conferences are an important opportunity to address the merits and educate the judge about the case, as well as to give the judge a sense of the potential usefulness of ADR.
  • Take care to read the Commercial Division Rules and Part Rules carefully. Justice Bransten believed that there should be stricter enforcement of the Rules.
  • Be aware of differences between federal and state procedural law, and do not confuse the two.
  • Take the court seriously—do not send in per-diem attorneys unfamiliar with the case.

Is the Commercial Division Elitist? The panel addressed this question last, and generally agreed that the Commercial Division was not elitist, although Justice Ramos conceded that it might appear so from the outside. Justice Schweitzer felt strongly that as the business center of the United States, if not the world, New York should devote extra resources to its commercial litigation courts to the extent necessary. Other benefits from the Commercial Division that justified its extra costs included:

  • The Commercial Division has made other Parts more efficient by not having to oversee trials of these matters;
  • High value cases attract higher-quality litigants who operate more efficiently and require less of the court’s time and resources;
  • The Commercial Division serves as a laboratory for creative solutions to issues affecting other courts; and
  • The Commercial Division does not really require so much extra resources—simply one extra clerk per Part.

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Perhaps the most important aspect of any case is determining what your damages are.  After all, isn’t that generally the point of all our efforts – to try to recover the most amount of money?  The defendant may undeniably be the villain you make them out to be, and undoubtedly they have caused you all the harm and damage you allege.  But, a recent decision by the Honorable Saliann Scarpulla highlights the difficulty in proving your damages, particularly a claim for lost profits.

In Sullivan v. Christie’s Fine Art Storage Services, Inc., Sullivan and his business partner concocted a plan to reproduce, market, and sell prints of artwork created by Alberto Vargas (“Mara Corday or Pin-Up Girl,” “Beauty and the Beast,” formerly known as “Ziegfeld Girl with Mask,” and “Miss America”).  In October 2012, Sullivan stored the artwork in Christie’s Fine Art Storage Services’ (“CFASS”) warehouse, and not even a month later the property was destroyed or damaged by Superstorm Sandy.

Sullivan sued CFASS seeking to recover compensatory damages over $11 million, including lost profits.  On summary judgment, the Court dismissed Sullivan’s claim for lost profits because it was not within contemplation of the parties at the time of the contract, and even more so because the lost profits were too speculative.

First, the Court noted that the agreements between the parties did not directly discuss lost profits, and there was no dispute that “CFASS knew or had any basis upon which to reasonably contemplate that the works of art were intended for reproduction, marketing, and sale with an alleged net profit of more than $10 million.”

Second, the court stated “Sullivan’s potential consequential damages are not capable of measurement with reasonable certainty.”  Which was the polite way of saying they were far too speculative.  The court found that Sullivan had no experience in this area, and that this new business venture created by him and his partner in 2012, had “no track record of previous profits.”  Therefore, Sullivan could not “estimate lost profits with the requisite degree of reasonable certainty.”

The major takeaway here, as in any case, is that “it’s not what you know it’s what you can prove.”  And proving lost profits is one of the more difficult things to do in court.  Nonetheless, if you want to recover lost profits, at the very minimum, at the time of contract, make sure the other party is aware of what your damages may be, so they are within contemplation of the parties.  Also, in order to prove your lost future profits, make sure to keep records of your past profits.  Only then will you be able to win an award for your lost profits.

Boy invites Girl on a date for Valentine’s Day. They agree to meet at a restaurant near Boy’s home (rude, but ok). Girl wakes up on Valentine’s Day and cancels the date once she realizes she has to travel a longer distance than she expected. Boy is left wondering what happened because they had agreed on the restaurant in advance. Girl spends Valentine’s Day with her girlfriends. While breaking the location of a date leads to little (if any) repercussions for Girl in this situation, the same cannot be said for parties to a commercial contract.

Recently, Suffolk County Commercial Division Justice Emerson weighed in on the proper procedure for making a motion to dismiss based on a forum-selection clause as well as what type of harm a party needed to show in order to invalidate such a clause.

It is important to remember that a court cannot be divested of its subject matter jurisdiction by a contract and so a forum-selection clause does not affect the jurisdiction of Court. See Lischinskaya v. Carnival Corp.The proper procedure for dismissing an action based on a forum-selection clause is CPLR 3211(a)(1) using the contractual forum-selection clause as documentary evidence for a proper basis for dismissal. In this case, the Court sua sponte converted the motion from a CPLR 3211(a)(2) motion to a CPLR 3211(a)(1) motion. However, you might not be so lucky next time.

In Somerset Fine Home Building, Inc. v. Simplex Industries, Inc., Plaintiff, a home builder, contracted with Defendant for the purchase of a modular home. The sales agreement provided that any disputes arising thereunder would be determined by the law of the Commonwealth of Pennsylvania and that the exclusive forum for any action to enforce the agreement would be the Court of Common Pleas of Lackawanna County, Pennsylvania. Plaintiff commenced an action for, inter alia, breach of contract and the failure to deliver conforming merchantable goods in New York Supreme Court, Suffolk County. Defendant moved to dismiss this action based on the forum-selection clause arguing that the parties agreed to litigate their dispute in Pennsylvania.

In opposition, Plaintiff gave a laundry list of weak arguments as to why the forum-selection clause should be dismissed.

Plaintiff first argued that the agreement is unconscionable. However, a determination of unconscionability generally requires some showing of an absence of meaningful choice on the part of one of the parties, together with contract terms that are unreasonably favorable to the other party. See Gillman v. Chase Manhattan Bank. Here, the forum-selection cause was not hidden or tucked away within a complex document of inordinate length, it appeared in the same size print as the rest of the agreement, each page was initialed by the plaintiff’s principal and there was no allegations that Defendant used high-pressure tactics to get it to sign the agreement. See Brower v. Gateway 2000.

Plaintiff next argued that it was in a weaker bargaining position than the Defendant and that it had no choice other than to agree to the forum-selection clause as it was. However, the record showed that the parties acknowledged in the agreement that they had the opportunity to confer with their separate counsel in the negotiation, drafting and execution of the agreement. Id.

As a last ditch effort, Plaintiff argued that it would incur financial distress in travelling to Pennsylvania from Suffolk County, NY to pursue this action against Defendant. However, the Court noted that the Plaintiff did not support its argument with evidence showing that the cost of commencing an action in Pennsylvania would be so financially prohibitive that it would be deprived of its day in court. See Horton v. Concerns of Police Survivors, Inc. Plaintiff also did not show any evidence that Pennsylvania would treat it unfairly and deny it a chance to gain a remedy. Id.

Ultimately, these arguments were not good enough to prevent the dismissal of the action. The Court found that Plaintiff was unable to make a “strong showing” that “enforcement would be unreasonable and unjust, that enforcement would contravene public policy, or that the forum-selection clause is invalid because of fraud or overreaching such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court.” See D.O.T. Tiedown & Lifting Equip. v. Wright; Koko Contr. v. Continental Envtl. Asbestos Removal Corp.; Bell Constructors v. Evergreen Caissons.

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Most litigators are familiar with the requirement that a summary motion be supported with “evidentiary proof in admissible form” establishing the merits of a cause of action or defense.  Nevertheless, many practitioners make the common mistake of submitting evidence in support of a summary judgment motion that would not be admissible at trial, resulting in swift denial of the motion.  In fact, the Appellate Division, Second Department recently reversed a decision by the Nassau County Commercial Division (Bucaria, J.), which granted summary judgment to the moving party, even though the evidence submitted in support of the motion was not in admissible form.

The plaintiff in GMP Fur Trade Fin., LLC v Brenner, 2019 NY Slip Op 00858 (2d Dept Feb. 6, 2019) commenced an action against defendant Dean Brenner (“Brenner”) and others seeking to recover damages for breach of fiduciary duty, breach of contract, conversion and fraud.  The plaintiff moved for summary judgment on the issue of liability as against Brenner, alleging that he had misappropriated funds and goods in connection with his servicing of four finance agreements plaintiff had entered into with certain non-parties.  Justice Bucaria granted plaintiff’s motion for summary judgment on the issue of liability on the breach of fiduciary duty claim.  The plaintiff thereafter moved for summary judgment on the issue of damages.  Again, Justice Bucaria granted the plaintiff’s motion and entered judgment against Brenner in the amount of $1,755,630.79.  Brenner appealed.

The Second Department reversed, finding that the evidence upon which plaintiff primarily relied was not in “admissible form.”  The Court stated:

“Here, in moving for summary judgment on the issue of liability insofar as asserted against Brenner, the plaintiff relied primarily on an affidavit of its managing member, in which the managing member stated that he was told by certain nonparties that Brenner had misappropriated funds and goods.  This hearsay evidence was insufficient to satisfy the plaintiff’s burden of establishing its prima facie entitlement to judgment as a matter of law on the breach of fiduciary duty cause of action insofar as asserted against Brenner.”

The Court also concluded that the plaintiff could not cure this defect by submitting unauthenticated, and therefore inadmissible, bank records for the first time on reply.   It is abundantly clear, then, from the Second Department’s decision in GMP Fur Trade that inadmissible hearsay does not have any probative value when submitted in support of a motion for summary judgment, and should not be considered.

However, the rigidity of this rule should be contrasted with the principle that, under certain circumstances, a party opposing summary judgment may rely on evidence that is not in admissible form, but only if the opposing party provides a reasonable excuse for its failure to submit evidence in admissible form (see e.g. Zuckerman v City of New York, 49 NY2d 557 [1980] [“The rule with respect to defeating a motion for summary judgment, however, is more flexible, for the opposing party, as contrasted with the movant, may be permitted to demonstrate an acceptable excuse for his failure to meet the strict requirement of tender in admissible form”]).  Indeed, a party opposing a motion for summary judgment may rely on hearsay, as long as it is not the only piece of evidence relied on by that party (Sumitomo Mitsui Banking Corp. v Credit Suisse, 89 AD3d 561 [1st Dept 2011]).

Takeaway:  The Second Department’s point was made clear in GMP Fur Trade, but it is worth repeating: counsel for the moving party should review each piece of evidence submitted in support of its summary judgment motion and ensure that it is admissible.  Indeed, affidavits must be signed and properly notarized, deposition transcripts must be certified by a court reporter and signed by the deponent, a proper foundation must be laid for each record relied upon in the motion, especially business and medical records, and importantly, hearsay statements must be qualified for the court’s consideration under one of the many hearsay exceptions.  By contrast, the “admissible form” requirement is more flexible with respect to an opposing party’s evidence, allowing an opposing party to rely on hearsay (as long as it is not the only piece of evidence relied upon by the opposing party), or other inadmissible evidence (if the opposing party offers a reasonable excuse for its failure to submit evidence in admissible form).

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