A general release: the end of a litigation or relinquishment of a right? Every attorney and litigant often breathes a sigh of relief when a litigation comes to a conclusion. But is that always the case? Not when the release covers more than may have been intended.

In a recent decision by Commercial Division Justice Andrea Masley, the Court held that a general form release, which settled a dispute involving one piece of artwork within an allegedly stolen collection of several other pieces of artwork, barred Plaintiff from bringing a subsequent action to recover any other pieces within the collection.

In Frenk v. Solomon, Paul Westheim (“Westheim”), a famous Jewish art critic who specialized in German expressionist art, fled Nazi Germany in 1933 and entrusted his art collection with an art dealer in Berlin, Ms. Weidler (“Weidler”). Westheim later married Ms. Westheim-Frenk. After World War II, Weidler claimed that the art collection was destroyed in the war, but Plaintiff (Westheim-Frenk’s daughter) alleged that Weidler stole Westheim’s art collection and sold it in separate pieces.

In 1973, late Westheim’s wife (“Westheim-Frenk”) commenced an action against Weidler, because Weidler sold a paining from Westheim’s art collection (the “First Action”). That matter settled before discovery and was “discontinued ‘with prejudice.’” Westheim-Frenk, represented by New York counsel, executed a blanket release (the “Release”), discharging Weidler, her “heirs, executors, administrators, successors and assigns” from all claims that Westheim-Frenk “ever had, now have, or which [Ms. Wetheim-Frenk] or [her] heirs, executors, or administrators, hereafter can, shall or may have.” In consideration for the Release, Plaintiff’s mother received $7,500.00, which is equivalent to about $40,000.00 today.

In or about January of 2013, Plaintiff initiated the instant action against the executors of Weidler’s estate and her heirs, seeking to recover the valuable artwork from Westheim’s art collection, as well as damages and a judgment declaring that she was entitled to the artwork.

Following discovery, the defendants moved for summary judgment alleging that the Release and stipulation discontinuing the First Action barred Plaintiff’s claim under the doctrine of res judicata; and nothing in the broad Release was “intended to be narrowly applied to any one painting, but rather, to the entire collection.” The terms of the broad Release bar Plaintiff from bringing an action against Weidler, or her “heirs, executors, administrators, successors and assigns.” Because the defendants demonstrated the prima facie defense of release, the burden shifted to Plaintiff to evidence material issues of fact to defeat summary judgement. See Aoki v. Aoki.

In seeking to limit the broad Release, Plaintiff argues that the subject of the First Action was the artwork, entitled Portrait of Dr. Robert Freund, and, thus, that the Release applied only to that piece. Alternatively, Plaintiff argues that Westheim-Frenk was fraudulently induced by Weidler to execute the Release and, thus, the defendants should be estopped from using the Release. However, the defendants objected to Plaintiff’s use of parol evidence. Justice Masley held that because the Release contained a standardized form, the court “must be flexible in the application of the parol evidence rule.”

Plaintiff also attempted to identify a transaction between Ms. Weidler and Westheim-Frenk in support of her claim that the Release only pertained to the single painting. Plaintiff argued that in 1976, when Weidler attempted to sell another piece from Westheim’s collection, Weidler entered into an agreement to split the sale amount of the artwork—a deal which would clearly not make sense if the Release pertained to all the artwork in Westheim’s collection. On the other hand, the defendants identify a letter from Westheim-Frenk stating that she understood that nothing could be done regarding all future artwork that may turn up. Next, Plaintiff argued that it is inconceivable that the low settlement amount from the First Action ($7,500.00) would have covered all the other valuable artwork. Justice Masley, however, rejected these conclusory arguments, holding that Plaintiff’s “evidence of conduct and intent is inconclusive” in light of the clear and unambiguous language of the Release.

In that regard, the First Department has held that “to hold a release forever hostage to legal afterthoughts basically vitiates the nature of the release.” See Aoki v. Aoki. Although Plaintiff argued that the Release should be set aside because Weidler used fraud to obtain same, Justice Masley held that in order to set aside the Release on the ground of fraud, Plaintiff had to establish that the fraud was separate from the subject of the Release, in addition to all the basic elements of fraud. Plaintiff, however, failed to identify any of Weidler’s misrepresentations at the time the Release was executed. In fact, there was no support for a claim that Westheim-Frenk was defrauded when she signed the release. Interestingly, Justice Masley held that plaintiff’s mother “failed to condition the Release on the truth of the information . . . i.e. that there were no other artworks from Westheim’s collection.” The Court finally also determined that Weidler did not waive the Release and Plaintiff did not present any evidence demonstrating that Weidler “intentionally relinquish[ed] a known right.”

Accordingly, because the Release was clear and unambiguous, the Court granted the defendants’ motion for summary judgment and dismissed the action.

Takeaway: Be especially precautious when drafting a release for a client, making sure not to waive any of their rights. Here, Justice Masley recognized that Plaintiff’s mother was represented by counsel when entering into the general release. This could potentially open you to a malpractice lawsuit.

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Yeezys

It has been almost one year since the New York legislature amended CPLR 503(a) to provide for venue in “the county in which a substantial part of the events or omissions giving rise to the claim occurred.” Yet a recent decision by Commercial Division Justice Andrea Masley shows that some practitioners have either forgotten about the amendments or never got the memo. But have no fear—the court held that a plaintiff who fails to properly designate venue on the summons may nonetheless submit alternative grounds for the original venue designation in an affidavit responding to a demand to transfer venue.

In Faustino v. Amin, the plaintiff asserted derivative claims of theft and misallocation of inventory, including Kanye West’s Adidas Yeezys and Jeff Staple x Nike SB footwear, against co-owners of Lower East Side “sneaker destination” Extra Butter. The summons incorrectly alleged that venue was proper in New York County because the nominal defendant’s principal place of business was New York County. Although Extra Butter’s flagship retail store was in fact located in New York County, the nominal defendant’s articles of incorporation designated Suffolk County as the principal place of business. Accordingly, defendants filed and served a demand to change venue to Nassau County, where the defendants claimed was geographically convenient to the parties and material witnesses.

In response to this demand to transfer venue, the plaintiff filed an affidavit stating that the alleged theft and other relevant events occurred at Extra Butter’s Lower East Side location, and venue was therefore proper under CPLR 503(a). Defendants then moved to transfer venue, without addressing in their motion whether material events occurred in New York County (or even acknowledging the amended language in CPLR 503[a]). Defendants’ argued instead that the plaintiff had forfeited his right to select venue by falsely alleging in the summons that venue was proper based on residence, and that defendants were therefore entitled as of right to transfer venue to Nassau County.

The court rejected defendants’ arguments based on the parties’ residence. Pursuant to CPLR 503(a), as amended in 2017, the events giving rise to the parties’ dispute sufficiently conferred venue in New York County. The court further held that Plaintiff did not forfeit his right to designate venue in New York County by falsely alleging the nominal defendants’ New York County residence as the basis for venue, because Plaintiff’s complaint and affidavit responding to the demand to change venue set forth events giving rise to the claim in New York County. As for the convenience of the parties and witnesses, the Court held that geographic proximity to the parties was not, on its own, a sufficient basis to transfer venue.

The court further addressed inadequacies in defendants’ argument concerning the convenience to witnesses. Because defendants did not provide a detailed account of the proposed witnesses’ identities, the nature and materiality of their anticipated testimony, and the manner in which they would be inconvenienced, the court denied the discretionary request to transfer venue. The court held, citing the First Department’s decision in Hernandez v Rodriguez, 5 AD3d 269, 269-270 [1st Dept 2004], that such a showing was an essential prerequisite to change venue based on inconvenience to witnesses. Fatal to the Defendants’ motion with respect to the inconvenience of witnesses was that there was no evidence in the record that Defendants had ever contacted the witnesses to inquire as to the inconvenience of New York County.

The court’s decision in Faustino v. Amin thus serves as an important reminder to practitioners that parties who conduct business in a far-away county may be required to defend claims there arising out of such business, even if none of the parties or witnesses are residents of that county. To avoid venue based on inconvenience, the movant must offer detailed and compelling proof based on first-hand contact with potential witnesses.

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intervene

Generally speaking, most people want to avoid becoming entangled in litigation.  But what happens when an action is pending and, although your client is not a party, his or her interests may be adversely affected?  Move to intervene.

Intervention is a procedure whereby an outsider can become a party to a pending action on its own initiative.  Intervention is sometimes available as of right (see CPLR 1012), sometimes only in the court’s discretion (see CPLR 1013), but it must be brought by motion in all instances, accompanied by a proposed pleading setting forth the claim or defense for which intervention is sought (see CPLR 1014).

The Appellate Division, Second Department recently reiterated the principles governing motions for leave to intervene in Roman Catholic Diocese of Brooklyn, N.Y. v Christ the King Regional High Sch, 2018 NY Slip Op 06131.  In that case, the plaintiff agreed to convey title to a parcel of property to the defendant on the condition that the premises would not be used for any purpose other than for the operation of a Catholic high school.  But in 2002, the defendant leased a portion of the premises to a non-party (“Non-Party 1”), which, in 2013, sublet a portion of the premises to another non-party (“Non-Party 2”), who used the leased portion to operate a charter middle school.

The plaintiff sued the defendant seeking, among other things, an injunction prohibiting the defendant from using any portion of the property as a charter school.  After the plaintiff was awarded partial summary judgment, both non-parties (the “Non-Parties”) moved to intervene as defendants in the action.  The Commercial Division in Queens County (Hon. Marguerite A. Grays) denied the Non-Parties’ motions.

The Appellate Division, Second Department reversed, reasoning that the Non-Parties each “have a real and substantial interest in the outcome of the litigation and that, although their respective interests are aligned with those of [the defendant] and with each other, [the defendant] cannot fully represent those interests.”  The Court noted that although neither of the Non-Parties would be bound by a judgment in the action, if the plaintiff prevailed, the defendant would be forced to break its lease with Non-Party 1, which in turn would be forced to break its sublease with Non-Party 2.  The Court concluded that the Non-Parties should have been allowed to intervene under these circumstances.

So, if your client has a dog in someone else’s fight and wants to intervene, under which CPLR provision should you move? CPLR 1012 specifies three narrow grounds for intervention as a matter of right: (1)  where a statute expressly confers such right; (2) where the person seeking to intervene “is or may be bound by the judgment” and where representation of the person’s interest “is or may be inadequate”; and (3) when an action concerns property in which a nonparty has an interest and the nonparty may be adversely affected by the judgment.  By contrast, CPLR 1013 allows for intervention in the court’s discretion (i.e., permissive intervention), thereby providing an additional or alternative ground for intervention based simply on a showing that the intervenor’s claim or defense shares a common question of law or fact with a claim or defense in the pending action.

But, whether intervention is sought as a matter of right under CPLR 1012, or as a matter of discretion under CPLR 1013 is of “little practical significance” because intervention will be permitted where, as in the case above, the intervenor has “a real and substantial interest in the outcome of the proceedings.”

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court rules

Over the past year or so, we have made a point of highlighting in the “Check the Rules” series on this blog periodic updates to the individual practice rules of certain Commercial Division Justices, including Justice Eileen Bransten in New York County (twice, in fact), Justices Marguerite A. Grays and Leonard Livote in Queens County, and Justice Sylvia G. Ash in Kings County.

Continuing with this theme of local-rule vigilance, Commercial Division practitioners should take note some recent changes to the individual practice rules of Manhattan Commercial Division Justice O. Peter Sherwood.

Justice Sherwood’s Practices for Part 49, which were revised as of this month, provide some notable additions (and omissions) from his prior rules, which dated back to May 2014 before most of the Commercial Division Advisory Council’s new-rule proposals and amendments were adopted and implemented.

Be Prepared, Be Authorized. Justice Sherwood opens his practice rules with an express and emphatic reminder to attorneys practicing in his Part of the requirements under Rule 1 of the Commercial Division Rules that “counsel . . . must be fully familiar with the case . . . and fully authorized to enter into agreements, both substantive and procedural, on behalf of their clients.” In other words, appearing in Part 49 is no “cattle-call.” Attorneys should have factual command of their cases, as well as the requisite authority to bind their clients.

Separate and Describe Your Exhibits. Justice Sherwood now requires attorneys practicing in his Part who wish to annex exhibits to their correspondence or motion papers to separately e-file their exhibits and designate them with a “descriptive title.” In other words, a simple designation of “Exhibit A” won’t cut it. Attorneys must provide a description (e.g. “Operating Agreement, dated as of September 20, 2018”) so that adversaries and court personnel viewing the docket or other notice of filing can immediately understand what has been filed.

Get Advance Permission to Adjourn Appearances. Justice Sherwood now requires that requests for adjournment be submitted a full two business days in advance of the scheduled appearance. Justice Sherwood conferences his cases on Tuesdays, so that means attorneys must get their requests for adjournment in by no later than Thursday of the prior week.

Check Your E-Mail. Justice Sherwood’s new rules provide that the court may choose to communicate with counsel via e-mail “regarding scheduling matters or to make certain inquiries.” Note, however, that this line of communication only goes one way. It does not mean that attorneys practicing in Part 49 may “initiate communication with the court via email” or “use e-mail to make arguments.”

Complete Party Discovery Before Bothering Non-Parties. Justice Sherwood “strongly encourages” attorneys practicing in his Part to “attempt to confine their requests to parties to the action and resort to third-party disclosure only when it reasonably appears that the information being sought is otherwise unavailable.” Justice Sherwood also requires that all non-party subpoenas be “simultaneously served” on all parties, and that all documents and information produced in response be exchanged among all parties within five days of receipt.

Follow Instructions When Seeking to File Under Seal. Justice Sherwood’s updated practice rules provide specific instructions concerning the filing of documents under seal:

  • Applications to file under seal must be made by Order to Show Cause, which must be preceded by a meet-and-confer regarding the documents proposed for seal.
  • Motions will be considered in light of the limitations imposed under applicable case law, and the movant must propose redactions “as opposed to wholesale sealing.”
  • Any document proposed for seal must be filed in its original, un-redacted form as an exhibit, with the proposed redacted version filed “as a subset of that exhibit.”
  • All motions must be accompanied by a joint index of the documents proposed for seal, including the basis for sealing and any objection thereto.

Finally, as for notable omissions, Justice Sherwood appears to have dispensed with his former requirement – which, as far as I’m aware, was entirely unique to his Part – that  motion submissions also be provided to the court “in .rtf format on a computer disk.”

**Nota Bene** – Attention Kings County Commercial Division practitioners: How much is your case worth? The general practice rules for the Kings County Commercial Division also were updated this month to double the monetary threshold from $75,000 to $150,000.

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In Miller v. Brunner, the Appellate Division, Second Department spoke clearly (again) about how to move to dismiss on the defense of release.  In a case arising out of the Commercial Division in Kings County (Hon. Sylvia G. Ash), a question on appeal was whether the defense of release is considered “documentary evidence” under CPLR 3211(a)(1) or instead a motion that should be brought under CPLR 3211(a)(5).  The latter, of course, outlines a list of affirmative defenses, including release.  So in defending an action you believe is barred the release, under which section of 3211 do you move?  Either.

The case arose out of a contractual arrangement between plaintiffs and defendants entered in 2014, which restructured a previous agreement relating to development rights of property located in Greenpoint.  Later that year, plaintiffs lent defendants $4.7 million used as collateral for the issuance of three letters of credit by a lender.  A dispute arose over the use of the funds for collateral, and the parties agreed to an amount to be repaid by defendants in exchange for a release.  Plaintiffs later sued, alleging a variety of breaches and for a declaratory judgment.  (As an aside, see last week’s blog discussing pleading both breach of contract and declaratory judgment claims simultaneously.)

Defendants moved to dismiss under “CPLR 3211(a)”, claiming the release barred the claims.  In their moving brief, defendants relied specifically on CPLR 3211(a)(1), a defense based upon documentary evidence, and not CPLR 3211(a)(5), “release”.  The reply papers similarly relied on that section alone.  The motion court ultimately denied the motion to dismiss with leave to renew following discovery.  On appeal, plaintiffs argued that defendants’ failure to move under 3211(a)(5) was fatal on the defense of release.  The Appellate Division disagreed, modified the order below, and directed the dismissal of the first cause of action based upon the release.

The Appellate panel reasoned that even if the incorrect ground under 3211(a) is advanced, so long as one of the 3211(a) grounds apply, then dismissal is warranted, no matter how the motion is denominated.  The court “‘may treat the motion as having specified the right ground and grant relief, absent prejudice'”, citing Dean R. Pelton Co. v. Moundsville Shopping Plaza, Inc.  This follows what the Second Department did also in Alvarez v. Amicucci, where the court upheld dismissal based upon a release in a motion filed under CPLR 3211(a)(1), see also Marc v. Middle Country Center School Dist. (release may be raised by 3211(a)(1) or (5)).  For a good discussion of the history, development and application of CPLR 3211(a)(1), including the relation to CPLR 3211(a)(5), Fontanetta v. John Doe is a worthy read.

So, which ground under CPLR 3211(a) should one move under when raising the defense of release?  It appears either will work, but no harm in moving under both, although the more common seems to be 3211(a)(1).

 

 

 

Your client wants to recover damages for breach of contract and demands that you assert as many causes of action as possible.  In addition to the breach cause of action, you consider a declaratory judgment claim, right?  Wrong!   The Second Department has held time and time again that “[a] cause of action for a declaratory judgment is unnecessary and inappropriate when the plaintiff has an adequate, alternative remedy in another form of action, such as breach of contract” (see BGW v. Mount Kisco; Stuckey v Lutheran Care Found. Network, Inc.; and Alizio v Feldman).

Recently, the Second Department in Tiffany Tower Condominium, LLC, et al. v Insurance Company of the Greater New York reaffirmed this principle. There, Tiffany Tower Condominium, LLC (“Tiffany Tower”) sustained damage to its condominium during Superstorm Sandy. Insurance Company of the Greater New York (the “insurer”) paid Tiffany Tower’s original claim for the damage sustained to the condominium under Tiffany Tower’s insurance policy but when Tiffany Tower submitted a supplemental claim for the additional losses sustained to the condominium as a result of the storm, the insurer denied coverage. As a result, Tiffany Tower initiated a lawsuit seeking, among other things, to recover damages for breach of contract and for a judgment declaring that coverage for the supplemental claim was improperly denied.  The insurer moved to dismiss Tiffany Tower’s second, third, and fourth causes of action for breach of breach of contract, judgment declaring that coverage was improperly denied, and violation of General Business Law § 349, respectively. Justice Ash denied the insurer’s motion to dismiss these causes of action and the insurer appealed.

In its recent decision, the Second Department held that the Supreme Court erred and should have dismissed Tiffany Tower’s cause of action for a declaratory judgment. The Court held that where plaintiff has an “an adequate, alternative remedy in another form of action,” i.e., the breach of contract claim, the declaratory judgment cause of action is thus “unnecessary and inappropriate.”

Interestingly, the First and Fourth Departments have also dismissed declaratory judgment causes of action where plaintiff had an “adequate, alternative remedy in another form of action, such as breach of contract.”  (see Main Evaluations, Inc. v. State; Apple Records, Inc. v. Capital Records, Inc.) The Third Department, however, has had no similar holdings.

shutterstock_362157488

Can substitution of a new plaintiff who has proper standing cause “surprise or prejudice” to a defendant after the statute of limitations would have expired, such that leave to file an amended complaint should be denied? Not if the two plaintiffs are the same person switching from their individual to representative capacity, held the Second Department on August 15, 2018 in D’Angelo v Kujawski.

Plaintiff, “as proposed Administrator [sic]” of her deceased son’s estate, retained Defendants, comprising a law firm, to commence an action against the U.S. Department of Veterans Affairs (“VA”) based on medical malpractice that allegedly resulted in her son’s wrongful death. According to Plaintiff’s complaint, in 2011 Defendants filed a Notice of Claim with the VA’s Office of Regional Counsel, but the Notice of Claim negligently failed to reference the VA’s administration of contraindicated medications. After Defendants withdrew from the representation on December 20, 2013, Plaintiff commenced an action with new counsel that was ultimately dismissed by the US District Court for the Eastern District of New York for failure to timely exhaust administrative remedies. Specifically, the court found that Plaintiff had possessed “vital information bearing on the existence of her claim” that was wrongfully excluded from the Notice of Claim.

On December 15, 2016, five days before the statute of limitations would have expired, Plaintiff commenced an action for legal malpractice against Defendants. However, Plaintiff mistakenly named herself individually as the plaintiff, instead of as Administratrix of the Estate. Defendants moved to dismiss the complaint for lack of an attorney-client relationship with the individual Plaintiff. In response, Plaintiff cross-moved for leave to file an amended complaint, thus setting the stage for the court to determine the applicability of CPLR §§ 305 and 3025 to a request to substitute plaintiffs, as well as whether Plaintiff’s delay in seeking leave past expiration of the statute of limitations would “prejudice or surprise” Defendants.

Relying on Caffaro v Trayna, a 1974 Court of Appeals decision purportedly allowing substitution of plaintiffs and subsequent interposition of time-barred claims in an amended pleading, Commercial Division Justice James Hudson held that Defendants would suffer no prejudice because the original complaint adequately put Defendants on notice of the nature of the claims and allowed the amendment. However, Justice Hudson did not analyze or discuss whether CPLR §§ 305 and 3025 authorized a party without standing to substitute an otherwise time-barred party. Nor did Caffaro, which substituted the estate’s Executrix for the decedent in the decedent’s pending medical malpractice action.

The Second Department affirmed:

“[A]n amendment which would shift a claim from a party without standing to another party who could have asserted that claim in the first instance is proper since such an amendment, by its nature, does not result in surprise or prejudice to the defendants who had prior knowledge of the claim and an opportunity to prepare a proper defense” (JCD Farms v Juul-Nielsen, 300 AD2d 446, 446 [internal quotation marks omitted]; see United Fairness, Inc. v Town of Woodbury, 113 AD3d 754, 755; Matter of Highland Hall Apts., LLC v New York State Div. of Hous. & Community Renewal, 66 AD3d 678, 682; Plotkin v New York City Tr. Auth., 220 AD2d 653, 654).

The Second Department appeared primarily concerned with protecting Defendants from new allegations or claims, rather than whether the “relation back” doctrine codified in CPLR § 203(f) applied in actions commenced by a party without standing. The Second Department did not address authority from the Court of Appeals and other Departments of the Appellate Division that appeared to hold otherwise, such as Nomura Asset Acceptance Corp. v Nomura Credit and Capital, Inc., 139 AD3d 519 (1st Dept 2016). There, the First Department held that an untimely claim could not relate back to a defective summons issued by a plaintiff without standing, “because no valid action was commenced by the filing of that summons.” The Fourth Department held the same in Truty v Fed. Bakers Supply Corp., 217 AD 2d 951 (4th Dept 1995). Both decisions cited Goldberg v Camp Mikan-Recro, 42 NY2d 1029 [1977], in which the Court of Appeals distinguished Caffaro based on the original plaintiff having standing to commence the action.

Practitioners are thus cautioned that between the First and Fourth Departments, on the one hand, and the Second Department, on the other, there appears to be a split as to whether an untimely amended pleading may “relate back” to an earlier action brought by a plaintiff who lacks standing.

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A recent decision out of the Suffolk County Commercial Division underscores the importance of staying on top of your mail if you plan on leaving New York for an extended period of time.  Last week, in Matter of New Brunswick Theological Seminary v Van Dyke, 2018 NY Slip Op 51204(U), Justice Emerson confirmed a $3,229,097 arbitration award against a respondent who failed to appear at an arbitration, claiming she did not receive notice of the proceedings against her.

The respondent was a retired investment banker who, in 2000, entered into an agreement with petitioner to act as its investment advisor and broker. The respondent managed petitioner’s account until May 2016, when the petitioner terminated her services. Thereafter, the Financial Industry Regulatory Authority (“FINRA”) commenced an investigation against respondent in connection with her alleged mishandling of certain customer accounts, including petitioner’s account. The investigation ultimately concluded with respondent being permanently barred from the securities industry.

Petitioner proceeded to arbitrate its claims against the respondent.  Between July and October of 2017, FINRA sent to the respondent several notices regarding the arbitration at the addresses the respondent provided FINRA for service of process. One notice, sent by certified mail to the respondent’s home addresses in New York City and Sag Harbor, was returned as “unclaimed, unable to forward.” But the other notices, sent to the same two addresses, were not returned.

The respondent did not appear at the arbitration. Nevertheless, the arbitrator determined that, since the respondent had been served with several notices by regular mail and by certified mail, she would be bound by the arbitrator’s ruling and determination, which ultimately awarded petitioner $3,229,097.00, with interest. Thereafter, the petitioner commenced a proceeding to confirm the arbitrator’s award, and the respondent cross-moved to vacate the award, arguing that: (1) the arbitrator erred in finding that service had been effected, (2) respondent had been deprived of due process, and (3) it would be fundamentally unfair to confirm the arbitration award under the circumstances.

According to the respondent, she had been in California for five months and did not receive notice of the arbitration until January 19, 2018, when she was served with the petition and arbitration award at her home in Sag Harbor. She claimed that, while in California, the mail sent to her Sag Harbor address was held at the Post Office, and the mail sent to her New York City address was de minimus enough to fit into the mailbox, and remained there until she returned to New York. Respondent further claimed that, upon returning to New York, she did not “prioritize going through the months of held mail and that she was still going through it when she was served with the petition and arbitration award on January 19, 2018” and that petitioner should have attempted to advise her of the arbitration through email.

Justice Emerson declined to vacate the arbitration award, holding that the respondent was not deprived of due process. First, Justice Emerson found that the respondent knew, or should have known, that the petitioner might proceed to arbitration while she was in California. Indeed, the respondent was a seasoned investment banker and broker who knew that FINRA had opened an investigation concerning her mishandling of petitioner’s account, and that that investigation concluded with respondent being permanently barred from the securities industry. According to Justice Emerson, respondent should have expected that petitioner would pursue its arbitral remedies against her and yet, “the respondent left for California for five months without advising FINRA of her address in California and without forwarding her mail.”

Next, Justice Emerson noted the respondent’s continued obligation to maintain and update her address with FINRA for service of process, even though she was permanently barred from the securities industry. Because the respondent failed to do so, FINRA was left with no choice but to serve respondent at the addresses it had on file for service of process. Accordingly, the Court found that, under the Court of Appeals’ holding in Beckman v Greentree Securities, Inc., 87 NY2d 568, 570 (1996), the notices were “reasonably calculated to apprise the respondent of the pendency of the arbitration and to afford her an opportunity to present her objections.” And so, even though one of the notices was returned as “unclaimed,” additional mailings were sent to the same two addresses, none of which were returned.

Last, the Court found that the respondent “made no effort to ensure that she received mail from FINRA while in California, although she knew or should have known that petitioner might proceed to arbitration.” Specifically, the respondent “failed to provide FINRA with her address in California, as required, and failed to have her mail forwarded.” Indeed, there was correspondence from FINRA waiting for respondent when she eventually came back to New York, which respondent also ignored. Under these circumstances, the Court found that “a strong inference may be drawn that the respondent was attempting to avoid receiving any mail from FINRA and that she ignored the mail that was received.”

taxi

I made two observations coming out of Grand Central Station during my morning commute last week. First, the city really stinks after a string of oppressively hot and humid summer days. Second, there appears to be a temporary taxi stand, perhaps occasioned by the ongoing construction of the new One Vanderbilt building, just outside the south entrance of Grand Central Terminal on 42nd Street under the Park Avenue Viaduct.

This latter observation was rather rudely forced upon me when the precarious position of one such cab nearly caused me to traverse its front-end Bo and Luke Duke style. The site of the mangled NYC taxi medallion fastened to the cab’s dented hood was a striking metaphor for the current state of the taxi industry given the increasing popularity of ride-sharing services like Uber and Lyft.

The plight of the cabbie was on display in a recent decision from the Honorable O. Peter Sherwood of the Manhattan Commercial Division in a case called Capital One Equip. v Deus, in which the cabbie-defendants, after defaulting on a promissory note representing more than $400,000 borrowed to purchase a taxi medallion, attempted to rest on the traditional contractual defense of impracticability or impossibility of performance in a summary proceeding under CPLR 3213.

The essence of Defendants’ claim was that “due to the economic change in the medallion and taxi industry of New York by ride sharing applications like Uber and Lyft, there is an impossible hurdle for the defendants to overcome, making the repayment of the loan impossible.”

Readers may recall from their law-school hornbook days that the impossibility defense contemplates truly unexpected circumstances. As the plaintiff-lender in the Deus case put it, “the impossibility defense . . . only excuses a party’s contractual performance where there has been destruction or obstruction by God, a superior force, or by law.”

The cabbies, however, likened their situation to the kind of critical condition contemplated by the traditional defense, describing the industry as being “on life support with little to no chance for a reversal of its current dire situation.”

“At the heart of the problems facing the NYC Taxi industry,” cried the cabbies, “is the emergence of companies such as Uber and Lyft which are exempt from the regulatory framework burdening the medallion owners.” As a result, “ridership in New York City yellow taxi cabs has dropped almost 30%” and “NYC taxi medallions, which were selling for in excess of $1,000,000 as recently as 2013, have plummeted in market value” – all of which has led to a “collapse of unprecedented proportions.”

A creative argument to be sure, but the court wasn’t buying it. Citing New York case law going back to the late 1960’s, the court ultimately held for the plaintiff-lender, finding that “performance of a contract is not excused where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship. Economic hardship alone cannot excuse performance; the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract.”

Coming on the heels of several driver suicides in recent months, the Deus decision is just more bad news for the NYC taxi industry. While market forces created by the advent of ride-sharing services may not be “superior” enough to satisfy the impossibility defense, one thing’s for sure: it’s a difficult time to be a taxi driver in New York City.

**UPDATE**  Perhaps the cabbies are seeing a little light after all. Around the time this post was published last week, news broke that the New York City Council had tugged the reigns of the Uber/Lyft ride-sharing industry by passing minimum-wage requirements for drivers, as well as a one-year freeze on the licensing of participating vehicles in the city. The first-of-their-kind bills, particularly the cap on e-hail cars, was driven in large part by increased problems related to city-street congestion. Today, Mayor de Blasio signed the bills into law.

 

The Appellate Division, in a short but direct ruling, reminds the bench and bar that courts cannot simply “search the record” and grant summary judgment on claims or defenses that are not the subject of the motion.  It did so this time in the context of an LLC judicial dissolution action pending in the Commercial Division of Nassau Supreme in Philogene v. Duckett.  This follows another recent decision by the same court two weeks earlier in  Singletary v. Alhalai Rest., Inc., a personal injury action.

The procedural setting in Philogene is somewhat unusual.  Plaintiff and defendant are 50/50 members of Verity Associates, LLC (“Verity”), which publishes cookbooks and recipes, such as America’s Most Wanted Recipes and Tried and True Recipe Secrets, through the internet.  Plaintiff commenced the action in his “individual” capacity, as well as “suing in the right” of Verity.  In his complaint, he asserted various claims, including breaches of fiduciary duty and contract, where he sought injunctive relief, damages and an accounting.  In turn, defendant counterclaimed for judicial dissolution and moved for summary judgment on that claim.  The motion court denied defendant’s motion for dissolution since it found that the stated purpose of the entity was being met and that it was financially feasible to continue Verity.  The court then “searched the record” concluding that “no further adjustment in their interests is necessary” and dismissed the complaint.

So what is the reach of a court’s authority to “search the record” and grant reverse summary judgment?

We’re all familiar with CPLR 3212(b) which empowers a court to “search the record” and award judgment to the non-movant.  In fact, if a court searches the record and concludes the non-movant should win, then the court has both the “power” and “responsibility” to render judgment accordingly, see Merritt Vineyards, Inc. v. Windy Heights Vineyard, Inc.  This authority, however, is not boundless.  The leading case from the Court of Appeals on the scope of this power is Dunham v. Hilco Constr. Co., where Chief Judge Kaye observed that, “[a]part from considerations of simple fairness, allowing a summary judgment motion by any party to bring up for review every claim and defense asserted by every other party would be tantamount to shifting the well-accepted burden of proof on summary judgment motions.”  Some courts have expressed  frustration with this limitation (e.g.,  “Although the Court would like nothing better than to put this case out of its misery, given Dunham . . . the Court will decline defendant’s invitation to search the record.”)  But by now, the law is clear that CPLR 3212(b) permits “searching the record” in the context of summary judgment is only appropriate on issues or claims raised by the motion, and nothing more.

Notwithstanding the narrow authority courts have to “search the record” in the context of a dispositive motion, this should not be confused with a court’s authority to decide non-dispositive motions (such as discovery related) on grounds other than those advanced by the parties in the motion papers, see, e.g., Tirado v. Miller (granting discovery related motion on grounds not argued by the parties).  For a good discussion of this distinction, the First Department’s ruling in Rosenblatt v. St. George Health and Racquetball Assocs., LLC is instructive.