As we’ve mentioned time and again on this blog, since its inception in 1995, New York’s Commercial Division has continued to not only be a leader in developing and shaping commercial law, but it is also on the forefront of instituting rules with the goals of fostering litigation efficiency, cost reduction, and implementation of technology in the courtroom. The Commercial Division Advisory Council, which is tasked with keeping abreast of new developments relating to commercial litigation in New York and providing advice concerning important and cutting-edge issues of interest to practitioners, is instrumental in maintaining the Commercial Division’s national (and even international) reputation as a leading business court.

On September 14, 2021, the New York State Office of Court Administration issued a request for public comment by the Advisory Council to amend Commercial Division Rule 11 to include a preamble about proportionality and reasonableness and to add provisions allowing the Court to direct early case assessment disclosures and analysis prior to and after the Preliminary Conference. This recent request piggybacks off another, lengthier and robust set of proposed modifications to Rule 11, as recently reported by my colleague, James Maguire.

The preamble to Commercial Division Rule 11 proposed by the Advisory Council provides the following:

Acknowledging that discovery is one of the most expensive, time-consuming aspects of litigating a commercial case, the Commercial Division aims to provide practitioners with a mechanism for streamlining the discovery process to lessen the amount of time required to complete discovery and to reduce the cost of conducting discovery. It is important that counsel’s discovery requests are both proportional and reasonable in light of the complexity of the case and the amount of proof that is required for the cause of action.

The stated rationale behind the proposed preamble is to reaffirm or re-emphasize the guiding principles of proportionality and reasonableness in the pursuit of discovery in the Commercial Division — which two concepts “must govern discovery in all cases, including the most intricate, difficult and complex Commercial Division case.” As further noted by the Advisory Council, proportionality and reasonableness are specifically included in the proposed preamble to Rule 11 so that “no party or counsel may argue that these concepts are modifying any legal standards or Rules that apply to the scope of discovery.”

The Advisory Council also recommended the inclusion of several additional provisions allowing the Court to direct early case assessment disclosures and analysis prior to and after the Preliminary Conference. One such proposed provision affords the Court the ability to direct the plaintiff to produce a document “stating clearly and concisely the issues in the case prior to the preliminary conference,” and to the extent that there are any counterclaims, to direct the counterclaimant to produce a document stating clearly and concisely the issues asserted in the counterclaims. The proposal also provides the Court with the discretion to direct both of the parties to produce a document stating each of the elements in the causes of action at issue and the facts needed to establish their case. The stated goal for this recommendation is to “streamline” the discovery process “so that that discovery is aligned with the needs of a case and not a search for each and every possible fact in the case.”

Although the suggested proposals are not earth-shattering, any proposal that purports to “streamline” the discovery process is welcome.

Persons wishing to comment on the proposal should e-mail their submissions to rulecomments@nycourts.gov or write to: Eileen D. Millett, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Fl., New York, New York, 10004. Comments must be received no later than November 15, 2021.

In March 2020, the New York State Courts and attorneys’ offices all over the state shut down as part of the public’s broad effort to slow the spread of the Coronavirus, and the legal profession quickly transitioned to remote operations.  Remote team meetings, court appearances, arbitration hearings, networking events, and depositions were all borne from the necessity imposed by closed offices and social distancing.

Despite the sometimes steep learning curve associated with the remote conferencing technology and systems, remote proceedings became surprisingly effective.  Lawyers who once swore that there was nothing like being in the same room as their adversary found that, in many cases, the Zoom or Teams suite works just fine.  As a consequence, one need not look beyond the pages of this blog to see that for many, remote practices are here to stay.  Commercial Division Rule 1 now allows attorneys to request to appear remotely, saving client costs and avoiding the unnecessary risk of infection.  In February, we wrote about the Commercial Division Advisory Committee’s proposed rule authorizing and regulating the use of remote depositions.  The proposed rule has received favorable comment.

Continue Reading Even as Pandemic Wanes, Remote Depositions Remain the New Normal

New York’s Commercial Division has continuously taken the lead as an innovative forum, proposing rule changes that are aimed at increasing efficiency and overall effectiveness of the litigation process.  In the past several years, discovery challenges surrounding electronically stored information (“ESI”) have taken center stage in a majority of cases before the Commercial Division. Understanding these challenges, on September 7, 2021, the Commercial Division Advisory Council (“CDAC”) published a proposal, that includes several new amendments to the current e-discovery rules.  Specifically, the CDAC advised that “[t]he goal of the revisions is to address e-discovery in a more consolidated way, modify the rules for clarity and consistency, expand the rules to address important ESI topics consistent with the CPLR and caselaw, and to provide further detail in Appendix A – Proposed ESI Guidelines than is practical in the Commercial Division Rules.”

One significant modification by the CDAC’s proposal revolves around several distinct changes to Rule 11-c concerning discovery of ESI.  First, the proposal seeks to consolidate all ESI discussion from the current version of Rule 8 into Rule 11-c, including directing parties to confer on electronic discovery topics prior to the Preliminary Conference.  Second, the proposed revisions entirely remove Rule 11-e(f), which discusses using efficient means to identify ESI for production, including technology-assisted review (“TAR”), and move the substance of the rule into Rule 11-c(e). Third, the proposal includes noteworthy additions to Rule 11-c on the issue of cost efficiency for parties and non-parties in producing ESI.  The proposed changes include cost-sharing directives requiring that (a) “[t]he costs and burdens of ESI shall not be disproportionate to its benefits;” and (b) “[t]he requesting party shall defray the reasonable expenses associated with a non-party’s production of ESI, in accordance with Rules 3111 and 3122 (d) of the CPLR.”  Fourth, the proposed revisions draw on rules / topics from the Nassau County Commercial Division ESI Guidelines, such as the inadvertent or unintentional production of ESI documents that are subject to attorney-client privilege, and a requirement that a party take reasonable steps to preserve ESI documents that it has a duty to preserve.

In addition, the CDAC’s proposal includes material changes to Appendix A to Commercial Division Rule 11-c.  For starters, the revised Appendix A would substitute the current non-party ESI Guidelines with “new guidelines to cover all aspects of ESI, from parties and non-parties alike.”  Further, the proposed ESI Guidelines, which the CDAC acknowledges are advisory rather than mandatory, include a comprehensive list of e-discovery topics that are not addressed by the current non-party ESI Guidelines, including but not limited to:

  • Reminding counsel of the importance of technical competence in handling e-discovery;
  • Guidance on the defensible preservation and collection of ESI sources;
  • Information on the selection of appropriate procedures and technologies for producing ESI, including TAR;
  • Setting forth a process for parties to address ESI that is not reasonably accessible due to undue burden or cost; and
  • Protection against waiver for privileged ESI that is inadvertently produced.

Recognizing that e-discovery law is constantly changing, the CDAC believes that the proposed ESI Guidelines can be updated on a continuing basis without requiring any amendments to the Commercial Division Rules themselves.  Persons who wish to comment on this proposal should e-mail their submissions to rulecomments@nycourts.gov or write to: Eileen D. Millett, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, NY 10004.  Comments must be received no later than November 8, 2021.

A few weeks ago, my colleague, Madeline Greenblatt, wrote a blog about a $1.75 million breach of contract action brought against Bob Dylan in the Manhattan Commercial Division. In her blog, Madeline reminded practitioners that New York courts will not consider extrinsic evidence to aid in the interpretation of an unambiguous contract, especially on a CPLR 3211 pre-answer motion to dismiss. This bedrock principle was once again illustrated by the Manhattan Commercial Division in Nostalgic Partners, LLC v New York Yankees Partnership, et al., (2021 NY Slip Op 50853[U] [Sup Ct, NY County, Sept. 9, 2021] [Ostrager, J.]), a $20 million lawsuit brought against the New York Yankees by one of its former minor league affiliates.

The Facts

For over 100 years, Major League Baseball (“MLB”) and Minor League Baseball (“MiLB”) worked together in a joint venture to support and promote professional baseball in North America. Their relationship was governed by a Professional Baseball Agreement (“PBA”), which outlined the terms and conditions of the parties’ respective obligations and incorporated the Major League Baseball Rules (“MLB Rules”). Pursuant to the MLB Rules, each MiLB club was required to execute a Player Development Contract (“PDC”) with its affiliated MLB team, which formalized the affiliation between each MiLB and MLB team.

In September 2011, Plaintiff Nostalgic Partners, LLC (“Nostalgic”) purchased the Staten Island Yankees (“SI Yankees”) – a minor league affiliate of the New York Yankees (“NY Yankees”). In connection with the sale, the parties entered into a letter agreement (“2011 Letter Agreement”), obligating the NY Yankees to have a PDC with Nostalgic for so long as: (1) the NY Yankees, through certain trusts, retained an ownership interest in Nostalgic; and (2) a majority of Nostalgic’s original shareholders remained members of Nostalgic.

The NY Yankees and Nostalgic maintained a productive working relationship for nine years following the 2011 purchase. In 2019, rumors began to circulate that the MLB was restructuring the minor league system and eliminating 40 MiLB teams, including the SI Yankees. Although the NY Yankees purportedly assured the SI Yankees of its continued support and intention to remain affiliated, the NY Yankees issued on November 7, 2020 a press release formally ending its affiliation with the SI Yankees.

As a result, Nostalgic commenced on December 3, 2020 an action against the NY Yankees, MLB, and others (“Defendants”), alleging claims for breach of contract, promissory estoppel, tortious interference with contract, breach of fiduciary duty, and violations of the New York State Franchise Sales Act.  Among other things, Nostalgic alleged the NY Yankees breached the 2011 Letter Agreement by refusing to negotiate a new PDC with Nostalgic notwithstanding that the conditions set forth in the 2011 Letter Agreement had been met.

Defendants jointly moved to dismiss Nostalgic’s claims.  With respect to Nostalgic’s breach of contract claim, the NY Yankees argued its obligation under the 2011 Letter Agreement to enter into a PDC with Nostalgic was contingent upon the continuation of the PBA, which expired by its own terms on September 30, 2020.  According to the NY Yankees, because the MLB Rules provided that no PDC could have a term extending beyond the expiration of the PBA, Nostalgic’s contractual right to a PDC extinguished upon the expiration of the PBA.

The Court’s Decision

Justice Barry Ostrager of the Manhattan Commercial Division partially granted Defendants’ motion, dismissing seven of Nostalgic’s eight claims against the Defendants. The Court, however, denied the motion with respect to Nostalgic’s breach of contract claim, finding the complaint, liberally construed, stated a claim against the NY Yankees for money damages based on its alleged breach of the 2011 Letter Agreement.

As the Court explained, the NY Yankees’ obligation under the 2011 Letter Agreement to have a PDC with Nostalgic was not contingent upon the existence of the PBA.  The 2011 Letter Agreement was clear on its face in setting forth the conditions under which the PDC covenant remained in effect, and the continuation of the PBA was not one of those conditions.  The Court noted that the MLB/MiLB structure, and the PBA and MLB Rules that governed the MLB/MiLB’s relationship, were not dispositive of Nostalgic’s claim for breach of the 2011 Letter Agreement, a separate and “unique contract” between Nostalgic and the NY Yankees.  Because the 2011 Letter Agreement plainly set forth in unambiguous terms the two conditions under which the NY Yankees were obligated to have a PDC with Nostalgic, the Court declined to read into the 2011 Letter Agreement a third condition requiring the PBA to remain in effect.

Takeaway

The Nostalgic decision reinforces the “four corners” rule of contract interpretation in New York. Where, as in Nostalgic, the terms of a written contract are clear and unambiguous, New York courts will consider only the “the four corners” of the contract to determine the parties’ intent.  If a contract is unambiguous, courts will not look to extrinsic evidence to create ambiguities not present on the face of the document, and will most certainly not rewrite the parties’ agreement. Because the 2011 Letter Agreement at issue in Nostalgic was clear and unambiguous as to what conditions triggered the NY Yankees’ obligations, the Court did not consider additional terms from extrinsic documents such as the PBA or MLB Rules.

*The NY Yankees reportedly announced their intention to appeal Justice Ostrager’s Order. Stay tuned.

 

 

Practitioners often choose to practice in the Commercial Division because of its well-documented efficiencies.  Thus, many were happy to hear that Chief Administrative Judge Larry Marks issued Administrative Order 270/2020 (“AO 270/20”), which incorporated features of the Commercial Division into the Uniform Civil Rules for the Supreme and County Courts (the “Uniform Rules”).  My colleague addressed the highlights of AO 270/20 in a blog post back in January.  AO 270/20 went into effect as of February 1, 2021, and courts are now grappling with how to best handle the enforcement of the new rules and attorneys’ compliance with them.

One of the Commercial Division rules making its way over to the non-commercial part is Commercial Division Rule 19-a, which deals with statements of material facts.  However, the new rule (Section 202.8-g) as it applies to the non-commercial parts is different from its Commercial Division predecessor insofar as it mandates that there be “annexed to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried.”  This new Rule is not unlike Commercial Division Rule 19-a, except that the Commercial Division leaves to the discretion of the court whether to require a Rule 19-a statement upon the filing of a summary judgment motion (Commercial Division Rule 19-a states that “the court may direct that there shall be annexed to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried”).  The Uniform Rules do not.

The Supreme Court, Rockland County in Amos Fin. LLC v Crapanzano et al. recently took a harsh stance on a lawyer’s failure to comply with the new Section 202.8-g of the Uniform Rules.  On June 11, 2021, four months after AO 270/20 went into effect, plaintiff Amos Financial LLC (“Amos” or “Plaintiff”), brought a motion for summary judgment after allowing the case to linger for almost nine years.  Plaintiff’s motion papers did not include a “separate, short and concise statement” of the material facts as to which Plaintiff believed there were no genuine issues of fact, nor did Plaintiff offer an explanation for its failure to do so.

In determining that Plaintiff’s motion was “procedurally defective on its face,” Justice Robert M. Berliner held that Uniform Rule 202.8-g “is not precatory or discretionary in its application: it is a mandate on all summary judgment movants in this State.”

The court explained that a failure to submit a Uniform Rule 202.8-g Statement of Material Facts constitutes a violation that is neither “merely technical nor without prejudice,” nor is it a minor pleading error that courts can correct nunc pro tunc under CPLR 2101 (f) and/or CPLR 2001 (which permit certain minor defects and errors to be corrected).  The court opined that the CPLR provisions excusing minor defects cannot redeem a summary judgment movant’s violation of Uniform Rule 202.8-g.

The court further concluded that CPLR 2101 (f) is inapplicable because it applies where “a substantial right of a party is not prejudiced.”  In Amos, the court determined that Plaintiff’s failure to submit a Statement of Material Facts prejudiced the defendants by virtue of the fact that the motion papers effectively conceal, in an otherwise voluminous record, the relevant factual allegations and their evidentiary basis.  This decision was based, in part, on the fact that the case was not electronically filed, thus requiring respondent and the court to dig through a large paper record without the “substantial efficiency reforms” that Uniform Rule 202.8-g would achieve.

According to Justice Berliner, “[w]ere trial courts to ignore a wholesale Rule 202.8-g violation, courts thereby would peril not just that rule and its constitutional and statutory predicates, but also the other efficiency reforms that the Judiciary enacted with it.”

The Supreme Court ultimately took the hardline approach in denying Amos’ summary judgment motion for, among other things, its failure to comply with the new Uniform Rule 202.8-g.

What you need to know:  If you are in the Commercial Division, check the specific Judge’s rules to determine whether they require a Rule 19-A Statement.  For matters outside the Commercial Division (in the Supreme Court and County Court), you must include a Statement of Material Fact with your summary judgment motion.

Will the rest of the Supreme Court follow in Justice Berliner’s hard-line ruling in enforcing the new Uniform Rule 202.8-g? Stay tuned as we continue to monitor decisions concerning this new rule.

In a recent Commercial Division case, Justice Elizabeth H. Emerson was asked to determine whether certain parties were bound by an arbitration clause and whether that arbitration clause applied to a particular controversy—two questions typically determined by the court. Then why did Justice Emerson defer these questions to the arbitrator? The answer requires a close look at the language of the arbitration clause.

In Bromberg & Liebowitz v O’Brien, the plaintiff Bromberg & Liebowitz, CPA’s (“B&L”) entered into an agreement with defendant Patricia O’Brien (“Pat O’Brien”) to purchase Pat O’Brien’s local accounting practice (“Practice Purchase Agreement”). Pursuant to the Practice Purchase Agreement, Pat O’Brien agreed to provide consulting services to the practice throughout a certain transition period and defendant Jennifer O’Brien was to work for the practice for at least one year. Pat O’Brien signed the Practice Purchase Agreement but, despite a signature line for her to do so, Jennifer O’Brien did not.

On August 24, 2020, B&L commenced an action against Pat O’Brien, Jennifer O’Brien, and 328 Main LLC (“328 Main”) (an entity which received payments on behalf of Pat O’Brien), alleging that between September 2016 and June 2020 defendants diverted client fees from the practice to themselves.

Pat O’Brien and 328 Main moved, and Jennifer O’Brien cross-moved, to dismiss, or in the alternative, stay the action and compel B&L to proceed to arbitration based on an arbitration provision contained in the Practice Purchase Agreement. In pertinent part, the Practice Purchase Agreement provides:

Any controversy or claim arising out of or relative to this AGREEMENT, or the breach thereof, shall be submitted to arbitration before a single arbitrator, subject to the commercial arbitration rules of the American Arbitration Association . . . .

B&L opposed, arguing that (1) the arbitration clause did not include the misconduct alleged in the complaint and (2) that it cannot be compelled to arbitrate its claims against Jennifer O’Brien and 328 Main because they did not sign the Practice Purchase Agreement.

First, the court addressed the matter’s arbitrability. The court instructed that “questions of arbitrability,” as a term of art, covers disputes about whether parties are bound by an arbitration clause and whether an arbitration clause applies to a particular controversy.

While the court recognized that questions of arbitrability are typically for the court to decide, where, as here, the parties’ agreement specifically incorporates by reference the rules of the American Arbitration Association (“AAA”) and employs language referring “all disputes” to arbitration, courts will leave the question of arbitrability to the arbitrators. Indeed, the Commercial Arbitration Rules state, in pertinent part, “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” And so, the court held that the issue of whether the arbitration clause applied to B&L’s claims was to be resolved by the arbitrator, not the court.

The court further held that it was for the arbitrator to decide whether the non-signatory defendants, Jennifer O’Brien and 328 Main, may compel arbitration. The court reasoned that B&L, a signatory, cannot “disown its agreed-to obligation” to arbitrate “any controversy arising out of or relative to” the Practice Purchase Agreement. A signatory to an arbitration agreement, like B&L, is estopped from avoiding arbitration with a non-signatory when (i) there is a close relationship between the parties and controversies involved and (ii) the signatory’s claims against the non-signatory are intimately founded in and intertwined with the underlying agreement containing the arbitration clause. The court found both conditions to be met and instructed the parties to proceed to arbitration.

Upshot:

Questions of arbitrability are typically for the court to decide. However, where an arbitration clause specifically incorporates AAA rules by reference and employs language referring “all disputes” to arbitration, courts will leave the question of arbitrability to the arbitrators. In certain circumstances, this may include disputes over whether non-signatories can compel arbitration.

In recent news out of the world of Formula 1 racing, a tight battle between seven-time World Champion, Lewis Hamilton, and rival, Max Verstappen, came to a head at the first lap of the British Grand Prix at Silverstone. In fighting for dominant position over a high-speed corner, Hamilton’s car inadvertently clipped Verstappen’s, flinging Verstappen’s car across the track into the barriers at 51Gs, demolishing the car but miraculously leaving the driver battered but alive. Hamilton was given a 10-second penalty, and went on to win the race.

For weeks after the race, reporters, commentators, fans, and the teams themselves argued whether Hamilton’s penalty was too lenient. Was it fair that Hamilton took out his chief rival, only received a minor penalty, and went on to win the race? Yet, the race stewards stood by their decision. Why? Because when evaluating any incident, they are constrained to faithfully apply the language of the regulations and apply the prescribed penalty. Much to the dissatisfaction of Verstappen fans clamoring for a harsher penalty to Hamilton, the race stewards may not consider the impact of the incident—no matter how outsized—when considering fault or penalties.

Attorneys are all too familiar with this principle. Courts are constrained by the elements of the causes of action before them. This is all the more relevant when assessing business tort claims—wrongful acts against businesses that are not contract-based—as often times, “bad behavior” may simply not be enough. This was recently explored by the Second Department in Stuart’s LLC et al. v. Edelman et al, 2021 NY Slip Op 04569, in which the Second Department modified a $1,436,128 award against defendant-appellant Michael Hong by $1,262,753, a near 90% reduction.

This action involved a dispute between a clothing distributor and its remaining principal (the plaintiffs Stuart’s LLC and Wayne Galvin) against a rival clothing distributor (defendant Level 8 Apparel, LLC) formed by Galvin’s former partner (defendant Stuart Edelman) together with core employees formerly employed by, and/or associated with, Stuart’s LLC, including defendant-appellant Michael Hong. Hong was a creative designer for Stuart’s and later Level 8.

Plaintiffs claimed that, among other things, the defendants colluded to divert assets and business from Stuart’s to Level 8. Plaintiffs asserted 16 causes of action against the defendants, including a slew of business tort claims.

After a 16-day, bench trial before Judge Vito M. DeStefano of the Nassau County Commercial Division, the court issued a 48-page Opinion methodically going through findings of fact, chief arguments raised by each of the parties, and the court’s determination on the issues before it.

As is relevant to the appeal, the trial court rendered a judgment in favor of Plaintiffs and against Hong in the amount of $1,436,128 arising out of three causes of action: tortious interference with contract between Stuart’s and non-party Tumi, Inc. ($173,375); tortious interference with business relationship between Stuart’s and Aeropostale, Inc. ($543,689); and unfair competition ($719,064).

The Second Department affirmed that portion of the judgment against Hong for tortious interference with contract, holding that there was adequate evidence in the record warranting the trial court’s finding that Hong tortiously interfered with Stuart’s licensing agreement with Tumi.

However, the Second Department did not come to the same conclusion with respect to the tortious interference with business relationship claim.

The chief difference between tortious interference with contract and tortious interference with business relationship, the Second Department pointed out, is that while the former requires an intentional procurement of breach without justification, the latter raises the culpability bar. Tortious interference with business relationship requires that the interference must be accomplished by “wrongful means or where the offending party acted for the sole purpose of harming the other party.” The conduct must amount to a crime or independent tort; conduct motivated by economic self-interest cannot be characterized as “solely malicious” sufficient to meet this standard.

Thus, while there was certainly evidence in the record that Hong knew Stuart’s had an existing business relationship with non-party Aeropostale, Inc., and that his collusive actions with the defendants impacted the relationship between Stuart’s and Aeropostale, Hong’s actions did not rise to the level of “wrongful” conduct required by the claim. At best, Hong’s conduct might be characterized as motivated by economic self-interest, which cannot be deemed “solely malicious.”

As such, the Second Department reversed the judgment as against Hong for tortious interference with business relationship in the amount of $543,689, holding that the cause of action should have been dismissed as to Hong.

Likewise, the Second Department closely examined the trial court’s determination on the unfair competition claim. Here too, the Second Department found that the trial record did not demonstrate that Hong “acted wrongfully” in alleged diverting Stuart’s business (his former employer) to Level 8 (his new employer). In the absence of evidence that Hong removed proprietary information from Stuart’s, or that Hong directly participated in conversations with non-parties Tumi or Aeropostale concerning the transfer of any business from Stuart’s to Level 8, his alleged collusion with other defendants who had taken a more direct and active role was simply not culpable enough to sustain this claim.

As such, the Second Department reversed the judgment as against Hong for unfair competition in the amount of $719,064, holding that this cause of action should have been dismissed.

Commercial Lease

Several weeks back, we reported on an apparent uptick in commercial lease disputes over the last 18 months in this new COVID era.  It only follows that there would be a corresponding uptick in Yellowstone applications from commercial tenants embroiled in such disputes.

As most readers know, injunctive relief under Yellowstone preserves the “status quo” pending a dispute between a commercial landlord and tenant over this or that alleged event of default such that the landlord is prohibited, at least temporarily, from terminating the tenant’s tenancy until the court has an opportunity to hear and determine the nature of the dispute in due course.

The standard for relief under Yellowstone isn’t exactly a high bar, at least as far as injunctions go.  An applicant need only show that it holds a valid and enforceable commercial lease; received from the landlord a notice of default; made a timely application for relief within the corresponding cure period; and has the ability to cure the alleged default should the court decide in the landlord’s favor.  Yellowstone injunctions are even available when the alleged default is limited to the issue of nonpayment of rent — which, for reasons associated with the recent and ongoing pandemic, tends to be primary basis asserted of late.

Of course, a commercial tenant’s success under Yellowstone is made even easier if the landlord fails to give proper notice of default, which is precisely what happened earlier this year up in Buffalo in a case called Ronald Benderson 1995 Trust v Erie County Med. Ctr. Corp.

In Benderson, Erie County Commercial Division Justice Timothy J. Walker addressed a dispute involving an area hospital (landlord) and real-estate developer (tenant) under a commercial lease for certain retail space located in the lobby of the hospital.

The lease provided that, while in the process of leasing up the lobby retail space, the tenant-developer would be responsible for paying the landlord-hospital a “Partial Rent” amount…

determined by multiplying the Full Rent due for each month by a fraction the numerator of which is the total combined square footage of each subtenant open for business in the Demised Premises and the denominator of which is the total square footage of the Demised Premises.

That is, until such time as the “Full Rent” amount becomes due, which occurs…

once all the rentable space in the Demised Premises has been sublet and each subtenant is open for business (the ‘Full Rent Commencement Date’), [at which time] Lessee shall pay to Lessor an annual rental of $19,600.00 payable in equal monthly installments of $1,633.3 each for each year of the term (the ‘Full Rent’).

The initial lease term was for 10 years, with an option to renew for an additional 10 years at an increased “Full Rent” annual amount of $21,560.00 payable in equal monthly installments of $1,796.67.

The developer eventually exercised the renewal option for a second 10-year term beginning in the summer of 2013, at which time it began making pro-rated “Partial Rent” payments of $1,405.25 based on the 78% of the lobby it had leased up at the time.  The developer timely made such payments without any objection from the hospital over the next seven years through the fall of 2020.

In September 2020, after significantly expanding its footprint and patient-flow in the interim, and after determining that the fair market value of its lobby space had substantially increased, the hospital attempted to serve the developer with notice under the lease’s default provision, which provided that…

if Lessee defaults in the payment of rent . . . , Lessor shall give Lessee notice of such default and if Lessee does not  cure any default within thirty (30) days, after the giving of such notice . . . , then Lessor may terminate this Lease on not less than thirty (30) days’ notice to Lessee.

According to the court’s decision, the hospital’s notice “claimed for the first time that, six years earlier, on an unspecified date in 2014, the ‘Full Rent Commencement Date’ had occurred, . . . [and therefore] declared that ‘Lessee shall pay to Lessor an annual [as opposed to “Partial”] rental of $19,600 payable in equal monthly installments of $1,633.33 each for each year of the term.'”

The notice went on to state that “the renewal option . . . does not include a ‘Partial Rent’ period; it only permits for ‘new annual rent of $21,560.00 payable in equal monthly installments of $1,796.67′”; but that the developer “has continued to pay only ‘Partial Rent’ of $1,405.25/month for the space”; and that the hospital therefore was “providing notice of default.”

In November 2020, after attempts at resolution by the parties had broken down, the hospital demanded that the developer “quit and surrender” the entire lobby space, which prompted the developer to move for Yellowstone and other injunctive relief.

Justice Walker granted the relief requested, taking issue with the hospital’s default notice in at least three respects.

First, the court found the notice to be void because it conflicted with former Governor Cuomo’s statewide moratorium on commercial evictions in place at the time.

Second, the court found that the hospital’s notice “failed to trigger the commencement of the cure period” because it was sent to the wrong party at the wrong address, despite prior written notice to the hospital of a valid assignment of the lease by the original tenant-developer to the plaintiff.

Finally, and most substantively, the court found that the hospital’s notice was “so impermissibly vague that it was insufficient to commence a ‘cure’ period as a matter of law.”  For one, the hospital “identified two different and logically inconsistent rental rates” — $1,633.33/mo. and $1,796.67/mo. — in the same notice.  But the hospital also failed to explain how it was that the developer could even “cure” the alleged default in the first place.  To wit, “the notice letter was silent as to whether ‘cure’ meant paying increased rent moving forward, paying back-rent for years in the past, or which amount of rent would apply in either case.”

In short, the court found that “the ‘cure’ period could not have expired because it was never commenced,” effectively serving as a stark reminder to commercial landlords and their counsel to be sure to provide “clear, unambiguous, and unequivocal” notice of default to the proper party at the proper address.

 

A reminder to practitioners: when a contract is unambiguous, the submission of a hurricane of extrinsic evidence to “interpret” it on a pre-answer motion to dismiss won’t fly.

A breach of contract action brought against Robert Zimmerman a/k/a Bob Dylan and Universal Music seeking to capitalize on the widely-reported blockbuster sale of Dylan’s 600-song catalog to Universal for more than $300 million dollars in late 2020 (the “Catalog Sale”), was recently tossed out by Manhattan Commercial Division Justice Barry Ostrager.

In Levy v Zimmerman, the widow of Jacques Levy — Dylan’s co-writer of 10 tracks, including the famous song “Hurricane” (“the Compositions”) — claimed that Dylan failed to pay Levy’s estate its portion of the proceeds from the Catalog Sale in breach of a 1975 agreement between them (the “1975 Agreement”).  Although Levy and/or his estate had received almost a million dollars of royalty revenue from Dylan to date based on the 1975 Agreement, they now claimed that the Agreement also entitled Levy to 35% of the revenue received by Dylan in connection with the sale of the Compositions.

Emphasizing that the lawsuit was an “opportunistic attempt to rewrite a 45-year-old contract to obtain a windfall payment that the [1975 Agreement] does not allow,” and that the Plaintiffs “saw an opportunity to extract money from Dylan” after learning of the Catalog Sale,  the Defendants jointly filed a pre-answer motion to dismiss the Complaint under CPLR 3211 (a) (1) and (7) based on documentary evidence (i.e., the 1975 Agreement) and for failure to state a cause of action.

In their motion, the Defendants argued that the “plain language” of the 1975 Agreement, together with basic principles of contract interpretation, foreclosed the Plaintiffs’ claims in their entirety.  Citing to key provisions, the Defendants stated that the 1975 Agreement was a standard work-for-hire agreement between Dylan and Levy that granted Dylan full ownership of the copyrights in the Compositions, making them Dylan’s “sole property,” and giving him the exclusive right to sell them.  The Defendants noted that the 1975 Agreement repeatedly identified Levy as an “Employee” and specified his compensation as 35% of the royalty payments from licensing rights granted to third-parties for the performance and use of the Compositions, but said nothing about giving Levy a cut of the proceeds from the sale of Dylan’s copyrights in the songs.

In response, the Plaintiffs filed “voluminous opposition papers,” including a 35-page affidavit of a self-described music copyright expert, who, based on his analysis of copyright law, opined that the Compositions were “joint works” of Dylan and Levy entitling Levy to a percentage of the proceeds of the Catalog Sale, rejecting the “employee-for-hire” relationship designated in the 1975 Agreement.

Agreeing with the Defendants, the Court ultimately found that the 1975 Agreement unambiguously precluded the Plaintiffs’ claim to any portion of the proceeds of the Catalog Sale.  The Court noted that, consistent with the standards of review on a motion to dismiss under CPLR 3211 (a) (1) and (7), the Court could not consider extrinsic evidence — including the “expert” affidavit — to interpret or alter the meaning of the terms of an otherwise unambiguous agreement.  Justice Ostrager also rejected the expert’s analysis of the 1975 Agreement, as “improperly usurp[ing] the Court’s function to interpret the Agreement by cherry-picking words and phrases and assigning them meanings” and, in doing so, violating basic principles of contract interpretation:

“Particular words should be considered not as if isolated from the context but in the light of the obligation as a whole and the intention of the parties as manifested thereby”; and

“[W]hen a general phrase [such as “any and all”] follows a list of specific terms, the general phrase must be interpreted to refer to items of the same ilk as those specifically listed.”

In the end, the Court dismissed the Complaint in its entirety based on the express terms of the 1975 Agreement, which it stated provided a complete defense as a matter of law that demonstrated the Plaintiffs had not stated a viable cause of action.  The Court also denied the Plaintiffs the ability to replead their causes of action as “futile” given that the Complaint cited to key provisions of the 1975 Agreement that were briefed at length in the Plaintiffs’ opposition papers and presented at oral argument and which conclusively undermined the Plaintiffs’ claim to any of the proceeds from the Catalog Sale.

Commercial Division justices have been trailblazers in the bench’s efforts to improve the diversity and inclusiveness of the attorneys appearing before them.  For example, many Commercial Division justices include in their individual rules provisions specifying that oral argument is more likely to be granted in cases where women or attorneys from historically underrepresented groups have a speaking role.  Justice Jamieson of the Westchester Commercial Division recently emphasized to members of the New York State Bar Association at the Association’s Spring Meeting that she often insists on hearing from the women or diverse attorneys present, posing questions directly to them—sometimes to the chagrin of the “lead “ attorneys—during conferences and arguments.

These and other efforts of the Commercial Division justices have greatly contributed to the substantial improvement of the courts and the legal profession in its inclusion of women and attorneys from historically underrepresented backgrounds.  A recent survey published by the New York State Judicial Committee on Women in the Courts, however, found that “there still remains a significant strain of bias against female lawyers, litigants, and witnesses that adversely impacts the fairness of their treatment in the judicial process which must be vigorously addressed.”

Continue Reading Reminder to Practitioners: Gender Neutral Language Required