Our parents taught us to think before we speak.  That lesson is especially important when words or conduct could cost you hundreds of thousands of dollars beyond what was previously agreed upon in a subcontract agreement.

In a recent case before Justice Andrea Masley, Corporate Electrical Technologies, Inc. v. Structure Tone, Inc. et al., Plaintiff Corporate Electrical Technologies, Inc. (“CET”), a subcontractor, was hired by Structure Tone, Inc. (“STI”), a general contractor, to perform electrical work on a multi-million dollar renovation project at a Macy’s flagship store in Herald Square, in anticipation of the holiday shopping season.

CET argued that soon after the renovation work commenced, the project was delayed to the point that Macy’s took over the day-to-day running of the renovation project. Once Macy’s took over, it directly negotiated with CET and requested that CET perform extra work beyond CET’s subcontractor agreement with STI. Based on the additional work performed, CET submitted numerous unpaid change orders and brought this action against STI and Macy’s, alleging that it was owed over a million dollars for the project.

With respect to CET’s cause of action for quantum meruit, Macy’s moved for summary judgment under the theory that Macy’s, as an owner, was not in contractual privity with CET, and therefore, could not be held liable to the subcontractor.

Typically, an owner is not liable to a subcontractor and the subcontractor’s quasi contract claims against a property owner are precluded where the owner contracts with a general contractor and does not expressly consent to pay for a subcontractor’s performance (DL Marble & Granite Inc. v. Madison Park Owner, LLC).

However, a property owner can be equitably bound to pay the reasonable value of the work it directed where, as in this case, Macy’s project manager emailed CET directly and seemed to implicate that Macy’s would pay costs that CET incurred as an incentive to completing the required work on time.

The Court noted that even where a contract provides that any extra work must be supported by a written authorization signed by the owner, an owner’s conduct can constitute a waiver of that requirement where the owner orally directs work and knowingly receives and accepts the benefits of that extra work.  In that instance, the owner can be found liable to pay the reasonable value of the extra work, notwithstanding the provisions of the subcontract.

CET also moved for spoliation sanctions against Macy’s, arguing that Macy’s should have reasonably anticipated litigation based on its disagreements with CET.  CET asserted that Macy’s neglected to place a hold on its automatic email destruction policy which resulted in the destruction of hundreds, and perhaps thousands, of critical internal emails related to CET’s work on the project during the time when the project was planned and constructed.  CET argued that these destroyed emails would have supported its theory that STI’s poor management caused the numerous project delays and would have disproved STI’s and Macy’s allegations that CET was to blame for the delays.

The Court held that CET failed to show that Macy’s had an obligation to preserve relevant emails because Macy’s could not reasonably anticipate litigation.  Mere delays of work, engagement of another subcontractor, and disagreements about the project could not have placed Macy’s on notice of a credible probability that it would become involved in litigation.  Rather, there needed to be something more amounting to repeated threats to terminate the agreement, transmissions of breach letters, or a formal termination of the agreement.

Takeaway:  (1) Property owners should be wary of solely relying on the explicit terms of a subcontract agreement when it comes to payment for a subcontractor’s work.  Ultimately, an owner’s words or actions can be interpreted as express consent to pay for a subcontractor’s performance; and (2) In the commercial context, run of the mill disagreements during construction are not enough to place a party on notice of a credible probability of litigation.  Even so, a company that routinely engages in business that has the potential of developing into litigation should review and be aware of its email retention/destruction policy in this new age of electronic discovery.

 

 

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Most litigators know that a preliminary injunction is a “drastic remedy” which is not “routinely granted.”  Reading these words on paper, however, does not adequately convey the high threshold that a party must meet when seeking this extraordinary relief.  Seeking an injunction – especially in the Commercial Division – is usually an uphill battle for most practitioners, since satisfaction of the tripartite test for injunctive relief requires a showing of “irreparable harm” – that is, imminent harm that is not compensable by money damages alone.

The Commercial Division has once again reaffirmed that irreparable harm is the “most critical” prong of the tripartite test for injunctive relief.  In CGI Technologies and Solutions, Inc. v New York State Office of Mental Health (2019 NY Slip Op 52129[U] [Sup Ct, Albany County Dec. 31, 2019] [Platkin, J.]), plaintiff CGI Technologies and Solutions, Inc. (“CGI”) and the New York State Office of Mental Health (“OMH”) entered into a contract (the “Contract”) whereby CGI agreed to upgrade and replace OMH’s Electronic Medical Record (“EMR”) System for $51 million.  Although OMH initially sought to procure “off-the-shelf software” (i.e., ready-made software), it ultimately required, and CGI developed, a highly-customized system tailored to OMH’s unique needs.

Several months into the project, however, OMH suspended the Contract, citing delays allegedly caused by CGI.   At the time, OMH claimed the suspension was intended as a “pause” and assured CGI the project would restart.  During this “pause,” CGI granted OMH access to, and OMH downloaded, CGI’s intellectual property.  Ultimately, the parties were unable to resolve their issues, and OMH terminated the Contract.

CGI thereafter filed a claim against OMH in the New York State Court of Claims seeking declaratory relief and $35 million in damages.  After the Court of Claims declined to exercise subject matter jurisdiction over CGI’s declaratory judgment claims, CGI commenced an action in Supreme Court seeking declaratory and Article 78 relief.  Several of CGI’s claims for money damages are still pending in the Court of Claims.

CGI then moved in the Supreme Court, by Notice of Motion, for a preliminary injunction: (i) restraining OMH from continuing to use CGI’s proprietary software and intellectual property (“IP”) until it was paid in full, (ii) restraining OMH from altering, modifying or allowing third parties to access CGI’s software and IP, and (iii) compelling OMH to return the software and IP.

The Albany County Commercial Division (Platkin, J.) engaged in an extensive preliminary injunction analysis, ultimately concluding that CGI had failed to sufficiently demonstrate imminent and irreparable harm.  As an initial matter, the Court held that CGI had an adequate remedy at law in light of its pending Court of Claims action for money damages against OMH.

The Court also concluded that CGI had only demonstrated the possibility of irreparable harm – not that it was imminent and likely. CGI had not established that its intellectual property was likely to be lost to business competitors by reason of OMH allowing CGI’s former subcontractor continued access to the custom work.  The Court also rejected CGI’s argument that its former subcontractor, who later contracted with OMH, became CGI’s “competitor.”  In the Court’s view, CGI had failed to demonstrate that it had lost, or was likely to lose, business opportunities to third-parties.

By contrast, the Court found that a preliminary injunction restraining OMH from continuing to use or maintain the EMR system would irreparably harm OMH and the patients who receive care and treatment in OMH facilities.  The Court held that OMH’s continued use of the EMR software was necessary to (i) ensuring safe use of prescription medicines, (ii) allowing prescriptions to be filled electronically, and as required by New York State law, (iii) facilitating regulatory compliance, and (iv) ensuring that OMH clinicians have ready access to its patients’ medical records.  The Court concluded that it would be inappropriate “for a court to enter a preliminary injunction restraining a State agency from using critically important software for months or even years while the parties’ financial disputes are being adjudicated.”

So when is harm “irreparable”?  Unfortunately, there is no magic formula to demonstrating irreparable harm. Each case is different, so whether or not a party can demonstrate irreparable injury is inherently a fact specific determination.  Although no list can be all inclusive, the following cases illustrate situations where courts have found irreparable injury:

The Takeaway:  Whether a party will be irreparably harmed is a very fact intensive determination and each case is different.  But, there are a few things a practitioner can do to improve his or her argument for irreparable harm.

  • Know your client’s business.  In addition to being familiar with the law, counsel should have a detailed understanding of his or her client’s business and the industry in which it operates. Counsel should understand the nuances of the business so that he or she can persuasively argue that, absent a preliminary injunction, the client will suffer harm that is not compensable by money damages.
  • Do not delay in seeking relief (and move by Order to Show Cause).  Even if there is only a short delay, counsel should be prepared to explain why the motion, which should be filed by Order to Show Cause, was not filed sooner (see Barbes Restaurant Inc. v ASRR Suzer 218 LLC, 140 AD3d 430 [1st Dept 2016] [court found irreparable harm, even where the plaintiff waited more than five months after receiving a demolition notice to seek injunctive relief, since plaintiff offered a compelling explanation as to why it did not move sooner]; but see Hakim v James, 2017 WL 958399 [Sup Ct, NY County Mar. 13, 2017] [court found no irreparable harm where plaintiffs offered no explanation for why they waited more than a year to obtain injunctive relief]).
  • Think twice about your claim for money damages.  Of course you should include a claim for money damages if it is warranted, but keep in mind that a request for money damages may undercut a claim of irreparable harm (Mar v Liquid Management Partners, LLC, 62 AD3d 762 [2d Dept 2009]).

Following the lead of several federal courts, hyperlinks in legal briefs in the Commercial Division appear to be well on the way!  The Commercial Division Advisory Council (“Advisory Council”) has announced a new proposal, which was put out for public comment, mandating hyperlinks.  The proposed amendment to Rule 6 of the Commercial Division Rules would require legal memoranda to include hyperlinks [a feature in an electronic document that permits a reader to jump to another location or file with just one click] to other sources and would grant judges discretion in determining whether to require hyperlinking and to what extent the benefit of hyperlinking outweighs the burdens.

The proposed amendment to Rule 6 would include the following:

  • “require hyperlinking to a cited docket entry already available on NYSCEF;
  • give Justices discretion to require hyperlinking cited legal authorities to Lexis/Nexis or Westlaw, or a government website;
  • encourage hyperlinking cited legal authorities even if not required; and
  • permit exemptions from required hyperlinking for parties that certify an inability to comply with the requirement without undue burden.”

This amendment hopes to advance Chief Judge DiFiore’s Excellence Initiative, which seeks to “ensure the just and expeditious resolution of all matters.” This amendment would also be in theme with the Commercial Division’s latest efforts to implement technology in the courts for purposes of improving efficiency and productivity.

Hyperlinking to external sources cited in legal memoranda, similar to bookmarking – internal hyperlinks – will enable judges and their clerks to access cited materials more quickly and with greater ease. The Advisory Council states that hyperlinks are particularly helpful in complex cases i.e., like those within the jurisdiction of the Commercial Division.

The Advisory Council explains that other courts have encouraged and even required hyperlinking. For example,  the Second Department now requires that briefs contain bookmarks or hyperlinks to legal authorities to permit the judges and their staff to access the referenced authorities more efficiently:  “electronically-filed briefs should contain bookmarks or hyperlinks to the authorities cited in those briefs. If utilized bookmarks should take the reader to a copy of the cited authority, that is, the case, statute or rule, which will be part of the briefs submitted.”

In addition, certain Commercial Division Justices, including Justice Saliann Scarpulla already encourage the use of hyperlinks in electronically-submitted memoranda.  Similarly, Justice Andrea Masley currently requires hyperlinks to actual NYSCEF documents. Interestingly, the Second, Third, and Fourth Circuit’s local rules, to name a few, permit the use of hyperlinks.

Notably, if a party certifies in good faith that it cannot include hyperlinks without undue burden as a result of “limitations in its office technology or other showing of good cause,” the court may excuse the party from compliance.

This is a long-awaited and welcome rule change.  The Administrative Board of the Courts is now seeking public comment on the proposal set forth in the Advisory Council’s Memorandum.  Those wishing to comment should e-mail their submissions to rulecomments@nycourts.gov or write to: Eileen D. Millet, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, New York 10004.  The public comment period is open through February 24, 2020.

Blacklisted

The line between aggressive business competition and unlawful conduct can sometimes be difficult to determine. Many different theories of tort liability have developed over the years to address the variations of unlawful conduct and competitive practices that are frequently presented to the courts. A recent decision in the case Caldera Holdings Ltd., et al. v. Apollo Global Management, LLC, (652175/2018), explored the interplay and strict plead requirements involved in these business torts.

Background Allegations. According to Caldera Holdings Ltd.’s complaint against private equity giant Apollo Global Management and its affiliate Athene Asset Management, Caldera is an investment firm founded and owned by former Athene employee Imran Siddiqui. Caldera planned to acquire a company that Apollo and Athene had years earlier discussed acquiring; however, Apollo and Athene believed that this business would violate the non-compete provisions of Mr. Siddiqui’s employment contract with Athene and sought to prevent it through arbitration, only to enter into a settlement a month later releasing Mr. Siddiqui from the non-compete provisions.

Notwithstanding this release, Caldera alleged that Leon Black, Apollo’s CEO, subsequently attempted to scuttle Caldera’s proposed acquisition by uncovering the identities of Caldera’s investors and warning those investors with whom he had a relationship that the proposed transaction violated Mr. Siddiqui’s contract and would be tied up in litigation for a considerable time period.  Caldera further alleged that Apollo told these investors that Apollo would not do further business with them unless they ceased their relationship with Caldera.

Hon. Andrea Masley of the Supreme Court, New York County, Commercial Division, granted Apollo’s and Athene’s motion to dismiss the myriad business tort claims asserted against them. The court found that none of the following causes of action had been pled adequately by Caldera:

Defamation. This cause of action requires “a false statement, published without privilege or authorization to a third party, constituting fault as judged by, at a minimum, a negligence standard, and it must either cause special harm or constitute defamation per se.” (Frechtman v Gutterman, 115 AD3d 102, 104 [1st Dept 2014]). The alleged statements to “investors” did not adequately identify the persons to whom that allegedly false statements were made.

Disparagement & Injurious Falsehood. “Disparagement” is “a subcategory of the tort of injurious falsehood,” which “requires the knowing publication of false and derogatory facts about the plaintiffs business of a kind calculated to prevent others from dealing with the plaintiff, to its demonstrable detriment.” (Banco Popular N. Am. v Lieberman, 75 AD3d 460, 462 [1st Dept 2010]). A plaintiff must allege “special damages.” (Christopher Lisa Matthew Policano, Inc. v North Am. Precis Syndicate, 129 AD2d 488 [1st Dept 1987].). Because Caldera alleged that it sought “damages in an amount to be determined at trial, but no less than $1.5 billion,” and Caldera made no attempt at itemization, the Court held that Caldera had pled only general damages.

Unfair Competition. “Allegations of a ‘bad faith misappropriation of a commercial advantage belonging to another by exploitation of proprietary information’ can give rise to a cause of action for unfair competition.” (Macy’s Inc. v Martha Stewart Living Omnimedia, Inc., 127 AD3d 48, 56 [1st Dept 2015]). However, such claims must allege that the plaintiff took sufficient precautionary measures to ensure the secrecy of the misappropriated data. Here, the Court found that Caldera had not alleged that its investor list had been “stolen” or that it had undertaken any precautionary measure to ensure secrecy, or that there was anything “secret” about the investor list in the first place.

Tortious Interference with Prospective Business Relations and Economic Advantage. This cause of action requires “(1) the defendant’s knowledge of a business relationship between the plaintiff and a third party; (2) the defendant’s intentional interference with the relationship; (3) that the defendant acted by the use of wrongful means or the sole purpose of malice; and (4) resulting injury.to. the business relationship.” (534 E. 17th St. House. Dev. Fund Corp. v Hendrick, 90 AD3d 541, 542 [1st Dept 2011 ]). To satisfy this “wrongful means” requirement, the plaintiff must allege that the claimed interference constituted a crime or an independent tort.” (Mitzvah Inc. v Power, 106 AD3d 485, 487 [1st Dept 2013]). Because Caldera’s other causes of action for defamation and disparagement were dismissed, they could not form the basis for “wrongful means,” and therefore the Court dismissed the tortious interference claims. Nor did Apollo’s alleged threats to withhold future business if the investors did not cease their support for Caldera—“persuasion alone is not enough to constitute wrongful means.” (Ahead Realty LLC v India House, Inc., 92 AD3d 424, 425 [1st Dept 2012]).

Civil Conspiracy. Finally, the Court dismissed the causes of action alleging a civil conspiracy between Apollo and its affiliates to commit the above-reference business torts. However, the Court dismissed this claim on the grounds that no such claim exists under New York law. (Capin & Assoc., Inc., v 599 W. 7 88th St. Inc., 139 AD3d 634, 635 [1st Dept 2016) [“New York does not recognize an independent cause of action for conspiracy to commit a civil tort”]).

When buying a business, purchasers must take into consideration the possibility of “successor liability” – that is, the buyer’s assumption of the seller’s liabilities and prior conduct upon purchasing a corporation.

In New York, the general rule is that a purchaser of the assets of another corporation is not liable for the seller’s liabilities (TBA Global, LLC v. Fidus Partners, LLC). However, there are exceptions.

Justice Emerson recently laid out these exceptions in Marcum LLP v. Fazio, Mannuzza, Roche, Tankel, Lapilusa, LLC where she decided plaintiff’s motion, seeking leave to amend a complaint to add a new party defendant corporation, PKF O’Connor, based on the theory of successor liability.

A corporation that purchases the assets of another corporation can be held liable for the seller’s liabilities where:

  1. the buyer expressly or impliedly assumed the predecessor’s tort liability;
  2. there was a consolidation or merger of seller and purchaser;
  3. the purchasing corporation was a mere continuation of the selling corporation; or
  4. the transaction is entered into fraudulently to escape such obligations.
    Schumacher v. Shear Co.

Plaintiffs argued that there was a consolidation or merger of the seller (“FMRTL”) and PKF O’Connor’s predecessor in interest, O’Connor Davies, whereby O’Connor Davies expressly and impliedly assumed its predecessor’s tort liability.

The Court examined the recitals page of the corporations’ Business Combination Agreement which transferred FMRTL’s assets to O’Connor Davies in consideration of O’Conner Davies assuming FMRTL’s liabilities, which were defined as those liabilities “arising in the ordinary course” of the business. The Court further reviewed the corporations’ bill of sale which further included that O’Connor Davies agreed to assume FMRTL’s liabilities.

The Court found that according to the Agreement, O’Connor Davis only assumed liability for FMRTL’s liabilities arising in its ordinary course of business and did not impose liability for FMRTL’s litigation.

Interestingly, the Court looked to the bankruptcy courts to define “transactions in the ordinary course of business” and determined that such transactions are those “recurring, customary credit transactions that are paid in the ordinary course of debtor’s business” (Marcum LLP, citing Matter of Quebecor World [USA], Inc.).

Ultimately, the Court held that because litigation is not a recurring or customary transaction, O’Connor Davis did not assume liability for FMRTL’s litigation and any references to FMRTL’s litigation in the Agreement was merely a disclosure that did not create any assumption of liability.

Not all agreements need to be in writing to be enforced.  Indeed, unless there is an applicable Statute of Frauds, oral agreements are enforceable.  But what if the parties to an agreement — a formal contract — don’t sign?  Is it enforceable?  Maybe.

We last wrote about a case enforcing an unsigned agreement in our blog back in May 2018.  This time, the Appellate Division, First Department, recently held in Lerner v. Newmark & Co. Real Estate, Inc., that an unsigned Termination Agreement between a licensed real estate broker and Newmark was enforceable even though it was never signed.  The court focused its analysis on two questions:  is there evidence supporting a finding of an intent to be bound?, and if so, is there evidence that the parties “positive[ly] agree[d] that it should not be binding until so reduced to writing and formally executed”?

In considering these factors, the court looked to a separate agreement that the parties had executed that contained language to the effect that an unsigned form could not form an agreement.  The court then concluded that “defendants knew how to draft an agreement that could be accepted only by signature, but they did not so draft the Termination Agreement”.  The court also looked  to the “months-long email exchanges” among the parties which supported a finding that the parties indeed had the intent to be bound, whether or not the Termination Agreement was ultimately signed.

The takeaway?   The Appellate Division is reminding us all once again that written agreements without the “not bound until signed or executed” clause is risky business.  A pitfall easily avoided by careful drafting.  A further caution lies in the parties’ conduct and exchanges, as the court there looked to emails seemingly confirming the intent to be bound.  To the extent there are exchanges following negotiation of an agreement not yet signed, those too should indicate that all rights are reserved and that there is no agreement until formally executed.

 

 

State courts have long exercised discretionary power to stay proceedings where a suit involving the same parties and issues is already under way in another forum (see Asher v. Abbott Laboratories, 307 AD2d 211, 211-212 [1st Dept. 2003]).

A New York Commercial Division practitioner seeking to avoid duplicative litigation can either move the court pursuant to CPLR 3211 (a) (4) to dismiss an action where “there is another action pending between the same parties for the same cause of action in a court of any state or the United States” or seek a stay of the state court action, pursuant to CPLR 2201, pending the resolution of the other action. CPLR 3211 (a) (4) specifically states “the court need not dismiss upon this ground but may make such order as justice requires.” Therefore both CPLR 3211 (a) (4) and CPLR 2201 may help a practitioner obtain a stay of a state court action depending on the stage of litigation.

Newly appointed New York County Commercial Division Judge Borrok recently opted to stay an action brought before him in Mahar v General Elec. Co., 2019 NY Slip Op 29322 based on an earlier-filed Federal Action. Judge Borrok candidly gave New York practitioners insight into the considerations that New York Commercial Judges weigh when determining whether a stay should be granted as well as shedding light on two nuances relating to these elements.

New York Courts generally follow the “first-in-time” rule which provides that the court which has taken jurisdiction first, is the one in which the matter should be determined (see Matter of PPDAI Group Sec. Litig. at *5 (2019 NY Slip Op 51075(U)).

The first nuance that Judge Borrok shared is that the “First Department has held that the two actions need not be identical. Rather, a stay is warranted where there is ‘a substantial identity of parties’ and both actions arose out of the ‘same subject matter or series of alleged wrongs’ (Syncora Guarantee Inc. v JP Morgan Sec., LLC, 110 AD3d 87, 95 [1st Dept 2013]).

New York Courts also consider whether granting a stay will further the principles of comity, orderly proceedings (e.g., coordinating discovery), judicial economy by avoiding the risk of inconsistent rulings in the different actions, and avoidance of prejudice to the plaintiffs (See Mook v. Homesafe America, Inc., 144 AD3d 1116, 1117 (2d Dept. 2016).

The second nuance that Judge Borrok shared with respect to staying an action is that “it is inconsequential that different legal theories or claims are set forth in the two actions” (Shah v RBC Capital Mkts. LLC, 115 AD3d 444 [1st Dept 2014]). First Department law simply requires that “both actions seek to recover for the same alleged harm based on the same underlying events” (Syncora, 110 Ad3d at 96).

Takeaway: CPLR 3211(a)(4) and CPLR 2201 are strong and effective litigation tools that are available for a practitioner to utilize in order to avoid duplicative litigation.

Many litigants are familiar with the well-settled rule that an affirmative defense will be waived if it is not included in a CPLR 3211(a) motion to dismiss or in the answer (see CPLR 3211[e]).   And so, lawyers tasked with drafting an answer will often consult a “checklist” to ensure that all relevant affirmative defenses are sufficiently pleaded.  CPLR 3018(b) contains the following, non-exhaustive list of defenses that should be affirmatively pleaded in an answer:

  • Arbitration and award
  • Collateral Estoppel
  • Culpable conduct of the plaintiff under CPLR Article 14-A
  • Discharge in bankruptcy
  • Illegality
  • Fraud
  • Infancy or other disability of the defendant
  • Payment
  • Release
  • Res Judicata
  • Statute of Frauds
  • Statute of limitations

But, CPLR 3018(b) defines “affirmative defense” robustly as: (i) any matter “which if not pleaded would be likely to take the adverse party by surprise,” or (ii) any matter which “raises issues of fact not appearing on the face of a prior pleading.”  So, defenses other than those listed above have been held to be “affirmative defenses” which must be affirmatively pleaded in the answer, lest they be waived (see Fossella v Dinkins, 66 NY2d 162 [1985] [standing to sue]; Falco v Pollitts, 298 AD2d 838 [4th Dept 2002] [adverse possession]; Fregoe v Fregoe, 33 AD3d 1182 [3d Dept 2006] [truth in a defamation action]).

Nevertheless, courts will, on rare occasions, allow a party to introduce an unpleaded defense on a motion for summary judgment. This is based on the theory that a later amendment of the answer could properly introduce the defense, and that something as drastic as summary judgment should not be predicated on a pleading omission that a simple amendment could correct.

The Suffolk County Commercial Division (Emerson, J.) recently illustrated this principle in Board of Mgrs. of Manhasset Med. Arts Condominium v Integrated Med. Professionals, PLLC, 2019 NY Slip Op 51588(U) (Sup Ct, Suffolk County Oct. 8, 2019). Plaintiff, the owner of eight units in a professional medical condominium, commenced an action against a tenant (among others), alleging that the defendant tenant defaulted under the parties’ lease agreement by failing to pay rent for several months.  After the defendant interposed an answer and cross-claims, the plaintiff moved for summary judgment. The defendant opposed the motion, asserting a “partial-constructive-eviction” defense, and cross-moved for leave to amend its answer to assert two counterclaims against the plaintiff.

On reply, the plaintiff argued that the Court should reject the defendant’s partial-constructive-eviction defense because it was not pleaded as an affirmative defense in the defendant’s answer.  However, Justice Emerson permitted the defense, reiterating the principle that “[a]n unpleaded defense may be invoked to defeat a summary-judgment motion, or to serve as the basis for an affirmative grant of such relief, in the absence of surprise or prejudice, provided that the opposing party has a full opportunity to respond thereto.”

The absence of prejudice or surprise to the plaintiff was the key factor for Justice Emerson in permitting the defendant’s partial-constructive-eviction defense.  Indeed, the plaintiff did not argue that it would be surprised or prejudiced by the defense, and even “fully addressed” the defendant’s partial-constructive-eviction defense in its reply papers.  And so, in the Court’s view, the plaintiff could hardly contend it would be prejudiced or surprised by the defense.

The Takeaway:

Courts will, from time-to-time, consider an unpleaded defense if the adverse party has notice of it through channels other than the answer.  However, a litigant should not depend on judicial discretion to raise a defense on the hope that the defense will be introduced into the case without having been affirmatively pleaded.  A savvy litigator should keep a robust checklist of affirmative defenses, which should include the affirmative defenses listed in CPLR 3018(b), as well as the grounds for dismissal under CPLR 3211(a).  If, however, a litigant fails to raise a particular defense in its answer or CPLR 3211(a) motion, the defendant may still have hope of raising the defense at the summary judgment stage, so long as the defense does not take the adverse party by surprise.

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*** Attention all Queens County commercial litigators: If you have a case before Judge Grays, be sure to bring an HDMI cable and a USB drive with you to court from now on! ***

One of the themes that we’ve developed on this blog over the years has been the implementation of technology in the courts of the Commercial Division, as well in the rules that govern the practice of law in those courts.

We’ve regularly reported on such developments in the context of the individual practice rules of certain Commercial Division judges, as well as in certain NYSBA-sponsored events showcasing the new Integrated Courtroom Technology (or “ICT”) program in the Commercial Division, including in Westchester County (Walsh, J.) in June 2018 and New York County (Scarpulla, J.) in April 2019.

This past Tuesday, members of ComFed’s Committee on the Commercial Division (including Hamutal Lieberman and yours truly from this blog), along with Queens County Commercial Division Justice Marguerite A. Grays, presented a similar program called “The Electronic Courtroom: Using Integrated Courtroom Technology,” which took place in Justice Grays’s beautiful, oak-paneled courtroom (Part 4, Room 66).  As with our New York County program in April of this year, the Queens County program was well-attended and well-received by approximately 30 lawyers, judges, and other court personnel.

Many of the same features and equipment were on display during the program, including the 86-inch interactive Smartboard, which works in conjunction with counsel’s laptops, tablets, and USB drives, and on which they are able to display, highlight, and even annotate their documents and videos during oral argument and at trial.  The “ELMO” document camera, which allows counsel to project unique documents and other physical evidence onto the Smartboard for judge and/or jury to see, also was prominently featured during the program.

And if that wasn’t enough courtroom technology for one day, the presenters then promptly Uber’d their way through midday metro traffic back to Manhattan Commercial Division Justice Saliann Scarpulla’s Part 39 for a redux of their April program – this time entitled “The Electronic Courtroom: Using Integrated Courtroom Technology in State and Federal Courts on Motions and at Trial” and sponsored by the Second Circuit Judicial Council and the New York State-Federal Judicial Council.  In addition to demonstrating the existing Smartboard, ELMO, Skype, and audio/visual-impaired technologies, the presenters were given the opportunity to showcase the courtroom’s new, interactive witness-stand monitor, which allows a witness during her testimony to identify, highlight, and annotate with a stylus or her own finger the documents, photos, and other evidence displayed by counsel on the Smartboard.

I’ll say it again:  If you’ve been reluctant to introduce technology into the way you litigate your commercial cases in New York, the Commercial Division may soon leave (indeed, already has left) you behind.

 

The poet, Robert W. Service once wrote that “a promise made is a debt unpaid.” The question that remains is: Who gets to collect on that unpaid debt?

The issue of standing to collect on a debt owed to a beneficiary of a trust recently arose in Zachariou v Manios where plaintiff (a resident of Cyprus) sued her brother (a resident of Greece) for her share of their jointly held assets.

This family dispute arose after plaintiff’s and defendant’s brother died without a will, leaving the siblings as co-owners of a world-wide shipping company along with U.S. real estate owned by various U.S. companies, which included a New York City apartment building.

Thereafter, the parties executed a settlement agreement in Greece whereby they agreed to joint ownership and defendant’s continued management of the business and properties for the benefit of himself and the plaintiff.

The parties executed a second agreement in London whereby they divided their jointly-held U.S. companies between themselves and appointed a Trustee for the purpose of receiving and distributing the estate’s assets in accordance with the London agreement. As part of this second agreement, plaintiff also agreed to convey her 50% shareholder interest in the U.S. companies to defendant in exchange for $6.5 million, which represented 50% of the value of the NYC apartment building, which was the only remaining asset of the U.S. companies.

The parties also annexed a U.S. agreement to the London agreement which provided for an accounting of the finances of the U.S. companies and permitted for the appointment of an arbitrator to determine if either party should receive additional funds.

In 2006, plaintiff filed an action in New York County Supreme Court alleging that defendant was involved in embezzlement with the president of the U.S. companies to deprive plaintiff of her half of the estate. Ultimately, Justice Lowe dismissed all of the claims, except for breach of contract against defendant, and held that the remaining breach of contract claim fell under the London agreement and should be litigated in Greece. The First Department affirmed the dismissal.

In 2009, plaintiff commenced an arbitration against defendant before the American Arbitration Association International Centre for Dispute Resolution (AAA) to determine if either party should receive additional funds from the U.S. companies. The AAA awarded plaintiff over $10 million to be paid by defendant to the Trustee, who would then distribute the funds to plaintiff pursuant to the London Agreement.

Plaintiff attempted to enforce the arbitration award in Greece but the Greek courts refused to declare the arbitration award enforceable as a money judgment in Greece.

Thereafter, plaintiff brought this action before the New York County Supreme Court seeking an order compelling defendant to pay the Trustee the distribution awarded to plaintiff by the AAA.

Justice Andrea Masley determined that although the U.S. agreement controlled, the provisions of the agreement required the Trustee to collect the funds payable to either party, put the funds in the trust, and thereafter, distribute them between the parties. Plaintiff’s attempt to argue that she was simply seeking to enforce a promise that was made to her to deliver funds to the Trustee was not persuasive. Ultimately, the Court determined that plaintiff did not have standing to compel defendant to pay the AAA award to the Trustee and dismissed the complaint for lack of standing.

Although plaintiff has no standing to force her brother to pay her AAA award into the trust, the Court noted that plaintiff does have standing to sue the Trustee to enforce the procedures of the U.S. agreement.

Stay tune for more litigation arising out of this long-standing sibling rivalry.