The legal industry has adapted rather quickly in order to minimize the pandemic’s impacts on the practice of litigation by enacting orders, rules, and practices to keep the wheels of justice turning.  This includes the now-widespread use of virtual platforms for appearances before the Court as well as conducting remote depositions as my colleagues blogged about at the outset of the pandemic.  Notably, some have adapted to the “new normal” of virtual practice, while others seem to still struggle as the world saw in the now-infamous “cat-man court appearance” video.  Have remote depositions become the “new norm”?  It appears that way, as U.S. Magistrate Judge Stewart D. Aaron aptly remarked back last June in Rouviere v. Depuy Orthopaedics, Inc. (S.D.N.Y.).  Indeed, some Judges have even provided templates or sample deposition protocol stipulations like this one by U.S. Magistrate Judge Robert W. Lehrburger or another by U.S. Magistrate Judge Sarah L. Cave.

Remote depositions are nothing new in New York state courts (see CPLR 3113(d); Rogovin v Rogovin, and Yu Hui Chen v Chen Li Zhi), as well as the federal courts (see Fed. R. Civ. P. 30(b)(4)).  The dramatic increase in use, comfort level, and apparent permanency is a direct result of the pandemic. Indeed, the vision of the Commercial Division Advisory Council (“CDAC”) is to ensure that the Commercial Division remains at the forefront of this trend.

In September 2020, the CDAC sought to adopt a new Commercial Division Rule that would expressly authorize and regulate the use of remote depositions (the “Remote Deposition Proposal”).  The Remote Deposition Proposal seeks to provide further guidance on what is considered undue hardship, a standardized remote deposition protocol form, the validity of an oath or affirmation administered during a remote deposition when the court reporter is not physically located where the witness is present, and protections for defending attorneys and their clients in the event of technical difficulties.  The Proposal went out for public comment in November 2020, which closed on January 19, 2021, and is still pending a final decision from Chief Administrative Judge Marks.

The Remote Deposition Proposal also points out the potential pitfalls to remote depositions including technical issues, security issues, exhibit sharing, and, of particular importance, private communications.  While certain private communications should be accommodated (e.g. – privilege discussions), virtual depositions do have the potential for increased abuse of other communications such as coaching and guiding the witness.  As the Remote Deposition Proposal notes and provides potential safeguards against, deponents may commit abuses by communicating via digital devices and any “chat” feature of the virtual platform, if available.

Despite the potential pitfalls, the CDAC is taking affirmative steps towards combatting the potential for abuse and capitalizing on the undeniable efficiencies of remote depositions. Pro se and indigent litigants can testify remotely without having to take off of work or find childcare.  Lawyers no longer need to bill clients for their travel time to and from a deposition, worry about traffic, or public transportation delays.  Even commencement and recess times can be greatly reduced.

In short, while some may still struggle to adapt to the new norm, and New York’s Commercial Division appears poised to find the efficient, silver-lining of the pandemic, don’t forget to dress for success (as a Florida Judge recently reminded), just as if the proceeding were in person. As for wearing shorts during a remote deposition?  Don’t do it, cautions the authors of a recent ABA article, as dressing professionally conveys “to the deponent of the seriousness of the proceeding.  In other words, dressing the part can lead to acting the part.”  Good, sound advice worth heeding!

COVID-19 continues to generate litigation in a variety of contexts in the Commercial Division.  Only two weeks ago did our colleague Madeline Greenblatt author a blog about COVID-19 not excusing commercial rental obligations.  Now, in what appears to be a case of first impression in New York at least, Justice Timothy S. Driscoll ruled in an insurance coverage dispute between a movie theater company and its insurance carriers over losses due to the forced shut down of the theater as a result of COVID restrictions. In so ruling in Soundview Cinemas Inc. v. Great Amer. Ins. Group, the Court followed the lead of a majority of courts across the nation that have decided business interruption coverage cases arising out of the COVID-19 pandemic.

Soundview Cinemas  operated a movie theater in Port Washington, New York.  The business was insured under a commercial general insurance policy issued by Great American Insurance, with limits of $1.15 million for business personal property and $600,000 for business income and extra expense — all defined terms in the policy.  In response to the onset of the COVID-19 pandemic, on March 7, 2020, Governor Andrew Cuomo issued Executive Order No. 202, which declared a disaster emergency for the entirety of New York State. The complaint alleges that the pandemic and ensuing Executive Orders forced its final curtain call: the curtains came down, the box office closed and the theater shuttered its doors.  Demand was made under the policy, to which Great American declined.

The complaint asserted a myriad of claims against the carrier and broker, ranging from negligence to breach of fiduciary duty.  The policy itself contained a “civil authority” clause (covering actual losses of income caused by edict of civil authority prohibiting access to the property), as well as a “virus exclusion” (excluding coverage for damages caused by viruses, bacteria, or microorganism).  The defendants immediately moved to dismiss under CPLR 3211(a)(1) (defense founded upon documentary evidence) and 3211(a)(7)(failure to state a claim).

As to the claims against the insurance brokers, the Court easily found that based upon the pleading, there were no allegations that the insured sought specific coverage that would apply to a pandemic, or that would support a claim that the broker should have procured additional insurance.  In fact, the Court noted that “Plaintiff does not even allege that any such insurance coverage for pandemic-related government closures existed prior to March 2020.”  Turning to the claims against the insurer, the Court concluded that under the “majority view,” loss of use of the property as a result of the Executive Order did not constitute “direct physical loss or damage to the property” to trigger coverage.

The Nassau County Commercial Division now joins the ranks of many courts nationwide that have addressed or are currently addressing claims for business interruption coverage arising out of the COVID-19 pandemic.[1] For instance, a District Court in Missouri held that policyholders adequately stated a claim for physical loss based on COVID-19 closures. In Studio 417 v. The Cincinnati Insurance Co., hair salons and restaurants in Springfield and Kansas City, Missouri, filed claims for losses due to COVID-19 closures under “all-risk” property insurance policies issued by The Cincinnati Insurance Co. Cincinnati denied the claims and the policyholders filed suit in the Western District of Missouri, asserting a right to payment under the policies’ coverages for business income, extra expense, dependent property, civil authority, extended business income, ingress and egress, and sue and labor. In its motion to dismiss, Cincinnati argued that the insureds failed to allege a “physical loss” and that this requirement can only be satisfied through “actual, tangible, permanent, physical alteration of property.” The court disagreed, finding that COVID-19 can constitute a “direct physical loss” to property sufficient to trigger coverage because “loss,” based on its plain and ordinary meaning, encompasses “the act of losing possession” and “deprivation” of property. Further, the court reasoned that the policy language extends coverage for direct physical loss or damage. Rejecting Cincinnati’s argument that both “loss” and “damage” require some form of tangible or physical alteration, the court held that pursuant to the rules of policy construction, “loss” and “damage” must have different meanings based on the use of the disjunctive word “or.” The Missouri court held, “[e]ven absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.”

Another recent decision, issued by a New Jersey district court on February 10, 2021, was not so favorable to the policyholder. In Causeway Automotive, LLC, et al. v Zurich American Insurance Co., plaintiffs sought coverage for losses sustained as a result of COVID-19 under business income and extra expense “caused by action of civil authority” provisions of their policy. Zurich maintained that it properly denied coverage based on a virus exclusion which states the insurer “will not pay for loss or damage caused by or resulting from any virus, bacterium or other micro-organism that induces or is capable of inducing physical distress, illness or disease.” In opposition to Zurich’s motion to dismiss, plaintiff insureds argued the virus exclusion was ambiguous and, therefore, should be interpreted in plaintiffs’ favor. Plaintiffs further argued that because the COVID-19 virus was but one cause in a sequence of events that led to their losses, the virus exclusion does not apply. The court disagreed, finding that plaintiffs’ potential interpretations of the virus exclusion did not render it ambiguous or otherwise unclear. The court was similarly unpersuaded by plaintiffs’ argument that the virus exclusion did not apply because their losses were not caused by COVID-19 but, rather, by the Governor’s Executive Orders requiring closure of certain aspects of Plaintiffs’ business. To determine whether the loss was “caused by” an excluded peril, the New Jersey court employed the efficient proximate cause test. The court found that the Governor’s orders were issued for the sole reason of reducing the spread of the virus that causes COVID-19 and would not have been issued but for the presence of the virus in the State of New Jersey. As a result, the New Jersey court granted the insurer’s motion to dismiss.

As one of the few cases getting past the motion to dismiss stage, on January 14, 2021, Cherokee County District Court Judge Douglas A. Kirkley granted partial summary judgment in favor of the insured on a claim for business interruption losses caused by COVID-19. In Cherokee Nation et al. v. Lexington Insurance Co. et al, plaintiffs argued that under their all-risk policy, a direct physical loss or damage occurs when a covered property is rendered unusable for its intended purpose. Plaintiffs maintained that COVID-19 caused the Nation to shut down covered properties, engage in disinfection efforts, and implement protective measures before reopening. The insurers argued that plaintiffs had not demonstrated a direct physical loss or damage and that contamination, pollution, and other similar exclusions applied. In granting summary judgment, the Oklahoma court found plaintiffs established a “plausible claim for a fortuitous ‘direct physical loss’” under their all-risk tribal property policy.

 

 

[1] University of Pennsylvania Carey Law School has created a “Covid Coverage Litigation Tracker” which compiles data from business interruption coverage cases across the nation and tracks judicial rulings. While the site’s organizers are transparent about limitations of the available data, the site can be an excellent resource for tracking COVID related insurance cases nationwide.

 

 

 

 

 

 

 

 

A quick timeout this week from some of our more substantive content here at NY ComDiv Practice to report on some upcoming events and happenings in and around the Commercial Division, particularly in Westchester County…

This past Monday, during her weekly message concerning the ongoing COVID-19 pandemic and its effect on the court system (see video version here), Chief Justice Janet DiFiore commented on the recent amendments to the Uniform Civil Rules for the Supreme Court and the County Court, which, as extensively reported by my colleague and fellow blogger Peter Sluka last month, effectively implemented the Commercial Division’s rules and procedures into all civil courts across the State of New York:

[The amendments] are designed to make case management and pretrial litigation more efficient and cost-effective for lawyers and litigants in our civil courts. A number of changes also serve the goal of limiting unnecessary personal appearances and foot traffic in our courthouses.

On February 23, the New York State Academy of Trial Lawyers is sponsoring a program entitled “New Uniform Rules for the Supreme and County Courts: The Implementation” during which Westchester County Commercial Division Justices Linda S. Jamieson and Gretchen Walsh will be presenting on these wholesale rule changes to the civil court system and discussing how the changes are being implemented statewide.

And speaking of unnecessary appearances and reduced foot traffic in the courthouse, Chief Judge DiFiore also reported this week on some specifics on court productivity in this new age of virtual or remote practice:

For the week of January 25th, our judges and staff conferenced and heard 24,309 matters; settled or disposed of 6,617 (or 27%) of those matters; and issued over 1,800 written decisions on motions and other undecided matters. In addition, 1,047 virtual bench trials and evidentiary and fact-finding hearings were commenced last week across the state.

As we reported late last year, recently-amended ComDiv Rule 1 (remote appearances) and Rule 6 (hyperlinking) represent quintessential examples of how the Commercial Division continues to be an adaptive and innovative leader in the world of specialized business courts.  The amendments were particularly apropos given the circumstances forced upon us all by COVID, including the judiciary.

On March 24, the WCBA Business & Commercial Law Committee is sponsoring a virtual town-hall program, featuring Justices Jamieson and Walsh and their Principal Court Attorneys, who will be offering their views on the implementation of and practical effect that these amended ComDiv rules have had in the Westchester County Commercial Division, particularly on the topic of administering justice remotely during the ongoing pandemic.  Also on hand for the lunchtime Zoom program will be a representative from Westchester and Long Island based Appellate Innovations, who will present on the nuts-and-bolts of bookmarking and hyperlinking legal documents in this virtual era.

Registration specifics for both programs can be found under “Events” on the WCBA website.  Hope to see you all there!

The lingerie brand Victoria’s Secret (“VS”) has struggled in recent years. VS’ overtly sexy aesthetic has failed to keep up with shifting consumer tastes towards comfort and gender and size inclusivity. In 2019, VS canceled its marquee fashion show, which had run annually for 23 years, showcasing supermodels in VS’ trademark angel wings strutting the runway with millions tuning in to watch. In addition, the long-standing relationship between founder Leslie Wexner and convicted sex offender/disgraced financier Jeffrey Epstein has been given renewed attention, eventually leading to claims of a toxic culture of misogyny within the company.

victoria's secret VS also has been no match for COVID-19. After experiencing sharply declining sales in recent years, VS has been forced to shutter approximately one-quarter of all its US and Canadian stores in 2020.

In May 2020, VS became one of the first major brands to try to legally break one of its leases due to the coronavirus pandemic. However, on January 7, 2021, it was further dealt a blow by Commercial Division Justice Andrew Borrok who dismissed VS’ lawsuit against Herald Square Owner LLC (“Landlord”) seeking to rescind the lease (the “Lease”) for its 20,000 square foot flagship store located in Manhattan’s heavily foot-trafficked Herald Square and avoid its $937,734.17 monthly rent obligation.

The Complaint

In its Complaint, VS alleged that its Herald Square location was forced to close in March 2020 due to the coronavirus pandemic and Governor Cuomo’s Executive Orders ordering a statewide lockdown to combat it.  It claimed that the Lease should be declared unenforceable under the common law doctrines of “frustration of purpose” and/or “impossibility of performance.” According to VS, the “purpose of tendering a monthly rent of $937,734.17 or more to operate a retail store is completely frustrated when that store cannot open . . . [or] can open at only a marginal capacity,” and the governmental actions prohibiting the operation of VS’ store during the pandemic render performance under the Lease to be impossible. It also alleged that COVID-19’s effect on retail could not have been foreseen by either party at the time the Lease was entered into.

Landlord’s Summary Judgment Motion

Landlord filed an Answer asserting two counterclaims against VS for breach of the Lease and breach of the Lease’s guaranty. On that same day, Landlord also filed a motion for summary judgment dismissing the Complaint, asserting that VS’ claims were defeated by Article 26 of the Lease, pursuant to which VS specifically anticipated a store closure in the event of a failure of the Landlord to perform any of its obligations due to “governmental preemption” or an “order” arising out of a “national emergency,” and that VS would still be required to pay rent under such circumstances. Therefore, Landlord argued that the doctrines of “frustration of purpose” and/or “impossibility of performance” are precluded when the risk was foreseeable, and when the Lease contemplated the precise risk in question and allocated that risk to VS.  Landlord also stressed the fact that the Lease did not contain a force majeure clause.

VS’ Opposition Papers

The thrust of VS’ opposition papers was that Article 26 of the Lease only contemplated a “temporary store closure” and not “a massive, government-shutdown of all non-essential commercial activity in New York City” due to COVID-19. In the opening paragraphs of its opposition brief, VS appealed to the court’s heartstrings:

At the outset, we recognize this motion’s significance. This Court will likely be the first to rule on the novel issues presented, and its ruling will have sweeping consequences reaching beyond this action to the many other suits mirroring the allegations of the Complaint. . .  But this case is about what happens when the unthinkable occurs; indeed, something so profound – so extraordinary – that it exceeds that which was reasonably possible or even perceivable when those “what ifs” were conjured. Where (as here) such an occurrence shatters the very core of a commercial deal, the frustration of purpose doctrine operates to rescind the contract. . . COVID-19 epitomizes such an event.

Landlord’s Reply Papers

In its reply papers, Landlord’s counsel reiterated that the issue is not whether the Lease specifically addresses a forced store closure as a result of COVID-19, but rather whether the Lease contemplated the risk of a forced store closure, and if so, how the Lease allocated that risk, which would be dispositive of VS’ claim.

Additionally, in a rather crafty maneuver, Landlord’s counsel submitted an affidavit in which he described visiting Herald Square in August 2020. Although VS’ store was boarded up, he visited the open neighboring stores and purchased various hipster items in those locations, submitting pictures and receipts from Macy’s (beard oil), H&M (socks), and Urban Outfitters (a waterproof earbud case). He also visited the fully-open VS’ West 125th Street store and purchased a fragrance called “Seduction.” The shopping excursion was done to show that “retail stores, and even a Victoria’s Secret store, can operate in Manhattan in the post-COVID-19 environment,” and that all VS was really arguing was that it could not operate its flagship store profitably.

The Decision

In the end, the Court was persuaded by Landlord’s arguments and granted summary judgment dismissing the Complaint in its entirety, stating succinctly:

The Complaint is premised on the mistaken theory that the parties did not allocate the risk of tenant not being able to operate its business and that tenant is therefore somehow forgiven from its performance by virtue of a state law. This is contrary to the express allocation of these risks set forth in Paragraph 26 of the Lease Agreement . . .  It is of no moment that the specific cause for the government law was not enumerated by the parties because the Lease as drafted is broad and encompasses what happened here — a state law that temporarily caused a closure of the tenant’s business. . . The parties agreed that this would not relieve the tenant’s obligation to pay rent.

The Takeaway

The COVID-19 pandemic and the governmental actions taken have caused numerous financially strapped commercial tenants to commence lawsuits against their landlords seeking to rescind their leases and/or avoid paying rent premised on a force majeure clause in the lease and/or under the doctrines of impossibility of performance and frustration of purpose. There will undoubtedly be more such lawsuits in 2021. Recent decisions by Commercial Division justices, including this most recent decision by Justice Borrok, demonstrate the high bar that commercial tenants will have to surmount to be excused from their lease obligations given the Court’s narrow application of common law defenses in the face of conflicting lease language.

 

The New York Commercial Division was created in 1993 “to test whether it would be possible, by concentrating on commercial litigation, to improve the efficiency with which such matters were addressed by the court and, at the same time, to enhance the quality of judicial treatment of those cases.”  By implementing rules and procedures developed with efficiency in mind and after careful consultation with Judges and practitioners alike, the Commercial Division has become a resounding success; it is one of the most efficient and effective forums in the world for the litigation of complex civil disputes.

It should therefore come as no surprise that other New York courts have taken notice of the innovative rule changes contributing to the success of the Commercial Division.  As Chief Administrative Judge Marks observes: “through the work of the Commercial Division Advisory Council – a committee of commercial practitioners, corporate in-house counsel and jurists devoted to the Division’ s excellence – the Commercial Division has functioned as an incubator, becoming a recognized leader in court system innovation, and demonstrating an unparalleled creativity and flexibility in development of rules and practices.”

Now, by Administrative Order effective February 1, 2021, the Uniform Civil Rules for the Supreme Court (the “Uniform Rules”) will incorporate, in whole or in part, nearly 30 Commercial Division Rules.  Some of these changes were foreshadowed by my colleague Paige Bartholomew in 2018 when the Unified Court System’s Advisory Committee on Civil Practice requested public comment on whether to adopt nine of the Commercial Division’s Rules.   Continue Reading Innovation Becomes the Norm: Commercial Division Rules Shape Revised Uniform Rules for the Supreme Court and County Court

“Successor liability”, is it a theory or distinct claim or cause of action?

In a recent decision, Justice Sherwood analyzed the applicability of successor liability as a distinct cause of action, rather than merely a theory of liability in New York.  In Meyer v Blue Sky Alternative Investments LLC, plaintiff Meyer moved to amend his complaint to add a new party, RBP Partners, LLC as successor to defendant Blue Sky Alternative Investments, LLC and to assert a new claim of successor liability against defendant RBP.

To demonstrate the merits of the successor liability claim, plaintiff argued that RBP is a “mere continuation” of Blue Sky, whereby all of Blue Sky’s assets had been stripped and transferred to RBP and although RBP is not owned by exactly the same individuals as Blue Sky, Plaintiff believed that he would be able to show a continuity of ownership after discovery.

In opposition, RBP argued that successor liability is not a cognizable claim under New York law, but merely a theory for imposing liability on a defendant based on a predecessor’s conduct and that plaintiff failed to allege a transaction between Blue Sky and RBP such as a stock or asset purchase agreement which, defendant argued, is a requisite predicate for its successor liability claim.  Further, RBP opposed the allegation of successor liability by arguing that Blue Sky still exists, RBP and Blue Sky did not share corporate officers or directors, and there was no proof of any transfer of assets from Blue Sky to RBP or continuation of the same business.

In New York, the general rule is that a purchaser of the assets of another corporation is not liable for the seller’s liabilities.  However, this rule is not without exceptions.

In a previous blog post I wrote about the exceptions to this general rule and analyzed that a purchaser can be held liable for liabilities of the seller in the following circumstances:  (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 (Marcum LLP v Fazio, Mannuzza, Roche, Tankel, Lapilusa, LLC).  In Marcum, the Court analyzed whether a purchaser could be held liable for a seller’s liabilities under a theory of successor liability, not a separate cause of action.  Ultimately, the Court in Marcum found that, based on the parties’ Business Combination Agreement, the purchaser corporation only assumed liability for seller’s liabilities arising in the ordinary course of business and did not impose liability for seller’s litigations.

The Court considers a successor a “mere continuation” of its predecessor (under the third exception to the general rule) where:

(i) all of substantially all assets of the predecessor are transferred to the successor corporation;

(ii) only one corporation exists after the transfer,

(iii) assumption of an identical or nearly identical name,

(iv) retention of the same corporate officers or directors, and

(v) continuation of the same business

(Miot v Miot).

Here, the Court acknowledged the legitimacy of successor liability as a separate cause of action rather than a mere theory of liability and found that plaintiff’s proposed complaint successfully stated a claim of successor liability against RBP under a theory that RBP is a “mere continuation” of Blue Sky where plaintiff specifically alleged that Blue Sky ceased to exist and had its assets stripped and transferred to RBP, Blue Sky’s principals have become principals and corporate officers of RBP, RBP is located in the same building and office suite as Blue Sky, and RBP invests in the same sectors as Blue Sky.

Importantly, the Court also rejected RBP’s argument that plaintiff is required to allege a transaction between the successor and predecessor corporation as a necessary predicate to a finding of successor liability.

Ultimately, the Court’s decision further reinforces that “successor liability” as a separate and distinct cause of action, rather than a mere theory of liability, is here to stay (at least in New York County) as long as plaintiffs can meet their burden with respect to the “mere continuation” theory.

Recently, Justice James Hudson issued a decision testing the limits of New York’s Long Arm Statute. The Court was tasked with determining whether personal jurisdiction exists over an out-of-state defendant, based on a claim arising from an out-of-state contract, but where a portion of the work under the contract was performed in New York.

In Black Diamond Aviation Group LLC v Spirit Avionics, Ltd., plaintiff Black Diamond Aviation Group LLC (“Black Diamond”) brought a declaratory judgment action, asking the court to determine whether defendant Spirit Avionics, Ltd. (“Spirit) was obligated to pay non-party Aircraft Structures Engineering Solution (“ASES”) for work performed by ASES on Black Diamond’s aircraft.

Black Diamond, a company organized under Delaware Law with a principal place of business in Greenwich, Connecticut, offers airplanes for private charter. Spirit performs aircraft maintenance and refurbishment out of Ohio. ASES is an aerospace engineering service company domiciled and located in Illinois.

In 2018, Black Diamond contacted Spirit to perform work on its Dassault Falcon 7X Jet (“Falcon 7X”). In January, 2019, Black Diamond and Spirit signed a proposal for work to be performed on the Falcon 7X (i.e. installation of a speaker system, WIFI system, USB outlets, and modifications to windows and doors) which included a price estimate for work to be done by subcontractors–namely ASES. The agreement was modified in May, 2019, via email, which stated Spirit would perform a host of upgrades to the Falcon 7X for $91,000 (the “May 2019 Agreement”). Spirit then used ASES as the subcontractor to perform some of the work.

At first, work on the Falcon 7X took place in Columbus, Ohio. But it was soon after realized that some of the work would need to take place at Islip MacArthur Airport, in Suffolk County, New York. The Falcon 7X was transported to McArthur Airport under the condition that Black Diamond pay half of the $91,000 to Spirit at the time of transport, and the other half upon completion. Black Diamond paid half its balance to Spirit, the Falcon 7X was brought to McArthur Airport, and upon completion Black Diamond paid the remaining balance of the $91,000 to Spirit.

In October, 2019, Black Diamond requested Spirit perform additional work to the Falcon 7X, to which Spirit instructed Black Diamond to engage ASES directly. Black Diamond did so, and received a cost estimate invoice which included both the cost of the new work, as well as the cost of some of the work previously provided under the May 2019 Agreement. Black Diamond paid ASES an advance payment of $23,214 to cover the new work, but when ASES invoiced Black Diamond for the remaining $59,903, Black Diamond refused to pay. Black Diamond contends that Spirit is responsible for paying the balance to ASES, and brought the subject action seeking a declaratory judgment holding the same.

Spirit moved to dismiss, asserting, inter alia, lack of personal jurisdiction. In its complaint, Black Diamond alleged the court had jurisdiction over the matter because the action arose out of services performed in Ronkonkoma, New York, and because Spirit purposely availed itself of the privilege of transacting business in New York. In determining whether personal jurisdiction over Spirit existed, the Court looked to whether Black Diamond properly invoked New York’s Long Arm Statute under CPLR § 302.

Justice Hudson’s decision takes its reader through a history of the salient personal jurisdiction decisions and is likely reminiscent of your 1L civil procedure outline. The highlights are as follows:

  • World-Wide Volkswagen Corp v Woodson – a court may exercise jurisdiction over a defendant only where there are “sufficient contacts with the forum state and substantial evidence that the defendant purposely availed themselves of the protections of the forum state.”
  • Daimler AG v Bauman – a corporation’s association with the forum state must be “so continuous and systematic as to render the corporation at home in the state.” A court should consider the following factors: (i) burden on the defendant; (ii) the forum state interest; (iii) the plaintiff’s interest in litigating in the forum; (iv) efficient resolution of controversies; and (v) the shared interest of the several states in furthering fundamental substantive policies.
  • Bristol-Myers Squibb Co. v Superior Court– there must be a “strong affiliation” between the specific claim at issue in the case and the forum state.
  • Licci v Lebanese Canadian Bank – Although determining what facts constitute “purposeful availment” is an objective inquiry, it always requires a court to closely examine the defendant’s contacts for their quality.
  • Pichardo v Zayas – for personal jurisdiction to exist there must be an “articulable nexus” or “substantial relationship” in light of all the relevant circumstances. There must be some “relatedness between the transaction and the legal claim at issue.”

Under the facts alleged in Black Diamond’s complaint, the Court determined no specific jurisdiction exists over Spirit because it has “no strong affiliation” with New York. The work performed by Spirit was performed solely in Columbus, Ohio; Spirit did not send any staff to work in New York; and the only connection Spirit had to New York was they agreed to release the Falcon 7X from their care to MacArthur Airport to be worked done by ASES.

The court emphasized that when a contract is negotiated via e-mail, or telephone, as it was here, and no business is performed within the forum state, the foreign defendant is not subject to personal jurisdiction (see AM Pitt Hotel LL C v 400 5th Ave LP). Here, the entirety of the May 2019 Agreement was negotiated and agreed upon between Spirit’s office space in Ohio and Black Diamond’s office in Connecticut, and the bargained for work pursuant to that agreement did not take place in New York, but rather Ohio. The court found, relying on an affidavit from the CEO of Spirit, that Spirit does not have an office in New York State and does not have any employees or property in New York State. Only upon request from Black Diamond did Spirit release the Aircraft to New York where the work was completed. Thus, the Court found Spirit did not avail itself the protections of the New York nor does it have sufficient contacts within New York and therefore personal jurisdiction could not be properly asserted over Spirit.

Upshot: Work performed in the forum state in connection with an out-of-state contract may be insufficient to establish personal jurisdiction over a foreign defendant.

The New York Commercial Division continues to be a beacon of innovation with a recent amendment to ComDiv Rule 6, now requiring bookmarking and hyperlinking within briefs and affidavits filed with the court.  The amendment is no doubt welcome news to an overburdened (and underbudgeted) court system already well-known for its efficient administration of justice.

Gone are the days when the recipient of a legal brief — whether judge, law clerk, or other court personnel — would be compelled to get up from one’s desk, walk down the hall, and check the stacks for this or that case citation.  Gone, even, are the days when a judge or her staff would be compelled to pore through banker’s boxes of documents to confirm this or that record citation.  The advent of e-filing, online-research databases, e-discovery software, and other document-management systems have long since rendered such practices obsolete.

Now, with the advent of Amended ComDiv Rule 6, judges and their staff will literally have at their fingertips the entirety of the factual and procedural record, as well as all the case law and statutes, supporting the arguments presented in the document they happen to be reading on their computer screen.  As one judge put it in the ComDiv Advisory Council’s memo proposing the amendment:  “This is going to be easy.”

My colleague and fellow blogger, Viktoriya Liberchuk, first reported on this amendment, in proposed form, back in January of this year.  At the time, we referenced the Advisory Council’s contention that hyperlinks would be particularly helpful with respect to the complex commercial cases that tend to make up the ComDiv’s docket.  To wit:

In the interest of remaining a leader in the efficient and effective administration of justice in complex commercial cases, the [Advisory Committee] recommends that the current e-filing and bookmarking requirements be extended to require or encourage hyperlinking to other sources in appropriate cases.

*     *     *     *     *

The case for making greater use of this simple yet powerful technology in judicial filings is obvious and compelling, and it presents an opportunity for the Commercial Division to continue its innovation and leadership in the smart adaptation of technology in aid of the efficient administration of justice.

ComDiv Rule 6 (Form of Papers) — which concerns font size, margins, and other formalities — formerly required “bookmarks providing a listing of the document’s contents and facilitating easy navigation by the reader within the document.”  In other words, briefs and affidavits filed in compliance with the the rule prior to amendment allowed a judge and her staff to jump instantly from specific points of fact or law outlined in a table of contents to the corresponding substantive content within the body of the document itself.

Amended ComDiv Rule 6, which went into effect a couple weeks ago on November 16, goes a step or two further by:

  • requiring that “[e]ach electronically submitted memorandum of law or other document that cites to another document previously filed with NYSCEF shall include a hyperlink to the NYSCEF docket entry for the cited document”;
  • allowing judges the discretion to require that “electronically submitted memoranda of law include hyperlinks to cited court decisions, statutes, rules, regulations, treatises, and other legal authorities in either legal research databases to which the Court has access or in state or federal government websites”; and
  • otherwise encouraging parties “to hyperlink such citations unless otherwise directed by the Court.”

Lest the luddites among us be left lumbering in the electronic ether, Amended ComDiv Rule 6 defines and distinguishes “bookmark” and “hyperlink” at the outset.

[A] hyperlink means an electronic link between one document and another, and a bookmark means an electronic link permitting navigation among different parts of a single document.

In other words, whereas the former rule allowed for instant navigation within the brief or affidavit at hand, the rule as amended allows for instant navigation to documents and resources outside the brief or affidavit as well.  As the Advisory Council puts it:

Hyperlinks … enable the reader of one document to access another document discussed or referred to in the text of the first document in seconds, with a single mouse-click.

Hence, the practice of law at your fingertips.

The statutes of limitations set forth in the CPLR are default rules, and parties generally are free to modify default rules by agreement.  But statutes of limitations also further the important public interests, such as avoiding stale claims and giving repose to our affairs.  In light of the public interests involved, there are substantial limits on how much parties can agree to lengthen, shorten, or waive the limitations periods applicable to claims arising under New York law.

For example, while parties can agree to a shorter limitations period than prescribed by the CPLR, a recent case by Albany County Commercial Division Justice Richard Platkin serves as a sharp reminder that a contractually shortened limitations period must be reasonable under the circumstances and, in many cases, the reasonableness of such an agreement depends not only on the length of the limitations period itself, but also on the accrual date.

Continue Reading Expect Careful Scrutiny of Contractually Shortened Statutes of Limitations

“Reasonably anticipated litigation” is a necessary element you need to show to benefit from the common interest privilege in your attempt to withhold certain documents already shared with a third-party during a pending suit in New York – but, when does this privilege apply and what does “reasonably anticipated litigation” actually mean?

Recently, Justice Andrew Borrok issued a decision which analyzed the applicability of the “common interest privilege” and the need to prove the element of “reasonably anticipated” litigation when relying on this privilege in New York courts as a basis for withholding certain discovery.

In Starr Russia Investments III B.V. v Deloitte Touche Tohmatsu Ltd., Plaintiff Starr Russia Investments III B.V. (“Starr”) brought a fraud action against Deloitte Touche Tohmatsu Ltd. and various related entities, including ZAO Deloitte & Touche CIS (“D-ZAO”), claiming that Starr was fraudulently induced by Defendants to invest, between 2008 and 2010, approximately $110 million in Investment Trade Bank (“ITB”), a Russian joint stock company controlled by a Russian national, and that Starr lost the full value of its investment when, in 2015, the Central Bank of Russia revealed that ITB had amassed a huge capital deficit and was deemed insolvent.

Starr claimed that it engaged Allen and Overy (“A & O”) to represent it in its investment in the ITB transaction.  Shortly after, Starr approached FPK Capital/J.C. Flowers (“JC Flowers”) about becoming a co-investor.  JC Flowers engaged Skadden, Arps, Slate, Meagher & Flom LLP (“Skadden”) to represent it in the transaction.  Skadden commissioned the Risk Advisory Group (“RAG”) to produce a report as part of its due diligence (the “RAG Report”).  Skadden, in turn, shared the RAG Report, dated June 9, 2008, with Starr based on the parties’ agreement to share due diligence materials.

D-ZAO moved to compel Starr to produce the RAG Report and its communications discussing the report’s factual findings and responsive documents it shared with third-parties, including JC Flowers from 2007 to 2015.

Starr refused to produce the RAG Report, claiming that it was protected by the attorney-client privilege and the common interest privilege.

With respect to attorney-client privilege, the Court held that because there was neither a written expression of joint representation by Skadden and A & O as to both JC Flowers and Starr nor a written agreement indicating that the documents shared during the course of due diligence were privileged and could not be shared with others, the RAG Report was not protected by the attorney-client privilege.

With respect to Starr’s claim that the Rag Report was protected by the common interest privilege, the Court analyzed whether the report was prepared in anticipation of litigation, a necessary element in New York.

Under New York law, the common interest privilege is applicable to attorney-client communications disclosed to a third-party where

(1) the third-party shares a common legal interest;

(2) the confidential communication is made in furtherance of that common legal interest; and

(3) the confidential communication relates to pending or reasonably anticipated litigation.

These elements were articulated in the seminal case of Ambac Assurance Corporation v Countrywide, in which the New York Court of Appeals recognized the applicability of the common interest privilege to both criminal and civil matters and rejected expanding the privilege to commercial transactions in the antitrust context where communications do not concern pending or reasonably anticipated litigation.

The Court in Ambac recognized that on a public policy level, the common interest privilege promotes the exchange of privileged information and candor that may otherwise be inhibited by the threat of mandatory disclosure, thereby creating an environment which encourages the coordination of legal strategy where “parties are engaged in or reasonably anticipate litigation in which they share a common legal interest.”

The law in New York State, however, differs from the applicability of the common interest privilege in several federal courts.  For example, the Second, Third, Seventh and Federal Court of Appeals Circuits have rejected the “pending or reasonably anticipated litigation” requirement and applied the common interest privilege in purely transaction contexts.

Ultimately, relying on the precedence set in Ambac, the Court found that the common interest privilege was inapplicable where the RAG Report was prepared for transaction structuring purposes.  In fact, the Court noted that Starr began to “reasonably anticipate litigation” in 2011 when they began to hire outside counsel concerning potential contract claims arising from the shareholders’ agreement.  Although Starr attempted to argue that it already anticipated litigation in 2008, around the time that the RAG Report was prepared, based on an email from JC Flowers which described litigation risks associated with the transaction, the Court held that there was no evidence of a demand, or a refusal of a demand or any other indication that Starr would sue or be sued. Simply put, “[t]he fact that one evaluates litigation risk and or uses litigation risk as a negotiating tool does not mean that litigation is reasonably anticipated.”

Takeaway: New York transaction attorneys and litigators should be mindful of New York State’s restrictive applicability of the common interest privilege where they can expect that documents and communications exchanged with third-parties during a commercial transaction are likely discoverable during litigation.