We all hoped ringing in the New Year would mean leaving some of the hardships from the COVID-19 pandemic behind in 2020. However, in just two short months, businesses struggling with rent and other financial obligations due to COVID-19 restrictions are getting little to no relief from the Commercial Division.

You first read Madeline Greenblatt’s post about Commercial Division Justice Andrew Borrok dismissing lingerie brand Victoria’s Secret’s lawsuit seeking to rescind its lease for its 20,000 square foot flagship store located in Herald Square, and avoid its $937,734.17 monthly rent obligation due to COVID-19 . In that case, the New York County Supreme Court rejected Victoria’s Secret’s argument that its lease agreement should be declared unenforceable under the common law doctrines of “frustration of purpose” and/or “impossibility of performance.”

Then, only two weeks ago, James Wicks and I wrote about a decision issued by Commercial Division Justice Timothy S. Driscoll 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 a case of first impression in New York, Justice Driscoll followed the lead of a majority of courts across the nation finding that 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 under commercial liability insurance policies.

Adding another decision to the list,  in Valentino U.S.A, Inc. v 693 Fifth Owner LLC,   Justice Andrew Borrok rejected Valentino U.S.A, Inc.’s (“Valentino”) attempt to be relieved of its $18,975,000.00 yearly rent obligations due to COVID-19 shutdowns. In its complaint, luxury fashion company Valentino brought the following eight causes of action against its landlord Defendant 693 Fifth Owner LLC (“Landlord”) to avoid its obligations under its lease agreement (“Lease”) for its prestigious Fifth Avenue storefront in New York City: (i) declaratory judgment of frustration of purpose – lease termination; (ii) in the alternative, declaratory judgment of frustration of purpose – rent abatement; (iii) impossibility of performance – lease rescission; (iv) in the alternative, impossibility of performance – rent abatement; (v) rescission based on failure of consideration; (vii) constructive eviction; (vii) declaratory judgment; and (viii) injunctive relief. While Valentino unsurprisingly cited the series of executive orders issued by Andrew Cuomo limiting and/or prohibiting “non-essential” business operations, Valentino also argued that even in a “post-pandemic New York City (should such a day arrive)” the “social and economic landscapes have been radically altered in a way that has drastically, if not irreparably, hindered Valentino’s ability to conduct high-end retail business” from its storefront. Valentino further argued that factors such as unprecedented financial disruptions, decreases in consumer spending, and unparalleled unemployment would have long lasting effects on brick-and-mortar retail stores like Valentino’s.

The Landlord moved to dismiss under CPLR 3211(a)(1) (defense founded upon documentary evidence), 3211(a)(7)(failure to state a claim), and 3211(c) (motion treated as one for summary judgment) arguing the lease agreement itself allocates to Valentino the risk of its inability to operate the premises and that financial loss does not equate to frustration or impossibility.[1] The Landlord pointed to several significant portions of the Lease including:

  • Section 2.3: Valentino promises to pay its rent “without any abatement, set-off or deduction whatsoever….”
  • Section 22.11: In the event of a governmental closure order or cataclysm, Valentino must continue to pay its rent.
  • Section 9.1: Valentino is required to comply with present and future governmental orders, whether foreseen or unforeseen.
  • Section 4.1: Valentino is not entitled to any set-off in rent liability based upon condition of Premises.
  • Section 21.11: In the face of cataclysmic events such as “failure of power, restrictive governmental laws or regulations, riots, insurrection, war, acts of terrorism, acts of God, floods, hurricanes, windstorms, fire or other casualty, condemnation or other reason of a similar or dissimilar nature…nothing contained in this Section shall operate to excuse Tenant from the prompt payment of Rent or any other payments or charges required by the terms of this Lease.”

The Court held that pursuant to Section 21.11 of the Lease, the parties expressly allocated the risk that Valentino would not be able to operate its business and that Valentino is therefore not forgiven from its performance, including its obligation to pay rent by virtue of a state law. Because the provision was broadly drafted, it was of no consequence that the COVID-19 pandemic was not specifically enumerated in the Lease. The Court further held that because Valentino failed to plead that it moved out of the premises or that the landlord substantially interfered with its use and possession, its claim for constructive eviction could not succeed. Evidence that Valentino was open for curbside retail and by appointment, or that Valentino vacated the premises only after the filing of the action, only hurt Valentino’s claim for constructive eviction. Based on these findings, Valentino’s complaint was dismissed in its entirety.

Upshot:

Recent decisions in the Commercial Division demonstrate that New York businesses have an uphill battle when seeking relief from rent and other financial obligations due to COVID-19 losses. In terms of rent obligations, claims of frustration of purpose and/or impossibility of performance are proving unsuccessful. Tenants should review their lease agreements for provisions which allocate the risk to tenants in the event of cataclysmic events.

[1] See 407 East 61st Garage Inc. v Savoy Fifth Ave Corp

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.

 

 

 

 

 

 

 

 

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.

As New York courts reopen and the mandatory stay-at-home order is lifted, what remains unclear is how the numerous Executive Orders issued by Governor Andrew M. Cuomo during the COVID-19 pandemic will affect individuals and businesses who, based on the economic effects of the crisis, may no longer be able to abide by previously issued court orders.

In a recent decision, Justice Lawrence Knipel addressed one of likely many present-day contractual issues brought on by the coronavirus pandemic.

In 538 Morgan Avenue Properties et al., v. 538 Morgan Realty LLC et al., Plaintiffs entered into a business sales contract with Defendants in 2015 whereby Plaintiff NY Stone purchased Defendant SD’s business.  At the same time, the parties entered into a separate real estate sales contract whereby Plaintiff 538 Morgan Avenue Properties purchased from Defendant the real property where SD’s business was located.  While Plaintiffs continued to make payments to Defendants under the contracts for the business and real property, Defendants cancelled the real estate contract, asserting a material breach by Plaintiffs based on their failure to pay a certain amount by the contract’s “as of date.”  In turn, Plaintiffs brought this action for breach of contract, claiming that all payments were made within a reasonable time and Defendants were in breach when they cancelled the real estate contract.

In 2017, the Court issued an order granting Plaintiffs’ motion for a preliminary injunction enjoining Defendants from interfering with their tenancy at the property under the condition that Plaintiffs pay a monthly use and occupancy fee in the amount of $22,986 along with a filing of an undertaking fee of $80,000.

Shortly before New York’s stay-at-home order was lifted in June 2020, Plaintiffs moved for an order modifying the preliminary injunction issued in the case concerning the use and occupancy payments due in light of the COVID-19 crisis.

In New York, although a landlord can recover use and occupancy costs for the reasonable value of the premises and use of those premises, the Court, ultimately, has broad discretion in awarding use and occupancy during the pendency of an action or proceeding (43rd St. Deli, Inc. v. Paramount Leasehold, L.P.).  When awarding use and occupancy, the Court takes into account the actual value of the property, whatever restrictions apply because of agreements between the parties, governmental decrees, and other factors (438 W. 19th St. Operating Corp. v. Metropolitan Oldsmobile, Inc.).

Here, to persuade the Court to modify the existing monthly use and occupancy payments due in light of the COVID-19 crisis, Plaintiff NY Stone argued that because it operates a stone fabrication store, which requires work to be done in person, the business was negatively affected by the government’s response to the COVID-19 pandemic through the Governor’s signing of numerous executive orders, including Executive Order 202.8, which forced Plaintiffs to first decrease their workforce and then completely forbid any of their employees from working on-site.  Accordingly, Plaintiffs asked the Court to waive any use and occupancy payments for the period from March 22, 2020 until such time as Plaintiffs are legally permitted to resume business operations.

Interestingly, Executive Order 202.8 (which Plaintiffs relied on in their motion) only prohibited “enforcement of either an eviction of any tenant residential or commercial, or a foreclosure of any residential or commercial property for a period of ninety days.”  The Executive Order, however, had no bearing on a commercial tenant’s obligations to pay rent nor did it mention forgiveness of a commercial tenant’s debt owed.

The Court recognized that because the Executive Order at issue was silent on use and occupancy fees, the Court had the power to modify use and occupancy upon a proper showing, leaving room for the possibility that a tenant’s use and occupancy could be modified or completely forgiven.

However, the Court, ultimately, denied Plaintiffs’ request for modification as Plaintiffs in this case failed to bring forth any competent evidence in the form of financial documentation or an accountant’s affidavit with supporting evidence to demonstrate that Plaintiffs could not actually pay for use and occupancy for the months during which they could not operate on-site.

Takeaway:  Courts have deference in issuing and modifying some court orders.  Even so, attorneys must make every effort to prove with the necessary evidence why a previously issued court order is entitled to and worthy of modification.

The COVID-19 pandemic has had widespread impact on litigation, with some courts and most cases coming to a screeching halt.  Some courts have responded with Orders or rules (Massachusetts Sup. Jud. Ct. Order OE-144 [March 20, 2020]; Wisconsin S. Ct. Order [March 25, 2020]; Florida S. Ct., No. AOSC20-16 [March 18, 2020]), while others have not, leaving the practitioner to determine the logistics under existing procedural rules and whatever Executive or Administrative Orders are in place.

As of this writing, we thought it might be helpful to provide the landscape in the state and federal courts in New York, and the impact, if any, Governor Cuomo’s Executive Order 202.7 may have.  We also provide links to helpful resources as you near your first virtual deposition.  We intend to update this as the landscape changes.

New York Law on Remote Depositions

New York Civil Practice Law and Rules (“CPLR”) 3113(b) mandates that an “officer” put the deponent under oath. The officer, or someone acting under the direction of the officer, must record the testimony.  Typically, a notary public or a stenographer serves the function of an officer who then records the testimony.

Pursuant to CPLR 3113(d), the officer administering the oath and transcribing the testimony must be physically present at the location where the deponent is testifying. Put simply, the statute does not permit the officer to be at a remote location and accessible by telephone. The rationale makes sense:  the officer who swears in the witness must have proof that the person before them is the actual witness.  SIgnifciantly, however, the statute allows the parties to stipulate otherwise (CPLR 3113[d]; In re Estate of Smith, 29 Misc 3d 832, 834 [Sur Ct 2010] [The court notes that “unless otherwise stipulated to by parties, the officer administering the oath shall be physically present at the place of the deposition”]). CPLR 3113(d), in part, states that “[u]nless otherwise stipulated to by the parties, the officer administering the oath shall be physically present at the place of the deposition and the additional costs of conducting the deposition by telephonic or other remote electronic means, such as telephone charges, shall be borne by the party requesting that the deposition be conducted by such means.”  In Washington v Montefiore Hospital et al., the Third Department held that because the court reporter who administered the oath was not present in the deponent’s office during his testimony, and rather, was present by telephone, the deposition was not conducted in accordance with CPLR 3113. However, there, the Court held that because there was no objection to the manner in which the oath was administered, thus preventing any correction of defect, the objection was waived (see Matter of Washington v Montefiore Hosp., 7 AD3d 945, 948 [3d Dept 2004]).

The rule further provides,that the testimony can be recorded by “stenographic or other means.” Indeed, CPLR 3113(d) permits the parties to “stipulate that a deposition be taken by telephone or other remote electronic means and that a party may participate electronically.” The stipulation must be agreed to by all the parties to a litigation and must detail 1) the method of recording; 2) the use of exhibits; and 3) who must and may be physically present.

Federal Law on Remote Depositions

Pursuant to Federal Rule of Civil Procedure (“FRCP”) 30(b)(4), “the parties may stipulate – or the court may on motion order – that a deposition be taken by telephone or other remote means.” In other words, under federal law, the court can order that a deposition be taken by telephone or other remote electronic means even in the absence of an agreement between the parties (Fed R Civ P 30[b][4]). Rule 30(b)(3) further states that testimony may be recorded by “audio, audiovisual, or stenographic means” and that the party who notices the deposition bears the recording costs.  In addition, any party can arrange to have the deposition testimony transcribed.

The COVID-19 pandemic has even caused certain federal judges to temporarily supplement their individual rules to permit all depositions to be taken by remote means, including telephone and videoconference (see Judge Lewis J. Liman’s COVID-19 Emergency Individual Practices in Civil and Criminal Cases).  The rule also provides that “[f]or avoidance of doubt, a deposition will be deemed to have been conducted “before” an officer so long as that officer attends the deposition via the same remote means (e.g., telephone conference call or video conference) used to connect all other remote participants, and so long as all participants (including the officer) can clearly hear and be heard by all other participants” (see id.).

Rule 30(b)(5) states that, unless the parties stipulate otherwise, the “deposition must be conducted before an officer appointed or designated under FRCP 28 (Nowlin v Lusk, 2014 WL 298155, at *5 [WD NY Jan. 28, 2014]).  Under FRCP 28, the deposition must be taken before either: 1) an officer authorized by federal law or by the law in the place of examination to administer oaths; or 2) a person appointed by the court where the action is pending. Rule 28 defines “officer” as a “person appointed by the court under this rule or designated by the parties under Rule 29(a).”  Notably, under FRCP 29(a), the parties can stipulate that “a deposition may be taken before any person, at any time or place, on any notice, and in the manner specified – in which event it may be used in the same way as any other deposition.” Put simply, the parties can stipulate that remote video depositions will be conducted by a person who is not a notary. The stipulation can also address the remote participation of the officer. The Rule does not require the parties to obtain the court’s approval of these stipulations. However, it is important to note that local rules can require approval for these stipulations.  Therefore, it is critical to consult both the Local Rules of the operative District Court, and the Individual Rules of the assigned Magistrate and Article III Judge.

Although the parties can stipulate otherwise, federal courts have held that a deposition is deemed to have been conducted before an officer if that officer “attends the deposition via the same remote means (e.g., telephone conference call or video conference) used to connect all other remote parties, and so long as all participants (including the officer) can clearly hear and be heard by all other participants)” (see Sinceno v Riverside Church in City of New York, 2020 WL 1302053, at *1 [SD NY Mar. 18, 2020] [permitting all depositions to be taken by telephone, video conference, or other remote means in light of the COVID-19 pandemic]).

In sum, federal law, unlike New York State law, does not require the physical presence of the officer in the same location as the deponent.

Executive Order 202.7 and Depositions

In light of the COVID-19 pandemic, on March 19, 2020, Governor Cuomo issued Executive Order 202.7 (“EO”), which suspended until April 18, 2020 the rule requiring the physical appearance of a notary public for the signing of documents.  To date, it is unclear whether the suspension will be extended. It is also not clear what impact, if any, the EO has on CPLR 3113’s physical presence requirement.  The EO addresses the witnessing of document signings, not the administration of oaths at depositions. Specifically, Executive Order 202.7 permits notary services to be performed by video provided the following conditions are met:

  • The person seeking the Notary’s services, if not personally known to the Notary, must present valid photo ID to the Notary during the video conference, not merely transmit it prior to or after;
  • The video conference must allow for direct interaction between the person seeking the Notary’s services and the Notary (g., no pre-recorded videos of the person signing);
  • The person seeking the Notary’s services must affirmatively represent that he or she is physically situated in the State of New York;
  • The person seeking the Notary’s services must transmit by fax or electronic means a legible copy of the signed document directly to the Notary on the same date it was signed;
  • The Notary may notarize the transmitted copy of the document and transmit the same back to the person seeking the Notary’s services; and
  • The Notary may repeat the notarization of the original signed document as of the date of execution provided the Notary receives such original signed document together with the electronically notarized copy within thirty days after the date of execution.

The New York Department of State has issued guidance to notaries regarding Executive Order 202.7.  Below are the additional considerations for notaries:

  • Notaries public using audio-video technology must continue to follow existing requirements for notarizations that were unaltered by the Executive Order. This includes, but is not limited to, placing the notary’s expiration date and county where the notary is commissioned upon the document.
  • If the notary and signatory are in different counties, the notary should indicate on the document the county where each person is located.
  • An electronically transmitted document sent to the notary can be sent in any electronic format (e.g., PDF, JPEG, TIFF), provided it is a legible copy.
  • The notary must print and sign the document, in ink, and may not use an electronic signature to officiate the document.
  • The signatory may use an electronic signature, provided the document can be signed electronically under the Electronic Signatures and Records Act (Article 3 of the State Technology Law). If the signer uses an electronic signature, the notary must witness the electronic signature being applied to the document, as required under Executive Order 202.7.
  • The Executive Order does not authorize other officials to administer oaths or to take acknowledgments, and only applies to notary publics commissioned by the Secretary of State’s office.
  • Following remote notarization, if the notary receives the original document within 30 days, the notary may notarize the document again (i.e., physically affixing a notary stamp and hand signing the document) using the original remote notary date.
  • Additionally, when performing remote notarization pursuant to this Executive Order, the Department recommends the following best practices. (However, not following these two recommendations will not invalidate the act or be cause for discipline):
    • Keep a notary log of each remote notarization;
    • Indicate on the document that the notarization was made pursuant to Executive Order 202.7.

Some Helpful Links and Advice From Court Reporters

So what are court reporters doing in light of the pandemic?  Adapting of course!  Many are offering free virtual or on-line demonstrations of how to conduct a remote deposition, or helpful  information on how the depositions would proceed.  Some examples can be found at Enright, Veritext or Bee Reporting, to name a few.  You might want to share these “tutorials” with your witness or clients so they understand the process before “taking the stand”.

 

 

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!

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!

To be sure, much has been reported on here at New York Commercial Division Practice concerning Commercial Division innovation — including in the areas of courtroom technology and, more recently, in adapting to the “new norm” of virtual practice in the wake of the COVID-19 pandemic.  As we observed a few months back, the virtual practice of law in the Commercial Division is becoming more real than virtual.  A recent amendment to the Commercial Division Rules over the summer, particularly to Commercial Division Rule 1 (“Appearance by Counsel with Knowledge and Authority”), has arguably furthered the cause by expressly allowing lawyers to request permission from the court to appear remotely by videoconference.

ComDiv Rule 1 is your basic “Be Prepared!” reminder when practicing in the Commercial Division.  It specifically requires lawyers appearing before ComDiv judges to be “fully familiar” with their cases; “fully authorized” to enter into agreements; “sufficiently versed” in e-discovery matters; and promptly “on time” for scheduled appearances.  As of July 15, 2020, Rule 1 now also provides at subsection (d) that:

Counsel may request the court’s permission to participate in court conferences and oral arguments of motions from remote locations through use of videoconferencing or other technologies. Such requests will be granted in the court’s discretion for good cause shown; however, nothing contained in this subsection (d) is intended to limit any rights which counsel may otherwise have to participate in court proceedings by appearing in person.

The language of Rule 1’s new subsection is both permissive and discretionary.  As the Commercial Division Advisory Council noted in its memorandum setting forth the reasons for the amendment, “Rule 1 enables any lawyer to decline to participate from remote locations … [and is not] intended to limit any rights which counsel may otherwise have … by appearing in court.”  As noted by the Council, “many lawyers feel that to serve their clients effectively, they must be able to make their presentations in person and see the judge in order to gauge his or her reactions to the arguments presented.”  The use of the permissive “may” in the new provision addresses that concern, among others.

The use of the phrase “in the court’s discretion” likewise addresses common concerns from the bench, including but not limited to the ability to “control overbearing or other inappropriate behavior by counsel more readily and more effectively by visual cues or otherwise.”  That said, the Advisory Council’s memo made specific reference to a videoconferencing survey circulated some years back among federal appeals judges in which the majority of the judges “indicated no difference in their understanding of the legal issues in arguments that were video-conferenced versus those that were not.”  After all, as the Council observed, “videoconferencing can replicate the experience of talking to a real person across the table, will all the nuances and body language that in-person conversations would convey.”

Notably, the amendment is limited to “court conferences and oral argument of motions and … not intended to address the more complex subject of testimony by witnesses at trials or other evidentiary hearings.”

Having been sent out for public comment over a year ago, there understandably is no mention of COVID-19 in the Advisory Council’s rationale for the amendment, which instead focused on efficiency and “obviat[ing] huge amounts of wasted time and money devoted to unnecessary travel by lawyers.”  Here’s the money quote (literally) from the Council on the topic:

A lawyer who travels from White Plains to Albany County to participate in a status conference will require a minimum of four hours of travel time and will incur out-of-pocket disbursements for travel by train or automobile. If that lawyer bills $600 per hour, the cost of the travel to the lawyer’s client would be $2,400 in attorney’s fees plus another $100 in disbursements.

In other words, a Westchester-based client may soon be pleasantly surprised to find a “.5” rather than a “5.5” next to a billing entry that says, “Travel to/from Albany County Supreme for status conference before Platkin, J.”

In short, there is much in the way of practical wisdom behind the new amendment to ComDiv Rule 1, even without consideration of the novel circumstances we’ve all been navigating over the last six months.  Add a pandemic to the mix, and the amendment couldn’t have come to us at a more perfect time.

At this point, after nearly three months of practicing law virtually from home, I think it’s fair to say that what was once novel and experimental has become a kind of new norm for the future.

Sure, state courts in New York, including the Commercial Division, have been returning slowly-but-surely to in-person operations over the last couple weeks, particularly upstate where Syracuse, Binghamton, Rochester, Buffalo, and the surrounding counties officially have entered Phase II of Governor Cuomo’s reopening protocols.

But make no mistake, as long as health and safety remain the priorities — and as well they should — physical interaction in the courthouse will continue to be minimized while virtual interaction is maximized.  As Chief Judge Janet DiFiore remarked earlier this week:

As we progress toward fuller in-person court operations across the State, our foremost priority remains protecting the health and safety of all those who work in and visit our court facilities.

As it stands, only essential family matters will be conducted in-person.  Criminal, juvenile-delinquency, and mental-hygiene proceedings, as well as all other “non-essential” matters, will continue to be held virtually.  Mediation and all other ADR proceedings also will continue to be conducted virtually.

No strangers to technological innovation, Commercial Division judges around the state have been embracing the new virtual norm with optimism, if not enthusiasm.  A few weeks ago, on May 11, NYSBA’s Commercial and Federal Litigation Section sponsored a “Virtual Town Hall” discussion via Zoom during which Commercial Division Justices Saliann Scarpulla (NY County), Timothy Driscoll (Nassau County), and Deborah Karalunas (Onondaga County) reported on the status of litigating in the Commercial Division during COVID-19 and the methods being employed to move their cases forward.  Here are some highlights on a just a few topics from the program:

  • The Transition to Virtual Proceedings Generally.  The move to virtual courtroom practice, along with all the associated technology (primarily Skype for Business), will require much patience on the part of the bench and bar alike.  Expect some bumps in the road and be prepared to deal with them cooperatively.  Judges are welcoming and even encouraging lawyer input.  Everyone needs to be sensitive to the reality of a general unwillingness to get back to the courthouse on the part of judges and other court staff.
  • Virtual Evidentiary Hearings.  Judges for the most part are encouraging virtual evidentiary hearings and, for those that have conducted them, are finding that they proceed fairly seamlessly.  Managing exhibits remains a challenge, however, especially for document-intensive cases involving lengthy contracts, etc.  Again, patience and cooperation is required.
  • Settlement and ADR.  Judges across the board actively (and successfully) are encouraging parties to settle their cases through court settlement conferences and/or the court’s mediation/ADR programs.  Specifically, Justice Scarpulla has been encouraging settlement by reminding lawyers that their clients should not expect to receive a trial date any time soon.  Justice Driscoll personally has been conducting three-room Skype settlement conferences.  And Justice Karalunas has been emailing lawyers directly, encouraging them to resolve their cases by settlement conference or mediation.

Next week, on June 8, the Business & Commercial Law Committee of the Westchester County Bar Association will be presenting a similar program entitled “Litigating in the Westchester Commercial Division During COVID-19:  A Virtual Town Hall Discussion.”  Westchester Commercial Division Justices Linda Jamieson and Gretchen Walsh will be on hand to address questions concerning, among other topics, the virtual practices and procedures being implemented in their courtrooms, upticks in ADR and settlement, and the recently-instituted gradual reopening of the courthouse on Martin Luther King Boulevard in White Plains.  Register for the program here and join us for the discussion!

With global commerce massively affected by the COVID-19 pandemic, post-pandemic litigation will undoubtedly result in a rise of interstate depositions and discovery. In turn, litigants engaged in actions pending outside of New York State will seek depositions and discovery from individuals and businesses residing in New York. As a result, New York attorneys will likely be asked to provide guidance or even be retained to assist litigants in these endeavors. This blog post provides readers with a primer on the procedures for obtaining depositions and discovery in New York pursuant to the Uniform Interstate Deposition and Discovery Act found in New York Civil Practice Law and Rules (“CPLR”) § 3119 (the “Act”).

The following scenario illustrates the utility of the Act: AB, a plaintiff engaged in an action against CD pending in California, realizes during the course of discovery in the California action that CD’s accountant, EF, is in possession of CD’s records relevant to AB’s prosecution of the California action. The problem is EF is a resident of New York and AB does not have jurisdiction over EF in California. How can AB obtain CD’s records from EF and EF’s deposition in New York?

The Act allows AB or AB’s attorneys to obtain an “out-of-state” subpoena—California subpoena—“issued under authority of a court of record of a state other than this state” (CPLR 3119 [a] [1]; Patrick M. Connors, Practice Commentaries, McKinney’s Cons Laws of NY, C3119:2 [2018]). Thereafter, AB must then submit the California subpoena to the county clerk in the county in which discovery is sought, typically, the county in New York where EF resides or has its principal office (CPLR 3119 [b] [3]; CPLR 503). The county clerk will then issue a New York subpoena (hereinafter, the “subpoena”) to be served on EF in New York (CPLR 3119 [b] [2]). Alternatively, AB can retain a New York licensed attorney to issue the subpoena without the need to involve the county clerk or courts (CPLR 3119 [b] [4]). AB must provide the New York attorney with either an original or a true copy of the out-of-state subpoena (CPLR 3119 [b] [4]).

Under CPLR 3119, the subpoena requires a person (defined in the statute as “an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public corporation, government, or governmental subdivision, agency or instrumentality, or any other legal or commercial entity”) to “attend and give testimony at a deposition;” “produce and permit inspection and copying of designated books, documents, records, electronically stored information, or tangible things in the possession, custody or control of the person;” or “permit inspection of premises under the control of the person” (CPLR 3119 [a] [2] and [a] [4] [i]-[3]; see also CPLR 3119 [d] [noting that CPLR 2303, 2305, 2306, 2307, and 2308 apply to subpoenas issued under CPLR 3119 [b]).

The New York subpoena must: “(i) incorporate the [same] terms used in the out-of-state subpoena” and “(ii) contain or be accompanied by the names, addresses and telephone numbers of all counsel of record in the proceeding to which the subpoena relates and of any party not represented by counsel” (CPLR 3119 [b] [3]).

Once issued, AB or AB’s New York attorney must serve the subpoena in accordance with CPLR 2302 (i.e., cause the subpoena to be issued with or without a court order) and CPLR 2303 (i.e., serve the subpoena in the same manner as a summons and pay in advance a witness fee for travel and attendance) (CPLR 3119 [c]).

Since there is no action or proceeding pending before any court in New York, a proceeding related to the subpoena (e.g., for protective orders or to enforce, quash or modify the subpoena) must be brought as special proceedings in the supreme court in the county where the subpoena is returnable (CPLR 3119 [e]).

In this regard, if EF fails to comply with the subpoena issued by the county clerk or a New York attorney (a non-judicial subpoena), AB can commence a special proceeding to enforce the subpoena and compel EF’s compliance pursuant to Art. 4 of the CPLR (CPLR 3119 [e]; CPLR 2308 [b] [disobedience of non-judicial subpoena]; Margulis v Zlochiver, No. 155201/2019 [Sup Ct, New York County Nov. 20, 2019] [ordering the appearance of a witness for an examination before trial “previously duly noticed . . . pursuant to the Uniform Interstate Deposition and Discovery Act and CPLR § 3119, and [to] have copies of records material to his testimony”). Likewise, if EF believes that it has grounds to seek a protective order, EF can commence a proceeding to quash or modify the subpoena (CPLR 3119 [e]; CPLR 2304). A special proceeding is commenced by filing a petition either on Notice of Petition or by Order to Show Cause (CPLR 402 and 403).

Be aware that failing to strictly comply with CPLR 3119 and the laws of New York can result in the court denying an application to compel compliance with the subpoena or for a protective order (Matter of Boyarsky, No. 53667/2014 [Sup Ct, Westchester County May 9, 2014] [denying an application for order compelling production of documents where no evidence exists that the subpoena was “issued under authority of the court of record in Massachusetts”]; Hyatt v State Franchise Tax Bd., 105 AD3d 186, 194 [2d Dept 2013] [New York law on attorney-client privilege applies on a motion for a protective order]).

Moreover, an out-of-state party cannot use a subpoena to go on a fishing expedition but only to “compel the production of specific documents that are relevant and material to the factual issues in a pending proceeding” (Matter of Home Box Office Inc. v Laster, No. 153946/2019 [Sup Ct, New York County Jun. 5, 2019] [granting motion to quash out-of-state Florida subpoena in its entirety] citing Mestel & Co., Inc. v Smythe Masterson & Judd, Inc., 215 AD2d 329 [1st Dept 1995]; Hyatt v State Franchise Tax Bd., 105 AD3d at 200-201 [citing the Recommendations of the Advisory Committee on Civil Practice: “The Act recognizes that the discovery state has a significant interest in protecting its residents who become non-party witnesses in an action pending in another jurisdiction from unreasonable or burdensome discovery requests.”] [citation omitted]).

Lastly, remember that CPLR 3119 only “provides a mechanism for disclosure in New York for use in an action that is pending in another state . . . , not the other way around” (see, e.g., Lerner v Newmark & Co. Real Estate, Inc., 178 AD3d 418 [1st Dept Dec. 5, 2019] citing Matter of 91 St. Crane Collapse Litig., 159 AD3d 511, 512 [1st Dept 2018]). In the latter case, CPLR 3108 controls in instances when the other state does not have a similar Uniform Depositions and Discovery Act (see Genesis Merchant Partners, LP v Gilbride, Tusa, Last & Spellane LLC, No. 653145/2014 [Sup Ct, New York County Feb. 23, 2020] [issuing a commission pursuant to CPLR 3108 for information via deposition in Connecticut] citing Wiseman v American Motors Sales Corp., 103 AD2d 230, 235 [1st Dept 1984]).