In our last “Check the Rules” post back in December, we noted the recent additions to the Manhattan Commercial Division bench, Justices Andrew Borrok and Joel M. Cohen, and promised to report back in early 2019 on any notable practice rules in their respective Parts.

My colleague Viktoriya Liberchuk’s perceptive post last week on the recent trend in the Commercial Division (and beyond) to formally encourage in-court “at bats” for young lawyers cited two specific rules from the newly-published “Practices and Procedures” for both Justice Borrok and Justice Cohen, both of whom encourage and even incentivize the “less senior attorney” or the “lawyer out of law school for five years or less” to argue motions before them.

In addition to advocating for the development of junior associates, Justice Borrok’s individual practice rules also suggest that he’s an advocate for the use of technology in the practice of law, or at least in his Part.  In his one and only published decision in 2019 thus far, Ostro v Ostro, Justice Borrok twice ordered the parties to comply with the court’s e-filing procedures, which is the subject of an entire section of his practice rules entitled “Electronic Filing.”

Justice Borrok has a handful of other techie practice rules worthy of note:

Be sure to “bookmark” your briefs and “hyperlink” your references to case law, etc.  Justice Borrok requires strict adherence to the requirement in Commercial Division Rule 6 that all briefs “shall include bookmarks providing a listing of the document’s contents and facilitating easy navigation by the reader within the document.”  He also “strongly encourages” the use of hyperlinks within documents submitted to the court.

Make sure you’re registered for “eTrack.”  As noted in Justice Borrok’s practice rules, as well as in the New York State Unified Court System’s description of the service, “eTrack is a case tracking service which enables you to track active Civil Supreme Court cases from all 62 counties of New York State.”  Justice Borrok requires that “parties and/or their counsel” litigating in his Part be registered for eTrack.

Check in at the “kiosk” outside the courtroom before appearing for a conference.  There’s a kiosk located near the courtroom entrance of Part 53.  Counsel are required to check in by entering the index number of their case, select and print the appropriate conference form(s), and fill them out before entering the courtroom.  By the way, be sure to set specific discovery dates in your proposed conference orders.  Open-ended “within 45 days”-type deadlines won’t cut it.

Submit your trial documents on a “flash drive.”  If you’re headed to trial before Justice Borrok, be sure to submit all your trial documents — including marked pleadings, prior decisions, notices to admit, deposition transcripts, and the like — “via flash drive prior to the hearings or start of trial.”

Be sure to check back with us in the coming months for notable decisions coming out of the newly-constituted Parts 3 and 53 in the Manhattan Commercial Division.

Want more tips on New York practice and procedure? Subscribe to the New York Commercial Division Practice blog and receive an email notification when a new post is published.

 

Tired of printing hundreds of thousands of documents and carrying numerous boxes of documents to court? The New York Commercial Division has heard your cry.  The New York Law Journal  reported that the Commercial Division courts are committed to utilizing technology to help make litigation efficient and more user friendly. The Commercial Division hopes to utilize innovative and advanced technology to efficiently adjudicate, among others, complex commercial matters. The benefits are bountiful as they will be valuable to lawyers, judges, and jurors.

In October, innovative technology made its debut in Justice Saliann Scarpulla’s courtroom in the New York County Commercial Division. In addition to Justice Scarpulla’s Part Rules, which require all cases be electronically filed and all documents text-searchable, Justice Scarpulla’s courtroom now contains an “86-inch screen to display documents, a podium with a document viewer and a USB port and small screens for attorneys and the judge.”   The new 86-inch screen permits attorneys to highlight and mark up documents. It also allows attorneys to scan documents while at the podium during trial, which helps to avoid unnecessary emergencies and courtroom delays.  Additionally, in an effort to protect client confidentiality, the courtroom contains a separate USB port for attorneys to use if their documents are highly sensitive so that they cannot be accessed through the court’s Wi-Fi. This new technology also permits attorneys to attend conferences via Skype, thus conserving time and expense.

In addition to the 86-inch display screen, the jury box in the courtroom was expanded and is now wheelchair accessible and offers technological assistance to jurors who are hearing or vision impaired. Similarly, jurors will no longer be inundated with reams of documents, as this new technology permits attorneys to provide jurors with a flash drive to access and review the documents in a more efficient matter.  In that regard, Justice Scarpulla stated that “we can promise a juror that they’re not going to be here for six months looking through documents.”  All of these technological improvements will undoubtedly have a positive effect on the willingness of people to serve as jurors and significantly impact efficiency in the courtroom.

“We think it’s important to have the right technology to give the business community in New York the sense that we could compete with the best courts in the world,” Justice Scarpulla opined.  Justice Scarpulla’s courtroom is the first, of what will hopefully be many New York courtrooms, to utilize this innovative technology that will make New York courts a much more desirable venue to handle complex commercial disputes.

The Commercial Division has initiated other changes that reflect its efforts to increase efficiency through technology.  For example, the Commercial Division promulgated Rule 11-e(f), which went into effect on October 1, 2018, encouraging parties to “use the most efficient means to review documents, including electronically stored information.” This new Rule, which addresses the use of technology-assisted review in the discovery process was discussed at length in Kathryn Cole’s blog, titled Important Update for Those Who Practice in the Commercial Division of the NYS Supreme Courts.

As technology pervades the legal profession, it is crucial that practitioners stay current with the changing technological landscape moving forward. Make sure you stay up-to-date with judge’s part rules and changes in the Commercial Division that we are certain to see in the future.

For more practice tips in New York Courts, subscribe to the New York Commercial Division Practice Blog.

Here at New York Commercial Division Practice, my colleagues and I have waxed poetic about New York’s Commercial Divisionthe nation’s first general trial court devoted exclusively to business litigation, by repeatedly extolling the benefits of practicing in a forum dedicated to and fully adept at adjudicating complex business disputes.  As such, we would be remiss if we did not give our plaudits to the Association of Corporate Counsel (“ACC”) for its 28-year history of contributing to the successful creation and implementation of business courts nationwide.

For those who are unaware, the ACC is a global legal association founded in 1982 that promotes the professional and business interests of in-house counsel through information, education, networking, and advocacy. The ACC has since grown to more than 47,000 in-house counsel members, employed by over 10,000 organizations, in more than 105 countries.  The ACC’s New York City Chapter, serving the five boroughs and Long Island, has over 1,600 in-house counsel members.

On October 16, 2023, the ACC’s Board of Directors, through its Advocacy Committee, endorsed a new business courts policy resolution (its third updated and expanded version) whereby the ACC reaffirmed its commitment to “urg[ing] national judiciaries to consider wherever appropriate the advantages of specialized procedures for resolution of business disputes,” and by encouraging them “to create commercial courts or specialized court divisions dedicated to business litigation.”  In large part due to ACC’s extraordinary advocacy efforts, business courts exist in more than half of the United States, and a number of other countries have similarly followed suit.

As set forth in the ACC’s policy resolution, “[c]ommercial courts result in more cost-effective and timely case processing and an improvement in the quality of dispositions.”  The policy resolution enumerates certain features that commercial courts may utilize to facilitate dispute resolution (some of which we have touched upon here), which include: 

  1. Advanced case management techniques, including close judicial oversight of each stage of litigation and case tracking by type and complexity.
  2. State of the art technology.
  3. Court-annexed alternative dispute resolution to encourage early case settlement.
  4. Cooperation among counsel and with the court in achieving a cost-effective resolution of the dispute.

The policy resolution also emphasizes that business courts “foster a more favorable environment for creating and maintaining businesses, and as a result enhance the economic well-being of their nation.”  

In an article entitled ACC’s Evolving Commercial Courts Leadership which was recently published in the publication “ACC Docket” on April 5, 2024, the ACC “spotlight[ed] as an example the many strides that have been achieved in the State of New York in developing one of the United States’ first business courts.”  In that connection, the article states that “ACC and its New York Chapter have advocated for and supported the Commercial Division of the New York State Supreme Court since its inception in 1995,” and that “[a]t every phase of the development of the Commercial Division, ACC is proud to have been at the forefront to advocate for and celebrate its impact.” 

Lest there be any doubt about the economic impact of the Commercial Division, on March 28, 2024, the NYSBA Committee on Continuing Legal Education, as well as the Business Law and General Practice Sections, sponsored a highly informative lunch-time webinar entitled, “The Economic Benefits of the Commercial Division to the State of New York and to the Success of Your Law Practice,” which explored how the Commercial Division helps New York State attract and retain businesses, thereby generating tax revenues and providing jobs, as well as how it enables New York businesses to operate more efficiently by reducing the amount of time and resources businesses are required to dedicate to dispute resolution.  A flyer circulated in connection with the webinar outlined the reasons why the Commercial Division is “renowned as one of the world’s most efficient venues for the resolution of commercial disputes.”

No doubt the Commercial Division has had an outsize impact on the New York business community, which once again brings to mind a common refrain around here at Farrell Fritz and on this blog, Get thee to the Commercial Division!

On February 14, 2024, Chief Administrative Judge Joseph Zayas signed an Administrative Order amending Section 202.70(b)(1) of the Uniform Rules for the Supreme and County Courts (Rules of the Commercial Division of the Supreme Court), and adding a new Rule 9-b to Section 202.70(g). But rather than vest the Commercial Division with new powers, the amendments simply emphasize the capabilities it already has. Amended Section 202.70(b)(1) underscores the Commercial Division’s proficiency in adjudicating technology disputes, and new Rule 9-b reminds litigators of the CPLR’s existing framework for referees. Taken together, the amendments aim to embrace the rising prevalence of technology disputes in business courts, and prod litigators toward an underutilized method of dispute resolution.

Amended Rule 202.70(b)(1)

Rule 202.70(b)(1) lists the types of actions that qualify as “commercial” and may be litigated in the Commercial Division. Prior to the amendment, the rule encompassed actions in which the principal claims involved “breach of contract or fiduciary duty, fraud, misrepresentation, business tort (e.g., unfair competition), or statutory and /or common law violation where the breach or violation is alleged to arise out of business dealings.”

As amended, Rule 202.70(b)(1) now emphasizes that “commercial” cases include those resulting from “technology transactions and/or commercial disputes involving or arising out of technology . . ..” Significantly, the amendment appears within a clause that lists examples of commercial cases, such as “sales of assets or securities; corporate restructuring; partnership, shareholder, joint venture, and other business agreements . . ..” By including the amendment within this clause, the Rule signifies that it does not expand the Commercial Division’s jurisdiction to encompass a new category of cases. Instead, as the Commercial Division Advisory Council (“CDAC”) explains in its Memorandum, the amendment “amplif[ies] the Commercial Division’s capabilities” (Memorandum at 3).

Thus, the rule simply serves as a reminder that the Commercial Division, as “one of the world’s most sophisticated venues for the resolution of commercial disputes and located in the world’s leading financial center and serving as a technology hub,” is uniquely equipped to adjudicate disputes arising from technology (Memorandum at 2). The motivation for the amendment is to “communicate the Commercial Division’s receptivity to, and familiarity with, resolving technology disputes” in light of the “increasingly important role” technology plays in business operations (id.). Further, the amendment takes after the rules of other state business courts that have emphasized their jurisdiction over and experience with technology disputes—namely, Georgia, Iowa, Michigan, North Carolina, Tennessee, Utah, and West Virginia.

In short, the amendment invites attorneys litigating technology disputes to consider New York’s Commercial Division as a venue, and highlights the Commercial Division’s status as a leading business court.

New Rule 9-b

The Administrative Order also adds “Rule 9-b” to Section 202.70(g). The new rule, titled “Referees,” states: “Counsel should be aware that in accordance with CPLR 4301 and 4317(a), on consent of the parties, and with the agreement of the Court, any person may be appointed by the Court to act in place of the assigned Supreme Court Justice, to determine any or all issues or to perform any act, with all the powers of the Supreme Court.”

The Rule is meant to encourage use of referees. Like the amendment to Rule 202.70(b)(1), Rule 9-b does not add any new capabilities, but reiterates the options already available to litigators in the Commercial Division. As the CDAC explains in its Memorandum, this method of adjudication “operates completely within the existing judicial system. The CPLR expressly contemplates this procedure by authorizing, upon consent of the parties and the approval of the court, the appointment of a person to be substituted for the Supreme Court Justice to make all judicial determinations” (Memorandum at 1). Indeed, the text of the new rule points to CPLR 4301 and 4317(a), which provide for the appointment of a referee upon consent and approval.

Rule 9-b reflects the CDAC’s belief “that practitioners, as well as many judges, may not be aware of the availability of this alternative. The proposed rule would bring attention to its utility” (Memorandum at 3). The benefits of using a referee include streamlining the resolution of issues that otherwise would require a formal motion to be addressed through a lengthy and often arduous decision process. Beyond that, increased use of referees could alleviate the strain on Judges, allowing them to devote more attention to the cases on their dockets. 

The new Rule is, of course, voluntary. But the goal is clear: to elevate referee usage so it is on par with mediation and arbitration, both of which have enhanced efficiency in the disposition of cases.

On April 2, 2024, the New York State Bar Association’s (“NYSBA”) Task Force on Artificial Intelligence released a report concerning the use of artificial intelligence (“AI”) in the legal profession (“Report”). New York joins select states, such as Florida and California, whose bar associations have published recommendations on the use of AI. The nearly 90-page Report examined the (1) evolution of AI and generative AI; (2) benefits and risks of AI and generative AI use; (3) impact of the technology on the legal profession; (4) legislative overview and recommendations; and (5) proposed guidelines. To date, the Report is the most comprehensive document provided by a state bar association regarding AI use.

Continue Reading AI Etiquette: A User’s Manual Provided by the NYSBA

Misbehaving children?  Blame the parents, right? Not so in the corporate context, at least according to Manhattan Commercial Division Justice Robert R. Reed in a recent decision, Memorial Sloan Kettering Cancer Ctr., v. Bristol Myers Squibb Co., in which he found that parent corporations will not be automatically held liable for the contracts of their subsidiaries.

Background

Memorial Sloan Kettering Cancer Center and Eureka Therapeutics Inc. (“Plaintiffs”) teamed up to develop technology to assist with blood cancer treatment. To assist with the development of this technology, Plaintiffs partnered with Juno, a biopharmaceutical company. Specifically, Plaintiffs entered into an exclusive licensing agreement with Juno that incentivized Juno to use Plaintiffs’ technology for blood cancer treatment.  The agreement provided that if Juno used and commercialized Plaintiffs’ technology, Plaintiffs would be entitled to certain royalties. After execution of the agreement, however, Juno was acquired by Celgene and Bristol Myers Squibb, Co (“BMS”).  As part of the acquisition, Juno “assigned all its right and obligations under the licensing agreement to BMS,” and “BMS acquired and assumed Juno’s rights and obligations under the licensing agreement.”

Further complicating matters between the parties, BMS had a competing blood cancer drug treatment known as Abecma. Instead of promoting Plaintiffs’ blood cancer treatment, BMS started promoting Abecma. Plaintiffs thus alleged that “BMS purportedly abandoned its effort to pursue Plaintiffs’ technology, failed to obtain FDA approval of Plaintiffs’ technology, and failed to develop, manufacture, and commercialize any licensed product as required by. . . the license agreement.”  This led to Plaintiffs bringing a single cause of action for breach of contract against all three parties – Juno, BMS, and Celgene. All three parties moved to dismiss.

Analysis

The crux of Justice Reed’s opinion dealt with whether the claims against BMS and Celgene, the parent companies of Juno, should be dismissed. Citing the First Department in World Wide Packaging, LLC v Cargo Cosms., LLC, Justice Reed noted that a “parent corporation generally cannot be held liable for the debts of its wholly owned subsidiary, nor can it be bound by the contract of that subsidiary.” Further relying on an earlier case from the Manhattan Commercial Division, Capricorn Invs. III, L.P. v. Coolbrands Int’l, Inc., Justice Reed explained that since parent and subsidiary entities are usually considered separate legal entities, “a contract of one does not bind the other.”

Turning again to First Department precedent in Horsehead Indus., Inc. v Metallgesellschaft AG, Justice Reed noted that there are limited circumstances that “a parent company can be held liable as a party to its subsidiary’s contract.” These circumstances exist when either “(1) the parent manifests an intent to be bound by the contract; or (2) if the elements of piercing the corporate veil are present.” Justice Reed explained that “intent is inferable if the parent participated in the negotiation of the contract, if the subsidiary is a dummy for the parent, or if the subsidiary is controlled by the parent for the parent’s own purpose.” Id.

After explaining the circumstances under which a parent company could be liable for a subsidiary’s contract, Justice Reed concluded that BMS and Celgene could not be held liable for the contractual obligations of Juno under the licensing agreement with Plaintiffs, reasoning that for parental liability to attach there must be more than “conclusory allegations of business overlap.” He further stressed that “facts must be alleged that establish an intent to be bound, which may be shown by contract negotiation, use of the subsidiary as a shell and use of the subsidiary.” 

In this case, Plaintiffs set forth no such evidence in their complaint.  Instead, Plaintiffs made bare allegations that BMS and Celgene “assumed” Juno’s contractual obligations and took “exclusive control of performing under the license agreement.” Justice Reed therefore found that there were “no facts plead to support the contention that BMS participated in the relevant contract negotiations, or that Juno was otherwise operated by BMS or Celgene as a dummy corporation.” Thus, Justice Reed dismissed the complaint against BMS and Celgene and severed and continued the action against Juno, individually.

Takeaway

When entering a business transaction with a subsidiary of a parent corporation, in order to successfully blame the parent, the contracting party must allege more than a simple business overlap to attach parental liability for the subsidiary’s contract. Bare allegations, such as the ones in Memorial Sloan Kettering Cancer Ctr., v. Bristol Myers Squibb Co., will result in dismissal of a complaint against parent corporations, leaving the plaintiffs out of luck. So, if you find yourself in a similar situation, it might be wise to ask whether the parents are really to blame?

When representing an aggrieved plaintiff in a commercial matter, there are certain business torts that I tend to rely on more heavily than others.  If business torts were foods, for example, a claim like breach of contract would be an entrée, while tortious interference with prospective business relations would be more of a side dish.  Those types of tort-lite claims are difficult to plead (and even more difficult to prove) because they require a showing of causation and culpability, the lack of which is fatal if not appropriately pleaded as Justice Robert R. Reed reminds us in Braddock v Shwarts and Vertical Group, Supreme Court, New York County (Index No. 158142/2018).

Continue Reading Where’s the Beef? Causation and Culpability Are Fatal Pitfalls in Zaycon Foods Lawsuit

The old game of “hide-and-seek” brings many of us back to our childhood as one of our favorite ways to pass time during the summer. As commercial practitioners know, the concept of serving a summons and complaint in a case can be similar to playing an adult version of “hide-and-seek.”  However, the days in which service of a summons and complaint can only be accomplished by physical delivery to a defendant seem outdated in our ever-growing technology reliant society. A recent decision from Manhattan Commercial Division Justice Robert R. Reed confirms as much, finding that service of process by email will suffice when dealing with an elusive litigant.

Continue Reading Ready or Not, Here I Come: The Expansion of Substitute Service by Email

Did you know that the New York State United Court System publishes an annual report covering the advances, challenges, and achievements in and by our New York State courts over the past year? If you did not, now is the time to head over to the NYCourts website and browse the recently released 45th Annual Report covering the 2022 calendar year.

The Annual Report is a visual reminder that we practice in “one of the largest, busiest, most complex court systems in the world,” as Acting Chief Administrative Judge Tamiko Amaker describes. Accompanied by vivid photos of some of the people and places involved with our courts, the 2022 Annual Report highlights the UCS’s initiatives toward equal justice within the courts (pgs. 15-23) and public access to justice (pgs. 25-39), as well as a fiscal overview of the UCS (pg. 55), and caseload statistics (pgs. 59-69).

Of particular interest to readers of this blog is the feature on the Commercial Division.

Since its creation in 1995, the Commercial Division of the New York State Supreme Court has transformed business litigation and made the State a preferred forum for complex business disputes. Renowned as one of the world’s most efficient venues for the resolution of commercial disputes and located in the world’s leading financial center, the Commercial Division is available to businesses of all sizes, both inside and outside the State of New York

Ever advancing the ball in substantive areas of the law and procedural rules and practices, the Commercial Division adopted and enacted 11 of the new procedural rules and amendments proposed by the Commercial Division Advisory Council in 2022 (which this blog has spotlighted), to wit:

As we move further into 2023, keep an eye on this blog for updates on developments in the Commercial Division’s rules and practices. As we’ve said before, always check the rules!

Hat tip to Chair of the Advisory Council and friend-of-the-blog, Robert L. Haig, for continuing to share with us the good work being done by the Advisory Council throughout the year.

A recent decision from the Manhattan Commercial Division reminds us that although punitive damages are generally not recoverable in New York, certain circumstances require that they be awarded.

In Hall v Middleton, Manhattan Commercial Division Justice Jennifer G. Schecter granted a $1 million punitive-damages award against defendant Middleton due to the presence of such circumstances.

Veritaseum, Inc. (the “Company”) is a financial technology company that uses blockchain-based markets to permit transactions between individuals. During initial conversations between plaintiff Charles Hall (“Hall”) and the Company’s CEO, Reggie Middleton (“Middleton”), Middleton made representations to Hall concerning the Company’s pending patent applications for proprietary technology concerning the use of block-chain technology and cryptocurrencies for the execution of smart contracts, to entice Hall to invest in the Company. Middleton represented to investors that the Company had pending patent applications, causing them to believe that they would be investing in a company that would eventually own the patents.

Hall commenced the action derivatively on behalf of the Company against Middleton for breach of his fiduciary duties to the Company by misappropriating the Company’s assets, including its intellectual property.

After trial, the Court found that Middleton “breached his fiduciary duty of loyalty to the Company by diverting ownership of the patents to himself.” Justice Schecter further determined that the Company (and not Middleton) should have owned the patents and thus other entities’ use of the patents would entitle the Company (and not Middleton) to a licensing fee.

During trial, Middleton argued that, despite the fiduciary relationship between the parties, there need not be trust in cryptocurrency transactions because such transactions are inherently “unbreakable promises.” The Court disagreed, stating that there is a need for trust among fiduciaries. The Court further noted that when trust is flagrantly violated, “there must be real, meaningful consequences to ensure that it doesn’t happen again. Anything short of significant punitive damages would further, not thwart, duplicity.”

To be entitled to punitive damages, “a defendant’s conduct must be directed at the public generally” (see Sherry Assocs. v Sherry-Netherland, Inc., 273 A.D.2d 14, 15, 708 N.Y.S.2d 105 [1st Dept 2000]). Punitive damages are intended as punishment for gross misbehavior for the good of the public and to deter the defendant from repeating the wrongful act (see Le Mistral, Inc. v Columbia Broad. Sys., 61 AD2d 491, 494–95 [1st  Dept 1978]).

In Hall, the Court determined that because Middleton clearly breached his fiduciary duty of loyalty to the Company, he may be held liable for punitive damages “regardless of whether his conduct was aimed at the public generally.” The Court noted that Middleton’s behavior impacted the public because he solicited investments from the public based on his misrepresentations concerning the Company’s ownership of the patents as well as conducted an illegal initial coin offering that resulted in the SEC issuing a consent order, thus destroying the value of the Company.  Justice Schecter further determined that:

Punitive damages are warranted because Middleton’s diversion of assets in breach of his fiduciary duty to the Company was intentional and deliberate, the related securities-law violations constitute aggravating and outrageous circumstances and his attempted scheme to effectively steal the patents for himself was impelled by a fraudulent motive.

In ultimately deciding that the plaintiff was entitled to punitive damages, the Court considered that the SEC had ordered Middleton to pay more than $8 million in disgorgement and a $1 million penalty. Thus, the Court held that a $1 million punitive-damages award was “justified.”

Although punitive damages are rarely awarded in New York, practitioners should take note that the Commercial Division is not afraid to grant such remedies when circumstances, like those on display in Hall, require them to.