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.

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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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[I] irrevocably release and forever discharge [the Company] . . . from any and all actions, causes of action, suits, debts, claims, complaints, liabilities, obligations, charges, contracts, controversies, agreements, promises, damages, expenses, counterclaims, cross-claims, [etc.] whatsoever, in law or equity, known or unknown, [I] ever had, now have, or may have against the [Company] from the beginning of time to the date hereof.

When someone releases another from claims, he is relinquishing his right to sue in connection with the subject of the release.  So long as it is not procured by fraud, New York courts will generally enforce broad general releases, such as the one above, as a party’s waiver of future fraud and fiduciary duty claims even when such claims are not foreseeable at the time of contract execution.  In Chadha v Wahedna, 2021 NY Slip Op 50509(U), a June 2, 2021, decision by New York Commercial Division Justice Barry Ostrager, the plaintiff learned this lesson the hard way when his pleading was dismissed in its entirety due to his execution of a general release covering his claims.

Underlying Facts and the Amended Complaint

The dispute in Chadha involves a financial technology and services company that offers investment opportunities compliant with Islamic law (the “Company”) and its controlling shareholder, director, and CEO (“Wahedna,” together “Defendants”).

In his Amended Complaint, Nilish Chadha (“Chadha”), the former COO, board member, and shareholder of the Company, alleged that from October 2016 through January 2017, Defendants engaged in a fraudulent scheme to purchase 530 of Plaintiff’s shares in the Company at deeply discounted values by inducing Plaintiff to enter into a series of three Common Stock Repurchase Agreements (“CSRAs”). Plaintiff claimed that Defendants fraudulently misrepresented to Plaintiff the value of his shares, and, in breach of fiduciary duties owed to him, failed to disclose higher share prices that were being negotiated with third-party investors in order to buy out Plaintiff’s shares in the Company at lower prices.

In June 2020, more than three years after the sale of all his shares in the Company, Plaintiff filed this action seeking to recover damages arising from the alleged “surreptitious” purchase by Defendants of Plaintiff’s 530 shares through alleged fraud and failure to disclose the existence of the potential equity investors. Plaintiff asserted that knowledge of these discussions would have impacted his opinion of the value of his stock in the Company.

The Motion to Dismiss

Defendants pointed to a Settlement Agreement and Release (the “Settlement Agreement”), entered into between Plaintiff and Defendants in connection with the CSRAs, which included the general release language referenced above.  Relying on the Settlement Agreement, Defendants moved to dismiss the Amended Complaint on the basis that all of the causes of action were barred by the release, arguing that it broadly released all claims, whether known or unknown, and, as a consequence, the Settlement Agreement extinguished all of the Amended Complaint’s claims.  Defendants also argued that Plaintiff did not negotiate any specific limitations to the release that might preserve any of the claims, a fact which Plaintiff fully understood when he executed the Settlement Agreement.

The Court’s Analysis and Decision

In considering whether the general release at issue barred Plaintiff’s claims, the Court looked to guidance from the New York Court of Appeals.  In Centro Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V., 17 NY3d 269 (2011), cited throughout the decision, the Court affirmed the First Department’s dismissal of a case brought by former owners of shares in a telecommunications company because the general release plaintiffs granted to defendants in connection with the sale of plaintiffs’ ownership interests encompassed unknown fraud claims, regardless of the fiduciary relationship between the parties.  The Court of Appeals held that, as sophisticated parties, plaintiffs negotiated and executed an “extraordinary release . . . [and] cannot now invalidate that release by claiming ignorance of the depth of their fiduciary’s misconduct.”

In Chadha, the Court held that Defendants met their burden of providing a release that encompassed unknown future fraud claims because the release unequivocally referred to “any and all actions” “whatsoever” “known or unknown,” thereby shifting the burden to Plaintiff to establish that the release was invalid due to contract defenses, such as fraud. Under the facts alleged in the Amended Complaint, however, the Court held that Plaintiff could not avoid dismissal for a number of reasons.

To begin with, the Court found dispositive the fact that Plaintiff did not allege a fraud separate from the subject of the release, stating that the allegation that Wahedna allegedly concealed the existence of a future investment by a third-party that would have been favorable to the Company was not “separate from the broad cover of the release which is ‘any and all claims [ ] the Investor Released Parties ever had, now have, or may have against the Company Released Parties from the beginning of time to the date hereof.’”

Next, the Court rejected Plaintiff’s argument that the fiduciary relationship between Plaintiff and Wahedna prevented the parties from being able to release fraud claims because Plaintiff signed the release after selling all his shares in the Company, so that a fiduciary relationship between the two of them no longer existed.  The Court also found that Plaintiff, as the COO of the Company at that time, had access to information relevant to the Company and did not exercise his own diligence in evaluating the value of his shares. The Court also rejected Plaintiff’s argument that he lacked sophistication to understand that he was releasing all future and unknown claims inasmuch as Plaintiff had “an undergraduate degree in Business Administration from The American University in Dubai and was sophisticated enough to serve as the Company’s COO which inherently involved an understanding of the Company’s financial status.”

In the end, the Court dismissed Plaintiff’s Amended Complaint with prejudice.

Takeaway

The Court’s recent holding in Chadha reinforces the fact that parties can contract away fraud and fiduciary duty claims with general releases. If a party wants to ensure that it is not waiving its right to bring such claims, then it should make sure to negotiate disclaimer language specifically indicating that it does not intend to waive such a claim. By including targeted and specific language, a party can rest easy that a court will enforce a disclaimer in the way in which it intended.

For more case law analysis concerning general releases, look to Peter A. Mahler’s post from the other week in Farrell Fritz’s New York Business Divorce blog.

 

Pursuant to Part 130 , attorneys are obligated to undertake an investigation of a case.  But is an attorney responsible for ignorance of facts which the client neglected to disclose?  “No,” says the Commercial Division.

In a recent decision by Justice Andrew Borrok, the Commercial Division discussed this very issue. In Morgan and Mendel Genomics v Amster Rothstein & Ebenstein, LLP, Albert Einstein College of Medicine (“Einstein”) hired the law firm of Amster Rothstein & Ebenstein, LLP (“Defendant”) to assist Einstein in obtaining a patent for its new genetic testing technology, invented by Einstein employees, Dr. Ostrer and Mr. Loke.  By way of background, the publication date of the technology is critical because it starts the one-year clock for filing a patent application.

In Morgan and Mendel Genomics, Einstein advised Defendant that it first published an article (the “Article”) about its technology in March 2012—which would start the one-year timeframe by which Defendant would have to file a patent application.  In addition, Einstein submitted to Defendant an Invention Disclosure Form, which confirmed in writing that the technology was first published in March 2012.  However, Defendant learned, on its own, that the Article appeared online on January 11, 2012 and communicated that fact to Einstein. And so, Defendant filed a provisional patent application on January 8, 2013 and a non-provisional application on January 8, 2014.

On September 14, 2016, the United States Patent and Trademark Office (the “USPTO”) rejected the application as untimely because the Article was available online on December 15, 2011, more than a year before the provisional patent application was filed with the USPTO.

On November 22, 2019, plaintiff Morgan and Mendel Genomics (“Plaintiff”), who purports to have entered into an agreement with Einstein wherein Einstein assigned to Plaintiff its claim against Defendant, commenced an action for legal malpractice.

Defendant moved to dismiss the motion under CPLR § 3211(a)(7) arguing , among other things, that the law firm was retained solely to file a patent application – not to investigate whether the information provided to it by its client was not false. Justice Borrok concluded that “[a]lthough an attorney is responsible for investigating and preparing a client’s case, the attorney ‘should not be held liable for ignorance of facts which the client neglected to tell him or her.'”  To that end, the Court determined that “Plaintiff’s claim is doomed by the fact that the claim is premised on false information which the Defendant’s lawyers were allowed to rely on and for which they were not hired to investigate (i.e. that the article had in face been published earlier).”  

The Second Department in Green v Conciatori similarly dismissed a legal malpractice claim against attorneys who represented plaintiff in a personal injury action.  In Green,  plaintiff alleged that his lawyers were negligent in failing to discover certain facts about the plaintiff’s accident, which differed from the facts disclosed to them by their client, i.e., the plaintiff.  The Second Department held that “[w]hile an attorney has a responsibility to investigate and prepare every phase of a client’s case, an attorney should not be held liable for ignorance of facts which the client neglected to tell him or her.” In Green, the court further determined that plaintiff did not show that counsel “failed to exercise the ordinary reasonable skill and knowledge possessed by a member of the legal profession” in relying on the information provided by the client.

The Third Department in Parksville Mobile Modular, Inc. v Fabricant  also determined that although an attorney “has the responsibility to ‘investigate and prepare every phase’ of his client’s case,” “an attorney should not be held liable for his ignorance of facts which his client neglected to tell him” (73 AD2d 595, 598 [3d Dept 1979] [holding that the fact that the attorney did not develop as full record as was developed following a trial cannot be grounds for a legal malpractice claim]). In Thompson v Seligman, however, the Third Department denied defendant law firm’s motion for summary judgment on a legal malpractice claim where the plaintiff was under a mistaken belief as to an important fact regarding its worker’s compensation claim, and the attorney failed to review the record evidence, which would have shown plaintiff’s mistaken belief (Thompson vSeligman, 53 A.D.3d 1019 [3d Dept 2008]).  There, the court stated that the question becomes “whether, in the performance of that duty [to investigate and prepare for his client’s case], defendants “ ‘exercise[d] that degree of care, skill, and diligence commonly possessed and exercised by a member of the legal community’ ” (see id.).

Takeaway: 

Can you safely rely on facts provided to you by your clients? It depends.  The Commercial Division says: yes, you can and a client’s failure to provide his or her counsel with correct information is not a basis for a legal malpractice claim. However, the steps one takes to investigate will always, of course, be judged by whether they were consistent with the  care and diligence exercised by others in the field.

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.

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.

Your client has just asked you to commence an action against a corporate entity in a New York state court.  But, the defendant is not incorporated in New York, and does not maintain a principal place of business in New York.  Further, the incident underlying your client’s claim did not occur in New York, nor is the claim connected to the defendant’s specific conduct in New York.  Obtaining specific personal jurisdiction over the foreign corporation is not an option.

The claims, then, may only be brought in New York if the court can exercise general personal jurisdiction over the foreign corporate entity.  But what is the standard for obtaining general personal jurisdiction in New York, and what must be shown?  The Appellate Division, Second Department recently answered these questions in Lowy v Chalkable, LLC (2020 NY Slip Op 04471 [2d Dept Aug. 12, 2020]).

The plaintiffs in Lowy had entered into a joint venture agreement with defendants to purchase and develop websites and web-based companies. Plaintiffs were to provide capital funding, and defendants were to develop and run the websites.  Plaintiffs allegedly provided the funding, but defendants did not perform their obligations under the contract, which included giving plaintiffs equity in the defendant Chalkable, LLC (the “LLC”), a Delaware web-based company allegedly controlled by defendants.

Sometime thereafter, defendant Chalkable, Inc. (the “Corporation”), purchased the LLC, and defendant PowerSchool Group, LLC (“PowerSchool”), purchased the Corporation. Both the Corporation and PowerSchool (the “PowerSchool Defendants”) were formed under the laws of Delaware and have their principal place of business in California.

Plaintiffs sued defendants, asserting claims for breach of contract, declaratory relief, and a constructive trust. The PowerSchool Defendants moved, among other things, pursuant to CPLR § 3211 (a)(8) to dismiss the complaint for lack of personal jurisdiction.  In October 2017, the Queens County Commercial Division (Grays, J.), granted the PowerSchool Defendants’ motion, and Plaintiffs appealed.

The Appellate Division, Second Department, affirmed Justice Grays’ decision, finding no basis to impose either general or specific personal jurisdiction over the PowerSchool Defendants.  With respect to the Court’s exercise of general personal jurisdiction, the Court reiterated the general rule that a corporation is subject to general jurisdiction only in the state of the company’s place of incorporation or principal place of business. Citing its prior decision in Aybar v Aybar, 169 AD3d 137 (2d Dept 2019), the Court noted that an exception exists in “an exceptional case” where the defendant’s contacts with New York are “so continuous and systematic, ‘judged against [its] national and global activities, that it is essentially at home’ in th[e] state.”  In the Court’s view, plaintiffs failed to make that showing.

Although the Second Department did not offer a lengthy analysis for its conclusion, its reasoning can be gleaned from the Court’s prior decision in Aybar, as well as the United States Supreme Court’s seminal decision in Daimler AG v Bauman (571 U.S. 117 [2014]).

Daimler

Prior to the Supreme Court’s decision in Daimler, a foreign corporation was amenable to suit in New York under CPLR § 301 only if it engaged in “such a continuous and systematic course of ‘doing business’ here that a finding of its ‘presence’ in this jurisdiction is warranted” (see e.g. Landoil Resources. Corp. v Alexander & Alexander Servs., 77 NY2d 28, 33 [1990], quoting Laufer v Ostrow, 55 NY2d 305, 309–310 [1982]).  Then, in Goodyear Dunlop Tires Operations, S.A. v Brown (564 US 915 [2011]), the Supreme Court addressed the distinction between general and specific jurisdiction, holding that a court is authorized to exercise general jurisdiction over a foreign corporation when the corporation’s affiliations with the state “are so ‘continuous and systematic’ as to render them essentially at home in the forum State” (id. at 919, quoting International Shoe Co. v Washington, 326 US 310, 317 [1945] [emphasis added]).

In Daimler, the Supreme Court limited the scope of general jurisdiction to that definition, explicitly rejecting a standard that would permit the exercise of general jurisdiction in every state in which a corporation is engaged in a “substantial, continuous, and systematic course of business” (571 US at 137). The Court instructed that the two main bases for exercising general jurisdiction are (i) the place of incorporation, and (ii) the principal place of business (see id.), but left open the possibility of an “exceptional case” where a corporate defendant’s presence in another state is “so substantial and of such a nature as to render the corporation at home in that State” (id. at 139, n. 19 [emphasis added]).

Aybar

After Daimler, the Second Department in Aybar considered whether to exercise general personal jurisdiction over a foreign corporation registered to do business in New York,  which had appointed a local agent for service of process.  The plaintiffs in Aybar argued that the defendant, Ford Motor Company (“Ford”), should be subject to the Court’s general jurisdiction because Ford (i) had been authorized to do business in New York since 1920, (ii) operated numerous facilities in New York, (iii) owned property in New York and spent at least $150 million to maintain that property, (iv) employed significant numbers of New York residents, (v) contracted with hundreds of dealerships in New York to sell its products under the Ford brand name, and (vi) had frequently been a litigant in New York courts.  Seems sufficient for a court to exercise general personal jurisdiction, right?

It wasn’t.

Although the plaintiffs pointed to Ford’s factory in New York, employing approximately 600 people, and Ford’s contracts with “hundreds” of dealerships in New York, Ford presented evidence that it had 62 plants, employing about 187,000 people, and 11,980 franchise agreements with dealerships worldwide.  In the Second Department’s view, “appraising the magnitude of Ford’s activities in New York in the context of the entirety of Ford’s activities worldwide, it cannot be said that Ford is at home in New York.”

This brings us back to the Second Department’s decision in Lowy.  There, the Court noted that the Corporation “owns and operates software that facilitates communication in schools and provides educational data management in schools in 50 states, while the education technology platform owned and operated by PowerSchool Group serves millions of users in more than 70 countries.”  As in Aybar, the Second Department considered the entirety of the PowerSchool Defendants’ nationwide and worldwide activities, ultimately concluding that the PowerSchool Defendants’ activities in New York were not so “continuous and systematic” so as to render them “at home” in New York.

Takeaway: 

The fact that a foreign corporation conducts business in New York, standing alone, is insufficient to permit the exercise of general jurisdiction over claims unrelated to any activity occurring in New York.  To determine whether a foreign corporate defendant’s affiliations with the state are so “continuous and systematic” so as to render it essentially “at home” in New York, courts will not focus solely on the defendant’s in-state contacts, but will undertake an appraisal of the defendant’s activities in their entirety, both nationwide and worldwide.   As the United States Supreme Court noted in Daimler, “a corporation that operates in many places can scarcely be deemed at home in all of them.”