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.

[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.”

The Manhattan Commercial Division lost a gem of a jurist last month when Governor Cuomo appointed Justice Saliann Scarpulla to a seat on the bench of the Appellate Division, First Department.  Good for her, to be sure.  But many of us ComDiv practitioners will be sorry to see her go.

Justice Scarpulla, after all, was a natural for the Manhattan Commercial Division.  She began her legal career in the late 1980s as a Court Attorney to former Manhattan Supreme Court Justice Alvin Klein.  In 1999, after more than a decade in private practice – and within just a few years of the inception of the Commercial Division itself – she became Principal Court Attorney to former Manhattan ComDiv Justice Eileen Bransten.  Fifteen years later, after serving more than a decade on the bench of the Manhattan Civil and Supreme Courts, Justice Scarpulla was elevated to replace former Manhattan ComDiv Justice Barbara Kapnick – who, like Justice Scarpulla, was tapped in 2014 to join the ranks of the First Department.

Justice Scarpulla has contributed much to the Commercial Division in her 5-plus years on the bench, including her push for a “paperless part” in Part 39 and her implementation of the Integrated Courtroom Technology (ICT) program in her courtroom over the last couple of years.  After launching the program for the Manhattan ComDiv in October 2018, and proclaiming the primacy of “hav[ing] the right technology to give the business community in New York the sense that we [can] compete with the best courts in the world,” Justice Scarpulla twice hosted demonstrative presentations by members of ComFed’s Committee on the Commercial Division – first in April and again in October of last year – of all the hi-tech equipment in her courtroom.  The standing-room only programs were attended by lawyers, judges, and court personnel alike – all of them eager to learn how to implement ICT into their own day-to-day routines.

Justice Scarpulla also made headlines late last year when she ordered the President in Matter of People v Trump to pay $2 million to settle claims brought by the New York Attorney General, finding that he breached his fiduciary duty as a director of the Donald J. Trump Foundation by “allowing his [political] campaign to orchestrate [a] fundraiser, allowing his campaign, instead of the Foundation, to direct distribution of the funds [raised], and using the fundraiser and distribution of the funds to further Mr. Trump’s political campaign.”

We here at New York Commercial Division Practice, as well as our colleagues over at New York Business Divorce, have spilled much ink reporting on Justice Scarpulla’s thoughtful and sometimes novel decisions over the years.  In fact, we separately highlighted two cases of first impression adjudicated by Justice Scarpulla in our annual NYLJ column earlier this year.

In Advanced 23, LLC v Chambers House Partners, LLC, Justice Scarpulla applied for the first time in the context of an LLC dissolution proceeding the 35-year old “bad-faith petitioner” defense — found in the Court of Appeals’ 1984 decision in Kemp & Beatley — when she affirmed a special referee’s finding that the petitioning LLC member had “breached the [the LLC’s] Operating Agreement to attempt a forced dissolution of [the LLC].”  And in Rosania v Gluck, she extended the now-uniform rule found in the First Department’s 2016 Matter of Raharney decision, which prohibits New York courts from dissolving foreign entities, to a Delaware LLC member’s attempt to assert quasi-dissolution claims for a compelled buyout or other liquidation of the LLC’s assets.  The equitable claims asserted by the plaintiff-member in Rosania, she ruled, was simply “an ill-disguised attempt to make an end-run around the rule” and “would be tantamount to ordering the dissolution of the LLC.”

With these and countless other decisions issued over her 5-plus years on the ComDiv bench, Justice Scarpulla no doubt has made a unique and important contribution to the Commercial Division jurisprudence from which we ComDiv practitioners regularly draw.  We thank you for your service.

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!

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”.