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

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

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

As a result of the COVID-19 (Coronavirus) pandemic, court systems throughout the United States have had to rapidly adapt and issue temporary rules and procedures in order to keep court personnel, litigants and attorneys safe while continuing to serve their important societal function of administration of justice.

We wanted to provide a resource to readily access the various and ever-changing temporary rules and procedures of New York State’s Appellate and Commercial Divisions of the Supreme Court.  We will continue to monitor and post updates and other useful information at a time when policies are changing on a seemingly minute-by-minute basis.

New York State Executive Action

In keeping with Chief Administrative Judge of the Courts, Hon. Lawrence K. Marks, Memorandum of March 15, 2020, which postponed all non-essential court functions effective at 5:00 p.m. on March 16, 2020, Governor Andrew Cuomo signed Executive Order No. 202.8 on March 20, 2020 which, among other things, tolled until April 19, 2020 “any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding, as prescribed by the procedural laws of the state, including but not limited to . . . the civil practice law and rules, . . . and the uniform court acts, or by any other statute, local law, ordinance, order, rule, or regulation, or part thereof.” For other Executive Orders related to the Coronavirus, click here. Correspondingly, Judge Marks issued Administrative Order 78/20 on March 22, 2020, directing an immediate prohibition to filing any papers in any matter with any county clerk’s office until further notice. This directive applies to both hard copy and electronic filings. However, certain matters deemed essential are permitted and contained on the list annexed as Exhibit A to Administrative Order 78/20.

Additional pertinent Executive actions taken include allowing NY notaries to perform notarial services using video conferencing technology provided certain conditions are met, such as the person seeking the service must transmit a valid photo ID during the video conference, be on the video conference at the time of signing and affirmatively present themselves as being physically situated in NY. See Executive Order No. 202.7.

New York Court System Generally

On March 19, 2020, Judge Marks issued Administrative Order No. 71/20 strongly discouraging litigants engaged in pending civil matters from prosecuting such matters in a manner that would require appearing in-person or travel during this health crisis. See AO 71/20 (1). Additionally, this Order directs litigants (parties and attorneys) affected by COVID-19 to use best efforts to enter agreements to adjourn discovery-related matters for a period not exceeding ninety (90) days. See AO 71/20 (2). If litigants cannot reach an agreement, the court has the ability to review the matter and issue the appropriate order once court returns to normal operation. See id.

In keeping with Judge Marks’ Memorandum and Administrative Orders, most, if not all, courts of New York State implemented temporary policies and procedures (highlighted below) to handle essential court functions virtually.

Now in an effort to ease restrictions placed on non-essential court functions, on April 7, 2020, Judge Marks circulated a new Memorandum offering the Courts preliminary steps to transition non-essential court functions to a remote/virtual court system on an ongoing basis beginning on April 13, 2020, including Judges being available to conduct conferences to aid counsel with discovery disputes via Skype or telephone. Judge Marks then issued Administrative Order dated April 8, 2020 (AO/85/20) providing additional procedures and protocols concerning specific matters trial courts will address such as conferencing pending cases, deciding fully submitted motions, discovery, and video technology. Nevertheless, litigants are still unable to file new non-essential matters until further notice.

Appellate Division

Generally, on March 17, 2020, all the Appellate Divisions of New York’s four (4) Judicial Departments issued emergency Orders. While similar in substance, each Judicial Department’s temporary rules and procedures vary slightly. We urge you to review the particular rules and procedures pertinent to your matter.

First Department

On March 17, 2020, the First Department issued an Order temporarily suspending deadlines, with the exception of matters perfected for May 2020 and June 2020 terms, the Court suspended indefinitely deadlines for all perfection, filing and other deadlines set forth by court order, Parts 1240 and 1250 of the Rules of the Appellate Division, Parts 600 and 603 of the Rules of the Appellate Division First Department, or Part 1245 of the Electronic Filing Rules of the Appellate Division. Additionally, and again, with the exception of all matters perfected for the May 2020 and June 2020 term, the March 17th Order granted all motions or applications for extensions of time to perfect or file that were pending as of March 17, 2020. See Order. Contemporaneous to the March 17th Order, the First Department also issued emergency procedures. See Covid-19 Emergency Procedures as of March 17, 2020.

Second Department

Unlike the First Department’s March 17th Order, the Second Department’s March 17th Order did not place a limitation on when suspensions or extensions would commence and indefinitely suspended deadlines, granted pending motions or applications for extension of time until further order of the Court. All dates for perfecting, filing, motions or applications for extensions, and all other motions were suspended until further directive of the Court.

The Second Department also issued additional Notices regarding:

(i) Limitation of Court Operations – Presently, the Court is processing its calendars through April 2, 2020. But for appeals between March 17, 2020 and April 2, 2020, such appeals will be on submission only unless a request to hear such appeal via Skype is made to Court via email at ad2clerk@nycourts.gov. Also, for emergency applications and motions presently pending considered to be an emergency, you should contact the Court via email to ad2clerk@nycourts.gov indicating that the matter is urgent.

(ii) Hard copy filings at the Court’s Clerk’s Office – Hard copy filings are NOT permitted and e-filing is mandatory until further notice.

(iii) Oral arguments before the Court – Beginning on March 17, 2020, all matters are on submission but the Court will permit oral argument via Skype on request to the Court at ad2clerk@nycourts.gov to make arrangements.

Click here for all other Second Department Notices related to Covid-19.

Third Department

Similar to the Second Department, the Third Department’s March 17, 2020 Order indefinitely suspended deadlines, granted pending motions or applications for extension of time. However, the Third Department’s extension did not apply where a statute confers a deadline.

Beginning on March 17, 2020, the Third Department began only entertaining emergency matters. However, if you deem a matter an emergency, the Court requests that you notify it in writing, on notice to your adversaries, as a request that “the Court treat your matter as urgent” to ad3clerksoffice@nycourts.gov with the subject indicating that the matter is urgent. Also, calendared matters for the March term will be heard on submission and matters for the April term are adjourned to a date in a later term. See Third Department’s Covid-19 Emergency Procedures as of March 17, 2020. Click here for additional Third Department Covid-19 related updates.

Fourth Department

The Fourth Department’s March 17, 2020 Order substantially mirrors the Order issued by the Third Department. The Fourth Department also intends to only entertain matters on an emergency basis with staffing significantly reduced. Matters calendared for the March and April terms are being considered on submission only and matters scheduled for the May term are adjourned to be re-calendared for a later term. Requests for emergency relief should be made by email to ad4-clerk@nycourts.gov. For additional information, contact the Fourth Department Clerk’s office at (585) 530-3100.

Commercial Division

Presently, all of the Justices of the Commercial Division, New York County have issued temporary rules or procedures, including procedures for requesting remote conferences in keeping AO/85/20.

Given the rapid changes, we plan to maintain regular updates to this blog for the foreseeable future. For this reason, each Commercial Division of the New York Supreme Court is listed below. Please check back regularly for updates.

7th Judicial District – Cayuga, Livingston, Monroe, Ontario, Seneca, Steuben, Wayne, and Yates Counties

For essential and emergency court matters, contact court staff directly. Click here for a list of contact numbers and links to additional important information about the 7th Judicial District.

o Hon. J. Scott Odorisi

8th Judicial District – Erie County

o Hon. Deborah Chimes
o Hon. Emilio Colaiacovo
o Hon. Henry J. Nowak
o Hon. Timothy J. Walker

Albany County

o Hon. Richard Platkin

Kings County

o Hon. Lawrence Knipel
o Hon. Larry D. Martin
o Hon. Leon Ruchelsman

Nassau County

Supreme Court, Nassau County has implemented virtual chambers protocols and provided a list of virtual chambers contacts and conference request forms. For additional important information concerning Nassau County Courts operations during COVID-19, click here.

o Hon. Stephen A. Bucaria
o Hon. Vito M. DeStefano
o Hon. Timothy S. Driscoll
o Hon. Jerome Murphy

New York County

o Hon. Andrew Borrok – Requests for conferences in Part 53 may be made via email to sfc-part53@nycourts.gov.

o Hon. Joel M. Cohen – Requests for conferences in Part 3 may be made via email to sfc-part3@nycourts.gov.

o Hon. Marcy Friedman
o Hon. Andrea Masley

o Hon. Barry Ostranger – Requests for conferences in part 61 – sfc-part61@nycourts.gov.

o Hon. Saliann Scarpulla – Requests for conferences in Part 39 may be made via email to part-39@nycourts.gov.

o Hon. Jennifer G. Schecter
o Hon. O. Peter Sherwood

In addition, a party wishing to request a remote conference in all New York County Supreme Court Civil Parts can complete the request form found annexed to the below link and email the completed form to sfcconferencerequest@nycourts.gov. The completed form will be forwarded to the assigned judge. See https://www.nycourts.gov/legacypdfs/courts/1jd/supctmanh/PDF/Remote-Conference-Protocol.pdf for more information.

Onondaga County

o Hon. Deborah H. Karalunas
o Hon. Anthony J. Paris
o Hon. Donald A. Greenwood

Queens County

o Hon. Marguerite A. Grays
o Hon. Leonard Livote
o Hon. Joseph Risi

Suffolk County

o Hon. Jerry Garguilo
o Hon. Elizabeth H. Emerson
o Hon. James Hudson

Westchester County

o Hon. Linda S. Jamieson
o Hon. Gretchen Walsh

For general Coronavirus updates from the New York State Courts, visit https://www.nycourts.gov/ or call the Court’s Coronavirus Hotline at (833) 503-0447.

As readers of this blog know by now, we here at New York Commercial Division Practice frequently post on new, proposed, and/or amended rules of practice in the Commercial Division.  Just last month, for example, my colleague Viktoriya Liberchuk posted on the Advisory Council’s recent proposal to amend ComDiv Rule 6 (“Form of Papers”) to mandate hyperlinks in legal briefs, allowing adversaries, judges, and other court personnel immediate electronic access to cited cases, statutes, and other supporting documentary evidence.

We’ve also reported on ComDiv decisions taking lawyers to task for failing to comply with the particularities of practicing in the Commercial Division — both with respect to noncompliance with the Rules themselves, as well as noncompliance with the individual practice rules of this or that ComDiv judge.

In one of the first ComDiv decisions of 2020, Manhattan Commercial Division Justice Andrea Masley addressed the propriety of a post-argument submission by a defendant under ComDiv Rule 18 on a motion to dismiss.

Hawk Mtn. LLC v Ram Capital Group LLC involved statute-of-limitations issues vis-à-vis a promissory note and the validity of a related release.  Following oral argument on its dismissal motion, the defendant submitted a recent federal-court decision out of the Eastern District of Pennsylvania, apparently in an effort to resolve a dispute over whether the parties in the Hawk Mtn. case qualified as “affiliates” under, and therefore were covered by, the release in question.  Citing the exception to ComDiv Rule 18’s general prohibition against “sur-reply and post-submission papers” — namely, that “counsel may inform the court by letter of the citation of any post-submission court decision that is relevant to the pending issues, but there shall be no additional argument” — Judge Masley allowed the defendant to supplement the record on its dismissal motion but made perfectly clear that she would “disregard any arguments made in [the defendant’s] accompanying letter.”

Having seen the Hawk Mtn. decision, and given the recent turn of year, we thought it a worthwhile exercise to take a quick look back at 2019 for other decisions addressing issues of (non)compliance with the ComDiv Rules.  What follows are a couple of notable examples from the Manhattan Commercial Division last year — both from Justice Joel M. Cohen as it just so happens — addressing ComDiv Rules 13 and 14 concerning expert disclosure and pre-motion conferences respectively.

In 30-32 W. 31st LLC v Heena Hotel LLC, Judge Cohen granted the defendants’ motion to strike an expert rebuttal report submitted by the plaintiffs in a dispute over the development and sale of a hotel.  Judge Cohen found that the report did not comply with ComDiv Rule 13 in a number of important respects, including primarily the expert’s failure to provide a “complete” statement of his opinions and to identify any documentation he relied upon to support his opinions.  The incompleteness of the expert’s report was perhaps captured best in his own words — to wit:

At this time and on a preliminary basis I find that I do not concur with the conclusion reached by [the defendants’ expert].  Additional forensic accounting work is required, and I reserve the right to amend and supplement this draft.

The draft report also made repeated references to “disputed factual assertions” and “significant intercompany transactions” but altogether failed to specify the facts in dispute or the transactions at issue.  Such a report, according to Judge Cohen, “provides insufficient notice of any opinions [the expert] proposes to offer or the bases for those opinions” and thus offends the fundamental purpose behind expert disclosure — namely, “No Sandbaggers Allowed!”

In Village Green Mishawaka Holdings, LLC v Romanoff, Judge Cohen shot down a red-herring argument and related “barbed references” in an attorney affirmation when denying a non-party’s motion to quash a subpoena.  Judge Cohen attacked the motion as “procedurally improper” as well, citing ComDiv Rule 14’s prohibition on filing motions without first requesting a pre-motion conference and finding that “there [wa]s no indication that [the non-party] ever requested such a conference prior to filing this motion.”  Judge Cohen also took issue with the form of the attorney affirmation, citing his own practice rules prohibiting so-called “brief-irmations” and “brief-adavits” submitted in lieu of a proper memo of law:  “All motion papers … must include a Memorandum of Law,” and “Affidavits or Affirmations of counsel containing legal argument should not be submitted.”

Check the rules, folks.  Always check the rules.

Practitioners often choose to practice in the Commercial Division because of its well-documented efficiencies.  Thus, many were happy to hear that Chief Administrative Judge Larry Marks issued Administrative Order 270/2020 (“AO 270/20”), which incorporated features of the Commercial Division into the Uniform Civil Rules for the Supreme and County Courts (the “Uniform Rules”).  My colleague addressed the highlights of AO 270/20 in a blog post back in January.  AO 270/20 went into effect as of February 1, 2021, and courts are now grappling with how to best handle the enforcement of the new rules and attorneys’ compliance with them.

One of the Commercial Division rules making its way over to the non-commercial part is Commercial Division Rule 19-a, which deals with statements of material facts.  However, the new rule (Section 202.8-g) as it applies to the non-commercial parts is different from its Commercial Division predecessor insofar as it mandates that there be “annexed to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried.”  This new Rule is not unlike Commercial Division Rule 19-a, except that the Commercial Division leaves to the discretion of the court whether to require a Rule 19-a statement upon the filing of a summary judgment motion (Commercial Division Rule 19-a states that “the court may direct that there shall be annexed to the notice of motion a separate, short and concise statement, in numbered paragraphs, of the material facts as to which the moving party contends there is no genuine issue to be tried”).  The Uniform Rules do not.

The Supreme Court, Rockland County in Amos Fin. LLC v Crapanzano et al. recently took a harsh stance on a lawyer’s failure to comply with the new Section 202.8-g of the Uniform Rules.  On June 11, 2021, four months after AO 270/20 went into effect, plaintiff Amos Financial LLC (“Amos” or “Plaintiff”), brought a motion for summary judgment after allowing the case to linger for almost nine years.  Plaintiff’s motion papers did not include a “separate, short and concise statement” of the material facts as to which Plaintiff believed there were no genuine issues of fact, nor did Plaintiff offer an explanation for its failure to do so.

In determining that Plaintiff’s motion was “procedurally defective on its face,” Justice Robert M. Berliner held that Uniform Rule 202.8-g “is not precatory or discretionary in its application: it is a mandate on all summary judgment movants in this State.”

The court explained that a failure to submit a Uniform Rule 202.8-g Statement of Material Facts constitutes a violation that is neither “merely technical nor without prejudice,” nor is it a minor pleading error that courts can correct nunc pro tunc under CPLR 2101 (f) and/or CPLR 2001 (which permit certain minor defects and errors to be corrected).  The court opined that the CPLR provisions excusing minor defects cannot redeem a summary judgment movant’s violation of Uniform Rule 202.8-g.

The court further concluded that CPLR 2101 (f) is inapplicable because it applies where “a substantial right of a party is not prejudiced.”  In Amos, the court determined that Plaintiff’s failure to submit a Statement of Material Facts prejudiced the defendants by virtue of the fact that the motion papers effectively conceal, in an otherwise voluminous record, the relevant factual allegations and their evidentiary basis.  This decision was based, in part, on the fact that the case was not electronically filed, thus requiring respondent and the court to dig through a large paper record without the “substantial efficiency reforms” that Uniform Rule 202.8-g would achieve.

According to Justice Berliner, “[w]ere trial courts to ignore a wholesale Rule 202.8-g violation, courts thereby would peril not just that rule and its constitutional and statutory predicates, but also the other efficiency reforms that the Judiciary enacted with it.”

The Supreme Court ultimately took the hardline approach in denying Amos’ summary judgment motion for, among other things, its failure to comply with the new Uniform Rule 202.8-g.

What you need to know:  If you are in the Commercial Division, check the specific Judge’s rules to determine whether they require a Rule 19-A Statement.  For matters outside the Commercial Division (in the Supreme Court and County Court), you must include a Statement of Material Fact with your summary judgment motion.

Will the rest of the Supreme Court follow in Justice Berliner’s hard-line ruling in enforcing the new Uniform Rule 202.8-g? Stay tuned as we continue to monitor decisions concerning this new rule.

 

Parties to a contract generally can include in their agreement a provision preventing assignment of the agreement’s rights and remedies without the consent of both parties.  Because a party’s assignment of rights under a contract to a third party may have serious implications for both sides in the performance of that agreement, anti-assignment clauses protect the contracting parties by ensuring that no transfer of the agreement’s rights occurs without the consent of all involved.  Dance with the date you brought.  And absent fraud, unconscionability, or some other reason to invalidate the contract, courts generally enforce those anti-assignment clauses.

In the insurance context, however, the enforcement of anti-assignment clauses is more complicated.  Because insurers—like any contractual party—have a legitimate interest in protecting themselves from insureds’ assignment of the insurance agreement to a different, perhaps more risky party, anti-assignment clauses in insurance agreements are enforceable against assignments that occur prior to a covered loss.  Arrowood Indem. Co. v. Atlantic Mut. Ins. Co., 96 AD3d 693, 694 [1st Dept 2012].  But in circumstances where the assignment occurs after the covered loss, New York courts are more critical of anti-assignment clauses.  In those circumstances, courts reason, there is no increased risk to the insured; the loss already occurred, and the only thing that changes as a result of the assignment is who the insurer will need to pay for that loss.

In Certain Underwriters At Lloyd’s, London v AT&T, Corp., 2021 N.Y. Slip Op. 31740[U], a recent decision by New York Commercial Division Justice Cohen, the Court explores the exceptions to the general rules regarding anti-assignment clauses in insurance policies.  Ultimately, the case underscores the difficulties insurers face in disclaiming coverage by enforcement of an anti-assignment clause in the policy.

Continue Reading Can You Assign Your Rights Under an Insurance Contract that Prohibits Assignment? Only for Prior, Fixed Losses

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.

Attorneys do a lot for their clients. They offer counsel, provide legal advice, and work hard to advocate for their client. But one thing they shouldn’t do, is assist their client perpetrate millions of dollars of fraud and then assert a flawed statute of limitations defense in a desperate attempt to avoid liability. Unfortunately that’s exactly what is alleged against the defendant-attorney, Adam Chodos, in the recent New York Commercial Division matter, Sabourin v Chodos.

The facts of Sabourin involve a lawyer’s complicity in a complex fraudulent scheme with his client and non-party William Jack Frost (“Frost”), an investor in a fashion and lifestyle magazine known as Z!NK, on its founders, Isabelle Sabourin (“Sabourin”) and Sheriff Ishak (“Ishak”) (collectively the “Plaintiffs”). Though the underlying acts of fraud date back to 2008, the facts surrounding the Defendant’s involvement are alleged to have been unknown until evidence and testimony was adduced as part of Arbitration against Frost in 2013-2014 (the “2013-2014 Arbitration”). In this action, where the Plaintiff’s brought claims against Frost’s attorney, Justice Andrew Borrok denied the Defendant’s motion for summary judgment, finding issues of fact as to when exactly the Plaintiffs learned of the attorney’s fraudulent conduct for the purposes of the statute of limitations.

In 2007, Frost invested 8 million in Z!NK Magazine in exchange for 25% equity in a new joint venture called I.T. Global Media, LLC (“ITGM”). Frost defaulted on his initial funding obligations within the first 30 days—foreshadowing the tumultuous business relationship to come. After coming up with the funds to revive the deal, Frost, with the help of the Defendant, spent the next few years fraudulently wresting control of the Z!NK business and looting its assets.

Some of the duo’s fraudulent highlights include:

  • Misrepresenting that Frost would open an account for ITGM to deposit a $6 million check, never opening such an account, and instead producing forged account statements to Plaintiffs to show a false balance of $6 million;
  • Drafting a fraudulent resignation letter on behalf of Ishak, and as a result, taking over ITGM, terminating its employees and closing all of its bank accounts;
  • Forwarding the forged resignation letter to any bank where Ishak attempted to open a new bank account for Z!NK and demanding that those accounts be frozen;
  • Filing papers with the U.S. Patent and Trademark Office purporting to assign all the rights, title, and interest in the Z!NK trademark to a company solely owned by Frost;
  • Accusing Ishak of financial improprieties in order to dissuade Ishak from retaining an outside accountant (which would have likely exposed their fraudulent acts);
  • Drafting and notarizing several promissory notes and security agreements for the purpose of evidencing fictitious debts of approximately $4 million and causing ITGM’s accountants to file false tax returns acknowledging the fraudulent debts and a Schedule K-1 Form that one of Z!NK’s founding companies received $4 million in distributions; and
  • Making false statements to the FBI, the NY County District Attorney’s office, the IRS, and other authorities.

Plaintiffs claim that they were unaware of the Defendant’s involvement the above fraudulent acts because in 2008 Frost made multiple trips to Z!NK’s headquarters, where he pilfered all of Z!NK’s office documents which would expose the fraudulent scheme. Each time he packed files upon files of evidence into a large black suitcase, flew them to his home, and had his executive assistant scan them all into his personal computer. By taking everything out of the office, Frost effectively shuddered the company and prevented it from operating.

Z!NK filed a lawsuit against Frost in January of 2010. By September 2012, the matter was sent to arbitration. Through the evidence and testimony adduced at the 2013-2014 Arbitration, the Plaintiffs allege that they learned, for the first time, the true underlying facts of what had transpired and became aware of the Defendant’s involvement.

At the conclusion of the 2013-2014 Arbitration, the arbitrator found in favor of the plaintiff and in February of 2015, Plaintiffs entered judgment against Frost in the amount of $62,380,605.50. But by the time the judgment was entered, Frost had disappeared.

Based on the newly discovered information, Plaintiffs brought suit against the Defendant, asserting claims for fraud, aiding and abetting fraud, unjust enrichment, civil conspiracy to commit conversion, aiding and abetting breach of fiduciary duty, and tortious interference with economic advantage. The subject of Justice Borrok’s recent decision is a motion for summary judgment filed by the Defendant seeking to dismiss the complaint, arguing (i) the statute of limitations has run; (ii) he should not be liable for his client’s actions; and (iii) the damages were not ascertainable.

The Defendant argued that Ishak knew of the fraud since 2008 based on prior testimony (see Harty v Lenci). If this was so, it would preclude Plaintiff’s fraud claims, which must be commenced within six years of the fraud or within two years of the fraud being discovered (CPLR § 213 [8]; Saphir Intl SA v UBS PaineWebber Inc.). The Defendant was relying on the fact that Ishak had previously responded, “Yes, I believe so” and “Absolutely” when asked if at certain times in 2008 he came to the conclusion or believed that the Defendant was complicit in Frost’s fraud.

The Court was not persuaded that Ishak’s testimony established the Plaintiffs knew of the Defendants involvement in the fraudulent scheme. The Court found nothing in Ishak testimony established “the facts” known by Plaintiffs, or that they knew, or had reason to know of Defendant’s involvement prior to 2013-2014 Arbitration. The Court accepted Ishak’s argument that what he meant by his testimony was that “he now believes” the Defendant was involved in fraud as early as 2008. The Court found this explanation to be consistent with the fact that the Plaintiffs did not refer to the Defendant at all in their 2011 complaint against Frost. The Court further reasoned that Plaintiffs couldn’t have known of the Defendant’s involvement because they were cut-off from the records that may have revealed Defendant’s involvement.

Of course, the Court could not pass up the moment to comment on Rule 1.2 of the Rules of Professional Conduct, stating the Defendants conduct in preparing fraudulent instruments raises issues of his obligation as a lawyer to reveal fraud or resign from the matter and not continue to assist. The Defendant argued that he could not be liable for Frost’s fraud because he performed his services in a lawful manner. Once again, the Court disagreed, finding that Plaintiffs are suing Defendant for his individual fraudulent conduct and that the documentary evidence showed he played an instrumental role in the alleged fraud.

Ultimately, the court found the following issues of fact precluding summary judgment (i) the relationship of the Defendant and Frost; (ii) the likelihood that the Defendant knew, should have known, or maybe played a role in assisting Frost in forging the documents or stealing all the business records; (iii) the reasons for the delay in the 2013-2014 Arbitration and whether it really took Plaintiffs until the 2013-2014 Arbitration to have the facts to satisfy CPLR § 3016(b); and (iv) how Defendant’s alleged ethical breaches may have further altered Plaintiff’s ability to learn the facts. Accordingly, Defendant’s motion for summary judgment was denied.

Upshot: For the purposes of determining whether the statute of limitations applies, courts will not only look to previous testimony to determine when the plaintiff learned of the fraud, but the facts as a whole.

Three months ago very few of us regularly communicated by virtual videoconferencing.  Today, it’s fast become a daily routine, and in all likelihood will become a more permanent part of our practice.  Who would have guessed that by May 2020, we would be comfortably conducting mediations, hearings, court conferences and even trials by Skype, Zoom or other videoconferencing platform, from home nonetheless?  The adjustment has not been easy for all involved.  Prior to the pandemic, many justices had not permitted emails.  However, when the cases were limited to those deemed “essential” and attorneys were not able to use New York State Courts Electronic Filing (“NYSCEF”) for filing, there was simply no way to contact many of the judges.  However, as Plato recognized over 2,300 years ago, “necessity is the mother of invention”.  That’s when the courts decided to publish rules and/or set up Part emails.

As we embrace our new world, the Commercial and Federal Litigation Section of the New York State Bar Association has prepared a Virtual Courts Contact List based on preferences expressed by each Commercial Division Justice.  So we’re here to share the list with you (at the bottom of this post) and hope you find it helpful in navigating through the “work at home” routine.  Caution to all however: counsel should, of course, check (a) the temporary part rules, if any, on the website for the assigned Commercial Division Justice (see, e.g., https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/Part-54-Temporary-Rules.pdf) and (b) the website for the relevant county or judicial district’s Supreme Court to see if there are specific rules, procedures or forms to be used in requesting conferences.  For example, Nassau County Justice is using the attached form:  http://ww2.nycourts.gov/sites/default/files/document/files/2020-04/Email%20Request%20For%20Conference%20Form.pdf

And a Big Thanks  go out to Kathy Kass, Esq., Counsel in the Commercial Division Support Office, for providing us with specific links to the Commercial Division Justices in New York County:

~Justice Borrok –  requests for conferences in Part 53 may be made via email to sfc-part53@nycourts.gov

~Justice Cohen – requests for conferences in Part 3 may be made via email to sfc-part3@nycourts.gov

~Justice Friedman – see https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/Part-60-Temporary-Rules.pdf

~Justice Masley – see   https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/Part48-Temporary-Rules.pdf

~Justice Ostrager – requests for conferences in part 61 – sfc-part61@nycourts.gov

~Justice Scarpulla –  requests for conferences in Part 39 may be made via email to part-39@nycourts.gov

~Justice Schecter – https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/Part-54-Temporary-Rules.pdf

~Justice Sherwood – see https://www.nycourts.gov/LegacyPDFS/courts/comdiv/NY/PDFs/part49-temporary-rules.pdf

In addition, see there is also  a conference request email for all NY Supreme Civil parts, https://www.nycourts.gov/legacypdfs/courts/1jd/supctmanh/PDF/Remote-Conference-Protocol.pdf

 

County/ Judicial District Justice Best Remote Contact as of April 17th 2020
Albany County Hon. Richard Platkin Email: PlatkinChambers@nycourts.gov
Email requests for conference should copy counsel for all parties
Kings County / Brooklyn Hon. Lawrence Knipel

Email: lknipel@nycourts.gov

Law Clerk: Aaron Blinder
ablinder@nycourts.gov
Email requests for conference should copy counsel for all parties

Kings County / Brooklyn Hon. Larry D. Martin

Email: ldmartin@nycourts.gov

Law Clerk: David C. Pepper
dpepper@nycourts.gov

Assistant Law Clerk: Dorichael Rodriguez
drodrig3@nycourts.gov
Email requests for conference should copy counsel for all parties

Kings County / Brooklyn Hon. Leon Ruchelsman

Email: lruchels@nycourts.gov

Law Clerk: Mark Kagan
mkagan@nycourts.gov
Email requests for conference should copy counsel for all parties

Nassau County Hon. Stephen A. Bucaria

Attorneys may request a priority conference with the Court on pending matters by sending a standardized email request form to each Judge’s Chambers.  A group email address for each Judge’s Chambers has been established for this purpose as provided below.  Attorneys and unrepresented parties will indicate the reason for the requested conference.  Chambers shall then determine whether a conference is necessary or appropriate and direct the manner of the conference, i.e., by telephone or video.

judgebucariaremote@nycourts.gov
Email requests for conference should copy counsel for all parties

Nassau County Hon. Vito M. DeStefano

Attorneys may request a priority conference with the Court on pending matters by sending a standardized email request form to each Judge’s Chambers.  A group email address for each Judge’s Chambers has been established for this purpose as provided below.  Attorneys and unrepresented parties will indicate the reason for the requested conference.  Chambers shall then determine whether a conference is necessary or appropriate and direct the manner of the conference, i.e., by telephone or video.

judgedestefanoremote@nycourts.gov
Email requests for conference should copy counsel for all parties

Nassau County Hon. Timothy S. Driscoll

Attorneys may request a priority conference with the Court on pending matters by sending a standardized email request form to each Judge’s Chambers.  A group email address for each Judge’s Chambers has been established for this purpose as provided below.  Attorneys and unrepresented parties will indicate the reason for the requested conference.  Chambers shall then determine whether a conference is necessary or appropriate and direct the manner of the conference, i.e., by telephone or video.

judgedriscollremote@nycourts.gov
Email requests for conference should copy counsel for all parties

Nassau County Hon. Jerome Murphy

Attorneys may request a priority conference with the Court on pending matters by sending a standardized email request form to each Judge’s Chambers.  A group email address for each Judge’s Chambers has been established for this purpose as provided below.  Attorneys and unrepresented parties will indicate the reason for the requested conference.  Chambers shall then determine whether a conference is necessary or appropriate and direct the manner of the conference, i.e., by telephone or video.

judgemurphyremote@nycourts.gov
Email requests for conference should copy counsel for all parties

New York County Hon. Andrew Borrok Email: SFC-Part53@nycourts.gov
Email requests for conference should copy counsel for all parties
New York County Hon. Joel M. Cohen Email: sfc-part3@nycourts.gov
Email requests for conference should copy counsel for all parties
New York County Hon. Marcy Friedman Until further notice, communications with the Court should be directed to the Part 60 email
Eamil: SFC-PART60@nycourts.gov.
Email requests for conference should copy counsel for all parties
New York County Hon. Andrea Masley Email: sfc-part48@nycourts.gov
Email requests for conference should copy counsel for all parties
New York County Hon. Barry Ostrager Email: SFC-PART61@nycourts.gov
Email requests for conference should copy all parties
New York County Hon. Saliann Scarpulla Email: Part-39@nycourts.gov
Email requests for conference should copy counsel for all parties
New York County Hon. Jennifer G. Schecter All requests for conferences should be made by contacting Justice Schecter’s Principal Law Clerk Michael Rand by email at mrand@nycourts.gov, copying all counsel and setting forth the reason for and nature of the conference requested.
New York County Hon. O. Peter Sherwood

To schedule a conference, the attorneys should email the clerk assigned to their case.

Cases with even index numbers (excluding the year) are generally assigned to Ms. Crasson [scrasson@nycourts.gov].
Cases with odd index numbers are generally assigned to Mr. Rivera [mrivera@nycourts.gov].
Email requests for conference should copy counsel for all parties

Onondaga County Hon. Deborah H. Karalunas Email: Judge-Karalunas-Chambers@nycourts.gov
Email requests for conference should copy counsel for all parties
Onondaga County Hon. Anthony J. Paris Email: Judge-Paris-Chambers@nycourts.gov
Email requests for conference should copy counsel for all parties
Onondaga County Hon. Donald A. Greenwood Email: Judge-Greenwood-Chambers@nycourts.gov
Email requests for conference should copy counsel for all parties
Queens County Hon. Marguerite A. Grays Email:   QNSCDPTB@nycourts.gov
Email requests for conference should copy counsel for all parties
Queens County Hon. Leonard Livote Email: QNSCDPTA@nycourts.gov
Email requests for conference should copy counsel for all parties
Queens County Hon. Joseph Risi Email; QNSCDPTC@nycourts.gov
Email requests for conference should copy counsel for all parties
Suffolk County Hon. Elizabeth Hazlitt Emerson Emails have been created for each Judicial Part. These Part emails may be utilized by the bar to request a conference with the Court.
Contact via email @ Sufemerson@nycourts.gov
Email requests for conference should copy counsel for all parties
Suffolk County Hon. Jerry Garguilo Emails have been created for each Judicial Part. These Part emails may be utilized by the bar to request a conference with the Court.
Contact via email @ Sufgarguilo@nycourts.gov
Email requests for conference should copy counsel for all parties
Suffolk County Hon. James Hudson Emails have been created for each Judicial Part. These Part emails may be utilized by the bar to request a conference with the Court.
Contact via email @ Sufhudson@nycourts.gov
Email requests for conference should copy counsel for all parties
Westchester County Hon. Gretchen Walsh The best means to request a conference call is through assistant court attorney Ryan Wintermute rjwinter@nycourts.gov.
Email requests for conference should copy counsel for all parties
Westchester County Hon. Linda S. Jamieson Communication via email by contacting assistant court attorney, Joseph Hadala: jhadala@nycourts.gov
Email requests for conference should copy counsel for all parties
7th Judicial District Hon. J. Scott Odorisi The Court is available to conduct conferences – via either Skype for Business or the
telephone. If you would like to schedule a conference, e-mail Maureen Ware at
mware@nycourts.gov on notice to all parties.
8th Judicial District Hon. Emilio Colaiacovo Emaill: ecolaiac@nycourts.gov
Email requests for conference should copy counsel for all parties
8th Judicial District Hon. Timothy J. Walker Email: tjwalker@nycourts.gov
Law Clerk: Darryl J. Colosi, Esq.   Email: dcolosi@nycourts.gov
Email requests for conference should copy counsel for all parties

 

Many litigants are familiar with the well-settled rule that an affirmative defense will be waived if it is not included in a CPLR 3211(a) motion to dismiss or in the answer (see CPLR 3211[e]).   And so, lawyers tasked with drafting an answer will often consult a “checklist” to ensure that all relevant affirmative defenses are sufficiently pleaded.  CPLR 3018(b) contains the following, non-exhaustive list of defenses that should be affirmatively pleaded in an answer:

  • Arbitration and award
  • Collateral Estoppel
  • Culpable conduct of the plaintiff under CPLR Article 14-A
  • Discharge in bankruptcy
  • Illegality
  • Fraud
  • Infancy or other disability of the defendant
  • Payment
  • Release
  • Res Judicata
  • Statute of Frauds
  • Statute of limitations

But, CPLR 3018(b) defines “affirmative defense” robustly as: (i) any matter “which if not pleaded would be likely to take the adverse party by surprise,” or (ii) any matter which “raises issues of fact not appearing on the face of a prior pleading.”  So, defenses other than those listed above have been held to be “affirmative defenses” which must be affirmatively pleaded in the answer, lest they be waived (see Fossella v Dinkins, 66 NY2d 162 [1985] [standing to sue]; Falco v Pollitts, 298 AD2d 838 [4th Dept 2002] [adverse possession]; Fregoe v Fregoe, 33 AD3d 1182 [3d Dept 2006] [truth in a defamation action]).

Nevertheless, courts will, on rare occasions, allow a party to introduce an unpleaded defense on a motion for summary judgment. This is based on the theory that a later amendment of the answer could properly introduce the defense, and that something as drastic as summary judgment should not be predicated on a pleading omission that a simple amendment could correct.

The Suffolk County Commercial Division (Emerson, J.) recently illustrated this principle in Board of Mgrs. of Manhasset Med. Arts Condominium v Integrated Med. Professionals, PLLC, 2019 NY Slip Op 51588(U) (Sup Ct, Suffolk County Oct. 8, 2019). Plaintiff, the owner of eight units in a professional medical condominium, commenced an action against a tenant (among others), alleging that the defendant tenant defaulted under the parties’ lease agreement by failing to pay rent for several months.  After the defendant interposed an answer and cross-claims, the plaintiff moved for summary judgment. The defendant opposed the motion, asserting a “partial-constructive-eviction” defense, and cross-moved for leave to amend its answer to assert two counterclaims against the plaintiff.

On reply, the plaintiff argued that the Court should reject the defendant’s partial-constructive-eviction defense because it was not pleaded as an affirmative defense in the defendant’s answer.  However, Justice Emerson permitted the defense, reiterating the principle that “[a]n unpleaded defense may be invoked to defeat a summary-judgment motion, or to serve as the basis for an affirmative grant of such relief, in the absence of surprise or prejudice, provided that the opposing party has a full opportunity to respond thereto.”

The absence of prejudice or surprise to the plaintiff was the key factor for Justice Emerson in permitting the defendant’s partial-constructive-eviction defense.  Indeed, the plaintiff did not argue that it would be surprised or prejudiced by the defense, and even “fully addressed” the defendant’s partial-constructive-eviction defense in its reply papers.  And so, in the Court’s view, the plaintiff could hardly contend it would be prejudiced or surprised by the defense.

The Takeaway:

Courts will, from time-to-time, consider an unpleaded defense if the adverse party has notice of it through channels other than the answer.  However, a litigant should not depend on judicial discretion to raise a defense on the hope that the defense will be introduced into the case without having been affirmatively pleaded.  A savvy litigator should keep a robust checklist of affirmative defenses, which should include the affirmative defenses listed in CPLR 3018(b), as well as the grounds for dismissal under CPLR 3211(a).  If, however, a litigant fails to raise a particular defense in its answer or CPLR 3211(a) motion, the defendant may still have hope of raising the defense at the summary judgment stage, so long as the defense does not take the adverse party by surprise.

*** Attention all Queens County commercial litigators: If you have a case before Judge Grays, be sure to bring an HDMI cable and a USB drive with you to court from now on! ***

One of the themes that we’ve developed on this blog over the years has been the implementation of technology in the courts of the Commercial Division, as well in the rules that govern the practice of law in those courts.

We’ve regularly reported on such developments in the context of the individual practice rules of certain Commercial Division judges, as well as in certain NYSBA-sponsored events showcasing the new Integrated Courtroom Technology (or “ICT”) program in the Commercial Division, including in Westchester County (Walsh, J.) in June 2018 and New York County (Scarpulla, J.) in April 2019.

This past Tuesday, members of ComFed’s Committee on the Commercial Division (including Hamutal Lieberman and yours truly from this blog), along with Queens County Commercial Division Justice Marguerite A. Grays, presented a similar program called “The Electronic Courtroom: Using Integrated Courtroom Technology,” which took place in Justice Grays’s beautiful, oak-paneled courtroom (Part 4, Room 66).  As with our New York County program in April of this year, the Queens County program was well-attended and well-received by approximately 30 lawyers, judges, and other court personnel.

Many of the same features and equipment were on display during the program, including the 86-inch interactive Smartboard, which works in conjunction with counsel’s laptops, tablets, and USB drives, and on which they are able to display, highlight, and even annotate their documents and videos during oral argument and at trial.  The “ELMO” document camera, which allows counsel to project unique documents and other physical evidence onto the Smartboard for judge and/or jury to see, also was prominently featured during the program.

And if that wasn’t enough courtroom technology for one day, the presenters then promptly Uber’d their way through midday metro traffic back to Manhattan Commercial Division Justice Saliann Scarpulla’s Part 39 for a redux of their April program – this time entitled “The Electronic Courtroom: Using Integrated Courtroom Technology in State and Federal Courts on Motions and at Trial” and sponsored by the Second Circuit Judicial Council and the New York State-Federal Judicial Council.  In addition to demonstrating the existing Smartboard, ELMO, Skype, and audio/visual-impaired technologies, the presenters were given the opportunity to showcase the courtroom’s new, interactive witness-stand monitor, which allows a witness during her testimony to identify, highlight, and annotate with a stylus or her own finger the documents, photos, and other evidence displayed by counsel on the Smartboard.

I’ll say it again:  If you’ve been reluctant to introduce technology into the way you litigate your commercial cases in New York, the Commercial Division may soon leave (indeed, already has left) you behind.