It’s no secret to anyone litigating in the Commercial Division over the past couple years during the COVID era that the judges of the Commercial Division have been particularly keen on lightening their dockets by encouraging, and even participating in, the settlement of cases that come before them.  That trend is sure to continue in 2022 (and beyond) with a recent amendment to Commercial Division Rule 30 (“Settlement and Pretrial Conferences”), which provides for a mandatory settlement conference in every Commercial Division case that’s been certified ready for trial.  The amendment became effective earlier this month on February 1, 2022.

Subpart “a” of Rule 30 still allows ComDiv judges the discretion to schedule a settlement conference in a case anytime after the discovery cut-off date.  But new subpart “b” shifts from the permissive to the mandatory, requiring that “the parties in every case pending in the Commercial Division must participate in a court-ordered mandatory settlement conference (MSC) following the filing of a Note of Issue.”

The amended rule offers the parties four “tracks” on which they can put their case toward the prospect of settlement:

  1. They can have the judge already assigned to their case conduct the settlement conference, or they can request that another judge oversee the matter;
  2. they can have the court assign a Judicial Hearing Officer or Special Referee to conduct the settlement conference;
  3. they can have the court refer their case to the court’s ADR program for selection from the roster of neutrals; or
  4. they can hire a private neutral from JAMS, NAMS, AAA, etc.

As noted by the Commercial Division Advisory Council, which proposed the amendment back in September of 2020, “one of the principal goals of the Commercial Rules is to make the business litigation process in New York more cost-effective, predictable, and expeditious, and to thereby provide a more hospitable and attractive environment for business litigation in New York State.”  According to the Council, “business clients will find attractive the improvement, enhancement, and institutionalization of the settlement process.”

To be sure, incentives and opportunities for settlement already are baked into the ComDiv Rules.  For example, Rule 3 allows the court to direct the parties to mediation at any time during the case.  Rule 8 requires the parties to “meet and confer” about the prospects of settlement and/or ADR prior to the Preliminary Conference.  And Rule 10 requires counsel to submit a certification prior to every conference thereafter, certifying that they have discussed ADR with their respective clients.

But as the Advisory Council pointed out in its September 2020 proposal, parties may be reluctant to settle for any number of reasons.  They may believe that initiating or even engaging in settlement negotiations is a sign of weakness — an admission that their case has holes or that they are without the financial wherewithal to go the distance.  Others may believe that the process is a costly waste of time and distraction from having their case properly adjudicated.  Still others may be wary — despite the broad confidentiality provisions expressly set forth in the amended rule — of having a judge assess the merits of their claims or defenses before trial, particularly if it’s the judge assigned to their case.

Whether justified or not, these excuses no longer are available to litigants post-Note of Issue.  Hence, a new opportunity to settle your case quickly with your adversary on the way to court.

Much ink has been spilled over the last couple of years, including here at New York Commercial Division Practice, on the topic of practicing law remotely in the COVID (and likely post-COVID) era.  As we all brace for the coming wave of Omicron, which may well be the fastest spreading virus in human history, let’s take a quick look at the newest ComDiv rule on the topic — Rule 37 Remote Depositions — which went into effect on December 15, 2021.

We’ve reported on the recent trend of remote depositions on at least three occasions over the last year or so, including the ComDiv Advisory Council’s September 2020 proposal for, and request for public comment on, the new rule.  As noted in the memo supporting the recommendation, in light of COVID, whereas “remote depositions were previously the exception, they are now the rule.”

But more than that, “[t]here is good reason . . . to encourage their continued use . . . after the pandemic is brought under control.”  Why?  Because, as we all have learned from experience over the last couple years, “remote depositions can be quicker, easier, less costly, and more efficient than in-person depositions.”

New ComDiv Rule 37 — which generally permits courts, “upon the consent of the parties or upon a motion showing good cause, [to] order oral depositions by remote electronic means — is accompanied at new Appendix G by a fulsome template stipulation setting forth a remote depo protocol that addresses common practical concerns regarding technology, security, private communications, and the use of exhibits.  Some key excerpts:

  • Administration of Remote Depo Services.  “An employee . . . of the [court reporting] service provider shall . . . be available at each remote deposition to record the deposition, troubleshoot any technological issues that may arise, and administer the virtual breakout rooms.”
  • Audio and Video Clarity.  “Each person attending a deposition shall be clearly visible to all other participants, their statements shall be audible to all participants, and they should each use best efforts to ensure their environment is free from noise and distractions.”
  • Communications During Questioning.  “Deponents shall shut off electronic devices . . . and shall refrain from all private communication during questioning on the record.”
  • Use of Virtual Breakout Rooms.  “Parties may use a breakout-room feature, which simulates a live breakout room through videoconference[, but c]onversations in the breakout rooms shall not be recorded . . . [and] shall be established by . . . and controlled by the [court reporting] service provider.”
  • Collaboration and Advance Troubleshooting.  “The parties agree to work collaboratively and in good faith with the court reporting [service provider] to assess each deponent’s technological abilities and to troubleshoot any issues at least 48 hours in advance of the deposition . . . [and] also agree to work collaboratively to address and troubleshoot technological issues  that arise during a deposition.”
  • Sufficient Technology.  “Counsel shall use best efforts to ensure that they have sufficient technology to participate in a [remote] deposition . . . [and] shall likewise use best efforts to ensure that the deponent has such sufficient technology.”

To be sure, given the ominosity of Omicron, the new ComDiv rule concerning remote depositions comes to us at an appropriate time.  But given the efficiencies associated with the practice that we all have discovered along the way, and with essential safeguards now in place at Appendix G, one can expect frequent and ongoing invocation of Rule 37 long after the infection curve has flattened.

 

In recent years, the New York court system has endorsed alternative dispute resolution (“ADR”) as a way to increase efficiency in the court system, making ADR presumptive in most civil cases.  As a pioneer of efficiency, the Commercial Division has reinforced – through the adoption of multiple ADR-related rules and rule amendments – its “strong commitment to early case disposition” through ADR.

Consistent with this commitment, Commercial Division Rule 3(a) was recently amended to permit as an ADR mechanism the use of a “neutral evaluator” (as an alternative to a mediator), and to allow for the inclusion of “neutral evaluators” in rosters of court-approved neutrals.  The amendment, effective December 20, 2021, provides:

At any stage of the matter, the court may direct or counsel may seek the appointment of an uncompensated mediator or neutral evaluator for the purpose of helping to achieve a resolution of all or some of the issues presented in the litigation. Counsel are encouraged to work together to select a mediator or neutral evaluator that is mutually acceptable and may wish to consult any list of approved neutrals in the county where the case is pending . . . .

The amendment to Rule 3(a) will enable the Commercial Division to use the full range of ADR services contemplated by Part 146 of the Rules of the Chief Administrative Judge, which includes both mediators and neutral evaluators, and describes the qualification requirements for each.

Under Part 146.4, a lawyer or judge seeking qualification as a neutral evaluator must be admitted to practice for at least five years, and have at least five years of substantial experience in the specific subject area of the cases over which he or she will serve as a neutral.  In addition, the candidate must complete six hours of approved training in procedural and ethical matters related to neutral evaluation (as opposed to the 40-hour training requirement to become a mediator).  Once trained and certified, the neutral evaluator may be added to rosters of neutrals and selected by judges or parties to help facilitate the resolution of complex commercial matters, alongside the mediators already available.

The amendment to Rule 3(a) will help address the need for expanded ADR services as the New York court system continues to implement the presumptive ADR system, particularly in light of the many challenges posed by the COVID-19 pandemic.  As the Commercial Division Advisory Council (“CDAC”) explained in its proposal to amend Rule 3(a), given the recent initiatives to encourage ADR and the effects on litigation resulting from the COVID-19 pandemic, the rule change would permit attorneys and judges – some with just as much practical experience as current mediators – to become neutral evaluators without being required to undergo the more extensive training required of mediators.

The rule change may also increase diversity of court-approved neutrals.  According to the CDAC, the challenges posed by a 40-hour mediation training requirement may have a disproportionate impact on women and minorities, who may feel that taking time away from client work and business development could put their career prospects at risk.

The pro-ADR initiative continues to be a priority for the New York Court system, especially in the Commercial Division. Indeed, several Commercial Division Rules address ADR.  Rule 3, as discussed above, permits courts in the Commercial Division to direct the appointment of a mediator – and now a neutral evaluator – to facilitate the resolution of a case, and expressly encourages counsel to “work together to select a mediator” or neutral evaluator mutually acceptable to the parties.  Rule 10 requires counsel to certify that he or she has discussed with the client the availability of ADR mechanisms in the Commercial Division.  And, Rule 11 requires that preliminary conference orders contain specific provisions for means of early disposition of the case through ADR.

In addition to these Rules, many of the Commercial Division justices encourage parties to explore ADR.  For example, in New York County, Justice Borrok’s individual rules explain that “the parties are encouraged to identify as early as possible any case where ADR would be appropriate” and “write a joint letter to the Court asking to be referred to ADR.”  Likewise, in New York County, Justice Cohen’s and Justice Reed’s individual part rules require the parties to report prior to the status conference whether they have attempted the ADR process offered by the Court.  In Suffolk County, Justice Emerson’s individual part rules address the procedure for seeking ADR and provide a link for more information on the Court’s ADR program.  And, in Queens County, Justice Grays’ individual rules expressly authorize the Court to refer matters to the Commercial Division ADR program without the parties’ request or consent.

Takeaway:

The recent amendment to Rule 3(a) will undoubtedly help facilitate access to the ADR programs already encouraged by the New York court system and Commercial Division justices.  By adding neutral evaluators to rosters of neutrals, the Commercial Division will enhance the options and solutions it provides to businesses that choose to bring their cases to New York courts, providing more diversity and experience in its neutrals and more types of ADR mechanisms.  This is especially true as litigants determine how to advance their cases in the aftermath of the COVID-19 pandemic.

As we all are acutely aware, during the last 21+ months, the normally slow-to-change practice of law has been thrust into overdrive, forcing lawyers and courts to quickly pivot from a largely in-person practice to virtual.

New York courts in particular have done an incredible job expanding access to litigants online by, among other things, expanding e-filing capabilities, conducting virtual appearances for conferences and oral arguments, encouraging remote depositions, and even conducting trials online. I’ve discussed with colleagues and adversaries alike the newfound efficiencies that have emerged out of the necessity caused by the COVID-19 pandemic.

New York’s Commercial Division, ever the agent of progress, keeps a good thing going with respect to virtual access. Just last week, on October 19, 2021, Chief Administrative Judge Lawrence K. Marks promulgated new Commercial Division Rule 36 (Administrative Order 299/2021), which will allow Commercial Division judges to conduct virtual evidentiary hearings and non-jury trials on consent of the parties.

In a memo published by the Commercial Division Advisory Council last June 2020, the Advisory Council advocated for this new rule (adopted in large part by AO/299/21). Among the benefits cited are the cost and time savings that virtual conference technology would bring. A global business hub, New York is the venue of choice for much commercial litigation around the country and around the world. Rule 36 will remove many of the obstacles in coordinating party, witness, lawyer, and court scheduling by largely reducing or eliminating the time and cost of necessary travel.

The public’s collective comfort with using video conferencing technology has only increased since the Advisory Council’s June 2020 memo. Having already incorporated such technologies into many other facets of the legal practice (i.e. “Zoom meetings”, remote depositions, etc.), expanding its use to evidentiary hearings and bench trials is not much of a stretch. Video conferencing technologies have only improved in efficiency and security after months of rapid development necessitated by stay-at-home orders, travel bans, and quarantine mandates from earlier in the pandemic (some of which still apply in certain jurisdictions).

It is important to note that Rule 36 requires the consent of all parties. Additionally, the Rule is permissive, not mandatory, meaning that even if all parties consent, ultimately the availability of virtual evidentiary hearings and non-jury trials lies within the Court’s discretion. This flexibility allows for the tailored application of video conferencing technologies to evidentiary hearings and/or bench trials where a virtual appearance would be appropriate.

Given the technological developments in this area over the past 21+ months, and given the encouragement by the judiciary, cost-savings to the client, and overall efficiencies promoted, I have no doubt that Rule 36 will be a welcome addition to practitioners who find themselves regularly practicing in the Commercial Division.

So, without further ado, we give you Commercial Division Rule 36:

Rule 36. Virtual Evidentiary Hearing or Non-jury Trial.

(a)        If the requirements of paragraph (c) of this Rule are met, the court may, with the consent of the parties, conduct an evidentiary hearing or a non-jury trial utilizing video technology.

(b)       If the requirements of paragraph (c) of this Rule are met, the court may, with the consent of the parties, permit a witness or party to participate in an evidentiary hearing or a non-jury trial utilizing video technology.

(c)        The video technology used must enable:

(i)        a party and the party’s counsel to communicate confidentially;

(ii)       documents, photos and other things that are delivered to the court to be delivered to the remote participants;

(iii)      interpretation for a person of limited English proficiency;

(iv)      a verbatim record of the trial; and

(v)       public access to remote proceedings.

(d)      This Rule does not address the issue of when all parties do not consent.

Rule 36 becomes effective as of December 13, 2021.

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

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

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

Several weeks back, we reported on an apparent uptick in commercial lease disputes over the last 18 months in this new COVID era.  It only follows that there would be a corresponding uptick in Yellowstone applications from commercial tenants embroiled in such disputes.

As most readers know, injunctive relief under Yellowstone preserves the “status quo” pending a dispute between a commercial landlord and tenant over this or that alleged event of default such that the landlord is prohibited, at least temporarily, from terminating the tenant’s tenancy until the court has an opportunity to hear and determine the nature of the dispute in due course.

The standard for relief under Yellowstone isn’t exactly a high bar, at least as far as injunctions go.  An applicant need only show that it holds a valid and enforceable commercial lease; received from the landlord a notice of default; made a timely application for relief within the corresponding cure period; and has the ability to cure the alleged default should the court decide in the landlord’s favor.  Yellowstone injunctions are even available when the alleged default is limited to the issue of nonpayment of rent — which, for reasons associated with the recent and ongoing pandemic, tends to be primary basis asserted of late.

Of course, a commercial tenant’s success under Yellowstone is made even easier if the landlord fails to give proper notice of default, which is precisely what happened earlier this year up in Buffalo in a case called Ronald Benderson 1995 Trust v Erie County Med. Ctr. Corp.

In Benderson, Erie County Commercial Division Justice Timothy J. Walker addressed a dispute involving an area hospital (landlord) and real-estate developer (tenant) under a commercial lease for certain retail space located in the lobby of the hospital.

The lease provided that, while in the process of leasing up the lobby retail space, the tenant-developer would be responsible for paying the landlord-hospital a “Partial Rent” amount…

determined by multiplying the Full Rent due for each month by a fraction the numerator of which is the total combined square footage of each subtenant open for business in the Demised Premises and the denominator of which is the total square footage of the Demised Premises.

That is, until such time as the “Full Rent” amount becomes due, which occurs…

once all the rentable space in the Demised Premises has been sublet and each subtenant is open for business (the ‘Full Rent Commencement Date’), [at which time] Lessee shall pay to Lessor an annual rental of $19,600.00 payable in equal monthly installments of $1,633.3 each for each year of the term (the ‘Full Rent’).

The initial lease term was for 10 years, with an option to renew for an additional 10 years at an increased “Full Rent” annual amount of $21,560.00 payable in equal monthly installments of $1,796.67.

The developer eventually exercised the renewal option for a second 10-year term beginning in the summer of 2013, at which time it began making pro-rated “Partial Rent” payments of $1,405.25 based on the 78% of the lobby it had leased up at the time.  The developer timely made such payments without any objection from the hospital over the next seven years through the fall of 2020.

In September 2020, after significantly expanding its footprint and patient-flow in the interim, and after determining that the fair market value of its lobby space had substantially increased, the hospital attempted to serve the developer with notice under the lease’s default provision, which provided that…

if Lessee defaults in the payment of rent . . . , Lessor shall give Lessee notice of such default and if Lessee does not  cure any default within thirty (30) days, after the giving of such notice . . . , then Lessor may terminate this Lease on not less than thirty (30) days’ notice to Lessee.

According to the court’s decision, the hospital’s notice “claimed for the first time that, six years earlier, on an unspecified date in 2014, the ‘Full Rent Commencement Date’ had occurred, . . . [and therefore] declared that ‘Lessee shall pay to Lessor an annual [as opposed to “Partial”] rental of $19,600 payable in equal monthly installments of $1,633.33 each for each year of the term.'”

The notice went on to state that “the renewal option . . . does not include a ‘Partial Rent’ period; it only permits for ‘new annual rent of $21,560.00 payable in equal monthly installments of $1,796.67′”; but that the developer “has continued to pay only ‘Partial Rent’ of $1,405.25/month for the space”; and that the hospital therefore was “providing notice of default.”

In November 2020, after attempts at resolution by the parties had broken down, the hospital demanded that the developer “quit and surrender” the entire lobby space, which prompted the developer to move for Yellowstone and other injunctive relief.

Justice Walker granted the relief requested, taking issue with the hospital’s default notice in at least three respects.

First, the court found the notice to be void because it conflicted with former Governor Cuomo’s statewide moratorium on commercial evictions in place at the time.

Second, the court found that the hospital’s notice “failed to trigger the commencement of the cure period” because it was sent to the wrong party at the wrong address, despite prior written notice to the hospital of a valid assignment of the lease by the original tenant-developer to the plaintiff.

Finally, and most substantively, the court found that the hospital’s notice was “so impermissibly vague that it was insufficient to commence a ‘cure’ period as a matter of law.”  For one, the hospital “identified two different and logically inconsistent rental rates” — $1,633.33/mo. and $1,796.67/mo. — in the same notice.  But the hospital also failed to explain how it was that the developer could even “cure” the alleged default in the first place.  To wit, “the notice letter was silent as to whether ‘cure’ meant paying increased rent moving forward, paying back-rent for years in the past, or which amount of rent would apply in either case.”

In short, the court found that “the ‘cure’ period could not have expired because it was never commenced,” effectively serving as a stark reminder to commercial landlords and their counsel to be sure to provide “clear, unambiguous, and unequivocal” notice of default to the proper party at the proper address.

 

The principles of jurisdiction and venue are paramount when determining not only where a proceeding will be conducted, but also which particular laws will govern the proceeding. Typically, contracting parties attempt to resolve jurisdiction and venue issues by including an exclusive jurisdiction and/or forum selection clause within a contract.

In Meritage Hospitality Group, Inc. v North Am. Elite Ins. Co., 2021 NY Slip Op 50700(U) [Sup Ct, Albany County July 26, 2021]),  Justice Richard M. Platkin of the Albany County Commercial Division, analyzed the interesting question of what happens when contracting parties agree to submit to the jurisdiction of New York state courts, but fail to select a specific county as a venue. Justice Platkin held that in this scenario, the venue requirements under CPLR § 503 were required to be satisfied since the forum selection clause failed to designate a “specific venue.”

By way of background, Plaintiff Meritage Hospitality Group, Inc. (“Meritage”), is a Michigan based corporation that owns and operates over 346 restaurants, most of which are Wendy’s fast food restaurants, in 16 states.  Seeking to protect itself in the event that the operations of its restaurants were suspended or reduced, Meritage purchased an all risk insurance policy (the “Policy”) from Defendant North American Elite Insurance Company (“NAE”), a New Hampshire insurance company with a principal place of business in New York County.  Meritage’s Policy contained several coverage extensions, including coverage for (1) direct physical loss or damage related to orders of civil authority; (2) property damage coverage for “Communicable Disease Response”; and (3) property damage coverage for “Protection and Preservation of Property — Property Damage.”  In addition, the Policy contained the following forum selection clause:

Governing Law and Jurisdiction 

1. The laws of the State of New York, without regard to its conflict of laws rules, that would cause the application of the laws of any other jurisdiction, shall govern the construction and interpretation of this POLICY.

2. The parties hereto do irrevocably submit to the exclusive jurisdiction of the Courts of the State of New York, and to the extent permitted by law, the parties expressly waive all rights to challenge or otherwise limit such jurisdiction.

As a result of the COVID-19 pandemic, Meritage submitted a business interruption claim to NAE, citing the loss of income from state and local closure orders.  In response, NAE issued a letter to Meritage, stating that outside the possible exception for property damage coverage for “Communicable Disease Response,” the Policy would not provide coverage for other aspects of Meritage’s claim.  Subsequently, Meritage commenced an action against NAE in the Supreme Court, Albany County, alleging claims for breach of contract, unjust enrichment, and declaratory judgment.

Following the commencement of Meritage’s lawsuit, NAE made a demand that venue be transferred to the Supreme Court, New York County, under CPLR 511 because (i) Albany County was an improper venue since neither party resided there; and (ii) New York County was proper because NAE maintained a principal place of business there. In response, Meritage refused the demand, arguing that venue was proper based on the Policy’s forum selection clause.

Consequently, NAE filed a motion to transfer venue of the action to New York County.  As part of its motion, NAE argued that Meritage’s filing of the lawsuit in Albany County was in violation of CPLR § 503 , since the parties’ forum selection clause in the Policy only resolved the issue of jurisdiction, not venue.  In opposition, Meritage argued that the forum selection clause allowed the parties to have free rein over where they could file a lawsuit in New York. Specifically, Meritage argued that the term – “the Courts of the State of New York” – satisfied the requirements of CPLR § 501, and gave the parties carte blanche authority to choose any venue within New York.

Before analyzing the forum selection clause of the Policy, the Court noted that “jurisdiction and venue” are separate and distinct concepts, as jurisdiction concerned a court’s authority to hear and determine a dispute, whereas venue pertains to “the proper situs” (i.e., place of trial) of an action or proceeding within the court system (see Weingarten v Board of Educ. of City School Dist. of City of NY, 3 Misc 3d 418, 420 [Sup Ct, Bronx County 2004]).  With that in mind, the Court focused on whether the forum selection clause relied upon by Meritage authorized venue to be placed in Albany County (see CPLR § 501).  After assessing the Policy, the Court held that the forum selection clause did not specifically fix the place of trial and/or venue, since the language of “the Courts of the State of New York” only applied to the jurisdiction of a potential lawsuit.  In addition, the Court found that the Policy failed to include any language that waived a party’s right to challenge venue.  And so, the Court granted NAE’s motion to transfer the venue to New York County, as NAE established that it had a principal place of business in New York County and that Meritage was not a resident of New York (see CPLR §§ 503 (a) and (c)).

Takeaway:

This decision provides a strong reminder that when drafting forum selection clauses, lawyers should be as precise as possible.  Therefore, to avoid the default venue requirements of CPLR § 503, a forum selection clause must specify that any dispute between the parties shall be litigated in a particular designated venue.

 

I think it’s fair to say that there’s been an uptick in litigation involving commercial lease disputes and retail property closings gone awry over the last 15 months.  And for obvious reasons.  The commercial real estate industry has taken a beating from COVID-19.

Some evidence of this of this uptick can be found in the decisions being handed down in the Commercial Division of late, which involve issues not exactly foreign to the forum but represent a bit of a departure from the more typical closely-held business disputes that, as Nassau County ComDiv Justice Timothy Driscoll once remarked, “are our bread-and-butter here in the Commercial Division.”

One reason for this, perhaps, is the subject-matter limitation found in Uniform Rule 202.70(b)(3), which expressly “exclud[es] actions for the payment of rent only” from commercial real estate disputes otherwise available for ComDiv adjudication.  After all, ComDiv cases are almost always all about money.  Not so in the context of commercial lease disputes, at least as concerns issues of rent.  Which means that commercial real estate litigators interested in taking advantage of the many benefits of having their clients’ disputes adjudicated in the the Commercial Division may need to get a little creative in their pleadings.

Last month, Manhattan ComDiv Justice Andrew Borrok issued a decision in Prada USA Corp. v 724 Fifth Fee Owner LLC involving certain suspension provisions in a commercial lease for high-end retail space in NYC.  The provisions gave the owner-landlord (Owner) the option to suspend the retail tenant’s (Prada’s) tenancy for up to three years for purposes of redeveloping its premises.  Upon exercise of the suspension option — which, by the way, Owner was permitted to do “from time to time” (more on that later) — Prada would be entitled to select a build-out model for its space in the redeveloped building and to receive liquidated damages in an amount up to $5 million “to compensate it for being displaced from its occupancy in the demised premises.”

In late 2018, Owner gave notice of its intent to exercise the suspension option, and in early 2019 Prada selected a layout for its new store, development of which was projected to begin by March 2020 and complete by March 2023.  In October 2019, however, Owner attempted to withdraw its notice “as if it was never given” because development of the building “was no longer feasible.”  Prada then sued for a declaration that Owner’s one-time suspension option was irrevocable and for $5 million in liquidated damages as a result of Owner’s anticipatory breach.  On summary judgment, Justice Borrok ultimately found that Owner could not revoke its option but that Prada was not entitled to liquidated damages because the suspension of its tenancy, which was premised on Owner’s redevelopment, never occurred.

Put another way, the approximately $5 million liquidated damages were meant to put the parties in as close a position as they could be notwithstanding a redevelopment-related suspension.  Neither party can profit from or arbitrate on a suspension notice that did not result in a surrender of occupancy or an actual renovation-related suspension or change to the premises.  The only potential issue for trial is whether, in the absence of a renovation, Prada [is entitled to] third-party costs or other foreseeable reasonable costs incurred prior to receiving notice from Owner of its intention not to proceed with the proposed building development.

Although Prada managed to obtain a declaration that Owner’s suspension notice was irrevocable, Justice Borrok declared in an earlier decision that Owner nonetheless retained the option to suspend Prada’s tenancy for future redevelopment purposes.  This ruling turned on a curious issue of contract construction involving the phrase “from time to time.”

In short, the lease’s suspension provisions expressly provided that “Owner shall have the option . . . , from time to time, . . . to suspend the possession of Tenant with respect to all of the Demised Premises.”  Prada contended that the phrase “from time to time” was synonymous with the phrase “at any time” and therefore should be “interpreted to confer a single one time only option.”

Now, I understand from my transactional real estate colleagues that use of the phrase “from time to time” is atypical in commercial leases, particularly as it relates to a party’s exercise of this or that right.  Confirmation of this fact was apparent in the parties’ underlying briefing — represented by Sullivan & Cromwell and Quinn Emanuel, no less — in which only one case was cited by Owner’s counsel for the proposition that “it is self-evident from the plain meaning of the phrase . . . that Owner has the right to exercise a Suspension Option more than once” (citing Sullivan v Harnisch, 96 AD3d 667 [1st Dept 2012]).  In fact, the First Department in Sullivan — a case involving an LLC member’s right to determine bonus compensation “from time to time” under an operating agreement — ruled that there was no limitation on when during the fiscal year the member could make such a determination, not how many times.

Given this paucity of practical and legal precedent, it comes as no surprise that Justice Borrok did not cite any authority to support his finding on the issue — which, as noted above, permitted Owner to retain the option.  Instead, the judge appeared to appeal to basic common sense when finding that:

These words mean exactly what they say and do not mean what they do not say — i.e., ‘from time to time’ necessarily means more than once. . . .   [T]he Lease does not provide any words of limitation limiting the Owner to a single option which is customary and necessary to include in these agreements when such limitation is intended.  And, ‘from time to time,’ can only mean more than one time.

As the title of this blog post suggests, the everyday usage of the phrase “from time to time” tends to mean more than once, confirming Justice Borrok’s finding in Prada USA Corp. v 724 Fifth Fee Owner LLC.  Still, its probably best to be a little less folksy when setting the specific parameters of a party’s material right in a commercial lease.

 

The legal industry has adapted rather quickly in order to minimize the pandemic’s impacts on the practice of litigation by enacting orders, rules, and practices to keep the wheels of justice turning.  This includes the now-widespread use of virtual platforms for appearances before the Court as well as conducting remote depositions as my colleagues blogged about at the outset of the pandemic.  Notably, some have adapted to the “new normal” of virtual practice, while others seem to still struggle as the world saw in the now-infamous “cat-man court appearance” video.  Have remote depositions become the “new norm”?  It appears that way, as U.S. Magistrate Judge Stewart D. Aaron aptly remarked back last June in Rouviere v. Depuy Orthopaedics, Inc. (S.D.N.Y.).  Indeed, some Judges have even provided templates or sample deposition protocol stipulations like this one by U.S. Magistrate Judge Robert W. Lehrburger or another by U.S. Magistrate Judge Sarah L. Cave.

Remote depositions are nothing new in New York state courts (see CPLR 3113(d); Rogovin v Rogovin, and Yu Hui Chen v Chen Li Zhi), as well as the federal courts (see Fed. R. Civ. P. 30(b)(4)).  The dramatic increase in use, comfort level, and apparent permanency is a direct result of the pandemic. Indeed, the vision of the Commercial Division Advisory Council (“CDAC”) is to ensure that the Commercial Division remains at the forefront of this trend.

In September 2020, the CDAC sought to adopt a new Commercial Division Rule that would expressly authorize and regulate the use of remote depositions (the “Remote Deposition Proposal”).  The Remote Deposition Proposal seeks to provide further guidance on what is considered undue hardship, a standardized remote deposition protocol form, the validity of an oath or affirmation administered during a remote deposition when the court reporter is not physically located where the witness is present, and protections for defending attorneys and their clients in the event of technical difficulties.  The Proposal went out for public comment in November 2020, which closed on January 19, 2021, and is still pending a final decision from Chief Administrative Judge Marks.

The Remote Deposition Proposal also points out the potential pitfalls to remote depositions including technical issues, security issues, exhibit sharing, and, of particular importance, private communications.  While certain private communications should be accommodated (e.g. – privilege discussions), virtual depositions do have the potential for increased abuse of other communications such as coaching and guiding the witness.  As the Remote Deposition Proposal notes and provides potential safeguards against, deponents may commit abuses by communicating via digital devices and any “chat” feature of the virtual platform, if available.

Despite the potential pitfalls, the CDAC is taking affirmative steps towards combatting the potential for abuse and capitalizing on the undeniable efficiencies of remote depositions. Pro se and indigent litigants can testify remotely without having to take off of work or find childcare.  Lawyers no longer need to bill clients for their travel time to and from a deposition, worry about traffic, or public transportation delays.  Even commencement and recess times can be greatly reduced.

In short, while some may still struggle to adapt to the new norm, and New York’s Commercial Division appears poised to find the efficient, silver-lining of the pandemic, don’t forget to dress for success (as a Florida Judge recently reminded), just as if the proceeding were in person. As for wearing shorts during a remote deposition?  Don’t do it, cautions the authors of a recent ABA article, as dressing professionally conveys “to the deponent of the seriousness of the proceeding.  In other words, dressing the part can lead to acting the part.”  Good, sound advice worth heeding!

A quick timeout this week from some of our more substantive content here at NY ComDiv Practice to report on some upcoming events and happenings in and around the Commercial Division, particularly in Westchester County…

This past Monday, during her weekly message concerning the ongoing COVID-19 pandemic and its effect on the court system (see video version here), Chief Justice Janet DiFiore commented on the recent amendments to the Uniform Civil Rules for the Supreme Court and the County Court, which, as extensively reported by my colleague and fellow blogger Peter Sluka last month, effectively implemented the Commercial Division’s rules and procedures into all civil courts across the State of New York:

[The amendments] are designed to make case management and pretrial litigation more efficient and cost-effective for lawyers and litigants in our civil courts. A number of changes also serve the goal of limiting unnecessary personal appearances and foot traffic in our courthouses.

On February 23, the New York State Academy of Trial Lawyers is sponsoring a program entitled “New Uniform Rules for the Supreme and County Courts: The Implementation” during which Westchester County Commercial Division Justices Linda S. Jamieson and Gretchen Walsh will be presenting on these wholesale rule changes to the civil court system and discussing how the changes are being implemented statewide.

And speaking of unnecessary appearances and reduced foot traffic in the courthouse, Chief Judge DiFiore also reported this week on some specifics on court productivity in this new age of virtual or remote practice:

For the week of January 25th, our judges and staff conferenced and heard 24,309 matters; settled or disposed of 6,617 (or 27%) of those matters; and issued over 1,800 written decisions on motions and other undecided matters. In addition, 1,047 virtual bench trials and evidentiary and fact-finding hearings were commenced last week across the state.

As we reported late last year, recently-amended ComDiv Rule 1 (remote appearances) and Rule 6 (hyperlinking) represent quintessential examples of how the Commercial Division continues to be an adaptive and innovative leader in the world of specialized business courts.  The amendments were particularly apropos given the circumstances forced upon us all by COVID, including the judiciary.

On March 24, the WCBA Business & Commercial Law Committee is sponsoring a virtual town-hall program, featuring Justices Jamieson and Walsh and their Principal Court Attorneys, who will be offering their views on the implementation of and practical effect that these amended ComDiv rules have had in the Westchester County Commercial Division, particularly on the topic of administering justice remotely during the ongoing pandemic.  Also on hand for the lunchtime Zoom program will be a representative from Westchester and Long Island based Appellate Innovations, who will present on the nuts-and-bolts of bookmarking and hyperlinking legal documents in this virtual era.

Registration specifics for both programs can be found under “Events” on the WCBA website.  Hope to see you all there!