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At the New York City Bar Association the evening of February 25th, five recently retired justices of the Commercial Division—Hon. Eileen Bransten, Hon. Shirley W. Kornreich, Hon. Charles E. Ramos, Hon. Melvin L. Schweitzer, and moderator Hon. Carolyn E. Demarest—convened for a panel entitled “The Commercial Division: Past, Present and Future.” Here is a summary of some of the topics discussed by the panel:

History of the Commercial Division. Before the Commercial Division, commercial cases were heard in New York County’s Special Term, Part 1, a forum marked by chaos and disengaged justices. In Special Term, Part 1, there was no continuity and no monitoring of discovery. Opinions were generally drafted by the law department. Several of the panelists remarked that when they were in private practice, they had no faith that their clients would be treated fairly in Special Term, Part 1.

When it was first created, no judges were interested in sitting in the Commercial Division, as it had no rules and had not yet proved successful. Nowadays, by contrast, many view the Commercial Division as a stepping-off point to the Appellate Division. At a recent luncheon with judges from the Southern District, the federal judges complained that the Commercial Division was “taking all the good cases.”

Development of the Commercial Division Rules. The Rules began from discussions among judges about how to resolve certain common problems. The judges had similar, but not identical, part rules. Justice Ramos credited Robert L. Haig (who was in attendance, author of the exhaustive treatise on commercial litigation in New York courts) with creating uniform rules and then forming an advisory council. Justice Bransten emphasized that each new Rule is carefully considered and debated before it is enacted, going through multiple rounds of input from the advisory council, the chief counsel of court administration, board of judges, and public comment.

Effectiveness of the Rules. The panel generally agreed that the Rules have been effective because they allow individualism and flexibility to each part. For example, Justice Kornreich noted that the flexibility afforded by the Rules allowed her to make her procedures conform to the expectations of practitioners accustomed to the federal courts. The justices also discussed variations in their part rules concerning affidavits for direct examination and resolution of discovery disputes.

Common Mistakes Made by Practitioners. Throughout the evening, as well as in response to a specific question from the audience, the panelists shared the following tidbits of advice for attorneys in the Commercial Division:

  • Motions to dismiss should be utilized as much as possible, to clean the pleadings (and the scope of discovery) of non-meritorious claims, as well as to give the judge a “feel” for the case.
  • Unsolicited letters to the court should be avoided—if in doubt about whether a letter should be sent to chambers, ask the clerk in advance.
  • Preliminary conferences are an important opportunity to address the merits and educate the judge about the case, as well as to give the judge a sense of the potential usefulness of ADR.
  • Take care to read the Commercial Division Rules and Part Rules carefully. Justice Bransten believed that there should be stricter enforcement of the Rules.
  • Be aware of differences between federal and state procedural law, and do not confuse the two.
  • Take the court seriously—do not send in per-diem attorneys unfamiliar with the case.

Is the Commercial Division Elitist? The panel addressed this question last, and generally agreed that the Commercial Division was not elitist, although Justice Ramos conceded that it might appear so from the outside. Justice Schweitzer felt strongly that as the business center of the United States, if not the world, New York should devote extra resources to its commercial litigation courts to the extent necessary. Other benefits from the Commercial Division that justified its extra costs included:

  • The Commercial Division has made other Parts more efficient by not having to oversee trials of these matters;
  • High value cases attract higher-quality litigants who operate more efficiently and require less of the court’s time and resources;
  • The Commercial Division serves as a laboratory for creative solutions to issues affecting other courts; and
  • The Commercial Division does not really require so much extra resources—simply one extra clerk per Part.

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INADMISSIBLE

Most litigators are familiar with the requirement that a summary motion be supported with “evidentiary proof in admissible form” establishing the merits of a cause of action or defense.  Nevertheless, many practitioners make the common mistake of submitting evidence in support of a summary judgment motion that would not be admissible at trial, resulting in swift denial of the motion.  In fact, the Appellate Division, Second Department recently reversed a decision by the Nassau County Commercial Division (Bucaria, J.), which granted summary judgment to the moving party, even though the evidence submitted in support of the motion was not in admissible form.

The plaintiff in GMP Fur Trade Fin., LLC v Brenner, 2019 NY Slip Op 00858 (2d Dept Feb. 6, 2019) commenced an action against defendant Dean Brenner (“Brenner”) and others seeking to recover damages for breach of fiduciary duty, breach of contract, conversion and fraud.  The plaintiff moved for summary judgment on the issue of liability as against Brenner, alleging that he had misappropriated funds and goods in connection with his servicing of four finance agreements plaintiff had entered into with certain non-parties.  Justice Bucaria granted plaintiff’s motion for summary judgment on the issue of liability on the breach of fiduciary duty claim.  The plaintiff thereafter moved for summary judgment on the issue of damages.  Again, Justice Bucaria granted the plaintiff’s motion and entered judgment against Brenner in the amount of $1,755,630.79.  Brenner appealed.

The Second Department reversed, finding that the evidence upon which plaintiff primarily relied was not in “admissible form.”  The Court stated:

“Here, in moving for summary judgment on the issue of liability insofar as asserted against Brenner, the plaintiff relied primarily on an affidavit of its managing member, in which the managing member stated that he was told by certain nonparties that Brenner had misappropriated funds and goods.  This hearsay evidence was insufficient to satisfy the plaintiff’s burden of establishing its prima facie entitlement to judgment as a matter of law on the breach of fiduciary duty cause of action insofar as asserted against Brenner.”

The Court also concluded that the plaintiff could not cure this defect by submitting unauthenticated, and therefore inadmissible, bank records for the first time on reply.   It is abundantly clear, then, from the Second Department’s decision in GMP Fur Trade that inadmissible hearsay does not have any probative value when submitted in support of a motion for summary judgment, and should not be considered.

However, the rigidity of this rule should be contrasted with the principle that, under certain circumstances, a party opposing summary judgment may rely on evidence that is not in admissible form, but only if the opposing party provides a reasonable excuse for its failure to submit evidence in admissible form (see e.g. Zuckerman v City of New York, 49 NY2d 557 [1980] [“The rule with respect to defeating a motion for summary judgment, however, is more flexible, for the opposing party, as contrasted with the movant, may be permitted to demonstrate an acceptable excuse for his failure to meet the strict requirement of tender in admissible form”]).  Indeed, a party opposing a motion for summary judgment may rely on hearsay, as long as it is not the only piece of evidence relied on by that party (Sumitomo Mitsui Banking Corp. v Credit Suisse, 89 AD3d 561 [1st Dept 2011]).

Takeaway:  The Second Department’s point was made clear in GMP Fur Trade, but it is worth repeating: counsel for the moving party should review each piece of evidence submitted in support of its summary judgment motion and ensure that it is admissible.  Indeed, affidavits must be signed and properly notarized, deposition transcripts must be certified by a court reporter and signed by the deponent, a proper foundation must be laid for each record relied upon in the motion, especially business and medical records, and importantly, hearsay statements must be qualified for the court’s consideration under one of the many hearsay exceptions.  By contrast, the “admissible form” requirement is more flexible with respect to an opposing party’s evidence, allowing an opposing party to rely on hearsay (as long as it is not the only piece of evidence relied upon by the opposing party), or other inadmissible evidence (if the opposing party offers a reasonable excuse for its failure to submit evidence in admissible form).

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

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

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

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

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

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

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

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

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

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A preliminary injunction is one of the available provisional remedies, namely, equitable relief entered by a court prior to a final determination of the merits. The relief usually orders a party to restrain from a course of conduct or compels a party to continue with a course of conduct until the action has been decided. Preliminary injunctions differ from temporary restraining orders in that TROs are usually granted pending a hearing for a preliminary injunction where a court determines that “immediate and irreparable injury, loss or damage will result unless the defendant is restrained before the hearing can be held.” See CPLR § 6301.

The standard that a party seeking a preliminary injunction must satisfy to obtain such “extraordinary” relief is the well-settled three-prong test: (1) a probability of success on the merits, (2) danger of irreparable injury in the absence of an injunction and (3) a balance of equities in its favor. See Nobu Next Door, LLC v. Fine Arts Hous., Inc., 4 N.Y.3d 839, 840 (2005).

Injunctive relief is not designed to determine the merits of the action, rather its function is to preserve the status quo pending the outcome of an action. For this reason, preliminary injunctions can be used as a significant weapon in commercial and business litigation. Nevertheless, it is important to understand when this remedy is available and when it is not.

Establishing the second prong of the test often proves to be the most difficult since the vast majority of commercial and business litigation cases seek monetary damages—something that can be remedied at the disposition of a litigation and therefore not worthy of the extraordinary remedy of injunctive relief. By definition, the concept of irreparable injury seeks relief for a type of harm for which there is no adequate remedy at law (e.g., no monetary damages).

New York County Commercial Division Judge Sherwood recently denied an application for a preliminary injunction for two reasons: the plaintiff sought a remedy which would alter, not maintain, the status quo and because plaintiff could not show irreparable harm.

In that case, the plaintiff sought to have the Court compel the defendant to deliver shares in defendant’s company to plaintiff based on the terms of a purchase and sale agreement between the parties. However, defendant argued that the transfer of shares would be in violation of various SEC rules preventing the plaintiff from acquiring further shares of defendant’s common stocks. Ultimately, Sherwood decided that compelling the defendant to transfer the shares would alter the status quo because it would be giving plaintiff its ultimate relief it sought by allowing it to bypass a potentially illegal transfer of shares. See Crede CG III, Ltd. v. Tanzanian Royalty Exploration Corp., 2018 NY Slip Op 32918 (New York County, 2018).  This type of relief, also known as a “mandatory” injunction, is granted only upon a much higher burden. See Lehey v. Goldburt, 90 A.D.3d 410, 411 (1st Dep’t 2011).

Next the plaintiff argued that it would be irreparably harmed if its application for a preliminary injunction was not granted because the defendant was “on the verge of insolvency” threatening plaintiff’s ability to collect on a potential judgment issued at the conclusion of the case. Here, defendant was a publicly traded company created to help fund some of its gold and precious metal mining projects in Tanzania. At the time of the application it had current assets of $1.3 million and debts of over $10 million along with $50 million in assets located in Tanzania where the law of that country does not currently recognize United States judgments.

Judge Sherwood reaffirmed the principle that the relief of a preliminary injunction is not available in an action seeking solely money damages. He reasoned that plaintiff’s damages consisted of the value of publicly traded stock of defendant’s company which could easily and readily be calculated. Sherwood reasoned that the fact that defendant might not have any assets left by the end of the litigation was not enough to award a preliminary injunction because an “unsecured creditor has no cognizable interest in a debtor’s property until the creditor obtained a judgement.” He went on to say that a creditor therefore “has no equitable prejudgment remedy that will interfere with the debtor’s use of its property—even if the defendant threatens to strip itself of assets.”

In conclusion, commercial litigators must remember that the extraordinary remedy of a preliminary injunction, can be used as a weapon, but such relief is only available to maintain the status quo and where irreparable harm exists.

As readers of this blog have come to appreciate, we here at New York Commercial DCheck the Rulesivision Practice tend to report on — among other things Commercial Division — the procedural particularities of litigating commercial matters before the various judges that have been assigned to the Commercial Division over the years.  Such particularities may arise from, say, a new or amended Commercial Division Rule, or from a new or amended Individual Practice or Part Rule.

For example, we repeatedly have reported on the particularities of the individual-practice rules of Manhattan Commercial Division Justice Eileen Bransten, who, along with her colleague Justice Charles E. Ramos (also no stranger to this blog), will be retiring this month and will be succeeded next year by incoming Justices Joel M. Cohen and Andrew S. Borrok.  In case you missed it, the New York Law Journal announced the appointments of Justices Cohen and Borrok to the Commercial Division just before Thanksgiving.

Speaking of procedural particularities and new Commercial Division judges, perhaps most particular of all are the Practices for Part 54 overseen by New York County’s most recent addition to the Commercial Division, Justice Jennifer G. Schecter, who was appointed in April 2018 and took over the docket of recently-retired Manhattan Commercial Division Justice Shirley Werner Kornreich.

Justice Schecter’s Part Rules are numerous and specific — 58 if you’re counting (not including subparts) — and cover everything from file to trial.  Her rules seemingly anticipate anything that can arise during the course of a complex commercial litigation in a way that only someone who spent more than a decade as Principal Law Secretary to former Chief Judge Judith Kaye of the New York Court of Appeals and the aforementioned Justice Bransten can appreciate.

To be sure, there is much to consider in Justice Schecter’s rules, but here are 10 or so important reminders for practitioners litigating in her Part:

Rule 21 — Don’t ask your assistant or paralegal to call the court to confirm scheduling, etc.  “The court will only take calls from the parties’ attorneys of record.”

Rule 27 — Don’t dump documents on your adversary after hours.  “[W]hen a discovery deadline is set forth in a court order, that deadline is 5:00 pm, New York time.”

Rule 31 — Don’t withhold documents on the basis of privilege without serving a privilege log along with your production.  “Failure to serve a privilege log with the party’s production will, absent good cause, be deemed a waiver of the party’s objection on the ground of privilege.”

Rule 33 — Don’t send a colleague to a status conference without full knowledge of the case.  “Attorneys appearing for conferences must be fully familiar with the case [and] should be prepared to discuss the merits of their case at all conferences.”

Rule 34 — Bring everything with you to compliance conferences if you want the court to rule on a discovery dispute.  “Any party that wants to resolve a dispute about the sufficiency of a discovery response during a conference shall bring whatever will be needed to obtain a ruling, including copies of the disputed demands and responses.”

Rule 39 — Adhere to new Commercial Division Rule 17 concerning word limits and swear to it.  “Every brief, memorandum, affirmation, and affidavit shall include . . . a certification by the counsel who has filed the document describing the number of words in the document.”

Rules 40-41 — Don’t file an attorney “brief-irmation” or a party “brief-adavit” in support of a motion.  “Argument must be confined to the brief,” which “must accompany every motion.”

Rules 45 and 52 — Include complete copies of all contracts filed as exhibits to your motion papers.  “Excerpts of contracts may not be filed.”

Rule 54 — Agree with your adversary on a joint Rule 19-a statement of material facts or don’t bother.  “If the parties cannot agree on a joint statement, a Rule 19-a statement of facts is not permitted.”

Rule 55 — Obtain and file your oral-argument transcripts if you want a decision on your motion.  “Motions will not be marked fully submitted and the court will not issue a decision until the transcript is e-filed and the Part Clerk receives a hard copy of the transcript with the e-filing confirmation receipt.”

Be sure to check in early next year for future posts on the individual practices of incoming Manhattan Commercial Division Justices Cohen and Borrok.  In the meantime, a happy holiday season to all our readers!

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

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

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

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

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

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

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As litigators in the Commercial Division, everyone knows that discovery can be particularly burdensome and time consuming.  This is especially true when you have clients that are very protective of their information.  The Commercial Division already has anticipated this by offering attorneys a model confidentiality agreement, which in some cases can be further negotiated by the parties for their additional protection.

In Callsome Solutions Inc. v. Google Inc., the parties, as Google would come to regret, included an Attorneys’ Eyes Only (“AEO”) provision in their confidentiality agreement.  Manhattan Commercial Division Justice Andrea Masley scolded and sanctioned Google for its AEO designation of hundreds of documents and thousands of lines of deposition testimony.  The Court stated that the “AEO designation was reserved for truly secret documents” and that it should be used “as sparingly as possible.”  This is because “improper designations, not only delay, but also impact. . . the communications between [client] and its attorney.”   Therefore, in designating documents AEO, litigators must take careful consideration to limit the documents with that designation and make sure those documents are only designated in good faith.

In Callsome, the parties entered into stipulated confidentiality agreement that called for two tiers of confidentiality: (1) confidential; and (2) highly confidential – attorneys’ eyes only.   The latter designation was designed to protect confidential information that is “extremely sensitive.”  After Google designated hundreds of documents and thousands of lines of deposition testimony, the plaintiff requested that Google de-designate groups of documents and testimony, Google then engaged in a “slow trickle” of de-designation.

In issuing sanctions against Google, it was not just Google’s over-designations that irritated the court, it was also the “slow trickle” of corrections.  Specifically, the Court found that this “trickle” did not “rectify the initial improper designations.”  Further, Google even attempted to use the corrections as a negotiation tactic within the litigation, attempting to extract concessions from the plaintiff.  The Court found that “[n]o public policy is served by crediting Google’s purported offer to compromise. . .” because “AEO designations are not negotiable.”

A party cannot over designate documents then hold the improperly designated documents hostage until the adversary surrenders.  Such conduct will not be countenanced by this court.

The Court held that “Google’s conduct flouts widely accepted rules of civility embedded in New York litigation and in particular the Commercial Division,” and that it “effectively prevented the expeditious resolution of this litigation.”  The Court further held that Google engaged in frivolous conduct warranting sanctions under 22 NYCRR Section 130-1.1.

The first takeaway here is that confidential designations of any kind, particularly AEO designations should be made in good faith.  Second is that after designating documents AEO, when faced with a request to de-designate, you should ensure that you do not delay the litigation by refusing to do so or attempt to use your designations as a negotiating tactic.  Make sure you have a good faith basis for your designation, and stick to your guns.

 

However, if you believe that a document does not warrant such designation, but your client is still skittish, you can, as the Court suggested, amend (or draft) the confidentiality agreement to guarantee your client further protections such as providing for financial penalties in the event of a breach.  Over designation only delays litigation and shifts the burden to your opponent, which is never appropriate.

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For those civil practitioners who don’t regularly practice in the Commercial Division – beware.  The Unified Court System’s Advisory Committee on Civil Practice (the “Committee”) has proposed that nine (9) Commercial Division Rules be broadly adopted by other, non-commercial civil courts.  These nine rules all have one common goal: to promote efficiency in New York courts.

Earlier this year, the Committee conducted a detailed evaluation of the Commercial Division Rules (22 NYCRR 202.70[g]) to determine which of those rules, if any, should be broadly adopted by non-commercial courts.  In a July 2018 report (the “Report”), the Committee recommended broader application of the following Commercial Division Rules:

Rule 3(a) – Appointment of a court-annexed mediator (as amended)

  • Rule 3(a) provides that a judge may direct, or counsel may seek, the appointment of an uncompensated mediator. This rule also allows counsel for all parties to stipulate having the case determined by a summary jury trial.  The Committee recommended statewide adoption of this rule, with a minor amendment stating that the court may advise (rather than direct) the appointment of a court-annexed mediator.  This rule will promote judicial efficiency and potentially result in the earlier resolution of cases through ADR.

Rule 3(b) – Settlement conference before a judge not assigned to the case

  • In addition to Rule 3(a), the Committee recommended adoption of paragraph (b), which provides that counsel can request a settlement conference before another judge who is not the judge assigned to the case.  The Committee noted, however, that it may be difficult to implement Rule 3(b) in some downstate counties where judicial resources may not be as readily available.

Rule 11-a – Limitations on interrogatories

  • The Committee also recommended statewide adoption of Rule 11-a, which, among other things, sets certain limitations on the use of interrogatories (i.e., interrogatories cannot exceed more than 25 in number, including subparts, and are limited to succinct categories). In the Committee’s view, this proposed amendment “would result in increased efficiency and streamlined litigation” and “serve as a useful guideline for limiting unnecessary, burdensome or abusive discovery practices.”

Rule 11-b – Privilege Logs (in part)

  • To reduce the time and costs associated with preparing document-by-document privilege logs, the Committee recommended the partial adoption of Rule 11-b, which permits the use of categorical privilege logs.  According to the Committee, the categorical approach “is more efficient and cost-effective for the parties, helps streamline litigation and facilitates expeditious court review.”  However, the Committee is not in favor of Rule 11-b’s provision regarding cost allocation, which permits a party required to produce a document-by-document privilege log to apply to the court for costs associated with that log.  Rather, the Committee recommends that, in cases where the parties disagree about which approach to follow, the court should determine whether the categorical approach or the document-by-document approach will be used.

Rule 11-d – Limitations on depositions

  • Similar to the statewide adoption of Rule 11-a (limitations on interrogatories), the Committee recommends that Rule 11-d’s limitations on depositions be broadly adopted. Under this rule, the number of depositions is presumptively limited to ten (10) per party, and each deposition will be limited to seven (7) hours per deponent.  These limits can be changed by stipulation or by court order upon a showing of good cause.

Rule 11-e – Responses and objections to document requests (as amended)

  • It is no mystery that boilerplate objections have become widely disfavored among judges, and are even sanctionable in some courts. Thus, the Committee proposed the broad adoption of Rule 11-e, which requires parties responding to discovery requests to either state that the production will be made as requested, or state with reasonable particularity the grounds for any objection.  The proposed rule will also require a responding party to state, at the time if disclosure, whether the production of documents is complete, that there are no responsive, non-privileged documents in its possession, or explain why the production is not complete.

Rule 19-a – Statement of material facts for summary judgment motions

  • The Committee recommended statewide adoption of Rule 19-a, “as it is likely to greatly assist in narrowing and clearly setting forth the material issues.” The Committee further recommended that a statement of material facts be required in all cases involving summary judgment, and not just in cases “where the court directs.”

Rule 20 – Temporary restraining orders

  • This Commercial Division Rule requires notice to an adverse party of any application for a temporary restraining order, unless the moving party can demonstrate that “significant prejudice” would result from such notice. The Committee recommended statewide adoption of this rule because it “advances a just result by giving all parties notice of the issues and an opportunity to comment.”

Rule 34 – Staggered court appearances

  • Most judges generally have specific motion and conference days and, most parties are directed to appear at a specific time on such day (for example, Tuesdays at 9:30 a.m.). The result is often a courtroom packed with attorneys waiting to be heard, sometimes for hours. Rule 34, however, is intended to encourage “court staggered appearances” by providing litigants specific time slots to appear, depending on the nature of the appearance.  The goal of this proposed rule is obvious: to reduce congestion in the courtrooms and eliminate the inordinate amount of time attorneys spend waiting to be heard, thus reducing client costs and increasing courtroom efficiency.

The Committee is now seeking public comment on the recommendations set forth above.  However, the Committee determined that wholesale adoption of the Commercial Division Rules statewide is not warranted.  Indeed, many of the commercial division rules already exist in one form or another (i.e., Rule 1 [appearance by counsel with knowledge and authority, which is already incorporated into most conference orders; Rule 11-f [deposition of entities, which is already adequately addressed in CPLR Articles 23 and 31, respectively]) and, some of the specific rules may actually add to the costs of litigation or place additional burdens on litigants (i.e., Rule 21 [providing courtesy copies in e-filed cases, which, according to the Committee, is “contrary to the goals of paperless electronic litigation”]).

So what does this mean for civil practitioners?  Whether you practice mainly in the Commercial Division or in other civil courts, the Office of Court Administration is seeking to streamline litigation in non-commercial cases and make civil practice in all courts more efficient and practical.  If these rules are ultimately adopted statewide, ADR will become more commonplace, abusive discovery practices, such as boilerplate objections and excessive interrogatories, will not be tolerated, discovery will become more streamlined and efficient, and hopefully, litigants won’t be waiting in court for hours until their case is finally called.

The Administrative Board is now seeking public comment on the recommendations set forth in the Advisory Committee’s Report.  Those wishing to comment on the Report should e-mail their submissions to rulecomments@nycourts.gov or write to: John W. McConnell, Esq., Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, New York 10004.  Comments must be received no later than January 15, 2019.

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Perhaps it’s because I’ll be speaking on the topic later this week, or perhaps it’s because of a recent post on another one of our blogs, but shareholder rights of inspection have been on the mind of late.Shareholder inspection rights

While researching 2018 New York cases addressing inspection rights, particularly in the Commercial Division, I came across a Second Department decision from over the summer, which modified a post-trial judgment from Queens County Commercial Division Justice Marguerite A. Grays by ruling in favor of the individual defendant on his counterclaim for an accounting and directing the corporate plaintiff to permit an inspection of its books and records.

In World Ambulette Transp., Inc. v Lee, a corporate ambulance service sought to recover damages from a former driver/dispatcher who was terminated after allegedly charging the company’s debit card for various personal expenses. The defendant counterclaimed for breach of contract and an accounting, claiming not only that he was wrongfully discharged as an employee, but that he was denied certain rights as a minority owner under a shareholder’s agreement, including the right to continued employment, salary, dividends, and other company profits.

At trial, the parties offered conflicting testimony concerning the business arrangement between them, with the defendant claiming that he was a full-blown 49% owner in the company, and the plaintiff claiming that he was merely an employee entitled to 49% of the company’s profits.  Confident in its founder’s testimony in this regard, the plaintiff moved under CPLR 4401 for judgment during trial effectively to dismiss the defendant’s counterclaims, including his claim for an accounting — which, by its very nature, was contingent on the existence of a fiduciary relationship between the parties.  After all, if the defendant never was a shareholder and the requisite fiduciary relationship wasn’t there in the first place, how could he maintain a claim for an accounting against the plaintiff?

The trial court concurred, crediting the founder’s testimony and other “extrinsic evidence” relating to “the parties’ intent,” and found that the parties had “entered into nothing more than a profit sharing agreement,” which warranted dismissal of the defendant’s counterclaims.

The Second Department disagreed, in part anyway, finding that there was nothing ambiguous about an agreement, which on its face was denominated a “shareholder’s agreement,” and which contained a “Warranties” section designating a specific 51/49 percentage ownership of “Class A shares” among the parties.  There simply was no need to consider any extrinsic evidence concerning the parties’ intent when that intent was expressed unambiguously within the four corners of the agreement itself.

After citing section 624 of the Business Corporation Law (“Books and records; right of inspection”) and stating that “a shareholder has both statutory and common-law rights to inspect the books and records of a corporation if inspection is sought in good faith and for a valid purpose,” the Second Department ruled that the defendant was entitled to an accounting and that he should be permitted to examine the plaintiff’s books but otherwise affirmed the trial court’s findings with respect to the defendant’s unauthorized debit-card charges card and the propriety of his termination.

Pyrrhic victory, you say?  Maybe not.  Sure, the defendant in World Ambulette may not have a right to continued employment, or to a director’s meeting on notice prior to termination, or to any salary, dividends, or future profits from the company in which he is a 49% shareholder, but he still has his rights of inspection.  And given the recent expansion of those rights in New York case law (see, e.g., Retirement Plan for Gen. Empls. of City of N. Miami Beach v McGraw Hill Cos., Inc., 120 AD3d 1052 [1st Dept 2014]) — including the right to “investigate alleged misconduct by management and obtaining information that may aid legitimate litigation . . . even if the inspection ultimately establishes that the board engaged in no wrongdoing” — the defendant may eventually have his day in court after all.

** Nota Bene ** — As noted above, the topic of shareholder inspection rights (among others) will be the subject of a panel discussion at the Westchester County Bar Association this coming Thursday, November 1, 2018, at 6 p.m. at the WCBA Headquarters, 4 Westchester Park Drive, Suite 155, in White Plains.  The 1.5 credit CLE program will address the utility of the books-and-records proceeding in disputes among business owners in partnerships, corporations, and LLCs, and the ways in which such disputes might be avoided by having proper formation documents prepared and in place from the beginning.  The three-person panel will be addressing these topics from the perspective of a litigator, a forensic accountant, and a corporate attorney.  Registration and networking at 5:30 p.m.  Hope to see you there!

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court rules

Over the past year or so, we have made a point of highlighting in the “Check the Rules” series on this blog periodic updates to the individual practice rules of certain Commercial Division Justices, including Justice Eileen Bransten in New York County (twice, in fact), Justices Marguerite A. Grays and Leonard Livote in Queens County, and Justice Sylvia G. Ash in Kings County.

Continuing with this theme of local-rule vigilance, Commercial Division practitioners should take note some recent changes to the individual practice rules of Manhattan Commercial Division Justice O. Peter Sherwood.

Justice Sherwood’s Practices for Part 49, which were revised as of this month, provide some notable additions (and omissions) from his prior rules, which dated back to May 2014 before most of the Commercial Division Advisory Council’s new-rule proposals and amendments were adopted and implemented.

Be Prepared, Be Authorized. Justice Sherwood opens his practice rules with an express and emphatic reminder to attorneys practicing in his Part of the requirements under Rule 1 of the Commercial Division Rules that “counsel . . . must be fully familiar with the case . . . and fully authorized to enter into agreements, both substantive and procedural, on behalf of their clients.” In other words, appearing in Part 49 is no “cattle-call.” Attorneys should have factual command of their cases, as well as the requisite authority to bind their clients.

Separate and Describe Your Exhibits. Justice Sherwood now requires attorneys practicing in his Part who wish to annex exhibits to their correspondence or motion papers to separately e-file their exhibits and designate them with a “descriptive title.” In other words, a simple designation of “Exhibit A” won’t cut it. Attorneys must provide a description (e.g. “Operating Agreement, dated as of September 20, 2018”) so that adversaries and court personnel viewing the docket or other notice of filing can immediately understand what has been filed.

Get Advance Permission to Adjourn Appearances. Justice Sherwood now requires that requests for adjournment be submitted a full two business days in advance of the scheduled appearance. Justice Sherwood conferences his cases on Tuesdays, so that means attorneys must get their requests for adjournment in by no later than Thursday of the prior week.

Check Your E-Mail. Justice Sherwood’s new rules provide that the court may choose to communicate with counsel via e-mail “regarding scheduling matters or to make certain inquiries.” Note, however, that this line of communication only goes one way. It does not mean that attorneys practicing in Part 49 may “initiate communication with the court via email” or “use e-mail to make arguments.”

Complete Party Discovery Before Bothering Non-Parties. Justice Sherwood “strongly encourages” attorneys practicing in his Part to “attempt to confine their requests to parties to the action and resort to third-party disclosure only when it reasonably appears that the information being sought is otherwise unavailable.” Justice Sherwood also requires that all non-party subpoenas be “simultaneously served” on all parties, and that all documents and information produced in response be exchanged among all parties within five days of receipt.

Follow Instructions When Seeking to File Under Seal. Justice Sherwood’s updated practice rules provide specific instructions concerning the filing of documents under seal:

  • Applications to file under seal must be made by Order to Show Cause, which must be preceded by a meet-and-confer regarding the documents proposed for seal.
  • Motions will be considered in light of the limitations imposed under applicable case law, and the movant must propose redactions “as opposed to wholesale sealing.”
  • Any document proposed for seal must be filed in its original, un-redacted form as an exhibit, with the proposed redacted version filed “as a subset of that exhibit.”
  • All motions must be accompanied by a joint index of the documents proposed for seal, including the basis for sealing and any objection thereto.

Finally, as for notable omissions, Justice Sherwood appears to have dispensed with his former requirement – which, as far as I’m aware, was entirely unique to his Part – that  motion submissions also be provided to the court “in .rtf format on a computer disk.”

**Nota Bene** – Attention Kings County Commercial Division practitioners: How much is your case worth? The general practice rules for the Kings County Commercial Division also were updated this month to double the monetary threshold from $75,000 to $150,000.

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