Justice Eileen Bransten

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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In May 2013, professional golfer Vijay Singh (“Singh”) brought suit against PGA Tour, an organizer of the leading men’s professional golf tours and events in North America, in Vijay Singh v. PGA Tour, Inc. PGA Tour enacted an Anti-Doping Program, which prohibits golfers from using certain substances. The list of prohibited substances was adopted from the list maintained by the World Anti-Doping Agency (“WADA”). A few years after the Anti-Doping Program was enacted, Singh began using a performance-enhancing substance, deer antler spray, for his knee and back problems.

Although Singh tested negative for any banned substance, PGA Tour, which sent the spray for testing, determined that the spray contained prohibited substances. As a result, PGA Tour concluded that Singh violated the Anti-Doping Program and, as a result, suspended him from activities related to PGA Tour’s organization. PGA Tour subsequently dropped its disciplinary action and revoked Singh’s suspension after WADA announced that deer antler spray is not a prohibited substance.

Singh sued PGA Tour in the New York County Commercial Division for, among other things, breach of the implied covenant of good faith and fair dealing, and conversion. Nearly three years later, Singh moved for partial summary judgment on his breach of the implied covenant of good faith and fair dealing cause of action. PGA Tour moved for summary judgment on the causes of action for conversion and breach of the implied covenant of good faith and fair dealing.

In May 2017, Justice Eileen Bransten granted in part and denied in part PGA Tour’s motion for summary judgment. She dismissed Singh’s claim for breach of the implied covenant of good faith and fair dealing and denied in part Singh’s motion for partial summary judgment on that claim. The Court determined there were issues of fact regarding whether PGA Tour breached the implied covenant of good faith by failing to consult with the WADA, upon which PGA Tour clearly relied in issuing its list of prohibited substances, prior to suspending Singh. The Court also concluded there were issues of fact pertaining to what, if any, damage Singh suffered as a result of his suspension and PGA Tour’s making public statements regarding his use of the substance. Justice Bransten also dismissed Plaintiff’s cause of action for conversion on the basis that PGA Tour demonstrated compliance with the Anti-Doping Program, thus establishing that PGA Tour was entitled to escrow Plaintiff’s funds from the date of Singh’s alleged violation to the end of his suspension.

Recently, the Appellate Division, First Department affirmed Justice Bransten’s decision. PGA Tour’s motion for summary judgment dismissing Singh’s cause of action for breach of the implied covenant of good faith and fair dealing was denied. The Court held that the determination as to whether PGA Tour exercised discretion “arbitrarily, irrationally or in bad faith by failing to confer with or defer to” the WADA prior to suspending Singh and making public statements regarding his use of the deer antler spray is an issue of fact for the jury to determine. The First Department relied on Dalton v. Educational Testing Serv., which held that “[w]here a contract contemplates the exercise of discretion, this pledge includes a promise not to act arbitrarily or irrationally.” Indeed, the Court went on to determine that within the obligation to exercise good faith are “promises which a reasonable person in the position of the promisee would be justified in understanding were included.” In that regard, the Court held that issues of fact exist on whether the public statements made by PGA Tour representatives implicating Singh’s substance use were a breach of the implied covenant of good faith and fair dealing, and whether and what damage Singh suffered as a result thereof. The Court also affirmed the earlier decision dismissing the claim to the extent it relied on Singh’s allegation that he was treated differently than other similarly situated professional golfers.

Minolta DSC

Over eighty years after the end of World War II, crimes committed by the Nazis continue to be redressed, including in our very own Commercial Division. The Nazis are well known to have plundered with reckless abandon along the trail of their occupation. Beyond their theft of precious metals and currency, they also stole numerous famous paintings, with Hitler having a particular distaste for modern art, which he deemed “degenerate art.”

The 2014 film, The Monuments Men (starring Matt Damon), tells the story of the efforts of the Monuments, Fine Arts, and Archives program of the Allied armies to protect, and after World War II ended, to recover, cultural monuments, including fine art, plundered by the Nazis. The Monuments Men did not recover every piece of art stolen by the Nazis (the precise scope of their plunder being unknown). But even after their efforts ended, Nazi-looted art works have been returned to their rightful owners, or their heirs, including two in April of this year as a result of a landmark summary judgment decision issued by New York County Commercial Division Justice Charles E. Ramos, applying the Holocaust Expropriated Art Recovery Act.

This week’s post features an even more recent decision of the New York County Commercial Division, in which the court was faced with a motion to dismiss an action brought to recover a very valuable painting by the famous modern Italian, Jewish painter, Amadeo Clemente Modigliani (1884-1920). To set that decision in its proper context, we first need to examine the painting’s history.

The Painting and its History

At issue in Gowen v. Helly Nahmad Gallery, Inc., is the ownership of Modligliani’s “Seated Man with Cane, 1918” (the “Painting”). Oscar Stettiner (“Stettiner”), a Jewish art dealer who lived and worked in Paris during the 1930s, originally owned the Painting as part of his private collection. As the Nazi’s approached France in 1939, Stettiner was forced to flee Paris, leaving behind the Painting.

After being taken by the Nazi’s upon their occupation of France, the Painting was assigned to a Temporary Administrator and eventually auctioned off in July of 1944. Although this and all other forced sales of property by the Nazis were declared null and void in 1946, and despite Stettiner obtaining an order from the French courts in July of 1946 granting the Painting’s return to him, Stettiner and his family were unable to locate the painting prior to his death in 1948. Stettiner’s wife and two children were thereafter unable to locate the Painting despite continued efforts.

In 1996, the Painting finally resurfaced when it was misidentified as being a different painting and as having an owner other than Stettiner, when it sold at a Christie’s London auction for $3.2 million to the defendant, International Art Center, S. A. (“IAC”). In 2008, IAC attempted unsuccessfully to sell the Painting at Soethby’s New York. In 2011, Stettiner’s sole heir, Phillippe Maestracci, sent two lawyer’s letters to the defendants demanding the return of the Painting (the “Demand Letters”). The defendants never responded. The present action, seeking a declaration as to title of the Painting and asserting claims for conversion and replevin of the Painting, was commenced by George Gowen, as the Ancillary Administrator of Stettiner’s estate.

The Motion Before the Court

In a wide-ranging, eleven-part decision, Justice Eileen Bransten denied the defendants’ motion to dismiss on each of the grounds asserted: CPLR §§ 3211 (a) (1), (a) (2), (a) (3), (a) (4), (a) (5), (a) (7), (a) (8), (a) (10), 327, 1001, 1003, 3025, and 306-b.

The Court’s Personal Jurisdiction and Alter Ego Analysis

Though any one of the asserted grounds for dismissal could warrant a post on this blog, of particular interest is the court’s personal jurisdiction analysis regarding defendant David Nahmad (“Nahmad”), the billionaire patriarch of an internationally recognized art-dealing family. Specifically, the plaintiff relied on the difficult-to-establish alter ego theory; namely that Nahmad is the alter ego of IAC. In their motion to dismiss, IAC and Nahmad argued that neither is a resident or domiciliary of New York and that neither has conducted business in New York.

In analyzing the alter ego theory, the court first addressed its personal jurisdiction over IAC, a Panamanian corporation (that found itself in the Panama Papers leaks). The court held two such grounds existed. First, the court held that IAC had transacted business in New York by and through the acts of its agents, defendants Helly Nahmad (the son of David Nahmad, who pleaded guilty in 2013 to operating an illegal gambling ring) and Helly Nahmad Gallery (his famous eponymous New York City art gallery), who allegedly sold art to which IAC holds title. Second, the court held that IAC had committed tortious conduct in New York because a cause of action sounding in tort arose under New York law when Maestracci sent the Demand letters (see Solomon R. Guggenheim Foundation v Lubell, 77 NY2d 311, 316-317 [1991]).

The court then held that it acquired personal jurisdiction over Nahmad “by and through his conducting business vis-à-vis Defendant IAC and, in so doing, so perverting the corporate form such that this court cannot determine a substantial difference between the two Defendants.”  That is, the court held that Nahmad was the alter ego of IAC. In support of this holding, the court listed various factual allegations, a number of which were supported by documentary evidence, including:

  • that Nahmad is the principal of IAC;
  • that Nahmad holds all of IAC’s shares of stock;
  • that IAC was formed by a Panamanian law firm that has “garnered a reputation for creating ‘shell companies’”;
  • that Nahmad used IAC to conceal his name, and thus the owner of the Painting, to perpetuate a wrong (this allegation was supported by a New York Times article quoting Nahmad himself as saying “the International Art Center is me personally. . . . it’s David Nahmad”);
  • that IAC fails to adhere to corporate formalities such as keeping regular books and records, fails to generate income, and does not have an independent board of directors; and
  • that IAC is underfunded such that Plaintiff would not be able to recover reasonable costs if successful on its claim.

Take Away 

Aside from the fascinating history involved, this decision is particularly beneficial because it offers a specific list of factual allegations supporting a finding of the alter ego theory, a potentially powerful tool for plaintiffs that courts infrequently apply.

Interesting Side Note: On May 13, 2018, a separate Modigliani, the 1917 painting, “Nu Couché (Sur Le Côté Gauche), sold for $157.2 million with fees, making it the highest auction price ever for a work sold at Sotheby’s.

You’re a commercial litigator in New York. You’ve just been brought in on a case pending in the Commercial Division before a particular Commercial Division judge.  Or maybe you’ve just received an administrative bounce to a Commercial Division RJI Addendum, assigning your case to a particular Commercial Division judge sitting in the county where you recently filed motion papers or requested a preliminary conference. What’s the first thing you do?  You check the rules, of course.

Obviously, that begins with familiarizing (or re-familiarizing as the case may be) yourself with the Commercial Division Rules – particularly Rules 7 through 24, which supersede the Uniform Civil Rules with respect to conferencing your case and engaging in motion practice.

Know the Rules

But you also should look to see whether the particular Commercial Division judge assigned to your case has individual practice rules – which rules, in turn, often supersede or otherwise modify the Commercial Division Rules. Those Commercial Division judges that have individual practice rules update their rules with some regularity, so you also should make a point of checking them periodically.

As a recent example, Manhattan Commercial Division Justice Eileen Bransten, whose practice rules begin with the general principle of application noted above – namely, that “the Commercial [Division] Rules govern all cases before Justice Bransten unless modified or changed below” – updated her rules in March of this year. Some of the more notable updates to Justice Bransten’s “Practices in Part 3” are as follows:

  • Correspondence with the Court:       All letters to Justice Bransten, including pre-motion conference letters under Commercial Division Rule 24, in addition to being e-filed on the NYSCEF system, must be “hand delivered” to her Part Clerk and must conform to the font requirements of “Times New Roman, Size 12.”
  • Court conferences: Justice Bransten’s updated practice rules link to forms for the New Revised Preliminary Conference Stipulation and Order, as well as the New Compliance Conference Stipulation and Order, both of which are required for conferences held in Part 3.
  • Filing under seal: Justice Bransten’s updated practice rules provide for extensive direction concerning the filing of documents under seal:
    • Applications to file under seal must be made by Order to Show Cause;
    • Parties must meet and confer regarding the documents proposed for sealing before making a motion to file under seal;
    • Motions to file under seal will be considered in light of the limitations imposed on sealing as dictated by recent case law; moving parties must propose document redactions “as opposed to the wholesaling sealing of documents”;
    • Any document proposed for sealing must be filed in its original, un-redacted form as an exhibit to the motion, with the proposed redacted version of the document filed “as a subset of that exhibit”;
    • All motions to file under seal must be accompanied by a jointly-created index of the documents proposed for sealing, to include the basis for the proposed sealing and any objection thereto.
  • Motion practice in general:
    • Justice Bransten requires a courtesy (hard) copy of all e-filed motion papers;
    • If a party wishes to submit a deposition/hearing transcript or an arbitration award as an exhibit to a motion, the document must be submitted in its entirety as opposed to excerpts;
    • When submitting a Statement of Material Facts under Commercial Division Rule 19-a in support of a motion for summary judgment, a party must provide specific “references to appropriate documentation” establishing that the facts are undisputed; the party opposing the motion must “first repeat the movant’s claimed undisputed facts followed by its response,” which also must provide “reference to appropriate documentation.”
    • Consistent with her prior rulings on the topic (see e.g. ZV NY, Inc. v Moskowitz 44 Misc 3d 1225[A] [Sup Ct, NY County 2014), attorney affirmations in which counsel present arguments of law – sometimes referred to as “memo-affs” or “brief-adavits” or “brief-irmations” – “will not be considered by the Court.”
  • Trial practice:
    • Justice Bransten will not give parties a trial date unless and until they have attempted some form of ADR, whether privately or through the Commercial Division’s ADR Program.
    • All pre-trial submissions (briefs, witness and exhibit lists, and motions in limine, etc.) must be “both e-filed and hand delivered to the Part in hard copy.”