Justice Saliann Scarpulla

Perhaps the most important aspect of any case is determining what your damages are.  After all, isn’t that generally the point of all our efforts – to try to recover the most amount of money?  The defendant may undeniably be the villain you make them out to be, and undoubtedly they have caused you all the harm and damage you allege.  But, a recent decision by the Honorable Saliann Scarpulla highlights the difficulty in proving your damages, particularly a claim for lost profits.

In Sullivan v. Christie’s Fine Art Storage Services, Inc., Sullivan and his business partner concocted a plan to reproduce, market, and sell prints of artwork created by Alberto Vargas (“Mara Corday or Pin-Up Girl,” “Beauty and the Beast,” formerly known as “Ziegfeld Girl with Mask,” and “Miss America”).  In October 2012, Sullivan stored the artwork in Christie’s Fine Art Storage Services’ (“CFASS”) warehouse, and not even a month later the property was destroyed or damaged by Superstorm Sandy.

Sullivan sued CFASS seeking to recover compensatory damages over $11 million, including lost profits.  On summary judgment, the Court dismissed Sullivan’s claim for lost profits because it was not within contemplation of the parties at the time of the contract, and even more so because the lost profits were too speculative.

First, the Court noted that the agreements between the parties did not directly discuss lost profits, and there was no dispute that “CFASS knew or had any basis upon which to reasonably contemplate that the works of art were intended for reproduction, marketing, and sale with an alleged net profit of more than $10 million.”

Second, the court stated “Sullivan’s potential consequential damages are not capable of measurement with reasonable certainty.”  Which was the polite way of saying they were far too speculative.  The court found that Sullivan had no experience in this area, and that this new business venture created by him and his partner in 2012, had “no track record of previous profits.”  Therefore, Sullivan could not “estimate lost profits with the requisite degree of reasonable certainty.”

The major takeaway here, as in any case, is that “it’s not what you know it’s what you can prove.”  And proving lost profits is one of the more difficult things to do in court.  Nonetheless, if you want to recover lost profits, at the very minimum, at the time of contract, make sure the other party is aware of what your damages may be, so they are within contemplation of the parties.  Also, in order to prove your lost future profits, make sure to keep records of your past profits.  Only then will you be able to win an award for your lost profits.

As a junior associate you’re typically asked to do research and draft motion papers, but you also yearn for the opportunity to argue your motion before the Court. But junior associates are usually not afforded such opportunities. Or are they? In recent years, New York judges have been making a real commitment to the development of junior associates by encouraging firms to permit junior associates to argue motions and question witnesses.

Commercial Division Justices, including Justice Saliann Scarpulla and recently appointed Justices Andrew Borrok and Joel M. Cohen have made the training of less-seasoned attorneys a priority by encouraging firms to permit junior attorneys to argue motions. For instance, Justice Scarpulla includes the following in her part rules:

To create opportunities for attorneys knowledgeable with the subject matter of the action, and who historically have been underrepresented in the Commercial Division, courtroom participation of such attorneys is strongly encouraged. This could be achieved, for example, by having a less senior attorney, who prepared the brief on the motion, argue the motion before Justice Scarpulla.

Justice Cohen not only supported this agenda but gave it some teeth by incentivizing firms to send junior associates to argue motions by including the following language in his part rules:

Requests for oral argument are more likely to be granted if counsel identifies a lawyer out of law school for five years or less who will argue the motion and references this rule in the request.

Justice Cohen’s Part Rules suggest that oral arguments on motions that would otherwise be decided on submission will be entertained if firms permit junior associates to argue the motions. And so, next time you have a motion pending before Justice Cohen and are seeking oral argument, send the junior associate.

New York Commercial Divisions are not the only courts encouraging the participation of junior associates. The Eastern District of New York Bankruptcy Court initiated a policy in May of 2018 that encourages junior lawyers familiar with the matter under consideration to argue before the Court. The EDNY Bankruptcy Court even went so far as to permit more than one lawyer to argue for a party in an effort to create an opportunity for a more junior lawyer while simultaneously ensuring that client interests are protected by the more senior attorney.

Some federal courts sitting in New York have similarly been encouraging firms to allow junior associates to argue motions they helped prepare and question witnesses with whom they met. For example, Judge Jack B. Weinstein’s Part Rules encourage junior attorneys with little to no experience arguing before a court to “speak by the presiding judge and the law firms involved in the case.” Recognizing that the ultimate decision as to who will speak in Court lies with the lawyer in charge of the case and not the court, Judge Weinstein’s rules nevertheless indicate that his Court is willing to permit a number of lawyers to argue for one party in order to create an opportunity for a less seasoned attorney’s participation.

This movement, which is not new, is being adopted in various forms by certain judges across the country and followed closely,  see Judicial Orders Providing/Encouraging Opportunities for Junior Lawyers.” (collecting and summarizing orders and rules of judges adopting some form of rule encouraging junior lawyer participation in trials and arguments).

Takeaway:Courts are increasingly sensitive to the issue and firms must become familiar with and aware of the individual practices (and even preferences) of the judges before whom they appear. In addition, this may also require some educating of clients to manage client expectations.

 

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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The New York Commercial Division was founded in 1993 “to test whether it would be possible, by concentrating on commercial litigation, to improve the efficiency with which such matters were addressed by the court and, at the same time, to enhance the quality of judicial treatment of those cases.” Among other things, its continual adoption of innovative new rules and amendments to existing rules has elevated the Commercial Division to being one of the world’s most efficient venues for the resolution of commercial disputes.

In our last installment of this blog’s Check the Rules series, we looked at the Commercial Division Advisory Council’s proposed amendment to Commercial Division Rule 17 concerning length of papers, along with some recent support from Commercial Division judges, including Justice Saliann Scarpulla of the Manhattan Commercial Division, whose decisions have taken lawyers to task for being long-winded.

It turns out that Justice Scarpulla also is an advocate of the efficiency associated with pretrial evidentiary hearings and immediate trials on material issues of fact under CPLR §§ 2218, 3211 (c), and 3212 (c), which, according to the Advisory Council in a recent new-rule proposal, are “significantly underutilized” and provide “yet another tool to help efficiently dispose of commercial disputes.”

Under the Advisory Council’s proposed new Rule 9-a, which essentially reinforces a court’s existing authority under the aforementioned CPLR provisions to direct evidentiary hearings, “parties are encouraged to demonstrate on a motion to the court when a pre-trial evidentiary hearing or immediate trial may be effective in resolving a factual issue sufficient to effect the disposition of a material fact of the case.” The proposed rule sets forth specific examples of such motions, including dispositive motions to dismiss and for summary judgment; preliminary-injunction motions; spoliation of evidence motions; jurisdictional motions; statute of limitations motions; and class action certification motions.

The idea behind proposed new Rule 9-a is to “expedite and streamline . . . questions of improper notice or other jurisdictional defects or dispositive defenses,” so as to avoid the kind of “litigation [that] continues for years through extensive discovery and other proceedings until trial where the fact issue is finally adjudicated and the case is resolved in a way that it might have been years ago.” In short, the proposed rule “is designed to reduce the waste of time and money which such situations create.”

As noted above, based on a couple recent decisions, it would appear that Manhattan Commercial Division Justice Saliann Scarpulla is on board with proposed Rule 9-a.

In January of this year, before Rule 9-a had even been proposed, Justice Scarpulla granted summary judgment for the plaintiff on a claim for breach of contract in a case called Seiko Iron Works, Inc. v Triton Bldrs. Inc. But because she was unable to “determine the total amount of damages to which [plaintiff w]as entitled based on the papers submitted,” Justice Scarpulla exercised her discretion under CPLR 3212 (c) to direct an evidentiary hearing on the material damages issues raised by the plaintiff’s dispositive motion.

Earlier this month, Justice Scarpulla expressly cited proposed Rule 9-a in a footnote to her post-hearing decision in Overtime Partners, Inc. v 320 W. 31st Assoc., LLC, a commercial landlord-tenant action seeking injunctive relief concerning the acceptance of a proposed sublessee under a master lease. After the tenant commenced the action by order to show cause, Justice Scarpulla “ordered a factual hearing to determine whether [the landlord] unreasonably withheld and delayed consent” to the proposed sublease. Citing CPLR 3212 (c) and footnoting proposed Rule 9-a, Justice Scarpulla expressly referenced her discretion thereunder to “order an immediate trial of an issue of fact raised by a motion when appropriate for the expeditious disposition of the controversy.”

Thus, it seems proposed Rule 9-a already is alive and well in the Manhattan Commercial Division, at least in spirit.  Look for its formal adoption in the near future.

As with all new-rule or rule-change proposals, anyone interested in commenting on proposed new Rule 9-a may do so by sending or emailing their comments to John W. McConnell, Esq. (rulecomments@nycourts.gov), Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, NY 10004.

Perhaps I’m revealing too much about my abilities in a prior life to balance academic and social priorities, but does anyone else remember the “not less than X pages” page requirements for high-school and college term papers and the corresponding font, margin, and line-spacing tricks for getting the assignment over the finish line?

attorney competition

Well, it would appear that lawyers – being the “remarkably insecure and competitive group of people” that they are – suffer from the opposite affliction.  According to a recent proposal from the Commercial Division Advisory Council to amend Commercial Division Rule 17 concerning length of papers, “attorneys have incentives to unfairly squeeze additional content into the allotted pages” and “have developed techniques to ‘cheat’ the limit.”

The Advisory Council’s proposal to amend Rule 17 seeks to eliminate the unfair and disingenuous “incentives” and “techniques” currently utilized by attorneys through the implementation of word rather than page limits on their submissions to the court.

The current Rule 17 provides that “(i) briefs or memoranda of law shall be limited to 25 pages each; (ii) reply memoranda shall be no more than 15 pages and . . . ; (iii) affidavits and affirmations shall be limited to 25 pages each.”

The Advisory Council’s Rule 17 proposal “substitutes word limits in place of the page limits set forth in the current rule:  7000 words (currently 25 pages) in briefs, memoranda of law, affidavits and affirmations; and 4200 words (currently 15 pages) in reply memoranda.”

I’ve seen enough decisions expressly referencing Rule 17 over the years to suggest that the Justices of the Commercial Division would support the change.  Just two months ago, in Domingo v Bidkind, LLC, Manhattan Commercial Division Justice Saliann Scarpulla admonished the defendants’ counsel for “fail[ing] to adhere to the page limits provided in Commercial Division Rule 17 in this motion and in another related action.”  Others, like former Kings County Commercial Division Justice Carolyn E. Demarest, have instituted “appropriate penalties” for Rule 17 violations – including, for example, in her Aish Hatorah NY, Inc. v Fetman decision from 2015 where she flat-out “disregarded” the latter 27 pages of a 52-page brief in support of a motion to renew and reargue.  Former Westchester County and Manhattan Commercial Division Justices Alan D. Scheinkman and Richard B. Lowe, III issued similar penalties number of years ago in Reilly Green Mountain Platform Tennis v Cortese and LaRosa v Arbusman.

According to the Advisory Council, word limits, which are more precise and uniform in application, better serve the purpose and spirit of Rule 17 – namely, to “encourage attorneys to focus on strong, concise arguments, and ensure that judges and opposing counsel are not overwhelmed with meandering, repetitious briefs.”

Word limits on papers submitted in the Commercial Division also would conform to appellate brief-writing parameters currently operative in the First and Second Departments, which require parties to certify in writing that their submissions comply with the applicable word-count requirements.

Anyone interested in commenting on the proposed amendment to Rule 17 may do so by sending or emailing their comments to John W. McConnell, Esq. (rulecomments@nycourts.gov), Counsel, Office of Court Administration, 25 Beaver Street, 11th Floor, New York, NY  10004.

In a legal malpractice claim brought by Plaintiff, an Australian investment bank against Morrison & Foester, claiming that the law firm did not conduct due diligence in uncovering material misrepresentations pertaining to Plaintiff’s underwriting of a public stock offering of Puda Coal, Inc., Justice Scarpulla, in the New York County Supreme Court (Index No.: 650988/15) dismissed the suit. Notably, the Supreme Court held that the Plaintiff in Macquarie Capital (USA) Inc. v. Morrison & Foerster LLP was in possession of the information at issue as it had an investigative report, prepared by a private international investigation firm that gave Plaintiff notice of the material misrepresentations. The report produced by the private firm disclosed information regarding the public offering, which contradicted public representations and reports. Upon receipt of the report, Plaintiff forwarded the report to Defendant, neither of which picked up on the misrepresentations in the report that Puda did not own a 90% interest in Shanxi Coal. Instead, the law firm issued an opinion confirming its due diligence and advising Plaintiff that nothing came to its attention that would lead to the conclusion that the offering documents contain false or misleading information. However, the Supreme Court, nevertheless, held that Plaintiff could not claim that the law firm’s representations caused damage to Plaintiff.

However, the Appellate Division, First Department unanimously reversed Justice Scarpulla’s decision and determined that Plaintiff sufficiently demonstrated the “but for” causation element necessary for its legal malpractice claim in defeating Defendant’s pre-answer motion to dismiss. Specifically, the Court held that Plaintiff demonstrated that but for the law firm’s negligence, Plaintiff would have abstained from its involvement in the public offering, thus preventing Plaintiff from acquiring fees, expenses, and other damages.

Further, the Court concluded that the law firm’s argument that Plaintiff possessed the information in an investigative report is unavailing because the information contained in the report cannot be described as explicitly putting Plaintiff on notice and not requiring counsel’s interpretation of the information. Contrarily, in Ableco Fin. LLC v. Hilson, 109 A.D.3d 438 (1st Dep’t 2013), lv denied 22 N.Y.3d 864 (2014) this Court granted defendant’s motion for summary judgment dismissing the legal malpractice claim on the basis that plaintiff indisputably possessed certain information prior to the closing and was aware that it would not receive first priority lien on the inventory and, as such, counsel’s legal interpretation was not required.

 Takeaway: In Macquarie Capital (USA) Inc, the law firm was specifically hired to conduct due diligence and investigate the company’s offering. Ultimately, the Court held that the law firm should not be able to shift legal responsibility it was hired to perform to the client. A law firm cannot release itself from liability by arguing that because its client possessed certain information, that the law firm need not conduct the due diligence it was retained to do in the first instance.