New York Commercial Case Compendium

Failure to Comply with Notice Provisions under Liability Policies Dispositive as to Survival of Third-Party Complaint: Carpio-Sanchez v Nakamura

Matthew D. Donovan — Tue, 21 Feb 2012 16:01:57 -0500

In a November 4, 2011, decision by Justice Grays, the court granted defendant/third-party plaintiff’s and third-party defendants’ respective motions for summary judgment dismissing the complaint and third-party complaint. Plaintiff-construction worker was injured on the job and sued defendant-homeowner to recover damages for his injuries. In turn, defendant-homeowner sued third-party defendant-insurers for defense and indemnification under their respective general liability policies. The insurers moved for summary judgment on grounds that defendant-homeowner failed to give timely notice of the lawsuits and that plaintiff’s injury was not covered under the policy. The court granted the insurer’s motions, finding that defendant-homeowner failed to comply with the condition precedent of notice under the policies and that the plain meaning of the language excluding plaintiff as a particular class of employee was dispositive. The court also granted defendant-homeowner’s own motion for summary judgment, finding that as an owner of a single-family dwelling who did not supervise, direct, or control the work of plaintiff, defendant-homeowner was entitled to the protection of the homeowner’s exemption under the Labor Law.

Carpio-Sanchez v Nakamura, Sup Ct, Queens County, November 4, 2011, Grays, J., Index No. 7901/2009

Attorney's Appearance For Party in Default, Without Reserving Objections, Waives Objections to Faulty Service and Lack of Personal Jurisdiction: Frederic and Ade v Israel et al.

Aaron Zerykier — Tue, 21 Feb 2012 15:31:50 -0500

In a February 9, 2012 decision by Justice Demarest, the court granted a defendant’s motion to vacate an order finding it in default and granted plaintiffs’ cross motion to amend to modify the caption and assert additional claims against that same party – but denied that defendant’s motion to dismiss. The dispute arose from a construction project. Defendant “T.I.A. of New York, Inc.” (“TIA”) supplied a dumpster to the project. The project was derailed, leaving TIA’s dumpster overflowing with garbage, located behind a large hole in the ground which allegedly making it impossible for TIA to remove the dumpster.

In their complaint plaintiffs originally named TIA as “TIA Rubbish Removal” (not its legal name). TIA was allegedly served through “affix and mail” service. When TIA did not appear plaintiffs obtained an order finding TIA in default. Shortly thereafter TIA appeared by counsel who filed a “Notice of Appearance” but did not file an answer to the complaint, bring a motion, or otherwise raise the defective service (affix and mail service is inapplicable to corporations). The Court found that this appearance “waived TIA’s objection to the propriety of service and th[e] court’s personal jurisdiction over it.” The Court nevertheless granted TIA’s motion to vacate the order finding it in default because TIA raised a reasonable excuse for its default and stated a potentially meritorious defense to plaintiffs’ claims. The Court also considered TIA’s other arguments that the claims against it should be dismissed because plaintiffs failed to properly name TIA before the expiration of the statute of limitations and found those arguments unpersuasive because TIA was not prejudiced by the misnomer. In addition, the Court allowed plaintiffs to amend their complaint to correct TIA’s name and allege additional causes of action against TIA finding there, too, that TIA would not be prejudiced by the amendments and the stated claims are not devoid of merit.

Frederic and Ade v Israel et al., Sup Ct, Kings County, February 9, 2012, Demarest, J, Index No. 20290/06.

Motion to Amend Answer Granted where Amendments Were Not Palpably Insufficient: Stuart's LLC v Edelman

Adam M. Rafsky — Tue, 21 Feb 2012 14:32:38 -0500

In a December 27, 2011 decision by Justice Warshawsky, the court granted the motion of defendants Worldwide Sourcing Group and Peter Lister to amend their Answer and Counterclaims to clarify certain counterclaims and to add cross-claims against certain defendants. The parties were engaged in the production, distribution, and sale of clothing, for which they entered into various loans with each other. The proposed counterclaim alleged that the plaintiff Galvin was personally liable on a promissory note of Stuart’s in favor of defendant Worldwide Sourcing Group, but the plaintiffs argued in opposition that the absence of Galivn’s signature on the note precluded his and that the claim failed to state a claim upon which relief could be granted. The non-moving defendants opposed the proposed cross-claims arguing that: 1) they would be prejudiced by them because they discussed the defense of the action with the moving defendants; and 2) with respect to the proposed third cross claim, that it was not based upon any new evidence but upon information that was available to the moving defendants at the time of the original answer. The court explained that on a motion to amend, it need not consider the likelihood of success on the merits but only whether the proposed amendment states a claim. The court further noted that the possibility of a subsequent dismissal of a cause of a cause of action, counterclaim or cross-claim is not determinative of a motion to amend. Finding that the proposed counterclaims and cross-claims were not “palpably insufficient” or “patently devoid of merit,” the court granted the defendants’ motion to amend.

Stuart’s LLC v Edelman, Sup Ct, Nassau County, December 27, 2011, Warshawsky, J., Index No. 012560/2009

Failure to Follow Traditional Mezzanine Financing Structure Precludes Plaintiffs from Recovering as Secured Parties: Lebedowicz v Meserole Factory LLC

Matthew D. Donovan — Tue, 14 Feb 2012 15:53:02 -0500

In a December 20, 2011, decision by Justice Schmidt, the court denied plaintiffs’ motion for summary judgment declaring that they are entitled to defendants’ membership interests in defendant-LLC as a security interest in connection with the purchase of real property. Defendant-LLC borrowed $3.5 million to purchase real property from the plaintiffs. Plaintiffs claimed that under the mezzanine loan agreements, the defendant-LLC members pledged their membership interests in the LLC as security to be transferred to plaintiffs upon default. The defendant-members signed the loan agreements, not in their individual capacities, but on behalf of defendant-LLC. Because an LLC “cannot hold its own LLC interests and, therefore, could not grant the plaintiffs a lien on its own LLC interests,” the court denied plaintiffs’ motion. The court further noted that had the parties followed “the traditional mezzanine loan structure,” they would have formed a separate holding company to own the borrower-LLC, allowing the LLC to grant plaintiffs a lien on its interests in the newly-formed holding company.

Lebedowicz v Meserole Factory LLC, Sup Ct, Kings County, December 20, 2011, Schmidt, J., Index No. 20293/10

Motion to Reargue Denied, Defendants Fail to Show Steps Taken Prior to Closing To Remedy Alleged Title Defect: Latipac Corp. v. Birchard and Haddock

Aaron Zerykier — Tue, 14 Feb 2012 15:46:21 -0500

In a January 31, 2012 decision by Justice Oing, the court denied a motion to reargue the denial of defendants’ summary judgment motion. Plaintiff was supposed to purchase a $3 million property from defendants but failed to do so, arguing that two commercial units in the property had been illegally combined in contravention to the property’s certificate of occupancy. Plaintiff sued to recover its $150,000 deposit and defendants counterclaimed for a declaration that they were entitled to keep the down payment. The parties disputed whether the nonconforming use was, under the contract, a defect that defendants had to cure. The court determined that there was no dispute that the parties were discussing a remedy for the nonconforming, but there was an issue of fact as to what steps, if any, defendants took prior to the closing to rectify the situation requiring the denial of defendants’ summary judgment motion.

Latipac Corp. v. Birchard and Haddock, Sup Ct, New York County, January 31, 2012, Oing, J, Index No. 603299/09.

Preliminary Injunction Granted, Contracts Voided based on Fraudulent Inducement and Public Policy: Ceppos v Szlendak

Adam M. Rafsky — Tue, 14 Feb 2012 15:35:30 -0500

In a January 12, 2012 decision by Justice Bucaria, the court granted the plaintiffs’ (“Ceppos’”) motion for a preliminary injunction restraining the defendants (“Szlednaks”) from enforcing three agreements; denied Ceppos’ motion for a preliminary injunction restraining the Szlendaks from using any of Ceppos’ confidential business information; and denied the Szlendak’s cross-motion to dismiss the complaint. The three contracts between Ceppos and Marisuz Szlendak, the CFO of plaintiff company Sarut, were entered after Ceppos discovered that Marisuz embezzled approximately $500,000 from Sarut. The contracts were: 1) a severance agreement in favor of Marisuz, in which Marisuz agreed not to compete with Sarut or to use any of its confidential information; 2) an agreement through which Ceppos pledged Marisuz‘s 30% stock in Sarut back to him to secure the severance agreement payments; and 3) an escrow agreement appointing Blank Rome LLP as escrow agent to hold the stock. Ceppos moved for a preliminary injunction declaring all three agreements void due to allegedly false representation made by the Szlednaks that they would “restore the ‘familial and emotional’ relationship” that Ceppos enjoyed with the Szlendaks’ children. Additionally, Ceppos sought to restrain the Szlednaks from using Ceppos’ confidential business information. The Szlendaks’ cross-moved to dismiss for failure to state a cause of action for fraud in the inducement and based on a general release in the severance agreement.

The court granted Ceppos’ motion with respect to the enforcement of the agreements, finding that there was a danger of irreparable injury if the stock was sold to a third party, and that although a promise to foster a relationship might be too vague for enforcement, Ceppos established a likelihood of success on the merits because the circumstances suggested that the Szlendaks intended to sever any relationship between their children and Ceppos. The court also found that overarching public policy could mandate voiding the agreements to the extent that the purpose of the severance agreement was to avoid criminal prosecution of Mariusz. Because Ceppos established a likelihood of success on the fraud claim, the court denied the Szlendak’s cross-motion to dismiss in its entirety. Finally, the court held that because the severance agreement was void due to fraud, Ceppos surrendered every right under it, including the benefits of the non-compete provision.

Ceppos v. Szlendak, Sup Ct, Nassau County, January 13, 2012, Bucaria, J, Index No. 013788/11

Subcontractor Proceeds with Contract Claim Against Property Owner Despite Lack of Privity: Schwing Elec. Supply Corp. v Hunter Roberts Constr. Group LLC

Hillary A. Frommer — Tue, 14 Feb 2012 15:23:07 -0500

In a December 28, 2011 decision by Justice Whelan, the court denied the defendant’s motion to dismiss the complaint and permitted a subcontractor to proceed with its breach of contract and unjust enrichment claims against the property owner, as well as the claim for fraudulent inducement against the individual defendants who the plaintiff claimed induced its performance under the contract. The contractor entered into a sub-contract with a non-party for electrical goods which, in turn, entered into a sub-contract with the plaintiff. When the non-party stopped paying the plaintiff, the general contractor and the individual defendants convinced the plaintiff to enter into a joint checking account agreement, by which the monies owed to the non-party would be held for the plaintiff’s benefit, so that the plaintiff would continue to supply goods to the project. The plaintiff brought suit when the defendants failed to make payments under the joint checking account agreement.

The defendants moved to dismiss on the grounds that they lacked privity of contract with the plaintiff. Although the court recognized the basic rule of law that a sub-contractor cannot state a breach of contract claim against an owner in the absence of privity of contract, it found that such a claim could be maintained where the owner had direct dealings with the subcontractor, to justify imposing an obligation on the contractor. Finding no dispute that the owner had direct dealings with the plaintiff in order to keep it engaged in the project, and based on the factual allegations and documentation submitted in connection with the motion, the court found the plaintiff stated cognizable claims for recovery. The court also found that the plaintiff sufficiently stated a fraudulent inducement claim against the individual defendants because it satisfied the specificity pleadings requirements of CPLR § 3016(b) and because the plaintiff could state a claim against corporate officers and directors who participated in or had knowledge of the fraud, and where the plaintiff specifically alleged a breach of duty separate from or in addition to the breach of the contract.

Schwing Elec. Supply Corp. v Hunter Roberts Constr. Group LLC, Sup Ct, Suffolk County, December 28, 2011, Whelan, J, Index No. 4328-11

Court's Granting Motion to Amend Renders Summary Judgment Motion Moot: Fusco and Fasulo v. Direct Access Management, LLC et al.

Aaron Zerykier — Tue, 07 Feb 2012 15:45:01 -0500

In a December 7, 2011 decision by Justice Driscoll, the court granted a motion to amend and denied a motion for summary judgment based on the original complaint finding that the amendment rendered the original complaint a nullity, and therefore moot. After the completion of a number of depositions, plaintiffs sought to amend their complaint to add additional causes of action and additional parties. Plaintiffs based their amendment on information disclosed during discovery, including party and non-party depositions. Defendants opposed the amendment arguing that the proposed amendment did not state any valid causes of action and that plaintiffs were aware of certain of their new claims when they commenced the action and should not be allowed to amend their pleadings at such late date. Defendants also moved for summary judgment dismissing all of the claims brought in the original complaint. The court granted plaintiffs’ motion to amend finding that the proposed amendment is not palpably insufficient or patently devoid of merit. The court further found that, because the complaint was deemed amended, plaintiffs’ originally complaint was a nullity and defendants’ motion for summary judgment against the original complaint was moot.

Fusco and Fasulo v. Direct Access Management, LLC et al., Sup Ct, Nassau County, December 7, 2011, Driscoll, J, Index No. 4450/09.

Motion for Stay and to Compel Arbitration Denied: Golden Touch Transp. of NY, Inc. v G.E.H.S. Transp., Inc.

Adam M. Rafsky — Tue, 07 Feb 2012 14:39:48 -0500

In a November 21, 2011 decision by Justice Grays, the court denied the defendants’ motion to stay the action and compel arbitration, and granted the defendants’ motion to extend the time to answer the complaint and reset the dates of discovery. Golden Touch, the operator of a ground transportation dispatch service, brought suit to enforce a non-compete clause contained in franchise agreements entered into by it and the defendant, G.E.H.S, the purchaser and prior operator of five Golden Touch franchises. The four franchise agreements at issue contained identical arbitration provisions, which “provided that all claims would be resolved in binding arbitration except for ‘any claim brought by the company to enforce a non-competition agreement.’” Because the claims brought by Golden Touch were to enforce the non-compete, the court held that they were outside of the scope of the arbitration provision. The court also found unavailing the defendants’ argument that the fifth franchise agreement, which was entered subsequent to the four New York agreements, superseded the New York agreements. The court held that contracts are separate unless their “history and subject matter show them to be unified,” and that here, they were separate because each agreement granted a separate franchise and did not mention or modify the earlier franchises. The court granted the defendants’ motion to extend the time to answer the complaint and to reset the dates of discovery, finding good cause for their failure to serve an answer in light of their pending motion to stay the action and compel arbitration.

Golden Touch Transp. Of NY, Inc. v G.E.H.S. Transp.,Inc., Sup Ct, Queens County, November 21, 2011, Grays, J, Index No. 23990/10

Jilted Boyfriend Can Proceed with Action Against Ex For Wrongful Transfer of Real Property: Menteiga v DePaola

Hillary A. Frommer — Tue, 07 Feb 2012 11:31:50 -0500

In a November 30, 2011 decision by Justice Pines, the court granted in part and denied in part the defendants’ motion to dismiss the complaint which contained 12 separate causes of action premised on the plaintiff’s allegations that defendant DePaola transferred title to real property located in Pennsylvania to herself and the plaintiff as tenants in common when they began dating but then wrongfully transferred the deed back to herself by forging the plaintiff’s name, following their break-up. The court dismissed the cause of action for slander on the grounds that the plaintiff failed to plead special damages with the requisite particularity, the fraud claim because the plaintiff failed to allege in detail, as required under CPLR § 3016(b), any misrepresentation DePaola made on which the plaintiff justifiably relied, and the claim for civil conspiracy as such cause of action is not recognized in New York. However, the court permitted the plaintiff to proceed on his other claims (except those he voluntarily dismissed). First, the court rejected the defendants’ argument that it lacked subject matter jurisdiction over the claims brought under Article 15 of the Premises Actions and Proceedings Law and RPL § 329 because the subject property was located in Pennsylvania on the grounds that the court’s undisputed personal jurisdiction over the defendants gave the court equity jurisdiction over their rights with respect to foreign property. The court also found that the plaintiff stated a claim for breach of fiduciary duty based on the legal principle that co-tenants in common owe each other fiduciary duties and may not ordinarily acquire adverse title to the common property without consent. Finding that claim sufficient, the court permitted the plaintiff to proceed on his claim for aiding and abetting breach of fiduciary duty. Finally, the court found the defendants’ argument that the claims against defendant Nolan as a notary failed because the plaintiff cannot prove money damages, as premature, because the plaintiff was not required to provide a rationale for his damages at the pleadings stage.

Manteiga v DePaola, Sup Ct Suffolk County, November 30, 2011, Pines, J, Index No. 16432-2011

Employer Loses Bid to Dismiss Claim that it Unlawfully Withheld Tips: Martin v Restaurant Assoc. Events Corp.

Hillary A. Frommer — Tue, 31 Jan 2012 15:55:11 -0500

In a January 12, 2012 decision by Justice Scheinkman, the court denied the defendants’ motion to dismiss a class action complaint under CPLR §3211(a)(7), brought by current and former employees of the defendant catering companies which alleged that the defendants violated New York Labor Law § 196-d by misleading the customers to believe that a mandatory service charge on all orders was in lieu of gratuities and failing to distribute those service charges to the employees. Both sides argued that the case turned on the application of Samiento v World Wide Yacht, Inc., a 2008 decision by the Court of Appeals which held that Labor Law § 196-d is to be broadly construed and applied where a service charge, even if mandatory, purports to be a gratuity. The defendants argued that Samiento did not apply because there, the employer affirmatively told its customers that the service charge was remitted to the waitstaff as a gratuity, when in reality it was not. The plaintiffs, on the other hand, argued that the phrase “purports to be a gratuity” should liberally apply to passive conduct by the employer. The court found in the plaintiffs’ favor. It determined that the complaint sufficiently alleged a cause of action under section 196-d through the allegations that, by creating and imposing a service charge on customers without any explanation, and by barring employees from discussing gratuities with the customers under threat of termination from employment, the defendants created the prospect that a reasonable customer could believe that the charge was a gratuity and thus had policies that mislead the customers into believing that the charges were gratuities.

Martin v Restaurant Assoc. Events Corp., Sup Ct Westchester County, January 12, 2012. Scheinkman, J, Index No. 53700/11

Cross Motion to Dismiss Dissolution Petition Cannot Be Based on Disputed Facts: Matter of Langella v Front Door Assoc. Inc.

Aaron Zerykier — Tue, 31 Jan 2012 15:45:57 -0500

In a January 13, 2012 decision by Justice Whelan, the court denied a motion to dismiss a dissolution proceeding brought under Business Corporation Law § 1104-a to dissolve two different businesses. Respondents moved to dismiss both proceedings, arguing that Petitioner did not own the requisite number of shares (20% of each entity) necessary to obtain dissolution. Respondents also raised issues of fact, disputing Petitioner’s claims of wrongful conduct. The court denied the motion, finding that a cross-motion to dismiss a special proceeding can only be based on “objections in points of law,” not disputed issues of fact. Also, the court found that there were disputed issues of fact whether Petitioner owned the requisite number of shares to bring a dissolution action, and while this was a threshold issue to bringing a dissolution proceeding, the court would determine petitioner’s percentage ownership in the corporation at the same time it determined the ultimate merits of the petition.

Matter of Langella v Front Door Assoc. Inc., Sup Ct, Suffolk County, January 13, 2012, Whelan, J, Index No. 27189-11.

Court Denies Motion for Summary Judgment Made Before Discovery as Premature: Padilla Constr. Servs., Inc. v DeMicco Bros., Inc.

Matthew D. Donovan — Tue, 31 Jan 2012 15:37:43 -0500

In a January 9, 2012, decision by Justice Bucaria, the court denied plaintiff’s motion for summary judgment as pre-mature and granted defendants’ motion for leave to amend its answer to allege the statute of frauds as an affirmative defense. Plaintiff-contractor sued defendant-general contractor and its surety in connection with unpaid balances on three separate construction projects and moved for summary judgment before the parties engaged in discovery. Defendants opposed the motion as pre-mature and cross-moved for leave to assert the statute of frauds as an affirmative defense based on the alleged absence of written agreements with respect to at least two of the three projects. The court agreed with defendants and denied plaintiff’s motion, stating that “discovery may lead to relevant evidence” regarding, among other things, monies paid on the projects and plaintiff’s damages. The court also granted defendants’ motion for leave to amend, finding that the statute-of-frauds defense was “meritorious” and that plaintiff would not be “prejudiced or surprised” by it.

Padilla Constr. Servs., Inc. v DiMicco Bros., Inc., Sup Ct, Nassau County, January 9, 2012, Bucaria, J., Index No. 4391/11

A Party Preventing Performance of a Condition Precedent Cannot Rely on It: Independent Temperature Control Servs., Inc. v WDF Inc.

Adam M. Rafsky — Tue, 31 Jan 2012 14:32:54 -0500

In a July 21, 2011 decision by Justice Kitzes, the court denied the defendant M.A. Angeliades, Inc.’s (“MA”) motion to dismiss the cross claims by defendant WDF, Inc. and denied WDF’s cross-motion for sanctions against MA. The action arose out of a public works project at high school in Queens, where MA was the general contractor and WDF a subcontractor. The plaintiff’s (“ITC”) suit alleged that it was owed money by WDF in connection with a subcontractor agreement entered between ITC and WDF. WDF also entered a subcontractor agreement with MA, to provide labor, services and materials for the installation of HVAC facilities on the project. During the course of the project, at MA’s request, WDF performed additional work which was documented by certain “Change Orders.” WDF’s cross-claims sought payment for the work performed under the Change Orders, which MA had not yet made.

On its motion to dismiss WDF’s cross-claims, MA asserted that the contract between WDF and MA established that WDF was not due any payment. The contract provided that no payment was due until WDF submitted evidence that "no unpaid claims existed against it for ‘labor, materials, services, supplies of other obligations incurred by [WDF] in the performance of the Work.’” MA argued that because WDF had not paid its own subcontractors, which it deemed a condition precedent to receiving final payment on the project, it could not seek payment from MA. The court found that an issue existed as to whether MA directly caused the dispute between WDF and its subcontractors leading to the nonpayment. Therefore, the court held that because the condition precedent was directly tied to “the implied obligation of M.A to do something which would have enabled WDF to meet the condition precedent,” it could not then “insist upon the condition precedent, when its non-performance [wa]s its own doing.” Further, the court held that even if the condition precedent had definitively not been met, WDF’s substantial performance under the contract allowed it to recover.

WDF’s motion for sanctions asserted that MA’s conduct in seeking dismissal was frivolous because MA’s material factual statements were blatantly false. The court, however, held that the motion was based upon “assertions that are reasonably related to the evidence presented,” and therefore denied the motion.

Independent Temperature Control Servs., Inc. v WDF Inc., Sup Ct Queens County, July 21, 2011, Orin R. Kitzes, J, Index No. 2107/11

My Brother's Keeper; Court Grants Motion for Temporary Receiver for Properties Co-Owned by Deceased's Brother and Widow: Clark v Clark

Adam M. Rafsky — Tue, 24 Jan 2012 15:21:50 -0500

In a December 20, 2011 decision by Justice Warshawsky, the court granted in part the plaintiff’s motion, pursuant to CPLR 6401 for the appointment of a temporary receiver. The plaintiff, Winifred Clark, the widow of William Clark, brought the action against William’s brother, James Clark. In the instant motion, Winifred moved for the appointment of a temporary receiver for 32 properties, 28 of which she, through William, and James owned as tenants in common; as to the others, the ownership was disputed. Winifred’s brought the motion in an attempt to protect her rights to 50% of the net rental income from the properties, which James managed. The appointment of a temporary receiver is an extreme remedy; the statute requires the movant to prove, by clear and convincing evidence that “there is a danger that the property will be removed from the state, or lost, materially injured or destroyed.” The court explained that while it is “loathe to appoint a receiver in most cases,” and notwithstanding the significant cost required to do so, it found that all of James’ actions taken together, including: defaulting on tax payments; under reporting income; maintaining double books; failing to pay Winifred her fair share of income; and misuse of joint income for personal needs, provided clear and convincing evidence that the CPLR 6401 standard was met. Therefore, the court granted the motion with respect to the 28 properties for which Winifred and James’ co-ownership was undisputed.

Clark v Clark, Sup Ct, Nassau County, December 20, 2011, Warshawsky, J., Index No. 5514/2008

Affirmative Defenses are Barred by Guaranty's Express Waiver Provision: J. Remora Maintenance LLC v Efromovich

Hillary A. Frommer — Tue, 24 Jan 2012 10:15:26 -0500

In a January 4, 2012 decision by Justice Fried, the court granted the plaintiff’s motion for summary judgment to enforce a guaranty executed by the defendant in connection with the plaintiff’s sale of its interest in a company to a third party. The court found that because the two express conditions set forth in the guaranty for its enforcement were met, the plaintiff established entitlement to summary judgment as a matter of law. The court then determined that the defendant failed to raise an issue of fact through its affirmative defenses of fraudulent inducement and lack of consideration. Based on the Court of Appeal’s decision in Citibank v Plapinger, the court concluded that an express waiver contained in the guaranty barred the defendant from asserting the substantive defenses. The court rejected the defendant’s argument that the waiver did not apply to the two affirmative defenses at issue because it did not contain the words “absolutely and unconditional”, finding that such language was unnecessary under New York law for a waiver to effectively waive substantive defenses. The court also granted the plaintiff’s motion to dismiss the defendant’s fraudulent inducement counterclaim under CPLR § 3016(b) on the grounds that the circumstances surrounding the alleged fraudulent inducement were not alleged in sufficient detail.

J. Remora Maintenance LLC v Efromovich, Sup Ct New York County, January 4, 2012, Fried, J, Index No. 650943/11

Forum Selection Clause Applies to a Non-party to Agreement When Found to be "Closely Related" to the Party: Montoya v Cousins Chanos Casino, LLC

James M. Wicks — Tue, 24 Jan 2012 09:54:51 -0500

In a January 12, 2012 decision by Justice Kornreich, the court granted in part defendants’ motion to dismiss a declaratory judgment action that sought a declaration that plaintiffs complied in all respects with a Subscription Agreement.

The case arose out of an investment in a Law Vegas casino. In response to defendants’ threats of suing plaintiffs for misleading them in an investment, plaintiffs brought this action seeking, among other things, a declaration that they fully performed their obligations to defendants under the terms of the Subscription Agreement and that any common-law claims based on defendants’ investment are preempted by New York's Martin Act, (NY General Business Law §§ 352. After plaintiffs commenced this action, defendants filed suit in Nevada. The Nevada action alleges that plaintiffs engaged in fraud, fraudulent concealment and securities fraud in connection with the solicitation of investments; deceptive trade practices; unjust enrichment; conspiracy; breach of fiduciary duties; aiding and abetting breach of fiduciary duties and gross mismanagement.

On this motion to dismiss, defendants argue that plaintiffs were not signatories to the Subscription Agreement and, as a result, lack standing to bring this declaratory judgment action. Moreover, they claim that the forum selection clause in the Subscription Agreement is inapplicable because the causes of action in the Nevada complaint, common-law and statutory claims, do not arise from the Subscription Agreement. In addition, defendants contend that this action should be dismissed because there is another action pending between the parties in Nevada and this action was commenced solely in an effort to circumvent Nevada's adjudication of defendants' claims.

The Court held that a non-party may enforce a forum selection clause if the non-party is "closely related" to one of the signatories. Here, the Subscription Agreement contains both New York choice of law and forum selection clauses. By signing the Subscription Agreement containing the forum selection clause, defendants agreed to submit to the jurisdiction of the New York courts. Plaintiffs do have standing to bring this action because they are intended beneficiaries of the agreement and/or are closely related to the entity, one of the signatories of the agreement. Dismissal of this action, which was the first filed, is not warranted, since plaintiffs are merely asking the court to declare the parties' respective rights and remedies under the Subscription Agreement. The court observed that New York courts routinely enforce contractual forum selection clauses and pursuant to New York's General Obligations Law (GOL) § 5-1402.

The Court also concluded that no private right of action for damages exists under the Martin Act. Rather, the court reasoned that it appeared that plaintiffs were seeking an impermissible advisory opinion from the court to determine whether they have viable defenses to defendants' lawsuit. Plaintiffs' request for a declaration that they complied in all respects with the Subscription Agreement, requires the court to declare findings of fact, rather than to decide issues of law.

Montoya v. Cousins Chanos Casino, LLC, Sup Ct, New York County, Jan. 12, 2012, Kornreich J, Index No. 651353/2011.

Preference to Particular Bidders Did Not Require Acceptance of Bid At Any Cost: Outstanding Transp., Inc. v. Interagency Council of Mental Retardation & Dev. Disabilities, Inc.

Aaron Zerykier — Tue, 24 Jan 2012 09:26:03 -0500

In a January 13, 2012 decision by Justice Demarest, the court granted defendant’s motion for summary judgment dismissing the complaint – even though discovery was not complete. The dispute arose from a private bus transportation contract. In a prior contract, the parties agreed that the companies already providing transportation services would be given a “preference” in subsequent contract negotiations. Plaintiff alleged that defendant ignored that preference and awarded the new contract to another bus company. Plaintiff also alleged that it relied on defendant’s false and misleading statements in acquiring new equipment.

The court dismissed plaintiff’s cause of action based on the contract’s preference language because plaintiff’s bid was between 26% and 112% higher than the lowest bidder, negating the preference language because plaintiff’s reading of that language would have required defendant to award plaintiff the contract no matter the amount of plaintiff’s bid. The court also dismissed plaintiff’s implied covenant of good faith and fair dealing cause of action, finding that cause of action could not be used to resurrect a defective breach of contract claim. Also, the court found that there was no basis for plaintiff’s negligent misrepresentation and fraudulent inducement claims because plaintiff failed to, and couldn’t, prove any of the allegations of those claims.

Outstanding Transp., Inc. v. Interagency Council of Mental Retardation & Dev. Disabilities, Inc., Sup Ct, Kings County, January 13, 2012, Demarest, J, Index No. 8338/11.

Insurance Broker Can Be Liable for Not Finding the Most Cost Effective Life Insurance Policy: Finkelstein et al. v. Lincoln Natl. Corp. et al.

Aaron Zerykier — Tue, 17 Jan 2012 15:08:22 -0500

In an October 14, 2011 decision by Justice Warshawsky the court granted plaintiffs’ motion to amend to add an additional statutory cause of action and an additional party. Defendants were retained to provide estate planning advice and services, including assisting in the purchase of life insurance policies. Plaintiffs alleged that defendants failed to diligently seek the most cost effective insurance policy. Plaintiffs sought to add a cause of action under Insurance Law §§ 4226 and 2123. Defendants opposed arguing that the claims were palpably insufficient because they were not covered by the statutes and were barred by the applicable statute of limitations. The court granted plaintiffs’ motion regarding Insurance Law § 2123 which holds an insurance broker liable for failing to make a complete comparison when presenting various insurance policies but denied the motion as to Insurance Law § 4226 because there was no allegation that defendants misrepresented the terms and conditions of its own insurance policies. The court also held that the claim was not barred by the statute of limitations because it related back to when plaintiffs filed their original complaint. The court also granted plaintiffs’ motion to add one of the individual brokers as a named party based on his testimony that the entity through which he did business was not a legal entity but a marketing name.

Finkelstein et al. v. Lincoln Natl. Corp. et al., Nassau County, October 14, 2011, Warshawsky, J, Index No. 5372/09.

Defendant Cannot Vacate Default Judgment By Claiming It Never Received Pleadings: C McCormack Inc. v 6 St. Nicholas LLC

Hillary A. Frommer — Tue, 17 Jan 2012 13:22:42 -0500

In a December 7, 2011 decision by Justice Driscoll, the court denied the defendant’s motion to vacate a default judgment against it. Based on Second Department law, the court found that the plaintiff presumptively established the right to a default judgment by providing a process server’s affidavit of service of the summons and complaint pursuant to NY LLC Law § 303, and the defendant failed to overcome that presumption by merely denying receipt of the pleadings. The motion was also denied because, the court found, the defendant failed to provide any excuse for its failure to answer the complaint or respond to the prior motion for a default judgment, and the defendant alleged only in conclusory fashion that it had a meritorious defense yet failed to present any facts supporting such defense.

C McCormack Inc. v 6 St. Nicholas LLC, Sup Ct Nassau County, December 7, 2011, Driscoll, J, index No. 011841-10