NY Commercial Case Compendium

Non-derivate Nature of Claims and Issues of Fact Preclude Summary Judgment in Suit between Brothers-in-Law turned Business Partners: Piroozian v Homapour

Adam Rafsky — Tue, 15 May 2012 19:36:44 +0000

In an April 18, 2012 decision by Justice Driscoll, the court denied the defendants’ motion for summary to dismiss the complaint with respect to the first and second causes of action, and granted the motion with respect to the third cause of action. The plaintiff and individual defendant, who are brothers-in-law, were the sole members of the defendant company, which was formed to purchase real estate, and which operated a warehouse located in Queens that the brothers-in-law used the company to purchase. The plaintiff brought suit when the defendant failed to pay the plaintiff his portion of the company’s 2010 net income pursuant to an agreement between the parties, under which plaintiff was to receive 37½ % and the defendant the remaining 62½ %. The complaint contained three causes of action: 1) for the net income allegedly due to the plaintiff and withheld by the defendant in breach of the agreement; 2) for an accounting of the company’s finances; and 3) for damages resulting from the defendant’s alleged breach of duty to manage the warehouse building by failing to secure tenants to occupy it.

In support of summary judgment, the defendant argued that the plaintiff lacked standing because the causes of action were derivative but the plaintiff sued individually, and that the plaintiff’s claims were barred by the business judgment rule. The court denied the motion with respect to the first and second causes of action finding that the first cause of action sufficiently alleged that “the thrust of the Plaintiff’s action is to vindicate his personal rights as an individual and not as a stockholder on behalf of the corporation” because the agreement was allegedly between the plaintiff and defendant as individuals; and further because issues of fact existed regarding the applicability of the business judgment rule and whether the defendant provided the plaintiff with an adequate accounting of the company’s books and records. The court granted the motion with respect to the third cause of action, dismissing that claim, holding that the defendant provided adequate proof, which the plaintiff failed to refute, that established that he had in fact leased the building.

Piroozian v. Homapour, Sup Ct, Nassau County, April 19, 2012, Driscoll, J, Index No. 11152-11

Defendant’s Summary Judgment Motion to Dismiss Breach of Contract Claim Denied Based on its own Conflicting Evidence of Delay: Giumenta Corp. v Desktop Solutions Software, Inc.

Hilary A. Frommer — Tue, 15 May 2012 19:00:17 +0000

In an April 9, 2012 decision by Justice Whelan, the court granted in part and denied in part, the defendant’s motion for summary judgment dismissing the complaint that alleged that the defendant failed to develop and host a website for the plaintiff’s business despite being paid thousands of dollars for that work. The complaint alleged claims for breach of contract and unjust enrichment. The court dismissed the unjust enrichment claim based on the undisputed fact that a valid contract existed between the parties and, therefore, the plaintiff could not maintain the quasi-contractual claim, as well-settled law provides that it can only be asserted where there is no valid contract. The court denied dismissal of the breach of contract claim, however, finding that the defendant’s assertion of substantial performance of the contract, was an issue of fact, particularly so because the defendant’s own evidence presented conflicting accounts of the alleged delay in developing and completing the website, and raised a factual question as to whether such delay resulted from the defendant’s willful conduct. The court granted the plaintiff’s cross-motion to dismiss the defendant’s counterclaims for breach of contract, misappropriation of intellectual property and injunctive relief to prevent the plaintiff from further development of its website, on the grounds that each of the claims, including the breach of contract claim, was preempted by the federal Copyright Act.

Giumenta Corp. v Desktop Software Solutions, Inc., Sup Ct, Suffolk County, April 9, 2012, Whelan, J, Index No. 07-32277

Claims Based on Unauthorized Bank Withdrawals Dismissed due to Plaintiff’s Failure to Monitor and Take Timely Action: Royal Arcanum Hosp. Assn. of Kings County, Inc. v Herrnkind

Adam Rafsky — Tue, 08 May 2012 19:29:34 +0000

In a March 28, 2012 decision by Justice Demarest, the court granted the defendants’ motion for summary judgment dismissing the complaint against it pursuant to CPLR 3212. Plaintiff, a not-for-profit corporation, brought suit seeking to recover monies based on allegedly unauthorized withdrawals from its Capital One bank account, by the defendant Herrnkind. Plaintiff alleged that prior to July of 2002 it opened a bank account with Greenpoint Bank, a predecessor of the defendant Capital One, for which the Herrnkind, the plaintiff’s Vice President, was listed among the signatories along with two of the plaintiff’s other officers. After the other officers died, Herrnkind opened a new account for the plaintiff with Greenpoint. Herrnkind was the sole signatory on the new account. Plaintiff sought to recover the account’s July 2002 balance of $185,080.89, and to hold the defendants liable for any and all unauthorized withdrawals after that date.

Relying on the UCC 1-201(43) definition of an “unauthorized signature”, the court held that the plaintiff “cloaked Herrnkind with such actual, implied, or apparent authority,” as to preclude its claims because it was aware of the other officer’s deaths but took no action to add additional signatories to the account and did not object to Herrnkind’s transactions for at least five years. The court further explained that the plaintiff would have to bear the loss because it was in the best position to prevent it, as through the exercise of reasonable care and supervision of Herrnkind and its bank accounts. The court further held that the plaintiff’s claims were barred by UCC 4-406 and the Electronic Funds Transfer Act (15 USC § 1693 et seq.), which affect a customer’s ability to recover amounts paid on an unauthorized transactions. UCC4-406 requires a customer to give notice of an unauthorized signature within one year of the time the account statement is made available, and EFTA requires a customer to give notice of any errors or unauthorized ATM transactions within 60 days after receiving documentation of the electronic transfer.

Royal Arcanum Hosp. Assn. of Kings County, Inc. v Herrkind, Sup Ct, Kings County, March 28, 2012, Demarest, J, Index No. 25561/08.

Payment and Performance Bond Requirement in Construction Contract May Have Been Waived By Allowing Work on the Project to Commence and Continue: Customweld Indus., Inc. v Pike Co., Inc.

Matthew D. Donovan — Tue, 08 May 2012 19:18:37 +0000

In an April 4, 2012, decision by Justice Pines, the court denied a general contractor’s motion for summary judgment on its claim for breach of a construction contract by its fabrication and installation subcontractors for failing to supply and install structural steel for the project, and for failing to provide payment and performance bonds as contractually required. While it was undisputed that the subcontractors failed to provide the requisite bonds, the court denied the general contractor’s motion, finding that there were issues of fact as to (1) whether the general contractor waived its right to the bonds by allowing the subcontractors’ work on the project to go forward without the bonds in place; (2) whether the subcontractors had substantially completed their work; and (3) whether the subcontractors’ work was otherwise timely and adequate.

Customweld Indus., Inc. v Pike Co., Inc., Sup Ct, Suffolk County, April 4, 2012, Pines, J., Index No. 24105/2008.

Summary Judgment in Lieu of Complaint Granted Based on Interest Rate Swap Agreement: Allied Irish Bank, PLC v Young Men’s Christian Ass’n of Greenwich

Aaron Zerykier — Tue, 08 May 2012 18:56:58 +0000

In an April 12, 2012 decision by Justice Fried the court granted a bank’s motion for summary judgment in lieu of a complaint, on the issue of liability, in a case arising from an interest rate swap agreement. The interest swap agreement was intended to hedge one-half of defendants’ exposure on over $20 in municipal bonds in its portfolio. Essentially, under the swap agreement the amount due between the parties would be the difference between a floating rate and a fixed rate; in the months the floating rate was above the fixed rate plaintiff would pay defendant the difference between the two rates and vice versa.

The fixed interest rate rose above the floating rate and the defendant failed to make the interest payments owed. Plaintiff brought suit by way of a motion for summary judgment in lieu of complaint. The court determined that an interest rate swap fulfilled all of the elements of an instrument for the payment of money only, and therefore could be the basis for a motion for summary judgment in lieu of complaint. The court further found that, even though the defendant sought to raise a number of affirmative defenses, it failed to adequately prove the elements of such defenses. The court, therefore, granted summary judgment in liability only and assigned the calculation of the plaintiff’s actual damages to a Special Referee.

Allied Irish Bank, PLC v Young Men’s Christian Ass’n of Greenwich, Sup Ct, New York County, April 12, 2012, Fried, J, index No. 652967/11.

Managing Member Allegedly Defrauding LLC Cannot Stop His Removal and Sale of the Property: Matter of Sagres 2001 LP v. Sagres Partners LLC

Aaron Zerykier — Tue, 01 May 2012 20:04:15 +0000

In an April 24, 2012 decision by Justice Kitzes, the court denied a former LLC managing member’s motion to declare as void votes taken at a special meeting and enjoining the new managing members from selling the entities’ real property holdings. Petitioner received notice on December 13, 2011 that the day before a meeting was held, at which he was removed from his position as the LLC’s managing member. Petitioner also received at the same time notice of termination of his employment by the LLC. Petitioner brought a special proceeding where he seeks to overturn those, and other, decisions.

The court found that because there appeared to be just cause for removing petitioner from his position as managing member of the LLC, there did not appear to be a likelihood that petitioner would succeed on that claim. The court further found that petitioner did not demonstrate irreparable harm because the initial purpose of the LLC was to sell the properties at issue, and selling the properties would occur in the ordinary course of the LLC’s business. The court further found that, in light of the allegations that the petitioner engaged in inappropriate actions and the LLCs need for cash to meet its financial obligations (potentially because of petitioner’s conduct), the equities did not tip in favor of petitioner. Accordingly, the court denied petitioner’s motion.

Matter of Sagres 2001 LP v. Sagres Partners LLC, Sup Ct, Queens County, April 24, 2012, Kitzes J, index No. 6117/12.

Non-member of the LLC Unable to Bring Motion for Dissolution: JG Club Holdings v Jacaranda Holdings

Adam Rafsky — Tue, 01 May 2012 19:04:15 +0000

In an April 20, 2012 decision by Justice Kornreich, the court dismissed the motion of the proposed intervenors (“Intervenors”) to intervene to assert a claim for the dissolution of, and to appoint a temporary receiver to the derivative plaintiff Jacaranda Club, LLC (“Club”), the operator of “Sapphire,” a “gentleman’s nightclub.” The Intervenors owned approximately 7% of plaintiff JG Club Holdings, LLC (“JG”), which itself owned 48.9% of the Club, however the Intervenors themselves were not members in the Club; the remaining 51.1% of the Club was owned by the defendant. The basis of the Intervenors motion was that they did “not agree with the relief being sought by JG.” The court denied the motion, holding that as non-members of the Club, the Intervenors lacked standing to assert a claim for dissolution because the default requirements of Limited Liability Company Law (Section 702) applied where the Club’s operating agreement was silent with respect to dissolution. Under Section 702, a court may grant dissolution only upon “application by or for a member” of the LLC.

JG Club Holdings, LLC v Jacaranda Holdings, LLC, Sup Ct, New York County, April 20, 2012, Kornreich, J, Index No. 652246/10

Court Finds that Claims Fail on the Merits, Not due to Jurisdiction: Tudeme v Walters

Hilary A. Frommer — Tue, 01 May 2012 17:51:31 +0000

In an April 24, 2012 decision by Justice Ramos, the court granted the individual and corporate defendants’ motion to dismiss certain the causes of action of the amended complaint for breach of contract and piercing the corporate veil. The court rejected the defendants’ argument dismissal was warranted due to the technical errors in the filing and service of the amended complaint, finding that CPLR § 2001 permitted such errors to be corrected and that the defendants were on notice of the plaintiff’s motion to amend the complaint by their counsel’s appearance in opposition to the motion and their service of an answer to the amended complaint. The court also rejected the defendants’ argument that venue was improper due to a forum selection clause which named the United States District Court for the Southern District of New York as the forum, because the court found such clause permissive, rather than mandatory, and thus, it did not exclude the New York Supreme Court as a proper forum. However, the court dismissed the cause of action for piercing the corporate veil against the individual defendant on the grounds that the amended complaint pled in conclusory fashion that the defendant was the alter ego of the two corporate defendants which were undercapitalized and served no legitimate purpose. Without facts supporting those allegations, the court found, they were insufficient to survive a motion to dismiss under CPLR § 3211(a)(7). The court also dismissed the breach of contract claim against corporate defendant iTech on the grounds that it was not a party to the contract at issue and the amended complaint failed to make a claim for successor liability or that iTech was a major shareholder of the co-corporate defendant Monarch. In dismissing those causes of action, the court rejected the plaintiff’s argument that the “law of the case” doctrine barred dismissal, finding that JHO Gammerman had not decided either of those issues on the merits.

Tudeme v Walters, Sup Ct NY County, April 24, 2012, Ramos, J, Index No. 603933/07

Court Finds Bank’s Seizure of Funds as Set-Off Invalid and Orders Payment Over to Petitioner under CPLR 6214: Southampton Brick & Tile, LLC v The Suffolk County National Bank

Matthew D. Donovan — Tue, 01 May 2012 14:12:38 +0000

In a December 29, 2011, decision by Justice Whelan, the court granted petitioner’s motion in connection with a special proceeding to compel payment of certain funds held on deposit with respondent under CPLR 6214. Petitioner’s motion related to a prior order from the court restraining the funds from removal, which was issued in connection with an underlying action commenced by petitioner against a related company and its principal alleging various business torts. Because petitioner was able to make a prima facie showing that it was the beneficial owner of the funds; that it was authorized to issue an execution to the sheriff; and that the sheriff’s levy of such execution was accomplished prior to respondent’s seizure of the funds as a purported set-off, the court found that petitioner was entitled to an order under CPLR 6214 directing respondent to pay over to petitioner the funds on deposit.

Southampton Brick & Tile, LLC v The Suffolk County National Bank, Sup Ct, Suffolk County, December 29, 2011, Whelan, J., Index No. 16798/2008

Claims That Competitor Didn’t Make Proper Pension Contributions Preempted by Federal Law: Midtown Express LLC v Uptown Communications & Elec., Inc.

Aaron Zerykier — Tue, 24 Apr 2012 21:24:22 +0000

In a January 24, 2012 decision by Justice Kitzes, the court dismissed plaintiff’s complaint bringing claims for tortious interference with plaintiff’s prospective economic advantage, unjust enrichment and conversion because the claims were preempted under federal law. Plaintiff and defendant were competitors, both of whom installed cable television, internet and telephone services for Time Warner Cable. Both parties were obligated to make pension, medical, dental and other contributions to a union fund (the “Fund”). Payments to the Fund were calculated based on a percentage of each parties’ payroll. Plaintiff claimed that defendant misclassified and concealed some of its employee’s income in order to reduce its obligations to the Fund.

Plaintiff brought a claim for tortious interference with plaintiff’s prospective economic advantage arguing that, by reducing its obligations to the Fund, defendant was able to undercut plaintiff’s bids for work and obtain more jobs from Time Warner Cable. Plaintiff also alleged that defendant was unjustly enriched and wrongfully converted plaintiff’s monies through defendant’s underpayment into the Fund. The court dismissed all of plaintiff’s claims because they were preempted by both the Labor Management Relations Act and the Employee Retirement Security Act (ERISA) because the court would need to interpret defendant’s obligations to the Fund in order to determine plaintiff’s claims. The court further found, in any event, plaintiff lacked standing to bring its claims because the improper conduct was directed to the Fund (not plaintiff).

Midtown Express LLC v Uptown Communications & Elec., Inc., Queens County, January 24, 2012, Kitzes, L, Index No. 17347/11.