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Supreme Court Properly Denied a Motion to Approve a Settlement of a Proposed Non-Opt-Out Class Action—Shareholders Who Objected to the Settlement Were Entitled to Opt Out to Preserve Their Damages Claims

The Second Department, over an extensive dissent, determined Supreme Court had properly denied defendant’s motion, made jointly with the plaintiff, to approve a settlement of a proposed non-opt-out class action.  The majority concluded that shareholders who objected to the settlement were entitled to “opt out” to preserve their damages claims, as the Court of Appeals held in Matter of Colt Indus Shareholder Litig, 77 NY2d 185.  The Second Department explained the facts of the case as follows:

The instant appeal arises from a merger between the defendant On2 Technologies, Inc. (hereinafter On2), a publicly held Delaware corporation that developed video compression technology, and Google, Inc. (hereinafter Google), the global technology conglomerate specializing in Internet-related services. On August 4, 2009, On2 entered into a merger agreement with Google and Oxide, Inc., a subsidiary of Google, pursuant to which Google agreed to acquire each share of On2 common stock in exchange for 60 cents worth of Google Class A common stock. At that time, the proposed transaction was valued at approximately $106.5 million.

On August 7, 2009, the plaintiff, on behalf of himself and other similarly situated shareholders of On2, commenced the instant action, alleging that On2’s board of directors breached its fiduciary duties to the shareholders by, inter alia, failing to ensure that the shareholders would receive maximum value for their shares. Among other things, the plaintiff sought certification of a class to prosecute the matter as a class action, a declaration that the merger agreement was unlawful and unenforceable, rescission of the merger agreement, and injunctive relief. In August 2009, other shareholders of On2 (hereinafter collectively the Delaware plaintiffs) commenced similar actions in the Delaware Court of Chancery.

On February 22, 2010, the parties to this action, as well as the Delaware plaintiffs, proposed a settlement, pursuant to which they agreed that “solely for the purpose of effectuating the [s]ettlement,” the instant action “may be maintained . . . as a non-opt out class action.” The settlement provided, inter alia, for dismissal of the New York and Delaware actions in their entirety, with prejudice, and a release of “any and all” merger-related claims. The proposed settlement class encompassed “all persons and entities who held shares of the common stock of On2 . . . at any time between August 4, 2009 and February 19, 2010.”

Upon notice of the proposed settlement to all record holders of On2 common stock, 226 of those shareholders filed objections to the proposed settlement. The objectors contested the proposed settlement, claiming that it contained “an astonishingly broad” release that would “unlawfully restrict” and “unduly burden” the rights of shareholders to pursue their own individual claims for damages. Following a fairness hearing, the Supreme Court denied approval of the settlement because it did not afford nonresident class members the opportunity to opt out of the settlement in order to preserve their right to assert claims for damages. We affirm.  Jinnaras v Alfant, 2015 NY Slip Op 00335, 2nd Dept 1-14-15

 

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Conditions Spelled Out in an Irrevocable Stand-By Letter of Credit Had Been Complied With by the Defendant—Plaintiff’s Fraud Cause of Action Dismissed

The Second Department determined the defendant had properly sought (and been paid by the bank) funds pursuant to an irrevocable standby letter of credit (LOC) which was executed by the plaintiff in favor of defendant because the conditions spelled out in the LOC had been complied with. The court explained the relevant analytical criteria:

“Letters of credit are commercial instruments that provide a seller or lender (the beneficiary) with a guaranteed means of payment from a creditworthy third party (the issuer) in lieu of relying solely on the financial status of a buyer or borrower (the applicant). Historically, letters of credit have been used to assure predictability and stability in mercantile transactions by diminishing a seller’s risk of nonpayment and a buyer’s risk of nondelivery due to insufficient funds” … . “By issuing a letter of credit, the [bank] undertakes an obligation to pay the beneficiary, or his [or her] transferee if the letter is negotiable, from the account of its customer” … . Generally, stand-by letters of credit are “meant to be drawn upon only in the event that its applicant fails to make a direct payment to the beneficiary . . . For this reason, to collect upon a stand-by [letter of credit], the beneficiary . . . must present to the issuing bank a default letter stating that the debt had not been satisfied as of a specified date” … . However, “letters of credit must be strictly construed and performed in compliance with their stated terms” … . The rationale for this rule is rooted in the purpose of letters of credit: ” [b]y conditioning payment solely upon the terms set forth in the letter of credit, the justifications for an issuing bank’s refusal to honor the credit are severely restricted, thereby assuring the reliability of letters of credit as a payment mechanism'” … . Accordingly, “to make an issuing bank’s payment obligation conditional, the parties must clearly and explicitly set forth that requirement on the face of the letter of credit” … .

The … defendants demonstrated their prima facie entitlement to judgment as a matter of law dismissing the cause of action to recover damages for fraud, since in [defendant’s] letter to [the bank], it accurately and truthfully represented to [the bank] that [defendant] was the beneficiary of the LOC, and satisfied the two conditions set forth in the LOC pursuant to which payment would be made to it, to wit, by (1) referencing the LOC number, and (2) attaching the LOC. Weiss v Benetton USA Corp, 2015 NY Slip Op 00360, 2nd Dept 1-14-15

 

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Client’s Motion to Quash Attorney’s Charging Lien Properly Granted Without a Hearing/No “Conflicting Facts” Concerning Whether the Attorney Was Discharged Was For Cause

The Second Department determined the client’s motion to quash the attorney’s charging lien was properly granted (without a hearing) because the attorney failed to raise a question of fact whether his discharge was for cause:

A client has “an absolute right, at any time, with or without cause, to terminate the attorney-client relationship by discharging the attorney” … . “Where an attorney’s representation terminates upon mutual consent, and there has been no misconduct, no discharge for just cause, and no unjustified abandonment by the attorney, the attorney maintains his or her right to enforce the statutory lien” (…see Judiciary Law § 475…). In contrast, “[a]n attorney who is discharged for cause . . . is not entitled to compensation or a lien” … . “Where there are conflicting claims as to whether an outgoing attorney was discharged with or without cause, a hearing is necessary to resolve such dispute” … .

On his motion to quash Wilson’s charging lien, Romero submitted evidence in support of his contention that the plaintiff had discharged Wilson for cause. In opposition, Wilson failed to dispute or address Romero’s factual assertions and, thus, there were no “conflicting claims” as to whether the discharge was for cause … . Sacarello v City of New York, 2015 NY Slip Op 00350, 2nd Dept 1-14-15

 

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First Degree Burglary Conviction Upheld Even though the Residential Portion of the Building Was Not Accessible from the Basement of the First-Floor Store Where the Defendant Entered the Building

The First Department, over a two-justice dissent, determined that defendant was properly convicted of first degree burglary even though the residential portion of the building could not be accessed from the the basement of the first-floor store, where defendant entered the building.  The majority found that the exception fashioned for “large” buildings where the residents could not be aware of the defendant’s presence in the non-residential portion of the building did not apply:

In McCray, the Court of Appeals reaffirmed the rule, established in Quinn v People (71 NY 561 [1878]), that “if a building contains a dwelling, a burglary committed in any part of that building is the burglary of a dwelling; but an exception exists where the building is large and the crime is committed in a place so remote and inaccessible from the living quarters that the special dangers inherent in the burglary of a dwelling do not exist” (McCray, 23 NY3d at 624). Although the inaccessibility requirement appears to have been met, the other condition for application of the exception  – namely, that the building in question be “large” – has not.

Stating that the decision in McCray did not turn on the size of the building, and that the critical factor is whether there is close contiguity between the residential and nonresidential elements of the building such that the residents of the building would be aware of the burglar’s presence, the dissent would reverse the conviction for second-degree burglary because the basement was entirely sealed off and inaccessible from the residences above. However, in Quinn, which is the foundation on which McCray stands, there also was no “internal communication” between the shop that was broken into and the living quarters above, and a person had to go into the yard and then up stairs to get from one to another (Quinn at 565). Nevertheless, the Court of Appeals affirmed the conviction of first-degree burglary because the shop “was within the same four outer walls, and under the same roof” (id.). The Court reasoned that “the essence of the crime of burglary at common law is the midnight terror excited, and the liability created by it of danger to human life, growing out of the attempt to defend property from depredation. It is plain that both of these may arise, when the place entered is in close contiguity with the place of the owner’s repose, though the former has no relation to the latter by reason of domestic use or adaptation” (id. at 567). People v Joseph, 2015 NY Slip Op 00299, 1st Dept 1-13-15

 

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Proof Insufficient to Demonstrate Will Drafted and Signed a Few Days Before Death Reflected Decedent’s Intentions

The Third Department affirmed Surrogate’s Court’s denial of the admission of a will to probate.  The will was drafted and signed a few days before decedent’s death and changed the disposition of property.  The court described the proof necessary to authenticate a will and determined the proof was insufficient to link the most recent will to decedent’s intentions:

“In order for a will to be duly executed and attested in New York, the testator must sign the document at the end; the testator must sign or acknowledge the signature in the presence of the attesting witnesses; the testator must declare to each of the attesting witnesses that the instrument is his or her will; and there must be two attesting witnesses who shall, within 30 days, attest the testator’s signature and, at the request of the testator, sign their names and affix their residence addresses” (…see EPTL 3-2.1). Before admitting a will to probate, Surrogate’s Court must be satisfied that the will has been validly executed (see SCPA 1408 [1]…), “that the mind of the testator accompanied the act, and that the instrument executed speaks his [or her] language and really expresses his [or her] will” … . The proponent of a will bears the burden of proving its validity by a preponderance of the evidence … . * * *

In light of the uncertainty surrounding the drafting and execution of this will, we decline to disturb the decree of Surrogate’s Court denying admission of the will to probate … . Matter of Walker, 2015 NY Slip Op 00271, 3rd Dept 1-8-15

 

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Deed Was Not a “Deed in Lieu of Foreclosure;” Deed Therefore Did Not Transfer Title; Mortgagor’s Interest Can Be Extinguished Only by Foreclosure

The First Department determined a deed constituted a mortgage pursuant to Real Property Law 320, and was not a “deed in lieu of foreclosure.”  Therefore the deed recorded by the defendants did not transfer ownership to them and defendants must foreclose on the mortgage to extinguish the mortgagor’s interest:

Real Property Law § 320 codifies the well-settled common law principle “that the giving of a deed to secure a debt, in whatever form and however structured, creates nothing more than a mortgage” … . The statute does not require a conclusive showing that the transfer was intended as security; rather, it is sufficient that the conveyance appears to be intended only as “a security in the nature of a mortgage” … .

Therefore, as the motion court properly found, “The holder of a deed given as security must proceed in the same manner as any other mortgagee — by foreclosure and sale — to extinguish the mortgagor’s interest” … . This conclusion holds true because the mortgagor has the right of redemption, and that right cannot be waived or abandoned by any stipulation of the parties, even if the waiver is embodied in the mortgage … . Patmos Fifth Real Estate Inc v Mazl Bldg LLC, 2015 NY Slip OP 00278, 1st Dept 1-8-15

 

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Restrictive Covenants in Homeowners’ Association’s Declaration Do Not Apply to Land Along a Road Which Had Been Dedicated by the Association to the Town

The Third Department determined a homeowners’ association (HPHA) could not restrict the placement of a political sign on property along a road which had been dedicated to the town.  Because there was no evidence the HPHA reserved the right to regulate signs on the strip of land transferred to the town, the HPHA had no authority to prohibit the placement of a sign on the land:

Respondents contend that, although Hudson Pointe, Inc. dedicated land to the Town for the purpose of maintaining the roads within the development, such dedication was subject to the restrictive covenants contained in HPHA’s Declaration. Thus, according to respondents, although petitioners’ political signs were located on Town property, HPHA maintained the authority to enforce its sign restriction on this public land. Generally, the process of dedication is “of the nature of a gift by a private owner to the public” …, and dedication requires, among other things, “absolute relinquishment to public use by the owner” …. Thus, a town may acquire a road in fee through dedication “when there has been a complete surrender to public use of the land by the owners, acceptance by the town, and some formal act [by public authorities] adopting the highway . . . coupled with a showing that the road was kept in repair or taken in charge by public authorities” (…see Highway Law § 171///).

While the record is devoid of evidence of the Town’s acceptance of ownership of the roads within the development, the parties do not dispute that the land in question is owned by the Town through dedication. The 1997 deed conveying certain property within the development from Hudson Pointe, Inc. to the Town, contained in the record, does not explicitly reserve to HPHA or Hudson Pointe, Inc. any interest in the conveyed property. In the absence of such reservation, respondents lack the authority to enforce HPHA’s sign restriction on Town land as a matter of law … . Matter of Jasinski v Hudson Pointe Homeowners Assn Inc, 2015 NY Slip OP 00274, 3rd Dept 1-8-15

 

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Evidence Insufficient to Support Neglect Finding, Criteria Explained/Repetition of Child’s Out-of-Court Statement Does Not Corroborate It

In reversing Family Court’s finding of neglect, the Third Department explained the analytical criteria and noted that a child’s out-of-court statement about his alleged consumption of alcohol was not corroborated by the child’s repetition of the statement:

“[A] party seeking to establish neglect must show, by a preponderance of the evidence, first, that a child’s physical, mental or emotional condition has been impaired or is in imminent danger of becoming impaired and second, that the actual or threatened harm to the child is a consequence of the failure of the parent or caretaker to exercise a minimum degree of care in providing the child with proper supervision or guardianship” … . “In order for danger to be imminent, it must be near or impending, not merely possible” … , and regarding degree of care “the statutory test is minimum degree of care — not maximum, not best, not ideal” … .

…[W]e note that one factual determination made by Family Court as supporting its finding of neglect was that respondent allegedly pressured [the child] to take a sip of her eggnog and brandy beverage at the party. The child did not testify, but the court found that his out-of-court statement was sufficiently corroborated because he had made such a statement to two different adults, although he had both denied and affirmed the allegation to one of the adults. While the corroboration requirement is low …, “[i]t is well settled that ‘repetition of an accusation by a child does not corroborate [that] child’s prior account'” … . Here, the out-of-court repetition of the statement did not provide sufficient corroboration and the statement should not have been considered as part of the neglect determination. Matter of Cadence GG…, 2015 NY Slip OP 00261, 3rd Dept 1-8-15

 

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Competing Expert Affidavits Raised a Question of Fact About Whether the Speed of Defendant’s Vehicle Was a Proximate Cause of the Accident—Plaintiff’s Vehicle Was Struck Broadside by Defendant’s Vehicle When Plaintiff Pulled Into Traffic–Supreme Court’s Grant of Summary Judgment to Defendant Reversed

The Third Department determined that plaintiff had raised a question of fact whether the speed of defendant’s vehicle was the proximate cause of the accident.  Plaintiff had pulled into traffic and was struck broadside by defendant. Supreme Court had granted defendant’s motion for summary judgment:

It is uncontested that plaintiff’s portion of the intersection was controlled by a blinking red light, and that she was therefore required to yield the right-of-way to oncoming vehicles that were “approaching so closely . . . as to constitute an immediate hazard” (Vehicle and Traffic Law § 1142 [a]; see Vehicle and Traffic Law § 1113 [a]). * * *

In opposition to defendant’s motion, plaintiff submitted the affidavit of a certified accident reconstructionist and former police officer. Using the same data as defendant’s expert, plaintiff’s expert concluded that, at the time defendant began braking, she was traveling at a faster speed of 49.95 mph, and he opined that had defendant not been exceeding the speed limit, plaintiff would have had sufficient time to safely clear defendant’s lane of travel and complete her turn. * * * The two experts utilized the same data and, while they arrived at different conclusions with respect to defendant’s speed, “a disagreement . . . between experts merely creates a question of credibility to be resolved by the finder of fact” … .

Upon a defendant’s motion, the evidence must be viewed in the light most favorable to the plaintiff … . It is well established that “there may be more than one proximate cause of an accident” … . Upon review, we find that plaintiff’s evidence gives rise to material issues of fact as to whether defendant’s speed was excessive and, if so, whether her speed was a proximate cause of the collision … . O’Brien v Couch, 2015 NY Slip OP 00273, 3rd Dept 1-8-15

 

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Real Property Purchased by Husband Prior to the Marriage Cannot Be Transformed Into Marital Property, Despite’s Wife’s Contribution of Her Own Funds ($30,000) to the Purchase/Wife Entitled to Equitable Distribution of the Appreciation of the Property After Marriage But No Proof On that Topic Was Offered Here/Wife Entitled to Recoup Mortgage Payments Made by Her

The Third Department, in a full-fledged opinion by Justice Stein, over a dissent, determined that real property purchased prior to marriage cannot be transformed into marital property by contributions made by the non-titled spouse, although the appreciation in value of the property attributable to the efforts of the non-titled spouse could be the subject of equitable distribution (there was a failure of proof on that issue here), and funds paid toward the mortgage by the non-titled spouse could be recouped:

“‘[W]hether a particular asset is marital or separate property is a question of law'” … . Marital property is defined as “all property acquired by either or both spouses during the marriage” (Domestic Relations Law § 236 [B] [1] [c] [emphasis added]), while “property acquired before marriage” is separate property (Domestic Relations Law § 236 [B] [1] [d] [1] [emphasis added]). Here, the husband purchased the marital residence in January 1994 — 2½ years prior to the parties’ marriage — paying $130,000 of his own funds and borrowing an additional $100,000 from his father, secured by a note and mortgage. Although the wife contributed $30,000 of her separate funds to the initial purchase of the residence, she did not attend the closing and the husband took title to the property in his name alone. The record reflects that the wife thereafter paid the mortgage for more than two years prior to the marriage, as well as after the parties were married through 2003, when a satisfaction of mortgage was issued, notwithstanding a principal balance remaining of approximately $52,000. Supreme Court determined that the wife’s contributions transformed the residence from the husband’s separate property into marital property, which was subject to equitable distribution. …[W]e disagree. * * *

…[W]hile Supreme Court’s finding that the wife made certain substantial contributions of money and effort toward the acquisition and maintenance of the marital residence is amply supported by the record, the effect of such contributions by the wife — particularly those she made before the marriage — is not to transform the husband’s premarital, separate property into marital property … . *  *  *

We note, however, that separate property contributions by a nontitled spouse could result in an appreciation of the value of the titled spouse’s separate property during the marriage, which appreciation would be subject to equitable distribution … . Here, inasmuch as the wife failed to prove the value of the residence at the time the parties were married, the amount of the property’s appreciation during the marriage — and, hence, the wife’s equitable share thereof — cannot be ascertained …, and no award may be made on this basis … .

We agree, however, with the wife’s alternative argument that she is entitled to recoup her equitable share of marital funds paid toward the mortgage. It is well settled that, in determining the “equitable distribution of marital property, a court has the authority to effectively recoup marital funds applied to the reduction of one party’s separate indebtedness” … . Here, the wife testified that she paid the mortgage on the marital residence from the date of the marriage until a satisfaction of mortgage was issued. Although it is not evident from the record what funds were used to make these payments, it can be presumed that marital funds were used (see Carr v Carr, 291 AD2d 672, 676 [2002]). Thus, the wife is entitled to an equitable share of the marital funds that were used to pay the husband’s separate indebtedness — the mortgage — during the marriage… . Ceravolo v DeSantis, 2015 NY Slip OP 00266, 3rd Dept 1-8-15

 

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