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The Availability of Pre-Suit Discovery in a Shareholder Derivative Action is a Substantive, Not a Procedural, Issue—The Law in the State Where the Corporation Is Chartered Controls

The First Department, in a full-fledged opinion by Justice Moskowitz, determined the law surrounding a corporation’s refusal to answer a pre-suit discovery demand in a purported shareholder derivative action is a matter of substantive law, not procedural law.  Therefore, under New York choice of law rules, the law of Delaware, where the corporation was chartered, applied.  Under Delaware law “plaintiffs in a derivative sure are not entitled to discovery to assist their compliance with the particularized pleading requirement … in the case of a demand refusal.”  The motion to compel discovery was properly denied and the motion to dismiss the amended complaint was properly granted.   Lerner v Prince, 2014 NY Slip Op 03763, 1st Dept 5-22-14

 

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Expert Testimony Should Not Have Been Precluded Based Upon the Timing of the Disclosure—Short Adjournment Would Have Eliminated Prejudice—New Trial Ordered

The Second Department determined Supreme Court should not have precluded expert testimony based upon the timing of the expert disclosure:

“CPLR 3101(d)(1)(i) does not require a party to respond to a demand for expert witness information at any specific time nor does it mandate that a party be precluded from proffering expert testimony merely because of noncompliance with the statute, unless there is evidence of intentional or willful failure to disclose and a showing of prejudice by the opposing party'”… .

The defendants did not establish that the plaintiffs willfully or intentionally violated a court directive regarding expert disclosure … . Moreover, any prejudice to the defendants from late disclosure would have been limited, inasmuch as the defendants’ own engineer was present when the plaintiffs’ engineer conducted his inspection (\… . A short adjournment of this nonjury trial could have eliminated prejudice entirely … . Under these circumstances, the Supreme Court improvidently exercised its discretion in granting the defendants’ application for preclusion of the plaintiffs’ experts (see id.). Accordingly, a new trial is warranted. Arcamone-Makinano v Britton Prop Inc, 2014 NY Slip Op 03644, 2nd Dept 5-21-14

 

Burdens of Proof Re: Collateral Estoppel Explained

The Second Department reversed Supreme Court, finding that the injunctive relief sought by defendants was barred by the doctrine of collateral estoppel. The issues had been decided in a prior appeal of a related but separate action.  The court explained the respective burdens of proof as follows:

“The doctrine of collateral estoppel bars relitigation of an issue which has necessarily been decided in a prior action and is determinative of the issues disputed in the present action, provided that there was a full and fair opportunity to contest the decision now alleged to be controlling” … . “The party seeking the benefit of collateral estoppel bears the burden of proving that the identical issue was necessarily decided in the prior proceeding, and is decisive of the present action” … . “The party against whom preclusion is sought bears the burden of demonstrating the absence of a full and fair opportunity to contest the prior determination” … . Zanani v Schvimmer, 2014 NY Slip Op 03680, 2nd Dept 5-21-14

 

Rule Against Successive Summary Judgment Motions Does Not Apply to Issue Rejected as Not Properly Before the Court (Raised for the First Time in Reply Papers) in the Original Motion

The Second Department noted that the rule barring successive summary judgment motions does not apply where the issue in the second motion was not properly before the court in the first motion.  Here the defendants had raised the issue the first time in their Reply papers and the court refused to consider it:

We note that the general proscription against successive motions for summary judgment would not bar the defendants from moving for summary judgment dismissing the consolidated complaint because their arguments in support of dismissal … were not properly before the Supreme Court on their original motion … . Vaughn v Veolia Transp Inc, 2014 NY Slip Op 03679, 2nd Dept 5-21-14

 

Difference Between Law of the Case and Issue and Claim Preclusion Explained

The Second Department explained the difference between  the doctrines of law of the case and issue and claim and issue preclusion:

“[L];aw of the case rests on a foundation that . . . distinguishes it from issue and claim preclusion. Whereas the latter concepts are rigid rules of limitation, law of the case is a judicially crafted policy that expresses the practice of courts generally to refuse to reopen what has been decided, [and is]; not a limit to their power. As such, law of the case is necessarily amorphous in that it directs a court’s discretion, but does not restrict its authority”… . Matter of Mazur Bros Realty LLC v State of New York, 2014 NY Slip Op 03687, 2nd Dept 5-21-14

 

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Collateral Estoppel Doctrine Will Not Be Invoked Unless there Has Been at Least One Full Hearing on the Issues Involved

The Second Department, in determining collateral estoppel did not apply to a Notice of Determination that plaintiff was not entitled to unemployment insurance benefits, explained that the collateral estoppel doctrine will not be invoked  unless there has been at least one full hearing on the issues involved:

Pursuant to the doctrine of collateral estoppel, which is otherwise known as issue preclusion, a party may be barred from relitigating an issue which has been decided in another proceeding by a court or in a quasi-judicial administrative forum … . In addition, … “[a];s the consequences of a determination that a party is collaterally estopped from litigating a particular issue are great, strict requirements for application of the doctrine must be satisfied to insure that a party not be precluded from obtaining at least one full hearing on his or her claim” … .

Here, the record does not demonstrate that the Notice of Determination was rendered after a hearing or that it otherwise constitutes a quasi-judicial determination … . Twaddell v Drop & Lock Stor Co Inc, 2014 NY Slip Op 03678, 2nd Dept 5-21-14

 

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Party Who Was Both a Plaintiff and a Defendant in a Joint Trial of Two Actions Was Properly Allowed to Have Two Attorneys

The First Department determined a party who was a plaintiff in one case and a defendant in another was properly allowed to have two attorneys in the joint trial.  Pimentel was involved in an automobile accident with Wong.  Wong’s car jumped the curb and crashed into a store, injuring plaintiff Newark. Newark sued Wong and Pimentel and Pimentel sued Wong.  Pimentel was represented in each action by separate attorneys:

The trial court did not abuse its discretion in allowing Pimentel’s interests as a plaintiff in his own action and as a defendant in this action to be represented by separate attorneys (see CPLR 4011…). The court promised to and did exert control over the nature of the dual representation, as necessary, and Pimentel’s defense counsel, whose opening statement, summation, and questioning of witnesses were brief, played a limited role. In any event, in the absence of any evidence of an unfair advantage or prejudice, any error would be harmless. Newark v Hector R. Pimentel, 2014 NY Slip Op 03636, 1st Dept 5-20-14

 

Proper Procedure Where Ostensibly Relevant Documents Are Not Provided in Discovery Explained

The Second Department explained the proper procedure when ostensibly relevant documents requested in discovery are withheld. The remedy for failure to follow the correct procedure here was the creation of a privilege log and in camera review of the log:

Pursuant to CPLR 3122(b), “[w]henever a person is required . . . to produce documents for inspection, and where such person withholds one or more documents that appear to be within the category of the documents required . . . to be produced, such person shall give notice to the party seeking the production and inspection of the documents that one or more such documents are being withheld. This notice shall indicate the legal ground for withholding each such document, and shall provide the following information as to each such document, unless the party withholding the document states that divulgence of such information would cause disclosure of the allegedly privileged information: (1) the type of document; (2) the general subject matter of the document; (3) the date of the document; and (4) such other information as is sufficient to identify the document” (CPLR 3122).

Here, the defendant did not comply with the requirements of CPLR 3122(b), as it failed to identify the type of document being withheld, the general subject matter of each document, and the date of the document … . Under the circumstances of this case, the appropriate remedy for the defendant’s failure to produce an adequate privilege log is to allow the defendant to produce an adequate privilege log and, thereafter, for the Court of Claims to review in camera the allegedly privileged documents, along with the privilege log … . Stephen v State of New York, 2014 NY Slip Op 03505, 2nd Dept 5-14-14

 

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Forum Selection Clause in Nursing Home Admission Agreement Should Have Been Enforced

The Second Department determined Supreme Court should not have granted plaintiff’s request for a change of forum, the forum selection clause in the agreement between plaintiff’s decedent and defendant nursing home (Concourse) controlled:

The plaintiff’s claim that the forum selection clause should not be upheld because this is a tort action and not a breach of contract action is without merit. The applicability of a forum selection clause does not depend on the nature of the underlying action. This Court has upheld nonnegotiated forum selection clauses contained in various contracts even where the underlying action was a personal injury action or medical malpractice action … . Rather, it is the language of the forum selection clause itself that determines which claims fall within its scope … . Here, the contract provision reciting that “[a]ny and all actions arising out of or related to th[e] Agreement” includes the causes of action in this action …, which are predicated on the care rendered by Concourse to the decedent pursuant to the terms of the Admission Agreement.

Furthermore, the plaintiff failed to show that the forum selection clause was unreasonable or unjust, or that a trial in Westchester County would be so gravely difficult that, for all practical purposes, she would be deprived of her day in court. Also, the plaintiff did not allege, or demonstrate, that the forum selection clause was the result of fraud or overreaching. Under these circumstances, the plaintiff failed to make any showing that the forum selection clause should be set aside … . Couvertier v Concourse Rehabilitation & Nursing Inc, 2014 NY Slip Op 03473, 2nd Dept 5-14-14

 

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Tenants Not Compelled to Bring a Plenary Action to Enforce a Fair Market Rent Appeal Award Because They Withheld Rent Until the Principal Balance of the Award Was Fully Credited to Them—Therefore Tenants Were Not Entitled to Prejudgment Interest Pursuant to CPLR 5001 (a)

The Second Department determined tenants who had been awarded a rent refund in a fair market rent appeal (FMRA) were not entitled to pre-judgment interest on the award.  The tenants had exercised their right under the Rent Stabilization Code to withhold rent until the principal balance of the FMRA award was fully credited.  Therefore, the tenants did not need to start a plenary action for prejudgment interest pursuant to CPLR 5001 (a) because there was no principal balance owing them:

“A tenant compelled to bring a plenary action to enforce a fair market rent appeal order is entitled to . . . prejudgment interest under CPLR 5001(a) computed from the date of the Rent Administrator’s order … ” … . However, where a tenant is not otherwise compelled to commence an action to enforce a fair market rent appeal award, the tenant is not entitled to recover interest on the award … . Prior to the commencement of this action, the plaintiffs exercised their right under the relevant provision of the Rent Stabilization Code (see 9 NYCRR 2522.3[d][1]) to withhold payment of rent until the principal balance of the FMRA award was fully credited to their account. The FMRA award was fully credited to the plaintiffs’ account by June 2007, after which the plaintiffs resumed paying rent. Thus, contrary to the plaintiffs’ allegations, there was no principal balance of the FMRA award due and owing to them. Under these circumstances, the plaintiffs were not compelled to commence this action to enforce their FMRA award. Thus, the plaintiffs are not entitled to the relief they sought in the complaint, including the alleged principal balance, prejudgment interest, or an award of an attorney’s fee. Eisner v M & E Rubin LLC, 2014 NY Slip Op 03477, 2nd Dept 5-14-1

 

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