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THE CREDIT BID IN THIS UCC FORECLOSURE WAS SIGNIFICANTLY BELOW WHAT A COMMERCIALLY REASONABLE BID SHOULD HAVE BEEN PURSUANT TO UCC 9-615 (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice Lynch which addresses several issues not summarized here, determined the bid in foreclosure proceedings pursuant to UCC 9-611 was too low:

Taking the position that the business cessation constituted a breach of the security agreement, [plaintiff] terminated the agreement and gave [defendants] notice of its intent to foreclose on the collateral — i.e., the outstanding medical receivables — by holding a public auction pursuant to the Uniform Commercial Code (see UCC 9-611). [Plaintiff] was the only bidder at the public auction and purchased the collateral by way of a $50,000 credit bid, which it then credited against the outstanding balance of the loan. * * *

We find that the credit bid was “significantly below” what a commercially reasonable bid should have been under the standard set forth in UCC 9-615 (f) (2) … . It follows that Supreme Court erred in awarding plaintiff damages for breach of contract. Specifin Mgt. LLC v Elhadidy, 2021 NY Slip Op 06578, Third Dept 11-24-21

 

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THE $140 MILLION PAID BY BEAR STEARNS TO THE SEC TO SETTLE AN ACTION ALLEGING THE FACILITATION OF LATE TRADING WAS NOT A “PENALTY IMPOSED BY LAW” AND THEREFORE WAS A COVERED LOSS UNDER THE TERMS OF THE INSURANCE POLICIES (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge DiFiore, over an extensive dissent, determined the funds paid to the Security and Exchange Commission (SEC) to settle an action alleging Bear Stearns “facilitated late trading” and “deceptive market timing activity” did not constitute a “penalty imposed by law” and therefore was a covered loss under the insurance policies:

… [U]nder relevant New York law, penalties have consistently been distinguished from compensatory remedies, damages, and payments otherwise measured through the harm caused by wrongdoing. Thus, at the time the parties contracted, a reasonable insured would likewise have understood the term “penalty” to refer to non-compensatory, purely punitive monetary sanctions. In this case, the question therefore distills to whether the disputed $140 million settlement payment meets that standard. …

… Bear Stearns demonstrated that the $140 million disgorgement payment was calculated based on wrongfully obtained profits as a measure of the harm or damages caused by the alleged wrongdoing that Bear Stearns was accused of facilitating. This can be contrasted with the $90 million payment denominated a “penalty,” which was not derived from any estimate of harm or gain flowing from the improper trading practices. J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 2021 NY Slip Op 06528, CtApp 11-23-21

 

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THE OUT-OF-POSSESSION LANDLORD IN THIS SLIP AND FALL CASE DEMONSTRATED (1) THE LEASE DID NOT REQUIRE IT TO MAINTAIN A DRAIN WHICH PERIODICALLY BECAME CLOGGED CAUSING GARBAGE TO FLOAT TO THE SIDEWALK, AND (2) IT DID NOT HAVE ACTUAL OR CONSTRUCTIVE NOTICE OF THE PRESENCE OF THE GARBAGE ON THE SIDEWALK WHICH ALLEGEDLY CAUSED PLAINTIFF’S SLIP AND FALL (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, determined the out-of-possession landlord, SMHS, was not responsible for the fish skin on the sidewalk which allegedly caused plaintiff to slip and fall. The tenant, Lobster, a wholesale seafood company, had contracted with defendant Sanitation to remove garbage, including fish parts, from the tenant’s premises. There was a question of fact whether Sanitation was liable under a contract-based Espinal theory for launching an instrument of harm. But SMHS demonstrated the lease did not require SMHS to maintain the sidewalk or the drains which at times became clogged with garbage and that it did not have actual or constructive knowledge of the dangerous condition:

SMHS, an out-of-possession landlord, was not contractually obligated to maintain the premises … .Although its lease with Lobster did not demise to Lobster “the pipes, ducts, conduits, wires, fixtures and equipment, the structural elements which serve the Demised Premises,” SMHS and Lobster’s course of conduct establishes that Lobster was responsible for maintaining and repairing the trench drain … . Moreover, although the lease afforded SMHS a contractual right of reentry to make needed repairs, liability would not be predicated on “‘a significant structural or design defect that is contrary to a specific statutory provision'” … .

Nor can SMHS be held liable for plaintiff’s injuries under Administrative Code of City of NY § 7-210, which imposes a nondelegable duty on land owners to maintain their sidewalks in a reasonably safe condition … . SMHS established … that it neither created the hazardous condition nor had actual notice of it or constructive notice of its existence for a sufficient length of time to discover and remedy it … . Arias v Sanitation Salvage Corp., 2021 NY Slip Op 06534, First Dept 11-23-21

 

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THE PROFESSIONAL EMPLOYEE AGREEMENT, WHICH PROVIDED FOR THE SHARING OF CONTINGENCY FEES FOR CASES RETAINED BY AN ATTORNEY WHO LEAVES THE FIRM, DID NOT VIOLATE ETHICS RULES AND SHOULD HAVE BEEN ENFORCED (FOURTH DEPT). ​

The Fourth Department, reversing (modifying) Supreme Court, determined the Professional Employee Agreement (Agreement), which provided for sharing contingency fees for cases retained by an attorney leaving the firm, did not violate ethics rules and should have been enforced:

… [T]he Agreement did not violate rule 1.5 (g) of the Rules of Professional Conduct (22 NYCRR 1200.0) inasmuch as that rule “does not prohibit payment to a lawyer formerly associated in a law firm pursuant to a separation or retirement agreement” (Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.5 [h] … ) . Here, the Agreement at issue is not a fee-splitting agreement under Rule 1.5 (g) but, rather, an employment or separation agreement under Rule 1.5 (h). Such employment or separation agreements “should be construed, wherever possible, in favor of [their] legality” … and where, as here, they are clear and unambiguous on their face, they must be ” ‘enforced according to the plain meaning of [their] terms’ ” … .

… [T]he Agreement did not violate rule 5.6 (a) of the Rules of Professional Conduct (22 NYCRR 1200.0 … ). Although the Agreement did have some financial disincentives for respondents to continue working on the cases that were transferred from petitioner, “agreements involving financial disincentives are not per se illegal”  … [W]e conclude that the terms of the Agreement relating to the division of contingency fee awards did not have the effect of “improperly deter[ring] competition” … . Matter of Mattar v Hall, 2021 NY Slip Op 06477, Fourth Dept 11-19-21

 

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DEFENDANTS DID NOT DEMONSTRATE A LACK OF CONSTRUCTIVE NOTICE OF THE WET LOADING DOCK WHERE PLAINTIFF SLIPPED AND FELL; GENERAL OBLIGATIONS LAW 5-322.1 (1) APPLIES ONLY TO NEGLIGENT MAINTENANCE ASSOCIATED WITH THE INTEGRITY OF A BUILDING, NOT TO CLEANING SERVICES (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendants in this slip and fall case did not demonstrate a lack of constructive notice of the wet loading dock. Therefore defendants’ motion for summary judgment should not have been granted. As to the action against the maintenance company charged with keeping the loading dock clean (ABM), General Obligations Law 5-322.1 (1), which imposes liability for negligent maintenance, applies only to maintenance associated with the integrity of a building, not cleaning services:

The defendants failed to establish, prima facie, that they did not have constructive notice of the allegedly dangerous condition in that they failed to offer evidence as to when the loading dock was last cleaned or inspected before the plaintiff’s fall. A security guard hired by the defendants testified that, while he would typically perform a “security walk around” twice every 30 to 60 minutes, on the day of the accident, he did not pay attention to the area where the plaintiff later fell. Further, the testimony of witnesses employed by the defendants and ABM as to general cleaning and inspection procedures for the loading dock area was insufficient to establish lack of constructive notice … . Skerrett v LIC Site B2 Owner, LLC, 2021 NY Slip Op 06386, Second Dept 11-17-21​

 

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THE COMPLAINT SUFFICIENTTLY ALLEGED A BREACH OF THE COVENANT OF GOOD FAITH CAUSE OF ACTION IN THIS INSURANCE COVERAGE DISPUTE; THE “IMPLIED COVENANT” CAUSE OF ACTION ALLEGED CONDUCT DIFFERENT FROM THE BREACH OF CONTRACT CAUSE OF ACTION AND WAS THEREFORE NOT DUPLICATIVE; SUPREME COURT IMPROPERLY REDUCED THE ATTORNEYS’ FEES AWARDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the breach of the implied covenant of good faith and fair dealing cause of action in this insurance coverage dispute should not have been dismissed. The court noted that the “breach of the implied covenant” cause of action was not based on the same conduct as the breach of the insurance policy cause of action and therefore was not “duplicative.” The court also found Supreme Court improperly reduced the attorneys’ fees awards:

This appeal arises out of an insurance coverage dispute between the plaintiff and its insurer, the defendant, in connection with a School Board Legal Liability Policy … (hereinafter the policy). While the policy was in effect, a putative class action entitled Montesa v Schwartz (hereinafter the underlying action) was commenced … in … the Southern District of New York against … the plaintiff and its current and former school board members, alleging various constitutional violations, school segregation, breach of fiduciary duty, and fraud. … [P]laintiff timely submitted a notice of claim to the defendant regarding the underlying action and requested coverage under the policy, and the defendant denied coverage to the plaintiff and its board members. * * *

The plain language of the complaint reflects the plaintiff’s allegation that the defendant breached the implied covenant of good faith and fair dealing. The complaint alleged … that the defendant failed to investigate in good faith the claims in the underlying action, denied coverage to the plaintiff based upon a manufactured and/or “nonexistent” assertion, deviated from industry practices by denying coverage to the plaintiff where “[n]o reasonable insurer would have denied [such] coverage,” and “[disclaimed] coverage with gross disregard for the facts and applicable law” … . In determining the defendant’s motion to dismiss, the court was required to accept as true the facts alleged in the complaint, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged by the plaintiff fit within any cognizable legal theory … . …

… [W]here, as here, the cause of action to recover damages for breach of the policy and the cause of action to recover damages for breach of the implied covenant of good faith and fair dealing allege different conduct on the part of the defendant and seek different categories and/or types of damages, the cause of action seeking damages for breach of the implied covenant of good faith and fair dealing should not be dismissed as “duplicative” of the cause of action alleging breach of contract … . East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 2021 NY Slip Op 06341, Second Dept 11-17-21

 

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QUESTIONS OF FACT ABOUT THE APPLICABILITIY OF THE ASSUMPTION OF THE RISK DEFENSE AND THE VALIDITY OF THE RELEASE UNDER THE GENERAL OBLIGATIONS LAW PRECLUDED SUMMARY JUDGMENT IN FAVOR OF DEFENDANT FITNESS CENTER; ALLEGEDLY, PLAINTIFF WAS INJURED WHEN THE TRAINER INSTRUCTED HIM TO ATTEMPT A BALANCING EXERCISE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there were question of fact about whether the defendant fitness center could assert the assumption of the risk defense, or whether the released executed by plaintiff was valid pursuant to the General Obligations Law:

The defendant failed to establish … the plaintiff assumed the risk of injury when he unsuccessfully attempted the balancing exercise. The deposition testimony … raises questions of fact as to whether the trainer exposed the plaintiff to an unassumed risk. Specifically, the trainer allegedly encouraged the plaintiff to attempt the exercise after he expressed that he could not perform it, by allegedly offering verbal reassurances such as “I’m right here,” which the plaintiff mistakenly believed meant that the trainer would catch him or stabilize him if he began to fall … .

The defendant also failed to establish … the plaintiff’s claims are barred by the release the plaintiff executed. The defendant failed to demonstrate the inapplicability of General Obligations Law § 5-326, which would render the release void, as the defendant’s evidence did not establish as a matter of law that its facility was not a “gymnasium” within the meaning of that statute … . Haggerty v Northern Dutchess Hosp., 2021 NY Slip Op 06162, Second Dept 11-10-21

 

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THE EMAIL EXCHANGE BETWEEN THE ATTORNEYS IN THIS PERSONAL INJURY ACTION CONSTITUTED AN ENFORCEABLE SETTLEMENT WHICH WAS UNAFFECTED BY THE SUBSEQUENT GRANTING OF DEFENDANTS’ SUMMARY JUDGMENT MOTION (SECOND DEPT).

The First Department, reversing Supreme Court, determined the email exchange between attorneys constituted an enforceable settlement of the personal injury action which was unaffected by the subsequent granting of summary judgment to the defendants:

The settlement agreement was stated in an email communication in which plaintiffs’ counsel stated, “This is to confirm settlement in the sum of $275,000. Please send release language and parties to be released.” Later that day, plaintiffs’ counsel sent a follow-up email, stating, “Please confirm we are settled.” Sea Crest’s counsel responded, “Confirmed. I’ll have release information to you ASAP.” …

The emails, which reduced the settlement to a writing in accordance with CPLR 2104, were “subscribed” within the meaning of the statute, as the sender was identifiable and there was no contention that Sea Crest’s counsel did not send any of the emails intentionally … . Rawald v Dormitory Auth. of the State of N.Y., 2021 NY Slip Op 06109, First Dept 11-9-21

 

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THE PRE-ANSWER, PRE-DISCOVERY MOTION TO DISMISS SHOULD NOT HAVE BEEN CONVERTED TO A SUMMARY JUDGMENT MOTION; QUESTIONS OF FACT ABOUT WHETHER THERE WAS A DE FACTO MERGER OF TWO CORPORATIONS; QUESTION OF FACT WHETHER PART PERFORMANCE BY INACTION SATISFIED THE STATUTE OF FRAUDS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined (1) the pre-answer, pre-discovery motion to dismiss should not have been converted to a summary judgment motion; (2) there were questions of fact about whether there was a de facto merger of two defendant corporations; and (3) there was a question of fact whether the breach of contract action was barred by the statute of frauds (part performance). The “de facto merger” and “part performance” discussions are substantive and too detailed to summarize here. The Second Department noted that even inaction will satisfy part performance of a contract when inaction is a term of the oral agreement:

Supreme Court erred in converting the motion to dismiss to one for summary judgment (see CPLR 3211[c] … ). The plaintiff objected to this procedure on the ground that he had not received any discovery, and no preliminary conference had taken place due to the pendency of the motion to dismiss, which was made only one month after this action was commenced. Indeed, a motion for summary judgment is premature when a party had no reasonable opportunity to conduct discovery, and discovery may result in disclosure of evidence relevant to the causes of action asserted in the complaint (see CPLR 3212[f] … ). Here, issue was not yet joined and there had been no opportunity to engage in discovery regarding the plaintiff’s allegations of successor liability and fraud with respect to the apparent transformation of [defendant] Labs into [defendant] Diagnostics. Therefore, converting the motion to dismiss into a motion for summary judgment was premature.

… The defendants’ evidence did not establish as a matter of law that Diagnostics was not the de facto continuation of Labs … . * * *

Part performance in the form of inaction may … suffice to invoke the doctrine, if inaction is pleaded as a term of the oral agreement and alleged to be unequivocally referable to the oral agreement, and the element of detrimental reliance is present … . … [D]efendants failed to demonstrate … that the plaintiff did not partially perform by refraining from seeking to confirm the arbitration award, thereby rendering the statute of frauds inapplicable. Menche v CDx Diagnostics, Inc., 2021 NY Slip Op 05964, Second Dept 11-3-21

 

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QUESTIONS OF FACT ABOUT WHETHER THE INSURED MADE A SPECIFIC REQUEST TO DEFENDANT INSURANCE-BROKER FOR COVERAGE AND WHETHER THERE WAS A SPECIAL RELATIONSHIP BETWEEN THE INSURED AND THE BROKER; THE BREACH OF CONTRACT CAUSE OF ACTION PROPERLY SURVIVED SUMMARY JUDGMENT; THE NEGLIGENT MISREPRESENTATION CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the defendant insurance-broker’s motion for summary judgment on the breach of contract cause of action was properly denied, and the motion for summary judgment on the negligent misrepresentation cause of action should have been denied. The issues are whether the insured made a specific request for coverage and whether there was a special relationship between the insured and defendant broker:

“An insurance agent or broker has a common-law duty to obtain requested coverage for a client within a reasonable amount of time, or to inform the client of the inability to do so … . Generally, “‘[t]o set forth a case for negligence or breach of contract against an insurance broker, a plaintiff must establish that a specific request was made to the broker for the coverage that was not provided in the policy'” … . “Thus, the duty is defined by the nature of the client’s request” … . However, “[w]here a special relationship develops between the broker and client, . . . the broker may be liable, even in the absence of a specific request, for failing to advise or direct the client to obtain additional coverage” … .

… [T]he defendant insurance broker failed to meet its initial burden of tendering sufficient evidence to demonstrate the absence of triable issues of fact with respect to whether the plaintiff client made a specific request for coverage which was not obtained … . … [T]riable issues of fact exist as to whether a specific interaction took place between the plaintiff and the defendant regarding a question of coverage related to the plaintiff’s renovation work on the insured property that could give rise to a special relationship between the parties … . Copacabana Realty, LLC v A.J. Benet, Inc., 2021 NY Slip Op 05944, Second Dept 11-3-21

 

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