Corporation Law – Page 15 – New York Appellate Digest

DEFENDANT WAS THE ALTER EGO OF PLAINTIFF’S EMPLOYER, THEREFORE WORKERS’ COMPENSATION WAS THE ONLY REMEDY FOR THE PLAINTIFF WHO WAS INJURED ON THE JOB (SECOND DEPT).

The Second Department determined that the defendant was the alter ego of plaintiff’s employer and therefore plaintiff’s only remedy for the on the job injury was under the Workers’ Compensation Law:

Generally, employees injured in the course of their employment may recover against their employers only under the Workers’ Compensation Law … . Workers’ Compensation Law § 29(6) expressly provides that “[t]he right to compensation or benefits under this chapter, shall be the exclusive remedy to an employee” … . The exclusive remedy provisions also bar employees from seeking damages from “alter egos” of their employers … .. The alter ego rule applies when one of the entities in question controls the other or when the two entities operate as a single integrated entity … . A mere showing that the entities are related—by, for example, sharing officers or ownership—is insufficient… .

Here, the defendant established, prima facie, that it was an alter ego of the plaintiff’s employer by submitting evidence that, among other things, in addition to owning the premises, it was the sole owner and manager of the limited liability company that was the plaintiff’s employer, that the plaintiff’s employer was formed to provide bus drivers for the defendant’s pupil transportation business, and that the two entities shared the same Workers’ Compensation insurance policy … . Clarke v First Student, Inc., 2018 NY Slip Op 02766, Second Dept 4-25-18

WORKER’S COMPENSATION LAW (DEFENDANT WAS THE ALTER EGO OF PLAINTIFF’S EMPLOYER,THEREFORE WORKERS’ COMPENSATION WAS THE ONLY REMEDY FOR THE PLAINTIFF WHO WAS INJURED ON THE JOB (SECOND DEPT))/CORPORATION LAW (WORKERS’ COMPENSATION, ALTER EGO, DEFENDANT WAS THE ALTER EGO OF PLAINTIFF’S EMPLOYER,THEREFORE WORKERS’ COMPENSATION WAS THE ONLY REMEDY FOR THE PLAINTIFF WHO WAS INJURED ON THE JOB (SECOND DEPT))/ALTER EGO (WORKERS’ COMPENSATION, DEFENDANT WAS THE ALTER EGO OF PLAINTIFF’S EMPLOYER,THEREFORE WORKERS’ COMPENSATION WAS THE ONLY REMEDY FOR THE PLAINTIFF WHO WAS INJURED ON THE JOB (SECOND DEPT))

April 25, 2018

Corporation Law, Fiduciary Duty

AN ACTION AGAINST A NOT FOR PROFIT CORPORATION FOR BREACH OF A FIDUCIARY DUTY MUST ALLEGE THE FAILURE TO ACT IN GOOD FAITH ON BEHALF OF THE CORPORATION OR ITS MEMBERS, NOT, AS HERE, THE FAILURE TO ACT IN A MEMBER’S PERSONAL BEST INTEREST (SECOND DEPT).

The Second Department noted that an action against a not for profit corporation (here a yacht club) for breach of a fiduciary duty must allege the failure to act in good faith on behalf of the corporation or its members, not the failure to act in good faith in a member’s (plaintiff’s) personal best interest. The board had excluded plaintiff’s domestic partner, who was not a member, from the club:

The elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct … . The directors of a not-for-profit corporation like the Club “have the fiduciary obligation to act on behalf of the corporation in good faith and with reasonable care so as to protect and advance its interests” … . Here, however, the complaint did not allege that the Club defendants failed to act in good faith on behalf of the Club or its members’ collective interests, but merely alleged that they failed to act in [plaintiff’s] personal best interest … . Accordingly, the complaint did not state a cause of action to recover damages for breach of fiduciary duty. Nachbar v Cornwall Yacht Club, 2018 NY Slip Op 02795, Second Dept 4-25-18

CORPORATION LAW (AN ACTION AGAINST A NOT FOR PROFIT CORPORATION FOR BREACH OF A FIDUCIARY DUTY MUST ALLEGE THE FAILURE TO ACT IN GOOD FAITH ON BEHALF OF THE CORPORATION OR ITS MEMBERS, NOT, AS HERE, THE FAILURE TO ACT IN A MEMBER’S PERSONAL BEST INTEREST (SECOND DEPT))/NOT FOR PROFIT CORPORATION (AN ACTION AGAINST A NOT FOR PROFIT CORPORATION FOR BREACH OF A FIDUCIARY DUTY MUST ALLEGE THE FAILURE TO ACT IN GOOD FAITH ON BEHALF OF THE CORPORATION OR ITS MEMBERS, NOT, AS HERE, THE FAILURE TO ACT IN A MEMBER’S PERSONAL BEST INTEREST (SECOND DEPT))/YACHT CLUB (CORPORATION LAW, AN ACTION AGAINST A NOT FOR PROFIT CORPORATION FOR BREACH OF A FIDUCIARY DUTY MUST ALLEGE THE FAILURE TO ACT IN GOOD FAITH ON BEHALF OF THE CORPORATION OR ITS MEMBERS, NOT, AS HERE, THE FAILURE TO ACT IN A MEMBER’S PERSONAL BEST INTEREST (SECOND DEPT)/FIDUCIARY DUTY (CORPORATION LAW, AN ACTION AGAINST A NOT FOR PROFIT CORPORATION FOR BREACH OF A FIDUCIARY DUTY MUST ALLEGE THE FAILURE TO ACT IN GOOD FAITH ON BEHALF OF THE CORPORATION OR ITS MEMBERS, NOT, AS HERE, THE FAILURE TO ACT IN A MEMBER’S PERSONAL BEST INTEREST (SECOND DEPT))

April 25, 2018

Corporation Law, Landlord-Tenant

BECAUSE ONLY A CORPORATE ENTITY FORMED BY PLAINTIFF TENANT WAS NAMED ON THE LEASE, PLAINTIFF WAS NOT ENTITLED TO RENT STABILIZATION PROTECTIONS (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, ,determined plaintiff (Fox) was not entitled to the protections of rent stabilization because the lease was in the name of a corporate entitled formed by the plaintiff and plaintiff was not named in the lease:

In 2008, at Fox’s suggestion, a renewal lease was entered into by plaintiff MBE Ltd., an entity wholly owned by Fox, with the understanding that Fox would continue to occupy the apartment; MBE executed renewal leases for the apartment in 2010 and 2012. Fox has continued to live in the apartment since MBE became the tenant of record. In 2014, defendant 12 East 88th LLC purchased the building and informed Fox that the lease would not be renewed.

Because the 2008 lease, and the subsequent lease renewals, named MBE as the sole tenant and did not identify as the occupant of the apartment a particular individual with a right to demand a renewal lease, Fox is not entitled to the renewal of the lease … .

… [T]his Court [has] established that “a corporation is entitled to a renewal lease where the lease specifies a particular individual as the occupant and no perpetual tenancy is possible” … . Our … cases have construed the first requirement strictly, denying rent stabilization protections to individual occupants who are not actually identified in an entity’s rent stabilized lease … . Fox v 12 E. 88th LLC, 2018 NY Slip Op 02289, First Dept 4-3-18

LANDLORD-TENANT (RENT STABILIZATION, BECAUSE ONLY A CORPORATE ENTITY FORMED BY PLAINTIFF TENANT WAS NAMED ON THE LEASE, PLAINTIFF WAS NOT ENTITLED TO RENT STABILIZATION PROTECTIONS (FIRST DEPT))/RENT STABILIZATION (BECAUSE ONLY A CORPORATE ENTITY FORMED BY PLAINTIFF TENANT WAS NAMED ON THE LEASE, PLAINTIFF WAS NOT ENTITLED TO RENT STABILIZATION PROTECTIONS (FIRST DEPT))/CORPORATION LAW (LANDLORD-TENANT, RENT STABILIZATION, BECAUSE ONLY A CORPORATE ENTITY FORMED BY PLAINTIFF TENANT WAS NAMED ON THE LEASE, PLAINTIFF WAS NOT ENTITLED TO RENT STABILIZATION PROTECTIONS (FIRST DEPT))

April 3, 2018

Corporation Law, Municipal Law

SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT).

The Second Department determined the Rockland County Solid Waste Authority (Authority) was a public benefit corporation which was subject to the Public Authorities Law, not the Municipal Law. Therefore the Authority properly accepted a bid for recycling services which was not the lowest bid:

General Municipal Law § 103(1) provides that all contracts for public work involving expenditures in excess of $35,000 must be awarded to “the lowest responsible bidder.” However, that provision applies only to contracts to which “political subdivision[s] or . . . any district therein” are parties … . Contrary to the petitioner’s contention, public benefit corporations such as the Authority are ” legal entities separate from the State, enjoying an existence separate and apart from the State, its agencies and political subdivisions'” … . As such, any limitations placed on the Authority’s power to contract must come from the Authority’s enabling statute, not the General Municipal Law. The Authority’s enabling statute broadly permits it “[t]o contract with . . . persons within or without the county, for the purpose of receiving, treating and disposing of solid waste or for any other purpose authorized hereunder, including, without limitation, the power to contract with . . . persons for the delivery of all solid waste generated within a stated area to a specific solid waste management facility” … . Unlike General Municipal Law § 103, the Authority’s enabling statute does not require contracts such as the one at issue here to be awarded to the “lowest responsible bidder.” Thus, the petitioner’s contention that the Authority acted beyond its grant of power is without merit. Matter of AAA Carting & Rubbish Removal, Inc. v Town of Stony Point, N.Y., 2018 NY Slip Op 02203, Second Dept 3-28-18

MUNICIPAL LAW (BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/PUBIC BENEFIT CORPORATIONS (BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/CORPORATION LAW (PUBLIC BENEFIT CORPORATIONS, BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/PUBLIC AUTHORITIES LAW (BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/SOLID WASTE AUTHORITY (BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/RECYCLING (BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))/BIDS (SOLID WASTE AUTHORITY, BIDS FOR SERVICES, SOLID WASTE AUTHORITY IS SUBJECT TO THE PUBLIC AUTHORITIES LAW, NOT THE GENERAL MUNICIPAL LAW, THE AUTHORITY THEREFORE WAS NOT REQUIRED TO ACCEPT THE LOWEST BID FOR RECYCLING SERVICES (SECOND DEPT))

March 28, 2018

Corporation Law

UNDER CAYMAN ISLANDS LAW, THE SHAREHOLDER’S DERIVATIVE CAUSES OF ACTION WERE PROPERLY DISMISSED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Acosta, in a case sent back by the Court of Appeals, affirmed Supreme Court’s dismissal of the shareholder’s derivative causes of action. The derivative action was initially dismissed for failure to comply with a Cayman Islands rule. The Court of Appeals held that the rule was procedural and did not apply in New York courts. The First Department determined the derivative causes of action must be dismissed because plaintiff does not have standing pursuant to Foss v Harbottle, 67 Eng Rep 189 (1843), as interpreted under Cayman Islands law:

Under Cayman Islands law interpreting Foss, “derivative claims are owned and controlled by the company, not its shareholders” … . Thus, “a shareholder is not permitted to bring a derivative action on behalf of that company” … .

Cayman Islands law recognizes only four narrow exceptions to the Foss rule: “(1) if the conduct infringed on the shareholder’s personal rights; (2) if the conduct would require a special majority to ratify; (3) if the conduct qualifies as a fraud on the minority; or (4) if the conduct consists of ultra vires acts … . Here, the only exception at issue is the “fraud on the minority” exception. In order to invoke that exception, plaintiff must plead and prove that the alleged wrongdoers controlled a majority of the stock with voting rights and that those wrongdoers committed fraud … . Control may be sufficiently pleaded by showing that the wrongdoers own a majority of the corporation’s voting shares or have acquired de facto control of those voting shares … .

We agree with the motion court that the complaint is devoid of any allegations establishing either form of control. Davis v Scottish Re Group Ltd., 2018 NY Slip Op 01889, First Dept 3-20-18

CORPORATION LAW (SHAREHOLDER’S DERIVATIVE ACTION, UNDER CAYMAN ISLANDS LAW, THE SHAREHOLDER’S DERIVATIVE CAUSES OF ACTION WERE PROPERLY DISMISSED (FIRST DEPT))/SHAREHOLDER’S DERIVATIVE ACTION (UNDER CAYMAN ISLANDS LAW, THE SHAREHOLDER’S DERIVATIVE CAUSES OF ACTION WERE PROPERLY DISMISSED (FIRST DEPT))/CAYMAN ISLANDS (CORPORATION LAW, UNDER CAYMAN ISLANDS LAW, THE SHAREHOLDER’S DERIVATIVE CAUSES OF ACTION WERE PROPERLY DISMISSED (FIRST DEPT))

March 20, 2018

Corporation Law, Fiduciary Duty

ALTHOUGH THE COMPLAINT BY SHAREHOLDERS AGAINST DIRECTORS DID NOT SUFFICIENTLY ALLEGE THE BREACH OF A FIDUCIARY DUTY, IT DID ALLEGE A BREACH OF THE SUFFICIENT INFORMATION DUTY (FIRST DEPT).

The First Department, modifying Supreme Court, determined that, although it did not sufficiently allege the breach of a fiduciary duty, the complaint by shareholders alleged the breach of the “sufficient information duty” owed to shareholders by the directors:

The complaint … fails to allege “a special factual relationship between the directors and the shareholders … bring[ing] the directors of the company into direct and close contact with the shareholders in a manner capable of generating fiduciary obligations” with regard to either the dividend policy that is the subject of the third cause of action or the merger transaction that is the subject of the fourth cause of action … .

However, to the extent the director defendants gave shareholders an information statement providing information and recommendations about the merger transaction, they owed the shareholders a “sufficient information duty” … . This is not a duty of loyalty, which would require the directors to subordinate their interests to the shareholders’ interests, but “if [the directors] are going to invite the shareholders to a meeting, common fairness requires that they explain what the purpose of the meeting is” in a “clear and comprehensible” manner … .

The complaint alleges that the information statement failed to disclose that two directors on the special committee negotiating merger terms had ties to the investor defendants, who proposed the merger, that it failed to disclose any details about the search for alternate proposals, which was illusory, that it failed to provide a meaningful valuation of ordinary shares using industry standards for the insurance business, and that it failed to disclose the impact on the stock value of a parallel bond transaction. Moreover, the complaint alleges that, while the information statement warned that the investor defendants could wipe out the ordinary shareholders by redeeming their convertible cumulative preferred participating shares, it misrepresented the likelihood of that occurrence. Davis v Scottish Re Group Ltd., 2018 NY Slip Op 01867, First Dept 3-20-18

CORPORATION LAW (ALTHOUGH THE COMPLAINT BY SHAREHOLDERS AGAINST DIRECTORS DID NOT SUFFICIENTLY ALLEGE THE BREACH OF A FIDUCIARY DUTY, IT DID ALLEGE A BREACH OF THE SUFFICIENT INFORMATION DUTY (FIRST DEPT))/SHAREHOLDERS (CORPORATION LAW, ALTHOUGH THE COMPLAINT BY SHAREHOLDERS AGAINST DIRECTORS DID NOT SUFFICIENTLY ALLEGE THE BREACH OF A FIDUCIARY DUTY, IT DID ALLEGE A BREACH OF THE SUFFICIENT INFORMATION DUTY (FIRST DEPT))/DIRECTORS (CORPORATION LAW, ALTHOUGH THE COMPLAINT BY SHAREHOLDERS AGAINST DIRECTORS DID NOT SUFFICIENTLY ALLEGE THE BREACH OF A FIDUCIARY DUTY, IT DID ALLEGE A BREACH OF THE SUFFICIENT INFORMATION DUTY (FIRST DEPT))/SUFFICIENT INFORMATION DUTY (CORPORATION LAW, ALTHOUGH THE COMPLAINT BY SHAREHOLDERS AGAINST DIRECTORS DID NOT SUFFICIENTLY ALLEGE THE BREACH OF A FIDUCIARY DUTY, IT DID ALLEGE A BREACH OF THE SUFFICIENT INFORMATION DUTY (FIRST DEPT))

March 20, 2018

Contract Law, Corporation Law, Defamation

DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, modifying Supreme Court, determined a defamation action against an unincorporated association (the Grand Lodge of Free & Accepted Masons of the State of New York) was properly dismissed, but the defamation action against individuals acting in individual capacities should not have been dismissed. The court further held that the breach of contract action against the association should not have been dismissed. The action was brought against a lodge after plaintiff was accused of fraud and was expelled:

Actions against unincorporated associations, whether for breaches of agreements or for tortious wrongs, are limited to cases where the individual liability of every single member can be alleged and proven … . The Martin rule “bars all actions against an unincorporated voluntary membership association, and bars claims against the officers of such an association in their representative capacities where there is no allegation that the members of the association authorized or ratified the wrongful conduct complained of” … .

Here, the plaintiff made no factual allegations in the complaint or in opposition to the motion to dismiss to indicate that all members of the Grand Lodge did in fact ratify the allegedly defamatory statements. …

… [T]he Martin rule does not purport to immunize individual members of an unincorporated association, acting in their individual capacities, from the consequences of their own tortious conduct… . …

Moreover, the Martin rule does not preclude breach of contract causes of action against unincorporated associations and their officers acting in their representative capacities based on an allegedly wrongful expulsion from the association … . Bidnick v Grand Lodge of Free & Accepted Masons of the State of N.Y., 2018 NY Slip Op 01591, Second Dept 3-14-18

CORPORATION LAW (UNINCORPORATED ASSOCIATIONS, MARTIN RULE, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/UNINCORPORATED ASSOCIATIONS (MARTIN RULE, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/MARTIN RULE (UNINCORPORATED ASSOCIATIONS, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/DEFAMATION (UNINCORPORATED ASSOCIATIONS, MARTIN RULE, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/CONTRACT LAW (UNINCORPORATED ASSOCIATIONS, MARTIN RULE, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))/MASONS (UNINCORPORATED ASSOCIATIONS, MARTIN RULE, DEFAMATION ACTION AGAINST UNINCORPORATED ASSOCIATION SHOULD HAVE BEEN DISMISSED UNDER THE MARTIN RULE, DEFAMATION ACTION AGAINST INDIVIDUAL DEFENDANTS SHOULD NOT HAVE BEEN DISMISSED, BREACH OF CONTRACT ACTION AGAINST THE ASSOCIATION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT))

March 14, 2018

Corporation Law, Debtor-Creditor, Securities

INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Rivera, affirmed the appellate division’s ruling that the complaint by an indenture trustee stated causes of action on behalf of noteholders for fraudulent conveyances under a corporate veil-piercing theory. The court explained the issues before it as follows:

On this appeal we must determine whether an indenture trustee may seek recovery on behalf of noteholders for defendants’ alleged fraudulent redemptions intended to siphon off assets, leaving corporate obligors unable to pay the noteholders. The indenture at issue authorizes the trustee to “pursue any available remedy to collect . . . the payment of principal, premium, if any, and interest on the Notes,” and thus empowers that trustee to proceed at law and in equity to recover losses incurred by all noteholders from the unpaid notes. As such, the trustee may assert causes of action to recover pro-rata losses caused by defendants’ scheme to render the note debtor insolvent. The trustee may also seek to pierce the corporate veil and impose corporate obligations on defendants under an alter ego theory of liability based on properly pleaded factual allegations — here that defendants created, for unlawful purposes, a corporate structure over which they exercised complete control and domination, and which they used to incur corporate debt so they could distribute the loan proceeds to themselves through fraudulent transfers, leaving the corporation unable to pay its creditors. * * *

The [appellate division properly] concluded that the relevant language of the indenture “confers standing on the trustee to pursue . . . the fraudulent conveyance and other . . . claims, which seek recovery solely of the amounts due under the notes, for the benefit of all noteholders on a pro rata basis, as a remedy for an alleged injury suffered ratably by all noteholders by reason of their status as noteholders” … . The court also [properly] found that the complaint sufficiently states a cause of action against these defendants under a veil-piercing theory … . Cortlandt St. Recovery Corp. v Bonderman, 2018 NY Slip Op 01149, CtApp 2-20-18

SECURITIES (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))/DEBTOR-CREDITOR (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))/CORPORATION LAW (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))/INDENTURE TRUSTEE (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))/FRAUD (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))/PIERCING THE CORPORATE VEIL (INDENTURE TRUSTEE STATED CAUSES OF ACTION FOR FRAUDULENT CONVEYANCES UNDER A VEIL-PIERCING THEORY, COMPLAINT ALLEGED FRAUDULENT REDEMPTIONS SIPHONED OFF ASSETS LEAVING CORPORATE OBLIGORS UNABLE TO PAY NOTEHOLDERS (CT APP))

February 20, 2018

Civil Procedure, Corporation Law, Evidence

PLAINTIFF CORPORATION’S FAILURE TO MAKE A REASONABLE EFFORT TO PRODUCE A FORMER EMPLOYEE FOR DEPOSITION BY DEFENDANT WARRANTED PRECLUDING PLAINTIFF FROM PRESENTING TESTIMONY BY THE FORMER EMPLOYEE PURSUANT TO CPLR 3126, HOWEVER PRECLUSION OF SECONDARY AND HEARSAY EVIDENCE RELATING TO THE FORMER EMPLOYEE, WHICH WOULD PRECLUDE PLAINTIFF FROM ASSERTING ITS CLAIM, WAS AN ABUSE OF DISCRETION (FOURTH DEPT).

The Fourth Department determined Supreme Court properly found that plaintiff corporation did not make sufficient efforts to produce a former employer to be deposed by defendant in this breach of contract action, and therefore properly precluded plaintiff from presenting the former employee’s testimony. However, the Fourth Department held that Supreme Court abused its discretion when it precluded any secondary or hearsay evidence related to the former employee, which would preclude plaintiff from asserting its claim:

Generally, where there is no evidence that a corporation exercises control over a former employee, that corporation cannot be held responsible for the former employee’s refusal to appear for a deposition … . Here, however, the firm representing plaintiff undertook the representation of that former employee, implicitly conceding control over the former employee … . When the court ordered plaintiff’s attorney to make every reasonable effort to secure the former employee’s appearance for a deposition, plaintiff’s attorney merely sent a letter notifying the former employee that the attorney was supposed to make additional efforts to secure her presence. There is no evidence that any actual efforts to secure her appearance were made. We thus agree with the court that plaintiff should be precluded from presenting testimony from the former employee.

We conclude, however, that the court abused its discretion in precluding plaintiff from relying on any secondary or hearsay evidence related to the former employee. There was no order compelling the production of such evidence that plaintiff was alleged to have violated, and the court did not find a willful failure to disclose such evidence. Hypercel Corp. v Stampede Presentation Prods., Inc., 2018 NY Slip Op 00936, Fourth Dept 2-9-18

CIVIL PROCEDURE (EVIDENCE, PLAINTIFF’S FAILURE TO MAKE A REASONABLE EFFORT TO PRODUCE A FORMER EMPLOYEE FOR DEPOSITION BY DEFENDANT WARRANTED PRECLUDING PLAINTIFF FROM PRESENTING TESTIMONY BY THE FORMER EMPLOYEE, HOWEVER PRECLUSION OF SECONDARY AND HEARSAY EVIDENCE RELATING TO THE FORMER EMPLOYEE, WHICH WOULD PRECLUDE PLAINTIFF FROM ASSERTING ITS CLAIM, WAS AN ABUSE OF DISCRETION (FOURTH DEPT))/EVIDENCE (CIVIL PROCEDURE, PLAINTIFF’S FAILURE TO MAKE A REASONABLE EFFORT TO PRODUCE A FORMER EMPLOYEE FOR DEPOSITION BY DEFENDANT WARRANTED PRECLUDING PLAINTIFF FROM PRESENTING TESTIMONY BY THE FORMER EMPLOYEE, HOWEVER PRECLUSION OF SECONDARY AND HEARSAY EVIDENCE RELATING TO THE FORMER EMPLOYEE, WHICH WOULD PRECLUDE PLAINTIFF FROM ASSERTING ITS CLAIM, WAS AN ABUSE OF DISCRETION (FOURTH DEPT))/CPLR 3126 EVIDENCE, PLAINTIFF’S FAILURE TO MAKE A REASONABLE EFFORT TO PRODUCE A FORMER EMPLOYEE FOR DEPOSITION BY DEFENDANT WARRANTED PRECLUDING PLAINTIFF FROM PRESENTING TESTIMONY BY THE FORMER EMPLOYEE, HOWEVER PRECLUSION OF SECONDARY AND HEARSAY EVIDENCE RELATING TO THE FORMER EMPLOYEE, WHICH WOULD PRECLUDE PLAINTIFF FROM ASSERTING ITS CLAIM, WAS AN ABUSE OF DISCRETION (FOURTH DEPT))/CORPORATION LAW (CIVIL PROCEDURE, EVIDENCE, PLAINTIFF’S FAILURE TO MAKE A REASONABLE EFFORT TO PRODUCE A FORMER EMPLOYEE FOR DEPOSITION BY DEFENDANT WARRANTED PRECLUDING PLAINTIFF FROM PRESENTING TESTIMONY BY THE FORMER EMPLOYEE, HOWEVER PRECLUSION OF SECONDARY AND HEARSAY EVIDENCE RELATING TO THE FORMER EMPLOYEE, WHICH WOULD PRECLUDE PLAINTIFF FROM ASSERTING ITS CLAIM, WAS AN ABUSE OF DISCRETION (FOURTH DEPT))

February 9, 2018

Civil Procedure, Corporation Law, Debtor-Creditor

PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, in an extensive full-fledged opinion by Justice Friedman, reversing Supreme Court, determined New York courts did not have jurisdiction to enforce an Albanian judgment. The opinion is too detailed to fairly summarize here. The court explained the criteria for the enforcement of foreign money judgments under article 53 of the CPLR (Uniform Foreign Money-Judgments Recognition Act), and the applicability of Daimler AG v Bauman, 571 US ___, 134 S Ct 746 (2014) and Abu Dhabi Commercial Bank PJSC v Saad Trading, Contr. & Fin. Servs. Co.m 117 AD3d 609 (1st Dept 2014) to a CPLR article 53 proceeding. The plaintiff did not claim it had any basis for in personam or in rem jurisdiction in New York and relied upon the Abu Dhabi case for the argument such a jurisdictional demonstration was not required:

To go beyond Abu Dhabi and hold, as [plaintiff] urges, that no jurisdictional nexus is ever required for a proceeding under article 53, even if the defendant asserts substantive defenses to recognition of the foreign judgment, would be a substantial departure from the prior general understanding of the law. For example, the Restatement (Third) of Foreign Relations Law takes the position that the creditor on a foreign country judgment “must establish a basis for the exercise of jurisdiction by the enforcing court over the judgment debtor or his property” (§ 481, Comment g). AlbaniaBEG Ambient Sh.p.k. v Enel S.p.A., 2018 NY Slip Op 00928, First Dept 2-8-18

CIVIL PROCEDURE (FOREIGN MONEY JUDGMENTS, PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/DEBTOR-CREDITOR (FOREIGN MONEY JUDGMENTS, PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/CORPORATION LAW (FOREIGN MONEY JUDGMENTS, PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/FOREIGN MONEY JUDGMENTS (PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/JURISDICTION (CIVIL PROCEDURE, FOREIGN MONEY JUDGMENTS, PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/CPLR ARTICLE 53 (FOREIGN MONEY JUDGMENTS, PLAINTIFF DID NOT DEMONSTRATE ANY BASIS FOR IN PERSONAM OR IN REM JURISDICTION BY THE NEW YORK COURTS, PROCEEDING TO ENFORCE AN ALBANIAN MONEY JUDGMENT PURSUANT TO ARTICLE 53 OF THE CPLR SHOULD HAVE BEEN DISMISSED (FIRST DEPT))

February 8, 2018