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Plaintiff Did Not Adequately Allege a Presuit Demand Would Be Futile

The First Department, noting that the presuit demand required by Business Corporation Law 626(c) applies to Limited Liability Companies, determined that plaintiff failed to adequately allege the presuit demand was excused as futile. The court noted that Business Corporation Law 625(c) does not differentiate between majority and minority shareholders and a corporation’s refusal to provide information is not on the list of circumstances where a demand is excused:

Pursuant to Business Corporation Law § 626(c), a plaintiff shareholder must “set forth in the complaint – with particularity – an attempt to secure the initiation of such action by the board or the reasons for not making such effort” … . Demand is excused due to futility when a complaint alleges with particularity that: (1) “a majority of the board of directors is interested in the challenged transaction”; or (2) “the board of directors did not fully inform themselves about the challenged transaction to the extent reasonably appropriate under the circumstances”; or (3) “the challenged transaction was so egregious on its face that it could not have been the product of sound business judgment of the directors” … . The demand requirement of Business Corporation Law § 626(c) also applies to members of New York limited liability companies … .

The complaint alleges only that since Sowers owns 80% of the LLC, it would be futile for plaintiff to make a demand upon him to consent to the filing of an action on the LLC’s behalf. However, this Court has made clear that Business Corporation Law § 626(c) “does not differentiate between minority and majority shareholders for demand purposes” … . We note that Sowers’ alleged concealment of financial information does not warrant a finding that demand was futile, since “[a] corporation’s refusal to provide information to its shareholders is not on the [] list of circumstances where demand is excused” … , Barone v Sowers, 2015 NY Slip Op 04195, 1st Dept, 5-14-15

 

Inability to Remember Fall and Absence of Witnesses Did Not Preclude Summary Judgment on Labor Law 240(1) Cause of Action

The First Department determined the plaintiff’s inability to remember his fall from a scaffold and the absence of witnesses did not preclude summary judgment in his favor for the Labor Law 240(1) cause of action:

Plaintiff established his entitlement to judgment as a matter of law on the issue of liability in this action where he sustained injuries when, while performing asbestos removal work in a building owned by defendant, he fell from a baker’s scaffold. Plaintiff’s testimony that he was standing on the scaffold working, and then woke up on the ground with the scaffold tipped over near him, established a prima facie violation of the statute and that such violation proximately caused his injuries … . That plaintiff could not remember how he fell does not bar summary judgment … . Nor does the fact that he was the only witness raise an issue as to his credibility where, as here, his proof was not inconsistent or contradictory as to how the accident occurred, or with any other evidence … . Strojek v 33 E. 70th St. Corp., 2015 NY Slip Op 04203, 1st Dept 5-14-15

 

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“Bankruptcy” Exclusion in a Political Risk Insurance Policy Applied—Insurer Not Obligated to Cover Loss Occasioned by Bankruptcy Proceedings in Mexico

The First Department, in a full-fledged opinion by Justice Gonzalez, determined that the “bankruptcy” exclusion in a Political Risk Insurance Policy applied to court proceedings in Mexico and the insurer was therefore entitled to disclaim coverage for the related loss to plaintiff.  The core issue was the meaning of “bankruptcy.”  The plaintiff argued the term referred to a final adjudication of bankruptcy. But the court held the definition was much broader, and included the ongoing court proceedings in Mexico.  The fact that the plaintiff and defendant disagreed about the definition of “bankruptcy” did not render the policy-contract ambiguous.  Applying the plaintiff’s narrow definition would have rendered other provisions of the policy-contract superfluous:

We agree with defendant that plaintiff’s definition of bankruptcy (a final judgment of reorganization or liquidation) is overly narrow. Bankruptcy is generally understood to include being under the judicial protection of a bankruptcy court – or, according to dictionary definition – “a statutory procedure by which a (usu[ally] insolvent) debtor obtains financial relief and undergoes a judicially supervised reorganization or liquidation. . . for the benefit of creditors” (Black’s Law Dictionary 175 [10th ed 2014]; see Compact Oxford English Dictionary 934-935 [2d ed 1999][same]).

Plaintiff contends that since the parties have conflicting interpretations of the term “bankruptcy,” the policy must be ambiguous on this point, and points out that settled principles of interpretation of insurance contracts require resolution of any ambiguity in favor of the insured … . However, “provisions in a contract are not ambiguous merely because the parties interpret them differently” … . Here, common understanding supports interpreting the term bankruptcy as the court proceeding in which the debtor is afforded judicial protection while it reorganizes or liquidates.

Further, settled law requires that the terms of a contract be read in context … . Plaintiff’s definition of bankruptcy, i.e. the state of having been declared bankrupt, would render the accompanying alternatives in Section 4.12 of the policy (insolvency and financial default) superfluous. The redundancy can be eliminated only by accepting defendant’s definition, an interpretation that gives meaning to every “sentence, clause, and word of [the] contract of insurance” … . CT Inv. Mgt. Co., LLC v Chartis Specialty Ins. Co., 2015 NY Slip Op 04051, 1st Dept 5-12-15

 

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Defendant Entitled to Suppression Hearing Where People Provided No Information About How Defendant Came to the Attention of Law Enforcement Personnel

The First Department determined the defendant’s motion papers, although conclusory, were sufficient to warrant a hearing on whether defendant’s statements should be suppressed.  The People had provided no information about how the defendant came to the attention of law enforcement:

Although the People provided defendant with extensive information about the facts of the crime and the proof to be offered at trial, they provided no information whatsoever, at any stage of the proceedings, about how defendant came to be a suspect, and the basis for her arrest, made hours after the crime at a different location. The People never explained, even by implication, whether defendant met a description, was named by a witness familiar with her, or was connected to the crime in some other way. While the People disclosed defendant’s detailed confession, it did not shed any light on how she came to be arrested … .

Accordingly, given defendant’s complete lack of relevant information, that portion of her motion papers alleging a “lack of probable cause to arrest the defendant based on the unreliability of the information provided to the police and/or the insufficiency of the description,” while conclusory, was sufficient to state a basis for suppression and raise a factual issue requiring a hearing … . People v Wynn, 2014 NY Slip Op 03352, 1st Dept 5-8-14

 

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Fraud Cause of Action Against Merrill Lynch Re: Credit Default Obligations Sufficiently Pled/Disclaimers and Disclosures Did Not Preclude Claim of Fraud

The First Department determined a cause of action for fraud against Merrill Lynch had been sufficiently pled.  The underlying agreement related to credit default obligations (CDO’s).  The court noted that an unjust enrichment cause of action is not viable when the lawsuit is based on a written agreement:

…[The] factual allegations provide sufficient details to inform the …defendants … of the alleged fraudulent conduct, namely that the CDO was secretly designed by an undisclosed hedge fund, Magnetar, which was secretly placing massive short bets against the very same deals it was sponsoring. Defendants, however, argue that plaintiff cannot establish the element of reasonable reliance (an element of both affirmative misrepresentation and concealment) as a result of the disclosures and disclaimers for the Auriga CDO. We cannot agree.

The offering circular states, “All or most of the Collateral Debt Securities Acquired by the Issuer . . . will be Acquired from a portfolio of Collateral Debt Securities selected by the Collateral Manager . . . .” If Magnetar rather than 250 Capital was doing the selecting, the statement in the offering circular was misleading. The identity of the person selecting the collateral was material: The offering circular says, “The performance of the portfolio of Collateral Debt Securities depends heavily on the skills of the Collateral Manager in analyzing and selecting the Collateral Debt Securities.” * * *

Under the circumstances, it cannot be said that the disclaimers and disclosures in the offering circulars preclude a claim of fraud on the ground of a prior misrepresentation as to the specific matter, namely that the CDO’s collateral had been carefully selected by an independent collateral manager, in the interests of the success of the deal and for the benefit of Auriga’s long investors. Loreley Fin (Jersey) No 38 Ltd v Merrill Lynch …, 2014 NY Slip Op 03326, 1st Dept 5-8-14

Similar issues and result re: Citigroup in a full-fledged opinion by Justice Renwick.  Loreley Fin (Jersey) No 3 Ltd v Citigroup Global Mkts Inc, 2014 NY Slip Op 03358, 1st Dept 5-8-14

 

Tenant’s Common Law Duty to Keep Sidewalk on the Premises Safe Applies Even Though Another Party Agreed to Maintain the Sidewalk in Its Lease

The First Department noted that a tenant has a common law duty to keep a sidewalk on the leased premises safe, even if another party is obligated to maintain the sidewalk in its lease. Plaintiff slipped and fell on ice on the sidewalk:

It is well established that a tenant owes a common-law duty of reasonable care to maintain the demised premises in a reasonably safe condition, independent of any obligation that might be imposed by the existence of a lease … . The fact that nonparty C.L.B. #6 Inc. (CLB#6) was required to maintain the sidewalk under its lease with the landlord is irrelevant to CLB’s common-law duty to maintain the demised premises … . Additionally, whether a gas station was also a tenant of the premises is also irrelevant to CLB’s duty … . Because CLB never produced the lease between itself and CLB#6, which might reflect whether the subject sidewalk was part of the demised premises, it failed to establish prima facie that it owed no duty to maintain the subject sidewalk … . Williams v Esor Realty Co, 2014 NY Slip Op 03343, 1st Dept 5-8-14

 

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Plaintiff’s Age-Discrimination Lawsuit Properly Survived Summary Judgment

The First Department, over an extensive dissent, determined defendant’s motion for summary judgment in an age-discrimination suit was properly denied. Plaintiff alleged she was terminated because of her age and was able to raise a question of fact about whether the reasons for termination proffered by the defendant were pretextual. The core of plaintiff’s allegations were remarks made by the person who replaced plaintiff as executive director of defendant-club—remarks noting plaintiff looked “tired” and perhaps needed to “rest” or questions whether plaintiff was “up for” meetings or whether a meeting might be “too much for” her:

…[W]e find that when plaintiff’s testimony is credited for purposes of this motion, these remarks directly reflect age-based discriminatory bias  …, and raise an inference of age-related bias sufficient to make out plaintiff’s prima facie case of employment discrimination … . In concluding that no inference of discriminatory motive can be drawn from this evidence, the dissent fails to abide by the precept that “all of the evidence must be viewed in the light most favorable to the party opposing the motion, and all reasonable inferences must be resolved in that party’s favor” … .

Plaintiff has … met her burden of showing pretext by “respond[ing] with some evidence that at least one of the reasons proffered by defendant is false, misleading, or incomplete” … . Rollins v Fencers Club, Inc., 2015 NY Slip Op 03769, 1st Dept 5-7-15

 

NEGLIGENCE Plaintiff’s Inability to Identify the Precise Sidewalk Defect Which Caused Her Fall (In a Photograph) Did Not Warrant Summary Judgment to the Defendant—Plaintiff Testified She Tripped on a Bump in the Sidewalk

The First Department determined that plaintiff’s inability to identify the precise sidewalk defect over which she tripped did not warrant granting summary judgment to the defendant. Plaintiff testified her foot struck a bump in the sidewalk but she was unable to identify the defect in a photograph of the sidewalk. Under the circumstances the plaintiff was not required to identify the particular defect which caused her fall in order to avoid summary judgment. She was able to demonstrate a “nexus” between a defect and her fall:

At her deposition, plaintiff testified that she fell because her foot hit a bump in the sidewalk. Defendants moved for summary judgment on the ground that plaintiff’s inability to identify the bump or defect in photographs shown to her at her deposition prevented her from being able to prove that her accident was proximately caused by a sidewalk defect for which they were responsible … . Under the circumstances, plaintiff’s testimony was sufficient to demonstrate a causal “nexus” between a defect in the sidewalk in front of [defendant’s] property and her fall, and she was not required to prove “precisely which particular” defect in the sidewalk caused her to fall in order to avoid summary judgment … . Kovach v PJA, LLC, 2015 NY Slip Op 03931, 1st Dept 5-7-15

 

Court Should Not Have Instructed the Jury on the Initial Aggressor Exception to the Justification Defense—No Evidence to Support the Exception

The First Department, over a dissent, determined the trial court should not have instructed the jury that the justification defense would not apply if the jury determined defendant was the initial aggressor.  The victim was swinging a mop handle, while the defendant used a gun. The majority held that there were no facts in the record from which it could be inferred the defendant was the initial aggressor: “In charging the jury on the justification defense, the court erred when, over defendant’s objection, it included the initial aggressor exception to the defense embodied in Penal Law § 35.15(1)(b). This concept, that defendant would not have been justified in using deadly physical force if he was the initial aggressor, was completely inapplicable to the facts of the case. Although the jury could have reasonably determined that defendant’s use of deadly force was unjustified (where defendant used a gun against the deceased, who wielded a mop handle), it could not have reasonably found that defendant was the initial aggressor because the evidence does not support such a conclusion. There was no evidence that defendant was the first person in the fatal encounter to use or threaten the imminent use of deadly force, or any kind of force, for that matter. On the contrary, the evidence tended to indicate either that it was the deceased who first used force, by swinging a mop handle at defendant, or that defendant and the deceased used or threatened force simultaneously.” People v Valentin, 2015 NY Slip Op 03914, 1st Dept 5-7-15

 

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Once an Amended Complaint is Served the Action Must Proceed As if the Original Complaint Never Existed—A Summary Judgment Motion Based Upon an Affirmative Defense Asserted for the First Time in the Answer to the Amended Complaint Was Properly Brought, Even Though a Prior Summary Judgment Motion on the Same Ground Had Been Denied/Medical Billing Software, i.e., Intellectual Property, Is “Personal Property” Covered by General Obligations Law 5-903—The Automatic Renewal Provision of the Medical Billing Contract Was Therefore Void

The First Department, in a full-fledged opinion by Justice Gische, determined that an amended complaint supersedes the original complaint and an affirmative defense asserted in the answer to the amended complaint could be the basis of a summary judgment motion, even though the same ground was asserted in a prior, unsuccessful summary judgment motion. The substantive issue was whether billing software licensed to a doctor was “service … to or for … personal property” within the meaning of General Obligations Law 5-903 (2).  The court determined the billing software was covered by the General Obligations Law and, therefore, the automatic renewal provision in the contract between the software company and the doctor could not be enforced.  The “General Obligations Law” affirmative defense was not asserted in the original answer and a summary judgment motion based on the unpled affirmative defense had previously been denied:

We find that the second summary judgment motion, brought after the pleadings were amended on a substantive issue not previously decided by the court, was procedurally proper. “Once plaintiff served the amended complaint, the original complaint was superseded, and the amended complaint became the only complaint in the action. The action was then required to proceed as though the original pleading had never been served” … . Thus, defendant’s appeal from the prior order denying summary judgment became moot …, and “sufficient cause . . . exist[ed]” for his motion for summary judgment dismissing the amended complaint … . …

General Obligations Law § 5-903 does not define “personal property,” although it broadly defines “person” as “an individual, firm, company, partnership or corporation” and also states that its restrictions apply unless “the person receiving the service” is served with advanced notice calling its attention to the renewal clause in the contract (General Obligations Law § 5-903[2]). The statute does not require that the person own the “personal property” being serviced, and section 5-903 has been analyzed by courts in a variety of circumstances to determine its applicability. Personal property has been interpreted to include intellectual property as well as tangible personal property … . The purpose of the notice provision is to protect service recipients from the harm of unintended automatic renewals of contracts for consecutive periods … . Since § 5-903 is remedial in nature it is construed broadly … .

We find that the parties’ agreement was “for service . . . to or for . . . personal property” within the meaning of the General Obligations Law. The services provided were directly and inextricably related to the billing and medical records of the practice, which are personal property. Healthcare IQ LLC v Tsai Chung Chao, 2014 NY Slip Op 03216, 1st Dept 5-6-14

 

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