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Twenty-Day Time-Limit for Making an Application to Stay Arbitration Starts When the Notice or Demand for Arbitration Is Received, Not When It Is Mailed/An Application for a Stay of Arbitration Is “Made” When It Is Filed/Appellate Court May Consider a Purely Legal Issue Raised for the First Time on Appeal

The First Department determined the twenty-day time-limit for an application to stay arbitration, when the notice or demand for arbitration is sent by mail, runs from the date the notice or demand is actually received.  The court further noted that it can rule on a purely legal question raised for the first time on appeal:

Even though CPLR 7503(c) says, “An application to stay arbitration must be made by the party served [with a notice or demand for arbitration] within twenty days after service upon him of the notice or demand” (emphasis added), case law establishes that, when the notice or demand is mailed — as it was in the case at bar — “[t]he notice to arbitrate does not start the time to respond until receipt”… . * * *

The issue of whether an application to stay arbitration is “made” (CPLR 7503[c]) when the petition is filed, as opposed to when it is served, is a purely legal one; hence, it “may properly be considered by this Court for the first time on appeal” … . In fact, an application is made when the petition is filed … . Matter of Travelers Prop Cas Co of Am v Archibald, 2015 NY Slip Op 00465, 1st Dept 1-20-15

 

Plaintiff Not Entitled to Disqualification of a Defendant’s Law Firm—Relevant Communication Did Not Have the Potential to Be Significantly Harmful to Plaintiff—Information Was Generally Known

The First Department, in a full-fledged opinion by Justice Saxe, reversed Supreme Court finding that a communication between plaintiff and an attorney in a law firm representing a defendant did not require disqualification of the firm.  The contents of the communication did not have the potential to be significantly harmful to plaintiff because the relevant information was generally known:

A movant seeking disqualification of an opponent’s counsel bears a heavy burden … . A party has a right to be represented by counsel of its choice, and any restrictions on that right “must be carefully scrutinized” … . This right is to be balanced against a potential client’s right to have confidential disclosures made to a prospective attorney subject to the protections afforded by an attorney’s fiduciary obligation to keep confidential information secret (see New York Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.18…). Courts should also examine whether a motion to disqualify, made during ongoing litigation, is made for tactical purposes, such as to delay litigation and deprive an opponent of quality representation … . The decision of whether to grant a motion to disqualify rests in the discretion of the motion court … .

Issues relating to the prospective client relationship based on events that occurred after April 2009 are governed by Rule 1.18 of the Rules of Professional Conduct (22 NYCRR 1200.0), rather than the repealed DR 5-108 (22 NYCRR 1200.27). …

The former Code of Professional Responsibility did not have a specific rule that governed disclosures during a prospective client consultation. Rule 1.18 of the Rules of Professional Conduct fills that void. It provides:

“(a) A person who discusses with a lawyer the possibility of forming a client-lawyer relationship with respect to a matter is a prospective client.’

“(b) Even when no client-lawyer relationship ensues, a lawyer who has had discussions with a prospective client shall not use or reveal information learned in the consultation, except as Rule 1.9 would permit with respect to information of a former client.

“(c) A lawyer subject to paragraph (b) shall not represent a client with interests materially adverse to those of a prospective client in the same or substantially related matter if the lawyer received information from the prospective client that could be significantly harmful to that person in the matter, except as provided in paragraph (d). If a lawyer is disqualified from representation under this paragraph, no lawyer in a firm with which that lawyer is associated may knowingly undertake or continue representation in such a matter, except as provided in paragraph (d)” … .

Thus, where a prospective client consults an attorney who ultimately represents a party adverse to the prospective client in matters that are substantially related to the consultation, the prospective client is entitled to obtain the attorney’s disqualification only if it is shown that the information related in the consultation “could be significantly harmful” to him or her in the same or substantially related matter (…Rule 1.18[c]).  Mayers v Stone Castle Partners LLC, 2015 NY Slip Op 00295, 1st Dept 1-8-15

 

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“Findings” of Wrong-Doing in Bear Stearns’ Settlement Agreements with the Securities and Exchange Commission and the New York Stock Exchange Did Not Constitute an “Adjudication” of Wrong-Doing Which Would Support the Insurer’s Affirmative Defense Based Upon the “Dishonest Acts Exclusion” in the Professional Liability Insurance Policy—However, the Insurer’s Affirmative Defense Based Upon the Public Policy Precluding Coverage for Intentional Harm to Others Should Not Have Been Dismissed

The First Department, in a full-fledged opinion by Justice Mazzarelli, determined that the “dishonest acts exclusion” in the professional liability insurance policy issued by the defendant to the plaintiff (Bear Stearns) could not be used as an affirmative defense in Bear Stearns’ action seeking coverage for settlements paid by Bear Stearns.  Bear Stearns had entered settlement agreements with the Securities & Exchange Commission (SEC) and the New York Stock Exchange (NYSE) in which “findings” of misconduct were made.  The question before the First Department was whether those “findings” constituted an “adjudication” of wrong-doing such that the “dishonest acts exclusion” prohibited recovery from the insurer.  The First Department held that the “findings” did not constitute an adjudciation and the affirmative defense based on the “dishonest acts exclusion” was properly dismissed.  However, the First Department further found the affirmative defense based upon public policy (precluding coverage for monies paid by the insured as a result of intentional harm to others) should not have been dismissed:

Here, the issue is the applicability of the Dishonest Acts Exclusion, so defendants bear the specific burden of demonstrating that a settlement constitutes an “adjudication” for purposes of the exclusion.

In arguing that the term “adjudication” means any resolution of a dispute that has specific consequences for a party, defendants virtually ignore the part of the Dishonest Acts Exclusion that requires that any adjudication “establish that such Insured(s) were guilty of any deliberate, dishonest, fraudulent or criminal act or omission” (emphasis added). Defendants quote the dictionary definition of “adjudication,” but fail to note that “establish” is defined, in this context, as “to put beyond doubt” (Merriam—Webster’s Collegiate Dictionary [11th ed 2003]). It can hardly be said that the SEC Order and the NYSE Stipulation put Bear Stearns’s guilt “beyond doubt,” when those very same documents expressly provided that Bear Stearns did not admit guilt, and reserved the right to profess its innocence in unrelated proceedings. Again, in interpreting the policy we are guided by reason, and defendants’ position that the settlement documents “establish” guilt is not reasonable. * * *

Because the Dishonest Acts Exclusion does not apply, the motion court properly dismissed defendants’ affirmative defense based on that exclusion. However, the court should not have dismissed the affirmative defense invoking the public policy against permitting insurance coverage for disgorgement, to the extent it is based on the settlements with the SEC and the NYSE. Bear Stearns argues that the absence of an adjudication of wrongdoing within the meaning of the Dishonest Acts Exclusion bars defendants from relying on the “findings” in the settlement orders for purposes of the public policy doctrine. Again, however, as the Court of Appeals stated in the prior appeal, one of the two situations in which the contractual language of a policy may be overwritten is where an insured engages in conduct “with the intent to cause injury” … . JP Morgan Sec Inc v Vigilant Ins Co, 2015 NY Slip Op 00462, 1st Dept 1-15-15

 

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Where Plaintiff Was “Demoted” In Violation of an Employment Agreement, the Restrictive Covenants in the Agreement Are No Longer Enforceable

The First Department determined the restrictive covenants agreed to by the plaintiff in conjunction with the job he was hired to do did not apply to the job, with diminished responsibility, he was subsequently assigned (in violation of the employment contract):

The significant change in plaintiff’s duties constituted a material breach of his employment agreement … . * * *

The record demonstrates that defendants did not have a legitimate interest in restricting plaintiff from working for a competitor once he was in his demoted position … . Although the employment agreement acknowledged the uniqueness of plaintiff’s services, that acknowledgment was made in connection with plaintiff’s acceptance of a position he no longer held at the time of his resignation. Further, the record is devoid of evidence that plaintiff possessed any trade secrets or confidential customer lists … . Thus, insofar as the restrictive covenants contained in the employment and option agreements prohibited plaintiff from competing …, they are unenforceable. Fewer v GFI Group Inc, 2015 NY Slip Op 00440, 1st Dept, 1-15-15

 

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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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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Tenant Entitled to Attorney’s Fees After Successfully Defending Landlord’s Holdover Action—Discretion to Deny Attorney’s Fees Should Be Used Sparingly Because of the Purpose of the Controlling Statute

The First Department reversed the Appellate Term finding that a tenant who successfully defended a holdover action brought by the landlord was entitled to attorney’s fees. After several lease renewals at a “preferential” rate, the landlord required that a renewal be at the “legal” rate (several thousand dollars higher than the preferential rate) and started a holdover proceeding when the tenant refused to pay the “legal” rate.  Appellate Term decided the tenant was not entitled to attorney’s fees because the landlord had a “colorable claim” that it was entitled to charge the “legal” rate.  The First Department explained that whether the landlord had a “colorable claim” was not the correct standard to apply:

Under Real Property Law § 234, when a residential lease provides for a landlord’s recovery of attorneys’ fees resulting from a tenant’s failure to perform a lease covenant, a reciprocal covenant is implied requiring the landlord to pay the tenant’s attorneys’ fees incurred as a result of, inter alia, the tenant’s successful defense of an action or summary proceeding commenced by the landlord arising out of the lease … . To support an award of attorneys’ fees, the tenant must be the prevailing party, that is, the result must be substantially favorable to the tenant … .

Here, the terms of the parties’ lease plainly triggers the reciprocal covenant mandated by Real Property Law § 234, and the tenant is entitled to recover the attorneys’ fees incurred in his successful defense of the holdover proceeding. Contrary to the landlord’s assertion, the tenant was the prevailing party regardless of whether the holdover proceeding was formally dismissed, since a tenant is entitled to recover fees “when the ultimate outcome is in his favor, whether or not such outcome is on the merits” … .

Despite the tenant’s status as the prevailing party, the Appellate Term nevertheless denied the fee request because, in its view, the landlord’s possessory claim was “of colorable merit” … . This was an improper standard. “The overriding purpose of [Real Property Law § 234] is to provide a level playing field between landlords and tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense” … . Because it is a remedial statute, Real Property Law § 234 “should be accorded its broadest protective meaning consistent with legislative intent” … . The Appellate Term’s conclusion that a tenant’s claim to reciprocal attorneys’ fees can be denied whenever a landlord asserts a colorable claim undermines the salutary purpose of Real Property Law § 234. A “colorable claim” standard would result in the gutting of the protections afforded by the statute because it would allow courts to deny fees whenever the landlord can make a nonfrivolous legal argument in support of its position.

Although courts have some discretion to deny attorneys’ fees sought under Real Property Law § 234, such discretion should be exercised sparingly … . Thus, a request for attorneys’ fees should be denied only where a fee award would be manifestly unfair or where the successful party engaged in bad faith … .

Here, the landlord has made no showing of any bad faith on the tenant’s part. Matter of 251 CPW Hous LLC v Pastreich, 2015 NY Slip Op 00208, 1st Dept 1-6-15

 

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Once the Jury Found Defendant’s Negligence Was Not a Substantial Factor in Causing Plaintiff’s Injuries, the Jury Should Not Have Continued to Deliberate, Make Findings of Comparative Negligence and Apportion Damages—Jury’s Continued Deliberations Were Superfluous—New Trial Not Necessary

The First Department determined a new trial was not necessary where the jury went on to assess comparative fault and damages after finding defendant's negligence was not a substantial factor in causing the plaintiff's injuries.  The jury should have stopped deliberating at that point:

The verdict sheet in this personal injury action instructed the jurors to determine (1) whether defendant was negligent, and (2) if so, whether defendant's negligence was a substantial factor in causing plaintiff's injuries. The jurors found that defendant was negligent, but that his negligence was not a substantial factor in causing plaintiff's injury. The verdict sheet instructed that if the jurors answered the second question in the negative, they should cease deliberations and report their verdict. The jurors, however, continued deliberating and determined that plaintiff was also negligent; that plaintiff's negligence was a substantial factor in causing his own injury; that plaintiff was 95% at fault, and defendant was 5% at fault; and that plaintiff was entitled to $200,000 in damages.

This case is controlled by Pavlou v City of New York (21 AD3d 74 [1st Dept 2005], affd 8 NY3d 961 [2007]), a Labor Law case in which the plaintiff was injured due to a damaged crane hoist. In Pavlou, the jurors determined that the City (the owner of the construction site) was negligent under the Industrial Code, but that its negligence was not a substantial factor in causing the plaintiff's injury. The jury also found that the crane manufacturer was not negligent (id. at 75). The verdict sheet instructed that upon making these findings, the jurors were to stop deliberations. The Pavlou jury, however, went on to find the third-party defendant-employer negligent for operating a damaged crane; the jury then apportioned the employer's degree of fault and fixed the amount of damages (id. at 81). This Court held that the plaintiff was not entitled to a new trial as against the City, stating, “[T]he jury should not have apportioned [the employer's] liability . . . or fixed the amount of damages, once it determined that the violation of the Industrial Code was not a proximate cause and that the crane manufacturer was not negligent. The fact that the jury attempted such an award was a superfluous act that does not require a new trial” (id. at 76). The Court of Appeals affirmed (8 NY3d 961 [2007]).

The same reasoning as in Pavlou applies here. Once the jurors determined that defendant's negligence was not a substantial factor or proximate cause (see PJI 2:70, Proximate Cause — In General; see also PJI 2:36) of plaintiff's injuries, they should not have attempted to assess plaintiff's own negligence and to fix damages. That they did so was a superfluous act that [*2]does not require a new trial. Alcantara v Knight, 2014 NY Slip OP 09030, 1st Dept 12-30-14


Unsworn Juror Properly Dismissed Based Upon the “Two-Hour-Trial-Delay” Rule

The First Department determined the dismissal of a juror based on transportation problems which would delay the trial more than two hours was proper.  Apparently none of the jurors had been sworn at the time of the dismissal. Because the standards for dismissing a juror are higher for sworn, as opposed to unsworn, jurors, the fact that the juror was unsworn was of no consequence:

…[D]efendant had no objection to a delay in swearing the jurors after the completion of jury selection, and thus effectively “agreed to create a category of jurors, i.e., selected but unsworn jurors, about which the Criminal Procedure Law is silent as to criteria for discharge” … . The record reveals that the court merely used CPL 270.35 as a guideline in deciding whether to delay the trial by waiting for the juror. In any event, “[t]he power to excuse an unsworn juror is much broader than the statutorily limited power to discharge a sworn juror . . . .” … . Therefore, if the criteria set forth in CPL 270.35 for the dismissal of a sworn juror have been met, then, a fortiori, the same considerations would warrant dismissal of a selected but unsworn juror … .

“The Court of Appeals has held that the two-hour rule' gives the court broad discretion to discharge any juror whom it determines is not likely to appear within two hours” … . Using the two-hour rule as a guideline, it is clear that the court providently exercised its discretion in replacing the juror with an alternate … . People v Sanchez, 2014 NY Slip Op 09031, 1st Dept 12-30-14


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Survey Without Surveyor’s Affidavit Insufficient to Support Plaintiff’s Summary Judgment Motion/Inadmissible Evidence (Survey) May Be Considered to Defeat Defendant’s Summary Judgment Motion/Nuisance Cause of Action Dismissed Because Duplicative of Negligence Cause of Action

In an action stemming from the collapse of a retaining wall between the plaintiff’s and defendant’s properties, the First Department noted that a survey map without an affidavit from the surveyor is insufficient to support plaintiff’s motion for summary judgment, but was sufficient to support the denial of defendant’s motion for summary judgment.  The court also noted that where negligence and nuisance causes of action are duplicative, the nuisance action should be dismissed:

… [A] survey alone, without an accompanying affidavit from the surveyor, does not constitute competent evidence of the location of property lines and fences or retaining walls … . Plaintiff has therefore failed to tender sufficient evidence to demonstrate entitlement to a declaratory judgment on its claim brought pursuant to Administrative Code of City of NY § 28-305.1.1.

Defendant met its prima facie burden as cross movant by submission of the affidavit of a land surveyor who inspected and measured the property subsequent to the collapse of the retaining wall in June 2013, and concluded that no portion of the wall had been upon defendant’s property. That plaintiff’s two surveys indicate that the wall was “on [the] line” of both properties, is sufficient, however, to raise a question as to the location of the wall relative to the two properties; we have long held that otherwise inadmissible evidence may be considered to defeat an application for summary judgment … .

… [W]e find that the claim of negligence is expressed throughout plaintiff’s papers, and there is a question of fact as to whether defendant owed a duty of care to plaintiff, if the retaining wall is found to rest on both parties’ premises. The claim of nuisance, based on allegations that defendant’s ongoing refusal to participate in the repairs and maintenance of the retaining wall substantially interferes with plaintiff’s ability to use and enjoy its property, arises solely from plaintiff’s claim of negligence. Where nuisance and negligence elements are “so intertwined as to be practically inseparable,” a plaintiff may recover only once for the harm suffered … . Upon a search of the record, we conclude that the third cause of action, nuisance, should be dismissed as duplicative of the negligence cause of action, although this argument was not previously made or considered … . 70 Pinehurst Avenue LLC v RPN Mgt Co Inc, 2014 NY Slip Op 09029, 1st Dept 12-30-14

 

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