JHO Vacates Own Report For Exceeding Her Mandate

On August 13, 2014, the Second Department issued a decision in GMS Batching, Inc. v. TADCO Construction Corp., 2014 NY Slip Op. 05773, largely affirming a 2012 judgment of Justice Kitzes of the Queens County Commercial Division.

The factual basis of the action was a run-of-the-mill contract dispute, but the procedural history is of some interest:

The action was initially referred to a judicial hearing officer . . . to hear and report. After taking testimony on July 30, 2010, the referee issued a decision [recommending that the action should be dismissed]. However, the JHO thereafter noted that the order of reference directed her to hear and report, and not to hear and determine, and that she had inadvertently issued a decision determining the merits of the plaintiff’s claims in the absence of the plaintiff’s consent to do so. Thus, on September 30, 2010, the referee issued a brief report vacating her prior decision, and summarizing the parties’ contentions, without making any findings of fact or recommendations.

The Supreme Court then directed a new trial due to the JHO’s failure to “make any findings or come to any conclusions,” and after a bench trial Justice Kitzes granted judgment to the plaintiff.

The Appellate Division affirmed (except on one individual-capacity claim), reasoning that the Supreme Court has the discretion to reject or accept a referee’s findings, with or without a new trial, and that in light of the limited JHO’s report, its decision to order a new trial was not an abuse of discretion. The Appellate Divisions also noted that, in a non-jury trial, “this Court’s power is as broad as the trial court’s power, and this Court may render the judgment it finds warranted by the facts, taking into account in a close case that the trial judge had the advantage of seeing the witnesses.”

So it appears that the procedural confusion surrounding “hear and report,” as opposed to “hear and determine,” essentially mooted the entire proceeding before the JHO, requiring a second trial before the Supreme Court and delaying resolution of the case—which was filed in 2006—for several years. Practitioners should be on their guard to clarify the scope of a JHO’s mandate before such expense or delay is incurred.

Judgment Creditor’s Attempt to Compel Turnover of Israeli Bank Account Denied due to Lack of Jurisdiction, ‘Separate Entity’ Rule

On August 4, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Gliklad v. Bank Hapoalim B.M., 2014 NY Slip Op. 32117(U), dismissing a petition to compel an Israeli bank to answer a subpoena and turn over funds.

In April 2014, the plaintiff, Gliklad, got a $505 million judgment on a promissory note and served a subpoena and restraining notice on the New York branch of Bank Hapoalim, where the judgment creditor apparently had an account. The Bank refused to produce any documents or restrain any funds not located at the New York branch, but documents produced from the New York branch revealed that, in 2012, the judgment debtor wired funds from Cyprus, through the New York branch, to the Bank’s branch in Tel Aviv. The plaintiff applied to the court for an order requiring the Bank to produce all responsive documents, wherever located, and to turn over all of the judgment creditor’s funds at the Tel Aviv branch.

The plaintiff, relying on the general rule that “a New York court with personal jurisdiction over a defendant may order him to turn over out-of-state property regardless of whether the defendant is a judgment debtor or a garnishee,” argued that the court had both general and specific jurisdiction over the Bank as garnishee. Justice Schweitzer rejected both arguments.

First, the court held that there was no general jurisdiction over the Bank, which was both incorporated and headquartered in Israel, under U.S. Supreme Court precedent holding that “general jurisdiction is available only where the corporation is ‘fairly regarded as at home.'” The court rejected the plaintiff’s claim that general jurisdiction existed because the New York branch was the Bank’s “center of operations” in the United States, holding that the “center of operations” label was not meaningful, and that there was insufficient evidence of continuous and systematic activity in New York. The court also rejected the plaintiff’s claim that NY Banking Law § 200, appointing the Superintendent of Banks as the Bank’s agent for service of process and consenting to the jurisdiction of the New York courts, created general jurisdiction by consent, instead holding that NYBL § 200 only creates specific jurisdiction.

Next, the court held that specific jurisdiction could not be based upon the 2012 transfers through the New York branch:

Both of these transfers took place in late 2012, over a year and a half before judgment was handed down in the underlying controversy . . . . To find a bank subject to specific jurisdiction based solely on its permitting one of its customers to take advantage of a regularly available banking service would permit the extension of jurisdiction to a degree that would most certainly violate notions of ‘fair play and substantial justice.’ Without any suggestion that [the judgment debtor] initiated these transfers for the specific intent of depriving [the plaintiff of payment] on the promissory note, there is no basis for establishing specific jurisdiction over Bank Hapoalim. (Quoting International Shoe.)

Finally, Justice Schweitzer ruled that the plaintiff’s service of process was inadequate under the “separate entity” rule. “It has long been the rule of New York that each branch of a bank is to be regarded as a separate entity in no way concerned with accounts maintained by depositors in other branches or at the home office.” Rejecting the plaintiff’s argument that the “separate entity” rule had been abrogated, the court found that service on the New York branch was insufficient to reach the Tel Aviv branch.

This case reveals the still-significant obstacles faced by judgment creditors seeking to recover assets held in banks overseas.

Second Department Analyzes Rules Applying to the Admissibility of Out-of-State Affidavits

On August 13, 2014, the Second Department issued a decision in Midfirst Bank v. Agho, 2014 NY Slip Op. 05778, clarifying the law relating to the conformity of out-of-state affidavits as required by CPLR 2309(c).

In Midfirst Bank, the Second Department prefaced its decision with an explanation of the salience of the foreign affidavit issue:

Our Court is observing a significant upswing in the number of appeals where the parties are contesting the admissibility of affidavits executed outside of the state, without CPLR 2309(c) certificates of conformity. The issue has arisen in varied summary judgment and default motion contexts, including motions in residential mortgage foreclosure actions reliant upon affidavits of out-of-state bank employees, motions in medical malpractice actions reliant upon out-of-state physician experts, motions in slip-and-fall actions reliant upon out-of-state witnesses, motions in actions brought pursuant to Insurance Law § 3420(a), motions in motor vehicle negligence actions reliant upon out-of-state experts, and motions in contract actions reliant upon out-of-state expert contractors. We use the instant appeal as an occasion to clarify the law relating to the conformity of out-of-state affidavits as required by CPLR 2309(c).

As to the question at issue in the appeal–the admissibility of an affidavit signed outside of New York in support of a foreclosure action–the Second Department explained the application of CPLR 2309 (and particularly the distinction between a certificate of authentication and a certificate of conformity) as follows: Continue reading

No Need for a Corporate Officer to Make Demand on Board Before Bringing BCL 706, 716 or 720 Actions

On August 6, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Kotlyar v. Khlebopros, 2014 NY Slip Op. 51185(U), holding that there is no need for a corporate officer to make a demand on the board of directors before bringing an action pursuant to BCL 706, 716 or 720.

In Kotlyar, the plaintiffs, “each an officer, director, and shareholder of Seagate Mini Mall, Inc., Seagate Banya Corp., and Za Zaborom, Inc. (the ‘Corporations’)” brought an action “seeking to remove defendant as a director and officer of the Corporations, pursuant to BCL 706(d) and 716(c), and for money damages, pursuant to BCL 720.” The defendant moved to dismiss arguing, among other things, that “the complaint fails to state a derivative cause of action under BCL 626(c)” because the “plaintiffs did not attempt to first secure the initiation of an action by the board as required under BCL 626(c) and that this failure deprives the plaintiffs of standing and a cause of action and deprives the court of subject matter jurisdiction.” The court rejected this argument, explaining:

Unlike BCL 626(c), which authorizes a shareholder to bring a derivative action on behalf of the corporation, BCL 720 does not require an officer or director to first demand that the board initiate an action. As stated by the Third Department in Conant v. Schnall, 33 AD2d 326, 328 [3d Dept 1970]:

An action under section 720 differs from an action under section 626 in many crucial respects. It is not derivative but original, being a statutory right of action rather than an equitable one. This being so, the director may sue in his own name and need not allege his representative capacity. While the cause of action and right of recovery actually belong to the corporation, and the director is suing as a representative, the corporation is only a proper party, neither necessary nor indispensable. Thus, as intended by the Legislature, none of the traditional rules (e.g., demand, stock ownership, judicial approval of settlements) surrounding a derivative action apply to an action under section 720.

Plaintiffs state in paragraph 20 of their Affirmation in Opposition that they have not brought this action as shareholders instituting a derivative action under BCL 626 but as an officer and director seeking compensation for defendant’s alleged breach of fiduciary duties and wasteful management under BCL 720(a)(1)(A). Plaintiffs are suing in their capacities as officers and directors on behalf of the Corporations to enforce a right of recovery belonging to the Corporations. Because the present suit is not a derivative action, but is a statutorily authorized direct action brought on the Corporations’ behalf, the motion to dismiss the action due to lack of subject matter jurisdiction, lack of standing, and failure to state a cause of action is denied.

(Internal quotations and citations omitted). The court went on to hold, however, that the dispute was subject to an agreement to arbitrate.

Lack of Due Diligence no Bar to Fraud Claim When no Amount of Diligence Would have Uncovered Fraud

On August 4, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Higher Education Management Group, Inc. v. Aspen University Inc., 2014 NY Slip Op. 32106(U), declining to dismiss a fraud claim for lack of due diligence when no amount of diligence would have uncovered the fraud.

Counterclaim defendants contend that counterclaim plaintiffs are precluded from showing justifiable reliance because they were either aware of the allegedly false and undisclosed information, or such information was readily available to them. The law in New York is clear that if knowledge of the facts underlying the allegation of fraud are in the sole possession of counterclaim defendants, and due diligence would not have uncovered them, a counterclaim defendant cannot assert counterclaim plaintiffs’ lack of due diligence to defeat reliance. Here, it is alleged that Mr. Spada secretly pledged his stock to Aspen. No amount of due diligence is likely to have discovered this element of the alleged fraud. The court is satisfied that Aspen would not have been able to discover the alleged fraud at the time of the Merger. Aspen has plead the element of reasonable reliance with particularity, as the facts relating to the fraud were in the sole possession of Mr. Spada, and not discoverable through any investigation by Aspen.

(Internal quotations and citations omitted) (emphasis added).

Commercial Division Rules Amended to Add Rule Regarding Discovery of Non-Party ESI

The Chief Administrative Judge has signed an order adding a new rule regarding the discovery of electronically-stored information from non-parties.

The new Commercial Division Rule 11-c and Appendix A, which goes into effect on September 2, 2014, provides:

Rule 11-c. Discovery of Electronically Stored Information from Nonparties.

Parties and nonparties should adhere to the Commercial Division’s Guidelines for Discovery of Electronically Stored Information (“ESI”) from nonparties, which can be found in Appendix A to these Rules of the Commercial Division.

APPENDIX A. GUIDELINES FOR DISCOVERY OF ELECTRONICALLY STORED INFORMATION (“ESI”) FROM NONPARTIES.

Purpose

The purpose of these Guidelines for Discovery of ESI from Nonparties (the “Guidelines”) is to:

Provide for the efficient discovery of ESI from nonparties in Commercial Division cases;

Encourage the early assessment and discussion of the potential costs and burdens to be imposed on nonparties in preserving, retrieving, reviewing and producing ESI given the nature of the litigation and the amount in controversy;

Identify the costs of nonparty ESI discovery that will require defrayal by the party requesting the discovery; and

Encourage the informal resolution of disputes between parties and nonparties regarding the production of ESI, without Court supervision or intervention whenever possible.

These Guidelines are not intended to modify governing case law or to replace any parts of the Rules of the Commercial Division of the Supreme Court (the “Commercial Division Rules”), the Uniform Civil Rules for the Supreme Court (the “Uniform Civil Rules”), the New York Civil Practice Law and Rules (the “CPLR”), or any other applicable rules or regulations pertaining to the New York State Unified Court System. These Guidelines should be construed in a manner that is consistent with governing case law and applicable sections and rules of the Commercial Division Rules, the Uniform Civil Rules, the CPLR, and any other applicable rules and regulations. Parties seeking ESI discovery from nonparties in Commercial Division cases are recommended to cite to or reference Rule 11-c of the Commercial Division Rules and these Guidelines in their requests for ESI discovery.

Definition of ESI

As used herein, “ESI” includes any electronically stored information stored in any medium from which such information can be obtained, either directly or after translation by the responding party into a reasonably usable form.

Guidelines

I. Subject to all applicable court rules regarding discovery, a party seeking ESI discovery from a nonparty and the nonparty receiving the request for ESI discovery are encouraged to engage in discussions regarding the ESI to be sought as early as permissible in an action.

II. Notwithstanding whether or when the legal duty to preserve ESI arises, which is governed by case law, a party seeking ESI discovery from a nonparty is encouraged to discuss with the nonparty any request that the nonparty implement a litigation hold.

III. A party seeking ESI discovery from a nonparty should reasonably limit its discovery requests, taking into consideration the following proportionality factors:

A. The importance of the issues at stake in the litigation;

B. The amount in controversy;

C. The expected importance of the requested ESI;

D. The availability of the ESI from another source, including a party;

E. The “accessibility” of the ESI, as defined in applicable case law; and

F. The expected burden and cost to the nonparty.

IV. The requesting party and the nonparty should seek to resolve disputes through informal mechanisms and should initiate motion practice only as a last resort. The requesting party and the nonparty should meet and confer concerning the scope of the ESI discovery, the timing and form of production, ways to reduce the cost and burden of the ESI discovery (including but not limited to: an agreement providing for the clawing-back of privileged ESI; and the use of advanced analytic software applications and other technologies that can screen for relevant and privileged ESI), and the requesting party’s defrayal of the nonparty’s reasonable production expenses. In connection with the meet and confer process, the requesting party and the nonparty should consider the proportionality factors set forth in paragraph III. In the event no agreement is reached through the meet and confer process, the requesting party and the nonparty are encouraged to seek resolution by availing themselves of the Court System’s resources, such as by requesting a telephonic conference with a law clerk or special referee or the appointment of an unpaid mediator in accordance with Rule 3 of the Commercial Division Rules.

V. The requesting party shall defray the nonparty’s reasonable production expenses in accordance with Rules 3111 and 3122(d) of the CPLR. Such reasonable production expenses may include the following:

A. Fees charged by outside counsel and e-discovery consultants;

B. The costs incurred in connection with the identification, preservation, collection, processing, hosting, use of advanced analytical software applications and other technologies, review for relevance and privilege, preparation of a privilege log (to the extent one is requested), and production;

C. The cost of disruption to the nonparty’s normal business operations to the extent such cost is quantifiable and warranted by the facts and circumstances; and

D. Other costs as may be identified by the nonparty.

You can learn more about the background of this rule change by reading the request for comment that the Office of Court Administration posted earlier this year on the proposed rule.

Plaintiff States Contract Claim Based on Two Separate, Contemporaneous Documents

On August 7, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in 833 Management, LLC v. Great Empire 65 Realty, LLC, 2014 NY Slip Op. 51189(U), finding that the plaintiff had stated a claim for breach of contract based on two contemporaneous documents.

In 833 Management, the defendants moved to dismiss the plaintiff’s cause of action for breach of contract. The court ultimately dismissed all but one defendant based on a release, but did find that the plaintiff had stated a cause of action for breach of contract that relied on two separate documents that were signed at the same time, explaining:

Agreements executed at substantially the same time and related to the same subject matter are regarded as contemporaneous writings and must be read together as one. Plaintiff asserts that the handwritten document was signed by Andy To and Chen at the same time as the parties signed the Contract of Purchase and Sale, and both documents are dated June 3, 2013. Defendants essentially do not dispute that this handwritten document was signed by Chen on June 3, 2013 and Chen’s affidavit provides no information regarding the circumstances under which it was signed. The two writings are also related to the same subject matter, specifically the closing of the sale of the Premises, and therefore must be read together as one agreement. The Court notes that while the signatories to the Contract of Purchase and Sale include EEM Realty, Henry Chen as a member of Great Empire, and Andy To as agent for 833 Management, the handwritten agreement is executed by Andy To as agent for 833 Management and individually by Chen. Although the signatories are not identical, both agreements appear to be part of the same transaction, and therefore must be read together. Taking plaintiff’s contentions as true, plaintiff has stated a cause of action for breach of contract by pleading that the handwritten agreement was additional consideration for 833 Management’s entering into the Contract of Purchase and Sale.

(Internal quotations and citations omitted) (emphasis added).

Supreme Court Decides Special Proceeding to Enjoin Trademark Violation Despite Co-Pending Federal Trademark Action

On August 4, 2014, Justice Ramos of the New York County Commercial Division issued a decision in Matter of Explorers Club Inc. v. Diageo PLC, 2014 NY Slip Op. 24218, granting judgment and a permanent injunction to the plaintiff in a summary proceeding brought under GBL § 135.

Section 135 of the General Business Law permits a summary proceeding to obtain permanent injunctive relief:

No person, society or corporation shall . . . adopt or use the name of a benevolent, humane or charitable organization incorporated under the laws of this state, or a name so resembling it as to be calculated to deceive the public . . . . an application may be made to a court or justice having jurisdiction to issue an injunction, upon notice to the defendant of not less than five days, for an injunction to enjoin and restrain said actual or threatened violation . . . without requiring proof that any person has in fact been misled or deceived thereby.

The Explorers Club brought a GBL § 135 proceeding against Diageo—a large London-based alcohol distributor—alleging that Diageo had used its name in marketing its “Johnny Walker Explorer’s Club” brand.

Diageo moved to dismiss the petition on a number of grounds, one of which was that the petition should be stayed in light of a co-pending trademark infringement action in the Southern District of New York.

The court refused to stay the summary proceeding on the grounds that the relief available under GBL § 135 is “separate and not to be confused” with the relief sought in the federal action. “Special proceedings in the sense used in the CPLR are unknown in federal court [and are] designed to facilitate a summary disposition of the issues and [have] been described as a fast and cheap way to implement a right . . . . For these reasons federal courts often decline to exercise supplemental jurisdiction over summary proceedings.”

The court also found that, although the parties were the same and the facts undoubtedly overlapped, “the questions of law are separate and distinct.” Under the Lanham Act, the plaintiff is required to show that its mark has “acquired distinctiveness or a secondary meaning.” No such requirement exists in a GBL § 135 special proceeding.

Accordingly, the court refused to stay or dismiss the New York action in light of the federal action, and after a consideration of the merits awarded a permanent injunction to the Explorers Club against Diageo.

This ruling is interesting because a GBL § 135 special proceeding is a specific, seldom-utilized action which must be unfamiliar to many practitioners. It is also interesting on a more general level, in that it shows that a party litigating in federal court can also bring a New York law special proceeding. Given that the special proceeding will probably be decided first, it could have a decisive effect, perhaps mooting large portions of the federal action.

First Department Addresses Scope of Federal Arbitration Act

On August 7, 2014, the First Department issued a decision in Cusimano v. Schnurr, 2014 NY Slip Op. 05702, addressing two issues that arise frequently in the context of commercial arbitration: (1) whether the parties’ arbitration agreement is covered by the Federal Arbitration Act (FAA), in which case threshold issues, such as the timeliness of the claims, are determined in the first instance by the arbitrator; and (2) whether the claimant waived the right to arbitration by first pursuing litigation in court.

In Cusimano, the plaintiffs brought suit against their former accountants for allegedly conspiring with plaintiffs’ business partners to misappropriate distributions and assets from an entity, commit tax fraud, and fraudulently induce one of the plaintiffs to sell her interest in a property. Justice Ramos of the New York County Commercial Division dismissed plaintiffs’ fraud and breach of fiduciary duty claims for lack of specificity under CPLR 3016(b) with leave to replead. Rather than filing an amended complaint, however, the plaintiffs commenced an arbitration with the American Arbitration Association, asserting claims similar to those raised in the lawsuit, and moved, under CPLR 7503(a), for a stay of the lawsuit pending the arbitration. The defendant accountants cross-moved for a permanent stay of the arbitration, under CPLR 7503(b), on the ground that the arbitration claims were time-barred. Plaintiffs opposed the cross-motion, arguing that because the parties’ arbitration agreement was covered by the FAA, the issue of timeliness should be decided by the arbitrator, not the court. Justice Ramos found that the FAA was inapplicable because the agreements at issue “do not involve interstate commerce.” He proceeded to hold that many of the claims were time-barred, and that plaintiffs waived any right they may have had to arbitrate those claims by commencing, and participating in, the litigation in New York Supreme Court.

The First Department (in a decision by Justice Richter) reversed. First, the Court found that the FAA applied given the broad interpretation the courts apply to the term “involving commerce” as used in the statute:

The FAA governs agreements which “evidenc[e] a transaction involving commerce” (9 USC § 2). In determining if the FAA applies to a contract, the central question is whether the agreement is a contract evidencing a transaction involving commerce within the meaning of the FAA.

Courts have interpreted the term “involving commerce” broadly. In Allied-Bruce [Terminix Companies, Inc. v. Dobson, 513 US 265, 270 (1995)], the United States Supreme Court concluded that the purpose of the FAA — to reduce the amount of litigation through the enforcement of arbitration agreements — supports a broad interpretation of the term “involving commerce” (513 US at 275). The Court declined to restrict transactions involving commerce only to those “activities within the flow of commerce” (id. at 273 [internal quotation marks and emphasis omitted]). Rather, it found the phrase “involving commerce” to be the equivalent of “affecting commerce,” a term associated with the broad application of Congress’s power under the Commerce Clause (id. at 273-274).

. . .

Based on a broad application of the term “involving commerce,” we find that the FAA applies to the agreements at issue. Each of the agreements concerns transactions that affect commerce, and all of the entities are involved in the rental of commercial property. FLIP’s rental property, which is located in Florida, is leased by a CVS drug store; Berita owns an interest in an entity that in turn owns a Marriott Hotel; and Seaview owns two commercial buildings. Because commercial real estate can affect interstate commerce, the ownership of and investment in the commercial buildings here, one of which is occupied by an international chain hotel and another which houses a national chain drug store located out-of-state, renders the FAA applicable to these agreements.

We reject respondents’ claims that the FAA is inapplicable because, in their view, this is a dispute about the mismanagement of the family entities in New York State. The proper inquiry is whether the economic activity in question represents a general practice that bears on interstate commerce in a substantial way. This dispute not only involves substantial commercial transactions covering real properties, some of which are not in this state, but as plaintiffs note, the properties are part of national hotel and drug store chains.

Second, the Court found that the fact that plaintiffs filed a lawsuit in Supreme Court did not effect a waiver of the right to arbitrate, as the parties did not engage in “protracted litigation” prior to the commencement of the arbitration, and there was no prejudice to the defendants:

Although a party may have a right to arbitrate, the court may determine that a party has waived this right by having participated in litigation. There is a strong federal policy favoring arbitration, and waiver should not be lightly inferred under the FAA. A party does not waive the right to arbitrate simply by pursuing litigation, but by engaging in protracted litigation that results in prejudice to the opposing party.

In determining what constitutes protracted litigation for the purposes of waiver, there is no bright line rule. Rather, the court should consider three factors: (1) the amount of time between the commencement of the action and the request for arbitration; (2) the amount of litigation thus far; and (3) proof of prejudice to the opposing party Indeed, the key to a waiver analysis is prejudice. Prejudice may either be substantive prejudice or result from excessive delay or costs caused by the moving party’s pursuit of litigation prior to seeking arbitration, though cost alone is not sufficient to establish prejudice. A party may be substantively prejudiced when the other party is attempting to relitigate an issue through arbitration, has participated in substantial motion practice, or seeks arbitration after engaging in discovery that is unavailable in arbitration.

Applying these principles, we find that plaintiffs’ actions in this litigation have not prejudiced respondents such that the court must find waiver. Although plaintiffs commenced this action in court, they did not engage in aggressive litigation involving multiple motions addressed to the merits, nor did they pursue state court appeals. Importantly, the only substantive motion in this action was made by the accountants. Plaintiffs moved only to disqualify defense counsel, relief which could have been sought in arbitration. In any event, this type of motion would be insufficient to constitute waiver under the federal case law. Respondents point to the fact that plaintiffs requested subpoenas while the motion to dismiss was pending, but no actual discovery took place. Therefore, plaintiffs did not obtain any evidence that would not be available to them in arbitration.

Respondents assert that plaintiffs, by seeking arbitration, are attempting to relitigate the issues they lost before the motion court. However the motion court gave plaintiffs leave to replead with specificity, effectively giving plaintiffs “another bite at the apple,” at least as to the sufficiency of the pleadings. Thus, plaintiffs have not received any greater advantage by filing a statement of claim in an arbitration than they would have obtained had they filed an amended complaint. In any event, respondents point to no case finding waiver solely because a party filed an arbitration demand after limited motion practice, particularly where, as here, only one year had passed and no discovery had been exchanged.

The accountants argue that plaintiffs’ delay in seeking arbitration is prejudicial because it caused them to experience unnecessary delay and expenses. They stress the amount of time that passed between plaintiffs’ filing their complaint and pursuing arbitration and argue that they incurred legal fees in challenging plaintiffs’ subpoenas. A delay of one year does not, in itself, amount to protracted litigation, particularly where a delay was not accompanied by substantial motion practice or discovery. Further, the expense the accountants incurred in responding to plaintiffs’ procedural motion and subpoenas does not, by itself, establish waiver. Indeed, this Court has found that “pretrial expense and delay, without more, does not constitute prejudice sufficient to support” waiver.

Although plaintiffs could have sought arbitration sooner, the fact that they did not file a substantive motion or obtain discovery material that would not have been available in arbitration weighs in favor of allowing arbitration to proceed. Indeed, when assessing the question of waiver, any doubts concerning whether there has been a waiver are resolved in favor of arbitration. In light of the strong preference for arbitration and the lack of prejudice to respondents, we find that no waiver has occurred.

(Citations omitted).

Court Reminds Counsel of Procedure for Citing to Electronically-Filed Documents

On July 31, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in MBIA Insurance Corp. v. Credit Suisse Securities (USA) LLC, 2014 NY Slip Op. 32025(U), raising in a footnote the issue of citation to electronically-filed exhibits.

The decision in MBIA Insurance Corp. is about a discovery dispute. This post, however, takes as its starting point a footnote in the decision discussing citation to electronically-filed exhibits:

The court respectfully requests that when an attorney files all of its exhibits in a single pdf, as Mr. Slarskey did here, he should indicate in his affirmation the page number of the pdf where each exhibit begins. Citations to that pdf in the parties’ brief should then reference the relevant pdf page number. Moreover, if possible, pdfs should be searchable.

In a world of electronic filing, it is important for counsel to consider the needs of chambers in how they assemble and file documents. If you file a single document containing dozens of exhibits and give the court little help in figuring out where in that document the court should look, do not be surprised if the court does not find the facts upon which you would rely.

In addition to the citation and searchability points made in the footnote quoted above, you can also make things simpler by filing exhibits separately. Finally, counsel should start familiarizing themselves with the procedures for the use of hyperlinks in e-filed papers, a procedure being tested by New York County Commercial Division Justices Oing and Scarpulla.