Pokoik v. Norsel Realties, Index No. 653382/2014, 4/12/2017 (Oing, J.)

Motion to Dismiss; Standing; Shareholder Derivative Action; CPLR 3211

By: James Clarke | Senior Staff Writer

Plaintiffs own 10% of Norsel Realties (“Norsel”), a New York partnership owning land in Manhattan. In 1995, Norsel leased the land to 575 Realties, which leased it to 575 Associates LLC. Under the lease with Norsel, 575 Realties was entitled to a ten-year lease renewal. The annual rent was to equal 5% of the land’s appraised value. Norsel later appraised the land at $76 million. Plaintiffs objected and conducted their own appraisal, valuing it at $216 million. A year after, Norsel conducted a second appraisal, valuing the land at $92 million. Based on Norsel’s appraisals, rent was set at $7.2 million and approved by 90% of Norsel’s partners, but not Plaintiffs. Subsequently, Plaintiffs presented a second appraisal, valuing the land at $406 million, and demanded that value be used to set the rent. After Norsel refused, Plaintiffs sued directly, as well as derivatively on behalf of Norsel, alleging damages of $131 million, the ten-year aggregate difference in rental income between the rent set by Norsel and the rent Plaintiffs sought.

Plaintiffs’ initial complaint alleged the rent approval was a breach of fiduciary duty by Norsel, its managers, 575 Realties, 575 Associates LLC, and the property management company. Defendants moved to dismiss. The court found that the business judgment rule applied, so the motion to dismiss was granted. Plaintiffs appealed, and the Appellate Division affirmed in part and reversed in part. The Appellate Division held that Plaintiffs overcame the presumptive application of the business judgment rule regarding Norsel and its management, and therefore remanded those claims, but affirmed the dismissal as to the remaining Defendants as there were no allegations they owed a fiduciary duty or engaged in misconduct. Defendants subsequently filed an answer to the initial complaint. Plaintiffs then filed an amended complaint that named thirty-nine new defendants, including all partners who approved the rent. It also contained a new cause of action regarding the transfer of Norsel’s interest in the land to Norsel LLC, allegedly for the purpose of avoiding the terms of Norsel’s partnership agreement after Plaintiffs filed suit.

The Court dismissed the amended complaint due to lack of standing. The Court noted that shareholders lack standing to bring a direct cause of action to redress wrongs suffered by the corporation; such claims must be asserted derivatively on behalf of the corporation. Since Plaintiffs’ direct claims alleged harm to Norsel, they were inherently derivative and improperly plead. The Court also found that Plaintiffs lacked standing to bring the derivative claims. Standing to bring a derivative claim requires that claimants show they fairly and adequately represent the interests of the shareholders and the corporation, free from adverse personal interest or animus. The Court held that Plaintiffs could not. First, by suing all of the partners, Plaintiffs could not also represent them. Second, Plaintiffs had an interest in 575 Associates LLC; they could not sue over the rent while receiving rent from 575 Associates LLC. Third, Plaintiffs did not appear to have any concern for Norsel; they sought money from partners based on extreme appraisals, ignoring any effect on the operations of 575 Associates LLC which could in turn jeopardize Norsel, but did not request rent revision or court oversight over the appraisal process. Finally, Plaintiffs had repeatedly sued business partners based on similar allegations in the past, and this action was likely a “weapon in the total arsenal” to gain leverage in other disputes.

Pokoik v. Norsel Realties, Index No. 653382/2014, 4/12/2017 (Oing, J.)

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Royal Park Investments SA/NV v. Morgan Stanley, Index No. 653695/2013, 4/11/2017 (Ramos, J.)

Holding Company; Residential Mortgage-Backed Securities; Fraud; Transfer of Rights; Contracts; Security Transfers.

By: Aaron Jacob | Senior Staff Writer

Plaintiff, Royal Park Investments (hereinafter “RPI”) is a limited liability company incorporated under the laws of Belgium and wholly owned by Fortis Bank, the banking arm of Fortis Holdings (hereinafter “Fortis”). RPI is a special purpose vehicle created to acquire a portion of Fortis Bank’s structured credit portfolio (“RPI Assets”). Scaldis Capital Limited (hereinafter “Scaldis”), is another special purpose vehicle, also fully controlled by Fortis who, along with Fortis, was originally used to purchase 146 certificates of residential mortgage-backed securities (“RMBS”) in 102 different offerings. Defendants constitute Morgan Stanley (“Morgan Stanley”) and its various subsidiaries as global financial services firm and financial holding companies from whom the securities were purchased.

The crux of this action arises out of RPI’s purchase of the aforementioned securities through a Portfolio Transfer Agreement (hereinafter “PTA”) from its parent company Fortis, who proceeding this sale, had acquired Scaldis’s securities. RPI’s base claim alleges that Defendant used offering documents to defraud RPI and its assignors into purchasing “investment grade” certificates at inflated prices. Between August and November 2013, RPI commenced an action against the Defendants asserting six (6) tort causes of action sounding in fraud and negligent misrepresentation. Defendant contends that RPI lacks standing to sue in tort; more so, Fortis improperly transferred the rights to Scaldis’s Certificates and subsequently to RPI, and therefore lacked ability to transfer tort claims of Scaldis’s securities to RPI.

The Court dismissed all claims against Defendant because Fortis and RPI, as sophisticated parties, failed to properly transfer the right to a fraud action in the PTA. The Court held that because it was undisputed that the unambiguous PTA’s language transferred to RPI all “rights, title, and interest in and to the Portfolio Property,” and because it is well settled in New York, that the right to assert a fraud claim related to a contract or note does not automatically transfer (without express language) with the respective contract or note, the PTA was expressly limited to contractual rights and obligations and was absent of a transfer of fraud claims.

More so, the court used this same reasoning to establish RPI’s lack of standing in the Scaldis’s Certificates. Fortis had made the same drafting error while transferring the certificates from Scaldis to itself, therefore the subsequent transfer through the PTA lacked the right to transfer fraud claims on two instances. However, even if the Scaldis Certificates were validly transferred, RPI’s claims would still fail for lack of standing, as the PTA did not assign the right to assert fraud claims. Therefore, the court dismissed all claims against Defendants.

Royal Park Investments SA/NV v. Morgan Stanley, Index No. 653695/2013, 4/11/2017 (Ramos, J.).

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Siras Partners LLC v. Activity Kuafu Hudson Yards LLC, Index No. 650868/2015, 3/29/2017 (Oing, J.)

Breach of Contract; Breach of Fiduciary Duty; Declaratory Judgment; Permanent Injunction

By: Amanda Tersigni | Senior Staff Writer

This case stems from a complex matter involving multiple parties and two interrelated actions. Plaintiffs, Siras Partners LLC (including Saif Sumaida and Ashwin Verma, collectively “Siras”) formed a joint venture with Defendants, Activity Kuafu Hudson Yards LLC (including Defendants Shang Dai, Zengliang Shan, and Qiling Yuan), titled Reedrock Kuafu Development Company, LLC, whereby they would collectively develop upon a parcel of land in Manhattan at 462-470 Eleventh Avenue (“462-470”). The members of the joint venture created Bifrost Land LLC to hold title to the property. Bifrost subsequently obtained a loan to acquire the 462-470 property, part of which would be drawn at the time of the closing. The loan contained an option to extend the maturity date for two consecutive six-month periods. Plaintiffs later alleged that Kuafu and its principals sought to deceive them in ways to jeopardize the loan for the property and undermine the entire project. Thus, Plaintiffs commenced such action (“the Siras Action”) alleging nine causes of action. Concurrently, 462-470 commenced a related foreclosure action to foreclose on the loan obtained for such property.

The Foreclosure Action

462-470 alleges that Bifrost defaulted on the loan because it failed to pay the remaining balance on the loan by the original date of the loan’s maturity.  Pursuant to the loan agreement, Bifrost was required to complete the demolition of the property before the maturity date. Plaintiffs object to this action because it contends that the foreclosure action need be stayed until the Siras Action is resolved. This is because Plaintiffs asserted a claim pursuant to CPLR 2201 against 462-470 in their own action, and if not stayed, Plaintiffs would suffer irreparable harm. However, the court ultimately denied Plaintiffs’ motion to stay the foreclosure action.

The Siras Action

Plaintiffs assert a claim for civil conspiracy against 462-470, Shang Dai, Daniel Dwyer, and Dai & Associates (D&A) arguing that 462-570 (who is an affiliate of Defendant) conspired with Defendant and its principals when unlawfully purchasing the loan on the property and essentially breached its fiduciary duties to Reedrock. To assert civil conspiracy, Plaintiffs must sufficiently establish the following: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties’ intentional participation in the furtherance of a plan or purpose; and (4) resulting damage or injury. Defendant and D&A counter that the conspiracy claims are insufficient because Plaintiffs failed to assert a breach of fiduciary duty claim against Defendant of 462-470, and irrespective, such a claim would be in violation of their operating agreement that “Members, shall have no fiduciary duties towards each other, provided, however, nothing in this sentence shall limit the fiduciary duties any Members may have in its capacity as Manager.” However, the Court found that this provision does not prohibit all fiduciary claims. Regardless, Plaintiffs’ conspiracy claim is still insufficiently pled because there is no claim being asserted against Defendant for breach of fiduciary duty nor is there a conspiracy claim asserted against Defendant. Rather, Plaintiffs solely makes accusations against 462-470, attempting to connect 462-470 with Defendant through an “unpleaded underlying tort allegedly committed by [Defendant].”  Therefore, the Court found that such cause of action is insufficiently pled and is meritless and thus, Plaintiffs’ motion must be denied.

Siras Partners LLC v. Activity Kuafu Hudson Yards LLC, Index No. 650868/2015, 3/29/2017 (Oing, J.)

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Jung Sook Choi v. AmTrust North American et al., Index No. 26455/2016, 11/03/2016, (Rosenbaum, J.)

Motion to Dismiss; Contractual Interpretation; Contractual Ambiguity; Policy Exclusions

By: Kelsey Dougherty Howard | Staff Writer

Plaintiff purchased a piece of real property to operate as a restaurant in 2009. Prior to Plaintiff’s purchase, the property was operated as a dry cleaning business with chemical tanks buried underground. Plaintiff maintained an insurance policy from Defendant. After the purchase, the New York Sate Department of Environmental Conservation (“DEC”) notified Plaintiff in September 2015 that there was a documented release of hazardous substance in the property. Plaintiff, however, refused to cover the cost of both remediation and DEC’s investigation of the issue, and also refused to sign the consent order. Plaintiff sought indemnification from Defendant, its insurance company which it maintained coverage from December 2014 through December 2015, and Defendant’s agent, the claims administrator. The claims administrator denied Plaintiff’s claim on two grounds: (1) the claim was excluded under the policy of coverage, and (2) the claims arose from events which occurred prior to the policy of coverage. In response to Plaintiff’s motion seeking indemnification, both Defendants, the insurance company and claims administrator, filed motions to dismiss pursuant to CPLR 3211(a)(7). Plaintiff only opposed the insurance company’s motion.

The insurance company sought to dismiss Plaintiff’s claim under two theories: (1) the company has no obligation to defend or indemnify under the policy because the policy is unambiguous in its exclusion of coverage for any allegations of pollution; and (2) the events occurred prior to the time coverage began and the policy only covers claims for events that take place during the coverage period. Plaintiff contended that the insurance company’s motion should be denied because (1) the language regarding the pollution exclusion is ambiguous; and (2) the date of the release of the hazardous substance is at issue.

The Court found the pollution exclusion language of the insurance policy to be unambiguous in its exclusion of coverage. While there was a clause that would negate the pollution exclusion if the release of the chemicals were “sudden and accidental,” the Court, relying on the information from the DEC, did not find the release of the hazardous chemicals to be sudden or accidental. Finally, the Court agreed that the Plaintiff was not at fault for the spill; however, the Court did not find this issue of culpability to be relevant to the application of the pollution exclusion.

The Court, therefore, granted both Defendants’ motions to dismiss.

Jung Sook Choi v. AmTrust North American et al., Index No. 26455/2016, 11/03/2016,  (Rosenbaum, J.).

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Javoroski v. SelectQuote Ins. Svc. Inc., Index No. 4542/2016, 2/21/17 (Platkin, J.)

Motion to Dismiss; Timely Service of Complaint CPLR 3012(b); Extension of Time to Complete Service CPLR 3012(d); Breach of Contract; Negligence

By: Julie Lavoie | Senior Staff Writer

In August 2016, Plaintiff served the entity and agent that sold her late husband a life insurance policy, SelectQuote Insurance Services and Charan J. Singh (hereinafter “Defendants”) with a summons with notice indicating that she would be alleging claims of: (1) breach of contract for the failure to pay life insurance proceeds under her husband’s policy upon his death; and (2) negligence for selling her husband a new policy after his original policy lapsed for non-payment rather than advising him to seek reinstatement of the lapsed policy. Continue reading

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Wrobel v. Shaw Envtl. & Infrastructure Eng’g of N.Y,, P.C., No. 652382/2015, 5/9/17 (Scarpulla, J.)

Breach of Contract; Third-Party Beneficiaries

By: Daniel Ishoo | Staff Writer

Defendant, a general contractor, contracted to conduct home repairs as a part of the New York City Rapid Repair Program (“RRP”). Plaintiffs were employees of PMJ Electrical Corp. (“PMJ”), one of Defendant’s subcontractors. Continue reading

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A Conversation with Robert M. Link, Esq.

By: Nandini Chowdhury | Staff Writer

Robert M. Link, Esq. is an accomplished attorney who is currently a partner at David A. Gallo & Associates LLP in Rego Park, New York. Mr. Link is a 2009 graduate of The CUNY School of Law. In addition to practicing commercial litigation, Mr. Link handles foreclosure, bankruptcy, and various real estate matters. Staff Member Nandini Chowdhury had the opportunity to gain insight into Mr. Link’s work in commercial litigation and receive valuable advice for law students who may be interested in becoming litigators. Continue reading

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Schulhof v. Jacobs, Index No. 157797/2013, 2/27/17 (Ramos, J.)

Breach of Contract; Breach of Fiduciary Duty; Fraud; Restitution; Unjust Enrichment; Compensatory Damages; Punitive Damages; CPLR § 3212; CPLR § 3211; Summary Judgment

By: Natalie Deneen Russell | Staff Writer

Plaintiff, the executor of an estate, entered into a written agreement (the “Agreement”) with Defendant for the sale of a painting (the “Work”) from decedent’s art collection. Continue reading

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NYAHSA Servs., Inc. Self Ins. Trust v Defendant Inc., 12/27/2016 (Platkin, J.).

Discovery; Disclosures; Attorney-Client Privilege; Attorney Work-Product

By: Michael Joseph | Staff Writer

Plaintiff is a group self-insured trust (“GSIT”) consisting of employers in the home health-care industry operating in New York State who are required to provide workers’ compensation insurance to their employees. Defendant was a member of the GSIT for eight years. Continue reading

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Innovative Municipal Products (U.S.), Inc., v. Central Equipment, LLC, Index No. 4073/13, March 7, 2017, (Platkin, J.)

Motion for Summary Judgment; Motion to Amend a Complaint; CPLR § 3212; CPLR § 3025(b); CPLR § 2220

By: Stephen Hernandez | Staff Writer

Plaintiff and Defendant developed and implemented a joint “Tank Agreement Program” that allowed customers to lease a storage tank, with an option to buy at a reduced cost or continue to lease if they signed a multi-year purchase contract for de-icing products. Continue reading

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