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Category: NY Practice

Commercial Division Compels Arbitration of a Contract Claim Based on an Arbitration Clause in a Related Agreement

In Fidilio v. Hoosick Falls Productions, Inc., No. 654066/2016, 2017 BL 107640 (Sup. Ct. Mar. 22, 2017), Justice Eileen Bransten of the New York County Commercial Division granted a motion to compel arbitration of a dispute relating to a short-lived reality TV show, Scrappers.  Justice Bransten ruled that the arbitration clause in one agreement between Frank Fidilio, the show's creator, and Hoosick Falls Production, Inc. ("Hoosick"), the production company, required arbitration of Fidilio's claims against Hoosick brought under another agreement which was executed at the same time, by the same parties, governing the same subject matter.  Fidilio's remaining claims for breach of contract as a third-party beneficiary, unjust enrichment, and an accounting against Viacom International Inc. and the show's distributor, New 38th Floor Productions, Inc. ("New 38th"), were dismissed for failure to state a claim.  Fidilio provides important lessons for parties considering mandatory arbitration clauses in connection with transactions involving multiple agreements, as well as for litigants considering whether claims may be subject to mandatory arbitration under provisions of related agreements.

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First Department Allows $45 Million Fraud Claim to Proceed Against Patriarch Partners

In Norddeutsche Landesbank Girozentrale v. Tilton, No. 651695/15, 2017 BL 55790 (App Div, 1st Dep’t Feb. 23, 2017), a divided panel of the Appellate Division, First Department, affirmed a Commercial Division order that denied a motion to dismiss a $45 million fraud claim against Lynn Tilton, Patriarch Partners LLC (“Patriarch”), and two Patriarch affiliates, stemming from their management of two collateralized debt obligation (“CDO”) funds.  Justices Richard T. Andrias and David B. Saxe dissented in part, opining that the majority should have dismissed the fraud claim as time-barred because the plaintiffs-investors were on notice of the alleged fraud more than two years before they filed suit. 

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Obtaining Jurisdiction in New York Courts through Repeated Use of Correspondent Bank Accounts

In the past, a foreign bank’s use of correspondent bank accounts in the United States to facilitate wire transfers has not necessarily given New York courts a sufficient basis for jurisdiction over the bank.  But a recent 4-3 Court of Appeals decision may change that.  In Rushaid, et al. v. Pictet & Cie, et al., No. 180, 2016 BL 387923 (N.Y. Nov. 22, 2016), Judge Rivera writing for the four person majority (and overturning decisions of both the First Department and the Commercial Division) ruled that a foreign bank’s “repeated, deliberate” use of correspondent bank accounts in the United States is enough to establish New York jurisdiction.

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Investor’s Relocation to New York after Structuring a Financing Deal in Hong Kong Does Not Provide a Basis for Suit Against Swiss Bank UBS in New York, Holds Commercial Division

In Ace Decade Holdings Ltd. v. UBS AG, No. 653316/2015, 2016 BL 413780 (N.Y. Sup. Ct. Dec. 7, 2016), Justice Eileen Bransten of the Commercial Division dismissed a $500 million fraud suit brought by an investment holding company incorporated in the British Virgin Islands, Ace Decade Holdings Ltd. (“Ace Decade”), against the Swiss Bank UBS AG for lack of personal jurisdiction and inconvenient forum.  Justice Bransten found no basis to exercise jurisdiction over UBS for alleged fraud in connection with a financing deal negotiated in Hong Kong to purchase shares of a firm listed on the Hong Kong Stock Exchange.  Justice Bransten further held that, even if the court could exercise jurisdiction over UBS, the causes of action lack a substantial nexus with New York and, thus, dismissal is also warranted based upon the doctrine of forum non conveniens.

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New York Court of Appeals Clarifies Champerty Safe Harbor Provision

On October 27, 2016, Chief Judge Janet DiFiore delivered a much awaited opinion in Justinian Capital SPC v. WestLB.[1]  Judge Leslie Stein wrote a dissenting opinion, which was joined by Judge Eugene Pigott, Jr.  Justinian involves the issue of champerty, which, as the Court describes, is “the purchase of notes, securities, or other instruments or claims with the intent and for the primary purpose of bringing a lawsuit.”[2]  Under New York law, champerty is prohibited.[3]  However, the New York champerty statute provides for a safe-harbor when the purchased asset has an “aggregate purchase price of at least five hundred thousand dollars.”[4]  Justinian clarifies that this safe harbor only applies when either the party pays “the purchase price or [has] a binding and bona fide obligation to pay the purchase price.”[5]  Put simply, at least $500,000 of the transaction must not be contingent on the litigation in order to fall within the safe harbor.

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Court-Ordered Dissolution Remains “Last Resort”

On October 11, 2016, in Matter of Skoler, 2016 BL 348290 (Sup. Ct. N.Y. Cnty.), Justice Lawrence K. Marks of the Commercial Division issued a decision regarding the strictures of judicial dissolution pursuant to Section 1104(a) of the New York Business Corporation Law (“BCL”).  Petitioners sought judicial dissolution of County Group Inc. (“County Group”), a small, closely held New York domestic corporation.  Petitioners hold 50% of the issued stock in County Group, and the “Responding Shareholders,” who opposed judicial dissolution, hold the remaining 50%.  The Responding Shareholders cross-moved to dismiss the petition.

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Commercial Division Finds Restrictive Covenant Acceptable and Rejects Unpled Partnership Theory

On October 4, 2016, Justice Singh issued an order denying a defendant’s motion to dismiss a claim for breach of a restrictive covenant, finding that the covenant serves an acceptable purpose.  See Tarro v. McOsker, No. 653880/15, slip. op. (N.Y. Sup. Ct. Oct. 4, 2016).   The court also ruled that while it could not resolve a breach of fiduciary duty claim on a motion to dismiss, it would not entertain a new theory of duty that a plaintiff did not plead in his complaint.

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Rival Talent Managers’ Dispute Over American Idol Winner Phillip Phillips Stays “Home” at the California Labor Commission, Holds Commercial Division in Stay Decision

When the winner of the 11th season of American Idol, Phillip Phillips, sang “I’m going to make this place your home” on his 2012 breakout single, “Home,” he may have been predicting the petition that he would later file with the California Labor Commission (“CLC”).  In that petition, Phillips sought to void the talent management agreement that he was required to sign with 19 Entertainment, Inc. – one of the now-bankrupt companies behind production of American Idol – in order to participate as a semifinalist on the show.  Following a September 23, 2016 decision by Commercial Division Justice Salinan Scarpulla staying 19 Entertainment’s suit against Phillips’ new talent manager pending resolution of the California proceeding, the CLC may be “home” for 19 Entertainment’s fight over Phillips for the foreseeable future.

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