2019 was a momentous year for the Commercial Division. Below are the top developments related to the Commercial Division that our blog covered in 2019.
Commercial Division Expands to Bronx County:
New York’s Chief Judge Janet DiFiore announced, at her annual State of the Judiciary speech, the Commercial Division’s expansion into Bronx County, and the Honorable Eddie McShan was designated as the Bronx’s first Commercial Division Justice.
Sharply Divided Court of Appeals Upholds Waiver of Declaratory Relief by Commercial Tenants:
In a closely watched appeal, the Court of Appeals confirmed by a sharply divided 4-3 vote that a waiver contained in a commercial lease of the right to bring a declaratory judgment action is enforceable and not contrary to public policy. Chief Judge DiFiore, writing for the Court, affirmed the decision below and noted that the disputed waiver clause was unambiguous and, on its face, precluded plaintiffs’ lawsuit.
Commercial Division Declines to Certify Class and Approve Settlement in Xerox-Fuji Case
In a case that received significant media attention, Justice Ostrager of the Commercial Division granted the shareholder-plaintiffs a preliminary injunction to restrain the proposed Xerox-Fuji merger. On appeal, that decision was overturned by the First Department. While the appeal was pending, a newly constituted Xerox Board approved a settlement agreement between Xerox and its shareholders. At a hearing in July 2018, Justice Ostrager informed the parties that the Xerox Board’s approval of the class settlement could not take effect until the Court had a chance to: (1) certify the class, (2) appoint class counsel, and (3) review the proposed agreements. Thereafter, Justice Ostrager, on September 12, 2019, (1) declined to certify the putative class, (2) decided not to approve the proposed class settlement, and (3) chose not to award the class attorney’s despite a memorandum of understanding that was reached by defendant Xerox and putative class plaintiffs. Nonetheless, certain material terms of the settlement, such as the resignation of several Xerox Board members, had already taken effect.
Commercial Division Declines to Stay Securities Case in Deference to Later-Filed Federal Action
A hot issue in the Commercial Division following the U.S. Supreme Court’s Cyan decision is whether to stay litigation in New York courts in favor of federal court securities litigation. In Matter of GreenSky, Inc. Sec. Litig., Justice Schecter held that where a 1933 Act lawsuit is first filed in state court, staying that action in deference to a later-filed federal action is inappropriate absent good cause for doing so. Underlying the Court’s decision is the principle that state courts should honor plaintiffs’ selection of a state court as the forum in which to litigate their 1933 Act claims. The Commercial Division also held that staying discovery until it had decided defendants’ motion to dismiss was in line with the Reform Act’s purpose of conducting an early review of securities cases to determine if they have merit before allowing what can be broad and expensive discovery. But Justice Schecter noted, courts in New York County are split on whether the stay set forth in the Reform Act necessarily applies to state proceedings. For example, in another Commercial Division case, Justice Ostrager denied to stay state court litigation in favor of a subsequently filed federal court lawsuit. See Hoffman v. AT&T Inc., 2019 BL 239217, 2019 WL 2578360 (Sup. Ct., NY Cty. 2019).
Corporate Officer Escapes Corporate-Capacity Fraud Claims in Alleged Ponzi Scheme Case in Commercial Division
In corporate fraud suits, it is common for plaintiffs to file claims against executives in their capacity as corporate officers. However, to succeed on a corporate-capacity claim, a plaintiff must show that the corporate veil should be pierced so as to hold an officer personally liable for the corporation’s legal obligations. The Commercial Division held that to “establish alter ego liability sufficient to pierce the corporate veil, the complaining party must establish that the owners of the entity, through their domination of the company, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against the party asserting the claim such that a court in equity will intervene.”
Commercial Division Amends Rule 3 to Encourage Mediation
This new amendment was enacted by the Division in order to encourage opposing counsel to work together to select a mediator for commercial cases, including by consulting rosters of neutral mediators provided by Commercial Division courts.
Advisory Council Proposes a Series of Commercial Division Rule Changes
In 2019, the Commercial Division Advisory Council proposed four changes to the Commercial Division Rules: (1) Proposed Amendment to Rule 1 to allow counsel to participate in court proceedings from remote locations via videoconference; (2) Proposed Amendment to Rule 6 to increase the font size of footnotes from 10-point to 12-point and require the use of a proportionally spaced serif typeface in all papers filed with the Court; (3) Proposed Amendment to Rule 11-g to allow parties to designate certain documents as highly confidential—for attorney’s eyes only; and (4) Proposal to Repeal Rule 23 (known as the “60-Day Rule”) that requires movant’s counsel to notify the court and other parties whenever a motion has not been decided within 60 days of its submission or oral argument. We will continue to follow the progress of these and other proposed rule changes as they develop.
