An order of attachment is a provisional remedy that prevents a defendant from disposing of assets during the pendency of an action. In cases in which a defendant disposes of property with intent to defraud creditors or frustrate the enforcement of a judgment, Article 62 of the CPLR provides a mechanism to preserve those assets. Westchester Commercial Division Justice Linda Jamieson recently granted this remedy in Richard Stadtmauer et al. v. Mark Nordlicht et al., Index No. 51825/2020.

The Facts

In 2003, Nordlicht co-founded the Platinum Funds, a Manhattan-based family of hedge funds. PPVA was Platinum Funds’ signature fund and a master fund with three feeder funds. Plaintiffs are two investors in PPVA who lost millions of dollars following the fund’s collapse. Nordlicht personally guaranteed repayment of certain promissory notes issued to Plaintiffs by PPVA.

In January 2020, in a JAMS arbitration commenced by Plaintiffs against Nordlicht to enforce the personal guaranty, Hon. Bernard Fried (Ret.) issued a final award in favor of Plaintiffs in the amount of $14,896,316.16. Immediately thereafter, Plaintiffs commenced a proceeding in the Southern District of New York to confirm the award. Nordlicht sought to have the award set aside on the grounds that he lacked the resources to pay it.

Plaintiffs simultaneously commenced an action in the Westchester Commercial Division, asserting claims for constructive fraudulent transfer, actual fraudulent transfer, and reverse veil piercing to unwind Nordlicht’s scheme, and seeking a prejudgment order of attachment preventing Defendants from transferring, encumbering, or otherwise affecting title to the properties in New Rochelle and New York City.

Applicable Legal Standards

As Justice Jamieson held, “[t]he law on attachments is well-settled” and Plaintiffs’ burden “is onerous.” The Second Department has explained: “Attachment is a provisional remedy designed to secure a debt by preliminary levy upon the property of the debtor to conserve it for eventual execution, and the courts have strictly construed the attachment statute in favor of those against whom it may be employed.” Hume v. 1 Prospect Park ALF, LLC, 137 A.D.3d 1080, 1081, 28 N.Y.S.3d 125, 126 (2d Dep’t 2016).

“In order to obtain an order of attachment under CPLR 6201(3), the plaintiff must demonstrate that the defendant has or is about to conceal his or her property in one or more of several enumerated ways, and has acted or will act with the intent to defraud his or her creditors, or to frustrate the enforcement of a judgment in favor of the plaintiff.” Mineola Ford Sales Ltd. v. Rapp, 242 A.D.2d 371, 371, 661 N.Y.S.2d 281, 282 (2d Dep’t 1997) (citations omitted).

Further, “[t]he moving papers must contain evidentiary facts – as opposed to conclusions – proving the fraud.” Id. “In addition to proving fraudulent intent, plaintiffs must also show probable success on the merits of the underlying action ….” Id. (citations omitted). Finally, “the movant must show that the amount demanded from the defendant exceeds all counterclaims known to the plaintiff.” Reed Smith LLP v. LEED HR, LLC, 156 A.D.3d 420, 420, 67 N.Y.S.3d 9 (1st Dep’t 2017).

Application

Plaintiffs argued that Nordlicht strategically disposed of substantially all of his assets by placing them beyond the reach of his creditors under the names of his wife, various LLCs, trusts, overseas entities and other shell entities. They explained Nordlicht’s modus operandi for disclaiming legal ownership of his assets while still exercising control:

“Mr. Nordlicht has arranged his affairs to transfer and keep assets out of his name and to avoid being held accountable to creditors. To carry out this scheme, Mr. Nordlicht has adopted a specific modus operandi in his financial arrangements. First, Mr. Nordlicht organizes a shell company with his wife, Ms. Kalter, having nominal ownership and control. Second, notwithstanding his ownership in name, Mr. Nordlicht in fact controls and dominates the shell company, directing or participating in substantially all financial decisions for it. Third, any funds or interests in the shell company are extracted to accounts held by Ms. Kalter or another closely affiliated party, such as a family-owned LLC or trust.”

Justice Jamieson found that Plaintiffs adequately explained Defendants’ “intricate attempts to insulate Nordlicht from his significant creditors, with ample, substantiated details” and that Defendants acted with the required fraudulent intent.

Further, many of Defendants’ positions – for example, that Ms. Kalter was the only one with control over a given LLC – were rejected as “entirely implausible or directly contradicted by evidence that plaintiffs submit on reply.” Although Ms. Kalter claimed to be the only one who ever had control over a particular entity, Plaintiffs submitted emails showing that Nordlicht in fact had control. Plaintiffs also submitted, among other evidence, documents with “two extremely different versions of Kalter’s signature, claiming that one of those versions is a forgery.”

Finally, the amount demanded against Defendants exceeded the value of any counterclaims as the arbitration award conclusively resolved all counterclaims against Nordlicht, who received nothing.

Accordingly, Plaintiffs were granted an order of attachment.

Takeaways: Disposing of one’s assets that should be subject to execution to satisfy outstanding debts will not render oneself “judgment proof.” And, to obtain an order of attachment, plaintiffs must satisfy an onerous burden.

To learn more about new developments in the Westchester Commercial Division, please subscribe to the Westchester Commercial Division Blog.

George Krikorian, a law student at Elisabeth Haub School of Law at Pace University, assisted with the preparation of this post.

Business litigation often involves both contract and tort claims. A fraud or negligence claim that is deemed “duplicative” of a breach of contract claim, however, will be dismissed. When is that the case? The Westchester Commercial Division and the Appellate Division, Second Department recently answered this question in Oceanview Associates, LLC v. HLS Builders Corp., et al., Index No. 51687/2018, 2020 N.Y. Slip Op. 03519 (2d Dep’t June 24, 2020). 

Oceanview Associates, LLC commenced this action to recover damages for an allegedly defectively constructed parapet wall on the roof of a multi-unit residential building. The defendants included the project’s general contractor and superintendent of construction. The complaint asserted claims, inter alia, to recover damages for breach of contract, negligence, and fraud.

Westchester Commercial Division Justice Linda S. Jamieson dismissed the defendants’ negligence and fraud claims pursuant to CPLR 3211(a) on the grounds that the allegations underlying those claims were the same as the allegations underpinning the breach of contract claim. The plaintiff appealed.

The Second Department affirmed the dismissal of the plaintiff’s negligence claim.

“[A] simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated …. This legal duty must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract.” Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 389 (1987) (citations omitted). “Put another way, where the damages alleged ‘were clearly within the contemplation of the written agreement … [m]erely charging a breach of a ‘duty of due care,’ employing language familiar with tort law, does not, without more, transform a simple breach of contract into a tort claim.’” Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., 30 N.Y.3d 704, 711 (2018) (quoting Clark-Fitzpatrick, Inc., 70 N.Y.2d at 390).

Against this backdrop, the Second Department agreed with the Westchester Commercial Division and concluded: “Here, the complaint did not allege facts that would give rise to a duty owed to the plaintiff that is independent of the duty imposed by the parties’ contract” (slip op. at 3-4).

The Court also affirmed the dismissal of the plaintiff’s fraud claim.

“[W]here…a claim to recover damages for fraud is premised upon an alleged breach of contractual duties and the supporting allegations do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie.” McKernin v. Fanny Farmer Candy Shops, 176 A.D.2d 233, 234 (2d Dep’t 1991).

Here, the Second Department held that as the plaintiff’s fraud claim was based on the same allegations as its breach of contract claim “and amounted to nothing more than a failure to perform under the contract” (slip op. at 4) (citations omitted), its dismissal was proper.

Takeaway: To survive a challenge that a tort claim is really just a contract claim in tort claim clothing, a party must sufficiently allege that a legal duty, independent of the contract itself, has been violated.

To learn more about new developments in the Westchester Commercial Division, please subscribe to the Westchester Commercial Division Blog.

George Krikorian, a law student at Elisabeth Haub School of Law at Pace University, assisted with the preparation of this post.

On Monday, June 8, I co-moderated a Virtual Town Hall discussion with Hon. Linda S. Jamieson and Hon. Gretchen Walsh about litigating in the Westchester Commercial Division during COVID-19 and beyond, the Court’s operations, and the methods the justices are using to move cases forward. The justices have worked very hard throughout the pandemic, and we’re grateful for the time they took out of their busy schedules to speak with members of the Westchester County Bar Association. Here are some key takeaways:

Transition to Virtual Court

The justices have been using Skype for Business, the only video conferencing platform authorized by the New York State Unified Court System. Overall, conducting conferences and oral arguments via Skype for Business has been a smooth transition and efficient. Justice Jamieson views the use of virtual platforms as the wave of the future, at least for conferences, and encourages lawyers to do a test run before a real conference.

In addition, the justices have been flexible with attorneys during the pandemic, as they realize that it’s an especially difficult time for those with young children at home. If lawyers don’t have the ability to use Skype, the justices allow them to call in. But while the justices are understanding when it comes to attorneys’ ability to be productive at home, they don’t appreciate attorneys taking advantage of the increased flexibility.

Finally, Justice Walsh has found that the level of civility has gone up tremendously during the pandemic.

Trials

The justices agreed that trials would be difficult to conduct virtually. Both expressed concern about the ability to assess witness credibility via Skype, as it is hard to evaluate body language virtually. The justices also noted that attorneys may be uncomfortable cross-examining a witness that is not physically on the stand, as there is a risk that the witness is not answering the questions on his/her own.

As for the return of in-person jury trials, the justices agreed that they would not require jurors to come into the courthouse any time soon. Justice Jamieson noted that neither judges nor jurors want to expose themselves to COVID-19, and, it would require a great deal of maneuvering to safely space out jurors in the courtroom. Justice Jamieson believes that we’ll start to have jury trials at some point after a vaccine is available.

Settlement and ADR

The justices have been reaching out to lawyers to encourage them to settle and, during the pandemic, they have been successful in settling cases.

To learn more about new developments in the Westchester Commercial Division, please subscribe to the Westchester Commercial Division Blog.

George Krikorian, a law student at Elisabeth Haub School of Law at Pace University, assisted with the preparation of this post.

It is not uncommon for litigants to sit on their rights and, after years have passed, argue that they are entitled to delayed accrual of their claims under the discovery rule. This was the key issue in a recent decision by Westchester Commercial Division Justice Linda S. Jamieson in Gelaj v. Gelaj, et al., Index No. 68512/2019.

The Facts

Plaintiff Pashko Gelaj is the nephew of defendant Miter Gelaj (“Miter”). Plaintiff alleged that in 2009, he and his father, non-party Ndue Gelaj (“Ndue”), were equal owners of 111 East Mosholu Corp. (“Company”). Miter, however, always claimed that he was a half-owner of the Company with Ndue and Plaintiff had no interest. Critically, in 2015, Miter commenced an action concerning that issue, in which Plaintiff was a defendant.

In July 2009, the Company sold a piece of property. Plaintiff alleged that it was sold “with the expectation that half of the proceeds from the Property’s sale would be invested on [Plaintiff’s] behalf,” but alleged nothing more concerning his “expectation.” The Complaint further alleged that the proceeds were split between Ndue and Miter. Defendant Rocco Adonna, a financial advisor working for defendant AFM Advisor Group, allegedly helped both Ndue and Miter invest the proceeds of the sale.

According to Plaintiff, in April 2018 – nine years after the sale – he “inquired” about the status of his share and learned that his alleged half of the proceeds went to Miter. The Complaint was silent about the details of Plaintiff’s inquiry. Eighteen months later, Plaintiff brought four claims against Miter: fraud, constructive trust, conversion and unjust enrichment. The defendants moved to dismiss each of these claims as time-barred.

Fraud

It is well settled that “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff discovered the fraud … or could with reasonable diligence have discovered it.” Monteleone v. Monteleone, 162 A.D.3d 761, 762, 78 N.Y.S.3d 247, 248-249 (2d Dep’t 2018). Further, “[a] cause of action based upon fraud accrues, for statute of limitation purposes, at the time the plaintiff possesses knowledge of facts from which the fraud could have been discovered with reasonable diligence.” Id.

In that regard, “[t]he test as to when fraud should with reasonable diligence have been discovered is an objective one.” Gutkin v. Siegal, 85 A.D. 3d 687, 688, 926 N.Y.S.2d 485, 486 (1st Dep’t 2011). “Where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, and shuts his eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him.” Id.

Here, the transaction that gave rise to Plaintiff’s claim occurred in 2009, so the six years expired in 2015. But Plaintiff relied on the two-year discovery rule, arguing that he had no reason to distrust his uncle and doubt that he would invest the proceeds on his behalf. Justice Jamieson, citing Gutkin, supra, disagreed:

This narrative removes from plaintiff all responsibility for ensuring that the substantial proceeds were invested on his behalf. Rather, it paints a vision of a harmonious family in which plaintiff’s wishes would be carried out by Miter without question. This picture, however, is not reality. In 2015 … Miter commenced a litigation against both plaintiff and his father, among others, asserting that he – and not plaintiff- owned half of the company. Even if plaintiff was excused from not inquiring about the status of his alleged investment in 2009 or for six years thereafter, there is simply no excuse for not inquiring once he learned that Miter claimed an ownership right in the company to his exclusion. That should have been the red flag to plaintiff that caused him to inquire about the 2009 investment. [Emphasis added].

Accordingly, Plaintiff’s fraud claim was dismissed.

Constructive Trust, Unjust Enrichment, and Conversion

For a constructive trust claim, the six-year statute of limitations starts to run “upon the occurrence of the wrongful act giving rise to a duty of restitution and not from the time the facts constituting fraud are discovered.” Auffermann v. Distl, 56 A.D.3d 502, 502, 867 N.Y.S.2d 527, 528 (2d Dep’t 2008). Despite being unaware of the exact date, Plaintiff argued the wrongful act occurred when Miter withdrew the funds out of his personal investment account and used them. Justice Jamieson rejected this argument, finding that the complaint plainly stated that the wrongful act occurred at the time of the July 2009 sale when Miter deposited the proceeds into his own account. “The alleged wrong occurred when Miter put the money in his own account ‘rather than for the benefit of the plaintiff,’ not when he later took the money out of the account and used it.” Thus, the six-year statute of limitations had expired in 2015.

An unjust enrichment claim also has a six-year statute of limitations, which runs upon the occurrence of the wrongful act. Coombs v. Jervier, 74 A.D.3d 724, 724, 906 N.Y.S.2d 267, 269 (2d Dep’t 2010). Again, as the wrongful act occurred at the time of the July 2009 sale, this claim was time-barred as well.

Finally, for a conversion claim, “a three-year statute of limitation applies and runs from the date that the conversion took place, not from the discovery of the theft.” Torrance Const., Inc. v. Jacques, 127 A.D.3d 1261, 1265, 8 N.Y.S.3d 441, 446 (2d Dept. 2015). As the statute of limitations expired three years after the 2009 sale, this claim was time-barred.

Takeaway: Plaintiffs should not sit on their rights and then rely on the discovery rule to save a fraud claim.

George Krikorian, a law student at Elisabeth Haub School of Law at Pace University, assisted with the preparation of this post.

Join us on Monday, June 8, as Lachtman Cohen P.C. partner Brian Cohen co-moderates a Virtual Town Hall discussion with Hon. Linda S. Jamieson and Hon. Gretchen Walsh about litigating in the Westchester Commercial Division during COVID-19 and beyond.

See the invite for details: WCBA June 2020 Event Flyer

Register with the Westchester County Bar Association.

In civil litigation, contempt is the most severe sanction available because it can subject the offender to fine or imprisonment. A motion for civil contempt was the subject of a recent decision by Westchester Commercial Division Justice Linda S. Jamieson in Matter of Prisco v. L’Aquila Realty LLC, Index No. 58654/2018, a case concerning the breakup of a family business that we discussed in an earlier post.

The Facts

On July 8, 2019, the parties appeared before Justice Jamieson and read into the record a stipulation, in which they agreed to several buyouts that would end their business relationship (“Stipulation of Settlement”). The parties ordered the transcript and submitted it for the Court to So-Order.

On July 22, 2019, the parties privately agreed to amend the Stipulation of Settlement and executed an “Amendment to Stipulation” (“Amendment”), adding several terms to the original agreement, including that Angela Prisco “shall remove the Prisco TV name from its business.”

On September 16, 2019, Justice Jamieson So-Ordered the Stipulation of Settlement, but not the Amendment, which was not presented to the Court.

On December 16, 2019, John Prisco moved to hold Angela Prisco in contempt, arguing that she continued to use the Prisco TV name and in so doing failed “to comply with the so-ordered Stipulation.”

The parties’ agreement concerning the use of the Prisco TV name, however, was not part of the So-Ordered Stipulation of Settlement – only the (private) Amendment.

Applicable Legal Principles

Judiciary Law § 753 gives courts the power “to punish, by fine and imprisonment, or either, a neglect or violation of duty, or other misconduct by which a right or remedy of a party to a civil action or special proceeding, pending in the court may be defeated, impaired, impeded, or prejudiced.” Id. The purpose of a civil contempt order is “vindication for individuals who have been injured or harmed by a contemnor’s failure to obey a court order.” Town of Southampton v. R. K.B. Realty, LLC, 91 A.D.3d 628, 630, 936 N.Y.S.2d 228 (2d Dep’t 2012). As such, “[c]ivil contempt fines must be remedial in nature and effect and awards should be formulated not to punish an offender, but solely to compensate or indemnify private complainants.” Id. (citations omitted).

A party seeking an order of contempt must meet a high standard: “[t]o prevail on a motion to punish a party for civil contempt, the movant must demonstrate that the party charged violated a clear and unequivocal court order, thereby prejudicing a right of another party to the litigation.” Pathak v. Shukla, 164 A.D.3d 687, 688, 81 N.Y.S.3d 549, 551 (2d Dep’t 2018) (citations omitted). “To satisfy the prejudice element, it is sufficient to allege and prove that the contemnor’s actions were calculated to or actually did defeat, impair, impede, or prejudice the rights or remedies of a party.” Pathak, 164 A.D.3d at 689, 81 N.Y.S.3d at 551 (citations omitted). “[T]he movant bears the burden of proving the contempt by clear and convincing evidence.” Savel v. Savel, 153 A.D.3d 872, 873, 61 N.Y.S.3d 97 (2d Dep’t 2017).

Finally, “[w]hile a Court has the power to punish a party for Civil Contempt under Judiciary Law § 753(A) the invocation of this extraordinary relief is narrowly and strictly construed.” Kelly J.A. v. Robert F.A., 2007 N.Y. Misc. LEXIS 5429, *1 (Sup. Ct. Queens County July 16, 2007) (emphasis added).

In this case, the movant didn’t get the memo.

The Court Denies the Motion

Citing Pathak, Justice Jamieson denied the motion. “In this case, the only document that absolutely forbids [Angela] from using the Prisco name is the parties’ amendment to their stipulation of settlement,” the Court held. “It is not a Court-ordered document, and thus not ‘a clear and unequivocal court order’” (emphasis added). Justice Jamieson then cautioned, inter alia: “Should movant make another motion, he must take care to cite law in support of the relief he seeks.”

With that admonition, the movant may have gotten off easy. In Pathak, where the non-movant did not violate a court order (like Angela Prisco here), the movant was sanctioned for frivolous conduct and the non-movant was awarded his attorney’s fees incurred in opposing the motion.

Takeaway: Courts insist on strict and literal construction of contempt statutes, so motions for civil contempt should be used sparingly.

To learn more about new developments in the Westchester Commercial Division, please subscribe to the Westchester Commercial Division Blog.

In light of the COVID-19 emergency in New York State and nationwide, on March 22, 2020, Chief Administrative Judge Lawrence K. Marks directed that no papers shall be accepted for filing by a court except in “essential matters” (for example, criminal, family and domestic violence, mental hygiene, and emergency landlord-tenant).

Effective April 13, 2020, Judge Marks announced additional procedures and protocols to mitigate the effects of the COVID-19 outbreak on the court system. In addition to “essential matters,” the Commercial Division can begin moving pending business disputes forward using remote or virtual operations.

As a result, Commercial Division Justices have been reviewing their dockets of pending cases, assessing matters that can be advanced or resolved through remote court conferencing – either by video using Skype for Business or by telephone – and contacting counsel to schedule and hold conferences.

The Justices are also holding conferences at the request of the parties, if appropriate. If you believe it is necessary and appropriate to contact the Court, here is the best information (as of April 17, 2020) and protocols for the Westchester Commercial Division justices:

  • Hon. Linda S. Jamieson:
    • Communication via email by contacting assistant court attorney, Joseph Hadala: jhadala@nycourts.gov.
    • Email requests for conferences should copy counsel for all parties.
  • Hon. Gretchen Walsh:
    • Communication via email by contacting assistant court attorney Ryan Wintermute: rjwinter@nycourts.gov.
    • Email requests for conferences should copy counsel for all parties.

Justices of the Commercial Division may also decide fully submitted motions in pending cases and resolve discovery disputes and similar matters that do not require the filing of papers.

In addition, the Appellate Division, Second Department, which hears appeals from the Westchester Commercial Division, is scheduling oral arguments via Skype for Business.

In the meantime, until further notice, no new nonessential matters may be filed and no additional papers in pending nonessential matters may be filed.

In light of these restrictions and the ongoing emergency, Governor Cuomo has ordered a temporary suspension on “any specific time limit for the commencement, filing, or service of any legal action, notice, motion, or other process or proceeding,” which includes, but is not limited to “criminal procedure law, the family court act, the civil practice law and rules” or any other statute, local law, ordinance, order, rule, or regulation. As of today, those deadlines are extended through May 7, 2020, but they may be extended further.

We will keep you posted on new developments.

To learn more about new developments in the Westchester Commercial Division, please subscribe to the Westchester Commercial Division Blog.

A bankruptcy filing often puts a quick halt to efforts to collect a debt from a bankrupt debtor.  Under  11 U.S. Code § 362, the filing of a bankruptcy petition puts in place an automatic stay of collection efforts against a debtor. The stay does not, however, automatically stay proceedings against a guarantor of a debtor’s debts.

So, what happens when a plaintiff has sued both a primary obligor on a debt and the guarantor in one action and, during the pendency of that case, the primary obligor files for bankruptcy? A plaintiff seeking to pursue the guarantor can move to sever the claims against the bankrupt defendant and continue the claims against the non-bankrupt defendants.

In United Catalyst Corporation v. NCR Auto Cores & Security Inc., Index No. 69008/2018, Westchester Commercial Division Justice Gretchen Walsh explained: “In ruling on a CPLR § 603 motion to sever claims against a bankrupt defendant from those against the non-bankrupt defendants, New York courts engage in a ‘balanc[ing] of the equities’ to assess whether requiring a plaintiff ‘to await the conclusion of the bankruptcy proceeding before obtaining any remedy outweighs any potential inconvenience to the defendants’” (citation and quotation omitted).

In that case, Justice Walsh found that the prejudice to the plaintiff in having to await the conclusion of a potentially lengthy bankruptcy case far outweighed the inconvenience to the defendants. The Court, therefore, ordered severance of the case into two separate cases, with different captions and different index numbers, and stayed the case against the debtor.

Takeaway: When one defendant files for bankruptcy, the entire case need not grind to a halt. If the bankruptcy is likely to be a lengthy one, the case may be severed and proceed against the non-bankrupt defendants.

A recent decision by Westchester Commercial Division Justice Gretchen Walsh demonstrates how even a non-party subpoena from an arbitrator can quickly and irrevocably lead to party status and considerable liability if you fail to respond. The case, In re Sivanesan v. YBF LLC et al., Index. No. 67996/2018, showed that parties who believe they can take a “wait and see” approach and then seek redress with a state or federal court run a huge risk in light of the astonishingly limited scope of judicial review of arbitration awards. Here’s what happened:

An Agreement Is Breached

Petitioner Janu Sivanesan was a consultant for YBF LLC, a company that sells retail cosmetics products worldwide. In 2009, she was retained by YBF to help the company regain ownership of the “YBF” trademark and related marks from a third party. The deal closed, but Sivanesan did not get paid. Under her consulting agreement, she was entitled to hourly pay and a three-percent equity interest as compensation. After unsuccessfully attempting to secure her compensation, Sivanesan commenced an arbitration through JAMS as required in the agreement. The Arbitrator was Hon. Helen E. Freedman (Ret.).

The Arbitrator found that YBF’s owners repeatedly acknowledged its debt to Sivanesan but failed to pay her. The wrinkle came in with regard to respondents TPR Holdings LLC and Visual Beauty LLC. TPR is an investor in the health, beauty, and wellness industries. During the arbitration, TPR purchased the rights to the YBF trademarks that Sivanesan had helped YBF regain; Visual Beauty is a shell company created for that transaction. When Sivanesan learned of TPR’s purchase, she argued that TPR and Visual Beauty were successors-in-interest to YBF such that they were jointly and severally liable.

The Arbitrator Issues Subpoenas

The Arbitrator issued subpoenas to TPR and Visual Beauty, and although the two entities were not parties to the arbitration, the subpoenas made clear that Sivanesan believed them to be successors-in-interest such that they should be held liable for YBF’s alleged defaults.  When neither party appeared for the arbitration or responded to the subpoenas, Sivanesan made an oral motion at the hearing to add them as parties. The motion was granted, and the Arbitrator agreed that TPR and Visual Beauty were successors-in-interest and jointly and severally liable to Sivanesan for the compensation sought.

This got the attention of TPR and Visual Beauty. After Sivanesan filed a petition in the Westchester Commercial Division seeking an order confirming the Arbitrator’s award, TPR and Visual Beauty cross-petitioned to vacate the award. They argued that their due process rights were violated because the subpoenas did not constitute notice of the prospect that they could be added as parties should they fail to respond. TPR and Visual Beauty argued that the subpoenas only indicated that noncompliance could result in a court order compelling them to attend or, at most, punishing them for contempt.

The Court’s Decision

Under the CPLR, arbitration awards may be vacated only if the award: (1) violates a strong public policy; (2) is irrational; or (3) clearly exceeds a specifically enumerated limitation on the arbitrator’s power. As to the “irrationality” prong, an award is considered rational if “any basis for the conclusion is apparent to the court.” Even a clear legal error by the arbitrator is not grounds to vacate the award if it does not meet one of the three criteria above. Clearly, very few arbitration awards are going to fail this test.

And the one in this case, like most others, did not, as Justice Walsh was unconvinced by TPR’s arguments. The Court held that the subpoenas provided TPR and Visual Beauty with notice that the Arbitrator intended to take evidence on the issue of whether the two entities were successors-in-interest and should be held liable to Sivanesan. Apprised of that fact, the implications were clear and TPR and Visual Beauty could not complain of lack of due process. While Justice Walsh appeared to agree that TPR and Visual Beauty had received adequate notice of the possibility they could be added as parties, the Court cautioned that even if it had found fault with the Arbitrator’s approach, its ability to vacate the award would be extremely limited.

Takeaway: Under both New York and federal law, courts will be extraordinarily deferential to arbitration awards, making it all the more incumbent on counsel to respond to arbitrators’ subpoenas just as if they had been received from a court of law. In short, those who believe that an arbitrator’s decision will not be the last word do so at their peril.

Sometimes, based on the nature of an action, plaintiffs wish to present their case to a jury and file a demand for one with the court. If the defendants oppose, they can move to strike the demand pursuant to CPLR 4101. This was the subject of a recent decision by Westchester Commercial Division Justice Linda Jamieson in Hanover v. Palazzolo, Index No. 54643/2018.

This was the second case between the parties. In the first case, presided over by Westchester Supreme Court Justice Sam Walker, Christopher Hanover sued a husband and wife, the Palazzolos, and their entity, F&M Funding, LLC, over an alleged guaranty given by the Palazzolos to Hanover concerning the sale of stock of entities that owned property in the Bronx (“Prior Action”). In that first case, Hanover won a judgment of more than $350,000.

While that case was going on, F&M filed a Confession of Judgment against Hanover for $3.2 million. Hanover always said that the Confession of Judgment was forged and Justice Walker was troubled by the evidence and testimony about it. To make matters more suspicious, an F&M employee had been arrested for improperly notarizing documents, including the Confession of Judgment.

After winning the first case, Hanover filed a new action to nullify the Confession of Judgment and for damages suffered as a result of it. In June 2019, Hanover demanded a jury trial and at the end of October 2019, Defendants moved to strike the demand pursuant to CPLR 4101(1). In the meantime, Defendants vacated the Confession of Judgment.

Justice Jamieson denied Defendants’ motion to strike the jury demand for several reasons:

First, it was not made in a reasonable period of time prior to trial.

“[A]lthough a motion to strike a jury demand ‘may be made at any time up to the opening of trial, it is preferable in the interest of orderly procedure that it be made within a reasonable period prior thereto’” (quoting A.J. Fritschy Corp. v. Chase Manhattan Bank, 36 A.D.2d 600, 600, 318 N.Y.S.2d 369, 370 (1st Dep’t 1971)).

Here, Defendants waited more than four months after Hanover filed the jury demand, and less than four weeks prior to trial, to raise the issue. In denying Defendants’ motion, Justice Jamieson held: “Defendants’ motion is not returnable until only a few days before the trial, making it exceedingly unreasonable; the parties have to prepare differently for a jury trial versus a non-jury trial.”

Second, when a plaintiff asserts both legal and equitable claims, the plaintiff is entitled to a jury trial where the crux of the action sounds in tort law.

Defendants argued that Plaintiff waived his right to a jury by combining legal and equitable claims. In response, Plaintiff argued that: (i) his declaratory judgment claims are “at the heart of the claims for monetary damages for Defendants’ actions over the course of seven (7) years in maintaining and insisting on the veracity of the” Confession of Judgment; and (ii) “simply declaring the [Confession of Judgment] to be invalid would not make the [him] whole.”

Justice Jamieson agreed with Plaintiff, finding that his arguments are “in line with settled Second Department caselaw,” holding that even if some claims are equitable in nature, where “the gravamen of the action sounds in … tort law rather than equity … [s]uch causes of action are eligible for jury trial …” (quoting Harris v. Trust of Bank New York, 224 A.D.2d 790, 791, 637 N.Y.S.2d 527, 528 (2d Dep’t 1996)).

Third, Justice Jamieson explained that, if Defendants had vacated the Confession of Judgment before Plaintiff sued them, Plaintiff would not have needed the declaratory judgment claims, but still would have been able to assert his claims for damages. “Under those circumstances,” the Court held, “there would be no doubt that plaintiff would have been entitled to a jury trial.” “While the Court cannot speculate as to what prompted defendants to vacate the Confession of Judgment at this juncture,” Justice Jamieson held, “the Court will also not allow defendants to manipulate this action or the Court.”

Takeaway: If a party wants to strike a jury demand, it should do so promptly after the demand is filed. It should also refrain from employing tactics that, like here, could be perceived as an attempt to manipulate the Court.