A New York Supreme Court judge has reminded parties to be extremely careful in discarding computer system components during the pendency of litigation.  In a March 30, 2016 opinion in Ferrara Bros. Building Materials Corp., et ano v. FMC Construction LLC, et ano, Sup. Ct., Queens Co., Index No. 16452/2007, the Court sanctioned a defendant for allegedly swapping out an older computer system for a newer one while discovery was still pending, even though a request for metadata on the computer had not been made at the time of the replacement.

In Ferrara, plaintiff sought damages for breach of its contract with defendant FMC Construction LLC (“FMC”) to provide concrete for a construction project (the “Ferrara Contract”) based, inter alia, on the alleged interference of defendant Casa Redimix Concrete Corp. (“Casa”).  In its defense, Casa alleged that it had entered into its own contract with FMC to provide the same concrete (the “Casa Contract”) on a date earlier than that set forth in the Ferrara Contract.  Later in the case, while discovery was still pending, plaintiff requested metadata related to the creation of the subject documents constituting the Casa Contract.  Casa responded by providing some document metadata, but stating that the computers and servers on which the document had been created had been replaced as part of an alleged company-wide technical upgrade.  This replacement had resulted in the loss of valuable and relevant “system metadata” capable of showing the author, date and time of creation, as well as the dates of any revisions of the contested documents.  Plaintiff then moved for sanctions regarding the spoliation of such evidence.  Casa opposed the motion by arguing that there was no bad faith intent to destroy the evidence, that it should not be penalized because the request had not been made by Ferrara until years after the case had begun, and that, in any event, the evidence was not relevant.

In its thoroughly researched opinion, the Court first went through the legal precedent reviewing metadata as discoverable evidence and then noted that there was no issue that the metadata at issue had been destroyed. Thus, the only questions to be determined were whether Casa knew or should have known the destroyed material was relevant, whether any delay by plaintiff to request the metadata waived plaintiff’s right to the request, and what sanction, if any, was appropriate.  The Court ruled that, given the question of alleged back-dating of the Casa Contract, the “system metadata” was clearly relevant to the case.

The Second Circuit, acting after receiving guidance from the New York State Court of Appeals, has rejected the assertion of a New Jersey attorney that New York’s “working office” requirement was unconstitutional.  In Schoenfeld v. Schneiderman, et al., 2016 WL 1612845 (2nd Cir. 2016), decided on April 22, 2016, a divided panel upheld the requirement of N.Y. Judiciary Law § 470 that a nonresident member of the state bar could only conduct the business of law in the State of New York if she had a physical office for the transaction of business within the State.  For now, the ruling clarifies the type of office needed to meet this requirement beyond merely having an address at which to receive service.

In Schoenfeld, the plaintiff was a resident and attorney of the State of New Jersey who had passed the New York bar and believed that the working office requirement was a violation of the Privileges and Immunities Clause of Constitution (U.S. Cons., art. IV, § 2) prohibiting discrimination by one State against the citizens of another State.  Plaintiff argued that, insofar as New York residents could fulfill the office requirement with a home office, it was discriminatory against non-resident attorneys who could not similarly practice law out of their homes.  After a judge in the Southern District of New York agreed, the New York Attorney General (“NYAG”) appealed the decision to the Second Circuit.  The NYAG argued that the no constitutional impediment should be found because (1) the office requirement could be met by having an address at which service could be made within the State and, (2) even if non-resident attorneys were treated differently, any burden was insubstantial and substantially related to the oversight of service of papers within the State.  Upon the filing of the appeal, in order to determine if there was a threshold constitutional question, the Second Circuit certified a question for the New York Court of Appeals to answer: what are the minimum requirements necessary to meet the working office requirement of Judiciary Law § 470?  In an opinion that tracked the history of the statute and its predecessors, the New York Court of Appeals determined that, since the original requirement that an office was needed for service of process concerns had been severed from later versions of § 470, the wording of the statute at present could only mean that a physical office located within the State of New York, and not just an address for service of papers, was required. Schoenfeld v. State of New York, et al., 25 N.Y.3d 22 (2015).

Having received the answer to its certified question, the Second Circuit then ruled, based on its interpretation of the U.S. Supreme Court opinion in McBurney v. Young, 133 S. Ct. 1709 (2013).  The Second Circuit held that, in the absence of any “protectionist” intent with respect to the passage of the original version of the statute, the mere fact that citizens of other states may be treated differently did not automatically result in a violation of the Privileges and Immunities Clause.  2016 WL 1612845, at *5.  With specific regard to Judiciary Law § 470, the Second Circuit found that the statute had been enacted to ensure that non-resident attorneys could practice in New York, not to protect New York attorneys from non-resident attorneys.  Thus, no protectionist intent was shown. Id., at *5 – *7.  The Second Circuit further noted that the working office requirement was not a substantial burden on a non-resident attorney’s ability to practice law. Id., at *8.  Indeed, the Second Circuit argued that plaintiff herself was seeking favoritism in light of her request to be freed from a restriction that applied to every member of the New York State Bar wishing to practice law in the State. Id., at *9.

Construction contracts typically contain indemnification clauses which shift the financial burdens and risks between and among various parties.  Although these clauses are common, their precise meaning and effect can still raise novel legal issues.  Recently, Justice Carolyn Demarest of the Commercial Division in the Brooklyn Supreme Court rendered a decision grappling with certain issues of first impression in Board of Managers of the 125 North 10th Condo v. 125 North 10, LLC (Supreme Court Kings County Index Number 14982/2012).

Plaintiff Board of Managers brought the underlying action against the sponsors of the condominium in question.  The sponsors, in turn, brought third party claims against their construction manager, Ryder Construction, Inc.  Ryder then brought claims for contractual and common law indemnification, and declaratory relief, against fifteen subcontractors who had worked on the project.  These fifteen subcontractors moved to dismiss Ryder’s claim against them and the sponsors claim against Ryder, among other things.

Justice Demarest, in a decision dated January 26, 2016, dismissed Ryder’s claims for declaratory relief, holding that it was essentially duplicative of the claim for contractual indemnification.

New York’s highest court recently issued a decision (after remaining silent for years) concerning sanctions for spoliation of destroyed ESI.  See Pegasus Aviation I, Inc. v. Varig Logistica S.A., 2015 WL 8676955, 2015 N.Y. Slip Op. 09187 (Dec. 15, 2015).  The trial court originally found that a company’s corporate parent had sufficient control over a subsidiary’s operations to be liable for spoliation of evidence when the subsidiary company failed to issue a litigation hold notice.  That failure to institute a litigation hold notice, combined with several computer crashes resulting in the loss of much of the ESI, rose to the level of gross negligence, according to the Supreme Court.  Where the destruction of evidence is merely negligence, the relevance of the lost material must be proven by the party seeking spoliation sanctions – otherwise, relevance is presumed.  Thus, based on the Supreme Court’s finding of gross negligence in the Pegasus case, the relevance of the missing ESI was presumed.  Based on this finding, the trial court struck the answer of the subsidiary and imposed a trial adverse inference sanction against the parent company with regard to that ESI.

The First Department reversed the sanctions imposed against the parent company, rejecting the lower court’s holding that the failure to institute a litigation hold amounted to gross negligence per se.  The Appellate Division reasoned that this failure supported, at most, a finding of simple negligence.  Because there was only a showing of simple negligence, the plaintiff had failed to prove that the missing ESI was relevant per se and the adverse inference was therefore improper.

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Can a cooperative apartment owner claim to be “ready, willing and able” to close where the board of directors of the cooperative has threatened to try to reclaim exclusive rights to penthouse terrace access that the buyer bargained for?  According to the First Department, the answer may well be “No” in the absence of “unequivocal assurances” from a meddling board.

In Pastor v. DeGaetano, et al., 128 A.D.3d 218 (1st Dep’t 2015), the defendant, an estate owner of a luxury penthouse apartment (the “Seller”), sought summary judgment dismissing the complaint seeking the return of the plaintiff’s (the “Buyer”) $2.75 million deposit.  The factual record shows that, despite the Seller’s 50 years of exclusive access to the penthouse terrace and the existence of a proprietary lease clearly spelling out such exclusive use, the cooperative board (the “Board”) sent a letter to the prospective buyer advising that the upper roof of the building was common property available to all unit owners.  Since the upper roof was only accessible by walking across the penthouse terrace, the letter amounted to a notification that the terrace would no longer be exclusive to the Buyer.  After the Board unsuccessfully attempted to get the Buyer and Seller to execute an agreement confirming the same rooftop access right, the Seller commenced a declaratory judgment action against the Board seeking a declaration that the Seller, and the prospective Buyer, had exclusive rights to the terrace.  This action was subsequently settled without the issuance of the requested declaration.  The Buyer was not satisfied with this conclusion and attempted to cancel the contract and regain his deposit.  When the Seller instead set a closing date, the Buyer refused to close and commenced the lawsuit at issue.  The Seller then moved for summary judgment and the trial grant granted the motion, holding that the Seller had proven that it was “ready, willing and able” close.

The First Department, however, disagreed.

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The First Department has reversed a trial court ruling dismissing a third-party action where an architect claimed that a contractual indemnification clause in its agreement with the sponsor of a condominium development was of no consequence.

In Board of Managers of Hester Gardens v. Well-Come Holdings, LLC, 128 A.D.3d 601, 10 N.Y.S.3d 72 (1st Dep’t 2015), the First Department considered a lower court dismissal of a third-party complaint brought by the sponsor of a condominium development (the “Sponsor”) against, among others, the architect retained by the Sponsor to design the development and inspect the on-going construction (the “Architect”). The Sponsor had already been sued by the Board of Managers of the development (the “Board”) for numerous alleged defects in the design and construction of the development. As is typically the case, many of the claims of the Board sounded in negligence and fraud due to the alleged failure of the development to conform to the statements and plans published in the offering documents and other advertising materials. The Architect was also sued by the Board, but successfully obtained dismissal of the claims against it because there was no contract between itself and the Board (or any of the individual unit owners).

After the Architect was dismissed from the main action for lack of privity, the Sponsor brought a third-party action against the Architect (and others) alleging that, under the relevant contract, the Architect was liable to indemnify the Sponsor for the Architect’s own “intentional acts, errors and omissions” and breaches of the contract. The Architect moved, pre-answer, to dismiss the third-party complaint, alleging, among other things that, due to the nature of the primary claims against the Sponsor, i.e, negligence and fraud, the third-party action actually sought indemnification from the Architect for the Sponsor’s own bad acts.

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Earlier, we reported on a Commercial Division case, Minelli Construction Corp. v. WDF Inc., et al., N.Y. Co. Index No. 105989/2011, in which a trial court upheld the commonly found clause in construction contracts which allows a party who terminates a contractor or sub-contractor for cause to automatically convert the termination into one for convenience if proper cause for the termination is not later found by a Court. (“Contractual Termination Conversion Clause Upheld,” 4/22/15.) We noted that the plaintiff had appealed from the ruling, which struck its lost profits claim from the case, and stated that we would update the post after the appeal was heard and decided. That day has come.

On December 15, 2015, a First Department panel unanimously upheld the lower court’s grant of summary judgment dismissing the lost profits cause of action. 2015 WL 8687654, 2015 N.Y. Slip Op. 09205. The First Department held that both clauses relied upon by the defendant, the termination for convenience clause and the termination conversion clause, were enforceable. Moreover, the First Department noted that termination for convenience clause, when exercised, was enforceable “without regard to [plaintiff’s] good faith, or lack thereof”. Thus, whether or not the defendant engaged in bad faith in terminating the plaintiff from the project for cause, the existence of the conversion clause in the contract meant that plaintiff could not recover lost profits for a wrongful termination of the contract. Rather, pursuant to the clear and unambiguous terms agreed to by the parties, if a termination for cause was found not to be valid, the termination would automatically convert to a termination for convenience and the terminated party would be limited solely to seeking payment for work already performed.

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When can an architect or engineer be held responsible for damage to a neighboring building caused by excavation for a project they designed?  That question was addressed by two recent appellate division decisions, in which the courts considered the level of the design professional’s involvement, and the theory under which they are being sued.

The two most common claims asserted by adjacent owners against design professionals in this situation are for negligence and breach of Administrative Code §28-3309.4, which imposes absolute liability upon a person who causes an excavation to be made. (While courts generally treat violation of a municipal ordinance, such as the Administrative Code, as only some evidence of negligence, Administrative Code §28-3309.4 in particular is treated differently because it was originally a State statute. The New York Court of Appeals has held that its violation can be the basis for absolute liability. See Yenem Corp. v. 281 Broadway Holdings, 18 N.Y.S.3d 481, 941 N.Y.S.2d 20 (2012).)

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The Kings County Supreme Court has once again dismissed, on statute of limitations grounds, an action commenced by Save the View Now (“STVN”) against the Pierhouse hotel/condo complex currently being built in Brooklyn Bridge Park.   STVN previously sought a temporary restraining order and a preliminary injunction halting construction of the two buildings that comprise the Pierhouse, on the ground that the structures violated the building height limitations set forth in the 2006 Modified General Project Plan (“MGPP”), which governs the development of Brooklyn Bridge Park.  The request for injunctive relief was denied as untimely, but STVN returned to court in August 2015 with what is argued to be newly discovered evidence.

Pier 1 Development

The Pierhouse development located in Pier 1 of the park includes two buildings.  Throughout the approval and construction of the Pierhouse there has been much discussion about the negative impact the development would have on the views of the Brooklyn Bridge and Manhattan skyline as seen from the Brooklyn Heights Promenade.  As recognized by Judge Knipel in his first decision, the panorama is “an iconic, world-class view worthy of the maximum protection the law can afford.”  STVN argues that these views are being compromised because the Pierhouse has exceeded the maximum height permitted under the MGPP, which was designed to protect the views of from the promenade.

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Given the steadily rising costs of attorneys’ fees, it is not surprising that the awarding of fees has recently been the focus of numerous judicial opinions.  In fact, earlier this year, the New York Court of Appeals handed down two decisions on the same day regarding prevailing parties and awards for attorneys’ fees: one which awarded attorneys’ fees, the other which denied them.

In Graham Court Owner’s Corp v. v. Taylor, 24 N.Y.3d 742, 5 N.Y.S.2d 348 (2015), the Court held that a tenant was entitled to recover attorneys’ fees after prevailing in his defense of the landlord’s holdover proceeding under Real Property Law Section 234.  Under this statute, where a residential lease allows a landlord to recover attorneys’ fees resulting from the tenant’s breach of the lease, the tenant is given a reciprocal right to seek fees incurred as a result of the landlord’s breach of the lease or the tenant’s successful defense of a proceeding commenced by the landlord.  Specifically, Section 234 provides, in pertinent part, as follows:

Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform an covenant or agreement contained in such lease … there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease.

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