On April 7, Cassandra Porsch will be presenting as part of the faculty panel at a CLE at the New York City Bar Association on the topic of working with co-counsel. She will discuss the ethical and practical implications of working with co-counsel in the cross-jurisdictional litigation context. The program can be attended in-person or by webcast. More information is available here: (Live Webcast/In-Person) Working with Co-Counsel: Solos and Small Firms – New York City Bar CLE Programs (www.nycbar.org)
SZS Congratulates its Attorneys Selected for the 2021 Super Lawyers Publication
Daniel Brooks ― Securities Litigation, Employment Litigation, Intellectual Property Litigation
Bart Eagle ― Business Litigation, Business/Corporate, Alternative Dispute Resolution
Jonathan Landers ― Bankruptcy Law
Cassandra Porsch ― Business Litigation, General Litigation
Robert Shansky ― Real Estate, Environmental
New York Court of Appeals Holds that Foreign Corporations Authorized to Do Business in New York Do Not Consent to Personal Jurisdiction in New York by Designating an In-State Agent for Service of Process
Foreign corporations seeking authorization to do business in New York are required to register with the New York Secretary of State and designate an in-state agent for service of process (Business Corporation Law §§1301, 1304). By registering to do business in New York and appointing an in-state agent to receive service of process, do foreign corporations consent to jurisdiction? In its recent decision in Aybar v. Aybar, 2021 Slip Op 05393, 2021 WL 4596367 (October 7, 2021), the Court of Appeals held that they do not.
Jose Aybar, a resident of New York, owned a Ford Explorer, which he purchased in New York, equipped with Goodyear tires, and registered with the New York Department of Motor Vehicles. While driving back from Florida with family members, all of whom were New York residents, the car crashed, in Virginia, killing or seriously injuring the passengers. An action was commenced by the passengers or their estates, in New York, against Ford, Goodyear and others, alleging that the accident was caused by Ford and Goodyear’s negligence. Neither Ford nor Goodyear are incorporated in New York. Both companies have registered to do business in New York and have designated, in compliance with the BCL, an in-state agent to receive service of process.
In the trial court, Ford and Goodyear moved to dismiss for lack of jurisdiction. The plaintiffs opposed the motion on several grounds, including that Ford and Goodyear had consented to jurisdiction in New York by appointing an in-state agent to receive process. The trial court denied the motions, holding that it could exercise general jurisdiction over both defendants and that they had consented to jurisdiction. On appeal, the Appellate Division reversed and granted Ford and Goodyear’s motions to dismiss the complaint (see 169 AD3d 137, 152-153 [2d Dept 2019]). The Court of Appeals granted leave to appeal.
The Court of Appeals, in a 5-2 decision, affirmed the order of the Appellate Division and held, “[A] foreign corporation’s registration to do business and designation of an agent for service of process in New York does not constitute consent to general jurisdiction under the Business Corporation Laws plain terms” (2021 WL 4596367 at *2 [citation omitted]).
The court distinguished its prior case, relied upon by the plaintiffs, Bagdan v Philadelphia & Reading Coal & Iron Co., 217 NY 432 [1916], stating that its holding in Bagdan “was limited to the effect of service of process to which a foreign corporation consented; we did not determine that a foreign corporation consented to general jurisdiction by registering to do business and designating an agent for service of process” (2021 WL 4596367 at *3).[1] Further, the Court acknowledged that its analysis in Bagdan would be different today from what it was at the time it was rendered.
Reviewing Supreme Court jurisprudence concerning the due process clause of the 14th Amendment and evolving jurisprudence, citing Goodyear Dunlop Tires Operations, S.A. v Brown, 564 US 915 [2011] and Daimler AG v Bauman, 571 US 117 [2014], the Court stated, “Today, ‘the exercise of general jurisdiction in every [s]tate in which a corporation engages in a substantial, continuous and systematic course of business’ would be ‘unacceptably grasping’ [citations omitted]” … “[A] court may assert general jurisdiction over foreign … corporations to hear any and all claims against them when their affiliations with the [s]tate are so ‘continuous and systematic’ as to render them essentially at home in the forum [s]tate” (2021 WL 4596367 at *6 [citations omitted] [emphasis added]). “At home” has been interpreted to mean the place where corporation is incorporated or maintains its principal place of business. “The [Supreme] Court left the door open to ‘the possibility that… a corporation’s operations in a forum other than its formal place of incorporation or principal place of business may be so substantial and of such a nature as to render the corporation at home in that [s]tate,’ but characterized such scenario as an ‘exceptional case’” (id. [citation omitted]).
Thus, the exercise of general jurisdiction over foreign corporations based upon registering to do business in New York alone has been foreclosed. However, specific case-linked jurisdiction over a foreign corporation, such as may result from long-arm jurisdiction, still exists.
What does this mean? Is this just an academic exercise? Not really. There has been significant debate concerning the issue, both on legal (constitutional) and public policy grounds. The Court in its decision in Aybar decided the issue on legal grounds. Recently, the New York State legislature passed legislation, which has not yet been signed by the governor,[2] which provides that a foreign corporation’s application for authority to do business in this state constitutes consent to jurisdiction of the courts of New York State. Public policy arguments in support of the legislation include that “[b]eing able to sue New York-licensed corporations in New York on claims that arose elsewhere will save New York residents and others the expense and inconvenience of traveling to distant forums to seek the enforcements of corporate obligations’” and that it would provide “certainty regarding personal jurisdiction over out-of-state businesses…” (Sponsor’s Memorandum in Support of the Proposed Legislation). Public policy arguments in opposition to the proposed legislation include that its enactment could deter foreign businesses from coming to New York; that some out-of-state corporations will not register and appoint a New York agent for service of process, increasing the difficulties of effecting service on those entities; and that New York would “become the world’s courtroom,” requiring New York courts to engage in a tedious, case-by-case inquiry to resolve innumerable forum non conveniens arguments and resolve the many procedural and substantive issues that remaining cases present when those cases might have been brought elsewhere (see, e.g., letter of the New York City Bar Association to the Hon. Kathy Hochul dated August 26, 2021, submitted in opposition to the proposed legislation). The fate of the proposed legislation is uncertain, especially given the Court of Appeals decision in Aybar. Stay tuned.
[1] In Bagdan, the foreign defendant conceded that it was engaged in unrelated business in New York. The plaintiff’s causes of action were unrelated to the business transacted by the defendant in New York.
[2] A. 7769 (M. of A. Weinstein)/S. 7253 (Sen. Gianaris).
The Hard Question — When to Bring Evaluation into the Mediation
Mediators and parties grapple with when a mediator should take on evaluation in the mediation process. Bart Eagle addresses this in his recent article.
BIG DATA ― For Good or Evil …
BIG DATA ― For Good or Evil …
What is commonly now called “Big Data” is central to American commerce as well as the day-to-day lives of Americans. Big Data is very often discussed in terms of individual privacy issues. Increasingly, however, it has become apparent that analysis of data collected by large companies from many consumers can serve many good purposes such as enhancing individual safety. The Firm has taken on a matter with implications for when a large company has an obligation to use that data for good purposes.
Significantly, while the emergence of Big Data in daily life is relatively new, long-established principles of tort law are well-stated to address these new scenarios and impose a duty of care. Where there is Big Data aggregation in commerce, those who collect it for gain also have a duty to deploy it to protect customers against foreseeable harms. Put differently, a business analyzing and exploiting consumer data for profit may be able to deploy its analytics tools to achieve protections or other benefits for those same consumers with minimal effort ― and under traditional tort law analysis, in some scenarios, it has a duty to do so.
The litigation is unusual for the Firm’s commercial litigation practice — a wrongful death case involving the murder of an Uber driver while on the job ― but the issues have broad implications. A brief we recently filed opposing a motion to dismiss provides an introduction to those issues at pp. 1-5 and 19-32 here …
Bart Eagle Presents a New CLE Program on Forensic Accounting
Please visit this link for more information about the program:
Two Critical Factors Are Emerging in Apparently Conflicting New York Decisions on Commercial Tenants’ Lease Liability During the COVID Pandemic …
Two Critical Factors Are Emerging in Apparently Conflicting New York Decisions on Commercial Tenants’ Lease Liability During the COVID Pandemic: The Importance of Specific Lease Terms and the Importance of Tenants’ Alternate or Partial Use of Space During Government Restrictions
From the Desk of Cassandra Porsch …
The litigation between commercial tenants and landlords over tenant obligations to pay rent during COVID shutdowns and restrictions continues unabated. Three recent decisions involving retail commercial tenants add to the landscape of case law illuminating the rights and obligations of the parties in the COVID pandemic context. An emerging trend may be gleaned from the three cases discussed here: (i) tenant claims for relief may have traction if they are not burdened by a specific adverse lease clause and are seeking relief for a period when they were totally deprived of the use of their space; while (ii) various specific lease clauses protecting the landlord in situations generally like this pandemic or partial use of leased premises may be an obstacle for tenants with that problematic baggage.
In one recent case, the Kings County Supreme Court found that a Brooklyn baby shop was excused from paying its rent arrears due to the doctrine of impossibility of performance. In 267 Development LLC v. Brooklyn Babies and Toddlers, LLC, et al., No. 510160/2020 (Sup. Ct. Kings Co.), the Court found that the government shut down of non-essential businesses rendered the lease objectively impossible ― the subject of the lease was “destroyed.” The Court analogized the situation to an impossibility of performance case arising out of the September 11, 2001 terror attacks, where a travel contract was deemed to be rendered impossible due to travel shutdowns.
Notably, unlike the facts in the two other cases discussed here, there was no mention of any sort of ongoing partial use of the leased premises such as curbside pick-up or shopping by appointment. Accordingly, it may have been easier for the Court to find that the subject matter of the lease agreement was “destroyed,” one of the elements in conducting an impossibility of performance analysis, than it would be where some use persisted.
This case represents a significant win and an expansion of the tenant arsenal in this sphere of litigation.
In The Gap, Inc. v. Ponte Gadea New York LLC, 20-cv-4541 (S.D.N.Y.), the Gap and its landlord cross-moved for summary judgment against one another, with the Gap trying to vitiate its lease and the landlord trying to enforce it. The Gap had operated a Gap and Banana Republic store on the corner of 59th and Lexington Avenue for many years. The Gap argued that the pandemic had deprived it of the benefit of the bargain to which it was entitled under the lease: a location in the center of a heavily foot-trafficked business district just above the intersection of several subway lines. With the pandemic, shut down orders, and then only a small fraction of Manhattan office workers and tourists returning once restrictions were relaxed, Gap argued that the lease should be deemed terminated as of March 2020 when the government first shut down non-essential businesses. During the state’s phased re-opening, the Gap did not re-open those two stores to shopping, despite re-opening other nearby stores.
The Gap tried several approaches to abandon its lease, none of which were successful with the Court. First, the Gap argued that the pandemic constituted a “casualty,” which would mitigate its lease obligations while the landlord was required to remediate the casualty conditions. The Court rejected this argument because the relevant term of the lease was titled “Fire or other casualty,” and the section “described in detail restoration obligations in the event of a casualty, making it clear that it referred to singular incidents having a physical impact on the premises, such as a fire.” The Court noted that there was no way the landlord could do “restoration work that would eliminate the pandemic of alter government restrictions on operations.”
The Gap also argued that it should be excused from its lease obligations under the now-familiar doctrines of frustration of purpose and impossibility of performance. The Court rejected the frustration of purpose argument because it required that the purpose of the lease be “completely” frustrated, not simply that the transaction was not as profitable for the affected party or even that the party would sustain a loss. The Court also noted that, contrary to the Gap’s arguments that it could no longer use its premises during the shut down and then restricted reopening, it did use the stores to offer curbside pick up as well as for online order fulfillment.
Similarly, the Court denied relief on the doctrine of impossibility of performance on which 267 Development was decided for a tenant. The Court held that this doctrine requires a lack of foreseeability of the circumstances causing the impossibility. The Court then noted that lease contained a force majeure provision which specifically foresaw and allocated the risk that government measures taken in conjunction with a public emergency could affect performance. Finally, the Court found that the Gap was not entitled to lease rescission for failure of consideration, remarking that the retailer did continue to receive value under the lease — space to house its merchandise and process online fulfillment and in-store pickup — so it could not be said that it was receiving no value for its rent.
On the luxury end of the retail spectrum, Valentino made similar arguments in a complaint seeking declaratory relief in an attempt to be released from the terms of its lease for a prime location on 5th Avenue, for which it was paying approximately $19 million per year in rent. In Valentino USA Inc. v. 693 Fifth Owner LLC, No. 652605/2020 (Sup Ct. N.Y. Co.), Valentino sought relief from its lease on familiar grounds of impossibility of performance, frustration of purpose and failure of consideration. In a short decision, the Court dismissed the complaint based upon documentary evidence and failure to state a claim.
This Court found that the specific language of the lease between the parties foreclosed Valentino’s arguments because it contained a provision specifically stating that cataclysmic events or restrictive governmental laws or regulations would not excuse the payment of rent. Perhaps recognizing the limitations of its more traditional arguments in light of this very restrictive lease provision, Valentino also tried a more novel argument of constructive eviction.
The doctrine of constructive eviction excuses a tenant from its lease where the landlord has caused a disturbance rendering the premises uninhabitable and unsuitable for the purposes for which they were leased. Here, the Court found this doctrine inapplicable because there was no wrongful act by the landlord (as opposed to a pandemic and government restrictions) depriving Valentino of the beneficial enjoyment or actual possession of the premises. Further, a tenant arguing constructive eviction must plead that they actually vacated the premises. While Valentino ultimately did vacate, the Court noted that it continued to operate by curbside retail and by appointment for several months beforehand.
These two cases indicate that both the Gap and Valentino may have been disadvantaged in their arguments due to restrictive lease terms, and were also hamstrung in attempting to seek total rent relief when they did utilize the premises in at least some manner.
Overall, it appears that the ability of a commercial tenant to obtain rent relief for COVID-related shutdowns or restrictions may come down to the presence or absence of (i) a specific lease term that at least comes close to speaking directly to the pandemic scenario and (ii) the tenant’s ability to use the leased premises in any way during the relevant time periods. Tenants seeking rent relief should consult with an experienced commercial litigator to evaluate their circumstances.
When It Comes to Transformative Art, the Second Circuit Knows It When It Sees It
From the Desk of Dan Brooks ―
The Second Circuit’s recent Andy Warhol fair use decision attempts to clarify its Cariou standard, which remains conclusory and continues not to offer meaningful guidance or predictability. Continue reading “When It Comes to Transformative Art, the Second Circuit Knows It When It Sees It”
Commercial Division Rule Changes — CLE Program Co-Chaired by Bart Eagle
A significant program — Co-Chaired by our colleague Bart Eagle …
A lot just changed in New York State’s Trial Courts …
I will be speaking about those changes this week at a NYSBA CLE program.
Please join us if you can:
Wednesday, February 17, 2021 — 12:00 p.m. – 1:00 p.m. EST
(1.0 MCLE Credit)
The New Trial Court Rules Are Here. What New York Practitioners Need To Know. Are You Ready?
Highlights of the New Trial Court Rules.
Learn about the changes Administrative Order 270/20 makes to the Uniform Rules, effective February 1st, which will affect Supreme and County Courts.
To register, vist here
The impact of these changes will include a wide array of issues:
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Faculty:
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