Victor M. Metsch, Esq.

Did Intervening /Superceding  Acts Trump Breach Of Security Claim?

Michael Weiss, a psychiatrist, was conducting a patient session in his home office when Jacob Nolan, the cousin of his estranged former partner, barged unannounced into the office. Nolan was carrying a large black duffel bag and demanded that Weiss give him certain financial documents required for the child shared by Weiss and the former partner.  (Weiss and the former partner had an acrimonious relationship, with charges of abuse and assault, followed by a bitter custody dispute.)

Did Assertion of Privilege Against Self-Incrimination Warrant Dismissal Of Complaint?

Daniel Small was a portfolio manager for numerous investments of Platinum Partners, L.P., a collapsed New York-based hedge fund. As part of the compensation for his services, Small was made a member of DMRJ Group LLC and became entitled to distributions under certain circumstances. DMRJ had been formed to hold Platinum’s investment in Implant Sciences Corp., which Small managed. Small also co-managed one of Platinum’s largest investments, Black Elk Energy Offshore Operations, LLC.  Small sued DMRJ for those distributions.

Small was convicted of securities fraud and conspiracy to commit securities fraud for his part in a scheme to defraud Black Elk bondholders and deprive them of the proceeds of Black Elk’s most valuable assets through misrepresentations and omissions regarding, among other things, Platinum’s control over Black Elk bonds.       

Was $2.3M Liquidated Damages Provision Enforceable Upon Ventures’ Breach?

RDF Agent LLC and Electric Red Ventures, LLC  and others entered into a preliminary term sheet, dated July 23, 2021, in contemplation of RDF potentially lending Ventures up to $230 million to finance a real estate development project in Arizona. The term sheet provided that it was not binding except for certain paragraphs, including the paragraph entitled “Exclusivity.”

Under the exclusivity provision of the term sheet, RDF had the “exclusive right” to provide the loan for the project “for a period of sixty . . . days following the later of (i) execution date hereof, and (ii) receipt of the expense deposit [to be made by Ventures].” The 60-day exclusivity period would be “extended to the extent of any delays” attributable to Ventures, or if Ventures was “not prepared to close on the terms set forth herein,” which terms included Ventures’ obligation to provide a specified amount of equity financing for the project. During the exclusivity period, Ventures agreed “not to, directly or indirectly, solicit, make, accept, negotiate, entertain, or otherwise pursue or contact any other persons in respect of financing or any other transaction that may be an alternative to, or may interfere with, the transactions contemplated herein.” The exclusivity provision specified, as RDF’s remedy for a breach by Ventures, liquidated damages in the amount of $2.3 million, or one percent of the maximum amount of the contemplated loan, plus all costs of collection, including attorney’s fees and court costs.

Award of Nominal Damages and $30K In Legal Fees Is Challenged

In 2017, Crown Wisteria, Inc. and Fiona Madeline Cibana, owners of adjoining townhouses, entered into a license agreement that provided Cibani with limited access to Crown’s property to facilitate Cubani’s planned demolition and renovation work on her property. As a substantial term of that license agreement, Cibani agreed to use high-quality historic brick matching the front facade of her building to rebuild a party wall facing Crown’s rear wall. However, Cibana breached the agreement and chose to use a cheaper brick that was not an exact match.

Crown sued for breach of contract. In its amended complaint, Crown sought damages of no less than: (1) the cost to build a wall on Crown’s own property with matching brick; (2) the value of the loss of Crown’s property that would be occupied by the new wall; and (3) the “diminution in market value to Crown’s property due to Cibana’s breach.  Cibana served a discovery demand seeking documentation supporting the damages sought by Crowm.  Crown filed a note of issue without having produced any discovery relevant to damages.

At trial, on direct examination, Crown’s representative, Susan Stamell, did not testify at all as to the damages that she sought. On cross-examination, she testified that she sought “removal and replacement of the brick, installing brick that matches in accordance with the agreement” and that she would be satisfied if Cibani replaced the brick instead of paying her money. However, both on redirect and on subsequent questioning by the court, Stamell said it would be a “nightmare” if Cibani replaced the brick. She concluded that she would rather have “the money that [Cibani] saved by not putting up the right brick, the money it would cost [her] to take that brick down and re-put it up.” None of Stamell’s testimony supported her claim for damages as stated in her amended complaint.

Crown also presented testimony by contractor Andrew Liebhaber. He testified that he was asked to prepare a written estimate of the cost to remove the wall from Cibani’s property and rebuild it with matching brick. His estimate was entered into evidence, over Cibani’s objection. It listed the total estimate as $646,000, which included $140,000 for “[p]urchas[ing] new bricks.” The estimate did not state the price per brick or the number of bricks required. Liebhaber testified that his figure for the cost of purchasing new bricks was based on a written estimate provided to him by Stamell. He did not know how Stamell obtained it, he did not recall the cost per brick in the estimate, and it was not entered into evidence. Liebhaber testified that the line item figures in his estimate generally were based on his “knowledge or pricing from previous jobs.” 

After the trial, the Court awarded Crown $10 in nominal damages and $30,000 in attorneys’ fees. Crown appealed.

          Crown had the burden of proving its damages at trial “with a reasonable certainty”. Testimony based on documents not in evidence or that relied on unsupported assumptions or estimations does not support a damages award. A plaintiff who fails to prove actual damages is entitled to only nominal damages.

      Stamell gave no testimony as to damages on her direct examination, and her subsequent discussion of damage was at best inconsistent. The trial court appropriately gave little if any weight to Liebhaber’s testimony. Because he testified as a fact witness and was not qualified as an expert, his opinions were entitled to no weight. His testimony about the contents of the matching brick estimate provided to him by Stamell was hearsay and insufficient to meet Crown’s burden, since that document was not in evidence. Accordingly, the trial court appropriately determined that Crown failed to meet its burden to prove more than the nominal damages the court awarded.

For the first time on appeal, Crown alternatively sought damages in an amount equal to the price of the matching brick that Cibani sourced but did not use. But there was nothing in the trial record that supported the figure proposed by Crown. No evidence was admitted as to the cost of the bricks Cibani used, so it was not possible to determine the difference between that figure and the cost of matching bricks. And there was no competent evidence of the cost of the matching brick.

At trial, Crown sought $307,550.89 in counsel fees.  The trial court correctly found that Crown was entitled to counsel fees even though it was entitled to only nominal damages. And the indemnification clause in the parties’ licensing agreement, which provided for payment of counsel fees “as they incur,” applied to Crown’s claim for breach of contract. However, the trial court found that the amount sought by Crown was unreasonable after considering the relevant factors, including the time and labor required, the difficulty of the issues involved, and the skill and effectiveness of counsel.

The appellate court deferred to the trial court’s discretion in awarding reasonable counsel fees and would not disturb such an award absent an abuse of discretion. Here, Crown did not disclose its proposed expert, Mary Jablonski, in a timely way and she was precluded from testifying. Consistent with that ruling, the court appropriately found that Crown was not entitled to recovery for fees arising from Jablonski’s retention and preparation or in connection with the litigation that resulted in her being precluded from testifying. The trial court further appropriately found that fees in connection with Crown’s preliminary injunction and stay applications before the trial court and the appellate court all of which were denied, were not reasonable.

The trial court appropriately determined that Crown failed to demonstrate the reasonableness of fees billed by Darin Wizenberg, a criminal attorney, and another lawyer, who did not participate in the only hearing he attended. Given the relatively simple and straightforward nature of this contract matter, Crown’s counsel failed to demonstrate any reason why he should reasonably have required the assistance of outside counsel. This was is particularly so in light of the trial court’s finding that Wizenberg was a “seasoned attorney specializing in complex litigation.” Furthermore, the trial court appropriately found that Crown’s counsel failed to demonstrate through testimony the reasonableness of items that were blockbilled, and that the bills themselves did not provide adequate information to explain or justify the fees charged. Indeed, the trial court reasonably found that many blockbilled items, including for the fee hearing itself and for filing papers, were “excessive on their face,” given the straightforward nature of this litigation. Accordingly, the trial court’s award of counsel fees was affirmed.

Was Guarantee An Instrument For the Payment of Money?

Kitchen Winners NY, Inc. sought summary judgment in lieu of complaint pursuant to CPLR 3213 against David Triptow and TT Red Solutions. LLC. In support of the motion, a representative of KWNY averred that Triptow and  TT Red had executed a guaranty, pursuant to which they promised to repay a $450,000 deposit paid by KWNY pursuant to a purchase agreement KWNY entered into with nonparties Humpf (Chengdu) Industrial Co. Ltd. and Legend Sport Limited—HK, in the event that the goods that were the subject of the purchase agreement, namely, disposable medical gloves, were not delivered.

KWNY’s representative further averred that the gloves were not delivered by the date set forth in the purchase agreement for such delivery, triggering Triptow’s obligation under the guaranty to repay the deposit, and Triptow had remitted only $50,000 of the $450,000 owed.

In further support of the motion, KWNY submitted a copy of a guaranty executed by Triptow and others as “Guarantors,” and KWNY as “Buyer,” dated February 8, 2021. The guaranty, among other things, referenced and incorporated the terms of a separate “pro forma invoice” between “TT Red”  as seller and KWNY, for the purchase of gloves, dated January 17, 2021. The guaranty stated that pursuant to the invoices KWNY was required to pay a deposit of $453,000 for delivery of the gloves and that, as a condition of entering the transaction, KWNY “requires Guarantor to guarantee repayment of the Deposit . . . in the event TT Red as the seller fails to deliver the [gloves] or otherwise perform its obligations under the [invoices].” KWNY’s representative averred that, although the guaranty referenced a deposit in the amount of $453,000, the actual amount of the deposit paid by KWNY was $450,000.

In further support of the motion, KWNY also submitted a copy of a purchase and sale contract, entered into by KWNY, Humpf, and Legend, executed by the KWNY on January 19, 2021, and by Humpf and Legend on January 21, 2021. The purchase and sale contract provided that KWNY would pay $450,000 for a certain shipment of medical gloves that was to be delivered by February 12, 2021, with payment to be made in the form of a “20% deposit” and the “balance at inspection.” KWNY also submitted a copy of an email reflecting that TT Red Solutions, LLC, had wired $50,000 to KWNY’s attorney on March 22, 2021.

Triptow and TT Red opposed KWNY’s motion and cross-moved pursuant to CPLR 2201 to stay the action pending final resolution of a pending legal proceeding in China. In support of their cross-motion, Triptow and TT Red submitted documents reflecting that, in the proceeding in China, an entity named T-Z Cargo Company Limited obtained a judgment against an entity named Xingfu (Mianyang) Textile Printing and Dyeing Co., Ltd. in the amount of $407,974, plus costs and interest, in an action arising from Xingfu’s failure to pay T-Z Cargo pursuant to a “Refund Agreement,” dated May 6, 2021, which was intended to refund the purchase price for gloves that were purchased by TT Red in January 2021 from an entity named Hanfu (Chengdu) Industrial Co., Ltd., but not delivered.

Supreme Court granted the KWNY’s motion for summary judgment in lieu of complaint and denied the  cross-motion  of Triptow and TT Red to stay the action. Triptow and TT Red appealed.

Pursuant to CPLR 3213, when an action is based upon an instrument for the payment of money only or upon any judgment, the plaintiff may serve with the summons a notice of motion for summary judgment and the supporting papers in lieu of a complaint. Generally, a guaranty is an instrument that qualifies for relief pursuant to a motion for summary judgment in lieu of a complaint. However, the instrument does not qualify if outside proof is needed, other than simple proof of nonpayment or a similar de minimis deviation from the face of the document.

Here, Supreme Court erred in granting the motion for summary judgment in lieu of complaint, as KWNY failed to show that the guaranty met the threshold requirement of CPLR 3213. To determine Triptow and TT Red’s obligations to KWNY, more than “simple proof of nonpayment” or a mere “de minimis deviation from the face” of the guaranty was required. The guaranty referenced a deposit amount which differed from the amount demanded by KWNY and the guaranty did not establish the date upon which the repayment obligation was triggered. Even assuming without deciding that the purchase and sales contract submitted with the motion constituted the underlying invoice which was referenced in the guaranty, that contract sets forth a different deposit amount than the one set forth in the guaranty and, therefore, also did not conclusively establish the repayment obligation. Since outside proof beyond simple proof of nonpayment was required to determine the obligation  of Triptow and TT Red to KWNY, relief pursuant to CPLR 3213 was unavailable.

CPLR 2201 allows a court to stay a proceeding “in a proper case, upon such terms as may be just.” To impose a stay in one action pending the resolution of a related action, there must be a complete identity of parties, claims, and reliefs sought in the two actions. And a court has broad discretion to grant a stay in order to avoid the risk of inconsistent adjudications, application of proof and potential waste of judicial resources.

Supreme Court providently exercised its discretion in denying the cross-motion to stay the action pending final resolution of the proceeding in China. The CPLR 3213 action and the proceeding pending in China did not share complete identity of parties, claims, and reliefs sought. The assertion  by Triptow and TT Red that T-Z Cargo was KWNY’s proxy in the proceeding in China was unsubstantiated.