BUSINESS LAWSUIT BLOG

Many have been wondering when JP Morgan Chase (“Chase”) will take down the fencing closing off Chase Manhattan Plaza, an architectural landmark in Lower Manhattan.  Public space activist have been trying to get the Landmark’s Preservation Commission (“Commission”) to step in, to no avail.  The Commission stated that Chase did not needs its permission to set up the fencing because it was removable and not attached to the plaza, therefore arguably temporary.

To date, plaza owner Chase has not offered a comment and has not dispelled the position that the site was blocked to keep Occupy Wall Street protesters away.  Chase has a permit for waterproofing repair work that includes a “no change in use, egress or occupancy” provision. However, open-space advocates have proclaimed that the fence itself has changed the  “use, egress or occupancy” of the site.  When a lawyer working on behalf of an open-space advocacy group requested information about the building in a Freedom of Information request, that request was denied because the Chase Manhattan Plaza building has been put on a list generated by the New York Police Department, that keeps the building permit plans confidential due to terrorism concerns.

This dispute over the fencing has taken place for months. A supporter of open and accessible public space recently sued the New York City Department of Buildings over its failure to disclose the permit plans.  At a recent hearing in State Supreme Court, there was a suggestion that sensitive information be redacted from the permits to allow the public access to the plans.  What the outcome of the dispute will be is unknown.

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© 2012 Nissenbaum Law Group, LLC

In Merrill Lynch v. Cantone Research, Inc.,___ N.J. Super. ____ (N.J. Super. Ct. App. Div. 2012), the Appellate Division of the Superior Court of New Jersey was presented with the issue of whether a party may be forced to arbitrate in a situation in which they did not sign a contract that included an arbitration clause about the subject matter of their arbitration. The court determined that a party could not be forced to arbitrate under such circumstances.

That case involved an arbitration relating to a transaction involving securities fraud.  The question was whether the arbitrations should take place under the Financial Industry Regulatory Authority, Inc. (“FINRA”), given the fact that the parties had not explicitly agreed to do so.

The court found that the arbitration clause did not apply since there was no “exchange-related dispute.”  This was because the dispute arose out of an unusual set of circumstances.  The investors were victims of a Ponzi scheme perpetrated by Maxwell Baldwin Smith.  “Smith induced the investors to invest, in the aggregate, approximately $8 million in a non-existent investment product . . . instead of investing their money, Smith deposited the funds into Merrill Lynch account held in his and his wife’s name.  The account was opened, maintained, and utilized by Smith for the sole purpose of facilitating the fraudulent scheme.”  Id. at 3-4.

For that reason, the court concluded that because there was no “exchange-related dispute,” the arbitration agreement that related to such disputes did not apply.

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© 2012 Nissenbaum Law Group, LLC

Who should be to blame when a person wrongfully and seamlessly misappropriates the assets of another?  The Supreme Court in New York County, New York recently addressed this question in  Tripp & Co., Inc. v. Bank of New York, 911 N.Y.S.2d 696 (N.Y. County 2010).

That case involved Tripp & Co., Inc. (“Tripp”), a brokerage firm that retained the clearing services of non-party Pershing, LLC (“Pershing”) to hold the assets of Tripp’s customers in an account.  At Tripp’s request, Pershing issued checks payable to Tripp’s customers through Pershing’s account maintained by The Bank of America (Delaware) Inc., n/k/a BNY Mellon Trust of Delaware, N.A. (“BNY”).  Tripp’s former employee, Michael Axel (“Axel”) misappropriated over $600,000.00 through a series of fraudulent checks.  Axel accomplished this by requesting the checks from Pershing and then forging the payee’s name, replacing the true recipients name with his own. Id. at 1.  Axel would then deposit or cash the checks into his personal account at Citibank.  Id.  Citibank accepted the checks and made payments on them, while BNY accepted and cleared the checks.  Tripp was ultimately forced out of business in trying to address the issue and reimburse patrons.  Id.  Consequently, Tripp filed an action alleging amongst other things conversion against both defendants, BNY and Citibank.  Id.  Both defendants moved to dismiss the complaint. Id.

While the Court acknowledged that the general rule pertaining to conversion imposes the risk of loss upon the drawee bank for improper payment over a forged endorsement, UCC §3-419, the Court noted that UCC §3-405(1)(C), commonly known as “the imposter rule,” states that “any endorsement by any person in the name of a named payee is effective if . . . an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest.” UCC §3-405(1)(c).  Additionally, the official comments to UCC §3-405(1)(c) state that the loss should fall on the employer as a risk of his business enterprise because the employer is usually in the best position to prevent the forgery by reasonable care in the regulation of his employees.  See Official Comment, UCC §3-405(1)(c)(2009).

The Court found that Axel was an agent of the drawer, Pershing, and so the imposter rule applied.  Id. at 3.  Further, the Court stated that Pershing acted as Tripp’s agent in performing the services it was hired to perform.  Pershing had drew up checks at Axel’s request for over four years and thus established a course of dealing in which Axel routinely supplied the payee information to Pershing so that Pershing could draw the checks.  Id.  The Court reasoned that as an agent of Pershing, Axel supplied the names of the payees with no intention of Pershing having an interest, such that the imposter rule applied and the endorsements are legally effective.  Id.

Further, the Court rationed that Tripp was in a position to prevent the conversion since it could have done a better job of monitoring Axel.  In addition, “the imposter rule” imposes no duty of care and makes the endorsements effective despite the commercial reasonableness of the defendants.  Id. at 4.  Banks cannot, however, use §3-405(1)(c)  to shield its own bad faith, but Tripp did not allege that the defendants acted in commercial bad faith. Id.  Since the imposter rule applied, Tripp’s conversion claims against BNY and Citibank were precluded and dismissed from the complaint.  Id. at 5.

Ultimately, §3-405(1)(c)  takes the responsibility off of banks for improper payment over a forged endorsement and shifts the risk of loss to the drawer of the checks.

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© 2012 Nissenbaum Law Group, LLC

In Zehl v. City of Elizabeth Bd. Of Educ., No. A-1296-11T3 (N.J. Super. Ct. App. Div. May 31, 2012), the Appellate Division of the Superior Court of New Jersey was presented with the following question: should the court take into account the ability of someone to pay the fees of a discovery master when determining whether a discovery master should be appointed?

In that case, a cafeteria worker sued her employer for violations of the New Jersey law Against Discrimination (NJLAD), N.J.S.A. 10:5-1 et. seq., and the Conscientious Employee Protection Act (CEPA), N.J.S.A. 34:19-1 et. seq.  The underlying discovery in the case (exchange of information by way of testimony, documents and answers to written questions) was complex and voluminous. The Court decided to appoint an impartial discovery master to manage the discovery process. The Plaintiff and Defendants were required to split the fee for the discovery master.

The Appellate Division held that when the court below appointed a discovery master, it erred because it did not consider “that the appointment of a discovery master in fee-shifting remedial cases, which by their very nature oftentimes involve litigants with limited resources, may impose a cost burden on litigants that creates a de facto bar to their access to the justice system.” Id. at 1. On that basis, the Appellate Division reversed and remanded the case.

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© 2012 Nissenbaum Law Group, LLC

Gray market goods are those that are exchanged in a market that is unauthorized or unintended by the original manufacturer of the goods. Many of these goods contain either a copyright or trademark that is registered and owned by the original manufacturer. However, the manufacturer does not reap the benefits of the exchange of his goods in the gray market because it is done in an unauthorized manner. In order to stop those selling their goods on the gray market, an owner might seek to have the court grant a temporary restraining order (“TRO”) against the seller to stop the alleged infringing conduct immediately and to preserve evidence for eventual litigation.

Owners of a copyright or trademark will often bring infringement claims against those selling goods containing their mark on the gray market. However, it is possible that those receiving notice of impending litigation could conceal or destroy evidence of infringing behavior during the time between notification and discovery. In order to avoid this problem, plaintiffs often seek to have a court issue a TRO against defendants.

Under Rule 65(b) of the Federal Rules of Civil Procedure, a TRO may be granted without notice to the opposing party (or the party’s counsel) when “it clearly appears from the specific facts shown by affidavit…that immediate and irreparable injury, loss or damage will result to the applicant before the adverse party or that party’s attorney can be heard in opposition.” F.R.C.P. 65(b).

TROs can be an effective way for mark owners to shut down the infringing behavior of defendants. An example is North Face Apparel Corp. v. Fujian Sharing Import & Export Lts. Co., No. 10-cv-1630 (S.D.N.Y. December 20, 2010). In that case, the defendants were alleged to have been operating hundreds of websites that were similar to the sites operated by North Face and Polo. Examples of the websites included “4thenorthface.com,” “northfaceoutletsale.com,” “poloralphworld.com” and “poloshirtcompany.com.” Upon filing their complaint, North Face and Polo Ralph Lauren (“Polo”) requested that a TRO prohibiting this be issued.

The Court granted the TRO, determining that the brand owners were likely to succeed at trial and that the defendant’s infringing conduct was likely to cause the brand owners irreparable harm. The temporary injunction restrained the defendants from committing any of the acts alleged in the complaint, which included claims for federal trademark infringing, unfair competition and false designation of origin. The TRO enabled the mark owners to shut down many of the sites and to seize some of the counterfeit sales from the defendants’ accounts.

There are several other recent examples within the United States District Court for the Southern District of New York of this approach to prohibiting gray market goods. See Rolex Watch U.S.A., Inc. v. Oganesyan, No. 11-CIV-8182 (S.D.N.Y. Nov. 14, 2011), Coach, Inc. v. Andre, No. 11-CIV-6215 (S.D.N.Y. Sept. 6, 2011), Coach, Inc. v. Smith, No. 11-CIV-3573 (S.D.N.Y. May 26, 2011).

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© 2012 Nissenbaum Law Group, LLC

May an insurer reject a demand that would make its contribution to a settlement contingent upon the outcome of a suit to establish the limits of liability under the policy? In Greenridge v. Allstate, the United States District Court for the Southern District of New York answered that question in the positive. Greenridge v. Allstate Ins. Co., 312 F. Supp. 2d 430 (S.D.N.Y. 2004).

The plaintiffs (the “Greenridges”) owned a three-family home in the Bronx. One of their tenants sued them, alleging that his daughter suffered lead poisoning from exposure to lead paint in the building owned by the Greenridges. The plaintiffs were insured by Allstate Insurance Company (“Allstate”). They purchased homeowners’ liability insurance from them on an annual basis from February 1988 through the time of the dispute. The policy provided coverage for claims for bodily injury up to a $300,000 limit. The Greenridges alleged that the limit should be $600,000 because the exposure at issue allegedly occurred over two different policy periods. Allstate argued its liability was limited to $300,000.

The plaintiff tenant offered to settle his claim against the Greenridges for $300,000 plus an additional $300,000 if, through a declaratory judgment, a court ruled that Allstate was liable for the second policy limit. Allstate subsequently refused to consent to the settlement. A judgment of more than $1.6 million was eventually entered against the Greenridges. They then sued Allstate, claiming it was liable for the $600,000 under the two policies. They also claimed the company was liable because it had demonstrated bad faith when refusing to accept the settlement.

The Greenridge Court acknowledged that an insurer may be held liable for a breach of its duty of good faith in defending and settling claims against its insured. Pavia v. State Farm Mutual Automobile Insurance Co, 82 N.Y.2d 445, 452 (1993). But it also held that bad faith “is not a free-floating concept to be invoked whenever the insurer fails to maximize the interests of the insured.” Gordon v. Nationwide Mut. Ins. Co.¸ 30 N.Y.2d 427, 437 (1972). Bad faith is an implied obligation that derives from an insurance contract. Id. at 452.  The Greenridge Court found in favor of Allstate, denying the bad faith claim and finding that an anti-stacking clause in the contract between the two parties was arguably enforceable. Therefore, there was a basis for the insurer’s position that its liability was limited to one policy period ($300,000.00), rather than stacking two policy periods that followed one another (which would double the limit to $600,000.00), was enforceable. The decision was later affirmed by the United States Court of Appeals for the Second Circuit.

The Greenridge Court’s decision suggests that an insurer’s refusal to consent to an insured’s declaratory judgment action is not likely to be considered sufficient to find that the insurer grossly disregarded the interests of the insured party.

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© 2012 Nissenbaum Law Group, LLC