New York Court of Appeals holds that action for recission is not the considered anticipatory breach of contract.

In a decision that addresses a contract law issue with respect to anticipatory breach, the New York Court of Appeals has held in Princes Point LLC v Muss Dev. L.L.C., 2017N.Y Slip Op 07298 ( 2017) that an action for recession is not considered anticipatory breach of contract.

The case involved a real estate transaction between plaintiffs, Princess Point LLC and defendants collectively known as Allied Princes Bay (“ABP”). The parties signed a purchase agreement in 2004 whereby plaintiff agreed to purchase property from the defendants. As part of the agreement, the one condition precedent was that ABP was to gather government approvals so that the property could be developed. The initial agreement had a closing date of 30 days after plaintiff received notice of the government approvals and also an “Outside Closing Date” which was within 18 months after the execution. Furthermore, if the approvals were not received within 18 months, either party could terminate the agreement within 30 days notice. In the event of termination, the plaintiff would be refunded any deposits. The plaintiff also had the right to waive termination and proceed to closing.

In 2005, the New York State Department of Environmental Conservation noted certain flaws on the property and required ABP to remedy the defects prior to any approval.   As a result, ABP was not able to obtain the approval within the closing date deadline. Given the challenges of additional costs and time, ABP also informed the plaintiffs that it intended to terminate the agreement unless it was amended.

In 2006, the parties amended the agreement by increasing the purchase price as well as down payment; the parties would share the costs of the remedial work required and extended the Outside Closing Date to July 22, 2007. Subsequently, due to challenges in the remedial work, the Outside Closing Date was extended once more to July 22, 2008 (this was referred to as the “New Closing Date”).   The parties also added a forbearance clause that stated the plaintiff would not “commence any legal action against ABP in the event that the Development approvals had not been issued or the remedial work had not been completed by the New Closing Date.”

Close to one month before the New Closing Date, the plaintiffs commenced various causes of action against the defendants including fraud in the inducement of the amendments to the contract. The plaintiffs sought specific performance of the contract prior to the amendments since such amendments were based on defendant’s misrepresentations of the ability to complete the remedial work. On the other hand, the defendants alleged various counterclaims including: (1) declaratory judgment as to whether the contract was terminated or whether the closing should occur without any reduction in price and (2) breach of contract by the plaintiffs since they allowed the contract to lapse without closing and thus the defendants were entitled to damages limited to the down payment and costs for any remediation work.

The Supreme Court dismissed all of the plaintiff’s causes of action and with respect to the defendants, granted the motion for declaratory judgment that the contract was terminated on its terms, and the plaintiff materially breached the contract. The Appellate Division further affirmed the Supreme Court’s ruling by stating that “that the seller [(here, APB,)] was not required to show that it was ready, willing, and able to complete the sale [as a condition of receiving damages] because the buyer’s anticipatory breach relieved [the seller] of further contractual obligations.”   Regardless, the Appellate Division certified the question to the Court of Appeals as to whether the plaintiff’s cause of action for recission could be considered anticipatory breach.

An anticipatory breach of a contract by a promisor is a repudiation of [a] contractual duty before the time fixed in the contract for . . . performance has arrived. The key element of anticipatory breach is that the expression of intent not to perform by the repudiator must be “positive and unequivocal”. The damages sought by the aggrieved party must be either for the breach of contract or proceed if contract is valid. The Court observed that with respect to damages, that “a wrongful repudiation of the contract by one party before the time for performance entitles the nonrepudiating party to immediately claim damages for a total breach”.

Here, the Court concluded that the commencement of the recession action reflects a repudiation action because of the continuous movement of new closing dates. The observation of the Appellate Division was reiterated in that a declaratory judgment does not constitute anticipatory breach since such judgment is seeking to define the rights and obligation of the parties.

However, the Court reversed the Appellate Division’s decision by noting that “there is no material difference between an action seeking recession and a declaratory judgment action.” Although the opinion stated that an action for rescission is one where a contract is entered, but the terms should be nullified whereas the a declaratory judgment action seeks to find a ruling for the rights of the parties under the contract, nevertheless, the Court held that there was no “positive and unequivocal” repudiation. Furthermore, in the Court’s view, “the mere act of asking for judicial approval to avoid a performance obligation is not the same as establishing that one will not perform that obligation absent such approval”.

Ultimately, the Court underscored an important aspect of anticipatory breach in that the focus is to be on plaintiff’s action had to be positive and unequivocal. The Court appeared to hone in on the distinction between the actual conduct of the plaintiff and simply obtaining a judgment or order. It appears in the Court’s view, anticipatory breach could be established once a plaintiff displays positive and unequivocal intent post-judgment.


Second Circuit clarifies standard for granting Section 1782 application.

In a case involving request for discovery under 28 USC 1782, the Second Circuit held in Bouvier v. Adelson, No. 16-3655 (2d. Cir. 2017) that (1) the use of such discovery may be used in criminal proceedings even where the requested party has not plead monetary relief and (2) the discovery obtained is not limited to the jurisdiction for which it was originally requested.

The underlying issue relates to a series of art dealings between an art dealer, Yves Bouvier and collector, Dmitry Rybolovlev via his holding companies, Access Delight International Ltd. and Xitrans Finance Ltd (“Petitioners”).  In his capacity as an art dealer, Bouvier procured thirty-eight artworks for the Petitioners between 2003 and 2014.  Bouvier was the sole agent between the seller and Petitioners, who did not have direct access to the seller.  Bouvier would procure the art from the seller via his business, MEI Invest Ltd. and then invoice the Petitioners for the purported purchase price along with a two percent commission.  Thus, since Rybolovlev himself was removed from the actual seller, he  would have relied on Bouvier’s honesty and good faith for all the transactions.

In 2014, the New York Times reported Sotheby’s had brokered a private sale of Leonardo da Vinci’s Christ as Salvator Mundi for a reported price between $75 million and $80 million.  The Petitioners, being the ultimate buyers, were surprised upon hearing this news as a payment of $127.5 million was made for the work.  The Petitioners subsequently initiated criminal and civil proceedings against Bouvier in Monaco, France and Singapore on the grounds of fraud.

In Monaco, the Petitioners initiated criminal proceedings and then further joined as civil parties.  As explained below, Petitioners voluntarily dismissed the civil claims, but the criminal proceedings for fraud and money laundering remain against Bouvier.  The French proceedings were initiated by a third party, Catherine Hutin-Blay, a stepdaughter of Pablo Picasso.  Hutin-Blay alleges that two of thirty-eight works (Tete de femme and Espagnole a l’eventail) that were sold by Bouvier had been stolen from her (while not stated in the Court opinion, there appears to be acknowledgment that Hutin-Blay may have been aware of the sale).

The Court focused on the Singapore proceedings which were civil in nature (Bouvier appears to be a permanent resident of Singapore).  Bouvier initially argued in the lower court that the civil claim was duplicative of the Monaco proceeding and requested a stay on the proceeding.  The lower court denied the stay request, but as a condition for the case to proceed, the Petitioners were requested to withdraw any civil claims in Monaco.  Subsequently, Singapore’s highest court, the Court of Appeal granted a stay on the litigation proceedings on forum non conveniens grounds.  Thus, the French and Monaco criminal cases are the only basis for Section 1782 discovery.

The District Court granted the discovery application with respect to the two Picasso paintings in the French proceedings.  Since the Monaco and Singapore proceedings were ongoing, and the certainty of the outcome unclear, the District Court reserved judgment on the use of discovery in these two jurisdictions.  Subsequently, the judge in the Monaco proceeding submitted a letter to the District Court indicating that the Petitioners were still civil parties to the investigation and may it was “perfectly permissible” to “take part in the discovery of the truth in the investigative proceeding”.  Such discovery also included “any information about the works of art from Sotheby’s New York, including Christ as Salvator Mundi.  While Bouvier argued that Petitioners failed to meet the “for use” burden of the Section 1782 requirements, the Court nonetheless granted the request on the grounds that the Petitioners satisfied the factors stated in Intel Corp v. Advanced Micro Devices, Inc. 541 U.S. 241 (2004).  The District Court denied Bouvier’s request for a protective order limiting the discovery to be used in the Monaco proceeding. Regardless, the the order limited the discovery to be used for the Monaco, French and Singaporean proceedings and further requested that the Petitioners must seek leave of the court to submit the discovery in any additional proceeding.

Bouvier raised two issues on appeal.  First, he challenged the “for use” requirement with respect to the Monaco proceeding.  Secondly, Bouvier also argued that the District Court erred in granting a protective order extending the use of discovery in the French and Singapore jurisdictions and thus requested the Court to vacate the order.

With respect to the “for use” requirement, the Court reiterated Section 1782:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.

Bouvier argued that since the Petitioners were not claiming civil relief i.e. monetary damages in the Monaco proceedings, Section 1782 does not apply since his interpretation is that the statute applies to parties seeking civil relief.  The Court applied a textual interpretation of Section 1782 and rejected Bouvier’s argument.

The Court referenced Intel applied the analysis presented in the Supreme Court.  The focus was on whether the party had “significant procedural rights” like the power to submit “information in support of its allegation”.   Furthermore, in a comparison to the facts presented in Intel, the applicant was not a party to the foreign proceeding, had no claims for relief and nor was there any opportunity to obtain any damages.  The Court concluded that since Intel itself did not impose any such requirements, Bouvier’s argument that “for use” was limited to cases where monetary relief was sought was baseless.

Furthermore, the Court also referenced its own decision In re Application for an Order Pursuant to 28 USC 1782 to Conduct Discovery for Use in Foreign Proceedings (Berlamont), 773 F.3d 456 (2d. Cir. 2014), which also related to using discovery in an foreign criminal proceeding.  The Court’s decision to affirm the application for discovery in a criminal proceeding although the decision was related to the Swiss court’s status foreign tribunal. Regardless, the facts were fairly analogous to the current case, as the Petitioners appeared in the Swiss proceedings as victims of a fraud case and were requesting discovery for the criminal proceedings.

Bouvier argued that in Intel and Berlamont, the respective parties requesting discovery had a financial interest in the in the “outcome of the proceeding”.  The Court was unpersuaded by their argument since the text of Section 1782 does not indicate prima facie that interpretation of the “for use” requirement.  The text simply states that the discovery requested needed to be used in “criminal proceedings conducted before formal accusation” and as such does not attach any further requirements.  Thus, the Court concluded that a “party’s interests is very much beside the point”.

The Court also addressed further observations of the “for use” requirement that were not previously addressed in other cases namely, Certain Funds, Accounts and/or Inv. Vehicles v. KPMG, L.L.P., 798 F.3d 113 (2d Cir. 2015) (holding that applicants did not satisfy “for use” requirements since they had “no means of injecting the evidence into the proceeding”); Mees v. Buiter, 793 F.3d 291 (2d Cir. 2015) (holding that the applicant did not meet the requirement as she discovery sought was not necessary to draft an adequate complaint) and Brandi-Dorn v. IKB Deutsche Industriebank AG, 673 F.3D 76 (2d Cir 2012).

Thus, the Court set certain factors consistent with the case law above and Intel namely:

“(1) A section 1782 applicant must establish that he or she has the practical ability to inject the requested information into a foreign proceeding.

(2) As long as he or she makes that showing, it is not fatal to the application that he or she lacks a claim for relief before the foreign tribunal, whether for damages or otherwise”

Here, the Court found that the Petitioners have established the the requested discovery is “for use” in the Monaco proceeding.  Furthermore, the use of such discovery would give Petitioners an advantage and serve some use in the fraud case.

Finally, the Court disregarded Bouvier’s argument that such a broad holding would allow anyone to obtain discovery under Section 1782 for three reasons: (1) unless there is an apparent connection to the foreign proceeding, the plaintiff would have any procedural opportunity to use said discovery; (2) the focus that only “interested persons” can apply for such discovery and thus would prevent ineligible parties and (3) the discretion of the District Court would act as a gatekeeper for any misuse of the discovery.

With respect to the second issue on appeal, namely the use of the discovery in jurisdictions other than the one originally sought, the Court held that no such limitations were placed by Section 1782.

The Court noted that there wasn’t much legislative history regarding the specific forum where the discovery needed to be used.  Once again, the Court appeared to defer to the district court’s discretion as to the jurisdictions to which the discovery can be used, although it referenced Glock v. Glock Inc., 797 F.3d 1002 (11th Cir. 2015) which addressed the use of the discovery obtained under Section 1782 into a subsequent US proceeding.

In Glock, the Eleventh Circuit held that “nothing in the language of Section 1782 purports to to limit the later use of evidence that have been properly obtained under Section 1782”.  Since the legislative history does not reference this particular scenario, “nothing precludes a party from using that evidence in a wholly separate lawsuit against same defendant or a different party”.

The Court applied the above principle and also noted that similar discovery obtained under the Federal Rules of Civil Procedure, “nothing regulates what litigants may do with the discovery after it is lawfully obtained”.  Once again, it appears that the Court relies on the discretion of the District Court to limit such use of discovery via, as in the case here, protective orders.  Addressing Bouvier’s concern that such discovery may be obtained under “sham” circumstances, the Court noted that under Fed. R. Civ. P. 26(c)(1), the district court may still either deny the application or include other restrictions as it deems fit.

The takeaway from this opinion is that the Second Circuit appears to have a expansive interpretation of Section 1782 applications.   In addition to establishing some principles, the Second Circuit also defers to the discretion of the District Court in granting these applications.

New York Court of Appeals extends personal jurisdiction over party under “furtherance of agreement”.

In a case involving personal jurisdiction between two parties located outside of New York state, the Court of Appeals recently reversed the decision of the Appellate Division in D & R Global Selections v. Bodega Olegario Falcon Pineiro and held that long arm personal jurisdiction over the party exists where the furtherance of the agreement occurred in New York state.

The defendant, Bodega, is a winery located in Ponteveda, Spain and the plaintiff D&R, also located in the same town entered into an oral agreement to locate a distributor for the defendant’s wines in the United States. Pursuant to the agreement, the defendant also agreed to pay commissions to the plaintiff based on a specified rate. As the Court noted, neither party were a domiciliary of New York nor did they have any permanent presence in the state.

The parties jointly visited New York multiple times to locate a distributor. In one such event in May 2005, the defendant was introduced to Kobrand Corp. by the plaintiff. In November 2005, the defendant commenced selling wine to Kobrand. In January 2006, both plaintiff and defendant attended Kobrand’s promotional events which included the promotion of defendant’s wine. The defendant paid commissions to the plaintiff until November 2006 and in January 2007, the defendant ceased paying commissions to the plaintiff, citing that the oral agreement was for one year.

In November 2007, the plaintiff commenced cause of action against the defendant for breach of contract, quantum meruit, unjust enrichment, and an accounting. The plaintiff alleged that agreement did not terminate after one year, but would continue during the period for which Kobrand promoted the defendant’s wine. In June 2008, the plaintiff obtained default judgment on the grounds of defendant’s failure to answer the complaint. The defendant appealed the judgement. The Appellate Division vacated the judgment on grounds as to a question of fact if the court had personal jurisdiction over the defendant under CPLR 302(a)(1).

The Court began its analysis with the textual interpretation of CPLR 302(a)(1). To be subject to personal jurisdiction under CPLR 302(a)(1), either (1) the defendant needs to transact business or (2) contracts to supply goods and services in the state. In either case, there is a further two-fold query: (i) the defendant must be purposefully availing itself in cases (1) or (2) and (ii) the claim against the defendant must arise from said business transaction.

In order for the defendant to purposefully avail itself, a non-domiciliary defendant transacts business in New York when “on his or her own initiative, the non-domiciliary projects himself or herself into this state to engage in a sustained and substantial transaction of business” citing Paterno v. Laser Spine Inst., 24 NY3d 370 (2014). Furthermore, the quality of contacts is to be considered especially focusing if the non-domiciliary “seeks out and initiates contact with New York, solicits business in New York, and establishes a continuing relationship”.           Thus, the Court agreed with the Appellate Division’s determination that the Defendant did conduct business in New York. First, the agreement between the parties emphasised locating a distributor in the United States; secondly, the parties visited New York multiple times to attend wine industry events and did locate a distributor and thirdly, the defendant entered into an agreement with Kobrand for the distribution and promotion of its wine. Therefore, the Court concluded that the defendant purposefully availed itself of “the privilege of conducting activities within New York, thus invoking the benefits and protections of its laws”.

The Court reiterated that simply transacting business in New York was not sufficient for long arm jurisdiction under CPLR 302(a)(1), but in addition, there must have an “articulable nexus” or “substantial relationship” with the defendant’s transaction of business and the plaintiff’s claim. It should be noted that an articulable nexus or substantial relationship exists “where at least one element arises from the New York contacts” rather than “every element of the cause of action pleaded”. Here, the Court deviated from the Appellate Division’s reasoning and concluded that such a nexus exists since the agreement was not performed entirely in Spain. Most importantly, under the Court’s analysis, the parties engaged in activities in New York in furtherance of their agreement. The parties travelled to New York multiple times to locate a distributor; the defendant was introduced to Kobrand; the meeting led to attending Kobrand’s promotional events where the defendant’s wine was purchased; and finally, the non-payment of the commissions based on the purchases was the basis of plaintiff’s claim. Therefore, the Court concluded that the plaintiff’s claim arose from the defendant’s transaction in New York.

Finally, the Court also considered whether long arm personal jurisdiction would comport with federal due process. In order to comport with the constitutional requirement, the defendant must have (1) minimum contacts with New York and should “reasonably anticipate being hauled into court” and (2) defending such suit comports with “traditional notions of fair play and substantial justice”. The first element had been established since the defendant visited New York to locate a distributor and also signed an agreement with a distributor to promote its wine. Thus, the Court concluded that the defendant could reasonably be anticipated to defend a suit in New York. With respect to the second element, the burden falls on the defendant to “present a compelling case that the presence of some other considerations would render jurisdiction unreasonable”. Here, the Court noted that defendant did not present any reason and thus long arm jurisdiction could be exercised over the defendant without violating due process.

The Court’s opinion is interesting in that “in furtherance of an agreement” could be considered a factor as to whether long arm jurisdiction can be extended to a defendant. The oral agreement appeared to have been manifested in Spain rather than New York. It didn’t appear to be the party’s intention from the onset that New York would be the sole location for locating a distributor.

US Supreme Court extends interpretation of statute of limitations to SEC injunctions.

In a case that perhaps is not directly related in a commercial litigation context, but nevertheless has implications on the United States Supreme Court’s statutory interpretation of the distinction between civil penalties, the Court has held in Kokesh v. SEC that disgorgement would be considered a penalty and thus, subject to the five year statute of limitations under 28 USC § 2462. The opinion extends Cebelli v. SEC, 568 U.S. 442 (2013) which considered the statutory limitations in a monetary penalty context.

The defendant, Charles Kokesh, misappropriated funds between 1995 and 2009 for approximately $34.9 million dollars and inter alia filed misleading statements with the SEC. In 2009, the District Court found him guilty for the misappropriation for all events prior to 2004. The defendant was order to pay a civil penalty of $2,354,593 and initially for the conduct outside the five year period, $29.9 million dollars since in the District Court’s opinion, this was not a penalty, but disgorgement. The Tenth Circuit upheld the District Court’s judgment that the $29.9 million disgorgement was not a penalty and thus, not subject to the statute of limitations.

A unanimous Supreme Court has reversed the Tenth Circuit’s decision. The Court began with the definition of a “penalty” which under Huntington is a “punishment, whether corporal or pecuniary, imposed and enforced by the state”. The Court made a distinction between a sanction, which is a penalty to an individual or public and pecuniary sanction which is acts as a punishment or deference. Under Brady v. Daly (1899), compensation for a private wrong is not a penalty. Furthermore, in Mecker v. Lehigh, a “penalty is imposed for something punitive for an infraction of a public law”.

Thus, applying the above principles, the Supreme Court held that disgorgement would be a penalty under § 2462. The Court delineated between three purposes of a penalty: (1) public interest, where the remedy sought is committed against the United States and where the victim’s views are not of paramount consideration; (2) punitive, where the emphasis is to prevent future violations, and (3) compensatory, where the damages paid are to the District Court directly. In the third purpose, the District Court determines the payout to the victims and the U.S. Treasury, if applicable.

The SEC argues that the penalty is strictly remedial. However, the Supreme Court had a skeptical view if the penalty is truly remedial since in many cases the defendants are not simply being returned to the original position had the violation not occurred, but in some cases asked to pay much more than the profit gained.

Interestingly, the Court took an example of insider trading where the tippee’s gains has been attributed to the tipper. Even in instances where the tipper has not personally profited from the tippee’s gains, nevertheless, tippee’s actions are imputable to the tipper and have to disgorge the tippee’s profits. Thus, the Court had observed that the SEC sanctions were beyond compensatory and had a retributive aspect to the sanctions.

First Appellate Division rules ambiguity exists in patent royalties breach of contract case.

In a divided court opinion, the First Appellate Division reversed a lower court ruling in New York Univ. Pfizer, Inc., 2017 NY Slip Op 03464 (May 2nd, 2017) to find that a relevant provision that addressed royalties payments was ambiguous and reinstated the complaint.

Plaintiffs ,NYU, sued defendants, Pfizer, Inc. for breach of contract, specifically, royalties on the sale of a cancer drug, Xalkori®, which NYY alleged was developed in part by the NYU research project with Sugen, company purchased by Pfizer in a later stage.

In 1991, Sugen and NYU entered a license agreement whereby Sugen provided sponsorship for NYU’s research into tyrosine kinase inhibitors (TKR).  As part of the bargain, Sugen would receive an exclusive license to use the NYU’s “research technology”  for development of any drug that resulted from the research.  Furthermore, Sugen agreed to pay any royalties on any sales with respect to the drugs.

In 1996, Sugen was acquired by a third party and thus, a new agreement, Second Amended Research and License Agreement was executed between the parties.  As part of the amended, agreement, NYU agreed to reduce its royalty rates for “the right to royalties in on certain later developed products” and specifically added Section 9 which stated:

“[3] SUGEN Products that are developed based on Receptor targets which were not adopted into drug discovery at the time of the effective date of such acquisition, merger, or joint venture shall be subject to a). a royalty of 2.5% on Net Sales of SUGEN, and/or Corporation Entity, which may be offset by 50% of the royalties paid by SUGEN to third parties (other than MPG), provided that the royalties due to NYU shall not be less than 1.5%of Net Sales of SUGEN and/or Corporation Entity and b). 10% of License Revenues with respect to any SUGEN Product, provided that with respect to such SUGEN Product there exists a Patentable Invention with respect to such target and/or its utility which is derived from or based on the Research Technology, and provided further that such SUGEN Product shall include a product irrespective of whether an IND application is filed with respect thereto within 4 years from the end of the Research Period, or not.”

Between 1999 and 2003, Sugen was acquired by Pharmacia, which was subsequently acquired by Pfizer.  Pfizer further developed PHA-66572 which then led to the development of crizotinib.  Subsequently in 2005, Pfizer filed an IND application…..

In 2007, Japanese scientists discovered EML4-ALK,  a mutated form of “ALK” TKR as a cause for lung cancer.   Pfizer determined that crizotnib acted as a inhibitor to the EML4-ALK receptor and thus amended its IND application to include clinical testing of criztonib.  Eventually, a drug Xalkori® was approved by the FDA and subsequently NYU demanded royalties on all sales.

The Court determined that NYU’s claim to royalties was based on Section 9(3) of the amended agreement and specifically, the language that applied to products not being developed at the time of of the effective date of Sugar’s ownership and also the existence of a “Patentable Invention with respect to such target or and/or its utility which is derived from or based on the Research Technology”.

The majority’s interpreted this provision that the “nexus between the invention and the target need not be direct.”  One interpretation (and expansive, at that) of Section 9(3) was that “any “Sugen Product” containing a “Patentable Invention” “derived” in part through NYU’s “Research Technology” may be the source of royalty payments”.  Thus, the Court took a view that since Xalkori® was developed on a patentable invention, criztonib, there was the requisite nexus between the the receptor and its target

With respect to “non-adopted” targets, the majority held that that agreement was silent as to the application of Section 9(3).  It pointed that only Section 11 of the prior 1996 agreement restricted the targets as those that “identified directly by NYU in the course of the NYU Research Project”.  This provision did not appear to be included in the subsequent license agreement and thus, the majority concluded that if restrictions on targets would have been addressed in the current agreement.

On the other hand, the dissent adopted the contrarian view and concluded that Section 9(3) was unambiguous.  The dissent initially agreed with the majority that Section 8 of the agreement did not apply as Pfizer filed for the IND more than four years after the Research Period ended.  Thus, any relief for NYU stems from the interpretation of Section 9.

Under the dissent’s view, Section 9(3) is unambiguous because the target must have been identified from the onset of the project and since EML4-ALK was not identified, NYU was not entitled to any royalties.  Further, the dissent noted the the EML$-ALK was discovered by the Japanese scientists without the involvement of NYU’s Research Technology.  Most importantly, Pfizer did not rely on NYU’s Research Technology to discover that crizotnib inhibited EML4-ALK.

The dissent also reiterated the lower court’s observation that “Patentable Invention” must be related to the target or its utility and did not include the drug that would inhibit the target.  if the provision was to include any drugs, (1) it would have been included in the agreement, and (2) the provision would be meaningless if the interpretation included drugs.

Finally, the dissent noted that target was not identified prior to the change in ownership of Sugen; not only should the target be identified, it should also be a Patentable Invention and exist at the time of the ownership change; lastly, the dissent noted that it would be commercially unreasonable under NYU’s interpretation of Section 9 since every target subsequently discovered indirectly would be subject to royalty payments.


Court declines to extend collateral estoppel defense in artwork ownership litigation.

In Reif v. Nagy, 2017 NY Slip Op 02920 (April 18, 2017), the First Department affirmed a lower court’s ruling dismissing a complaint brought by heirs claiming ownership to Nazi looted art.  The Court held that collateral estoppel did not apply since a lawsuit involving an earlier art piece did not extend to the other two art pieces.

The two artworks in consideration in the present suit were painted by Egon Shiele and include: (1) “Woman in a Black Pinafore” and (2) “Woman Hiding Her Face” .

The plaintiffs are heirs to cabaret artist, Fritz Grunbaum, who was the owner of the artwork before they were looted by the Nazis prior to his execution during the Holocaust.  The defendant, Nagy, an art dealer, procured the artwork around 2013.

The defendants argued that the principle of collateral estoppel should apply since a third piece, “Seated Woman with a Bent Left Leg (Toro)” was previously the basis of a federal lawsuit in which the Court held against the plaintiffs when establishing ownership of that piece.

However, the Court rejected this argument and declined to extend the principle of collateral estoppel to the current suit since “requires the issue to be identical to that determined in the prior proceeding, and requires that the litigant had a full and fair opportunity to litigate the issue”.

Here, the Court observed that the requirements were not fulfilled since “the purchaser, the pieces, and the time over which the pieces were held differ significantly”.  Thus, the Court declined to impute the status of one piece to another since in its opinion, the artworks were not part of the same collection.

Nevertheless, Nagy prevailed in having the§ General Business Law § 349 cause of action dismissed since the facts did not indicate any consumer type harm envisioned by the statute.

First Department reiterates factors to be considered in determining art ownership in divorce proceedings.

The First Department recently held in Anonymous v. Anonymous, 2017 NY Slip Op 02613, (April 4th, 2017) that invoices paid by one party does not in itself constitute as  ownership for the purposes of single ownership with respect to marital property.  The Court reiterated the the factors stated in  Susan W. v Martin W. (89 Misc 2d 681 [Sup Ct, Kings County 1977]) are to be considered in determining art ownership: (1) parties’ interest in art; (2) joint involvement in the purchase of art and (3) source of payment e.g joint or single accounts.

The parties were married on May 5th, 1992 and under the prenuptial agreement signed on April 21st, 1992,  specific disposition of any art collection acquired was not explicitly addressed.  However, a key provision of the prenuptial agreement stated that with respect to property in general: “hereafter . . . acquired” by one party remains that party’s separate property.  It provides that “[n]o contribution of either party to the care, maintenance, improvement, custody or repair of . . . [the other’s party] . . . shall in any way alter or convert any of such property . . . to marital property.” (internal citations omitted).  Furthermore, in another key provision: “No property hereafter acquired by the parties or by either of them . . . shall constitute marital property . . . unless (a) pursuant to a subscribed and acknowledged written agreement, the parties expressly designate said property as marital property . . . or (b) title to said property is jointly held in the names of both parties.”  (Internal citations omitted).

Throughout the course of their marriage, the parties obtained art through various channels, and the wife’s contention was the such pieces obtained were jointly held whereas the husband argued that the such pieces where part of his personal collection and thus, outside of marital property.

The husband substantiated his position that he has sole title to the works because the invoices attached to the sale were solely on his name.  The Court disagreed with this argument and held that “that invoices, standing alone, may not be regarded as evidence of title or ownership of the art.”

Court’s reasoning was based on two premises: (1) the plain meaning definition of an invoice and (2) also its reliance in the Supreme Court case, Sturm v Boker, 150 US 312 (1893) which held that “”An invoice . . . is not a bill of sale, nor is it evidence of a sale. It is a mere detailed statement of the nature, quantity, or cost of the goods, or price of the things invoiced, and it is as appropriate to a bailment as a sale. Hence, standing alone, it is never regarded as evidence of title.”  (Internal citations omitted).

In its reasoning, the Court expressed its concerns over potential unreliability of invoices since prices may be distorted and the possibility of inaccurate description of the goods purchased.  As applicable to the parties here, the Court noted that the invoices presented already contained multiple discrepancies including issues with names presented to the auction house and where applicable, actual purchases in private sales, as well as painting explicitly purchased jointly, but the invoice indicating only the husband’s name.

The Court had disregarded the husband’s reliance on Tajan v Pavia & Harcourt (257 AD2d 299 [1st Dept 1999], lv dismissed in part, denied in part 94 NY2d 837 [1999]).  In Tajan, the Court noted that despite reference to a bill of sale produced during an auction “warranted the painting’s good title”, nevertheless, the Tajan Court considered the admissions and other releases of claims by the parties in determining the ownership of the art work.

In considering the wife’s arguments, the Court appeared to rely more on the cases cited, in particular Lindt v Henshel (25 NY2d 357 [1969]) and Susan W. v Martin W. (89 Misc 2d 681 [Sup Ct, Kings County 1977]).  The Lindt, the Court of Appeals held that a wife was entitled to a sculpture since she purchased it without the involvement of her husband and further, attended the auction by herself.  The Court noted that the bid card was signed by her and furthermore, the price of the painting was charged to her account along with the invoice being in her name.  In Susan W., the Court considered factors such as (1) parties’ interest in art; (2) joint involvement in the purchase of art and (3) source of payment e.g joint or single accounts.

Overall, the Court appears to be dismiss invoices as the sole determination of ownership of art between the parties.  The totality of the circumstances of the purchases needs to be considered as stated in the suggested factors in Susan W. and Lindt decisions.

First Appellate Division declines to extend mutual mistake doctrine to commercial art transaction.

In an interesting application of mutual mistake in an art deal transaction, the First Appellate Division, in a split opinion, affirmed in Jerome M. Eisenberg, Inc. v. Hall, 2017 NY Slip Op 01437 (February 23rd, 2017) that the Plaintiff was not entitled to summary judgment for the breach of contract pursuant to the doctrine of mutual mistake.

The Plaintiff, Jerome Eisenberg, purports to be an expert in classical antiquities and is a buyer and seller of various antiquities.  The Plaintiff is also a Qualified Appraiser of the Appraisers Association of America and also has PhD in Roman, Egyptian and Near Eastern Art.

Defendant, Maurice E. Hall, Jr. is an art dealer who transacts primarily in 16th to 19th century European art, and in particular, Renaissance art. He self-proclaims to be only an amateur collector with regards to ancient antiquities. The subject matter between the parties were two pieces: (1) marble head or bust of Faustina II (“Faustina”) and (2) a bronze warrior statue purported to be either from the Etruscan or Roman Era (“Etruscan”). it should be noted that both these pieces are considered to be ancient.

In 2009, the Plaintiff purchased the Faustina from the Defendant’s townhouse and later sold the piece to Mougins Museum of Classical Art in France. In September 2011, the Plaintiff was informed by the Museum that the Faustina was a fake and substantiated their position by submitting two expert valuations.

In April 2011, the Plaintiff purchased the Etruscan and a bronze helmet. At a later stage ,the Plaintiff submitted photographs and the statute to various experts who concluded that based on the style and metallurgical analysis, the Etruscan was produced in the 19th or 20th century which would not qualify it as ancient.

Plaintiff moved for summary judgment and argued that the contract should be voidable under the doctrine of mutual mistake.

The Majority cited the standard set In Matter of Gould v Board of Educ. of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 [1993] and P.K. Dev. Elvem Dev. Corp., 226 AD.2d 200 (First Dept., 1996) as to whether the plaintiff bore any risk of the mistake due to its “conscious ignorance” of the items’ authenticity. Furthermore, the Court reiterated that where the doctrine of mutual mistake applies, the contract is subject to rescission because it does not represent the meeting of the minds of the parties. In addition, the said mistake must exist at the time of the formation of the contract and must be substantial (internal citations omitted).

The Majority reasoned that while both parties mistakenly assumed that the item in question was ancient, nevertheless there were “ancient, issues of facts exist as to whether plaintiff bore the risk of that mistake due it its “conscious ignorance” of the items’ authenticity”.

The Majority re-iterated that a contract would be voidable if it is entered under a mutual mistake since it does “not represent the meeting of the minds’ of the parties”.   Furthermore, such mutual mistake shall exist at the time of entering the contract and must be substantial (internal citation omitted).

Regardless, there are exceptions where such a mutual mistake may not apply, such as a party’s own negligence. Where a party should “in the exercise of ordinary care, should have known or could have easily ascertained the relevant fact, then the party is deemed to have been “consciously ignorant” and barred from seeking rescission or other damages.  The Majority emphasized that the relevant party “must go beyond its own efforts in order to ascertain relevant facts”.

Thus, under the Majority’s reasoning, the Plaintiffs simply failed to conduct sufficient due diligence despite having the ability and the access to the relevant expertise. It was noted that during previous transactions, the Defendants had produced items with questionable authenticity and thus Plaintiff should have had notice as to the authenticity of the current item.

The Dissent’s fairly expansive reasoning disagreed with one aspect of the Majority’s decision and that is if the Plaintiff was consciously ignorant of the items’ authenticity.

The Dissent supported the Plaintiff’s position that that he genuinely did not believe the artwork in question was inauthentic. However, the disagreement with the Majority’s position was that the Dissent believed that “there is no evidence that the plaintiff consciously ignored its uncertainty as to a crucial fact”. Despite having notice that the Defendants sold inauthentic pieces in the past, with respect to the pieces at hand, there is no indication that the Plaintiff was “uncertain to a crucial fact”. The record did not indicate the circumstances of the details of the previosu transactions, and nevertheless the Plaintiff was refunded for all monies paid and thus suffered no financial loss.

However, the critical distinction between the Majority and the Dissent is that pursuant to Richard L. Feigen & Co. v. Weil, 1992 NY Misc LEXIS 711, aff’d 191 AD.2d 278 (First Dept. , 1993), the Dissent relied on the assertion that “there is no authority for the proposition…that in a contract between an expert and non-expert, rescission based on mutual mistake is unavailable to the expert” (internal citations omitted). The Dissent also cited Uptown Gallery, Inc. v. Doninger (1993 NY Misc LEXIS 661 [Sup. Ct. , New York County 1993]) where the conscious ignorance claim was also set aside on grounds that there was no uncertainty involved in the underlying painting, but the parties simply assumed that the painting was an authentic piece painted by a certain artist.

Ultimately, the majority decided that the Plaintiff bore the risk of the transaction and in essence, could have conducted further due diligence on the pieces whereas the Dissent focused on that such due diligence was unnecessary since there was no apparent uncertainty on the onset of the formation of the contract.

First Department reverses Supreme Court decision on”holdback”provision in stock purchase agreement.

In a rare reversal, the Court in Golden Tech. Mgt., LLC v. NextGen Acquisition, Inc., 138 AD3d 625 (2016) granted defendant’s motion for summary judgment dismissing a breach of contract cause of action.

As part of the terms of a stock purchase agreement, the defendants were to make an initial cash deposit at the time of closing.  In addition, they were also to deposit a “holdback” amount in an escrow account of non-party NextGen Fuels, Inc.   The deposit would then be returned to the plaintiffs after one year.

Plaintiffs filed a cause of action for breach of contract approximately seven years after the closing date, but within six years of the time that the deposit should be disbursed to the plaintiffs.

The Court delineated the contract provision to include two obligations: (1) a deposit to be made into an escrow account and (2) the payment obligation whereby the plaintiffs would receive the amount deposited after one year.

Here, the plaintiff intended to enforce the payment obligation and the Court noted that while it was not time-barred under CPLR  213(2), nevertheless the defendants were “not responsible for the breach” and the correct party was non-party NextGen Fuels, Inc.


Court dismisses cross-complaint based on defective UCC-1 filing.

In 1380 Hous. Dev. Fund v. Carlin, 138 A.D3d 613 (2016), the First Department dismissed defendant’s cross-complaint based on a defective UCC-1 fixture filing.

In order to perfect a lien against real property, the UCC-1 financing statement needs to be filed with the local property records pursuant to UCC 9-334.  Here, the defendant filed  UCC-1 with the Secretary of State in 2005.  The second fixture filing filed in 2010 fails to satisfy the criteria set forth in UCC 9-502(b).  There was no description of the collateral, specifically the fixtures it needed to cover; there was no explicit intention to cover fixtures on the property; the filing lacked the description of the property including block and lot numbers.

The defendant also failed to meet the requirement under UCC 9-108 in that the description was not sufficient to identify the collateral subject to the lien.  While there was a stipulation and pledge agreement, it only referred to the borrower’s 50% share certificates and not the real property itself.  The UCC-1 financing statement referred to the stipulation agreement, but did not reasonably identify the assets.  Thus, in the Court’s view, the defendant failed to perfect a lien established by a security agreement under UCC 9-102.