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On January 1, 1993, New York began its grand "business court experiment" with only four New York's Supreme Court justices in New York County. Twenty years later, on January 30, 2013, members of New York's 8th Judicial District (consisting of the counties of Western New York) came together to celebrate the growth and success of the Commercial Division, and to honor the contributions made by the Honorable John A. Michalek toward its advancement. The event also welcomed the incoming Commercial Division Justice, the Honorable Timothy J. Walker. The ceremony was jointly sponsored by the Commercial and Federal Litigation Section and the Bar Association of Erie County (BAEC). The event was held in the beautiful and historic Hotel Lafayette in Buffalo, New York.

As pictured above, an award was presented to Justice Michalek by Tracee E. Davis, Chair of the Commercial & Federal Litigation Section; Kathleen M. Sweet, BAEC President; and Daniel E. Sarzynski, Chair, BAEC Commercial & Bankruptcy Law Committee. Even before there was a Commercial Division, Justice Michalek has been no stranger to Commercial Law, developing a record of distinguished jurisprudence. As Presiding Justice, his courtroom has been noted for its thoroughness and efficiency. Justice Michalek praised his staff and law clerks for their hard work and expertise. He also praised the high caliber of advocacy delivered by the local bar practicing in the Commercial Part. Justice Michalek welcomed Justice Walker as the incoming Presiding Justice and offered to assist him in making the transition, a tradition of collegiality that has been passed along with each new justice since the Commercial Part's inception.

Justice Walker also has extensive experience in commercial litigation, having represented individual business owners, as well as Fortune 500 and multi-national organizations, while in private practice. He thanked Justice Michalek for his contributions, as well has the hard work of the 8th Judicial District's Administrative Judge, the Honorable Paula L. Feroleto, who was also in attendance. He remarked that he was very pleased to see Tracee Davis, having recently met her in New York City at the NYSBA's Annual Meeting a couple of weeks earlier. He emphasized the importance of the support of the Commercial and Federal Litigation Section, and affirmed his commitment to Chief Judge Jonathan Lippman's goal of continuing to improve the Commercial Division to make New York a place where companies will prefer to do business.

Over one hundred members of the bench and bar, together with friends and family, were in attendance. The Commercial and Federal Litigation Section was very well represented, including several members who came in from outside of Western New York. Section Chair Tracee Davis flew in from New York City; David H. Tennant (immediate past Section Chair) and Sharon M. Porcellio (former Section Chair) came in from Rochester; and Mitchell J. Katz (Co-Chair of the Commercial Division Committee) came in from Syracuse. Also in attendance was the NYSBA President-Elect, David M. Schraver (also from Rochester), as well as immediate past NYSBA President Vincent E. Doyle III. The strong showing from the NYSBA leadership was a demonstration of support to the Western New York contingent and the Commercial Division itself.

From its humble beginnings, New York now has a state-wide Commercial Division consisting of twenty-seven justices in eight counties and two entire judicial districts. By all accounts, the Commercial Division has been a tremendous success. Many states have followed New York's example, with business courts now found in over nineteen states. In 2010, even Delaware, known for its venerable Court of Chancery, created a separate business court which resembles the New York model. Most recently, Michigan has created a business court which will open its doors this year. The Commercial and Federal Litigation Section is committed to the advancement of the Commercial Division through the tireless work of its various committees and working groups. It also stands ready to assist Chief Judge Lippman's "Task Force on Commercial Litigation in the 21st Century" in ensuring that New York's Commercial Division is the premier forum for the adjudication of business disputes in the Nation.

By Heath J. Szymczak, Esq.

Mr. Szymczak is a Partner at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York. He also serves as Chair of the NYSBA Business Torts and Employment Litigation Committee (TICL Section) and as Co-Chair of the ABA Tortious Interference Sub-Committee (Business Torts Committee).

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The New York State Bar Association Torts Insurance & Compensation Law Section & the Young Lawyers Section Invite you to attend a Networking Event

Wednesday, February 20, 2013
6:00 p.m. - 8:00 p.m.

Li Greci's Staaten
697 Forest Avenue
First Floor
Staten Island, New York, 10310

Complimentary Hors d'oeuvres and Cocktail Hour

Hosted by:

Michael O'Brien and Ronald Balter of the TICL Section
&
Jeffrey Alfano and Stephanie Comas of the Young Lawyers Section

Come and join us at Li Greci's Staaten on Wednesday, February 20, 2013 for the TICL and YLS networking event. This event will be a great opportunity to meet and mingle with the attorneys of the Sections and to learn more about the Sections. Information will be available regarding membership opportunities and to become more active in the Sections.

Capacity for this event is limited to 40 attendees, if you wish to attend kindly RSVP by Monday, February 18, 2013 to:

Michael P. O'Brien
Email: mobrienlaw@gmail.com

Jeffrey Alfano 646.285.2361 718.675.7860
Email: Jeffrey.alfano@gmail.com

Accommodations for Persons with Disabilities: NYSBA welcomes participation by individuals with disabilities. NYSBA is committed to complying with all applicable laws that prohibit discrimination against individuals on the basis of disability in the full and equal enjoyment of its goods, services, programs, activities, facilities, privileges, advantages, or accommodations. To request auxiliary aids or services or if you have any questions regarding accessibility, please contact the New York State Bar Association at 800-582-2452 or pjohnson@nysba.org.

We hope to see your there! Questions: Pat Johnson,pjohnson@nysba.org or 518.487.5688.

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In Zinter Handling, Inc. v. General Electric Co., 01 A.D.3d 1333, 956 N.Y.S.2d 626, 2012 N.Y. Slip Op. 08617 (3d Dept. December 13, 2012), the plaintiff, a manufacturer of overhead crane systems, brought suit against one of its customers and one of its competitors. The dispute was based upon plaintiff's sale of its cranes (and the accompanying drawings and specifications of the cranes) to the defendant-customer. The customer subsequently disclosed the drawings and specifications to plaintiff's competitor, leading plaintiff to file suit alleging causes of action for (1) breach of contract; (2) unfair competition; (3) conversion; (4) defamation; (5) tortious interference with prospective business relations; and (6) injurious falsehood.

Notably, each crane was sold pursuant to the customer's purchase order. When the customer submitted a purchase order, the plaintiff would prepare a drawing for the customer's approval. Each drawing contained an "approval box" that stated "this drawing shall not be reproduced in part or in whole or used in any way without the written permission of [plaintiff]". According to the plaintiff, the language included in the drawings established that the plaintiff retained ownership of the drawings and design information. As a result, the plaintiff alleged that the customer's dissemination of the drawings and specifications to the plaintiff's competitor caused the plaintiff damages for which the customer and the competitor were liable.

The court disagreed, stating that the flaw in the plaintiff's argument is that the sale of each crane was governed by the terms of the customer's purchase order. Those terms included a provision that any information disclosed by the plaintiff in connection with the order shall not be deemed confidential or proprietary and shall be acquired by the customer free from any restrictions. Because the customer owned the drawings, it could not be held liable for disclosing them to anyone, including the plaintiff's competitors. As a result, the Appellate Division affirmed the trial court's grant of summary judgment in favor of the customer on the breach of contract causes of action. For the same reason, plaintiff's conversion claim failed. As for the unfair competition claim, the court held that it too failed because the customer was the rightful owner of the drawings and specifications. Accordingly, summary judgment was appropriate. Similarly, plaintiff's claim for tortious interference with prospective business relations also failed because the "wrongful use" element of that claim was lacking, again, because the customer, and not the plaintiff, was the rightful owner of the drawings and specifications. Finally, the Appellate Division, Third Department, held that there were questions of fact surrounding plaintiff's defamation and injurious falsehood causes of action and affirmed the trial court's denial of summary judgment as to those claims.

Sean C. McPhee, Esq.

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DISCLAIMER: This site is for general informational purposes only and is not intended to provide legal advice. Please contact an attorney relative to the circumstances of your particular case. The use and receipt of the information offered on this web site is not intended to create, nor does it create, an attorney-client relationship.

NOTICE FROM THE UNIFIED COURT SYSTEM:

The Unified Court System's E-Discovery Working Group ("Working Group") has proposed amending 22 NYCRR § 202. 12(b) of the Uniform Rules of the Trial Courts to require counsel to confer on e-discovery issues prior to the preliminary conference whenever a case is "reasonably likely" to involve electronic discovery (Exhibit A). Such a requirement exists in the Commercial Division, where all cases presumptively involve discovery of electronically stored information. The Working Group's proposal would extend this requirement to non-Commercial Division cases in Supreme or County Court. The proposal also would add a new subsection in Section 202. 12(b), setting forth a non-exhaustive list of considerations intended to guide the court and counsel in determining whether a case is reasonably likely to involve e-discovery.

The Working Group further proposes amending section 202.70(g) (Rule 8) of the Rules of the Commercial Division (Exhibit B) and section 202.12(c)(3) of the Uniform Rules of the Trial Courts to ensure that the lists of e-discovery topics addressed by the parties are uniform in both Commercial Division and non-Commercial Division cases. Finally, the Working Group proposes adding the topic of "clawback agreements" (which govern the inadvertent disclosure of electronic data) to the uniform list of e-discovery issues.

DETAILS MAY BE FOUND HERE

Persons wishing to comment on this proposal should e-mail their submissions to OCArule202-12b@nycourts.gov or write to:

John W. McConnell, Esq., Counsel
Office of Court Administration
25 Beaver Street, l1th Floor.
New York, New York 10004.

Comments must be received no later than March 8, 2013.

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The New York Court of Appeals, in James v. Loran Realty V. Corp., No. 237 SSM 45, memorandum decision (N.Y. November 29, 2012), last week reaffirmed the rule previously articulated by the Court in Morris v. New York State Dept. of Taxation and Finance, 82 N.Y.2d 135, 141 (1993) that a plaintiff seeking to pierce the corporate veil and impose liability on an individual shareholder must establish not only that the corporation's owner exercised complete dominion over the corporation, but also that "such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury."

Piercing the corporate veil is an equitable principle which, in limited circumstances, allows a plaintiff to disregard the corporate form and circumvent the limited liability of the owners of a corporation and hold them liable for some underlying corporate obligation. For a plaintiff to assert and establish a cause of action for piercing the corporate veil, he/she must satisfy the following three elements: (1) the existence of a corporate transaction or obligation owing to or for the benefit of the plaintiff; (2) that the owners of the corporation exercised complete domination over the corporation with respect to that transaction or obligation; and (3) that the alleged "domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury." Morris, 82 N.Y.2d at 141. "While complete domination of the corporation is the key to piercing the corporate veil, especially when the owners use the corporation as a mere device to further their personal rather than the corporate business, such domination, standing alone, is not enough; some showing of a wrongful or unjust act toward plaintiff is required" for a court to intervene and pierce the corporate veil. Id. at 142.

It is against this backdrop that the Court of Appeals held that the plaintiff in James, supra, failed to establish a cause of action against the owners of Loran Realty V. Corporation ("Loran Realty") under a piercing the corporate veil theory. There, the infant plaintiff sued Loran Realty for injuries sustained as the result of lead poisoning at one of the company's many properties. However, once the plaintiff learned that Loran Realty was uninsured and mortgaged for more than the value of its properties, she amended her complaint to name the owners of the corporation as individual defendants responsible for the corporation's obligations because they allegedly used "a complex web of corporate financing arrangements," including a "mortgage spreader agreement" encumbering all of the company's real property, to "over-indebt[]" the properties and render the corporation essentially judgment proof. James v. Loran Realty I to IV Corp., 2004 WL 5412995 (N.Y. Co. Sup. Ct. 2004).

The individual defendants subsequently brought a motion to dismiss plaintiff's "piercing the corporate veil" cause of action, which was denied by the lower court and affirmed by the First Department on the grounds that the plaintiff's allegations, coupled with the existence of the mortgage spreader agreement, was sufficient to state a cause of action. The individual defendants followed this up with a motion for summary judgment, which was also denied and affirmed by the First Department on the same grounds. Finally, after a nonjury trial, the lower court dismissed plaintiff's cause of action against the individual defendants, which was thereafter affirmed by the First Department, on the grounds that, notwithstanding the finding that the individual defendants "exercised complete domination and control over Loran [Realty]," the plaintiff nevertheless failed to establish the requirements for individual liability because "they . . . failed to show that [the individual defendants'] actions were for the purpose of leaving the corporation judgment proof or that [their] actions amounted to a wrong against [the plaintiff]." James v. Loran Realty V Corp., 85 A.D.3d 619, 619-620 (1st Dept. 2011).

The plaintiff subsequently appealed the decision of the First Department to the Court of Appeals. The Court of Appeals, on November 29, 2012, affirmed that decision, relying on Morris, supra, and held that because the plaintiff "failed to produce evidence that the individual defendants took steps to render the corporate defendant insolvent in order to avoid plaintiffs' claim for damages or otherwise defraud plaintiffs," the cause of action against the individual defendants was properly dismissed. James, No. 237 SSM No. 45, at 2.

In so doing, the Court of Appeals once again made clear that it is not enough for a plaintiff to simply establish that the corporate shareholders/owners exercised complete dominion over the corporation; rather, the plaintiff needs to go a step further and establish that the alleged "domination" was done for the purpose of and did in fact cause injury to the plaintiff.

By Bradley A. Hoppe, Esq.

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DISCLAIMER: This site is for general informational purposes only and is not intended to provide legal advice. Please contact an attorney relative to the circumstances of your particular case. The use and receipt of the information offered on this web site is not intended to create, nor does it create, an attorney-client relationship.

"He had a weak point ─ this Fortunato ─ although in other regards he was a man to be respected and even feared. He prided himself on his connoisseurship in wine. . . . In painting and gemmary, Fortunato, like his countrymen, was a quack, but in the matter of old wines he was sincere. In this respect I did not differ from him materially; --I was skilful in the Italian vintages myself, and bought largely whenever I could.

It was about dusk, one evening during the supreme madness of the carnival season, that I encountered my friend. He accosted me with excessive warmth, for he had been drinking much. The man wore motley. He had on a tight-fitting parti-striped dress, and his head was surmounted by the conical cap and bells. . . . Let us go, nevertheless. The cold is merely nothing. Amontillado! You have been imposed upon. And as for Luchresi, he cannot distinguish Sherry from Amontillado."

The Cask of Amontillado, by Edgar Allan Poe (1846)

In the spirit of Halloween, we have an intriguing tale from the Second Circuit, not from the crypt, but from the wine cellar. This tale involves Thomas Jefferson and could have been penned by Edgar Allen Poe himself. In Poe's The Cask of Amontillado, the ill-named Fortunado, dressed as a court jester, or fool, is lured into a trap with the promise of a rare and valuable old wine by the sinister Montresor. In our tale, Koch v. Christie's International, PLC, --- F.3d ----, 2012 WL 4677700 (2d Cir. October 4, 2012), an investor claims that he was duped by Christie's Auction House into buying rare and valuable old wine supposedly once belonging to none other than Thomas Jefferson.

The case is fascinating both factually and legally. The legal questions involve the trigging of the doctrine of "inquiry notice," for purposes of operation of the applicable statues of limitation, and whether there are any distinctions to be drawn for civil claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), as well as for New York common law claims of civil conspiracy to defraud, and aiding and abetting fraud. Also at issue is under what circumstances a court may invoke equitable principles to toll a statute of limitations. Critical to this analysis are the factual circumstances which would have, or should have, led a reasonable person to suspect foul play.

First, by way of backdrop, it is interesting to note that Jefferson and Poe actually shared a brief moment in temporal and geographic proximity. For nestled on the campus of the University of Virginia is a dorm room frozen in time. Perched in perpetuity in the window of that room is a raven, black as midnight. The room, "13 West Range," once belonged to a young Edgar Allan Poe, father of the literary macabre. Here a young, brooding Poe began to stir the dark cauldron of his imagination. Legend has it that he etched a stanza of a mysterious poem, referencing a "ghost of an awful crime," by moonlight into the glass of a window of this room.

The University of Virginia, which surrounds Poe's old room, however, sprung from Jefferson's imagination. He was its visionary, benefactor, and founder. The University opened it's doors in 1825. Poe enrolled less than a year later, on February 14, 1826 (Valentine's Day). Poe was one of only 177 students. During his time there, he was elected to the Jefferson Literary and Debating Society and served as its Secretary pro tem.

Within view of the University, itself perched upon a "little mountain", sits Monticello, Jefferson's home and refuge. We can imagine Jefferson sitting at Monticello high above the University, sipping a glass of wine and looking down proudly at his newly formed academic institution and its eager young students. Jefferson often invited students of the University to Monticello for dinner. Believe it or not, it is possible that Jefferson and Poe may have shared a glass of wine over dinner.

Sadly, Jefferson died that very summer at Monticello. It was July 4, 1826, the 50th anniversary (exactly) of the signing of the Declaration of Independence. His funeral was a simple and somber affair. He was buried in the graveyard at Monticello at 5:00 pm on July 5, 1826. It was a dark and rainy day. According to one account, Poe was present at Jefferson's funeral. Poe left the University only five months later, on December 15, 1826, due to a lack of funds. He was never to return.

Jefferson's gravestone, a stocky obelisk, was built and placed according to his direct specifications. So proud was he of the University that he insisted that, along side his authorship of the Declaration of Independence, his founding of the University of Virginia be listed on his gravestone. His Presidency was not mentioned.

Jefferson was a well-known connoisseur of wine, having spent a great deal of time in France and Italy. In February to June of 1787, he toured southern France and northern Italy while serving as minister to France. Jefferson acquired a vast collection of wines and once remarked that by making a particular wine vine known to the public, he had "rendered [his] country as great a service as if [he] had enabled it to pay back the national debt."

Wines from all over Europe and elsewhere were served at Monticello. Orders for casks and bottles of wine were made on at least on an annual basis. For instance, in February 1820 Jefferson recorded receiving 382 bottles of various wines and "1. cask . . . of Muscat of Rivesalte." The following January he noted that the Muscat "is out, to wit 62 galls in 11 months." So fond was he of wine that he once remarked, "I have lived temperately . . . . I double the doctor's recommendation of a glass and a half of wine each day and even treble it with a friend."

Fast forward about two-hundred years. Enter William I. Koch and Hardy Rodenstock ─ the Fortunado and Montresor of our tale. Rodenstock is a "well-known wine connoisseur" and German national. Koch is a wealthy American businessman and investor with a fondness for rare, and historic, wine vintages. He is the son of Fred Koch, who founded Koch Industries, and ran his own highly profitable energy company.

In the mid-1980s, Rodenstock claimed to have discovered a cache of wine in Paris bricked-up in a wine cellar, like the Cask of Amontillado itself. The bottles bore the initials "Th.J.," as well as various late eighteenth century vintages and the names of wineries from the period. Rodenstock allegedly had a longstanding and symbiotic relationship with Christie's Auction House. Christie's allegedly promoted as authentic the cache of wine as bottled in 1787 and connected to Jefferson. See, Koch, 2012 WL 4677700 at *2.

In December 1985, Christie's sold the "1787 Th.J. Lafitte" at auction for approximately $156,000. Id. This was the highest price ever paid for a bottle of wine. The winning bidder was Christopher Forbes, the son of Malcolm Forbes and a vice-president of the Forbes magazine.

In the run up to the first sale of "Th.J". wine by Christie's, however, it had allegedly contacted the Thomas Jefferson Foundation at Monticello. In the course its correspondence with a Monticello historian in November 1985, it was allegedly noted that there was "no actual proof" of the "Th.J" wine's connection to Jefferson. The Monticello historian said she was skeptical, but would reserve final judgment. See, Koch, 2012 WL 4677700 at *2.

Despite this, the 1985 Christie's Catalogue, in text allegedly written by an agent of Christie's, discussed in detail Jefferson's interest in wine in connection with the "Th.J Lafitte." Christie's publicized and marketed the bottle of "Th.J. Lafitte" in its 1985 Catalogue, and publicly released a Sale Memorandum dating the wine from the late eighteenth century and connecting the wine to Jefferson . Id.

Shortly after the December 1985 sale, Rodenstock began corresponding with Monticello about the status of the Jefferson wine and suggested holding a wine tasting from the "Th.J." cache at Monticello. Monticello's director declined, citing "doubts about the Jefferson connection." The correspondence culminated in an April 1986 letter to Rodenstock that included a research report (the "Monticello Report") prepared by a Monticello historian on December 12, 1985. Id.

The Monticello Report examined Jefferson's financial records, including records of his wine purchases, correspondence, initialed personal property, and existing wine collection, and concluded that "no solid connecting evidence could be found" between Jefferson and the "Th.J." wine. The Report did not become public at that time. Id.

However, in October 1985, The New York Times published an article discussing the "Th.J." wine and airing the doubts from Jefferson scholars. Another Times article that ran the day after the auction noted the "scholarly doubt" as to the authenticity of the "Th.J." wine. Id.

In 1986, Christie's placed another bottle from the "Th.J." cache up for auction. Again, the "Th.J." bottle was featured in the 1986 Christie's Catalogue. The description of the bottle in the Catalogue noted that "it is assumed that the wine . . . . was once the property of Thomas Jefferson," and that "there is a very strong case to be made for the authenticity of the engraving and provenance." The bottle ultimately sold on December 4, 1986, for approximately $56,000. In 1987, Christie's sold another half-bottle from the "Th.J." cache at an annual trade show in Bordeaux, France. Id.

Koch had to get his hands on the wine. In November 1988, Koch purchased a bottle marked "1787 Branne Mouton Th.J." for $100,000. He allegedly purchased the bottle from Rodenstock who used the Chicago Wine Company and Farr Vintners as intermediaries. Koch alleges that he purchased the bottle in reliance on "glowing endorsements of the wines and Rodenstock," made by Christie's "with the intent to influence wine collectors like [Koch] to purchase Rodenstock's wines" and that "reasonably led [Koch] to believe that the wine offered by Rodenstock was authentic." See, Koch, 2012 WL 4677700 at *3.

The next month, Koch purchased three more bottles of "Th.J." wine for $211,804.40. Koch purchased these bottles from Farr Vintners acting as Rodenstock's agent. The bottles were marked, respectively, as: "1787 Lafite Th.J.," "1784 Lafite Th.J.," and "1784 Branne Mouton Th.J." In total, Koch purchased four bottles of the Jefferson wines from third-party dealers in November and December of 1988, allegedly relying on promotional representations made by Christie's. Koch spent over a quarter of a million dollars on the bottles. Id. He installed them in his vast climate-controlled wine cellar. They were the centerpiece of his collection.

In the 1990s, however, Koch's enthusiasm for the wine began to sour. In the early 1990s he had read several articles detailing the "real doubts" that existed with respect to the authenticity of the "Th.J." wine. One news report from the period described the "Th.J." wine issue as "the wine world's biggest scandal." Id.

During this period, Koch also learned of a lawsuit by a German wine collector against Rodenstock. The lawsuit alleged that the "Th.J." wine was counterfeit. Koch hired attorneys in 1993 to investigate and assess the provenance of the "Th.J." wine. These attorneys sent him several of the articles relating to testing of the "Th.J." wine that had been conducted for the purpose of the German lawsuit. Some of these article purported to confirm that the wine as authentic, and some of them indicated that it was counterfeit. Koch received legal advice concerning a potential action against Rodenstock in 1993 and sought the advice of counsel again in 1995. However, Koch took no legal action over the course of the 1990s, as the debate over the authenticity of the "Th.J." wine continued. Id.

In October 2000, Koch sent samples of the "Th.J." wine to the Woods Hole Oceanographic Institution ("Woods Hole") for radiocarbon testing to determine their age. In his deposition, he testified that he sent the samples for testing to see if he had been "hoaxed." The October 16, 2000 Report from Woods Hole (the "Woods Hole Report") indicated that there was a 26.5% probability that the wine was from the time period between the year 1680 and 1740 and a 68.9% probability that the wine was from between 1800 and 1960. The Report appears to indicate only a 4.6% probability that the wine was from the period between 1740 and 1800, the only period that would have been consistent with the engraving on each of the bottles that Koch bought. Id.

Woods Hole estimated the wine's radiocarbon age as 90 years, with a standard deviation of 35 years, although the Woods Hole Report notes that this age "does not convert directly to a calendar, or chronological, age," and that, more broadly, "the past 350-400 year period is a very difficult one for determining calendar ages." Koch apparently viewed these results as "neutral," and he took no further action to investigate the authenticity of the "Th.J." wine in response to the Woods Hole testing. Id.

In 2005, Koch was asked to include a photograph of his bottles of "Th.J." wine in a museum catalog. Koch alleges that, as part of the preparation of the catalog materials, his staff contacted Monticello "to confirm the provenance of the Th.J. wine." This communication ultimately led to his obtaining a copy of the 1985 Monticello Report, which became public shortly thereafter. Koch alleges that, in response to the "credible and serious questions" concerning the wine's authenticity raised by the Monticello Report, he then conducted an investigation that allegedly revealed that the "Th.J." wine was in fact counterfeit. By 2009, Koch had allegedly tracked down German engravers who claimed to have engraved the bottles with the "Th.J." initials. See, Koch, 2012 WL 4677700 at *4.

On August 31, 2006, less than 18 months after he had obtained a copy of the Monticello Report, Koch sued Rodenstock in the Southern District of New York for fraud in connection with the "Th.J." wine. Rodenstock never appeared and the District Court entered a default judgment against him in 2010. See, Koch v. Rodenstock, No. 06 Civ. 6586 (S.D.N.Y. Aug. 31, 2006); Koch v. Rodenstock, No. 06 Civ. 6586, 2010 WL 2010900 (S.D.N.Y. May 18, 2010).

In January of 2008, Koch and Christie's agreed to toll the statute of limitations with respect to any claims against Christie's arising out of the Jefferson wine sales. See, Koch, 2012 WL 4677700 at *4.

On March 30, 2010, Koch filed a lawsuit against Christie's for civil violation of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962(c), civil conspiracy to defraud, and aiding and abetting fraud in violation of New York Law. Koch alleged that Christie's conducted an enterprise and participated in the conduct of an enterprise through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c). Koch sought treble damages under 18 U.S.C. § 1964(c) and an injunction under 18 U.S.C. § 1964(a). Koch also asserted a claim for violation of New York's General Business Law § 349. Koch alleged that these "Jefferson wines" were in fact counterfeit, and that Christie's knew or was reckless in not knowing of the wines' dubious authenticity. Id.

On March 18, 2011, the District Court dismissed all claims against Christie's as time-barred. The District Court held that Koch was on "inquiry notice" of his injuries no later than October 16, 2000, when he submitted the 'Th.J' bottle for testing," and that the four-year statute of limitations for a RICO cause of action and the two-year statute of limitations, which applies to Koch's state law claims, began to run on that date. Koch, 785 F.Supp.2d at 115-16, 118. The District Court also held that the doctrine of equitable tolling did not apply to Koch's causes of action. Id. at 116-19. The District Court also dismissed the claim under New York's General Business Law § 349. Id.. Koch appealed to the Second Circuit with respect to all of his claims, except for his claim under New York's General Business Law § 349.

On October 4, 2012, the Second Circuit issued its decision. Koch argued on appeal that the District Court erred in applying the doctrine of "inquiry notice" to his RICO claim, under which, in some circumstances, a court imputes to a plaintiff knowledge of facts sufficient to trigger the running of the statute of limitations where the plaintiff could have discovered those facts by a reasonably diligent investigation. See, Koch, 2012 WL 4677700 at *1.

Specifically, Koch argued the District Court incorrectly applied the law with respect to what facts must be discovered for a RICO claim to accrue. Koch argued that the District Court misinterpreted the Supreme Court's decision in Rotella v. Wood, 528 U.S. 549, 552, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000) as supporting a "discovery of the injury standard," and that, in any event, the Supreme Court's recent decision in Merck & Co. v. Reynolds, --- U.S. ----, 130 S.Ct. 1784, 176 L.Ed.2d 582 (2010), changed the law with respect to what knowledge is required to trigger accrual in cases arising under RICO; that a plaintiff is required to have knowledge of a defendant's scienter, as well as the alleged injury, for the plaintiff's claim to accrue. See, Koch, 2012 WL 4677700 at *5.

In a case of first impression, the Second Circuit rejected Koch's argument and held that, "[i]t remains the law in this Circuit that a RICO claim accrues upon the discovery of the injury alone." Id. at *7. The Second Circuit stated that Merck did not overrule Rotella because Merck involved the Securities Exchange Act, not RICO, and that nothing in that decision "purports to alter this well-established rule or even to apply it outside the context of the statute at issue in that case." See, Koch, 2012 WL 4677700 at *5. At bottom, the Court stated, "Merck merely involved a statutory exception to the common law rule discussed in Rotella. Id.

Applying that law, the Court looked to determine when Koch "discovered or should have discovered the injury." Id. at *7. The Court affirmed the District Court's determination that by at least by October 16, 2000, when the Woods Hole Report was issued, inquiry notice had been triggered: "All of these facts, but particularly the Woods Hole testing, which related directly to the authenticity of the age of the wine and not merely to its relationship to Thomas Jefferson, would suggest to a reasonably intelligent person that the wine was not authentic. The circumstances suggested far more than the 'mere possibility' that Koch had bought counterfeit wine." Id. at *9. Because Koch did not begin any such investigation until 2005, the Court held that his RICO claim was time-barred. Id. at *10.

Koch also argued on appeal that that the standard for inquiry notice under for his New York law claims (fraudulent conspiracy and aiding and abetting fraud) is different from the standard under RICO. Under New York law, the time within which an action based upon fraud must be commenced is "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff ... discovered the fraud, or could with reasonable diligence have discovered it." C.P.L.R. § 213(8). The Court stated that because the alleged fraud was completed in 1988, when Koch purchased the Th.J. wine, his common law claims are timely only if they were brought within two years of the date the fraud was discovered or could have been discovered with reasonable diligence, similar to the "inquiry notice" standard under RICO. Because Koch came into possession of the Monticello Report report in 2005, the Court held that the two-year period began to run at that point and expired in 2007. As Koch's claims were not filed until 2010, his common law claims under New York law were also time-barred.

Finally, Koch argued that the District Court erred in refusing to toll the statute of limitations in this case due to alleged fraudulent concealment by Christie's. "Under federal common law, a statute of limitations may be tolled due to the defendant's fraudulent concealment if the plaintiff establishes that: (1) the defendant wrongfully concealed material facts relating to defendant's wrongdoing; (2) the concealment prevented plaintiff's 'discovery of the na-ture of the claim within the limitations period'; and (3) plaintiff exercised due diligence in pursuing the discovery of the claim during the period plaintiff seeks to have tolled." See, Koch, 2012 WL 4677700 at *12. The Court rejected this argument because it found that Koch did not exercise "due diligence" and because the claimed "concealment" took place after the limitations period had already ran: the "tolling period cannot delay the expiration of a deadline when that deadline has already expired."Id.

In sum, the Second Circuit held that: (1) Koch's RICO claim was untimely; (2) his civil conspiracy to defraud, and aiding and abetting fraud, claims were also untimely; and (3) that the District Court did not abuse its discretion in declining to equitably toll statute of limitations. It therefore affirmed the decision of the District Court.

The ruling is reminiscent of Montresor's closing words in The Cask of Amontillado: "It was now midnight, and my task was drawing to a close. I had completed the eighth, the ninth and the tenth tier. I had finished a portion of the last and the eleventh; there remained but a single stone to be fitted and plastered in. I struggled with its weight; I placed it partially in its destined position . . . . I forced the last stone into its position; I plastered it up. Against the new masonry I re-erected the old rampart of bones. . . . In pace requiescat!"

So here, the Second Circuit, as it struggled with the weight of its analysis, placed the last stone in the legal wall encasing the dry bones of Koch's claims. Quoth the Second Circuit, "Nevermore."

By Heath J. Szymczak, Esq.

Mr. Szymczak is a Partner and Chair of the Litigation Department at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York. He also serves as Chair of the NYSBA Business Torts and Employment Litigation Committee (TICL Section) and as Co-Chair of the ABA Tortious Interference Sub-Committee (Business Torts Committee).

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DISCLAIMER: This site is for general informational purposes only and is not intended to provide legal advice. Please contact an attorney relative to the circumstances of your particular case. The use and receipt of the information offered on this web site is not intended to create, nor does it create, an attorney-client relationship.

In a recent case dealing with complex issues of commercial law, contracts, and maintenance service agreements, the United States Court of Appeals for the Second Circuit decided to hold off on making a decision in order to allow the New York Court of Appeals to weigh in. In a move á la Who Wants to Be a Millionaire, the Second Circuit is phoning-a-friend, in this case it is the New York Court of Appeals, in the hopes that their experience and familiarity with New York's General Business Law will give them a leg up on deciding the novel questions of law presented in Schlessinger v. Valspar Corporation, 2012 WL 2765756 (2d Cir. 2012).

It is not surprising that the Second Circuit has chosen to defer to the Court of Appeals in Schlessinger as the case raises two significant questions of law that are entirely dependent on the interpretation of particular provisions in New York's General Business Law. On July 10, 2012, the Second Circuit certified two questions to the New York Court of Appeals in Schlessinger: (1) may parties seek to have contractual provisions that run contrary to General Business Law § 395-a declared void as against public policy; and (2) may plaintiffs bring suit pursuant to § 349 on the theory that defendants deceived them by including a contractual provision that violates § 395-a and later enforcing this agreement?

Perhaps what is most interesting about Schlessinger are the circumstances that produced the complex questions of law being certified to the Court of Appeals. While the average person might not be able to say that they have spent time interpreting New York's General Business Law, the average person can say that they have contemplated the purchase of a furniture protection plan. Anyone that has bought a couch or a recliner (or has tried to) knows that being pitched a furniture protection plan by the salesperson comes with the territory. Despite the inevitability of spilling a glass of wine on your brand new white sofa, most of us have turned down the extra cost of a furniture protection plan before the salesperson even introduces the idea. However, the plaintiffs in Schlessinger chose to opt in for this extra perk with their furniture purchase, ultimately leading to the present litigation.

In Schlessinger, the plaintiffs, Lori Schlessinger and Brenda Pianko, purchased furniture from a department store called Fortunoff's. Plaintiffs also purchased "Guardsman" service contracts in order to cover future repairs or maintenance for their furniture. Valspar Corporation sold the furniture protection plans to Fortunoff Department Store and then Fortunoff sold the plans to their customers. This case arose out of a disputed clause in Valspar's furniture protection plan. The plan provided: "If the particular store location where you originally purchased your furniture ("Store") has closed . . . since your purchase, Guardsman will give you a refund of the original purchase price of this Protection Plan." So when Fortunoff's closed and Ms. Pianko attempted to file a claim for damage to her furniture, she was rejected by Valspar and did not receive service. Valspar cited the store closure provision as the reason for denying service. It is unclear whether the other plaintiff, Ms. Schlessinger, has actually filed a claim with Valspar, but it does seem that she also has not received a refund despite the fact that Valspar would refuse to provide her service if she did file a claim.

In their potential class action, brought in the Eastern District of New York, plaintiffs claimed that the store closure provision violates New York's General Business Law § 395-a. N.Y. GBL § 395-a is aimed at preventing a service provider from terminating a maintenance agreement which covers parts or service unless there has been notice to the customer and an instance of non-payment, prohibited commercial use of the item or relocation of the customer's residence to a place outside the available service area. At the district court level, the court granted defendant's motion to dismiss for plaintiffs' failure to state a claim upon which relief can be granted. They also found that the plaintiffs' claims could not be maintained, as there is no private right of action under GBL § 395-a.

In making its decision, the District Court was persuaded by the intent of the legislature in enacting GBL § 395-a and GBL § 349. Likewise, the Second Circuit was unable to simply delete the store closure provision and allow plaintiffs to bring suit for breach of contract under the remaining terms of the furniture plan. The Second Circuit was stopped in its tracks by the tension they felt was created by the "law of implied causes of action." This was the same tension felt by the District Court when they laid out what they felt were the critical issues created by the legislature's clear intention against providing for a private right of action under GBL § 395-a. The District Court wrote, "the 'most critical' factor in determining whether an implied private right of action lies within a given statute is whether such an action would create 'unwarranted interference with the legislative scheme.'" The District Court was also concerned that the plaintiffs were attempting to impart meaning into GBL § 395-a that the legislature did not intend. The District Court astutely pointed out that other sections of GBL Article 26 explicitly provide for a private right of action; therefore, it can be inferred that if the legislature wanted there to be a private right of action available under GBL § 395-a they would have included it.

GBL § 395-a explicitly includes an enforcement scheme through the State Attorney General, which makes it difficult for the plaintiffs to argue that, despite the omission, there is an implied right of action. In fact, in GBL § 349, the statute only provided for an enforcement scheme through the attorney general and so when the state legislature wanted a private right of action, they amended the statute. The Second Circuit concurs with the reasoning of the District Court, adding "the legislature does not seem to have expressed an intent for there to be a remedy of voiding contrary provisions. Section 395-a expressly provides that the Attorney General may bring suit against those who violate its mandate, so a private right of action would not be consistent with legislative intent."

The Second Circuit seems likewise confused with the plaintiffs' contentions based on GBL § 349. This provision of the General Business Law prohibits deceptive practices that are aimed at consumers and requires a showing of a practice that is deceptive or misleading and a plaintiff injury in order to state a claim. In Schlessinger, the plaintiffs are attempting to argue that by including the store closure provision, Valspar deceived them by misrepresenting their rights under New York law. The District Court saw this as a veiled attempt to evade the lack of a private right of action under GBL § 395-a.

Seeing the value of the District Court's argument, but not wanting to unilaterally make a decision of such state law importance, the Second Circuit has decided, without further clarification as to whether the legislature intended for plaintiffs to be permitted to bring a GBL § 349 claim when a private right of action is not available under GBL § 395-a, to defer to New York Court of Appeals. Until then, I suppose we will all have to be more careful with our furniture!

- Ashley Fasso, Third Year Law Student at the University at Buffalo Law School

DISCLAIMER: This site is for general informational purposes only and is not intended to provide legal advice. Please contact an attorney relative to the circumstances of your particular case. The use and receipt of the information offered on this web site is not intended to create, nor does it create, an attorney-client relationship.

Come Join Us For the Torts Insurance & Compensation Law Section Member Appreciation Networking Event. Also, take advantage of a free TICL Section membership opportunity!

This is a FREE event with Drinks and Hors D'oeuvres.

Register online now or click here to download a registration form.

For more information contact: pjohnson@nysba.org.

A Great Opportunity! Check this out:
NYSBA members who do not belong to the TICL Section may sign up for TICL membership at the event and obtain FREE TICL Section Membership (including membership to the Business Torts and Employment Litigation Committee) for the remainder of 2012 and the whole of 2013!

The offer is open to both pre-existing and brand-new NYSBA members, so long as they do not currently belong to the TICL Section.

Why Join the NYSBA Torts, Insurance and Compensation Law Section?
For resources like publications, education, and committees, join the Torts, Insurance and Compensation Law Section today! Become a member and receive exclusive publications including the TICL Journal and the Construction & Surety Law Newsletter. The Section hosts excellent MCLE programs at the Annual Meeting. Committees focus on every aspect of Torts, Insurance and Compensation Law, including Automobile Liability, Fire and Property, and Products Liability, plus -- two Law Divisions -- the Construction and Surety Law Division and the Workers' Compensation Law Division. Both Law Divisions also offer unique publications and educational programs at no extra charge.

What is the Business Torts and Employment Litigation Committee?
The purpose of the Business Torts and Employment Litigation Committee is to provide its members with a forum in which to explore substantive issues in the areas of business torts and employment litigation, to share practice tips, and to develop and foster professional relationships and camaraderie among its members and the members of the TICL Section at large. The Committee is also interested in monitoring and discussing legislative proposals impacting its members and their clients.

To get involved in the TICL Section's Business Torts and Employment Litigation Committee please contact Heath Szymczak.

The "Faster, Cheaper, Smarter Working Group" of the Commercial and Federal Litigation Section consists of experienced members of the judiciary, in-house counsel, and outside counsel. The group was tasked with brainstorming approaches to efficient problem solving in commercial and business disputes using creative truncation in traditional procedures. The working group of future-minded lawyers and judges surveyed corporate clients to see what alternatives are possible and tolerable, and examined existing court-annexed ADR and summary procedures. The Final Report discusses some existing programs, outcomes in a few experimental programs, and offers five specific recommendations to decrease the costs and delay associated with commercial litigation. The Final Report places emphasis on proactive case evaluation (like the triage performed in an emergency room) to channel the "right" kinds of cases into an expedited resolution track; it suggests that a modest investment of time up-front to educate and engage the parties on possible litigation alternatives ─ rather than automatically falling into the rut of default, lock-step procedures ─ can pay valuable dividends in terms of client satisfaction and public confidence in the adjudicative process.

FINAL REPORT LINK

See also: Report of Chief Judge Jonathan Lippman's "Task Force on Commercial Litigation in the 21st Century"