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Business Law Today

April 2023

Recent Developments in Business Courts 2023

Lee Applebaum and Benjamin Raymond Norman

Recent Developments in Business Courts 2023

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§ 1.1. Introduction

The 2023 Recent Developments describes developments in business courts and summarizes significant cases from a number of business courts with publicly available opinions. There are currently functioning business courts of some type in cities, counties, regions, or statewide in twenty-five states: (1) Arizona; (2) Delaware; (3) Florida; (4) Georgia; (5) Illinois; (6) Indiana; (7) Iowa; (8) Kentucky; (9) Maine; (10) Maryland; (11) Massachusetts; (12) Michigan; (13) Nevada; (14) New Hampshire; (15) New Jersey; (16) New York; (17) North Carolina; (18) Ohio; (19) Pennsylvania; (20) Rhode Island; (21) South Carolina; (22) Tennessee; (23) West Virginia; (24) Wisconsin; and (25) Wyoming. States with dedicated complex litigation programs encompassing business and commercial cases, among other types of complex cases, include California, Connecticut, Minnesota, and Oregon. The California and Connecticut programs are expressly not business court programs as such.

§ 1.2. Recent Developments

§ 1.2.1 Business Court Resources

American College of Business Court Judges. The American College of Business Court Judges (ACBCJ) provides judicial education and resources, in terms of information and the availability of its member judges, to those jurisdictions interested in the development of business courts. The ACBCJ’s Seventeenth Annual Meeting took place in Glen Cove, New York from October 26, 2021, to October 28, 2022. Among other topics, the meeting addressed economic analysis for lawyers, discovery proportionality and cost allocation issues, bankruptcy law and mass tort litigation, the American Law Institute’s Restatement of the Law, Corporate Governance, scientific methodology and the admissibility of expert testimony, public nuisance litigation, and the management of ADR, expert witnesses and special masters in complex litigation.

Section, Committee, and Subcommittee Resources. The ABA Business Law Section provides a Diversity Clerkship Program that sponsors second year law students of diverse backgrounds in summer clerkships with business and complex court judges. The Section of Business Law Section has created a pamphlet, Establishing Business Courts in Your State, which is available among other resources in the online library for the Business and Corporate Litigation Committee’s community web page. The Business and Corporate Litigation Committee’s Subcommittee on Business Courts provides documents and/or hyperlinks to business court resources. This includes links to public sources and legal publications, as well as business court related materials and panel discussions presented at ABA Section of Business Law meetings. The Section’s Judges Initiative Committee also provides links to business court resources, such as annual meeting materials, articles relating to business court initiatives in various states, and other selected resources. The Section also has established a Business Courts Representatives (BCR) program, where a number of specialized business, commercial, or complex litigation judges are selected to participate in and support Section activities, committees, and subcommittees. These BCRs attend Section meetings, and many have become leaders within the Section. Judge Elizabeth Hazlitt Emerson of the Supreme Court of the State of New York Commercial Division and Judge John E. Jordan of Florida’s Ninth Judicial Circuit will serve as BCRs for the 2021-2023 term, and Judge Julianna Theall Earp of the North Carolina Business Court and Judge Anne C. Martin of the Chancery Court of Davidson County, Tennessee will serve as BCRs for the 2022-2024 term. Finally, this publication has included a chapter on updates and developments in business courts every year since 2004.

Other Resources. “The National Center for State Courts (NCSC) and the Tennessee Administrative Office of the Courts have developed an innovative training curriculum and faculty guide – along with practical tools – to help state courts establish and manage business court dockets more efficiently and effectively.” The Business Courts Blog aims to serve as a national library to those interested in business courts, with posts on past, present, and future developments. This includes posts on reports and studies going back twenty years, as well as recent developments in business courts. In 2022, there were articles and reports addressing some aspects of business courts. There are also various legal blogs with content relating to business courts in particular states.

§ 1.2.2 Developments in Existing Business Courts

§ Cook County, Illinois Circuit Court Law Division Commercial Calendar

The Chicago business court, the Commercial Calendar Section of the Circuit Court of Cook County, issued an updated Uniform Standing Order, effective August 29, 2022. Among other items, the Uniform Standing Order covers scheduling, zoom appearances, motion procedures, requirements for briefs and citations, and a list of materials required to be exchanged before trial and then submitted to the court.

§ Florida’s Complex Business Litigation Courts

As it was last year, Florida is lucky enough to have six circuit court divisions dedicated to resolving complex business litigation (“CBL”). Florida’s six CBL judges are spread across Orange County (Ninth Judicial Circuit), Miami-Dade County (Eleventh Judicial Circuit), Hillsborough County (Thirteenth Judicial Circuit), and Broward County (Seventeenth Judicial Circuit). The judges currently assigned to hear CBL cases are: Judge John E. Jordan (Division 2-43) in Orlando, Judges Michael A. Hanzman (Division 43) and Alan Fine (Division 44) in Miami, Chief Judge Jack Tuter (Division 07) and Judge Patti Englander Henning (Division 26) in Fort Lauderdale, and Judge Darren D. Farfante (Division L) in Tampa. Judge Fine was newly-assigned to a CBL division in 2022.

There are two upcoming changes to the Ninth Circuit’s CBL court, which it refers to as the “Business Court.” First, the Business Court is expanding to include an additional division in Osceola County, Florida, to complement the existing division in Orange County, Florida. This will bring Florida up to a total of seven circuit court divisions dedicated to CBL matters. Judge Jordan will preside over the new division initially. Second, the Business Court will likely see a new face next year upon the anticipated completion of Judge Jordan’s CBL term in 2023.

Cases may be directly filed or reassigned/transferred to a complex business division based on a number of factors, including: the nature of the case, complexity of the issues; complexity of discovery; number of parties in the case; and specific criteria enumerated by each circuit.

§ State-wide Business Court in Georgia

Georgia’s inaugural judge for the State-wide Business Court, Judge Walter W. Davis, returns to private practice. After nearly three years of service, Judge Walter W. Davis, the first judge to serve on Georgia’s State-wide Business Court, resigned in June 2022. Nominated by Governor Brian P. Kemp in July 2019, Judge Davis was unanimously confirmed by the Judiciary Committees of both houses of the General Assembly. His initial term was set to last for five years.

The Georgia State-wide Business Court began accepting cases in August 2020, and at the time of Judge Davis’s resignation, 72 cases had been directly filed in, or transferred to, the Court. Judge Davis explained that “[t]he vast majority (87%) of those cases involve[d] disputes between and among small businesses from 22 different counties across the State[.]” Judge Davis authored more than 130 substantive opinions during his time on the Bench. Judge Davis has now returned to private practice as a partner at the Atlanta office of Jones Day.

In August 2022, Governor Kemp appointed Judge William “Bill” Hamrick III to succeed Judge Davis at the Georgia State-wide Business Court. Judge Hamrick, who previously served on the Superior Court for the Coweta Judicial Circuit since 2012, was sworn into office on September 26, 2022.

§ Iowa Business Specialty Court

Iowa Business Specialty Court will soon be evaluated by state court administration every two years. Starting in 2023, the Iowa Business Specialty Court will be evaluated by state court administration every two years. The evaluation is expected to ensure the court continues to accomplish its mission and to identify opportunities to improve its operations. The first report, which will be prepared in July 2023, will evaluate the court for calendar years 2021 and 2022. Subsequent reports will be prepared by the state court administration every two years.

§ Maryland Business and Technology Court

Maryland revises General Corporation Law to codify method of ratification for defective corporate acts. On October 1, 2022, a new subtitle to the Maryland General Corporation Law (“MGCL”) became effective that sets forth a procedure by which corporations can retroactively ratify corporate acts that were defective at the time such acts were enacted. See Md. Code Ann., Corps. & Ass’ns §§ 2-701–707. This ratification subtitle applies to corporate acts that would have been in the corporation’s power to execute had there not been a defective aspect of the act’s adoption. Id. at § 701(d). These defective acts include, but are not limited to, the unauthorized issuance of stock, failure to adopt board resolutions approving a corporate action, and failure to file a required charter document with the State Department of Assessments and Taxation (“SDAT”). In order to ratify the defective act, the corporation’s board of directors must adopt a resolution that states: (1) what the defective corporate act is and whether it involved the issuance of putative stock; (2) the date of the defective act, as best determined under Section 2-701(c); (3) the nature of the failure to authorize the defective act; and (4) whether the act would have required authorization of just the board of directors or of the stockholders, and that the board of directors and/or the stockholders will be ratifying the action, as applicable. Id. at § 2-702(a).

In order to ratify the defective corporate act, the MGCL requires the affirmative vote under either the requirements for approval of the corporate act at the time of the ratification or the requirements for approval of the corporate act on the date of the defective act, whichever portion of votes is greater. Id. at § 2.702(c). Holders of putative stock on the record date that determines which stockholders are entitled to vote on ratification are not entitled to cast a vote in consideration of ratification. Id. If the defective corporate act that requires ratification involves filing a charter document with SDAT, the corporation must file articles of validation in place of the charter document that should have been filed. Id. at § 2-705. These articles of validation must include: (1) the title and date of filing of the charter document to be corrected; (2) a description of the defective corporate act; (3) the date of the defective act; (4) a statement that the defective act was properly ratified; (5) the time the ratification became or becomes effective; and (6) a statement that either (i) a charter document was previously filed regarding the defective corporate act that requires no change, (ii) a charter document was previously filed regarding the defective corporate act and does require changes, or (iii) no charter document was previously filed regarding the defective corporate act. Id. While this new MGCL subtitle outlines a procedure to ensure valid ratification of a defective corporate act, it specifies that this is a nonexclusive remedy, and a defective corporate act can be otherwise lawfully ratified by a corporation. Id. at § 2-707.

Maryland simplifies limited liability company and partnership ownership transfers upon death. Also effective as of October 1, 2022, the Maryland legislature made a series of amendments to existing code provisions that declare that transfers of an equity interest in either a limited liability company or a partnership upon death of the equity holder that are made pursuant to the business’s governing documents are not testamentary transfers. See Md. Code Ann., Est. & Trusts § 1-401(c). These amendments were a direct response to a 2021 Maryland appellate court opinion holding that such equity transfers upon death were subject to estate and probate laws. See Potter v. Potter, 250 Md. App. 569 (2021). Under these modifications, an holder of an interest in a limited liability company or partnership may transfer a membership interest, an economic interest, a noneconomic interest, or a partnership interest, as applicable, to another person upon the interest holder’s death, even if the transferee does not have their own interest in the business at the time of the interest holder’s death. Md. Code Ann., Corps. & Ass’ns §§ 4A-402(a)(9), 9A-503(g). Such transfers will not be treated as testamentary transfers so long as these transfers are consistent with the business’s governing documents and/or agreements. Id. at §§ 4A-402(a), 10-702(d).

§ Massachusetts Business Litigation Session (BLS)

On March 2, 2022, the Massachusetts Business Litigation Session (“BLS”) issued Formal Guidance of BLS Regarding Hearings, Trials, and Electronic Filings (“Guidance”). In the Guidance, the BLS explained that it will continue to hold remote hearings when appropriate, noting that counsel can request that a hearing be conducted remotely. At the same time, the BLS explained that it has a “strong preference” for conducting trials and evidentiary hearings in person. Regarding electronic filings, the BLS explained that an attorney electronically filing an item that needs immediate court attention should alert the session clerk of the filing. If the filing exceeds 20 pages, a courtesy hard copy should be provided to the court. More generally, the BLS also encouraged counsel to provide digital courtesy copies of “complex filings” by a thumb drive or disc, with each document or exhibit included as a separate PDF. Finally, the BLS affirmed its commitment to encouraging the participation of less senior attorneys in all court proceedings. To this end, the BLS explained that it will allow two or more attorneys to handle different parts of a hearing. When a less senior attorney is arguing a motion, the BLS will also allow the less senior attorney to confer with a senior attorney during the hearing and the senior attorney can make additional points when the less senior attorney finishes arguing the motion.

In April 2022, the BLS also published BLS Bench Notes, MBA Complex Commercial Litigation Section, Business Litigation Session Practice Guide (“Bench Notes”). The Bench Notes describe each BLS judges’ practices and preferences regarding case management, discovery, motion practice, and trial.

§ Michigan Business Courts

Michigan Business Courts’ 10-Year Anniversary. October 16, 2022, marked the 10th anniversary of then-Governor Rick Snyder’s signing of Michigan’s business court legislation, which took effect on January 1, 2013. Since their inception, Michigan’s business courts have held an important place in the state’s jurisprudence and have established numerous protocols that circuit courts throughout Michigan have adopted (e.g., early case management conferences and early mediation). Attorneys throughout the state hold the business courts in high regard, finding that the business courts are responsive, efficient, and fulfill their legislatively prescribed purpose of enhancing “the accuracy, consistency, and predictability of decisions in business and commercial cases.”

2022 Business Court Appointments. The makeup of Michigan’s business court bench changed significantly in 2022 as Judge Christopher P. Yates (formerly a business court judge in Kent County) was appointed to the Michigan Court of Appeals and several judges were newly appointed to the business courts. The new appointees are Judges Annette J. Berry (Wayne County), Curt A. Benson (Kent County), Timothy P. Connors (Washtenaw County), Kenneth S. Hoopes (Muskegon County), and Victoria A. Valentine (Oakland County). These new appointees will all serve for a term expiring April 1, 2025.

Michigan’s New Videoconferencing Court Rules. In July 2021, the Michigan Supreme Court responded to the lingering impacts of the COVID–19 pandemic by adopting interim court rules relating to remote proceedings that, inter alia, required trial courts to employ videoconferencing or telephone conferencing “to the greatest extent possible.” Mich. Ct. R. 2.407(G). The court invited public comment on the efficacy of the interim rules and ultimately received 41 written comments and heard feedback from 49 individuals at a public hearing on March 16, 2022. Thereafter, on September 9, 2022, the court issued a new order making the interim rules permanent, thereby solidifying videoconferencing as an important tool available to Michigan courts to increase efficiency, lower costs, and promote access to the judicial system. The most pertinent modification in the 2022 order affecting business court litigants is the court’s adoption of a new rule: Mich. Ct. R. 2.408.

Under Mich. Ct. R. 2.408, “the use of videoconferencing technology shall be presumed” for virtually all civil proceedings besides evidentiary hearings and trials. Nevertheless, courts have discretion to determine the manner and extent to which videoconferencing technology is used. Indeed, even where the presumption applies, the court may require the proceeding to be conducted in person if it determines that the “case is not suited for videoconferencing.” In making this determination, the court must consider twelve factors, including the technological capabilities of the court and the parties, whether “specific articulable prejudice” would occur, and the potential to increase access to courts through the use of videoconferencing. On the other hand, the court generally can also require participants to attend proceedings remotely. An exception to this grant of authority lies in Mich. Ct. R. 2.407(B)(4), which provides that a participant can request to appear in person for any proceeding. If the participant so requests, the participant’s attorney and the presiding judge must appear in person with the participant; however, the court must allow the other participants to participate remotely using videoconferencing technology if they so choose, assuming the court determines that the case is well-suited for videoconferencing.

Beyond the new presumption in favor of videoconferencing for most civil proceedings, the Michigan Supreme Court’s 2022 order instituted numerous additional procedural rules related to remote participation. Among these new rules are the requirements that courts must provide participants with reasonable notice of the time and mode of proceedings, permit parties and their counsel to engage in confidential communications during a videoconferencing proceeding (including, for example, through the use of a virtual “break-out room”), and generally make videoconferencing proceedings accessible to the public. Counsel litigating in Michigan’s business courts should familiarize themselves with the changes made in the 2022 order, which is available on the Michigan One Court of Justice website.

§ New York Commercial Division

Commercial Division promulgates new rule regarding mandatory settlement conferences. On January 7, 2022, the Commercial Division amended Rule 30 of section 202.70(g) of the Rules of the Commercial Division of the Supreme Court. Rule 30 is titled “Settlement and Pretrial Conferences,” and the amendment, effective as of February 1, 2022, adds a new provision to the rule that provides for mandatory settlement conferences in Commercial Division cases following the filing of a Note of Issue. The new provision, which will become Rule 30(b), greatly expands the scope of Commercial Division cases for which settlement conferences will be held. The amendment is aimed at recognizing: “a) the need to respect the authority and discretion of the justice assigned to each case; (b) the benefit of allowing the parties and counsel to provide input to the assigned justice as to which settlement conference procedure they think will be best suited to their particular matter; and (c) [Office of Court Administration] budget constraints that preclude the hiring of additional settlement neutrals.” See Memorandum from Subcommittee on Procedural Rules, entitled “Proposal to amend Commercial Division Rule 30 to provide for a mandatory settlement conference,” dated September 25, 2020.

New York State Unified Court System adopts new rules and guidelines for e-discovery. On April 11, 2022, the New York State Unified Court System adopted additional rules and guidelines for Electronically Stored Information (“ESI”). Under the amended Rule 11-c, parties are required to confer regarding electronic discovery prior to the initial conference. The rule further provides that any topics upon which the parties cannot reach agreement are to be addressed with the Court at the preliminary conference.

The amended Rule 11-c also adopts a cost-benefit analysis similar to the standard in federal court and requires that “[t]he costs and burdens of ESI shall not be disproportionate to its benefits.” To that end, the parties are required to consider “the nature of the dispute, the amount in controversy, and the importance of the materials requested to resolve the dispute.” The amended rule also encourages the parties to use technology-assisted review when appropriate, and the parties are required to confer regarding “technology-assisted review mechanisms” throughout the discovery period. Lastly, the amended rule adds a claw-back provision for inadvertently produced ESI that is subject to either attorney-client privilege or the work product doctrine.

§ West Virginia Business Court Division

In the past year, eighteen motions to refer cases to the West Virginia Business Court Division were filed, and there were three pending motions to refer from 2020. Of these, eleven were granted, nine were denied, and one was pending as of year’s end. Since the Court’s inception in 2012, there have been 219 motions to refer filed, with a total of 127 of those motions granted. The Business Court Division has resolved 101 of these. At the end of 2021, there were twenty-six cases pending before the Business Court Division with an average age of 397 days. The average age of the ten cases disposed of in 2020 was 675 days.

The past year has also been a period of transition for the West Virginia Business Court Division. New judges have been appointed to the Division and the method of assigning judges has been tweaked to reflect the focus of much of the Division’s work. Judge Michael Lorensen of the 23rd Judicial Circuit was reappointed as Chair of the Business Court Division by Chief Justice John Hutchison of the Supreme Court of Appeals. The Administrative Offices of the Division continues to be in Martinsburg, Berkeley County, West Virginia, with law clerk support for each of the Division’s judges located in Martinsburg as well. The current judges assigned to the Business Court Division are:

  1. Judge Michael D. Lorensen (Chair), 23rd Judicial Circuit
  2. Senior Status Judge Christopher C. Wilkes (former Chair)
  3. Judge Paul T. Farrell, 6th Judicial Circuit
  4. Judge Joseph K. Reeder, 29th Judicial Circuit
  5. Judge Shawn D. Nines, 19th Judicial Circuit
  6. Judge Maryclaire Akers, 13th Judicial Circuit
  7. Judge David M. Hammer, 23rd Judicial Circuit

When originally formed, the Business Court Division divided the judge’s assignments up geographically, with each judge representing a region of a certain number of counties. Experience has shown that the cases assigned to the Business Court Division are not necessarily spread across the state. The north-central part of West Virginia, with a burgeoning energy industry, has been the focus of a number of Business Court Division cases. As a result, the Division is less focused on geographic assignments and more on matching the case with the best judge who can handle the matter.

It is also important for practitioners who might be handling a matter before the Business Court Division to understand that the judges appointed to the Division by the Supreme Court of Appeals are not only trained in handling these complex, commercial disputes, but also that they have a full docket in their home circuits of criminal, civil, and abuse and neglect cases. Unlike in some states, assignment to the West Virginia Business Court Division is an additional part of the judge’s workload, which they voluntarily take on to better serve the judicial needs of parties in complex commercial matters.

§ Wisconsin Commercial Docket Pilot Project

In 2022, the Wisconsin Supreme Court extended Wisconsin’s Commercial Docket Pilot Project for another two years, with a new end date of July 30, 2024. The Court originally approved the Project in 2017. The Court also ordered that, on or before July 1, 2023, the Business Court Advisory Committee must file a formal rule petition asking the Court to adopt a permanent business court or advise the Court that it recommends the Court permit the Project to expire. The Court also amended the Interim Commercial Court Rule related to the mechanism for selecting judges to participate in the Project to reflect existing practice. Under the amended Rule, the Chief Justice of the Wisconsin Supreme Court assigns judges to the Project after considering the recommendation of the chief judge in the relevant Judicial Administrative District. Currently, twenty-six counties in Wisconsin participate in the program: Waukesha, Dane, Racine, Kenosha, Walworth, Brown, Door, Kewaunee, Marinette, Oconto, Outagamie, Waupaca, Ashland, Barron, Bayfield, Burnett, Chippewa, Douglas, Dunn, Eau Claire, Iron, Polk, Rusk, St. Croix, Sawyer, and Washburn. The state’s largest county—Milwaukee—has not yet been added to the Project.

§ Wyoming Chancery Court

December 1, 2022, marked the Wyoming Chancery Court’s first anniversary. Born of legislation enacted in 2019, the Wyoming Chancery Court resolves commercial, business, and trust cases on an accelerated schedule using active case management practices, expedited discovery, and bench trials. The Court has jurisdiction over actions seeking equitable or declaratory relief and actions seeking monetary relief over $50,000 exclusive of punitive or exemplary damages, interest, and costs and attorney fees. The underlying cause of action must fall within a list of 20 case types involving business and trust subjects. And the court must seek to resolve the cases as expeditiously as possible, within 150 days in most cases.

During its first year, the Chancery Court saw 15 new cases filed. These 15 cases involved 36 different parties, 29 unique attorneys, and six primary case types—breach of contract, internal business affairs, trust code, business agreements, breach of fiduciary duty, and business transactions involving financial institutions. Two Wyoming district court judges experienced in business litigation—Judges Richard Lavery and Steven Sharpe—handled these cases and will continue to handle cases until a full-time Chancery Court judge is appointed. Wyoming statute requires a full-time judge to be appointed by January 2024. On two occasions, however, the Wyoming Legislature has extended this deadline. It may do so again.

§ 1.2.3 Other Developments

§ Texas Judicial Council’s Civil Justice Committee

The Texas Judicial Council’s Civil Justice Committee issued its 2022 Report and Recommendations, which included a recommendation that the Supreme Court create a pilot business court program. The recommendation included the following subparts:

  • The Supreme Court should establish a pilot business court program to permit consideration of implementation details prior to statewide implementation.
  • This pilot business court should be a part of or parallel to the existing court structure, and the Supreme Court should establish qualifications to determine who can be designated as a business court judge.
  • The business court should hold proceedings regionally to ensure that parties throughout the state with complex litigation have access to the court.
  • Parties to complex litigation should be given the opportunity to opt-in to the business court.
  • The business court should be provided sufficient resources to handle the complex litigation, including technology and staff attorneys.

§ 1.3. 2022 Cases

§ 1.3.1 Arizona Commercial Court

State v. Google L.L.C. (Examining the scope of the Arizona Consumer Fraud Act). The State of Arizona filed suit against Google alleging that Google misled consumers about how and when Google collects location information from the devices it sells. Specifically, the State of Arizona alleged that the Android devices marketed and sold by Google are sold pre-loaded with functions and applications that collect and store a user’s location information. The State of Arizona argued that Google violated the Arizona Consumer Fraud Act (“ACFA”) because, for example, before selling its devices Google programed them with the ability to track a user’s location and did not disclose to the user at the time of sale that the tracking settings could not be completely disabled. Google moved for summary judgment, arguing that any alleged fraud or deceit was not made in connection with the sale or advertisement of merchandise, a requirement under the ACFA. For example, Google argued that the subsequent act of setting up an account and/or using an app, which would be when location tracking begins, cannot be characterized as being “in connection” with the sale of a previously purchased device.

The ACFA specifically addresses deceptive or unfair practices employed “in connection with” the sale or advertisement of merchandise. The commercial court acknowledged that the scope of “in connection with” under the ACFA is unclear, but after examining authority from varying sources the commercial court concluded that “in connection with” is not limited solely to specific actions taken at or before the purchase or sale of merchandise. Rather, a deceptive or unfair practice occurring after a sale may still be considered “in connection with” the sale. Whether an alleged deception is in connection with the sale of merchandise is ultimately a question of fact to be decided at trial. Here, there were issues of fact to be determined by the trier of fact, such as whether the alleged post-sale deceit involving location information had some connection with the sale of the devices such that Google violated the ACFA.

World Egg Bank Inc v. Weiss (Examining whether the sale of a company is consummated merely by the execution of a sales contract). In this case, the majority shareholder of a company sought to sell the company over the minority shareholder’s objection. In addition to objecting, the minority shareholder subsequently disputed the fair market value of the company. The issue before the commercial court was the determination of the fair market value of the company, which required the commercial court to determine when, if ever, the sale of the company actually occurred.

The commercial court explained that the consummation or effectuation of the sale of a company is triggered by the occurrence of the sale, not by the entry of a contract for sale. Here, the majority shareholder argued that the sale was consummated on April 17, 2015, which was the effective date identified in the contract for the sale of the company. The commercial court rejected this argument, finding that there was no evidence that the sale of the company was actually consummated at that time, or at any time thereafter, because the majority shareholder did not provide evidence that the transaction ever closed or was completed. For example, the commercial court determined that the company’s share price for purposes of the sale was not even finalized until November 2015. Therefore, the sale could not have been consummated as of April 17, 2015. The court granted the minority shareholder’s motion for summary judgment holding the majority shareholder failed to carry its burden of establishing the consummation of the transaction.

Beazer Homes Holdings LLC v. DCOH Development LLC (Examining whether a condition under a contract occurred such that duty to perform was triggered). In this case, Defendant filed a motion for partial summary judgment on the issue of whether a condition under a purchase agreement occurred such that the Defendant’s obligation to sell real property to Plaintiffs arose. Defendant entered into a written purchase agreement with Plaintiffs to sell real property to Plaintiffs. The purchase agreement contained a provision titled “Determination of Buyer’s Estimated Improvement Costs and Schedule,” under which the parties were required to agree in writing upon the final amount of Estimated Improvement Costs (“EICs”) prior to closing. Defendant argued that this provision was an express condition that never occurred because any EICs Defendant provided to Plaintiffs were not based on “fixed/guaranteed prices and actual bids,” and, therefore, were not final. As a result, Defendant argued that its obligation to sell the property to Plaintiffs never arose.

In response, Plaintiffs raised several arguments. First, Plaintiffs argued that Defendant sent Plaintiffs proposed EICs that Plaintiffs accepted, thereby satisfying requirement in the purchase agreement. Second, Plaintiffs argued that if the proposed EICs did not satisfy the requirement in the purchase agreement, the failure to satisfy the requirement was caused by Defendant’s failure to provide “final” EICs acceptable to defendant that Plaintiffs could then accept. Third, Plaintiffs argued that Defendant anticipatorily repudiated the purchase agreement because by failing to provide EICs that Defendant deemed acceptable, Defendant clearly indicated that it would not perform under the purchase agreement. Finally, Plaintiffs argued that Defendant breached the implied covenant of good faith and fair dealing because Defendant’s purported terminations of the purchase agreement were shams intended to secure a higher price for the property.

The commercial court started off by acknowledging that the purchase agreement contained ambiguities. While the EIC provision did refer to “actual bids” and “fixed/guaranteed” amounts, the very item at issue— EIC —contains the word “estimated.” Therefore, the nature of the EICs themselves are estimates and not fixed or guaranteed prices. The commercial court doubted that the parties intended to enter into a purchase agreement defining EICs in such a manner that they could never complete. Next, the commercial court indicated that questions of fact remained as to whether the EICs that Defendant proposed to Plaintiffs were accepted such that Plaintiffs could accept them. In addition, the commercial court noted that Defendant’s argument ignored the fact that it was its obligation to provide proposed EICs to Plaintiffs. Therefore, questions of fact remained as to whether Defendant itself prevented the fulfillment of the condition or if Defendant intended to never perform. The commercial court denied the partial motion for summary judgment.

§ 1.3.2 Delaware Superior Court Complex Commercial Litigation Division

Diamond Fortress Techs., Inc. v. Everid, Inc. (Cryptocurrency assets are treated as a security when evaluating contract damages). Pursuant to a licensing agreement and an advisor agreement, Plaintiffs contracted to provide Defendant with patented identification software and as-needed assistance with the integration of the software. Defendant developed a block-chain based identity and financial platform which needed Plaintiffs’ identification software to verify and confirm its users’ identities. The agreements provided that the Plaintiffs would be paid in cryptocurrency token distributions when Defendant eventually held its Initial Coin Offering (“ICO”) (the cryptocurrency equivalent of an initial public offering) and at subsequent Token Distribution Events (“TDEs”). The ICO and several TDEs occurred but Defendant never paid Plaintiffs as agreed. Plaintiffs sued Defendant for breach of the agreements and moved for default judgment based on Defendant’s failure to defend itself in the lawsuit.

In deciding the damages to award Plaintiffs for the Defendant’s breach, the court recognized that the classification and valuation of cryptocurrency, along with the calculation of damages resulting from the breach of a cryptocurrency-paid contract, are novel matters to Delaware. First, the court held that it would rely on CoinMarketCap as a reliable cryptocurrency valuation tool for determining the USD value of cryptocurrency tokens. Then, the court ascertained the proper method for calculating damages such that it would place Plaintiffs in the same position they would have been had the agreements been fully performed. The court held that, because cryptocurrency constitutes a security, it would follow the “New York Rule” previously adopted by Delaware courts to calculate damages in wrongful stock conversion litigation. Accordingly, the court calculated the damages by multiplying the total tokens awarded under the agreements by the tokens’ highest intermediate value within three months of the discovery of Defendant’s breach.

Greentech Consultancy Co., WLL v. Hilco IP Servs., LLC (Preliminary agreements to agree are binding and enforceable contracts). In Greentech Consultancy Company, WLL, the parties agreed to enter into a joint venture to develop and commercialize intellectual property owned by Plaintiff. Their agreement was set forth in a term sheet which indicated that there would be a subsequent agreement “setting forth the specific terms and conditions of the proposed transaction in more detail.” Defendant ultimately backed out of the joint venture before closing and Plaintiff sought to recover damages for Defendant’s failure to meet its obligations pursuant to the term sheet.

Although the term sheet did not expressly state that the parties would exercise “good faith” in negotiating the open issues, the court held that the term sheet nevertheless contained an implied obligation to negotiate in good faith. The court further clarified that preliminary agreements in which the parties agree on certain major terms, but leave other terms open for further negotiation are in fact binding and enforceable contracts. The difference between such preliminary agreements and normal contracts is simply which obligations bind the parties. The court held that Defendant was obligated to negotiate with Plaintiff in good faith in an effort to reach final agreement within the scope that had been settled in the term sheet. Ultimately, the court denied the parties’ motions for summary judgment on the issue of whether Defendant satisfied its obligation to negotiate the open issues under the term sheet in good faith because reasonable minds could differ as to whether Defendant’s conduct amounted to bad faith.

Simon Prop. Grp., L.P. v. Regal Ent. Grp. (Enforcing a broad force majeure provision between sophisticated parties). In Simon Property Group, L.P., the parties entered into several leasing agreements for commercial properties. The leasing agreements contained clauses in which Defendants guaranteed performance by the tenants of all agreements, covenants, and obligations, including guaranteeing the full and prompt payment of rent. Each of the leasing agreements also contained a force majeure provision, obligating the tenants to pay rent in full despite the occurrence of a force majeure event. Due to COVID-19, the tenants were required to adhere to their respective state’s restrictions and began to default on their rent obligations in April 2020. Plaintiff sought more than $5.5 million in unpaid rent and other charges, and moved for partial summary judgment on the counts for breach of the guaranties.

The court rejected Defendants’ argument that they were excused by the COVID-19 pandemic and related governmental restrictions. Specifically, it held that the leasing agreements contained broad force majeure provisions which allocated the risk of impossibility and impracticability to the tenants. Based on the great weight of authority in Delaware and other jurisdictions, the court held that Plaintiff was entitled to partial summary judgment on liability. Acknowledging that the ruling may be considered harsh, the court noted that the leasing agreements involved sophisticated parties which freely contracted and allocated risk to the tenants. Moreover, it recognized that the COVID-19 pandemic was neither unprecedented nor unforeseeable noting the Spanish Flu pandemic and the 1988 film industry strike.

§ 1.3.3 State-wide Business Court in Georgia

Insight Global, LLC v. Marriott Intern., Inc. (Contract termination under force majeure provisions). This contract dispute arose from an event cancellation due to the COVID-19 pandemic. Under a 2019 contract, Defendant Marriott International, Inc. agreed to host an annual sales conference in January 2021 for Plaintiff Insight Global, LLC at one of Marriott’s Florida hotels. Insight paid Marriott a $40,000 deposit. In June 2020, as the COVID-19 pandemic unfolded, Florida state and county officials issued short-term executive orders limiting, among others, restaurant capacity and encouraging the public to avoid large gatherings. In July 2020, Insight sent Marriott a “termination notice” and requested the return of its deposit, stating that it was ending the agreement under the contract’s “Impossibility Provision.” Insight argued that the executive orders under the pandemic rendered the agreement impossible. Marriott disputed this contention, however, and demanded $695,000 under the contract’s liquidated damages, which provided damages at varying percentages based on the date of termination. Soon after Insight sent the termination email, new executive orders were issued that allowed business to reopen and only required face coverings. Insight’s counsel then asked Marriott to provide a plan for performance, but Marriott did not respond. After the performance dates passed, Insight sued seeking (1) a declaration that it properly terminated the agreement because of the pandemic; (2) a declaration that Marriott failed to provide reasonable assurances; (3) a declaration that the liquidated damages provision was unenforceable; and (4) relief under two Florida statutes. Marriott counterclaimed for breach of contract and failure to pay liquidated damages. Insight moved for summary judgment on the counterclaim, and Marriott cross-moved for summary judgment on all claims, including its own counterclaim.

The court granted Marriott’s motion. First, because the contract contained no choice of law provision, the court conducted a choice of law analysis, holding that Georgia’s “traditional rule” for contracts involving out-of-state performance requires application of Georgia law to common law claims and state-of-performance law to statutory claims. Second, the court held that, although the Impossibility Provision contemplated situations like the COVID-19 pandemic and pandemic-related government regulations, Insight did not prove that the pandemic ultimately made its performance impossible or illegal. The court rejected Insights’ argument that impossibility should be measured at the time of termination; impossibility must be determined instead at the time of performance. Third, the court held that, although case law is unclear on the availability of demands for “adequate assurances” under service contracts, Insight’s communications did not even constitute demands because its requests for a “plan of performance” merely sought information and came after repudiation of the contract. As a result, Insight breached the agreement. Fourth, the court rejected Insight’s argument that even if it breached the agreement, its breach was excused because Marriott could not perform. The court concluded that, unlike Florida law, Georgia does not require non-repudiating parties to prove they were “ready, willing and able” to perform after an anticipatory repudiation. Finally, the court held that as the non-breaching party Marriott is entitled to liquidated damages because (a) Marriott’s lost profits are difficult to predict, (b) the contract contained language stating that liquidated damages (which are common in the industry) are not intended to be a penalty, and (c) the sums provided are reasonable and not arbitrarily set.

Elavon, Inc. v. People’s United Bank, Nat. Ass’n (Personal jurisdiction of out-of-state defendants). This action involves an out-of-state successor in interest’s attempted termination of a referral agreement. Plaintiff Elavon, Inc. is a Georgia corporation that provides global processing services for merchants in credit card and other transactions. In 2018, Elavon entered into a five-year referral agreement with United Bank, N.A. (“United”), a Connecticut corporation. Defendant People’s United Bank (“People’s United”) became United’s successor in interest after a stock-purchase merger in 2019. Upon completion of the merger, People’s United transmitted a letter to Elavon purporting to terminate the referral agreement. Elavon sued, claiming People United’s letter amounted to a wrongful anticipatory repudiation and failure to perform under the contract. People’s United then moved to transfer the case from the State-wide Business Court. While that petition was pending, People’s United filed its answer and moved to dismiss for lack of personal jurisdiction. Although the parties’ agreement included a jurisdictional provision that required disputes to be pursued “exclusively in the state courts located in Fulton County, State of Georgia,” People’s United insisted that because the jurisdiction provision also contained an impermissible jury-waiver clause, the entire provision was unenforceable. Elavon responded that the inclusion of a severability provision in the contract made the jurisdictional clause enforceable despite its jury-waiver language.

The court held that, under Georgia precedent, the entire jurisdiction provision was unenforceable. While the severability provision allowed an unenforceable provision to be severed from the agreement, the jury waiver and forum selection language, though separate clauses, were part of a single provision. Next, the court determined that an independent basis of personal jurisdiction over People’s United was just as unavailable. Under Georgia law, a court has jurisdiction over nonresident defendants if the defendants purposefully act or transact business in the state, the cause of action arises out of those transactions, and the exercise of jurisdiction is reasonable. By itself, signing a contract cannot support the court’s exercise of personal jurisdiction. The court noted that preliminary negotiations did not take place in Georgia, and the record did not reveal that People’s United performed any services in Georgia. Thus, under Georgia law, it was clear that unilateral acts by Elavon did not confer jurisdiction, and the mere transmittal of the termination letter did not subject People’s United to personal jurisdiction.

§ 1.3.4 Indiana Commercial Court

deGorter v. Devlin II et al. (Approving the Commercial Court Master’s Recommendations regarding Plaintiff’s Motion to Compel). Indiana’s Commercial Court Rules outline the process for appointment of a commercial court master in a specific case, as well as the requirements that a commercial court master must follow. DeGorter is a prime example of the use of masters in Indiana’s commercial courts. On November 1, 2021, Plaintiff filed a motion to compel production of documents, which Defendants opposed. Following additional briefing and a hearing, the Court issued an order on June 23, 2022, finding that there was insufficient information to determine whether any privilege applied to the documents at issue without conducting a full review of the documents, and recommending that the matter be resolved by a commercial court master. After both parties consented, the Court issued an order on July 18, 2022, appointing a commercial court master to review the withheld/redacted documents, determine when the parties became adverse, and prepare a written report and recommendation on the motion to compel for the Court’s review. On August 15, 2022, the Court issued a subsequent order clarifying the scope of its prior order to note that certain categories of documents were not covered by the master’s review.

Shortly thereafter, the commercial court master submitted an initial report, providing his recommendations on seven different categories of documents based on their varying characteristics. On September 23, 2022, the Court accepted all the master’s recommendations, granting in part and denying in part Plaintiff’s motion to compel. Three of the determinations adopted by the Court are particularly noteworthy:

  • First, the commercial court master determined that Plaintiff was entitled to privileged documents that were created during his tenure on Defendant’s board, as former directors or board members of corporations are entitled to privileged documents created during their tenure as they are individuals within the mantel of privilege. As such disclosure of those documents to the former directors does not eliminate the privilege.
  • Second, the commercial court master determined that Plaintiff was entitled to documents that were part of his application before a government entity, as the common interest principle applied due to the same attorney acting as counsel for both Plaintiff and Defendants during the application process. The master also determined that the lack of clear boundaries explaining the scope of the attorney’s representation of the parties further supported the application of the common interest exception to privilege.
  • Third, the commercial court master noted that non-privileged attachments to privileged communications should generally be treated as privileged, but only when they are attached to communications with counsel. Other copies of the same non-privilege attachment do not share that privilege and are discoverable.

Parkview Health Sys. Inc. v. Am. Guar. And Liab. Ins. Co. (Denying Defendant’s motion to dismiss). In Parkview Health, Plaintiff, a health care system, purchased an insurance policy from Defendant which contained an Interruption by Communicable Disease Coverage (ICD Coverage). The ICD Coverage provided that Defendant would pay for losses sustained by Plaintiff resulting from suspension of business activities at covered locations due to any government orders regulating communicable diseases. Plaintiff alleged that a series of executive orders issued by Indiana’s Governor during the COVID-19 pandemic, impacted Plaintiff’s ability to provide access at its locations, thus requiring payment under the policy. Defendant argued that the complaint should be dismissed because it failed to sufficiently plead facts that satisfied the requirements to establish coverage, in that the executive orders did not prevent access to Plaintiff’s locations, and that admissions of coverage in other cases was irrelevant. In response, Plaintiff argued that discovery was necessary to under the effect of the executive orders.

While the Indiana Trial Rules (specifically Rules 8(A) and 12(B)(6)) generally mirror their federal counterparts, Indiana’s motion-to-dismiss procedure is different than federal practice. Rather than adopting the “plausibility standard” as found in federal case law, Indiana is a notice-pleading state. As such, a complaint filed in Indiana state court is not required to state all the elements of a cause of action but it must inform a defendant of the claim’s operative facts so the defendant can prepare to meet it. The intention of this practice is to “discourage battles over mere form of statement.”

The Court found that there was no clear Indiana appellate case law that provided specific guidance on this rare type of policy. The Court also noted that any ambiguities in the policy must be read in a light most favorable to the non-moving party, Plaintiff. The Court held that the motion to dismiss was premature and that the case should proceed as (1) Plaintiff had met the notice pleading requirements regarding the issue of whether the executive orders impacted the policy, and (2) discovery should be conducted on the issue of whether Defendant had admitted coverage in other cases. The Court noted that it might consider those issues upon summary judgment motions at an appropriate time.

Indianapolis Power & Light Co. (d/b/a AES Indiana) v. American States Insurance Co., et al. (Granting Defendant’s motion to dismiss). In Indianapolis Power & Light Co., AES Indiana brought an action against the Home Insurance Company (“Home”) related to insurance coverage for AES Indiana’s alleged actual and potential liability for claims arising from coal combustion residuals or ash. AES Indiana asserted that Home has a duty to defend and/or reimburse AES Indiana for ongoing costs related to these claims. AES Indiana brought claims for (1) breach of contract; (2) declaratory judgment; and (3) unfair claims practices and breach of the duty of good faith. Home moved to dismiss under Indiana Trial Rules 12(b)(1), (2), and (6). Home also moved to transfer venue under Indiana T.R. 12(B)(3). AES Indiana did not contest Home’s motion to dismiss the breach of contract or unfair claims practices claim, and thus the claims were dismissed. The Court addressed the motion to dismiss as to the declaratory judgment claim.

Here, Home contended that AES Indiana’s claims should be dismissed because Home was declared insolvent and ordered liquidated by a New Hampshire Superior Court in 2003. The New Hampshire Order also directed that all actions and proceedings against Home, whether in New Hampshire or elsewhere, should be abated. Home argued that the New Hampshire Court’s Order must be honored under fundamental principles of full faith and credit and comity. Indiana Code § 27-9-3-12(b) requires Indiana courts to “give full faith and credit to injunctions against the liquidator or the company or the continuation of existing actions against the liquidator or the company, when those injunctions are included in an order to liquidate an insurer issued under similar provisions in other states.” Indiana has also codified the concept of full faith and credit at Ind. Code § 34-39-4-3(b). The Court found that the concept of full faith and credit is central to the system of jurisprudence. Similarly, Indiana courts have described comity, while not a constitutional requirement, as representing a willingness to grant a privilege out of deference and goodwill. Under principles of comity, as the Court notes, Indiana courts may respect final decisions of sister courts as well as proceedings pending in those courts. Factors considered in addressing comity questions include (1) whether the first filed suit has been proceeding normally, without delay, and (2) whether there is a danger the parties may be subjected to multiple or inconsistent judgments. Where an action concerning the same parties and the same subject has been commenced in another jurisdiction capable of granting prompt and complete justice, comity ordinarily should require staying or dismissal of a subsequent action filed in a different jurisdiction, in the absence of special circumstances. Here, the Court found that denying Home’s Motion to Dismiss would cause inconsistency throughout the lawsuits. Because this principle of preventing inconsistency is the reason that comity exists, the Court granted Home’s Motion to Dismiss in its entirety.

New Era Constr., LLC v. Brendonshire Cts. Ass’n, Inc. (Denying Plaintiff’s motion for award of expenses). On April 19, 2021, Plaintiff served discovery requests on Defendant, simultaneously with its Complaint and summons. On September 17, 2021, Plaintiff filed a Motion to Compel due to Defendant’s failure to respond to the discovery requests, despite Defendant’s attorney having filed an appearance and an Answer. After Defendant’s attorney withdrew from the case and Defendant failed to respond to Plaintiff’s motion, the Court granted the Motion to Compel on October 12, 2021. On October 27, 2021, Defendant filed a letter, which the Court construed as a Motion to Reconsider and Motion for Protective Order. Plaintiff filed a response, and the Court denied Defendant’s motion to reconsider and for protective order.

Plaintiff then filed a Motion for Award of Expenses seeking $1,140.00 in attorneys’ fees for its response to Defendant’s Motion to Reconsider and Motion for Protective order, which Plaintiff argued was not substantially justified and was meritless. Defendant argued that he filed the motion in good faith on limited issues and that the motion was not meritless. Trial courts have wide discretion in resolving discovery disputes between parties, and any decision by trial court will only be overturned on appeal if the appealing party can show that the trial court abused its discretion. Such an abuse of discretion is only found where the result reached by the trial court is clearly against the logic and effect of the facts and circumstances before the court. Ind. T.R. 37(A)(4) states:

(A) Motion for order compelling discovery. A party, upon reasonable notice to other parties and all persons affected thereby, may apply for an order compelling discovery as follows:


(4) Award of expenses of motion…If the motion is denied, the court shall, after opportunity for hearing, require the moving party or the attorney advising the motion or both of them to pay to the party or deponent who opposed the motion the reasonable expenses incurred in opposing the motion, including attorneys’ fees’, unless the court finds that making of the motion was substantially justified or that other circumstances make an award of expenses unjust.

Here, the Court found that there was at least one question over whether Defendant had the documents sought in discovery or if he was obligated to turn them over. Thus, the Motion to Reconsider and Motion for Protective Order was substantially justified, and the Motion for Award of Expenses was denied, accordingly.

Midwest Service & Supply, Inc., et al. v. Auto-Owners Insurance Co. (Granting in part and denying in part Defendant’s motions to strike and the parties’ cross-motions for partial summary judgment). In Midwest Service, the parties filed partial cross-motions for partial summary judgment to determine whether Plaintiffs had demonstrated their entitlement to additional insurance coverage within the policy issued by Defendant after a fire occurred at a commercial warehouse building. Defendant also filed motions to strike portions of testimony for two of Plaintiffs’ witnesses, including an expert.

In determining that the declaration of Plaintiff’s expert was admissible, the Court explained the intersection between Indiana Rule of Evidence 702 and the federal Daubert factors. “In Indiana, there is no specific test or set of prongs which must be considered [to] satisfy Indiana Evidence Rule 702.” While Indiana courts consider the federal Daubert factors to be helpful, they are not considered controlling. “Rather, a witness qualifies as expert under Rule 702 if two elements are met: (1) the subject matter is distinctly related to some scientific field, business or profession beyond the knowledge of the average lay person; and (2) the witness is shown to have sufficient skill, knowledge, or experience in that area so that the opinion will aid the trier of fact.”

In determining the parties’ cross-motions for summary judgment regarding Plaintiff’s declaratory judgment claim, the Court explained Indiana’s standard for the interpretation of insurance policies. An insurance policy should be construed to further the policy’s basic purpose of indemnity. If there is an ambiguity, an insurance contract is construed strictly against the insurer, and the language of the policy is viewed from the insured’s perspective. While a division between courts as to the meaning of the language in an insurance contract is evidence of ambiguity, it does not establish that a particular clause is ambiguous and Indiana courts are not obliged to agree that other courts have construed the policy correctly. A policyholder need not prove that its interpretation of a policy term is the only reasonable interpretation—only that it is a reasonable interpretation. For those reasons, the Court found that the policy at issue should be construed in favor of providing coverage, as “an ordinary policyholder of average intelligence-the standard for interpreting policy terms in Indiana-… would reasonably expect coverage for any lost income or extra expense suffered because of the fire.”

§ 1.3.5 Iowa Business Specialty Court

RSS COMM2015-CCRE27-DE WMC, LLC v. WC MRP Des Moines Center, LLC, et al.(Discharge of receivership). Plaintiff filed a lawsuit to foreclose on two mortgages it held over rental properties owned by mortgagors WC MRP Des Moines Center, LLC and WC MRP Waterloo Plaza, LLC (together “the WC MRP Defendants”). In addition to the petition, Plaintiff also filed an emergency application for the appointment of a receiver over properties located in Des Moines, Iowa (“Des Moines property”) and Waterloo, Iowa (“Waterloo property”), claiming that one of the properties needed a receiver to avoid imminent harm. Plaintiff specifically argued the WC MRP Defendants were instructed by a fire department to immediately repair a broken fire suppression system, which constituted a fire hazard, or cease all business operations. Plaintiff also asserted that a lack of adequate lighting resulted in increased vandalism on the Des Moines property and conditions on the property were so inadequate that a tenant sued the WC MRP Defendants over said conditions. The Court ultimately granted the application for receiver.

The WC MRP Defendants filed a motion to discharge the receiver and argued, among other things: (1) they were working diligently to repair the fire suppression system, (2) the receiver caused delays and extra expenses, (3) repair of the fire suppression issue was complex and the receiver made no greater progress than the WC MRP Defendants had before the receiver was appointed, and (4) the receivership over the Waterloo property was unnecessary because all of Plaintiff’s management complaints related to the Des Moines property.

The Court found there was lack of evidence showing a continuing need for the receivership and the costs of the receiver significantly outweighed the benefit of continued appointment. The establishment of the receivership was no longer supported because either the issues were resolved by the receiver or the receiver was no better positioned to resolve the issue than the WC MRP Defendants. Accordingly, the Court granted Defendants’ motion to discharge the receiver.

Rupert v. Elplast America, Inc. (Breach of fiduciary duties for corporate officers). Plaintiff, the former president of Defendant Elplast America, Inc., filed a lawsuit alleging breach of contract and a claim for unpaid wages relating to Plaintiff’s separation from the company after he was asked to step down as president. Defendant asserted a breach of fiduciary duty counterclaim alleging Plaintiff breached his duty to shareholders in various ways, including failing to properly account for the transfer of funds, failing to repay company debt, and failing to report accurate company data to the board of directors. Plaintiff filed a motion for summary judgment asserting (1) Defendants failed to support a breach or damages, (2) expert testimony is necessary establish a breach of fiduciary duty claim, and (3) Plaintiff was immune to liability pursuant to Iowa statutory law.

The Court denied Plaintiff’s motion for summary judgment on all arguments. First, the Court determined that there was sufficient evidence, if believed by a jury, to demonstrate that Plaintiff breached his fiduciary duty to the company, which resulted in damages. Second, the Court rejected that Iowa Code § 490.842(3), a statutory provision that may immunize officers for delegated responsibilities if there is no knowledge of the incompetent or improper conduct related to the delated task, provides an absolute defense. The Court further noted that the defense was not available to Plaintiff because evidence suggested that there were no delegated tasks related to the purported breach. Third, the Court rejected that expert witness testimony was necessary to establish a breach of a fiduciary duty as the claims concerned the failure to take action, which, unlike legal and medical malpractice cases, are within the common understanding of a layperson.

§ 1.3.6 Kentucky Business Court Docket

Wen-Parker Logistics, Inc. and WPL Brokerage Inc. vs. Two Canoes, LLC and Mesh Gelman (Contract dispute involving forum selection clause, personal guaranty and unjust enrichment claim). Plaintiffs, a parent that is a New York corporation and its wholly owned subsidiary that is a Kentucky corporation, provide end-to-end cargo transportation with the subsidiary handling custom clearances for importers. Gelman executed Terms of Service with the Kentucky subsidiary on behalf of Two Canoes to handle shipments of personal protective equipment. Plaintiffs brought the action to recover more than $2,000,000 in unpaid invoices, and Defendant made a motion to dismiss. Defendants argued that the Web Site Terms applied, requiring a New York forum rather than the Terms of Service signed by it, which chose a forum in Kentucky. The court found that the appropriate forum was in Kentucky. The court dismissed the claims against Gelman for breach of a personal guaranty finding that Gelman signed the documents on behalf of the company, and not individually, among other things. The court did not dismiss the Plaintiffs’ unjust enrichment claim finding that discovery would be needed determine if the contract were controlling or an unjust enrichment claim may be made.

§ 1.3.7 Maine Business and Consumer Docket

Morgan v. Townsend (Restrictive Covenants). Short-term rentals are a source of much controversy in Maine, and have been the focus of several ballot measures, ordinances, and referendums across the state. A recent BCD case highlights one neighborhood’s attempt to regulate short-term rentals using its restrictive deed covenant. In Morgan v. Townsend, two neighbors (“Plaintiffs”) moved for summary judgment against a third neighbor (“Defendant”) for violating the neighborhood’s restrictive covenant and for nuisance because he operated a short-term rental on his property. The parties all own real property in a neighborhood in Cushing, Maine, a popular summer vacation destination. Cushing has no noise ordinances or zoning restrictions on rental properties, but the neighborhood properties were subject to identical restrictive covenants, stating that properties could “not be used or occupied for any purpose other than for private residential purposes and no trade or business shall be conducted therefrom,” and allowed no structure other than “for use and occupancy by one family.” Defendant’s property contained two separate residences that he rented out on short-term vacation rental websites. He advertised the structures as jointly sleeping up to 32 people and described the property as the “[b]est oceanfront property for large groups on the coast of Maine!” He had not lived on the property since the late 1970s and had not visited it since early 2019. He employed a property manager who was responsible for renting it out. Between May 2019 and September 2021, the property was rented to 59 groups who, according to Plaintiffs, played loud music; trespassed; left trash on neighboring properties; set off fireworks; left flood lights on all night; and generally disrupted the neighborhood.

The Plaintiffs claimed that Defendant’s operation violated the restrictive covenant because: 1) he was not using the property for solely residential purposes; 2) he was conducting business on the property; and 3) he used the structures on the property in a manner inconsistent with its intended use as a private residence by a single family. Plaintiffs also asserted a private nuisance claim. The BCD first assessed whether Defendant’s rentals violated the restrictive covenant. It observed that, in Maine, renting out a property is not necessarily a commercial use that is inconsistent with a restrictive covenant limiting a property to use for residential purposes. A party may, however, violate a residential use restriction where the party’s use is inconsistent with the purpose of the restriction. While a residential use restriction, on its own, encompasses a wide range of property uses beyond use as a long-term or primary home, qualifying language in the covenant can tighten the restriction. Finally, the BCD noted that Maine case law does not limit one-family properties to hold a single structure where multiple structures are intended for use by one family. The Court found that although the neighborhood covenant did not entirely prohibit rentals—or even short-term rentals—its use of “private” to modify the term “residential purposes,” along with its limitation to “occupancy by a single family,” narrowed the rental pool to familial units only. Further, the BCD found that the circumstances of Defendant’s rental operation, including his arms-length relationship with the property and employment of a property manager, rose to the level of a full-scale commercial enterprise. As such, his conduct violated the restrictive covenant. The Plaintiffs’ motion for summary judgment was granted on the first count.

§ 1.3.8 Massachusetts Business Litigation Session

Healey v. Uber Technologies, Inc. (Privilege dispute). In 2020, the Attorney General (“AG”) of Massachusetts, Maura Healy, filed a lawsuit against the ride-share companies Uber Technologies, Inc. (“Uber”) and Lyft, Inc. (“Lyft”), alleging that Uber and Lyft have violated Massachusetts wage and hour laws by incorrectly classifying drivers who use these ride-share apps as independent contractors. Uber moved to compel the AG’s response to various discovery requests, arguing that the AG could not rely on the investigatory privilege to withhold documents or redact information identifying individual Uber and Lyft drivers who shared information with the AG during its investigation. Some of these drivers were interviewed by the AG. Others supplied information through a website the AG created to gather drivers’ stories. The AG argued that disclosure of the drivers’ identities would chill the willingness of individuals to “come forward and speak freely” with law enforcement in future investigations.

The Court disagreed. The Court concluded that the investigatory privilege did not bar discovery of the drivers’ identities. As the Court explained, the drivers’ testimony was plainly relevant. Drivers who provided information to the AG were more likely to be called as witnesses at trial. Uber and Lyft were entitled to know the identities of these drivers to help prepare for their testimony or to consider calling some of these drivers as defense witnesses. Moreover, according to the AG, more than 600 drivers provided information. Given the large number of drivers that provided information, the Court concluded that the drivers could not have reasonably expected their identities to remain confidential. In fact, the AG had warned the drivers that their identities might eventually be disclosed. The Court also reasoned that, given the number of drivers that came forward, it was unlikely these individuals would face retaliation from Uber or Lyft. In any event, these drivers would have a “considerable remedy” if any such retaliation were to follow. Finally, the Court noted that this information would be produced subject to a protective order. Thus, based on the “unique circumstances” of the case, the Court overruled the AG’s objections based on investigatory privilege.

In its decision, the Court also addressed several other discovery disputes. Among other things, the Court sustained the AG’s objections that Uber’s requests for production purportedly seeking information relevant to its “constitutional” defenses were overbroad. In essence, these “constitutional” defenses sought to show that the AG had been selective or inconsistent in deciding to bring litigation against Uber and Lyft as opposed to the many other companies involved in the “gig-economy.” At the same time, the Court noted that the AG enjoys broad prosecutorial discretion and a presumption that she has properly discharged her duties. Uber had failed to present the “clear evidence” of selective prosecution needed to rebut this presumption.

FTI, LLC v. Duffy (Non-solicitation; unfair and deceptive trade practices). FTI, LLC (“FTI”), a consulting company, brought a lawsuit against three of its former employees—Robert Duffy (“Duffy”), Stephen Coulombe (“Coulombe”), and Elliot Fuhr (“Fuhr”) (collectively, the “Former Employees”), alleging that they violated their employment agreements and fiduciary duties by going to work for a competitor, Berkley Research Group, LLC (“BRG”). BRG was also named as a defendant. In 2022, the Court presided over a two-and-a-half-week trial where, among other things, the Former Employees were found to have breached their employment agreements, and BRG was found to have engaged in unfair and deceptive trade practices in violation of M.G.L. c. 93A. The jury awarded FTI over $21 million in damages, and the Court, deciding certain claims against BRG, awarded FTI $18 million in punitive damages.

Defendants moved for a new trial and to amend the judgment. The Court denied these motions. The Court concluded that it properly granted a directed verdict for FTI on Defendants’ defense that the Former Employees were constructively discharged by FTI. Defendants did not provide any evidence to show that Duffy had been improperly demoted or that working conditions at FTI had become so intolerable as to constitute constructive discharge. The Court reaffirmed that the non-competition and non-solicitation clauses in the subject employment agreements were reasonable in scope. And the Court rejected Defendants’ argument that “solicit” should have been defined to the jury to require the initiation of a client contact.

As to the c. 93A claim, the Court rejected BRG’s argument that the disputed events did not occur “primarily and substantially” in Massachusetts, as the statute requires. At trial, BRG had the burden of proof on this issue. As the Court explained, although Fuhr worked out of FTI’s New York office, he supervised FTI employees in Boston, and Duffy and Coulombe both worked in FTI’s Boston office. Half of the other FTI employees that left for BRG with Duffy, Coulombe, and Fuhr were also located in the Boston office. Moreover, over half of the client revenues that left FTI with the departure of Duffy had originated in the Boston office. All told, Massachusetts provided the requisite “center of gravity” for the culpable conduct. The Court rejected BRG’s argument that the dormant Commerce Clause prohibited regulation of conduct occurring outside Massachusetts. Because c. 93A does not discriminate against interstate commerce, any incidental effects on interstate commerce would not violate the constitution unless they were “clearly excessive” in relation to the putative local benefits of the law. Here, the c. 93A verdict was based on culpable conduct squarely aimed at and caused in Massachusetts, and the interstate effects of the verdict were not excessive. The Court also rejected the argument that a Maryland choice-of-law provision in the Former Employees’ FTI employment agreements in any way barred the c. 93A claim against BRG.

Katopodis v. Plainville Gaming and Redevelopment, LLC (Consumer protection). In a putative class action, Plaintiffs alleged that Plainville Gaming and Redevelopment, LLC d/b/a Plainridge Park Casino (“PPC”) violated the Massachusetts Gaming Act, M.G.L. c. 23K, § 29, and its related regulations, by failing to send its rewards cardholders statements notifying them of their bets, wins, and losses (“win/loss statements”). Based on these allegations, Plaintiffs asserted a single claim for violation of Massachusetts’ consumer protection statute, M.G.L. c. 93A. PPC moved to dismiss the case under Rule 12(b)(6).

The Court denied PPC’s motion, concluding that Plaintiffs had alleged a plausible claim under c. 93A. The Gaming Act and its regulations require casino operators, like PPC, to provide a monthly win/loss statement to patrons with rewards cards. The statement can be sent to a patron’s physical address, or it can be sent by email unless the patron opts out of electronic notifications. As alleged, PPC failed to provide any win/loss statement to its rewards cardholders for several years and then only provided electronic statements, regardless of whether a patron had provided an email address or had opted out of electronic notifications. Because of this, Plaintiffs claimed they had not received the monthly win/loss statements required by law.

PPC relied on a line of cases holding that a claim under c. 93A requires a plaintiff to show “injury” “separate” and “distinct” from the statutory or regulatory violation itself. Based on this authority, PPC argued the case should be dismissed because its alleged failure to provide the win/loss statement did not, by itself, constitute “injury” to Plaintiffs under c. 93A. The Court disagreed. According to Plaintiffs, without the win/loss statements, they were deprived of the opportunity to make an “informed decision” about their gambling habits. A demand letter sent to PPC – which the Court considered on the motion to dismiss – further claimed that Plaintiffs had gambled less at other casinos when these casinos provided the required win/loss statements. And some of Plaintiffs further claimed that they had suffered financial hardships as a result of their gambling habits. All told, the Court concluded that Plaintiffs had adequately alleged an “injury,” i.e., “gambling in the absence of a required consumer protection,” that was “separate” and “distinct” from the alleged violation itself.

§ 1.3.9 Michigan Business Courts

Main St. Real Est., LLC v. Conifer Holdings, Inc. (Insurance; contract interpretation). This case involved an insurance coverage dispute in which Defendant Conifer Holdings, Inc. refused to defend Plaintiff Main Street Real Estate, LLC in a lawsuit concerning Main Street’s alleged involvement in a fraudulent real estate transaction. In that underlying suit, the adverse party brought numerous claims against Main Street, including breach of contract, breach of fiduciary duty, and vicarious liability for an independent contractor’s criminal misconduct. Main Street sought indemnity from Conifer, its insurer. Conifer, however, denied coverage for all the claims against Main Street, asserting that: (1) only claims pertaining to “real estate services” were covered under Main Street’s insurance policy, and none of the allegations against Main Street fell within the scope of this term; and (2) all the claims fell under the policy’s list of coverage exclusions.

The court rejected Conifer’s arguments and granted Main Street’s motion for summary disposition (i.e., summary judgment) as to Conifer’s duty to defend and indemnify Main Street against all the claims. In addressing Conifer’s first argument, the court applied the rules of contract interpretation and read the contract to provide that Conifer was required to defend Main Street against claims relating to “real estate services.” The court found that while the term “real estate services” was defined in the policy as services rendered by a “real estate agent” or “real estate broker,” the policy did not define “real estate broker” or “real estate agent.” As such, the court turned to Black’s Law Dictionary for guidance and used the dictionary’s definitions of “real estate broker” and “real estate agent” to find that several of the claims brought against Main Street related to “real estate services.” This included the claim in the underlying suit that Main Street did not draft accurate purchase agreements or properly advise its client regarding escrow funds. Therefore, these claims fell within the scope of the insurance policy such that Conifer had a duty to defend Main Street.

Since at least some of the claims were covered, Conifer’s duty to defend extended to all the claims: “Michigan case law is clear that when theories of liability which are not covered are raised with theories of liability that are covered under the policy, the insurer has a duty to defend.” The court also relied on this principle to dispose of Conifer’s second argument––that the claims against Main Street fell within the policy’s list of coverage exclusions. Because the court had already found that some of the claims were covered under the policy, Conifer had a duty to defend Main Street on all claims regardless of whether some of the claims were on the exclusion list.

LiftForward, Inc. v. SimonXpress Pizza, LLC, et al. (Breach of Credit Agreement, COVID–19). Plaintiff LiftForward, Inc. extended a secured loan to Defendant SimonXpress Pizza, LLC for business purposes pursuant to a credit agreement and an accompanying promissory note. After several months of nonpayment, LiftForward sent a letter of default to SimonXpress, accelerating the unpaid principal balance due, together with accumulated interest and other fees and charges. LiftForward sued SimonXpress and moved for summary disposition, asserting that SimonXpress breached the parties’ credit agreement by failing to make required payments. SimonXpress also moved for summary disposition, alleging, inter alia: (1) that LiftForward had first breached the parties’ agreement by charging an unlawful interest rate; and (2) frustration of purpose due to the COVID–19 pandemic.

The court first found that there was no genuine issue of material fact that SimonXpress was in default and that LiftForward was therefore entitled to the unpaid principal, accrued interest, and any other charges or fees payable pursuant to the parties’ credit agreement and promissory note. The court then rejected SimonXpress’s affirmative defenses. First, LiftForward had not materially breached the contract first by charging an unlawful interest rate; the promissory note, which SimonXpress had signed, agreed to fix the interest rate such that it would not exceed the “maximum interest rate permitted by applicable law.” Additionally, the loan qualified under a statutory exception (Mich. Comp. L. 438.31c(11)) to the criminal usury interest rate provisions, which permits “the parties to a note, bond, or other indebtedness of $100,000.00 or more, the bona fide primary security for which is a lien against real property other than a single family residence…[to]…agree in writing for the payment of any rate of interest.”

As to the other affirmative defense—COVID–19 frustration of purpose—SimonXpress failed to demonstrate that it was unable to perform its obligations under the agreement or even that its business was closed during the time period at issue. Moreover, the pandemic did not render LiftForward’s performance “virtually worthless” to SimonXpress, as is required under the frustration of purpose doctrine. The funds were intended for business-related purposes, and SimonXpress did not allege that it had stopped operating its business during the pandemic. Finally, SimonXpress’s frustration of purpose argument was undermined by the fact that it had allegedly stopped making the required payments more than two months before the COVID–19 shutdown commenced.

Pioneer Gen. Contractors, Inc. v. 20 Fulton St. E. Ltd. Dividend Hous. Ass’n Ltd P’ship, et al. (Construction liens). Plaintiff Pioneer General Contractors, Inc. served as general contractor for the construction of a building in downtown Grand Rapids, Michigan. Pursuant to its contractual relationship with Defendants, the property owners, Pioneer began work on the project in 2015 and provided various services for Defendants, including supervising the work of various subcontractors. In 2017, a certificate of use and occupancy was issued, and tenants began to occupy the building. Defendants, however, failed to pay the $3.6 million outstanding balance that they owed to Pioneer and the subcontractors. Pioneer and some of the subcontractors then executed a “liquidating agreement,” in which they agreed to file construction liens on the property. The contractors ultimately carried out their agreement; each filed separate liens that totaled, in aggregate, approximately $6 million. In 2018, the parties entered a settlement agreement wherein Pioneer agreed to discharge all outstanding construction liens in exchange for Defendants’ payment of $1 million. Defendants failed to pay this amount, however, so Pioneer sued, seeking to foreclose on its construction liens.

Defendants contended that the construction liens were invalid, raising three arguments to support this assertion. First, Defendants argued that Pioneer and the subcontractors had filed their liens for an amount (about $6 million total) that far exceeded the amount owed under the contract ($3.6 million total), which violated Michigan law (Mich. Comp. L. 570.1107(6)) and should therefore be void ab initio. The court disagreed and found that the statutory amount restriction applies to each lien claimant individually, rather than to lien claimants in the aggregate. Thus, while the aggregate lien amount did exceed the total amount Defendants owed to all the lien claimants, this did not invalidate the liens because, on an individual basis, each contractor’s construction liens did not exceed the amount that Defendants owed to that contractor. A discrepancy (here of about $2.3 million) between the aggregate lien and individual debt amounts may occur when, as here, a general contractor (Pioneer) and the subcontractors all have valid claims against Defendants for “the same unpaid obligations arising from work on the same construction project.” This discrepancy did not render the liens void ab initio.

Defendants next argued that the construction liens were invalid because Pioneer had filed them in bad faith. Specifically, Defendants alleged that Pioneer’s and the subcontractors’ execution of the “liquidating agreement” shortly before they filed their construction liens evinced a bad-faith scheme. The court rejected this claim, finding “nothing untoward” about the agreement or its timing. Indeed, the court noted that such agreements are commonplace within the construction industry as a mechanism to provide some security to subcontractors who lack privity of contract with the property owner. Defendants lastly argued that the parties’ master contract obligated Pioneer to refrain from encumbering the property with construction liens. The court flatly rejected this argument, noting that the plain terms of the contract authorized the filing of construction liens and required Pioneer to discharge the liens only if Defendants had paid for the completed work or payment was not yet due. This discharge requirement did not apply since the liens arose from Defendants’ failure to pay. The court also noted that a contractual lien forbearance obligation would be functionally equivalent to a contractual waiver of the right to a construction lien, which is expressly prohibited under Michigan law (Mich. Comp. L. 570.1115(1)). Having rejected all three of Defendants’ arguments, the court granted partial summary disposition in Pioneer’s favor.

Crown Enter., Inc. v. Bounce House KRT, LLC (Commercial lease; COVID–19). Beginning in 2019, Plaintiff Crown Enterprises, Inc. leased a 26,000 square-foot commercial property to Defendant Bounce House KRT, LLC. Shortly after the parties’ contractual relationship began, the COVID–19 pandemic’s emergence prompted federal and state governments to order business closings. On March 23, 2020, the Michigan government ordered a statewide shutdown of non-essential businesses like Bounce House. Beginning in October 2020, the government allowed businesses to reopen at limited capacity. The permissible level of capacity percentage gradually increased (besides a period of complete closure between November and December) until the restrictions were fully lifted on June 17, 2021. Throughout the shutdown, Bounce House paid rent to Crown pro rata based upon the capacity percentage allowed by the government. Crown accepted these partial rent payments. Eventually, however, Crown sued Bounce House for breach of the parties’ lease, seeking, inter alia, unpaid rent, utilities, and late fees. Bounce House raised the following defenses: (1) the COVID–19 shutdown order triggered the lease’s force majeure clause; (2) impossibility; and (3) frustration of purpose.

As to the force-majeure-clause argument, the court noted that the lease contained a provision stating that Bounce House was required to pay rent “without any deduction or set off whatsoever.” The court found that this language, rather than the force majeure clause, governed Bounce House’s obligation to pay rent. Further, the clause did not authorize rent abatement in consequence of a triggering event. Next, the court summarily rejected the frustration of purpose and impossibility arguments. It noted that frustration of purpose applies only where the purpose of the “entire lease” is frustrated, which was not the case here since Bounce House had partial or complete access to the premises for much of the lease’s term. Likewise, the impossibility doctrine was inapposite because the premises were not destroyed; performance was not literally impossible.

The court did, however, find that Bounce House could obtain rent abatement under the doctrine of “temporary frustration of purpose” (also known as impracticability). Under this doctrine, a party to a contract is excused from performance where: (1) the contract is executory; (2) the party’s purpose was known at the time it entered into the contract; and (3) the purpose was temporarily frustrated by an event that was not reasonably foreseeable when the contract was created and which was not the party’s fault. The court noted that while jurisdictions are split on whether COVID–19 shutdown orders can excuse a party’s contractual performance, the Michigan federal district court in Bay City Realty, LLC v. Mattress Firm, Inc. applied temporary frustration of purpose to a similar set of facts. The court found the Bay City court’s approach persuasive and adopted it. Specifically, the court emphasized that both parties suffered a loss—Bounce House, in the form of “temporarily worthless” premises; Crown, in the form of lost income—caused by an unforeseeable governmental shutdown that was neither party’s fault. Moreover, the parties’ lease failed to allocate the risk of such a loss to either party. As such, the court determined that the best solution was to allocate some of the loss to each party by only requiring Bounce House to pay Crown “the applicable pro rata percentage of the allowable occupancy” levels under the state’s COVID–19 orders. Since Bounce House had already made rental payments on this pro rata basis, the court dismissed Crown’s claim for breach of contract.

§ 1.3.10 New Hampshire Commercial Dispute Docket

Fisher Cat Development, LLC. v. Stephen Johnson (Breach of contract; contractual ambiguity; extrinsic evidence). Seller argued that, while the Parties’ Purchase and Sales Agreement contained two inconsistent closing date provisions, an executed addendum resolved such ambiguity. The addendum extended the closing date “to no later than 4/28/21,” but also stated “[a]ll other aspects of the aforementioned Purchase and Sales Agreement shall remain in full force and effect.”

The Court was not persuaded by Seller’s argument that this addendum resolved the ambiguity, due to it incorporating all other provisions of the Agreement. The Court thus found that, because the provisions were ambiguous, the Court could reference extrinsic evidence to interpret the Agreement. The Court determined the extrinsic evidence created a material dispute as to: (1) whether the Parties ever agreed to a closing date; (2) whether the Seller breached the Agreement; and (3) whether the Seller breached the implied covenant of good faith. As a result, summary judgment was denied.

N.H. Elec. Coop., Inc. v. Consol. Communs. of N. New Eng., LLC. (Impracticability and frustration of purpose defenses). After Defendant moved to amend its answer and counterclaims to include the doctrine of impracticability as an affirmative defense, Plaintiff argued an affirmative defense of impracticability is futile and that New Hampshire does not recognize impracticability as a breach of contract defense. Plaintiff asserted that New Hampshire law recognizes frustration of purpose, which Defendant had already pled. Defendant argued that impracticability is synonymous with impossibility, which New Hampshire courts recognize.

The Court agreed with Defendant. Further, the Court found that frustration of purpose is distinguishable from impossibility, and is thus also distinguishable from impracticability.

Finally, the Court determined that, even though impracticability was substantively different from Defendant’s original affirmative defenses, Defendant’s impracticability argument restates its longstanding position. Thus, the Court allowed Defendant’s amended defense of impracticability.

Vt. Tel. Co., Inc. v. FirstLight Fiber, Inc. (Consequential damages limitations and alleged bad faith). Plaintiff brought a number of claims due to Defendant’s termination of a lease between the Parties, and Defendant moved for summary judgment. The enforceability of the Limitation Clause of the lease was of particular issue, which barred recovery of consequential damages entirely, and limited monetary recovery to the charges payable to Plaintiff during the term of the lease. Plaintiff argued that the Limitation Clause was unenforceable because Defendant acted in bad faith.

Although the New Hampshire Supreme Court has not definitively ruled on this issue, the Court found that New Hampshire law would adopt the rule that a limitation clause may not be enforceable if the party seeking to enforce it has acted in bad faith, and therefore denied summary judgment due to the factual dispute that bad faith exists.

§ 1.3.11 New Jersey’s Complex Business Litigation Program

Jenkinson’s Nik Lamas-Richie and Relic Agency, Inc. v. Matthew Richards and Mars Media, LLC (Jurisdiction). In this case involving a dispute concerning the parties’ agreement relating to unpaid loan amounts and consulting fees, the New Jersey Superior Court clarified that New Jersey’s “first-filed rule” extends not only to actions brought in New Jersey and a neighboring state, but also to actions brought in New Jersey state and Federal court. Following a dispute regarding Lamas-Richie and Relic’s alleged failure to compensate Richards and Mars for Richards’ consulting work, the parties entered into an Agreement where Lamas-Richie would serve as a consultant to Mars and Lamas-Richie, and Relic would satisfy outstanding financial obligations for unpaid compensation and outstanding loan amounts, in addition to agreeing to certain restrictive covenants. In March 2022, Richards and Mars filed an action in the U.S. District Court for the District of New Jersey alleging breach of the Agreement and tortious conduct committed by Lamas-Richie and Relic (the “Federal Action”).

A month later, Lamas-Richie and Relic commenced an action in New Jersey state court alleging tortious conduct by Richards and Mars relating to the Agreement (the “State Court Action”). Despite requests by Richards and Mars that Lamas-Richie and Relic pursue their claims in the first-filed Federal Action and voluntarily dismiss the State Court Action, Lamas-Richie and Relic did not respond. Richards and Mars then moved to dismiss Lamas-Richie and Relic’s complaint in the State Court Action, citing New Jersey’s “first-filed rule” which states that the court which first acquires jurisdiction over an action has precedence in the absence of special equities.

The Court granted Richards and Mars’ motion to dismiss Lamas-Richie and Relic’s complaint in the State Court Action and ordered the parties to litigate their disputes in the Federal Action. In so doing, the Court rejected Lamas-Richie and Relic’s argument that New Jersey’s first-filed rule applies only to lawsuits filed in New Jersey and a neighboring state, and held that the first-filed rule warrants dismissal in instances where a defendant in a federal action asserted what would be a compulsory counterclaim under F.R.C.P. 13(a) in a subsequent state court action. The court also rejected Lamas-Richie and Relic’s argument that the first-filed rule was inapplicable because “special equities” existed as a result of the “extreme delays plaguing” the Federal court in New Jersey, and ruled that even if the parties would experience a near-six-year delay due to the backlog of cases in the New Jersey Federal courts as Lamas-Richie and Relic claimed, any prejudice to the parties stemming from such a delay would be outweighed by the prejudice that resulted from the parties being forced to litigate in two forums and the risk of receiving inconsistent judgments in either action. Thus, the Court concluded that: (i) New Jersey’s first-filed rule obligated the parties to litigate their disputes in the Federal Action, which first acquired jurisdiction; and (ii) the delays present in the New Jersey Federal courts were insufficient to render the first–filed rule inapplicable.

NVL, Inc. and Hooman Nissani d/b/a Hooman Automotive Group v. Volvo Car USA LLC (Contract; liability waiver). In this case involving a dispute over the enforceability of a covenant not to sue provision contained in a Letter of Intent, the Court found that the covenant not to sue was enforceable and granted Defendants’ motion for summary judgment. The parties in the case entered into a series of letters of intent (LOIs) which contained the steps that Plaintiff was required to take in order to be approved as an authorized Volvo dealer. The final version of the LOI, which was drafted by Defendant’s legal counsel, contained a waiver of liability wherein Plaintiff covenanted not to sue Defendant Volvo. Following multiple extensions of the construction deadlines contained within the LOI, Defendant elected to terminate the LOI, citing a pattern of failed deadlines by Plaintiff. Plaintiff filed suit and Defendant moved for summary judgment, citing the waiver of liability provision in the LOI.

In its decision, the Court reiterated New Jersey’s two-pronged approach to determine whether a waiver of liability is unconscionable: (1) determining the relative bargaining power of the parties, i.e., whether the parties could actually negotiate regarding the waiver of liability provision; and (2) whether the challenged provision is substantively unreasonable, i.e., whether the exchange of obligations was so one-sided that it shocks the court’s conscience. The court concluded that, although Defendant is a major automobile manufacturer, which “certainly gave it some leverage over Plaintiffs,” there was not a procedurally unconscionable disparity in the bargaining power of the parties as Mr. Nissani was a sophisticated businessman with significant experience negotiating with automobile manufacturers in the course of opening dealerships, and Plaintiffs had an attorney review the LOI before it was executed. Furthermore, the Court concluded that the LOI did not contain substantive terms that were so one-sided as to shock the Court’s conscience as liability waivers are commonly included in contracts between sophisticated commercial parties, and the parties engaged in negotiation and mutually assented to all terms included in the LOI. Thus, the court concluded that the liability waiver was valid and enforceable, and granted Defendants’ motion for summary judgment.

§ 1.3.12 New York Supreme Court Commercial Division

Walk v. Kasowitz Benson Torres LLP (Malpractice). In Walk v. Kasowitz Benson Torres LLP, the New York County Commercial Division, relying on “documentary evidence” under CPLR 3211(a)(1), concluded that a legal malpractice claim brought by former president of Universal Music Group’s (“UMG’s”) Republic Records, Charlie Walk, was based on a “false narrative” and consequently dismissed the complaint pursuant to CPLR 3211(a)(1) and (a)(7).

On March 25, 2021, Walk initiated an action against the Defendants for legal malpractice. The complaint alleged that Walk had entered into the settlement agreement with UMG without being fully informed by counsel as to the agreement’s meaning and his alternatives to settlement. Specifically, Walk contended that he was never advised that: (i) he was entitled to receive certain bonuses for fiscal year 2017, regardless of whether he was terminated for cause; (ii) UMG breached Walk’s employment agreement by threatening to fire him for “cause” for alleged conduct occurring outside the scope of his employment and by failing to conduct an adequate investigation of the allegations against him; (iii) he could have terminated his employment for “good reason” when UMG put him on leave, which would have entitled him to more compensation than a “cause” termination; and (iv) the confidentiality provisions in his agreement with UMG prevented him from discussing the terms of the settlement and disputing the facts of his departure.

Defendants moved to dismiss pursuant to CPLR 3211(a)(1) (defense founded on documentary evidence) and (a)(7) (failure to state a cause of action). In support of their 3211(a)(1) argument, Defendants submitted certain letters and emails, along with Walk’s settlement agreement, employment agreement, and certain press coverage of his alleged misdeeds.

CPLR 3211(a)(1) allows a defendant to “move for judgment dismissing one or more causes of action asserted against him on the ground that . . . a defense is founded upon documentary evidence.” The statute itself does not define “documentary evidence” and the First and Second Departments have taken conflicting approaches to this issue—whereas the Second Department has repeatedly held that letters and emails “fail to meet the requirements for documentary evidence,” the First Department will consider such correspondence under CPLR 3211(a)(1), but only if their factual content is “essentially undeniable.” Compare Gawrych v. Astoria Fed. Sav. & Loan, 148 A.D.3d 681, 682 (2d Dep’t 2017) with Amsterdam Hospitality Grp., LLC v. Marshall-Alan Assoc., Inc., 120 A.D.3d 431, 432 (1st Dep’t 2014); WFB Telecomms., Inc. v. NYNEX Corp., 188 A.D.2d 257, 259 (1st Dep’t 1992).

The Court found that the documentary evidence in the record, including the letters and emails submitted by Defendants, “unequivocally establish[ed] that the Defendants did in fact make the very arguments that Mr. Walk assert[ed] were not made to UMG,” and demonstrated that “the entire premise of [Walk’s] lawsuit [was] based on a false narrative.” The Court held that the emails and letters in the record established that Walk was “well aware of the very issues that he now feigns a lack of knowledge of and that these very issues were discussed with the Defendants and his other lawyers.” Furthermore, Walk failed to allege facts that would suggest that he could prove his “case within a case” and show he would have achieved a better result than the settlement agreement absent his counsel’s alleged negligence—a requirement for prevailing on a claim of legal malpractice under New York law. See Katz v. Essner, 136 A.D.3d 575, 576 (1st Dep’t 2016) (“Plaintiff failed to . . . meet the ‘case within a case’ requirement, demonstrating that ‘but for’ defendants’ conduct he would have obtained a better settlement.”). As a result, the Court dismissed the action pursuant to both CPLR 3211(a)(1) and CPLR 3211(a)(7).

Real Estate Webmasters Inc. v. Rodeo Realty, Inc. (Jury waiver). In Real Estate Webmasters Inc. v. Rodeo Realty, Inc., the Albany County Commercial Division granted a motion to strike a jury demand on the basis that the counterclaim-plaintiff waived its right to a jury trial by interposing an equitable defense of rescission and a related counterclaim for fraudulent inducement arising from the same transaction underlying Plaintiff’s complaint.

Real Estate Webmasters Inc. (“REW”) filed a single-count complaint to recover damages for Rodeo’s alleged anticipatory repudiation of the parties’ contract, which set forth the terms of Rodeo’s engagement of REW to develop Rodeo’s website. As an affirmative defense in its answer, Rodeo alleged that it was entitled to rescission of the contract “due to [REW’s] own fraud and/or misrepresentations,” and Rodeo also asserted a counterclaim for fraudulent inducement, among other affirmative defenses and counterclaims. Following discovery, REW moved for partial summary judgment seeking to dismiss Rodeo’s affirmative defenses and counterclaims. After dismissing most of the defenses and counterclaims at issue, the Court held that Rodeo had raised triable issues of fact as to its affirmative defense seeking rescission and as to its counterclaim for fraudulent inducement. When REW filed a note of issue requesting a bench trial, Rodeo responded by serving a jury demand. REW then moved to strike Rodeo’s jury demand.

The Court began its analysis of REW’s motion to strike by explaining that CPLR 4101 provides that “issues of fact shall be tried by a jury unless a jury trial is waived…, except that equitable defenses and equitable counterclaims shall be tried by the court.” Under New York law, a defendant waives the right to a jury trial when it asserts “equitable counterclaims which relate to and emanate from the same set of facts as does the main claim.” The Court noted that claims for rescission are equitable in nature. Applying that legal standard, the Court held that Rodeo waived its right to a jury trial by asserting an affirmative defense of rescission to unwind the same transaction underlying REW’s complaint. The Court reasoned that Rodeo did not deny repudiating the parties’ agreement. Rather, Rodeo contended that the repudiation was not wrongful because it possessed “a valid rescission defense based on fraud.”

The Court also found that because Rodeo chose to defend against REW’s claim of anticipatory breach by asserting the equitable defense of rescission, Rodeo’s counterclaim for money damages for fraudulent inducement of the same contract was also “equitable in nature.” It explained that while claims for money damages ordinarily constitute “legal” relief, restitution damages awarded incidental to equitable relief are not legal in nature. Here, the Court concluded that the only damage identified in Rodeo’s counterclaim—the return of money paid under the parties’ contract—was “restitutionary in nature and incidental to the equitable remedy of rescission.” Having asserted the equitable defense of rescission and a counterclaim for fraudulent inducement incidental to that equitable defense, the Court held that Rodeo was not entitled to maintain a claim at law for fraud damages and waived its right to a jury trial.

Castle Restoration LLC v. Castle Restoration & Construction, Inc. (Contract modification). In Castle Restoration LLC v. Castle Restoration & Construction, Inc., the Suffolk County Commercial Division determined after a bench trial that New York’s statute of frauds rendered an oral modification of a contract unenforceable and, ultimately, left the enforcing party with no remedy in its commercial dispute.

In March 2012, Castle Inc. and Castle LLC entered into an asset-sale agreement pursuant to which Castle Inc. transferred its equipment and client list to Castle LLC, in exchange for $1.2 million. Castle LLC paid $100,000 at the closing and gave Castle Inc. a promissory note for the balance of $1.1 million. The note was payable in consecutive monthly installments commencing on April 15, 2012. Castle LLC immediately defaulted on the note by failing to make the first payment, and litigation ensued.

At issue in the litigation was an oral modification claimed by Castle LLC. Castle LLC argued that under the asset-sale agreement, Castle Inc. was obligated to complete all work-in-progress that remained unfinished as of the closing date, and that the parties entered into a subsequent oral agreement in which Castle LLC agreed to provide Castle Inc. with labor and materials for the completion of that work-in-progress, the value of which would offset Castle LLC’s obligation under the promissory note.

After a prior action had been commenced by Castle Inc., Castle LLC brought a separate action asserting claims for breach of the asset-sale agreement and breach of the subsequent oral agreement, among others. After all other claims were dismissed on summary judgment, the parties proceeded to a bench trial on those two claims.

On the cause of action for breach of the oral agreement—under which Castle LLC allegedly would be compensated for providing labor and materials for the completion of Castle Inc.’s work-in-progress—the Court determined the statute of frauds rendered that oral agreement unenforceable. The Court observed that the parties’ asset-sale agreement contained a no-oral-modification provision, which meant that the parties were “protected by the statute of frauds.” The Court explained that “[a]ny contract containing such a clause cannot be changed by an executory agreement unless such executory agreement is in writing and signed by the party against whom enforcement is sought.” Accordingly, the default presumption was that the parties’ written agreement controlled.

On the cause of action for breach of the asset-sale agreement—under which Castle Inc. had an obligation to complete all work-in-progress that remained unfinished as of the closing date—the Court determined that Castle LLC was entitled to no recovery due to its failure to perform its own material obligations under the agreement. Here, the Court observed that “a party is relieved of its duty to perform under a contract when the other party has committed a material breach,” such as “[f]ailure to tender payment.” As applied here, the Court observed that Castle LLC’s failure to make any payments on the promissory note for the $1.1 million balance due on the purchase price excused Castle Inc.’s obligation to further perform its obligations.

Amherst II UE LLC v. Fitness Int’l, LLC (Commercial lease; COVID 19). In Amherst II UE LLC v. Fitness Int’l, LLC, the Erie County Commercial Division granted summary judgment in favor of the plaintiff-landlord in a case involving a commercial lease for a gym that was closed due to COVID-19 restrictions.

The Defendant operated an LA Fitness facility and health club in a shopping center owned by Plaintiff. On March 18, 2021, the Plaintiff brought a breach of contract claim against the Defendant for unpaid rent and common area charges for those months, as well as late charges. The Defendant answered—with affirmative defenses including impossibility, impracticability, frustration of purposes and failure of consideration— and counterclaimed for, inter alia, the Plaintiff’s failure to abate rent for the closure periods and in light of the restrictions.

In its decision, the Court determined that Defendant was bound by the lease and that Plaintiff had demonstrated prima facie entitlement to the relief requested. The Court rejected Defendant’s argument that it was not bound by a lease provision stating that rent “shall be paid without notice, demand, counterclaim, offset, deduction, defense, or abatement,” because the lease did not also include language stating that payment of rent is “absolute and unconditional.” It also rejected the argument that the COVID closures constituted a “force majeure” that excused the Defendant’s obligation to pay rent. Although the lease defined force majeure to include “any causes beyond the reasonable control of a party . . . [,]” it also explicitly stated “[n]otwithstanding anything herein contained, the provisions of this Section shall not be applicable to . . . Tenant's obligations to pay Rent . . . or any other sums or charges payable by Tenant hereunder after the Rent Commencement Date.” Therefore, the Court held that even if the closures and restrictions constituted force majeure events, they did not eliminate the Defendant’s obligation to pay under the lease. The Court also cited two recent Commercial Division decisions involving similar provisions—with respect to leases for Valentino and Victoria’s Secret stores—where the courts reached the same conclusion.

With respect to the Defendant’s affirmative defense of frustration of purpose, the Court explained that this doctrine “has been ‘limited to instances where a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party.’” The Court held that Defendant couldn’t meet this standard “because the Pandemic did not render the Lease ‘valueless;’” instead, the closures and restrictions were only temporary. Indeed, the Defendant was operating at full capacity by the time the decision was rendered.

The Court also quickly dispatched Defendant’s affirmative defenses with respect to impossibility and impracticability. It observed that the defenses are one in the same under New York law, and only applicable when the means of performance are destroyed by an act of God, vis major, or by law. As the Court previously noted, performance had “not been rendered completely impossible or impracticable” by the pandemic; therefore, those affirmative defenses did not apply.

Finally, the Court found meritless Defendant’s counterclaims for failing to provide credit on rent for closures and restrictions, breaches of the lease stemming from the Defendant’s inability to use the premises, and unjust enrichment as a result of the closures and restrictions. The Court reasoned that they were “based on the same legal theories as the Affirmative Defenses, such as, inter alia, frustration of purpose, impossibility of performance, and commercial impracticability.”

In re New York State Dept. of Health (Rusi Tech. Co., Ltd.) (International law; choice of law). In In re New York State Dept. of Health (Rusi Tech. Co., Ltd.), the Albany County Commercial Division permanently stayed an arbitration before the China International Economic and Trade Arbitration Commission (“CIETAC”) brought by a Chinese company (“Rusi”) against the New York State Department of Health (“DOH”) regarding a purchase contract for KN-95 masks.

The underlying purchase contract consisted of three written instruments: (1) the contract that was drafted, in both English and Chinese, by Rusi (the “Contract”), (2) the subsequent purchase order that was drafted by DOH (the “Purchase Order”), and (3) the written amendment to the contract (the “Amendment”).

The English version of the Contract provides that it “shall prevail” if there are “any discrepancies between the two versions [English and Chinese]”, and that disputes “shall be settled through friendly consultation.” If a dispute cannot be resolved through friendly consultation, the Purchase Order provides that the dispute shall be resolved through binding arbitration in New York administered by the International Chamber of Commerce. Further, the Purchase Order states that the Contract “shall be governed by and construed in accordance with the law of the State of New York[.]”

Conversely, the Chinese version of the Contract provides that if there is a discrepancy between the versions, the Chinese version shall prevail, and disputes not resolved through friendly consultation shall be resolved by binding arbitration administered by CIETAC. Additionally, the Chinese version further provides that the Contract shall be governed by Chinese law and the United Nations Convention on Contracts for the International Sale of Goods (Vienna 1980) (“CISG”) shall not apply.

After DOH rejected the delivery of the masks for not complying with the standards specified in the Contract, Rusi commenced an arbitration before CIETAC. DOH commenced a special proceeding under CPLR 7503 (b) to permanently stay the CIETAC arbitration.

First, the Court addressed which substantive laws would govern the dispute. It noted that both the United States and China have adopted the CISG, which establishes provisions that govern international sales contracts. While parties can choose to exclude the CISG, the Court explained that such an election must be “clearly and unequivocally” expressed in the contract to establish mutual agreement. Rusi argued that the dispute is governed by Chinese law and that the parties elected not to be governed by the CISG because the Chinese version of the Contract expressly states where there is a conflict between the versions, the Chinese version shall prevail. The Court rejected this argument, finding that there was not “clear mutual intent” to exclude the CISG because there was not even a mutual agreement as to which version of the Contract would be controlling. Therefore, the Court ruled that the CISG principles would apply because any reasonable purchaser under the same circumstances would intend for the English version of the Contract to control.

Next, the Court turned to the question of whether the parties agreed to binding arbitration before CIETAC. Similar to its reasoning regarding the choice of law, the Court concluded that there was no meeting of the minds between the parties that the Chinese text was controlling. The Court explained that by proposing to draft parallel versions of the Contract, Rusi knew (or should have known) that DOH’s intentions would be formed based on the English version. Furthermore, DOH’s actions were consistent with the parties’ prior course of dealing. Therefore, having determined that the English version of the Contract controlled, and consequently, that New York law applied, the Court ruled to permanently stay the arbitration in the absence of an agreement on the part of DOH to submit to binding arbitration before the CIETAC.

Salesmark Ventures, LLC v. Jay Singh, JJHM Trading Corp. (Piercing the corporate veil). In Salesmark Ventures, LLC v. Jay Singh, JJHM Trading Corp., the New York County Commercial Division dismissed, inter alia, the Plaintiff’s claim to pierce the corporate veil of the Defendant and impose personal liability on the Defendant’s sole principal. Underlying the dispute was a contract to purchase millions of synthetic nitrile gloves during the outbreak of COVID-19.

In this case, Plaintiff paid the Defendant the contracted purchase price, but the gloves were never delivered. Afterwards, Defendant only refunded a portion of the purchase price. To recover the remainder of the purchase price, Plaintiff sought to pierce the corporate veil of Defendant. Additionally, Plaintiff asserted claims against both Defendant and its sole principal for breach of contract, unjust enrichment, and fraud.

As to the veil-piercing claim, the Court explained that “New York law disfavors disregard of the corporate form” and the party seeking to pierce the corporate veil “bear[s] a heavy burden.” To meet that burden, a party must demonstrate that the individual dominated the corporate form for personal use and that a wrongful or unjust act was conducted toward the plaintiff. Here, the Court found that Plaintiff’s allegations—that the company has no assets and its website has minimal information about the company—did not meet the heavy burden or provide “specific factual assertion[s] to substantiate” piercing the corporate veil and dismissed the claim. Likewise, the Court dismissed the breach of contract claim against the principal because, without veil-piercing, the principal cannot be held liable for liabilities incurred by the corporate Defendant.

The Court also dismissed the unjust enrichment and fraud claims, reasoning that because there was a valid contract, the Plaintiff could not recover from Defendant’s sole principal without a showing that the services were performed for the principal and that those services resulted in the alleged unjust enrichment. Moreover, the Plaintiff could not recover from Defendant for a quasi-contract claim—i.e., unjust enrichment—where a valid contract for the same subject matter existed between the parties. Finally, the Court dismissed the fraud claim because it essentially restated the breach of contract claim. As the Court explained, a fraud claim does not lie under New York law where the only alleged misrepresentation is of “intent or ability to perform under the contract.”

Cascade Funding LP – Series 6 v. Bancorp Bank (Contract; “market disruption” clauses). In Cascade Funding LP – Series 6 v. Bancorp Bank, the New York County Commercial Division found that where contractual clauses are included to permit termination in instances of market disruption, to the extent such a clause contains an objective benchmark by which to determine disruption, the counterparty cannot defeat the clause’s operation through actions deemed to be “off-market.”

Plaintiff Cascade Funding LP (“Cascade”) is an investment fund formed for the purpose of purchasing and securitizing mortgage loans. Defendant The Bancorp Bank (“Bancorp”) is a commercial bank that, among other things, originates commercial mortgage loans and sponsors commercial real estate collateralized loan obligations (“CLOs”). On the eve of the COVID-19 pandemic, on February 24, 2020, Cascade agreed to purchase from Bancorp a pool of more than $825 million in commercial mortgage loan assets, with the intention of packaging and securitizing those assets into commercial real estate CLOs that would be marketed and sold to investors no later than April 15, 2020. As part of the deal, Cascade paid Bancorp an initial $12.5 million deposit in advance of the target April 15 closing date.

At the center of the dispute was a “Market Disruption” clause in the parties’ agreement that, as the Court explained, effectively gave Cascade a “securitization out” based on an objective change in market conditions between contract execution and the securitization closing date. In addition to termination of the transaction, the “Market Disruption” clause also provided for return of Cascade’s initial $12.5 million deposit.

On March 31, 2020, fifteen days before the closing date, Cascade exercised the “Market Disruption” clause, provided Bancorp with notice of termination, and demanded return of the $12.5 million deposit. Cascade included with its notice a written determination of market conditions prepared by the underwriter. For reasons discussed below, however, Bancorp rejected the notice. Cascade ultimately filed suit, seeking among other things recovery of the initial deposit.

In opposing Cascade’s motion for summary judgment, Bancorp argued that (1) before concluding that the bonds could not be priced at or below LIBOR+200bp and invoking the “Market Disruption” clause, Cascade should have gone through the process of soliciting actual bids; and (2) had it done so, it would have learned that Bancorp itself was willing to buy the bonds (if offered) at LIBOR+199bp.

The Court rejected Bancorp’s arguments and granted Cascade summary judgment. With respect to Bancorp’s argument that Cascade was required to solicit actual bids, the Court reasoned that the clause—as written—provided an objective metric by which to determine disruption and did not expressly state that “actual bids” were the “only acceptable evidence of market disruption.” The Court concluded that the clause therefore did not require Cascade to “proceed with objectively futile marketing efforts to prove the market potential of the bonds in an admittedly frozen market.”

With respect to Bancorp’s argument about its own willingness to bid on the offering, the Court noted “some logic” to the theory but concluded that the “problem” was that it “clashe[d] with the language and clear purpose of the contract, which focuses on whether there has been a market disruption measured against an objective standard.” As the Court explained, Bancorp’s interpretation—if accepted—would give counterparties with an “off-market” financial incentive the “unilateral option to extinguish [a] termination right regardless of market conditions.” The Court noted that the consequence of such an interpretation—i.e., “locking Cascade into a 99-bp adverse change in LIBOR spreads,” with untold spillover effects to lower tranches of the bond—was not what the parties intended or agreed to.

§ 1.3.13 North Carolina Business Court

Lee v. McDowell (Director liability for lack of executive oversight). Investors brought derivative and individual claims against several members of the board of directors of the defunct corporation rFactr, alleging that Defendants failed to monitor the corporation’s finances and operations properly, which allowed the company’s President and Vice President to engage in mismanagement and malfeasance. Plaintiffs brought derivative claims against board members Chris McDowell, Chris Lau, and Robert Dunn for breach of fiduciary duty and individual claims against McDowell for breach of fiduciary duty, constructive fraud, and securities fraud under North Carolina law, Section 10(b) of the Exchange Act, and Rule 10(b)(5). Defendants moved for summary judgment on all claims.

The court granted summary judgment with respect to the derivative claims based on failure to monitor and oversee rFactr. Applying Delaware law, the court determined that although they could have done more, McDowell and Dunn had, among other things, requested financial information about the company and obtained a cash flow statement, thereby meeting the minimum burden established by In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 967 (Del. Ch. 1996). In contrast, the court denied the motion based on claims against McDowell and Dunn for failing to prevent excessive compensation payments. The court refused to conclude their actions fit within the Business Judgment Rule as a matter of law because McDowell and Dunn, despite acknowledging they were shocked and horrified at the outrageous executive compensation, pursued no formal board action to lower compensation levels and had even rejected an offer by President Richard Brasser to reduce his own salary. Therefore, questions of fact existed as to whether their actions amounted to corporate waste. The court also concluded there were triable issues of fact on whether Defendants Lau and Dunn violated their duty of loyalty when they cancelled a potential deal to sell rFactr while simultaneously contemplating a purchase of the company themselves. However, summary judgment was still appropriate on that claim, as Plaintiffs failed to offer any evidence that the deal would have been completed but for Defendants’ self-dealing.

On the individual claims against McDowell, the court granted summary judgment on the fiduciary duty and constructive fraud claims, concluding that even if McDowell owed a special duty to Plaintiffs, that duty was not a fiduciary one. McDowell did not control all the financial power or technical information in his relationship with Plaintiffs amounting to a de facto fiduciary relationship. Instead, Plaintiffs were highly sophisticated investors themselves. Additionally, the court granted summary judgment based on Plaintiffs’ claims that McDowell failed to correct the alleged misrepresentations about the health and status of the company made by Brasser. The Court concluded that McDowell had no duty to Plaintiffs to correct Brasser’s statements, nor did the evidence show McDowell was aware those statements were false. In contrast, however, the court denied the motion as it related to McDowell’s failure to disclose to Plaintiffs that he would be compensated if they invested in the company.

Davis v. HCA Healthcare, Inc. (Antitrust). Plaintiffs are several citizens of Western North Carolina with commercial insurance plans who brought antitrust claims arising out of the activities of Defendant Mission Hospital in Asheville. Mission operated for years under state Certificate of Public Advantage (COPA) laws, protecting it from antitrust claims in exchange for state oversight. During this time, Mission acquired numerous competitors in the area. After the repeal of the COPA laws, Florida-based HCA Healthcare, Inc. acquired Mission. Plaintiffs alleged that because of Mission’s “must have” status as the premier hospital in Western North Carolina, coupled with its recent freedom from government oversight, Defendants were able to force insurers to include Defendants’ other facilities in their network in order to include Mission, an unlawful practice known as “tying.” Plaintiffs also alleged Defendants used other anticompetitive tactics, such as including “antisteering” clauses in their contracts to prevent insurers from sending patients to lower cost options, and including “gag” clauses that forbid insurers to release the terms of their contracts with Defendants to regulators or the public. Plaintiffs alleged these practices allowed Defendants to offer lower quality service at monopolistic prices, forced patients into unnecessary services, prevented the introduction of insurance products to lower prices for consumers, and deprived consumers of a competitive marketplace for inpatient hospital services. Plaintiffs brought monopolization, attempted monopolization, and restraint of trade claims under Chapter 75 of the North Carolina general statutes and the anti-monopoly provision of the North Carolina Constitution.

Defendants initially moved to dismiss for lack of standing, which the court rejected, citing North Carolina law recognizing indirect purchaser standing. Additionally, the court rejected Defendants’ motion to dismiss Plaintiffs’ restraint of trade claim under Rule 12(b)(6). Analyzing the claim under the “rule of reason” test, the court determined that Plaintiffs had adequately alleged “an unreasonable restraint of trade . . . by alleging the existence of sufficient market power held by Defendants in the Asheville Inpatient Services market, coupled with the potential for anticompetitive effects stemming from unwanted contractual provisions unilaterally imposed by Defendants on insurers.” However, the court dismissed all of Plaintiffs’ monopolization claims. With respect to the constitutional claim, well-settled North Carolina law requires that such claims be against a state actor, not private companies. Additionally, Plaintiffs’ Chapter 75 claims failed because (1) HCA did not own any other hospitals in North Carolina to support a monopoly acquisition claim; (2) Plaintiffs failed to allege any conduct “specifically designed to prevent competitors from entering the Asheville Region” to support a monopoly maintenance claim; and (3) Plaintiffs “failed to allege a sufficient market share held by Defendants” to support a monopoly leveraging claim. Plaintiffs’ market share allegations were based solely on Medicare data, which the court found irrelevant in the private insurance market. Finally, for the same reasons, the court dismissed Plaintiffs’ attempted monopolization claims for failure to show a “dangerous likelihood” that Defendants would establish a monopoly in the region.

Aspen Specialty Ins. Co. v. Nucor Corp. (Discoverability of insurance reserve amounts). This case involved a declaratory judgment action brought by twelve insurance companies to construe the relevant policies covering property damage and loss to Defendant Nucor Corporation. Nucor is a manufacturer who produces iron ore into “sponge iron” for use in steel production. Following an accident at Nucor’s Convent, Louisiana facility, where iron ore leaked into a cement lined reactor and solidified, Nucor suffered losses of the ruined iron ore, damage to the reactor, and business interruption losses. In the ensuing discovery, Plaintiffs all objected to Nucor’s interrogatories and requests for production of documents seeking information related to each Plaintiff’s insurance reserve amount. After exhausting the Business Court discovery resolution procedures, Nucor filed a motion to compel.

The court first considered the variety of ways in which insurers determine their reserve amounts. Given the multitude of methods and philosophies insurers have in calculating reserves, the court noted that “it is folly to generalize about the meaning of a particular reserve.” Instead, courts must make an individualized determination based on each case, which largely depends on the type of claims involved. Surveying a wide body of federal law, the court concluded that although “the weight of authority is that reserve information is generally not discoverable in coverage cases, which turn largely on an interpretation of the language of the policy,” discovery of reserve amounts can be appropriate in cases where claims of bad faith and misrepresentation are present. The court then examined and distinguished the only relevant North Carolina authority on insurance reserves, Wachovia Bank, N.A. v. Clean River Corp., 178 N.C. App. 528, 631 S.E.2d 879 (2006), determining that it established “only that reserves are not categorically off limits in discovery as long as they are not shielded by privilege or qualified immunity.” Unlike Wachovia, the present case did not deal with claims of misrepresentation or bad faith, but instead, was limited to breach of contract and declaratory judgment claims. Therefore, discovery into the insurance reserves was inappropriate. The court also rejected Nucor’s argument that discovery of the reserve amounts may lead to a bad faith claim, considering that possibility too “hypothetical.” Accordingly, the court denied Nucor’s motion to compel.

Emrich Enters., LLC v. Hornwood, Inc. (Fiduciary duty owed by an LLC majority member and application of the business judgment rule in the LLC context). This case involved a dispute between the two sole members of a North Carolina LLC. Among other claims, the minority member asserted breach of fiduciary duty claims, individually and derivatively on behalf of the LLC, against the majority member. The majority member and the LLC moved for summary judgment on these claims, arguing that the majority member did not owe a fiduciary duty directly to the minority member and that the business judgment rule shielded the majority member (also a manager of the LLC) from liability.

The general rule in North Carolina is that LLC members do not owe a fiduciary duty to each other. An exception to this rule is that “a holder of a majority interest who exercises control over the LLC owes a fiduciary duty to minority interest members.” Here, the majority member was a manager of the LLC, and the operating agreement (which was silent on fiduciary duties) provided that all decisions regarding the management and affairs of the LLC would be made by the majority interest of the members. There was also evidence that the majority member owned all of the manufacturing facilities where the LLC’s products were manufactured, that the minority member could not manufacture the LLC’s products without the majority member, and that the majority member unilaterally took action on certain financial matters concerning the business and controlled the LLC’s bank account. Thus, there was sufficient evidence of the majority member exercising the type of control that could give rise to a fiduciary relationship between the majority member and the minority member.

As for the business judgment rule, the court explained that this rule’s protection extends to certain “business decisions” by LLC managers. The court determined that the majority member’s challenged conduct fell within the business judgment rule’s protection, except for the member’s alleged failure to correctly provide a contractor of the LLC with the product specifications needed to pass quality testing by a customer of the LLC. The majority member’s conduct concerning the specifications was not a business decision, but rather a “ministerial act that did not involve either judgment as to whether to enter into a course of conduct, or a weighing of the risks and rewards of future.”

North Carolina ex rel. Stein v. Bowen (Personal jurisdiction over corporate officers and directors). The State of North Carolina sued five nonresident officers and directors of JUUL Labs, Inc., an e-cigarette company based in California. The State alleged that Defendants had engaged in unfair or deceptive trade practices in North Carolina while supervising and directing the marketing of JUUL’s products. Defendants moved to dismiss the lawsuit for lack of personal jurisdiction and failure to state a claim. The court concluded that it lacked personal jurisdiction over Defendants.

In its analysis, the court disregarded many of the allegations in the State’s unverified complaint because they grouped Defendants together, which was contrary to the necessary “individualized inquiry” for personal jurisdiction. The State’s “generalized allegations” were “an attempt to attribute JUUL’s business activities to its corporate officers and directors.” Personal jurisdiction, however, cannot be exercised over a corporation’s officers and directors merely because there is personal jurisdiction over the corporation. And even when the State identified individual conduct, it failed to establish a sufficient connection between the conduct and North Carolina and failed to show that the few forum contacts by some of Defendants were related to the State’s claims.

Relying on the Keeton market-exploitation test, the State argued that Defendants had purposefully availed themselves of the privilege of conducting activities in North Carolina by reviewing and approving JUUL’s nationwide ads with knowledge that the ads would appear in North Carolina. The market-exploitation test considers factors such as sales volume, customer base, and revenues. The court reasoned that this test, while perhaps suitable for JUUL, was not appropriate for Defendants, particularly because any contacts that Defendants may have had with North Carolina needed to be assessed individually and based on their own activities. The best test for this case’s facts was the Calder effects test. But the State did not cite Calder, and in any event, the State failed to show that Defendants expressly aimed conduct at North Carolina, a requirement of the effects test.

§ 1.3.14 Philadelphia Commerce Case Management Program

American Mushroom Cooperative f/d/b/a Eastern Mushroom Marketing Cooperative, Inc., et al. v. Saul Ewing Arnstein & Lehr LLP (Grant of reconsideration and grant of judgment on the pleadings in favor of law firm and against former client on statute of limitations grounds, dismissing legal malpractice claim). Judge Nina W. Padilla held that Pennsylvania’s two-year statute of limitations for negligence, and four-year statute of limitations for breach of contract, barred the American Mushroom Cooperative from pursuing claims that Saul Ewing’s allegedly incorrect legal advice caused past and ongoing harm. The Mushroom Cooperative was a long-time client of Saul Ewing. The Mushroom Cooperative alleged that in 2000 to 2002, Saul Ewing gave erroneous antitrust advice. In 2003, the Justice Department commenced an investigation, and in 2004 the Mushroom Cooperative and the DOJ entered into a consent judgment requiring the Mushroom Cooperative to reverse some of the actions advised by Saul Ewing. Multiple civil antitrust lawsuits followed. In 2009, a federal judge issued an opinion finding that other advice given by Saul Ewing was erroneous. According to the Mushroom Cooperative, this led to thirteen years of antitrust litigation and costly settlements.

The Mushroom Cooperative sued Saul Ewing in March 2020, demanding that its former counsel pay for the settlements and all of the counsel fees the Mushroom Cooperative had incurred because of its ex-lawyers since the outset of the DOJ inquiry in 2003. Judge Padilla granted Saul Ewing’s motions pursuant to Pennsylvania’s occurrence rule for legal malpractice claims. Under the occurrence rule, a breach of duty, and not the realization of a loss, triggers the accrual of a claim. The exception is the equitable discovery rule, which applies if Plaintiff is unaware of the existence of the injury or its cause, despite due diligence.

Judge Padilla noted that Saul Ewing gave its alleged bad advice in 2000 to 2002. Therefore, the Mushroom Cooperative had to file its lawsuit, at the latest, by 2006. Even if the discovery rule applied, then the Mushroom Cooperative was certainly aware of its claim in 2004, when it executed the DOJ consent judgment. That the Mushroom Cooperative may have subsequently sustained more than $50 million in damages, in the form of counsel fees and settlements, and continued to pay, did not result in new or separate legal malpractice claims. “[F]or Statute of Limitations purposes, a client cannot wait until its injuries become overwhelming before bringing suit.”

Federal Realty Investment Trust n/k/a/ Federal Realty OP, LP v. RAO 8 INC. d/b/a Dunkin Donuts, Mital H. Rao and Radha M. Rao (Denial of commercial tenant’s petition to open confessed judgment due to tenant’s failure to follow requirements in lease to extend term). Judge Nina W. Padilla held that Federal Realty, the landlord, properly confessed judgment against Dunkin Donuts, the tenant, for damages and possession because Dunkin Donuts did not comply with provisions in its lease for sending notice. Dunkin Donuts sent Federal Realty a letter notifying Federal Realty that Dunkin Donuts was exercising an option to remain in the premises for five additional years. However, Dunkin Donuts did not send the letter through a nationally recognized overnight carrier, or by registered or certified mail with a return receipt, as specified in the lease. Federal Realty stated that it did not receive the notice letter. Thereafter, Federal Realty sent Dunkin Donuts a renewal proposal, which Dunkin Donuts did not accept. There were subsequent negotiations, which were inconclusive. In the meantime, the lease had expired, but Dunkin Donuts remained in the premises and continued to pay rent in the amount set forth in the lease. After Dunkin Donuts failed to honor a demand to vacate indicating that Federal Realty had a new tenant, Federal Realty confessed judgment, as allowed by the lease. In Pennsylvania, a confession of judgment (or cognovit or warrant of attorney) clause is a contractual device that allows a commercial party to cause the entry of judgment against a counterparty upon the occurrence of a default under their agreement, without further notice.

Judge Padilla upheld the confessed judgment on the ground that Dunkin Donuts failed to send its notice letter to Federal Realty by he means required in the lease: using a nationally recognized overnight courier, or by registered or certified mail with a return receipt. There was no evidence that Federal Realty received the letter and accepted the exercise of the option. On the contrary, the fact that there were subsequent negotiations confirmed that Federal Realty did not receive the letter. Furthermore, the payment and acceptance of rent post-lease expiration did not extend the term of the lease. Under the lease, Dunkin Donuts became a holdover tenant. That Dunkin Donuts continued to pay rent in the amount set forth for the lease term, and not in the greater amount due from a holdover tenant, was an additional default by Dunkin Donuts justifying the court to allow the confessed judgment to stand. The court ordered Dunkin Donuts to vacate within thirty days.

John J. Dougherty v. National Union Fire Insurance Company of Pittsburgh, PA (Grant of mandatory preliminary injunction requiring D&O insurer to advance legal expenses for criminal defense of corporate officer). Judge Ramy I. Djerassi held that John Dougherty, the business manager of a labor union, met all six requirements to compel a D&O insurer to pay the counsel fees and costs he had and would incur defending against a criminal indictment. This was so even though Dougherty sought a “mandatory” injunction. In Pennsylvania, a mandatory injunction is a request for affirmative relief (such as the payment of defense expenses), and has an even higher burden than conventional equitable relief intended to maintain the status quo.

Judge Djerassi first concluded that Dougherty had a clear right to relief under the language of the insurance policy. The policy used the mandatory “shall” to impose a duty on the carrier to advance defense costs. Furthermore, even though the government indicted him after the expiration of the policy, Dougherty afforded timely notice by informing the carrier of his claim within thirty days of when the policy expired and just two weeks after the government served a search warrant relating to his indictment, which was prior to the end of the policy. The Court also rejected the carrier’s invocation of a mandatory arbitration clause in the policy. With the criminal trial imminent, Judge Djerassi found that there was inadequate time for the ADR process.

With Dougherty on the verge of trial, the potential prejudice to Dougherty’s constitutionally protected liberty interest was central to Judge Djerassi’s decision and the Court’s finding that Dougherty met the remaining five elements for injunctive relief. Judge Djerassi found that the withholding of the advancement of criminal defense costs purchased through an insurance policy was irreparable harm that damages could not compensate. Greater injury would result to Dougherty’s constitutional interest from denying injunctive relief than the harm to the insurer from granting it. Moreover, injunctive relief would preserve the status quo by upholding Dougherty’s presumption of innocence and preventing prejudice to him while he litigated the merits of the underlying coverage dispute. Additionally, Judge Djerassi found that forcing the carrier to pay was a remedy reasonably tailored to guard Dougherty’s right to counsel, and an injunction would not adversely affect the public interest because “the advancement of defense costs protects constitutional liberty and the rule of law.”

The Court required the carrier to pay Dougherty’s invoices forthwith, through to the final disposition of his criminal case [where, ultimately, the government convicted him].

§ 1.3.15 Rhode Island Superior Court Business Calendar

J-Scape Seasonal Property Care, LLC. V. Schartner (Before the Superior Court was a Motion to Show Cause filed by the purported landlord and tenant of a real property (collectively the Movants), to which landscape contractor servicing the property objected). “This matter arises from contractor’s complaint to enforce a mechanic’s lien in the amount of $73,300.27 (the Lien) plus interest for work performed and materials furnished to tenant of property located in, Exeter, Rhode Island. The Movants argued that the Lien should be discharged from the landlord owned property because plaintiff/contractor failed to provide notice to the tenant, as required by R.I.G.L. §34-28-4.1 …” “Here, the Movants presented credible evidence to support the existence of the tenant’s status under the lease…” “Given the clear and competent evidence as well as the unwavering testimony regarding [tenant’s] occupation and payment of rent on a monthly basis, the Movants have satisfied their burden to give rise to a rebuttable presumption that the Movants have a landlord-tenant relationship with respect to the Exeter Property…” and the Court thereby confirmed the tenant and landlord relationship at the Exeter Property.

The Court found: “As a tenant of… the Exeter Property, [it] was entitled to receive notice of a possible mechanic’s lien pursuant to §34-28-4.1. …”

The Court concluded: “Contractor clearly did not provide proper notice to tenant at the Exeter Property — and significantly departed from the notice requirements of §34-28-4.1, facts that prove fatal to Contractor’s ability to claim and perfect the Lien with respect to the Exeter Property. … Therefore, pursuant to §34-28-17.1(a), the Movants have satisfied their burden of proof by demonstrating a lack of probability of judgment in [Contractor’s] favor regarding the mechanic’s lien on the Exeter Property because it is void for failure to provide the requisite notice pursuant to §34-28-4.1. …” “For the reasons stated above, this Court deemed the mechanic’s lien currently in place on the Exeter Property to be void and unenforceable based on [Contractor’s] failure to provide the requisite notice pursuant to §34-28-4.1.”

East Greenwich Cove Builders, LLC v. Schnaier (Plaintiff brought summary judgment motion to declare a purchase and sale agreement for a condominium unit unenforceable on the grounds that the agreement did not adequately describe the property to be sold). The agreement referenced the property as Unit 8 but at the time Unit 8 had not been declared as a condominium unit or constructed. In addition, the agreement purportedly incorporated plans and specs as an exhibit, but no such exhibit was attached. The Court found that the documents did not satisfy the statute of frauds or the contract principle of the inclusion of essential terms. The Court also found that the description of the unit was so indefinite and uncertain that parol evidence could not be introduced to complete the description. Finally, the Court found that the defendant could not overcome the statute of frauds with the doctrine of part performance exception as the defendant did not take possession of the property or improvements or pay a substantial part of the purchase price.

Green Development, LLC v. Exeter Real Estate holdings (Decision of Superior Court following a three-day bench trial). Among other contract interpretation issues at play the court addressed the issues of whether a document sent with a DRAFT watermark is an offer and whether parties can modify a contract’s written terms by subsequent oral agreement even if the contract requires modifications in writing.

Chace IV v. Chace Jr. (Plaintiffs brought actions against trustees related to their management of a trust). Plaintiffs sought trust accounting, removal of the trustees and appointment of successor trustees. The trust was silent as to the governing law that should apply. Plaintiffs argued that Florida law should apply (testator’s domicile at death), and the defendants argued that Rhode Island law should apply.

Both parties agreed that Rhode Island case law is silent regarding which state’s laws apply to lawsuits arising out of the administration on a trust. Restatement (Second) Conflict of Laws § 271 states that the law of the state where the trust is to be administered governs when there is no local law designated by the testator to govern the administration of the trust. The court adopted this approach because the Supreme Court adopted the Second Restatement’s approach to conflicts of laws. Further, the court found that Rhode Island was the place of administration of the trust based on a number of factors including that one of the trustees was a Rhode Island resident, trust documents list Rhode Island as the address for the trust, Rhode Island lawyers and accountants were employed by the trust for administration tasks, and the family’s entity is based on Rhode Island.

Whelen Corrente & Flanders LLP v. Nadeau (In a fee dispute between clients and their law firm, the court upheld an arbitration clause in the fee agreement). In a case of first impression, the court held that, unlike an agreement to arbitrate malpractice claims under Rule 1.8 of the Rules of Professional Conduct, an agreement to arbitrate fee disputes does not require informed consent or client consultation with independent counsel. The court also rejected the clients’ claims that the fee arbitration clause was unconscionable.

Cashman Equip. Corp., Inc. v. Cardi Corp., Inc. (In a multiparty dispute over a construction project, the court held a trial on the claims between two of the parties). At the conclusion of Plaintiff’s case in chief, the court granted Defendant’s motion for judgment as a matter of law under R.C.P. 52(c). Thereafter, the court granted Defendant’s motion that this constitute a final judgment under R.C.P. 54(b). The court granted the motion after concluding that the judgment resolved the issues between these two parties and there was no just reason for delay. The court rejected Plaintiff’s argument that Defendant’s claim to attorneys’ fees under R.I. Gen. Laws Section 9-1-45 was discharged in Plaintiff’s Chapter 11 bankruptcy. That claim did not arise until the court granted the judgment as a matter of law after the confirmation of Plaintiff’s Chapter 11 plan.

234 Realty, LLC v. First Hartford Realty Corp. and 287 Realty, LLC v. First Hartford Realty Corp. (The parties entered into an agreement where the defendant was to pay the plaintiff certain referral fees for real estate transactions). Plaintiff brought suit against the Defendant alleging that Defendant failed to report fees received from real estate transactions resulting in fewer payments to Plaintiff. When Plaintiff inquired further about this, Defendant allegedly withheld information from Plaintiff.

Plaintiff sought the appointment of a special master to audit Defendant to determine whether information had been withheld and whether fees were being properly paid. The accountant appointed by the special master incurred significant expenses in auditing Defendant, due in large part to Defendant’s inability to maintain adequate records and reluctance to provide records. Defendant objected to the accountant’s fees as unreasonable on multiple grounds, including that the work was not adequately supervised, involved unnecessary work because the accountant did not rely on third-party data and the accounting firm failed to use less expensive resources on the file. The court found that the fees were fair and reasonable contrary Defendant’s expert’s testimony. Plaintiff also moved the court to shift the fees entirely to Defendant. Defendant countered that it is well-established law in Rhode Island that fee shifting should not occur until a final determination is made on the merits. The court decided to allocate costs before final determination on the merits because Rule 53(g)(3) states “[a]n interim allocation may be amended to reflect a decision on the merits.” Fed. R. Civ. P. 53(g)(3). The entire costs incurred by the accountant were allocated to Defendant largely because the accountant had significant difficulty getting information/documents from Defendant that only added to the amount of fees incurred.

Erskine Flow v. FS Group RI, LLC (A receiver obtained a $2.425 million offer to buy the receivership property from an unrelated third party). Another party submitted a higher offer containing terms and conditions that were not in the first offer. The court approved the first offer over the objection of the petitioner in the receivership. The court granted the mortgagee’s motion to require the objecting petitioner to post a $1.25 million surety bond if it appealed the sale order.

Josephson, LLC v. Affiliated FM Ins Co. (Plaintiff real estate investment company brought an insurance claim for business interruption coverage due to Covid-19). Plaintiff claimed that COVID-19 rendered all of its insured properties (which included hotels, leased residential and commercial properties) “partially or fully unusable for their intended purposes.” The court noted that “the common theme among COVID-19 insurance disputes is that the resolution of the matter depends upon the policy’s language and the facts as alleged by the insured and as applied to the applicable policy at issue.” In this instance the court found that COVID-19 does not constitute a “physical loss of damage” as required by this policy relying largely upon the fact that the policy included clear and unambiguous “communicable disease” coverage that do not require a showing of “physical loss or damage.” Secondly, the court agreed with majority of other jurisdictions in including that COVID-19 cannot cause “physical loss or damage” to property “where no physical alteration or damage has occurred to the property.” The court distinguished COVID-19 from a case of mold contamination as it does not permanently exist on surfaces or otherwise require physical repair to remedy its presence on the property.

§ 1.3.16 West Virginia Business Court Division

JB Exploration 1, LLC v. Blackrock Enterprises, LLC (Breach of contract bifurcated jury/bench trial). This case was referred to the Business Court Division on April 27, 2018, and involves a dispute related to a lease acquisition agreement to acquire leases and other oil and gas interests in Pleasants County, West Virginia. The court conducted the trial in two phases: a jury trial from March 2-12, 2021, and a bench trial from September 22-23, 2021. In the first phase, the jury was tasked with determining whether Blackrock breached the lease acquisition agreement. Depending on the jury’s findings, the Court would determine in the second phase whether a mining partnership existed and what, if any, damages were appropriate.

Under the lease acquisition agreement, the parties were to work together to acquire various oil and gas leases in a designated area in Pleasants County, West Virginia. The jury determined that Blackrock breached the agreement by, among other things, not timely responding to offers to buy into leases acquired by JB. The court also found that Blackrock failed to pay its share of costs to acquire and develop oil and gas leases and other interests in the designated area.

Following a bench trial for the second phase, the court determined that the lease acquisition agreement was a partnership and that the proper remedy was judicial dissolution of the partnership. The court further held that Blackrock was not entitled to any buyout of its partnership share and must convey its interests to JB. The case has been disposed of as of mid-2022.

Westlake Chem. Corp. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA (Collateral estoppel). This case was referred to the Business Court Division on October 11, 2019, and concerns an insurance coverage dispute involving the alleged failure of several insurance companies to cover Plaintiff Westlake Chemical Corporation for property damage at its Marshall County, West Virginia plant caused by a railroad tank car rupture and resulting chlorine release that occurred in August 2016. In a previous civil action in Pennsylvania, a jury had determined that Axiall Corporation, which Westlake acquired after the accident, was entitled to $5.9 million for property damage to its plant from Defendant which caused the accident. But Axiall submitted claims to Defendants for $278,000,000 for damage to the plant, the exact same damages it claimed in the Pennsylvania litigation.

Defendants moved for partial summary judgment, arguing that the Pennsylvania verdict was binding on this action, because it addressed the same damages Westlake claimed in this action. The court agreed with Defendants and held that Westlake was collaterally estopped from litigating the amount of damages because the same damages were at issue in both actions, and Axiall, Westlake’s predecessor in interest, had a full and fair opportunity to litigate the damages issue in the Pennsylvania action. The case remains pending in the Business Court Division.

Covestro, LLC v. Axiall Corp. et al. (Non-mutual collateral estoppel). This case was referred to the Business Court Division on May 22, 2019, and involves the same chlorine gas leak as was at issue in the immediately previous case. In this consolidated case, Covestro, which owned a plant nearby the Axiall plant where the railroad car carrying chlorine gas ruptured, sued Axiall and other defendants for damages to its plant caused by the chlorine gas. The leak created a large gas cloud that travelled south to the neighboring Covestro Plant and other lands. Axiall also sued Alltranstek, LLC, Rescar Companies, and Superheat FGH Services, Inc. for their role in causing the leak.

As in the previous case, the court applied the jury verdict in the Pennsylvania action to adjudicate many of the claims at issue. Though Covestro was not a party to the Pennsylvania action, the court held that Axiall—found 40% at fault in that action—could not relitigate the jury’s finding that it was negligent and therefore liable to Covestro for its damages. The court also rejected Axiall’s arguments that it did not have a duty to Covestro or that transporting chlorine gas was not abnormally dangerous.

Similarly, the court held that Axiall could not relitigate its claims against Defendants in the Pennsylvania action. In particular, the court held that Axiall could not hold Superheat liable for any damages, because the Pennsylvania jury had determined that Superheat was 0% negligent. This case remains pending in the Business Court Division.

§ 1.3.17 Wisconsin Commercial Docket Pilot Project

St. Croix Hospice, LLC v. Moments Hospice of Eau Claire, LLC (Employment agreement; tortious interference with contract). In St. Croix, the court grappled with cross motions for summary judgment related to claims for breach of contract and tortious interference with contract. St Croix Hospice (“SCH”) and Moments were competing hospice companies. When Moments expanded into the SCH’s Wisconsin territory and advertised employment opportunities, SCH’s regional Associate Medical Director (the “Medical Director”) and several SCH employees left SCH to work for Moments. In addition, several of SCH’s patients transferred to Moments. SCH subsequently filed suit, asserting: (1) the Medical Director had breached his Medical Director Services Agreement with SCH—which prohibited him from entering into agreements with or working with any of SCH’s hospice competitors—when he left SCH to work for Moments; (2) claims for tortious interference with contract against the Medical Director and Moments, alleging that Moments had interfered with the confidentiality, non-disclosure, and non-solicitation provisions in the SCH’s agreements with its employees; and (3) a claim for vicarious liability against Moments, alleging that Moments is vicariously liable for the Medical Director and other employees breaching their contracts with SCH.

The court granted SCH summary judgment on its breach of contract claim against the Medical Director, finding that he had breached the clear language of the Medical Director Services agreement when he entered into an agreement to serve as Moments’ medical director. However, the court granted summary judgment to Moments on SCH’s other claims. The court found that the employment agreements that formed the basis of SCH’s tortious interference claim might provide grounds for employee discipline, but were not actionable contractual obligations. Further, because those agreements did not prohibit former employees from soliciting business from patients or recruiting workers, SCH could not show that any violation occurred. Additionally, SCH’s evidence (an e-mail and unauthenticated text message) did not establish that any former SCH employees had in fact breached their employment agreements. The court also found that it would have to take unwarranted inferential leaps to find that the fact that a handful of SCH’s patients had transferred to Moments meant that Moments had interfered with SCH’s patient contracts. Further, there were no facts in the record describing in what way Moments had dissuaded the Medical Director from performing his contractual obligations to SCH. The court also granted Moments’ motion for summary judgment on SCH’s claim for vicarious liability, holding that as a matter of law, Moments could not be vicariously liable for employees’ conduct that predated their hire, nor could Moments be vicariously liable for the Medical Director’s conduct because he was an independent contractor. The court found SCH’s other proffered evidence did not show that any former SCH employee had breached their agreement with SCH.

§ 1.3.18 Wyoming Chancery Court

Wright McCall LLC v. DeGaris Law, LLC (Personal jurisdiction over nonresident member of resident LLC). This case presents a personal jurisdiction dispute not uncommon to states known for their business-entity-formation industries. A Wyoming LLC sued to expel a nonresident member. The nonresident member moved to dismiss for lack of personal jurisdiction. In response, the Wyoming LLC argued the member consented to personal jurisdiction when it executed an operating agreement containing Wyoming dispute-resolution and governing-law provisions. And, in any case, the nonresident member had sufficient minimum contacts because it executed an operating agreement with Wyoming-centric provisions.

The court disposed of the jurisdiction-by-consent theory. Operating agreement language naming arbitration in Cheyenne or Denver as the “exclusive forum for adjudication of any disputes” constituted agreement to arbitrate in Cheyenne but it did not constitute consent to litigate a merits-based claim in a Wyoming court. The Wyoming LLC pointed to another provision deeming the contract made in Wyoming and governed by Wyoming law. Unmoved, the court held that personal jurisdiction could not be premised on conceptualistic theories of place of contracting and a clause stating Wyoming law would apply is not consent to jurisdiction because the concepts of governing law and personal jurisdiction differ.

As to the specific-jurisdiction theory, the court reasoned personal jurisdiction over an LLC does not extend to its members because an LLC is a distinct entity that insulates its members from company obligations. Independent of the company, the nonresident lacked minimum contacts with Wyoming. Executing an operating agreement mattered not to the minimum contacts analysis because it was part and parcel of LLC membership. And the governing-law and dispute-resolution provisions did not confer jurisdiction for the reasons noted above.

In sum, this case affirms three principles: (1) consent to arbitrate in a particular state is not consent to litigate merit-based claims in the courts of that state; (2) a choice-of-law provision stating a specific state’s law will apply does not constitute consent to personal jurisdiction in that state; and (3) personal jurisdiction cannot be premised on mere membership in a resident LLC.

Contributors to this publication include: Brett M. Amron, Peter J. Klock, II, Jonathan W. Hugg, Martin J. Demoret, Stacie L. Linguist, Monika Sehic, Alan M. Long, George F. Burns, Eviana Englert, Rosie Wennberg, Laura A. Brenner, Olivia Schwartz, Edward J. Hermes, Christian Fernandez, Russell F. Hilliard, Nathan C. Midolo, Madeline K. Osbon, Gregory D. Herrold, Benjamin Burningham, Emanuel L. McMiller, Elizabeth A. Charles, Douglas L. Toering, Matthew Rose (Law Clerk), Jacqueline A. Brooks, Emily K. Strine, Benjamin R. Norman, Daniel L. Colston, Agustin M. Martinez, Patrick A. Guida, Lynn H. Wangerin, Jennifer M. Rutter, Marc E. Williams, James T. Fetter, Michael J. Tuteur, Andrew C. Yost, Muhammad U. Faridi, Jacqueline Bonneau, and Shelley Attadgie.