Trial Court Rules Amended to Clarify Requirements for Redaction of Confidential Personal Information

On November 6, 2014, the Chief Administrative Judge signed an order adding subdivision (e) to Rule 202.5. the new rule clarifies counsel’s obligation to redact confidential personal information from court filings. The new rule provides:

(e) Omission or Redaction of Confidential Personal Information.
(1) Except in a matrimonial action, or a proceeding in surrogate’s court, or a proceeding pursuant to article 81 of the mental hygiene law, or as otherwise provided by rule or law or court order, and whether or not a sealing order is or has been sought, the parties shall omit or redact confidential personal information in papers submitted to the court for filing. For purposes of this rule, confidential personal information (“CPI”) means:
i. the taxpayer identification number of an individual or an entity, including a social security number, an employer identification number, and an individual taxpayer identification number, except the last four digits thereof;
ii. the date of an individual’s birth, except the year thereof;
iii. the full name of an individual known to be a minor, except the minor’s initials; and
iv. a financial account number, including a credit and/or debit card number, a bank account number, an investment account number, and/or an insurance account number, except the last four digits or letters thereof.
(2) The court sua sponte or on motion by any person may order a party to remove CPI from papers or to resubmit a paper with such information redacted; order the clerk to seal the papers or a portion thereof containing CPI in accordance with the requirement of 22NYCRR §216.1 that any sealing be no broader than necessary to protect the CPI; for good cause permit the inclusion of CPI in papers; order a party to file an unredacted copy under seal for in camera review; or determine that information in a particular action is not confidential. The court shall consider the pro se status of any party in granting relief pursuant to this provision.
(3) Where a person submitting a paper to a court for filing believes in good faith that the inclusion of the full confidential personal information described in subparagraphs (i) to (iv) of paragraph (1) of this subdivision is material and necessary to the adjudication of the action or proceeding before the court, he or she may apply to the court for leave to serve and file together with a paper in which such information has been set forth in abbreviated form a confidential affidavit or affirmation setting forth the same information in unabbreviated form, appropriately referenced to the page or pages of the paper at which the abbreviated form appears.
(4) The redaction requirement does not apply to the last four digits of the relevant account numbers, if any, in an action arising out of a consumer credit transaction, as defined in subdivision (f) of section one hundred five of the civil practice law and rules. In the event the defendant appears in such an action and denies responsibility for the identified account, the plaintiff may without leave of court amend his or her pleading to add full account or CPI by (i) submitting such amended paper to the court on written notice to defendant for in camera review or (ii) filing such full account or other CPI under seal in accordance with rules promulgated by the chief administrator of the courts.

Court Rejects Arbitral Award

On November 7, 2014, Justice Demarest of the Kings County Commercial Division issued a decision in Matter of Kleinbart (Build Green Solutions LLC), 2014 NY Slip Op. 51599(U), granting a motion to reject an arbitral decision.

In Matter of Kleinbart, the court denied a motion to confirm an arbitral award and instead granted a motion to reject the award. As an initial matter, the court rejected the argument that the arbitration agreement was not valid:

An arbitration award may be vacated only upon the grounds enumerated in CPLR 7511 (b). CPLR 7511 (b) (2) permits vacating an arbitration award if the party seeking vacatur did not participate in the arbitration or receive notice of the intention to arbitrate and, among other circumstances, no valid arbitration agreement existed. Respondents herein contend that Tombak received no proper summons and that both his execution of the Arbitration Agreement and purported participation in the Givas Hamorah proceeding resulted from fraud, coercion or duress.

To sustain a claim for fraudulent inducement, there must be a knowing misrepresentation of material fact, which is intended to deceive another party and to induce them to act upon it, causing injury. Here, respondents argue that the notice Givas Hamorah used to call Tombak before the tribunal and its general conduct led him to believe that he was present only as a witness, not a party. Although the contents of the notice can be read as implying that Givas Hamorah sought testimony from Tombak in an arbitral proceeding against Volkovitz and Kornitzer, the Arbitration Agreement made clear that Tombak was agreeing to submit to binding arbitration (individually, and on behalf of corporations, LLCs, and all other entities involving this matter) all the controversies (claims and counter claims) between the undersigned parties. Such language unambiguously conveyed that Tombak was agreeing to appear before Givas Hamorah as a party to arbitration, not merely as a witness. A person who signs a document, even if misled as to its contents, is under an obligation to read the document before signing it, and cannot generally avoid the effect of the document on the ground that he or she did not read it or know its contents.

Tombak further asserts that he signed the Arbitration Agreement only because the Givas Hamorah panel threatened to issue a siruv against him, thus rendering the agreement voidable as a product of coercion or duress. The Appellate Division, Second Department, has established, however, that a threat of a siruv will not be treated as duress. While the facts in these cases may differ somewhat from the facts that produced the Arbitration Agreement herein, the case law indicates that prior refusals to consider siruv threats as coercive reflected the inherent nature of a siruv, rather than the circumstances particular to those cases. Accordingly, the Arbitration Agreement must be treated as valid and binding upon respondents.

(Internal quotations and citations omitted). The court went on, however, to vacate the award:

Judicial review of an arbitrator’s award is very limited, and an arbitrator need not observe substantive law or evidentiary rules in issuing a decision. New York favors arbitration as a method of dispute resolution, but CPLR 7511 (b) (1) permits vacating an arbitration award if, among other circumstances, the arbitrator exceeded his power or so imperfectly executed it that a final determination and definite award upon the subject matter submitted was not made.

An award may be found to have exceeded the arbitrator’s powers if it violates a strong public policy, is totally irrational or breaches an explicit limitation on such power. On review, an award may be found to be rational if any basis for such a conclusion is apparent to the court based up on a reading of the record.

Here, no apparent rational basis exists to justify an award to petitioner of $150,000. Petitioner makes no attempt to refute, and submits evidence that seems to confirm, that his claim sought a 7.5% commission on a $24,700 sale, thus equal to $1852.50, of which BGS had already paid half. No party attempts to explain how a claim pursuing $926.25 resulted in an award of more than 160 times that amount.

Furthermore, no rational basis supports holding Tombak personally liable for any failure by BGS to pay petitioner a sales commission. Petitioner formed an agreement with Volkovitz to seek buyers of BGS equipment for a specified commission, and petitioner does not contend that he had any direct interaction whatsoever with Tombak before the arbitration process. Petitioner erroneously relies on the general precept of contract law that an agent who forms a contract on behalf of an undisclosed or partially disclosed principal may be held personally liable for obligations thereunder. Tombak, though an agent of BGS, was indisputably not the agent who formed any agreement with petitioner, and, therefore, could not be held personably liable even if petitioner successfully established that BGS was inadequately disclosed as the true party to the contract. As no plausible basis exists for the Arbitration Award, it must be vacated and the petition to confirm it must be denied.

(Internal quotations and citations omitted). As to a remedy, the court ruled that “[t]he Arbitration Agreement, however, remains binding, and the controversy must, therefore, be remanded for further proceedings in accordance with this decision and order and the requirements of CPLR article 75.”

Testimony Regarding Documents Precluded by Best Evidence Rule

On November 13, 2014, the First Department issued a decision in Shanmugam v. SCI Engineering, P.C., 2014 NY Slip Op. 07749, affirming a trial court’s exclusion of evidence under the best evidence rule.

In Shanmugam, the trial court precluded the defendant “from presenting testimony concerning the value of defendant company’s carry-forward contracts, accounts receivable, and monthly billings,” because it had not produced the underlying documents. The First Department affirmed, explaining that the preclusion was proper because

the best evidence rule requires production of those documents themselves, and since defendant did not proffer an adequate explanation for his failure to produce the documents. Because testimony on the value of the assets at issue would be based on the contents of the unproduced documents, any such testimony would also be inadmissible hearsay. Similarly, the court properly precluded any testimony concerning client dissatisfaction with defendant company, as such testimony would be based on the client’s out-of-court statements and would constitute inadmissible hearsay. The prelitigation letter by defendant to plaintiff explaining his refusal to pay on the notes at issue was also properly precluded as inadmissible hearsay. Defendant’s alleged availability to testify at trial about the contents of the letter does not, alone, render the letter admissible. Lastly, the court properly precluded defendant’s summary of customer revenues for 2012; even if relevant, the summary is inadmissible under the best evidence rule, as it is based on defendant company’s books and records, which defendant, without explanation, failed to produce during discovery.

(Internal citations omitted).

Court of Appeals Arguments of Interest for the Week of November 17, 2014

Arguments the week of November 17, 2014, in the Court of Appeals that may be of interest to commercial litigators.

• No. 223: Rigano v. Vibar Construction, Inc. (Proceeding No. 1) and Vibar Construction Corp. v. Fawn Builders, Inc. (Proceeding No. 2) (To be argued Tuesday, November 18, 2014) (considering whether misidentification of the true owner on a mechanics lien is a jurisdictional defect which cannot be cured by an amendment). The Second Department decision is available here.
• No. 228: 172 Van Duzer Realty Corp. v. Globe Alumni Student Assistance Association, Inc. (To be argued Wednesday, November 19, 2014) (considering whether a lease’s acceleration clause constituted an unenforceable penalty). The First Department decision is available here.

Client Q & A: Why am I in a Lawsuit in New York?

Why am I in a lawsuit in New York? By Vitali Rosenfeld.

If you get sued, one of the first questions to ask yourself is whether you are being sued in the right place. A lot of commercial lawsuits involving out-of-state parties are filed in New York for various reasons – but not always are there legitimate grounds for a New York court to exercise judicial authority over all defendants. Such authority, referred to as “personal jurisdiction,” is a prerequisite for any civil lawsuit. Does the court have personal jurisdiction over you or your business?

General Jurisdiction. Where a party’s contacts with New York are so strong that it may be considered essentially at home in this state, New York courts (both state and federal) may exercise so-called “general jurisdiction,” i.e. jurisdiction that covers any and all claims against that party. That will normally be the case with an individual who lives in New York, or a company that has its primary place of business in New York.

General jurisdiction can also be based on more attenuated contacts: for instance, a company may be incorporated in Delaware and have its main office in New Jersey, but nevertheless do continuous and systematic business in New York. The general jurisdiction analysis may include such inquiries as whether the party has an office or employees in the state, whether it solicits or conducts business in the state, and whether it has bank accounts, real estate or other property in the state.

Specific Jurisdiction. Where a party’s contacts with New York are insufficient to establish general jurisdiction, it may still be subject to “specific jurisdiction” – which means that the court may exercise its authority over such defendant only with regard to the subject matter of a specific dispute. By definition, the defendant’s contacts with New York that give rise to specific jurisdiction must be related to the events giving rise to the plaintiff’s claim.

For instance, if a foreigner comes to New York and commits some wrongdoing here, he may be sued in New York for the damages caused by that specific wrongful conduct. Likewise, a foreign business may be sued in New York for damages arising from its ownership of real property in this state. But in both examples, the court’s jurisdiction will be limited to the particular claims with a New York nexus, and the non-resident defendant should be able to resist a plaintiff’s attempt to include other claims, for which such a nexus is lacking. There are particular rules for establishing specific jurisdiction depending on the type of claims involved; for some claims, the inquiries are more nuanced and complex than for others.

Forum selection clauses. One of the most common grounds for specific personal jurisdiction in commercial matters is a contractual provision in which the parties consented in advance to jurisdiction of a particular court or courts of a particular state. Such a provision is commonly referred to as a forum selection clause. New York courts usually give effect to such provisions, under the principles that the parties are in the best position to determine where they would want to litigate a potential dispute and that enforcement of forum selection clauses provides certainty and predictability, especially in international cases. Indeed, there is a statute precluding a New York court from declining jurisdiction in high-stakes commercial disputes even where the parties’ only connection to New York is the forum selection clause in their agreement.

There are exceptions, however. As any other contractual provision, a forum selection clause may be invalidated if it is found to have been procured by fraud, contrary of public policy, or otherwise unreasonable or unjust.

It is also important to distinguish between exclusive and non-exclusive forum selection. In the first scenario, the parties agree that any dispute arising from their contract may be litigated only in a particular forum; in the second, they consent to a certain forum’s jurisdiction without ruling out the possibility of litigating elsewhere. Suppose that a plaintiff files his contractual claims in New York, even though the agreement contemplates jurisdiction of foreign courts. If the forum selection clause is exclusive, the defendant will have a much better argument for dismissal of the New York action than with a non-exclusive forum selection clause.

But where the forum selection clause is found to govern, there are further questions. Does it cover all of plaintiff’s claims, and does it apply to all defendants? A plaintiff who wants to sue in New York will rely on a forum selection clause in favor of New York courts, but may try to include claims that are extraneous to the contract and to name defendants who did not sign it, such as the contracting party’s affiliates or executives. A lot of care should be exercised in interpreting forum selection clauses and determining their proper scope. Of course, it is better to pay careful attention to such clauses when signing a contract, to ensure that there are no jurisdictional surprises down the road – in other words, that you do not suddenly find yourself required to litigate in a state or country with which you have no connection.

Once you are sued in New York, however, the important thing is to determine whether you have a jurisdictional defense before you make any court appearance or filing – because such a defense may be easily waived if it is not timely and properly raised. For that reason, you should consult with competent counsel as soon as you are served. We have extensive experience in analyzing jurisdictional issues and effectively asserting jurisdictional defenses on behalf of individual and corporate clients.

Court Enforces Agreement to Arbitrate

On October 29, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in Reed v. Yankowitz, 2014 NY Slip Op. 32843(U), enforcing an agreement to arbitrate.

In Reed, the parties’ dispute related to a joint venture involving real property. The defendants moved to dismiss the plaintiffs’ lawsuit on the ground that the parties had agreed to arbitrate their dispute. The court agreed, writing:

Before commencing this action the parties appeared before Rabbi Leichtag, one of the arbitrators mentioned in paragraph 8 of the agreement. It appears that Rabbi Leichtag directed that an accountant review the books and records of the venture, and that he failed to appear at the further arbitration sessions scheduled. Thereafter, defendant contends that plaintiff refused to schedule any further sessions until defendant paid plaintiff $50,00.00.

Plaintiff’s argue that they are entitled to a judicial determination rather than an arbitration of this dispute, positing that the arbitration clause of paragraph 8 by its clear terms only requires arbitration of decisions, voting, control and management of the joint venture. As the clause states, one of the two enumerated rabbis would have the deciding vote on such issues as may arise between the partners involving control and management of the company. This arguably would not cover the present issue, which goes beyond the day to day operation of the business, inasmuch as one party is alleged to have unilaterally and fraudulently sold the property that was the subject of the joint venture. Plaintiff contends that the general arbitration clause of paragraph 16 only refers back to paragraph 8, and means that the American Arbitration Association (AAA) shall be the default arbitrator of decisions, management and control of the venture if the parties do not wish to utilize one of the rabbis selected in paragraph 8 to be a tie breaking vote.

The court held both that this contention was not supported by the text of the parties’ agreement and,

In any event, the plaintiffs’ appearances before an arbitrator without having sought a stay of arbitration pursuant to CPLR 97503(b) or otherwise preserving their right to have the issue of arbitrability judicially determined waives that right. Where the contract contains a valid arbitration agreement, a party’s participation in the arbitration hearings constitutes a waiver of the claim that the arbitrators do not have jurisdiction over the matter. Moreover, even questions of fraud fall under general arbitration clauses unless specifically excluded. As such, although plaintiffs may not have pleaded fraud sufficiently to withstand a motion to dismiss, that claim can still be considered in an arbitration.

(Internal quotations and citations omitted.)

Former Employees Preliminarily Enjoined from Carrying On New Business

On November 3, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in First Manufacturing Co., Inc. v. Young, 2014 NY Slip Op. 51562(U), enjoining former employees from carrying on a new business they set up while working for their former employer.

In First Manufacturing Co., the plaintiff wholesaler of leather sought a preliminary injunction against former employees who had established a competing business. The court granted the motion, explaining:

Although an employee owes fiduciary duties of good faith and loyalty to an employer, the employee may incorporate a business prior to leaving the employer without breaching any fiduciary duty. The employee may not, however, solicit his or her employer’s customers or otherwise compete during the course of his or her employment by the use of the employer’s time, facilities or proprietary information. Where it is shown that trade secrets or other proprietary or confidential material belonging to the employer were used or there was other wrongful conduct by the employee, including the use of fraudulent methods or the engagement in a physical taking or copying of the employer’s documents, lists or files, such conduct is actionable in tort. In such cases, it is the employee’s misuse of the employer’s resources to compete with the employer that is actionable as a breach of fiduciary duty.

Once the employment is terminated, the relationship between a former employee and employer is not fiduciary in nature. The former employee is free to solicit customers or to otherwise compete with his or her former employer where remembered information as to specific needs and business habits of particular customers is not confidential or otherwise proprietary in nature. However, a former employee is not entitled to solicit customers by fraudulent means, the use of trade secrets or confidential information, even in the absence of a restrictive covenant.

Wrongful misappropriations of trade secrets or other confidential or proprietary information by former employees or others having no employment relationship with the plaintiff may be actionable as common law unfair competition claims. Such claims are rooted in the bad faith misappropriation of the plaintiff’s property, or its labors and expenditures or a commercial advantage belonging to the plaintiff such as its good will and generally concern the taking and use of such property right or commercial advantage to compete against the plaintiff. The bad faith misappropriation of a property or a commercial advantage belonging to the plaintiff by the infringement or dilution of a trademark or trade name or by the exploitation of proprietary information and/or trade secrets are both actionable as common law unfair competition claims.

To succeed on a claim for the misappropriation of trade secrets under New York law, a party must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means. Traditionally defined as relating to technical matters in the production of goods, trade secrets now encompass non-technical aspects of a business including, customer lists, price codes economic studies, costs reports, customer tracking and marketing strategies. In New York, a trade secret is defined as any formula, pattern, device or compilation of information which is used in one’s business and which gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. An essential requisite to legal protection against misappropriation of such a formula, process, device or compilation of information is the element of secrecy. Secrecy has been defined in accordance with the § 757 Restatement of Torts as: (1) substantial exclusivity of knowledge of the formula, process, device or compilation of information; and (2) the employment of precautionary measures to preserve such exclusive knowledge by limiting legitimate access by others.

Customer lists and related information may thus constitute a trade secret provided that such list or information gives the owner an opportunity to obtain an advantage over competitors who do not know or use it. Documents, files and other assemblages of business data containing detailed, non-public information about customers, their specific or unique needs, the pricing of purchases, the credit terms of such purchases and customer class rankings may likewise constitute trade secrets and thus entitled to protection under unfair competition theories provided such assemblages are compiled through considerable effort on the part of the plaintiff and give the plaintiff a competitive advantage for the servicing of such customers and creating new business.

Knowledge of the intricacies of a business operation does not necessarily constitute a trade secret and, absent any wrongdoing, it cannot be said that a former employee should be prohibited from utilizing his knowledge and talents in this area. Information that is garnered by the defendant’s casual memory and knowledge does not constitute an actionable wrong. Where the information at issue is public knowledge or could be acquired easily and duplicated, it will not be considered a trade secret.

Nevertheless, confidential information not amounting to a trade secret may be protected from pirating and subsequent use under common law theories of unfair competition. To qualify for such protection, the confidential and/or proprietary material at issue must have been garnered by the defendant by way of tortious, criminal or other wrongful conduct. The remedy of an injunction against the use or divulgement of trade secrets has long been available to the plaintiff. Such remedy is also available to restrain the defendant’s use of other confidential or proprietary material provided that such material was appropriated through tortious conduct or other wrongful means.

(Internal quotations and citations omitted) (emphasis added).  The court went on to hold that the plaintiff had shown that it was entitled to the injunction it sought based on evidence that “included uncontroverted proof that the individual defendants engaged in the surreptitious and otherwise wrongful copying and taking of trade secrets and/or confidential proprietary material while in the employ of the plaintiff and that these defendants used and transmitted such material for purposes of competing directly and unfairly with plaintiff following the termination of their employment . . . .”

Court Interprets Real Property Law Section 223

On October 28, 2014, Justice Schmidt of the Kings County Commercial Division issued a decision in W.D.G.R. Properties, LLC v. Reich, 2014 NY Slip Op. 32799(U), interpreting Real Property Law S 223.

In W.D.G.R. Properties, the plaintiff sued for money due under a commercial lease. The court rejected the argument that the action should be dismissed because the plaintiff lacked standing, explaining:

As an initial matter, defendant argues that the plaintiff’s action should be dismissed pursuant to CPLR 3211 (a)(3) because the plaintiff lacks standing to commence this action . . . [because] the plaintiff fails to set forth how it is the successor in interest to the original landlord, and therefore cannot establish that it has a lease agreement with the defendant upon which it can seek relief.

In opposition, plaintiff maintains that it has standing to sue for unpaid rents under the lease agreement because the lease was “assigned” to it as well as to its prior successors in interest by operation of law pursuant to Real Property Law S 223. That statute provides, in pertinent part . . . :

The grantee of leased real property, or of a reversion thereof, or of any rent, the devisee or assignee of the lessor of such a lease, or the heir or personal representative of either of them, has the same remedies, by entry, action or otherwise, for the nonperformance of any agreement contained in the assigned lease for the recovery of rent, for the doing of any waste, or for other cause of forfeiture as his grantor or lessor had, or would have had, if the reversion had remained in him. A lessee of real property, his assignee or personal representative, has the same remedy against the lessor, his grantee or assignee, or the representative of either, for the breach of an agreement contained in the lease, that the lessee might have had against his immediate lessor, except a covenant against incumbrances or relating to the title or possession of the premises leased.

It is well settled that Real Property Law S 223 gives the grantee or assignee of the landlord of property the same rights and remedies against the tenant for nonperformance of the agreements contained in the lease as the original landlord would have had.

Breach of Contract, Without More, Insufficient to Justify Rescission

On September 26, 2014, Justice Whelan of the Suffolk County Commercial Division issued a decision in Huntington Village Dental, PC v. Rathbauer, 2014 NY Slip Op. 51545(U), explaining the circumstances under which a plaintiff is entitled to rescission of a contract.

In Huntington Village Dental, the court refused to grant the plaintiff summary judgment on its claim for rescission, notwithstanding “evidence of slight, causal and/or technical breaches of the” parties’ contract and instead granted the defendants summary judgment on the plaintiff’s rescission claim, explaining:

As a general rule, rescission of a contract is permitted for such a breach as substantially defeats its purpose. It is not permitted for a slight, casual or technical breach, but only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract. A finding of a material breach must be premised upon proof that the departure from the terms of the contract or defects in its performance pervaded the whole of the contract so as to defeat the object that the parties intended.

The remedy of rescission is thus an extraordinary remedy that is only appropriate when a breach may be said to go to the root of the agreement between the parties. The issue of whether a purported breach by an obligee under a note constitutes a material breach of such note or related agreements that would suspend the payment obligations of the obligor thereunder is generally a question of fact.

A party seeking summary judgment on a contract rescission claim must establish, in the first instance, that a material breach occurred, that it lacks an adequate remedy at law and that the status quo may be substantially restored in the event that rescission is granted. Where a contract has been materially breached, the non-breaching party may elect to continue to perform the agreement and give notice to the other side rather than terminate it. When performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach. However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.

(Internal quotations and citations omitted) (emphasis added). The court went on to find that the plaintiff had not made a prima facie showing of a material breach needed to justify the remedy of rescission.

Class Settlement Providing for a Fee Award to Plaintiff’s Counsel Approved Despite Lack of a Monetary Recovery or any Change in the Terms of the Deal

On October 22, 2014, Justice Friedman of the New York County Commercial Division issued a decision in West Palm Beach Police Pension Fund v. Gottdiener, 2014 NY Slip Op. 32777(U), awarding attorney fees to class counsel.

In the underlying action, the plaintiff filed, on behalf of a class of all common stock holders, an action challenging a merger involving the financial adviser Duff & Phelps. Plaintiff alleged breach of fiduciary duty by the Duff & Phelps board, as well as the existence of material misrepresentations in the proxy statement. After substantial settlement discovery, the parties agreed on a settlement wherein Duff & Phelps would make additional disclosures in connection with the merger. Plaintiff moved without opposition to certify a settlement class, which the court granted.

Plaintiff also moved for an award of attorney fees under CPLR § 909. The parties had negotiated a cap of $500,000 on an attorney fee award. Plaintiff’s counsel demanded the full amount, and defendants did not object. However, the court, largely relying on Second Circuit case law, conducted its own analysis because “while the presence of an arms’ length negotiated fee agreement among the parties weighs strongly in favor of approval, such an agreement is not binding on the court. If the court finds good reason to do so, it may reject an agreement as to attorneys’ fees just as it may reject an agreement as to the substantive claims.” (Internal quotation omitted.)

The court applied the lodestar method rather than the percentage method (there was no money paid in the settlement anyway) and accepted all of the hours billed by class counsel and their hourly rates as reasonable, again without objection from the defendants. To reach their $500,000 demand, plaintiff’s counsel requested a 1.2 multiplier as an enhancement to their fees, but the court refused, finding that “the contingency risk that plaintiff faced was insubstantial, given the ubiquity of settlements in shareholder derivative actions challenging mergers based upon insufficient disclosures . . . [and] the risk of success [is] perhaps the foremost factor to be considered in determining whether to award an enhancement.” (Internal citation and quotation omitted.)

The court also quoted a decision by Delaware’s Chancellor Strine expressing a general disapproval attorney fee awards for class settlements “where there is no material change in the economic terms of deals and simply some additional disclosures” but still approving the fee award in the particular case. It seems as though Justice Freidman felt the same way.