Two advantages defendants in commercial litigation enjoy when litigating in New York state court instead of federal court are the availability of the interlocutory appeal to New York’s Appellate Divisions before a final judgment and the ability to file a pre-answer motion to dismiss one or more of plaintiff’s causes of action under CPLR 3211(a)(1) by presenting “documentary evidence” that conclusively establishes that the cause(s) of action fail to state a claim as a matter of law, notwithstanding allegations to the contrary in the complaint. The First Department’s October 3, 2013, decision in Zyskind v. FaceCake Marketing Technologies, Inc., 2013 NY Slip Op. 06433, showcases the importance of a motion to dismiss based on documentary evidence.
The First Department held that former Commercial Division Justice Bernard Fried properly followed applicable law when he considered only the agreements between the parties, which were attached as exhibits to defendant’s motion papers, and not the contents of the defendant’s affidavit to which the exhibits were attached. This demonstrates the important distinction between relying on an affidavit to authenticate documentary evidence (which is permissible and often necessary for a properly documented motion to dismiss based on documentary evidence) and relying on an affidavit alone to contradict allegations in a complaint (which cannot be considered as “documentary evidence”).
In partially affirming Justice Fried on the merits, the First Department also highlighted an important distinction in pleading accounting causes of action in disputes involving closely held entities. Specifically, the court affirmed the dismissal of the accounting cause of action on the ground that plaintiffs failed to plead the requisite element of a fiduciary duty between the plaintiff’s shareholders and the defendant business corporation. Unlike most partnerships and limited liability companies, New York business corporations usually do not owe fiduciary duties to their shareholders (such duties are owed by officers and directors of the corporation to the corporation itself and thus claims requiring the existence of a fiduciary duty are usually brought derivatively by shareholders on behalf of the corporation and against the officers or directors).
For a detailed description of the facts and procedural history of the Zyskind litigation, as well as a thoughtful analysis of the First Department’s treatment of the claims involving the anti-dilution provisions in the parties’ agreements, see Peter Mahler’s blog post here.
Commercial Division Blog 