author:
Chief Judge Kaye.
      Read, J.

text:
    [850 NE2d 1140, 818 NYS2d 164]
    Deutsche Bank Securities, Inc., Respondent, v Montana Board of Investments, Appellant.
    Argued May 11, 2006;
    decided June 6, 2006

      POINTS OF COUNSEL

      Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York City (Herbert C. Ross, Jr., of counsel), and Chris D. Tweeten, Chief Civil Counsel, Office of the Attorney General of Montana, admitted pro hac vice, for appellant.
    I. The State of Montana and its agencies, including Montana Board of Investments, are immune from suit in the courts of the State of New York. (Federal Maritime Comm’n v South Carolina Ports Authority, 535 US 743; Alden v Maine, 527 US 706; Atascadero State Hospital v Scanlon, 473 US 234; Montana v Gilham, 133 F3d 1133; State v Peretti, 661 F2d 756; Morell v Balasubramanian, 70 NY2d 297; Pennhurst State School & Hospital v Halderman, 465 US 89; Seminole Tribe of Fla. v Florida, 517 US 44; Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574; Nevada v Hall, 440 US 410.) II. Comity considerations require dismissal of the action. (Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574; Franchise Tax Bd. of Cal. v Hyatt, 538 US 488; Crair v Brookdale Hosp. Med. Ctr., Cornell Univ., 94 NY2d 524; Intercontinental Planning v Daystrom, Inc., 24 NY2d 372; Bache & Co., Inc. v International Controls Corp., 339 F Supp 341; Morrison v Budget Rent A Car Sys., 230 AD2d 253; Loucks v Standard Oil Co. of N.Y., 224 NY 99; Alan Lupton Assoc. v Northeast Plastics, 105 AD2d 3; Salomon Bros. v West Va. State Bd. of Invs., 152 Misc 2d 289; Federal Maritime Comm’n v South Carolina Ports Authority, 535 US 743.) III. The Court should reverse the Appellate Division’s grant of summary judgment on liability and implicit ruling that affidavits denying insider trading are decisive and preclude any depositions. (Securities &

      Exch. Commn. v Musella, 578 F Supp 425; United States v O’Hagan, 521 US 642; Dirks v SEC, 463 US 646; Chiarella v United States, 445 US 222; Castellano v Young & Rubicam, Inc., 257 F3d 171; Sommer v Federal Signal Corp., 79 NY2d 540; Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395; Cruz v American Export Lines, 67 NY2d 1; Procter & Gamble Distrib. Co. v Lawrence Am. Field Warehousing Corp., 16 NY2d 344.) IV The Montana Board of Investments did not transact any business giving rise to this action in the State of New York. (Kreutter v McFadden Oil Corp., 71 NY2d 460; Otterbourg, Steindler, Houston & Rosen v Shreve City Apts., 147 AD2d 327; Barington Capital Group v Arsenault, 281 AD2d 166; Granat v Bochner, 268 AD2d 365; L.F. Rothschild, Unterberg, Towbin v McTamney, 89 AD2d 540, 59 NY2d 651; Professional Personnel Mgt. Corp. v Southwest Med. Assoc., 216 AD2d 958; Alas Intl. v Ramiz, 257 AD2d 408; Parke-Bernet Galleries v Franklyn, 26 NY2d 13; Etra v Matta, 61 NY2d 455; M. Katz & Son Billiard Prods. v Correale & Sons, 20 NY2d 903.)

      Krantz & Berman LLP, New York City {Larry H. Krantz and Wendy E. Gerstmann of counsel), for respondent.
    I. The First Department correctly rejected Montana Board of Investments’ demand for immunity from suit in New York. (Nevada v Hall, 440 US 410; Franchise Tax Bd. of Cal. v Hyatt, 538 US 488; Seminole Tribe of Fla. v Florida, 517 US 44; Alden v Maine, 527 US 706; Federal Maritime Comm’n v South Carolina Ports Authority, 535 US 743; Montana v Gilham, 133 F3d 1133.) II. The First Department correctly rejected Montana Board of Investments’ comity defense. (Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574; Morrison v Budget Rent A Car Sys., 230 AD2d 253; Curtis, Mallet-Prevost, Colt & Mosle v Garza-Morales, 308 AD2d 261; Marine Midland Bank v United Mo. Bank, 223 AD2d 119; De Rose v New Jersey Tr. Rail Operations, 165 AD2d 42; Eastern Consol. Props. v Adelaide Realty Corp., 95 NY2d 785; People v Damiano, 87 NY2d 477; Franchise Tax Bd. of Cal. v Hyatt, 538 US 488; Nevada v Hall, 440 US 410; Crair v Brookdale Hosp. Med. Ctr., Cornell Univ., 94 NY2d 524.) III. The First Department properly dismissed Montana Board of Investments’ defense of insider trading. (Di Sabato v Soffes, 9 AD2d 297, 11 AD2d 660; Ehrlich v American Moninger Greenhouse Mfg. Corp., 26 NY2d 255; Gateway State Bank v Shangri-La Private Club for Women, 113 AD2d 791, 67 NY2d 627; Bank for Sav. v Rellim Constr. Co., 260 App Div 70; Securities & Exch. Commn. v Franco, 253 F Supp 2d 720; Securities & Exch. Commn. v Hahn Truong, 98 F Supp 2d 1086; Azurite

      Corp. v Amster & Co., 844 F Supp 929, 52 F3d 15; Froid v Berner, 649 F Supp 1418; Securities & Exch. Commn. v Singer, 786 F Supp 1158; Securities & Exch. Commn. v Musella, 748 F Supp 1028.) IV The First Department properly exercised jurisdiction over Montana Board of Investments. (Indianapolis v Chase Nat. Bank, 314 US 63; Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574; Parke-Bernet Galleries v Franklyn, 26 NY2d 13; Kreutter v McFadden Oil Corp., 71 NY2d 460; Courtroom Tel. Network v Focus Media, 264 AD2d 351; Picard v Elbaum, 707 F Supp 144; Schomann Intl. Corp. v Northern Wireless, Ltd., 35 F Supp 2d 205; Snyder v Madera Broadcasting, Inc., 872 F Supp 1191; L.F. Rothschild, Unterberg, Towbin v Thompson, 78 AD2d 795; Barington Capital Group v Arsenault, 281 AD2d 166.)
   OPINION OF THE COURT

Chief Judge Kaye.

This appeal concerns a March 25, 2002 bond transaction between plaintiff Deutsche Bank Securities, Inc. (DBSI) and defendant Montana Board of Investments (MBOI). DBSI, a Delaware corporation with its headquarters in New York, is (among other things) engaged in trading securities for its own account and for clients. MBOI is a Montana state agency charged with managing an investment program for public funds, the public retirement system and state compensation insurance fund assets. In the 13 months prior to the transaction at issue here, DBSI and MBOI had engaged in approximately eight other bond transactions with a face value totaling over $100 million. These transactions were principally negotiated between Stephen Williams, a director in the Global Markets Sales Division of DBSI in New York, and Robert Bugni, Senior Investment Officer-Fixed Income with MBOI in Montana.

On the morning of March 25, 2002, from New York City, Williams contacted Bugni to ask if MBOI was interested in swapping its Pennzoil-Quaker State Company 2009 bonds for DBSI’s Toys R Us bonds, or selling the Pennzoil bonds to DBSI for a stated price. Williams communicated with Bugni electronically through the Bloomberg Messaging System, an instant messaging service provided to Bloomberg subscribers. Bugni responded that MBOI was not interested in the swap proposal. Williams countered that the Pennzoil bid looked good but Bugni replied that the bonds “will get a lot tighter” (increase in price) and MBOI wanted to hold onto them. Williams ended the exchange with a simple “THX” (thanks).

Approximately 10 minutes later, Bugni, knowing that Williams was in New York, sent him a new instant message asking whether the price originally quoted by Williams applied only to the swap, or if it would be the same for a cash purchase. Bugni indicated that MBOI had $15 million of Pennzoil bonds it might be interested in selling. Williams replied that DBSI would like to purchase $5 million of the bonds outright and could probably “trade the balance with one phone call.” Bugni countered with a request that Williams investigate whether all $15 million could be sold at the price he quoted. After a DBSI colleague contacted some of his clients and found that DBSI had a sufficient market for all $15 million, Williams replied to Bugni that DBSI would purchase all $15 million at his quoted price, with a settlement date of March 28, 2002. Bugni agreed, and Williams sent a trade ticket and confirmation of the deal.

Hours after the parties concluded their agreement, on the evening of March 25, 2002, Shell Oil publicly announced that it had agreed to acquire Pennzoil-Quaker State Company, an announcement that would potentially increase the value of the bonds. The following day, MBOI advised DBSI that it was breaking the trade because it believed the buyer had inside information and the trade was “unethical & probably illegal.” As a result of MBOI’s cancellation, DBSI purchased the Pennzoil bonds elsewhere, paying an additional $1.6 million.

DBSI then commenced this action in Supreme Court, New York County, alleging breach of contract, and MBOI answered. After limited discovery, DBSI sought summary judgment as to liability as well as dismissal of MBOI’s affirmative defenses. MBOI cross-moved for dismissal of the action based on its affirmative defenses of lack of personal jurisdiction, sovereign immunity and comity. Supreme Court granted MBOI’s cross motion to dismiss the complaint for lack of personal jurisdiction and denied DBSI’s motion for partial summary judgment. The Appellate Division in a comprehensive opinion unanimously reversed, dismissing MBOI’s affirmative defenses and granting DBSI’s motion for partial summary judgment as to liability. We now affirm.

Discussion

MBOI contends that there is insufficient basis for the exercise of long-arm jurisdiction and thus the case must be dismissed for lack of personal jurisdiction. Additionally, MBOI urges that dismissal is mandated by principles of sovereign immunity and comity, and that in any event summary judgment is inappropriate because of triable issues of fact and a need for further discovery. We reject each contention.

Personal Jurisdiction

New York’s long-arm statute provides that “a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent . . . transacts any business within the state or contracts anywhere to supply goods or services in the state” (CPLR 302 [a] [1]). By this “ ‘single act statute’ . . . proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted” (Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 [1988]).

As we noted in Kreutter, the growth of national markets for commercial trade, as well as technological advances in communication, enable a party to transact enormous volumes of business within a state without physically entering it. Thus, we held that “[s]o long as a party avails itself of the benefits of the forum, has sufficient minimum contacts with it, and should reasonably expect to defend its actions there, due process is not offended if that party is subjected to jurisdiction even if not ‘present’ in that State” (id. at 466). We have in the past recognized CPLR 302 (a) (1) long-arm jurisdiction over commercial actors and investors using electronic and telephonic means to project themselves into New York to conduct business transactions (see e.g. Parke-Bernet Galleries v Franklyn, 26 NY2d 13 [1970]; Ehrlich-Bober & Co. v University of Houston, 49 NY2d 574 [1980]), and we do so again here.

MBOI should reasonably have expected to defend its actions in New York. As distinct from an out-of-state individual investor making a telephone call to a stockbroker in New York (see Rothschild, Unterberg, Towbin v McTamney, 59 NY2d 651 [1983]), MBOI is a sophisticated institutional trader that entered New York to transact business here by knowingly initiating and pursuing a negotiation with a DBSI employee in New York that culminated in the sale of $15 million in bonds. Negotiating substantial transactions such as this one was a major aspect of MBOI’s mission — “part of its principal reason for being” (21 AD3d 90, 95 [2005]). Further, over the preceding 13 months, MBOI had engaged in approximately eight other bond transactions with DBSI’s employee in New York, availing itself of the benefits of conducting business here, and thus had sufficient contacts with New York to authorize our courts to exercise jurisdiction over its person. As Professor Siegel has observed, where a defendant “deals directly with the broker’s New York office by phone or mail [or e-mail] in a number of transactions instead of dealing with the broker at the broker’s local office outside New York, long-arm jurisdiction may be upheld” (Siegel, NY Prac § 86, at 152 [4th ed]).

In short, when the requirements of due process are met, as they are here, a sophisticated institutional trader knowingly entering our state — whether electronically or otherwise — to negotiate and conclude a substantial transaction is within the embrace of the New York long-arm statute.

Sovereign Immunity and Comity

Before this Court, MBOI does not seriously press its claim of sovereign immunity, recognizing the controlling authority of Nevada v Hall (440 US 410 [1979] [states do not have immunity from suit in the courts of other states]). Rather, MBOI asks that, as a matter of comity, we honor its request for immunity from suit here.

Within its own borders, the State of Montana has waived immunity for breach of contract claims (Mont Code Ann § 18-1-404 [1] [a]), but specified that such claims can be brought only in the district courts of Montana (Mont Code Ann § 18-1-401). MBOI argues that New York should voluntarily defer to the Montana statute and dismiss this action. Our Court, however, has already rejected this argument in a strikingly similar case, Ehrlich-Bober, and we see no reason to depart from that precedent.

In Ehrlich-Bober, plaintiff, a New York City dealer in municipal and government securities, brought suit in New York State court against the University of Houston, a public institution and agency of the State of Texas, for breach of two reverse repurchase agreements. The University of Houston argued that the case should be dismissed on comity grounds because the relevant Texas statute, permitting suit against the University of Houston, provided that such suits could be brought only in two specified Texas counties.

In holding that the case should not be dismissed, we explained that comity is not a mandate, but rather a voluntary decision to defer to the policy of another state. We began by comparing the foreign legislation to our own public policy, determining that the Texas law was in the nature of a restriction on venue serving that state’s administrative convenience, rather than a limitation on liability serving an essential governmental interest. Contrasting this administrative convenience with New York’s interest in protecting its residents as well as its preeminence as a commercial and financial capital, we concluded that our state has “a very strong policy of assuring ready access to a forum for redress of injuries arising out of transactions spawned here” (Ehrlich-Bober, 49 NY2d at 581). Indeed, the ability to access a local forum applying a well-established, commercially sophisticated body of law is certainly as important to New York businesses as are our extensive financial and communications resources.

Here, Montana’s legislation serves essentially the same purpose as the Texas statute in Ehrlich-Bober — to limit venue rather than liability — and New York’s identified interests remain at least as compelling today as in 1980. Thus, we decline to defer to the Montana statute vesting exclusive jurisdiction in the district courts of Montana. We continue to hold that where, as here, a lawsuit arises from a commercial transaction in which another state, or its agent, has knowingly projected itself into New York to take advantage of our financial markets, New York courts should not dismiss the action as a matter of comity. Where a more fundamental governmental interest of another jurisdiction is implicated against a less compelling New York policy, or where there is no material conflict between the two, our courts of course remain open to reasonable deference to the law of another jurisdiction as a matter of mutual respect and interstate harmony.

Summary Judgment

MBOI argues that partial summary judgment on liability was improperly granted because it presented circumstantial evidence of insider trading raising triable issues of fact and meriting additional discovery.

MBOI, however, has offered no evidence to support its claim of insider trading — its claim begins and ends with the timing of the transaction. The parties’ previous trading experience demonstrates that it was not unusual for several months to pass between transactions; that the parties had not traded in the previous six months is thus not proof that on March 25, 2002 DBSI had inside information. Similarly, the record belies any allegation that DBSI pressured MBOI into the transaction. When Bugni expressed his disinterest in the swap, Williams replied “THX” and walked away. Clearly, MBOI bears responsibility for the transaction at issue. Finally, the record does not support MBOI’s claim that DBSI agreed to pay a premium for the Pennzoil bonds. On the date of the trade, MBOI itself believed that the bonds would “get a lot tighter,” suggesting that DBSI was not overvaluing the bonds or paying a premium to acquire them. Indeed, in the days prior to the public announcement, DBSI sold Pennzoil bonds at a price greater than it agreed to pay MBOI in the trade at issue. Thus, no inference of illegality can be drawn from the agreed-upon price.

The timing of the trade as “evidence” of impropriety does not of itself create a triable issue of fact regarding illegal conduct by DBSI, particularly in light of the affidavits of the DBSI employees who worked on the transaction swearing no foreknowledge of the Shell-Pennzoil announcement. Because MBOI failed to provide any evidentiary basis for its claim, we conclude that the Appellate Division properly granted summary judgment to DBSI, and that the Appellate Division did not abuse its discretion in rejecting MBOI’s request for additional discovery. The Appellate Division reasonably concluded that such discovery was unlikely to be productive. To order discovery based solely on a coincidence in timing would be to sanction a dubious quest for a defense.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question answered in the affirmative.

Read, J.

(dissenting in part). Defendant Montana Board of Investments (MBOI) claims that plaintiff Deutsche Bank Securities, Inc. (DBSI) and/or its client traded the Pennzoil-Quaker State Company 2009 bonds based on material nonpublic information, a concededly valid defense to DBSI’s breach of contract claim. The majority concludes, however, that MBOI presented no evidence of insider trading, apart from a “coincidence in timing,” and thus the Appellate Division did not abuse its discretion in rejecting MBOI’s request for additional discovery (majority op at 74). I respectfully dissent.

To establish its insider trading defense, MBOI must demonstrate that

“(1) the tipper possessed material nonpublic information regarding a publicly trade [d] company; (2) the tipper disclosed this information to the tippee [DBSI]; (3) the tippee traded in securities while in possession of the information; (4) the tippee knew or should have known that the tipper had violated a fiduciary duty by providing the information to the tippee; and (5) the tippee benefitted from the disclosure of the information by the tipper” (Securities & Exch. Commn. v Franco, 253 F Supp 2d 720, 726 [SD NY 2003]).

In Securities & Exch. Commn. v de Castilla (184 F Supp 2d 365, 376 [SD NY 2002]), the Securities and Exchange Commission (SEC) opposed the defendants’ motion for summary judgment on insider trading claims. The SEC had no “direct” evidence of the existence of “inside information,” but was relying on “the circumstances, the timing, and the nature of the relationships” (id.). The court described the case as follows:

“Prior to the tender offer announced on January 24, 2000, the market had started to move, with trading increasing 110% on January 19 over the previous day’s volume and more than doubling over the next two days. Whether this movement resulted from inside information, market perception, or shrewd judgment was the issue presented to the SEC. Certainly the circumstantial evidence warranted the investigation. Only after full discovery could [defendant’s] knowledge, or lack of it, be determined” (id.).

While the court in de Castilla granted summary judgment to the defendants because there was direct evidence that they could, not have had inside information at the time of the attacked purchases, this does not detract from the message of the case. Insider trading claims often rely on circumstantial evidence and require “full discovery” (see also Securities & Exch. Commn. v Hahn Truong, 98 F Supp 2d 1086, 1098 [SD NY 2000] [“The summary judgment tool filters out cases in which plaintiffs rely entirely upon conclusory assertions and speculative allegations to state a claim for relief. After a respectable period of time for discovery through interrogatories, requests for admissions, requests for the production of documents, and depositions, reliance upon pure speculation is unacceptable. Plaintiffs are required to garner either direct or circumstantial evidence to back up their legal claims” (internal quotation marks and citation omitted)]; Azurite Corp. Ltd. v Amster & Co., 844 F Supp 929 [SD NY 1994] [dismissing insider trading claims only after allowing full discovery], affd 52 F3d 15 [2d Cir 1995]).

Although “[t]he timing of the trade as ‘evidence’ of impropriety does not of itself create a triable issue of fact regarding illegal conduct by DBSI” (majority op at 74), MBOI does not rely solely on timing. MBOI presented evidence showing that the price DBSI offered for MBOI’s Pennzoil bonds on March 25, 2002 — $94,669 per $100 face value — was above the fair market value for these junk bonds. Specifically, the Bloomberg Professional service’s estimate of fair market value did not exceed $91.81 per $100 face value during the period January 25, 2002 through March 25, 2005.

Moreover, MBOI did not simply invent the insider trading defense after DBSI sued for breach of contract. On March 26, 2002, MBOI immediately informed DBSI that “[Y]ou need to break the trade — the buyer had inside information” and that the trade was therefore “unethical & probably illegal.” MBOI certainly may have been mistaken, but it has never had an adequate opportunity to investigate its legitimate suspicions through discovery (see e.g. Jered Contr. Corp. v New York City Tr. Auth., 22 NY2d 187, 194 [1968] [“It is almost impossible to state in detail the circumstances constituting a fraud where those circumstances are peculiarly within the knowledge of the party against whom the defense is being asserted”]). This is because DBSI did not respond fully to MBOI’s interrogatories, and moved for summary judgment while MBOI’s demand for depositions was pending.

While comity does not require us to dismiss this claim, comity does call upon us to afford the benefit of the doubt to MBOI, a sister state’s agency charged with oversight over state pension and other state funds. Based, among other things, on DBSI’s representation that it could “trade the balance [of Pennzoil bonds] with one phone call,” MBOI believes that DBSI was buying, at least in part, for a client. If DBSI was, indeed, trading for a client, it was clearly premature to dismiss MBOI’s insider trading defense based on the affidavits of DBSI’s employee and former employee, who could only (and unsurprisingly did) deny their own advance knowledge of Shell Oil Company’s acquisition of Pennzoil. In short, MBOI deserves the opportunity, at the very least, to depose these two witnesses and to obtain meaningful responses to its outstanding discovery demands.

Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and R.S. Smith concur with Chief Judge Kaye; Judge Read dissents in part in a separate opinion.

Order affirmed, etc.

      . The Appellate Division granted MBOI leave to appeal, certifying to us the following question: “Was the order of this Court, which reversed the order of Supreme Court, properly made?”

      . Although we do not consider whether MBOI is “doing business” in New York such that it was “present” here (see CPLR 301), we note that, in the year preceding the transaction at issue, MBOI purchased approximately $471 million worth of securities directly from the New York offices of various entities in the securities industry.

      . While disagreeing with the Appellate Division, the dissent cannot demonstrate that the Court’s decision to deny additional discovery was an abuse of discretion (see CPLR 3212 [f]). MBOI, in short, has not raised the “doubt” that would entitle it to the benefit of full (or fuller) discovery. This is not, as the dissent suggests, a question of comity (dissenting op at 76-77). Comity does not include favoritism in the application of our discovery rules when another state is involved in litigation here.


source: Caselaw Access Project

author: Ciparick, J.

license: Public Domain

text:
    [850 NE2d 647, 817 NYS2d 600]
    Sung Hwan Co., Ltd., Appellant, v Rite Aid Corporation, Respondent.
    Argued April 26, 2006;
    decided June 6, 2006

      POINTS OF COUNSEL

      Herzfeld & Rubin, P.C., New York City (David B. Hamm, Herbert Rubin, Ian Ceresney, Martin Evans, Michael Gallub and Linda M. Brown of counsel), for appellant.
    I. The 1995 sales agreement and Korean court file, far from conclusively establishing a defense to plaintiff’s claims as a matter of law, demonstrate that the Korean court properly exercised jurisdiction over Rite Aid Corporation. At a minimum, issues of fact were raised as to jurisdiction, mandating reinstatement of the complaint and the conduct of discovery proceedings. (511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144; LaMarca v Pak-Mor Mfg. Co., 95 NY2d 210; Adams v Bodum Inc., 208 AD2d 450; Kappas v T.W. Kutter, Inc., 192 AD2d 402; Kernan v Kurz-Hastings, Inc., 175 F3d 236; Leon v Martinez, 84 NY2d 83; Peterson v Spartan Indus., 33 NY2d 463; CIBC Mellon Trust Co. v Mora Hotel Corp., 100 NY2d 215; Napolitano v Mastic Bicycles & Fitness Co., 279 AD2d 461; Federal Ins. Co. v Chevalier Mach., 258 AD2d 904.) II. The Korean court had more than sufficient basis to sustain its exercise of personal jurisdiction over defendant. (Walker v Pepsico, Inc., 248 AD2d 1015; LaMarca v Pak-Mor Mfg. Co., 95 NY2d 210; Adams v Bodum Inc., 208 AD2d 450; Darienzo v Wise Shoe Stores, 74 AD2d 342; Greschler v Greschler, 51 NY2d 368; LBS Bank-New York v Yutex, Inc., 283 AD2d 281; Harris S.A. De C.V. v Grupo Sistemas Integrales De Telecomunicacion S.A. De C.V., 279 AD2d 263; Aspinall’s Club v Aryeh, 86 AD2d 428; Neporany v Kir, 5 AD2d 438.)

      Morgan, Lewis & Bockius, LLP, New York City and Washington, D.C. (Peter Buscemi, John E. Failla, Joseph Brooks, Brian A. Herman and Joshua Pepper of counsel), for respondent.
    I. Under CPLR 5304, the Korean judgment is not conclusive and cannot be recognized or enforced. (CIBC Mellon Trust Co. v Mora Hotel Corp., 296 AD2d 81, 100 NY2d 215, 540 US 948; Porisini v Petricca, 90 AD2d 949.) II. The sales agreement and Korean court file demonstrate conclusively that under New York principles, the Korean court did not have personal jurisdiction over Rite Aid Corporation. (Bank Brussels Lambert v Fiddler Gonzalez & Rodriguez, 171 F3d 779; Evans v Planned Parenthood of Broome County, 43 AD2d 996; Armco Inc. v North Atl. Ins. Co. Ltd., 68 F Supp 2d 330; PI, Inc. v Quality Prods., Inc., 907 F Supp 752; CIBC Mellon Trust Co. v Mora Hotel Corp., 296 AD2d 81, 100 NY2d 215, 540 US 948; East River S. S. Corp. v Transamerica Delaval Inc., 476 US 858; 532 Madison Ave. Gourmet Foods v Finlandia Ctr., 96 NY2d 280; Bocre Leasing Corp. v General Motors Corp. [Allison Gas Turbine Div.], 84 NY2d 685; New York Univ. v Continental Ins. Co., 87 NY2d 308; Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382.) III. The trial court acted within its discretion in denying discovery to Sung Hwan Co. (Peterson v Spartan Indus., 33 NY2d 463.)
   OPINION OF THE COURT

Ciparick, J.

Plaintiff seeks enforcement of a foreign money judgment under CPLR article 53 — recognition of foreign country money judgments — that was entered by the District Court of Seoul, Republic of Korea. Defendant argues that the Korean court was without jurisdiction, as the judgment was based on a cause of action that, although cast in terms of tort, would be considered a breach of contract claim in New York and would therefore not qualify as a basis for CPLR 302 long-arm jurisdiction. The fact that a foreign country’s substantive law differs from New York law, plaintiff counters, is not a sufficient basis for the nonrecognition of its judgments, and the principles of comity warrant mutual respect of such judgments if jurisdiction is otherwise proper. We agree with plaintiff that defendant failed to demonstrate that the Korean court’s exercise of jurisdiction is not entitled to comity. We therefore reinstate the complaint.

In 1995, Sangshin Trading Co., a Korean exporter/importer of dairy products, entered into a sales agreement in California to purchase large quantities of ice cream from Thrifty Payless, Inc., an ice cream manufacturer. The contract provided that Sangshin would accept delivery of the ice cream in California and that it would be resold only in Korea. The contract had an initial term of one year and automatically renewed itself annually with an opportunity for Sangshin to obtain exclusive agency status if more than 32,000 gallons of ice cream were purchased in the first year.

Plaintiff, Sung Hwan Co., is a Korean company that operates a chain of Thrifty brand ice cream stores throughout Korea. Sung Hwan contracted with Sangshin for the purchase of Thrifty ice cream for sale in its 340 stores. Upon Sung Hwan’s entering into the market, gross sales of Thrifty ice cream in Korea grew from approximately $50,000 in 1995 to over $7,000,000 in 1996. However, sales rapidly declined in late 1997 after a highly publicized discovery by the Korean government of listeria monocytogenes in Thrifty brand ice cream. Initially, the Korean government announced that it had found excessive levels of listeria in two flavors of Thrifty ice cream. However, upon additional testing, the Korean Food and Drug Administration found listeria in six flavors of Thrifty ice cream. As a result, the Korean government sent Sung Hwan notice recalling the six flavors and halting sales of all Thrifty ice cream pending further testing.

After suffering a sudden drop in business, Sung Hwan sent several letters to Thrifty seeking assistance in handling the ramifications of the listeria problem but allegedly received no response. In December 1997, Sung Hwan again sent Thrifty a letter but this time detailed its claims for compensation for loss of business as well as for losses related to the nonmarketable ice cream stock left in its warehouses. Rite Aid, which had purchased Thrifty Payless, Inc. in 1997, responded by having its general counsel meet with Sung Hwan’s attorneys in San Francisco in March 1998 for settlement negotiations. Rite Aid requested Korean testing details, which plaintiff provided, but no reply or offer of settlement was forthcoming.

Sung Hwan ultimately filed a complaint against Rite Aid in Seoul District Court seeking, among other things, “Liability for Damages Based Upon Torts.” The complaint and a translated version were served on Rite Aid at its corporate headquarters in Harrisburg, Pennsylvania. However, Rite Aid failed to respond and on February 9, 2001, a default judgment was entered in Korea on the tort claim against Rite Aid for 5.5 billion Korean won (approximately $5,000,000).

Upon entry of the judgment, Sung Hwan sought enforcement in New York under CPLR article 53. In June 2001, Sung Hwan moved for summary judgment in lieu of complaint. The court denied the motion, finding unresolved issues of fact regarding the relationship between Thrifty and Rite Aid, and ordered the filing of a formal complaint. After the filing of a complaint, answer and amended complaint, Rite Aid moved for dismissal pursuant to CPLR 3211 (a) (1) and (7) and 5304 (a) (2). Supreme Court granted Rite Aid’s motion and dismissed the complaint, foreclosing entry of a New York judgment based on the Korean judgment. The Appellate Division affirmed, stating that there was no cognizable basis for asserting personal jurisdiction over Rite Aid. We granted leave and now reverse.

“New York has traditionally been a generous forum in which to enforce judgments for money damages rendered by foreign courts” (CIBC Mellon Trust Co. v Mora Hotel Corp., 100 NY2d 215, 221 [2003]). Historically, New York courts have accorded “recognition to the judgments rendered in a foreign country under the doctrine of comity . . . [a]bsent some showing of fraud in the procurement of the foreign country judgment or that recognition of the judgment would do violence to some strong public policy of this State” (Greschler v Greschler, 51 NY2d 368, 376 [1980] [citation omitted]). The public policy inquiry rarely results in refusal to enforce a judgment unless it is “inherently vicious, wicked or immoral, and shocking to the prevailing moral sense” (Intercontinental Hotels Corp. [Puerto Rico] v Golden, 15 NY2d 9, 13 [1964]).

In accordance with this rationale, CPLR article 53, the Uniform Foreign Country Money-Judgments Recognition Act, was enacted in 1970 to “promote the efficient enforcement of New York judgments abroad by assuring foreign jurisdictions that their judgments would receive streamlined enforcement here” (CIBC Mellon Trust Co., 100 NY2d at 221). CPLR 5302 states that the “article applies to any foreign country judgment which is final, conclusive and enforceable where rendered.” CPLR 5303 declares that such judgments are enforceable except as provided in CPLR 5304. As relevant here, CPLR 5304 (a) (1) articulates our common-law jurisprudence that a foreign judgment is not conclusive if it “was rendered under a system which does not provide impartial tribunals or procedures compatible with the requirements of due process of law,” and CPLR 5304 (a) (2) states that a foreign judgment will not be recognized if the foreign court did not have personal jurisdiction over the judgment debtor. CPLR 5305, entitled “Personal jurisdiction,” in turn, enumerates six bases for jurisdiction as well as a catchall phrase providing that “[t]he courts of this state may recognize other bases of jurisdiction” (CPLR 5305 [b]).

Thus, the inquiry turns on whether exercise of jurisdiction by the foreign court comports with New York’s concept of personal jurisdiction, and if so, whether that foreign jurisdiction shares our notions of procedure and due process of law. If the above criteria are met, and enforcement of the foreign judgment is not otherwise repugnant to our notion of fairness, the foreign judgment should he enforced in New York under well-settled comity principles without microscopic analysis of the underlying proceeding.

When addressing CPLR article 53, absent a finding of personal jurisdiction under CPLR 5305 (a), our courts have typically looked to the framework of CPLR 302, New York’s long-arm statute, using it as a parallel to assess the propriety of the foreign court’s exercise of jurisdiction over a judgment debtor (see CPLR 5305 [b]; CIBC Mellon Trust Co. v Mora Hotel Corp., 296 AD2d 81, 96-97 [1st Dept 2002], affd 100 NY2d 215 [2003]; Wimmer Can. v Abele Tractor & Equip. Co., 299 AD2d 47, 49-50 [3d Dept 2002]; Porisini v Petricca, 90 AD2d 949, 950 [4th Dept 1982]). Under CPLR 5305 (b) courts have recognized the validity of a foreign judgment using any of the jurisdictional bases New York recognizes. One such basis is CPLR 302 (a), which states:

“a court may exercise personal jurisdiction over any non-domiciliary . . . who in person or through an agent: . . .
“3. commits a tortious act without the state causing injury to person or property within the state ... if he
“(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or
“(ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.”

In LaMarca v Pak-Mor Mfg. Co. (95 NY2d 210, 214 [2000]) we identified five elements for predicating jurisdiction under CPLR 302 (a) (3) (ii):

“First, that defendant committed a tortious act outside the State; second, that the cause of action arises from that act; third, that the act caused injury to a person or property within the State; fourth, that defendant expected or should reasonably have expected the act to have consequences in the State; and fifth, that defendant derived substantial revenue from interstate or international commerce.”

Thus, in New York, jurisdiction can be premised on commission of a tortious act “out of the state” causing injury “within the state,” and the specific inquiry here is whether Korea’s exercise of jurisdiction over Rite Aid was consistent with New York law. For purposes of this inquiry, Korea is “the state” referenced in CPLR 302 (a) (3) and the issue turns on whether Sung Hwan sufficiently alleged that Rite Aid committed “a tortious act” outside Korea, causing injury within Korea.

Rite Aid here contests only the first element, that a tortious act occurred. Specifically, Rite Aid argues that Sung Hwan’s claim is nothing more than an allegation of breach of contract under the guise of a tort since New York does not award economic damages for a tort cause of action, and accordingly falls outside the scope of CPLR 302 (a) (3).

Sung Hwan, on the other hand, argues that Rite Aid’s ice cream was defective and that Rite Aid negligently breached its duty of care to properly test the products for contaminants before placing its product — manufactured in California — into the stream of commerce, ultimately causing loss of inventory and business in Korea. The Korean court ruled in favor of Sung Hwan and found that the conduct was tortious under Korean law in that

“[djefendant, as a manufacturer of ice cream, has a duty of care to test and examine whether the subject ice cream includes Listeria or any other bacteria causing of food poisoning or harmful to the health, [defendant] was negligent in failing to exercise such duty by selling the goods containing Listeria to the plaintiff, and thus such negligence caused damages

Rite Aid erroneously focuses on the remedy sought — damages for economic loss — in arguing that no tortious act occurred since New York does not allow recovery for economic loss based on negligence. This argument is contrary to our case law and would undermine the principles of comity by supplanting New York substantive law in place of that of the foreign jurisdiction. As stated in Sybron Corp. v Wetzel (46 NY2d 197, 205 [1978]), “[CPLR 302], drafted by sophisticated experts, does not limit the kinds of tortious acts covered to personal injury, property damage, or other noncommercial torts. Under such circumstances the statute should be read with the breadth it easily carries, and the unqualified legislative enactment respected.” In Sybron, this Court held that a tortious act committed out of state that was likely to cause injury through loss of business in state was sufficient to satisfy personal jurisdiction regardless of whether damages were ascertainable or likely recoverable (id. at 204-205). This is directly analogous to Sung Hwan’s claims here.

Furthermore, as conceded by the parties, had plaintiff been an individual who brought suit for personal injury resulting from listeria poisoning, jurisdiction would plainly exist. We see no reason why jurisdiction should be denied merely because a plaintiff is relying on a theory of economic loss resulting from a tortious act rather than seeking compensation for personal injury resulting from that same tortious act.

For purposes of establishing long-arm jurisdiction, a tort should be broadly defined to encompass one that causes economic injury. Certainly such recovery, although not recognized in New York, is neither repugnant to our public policy nor offensive to our notions of fairness (see Greschler, 51 NY2d at 376). The argument that New York generally fails to recognize economic loss as a basis for damages in proceedings based on tort is immaterial (cf. Loucks v Standard Oil Co. of N.Y., 224 NY 99, 110-111 [1918] [“If a foreign statute gives the right, the mere fact that we do not give a like right is no reason for refusing to help the plaintiff in getting what belongs to him. We are not so provincial as to say that every solution of a problem is wrong because we deal with it otherwise at home”]). To hold otherwise would undermine the fundamental principles of comity by interfering with the acts of a foreign jurisdiction’s legislature or judicial body (see Hilton v Guyot, 159 US 113, 163-164 [1895]). Here, although Korean law appears more expansive than New York law in imposing liability for economic loss under a tort theory, we see no reason to foreclose the use of CPLR 302 (a) (3) as a basis for Korea’s exercise of personal jurisdiction over Rite Aid merely because of this difference in the substantive tort law of the two jurisdictions.

Thus, we conclude that the lower courts erred in granting Rite Aid’s motion to dismiss the complaint for lack of personal jurisdiction. We need not reach the parties’ remaining arguments.

Accordingly, the order of the Appellate Division should be reversed, with costs, defendant’s motion to dismiss the complaint denied and the matter remitted to Supreme Court for further proceedings.

Chief Judge Kaye and Judges G.B. Smith, Rosenblatt, Graffeo, Read and R.S. Smith concur.

Order reversed, etc.

      . The parties are in dispute as to whether Thrifty is a subsidiary or division of Rite Aid. Sung Hwan asserts that Thrifty is a division of Rite Aid as indicated by the letterhead on correspondence between the parties. Rite Aid alleges that the Thrifty brand is merely a subsidiary. For purposes of this motion to dismiss, Rite Aid’s status as a separate legal entity is not at issue.

      . Under article 27 (now article 30) of the Korea Civil Procedure Act, a party may make a special appearance solely for the purpose of contesting jurisdiction.


author: Rosenblatt, J.

text:
    [850 NE2d 661, 817 NYS2d 614]
    The People of the State of New York, Respondent, v Shawn Kennedy, Appellant.
    Argued May 3, 2006;
    decided June 6, 2006

      POINTS OF COUNSEL

      Muldoon & Getz, Rochester (Gary Muldoon of counsel), for appellant.
    I. The 2002 amendment to the Sex Offender Registration Act is inapplicable to appellant, whose offense date preceded the effective date of the amendment. (Matter of Coram v Board of Examiners, Sex Offender Registry of State of N.Y., 195 Misc 2d 392; Doe v Pataki, 120 F3d 1263.) II. The lesser-included offense that appellant was convicted of is not a “sex offense” within the meaning of the Sex Offender Registration Act. (People v Gonzalez, 61 NY2d 586; Matter of Nadel, 188 Misc 2d 427; People v Millan, 295 AD2d 267; People v Hicks, 155 Misc 2d 209.) III. As a matter of law, appellant’s classification level is no greater than level one. (Matter of New York State Bd. of Examiners of Sex Offenders v Ransom, 249 AD2d 891; People v Brown, 7 AD3d 831; People v Madlin, 302 AD2d 751; People v Bell, 3 Misc 3d 773; People v Paulman, 5 NY3d 122; People v Damiano, 87 NY2d 477.)

      Michael C. Green, District Attorney, Rochester (Margaret A. Jones of counsel), for respondent.
    The Fourth Department correctly affirmed the trial court’s determination that defendant is a level two sex offender under Megan’s Law. (Matter of Coram v Board of Examiners, Sex Offender Registry of State of N.Y., 195 Misc 2d 392; Doe v Pataki, 120 F3d 1263; Matter of Booth v Clary, 83 NY2d 675; People v Benjamin, 22 NY2d 723.)

      Brenna & Brenna, PLLC, Rochester (Donald G. Rehkopf, Jr., of counsel), for New York State Association of Criminal Defense Lawyers, amicus curiae.
    I. As applied to appellant under the circumstances of this case, he was denied the constitutional process that he was due. (Harner v County of Tioga, 5 NY3d 136; People v David W., 95 NY2d 130; People v Brooksvasquez, 24 AD3d 644; People v Santi, 3 NY3d 234; United States ex rel. Toth v Quarles, 350 US 11; Doe v Pataki, 120 F3d 1263, 3 F Supp 2d 456.) II. This Court should exercise its supervisory authority and remand this case to County Court with instructions to supplement the record with the necessary documentation to decide this case in a fundamentally fair way, so as to provide necessary and appropriate guidance for courts and counsel in cases involving military convictions. (Corkum v Bartlett, 46 NY2d 424; McNabb v United States, 318 US 332; Matter of Sanford v Rockefeller, 35 NY2d 547; People v David W., 95 NY2d 130; Doe v Pataki, 120 F3d 1263, 3 F Supp 2d 456.)
   OPINION OF THE COURT

Rosenblatt, J.

Ten years ago, the Legislature enacted the Sex Offender Registration Act (SORA), which required certain sex offenders to register with the Division of Criminal Justice Services within 10 calendar days after discharge from incarceration, parole or other release (Correction Law § 168-f). The legislation created procedures to weigh the threat posed by the offender’s release and classifications geared to the offender’s risk level. SORA contemplates three levels of risk, from level one (the lowest) to level three, with reporting requirements increasing for each level (Correction Law § 168-Z [6] [a]-[c]). A five-member Board of Examiners of Sex Offenders is charged with the responsibility for developing risk assessment guidelines and recommending to a sentencing court the risk level involved upon the release of an offender (Correction Law § 168-Z).

Pursuant to Correction Law § 168-a (2) (d), certain defendants convicted of sex offenses in other jurisdictions must register as sex offenders in New York. The case before us involves the application of this subsection to defendant’s United States Navy court-martial, following which the Board recommended, and County Court determined, that he be classified a level two sex offender under Correction Law § 168-a (2) (d) (ii). We agree with defendant that this determination must be vacated.

Defendant was convicted in 2000 by a general court-martial under a generic provision in the Uniform Code of Military Justice prohibiting, among other things, “all conduct of a nature to bring discredit upon the armed forces” (10 USC § 934). Within the general statutory provision, defendant seems to have been convicted of the specific regulatory offense of “indecent assault.” The Navy apparently sentenced defendant to a bad conduct discharge and reduction in pay grade, but no fine or term of imprisonment.

Because the record in this case is incomplete and sometimes inconsistent, we cannot be certain as to the basis of defendant’s conviction. One document before us, apparently from the regional commander, indicates that defendant’s conviction was for “indecent assault” under the general provision in 10 USC § 934. The crime has also been described as a lesser-included offense under the military crime of rape (10 USC § 920). Contrastingly, a separate postconviction report from the military prosecutor, closer in time to the trial, suggests that defendant was convicted of ordinary assault (10 USC § 928). Furthermore, we have not been furnished with an authoritative description of the elements of “indecent assault.” A single page in the record, neither dated, titled, nor authenticated, purports to list the elements, but does not indicate whether those elements are legally prerequisite to the offense. Nevertheless, for purposes of this decision, we will assume that defendant violated 10 USC § 934, that his crime was indecent assault and that the elements of indecent assault are as described in United States v Watson (31 MJ 49, 53 [CMA 1990]):

“(1) [t]hat the accused assaulted a certain person not the spouse of the accused in a certain manner;
“(2) [t]hat the acts were done with the intent to gratify the lust or sexual desires of the accused; and
“(3) [t]hat, under the circumstances, the conduct of the accused was to the prejudice of good order and discipline in the armed forces . . . .” (Emphasis omitted.)

The Appellate Division held that the military crime of indecent assault satisfies the requirements in Correction Law § 168-a (2) (d) (ii) (mandating registration for those convicted of “a felony in any other jurisdiction for which the offender is required to register as a sex offender in the jurisdiction in which the conviction occurred”). Even though military law does not classify offenses as felonies or misdemeanors, the Court reasoned that indecent assault is a federal felony and that defendant was required to register as a sex offender with naval authorities. We granted defendant leave to appeal and now reverse.

Correction Law § 168-a (2) (d) specifies particular federal crimes that require registration (see § 168-a [2] [d] [iii]); undisputedly, indecent assault is not among them. The section also mandates that the offender register if the crime of conviction in the other jurisdiction “includes all of the essential elements of any such crime provided for” in the statutory sections referring to convictions obtained in New York (§ 168-a [2] [d] [i]).

The People have conceded that they are not relying on that subsection, but solely on section 168-a (2) (d) (ii), which provides that an offender must register when convicted of “a felony in any other jurisdiction for which the offender is required to register as a sex offender in the jurisdiction in which the conviction occurred” (§ 168-a [2] [d] [ii]). There are two elements to this subsection: first, the underlying offense must be a felony; second, the offender must be required to register as a sex offender in the other jurisdiction as a result of that conviction.

As to the first element, the People argue that indecent assault can result in a sentence of up to five years’ imprisonment, and is therefore equivalent to a federal felony (see 18 USC § 3559 [a] [4] [labeling crimes punishable by from 5 to just under 10 years’ imprisonment class D felonies]).

Assuming that indecent assault qualifies as a felony within the meaning of our statute, County Court’s determination fails because the second element of section 168-a (2) (d) (ii) requires that the conviction result in the offender’s obligation to register in the “other jurisdiction,” i.e., where defendant was convicted— here, the United States Navy. The People argue that Secretary of the Navy Instruction 5800.14 obligates defendant to register with the Navy. It does not. This “Instruction” is a notification order directed to “All Ships and Stations”; by its own terms, it places responsibility to provide notification not on the offender but on the Assistant Secretary of the Navy (Manpower and Reserve Affairs), the Navy Personnel Command, the Commandant of the Marine Corps, the “Convening Authority or Convening Authority’s Designee” for each court-martial, the Naval Criminal Investigative Service and the Judge Advocate General of the Navy.

The People have presented no evidence of any kind suggesting that naval sex offenders must register with the Navy or have any ongoing obligation to keep the Navy informed of their whereabouts once they leave the service. Furthermore, the People have presented no evidence that the Navy or Department of Defense maintains any registry or equivalent database; if there is no registry, there can be no registration and no registrants. Because the People have not shown that defendant ever had any obligation to register with the other jurisdiction, they have not met the second statutory requirement for registration in New York.

On the state of this record, we are unprepared to say whether, in a new proceeding, the People may be able to sustain a declaration that defendant must register in New York. Unless amended, section 168-a (2) (d) (ii) might not apply to any military convictions and we agree with our concurring colleague’s suggestion that the Legislature examine the issue. We note, however, that section 168-a (2) (d) (i) remains available (even for military offenders) if the People can prove the crime of conviction in the other jurisdiction includes all of the essential elements provided for in the New York statutes described in that subsection.

The order of the Appellate Division should be reversed, without costs, and defendant’s adjudication as a sex offender annulled.

Graffeo, J. (concurring). I agree with the reversal in this case based on a plain language analysis of Correction Law § 168-a (2) (d). But because I do not believe that the Legislature intended to exclude certain military courts-martial premised on sex crimes from the reach of the Sex Offender Registration Act (SORA), I write separately to highlight the need for legislative reconsideration.

The statute at issue — Correction Law § 168-a (2) (d)— designates several categories of New York residents who must register under SORA if they have been convicted of particular crimes in other jurisdictions. Registration is required for enumerated federal offenses (see Correction Law § 168-a [2] [d] [in]) and for an offense in another jurisdiction that contains the same “essential elements” as a New York crime that is register-able under SORA (Correction Law § 168-a [2] [d] [i]). As the Court notes, neither of these categories is implicated here. Rather, the People claim that defendant is covered by subdivision (2) (d) (ii), which requires registration for “a felony in any other jurisdiction for which the offender is required to register as a sex offender in the jurisdiction in which the conviction occurred.”

Pursuant to this provision, the crucial inquiry is whether the jurisdiction where defendant was convicted of a felony required registration as a sex offender for that crime. It is apparent from the record in this case that the United States Navy does not have a registry of sex offenders similar to those maintained by the states. Instead, Navy regulations, promulgated under the directives of Congress and the Secretary of Defense (see Pub L 105-119, tit I, § 115 [a] [8] [C], 111 US Stat 2466), merely require naval personnel to establish a program for notifying a jurisdiction that a discharged individual who relocates to that state has been subject to a court-martial for a qualifying sex offense (see Secretary of Navy Instruction 5800.14). Notification, however, is not akin to registration and without a formal registration requirement, a court-martial based on any of the offenses delineated in the Secretary’s Instruction is not encompassed within the ambit of Correction Law § 168-a (2) (d) (ii). Consequently, New York’s SORA does not mandate that defendant register as a sex offender for the indecent assault court-martial under article 134 of the Uniform Code of Military Justice (10 USC § 934), despite the fact that the Secretary of the Navy classifies that offense as one serious enough to warrant notification to state and local law enforcement officials.

Although the technical operation of section 168-a (2) (d) (ii) relieves defendant, and others similarly situated, from registration, this result is inconsistent with the intent of both federal and state law. The Jacob Wetterling Crimes Against Children and Sexually Violent Offender Registration Act (Pub L 103-322, tit XVII, subtit A, § 170101, 108 US Stat 2038, as amended, codified at 42 USC § 14071) expressly provides that “each State . . . shall ensure that procedures are in place to accept registration from . . . residents who were . . . sentenced by a court martial” for a sex offense (42 USC § 14071 [b] [7] [A]). In order to comply with this requirement, the Legislature amended various provisions of SORA to expand its reach (see L 2002, ch 11, Governor’s Program Bill Mem No. 102, 2002 NY Legis Ann, at 7). This case, however, highlights the existence of a loophole in Correction Law § 168-a (2) (d) (ii) that prevents registration of an individual who is discharged by court-martial for a crime that is specifically classified by the Navy as a sex offense.®

It is true that section 168-a (2) (d) (ii) does not allow all courtmartialed sex offenders to escape registration since subdivision (2) (d) (i) encompasses crimes in other jurisdictions that have the same “essential elements” as sex offenses under New York’s Penal Law. But the extent to which the essential elements standard closes the loophole is far from certain at this juncture because New York appellate courts have not had occasion to examine whether specific sex offenses in the Uniform Code of Military Justice qualify under the essential elements provision. Rather than relegating to the courts of this state the task of determining on a case-by-case basis whether a particular court-martial satisfies the essential elements test — and risking the chance that it will not — the Legislature should examine whether SORA needs to be amended to expressly include courts-martial based on crimes designated by the military as sex offenses.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Graffeo, Read and R.S. Smith concur with Judge Rosenblatt; Judge Graffeo concurs in a separate opinion.

Order reversed, etc.

      . L 1995, ch 192, § 2, eff Jan. 21, 1996, codified in Correction Law § 168 et seq.

      . That section defines a registerable sex offense as
      “a conviction of (i) an offense in any other jurisdiction which includes all of the essential elements of any such crime provided for in paragraph (a), ft)) or (c) of this subdivision or (ii) a felony in any other jurisdiction for which the offender is required to register as a sex offender in the jurisdiction in which the conviction occurred or, (iii) any of the provisions of 18 U.S.C. 2251, 18 U.S.C. 2251A, 18 U.S.C. 2252, 18 U.S.C. 2252A, or 18 U.S.C. 2260, provided that the elements of such crime of conviction are substantially the same as those which are a part of such offense as of the date on which this subparagraph takes effect.” (Correction Law § 168-a [2] [d].)

      . The record is not entirely clear as to the final sentence imposed upon defendant. The People refer to a “General Court-Martial Order No. 1-01,” issued by the Commander, Navy Region Northeast as the final official statement of defendant’s conviction and sentence. That document, however, was issued more than a year after the trial and cannot be analogous to a verdict sheet. It refers on its face to a transfer of the case records to the “Navy-Marine Corps Appellate Review Activity,” with no explanation as to why, or as to what happens at that level.

      . All 50 states have some type of sex offender registration system (see e.g. Smith v Doe, 538 US 84, 90 [2003]). For a comprehensive list of each state’s registration requirements, penalties for failure to properly register and relevant enabling legislation, see Westlaw 50 State Surveys, Surveys of Criminal Laws, Sex Offender Registration (West 2006).

      . According to this instruction, “[c]onvictions of any of the following offenses punishable under the Uniform Code of Military Justice (UCMJ) shall trigger requirements to notify State and local law enforcement agencies and to provide information to inmates concerning sex offender registration requirements”: rape; carnal knowledge; forcible sodomy; sodomy of a minor; conduct unbecoming an officer involving any sexually violent offense or a criminal offense of a sexual nature against a minor or kidnapping of a minor; prostitution involving a minor; indecent assault; assault with intent to commit rape; assault with intent to commit sodomy; indecent act with a minor; indecent language to a minor; kidnapping of a minor by a person other than a parent; indecent exposure committed in the presence of a minor, depositing obscene materials involving minors in the mail and pandering involving minors; conduct prejudicial to good order and discipline involving any sexually violent offense or a criminal offense of a sexual nature against a minor or kidnapping of a minor; conviction under federal or assimilated state law for offenses of sexual violence or of a sexual nature against or involving a minor, including the production, possession or transmission of pornography that depicts a minor, or kidnapping a minor; or an attempt, conspiracy or solicitation to commit any of the aforementioned offenses. The Secretary’s Instruction was updated in 2005 but the designated offenses were not changed (see Secretary of Navy Instruction 5800.14A [May 24, 2005]). Not all of these offenses may be comparable to felony crimes in New York.

      . While there may be conflicting information in the record regarding the offense for which defendant was court-martialed, he concedes in his brief that he was found to have committed indecent assault.

      . Megan’s Law, a 1996 amendment to the Wetterling Act, required the states to adopt procedures for notifying a community that a sex offender resides in the area (see Pub L 104-145, 110 US Stat 1345).

      . As defendant notes in his brief, the elements of indecent assault most closely resemble the New York crime of forcible touching (see Penal Law § 130.52) and a conviction of that crime does not require registration in New York (see Correction Law § 168-a [2] [a], [b], [c]). Nevertheless, if another jurisdiction classifies forcible touching as a felony for which registration is required, the Legislature has adopted a policy of requiring a person convicted of such an offense who moves into this state to register even though the same conduct committed here would not be registerable (see Correction Law § 168-a [2] [d] [ii]).

      . Compare e.g. Penal Law § 130.25 (2) (sexual intercourse between 21-year-old defendant and victim less than 17 years old constitutes rape in the third degree), with 10 USC § 920 (b) and (d) (defining “carnal knowledge” as nonforcible sexual intercourse with a child less than 16 years old, but providing an affirmative defense if the child was at least 12 years old and the perpetrator reasonably believed the child was at least 16 years old).


author: Gkaffeo, J.

text:
    [850 NE2d 653, 817 NYS2d 606]
    Fundamental Portfolio Advisors, Inc., et al., Appellants, v Tocqueville Asset Management, L.P., et al., Respondents.
    Argued May 3, 2006;
    decided June 6, 2006

      POINTS OF COUNSEL

      Folkenflik & McGerity, New York City (Max Folkenflik of counsel), for appellants.
    I. The Appellate Division majority decision misapplied the law in finding “waiver” of the noncompete agreement. (General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist. 85 NY2d 232; Alsens Am. Portland Cement Works v Degnon Contr. Co., 222 NY 34; Jefpaul Garage Corp. v Presbyterian Hosp. in City of N.Y., 61 NY2d 442; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966; Excel Graphics Tech. v CFG/AGSCB 75 Ninth Ave., 1 AD3d 65, 2 NY3d 794; Cobble Hill Nursing Home v Henry & Warren Corp., 74 NY2d 475; Matter of Express Indus. & Term. Corp. v New York State Dept. of Transp., 93 NY2d 584; Imperator Realty Co. v Tull, 228 NY 447; Arnot v Union Salt Co., 186 NY 501; Toplitz v Bauer, 161 NY 325.) II. There is no basis for finding estoppel where there was no misrepresentation and plaintiffs-appellants only refused to conclude an agreement when defendants-respondents refused to pay. (Triple Cities Constr. Co. v Maryland Cas. Co., 4 NY2d 443; Lynn v Lynn, 302 NY 193; Metropolitan Life Ins. Co. v Childs Co., 230 NY 285; White v La Due & Fitch, Inc., 303 NY 122; Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175; Michaels v Travelers Indem. Co., 257 AD2d 828; Matter of E.F.S. Ventures Corp. v Foster, 71 NY2d 359; Byrne v Barrett, 268 NY 199; Wills v Investors Bankstocks Corp., 257 NY 451; Metropolitan Life Ins. Co. v Childs Co., 230 NY 285.) III. The uncontroverted evidence in the record proves that plaintiffs-appellants would have been retained by the Fundamental Funds or sold their business absent competition from the Tocqueville defendants.

      Seward & Kissel LLP, New York City (Mark J. Hyland and Charles M. Miller of counsel), for respondents.
    I. The Appellate Division properly affirmed the IAS court’s order granting summary judgment dismissing the complaint and denied appellants’ cross motion because there is no genuine issue of fact that appellants consented to and arranged for the Tocqueville defendants to “engage in business activity involving the funds” and therefore the 1996 agreement was not violated. (Teitelbaum Holdings v Gold, 48 NY2d 51; Fiore v Fiore, 46 NY2d 971; Continental Wall Paper Co. v Louis Voight & Sons Co., 212 US 227; Reed, Roberts Assoc. v Strauman, 40 NY2d 303; Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175; Oleg

      Cassini, Inc. v Couture Coordinates, Inc., 297 F Supp 821; General Elec. Co. v National Contr. Co., 178 NY 369; Bennett v North British & Mercantile Ins. Co. of London & Edinburgh, 81 NY 273; Alsens Am. Portland Cement Works v Degnon Contr. Co., 222 NY 34; General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232.) II. The Appellate Division properly found that appellants could not withdraw their consent after more than a year elapsed with respondents relying on it. (Seidel v 18 E. 17th St. Owners, 79 NY2d 735; Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175; Triple Cities Constr. Co. v Maryland Cas. Co., 4 NY2d 443; Lynn v Lynn, 302 NY 193; Metropolitan Life Ins. Co. v Childs Co., 230 NY 285; Holm v C.M.P. Sheet Metal, 89 AD2d 229; Townley v Emerson Elec. Co., 178 Misc 2d 740; AIU Ins. Co. v Unicover Mgrs., 282 AD2d 260; Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966; Matter of Heisler v Gingras, 90 NY2d 682.) III. Appellants are not entitled to recover in this action for additional reasons. (Riggs v Palmer, 115 NY 506; McConnell v Commonwealth Pictures Corp., 7 NY2d 465; Flegenheimer v Brogan, 284 NY 268; Walters v Fullwood, 675 F Supp 155; Contemporary Mission, Inc. v Bonded Mailings, Inc., 671 F2d 81; Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205; Kenford Co. v County of Erie, 67 NY2d 257, 73 NY2d 312; Tevdorachvili v Chase Manhattan Bank, 103 F Supp 2d 632; W.T. Grant Co. v Srogi, 52 NY2d 496; Schonfeld v Hilliard, 218 F3d 164.)
   OPINION OF THE COURT

Gkaffeo, J.

In furtherance of a proposed transfer of advisory responsibility over a group of mutual funds from plaintiffs to defendants in return for monetary compensation, the parties executed an agreement that precluded defendants from soliciting or engaging in business with the funds if the deal was not consummated. The primary issues before us in this breach of contract action are whether the record establishes — as a matter of law — that plaintiffs, by nurturing a business relationship between defendants and the funds, waived the right to enforce the non-compete agreement or should otherwise be estopped from relying on that provision. Because there are questions of fact that must be resolved before application of waiver and estoppel may be determined, we conclude that defendants are not entitled to summary judgment.

I

Beginning in the early 1980s, plaintiff Lance Brofman founded a group of five mutual funds collectively referred to as the Fundamental Funds. Brofman acted as president and chief portfolio strategist of the Funds, and was also the president and principal shareholder of the Funds’ investment management advisor, plaintiff Fundamental Portfolio Advisors, Inc. (FPA). Brofman’s partner in this venture was Vincent Malanga, who also served as an officer of FPA and was a member of the Funds’ boards of directors. Brofman and Malanga also controlled plaintiff Fundamental Service Corp., Inc. (FSC), which operated as the distributor for the Funds.

When the Funds were first created, Brofman invested the assets in securities that had relatively low risk. In 1993, when the Funds’ performance lagged compared to similar mutual funds, Brofman altered his investment strategies. Utilizing a more aggressive approach, he leveraged the assets of the Funds, making substantial investments in collateralized mortgage obligations (CMOs) and inverse floating-rate securities (inverse floaters), which were highly susceptible to changes in interest rates.

This new strategy initially proved to be successful. But in early 1994, the Federal Reserve raised interest rates, which caused the market for CMOs to quickly collapse and the value of inverse floaters to plummet. This took a dramatic toll on the performance of the Funds. For example, the net assets of the Fundamental US Government Strategic Income Fund, which approximated $60 million in June 1993, decreased to just over $30 million over the course of the following year. In addition, a leading market tracking service ranked that fund last in total returns out of 270 long-term government bond mutual funds.

As a result of Brofman’s change in investment tactics and the financial losses borne by the Funds, the management of the Funds came under scrutiny and, in 1995, the Securities and Exchange Commission (SEC) began to investigate Brofman, FPA and FSC. Concerned that the Funds’ boards of directors could remove FPA as advisor if regulatory problems persisted, Brofman and Malanga began exploring the possibility of transferring the management duties of the Funds to another investment advisory firm. In an attempt to locate a purchaser, in September 1996 Brofman and Malanga met with defendant Robert Kleinschmidt, president of defendant Tocqueville Asset Management, L.P (Tocqueville), and Christopher Culp, one of its officers and portfolio managers, to discuss the potential acquisition of FPA’s investment advisory assets.

Early in the course of their discussions, on September 24, 1996, Kleinschmidt and Culp executed a written nondisclosure and noncompete agreement that provided:

“WHEREAS, [Kleinschmidt and Culp] and Brofman and Malanga intend discussing various business proposals involving the investment advisory and mutual funds business. . . .
“[Kleinschmidt and Culp] agree not [to] solicit or engage in any business activity involving any of the mutual funds which have had, or ever in the future have business relationships with FPA or any company affiliated or associated with FPA, without prior written consent of both Brofman and Malanga.”

The agreement further stated that “[n]o delay or omission by FPA, Brofman or Malanga in exercising any right under this Agreement will operate as a waiver of that or any other right” and that a “waver [szc] or consent given by FPA, Brofman and Malanga on any one occasion is effective only in that instance and will not be construed as a bar or waiver of any right on any other occasion.”

Several months later, the Funds’ boards of directors renewed FPA’s contract but removed Brofman as chief portfolio strategist and prohibited him from participating in management of the Funds. FPA and Tocqueville reached a tentative agreement in early 1997 to transfer investment advisory duties from FPA to Tocqueville, allegedly in return for approximately $6 million to be paid by Tocqueville over five years. In pursuit of this plan, Culp began working out of FPA’s offices in order to conduct due diligence and learn how the Funds were managed. FPA provided Culp with access to its shareholder information, he was allowed to make presentations to the Funds’ boards of directors and he served on a three-person investment committee that managed the Funds’ assets after Brofman was removed as chief portfolio strategist.

Culp began advising the Funds and eventually the boards of directors voted to replace FPA as investment adviser once an acceptable alternative was found. Seeking to promote the anticipated $6 million acquisition, Malanga presented Tocqueville’s management proposal to the boards. He also wrote to the boards “strongly endorsing]” the change in adviser as being in the best interest of the Funds’ investment performance since Tocqueville, through Culp’s efforts, was “intimately acquainted” with the operation of the Funds and the composition of their portfolios.

The boards of directors subsequently solicited formal proposals from four investment advisory firms, including Tocqueville, for the future management of the Funds’ assets. Only Tocqueville and another firm submitted proposals. At a July 1997 meeting of the boards, Malanga moved to accept Tocqueville’s proposal and the boards unanimously agreed. A plan was thereby adopted to make the Funds part of a new family of mutual funds — the Tocqueville Funds — which would be managed by Tocqueville.

In September 1997, the SEC charged Brofman, Malanga, FPA and FSC with fraud for failing to disclose to investors that the Funds had invested heavily in inverse floaters, which led to the substantial losses in 1994. Three months later, when the Funds’ management agreement with FPA was set to expire, the boards of directors approved a 90-day continuance of the contract (rather than the usual one-year extension) in expectation of Tocqueville’s pending takeover. Because the transfer was not consummated at the end of that period, the boards gave FPA a further 60-day continuance.

By the beginning of 1998, Brofman apparently came to believe that Tocqueville intended to secure the Funds’ business without compensating FPA. Based on this belief, at the end of January 1998 FPA’s attorney sent a letter to Tocqueville reminding it of the terms of the noncompete agreement. The correspondence indicated that FPA “fully intended] to enforce this covenant, and to hold all persons and/or entities fully accountable for damages incurred by reason of its breach,” including the “right to seek injunctive relief in a court of competent jurisdiction.” The letter further stated that FPA remained “ready, willing and able to close the sale agreement originally struck with Tocqueville.”

Tocqueville continued to do business with the Funds and campaigned to succeed FPA, even though the terms of the transfer arrangement with FPA had not been settled. In response, FPA sought to undermine Tocqueville’s ascension to the adviser post by attempting to take control of the boards of directors. Brofman launched a proxy battle in April 1998 in hope of replacing board members who wanted to appoint Tocqueville with new members sympathetic to FPA. A shareholders’ vote was scheduled for May 29, 1998 — the day before FPA’s final 60-day management extension was due to expire. Before this occurred, a director initiated an action in federal court challenging the vote on various grounds. A temporary restraining order was issued and the special vote did not take place.

On May 30, 1998, the boards of directors convened to select an interim adviser for the Funds. Proposals from FPA, Tocqueville and a third firm, Bull & Bear Advisers Inc., were considered. Despite Malanga’s opposition, the boards voted to appoint Tocqueville as interim adviser for 120 days. At the end of that period, Tocqueville’s contract was not extended and another firm, Cornerstone Equity Advisors, became the Funds’ new adviser.

In 2001, Brofman, FPA and FSC initiated this proceeding against Kleinschmidt, Tocqueville Asset Management, L.P., Tocqueville Securities, L.P, Tocqueville Management Corporation, and three individuals involved with those entities, premised on an alleged breach of the noncompete agreement. The parties moved for summary judgment and Supreme Court denied FPA’s motion but granted Tocqueville’s motion, dismissing the complaint. The court concluded that FPA had waived the written consent requirement in the noncompete agreement by actively encouraging the boards of directors to rely on and hire Tocqueville and that, although FPA had revoked the waiver by challenging Tocqueville for the management post, FPA was otherwise estopped from enforcing the noncompete clause. The Appellate Division affirmed for similar reasons and held that dismissal of the action was further justified by FPA’s inability to prove damages. A dissenting Justice would have denied summary judgment to both parties, reasoning that application of waiver and estoppel was inappropriate in light of the purpose of the noncompete agreement and the conflicting evidence in the record, and that the issue of damages was a question of fact to be determined at trial. The Appellate Division granted FPA leave to appeal to this Court. We now modify by denying Tocqueville’s motion for summary judgment and otherwise affirm the denial of FPA’s motion for summary judgment.

II

FPA contends that summary judgment was granted erroneously to Tocqueville because the record discloses that Tocqueville did not obtain written consent to engage in business with the Funds and thus failed to comply with the noncompete agreement. FPA also claims that it did not waive the right to enforce the parties’ agreement by permitting Tocqueville to work with the Funds’ boards of directors and that a finding of waiver in this situation undermines the central purpose of the noncompete agreement, which was to ensure that Tocqueville would acquire management of the Funds only if an acceptable payment was made to FPA.

Contractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned (see Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d 175, 184 [1982]). Such abandonment “may be established by affirmative conduct or by failure to act so as to evince an intent not to claim a purported advantage” (General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232, 236 [1995]; see Hadden v Consolidated Edison Co. of N.Y., 45 NY2d 466, 469 [1978]). However, waiver “should not be lightly presumed” and must be based on “a clear manifestation of intent” to relinquish a contractual protection (Gilbert Frank Corp. v Federal Ins. Co., 70 NY2d 966, 968 [1988]). Generally, the existence of an intent to forgo such a right is a question of fact (see Jefpaul Garage Corp. v Presbyterian Hosp. in City of N.Y., 61 NY2d 442, 446 [1984]).

As Tocqueville argues and the Appellate Division majority observed, the record establishes as a matter of law that, for a period of time, FPA waived enforcement of the noncompete agreement by consenting to Tocqueville’s involvement with the Funds. Between late 1996, when the parties first began discussing the proposed transfer, and the beginning of 1998, FPA actively encouraged and assisted Tocqueville in developing a business relationship with the Funds. The purpose of FPA’s conduct was evident: by allowing Tocqueville to take responsibility for the day-to-day management of the Funds, FPA wished to demonstrate to the boards of directors that Tocqueville would be a suitable replacement for FPA. This would induce the boards to retain Tocqueville and, in turn, Tocqueville would then pay a substantial sum to FPA for the acquisition of its management services. FPA supported this plan by allowing Culp (and his successor) to work from FPA’s offices, have access to confidential information, serve on the three-person management committee and make presentations directly to the boards. The record does not indicate that Malanga, who served on the boards, voiced any complaint about Tocqueville’s involvement but rather strongly endorsed the proposed transfer to his fellow board members. Thus, we agree with the Appellate Division that during the time that FPA fostered the business relationship between the Funds and Tocqueville, and actively promoted the hiring of Tocqueville as the new adviser, FPA waived the right to enforce Tocqueville’s agreement not to conduct business with the Funds in the absence of FPA’s written consent.

We conclude, however, that there is an issue of fact regarding the scope of FPA’s waiver because Tocqueville did not satisfy its burden of proving as a matter of law that the initial waiver of the noncompete agreement continued after the nature of the dealings between the parties changed from cooperation to competition. Although the record does not reveal precisely when the relationship became adversarial, at some point after the boards of directors approved Tocqueville’s management proposal at Malanga’s urging in July 1997, the asset transfer negotiations between FPA and Tocqueville were abandoned and the situation devolved into a rivalry for the Funds’ business. By early 1998, FPA ceased advocating for Tocqueville to assume the investment advisory business, Brofman launched his proxy battle to remove board members who wanted to hire Tocqueville and FPA submitted a proposal to continue providing investment management services at the same time a proposal was also submitted by Tocqueville.

Viewed in the light most favorable to FPA, as is appropriate in the context of Tocqueville’s motion for summary judgment, the record evidence in this case could lead a jury to conclude that FPA’s opposition to the transfer was sufficient to put Tocqueville on notice that it should halt its dealings with the Funds in compliance with the noncompete agreement. Moreover, the noncompete agreement expressly anticipated that FPA would permit Tocqueville to have discussions and work with the Funds and that such consent would not operate as a permanent waiver of the right to prohibit Tocqueville from soliciting the Funds’ business. On the other hand, a jury might find that, after being introduced to the Funds and promoted as a suitable successor, it was reasonable for Tocqueville to believe that FPA had no intention of enforcing the noncompete agreement in the absence of an explicit instruction to Tocqueville to cease and desist all business with the Funds. Similarly, if the threat posed by Tocqueville was as serious as Brofman alleges, a reasonable person might question why FPA competed with Tocqueville rather than utilizing the simple expedient of a cease and desist demand or seeking injunctive relief through legal recourse. In light of these competing considerations, it is clear that there are triable issues of material fact that must be resolved before it can be determined whether FPA fully or only partially waived its rights under the noncompete agreement.

Ill

The Appellate Division determined that, even assuming there was only a partial waiver, summary judgment dismissing the breach of contract action is nevertheless appropriate because FPA should be estopped from invoking the noncompete agreement. As we have explained, estoppel

“is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought and who, in justifiable reliance upon the opposing party’s words or conduct, has been misled into acting upon the belief that such enforcement would not be sought” (Nassau Trust Co. v Montrose Concrete Prods. Corp., 56 NY2d at 184; see White v La Due & Fitch, Inc., 303 NY 122, 128 [1951]).

Thus, in the absence of evidence that a party was misled by another’s conduct or that the party significantly and justifiably relied on that conduct to its disadvantage, “an essential element of estoppel [i]s lacking” (Lynn v Lynn, 302 NY 193, 205 [1951]; see Rose v Spa Realty Assoc., 42 NY2d 338, 344 [1977]).

Based on the plain language of the noncompete agreement and the course of the parties’ dealings, the issue of whether equitable estoppel is warranted cannot be resolved in this case as a matter of law. By executing the agreement, Tocqueville understood that if a deal was not consummated it would be prohibited from engaging in business with the Funds. But similar to the issues surrounding application of the waiver doctrine, FPA’s conduct creates a question of fact as to whether Tocqueville could justifiably rely on FPA’s actions to reasonably conclude that the agreement would not be enforced and, if so, whether that belief induced Tocqueville to continue pursuing a contract with the Funds. We therefore decline to decide as a matter of law whether FPA should be estopped from invoking the noncompete clause.

IV

Lastly, there are also questions of fact on the issue of damages because there is conflicting evidence in the record regarding the amount of recovery that FPA may be entitled to if it sustains its burden of proving that the noncompete agreement was breached. While FPA alleges that Tocqueville agreed to pay $6 million for FPA’s assets, Kleinschmidt asserts that this figure was merely a starting point for negotiations and that counteroffers were tendered by Tocqueville because of adverse tax consequences from the deal. FPA also relies on averments in the record regarding an alleged $4 million offer from Bull & Bear that, according to Brofman, may have been finalized had Tocqueville not submitted a proposal to the boards of directors in May 1998 in competition with FPA and Bull & Bear. Tocqueville contends that FPA suffered no damages because its contract would have been terminated by the boards even if Tocqueville had not become actively involved with the Funds and, in the event FPA is entitled to any recovery, its damages should be limited to what Tocqueville actually earned during its four-month stint as interim adviser to the Funds. Finally, Tocqueville also notes that Brofman reached a $6 million agreement with Cornerstone, the firm that ultimately succeeded Tocqueville as adviser of the Funds, whereas Brofman alleges that he never received any compensation under the agreement. Because Tocqueville has not proved as a matter of law that FPA suffered no damages, this issue must be resolved by the trier of fact if it is determined that Tocqueville is liable for a breach of the non-compete agreement.

V

Accordingly, the order of the Appellate Division should be modified, without costs, by denying defendants’ motion for summary judgment and, as so modified, affirmed. The certified question should not be answered upon the ground that it is unnecessary.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Read and R.S. Smith concur.

Order modified, etc.

      . The individual funds are the New York Muni Fund, the Fundamental US Government Strategic Income Fund, the Fundamental High-Yield Municipal Bond Series, the Fundamental Tax-Free Money Market Series and the California Muni Fund.

      . Although the five mutual funds were separate corporate entities, the composition of their boards of directors was identical.

      . The SEC was not the first entity to inquire into the Funds’ activities. In 1994, FPA and FSC settled charges brought by New York State claiming that sales materials for the New York Muni Fund misled investors by failing to disclose investments in inverse floaters. Four years later, FSC, Malanga and another individual settled charges levied by the National Association of Securities Dealers again related to the lack of disclosures in sales materials for the New York Muni Fund.

      . For purposes of this opinion, plaintiffs are collectively referred to as FPA and defendants are collectively referred to as Tocqueville.

      . The complaint also asserted causes of action for fraud and tortious interference with business relations. Supreme Court granted Tocqueville’s motion to dismiss those claims and FPA did not appeal that decision.

      .  Tocqueville claims that FPA should be barred from any recovery because Brofman has been suspended from the securities industry for life by the SEC. This contention was raised by Tocqueville in its motion for summary judgment while the initial suspension order was on appeal but it was unnecessary for Supreme Court to address the merits of this argument because it ruled in favor of Tocqueville on the basis of waiver and estoppel. As a result, the effect of the lifetime suspension, which was only recently upheld by the United States Court of Appeals for the Second Circuit after the Appellate Division issued its decision in this case (see Brofman v Securities & Exch. Commn., 167 Fed Appx 836 [2d Cir 2006]), is not before us.


author: R.S. Smith, J.

text:
    [850 NE2d 666, 817 NYS2d 619]
    The People of the State of New York, Respondent, v Rolando Leon, Appellant.
    Argued May 4, 2006;
    decided June 8, 2006

      POINTS OF COUNSEL

      Appellate Advocates, New York City (Sarah J. Berger and Lynn W.L. Fahey of counsel), for appellant.
    The trial court failed to exercise its discretion, or abused its discretion as a matter of law, when it refused to submit the noninclusory concurrent count of criminal possession of a weapon in the third degree to the jury based solely on its erroneous conclusion that there was no reasonable view of the evidence that appellant possessed the gun outside his home but lacked the intent to use it unlawfully against another. {People v Butler, 84 NY2d 627; People v Glover, 57 NY2d 61; People v Green, 56 NY2d 427; People v Okafore, 72 NY2d 81; People v Rodriguez, 113 AD2d 337, 68 NY2d 674; People v Weithers, 123 AD2d 456; People v Pons, 68 NY2d 264; People v Almodovar, 62 NY2d 126; People v Evans, 106 AD2d 527; People v Mcllwain, 204 AD2d 491.)

      Charles J. Hynes, District Attorney, Brooklyn (Howard B. Goodman and Leonard Joblove of counsel), for respondent.
    The trial court was not required to submit the noninclusory concurrent count of criminal possession of a weapon in the third degree, because the People consented that it not be submitted. In any event, the trial court did not abuse its discretion as a matter of law by declining to submit that count. (People v Paige, 120 AD2d 808; People v Davis, 165 AD2d 610; People v Okafore, 72 NY2d 81; People v Totten, 161 AD2d 678; People v Glover, 57 NY2d 61; People v Di Falco, 44 NY2d 482; People v Colon, 86 NY2d 861; People v Mattiace, 77 NY2d 269; People v Jenkins, 50 NY2d 981; People v Walker, 83 NY2d 455.)
   OPINION OF THE COURT

R.S. Smith, J.

Defendant was convicted of criminal possession of a weapon in the second degree, after the trial court rejected his request to submit to the jury a less serious charge based on the same facts. We reject the People’s contention that CPL 300.40 (6) bars any challenge to the court’s ruling. We affirm defendant’s conviction, however, because the ruling was a proper exercise of the trial court’s discretion.

Facts and Procedural History

Defendant, a drug dealer, was involved in a dispute with another drug dealer, Hattie Dukes. On the day in question, Dukes visited defendant at his apartment, displayed a gun and threatened him. Defendant reported this incident to his girlfriend, who confronted Dukes on the street near defendant’s home later the same day. Hearing the sounds of the argument from his apartment, defendant got a gun from under his mattress, went to where Dukes and his girlfriend were quarreling, and killed Dukes by shooting her in the face. He testified that Dukes was holding a gun and was ready to shoot him, although no gun was found on her body.

The jury accepted defendant’s claim of self-defense, and acquitted him of murder. It convicted him, however, of several other crimes, of which only one, criminal possession of a weapon in the second degree, is relevant here.

The People charged defendant with second-degree criminal possession on the theory that he possessed a loaded firearm “with intent to use the same unlawfully against another” (Penal Law § 265.03 [2]). The indictment also contained a charge of criminal possession of a weapon in the third degree (Penal Law § 265.02 [4]), which is committed by possessing a loaded firearm anywhere except in one’s home or place of business. At the charge conference, defendant asked the trial court to submit both the second- and third-degree counts to the jury, as alternatives. The trial court rejected the request and submitted only the second-degree count, saying:

“I can’t see any reasonable view of the evidence that the defendant would be guilty of that [third-degree] charge as opposed to the criminal possession of a weapon in the second degree charge, since there would be no legal basis upon which the defendant would have a gun in his possession.
“He testified already he’s had it for a while, and there is just no basis to submit it. It was clearly outside of his home or place of business. He brought it with him to an argument, and the self-defense claim does not apply to the weapon count. . . .”

The Appellate Division affirmed defendant’s conviction, saying that the trial court “providently exercised its discretion.” (19 AD3d 509, 510 [2005].) Finding no abuse of discretion, we affirm.

Discussion

The problem in this case exists because criminal possession of a weapon in the third degree is not a “lesser included offense” of criminal possession of a weapon in the second degree. Rather, the two are “non-inclusory concurrent counts” (see CPL 300.30 [3], [4]); it is possible to commit the greater offense without committing the lesser one. Second-degree criminal possession, in the form of possession of a loaded firearm with intent to use it unlawfully against another, can be committed anywhere, but possession of a loaded firearm constitutes the third-degree crime charged here only when it does not occur in the defendant’s home or place of business. Thus, for example, a defendant who had a loaded gun in his own apartment and intended to use it unlawfully against another would be committing the second-degree but not the third-degree crime. In this case, defendant took the gun outdoors, but whether a crime is a lesser included offense turns not on the facts of a particular case but on “a comparative examination of the statutes defining the two crimes, in the abstract” (People v Glover, 57 NY2d 61, 64 [1982]).

If the crime defendant asked to have submitted to the jury had been a lesser included offense, the court would have been required to grant his request “if there [was] a reasonable view of the evidence which would support a finding that the defendant committed such lesser offense but did not commit the greater” (CPL 300.50 [1]; see CPL 300.50 [2]). But because the two offenses are noninclusory, the submission of the less serious count, even if there was evidence to support it, was not mandatory. Indeed, if the grand jury had not chosen to indict defendant for third-degree criminal possession, that charge could not have been submitted. But since the less serious charge was in the indictment, whether to submit it was a matter for the trial court’s discretion under CPL 300.40 (3) and (4). “With respect to non-inclusory concurrent counts, the court may in its discretion submit one or more or all thereof’ (CPL 300.40 [3] [a]).

These statutes imply that, in this case, the trial court’s refusal to submit criminal possession of a weapon in the third degree to the jury is reviewable for abuse of discretion. The People argue, however, that it is not reviewable at all. Their argument is based on CPL 300.40 (6), which provides in relevant part:

“Notwithstanding any other provision of this section, the court is not required to submit any particular count to the jury when:

“(a) The People consent that it not be submitted . . . .”

The People read “is not required to submit” to mean “is always within its discretion in not submitting” — in other words, the People argue that a discretionary ruling in their favor cannot be challenged. We do not agree.

As we read section 300.40 (6), it applies to counts that other provisions of section 300.40 would require a court to submit. Several of those other provisions use the words “the court must submit.” For example, under CPL 300.40 (2), “[i]f a multiple count indictment contains consecutive counts only, the court must submit every count thereof’; under CPL 300.40 (3) (b), “[w]ith respect to inclusory concurrent counts, the court must submit the greatest or inclusive count.” The effect of CPL 300.40 (6) is to make these mandatory submissions discretionary. Thus, a trial court need not submit all consecutive counts, or the greatest of several inclusory concurrent counts, when the People consent to the nonsubmission. But the “is not required” language of CPL 300.40 (6) has no application to already discretionary rulings like the one at issue in this case.

We therefore reject the People’s suggestion that the trial court’s ruling is unreviewable here. However, the ruling survives review for abuse of discretion.

Defendant, in asking for the submission of the less serious charge, was obviously hoping that he could avoid conviction on the more serious one; in other words, that a jury otherwise prepared to convict him for criminal possession of a weapon in the second degree might — perhaps in an exercise of mercy, or a compromise — return a third-degree conviction instead. But of course defendant was not entitled to a chance at jury nullification (see People v Goetz, 73 NY2d 751 [1988]). In exercising its discretion, the court had to weigh competing possibilities: Would the submission of the third-degree count help the jury arrive at a fair verdict, or would it simply provide a distraction or an opportunity to split the difference?

The trial court concluded, not unreasonably, that submission of the less serious charge would do more harm than good to the goal of a reasoned, fair adjudication. It was theoretically possible, on the evidence here, for the jury to find defendant not guilty of the second-degree crime (possession of a firearm with intent to use it unlawfully against another) and guilty only of third-degree possession. But the trial court could well have thought that the possibility defendant had no unlawful intention was farfetched. He was, as the court pointed out, a drug dealer bringing his gun to an argument with a person in the same line of work. The court did not abuse its discretion in deciding that, under the circumstances, the third-degree count would probably interfere with, rather than advance, the jury’s performance of its duty.

It is true that the trial court’s explanation of its ruling is confusing. The court discussed whether there was a “reasonable view of the evidence” that would support the third-degree possession count. Those words state the test for submission of a lesser included offense, not a noninclusory concurrent count (see CPL 300.50 [1]; People v Green, 56 NY2d 427, 430 [1982]). But, though the trial court expressed itself imperfectly, it clearly decided that submitting the charge of criminal possession of a weapon in the third degree to the jury would be unwise. In making that decision it properly exercised its discretion under CPL 300.40 (3).

Accordingly, the order of the Appellate Division should be affirmed.

Chief Judge Kaye and Judges G.B. Smith, Ciparick, Rosenblatt, Graffeo and Read concur.

Order affirmed.