Litigation

October 23, 2014

Violating Confidentiality Agreements

Confidentiality provisions are common in many different settings, including settlements, business transactions and intellectual property agreements. The cost of violating a confidentiality provision often leads to litigation and damages, and significant aggravation. While a few months old, a recent article I read highlighted some real-life examples. Have a look here and here.

Before signing a confidentiality provision, non-compete, or any agreement, know what is being bound—many times the one agreeing is unaware of some of the sweeping terms of the agreement made. The wake-up can be painful.

September 15, 2014

Protective Order Renders Commercial Contract Impossible to Perform

by The Silber Law Firm LLC

Plaintiff Kolodin is a singer who lived with her agent, defendant Valenti. Despite the deterioration of their relationship the parties maintained a professional arrangement and Kolodin continued to sign with Valenti and his company, Jayarvee.

At some point, their relationship turned worse and Kolodin obtained an order of protection against Valenti, which prevented him from contacting her. This protective order was extended on consent a number of times. Kolodin then sued seeking recision of the last contract she signed with Jayarvee arguing that fulfilling the terms of that contract was impossible due to the order of protection signed by Kolodin and Valenti. The parties resolved the issues underlying the order of protection by signing a stipulation by which they agreed to have no further contact with each other. The draft of that stipulation had language allowing contact with employees of Jayarvee, but that language was dropped from the final version. Once this stipulation was in place, the court agreed that the parties’ contract could not be fulfilled and should be terminated due to its impossibility of performance.

In affirming that decision, the First Department first discussed the narrow grounds for recision of a contract based upon of impossibility of its performance. Those grounds are where the “‘the subject matter of the contract or the means of performance makes performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against n the contract.'” Because the parties’ stipulation “destroyed the means of performance by precluding all contact” between the parties, the First Department found that the parties’ stipulation “rendered objectively impossible by law” the terms of the parties’ contract. As such, the Appellate Division agreed that the contract could be rescinded and cancelled. The court went further and noted that this contract, by its nature, would not allow any relationship, finding that because Valenti had a “central role” in the performance of the Jayarvee contract, his input was material and necessary for the execution of the parties’ responsibilities under the contract.

August 25, 2014

Board Member’s Vote for Disputed Conduct Not Deemed Bias for Demand in Derivative Action

by The Silber Law Firm LLC

Often, litigation involving a corporation will be framed as a derivative action meaning, that the shareholder that is suing is doing so on behalf of the corporation but not individually. A prerequisite for a derivative action is the suing shareholder’s demand on the board to act on behalf of the corporation. However, one way to avoid this demand, is to demonstrate to a judge that because the entity’s board members are biased against the demand, any demand would be futile. Upon such a showing, the demand will be waived.

In a case involving Life Medical Technologies, Inc., Suffolk County commercial division judge, Elizabeth Emerson, held that a board member’s vote for the conduct in question did not equate to bias so that a demand may not have been futile. That meant that just because the board member agreed to take the action that is now the subject of the lawsuit did not mean that a demand on that board member to sue would be useless. The court held that the board member, when faced with a demand, could change his or her mind.

I suppose.

July 14, 2014

New York State High Court Refuses to Force Parties to Negotiate Forever

by The Silber Law Firm LLC

Tyco and IDT entered into a joint venture agreement. Numerous litigations commenced, which were settled by a 2000 settlement agreement. That settlement agreement provided for IDT to use Tyco’s yet unbuilt infrastructure, upon the parties’ mutual agreement. As time went on, negotiations failed to produce mutually agreeable terms and conditions for IDT’s use, and litigation followed.

The Court of Appeals agreed with IDT that the settlement agreement was enforceable, but refused to enforce Tyco’s obligation to negotiate in good faith to mean that the parties were compelled to negotiate without end. The court stated that an “obligation [to negotiate] can come to an end without a breach by either party. There is such a thing as a good faith impasse; not every good faith negotiation bears fruit.” The court extended that position to a case where market conditions made the proposed deal untenable or even uninteresting and one party walked away. As a result, the court dismissed IDT’s case, finding that IDT stated no cause of action upon which relief could be granted.

The dissent would not have dismissed IDT’s complaint because IDT’s allegations did raise questions of Tyco’s negotiation tactics. While the dissent addressed dismissal, it clearly disagreed with the majority’s finding as to Tyco’s conduct and questioned whether Tyco acted in good faith.

January 8, 2014

Failure to Verify Details of Disputed Credit Report Undermines Experian’s Claims

by The Silber Law Firm LLC

Plaintiff Keisha James notified Experian that two items on her credit report were incorrect and were reported on her report as a result of identity theft. When Experian notified the companies that listed the debts of her dispute, those companies were only able to verify some of the information as being matching James’s. Nonetheless, Experian refused to remove the disputed debts from her credit report. James sued Experian claiming that it failed to conduct a reasonable investigation into the disputed debts, as required by the Fair Credit Reporting Act. Experian responded by arguing that its investigation and verification complied with the Federal statute and asked that James’s lawsuit be dismissed.

The court focused its decision on defining what would be deemed a”reasonable investigation” by Experian to satisfy its obligations under the law. Noting the absence of a clear definition, the court considered the totality of the circumstance. Observing that the companies reporting the debts to Experian were only able to verify some of the information, so that items like James’s birth date, address and name were incorrect on those company reporting records, described by the court as “glaring discrepancies,” coupled with Experian’s failure to do anything more, compelled the court to deny dismissal of the complaint and allow James to proceed with her case.

Jones v. Experian Information Solutions, Inc.; Southern District of New York, Judge McMahon

January 3, 2014

Offering Plan for Condominium Building Deemed Contract with Unit Buyers

by The Silber Law Firm LLC

Plaintiff alleged that the sponsor of a condominium development breached the offering plan by converting the units to rentals from sales, and that the developer was therefore able to maintain control of the buildings board of directors.

Plaintiff, Bauer, alleged that she purchased multiple condominium units in a building newly constructed by defendant Beekman International Center, LLC. She alleged that Beekman’s offering plan described its stated intent to sell the 65 units. Bauer claimed that such statement implied that the sales would be completed in a “reasonable time.” Bauer further alleged that Beekeman’s paperwork did not disclose that Beekman retained the option to rent any unit instead of selling it. Bauer claimed that Beekman’s rentals breached the agreement in that it precluded the unit owners from taking over control over the building as owners. As a result, Bauer and other unit owners were unable to sell their units, the rentals caused the common charges to increase, and impeded the unit owners’ ability from obtaining favorable refinancing rates from lenders. Bauer sought damages and the court’s direction that the units be sold, in addition to forcing Beekman’s principals from the board of directors. Beekman responded by stating that approximately half of the units had been sold and once the market was able to sustain the asking price, arrangements would be made to resume the unit sales. Beekman denied that the unit owners were having difficulty refinancing their respective units, but seemingly did not dispute all of Bauer’s claims.

The court recited some of the legal history involving the relationship between sponsors and buyers. Citing case law and regulatory action, the court deemed a sponsor’s offering plan to be an agreement which contained the implied promise to sell the units within a reasonable period of time. A sponsor’s failure to do so supported a breach of contract claim. The court noted that the current regulatory scheme required a sponsor to specify the intended market for the units built. Those regulations further required a disclosure that once the sponsor sold the minimum 15% of the units necessary for the offering plan to become effective, its ability to rent rather then sell the units could result in the unit buyers never taking control of the condominium.

December 18, 2013

Substituted Service of Process on Co-Defendant Ruled Insufficient

by The Silber Law Firm LLC

The plaintiff was a home health aide for Gilberto Rivas in Rivas’s apartment, where she claims to have been injured by a defective window. The plaintiff sued the apartment’s owner and Rivas. The plaintiff served the owner of the apartment by substituted service upon Rivas. Neither defendant responded and plaintiff obtained a default judgment. In seeking to vacate the default, the owner claimed that he was never served and that Rivas did not forward the litigation papers to him.

Putting aside the issue of whether the owner listed that apartment as his home address, the Court found it unreasonable and unreliable for the plaintiff to have served the owner by leaving the lawsuit papers with Rivas, who had interests that were adverse to the interest of the apartment’s owner. In this setting, Rivas could not be relied upon to properly forward the papers to the owner. Therefore, the property owner was allowed to file his late answer and to defend the case.

Martinez v. McSweeny, Queens County – J. McDonald

November 11, 2013

Insurance Policy Applies Even With Wrong Party Named

by The Silber Law Firm LLC

A deli rented space from 137 Broadway Associates, located at 3379 Broadway. Prior to renting that space, the deli rented from Cromwell Associates, located at 3381 Broadway. The deli had purchased an insurance policy, which included the landlord as an additional insured. Mistakenly, although the deli was now renting from 137 Broadway, Cromwell was listed as the additional insured and not 137 Broadway. After being sued for a patron’s fall, who named both the deli and 137 Broadway, the carrier refused to defend 137 Broadway, claiming that it was not listed as an insured party.

137 Broadway commenced a lawsuit against the carrier, seeking to compel the carrier to defend it in the lawsuit, claiming that it was the intended party to be insured. The carrier argued that the policy documents were clear and did not list 137 Broadway as an insured party. The court refused to accept that approach. After first reciting the principle that the written list of insured parties was not always exclusive as to which party was to be insured, the court determined that where the intent of the parties as to coverage is clear, mistakenly listing the wrong entity would not alone preclude coverage for the intended party. The court noted that the mistake was obvious because there was no way that Cromwell Associates could obtain any benefit by being listed as an additional insured.

137 Broadway Associates, LLC v. 602 West 137th Deli Corp.

November 1, 2013

Email Agreement Creates Enforceable Settlement

by The Silber Law Firm LLC

Plaintiff, John T. Forcelli, sued for injuries incurred in an auto accident. While motions to dismiss were pending, the parties mediated the claim. Although one of the defendant’s insurance carriers discussed settlement, no agreement was reached. Shortly thereafter, settlement discussions were revived by email exchange. The carrier’s representative offered $200,000, which was later raised to $230,000. That amount was agreed to orally by Mr. Forcelli’s counsel. The carrier confirmed that amount in a subsequent email, which was signed “[t]hanks Brenda Green” (the carrier’s representative). Settlement and release papers were exchanged and signed by Mr. Forcelli. A few days later, before the defendants had signed off, the court issued a decision granting dismissal of the lawsuit. Thus, the carriers refused to sign the settlement papers or pay any amount to Mr. Forcelli.

The parties went back to the judge. The issue was whether or not the email from Brenda Greene was to be deemed an enforceable, proper, settlement agreement under the law. The judge found that it was.

The carriers appealed but the Second Department affirmed. That court recited the requirements for finding an enforceable agreement–a written agreement signed by the party or his counsel, which includes all of the material terms of the agreement. The email contained the settlement amount and Mr. Forcelli’s agreement to settle, the relevant terms. The fact that not all of the defendants or their counsel had signed off was not a bar, as Ms. Greene had apparent authority to bind all of the defendants. Recognizing that an email is not formally signed, the Second Department allowed this emails as they were clear to show the parties’ intent to settle. That Ms. Greene wrote out her name at the end of the email was further proof of affirmative consent (differentiating from an auto-signature at the end of an email).

October 10, 2013

Corporation Permitted to Sell its Sole Real Estate Holding as Being in the Regular Course of Business

by The Silber Law Firm LLC

The stated purpose of the corporation, owned by two shareholders in a 55%-45% split, was to lease residential and commercial space. The corporation owned one building and the majority holder wanted to sell it as part of a §1031 Exchange. The expected return was expected to be 300% over a three year period. The minority shareholder refused, and claimed that a super-majority vote was required to allow the sale.

The court noted that under the Business Corporation Law a super-majority was not required if the corporation was making the sale in the ordinary course of its business as “actually conducted by the corporation in furtherance of the objectives of its existence.” Because both parties agreed that the corporation’s business was to lease property, the court had to determine how the proposed sale fit into the corporation’s ordinary business.

The court held that the corporation was proposing a sale, not an exchange. The minority shareholder argued that the sale of the sole asset was not in the regular business of the corporation. The court disagreed. Because the purpose of the sale was not to liquidate the corporation but to reinvest the sale proceeds in a different property, and to then engage in the corporation’s ordinary business with that new property, no super-majority consent was required.