Litigation

September 9, 2013

New Jersey Court Creates Liability for Sending Text Message

A recent decision by a New Jersey appellate court has held that one sending a text to someone that is known or should be known to be driving, and in some way encourages a response to that message, may be liable for injuries sustained in a resulting accident. That said, the applicability of this rule seems rather limited.

In this case, Kyle Best hit and injured two bikers. During the resulting litigation, it became obvious that he was exchanging texts with Shannon Colonna immediately before the accident. Upon learning that, the plaintiffs included Colonna in the lawsuit. Colonna moved for dismissal arguing that she owed no duty to the plaintiffs and was in no way involved in the accident.

The court was clearly sympathetic to the plaintiffs, not surprising given the serious injuries, but refused to hold Colonna liable. However, the court did find that “a person sending text messages has a duty not to text someone who is driving if the texter knows, or has special reason to know, [that] the recipient will view the text while driving.” The court explained that because “Colonna did not have a special relationship with Best by which she could control his conduct [… n]or is there evidence that she actively encouraged him to text her while he was driving,” Colonna could not be found liable for Best’s accident. The court added that despite what Colonna might have known, and “[e]ven if a reasonable inference can be drawn that she sent messages requiring responses, the act of sending such messages, by itself, is not active encouragement that the recipient read the text and respond immediately, that is, while driving and in violation of the law.” Explaining that culpable conduct by the texter would involve something beyond sending the text, the court found that “[p]laintiffs produced no evidence tending to show that Colonna urged Best to read and respond to her text while he was driving.”

September 3, 2013

Is “Dirty” Defamatory?

by The Silber Law Firm LLC

The owner of “America’s Dirtiest Restaurant” cannot recover on its claim that the restaurant was defamed. No surprise there. Have a read here.

August 27, 2013

Client Sues His Lawyer–for Copyright Infringement

by The Silber Law Firm LLC

This case presents an interesting discussion of copyright law, but not only based on a court decision, but on a disgruntled ex-client’s claim against his lawyer.

Bernard Gelb and his company hired an attorney, Norman Kaplan, to file a class action lawsuit. After that lawsuit was dismissed, Gelb and Kaplan filed an appeal on behalf of the class members. Before that appeal was decided Gelb and Kaplan parted ways. However, the other members of the class kept Kaplan as counsel. Gelb withdrew from the appeal (he initially tried to withdraw the entire appeal, which he was not allowed to do, so he withdrew his participation in that appeal). Thereafter, Gelb, claiming that he had a role in drafting the initial court papers, filed for copyright protection of those court papers. After the appellate court reversed the dismissal and reinstated the case, Kaplan proceeded with the case on behalf of the remaining class, using and amending the initial court papers that had been filed before dismissal was ordered.

Gelb sued Kaplan claiming that Kaplan’s continued use of the initial court papers, including the complaint, infringed on Gelb’s copyright. Kaplan’s motion to dismiss Gelb’s claims was granted and Gelb appealed.

On appeal, the Second Circuit, after noting Gelb’s “sharp litigation practices,” upheld the dismissal of Gelb’s claims. The court agreed with the lower court’s reasoning and explained further that when Gelb directed Kaplan to file the complaint, Gelb issued to Kaplan an irrevocable implied license to use those papers in the lawsuit, without limitation. Key to that finding was the court’s discussion that when a copyright holder allows another to use a document in a litigation, he knows or should know that the document may be necessary throughout the legal proceeding–even by a different attorney. The court also highlighted its concern that allowing Gelb to proceed on his claim would preclude a court from doing its business. A court could not adjudicate a case if it had to compete with the copyright considerations of the papers before it. Allowing this claim could also encourage attorneys to hold a case or client hostage by claiming ownership of a document. In sum, the court held:
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July 8, 2013

Arbitrator’s Application of Incorrect Law Basis for Vacatur of Arbitration Decision

by The Silber Law Firm LLC

While the misapplication of a law is ordinarily not a reason for a judge to throw out an arbitration award, a Civil Court judge has refused to confirm an arbitration award because it was contrary to established law.

In this case, the arbitrator was found to have acted contrary to established law in determining the proper standard for which party was obligated to prove its case. Upon application to the court for confirmation and enforcement of that arbitration award, the judge held that while the misapplication of a correct law would not lead to vacatur, here, because the arbitrator’s decision was based on a wrong legal principal and thus contrary to established law, it was deemed irrational under Article 75 of the CPLR, and could not stand.

July 1, 2013

Interest Rate on $1.13 Million Secured Loan Deemed Usurious and Unenforceable

by The Silber Law Firm LLC

A few months ago, the First Department appellate court invalidated a $1.13 million loan because it found its charges and interest to violate New York’s criminal usury laws. The interesting facts of this case are worthy of discussion.

In 2009, ASI, a corporation, needed an immediate cash infusion. Blue Wolf, an investment firm, agreed to lend ASI a sum of money while it conducted due diligence and decided whether it would make an equity investment in ASI. The loan documents, executed in January 2010, provided for Blue Wolf to loan ASI $1,130,000 with interest to accrue at 12% per annum. The loan was secured by ASI’s assets. Although not completely clear from the decision, it seems that Blue Wolf could call the loan upon demand. At closing, ASI received only $805,000 because Blue Wolf kept $325,000 as fees and deposits. Those were broken down as a $50,000 commitment fee, a $75,000 deposit against Blue Wolf’s costs and expenses incurred in connection with the loan, and $200,000 was retained by Blue Wolf as a “‘deposit against future commitment fees'” in the event that ASI rolled over the loan into future financing. Even with this fee charged, Blue Wolf was not obligated to advance future funds or even roll over the loaned funds into a new note. Remarkably, the loan terms provided that if new financing was not arranged by March 31, 2010, Blue Wolf was permitted to keep all or part of the $200,000 as “‘compensation for [Blue Wolf’s] time and expenses, as determined by [Blue Wolf] in its sole discretion.'”

Blue Wolf admitted that by January 2010, it had decided that it would not purchase any portion of ASI and would not provide further financing. Blue Wolf called the loan in March 2010, claiming a loss of confidence in ASI, and informed ASI that it would keep half of the $200,000 it retained. ASI did not repay the loan, and in May 2010, Blue Wolf again demanded repayment, and informed ASI that it would now keep the entire $200,000. When ASI did not pay, Blue Wolf began the foreclosure process against ASI’s assets, as a secured lender. Because of a defect in the March notice, Blue Wolf notified ASI in July 2010 that it would accept ASI’s assets in lieu of repayment of the loan. In July and August 2010, ASI paid Blue Wolf $54,000. Blue Wolf rejected those payments claiming that it had foreclosed on ASI’s assets, which ASI was then holding for Blue Wolf’s benefit. Blue Wolf offered to sell those assets back to ASI for $1.3 million and apply the $54,000 toward that purchase price.

April 23, 2013

Court Enforces Contract “Boiler-Plate” Language

by The Silber Law Firm LLC

In another example of sophisticated parties ignoring the obvious, the parties to an option contract fought over the implication of standard contract language which provided that the option contract was supported “by good and valid consideration” and thus enforceable.

In a somewhat complex case, the parties entered into an agreement whereby CamEquity would lend money to SVCare so that SVCare could purchase a business. In connection with that, a CamEquity related entity was granted an option to purchase 99.999% of SVCare for $100 million. That option agreement stated that the parties had exchanged “good and valuable consideration” to create a binding and enforceable contract. The loan agreement and option contract were executed the same day.

The day came when CamEquity sought to exercise its option. SVCare argued that CamEquity provided no consideration in exchange for the option right and the right was therefore void. Aside from arguing that the loan was itself consideration, CamEquity pointed to the contract language stating that it provided valid consideration for the option right. SVCare claimed the loan was never made and that the boilerplate recitation of consideration was not true.

February 20, 2013

The Bridesmaids Had No Dresses-but Were the Damages Sought Speculative?

by The Silber Law Firm LLC

Defendant failed to complete eight bridesmaids dresses until two hours after the ceremony was scheduled to begin, when they were delivered by the groom. As a result of this delay, plaintiff incurred a host of delays for which she incurred expenses, including a delay in the bride’s appearance from the rented limousine, so as not to break the tradition of not being seen by the groom or guests before the ceremony. For these expenses, the court awarded plaintiff damages. However, for the wedding parties’ inability to have pictures taken in the scenes scheduled and for the bridesmaids wearing different clothing in different pictures, no award would be made as no amount could be reasonably fixed as damages for these items. The court also rejected damages for emotional distress, finding that plaintiff “failed to meet the high threshold required in proving” this claim because defendant’s failure to deliver the dresses was “not so outrageous in character and extreme in degree that it exceeds all bounds tolerated by a decent society which is of a nature calculated to cause, and does cause, serious mental distress.”

December 26, 2012

Property Inspection Part II-from a Haunted House to the Bat Cave

by The Silber Law Firm LLC

After writing about the “haunted house” case recently, I came across another case that addressed the same concepts, and also in an unusual setting. The haunted house court had decided that because the buyer could not have anticipated that the house under contract was haunted, and was therefore not expected to inspect the property for ghosts, and because the sellers had knowledge of the haunting, the buyer could cancel the purchase contract.

This case, Jablonski v Rapalje, involves sellers that may have hid from a buyer the fact that the house in question was bat infested. While some of the facts should have lead the buyer to pay more attention and realize that something was amiss (discussed below), the particulars of what the buyer should have questioned and investigated divided the court. The majority decided that the sellers may have concealed the bats from the buyer, so that the buyer was allowed to cancel the sales contract.

A fair reading of these cases highlight courts trying to find a way to grant recision. To do so, the courts had to first find the sellers’ concealment. This case focused on whether the sellers actively concealed the bat infestation, while the haunted house court focused on whether the buyer had an obligation to search for ghosts once the seller publicized the haunting but did not inform the buyer. Each court then turned to a detailed explanation of why the buyers were not obligated to inspect for that concealed issue, so that the contracts could be rescinded.

December 17, 2012

An Unqualified Offer to Pay a Reward Cannot Be Later Qualified or Negotiated

by The Silber Law Firm LLC

A musician’s laptop, loaded with valuable proprietary information, was stolen while he was on tour in Germany. A reward was offered, initially set at $20,000, but later raised to $1 million. The plaintiff found the laptop and returned it, but the reward was not paid because the hard drive had allegedly been returned with corrupted information. The musician had the hard drive examined and wiped when the data could not be recovered.

The musician argued that he intended the reward to be for the return of his data and information, not just the physical laptop. He also argued that the reward was akin to an advertisement, but not a firm offer to pay anything.

The court in Augstein v. Leslie addressed the second argument first, and rejected it. A reward, wrote the court, was intended to “induce performance” by the “‘offeree [for] a specific action.'” The news reports of the theft and subsequent reward “would lead a reasonable person to believe that [the musician] was making an offer.” Notwithstanding the size and significance of the amount, the reward was a promise to pay if a service was provided. Because that was the case here, the plaintiff could collect the reward.

December 11, 2012

Sophisticated Party Again Fails to Do its Own Investigation

by The Silber Law Firm LLC

The last time we wrote on this topic, a group of plaintiffs’ had their $900 million claim thrown out by a judge, essentially because the plaintiffs had stuck their head in the sand and did not investigate red flags evident in a transaction. In Pappas v. Tzolis, it was a paltry claim of just a few million that was tossed, but the underlying facts and legal principals were the same. Interestingly, it was again the selling party, the one which many believe to have less risk than the buyer, that came up holding the very short end of the stick.

The facts here are as follows: Pappas and Tzolis (and one other) formed a LLC to lease property. Tzolis personally provided the lease deposit of almost $1.2 million and was permitted to sublet the property. The parties also agreed that they had other business and could compete with the LLC or other members without notice. Trouble surfaced when Tzolis subleased the property to a company he controlled for $20,000 above the LLC’s monthly payment. Unhappy with that, Pappas claimed that Tzolis prevented the LLC from leasing it directly for a higher rent, and that Tzolis was generally frustrating the lease interest of the LLC. Shortly thereafter, Tzolis bought out the other members, including Pappas. At the closing, Pappas signed a document attesting to the facts that prior to his sale of his membership interest, he had done his own due diligence using his own lawyers, and was not relying on any representation made by Tzolis or upon their relationship as co-members of the LLC. After the transaction closed, Tzolis assigned the lease interest from his entity to a third-party for $17.5 million.

Pappas sued Tzolis claiming that Tzolis had lined up this sublease before the membership interest were transferred, in violation of his fiduciary obligations to him as a member of the LLC. Had he known, argued Pappas, he would not have agreed to sell for the price that he did. The lower court threw out the case, but parts of it, including the fiduciary claim, were reinstated by the Appellate Division. The Court of Appeals, reversed the Appellate Division and threw out the case.