New York Business Litigation Lawyer Blog

August 25, 2015

Buyer Not Obligated to Close on Property for Which He Does Not Have Exclusive Use

A buyer entered into to a contract to purchase a penthouse co-op apartment for $27.5 million. Part of the unit being purchased included a terrace, which was to be for the buyer’s exclusive use. Between contract and closing, this exclusive use was questioned as the board intended to convert the roof to a common area and provide access to the roof through the penthouse terrace. Obviously, the buyer would not agree to that invasion of privacy necessary for roof access. The board provided conflicting authorizations and plan drawings, and had to be compelled to provide the co-op plans. The buyer informed the seller that it was canceling the contract and demanded the return of its down payment. The board then withdrew its demand for terrace access but refused to provide an unqualified statement that the roof was not common area, that no access would be provided for the terrace or that the board would not in the future raise this issue. Nonetheless, the seller refused to return the downpayment, claiming that the buyer was getting the co-op as described in the contract. The buyer disagreed and refused to close. Litigation followed over the $2.7 million downpayment. The trial court decided that the buyer’s failure to appear at the closing and see what plan was delivered was a breach, and refused to direct the return of the downpayment.

The appellate court disagreed, and found that the seller’s inability to provide an unqualified promise by the board not to convert the roof to a common area and allow the buyer private and exclusive use of the terrace supported a finding that the seller was unable to deliver the apartment as promised. The Court seemed unimpressed by the board’s qualified promise not to interfere, given the board’s prior conduct, and the buyer’s need to interact with the board on some regular basis. The appellate court was concerned that a fight would erupt in the future and the Buyer should not be compelled to buy a “problem” property. All of this, supported the buyer’s right to rescind the purchase contract.

Pastor v. DeGaetano, First Dept. 2015

August 12, 2015

Landlord Cannot Collect More than Actual Damages

by The Silber Law Firm LLC

Landlord and Tenant entered into a long-term commercial lease. After the Tenant vacated, Landlord terminated the lease, and sued to recover legal possession of the space and for rents that were then past due and owing. Landlord won that lawsuit. Thereafter, the Landlord commenced a second action seeking the amount that the Landlord would have collected assuming the completion of the full lease term.

The Court of Appeals confirmed the Landlord’s attempt to recover that rent, but held that the Landlord could not recover more than the value of the lease. Because the lease allowed the Landlord to hold possession of the space and accelerate and collect the not discounted rent that would otherwise become due over the term of the lease, the Court determined that a hearing had to be held to decide if that amount, given that the Landlord had relet the space, was disproportionate to the Landlord’s actual loss, even though the Landlord had possession but no duty to mitigate.

172 Van Duzer Realty Corp v. Globe Alumni Student Assistance Association, Inc.

July 14, 2015

Right to Privacy Is Not Absolute

by The Silber Law Firm LLC

As we discussed on this blog some time ago, an artist’s freedom of expression may trump an individual’s right to privacy. This issue has again reached the courts and this principle has been reaffirmed.

Defendant Arne Svenson surreptitiously photographed the residents of a neighboring building through its glass facade. After a year of this conduct, Svenson exhibited these photos in a gallery, including photos of private scenes, bragging that the subjects did not know they were being photographed. Plaintiffs objected, especially because some of the children that were photographed were identifiable. Svenson agreed to remove one of the photos, but not all of them. As time went on and these photos became public knowledge, plaintiffs sued Svenson, alleging invasion of privacy, among other claims. Svenson defended himself by claiming that the photographs were protected by the First Amendment. The lower court agreed, finding that the photographs were not just a business but a form of art. The family appealed.

The First Department traced the statutory background to the right to privacy law. The court noted that the broad language of the statute prohibited the use of one’s ‘”name, portrait, picture or voice'” in advertising or trade. The Court explained that the term “advertising or trade” was drafted specifically to avoid running afoul of the First Amendment, which protects news or issues impacting the public. Those exceptions, wrote the court, are also extended to items protected under the First Amendment, including artistic expression. The only practical limitations are found where a photo that was not newsworthy was sold under the guise of something newsworthy or of importance to the public, or where the relationship between the expression and the subject of the image bore no reasonable connection.

July 6, 2015

Failure to Show “Use” Defeats Trademark/Service Mark Registration

by The Silber Law Firm LLC

There has been recent discussion about what constitutes “use” of a mark when seeking trademark registration (and which applies equally to a service mark). This discussion has addressed the requirement that a proposed trademark be “used” or be “in use” when a trademark registration is filed with the United States Patent and Trademark Office (“USPTO”). Before we explore this, and a recent straight-forward case that explains this issue in an easy to understand setting, a brief background is necessary.

When filing a trademark application for Federal registration and protection with the USPTO, one must allege either “actual use” of the proposed mark in interstate commerce, or a bona fide “intent to use” the proposed mark in interstate commerce. There is no ability for a trademark applicant to reserve a trademark registration if there is neither an actual “use” or a real intent to use a particular mark or logo in connection with a commercial venture. (This is obviously different than reserving a domain name or address, which has no such requirement.) If actual “use” is alleged in the application, the applicant must show that use. If the applicant elects “intent to use” as the basis for the application, the applicant signs a statement supporting that intent and will be required to update the application once actual interstate “use” is established. It goes without saying that both the “use” and “intent to use” claims must be legitimate.

The viability of the applicant’s alleged “use” was questioned in Couture v. Playdom, Inc., where Playdom sought the cancellation of Couture’s registered service mark based on Couture’s failure to actually use the PLAYDOM mark in connection with a viable business. The proof of use submitted to the USPTO by Couture in 2008, when Couture filed his application for PLAYDOM, included a screen shot of Couture’s website, which stated that entertainment services of his company, PlaydomInc.com, would be offered. However, no actual services were offered by Couture or PlaydomInc.com until 2010.

March 2, 2015

Real Estate Broker Entitled to Recover the Value of Its Services

by The Silber Law Firm LLC

Goli Realty Corp., commenced an action for the recovery of brokerage commissions. Goli sued Halperin claiming to have brought a buyer that was ready, willing and able to purchase certain real property that Halperin and his entity, SPJ LLC, were looking to sell. Goli prepared marketing packages for Hess Oil, Walgreens, and others, detailing the property’s attributes. Hess and Walgreens responded with interest, and Goli showed the property to Hess. Hess had Goli send Halperin a proposal which provided for the minimum rent required by Halperin. Goli sent its commission agreement to Haleprin with Hess’s proposal. Thereafter, Halperin contacted Hess directly. Shortly thereafter, Halperin informed Goli that he was not interested in a gas station as a tenant and claimed that Goli had promised to provide an agreement with Walgreens. A few days later, Goli presented Halperin with a proposal from Walgreens, also with the minimum rent. Goli claimed that Halperin agreed to proceed with negotiations with both prospective tenants and to consider how to buy an adjacent property. Despite what Goli had been told, it learned that Halperin had signed a lease with Hess. Goli sued for its brokerage commissions.

Reviewing how the Court discussed the facts and party testimony makes clear that it found Haleprin’s testimony to not be credible. At one point, the Court states that outright. Among other things, the Court seemed troubled by Halperin’s inability to explain why SPJ did not agree to a lease with Walgreens, as brokered by Goli, if Halperin would not accept a gas station tenant, especially as it ultimately signed with Hess.

At the end, the Court was able to find that an enforceable brokerage agreement existed despite the absence of a formal writing. There was no question that Goji was asked to find a tenant and did so, securing two acceptable tenants. Thus, Goji was entitled to the value of its services, which were the same as the commission that he demanded in his proposed brokerage agreement (even though the Court noted that those commission may have been a bit higher than market rates). The Court did not allow that amount to be awarded against the individual Halperin defendants, however, because Goji had done the work for SPJ, LLC.

February 10, 2015

Transfer of Looted Company Held Valid

by The Silber Law Firm LLC

Steve Hong is the sole shareholder of Koryeo International Corp. Hong sued his mother, Kyung Ja Hong for looting Koryeo before she transferred the corporation to him.

Hong worked for the corporation after law school. His parents promised to transfer the corporation to him in exchange for his agreement to work for a minimal salary. After the death of Hong’s father, Mrs. Hong assumed sole ownership and control of corporation. In 2012, Mrs. Hong transferred ownership and control of the corporation to Hong. Upon that transfer, Hong learned that the corporation’s bank account held some $50,000, despite revenue in the millions of dollars. Hong and the Corporation sued his mother, claiming that she looted the corporation prior to its transfer, leaving him with a virtually worthless entity. Mrs. Hong sought dismissal of the claims.

Initially, the court found that because Mrs. Hong was the sole shareholder when she allegedly looted the corporation, the corporation could not be a plaintiff against her. The Court would not find anything wrongful in the corporation’s actions, or claims of a wrong, when those actions were sanctioned by its sole shareholder. The Court then held that the vague promise to Hong, made 20 years before the transfer, was too indefinite to create a true contract. Moreover, found the court, Hong received exactly what he was promised–the corporation–and even if looted, that was all he was promised.

February 4, 2015

The Kati Dispute

by The Silber Law Firm LLC

A dispute between The KatiRoll Company, Inc. and Kati Junction, Inc., both of which sell Indian food, produced a court decision useful in examining trademark/servicemark and trade dress issues.

In 2002, KatiRoll opened its first store-front in New York City. That location would expand to two additional restaurants in Manhattan. It sold distinctive food items, offered discounts on multiple purchases, and used an orange and white color scheme on its employee uniforms, signage and marketing. The location setup was consistent in all of the stores, so that each store had front windows, limited seating and an open kitchen. Finally, each store had wood trim in its interior. Because KatiRoll invested much time and expense in developing its natural menu items, each employee signed a non-disclosure agreement in addition to agreeing in their employee manuals that these food items were of secret formulations.

Kati Junction opened a restaurant some three blocks from a KatiRoll location. Kati Junction’s color scheme, menu, specials, store layout, and trim were nearly identical to those used by KatiRoll. Kati Junction hired seven current and former KatiRoll employees for this new store. Since Kati Junction opened, KatiRoll customers asked management if the Kati Junction store was part of the KatiRoll chain.

November 3, 2014

S&P Is Forced to Provide Broad Access of its Books to Shareholders

by The Silber Law Firm LLC

One of the repercussions of the mortgage meltdown was the subsequent scrutiny of the bond rating agencies, including S&P. Claims were made that the rating agencies ignored bond risks and overstated the quality of certain bonds so that the agencies would earn more fees from the increased volume of bonds they reviewed and rated. Because those companies issuing bonds would not patronize the agencies that did not endorse the bonds issued, the agencies did not properly police the quality and reliability of the bonds. In the ensuing collapse, numerous federal and state agencies pointed fingers at the rating agencies and launched investigations into the agencies’ business practices. This setting provides the basis for this action.

Under State statute, in certain circumstances, a shareholder of a corporation is allowed to review the corporation’s books and records. Forcing compliance requires a lawsuit, but it is more streamlined than a typical lawsuit and the issues before the court are narrow. The documents to be provided under statute are limited, but a judge has the authority under common law, meaning laws developed over time by the courts, to provide more information than what the statutes allow.

In the S&P case, the shareholders, an individual and a retirement fund, sought access to S&P’s books and records. The shareholders claimed that they were entitled to review a host of S&P’s internal business records to determine how S&P conducted its business and whether management acted improperly (one wonders if the damage to S&P’s stock price had something to do with these demands). S&P disagreed that the shareholders were permitted access to the extensive list of documents demanded, and agreed to provide only the limited information allowed under the statutes.

October 23, 2014

Violating Confidentiality Agreements

by The Silber Law Firm LLC

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 19, 2014

Arbitration Proceeding Held on Sunday Invalidates Arbitration Award

by The Silber Law Firm LLC

A dispute involving the distribution of an estate was submitted to arbitration. The parties proceeded to court where one party sought to have the arbitration decision confirmed, while the other requested that it be vacated.

One of the grounds for vacatur was the claim that one of the arbitration hearings took place on a Sunday, something prohibited under Judiciary Law §5. While that law addresses court business, the court in this case extended that rule to arbitration, because “arbitrators perform a judicial function.” With that, the court refused to enforce the arbitration proceeding.

The court also found that the arbitrators exceeded their authority on a number of grounds. One of those grounds dealt with the arbitrators’ direction to transfer a property free and clear of liens or mortgages. Because the party holding the lien or mortgage was not party to the arbitration, such directive could not be enforced.