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Obama Care and the Sale of an Interest in a Privately Held Entity

January 24, 2014

I received some interesting information from EisnerAmper concerning this issue, which many people may be unaware of. Have a read here.

Meaningful Changes Come to NY's Non-Profit Laws

January 13, 2014

In late December 2013, new laws were put in place addressing non-profits. While we do not have a significant non-profit practice, we are often asked about issues relating to non-profits. To that end, here is a link to a more robust discussion of the Nonprofit Revitalization Act of 2013.

Another Reason Not to Accept Every LinkedIn Invite

January 10, 2014

LinkedIn sues to stop bots that are stealing its user profiles.

Court Applies Pre-Suit Notice for Non-Foreclosure Action Based on Mortgage Note

December 10, 2013

A lender has two options in seeking repayment on a defaulted home loan. A lender has the option of commencing a foreclosure action, auctioning the property, and applying the sale proceeds against the loan amount due. Or, a lender can sue based on the promissory note underlying the loan and obtain a money judgment. A lender cannot do both. RPAPL § 1304 requires that a lender provide a 90-day notice before it commences a lawsuit based on a home loan, which is typically a foreclosure action. The question facing the court in this case was whether the 90-day notice is also required where the lender sues on the promissory note and foregoes seeking foreclosure.

Construing the statute broadly, the court found that RPAPL § 1304 is to be applied to any lawsuit commenced against a borrower that involves a home loan. The court seemed compelled to explain this outcome, because aside from finding this outcome to be consistent with the language of the statute, it grounded its decision on the fact that once a money judgment is obtained by the lender, the home owner will be "subject to levy upon his or her personal property, motor vehicle, savings account and/or other asset, such could result in the borrower being compelled to sell the property in order to protect these possessions." The court was also concerned that a money judgment "may complicate settlement negotiations" in the event the borrower also defaulted on a senior loan (this case involved a second loan). As a result, this borrower was entitled to the remedial provisions of this statute.

While the outcome here seems reasonable, it is clear that Judge Demarest felt the need to rationalize the outcome by making assumptions about what might occur in the future which could result in the sale of the property. Does that mean that for RPAPL § 1304 to apply in this setting there must be a possibility that the subject property will be at some point sold?

Cadelrock Joint Venture, LP v. Callender; Kings County, Judge Demarest

Insurance Policy Applies Even With Wrong Party Named

November 11, 2013

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.

Email Agreement Creates Enforceable Settlement

November 1, 2013

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).

Forcelli v. Gelco Corp.

The Facts Behind the Infamous McDonald's Coffee Spill Verdict

October 24, 2013

I was sent a link to a New York Times video explaining the facts behind this national story. It was news to me, and very interesting.

New Jersey Court Creates Liability for Sending Text Message

September 9, 2013

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."

Sensibly, the court stated that "one should not be held liable for sending a wireless transmission simply because some recipient might use his cell phone unlawfully and become distracted while driving." Even where someone may be driving, not "every recipient of a text message who is driving will neglect his obligation to obey the law and will be distracted by the text. Like a call to voicemail or an answering machine, the sending of a text message by itself does not demand that the recipient take any action. The sender should be able to assume that the recipient will read a text message only when it is safe and legal to do so, that is, when not operating a vehicle. However, if the sender knows that the recipient is both driving and will read the text immediately, then the sender has taken a foreseeable risk in sending a text at that time. The sender has knowingly engaged in distracting conduct, and it is not unfair also to hold the sender responsible for the distraction."

Despite the general holding of this decision, reading it indicates that actually finding liability for sending a text seems rather distant. That said, don't text and drive.

Client Sues His Lawyer--for Copyright Infringement

August 27, 2013

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:

Continue reading "Client Sues His Lawyer--for Copyright Infringement" »

Avis Cannot Bury Additional Fees in its Contract

August 20, 2013

Avis's car rental agreement provided that the renter would be charged the non-discounted rate for E-Z Pass toll usage. In its provisions dealing with rental charges, Avis made no mention of an additional $2.50 fee, assessed daily, for the renter's E-Z Pass use. When Avis demanded that the renter pay that daily fee, the renter refused. Instead, he sued Avis and sought class action status. The renter claimed that Avis breached the rental agreement and argued that Avis's conduct violated New York State's consumer protection statutes.

In denying Avis's request to dismiss the case, the court emphasized that while the font type of the language addressing this daily fee satisfied the statutory minimum, the fact that Avis disclosed the $2.50 fee in its paragraph titled "Collections," where Avis detailed its rights in the event of a renter's non-payment and not in the "Rental Charges" section, where all of the other rental charges are addressed, could be misleading to the consumer and precluded dismissal of the lawsuit.

Court Dismisses Madoff Investors' Claim Against the SEC

April 22, 2013

A group of investors sued the Security and Exchanges Commission for failing to supervise Madoff and investigate complaints it received before the Madoff scandal unfolded. Despite finding that the SEC had dropped the ball, both before and during the investigation, the Second Circuit found the SEC, as an arm of the United States Government, immune from liability.

In discussing the laws covering this immunity, the court, citing others, stated that the immunity is not "about fairness, it 'is about power. . . [where] the sovereign 'reserves to itself the right to act without liability for misjudgment and carelessness in the formulation of policy.'" Therefore, despite the court's "sympathy for Plaintiffs' predicament (and our antipathy for the SEC's conduct)" the immunity provided by Congress defeats plaintiffs' claims.

Isn't it nice to be king?

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

December 26, 2012

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.

The outcome in this case triggered a strong dissent, addressing the alleged concealment by the seller, and whether or not the buyer should have, with reasonable effort and investigation, discovered the bat problem that the majority found to have been concealed by the seller.

Although in the minority, the dissent's objections seem to make sense. The dissent argued that the buyer knew or should have known that something was amiss yet failed to investigate. The buyer had ample opportunity to inspect, was aware that the exterior of the property was stained, that the attic smelled strongly of urine and moth balls, and saw electric extension cords (presumably for lighting) running to the attic (which may have been used to force the bats to leave temporarily). The buyer even knew of the removal of "bird feces" (later determined to have been bat guano), all of which should have been sufficient to raise suspicions and cause the buyer to investigate further. Instead, the buyer took the word of the seller that nothing was amiss and left it at that. Given these facts, held the dissent, the buyer had no claim against the seller.

Ghosts and bats aside, don't be fooled. Claims that a seller hid some defect from a prospective buyer are often rejected by the courts. The concept of "buyer beware" is alive and well in New York State. Before one buys a property of any kind, a careful physical inspection and review of title cannot be ignored. Any defect or objection will not be sustained if that defect or objection was in any way known to the public or with reasonable diligence able to have been discovered by a prospective buyer.

Because the facts often dictate the outcome, investigating who knew what and when is critical. The Firm has been involved in concealment cases in New York City and can discuss any issues relevant to your situation.

Is There a "Haunted House" Exception in Real Estate Contracts?

November 13, 2012

I found this case while researching a potential litigation. While it is not a new decision, it presents a rather unusual set of facts.

A property buyer is charged with acting diligently in inspecting a property that is being considered for purchase. Because a property is purchased "as is," a seller has no obligation to disclose anything, meaninig, that a buyer cannot seek redress for any defects to the property or its chain of title discovered after the closing has taken place. As a result, prior to buying a house--or any property--it is physically inspected and the chain of title carefully examined. There are two exceptions to this rule: (i) Where a seller creates a defect that cannot be found by a buyer in an ordinary inspection, referred to sometimes as a seller's "active concealment" and (ii) where the parties are in some confidential relationship that requires a seller to disclose any information that could affect the property (these are infrequently found).

The buyer in this case sought to rescind the contract because the house he had agreed to buy was reportedly haunted. This fact was reported by some news outlets after the seller announced that it was haunted and allowed for it to be a tourist spot. The buyer, however, was not from the area and had no knowledge of the property's reputation. When the seller refused to cancel the deal, the buyer sued to rescind the sales contract. The trial court denied the buyer any relief, but the Appellate Division, First Department, reversed. The Appellate Division's description of the facts and principles are colorful and I quote some of it here.

After stating that the broker had no obligation to disclose the "phantasmal reputation" of the property, and that the buyer did not have "a ghost of a chance" to assert fraud by the seller (as opposed to rescinding the contract), the court decided, from an equitable perspective, that investigating ghost sightings was practically impossible. "Applying the strict rule of caveat emptor [buyer beware] to a contract involving a house possessed by poltergeists conjures up visions of a psychic or medium routinely accompanying the structural engineer and Terminix man on an inspection of every home subject to a contract of sale. It portends that the prudent attorney will establish an escrow account lest the subject of the transaction come back to haunt him and his client--or pray that his malpractice insurance coverage extends to supernatural disasters. In the interest of avoiding such untenable consequences, the notion that a haunting is a condition which can and should be ascertained upon reasonable inspection of the premises is a hobgoblin which should be exorcised from the body of legal precedent and laid quietly to rest."

The court differentiated between recovering damages and rescinding the contract. While there was no strong legal basis to recover damages, presumably because the court would not find true fault with the seller's actions, fairness would not compel the buyer to close on this contract, where the buyer did not, and could not, have discovered this issue. Recognizing that it was pushing the boundaries of settled law, the court stated that where "fairness and common sense dictate that an exception should be created, the evolution of law should not be stifled by the rigid application of a legal maxim." Finding that the buyer undertook all the normal and reasonable inspections of the property, and because no amount of research would have revealed to the buyer "the presence of poltergeists at the premises or unearth the property's ghoulish reputation," the contract would be rescinded.

The court dismissed the seller's claim that the contract provided that the property was being sold "as is" because this information was unique to this seller and had not been disclosed to the buyer. With its tongue in cheek, the court pointed out that if the terms of the contract were scrutinized, it was the seller that was in breach, as she could not deliver the house "vacant," as called for under the contract.

It is important to note that the court held this way in large part because it was the seller that revealed the condition of the house to the press, but not to the buyer. By doing this, the seller was engaged, to some degree, in the "active concealment" of a defect.

This conduct was not enough for the dissent. The dissenting opinion would have enforced the contract because the seller took no active steps to hide a defect or deceive the buyer. As far as the haunted nature of this house, the dissent argued that the "existence of a poltergeist is no more binding upon the defendants than it is upon the court."

As a practical matter, issues of disclosures have been altered in many respects by New York State's mandatory disclosure laws which compel disclosure and some waiver of defects. That said, there is plenty of active litigation over disclosure and the lack thereof when properties are bought and sold.

So Poker Is Not Illegal? Not So Fast

September 12, 2012

A recent decision by Senior Judge Jack B. Weinstein in United States of America v. DiCristina dismissed claims against the defendant because the gambling complained of did not violate the Illegal Gambling Business Act.

Read some important highlights here

For a discussion about permitted sweepstakes vs. illegal gambling, have a read at a prior post.

How Much of Your Information Is Available to the Public?

March 14, 2012

I don't usually comment on these issues, but a recent article at Findlaw raises red flags. It seems that your smartphone address book and emails may be accessible to others, with no notice to you. Read more here.