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Guest Post: Avoid LegalZoom

October 8, 2015

This post was authored by Trippe Fried, Esq., and appeared at

Though LegalZoom purportedly offers a low-cost alternative for routine legal matters, in reality it sells only one thing: A false sense of security. And let's dispense at the outset with the myth that it is self-serving for a business lawyer to be critical of an incorporation service. There is usually more to be made in attorneys' fees helping clients clean up the messes LegalZoom (or Clerky, or the like) leave behind than handling routine incorporations. But it still needs to be stressed: LegalZoom's "why use a lawyer when you don't need one" logic is disingenuous, misleading, and potentially very costly.

You don't need a lawyer, accountant, or service to incorporate. Anyone can do it by visiting the official government website of the jurisdiction of formation. Some states like New York and New Jersey offer self-explanatory online filing; others like Delaware and California provide easy to complete forms that you submit by mail. Follow the instructions and . . . Voila! . . . you're business is incorporated.

Starting a business is about forming relationships. You have new partners, co-owners, vendors, customers, and investors. The rights and responsibilities of each need to be discussed, clearly established, and then documented. A lawyer's ability to guide clients toward well-defined, workable, and mutually beneficial relationships and then to capture the spirit and intent of the parties in writing is indispensable. A well-drafted contract is tailored to the signatories' specific needs and easily understood by them without consulting counsel. The boilerplate, one-size-fits-all tomes LegalZoom cranks out look nice but are often confusing to the point of uselessness and contain pages of superfluous language. Just this week the owners of two different companies with which I work learned that the canned documents they used to incorporate prior to hiring me, while voluminous and very official looking, contained provisions that could prove very costly because they didn't meet the specific needs of the businesses and their owners.

This is not to say that a business should spend a lot on legal services at the start-up phase. Quite the contrary: The key is to find out what your business needs. Triage is part of the process: Don't pay now for services that won't be necessary until a later date. But simply buying a bunch of documents and assuming you're covered is foolish. Entrepreneurs - that is, people serious about starting a successful business - know better than to use form-fillers for legal advice.

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

August 25, 2015

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

Landlord Cannot Collect More than Actual Damages

August 12, 2015

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.

Right to Privacy Is Not Absolute

July 14, 2015

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.

In this case, there was no real dispute that the pictures were items of art, and despite the obvious profit motivation and questionable methods in obtaining the pictures, no violation of plaintiff's privacy could be found.

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?