New York Business Litigation Lawyer Blog

May 16, 2022

Fiduciary Relationship Based on Longstanding Relationship

A New York City Commercial Division judge refused to dismiss a host of claims, including unfair competition, alleged by a potential property buyer against a broker. The court held that the broker’s “longstanding business and personal relationship with FCC’s [buyer] principals, during which FCC provided use of its office space, internet, phones, real estate software to Mr. Schwartz [broker] in exchange for his consultation and brokering of various deals which extended up until 2021. Under these facts, it is clear that a special, continuous fiduciary relationship existed between Mr. Schwartz and FFC at the time the information including the price they were negotiating a contract for about the Property was conveyed to him. Instead of keeping this critically sensitive proprietary information private, Mr. Schwartz breached his fiduciary duty to FFC by giving this information to a competitor and encouraging them to purchase the Property for a few hundred thousand dollars more so that he would get paid a substantial commission.”

This case is a bit unusual in that fiduciary relationships are typically found in a special relationship based at least in part on one party’s superior knowledge and the other party’s reliance. Fiduciary duties are not found in run-of-the-mill relationships, including those concerning brokers (not always as we see here). Based on how this decision was written makes clear that the judge was offended by the broker’s conduct.

Four Five Capital LLC v. Schwartz

April 8, 2022

Lender Entitled to Rely on “Facially Valid” Notarization

by The Silber Law Firm LLC

Private lender, in a series of loans, loaned an entity-borrower more than $6 million. The entity was comprised of a father, Michael Miller, and his son, Brandon Miller. While Michael borrowed the money, Michael had his secretary forge Brandon’s signature, which she then notarized. Michael died before the loans were repaid. Upon default, the lender sued the entity and Brandon.

Brandon argued, among other things, that he never signed the loan documents and his signatures were forged. Michael, claimed Brandon, was the responsible party. The court rejected that argument and held that the lender “had no obligation to perform due diligence so as to protect Brandon from the possibility that his father, Michael, and his assistant, Ms. Frangipane, were forging his name to certain loan documents and notarizing his signature and could rely on the facially valid documents, which were notarized and confirmed as validly executed by opinions of Defendants’ counsel.”

While the decision is intuitively logical, imagine the impact on business transactions had the court agreed with Brandon and required a lender to undertake due diligence for a notarized signature. The impact would be severe—every transaction would require insurance. Part of a court’s job is to create consistent and reliable outcomes among a discrete set of recurring circumstances so that businesses can rely on traditional practices.

March 4, 2022

Impossibility of Payment No Defense to Failure to Close

by The Silber Law Firm LLC

Plaintiff, who lives in China, went into contract to purchase a new condominium and associated parking space in New York. The contract contained no financing contingency. Plaintiff made the required deposit but did not provide funds to close. After the contract was signed, China implemented restrictions on money flows out of China for real estate purchases abroad. Unable to locate alternative funding, plaintiff could not fund the closing. Plaintiff canceled the contract and demanded a return of the $162,000 downpayment, suing when the funds were not returned. In response, defendant moved to dismiss for failure to state a cause of action.

Plaintiff argued that its inability to close due to China’s laws made performance under the contract impossible. Defendant denied that and claimed that the terms of the contract permitted it to keep the downpayment. The court agreed with defendant, finding that plaintiff’s inability to close was not excused as impossible. Impossibility only applied where the subject matter of the contract was destroyed or performance became objectively impossible. More, under the terms of the contract, plaintiff waived any financing contingencies, without exception. Under the terms of the contract, therefore, the downpayment need not be returned.

Wang v. 44th Drive Owner LLC

February 16, 2022

Right to Set Breach of Contract Accrual Dates

by The Silber Law Firm LLC

Interesting article from Lowenstein Sandler about the interplay between the freedom to contract and the public policy considerations in setting statute of limitation accrual dates, and whether New York is losing out to Deleware as the better place to do business.

December 29, 2021

Court Affirms Decision Compelling Arbitration at Location Other than as Agreed to

by The Silber Law Firm LLC

In a case between Northrop Grumman and the Republic of Venezuela, the courts were faced with the issue of compelling arbitration in a venue other than the one the parties had agreed to. The Fifth Circuit affirmed the lower court’s decision to compel arbitration in a venue other than Venezuela.

As relevant to this discussion, the facts involved an agreement between the parties, entered into before Hugo Chavez came to power, that called for the arbitration of any disputes in Caracas, Venezuela. Some time later, in the face of a dispute and believing that it would not get a fair shake in Venezuela, Northrop Grumman sought to compel arbitration in another location. Finding arbitration in Venezuela to be impractical due to the political situation, the arbitration proceeded in Brazil. There, Northrop Grumman was awarded $128 million.

In granting Northrop Grumman’s motion to enforce that award, the court rejected Venezuela’s argument that venue was improperly changed. Its appeal followed.

October 26, 2021

New York Court of Appeals Rules Corporate Convertible Loans May Be Subject to Usury Laws

by The Silber Law Firm LLC

From Sidley, an issue that can impact complex loans and investments. This case addresses whether the conversion price in a convertible option can be considered interest and run afoul of New York’s criminal usury laws.

Adar Bays, LLC v. GeneSYS ID, Inc.

October 17, 2021

ERISA Claims Are Not Employment Related and Not Subject to Arbitration

by The Silber Law Firm LLC

Plaintiff Cooper worked for a company (“DST”) which offered a profit sharing plain in which Cooper participated. The plan had two pools of funds, one which included contributions of the employee, which were partially matched by DST, and a profit sharing account (the “PSA”), to which only DST contributed. DST’s employees were automatically enrolled in the PSA and were obligate to keep those funds in the account for so long as they remained employees.

DST hired an advisor, Ruane Cunniff & Goldfarb, to manage the PSA funds, with complete investment discretion, but overseen by DST. The PSA was covered by ERISA regulations which required periodic disclosure of summary descriptions of the employees’ rights thereunder. These descriptions made no mention of arbitration in event of any dispute. DST employees also received investment information and updates about the PSA investments.

All of the employees received a handbook which included that all employment related disputes were to be adjudicated in arbitration. That provision excluded, among other things, ERISA relate claims.

September 30, 2021

Court Sends Question of Arbitrability to Arbitrators

by The Silber Law Firm LLC

“Questions of arbitrability” cover the scope of a dispute and address whether “parties are bound by a given arbitration clause,” and if an agreement to arbitrate “applies to a particular controversy.” The question of whether a matter is required to be arbitrated or whether a party is obligated to arbitrate a dispute, “is generally an issue for judicial determination.” However, “when the parties’ agreement specifically incorporates by reference the rules of” the arbitration panel and states that “all disputes” are to be decided by arbitration, “courts will leave the question of arbitrability to the arbitrators.” In this case, AAA was the denominated panel, and the parties’ agreement provided that any controversy or claim arising out of or relative to the agreement was to be submitted to the AAA. As such, the court determined that the questions or “issues of arbitrability” were for the arbitrators to decide.

Bromberg & Liebowitz v O’Brien

September 5, 2021

Court Modifies Arbitration Agreement Striking Unconscionable Provisions

by The Silber Law Firm LLC

We have discussed cases where the costs of arbitrating a dispute were so prohibitive that the First Department voided the arbitration agreement.

In a recent Federal decision out of Texas, a court modified an arbitration agreement’s cost and venue provisions, relieving a party from some of the costs she would otherwise have been obligated to pay.

As part of her employment, plaintiff agreed to arbitrate any claims arising from her employ. She commenced suit against her employer alleging wage and labor claims. The employer sought to compel arbitration. There was no dispute that the employee signed an arbitration agreement that covered her asserted claims. Instead, the employee argued that the agreement was unenforceable because it’s cost-splitting and venue provisions rendered it “substantively unconscionable.” The employer countered that the provisions were reasonable but if they were not, the court could sever those provisions while still compelling arbitration.

July 29, 2021

Court Refuses to Disqualify “Wing” Arbitrators

by The Silber Law Firm LLC

After an extensive selection process to select arbitrators, and 10 hearings over 19 months, defendant sought an injunction to stay the continuation of an AAA arbitration and to disqualify the remaining two arbitrators. At a point prior to that, the panel chair disclosed that his daughter-in-law was an attorney working for the same firm that was representing plaintiff. Not seeing a conflict, the other panel members supported the chair’s efforts to stay on the panel. After defendant objected, the AAA removed the chair from the panel, but not the “wing” arbitrators.

Defendant sought to disqualify those two remaining panel members because they did not agree to disqualify the chair and were thus “compromised by their improper participation” in the chair’s disclosure process and efforts to stay on the panel, which purportedly demonstrated their impartiality against defendant. It appears from the decision that defendant was not just complaining about the chair’s discussion with the other two arbitrators about the conflict and his resignation, but their knowledge that defendant challenged their partiality, all of which rendered them unfit to continue as arbitrators.

After noting that the AAA had the final say about disqualification of arbitrators, and did not bar the type of discussion of which defendant complained, the court held that defendant was not entitled to the injunction finding “neither the appearance [of] nor ‘probable partiality.’” Reiterating the reluctance of courts to interfere in a pending arbitration, especially as AAA rules and procedure were on point to the issues of which defendant complained, the court rejected defendant’s argument that the disqualified arbitrator somehow poisoned the remaining two. The court underscored its opinion of defendant’s application by pointing out that defendant’s concern about the remaining arbitrators’ opinion of defendant was entirely of its own making in that until the lawsuit was filed those two arbitrators were not aware that defendant was challenging their role as the remaining arbitrators. The court closed its opinion by rejecting the remaining claims of bias asserted by defendant and reminding defendant that it could object to the panel’s decision in court.