New York Business Litigation Lawyer Blog

September 5, 2018

Three Million Dollar Default Arbitration Award Allowed to Stand

Suffolk County Commercial Division Justice Elizabeth Emerson refused to vacate a FINRA arbitration decision which awarded the petitioner $3,229,097, plus interest, after respondent defaulted in the underlying arbitration.

The facts, briefly, are as follows. Respondent was petitioner’s investment advisor and broker. After withdrawing her participation in a FINRA investigation, respondent was permanently barred from the securities industry. Nonetheless, pursuant to her prior agreement with FINRA, respondent was obligated to arbitrate any customer complaints. In connection with that obligation, all FINRA members must provide FINRA with current addresses for service of process.

Petitioner commenced an arbitration proceeding against respondent. Commencement papers were sent to petitioner at her New York City and Sag Harbor addresses. A subsequent mailing to her New York City address informed respondent that she was the sole remaining respondent in the arbitration. A third mailing warned respondent that her time to participate was expiring. None of the mail was returned to FINRA. A final mailing, sent certified, to respondent’s New York City address was returned as unclaimed. After the arbitrator conducted a hearing without the respondent’s participation, a default award was entered.

August 22, 2018

Court Refuses to Blue-Line Non-Compete Agreement

by The Silber Law Firm LLC

In another demonstration of New York’s inclination not to enforce non-compete agreements, two weeks ago, the Second Department refused to enforce the non-compete agreement of a professional, a class of people for whom a such an agreement has a better shot of enforcement than in most cases generally.

Plaintiff is a surgical group, maintaining seven offices in the New York metropolitan area. Plaintiff hired a surgeon who signed a three-year employment agreement. This agreement included a non-compete provision prohibiting competition for two years after termination and within a 10-mile radius from any of plaintiff’s offices and its affiliated hospitals. Defendant spent most of his time while working for plaintiff in Nassau County. Some four years later, defendant was fired.

Defendant thereafter began work at a hospital that was within the 10-mile zone but his office was not. Plaintiff filed suit claiming the breach of the non-compete agreement. That action was met with a successful motion to dismiss, which plaintiff appealed.

August 7, 2018

Divided California Supreme Court Refuses to Compel Yelp to Remove Review

by The Silber Law Firm LLC

In an interesting case from the California Supreme Court, the court decided, in a 102 page split 4-3 decision, that an order compelling a writer to remove a post on Yelp cannot be used to compel Yelp to remove that post when the poster defaults or fails to do so.

The details of this case and its legal background are a bit beyond the scope of this post (and we did not fully review the 102-page decision), but we try to provide an overview of the facts and circumstances of this case.

Yelp and others like it are generally immune from lawsuits for third-party reviews and statements under the Decency Comminations Act (the “DCA”). Under the DCA, so long that Yelp simply acts as a passive bulletin board it is not seen as offending the rights of another, including with posts that are claimed to be defamatory. In this case, Ava Bird, a client of a law firm, allegedly posted negative reviews about the firm which it claimed were defamatory. Bird defaulted in the law firm’s suit against her, and the lower court granted the firm the main relief it sought ordering Bird to remove the posts. Included in the court’s decision was a directive to Yelp that if Bird did not remove the posts Yelp must. In issuing that order, the court recognized the limitations of the DCA but held that because Yelp was not found culpable or liable for any wrongdoing, his decision did not run afoul of the DCA. All the court required was that Yelp remove the posts if Bird did not, but nothing more. Yelp challenged the decision and sought its vacatur. Yelp argued that it was not a party to the lawsuit yet was required to do something, thus deprived of its due process in the lawsuit, and also claimed that the DCA shielded it from having to do anything. The court rejected Yelp’s arguments and stuck to its original decision. The appellate court affirmed, ruling that Yelp was not a publisher of these posts, had no right to be heard, and was not protected, in this setting, by the DCA. Yelp appealed to the California Supreme Court, where more than a dozen amicus briefs were filed in support of Yelp.

July 26, 2018

Lawsuit Proceeds Despite Plaintiff’s Release of Defendant

by The Silber Law Firm LLC

Although this took place in a setting of a personal injury action, the court’s decision with these facts is broad enough to include other settings.

In this case, the plaintiff was injured in a car accident and accepted a settlement from the driver’s insurance company for a nominal sum. In connection with that payment, she executed a release of all claims against the driver. Three days later, she underwent further x-rays and learned that she had a fractured fibula. The plaintiff thereafter sued the driver prompting the insurance company to seek dismissal based on her release. The plaintiff opposed arguing that her release was the product of a mistake, and was unfair and fraudulently obtained. The lower court granted the insurance company’s motion and dismissed the case.

Upon appeal, however, the Third Department reversed. After recognizing the well-settled rules governing a release, including that it may be set aside if it was the product of fraud or mutual mistake, the court distinguished between unknown injuries and “‘mistakes as to the consequences of known injuries.” The first element can be the basis for a mistake which could invalidate a release, while the latter could not. In this case, where the plaintiff claimed to have not known of her broken leg, she should be permitted to pursue her case. The court noted that when the plaintiff presented at the hospital she was told that her leg was not broken despite the fact that plaintiff, while on pain medication, complained of leg pain, including to the insurance adjuster. The adjuster told her that it was probably a bruise and talked her into settling.

March 28, 2018

Arbitration Decision Denying Broker a Commission Overturned

by The Silber Law Firm LLC

A broker was hired to find a tenant for a residential apartment in Manhattan. The parties agreed that the broker would receive a six percent commission if the tenant purchased the apartment within six of months after the lease expired, or any extension thereof. The broker found a tenant, and a lease was executed on July 15, 2012, with an expiration of July 14, 2013. With a verbal agreement, the tenants remained until July 10, 2014, when they purchased the apartment for $3.05 million. The owner refused to pay the six percent commission. The parties went to arbitration, where the arbitrator found against the broker.

The broker filed a petition to vacate the award, arguing that the arbitrator’s decision in denying the commission was based on the immaterial allegation that the broker lacked an active role in the sale, and violated public policy. The owner argued that (i) the agreement was signed with the owner’s wife, (ii) the broker did not procure the buyer as the tenants reached out to the owner directly, and (iii) the sale took place a year after the lease expired.

After outlining the limited grounds for overturning an arbitration award, and discussing the basis for this arbitrator’s award—that the owner’s wife signed the brokerage agreement without focusing on the sales commission and without the consent of the husband—the court vacated the award as being irrational and violative of a strong public policy. The court refused to find that the wife’s failure to focus on the commission as a valid reason to ignore the parties’ executed agreement. The court noted that the arbitrator did not base his decision on the wife’s alleged inability to bind her husband or any defect in the agreement. (The court did not address the outcome of this case had the wife’s authority been challenged.) The arbitrator’s emphasis on what the owner’s wife understood could not be a basis for a decision.

January 25, 2018

Don’t Ask for a “Lawyer Dog”

by The Silber Law Firm LLC

While we don’t have a criminal practice, a decision out of Louisiana’s high court highlights the importance of demanding counsel — clearly.

From the Washington Post:

“[W]hen a suspect in an interrogation told detectives to “just give me a lawyer dog,” the Louisiana Supreme Court ruled that the suspect was, in fact, asking for a “lawyer dog,” and not invoking his constitutional right to counsel.”

January 22, 2018

Another Case Where Non-Compete/Confidentiality Provisions are Found Unenforceable

by The Silber Law Firm LLC

As promised, we write about another recent trade-secret case where the court refused to enforce an employer’s claims that its information was secret.

After plaintiff was indicted for a host of crimes, some of its employees left to form a competing business, in violation of their non-compete and confidentiality agreements. These employees argued that because of the indictment, their past employer had unclean hands and could not enforce the non-compete, which is equity-based relief and unavailable generally where the other party does not act equitably.

Judge Emerson, of Suffolk County Supreme Court, first addressed the non-compete issue by noting the “powerful considerations of public policy which militate against sanctioning the loss of a person’s livelihood.” This principle resulted in the general rule that restrictive covenants that prevent an employee’s work in a similar line are “disfavored by the law.” She then found that the non-compete provisions, which bound the employees for three years and contained no geographical limitation, to be overbroad, unnecessary to protect the employer, and therefore unenforceable.

December 11, 2017

Anticipatory Breach Allegation Dressed as Declaratory Relief

by The Silber Law Firm LLC

Earlier this year, we wrote about the First Department’s decision addressing the question, as framed by the Court of Appeals, of “whether the mere commencement of an action seeking ‘rescission and/or reformation’ of a contract constitutes an anticipatory breach of such agreement.” The First Department found that it did. The Court of Appeals recently disagreed and reversed.

The facts of this case are found in our prior post. Briefly, a buyer entered into a contract to buy two parcels of land with the closing set for after the seller obtained certain regulatory approvals, but not later than 18 months from the contract date. If the approvals could not be obtained either party could, among other things, terminate the contract. After the approvals were delayed, the seller opted to terminate the contract and return the downpayment unless the buyer agreed to modify the contract. The contract was modified to extend the deadline to close and other contract terms. The parties also agreed that the buyer would not sue the seller if the approvals could not be timely delivered. Believing that the approvals were forthcoming, the parties again extended the closing deadline. Before that newly extended closing deadline, the buyer sued the seller seeking to cancel, or rescind, the contract. The seller counterclaimed claiming that the buyer’s lawsuit, by which it announced that it would not close and sought to cancel the contract before the time to close, was itself a default entitling the seller to keep the buyer’s substantial downpayment. After the buyer’s lawsuit for rescission was dismissed, the seller pursued its counterclaim for the downpayment. The First Department deemed the buyer’s lawsuit to be a breach of the parties’ contract and allowed the seller to keep the downpayment.

The Court of Appeals zeroed in on the First Department’s core finding that “the Appellate Division affirmed . . . because a rescission action unequivocally evinces the plaintiff’s intent to disavow its contractual obligations, the commencement of such an action before the date of performance constitutes an anticipatory breach’ (Princes Point LLC v. Muss Dev. L.L.C., 138 AD3d 112, 114 [1st Dept 2016] ). The Appellate Division also concluded ‘that the seller . . . was not required to show that it was ready, willing, and able to complete the sale [as a condition of receiving damages] because the buyer’s anticipatory breach relieved [the seller] of further contractual obligations’ (id.).”

November 17, 2017

Two Recent Trade Secret Cases Fail to Find That Secrets Existed or Were Capable of Protection

by The Silber Law Firm LLC

Two cases, one State and one Federal, declined to prevent a competitor from using what was alleged to be another’s secret information.

In Art and Cook, Inc. v. Haber, the Eastern District court found that the secrets alleged to have been infringed or disclosed were in fact not secrets, legally speaking. The plaintiff claimed that Haber, an ex-salesman of plaintiff’s cookware and kitchenware, had been caught emailing himself a list of buyers and separately, marketing, sales and customer list information. After Haber’s termination, he began to compete against plaintiff.

In declining to find that these lists were protectable trade secrets, the court addressed each of these two categories of information that Haber had sent himself. The court discussed the reason and manner of how a customer list could be deemed a trade secret. Specifically, a customer list created through significant effort and which contains unique or valuable information generated by a business, and maintained by the business as a secret, may be enforced as a secret. But, a “contact list [that] contains little more than publicly available information, even if it takes considerable effort to compile, it is not accorded protection… .” In this case, the court determined that the customer list was a compilation of names that the plaintiff hoped to solicit but which did not reflect unique information. That the list took substantial time to create would not convert a list consisting of largely public information into a secret. Finally, the court noted that where “the contacts on Plaintiff’s customer lists are generally known within Plaintiff’s industry is fatal [to a claim of infringement]. Simply put, knowledge that is generally known within an industry cannot be said to constitute the trade secret of one industry participant.”

November 6, 2017

Guarantor’s Liability Greater than Obligor’s

by The Silber Law Firm LLC

A guarantor was sued for the failure of the obligor/tenant to pay rent. The tenant had defaulted on a commercial lease and under the lease’s acceleration clause owed the landlord more than $1,740,000. When the guarantor was sued, he claimed that the landlord’s re-letting of the space precluded full recovery under the acceleration provision and that his liability was limited to what the tenant owed.

The First Department recently rejected that argument. While not disputing that a tenant might not be liable for the period of time for which the premises had been rented to a new tenant, the guarantor did not have the benefit of that provision to offset the amounts due. The court stated that in this setting, a guarantor’s “liability can be greater than that of the obligor tenant, as the lease and guaranties were separate undertakings, and the latter are enforceable without qualification or reservation.”

Essentially, the guaranty agreement, while guaranteeing the underlying lease, was a separate agreement governed by its own set of rules which were not the same as the underlying lease. We saw a similar outcome in a case about a dispute over a brokerage agreement that resulted in a settlement agreement. The settlement agreement was a document distinct from the brokerage agreement, with its own terms and conditions, and enforceable as such. We wrote about it here.