It is no secret that convincing a judge to vacate or even modify an arbitration award is a tall order. Even more difficult is to vacate based on a public policy argument. To establish vacatur on public policy grounds, a petitioner must show either that the arbitrator decided an issue that is deemed a matter of public policy and thus not subject to an arbitrator’s jurisdiction or where the arbitrator’s award violates a well-defined law or regulatory provision; and this prong can be further broken down.

In this case, Petitioner was employed by an executive search firm. As part of his employment agreement, Petitioner agreed not to compete for six years within 100 miles of the company’s office and/or New York City. After arbitrating between Petitioner and his employer, Respondent, an award was issued that enforced the restrictive covenant. Petitioner came to court seeking to vacate the award. Among the arguments petitioner made was that the broad nature of the restriction, on its face, violated public policy as being unreasonable in scope as a matter of law.

After finding that the award did not run afoul of the first prong noted above, the Nassau County court considered whether the broad scope of this restriction comported with the policy considerations of restrictive covenants—to protect an employer but also not deprive an employee of earning a living in his chosen field of work. After noting that the six-year term would alone not necessarily offend public policy, the court turned to the geographic scope of the restriction. Finding that the award barred Petitioner from working in the “United States’s largest city by population [and] all of its metropolitan area, and more,” and “greatly affect[ed]” his ability to earn an income in the field where he has years of experience, did not just protect Respondent from unfair competition but was grounded in preventing Petitioner from competing at all and thus violative of public policy. As such, the award was vacated.

Owner of a property entered into a contract for its sale. At the time of the contract, Owner, a corporation, was dissolved by proclamation. The contract had a one-year closing date, time being of the essence, but if there was no closing, Buyer’s downpayment would be returned upon its termination of the contract. If the buyer defaulted, however, it would forfeit its downpayment.

Upon receiving the title report, Buyer learned that Seller had been dissolved, which was marked as an exception on that report. To remedy the issue, language was inserted into the deed “indicating that the transfer was being done to wind up [Seller’s] business.” Upon vacating the residential tenants and putting the commercial tenants on notice that they would have to do the same, Seller notified Buyer that it was ready to close.

Buyer’s new counsel then notified Seller’s that because Seller was not in good standing, and without authority as an entity to enter into the contract, Seller was in default. Buyer demanded the return of its downpayment. Seller’s attorney responded by demanding to close and that if Buyer did not, it would be held in default.

Early in 2019, we discussed the binding effect and enforcement of an unsigned agreement. This case again addresses this idea, although in a different setting, but also stands for the proposition that because the agreement did not “positively state that the parties could assent only by signing,” the unsigned (but agreed to) agreement in these circumstances would stand.

Here, a real estate broker in the midst of a two-year employment agreement reached an agreement with his employer to leave. The parties’ termination agreement was not signed by either party. Despite their agreement in principle, the employer refused to pay the employee certain commissions to which he claimed to be entitled post-departure. The court determined that the employer’s failure to pay breached the signed employment agreement and the unsigned termination agreement, both of which addressed the post-termination commission payments.

That the termination agreement was not signed did not sway the court. Initially, while the employment agreement specified that absent the parties’ execution it would not be effective, the termination agreement included no such provision. The court found this to be noteworthy as it demonstrated the employer’s understanding of this concept. The failure to include this same language in the termination agreement, as noted above, precluded the employer’s claims that it was not enforceable. Finally, the email chain between the parties evidenced their intention to be bound, even absent the signatures.

A property owner challenged a lien because the contractor did not apportion the work over two properties, thus exaggerating the lien amount and subjecting it to cancellation.

The First Department refused to cancel the lien, finding that the Lien Law did not require that multiple liens be filed for work under one contract. The court also decided that the claims of exaggeration was not “conclusively established,” without which dismissal could not be granted.

J.T. Magen & Co. v. Nissan N. Am., Inc.

In refusing to dismiss a complaint alleging breach of an operating agreement which gave the defendants “‘sole and absolute discretion’” to “select the company’s investments,” Judge Jennifer Schecter of New York County’s Commercial Division held that no matter the language of an agreement—which should be enforced according to its terms—“the implied covenant of good faith and fair dealing can never be waived.” Here, defendants’ conduct in diverting a company opportunity for an investment in a fund where they held an undisclosed interest gave rise to plaintiff’s fiduciary duty claim.

Shatz v. Chertok

Specifically in connection with real estate contracts, where issues come up during the due diligence period, parties often demand relief of their own imagination, which courts refuse to enforce.

In a case decided in the Commercial Division of Kings County, involving a buyer’s demand not found in the contract, the court reaffirmed the principle that relief outside the contract would not be considered and would be deemed a default. There, the seller held some 71% of the property, with the remaining interest held by the seller’s brothers. When it turned out that certain estate proceedings required to clear title would be costly, the seller notified the buyer that those proceedings exceeded what was required of him to provide clean title under the parties’ contract, but also asked that the purchase price be raised to comply with the estate proceedings. The buyer sued claiming that this notification breached the contract. Both parties moved for summary judgment.

In dismissing the buyer’s claims and his case, the court found that the buyer had two options once he learned of the costs to be incurred by the seller—either take the property as is or cancel the contract and receive the return of his downpayment. The buyer did neither. Because the buyer had no other option in connection with the seller’s notice his lawsuit was itself a breach of the contract allowing the seller to deem the buyer to be in breach, entitling him to judgment dismissing the lawsuit.

In refusing to dismiss a case where anticipatory repudiation of an employment agreement was claimed, the court held that for the purposes of a pre-answer motion to dismiss, plaintiff’s claim that he sent three emails to defendant about unpaid commissions which were ignored sufficed to properly allege that claim—“the Defendants’ failure to state its intent to perform under the Employment Agreement and Commission Agreement when such agreements required payment by a date certain is sufficient to state a cause of action for anticipatory repudiation.”

Cooperstein v. Securewatch24, LLC

Landlord sued the guarantor of a lease when the tenant failed to pay. The guarantor argued that it should not be liable for the full amount of the rent as called for in the lease because the landlord and tenant had negotiated a temporary discount without informing or consulting the guarantor. The court did not agree.

While the court agreed with the notion that an agreement cannot be modified without the consent of a surety, and that a new agreement relieves the guarantor from liability, “‘[t]he test is whether there is a new contract which will be enforced by the courts.’ However, “‘[i]ndulgence or leniency in enforcing a debt when due is not an alteration of the contract … .’” With that, the court held that “[t]he subsequent agreement between the tenant and the landlord reducing the tenant’s rent obligations did not discharge defendant’s obligations under the guaranty as it merely constituted leniency on the part of the landlord and did not create a new contract between the parties.”

SpringPRINCE, LLC v. Elie Tahari, Ltd.

The parties to a failed merger agreed to arbitrate the issue of damages resulting from the inability to complete the merger. As part of the arbitration, one of the parties made a declaration specifically disavowing any knowledge of a certain escrow payment that was to have been made as part of the efforts to complete the merger. As a result, the arbitrator concluded, relying on that declaration, that the escrow payment was never made so that the other party breached the merger agreement. Discovery in a related action, however, disclosed that the declaration was inaccurate and that its maker had lied. The court, applying the Federal Arbitration Act (the “FAA”), vacated the arbitration award.

After first explaining that it applied the FAA and not New York’s rules because the merger involved international commerce, the court went on to note the well-worn standard that its ability to review an arbitration award was extremely limited and that it would be compelled to uphold such an award even where the arbitrator provided “‘even a barely colorable justification for the outcome reached.’” Despite this high bar, the court also recognized that some conduct would support vacatur. Where fraud was the basis to vacate, the fraud must have been material and not discovered before the award was issued. There also must be a showing that there is a connection between the fraud and the award. Even something less than outright fraud, which the court called “undue means,” could support vacatur.

In this case, the declarant’s failure to disclose the truth permitted the court to vacate the award as having been procured by fraud or undue means.

Over a robust dissent, the Court of Appeals, in a long decision discussing the policy considerations in enforcing contracts as written, affirmed the Second Department’s decision, also over a passionate dissent, affirming a trial court’s decision dismissing a commercial tenant’s declaratory judgment action and with it, the tenant’s Yellowstone injunction.

“In New York, agreements negotiated at arm’s length sophisticated, counseled parties are generally enforced according to the plain language pursuant to our strong public policy favoring freedom of contract.” So begins the Court of Appeal’s decision in 159 MP Corp. v. Redbridge Bedford, LLC.  That case involved a dispute between a commercial landlord and tenant where the parties’ lease provided for the tenant’s waiver of its “right to bring a declaratory judgment action with respect to any provision” of that lease.

In response to the landlord’s demand to cure certain defaults, the tenant commenced an action seeking a declaratory judgment of its rights under the lease, and sought a Yellowstone injunction. The landlord sought dismissal of the declaratory judgment action, and the Yellowstone, based on the waiver contained in the lease. The tenant claimed that the waiver was mistakenly included for this purpose, intended only for summary proceedings. (It seems that it was not until the parties were before the Second Department that the tenant raised the argument that enforcing the lease as written should be void as against public policy.)

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