New York Business Litigation Lawyer Blog

May 18, 2020

Recent Case Asserting COVID-19 Defense Fails

While short on facts, a recent decision out of the Southern District rejected the defendants’ claim that their inability to pay on a consent judgment was due to COVID-19. The defendants did not deny liability, only that their payment should be excused because the virus and the circumstances rendered them unable to pay.

Magistrate Judge Stewart D. Aaron rejected that argument. Asserting the impossibility defense, held the Judge, is only available when performance is rendered “‘objectively impossible’” by an unforeseen event that could not be anticipated. The “‘means of performance’” must have been destroyed; financial or economic difficulties would not suffice even if those hardships resulted in an objective inability to pay.

With this, while the defendants’ “financial difficulties arising out of COVID-19 and the PAUSE Executive Order” may have adversely affected their ability to pay, their obligation to do so cannot be excused.

April 27, 2020

Multiple Claims of Breach Dismissed as “Lacking Specificity”

by The Silber Law Firm LLC

Licensor sued a licensee for breaching an agreement to pay certain fees. In responding, the licensee counterclaimed for breach of the parties’ agreement. In doing so, it lumped together multiple allegations of breach into one cause of action but without detailing the specific contract provisions that the licensor violated.

The court granted the licensor’s motion to dismiss the counterclaims, with leave to amend, as the counterclaims failed to specify the provisions breached or the dates that they were breached. Those dates were of particular note, as the claims raised addressed issues that may have been barred by the statute of limitations. Instead of using the licensee’s affidavit to supplement the counterclaims, the court deemed it the “better practice” to replead.

Icon DE Holdings, LLC v. Mondani Handbags & Accessories, Inc.

April 20, 2020

Prior Conduct in Adjourning Closings May Preclude Default in Failing to Close

by The Silber Law Firm LLC

Plaintiff agreed to buy and defendant to sell, three contiguous parcels of property. The parties had set a time of the essence closing date, at which closing, plaintiff did not appear. However, a week before that closing, plaintiff’s attorney informed defendant’s that the lender’s appraisal was pending, and asked to adjourn the closing. Defendant’s counsel did not reply. The day before the closing, the attorneys communicated, but about issues unrelated to the actual closing or the request for an adjournment. On the closing date, seller appeared but buyer did not. Seller declared buyer’s breach and retained the downpayment.

Plaintiff-buyer sued, arguing that based on the parties’ prior practices of adjourning the closing, and defendant’s counsel’s failure to respond, led the buyer to a good faith belief that the time of the essence closing date had been adjourned. Plaintiff also pointed out that title revealed more than $11 million in outstanding mortgages, far exceeding the almost $4 million purchase prices, and that the seller had made no effort address those mortgages prior to the closing date.

The lower court dismissed plaintiff’s case, finding that it was not able to close and had failed to object to the title defects prior to the closing date. With plaintiff-buyer’s default defendant-seller was relieved from performance.

April 7, 2020

Offer to Pay for an Extended Closing Date Insufficient to Avoid Default

by The Silber Law Firm LLC

A buyer signed a contract and paid a downpayment as part of the purchase of real property. The buyer did not show at a time of the essence closing, leading the seller to declare its default and intention to retain the downpayment as damages.

Some eight months later, the buyer sued seeking specific performance. The seller counterclaimed for declaratory relief that it was entitled to retain the downpayment. The trial court denied the seller’s summary judgment motion seeking dismissal of the complaint and relief on its counterclaim.

The Second Department reversed finding that the buyer’s counsel’s email to seller’s counsel offering to extend the closing date for additional consideration, which was ignored by the seller’s counsel, did not void the time of the essence declaration or avoid buyer’s default. The counterclaim was remanded for judgment.

March 30, 2020

Contractual Obligations In a World of COVID-19

by The Silber Law Firm LLC

Many contracts are being pulled out for review to ascertain how COVID-19 affects them. I have received some preliminary inquiries and briefly address the topic here.

Contractual force majeure, or “acts of Gd,” provisions found in a contract are a specific variation of a party’s inability to perform due to performance having been rendered impossible. Because establishing a claim of impossibility sufficient to release a party from its contractual obligations is difficult, establishing force majeure claims are challenging as well.

In one Court of Appeals case, where a property owner’s literal inability to procure sufficient insurance ended in the landlord declaring a default, the court upheld the default, explaining:

February 17, 2020

Arbitration Award Vacated as Violative of Public Policy

by The Silber Law Firm LLC

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.

January 20, 2020

Buyer’s Refusal to Close with Dissolved Corporation Held a Breach of Contract

by The Silber Law Firm LLC

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.

January 9, 2020

Court Enforces Unsigned Agreement

by The Silber Law Firm LLC

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.

January 2, 2020

One Mechanics’ Lien Proper for Work on Multiple Sites

by The Silber Law Firm LLC

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.

October 10, 2019

Discretionary Contract May Not Be Exercised in Bad Faith

by The Silber Law Firm LLC

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