Some time ago, as part of a discussion about equitable rescission based on fraud, we noted that recovery based on a fraud claim where damages were not specifically alleged and sufficiently supported was the subject of a split between the First and Second Departments.  The Second Department had held that even if just nominal damages are generally alleged, the complaint would survive dismissal. The First Department disagreed and held that a claim of specific damages was required. Recently, the Court of Appeals addressed the split and sided with the First Department.

In Connaughton v. Chipotle Mexican Grill, Inc., Connaughton, a chef hired by Chipotle, alleged that he was fraudulently induced into selling his business idea to Chipotle. Specifically, Connaughton claimed that he was hired by Chipotle to develop an idea for a ramen noodle restaurant chain. He was promised a salary plus future equity. After investing substantial efforts over 18 months in publicly building the concept, Connaughton learned that Chipotle had a relationship with another chef who previously worked on the same concept and with whom Chipotle had signed a non-disclosure agreement. The relationship with the other chef had terminated before Connaughton joined Chipotle. It seemed that all of management except Connaughton were aware of this and that once the new chain opened, that chef would sue Connaughton and Chipotle. Chipotle ignored Connaughton’s concerns and demanded that he continue his work. When he refused he was fired.

Connaughton’s theory for recovery, as succinctly explained by the Court of Appeals, is critical to the case’s outcome in the First Department and in the Court of Appeals. Connaughton alleged that:

Leisure Time Travel, Inc., specializes in “producing holiday tours and vacations that comport with Jewish law and tradition.” Villa Roma claims to be the last resort in the Catskills region.

In 2001, the parties entered into a contract whereby Villa Roma would be rented for five Passover holidays, from 2002 through 2006. In 2005, the parties extended the contract for five years, through 2011.

The agreement called for Leisure Time to take over the hotel approximately one week before Passover. The day before Passover in 2006, a fire destroyed the hotel. The hotel refused to return Leisure Time’s $220,000 down payment. When Villa Roma reopened in late 2008, Leisure Time contacted Villa Roma to book the hotel for the 2009-2011 Passover holidays. Villa Roma refused to allow Leisure Time to book the hotel claiming that the fire rendered the parties’ contract impossible to perform thus terminating it. Leisure Time sued claiming that it was entitled to the return of its deposit paid in 2006 and to use the hotel under the terms of the parties’ agreement.

Land O’ Lakes Outdoors, Inc. and Land O’ Lakes Tackle Co., Inc., began their business selling fishing tackle in a Wisconsin town called Land O’ Lakes, a region “dotted” with lakes attractive to fishermen. Since 1997, these businesses sold fishing tackle to retailers in a number of states.  In 2000, they received federal trademark registration for the mark LAND O LAKES in connection with fishing tackle.

Land O’ Lakes, Inc., based in the adjoining state of Minnesota, sells dairy products (“Land O’ Lake Dairy”) under its registered trademark LAND O LAKES.

In 1997, Land O’ Lakes Dairy became a sponsor for a sport-fishing tournament called the Wal-Mart FLW Tour and advertised its dairy products in fishing magazines. Three years later, after learning that the tackle companies had registered the mark for their tackle, Land O’ Lakes Dairy sent a cease and desist letter to the tackle companies, claiming that its mark was “famous” as it was in use since the 1920s, well before the tackle companies were formed or began selling their products. The tackle companies refused to cooperate with Land O’ Lakes Dairy, and a lawsuit, commenced by the tackle companies, ensued.

In July 2000, Citibank extended a $54,000 loan to a condominium owner, with an additional $38,000 loan extended the next year. These two loans were consolidated into one loan for a total of $92,000. Some seven years later, the condominium board filed a common charges lien against the unit.

In 2010, the plaintiff bought the unit for $15,100 at a foreclosure auction, subject to the “first mortgage of record against the premises.” The new owner sued Citibank seeking to have the second loan of $38,000 declared subordinate to the common charges lien and thus discharged when the unit was bought at auction. The trial court found that the entire consolidated loan was valid and the purchaser at auction had purchased the unit subject to the consolidated loan. After the Second Department affirmed, the purchaser appealed to the Court of Appeals.

In affirming, the Court of Appeals noted that lien priority was normally determined by the “chronology of recording.” However, in a case that deals with a condominium board’s common charges lien, the law excludes the “‘first mortgage of record.’” While acknowledging that case law existed that could be read to take the exception of the first mortgage literally, it refused to accept the buyer’s argument.

A buyer of real property that sued the seller before the parties’ closing date seeking to cancel the contract, but without a valid reason, was deemed to have breached that contract.

The buyer entered into a contract to buy two parcels of land in Staten Island. The contract was to close 30 days 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 terminate the contract or seek to renegotiate the purchase price, without obligation to close.

Because 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, increase the price, and have the buyer reimburse the seller for certain costs incurred in doing the work that would release the regulatory approvals. 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 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, 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.

While we don’t have a criminal practice, this recently decided case is interesting in how science can change, impacting prior court decisions.  This same concept was found regarding fire science, in prior posts found here and here.

From the New York State Bar Association:

The Fourth Department affirmed the grant of defendant’s motion to vacate her conviction based on newly discovered evidence. Defendant, a daycare provider, was convicted in the death of a toddler. Medical testimony at trial attributed the death to shaken baby syndrome. In the motion to vacate her conviction, defendant argued that advances in medicine and science have called into question the prior opinions about shaken baby syndrome, and indicate a short-distance fall can mimic shaken baby symptom.

A supplier was found liable for selling counterfeit Fendi handbags, and after two separate lawsuits was obligated to Fendi and a retailer to whom those fake bags were sold for substantial damages. In an attempt to avoid paying those damages, the supplier turned to its insurance carrier for indemnification, based on a policy that insured the supplier against “advertising injury.”

In affirming the lower court in finding that there was no coverage for the Fendi infringement, the Second Circuit went through an instructive discussion of what advertising injury means, and what that coverage was intended to address. The court explained that New York law was clear that where policy language was ambiguous, it would be construed in favor of the insured. At the same time, the “plain language” of the policy is read in “common speech” and as reasonably expected or understood in the business community. For coverage to be found for advertising injury, the injury must have taken place as part of advertising activities and address items covered by the policy. Therefore, no coverage would be found where liability arose out of the importation, distribution or sale of infringing goods. On the other hand, a policy that covered injury from goods that were “‘marketed, distributed and sold,’” could provide coverage, at least to defend the infringement lawsuit.

In this case, the policy covered an injury arising out of (i) “oral or written publication of material that slanders or libels a person or organization or disparages a person’s or organization’s goods, products or services; (ii) oral or written publication of material that violates a person’s right of privacy; (iii) the use of another’s advertising idea in your ‘advertising;’ and (iv) infringement of another’s copyright, trade dress or slogan in your ‘advertising.’” Items (i) and (ii) were not alleged to apply, but (iii) and (iv) were. In denying coverage, the court held that the requirement that the action take place “in your advertising” required that the infringement be part of the advertisement. Here, the supplier did not advertise at all and Fendi made no claim of infringement or injury that arose out of any advertising. Injury was alleged out of sales. Thus, the supplier could not avail itself of coverage.

Plaintiff as tenant entered into a five year commercial lease, commencing March 1, 2006. The lease provided that the space would be used as an office for a recruiting firm and nothing else, and would not be used in a manner that would violate the certificate of occupancy (the “CO”), which would result in the tenant’s breach of the lease. In December 2007, the tenant learned that the CO required that the building be used only as residential space. The tenant asked the landlord to correct this, but the landlord refused. The tenant vacated on May 8, 2009. Thereafter, the tenant sued claiming that the lease was invalid and illegal. The landlord claimed that it was an innocent mistake and counterclaimed for breach of contract, claiming that the lease provided that it was the tenant’s obligation to provide for all permits and licenses in connection with the leased space and that the landlord did not make representations as to the legality of the space.

In reversing the lower court, the First Department held that the landlord could not hide behind that lease provision while also representing that commercial use was permitted in the building, specifically as an office. Allowing the landlord’s argument would mean that the tenant was in breach of the lease on the day it moved in. Even if the landlord’s mistake was innocent, the tenant did not get what it bargained for, and may thus be entitled to rescind the lease. The court clearly saw the landlord as the offending party and seemed skeptical of its arguments in refusing to correct or update the CO, to the extent that was even possible.

Notably, the court did not address the tenant’s ability to check public records for the building’s permitted use, which would have informed the tenant of the building’s limited use. It seems that the court was not going to allow the landlord to hide its conduct behind the lease terms, no matter what.

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