New York Business Litigation Lawyer Blog

May 13, 2019

The Freedom to Contract — Affirmed and Explained

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.)

March 4, 2019

Claimant May Avoid Obligation to Arbitrate Due to Cost

by The Silber Law Firm LLC

Typically, properly executed arbitration agreements, even as boilerplate in a form agreement, are strictly enforced. That said, there is an interesting 2017 First Department case that allows a party to avoid arbitration due to the cost of doing so.

In this case, as part of his employment, an employee agreed to arbitrate any disputes with his employer before the AAA in Florida. Doing so would require the employee to pay half of the arbitration costs, including the fees charged by the arbitrators, and administrative costs. The claims of the employee were as part of a class, where claims of late payment of wages were made, and recovery would include an award of statutory attorneys’ fees. In response to the employer’s motion to compel arbitration, the employee argued that “he had not agreed to arbitrate Labor Law claims, that any such agreement would be against public policy, and that, based on his limited financial means, as detailed in a supporting affidavit, the fee splitting and venue provisions of the agreement render arbitration financially prohibitive.”

The First Department reaffirmed New York’s strong public policy of favoring arbitrations (where agreed to) and that courts interfere as little as possible in that process and resulting award. “As a general matter, therefore, a clear and unmistakable agreement to arbitrate statutory wage claims is not unenforceable as against public policy.” That said, the court recognized the competing public policy argument that the employee could not afford to travel to Florida and participate in the AAA proceeding and that forcing him to do so would “preclude him from pursuing his claims.” The court referred the matter back to the trial court for an accounting of the employee’s income “and assets,” and the cost to participate in the arbitration. The court did not acquit the employee from the arbitration, only directed the trial court to determine if arbitrating in New York at the employer’s expense would obviate the employee’s concerns. The court also allowed the trial court to consider how the attorneys’ fees provision would impact the employee’s ability to participate in the arbitration. The court did not directly address the issue of whether the employee’s inability to pay the AAA expenses would free him from arbitration completely.

February 19, 2019

Community Garden Wins Adverse Possession Claim

by The Silber Law Firm LLC

In their effort to combat a derelict and abandoned property, a group of local residents founded a community garden in 1985. The garden covered three lots, 16, 18 and 19. Defendants (different owners throughout the relevant time periods) claimed to be the record owner of Lot 19 as it was used as part of the garden. In a long decision which we will highlight here, the First Department found that the garden’s use was open, adverse, and continuous, sufficient to withstand the dismissal of its adverse possession claim.

Starting in 1985, community residents cleared garbage, pulled weeds, and put up a fence to enclose the premises (consisting of the three lots). They planted assorted vegetation, including trees, installed playground equipment, and built a performance and exhibit stage. To improve the space, pathways and a fish pond were installed. The area was not public and was locked at night or when no community member was available to monitor its use. Over the years, many school and camp programs events were held there, and it was used generally as a community space, including for music and poetry gatherings. The members guarded the space, specifically against defendants. For example, in 1999, defendants cut the gate, entered the premises, and allegedly damaged the trees and equipment, and re-gated Lot 19 for their own use. The garden members tore down defendants’ gate, restored the garden, and reinstalled the gate so that all three lots were again combined into one parcel.

In 2013, a group with power tools and private security guards attempted to enter the garden. After a stand of, the police directed that the group be allowed into the garden. Lot 19 was then cleared and a new gate was installed segregating that Lot 19 from the others. Thereafter, New York City took steps to preserve to maintain the remaining lots as the garden.

February 11, 2019

Court Enforces Unsigned Rider to Contract

by The Silber Law Firm LLC

Plaintiff and defendant entered into a contract for architectural services. Their contract had a rider that provided for additional fees and contained an arbitration provision. In response to plaintiff’s lawsuit seeking fees, defendant moved to dismiss based on the arbitration provision in the rider. Plaintiff claimed that the rider was unenforceable as the parties never signed.

The trial court disagreed. The court held that because plaintiff’s lawsuit itself relied on the rider, it could not claim that the rider, and the obligation to arbitrate, could not be enforced. The court stated that “through her pleadings plaintiff has conceded that the rider is part of the [contract] and is enforceable.” This outcome was all the more true when defendant demonstrated that the parties had relied on that rider during their relationship.

While the court did not address waiver or estoppel theories, it clearly held that by relying on the rider and incorporating it into her complaint, plaintiff could not disavow its enforceability.

December 27, 2018

Insurance Company’s Bad-Faith Investigation Forms Basis for a Deceptive Business Claim

by The Silber Law Firm LLC

Plaintiff made a claim to its insurance company for water damage and loss of business. After what appears to have been a contentious investigation, the claim was denied because the carrier alleged that plaintiff did not provide it with all of the necessary documents and information and because some of the damage was allegedly caused by a prior incident.

Plaintiff sued the carrier, and included a claim under New York’s General Business Law § 349, which prohibits deceptive business practices. This claim was based on the carrier’s bad-faith claim investigation, including its demand for irrelevant documents, and its intentional delay of issuing a denial until after the policy’s statute of limitations period had expired. Defendants moved to dismiss all of the claims.

In denying dismissal, the trial court determined that a claim under § 349 had been made, as plaintiff had sufficiently alleged that the carrier (i) engaged in a deceptive act or practice, (ii) the act or practice was consumer-oriented, and (iii) plaintiff was injured as a result in that it was now pressured to accept an unfavorable settlement due to the expiration of the contractually-shortened statute of limitations period. Finding that the shortened limitations period was universal in all similar insurance policies, the court rejected the carrier’s claim that this was not generally a consumer-oriented claim. The court also allowed the consequential damages claim of lost business to proceed to trial.

September 5, 2018

Three Million Dollar Default Arbitration Award Allowed to Stand

by The Silber Law Firm LLC

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.