Litigation

February 23, 2021

Property Owner Liable for Tenant’s Trademark Infringement

Defendant owned a property that was long alleged to house individuals selling counterfeit goods. Watchmaker Omega bought two counterfeit watches from a retailer at the same location and commenced a lawsuit against the property owner for contributory trademark infringement. Surviving a motion to dismiss by the property owner, the case went to trial. The judge instructed the jury that the property owner’s contributory infringement could be found if the jury found that the property owner allowed those selling the counterfeit goods to continue doing so once it knew what was being sold. Knowing, included “willful blindness,”meaning ignoring the obvious. The jury awarded Omega $1.1 million.

On appeal, the property owner argued that Omega never proved that it leased space to a specific infringer, which it claimed was required. The Second Circuit disagreed. It held that willful blindness, ignoring what it knew or should have known, suffices for “contribution,” because when it had reason to suspect what was being sold looking away would not shield the contributor from liability even if the specific infringer was not specifically identified. While the owner had no obligation to look for the wrongful conduct, but once it was made aware of it, it could not ignore that conduct.

Omega SA, Swatch, SA v. 375 Canal, LLC

January 19, 2021

Shortened Statute of Limitations Period Rejected Where Accrual Date and Circumstances Unknown

by The Silber Law Firm LLC

Nastasi & Associates, Inc., was a subcontractor for Turner Construction Corp. Payment to Nastasi was conditioned on Turner being paid by the owner. Turner had the right to terminate the parties’ agreement by written notice, with any payments due to Nastasi, again, conditioned on Turner being paid. The agreement also included a one year period in which claims against Turner or the owner could be brought.

In April 2015, Nastasi asked for certain payment from Turner. Turner responded by informing Nastasi that it was working on processing paperwork so payment could be obtained from the owner and paid. In May 2015, Turner terminated its agreement with Nastasi. Between May 2015 and April 2017, Turner continued promising payment to Nastasi. Instead, in April 2017, Turner sued Nastasi for more than $4 million. Nastasi responded with counterclaims, to which Turner moved to dismiss based on the expiration of the one-year limitation period. Nastasi responded by arguing that it had been negotiating with Turner for years. Supreme Court granted Turner’s motion.

The First Department, however, disagreed. While the court agreed that parties may contract to shorter limitation periods, they could not where “a contract imposes a condition precedent that cannot reasonably be met within the time frame of the limitations period under the available facts,” with the “‘circumstances, not the time, … the determining factor.’”

January 11, 2021

Bank Not Required to Ascertain Claims of Authority to Borrow Money on Behalf of an Entity

by The Silber Law Firm LLC

Although not a new issue, we discuss it because it comes up from time to time. What obligation does a lender have to verify documents used by a corporate entity to establish that the individual borrowing the money has the corporate authority to do so? In short, very little (assuming there are no red-flags). A mortgagee has no responsibility— no “duty of care”—to verify that a mortgagor’s alleged principal, with authority to borrow, is so authorized. The lender is permitted to accept whatever documents it requires to allow an individual to borrow for and bind an entity without looking beyond those documents.

In one case, defendant LLC borrowed money and purchased a property. Later, a second loan was taken by that same party. After the borrower’s default, the “real” LLC sued claiming that the individual who had represented himself to be the LLC’s sole member, with authority to borrow for the entity, was not the sole member and had no authority to do so, so that the loans were therefore void.

The court disagreed. Once the individual provided documents to support his authority to borrow on behalf of the entity, the lender had no obligation to “ascertain the validity of the documentation presented by the individual who claims to have authority to act on behalf of a borrower corporation or entity.” As such, the loans and mortgages were valid.

May 18, 2020

Recent Case Asserting COVID-19 Defense Fails

by The Silber Law Firm LLC

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 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.

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.

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

September 25, 2019

Party Demanding Relief Not Available under Contract Terms Found in Default

by The Silber Law Firm LLC

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.

July 15, 2019

Failure to Respond to Emails May Be Deemed Repudiation of a Contract

by The Silber Law Firm LLC

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

July 10, 2019

Judgment Against Guarantor Granted Even as Obligor’s Payments Were Discounted

by The Silber Law Firm 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.