Articles Posted in Litigation

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.

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.

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.

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.

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.

As promised, we write about another recent trade-secret case where the court refused to enforce an employer’s claims that its information was secret.

After plaintiff was indicted for a host of crimes, some of its employees left to form a competing business, in violation of their non-compete and confidentiality agreements. These employees argued that because of the indictment, their past employer had unclean hands and could not enforce the non-compete, which is equity-based relief and unavailable generally where the other party does not act equitably.

Judge Emerson, of Suffolk County Supreme Court, first addressed the non-compete issue by noting the “powerful considerations of public policy which militate against sanctioning the loss of a person’s livelihood.” This principle resulted in the general rule that restrictive covenants that prevent an employee’s work in a similar line are “disfavored by the law.” She then found that the non-compete provisions, which bound the employees for three years and contained no geographical limitation, to be overbroad, unnecessary to protect the employer, and therefore unenforceable.

Two cases, one State and one Federal, declined to prevent a competitor from using what was alleged to be another’s secret information.

In Art and Cook, Inc. v. Haber, the Eastern District court found that the secrets alleged to have been infringed or disclosed were in fact not secrets, legally speaking. The plaintiff claimed that Haber, an ex-salesman of plaintiff’s cookware and kitchenware, had been caught emailing himself a list of buyers and separately, marketing, sales and customer list information. After Haber’s termination, he began to compete against plaintiff.

In declining to find that these lists were protectable trade secrets, the court addressed each of these two categories of information that Haber had sent himself. The court discussed the reason and manner of how a customer list could be deemed a trade secret. Specifically, a customer list created through significant effort and which contains unique or valuable information generated by a business, and maintained by the business as a secret, may be enforced as a secret. But, a “contact list [that] contains little more than publicly available information, even if it takes considerable effort to compile, it is not accorded protection… .” In this case, the court determined that the customer list was a compilation of names that the plaintiff hoped to solicit but which did not reflect unique information. That the list took substantial time to create would not convert a list consisting of largely public information into a secret. Finally, the court noted that where “the contacts on Plaintiff’s customer lists are generally known within Plaintiff’s industry is fatal [to a claim of infringement]. Simply put, knowledge that is generally known within an industry cannot be said to constitute the trade secret of one industry participant.”

A guarantor was sued for the failure of the obligor/tenant to pay rent. The tenant had defaulted on a commercial lease and under the lease’s acceleration clause owed the landlord more than $1,740,000. When the guarantor was sued, he claimed that the landlord’s re-letting of the space precluded full recovery under the acceleration provision and that his liability was limited to what the tenant owed.

The First Department recently rejected that argument. While not disputing that a tenant might not be liable for the period of time for which the premises had been rented to a new tenant, the guarantor did not have the benefit of that provision to offset the amounts due. The court stated that in this setting, a guarantor’s “liability can be greater than that of the obligor tenant, as the lease and guaranties were separate undertakings, and the latter are enforceable without qualification or reservation.”

Essentially, the guaranty agreement, while guaranteeing the underlying lease, was a separate agreement governed by its own set of rules which were not the same as the underlying lease. We saw a similar outcome in a case about a dispute over a brokerage agreement that resulted in a settlement agreement. The settlement agreement was a document distinct from the brokerage agreement, with its own terms and conditions, and enforceable as such. We wrote about it here.

For any contract to be enforced, it must address the transaction’s core elements. It must identify the parties, the property sufficiently for it to be identified, and the price. And it must be signed. What if the contract does not detail how or when the balance is to be paid or the closing held?

The Second Department enforced a contract missing those two terms, finding that where the form of payment is missing it is presumed to be money and paid in exchange for the delivery of the deed. The missing closing date was not fatal to the deal because “the law will presume that the closing will take place within a reasonable time.”

One wonders if litigation took place over that vague term.

In an interesting recent case, the First Department affirmed the viability of a broker’s claim for a commission despite the fact that there were questions as to the broker’s actual role in procuring a buyer.

After Waterbridge Capital, LLC sold a property, it refused to pay its broker, Eastern Consolidated Properties, Inc., claiming that another broker was also seeking a commission payment. Waterbridge asked Eastern to accept a lower amount, which Eastern agreed to do. In the end, Waterbridge refused to pay anything and Eastern sued. Waterbridge argued that Eastern was not entitled to any commission because it was not the broker that sold the property. In viewing the parties’ agreement as a settlement agreement and not a brokerage agreement, the court rejected Waterbridge’s claim finding that once the parties settled, Eastern was entitled to payment regardless of its work as a broker. Specifically, the court held that “[c]ontrary to defendants’ arguments, plaintiff is not required to plead or prove that it was a ‘procuring cause’ of the purchase in order to recover on this agreement, which was in the nature of a settlement agreement. Plaintiff’s relinquishment of its claim for a full commission provides adequate consideration for the agreement, even if its claim was doubtful or would ultimately prove to be unenforceable” (citations omitted).

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