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Vacating an arbitration award is typically a tall order. For that reason, without a good basis for a challenge, arbitration decisions are often confirmed. A recent Second Department decision is notable not just for vacating the arbitration award but doing so because it found the award to have been irrational, a doubly tall order.

The Court first reviewed the “extremely limited” basis which could serve to vacate an arbitration award. As relevant to this case, the Court vacated, finding, “that the arbitration award was irrational” because its basis was without any “‘proof whatever to justify the award.’” In this case, because the claimants were not seeking what was awarded, the arbitration award was irrational and could not stand.

Matter of County of Nassau v. Nassau County Sheriff’s Corr. Officers’ Benevolent Assn.

In what appears to be a cash advance scenario where, pursuant to a merchant agreement, the funder/lender would purchase the borrower/defendant’s future receipts for an up-front payment and not call the transaction a loan. After being sued, defaulted when it failed to respond to the lender’s lawsuit. The trial court refused to vacate the defendant’s default. The Second Department disagreed based on the interest of justice, given that the loan appeared to violate the criminal usury statute and was a usurious loan. After reviewing the elements of a claim that could give rise to criminal usury, the court found that while defendant was to permit plaintiff to withdraw funds on a daily basis,

“the plaintiff was ‘under no obligation’ to reconcile the payments to a percentage amount of the [ ] defendant’s sales rather than the fixed daily amount, and the plaintiff was entitled to collect the full uncollected purchase amount plus all fees due under the agreement in the event [ ] defendant’s default by changing their payment processing arrangements or declaring bankruptcy. Together, these terms established that the agreement was a loan, pursuant to which repayment was absolute, rather than a purchase of future receipts under which repayment was contingent upon the [ ] defendant’s actual sales.”

Crystal Springs Capital, Inc. v. Big Thicket Coin, LLC

Verizon’s employee was warned that leaving to work elsewhere would trigger the provisions of a non-compete agreement that the employee had signed. The employee left. When the new employer refused to hire this individual until and unless his dispute with Verizon was resolved, he sued Verizon for tortious interference with prospective relations.

The First Department rejected that argument finding that Verizon’s actions were not malicious, a necessary element to prove this claim, that merely threatening litigation would not suffice otherwise, and there was nothing in the appellate record to establish that Verizon acted solely “out of a personal dislike” for its past employee.

Lucas v. Verizon Communications, Inc.

Plaintiff sued Luna Park in Coney Island, alleging that she tripped and fell over a “height differential” and was injured. The park moved to dismiss arguing that the defect was trivial and created no risk to plaintiff. The Second Department affirmed the denial of that motion.

The court noted that the specifics of the situation drive the determination of plaintiff’s claim, including the time, place, and circumstances of her fall. The court noted that a “physically small defect” can be actionable “in an area ‘where pedestrians are naturally distracted from looking down at their feet.’” In this case, the park showed that “the alleged defect was ‘physically small,’ [but] it failed to demonstrate that the surrounding circumstances, including the location of the alleged defect in a crowded amusement park with distractions such as lights and noises, did not ‘magnify the dangers it pose[d].’”

In other words, “trivial” may not be so trivial when someone falls.

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

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.

Plaintiff was induced to leave his current employment and start working at defendant’s agency. As part of the parties’ agreement, plaintiff was promised six months’ severance if terminated without cause. Plaintiff signed the agreement but, despite receiving an email from a board member welcoming him aboard, defendant did not sign the agreement. Plaintiff was terminated without cause but defendant refused to pay his severance.

The First Department reversed the lower court’s dismissal of plaintiff’s case, finding that although defendant did not sign the employment agreement, there was no question that plaintiff began working for defendant and performed as expected. Once fired, he was due the promised severance. The contract made no provision that required a signature for it to be binding, so that defendant’s failure to sign the fully-integrated agreement was no bar to its enforcement.


Lord v. Marilyn Model Management, Inc.

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.

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.

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.

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