New York Business Litigation Lawyer Blog

May 28, 2021

Service of Process in Accordance with Arbitration Rules Deemed Good Service

Plaintiff and a China-based manufacturer and its Georgia-based subsidiary executed an NDA to develop a specialty LED light bulb. The parties ended up going their own way with each developing their own LED bulb.

Plaintiff thereafter alleged that the Chinese company and its subsidiary had breached the NDA and, pursuant to the terms of the parties’ NDA, commenced an arbitration before the AAA in North Carolina. In 2019, the AAA panel awarded plaintiff some $3 million. Plaintiff filed a petition to confirm the award, serving the Petition by email and Federal Express, upon counsel and the subsidiary’s registered agent.

Defendants moved to dismiss the Petition, arguing they were not properly served under the Federal Rules of Procedure, the Federal Arbitration Act (the “FAA”), or the Hague Convention. Plaintiff responded by noting that in the NDA the parties had agreed to comply with the rules of the AAA, and that those rules permitted service as made by plaintiff—by email and upon a representative. Plaintiff also argued that defendants had actual notice of the Petition which, under the FAA, was a critical issue in determining whether service would be upheld.

May 3, 2021

Party Waives Appellate Review of Arbitration Award

by The Silber Law Firm LLC

In a recent case, the United States Court of Appeals for the Fourth Circuit dismissed an appeal based on the parties’ waiver of any right to an appeal.

A doctor that at one point was associated with Beckley Oncology Associates (“BOA”) filed an arbitration against BOA claiming that he was owed money. The arbitration was to proceed in accordance with the parties’ agreement, which included the provision that the arbitrator’s decision would be final and enforceable in court “without any right of judicial review or appeal.”

The doctor was awarded $167,030. BOA filed a lawsuit seeking to vacate that award. The lower court refused, dismissing the complaint and confirming the award, finding that the Federal Arbitration Act precluded a party’s ability to waive judicial review of an arbitration award.

April 15, 2021

A “Reasonable Offer” Can Be Sufficiently Definite to Enforce an Agreement

by The Silber Law Firm LLC

An LLC member promised to accept “any terms” for the sale of the parties’ entity if another member would pay certain of his personal debts. That member would later renege and agree to a different deal from a second buyer. When that member also refused the terms of the LLC sale to the second party, the other members removed the refusing member and moved toward consummating the sale. When litigation was commenced among the members, that second buyer backed out. The LLC and the remaining members sued the excluded member for, among other things, breach of contract.

Addressing the breach claim in connection with the first potential buyer, while agreeing with the principle that to enforce a contract the terms of the agreement must have been sufficiently clear and capable of being agreed to, the Second Department held that an enforceable agreement can be found even if not all of the terms are “‘absolutely certain [ ]’” so long that the parties intended to agree to an agreement that left a term undefined. The court stated “[c]ontrary to the defendant’s assertion, an agreement to accept a reasonable offer is not necessarily unenforceable; instead, ‘a party may agree to be bound to a contract even where a material term is left open’ provided there is ‘sufficient evidence that both parties intended that arrangement.’”

Additionally, the term “reasonable offer” can be sufficiently definite and not unreasonably vague. “Here, since the agreement involved offers by third parties, leaving open what constituted a ‘reasonable offer’ was not inappropriate. There were objective criteria, such as whether an offer comported with the company’s value as established by an analysis of its financial records, which could be used to determine whether a given offer was ‘reasonable.’”

February 23, 2021

Property Owner Liable for Tenant’s Trademark Infringement

by The Silber Law Firm LLC

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

February 4, 2021

Inability to Close Allows Seller to Retain Downpayment

by The Silber Law Firm LLC

Plaintiff entered into a contract to buy a mixed-use building for slightly more than $2 million. Plaintiff’s downpayment was $200,000. The transaction was to be all cash, as-is, and to close six months after the date of the contract. Before that closing date, plaintiff asked permission to show the property to a bank to obtain financing, which was granted. The closing was not held on the scheduled date and defendant-seller gave time of the essence notice for a date about three weeks later. Plaintiff did not appear on that date. Defendant held plaintiff in contempt and declared that it was retaining the downpayment. Plaintiff sued for specific performance. Defendant answered and cross-claimed for a declaration that it was entitled to keep the downpayment. Defendant thereafter moved for summary judgment. The lower court granted summary judgment dismissing the complaint but also denied the counterclaim. Both parties appealed.

Finding that plaintiff could not demonstrate its financial ability to close “on the closing date,” and did not appear to close, hence its breach. As a result, the Second Department affirmed the dismissal but reversed as to the defendant, granting its counterclaim on the downpayment.

Ashkenazi v. Miller

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.

December 15, 2020

“Visual Barrier” Insufficient to Make out Adverse Possession Claim

by The Silber Law Firm LLC

Plaintiff claims that shortly after they built their house, they placed sod, and a tree and bushes on a strip of land at the edge of defendant’s property, and then linked the area to their in-ground sprinkler system. Defendant purchased its adjoining property after this had been done. After defendant tore up the strip, plaintiff filed suit, claiming adverse possession. Pending the decision of defendant’s motion to dismiss, the court granted a preliminary injunction against defendant’s further interference with this strip of land.

The first issue before the court was whether the pre-2008 law or post-2008 law applied. The laws of adverse possession were amended in 2008 to require, among other things, that the adverse possessor make substantial and more obvious improvements to the disputed property so that the conduct was more objectively adverse. Acts that are seen as de minimis, such as fences, hedges, shrubs, and even non-structural building, were not acts upon which adverse possession could be claimed post-2008. Lawn maintenance, too, a basis often used to argue adverse possession, is not a sufficiently adverse to support that claim. Under the pre-2008 law, however, this type of conduct could support a claim, depending on the land and its usage. Because these claims accrued before 2008, the court applied the old law.

Turning next to the adverse use, the court dismissed the case, finding that even under the old law planting and mowing grass would not suffice. Even “[a]dding a bush or a young tree does not tip the balance” to find adverse possession. The same for running a hose and “a few sprinkler heads.” These items do not amount to a showing, by clear and convincing evidence, of exclusive, hostile or use under a claim of right.

June 28, 2020

Unsigned Employment Contract Enforced

by The Silber Law Firm LLC

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.

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.