In a Westchester County case that was reported upon in today’s New York Law Journal, HP Hood, LLC v. Diamond D Realty, Inc., the plaintiff sought to recover over $1.5 million owed by the defendant for dairy products (in legalese, “goods”) that were supplied – but not paid for – from January through December of 2009.
In response to the complaint, the defendant moved to dismiss the complaint on the grounds that since there was no written agreement between the parties, the breach of contract claim was barred by New York’s Statute of Frauds, in accordance with Uniform Commercial Code 2-201.
Ultimately, the Court sided with the plaintiff and denied the motion, citing three (3) important exceptions to the Statute of Frauds:
(1) Since the plaintiff sent invoices together with the goods which “afford a basis for believing that they reflect a real transaction between the parties,” this case falls under the “merchant’s exception” to the Statute of Frauds (UCC 2-201(2)), which states as follows:
“Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection 1) against such party unless written notice of objection to its contents is given within ten days after it is received”;
(2) Inasmuch as the defendant both received and accepted the goods, plaintiff’s claim falls within another exception to the Statute of Frauds, as codified by UCC §2-201(3)(c); and,
(3) Contrary to the defendant’s contention that the case should be dismissed in accordance with NY Gen. Obl. Law 5-701 because the oral agreement was open-ended, and therefore incapable of being performed within one year, the Court held that this provision bars “only those contracts which, by their terms have absolutely no possibility in fact and law of full performance within one year.” Applying that rule to this case, the Court stated as follows:
“Here, the statute of frauds is not a bar to enforcement of the alleged oral agreement because its performance within one year was possible. The terms of the alleged oral agreement anticipated prospective purchases but did not bind either party to any particular transaction, and performance depended solely upon the will and desires of the two parties (Nat Nal Serv. Sta. v. Wolf, 304 N.Y. 332, 340, 107 N.E.2d 473). Diamond Dairy might or might not have placed orders with Hood and Hood might or might not have accepted them. Accordingly, neither party was bound by the terms of the alleged oral agreement “to do anything at any time, and consequently there is nothing in its terms to bring it within the statute of frauds.”
The moral of this particular case is fairly straightforward: even if you don’t have a formal written agreement, you may still be entitled to recover your losses under New York law.
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Recently, I attended a non-party deposition in a commercial litigation matter arising out of a dispute over who is the rightful owner of a particular property in New York. As is often the case, the attorney conducting the deposition was less than thrilled at the answers given by the witness. So, first he tried to refresh the witness’s recollection. Then he tried to trick the witness by suggesting answers to the questions that he knew were false. And then he proceeded to remind the witness – at least 3 times – about the penalties for perjury, and suggested that incarceration was a foreseeable possibility.
While I didn’t care for his tactics – particularly the latter two – what came next was inexcusable.
He flat-out charged the witness with disgracing his religion by failing to give “better” answers to the questions.
This attorney has made it to my (extremely short) list of people that I don’t communicate with unless it is in writing. And it is attorneys who practice in this fashion that has led to the “sterling” reputation that has made us the butt of so many lawyer jokes.
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Sometimes you have to take a step back to appreciate the arguments that are advanced by attorneys. And sometimes those arguments just make you laugh.
In Eversfield v. Brush Hollow Realty, the plaintiff was injured in a construction site accident that was caused by the improper placement of a portable toilet at the work site. The chief question confronted by the Court in this case was whether the subcontractor, who had agreed by contract to indemnify the GC against any “”claim, demand, cause of action, loss, expense or liability . . . arising directly or indirectly out of the acts or omissions of [the subcontractor] or its subcontractors, suppliers or agents, or the employees, in the performance of the work . . . or arising from the use or operation by [the subcontractor] of construction equipment, tools, scaffolding or facilities furnished to [the subcontractor] by [the general contractor] to perform the Work.”
The subcontractor contended that the indemnification provision was not triggered in this case because the portable bathroom at the center of this case did not constitute “construction facilities.” Apparently they felt that having usable bathrooms for construction workers is neither necessary nor unavoidable. (Yikes!)
In reversing the trial court, however, the appellate court held that since the use of portable toilets at a construction site is a “necessary and unavoidable activity” in the performance of such work, and therefore qualified as “facilities” within the meaning of a construction indemnification clause.
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Before addressing how you prove a negligent misrepresentation claim, we first have to define what it is – and what it isn’t.
Unlike its cousin, the fraud claim, negligent misrepresentation does not require a showing of malicious intent or recklessness by the defendant; rather, it requires that the plaintiff prove the following by a preponderance of the evidence:
(1) awareness by the defendant that his statement was to be used for a particular purpose or purposes;
(2) reliance by a known party or parties in furtherance of that purpose;
(3) some conduct by the defendants linking them to the plaintiffs and evincing defendants’ awareness of their reliance;
(4) that defendant’s statements or conduct exaggerated or misstated certain facts;
(5) that these misstatements resulted from the defendant’s negligence and/or lack of due diligence;
(6) that plaintiff relied on defendant’s misstatements; and,
(7) as a result, plaintiff suffered damages.
An important caveat bears mention, though.
As a New York Federal Court recently held in Five Star Development Resort Communities v. iStar RC Paradise Valley, “Under New York law, in order to state a claim for negligent misrepresentation, a plaintiff is required to allege that the speaker is bound to the other party ‘by some relation or duty of care’” outside a contract that may be between the parties.
Therefore, the Court continued, “In ordinary commercial contexts…it is imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.” In other words, “[i]f the only interest at stake is that of holding the defendant to a promise, the courts have said that the plaintiff may not transmogrify the contract claim into one for tort.” JP Morgan Chase Bank, 350 F. Supp. 2d at 401 (quoting Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899 (2d Cir. 1980)).
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I’ve spoken with many people who, when confronted with the possibilities of starting their own business, hesitate – and not a small bit – because of their fear that they will forfeit their severance package from their current employer. Stated in slightly different fashion, they are concerned that any effort they expend to start a new business while they are still employed will be perceived as employee disloyalty, or, in legal terms, a breach of fiduciary duty, and thereby nullify their right to severance.
But is that fear grounded in reality?
The short answer under New York law, as you might well guess, is that it depends on whether you have a formal written severance agreement, and if so, what the agreement says. For example, in a July 1 decision in Coastal Sheet Metal Corp. v. Vassallo, New York’s Appellate Division, First Department held that the plaintiff’s former CEO had forfeited his right to his severance package because “the [trial] court’s finding that [defendant] breached his employment agreement by ‘violat[ing] the trust of his position’ negates [his] claim for severance, as a matter of law.”
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If you read my previous blog post, “How a Demotion Can Be Deemed a Breach of Employment Agreement Under NY Law,” you are probably wondering (or should be) the following: let’s assume a fact finder (i.e., whether a judge or jury) finds that my employer breached my employment agreement. What damages can I reasonably expect to recover under New York law?
As you might expect, the answer is a little bit complicated, and the determination of the right measure of damages is inherently fact-specific. That said, here are some of the major principles at play:
First, and as a threshold matter, the employee is entitled to recover the amount of salary and other benefits that (he, she) would have received under the contract – and here’s the important caveat – less certain deductions. (It’s the “fine print that always gets you, isn’t it.)
Those deductions allow the employer a set-off of those amounts that the employee, using his/her best efforts, either earned, or should have earned from other employment since the date that the agreement was ended. However, on this point the defendant bears burden of proving the amount the plaintiff could – or should – have earned through diligent efforts.
Additionally, although the newly-discharged employee is required to try to find similar employment, that does not mean that he/she is barred from starting his/her own business. It is just that the damages will still be reduced by what plaintiff can reasonably be expected to earn from the venture during the unexpired term of the contract, Cornell v T. V. Development Corp., 17 NY2d 69, 268 NYS2d 29, 215 NE2d 349.
One final point is in order here: the expenses that were necessarily incurred by the employee in the course of seeking new gainful employment are recoverable – provided that the employee has conducted the job search in good faith, and with reasonable prudence, and skill.
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Consider the following hypothetical scenario: Jim is hired by ABC Stores as Executive VP of Sales and Marketing. His 3-year employment contract states that all managers at ABC’s stores are required to coordinate their in-store marketing efforts through him, including securing his approval of all vendors.
Six months later, ABC brings in its CFO’s son Peter into the company, who has just received his MBA. Within one week of Peter starting his job at ABC, Jim notices that 3 of ABC’s 25 store managers failed to forward him their monthly marketing proposals. Two months later, that number increased to 20 out of the 25. And now, he also learns from two of his favored vendors that Peter, whose title is now Senior Vice President, terminated ABC’s agreements with them – all without Jim’s knowledge, and that he circulated a confidential memorandum – which also bore the CEO and CFO’s signatures – directing that all sales and marketing efforts now be run through him, rather than Jim.
In the face of this embarrassment and the stripping of all his essential job duties, Jim feels compelled to resign. But he is concerned: the job market is much worse now than when he signed the contract, and if he quits, won’t he be automatically forfeiting his right to recover under the employment contract?
Fortunately for Jim, under New York law the answer is no. In New York, if an employee is hired to fill a particular position, any material change in (his, her) duties, or a significant reduction in rank may qualify as a breach of the employment contract. On the other hand, and in the interests of full disclosure, resignation is not without risk: although in this particular fact scenario it is unlikely, a jury may ultimately decide that the change in duties that the employee suffered were not in fact “significant,” and defeat the employee’s breach of contract claim.
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As noted in our earlier blog post, “How to Win the Breach of a Severance Agreement Case in New York,” although an employee may, as a general rule, bring a common law (i.e., non-statutory) breach of contract claim based upon the failure of an employer to live up to their end of the deal of a severance agreement, the same does not hold true where the severance plan is governed by ERISA (see, 29 USC § 1001, et seq.). In those cases, it is far more difficult to recover, and here’s why:
As the United States Supreme Court has held, in order to recover pension benefits for the breach of an ERISA plan, “a plaintiff must prove that his or her discharge was motivated by a specific intent to deprive him or her of pension benefits, and that the loss of such benefits was not a mere consequence of his or her termination ( see Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906, cert. denied 528 U.S. 817, 120 S.Ct. 56, 145 L.Ed.2d 49; Dister v. The Continental Group, 859 F.2d 1108, 1111).”
That, as I’m sure you can imagine, is extremely difficult to prove.
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As you may be aware, it has become increasingly common for employers to condition their employees’ receipt of post-employment benefits upon the employees’ agreement to abide by a strict non-compete clause. So here’s the question (which, unfortunately, occurs altogether too frequently): what if the non-compete is unreasonably and unduly restrictive (i.e., prevents you from using your acquired knowledge and expertise to earn a living), and your job has become intolerable to the point you want to quit?
Unfortunately, for purposes of evaluating the enforceability of a non-compete, or non-competition agreement, the difference between voluntarily resigning and being fired is quite important under New York law. This is known in legalese as the “employee choice doctrine.” (For additional information on this topic, please see “When NY Courts Will Uphold Non-Compete Clauses – No Matter How Unreasonable“).
As a tacit exception to New York’s rule that disfavors non-compete agreements, the employee choice doctrine is based on the notion that “if the employee is given the choice of preserving contract rights by refraining from competition or risking forfeiture of such rights by exercising a right to compete, there is no unreasonable restraint upon an employee’s right to earn a living.” Post v Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 NY2d 84, 421 NYS2d 847, 397 NE2d 358.
But there is a way to defeat this exception.
In case you didn’t already know it (and I suspect that’s most people), you don’t have to actually be fired in order to be considered fired from a job under New York law, and thereby effectively invalidate the non-compete agreement. But as you might suspect, the test to satisfy this doctrine, which in legalese is called “constructive termination” or “constructive discharge,” is difficult to prove.
The test for constructive discharge was established by the Federal courts, and occurs “when the employer, rather than acting directly, deliberately makes an employee’s working conditions so intolerable that the employee is forced into an involuntary resignation” ( Pena v. Brattleboro Retreat, 702 F.2d 322, 325 [2d Cir.1983]. A claimant can prove that she was constructively discharged by establishing that the working conditions “[were] so difficult or unpleasant that a reasonable person in the employee’s shoes would have felt compelled to resign” ( Pena, 702 F.2d at 325 ).
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There is an extremely important exception to the New York Courts’ express disfavor for non-compete agreements: the employee choice doctrine.
Under this exception to the rule, the employer is permitted to make the employee’s right to receive post-employment benefits contingent upon the employee’s agreement to abide by a non-compete agreement. The reason that this practice is permitted, according to New York’s highest court, is as follows:
“The doctrine rests on the premise that if the employee is given the choice of preserving his rights under his contract by refraining from competition or risking forfeiture of such rights by exercising his right to compete, there is no unreasonable restraint upon an employee’s liberty to earn a living ( see Kristt v. Whelan, 4 A.D.2d 195, 199, 164 N.Y.S.2d 239 [1st Dept.1957], affd. without op. 5 N.Y.2d 807, 181 N.Y.S.2d 205, 155 N.E.2d 116 [1958]; see also Post, 48 N.Y.2d at 88-89, 421 N.Y.S.2d 847, 397 N.E.2d 358). It assumes that an employee who leaves his employer makes an informed choice between forfeiting his benefit or retaining the benefit by avoiding competitive employment ( Kristt, 4 A.D.2d at 199, 164 N.Y.S.2d 239).”
Importantly – and the significance of this cannot be overstated – under the employee choice doctrine, a restrictive covenant (i.e., a “non-compete agreement”) will be enforceable without regard to reasonableness if an employee left his employer voluntarily.
Conversely, New York’s high court has articulated an almost equally important caveat to this rule: “An essential element to the doctrine is the employer’s ‘continued willingness to employ’ the employee ( Post, 48 N.Y.2d at 89, 421 N.Y.S.2d 847, 397 N.E.2d 358). Where the employer terminates the employment relationship without cause, ‘his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer’s ability to impose a forfeiture’ ( id.).”
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