Sometimes, even seasoned companies ignore the fundamentals, and learn a lesson the hard way. In this case, the lesson was rather straightforward – if you don’t fulfill the explicit requirements for before undertaking additional work under a contract (a condition precedent), you may not get paid.
In an opinion that was handed down on December 22, an upstate New York appeals court affirmed a lower court’s holding that despite the fact that the plaintiff contractor Phoenix Signal and Electric performed additional, extracontractual work that was needed to fulfill its underlying contract to install cameras and signs along the New York State Thruway, the appellate court denied this contractor recovery for this additional work.
Doesn’t seem terribly fair, does it?
But here was the problem: Phoenix failed to strictly comply with the contract’s notification and record-keeping provision, a condition precedent to recovery. In the words of the Court,
“[T]he subject contract explicitly provides that strict compliance with its notification and record-keeping provisions is required as a condition precedent to any recovery, and that claims for extra work are deemed waived in the absence of such compliance. When such a condition is expressly agreed upon by the contracting parties, it “must be literally performed” (Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]). “‘[N]o action for breach of contract lies where the party seeking to enforce the contract has failed to perform a specified condition precedent’” (Carr v. Birnbaum, 75 AD3d 972, 973 [2010], quoting Navilia v. Windsor Wolf Rd. Props. Co., 249 AD2d 658, 659 [1998]). Accordingly, claimant’s failure to comply with its contractual obligation to provide the required notices and reports constitutes a waiver of the extra work claims (see Fahs Rolston Paving Corp. v. County of Chemung, 43 AD3d 1192, 1194 [2007]; Kingsley Arms, Inc. v. Sano Rubin Constr. Co., Inc., 16 AD3d 813, 814 [2005]).”
A harsh lesson indeed.
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A little over one year ago, I wrote about a fascinating case where a defendant sought to avoid its obligation to pay for goods that it received – and profited from – on the grounds that the underlying agreement it had with the plaintiff was based upon an illegal scheme designed to avoid customs duties in the U.S. Fortunately, the judge in that case was able to cut through the defendant’s argument that the contract was unenforceable, because in his view, the illegality of the scheme was only tangentially related – rather than being a central part – to the parties’ agreement, and, therefore, the defendants could not reap a windfall based upon their breach of contract. For more details on that case, click here.
But, as one of New York’s appellate courts recently pointed out in Village Taxi Corp. v. Beltre, the general rule that illegal contracts are unenforceable under New York law is not necessarily a black and white rule, and is not without exception.
As the Court stated:
“Although illegal contracts are generally unenforceable … where the statute or regulation requiring that a license be procured … ‘is merely for the purpose of raising revenue it would seem that acts performed without securing a license would be valid. But where the statute looks beyond the question of revenue and has for its purpose the protection of public health or morals or the prevention of fraud, a non-compliance with its terms would affect the legality of the business.”
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Although I’ve been asked this question most frequently in the breach of contract context, the same principle holds true for lawsuits in general:
It’s a really, really bad idea to ignore a lawsuit – or even a threatened one.
Although there are several reasons for this, in my view, here is the most important one:
You run the risk of having a default judgment rendered against you. Lest you think that’s no big deal, consider this: assuming the lawsuit was without merit, or “frivolous,” if you fail to answer the complaint, the court may preclude you from putting forth any proof you may have as to why this lawsuit is ridiculous. Indeed, once you’ve been held in default, the only issue that requires consideration (assuming the judgment isn’t for a sum certain) is the amount of damages that the plaintiff is entitled to.
It’s also a bad idea to ignore threatening letters – particularly from someone working for a collection agency. And the reason for this is straightforward: if you ignore a bill that you’ve received and that bill is inflated or otherwise erroneous, your failure to object to that bill in a timely fashion might be deemed (at least in some respects) a concession as to the bill’s correctness.
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It is terribly unfortunate and disturbing that some lawyers seem to believe that civility and politeness are inherently at odds with good, aggressive advocacy.
Let me be perfectly clear: I have no problem with an attorney aggressively protecting and pursuing his client’s interests. Everyone’s got a job to do.
And there are certainly times when the other side plays fast and loose with the rules, and therefore needs to be called out for their inappropriate conduct.
But that doesn’t mean your knee-jerk, immediate response is to assume the other side is lying, and to then castigate them in open court – particularly when you have only unsupported assumptions rather than any hard facts to back it up. In other words – and at the risk of stating the obvious – you can disagree without being disagreeable, and picking needless fights with the other side burns the bridges of communication and erodes trust, which is a critical component to the amicable resolution of cases.
Despite these obvious drawbacks, this push-button nastiness seems to be an increasing trend I’m facing, particularly in the business litigation and breach of contract context. I certainly hope the courts start to clamp down on this trend, because it truly is a black mark for the legal profession.
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In an opinion that was handed down yesterday in the defamation case of Tener v. Cremer, New York’s Appellate Division, First Department held that the trial court erred by denying outright – without a hearing – a plaintiff’s motion seeking to hold NYU in contempt for failing to protect or produce electronically stored information (ESI) in response to a subpoena.
In response to the motion, NYU claimed that it could not comply with the subpoena because the identities of people who accessed the Internet through a particular portal were stored in a text file that was automatically overwritten every 30 days, and the school did not “possess the technological capability or software, if such exists, to retrieve a text file created more than a year ago and ‘written over’ at least 12 times.”
The unanimous appellate court was unpersuaded by this argument, however.
As the plaintiff’s expert noted, there are several steps NYU could take to obtain the data, including the utilization of forensic software. Indeed, the appellate court cited to the fact that Nassau County Commercial Division has enacted detailed rules to address specifically the issue of forensic data recovery.
Therefore, the court held, “To exempt inaccessible data presumptively from discovery might encourage quick deletion as a matter of corporate policy, well before the spectre of litigation is on the horizon and the duty to preserve it attaches.”
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International Shoppes, Inc., et al. v. Spencer is a case from a trial court in Nassau County, NY that is scheduled to appear in tomorrow’s edition of The New York Law Journal that is the poster child – at least in my view – for litigation run amok. And, lest you think that I meant to say “frivolous lawsuit,” I assure you that I deliberately chose not to use that phrase.
In this case, the plaintiff sued their former employee for, among other things, allegedly defaming them publicly and fraudulent concealment. And, from the Court’s opinion, there seems to be some merit to the company’s contention that the defendant actually did defame them.
But here’s the problem:
Even assuming that someone took this former employee’s negative, defamatory comments seriously (and I’m not sure that the evidence will bear this out), and further, that the plaintiff’s company suffered damages as a result, how exactly would the defendant be expected to satisfy the judgment?
As the plaintiff is all too well aware, they employed him as a low-level sales clerk, who presumably has no assets with which to satisfy a judgment of any significance.
To me, this is just another example of “Why Defamation Lawsuits Are Often a Waste of Time and Money Under NY Law.”
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Kudos to you, ABC, for bringing this story to light.
And shame on you, Cubist Pharmaceuticals, for your discriminatory narrow-mindedness.
Kara Krill who works for Massachusetts-based Cubist Pharmaceuticals, recently had twin children via a surrogate. She was compelled to have these children through a surrogate because she had health issues that prevented her from having children in the conventional manner.
Naturally, she was overjoyed when she learned that the surrogacy resulted in the anticipated birth of not one – but two children. That is, until the HR department at her employer responded that she would be denied the 13 full weeks of paid maternity leave that was set forth in their written policies, and instead would be granted only a 5 day leave of absence that is traditionally reserved for children that are adopted, or for fathers seeking paternity leave. Moreover, according to Krill, one of her bosses commented that she should “‘put [her] twins in daycare,’ so she could come back to work sooner.’”
Mrs. Krill has now sued her employer in federal court, claiming that her employer has breached their contract, and their covenant of good faith and fair dealing, and has openly discriminated against her based upon her disability.
I, for one, am rooting for her.
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Truth be told, the heading of this article is taken from a common usage, or vernacular, perspective; from a technical, legal perspective, it is simply wrong.
Here’s why: The term “liquidated damages,” at least under New York law, means that a court has determined as a matter of law that the specific amount of monetary damages stipulated to in a contract that are to be awarded to one side in the event of a breach of the agreement bear a rational relationship to the anticipated damages, and are reasonable. (For additional information on this topic, please see “How to Challenge the Validity of a Liquidated Damages Claim Under New York Law“).
But what happens under New York law if the court invalidates the liquidated damages clause? Is all lost?
The short answer is this: No.
Fortunately, the courts have expanded on this concept a bit, and given some guidance on this issue, stating:
“If the clause is rejected as being a penalty, the recovery is limited to actual damages proven” (Brecher v Laikin, 430 F Supp 103, 106 [SD NY 1977] [citations omitted]; see also 3 Farnsworth, Contracts § 12.18, at 304 [3d ed] [where a liquidated damages provision is an unenforceable penalty, "the rest of the agreement stands, and the injured party is remitted to the conventional damage remedy for breach of that agreement, just as if the provision had not been included"]).
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As noted elsewhere (see, e.g., “Why It’s So Hard to Recover Legal Fees in a NY Breach of Contract Case“) , the general rule in New York is that you cannot recover the costs you’ve incurred to defend a lawsuit that has been brought against you. Of course, there are some exceptions to that rule, the most prevalent being where the two sides to the litigation had previously entered into a written agreement that provided for either side to recover their legal fees.
There is another limited exception to that rule: where the court determines that your adversary has engaged in “frivolous conduct.”
So what constitutes “frivolous conduct” under New York law?
Fortunately, it is defined by Uniform Court Rule §130-1.1 (c), which provides, in pertinent part, as follows:
(c) For purposes of this Part, conduct is frivolous if:
(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;
(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or
(3) it asserts material factual statements that are false.
As noted in the title to this article, however, it is extraordinarily rare that New York State’s courts will award costs and/or sanctions against the other side to a litigation. Therefore, you should never assume that a court will make you whole for defending a lawsuit that you personally deem “frivolous.”
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It should come as no surprise that this has increasingly become one of the most common – if not the most common – form of breach of contract as the economy has continued to falter. Some customers have professed their desire to pay your bills, but “they just don’t have the money right now.” More often, these non-paying customers will duck your calls altogether.
This leaves you in a really awkward position: if you aggressively pursue the money you’re owed, you are likely going to alienate someone who may have been a loyal customer for many years; on the other hand, you need to get paid as well.
There is also another important point to consider: if you decide to try to recover your fee through a breach of contract lawsuit, it is imperative that you assess beforehand whether a judgment against the defendant (your former client) will ultimately be collectible. Stated differently, if you win your case outright, and the court finds that you are owed your entire fee, you may be left with a truly Pyrrhic victory, for an uncollectible judgment is essentially worthless.
And in that event, you will be worse off than before.
“How is that?” you ask.
Because you will have spent time, aggravation, and thrown good money (on lawyers) after bad.
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