In a negligence case that I recently defended, my client, a real estate developer, opted to hire a construction manager rather than a general contractor to oversee the development of this New York City building. Apparently, one of the main distinctions between a general contractor and a construction manager is the level of responsibility they take for the job: while the general contractor assumes full responsibility and oversight of the construction, including the hiring and retention of subcontractors, a construction manager, by contrast, acts in an advisory capacity, and does not necessarily control or dictate the manner in which the work is performed, or hire any of the subcontractors; that remains the owner’s job.
Not surprisingly, these distinctions have ramifications in terms of these parties’ respective exposure to liability for construction site accidents. Unlike the site owner and a general contractor, who are both explicitly named in Labor Law §§ 240(1) and 241(6) as potentially liable parties for work site accidents, a construction site manager’s liability for worksite accidents is less certain; if he neither directs nor controls any of the work being performed, he may escape liability altogether (assuming there is no contractual indemnity), leaving the owner one less important avenue for contribution.
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If an at-will employee resigns before they are paid their commissions, they forfeit their right to collect them, right?
Absolutely not, held a New York County trial court.
In Nichols v. SG Partners, Inc., the plaintiffs were employed by defendant as placement professionals, earning both a base salary as well as a percentage of defendant’s revenues generated for placements that the plaintiffs made, or commissions. After the plaintiffs found the working conditions “intolerable,” they resigned, and requested that the defendant pay them for the commissions they had earned during their employment. Not surprisingly, the defendant ignored these requests.
Accordingly, the plaintiffs sued the defendants, contending that the defendants were liable for breach of contract, breach of an implied covenant of good faith and fair dealing, unjust enrichment and violation of New York Labor Law (“Labor Law”) §193. The defendant then promptly moved to dismiss the case, arguing, among other things, that since the plaintiffs did not have a written contract the plaintiffs’ claims were barred under New York’s Statute of Frauds (N.Y. Gen. Obl. Law §5-701).
In rejecting the defendant’s argument, the Court cited a long litany of precedent for the proposition that “[B]ecause an at-will employment relationship may be freely terminated by either party at any time for any reason or even no reason, employment agreements of this type generally do not fall under the proscription of the Statute of Frauds.”
Importantly, the Court also noted that if it is later found at trial that an employer willfully withheld the plaintiffs’ wages, in derogation of Labor Law §198.1-a, “an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due” (Rasmussen v. Yellow River, Inc. 298 AD2d 322 [1st Dept 2002]; Wolintetz v. Island Stationary Corp., 16 Misc 3d 1133 [NY Dist Ct 2007] (withholding of payment of commissions was a willful act of retaliation for the plaintiff’s leaving the defendant’s employ)).
The message to employers is unmistakably clear: if you wrongfully withhold earned wages or payments due to your former employees, you do so at your own peril.
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I have to believe that the executives at the plaintiff on-line news company are kicking themselves.
In Al-Bawaba.com, Inc. v. Nstein Tech. Corp., a decision that was discussed in last week’s New York Law Journal, a Kings trial court dismissed their lawsuit against a software company that sought more than $1 million in damages for the defendant’s alleged breach of contract to provide software that would translate the news from English to Arabic. In this case, there were substantial negotiations over price, the manner and time in which the payments would be made for the software license. And although some of these e-mails went so far as to say “we have an agreement in principle,” no further, formal contract was ever executed.
As noted by the Court, “the record in this matter fully supports defendant’s contention that the parties intended to execute a written agreement, foreclosing any argument that an enforceable oral agreement was ever reached, or even intended … [P]laintiff’s statement that before an agreement could be “filed away in the company’s filing cabinets, it has [sic] to be reviewed by a lawyer and signed” convincingly demonstrate that, as far as plaintiff was concerned, additional terms needed to be resolved and reduced to writing prior to entering an enforceable agreement.” In legalese, this claim was barred by New York’s Statute of Frauds.
The worst part of it, from the plaintiff’s perspective is this: they had a full 15-page contract in hand, but never had their lawyers finish reviewing it.
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In Bimini Boat Sales, Inc. v. Luhrs Corp., plaintiff Bimini, a retail boat dealer, bought a fishing boat from boat manufacturer Luhrs, intending to resell the boat to the general public. Unfortunately for Bimini, after they received the boat from Luhrs, they discovered that the boat had several defects that were serious enough to render it unsaleable, which in legal terms is called “unmerchantable,” or unfit for its particular purpose.
Since the boat was considered “goods” under New York law, Bimini sued to recover under two different provisions of New York’s Uniform Commercial Code. First, Bimini sought to recover damages for Luhrs’ breach of the implied warranties of merchantability [UCC 2-314]; second, Bimini claimed entitlement to damages based upon the boat’s un-fitness for a particular purpose [ UCC 2-315]. Bimini also asserted that it was entitled to consequential damages for harm to their reputation and for loss of business.
In reversing that portion of the Suffolk County trial court’s order that denied plaintiff’s motion seeking judgment as a matter of law, the Appellate Division, Second Department held that plaintiff had proven that the boat was unmerchantable and not fit for resale to the public because it had “fundamental structural deficiencies” and design flaws which required extensive repairs and “design modifications.”
The significance of this decision, in my view, is the last part, however, wherein the appellate court affirmed the trial court’s dismissal of the plaintiff’s claims to recover damages for loss of business and damage to the plaintiff’s business reputation on the grounds the terms of the dealer agreement had expressly barred these claims.
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Many small businesses’ recurring nightmare, particularly in this economy, looks something like this:
Debtor D (we’ll call him “D,” for short) owes you tens of thousands of dollars for product that you delivered months ago. When you inquire as to what the delay is in receiving payment, you get a run-around, and ultimately find out that D’s company was taken over by a small, closely held company whose priorities clearly do not include paying your bills. By now, you’ve put them on formal notice that unless D pays the bills in full, a breach of contract suit will be brought.
Recognizing that he will have no viable defense to your claim, the principal of D does what many short-sighted executives do: he divests the company of as many assets as possible, as quickly as possible, transferring properties into the name of his wife and other family members for little or no consideration. While many people in your situation would throw up their hands at this point, that may prove to be a terrible mistake. And that is because they are likely unaware of the doctrine of constructive fraud – the cousin of the alter ego/piercing the corporate veil doctrine.
Unlike common law fraud principles, which require a showing of intent to defraud (which is difficult to prove), New York’s Uniform Fraudulent Conveyance Act (‘UFCA’), as codified in Article 10 of the Debtor and Creditor Law at §§ 270-281, has several provisions that do not require a claimant to prove that the defendant had actual intent to commit a fraud, and some of these provisions, such as section 273-a (entitled “Conveyances by
defendants”), was specifically drafted to prevent debtors from escaping their obligations in a lawsuit. This doctrine is commonly referred to as “constructive fraud.”
There is one important catch, however: in New York, as in other jurisdictions, “[A] transfer may not be challenged as fraudulent unless it prejudices the complaining creditor.” In other words, in determining whether a creditor has been prejudiced, courts consider what rights, if any, the creditor would have had to levy on the property had the challenged conveyance not occurred. And if the creditor (i.e., you) would never have been able to recover any of that money because your claim was so far back in line of the creditors, you will still be out of luck.
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If you are a Nassau County resident and think back, I’m pretty sure you will remember that torrential storm that occurred back in October of 2005, which resulted in flooding that was referred to as a once-in-a-century type storm. As it was reported on the news, lots of people suffered significant property damage. And the plaintiff in Wilner v. Allstate Ins. Co. was one of these people.
And the plaintiff considered himself lucky when all this transpired, because, after all, he had purchased Allstate’s Deluxe Plus Homeowner’s policy, and figured that his losses would be covered. How wrong he was.
Allstate didn’t even have the decency to formally deny his claim; and, since his insurance policy (like all other Deluxe Plus policy holders) required him to protect Allstate’s interests in recovering compensation for the property damage that may have been caused through the fault of a third party (in this case the Village), he independently hired an attorney, and paid him out of his own pocket, to prosecute the claim in order to assure that the statute of limitations against the Village did not expire.
Reading between the lines of this decision, it is fairly clear to me that the Appellate court, like the trial court before it, found Allstate’s conduct rather troubling, as they both ruled that a jury should be free to consider whether Allstate deliberately withheld its determination on this claim so that the plaintiff (rather than Allstate) would have to bear the cost of hiring an attorney (which otherwise would and/or should have been Allstate’s obligation). If a jury sides with plaintiff on this issue, and finds that Allstate engaged in deceptive business practices (this law is codified at sections 349 and 350 of the General Business Law), Allstate faces the specter of not only compensatory damages for their alleged breach of contract, but also treble and punitive damages as well.
This should prove interesting.
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In a hot-off-the-presses decision that was handed down this past Thursday, and is scheduled to appear in Tuesday’s New York Law Journal, New York’s Appellate Division, First Department (which covers New York and Bronx Counties) reversed that portion of a trial court’s decision that dismissed a former at-will employee’s claims under Labor Law §§191 and 198 and Business Corporation Law §630, holding that although the plaintiff’s claim for unpaid salary was correctly dismissed (his employment contract allowed management to adjust his salary at their sole discretion), he had sufficiently stated a breach of contract claim for unpaid earned commissions that he “arranged” prior to his termination. In particular, the Appellate Court stated as follows:
“Once the commission is earned, it cannot be forfeited (see Davidson v. Regan Fund Mgt. Ltd., 13 AD3d 117 [2004];4 Yudell, 248 AD2d 189, supra). There is a long-standing policy against the forfeiture of earned wages, and this applies to earned, uncollected commissions as well (Weiner v. Diebold Group, Inc., 166, 166-167[1991]) …”
On the other hand, “although generally an at-will employee is not entitled to post-termination commissions, the parties are certainly free to provide otherwise in a written agreement.”
There is another important rule to consider, however. And that is the doctrine of contra proferentem, which states that an employment agreement should be construed against the drafter. In this case, the Court held that had Management “meant to foreclose the possibility that plaintiff might earn a post-termination commission on a placement” arranged by plaintiff, it “could have said so explicitly.” And this they clearly failed to do.
The moral of the story is obvious: be very, very careful in drafting your employment agreements.
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Two days ago, the New York Times reported on a lawsuit that was brought by California-based Cybersitter, claiming that two Chinese software companies had engaged in unfair competition, and misappropriated, or stolen, thousands of lines of the code contained in its proprietary software to develop Green Dam, a type of software designed to block users from viewing unwanted websites.
The significance of this particular case lies in its scope, however: apparently, the Chinese government mandated that Green Dam Youth Escort be included with all computers sold in the country, thereby forcing several prominent computer manufacturers, including Acer, Lenovo and Sony to include this software with its computers. According to the lawsuit, these manufacturers continued to market and sell their computers with the software even after they were made aware that the software was indeed pirated.
The lawsuit seeks more than $2 billion in damages, representing the amount of money Cybersitter would have earned had all of these users paid for their software.
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In Bernhardt v. Tradition North America, a case very similar to the one we discussed recently in “Why Whistleblower Protection Clause In Employee Manual May Be Worthless,” the plaintiff, who was a vice president at defendant Tradition North America Inc., notified the SEC of various securities schemes that he had supposedly uncovered at his company. Not surprisingly, after he told defendant’s senior vice president and the company’s legal department that he had gone to the SEC, he was fired.
In seeking to recover damages for breach of contract and wrongful termination, the plaintiff asserted that he had an implied contract of employment (rather than being a mere “at will” employee) because he had been assured “that [d]efendants would operate the firm, and that [p]laintiff would be permitted to perform his job responsibilities, in accordance with the prevailing laws, rules and regulation of the securities profession.” In a similar vein, he claimed that since the defendants had made clear that he would be terminated for violating any laws, the defendants thereby impliedly warranted that they would not fire him for upholding those same laws.
As you may have guessed, these arguments didn’t even make it out of the starting gate; the Court dismissed the complaint without even requiring the defendants to answer the complaint.
And the reason the Court did so is straightforward: not only did the plaintiff fail to overcome the presumption of employment at will, the plaintiff did not produce any writing that limited the defendant’s right to hire, fire, promote, demote, transfer or take any other employment action it deemed otherwise appropriate.
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Strange as it may sound, there are times that you can reap the benefit of a contract’s provisions even if you had nothing to do with the contract at the time it was signed. And this is exactly what happened in Corbett v. Firstline Security, Inc., et al.
In this case, the plaintiff sued to recover damages against her alarm company following a burglary. At one point during the contract period, Firstline was acquired by ADT, a large home security alarm company. The Court’s decision which dismissed the claims against the defendants is significant for two (2) reasons:
- The Court held that “courts applying New York law will enforce a shortened statute of limitations when it is reasonable and agreed to by contract.” (The Court also noted that reducing the claim period to one year is not unreasonable as a matter of law.) See, e.g., Cab Associates v. City of New York, 32 A.D.3d 229, 323, 820 N.Y.S.2d 21 (N.Y. 2006); and,
- As a general rule, a party may not invoke the provisions of a contract to which it is not an original party. There are limited exceptions to this rule, however, which include the following theories: (1) assumption; (2) piercing the corporate veil or alter ego; (3) incorporation by reference; (4) third-party beneficiary theories; or, (5) waiver [or] estoppel. Arthur Andersen LLP v. Carlisle, 129 S.Ct. 1896, 1902, 173 L.Ed.2d 832 (2009).
Here, the Court held that “assumption” was applicable. Since the original Alarm Services Contract with Firstline Security Inc. specified that any lawsuit be brought within one year of the event that causing loss, damage or liability, ADT was also entitled to the benefit of that contractual provision, rendering plaintiff’s claim untimely.
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