In a significant decision that was handed down on April 20 in MSCI Inc., Financial Engineering Associates, Inc., et al. v. Jacob, Axioma, Inc., et al., New York County trial justice Shirley Kornreich held that a software company claiming that one of its competitors had wrongly misappropriated their trade secret software that is sold to their clients from the global financial sector, was precluded from seeking further discovery from defendants until they identify, with reasonable particularity, which of the component parts or sequencing of their source code are not (1) publicly available information, (2) commonly-used algorithms, or (3) third-party licensing.
“Why is this significant?” you ask.
Because the court held that in the context of a trade secret theft case, the defendant was inherently entitled to priority of discovery, i.e., that the defendant did not have to disclose anything about its own technologies until the plaintiff first disclosed the specific trade secrets it claims were misappropriated, or stolen.
The Court’s reasoning was compelling: “[I]t would be unfair to allow plaintiffs to discover [defendant]‘s trade secrets prior to revealing their own. Should defendants remain in the dark as to the explicit portions of the source codes that plaintiffs deem to be trade secrets misappropriated by defendants, plaintiffs, once privy to [defendant]‘s source codes, could tailor their theory of misappropriation to [defendant]‘s work.”
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I have to admit it. I’ve never seen anything like this before.
Apparently, after being served with the breach of contract lawsuit papers on his way in to the American Idol studio, the lead singer for pop group, LMFAO, Redfoo, was sufficiently amused by the whole process that he posed for pictures with the man who served the papers on him.
I guess it’s safe to say he won’t contest that he was served with the legal papers.
It’s also safe to say he doesn’t take seriously the claims by his former manager, RpM Grp, who allege that Redfoo breached their agreement, poached Rpm’s employees (and thereby tortiously interfered with those contracts), and then reneged on the commissions they owed to Rpm.
Given the amount of money at stake, however, which is allegedly in the millions of dollars, I would not be surprised if LMFAO’s attorneys take this case quite seriously indeed (and defend the case very aggressively).
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As expected, Reebok has responded to Nike’s lawsuit claiming that Reebok had wrongly misappropriated the rights to market and sell football clothing and paraphernalia bearing Tim Tebow’s New York Jets uniform number. For more information on Nike’s initial lawsuit, please see “Nike Sues Reebok for Interference & Misappropriation of Tebow Rights.”
Some of the defenses raised by Reebok were certainly to be expected, such as that at the time these jerseys and other items were being made for sale, Reebok’s exclusive agreement with the NFL had not yet expired (it was set to do so on April 1), and Nike’s contract had not yet become effective (Nike’s contract was set to commence on April 1).
But some arguments that they made were more detailed, and less obvious. Here are but two examples:
(1) Reebok apparently had the right to sell the jerseys and T-shirts under a sell-off provision of its licensing agreement with the NFL; and,
(2) Since well over 90% of the Tebow apparel did not contain any mark or feature identifying it as a Reebok product, Nike could demonstrate no harm or dilution of its prospective linkage to Tim Tebow.
Given the heightened burden that Nike, as the party seeking the injunction, faces (as well as the fact that their contract had not yet become effective), it would seem that they are fighting an uphill battle.
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I have often been asked the following question in one form or another: “This claim is ridiculous. Why doesn’t the Court just throw it out, and dismiss the Complaint?”
The short answer is, that so long as from the face of the Complaint, there may be a valid, cognizable claim, New York courts are obliged to give claimants the benefit of the doubt, and give them their “day in court.” As one New York County trial judge recently summarized it:
“In the context of a 3211 motion to dismiss, the court takes the facts alleged in the complaint as true and accords the non-movant the benefit of every possible favorable inference. See, AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 5 N.Y.3d 582, 591 (2005). Further, any deficiencies in the complaint may be amplified by supplemental pleadings and other evidence. Id., citing Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 635-36 (1976). “[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law, a motion for dismissal will fail.” Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 (1997). Under CPLR 3211(a)(1), “a dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the claims as a matter of law.” Leon v. Martinez, 84 N.Y.2d 83, 88 (1994).”
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Last week, I received a fax from one of my adversaries that admittedly caught me by surprise: His clients apparently decided to discontinue their breach of professional services contract action against my client.
In truth, I’m not sure what prompted this action on their part; and I may never know the answer.
When my client was sued by this former long-standing client of his, it hurt him on a personal level. He felt betrayed.
Every time I called during this case (which has lasted years), the anxiousness in his voice was palpable. He was losing sleep.
But when I called my client this week to tell him the good news, here was his response:
“You added 10 years to my life.”
In my line of work, it doesn’t get much better than that.
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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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