On the other hand, I understand why the Court, and the New York Legislature set up the rules in this fashion: simply put, if they allowed unlicensed contractors to still get paid for work that requires a license, then that would effectively abrogate the need for the license altogether.

And that’s precisely what happened in Enko Construction Corp. v. Aronshtein. In this Nassau County case, the plaintiff construction company sought payment of monies owed for the home improvement work it did, but wasn’t paid for, in either breach of contract or quasi-contract (i.e., the reasonable value of the services they rendered on equitable grounds, which is also referred to as “unjust enrichment” or “quantum meruit“). There was one “small” problem with its claim, though:  the plaintiff wasn’t licensed to do home improvement.

Thus, in dismissing the complaint, the Court held as follows:

“It is well settled that a home improvement contractor who is unlicensed at the time of the performance of the work for which he or she seeks compensation forfeits the right to recover damages based on either breach of contract or quantum meruit. B & F Bldg. Corp. V. Liebig, 76 N.Y.2d 689 (1990); Flax v. Hommel, 40 A.D.3d 809 (2nd Dept. 2007).”

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And apparently, these sellers have met with some success.

These agreements are fraught with peril, at least under New York law, however.

In particular, as noted in “How to Prove a Finder’s Fee Agreement Under New York Law,” a Long Island, New York trial court recently held that “New York’s Statute of Frauds applies to finders and their agreements to provide finding services, which means that finders must memorialize their agreements to find in writing to be enforceable.”

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In Bessemer Trust Company, N.A. v. Branin, the plaintiff sued one of its former executives in federal court for damages they allegedly sustained when he solicited his old clients from the time that he worked at their firm. According to the plaintiff, under New York’s “Mohawk Doctrine,” the defendant was prohibited from soliciting his former clients (effectively, a non-compete), because his clients and goodwill were part and parcel of his sale of the investment firm to the plaintiff.

Rejecting the defendant’s assertion that the Mohawk Doctrine was inapplicable because he “only passively assisted” his new employer in trying to pry these clients away from the plaintiff, the trial court found that he was liable to the plaintiff. On appeal, however, the Second Circuit remained troubled by the following questions, which it referred to the New York Court of Appeals:

“What degree of participation in a new employer’s solicitation of a former employer’s client by a voluntary seller of that client’s good will constitutes improper solicitation? We are particularly interested in how the following two sets of circumstances influence this analysis: (1) the active development and participation by the seller, in response to inquiries from a former client whose good will the seller has voluntarily sold to a third party, in a plan whereby others at the seller’s new company solicit the client, and (2) participation by the seller in solicitation meetings where the seller’s role is largely passive.”

The Court of Appeals’ decision on these issues will certainly be subject to a lot of debate (and probably – litigation).

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In this case, the plaintiffs sued to recover their losses after learning that the $4o million loans they extended to the defendants turned out to be based on some seriously cooked books. The defendants raised an interesting defense, which can be summarized as follows: “our books were so bad that you had no right relying on them to lend us the money.”

As noted in “Why Fraudulent Concealment Claims Are So Tough to Win,” one of the essential elements that a plaintiff must prove in order to establish a fraud claim under New York law is that she reasonably relied to her detriment upon the defendant’s representations. Applying this rule, many New York courts have dismissed fraud claims where the plaintiff’s purported reliance on the defendants’ representations was clearly unjustified, such as in Global Mins. & Metals Corp. v Holme (35 AD3d 93 [1st Dept 2006]), where the plaintiff fired an officer whom it found to be untrustworthy, and then inexplicably trusted that same officer’s verbal assurances that a transaction was completely innocent.

Importantly, New York’s High Court carved out a clear exception, and stated that one way to prove a fraudulent concealment claim under New York law is as follows:

“Where, however, a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred. In particular, where a plaintiff has gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry.”

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But that wouldn’t be completely fair (or, in legal terms, “equitable”) to the doctor who lent out his space, equipment and space, would it?

So, despite holding that the contract was illegal, and therefore not a valid contract, the Court held that the plaintiff could still recover the fair rental value for the office space and equipment in quasi-contract,  because otherwise the defendant would be “unjustly enriched” by not having to pay for the benefits he received.

For additional information on this topic, you may wish to read “What You Can Do Under NY Law if You Don’t Have a Valid Contract” or “When Illegal Agreements Can Still Be Enforceable in New York.“

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But there are other cases, like Springer v. Linden Seventh Day Adventist Church, where the failure to get a written contract spells death to the claim. And, as painful as it may be to the plaintiff, the Brooklyn judge deciding this case was absolutely right.

First, the plaintiff, who was producing a documentary on behalf of the church, never actually received the church board’s approval for the project. In fact, he never dealt directly with anyone that had authority to bind the church to any agreement. Second, they never agreed on any price for the services that he was going to render.

As noted by the Court, “plaintiff acknowledged that no material terms of the contract (including payment) were ever stated, defined, or agreed upon, and that the Church Board never agreed to pay him … There was no agreement as to the details of what type of film would be made, the starting or ending date of such production, and no price terms were discussed between plaintiff and defendants. Thus, plaintiff cannot sustain his claim for breach of contract (see Matter of Express Indus. & Term. Corp., 93 NY2d at 589).”

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The plaintiff must prove that the defendant both intentionally AND without justification induced a third party to break their contract with the plaintiff.

Why is that so hard?

The answer, I believe, lies in the latter prong – without justification – because that is where many defendants have successfully defeated tortious interference claims. And the way they’ve done it is by simply showing that their actions were done for their legitimate economic interests. Make no mistake: that is a very broad category.

In fact, New York’s highest court has held that this exemption applied not only where the defendant was a direct competitor of the plaintiff’s but even if they weren’t directly competing, and summarized the rule as follows:

“The existence of competition may often be relevant, since it provides an obvious motive for defendant’s interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else’s economic relations. Where the parties are not competitors, there may be a stronger case that the defendant’s interference with the plaintiff’s relationships was motivated by spite. But as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace.” (Carvel Corp. v Noonan, 3 NY3d at 191.)

Obviously, this is not an easy hurdle to clear.

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The guy is intent on suing the big, bad company for breach of contract in a New York court; he is adamant that he doesn’t want to go to arbitration as called for in their agreement because he is convinced he won’t get a fair shake at arbitration (not to mention that it will prove rather expensive for him).

There’s one problem, however: as noted in an earlier article of mine,  it’s very difficult to invalidate a mandatory arbitration clause in New York. Even though he wanted to cast his claim as a business tort, as distinct from a straight breach of contract claim, I pointed out to him that if his attempt to circumvent the arbitration clause could be undone that easily, then mandatory arbitration clauses would be rendered virtually meaningless.

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But, as noted by the Court, therein lies the problem: the allegations are unsubstantiated.

In Lecce Penn Co. SPA v. Adrenaline Marketing & Promotions, Inc., the plaintiff sued in breach of contract and fraud to recover over $300,000 that they were purportedly owed. Fair enough.

But the plaintiff took it a step further: they tried to sue one of the shareholders of the defendant corporation personally.  Unfortunately for the plaintiff, they had no competent proof that this individual did anything that should have resulted in his being held personally liable for the corporate debt; in fact, the plaintiff did not even allege that he did anything that should have entitled them to pierce the corporate veil.

The thing that troubles me about this case is simply this: while I can understand that there are instances where the proof you expected to become available to support your claim doesn’t materialize, I don’t understand how the complaint itself can even fail to have any of the requisite allegations to support a claim seeking to pierce the corporate veil. That’s just poor draftsmanship.

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The reason is fairly simple: the courts – beginning with the United States Supreme Court – have clearly sided in favor of upholding arbitration provisions rather than invalidating them.

First, and at the outset, one New York Federal Judge held that claims of adhesion are generally considered objections to a contract and not to an arbitration provision. See Wright v. SFX Entm’t Inc., 00 Civ. 5354, 2001 WL 103433, at *3 (S.D.N.Y. Feb. 7, 2001). Applying this rule, the court held that the question of whether the arbitration clause was enforceable had to be determined by the arbitrator rather than the courts.

Moreover, and in any event, the courts generally disfavor invalidating contracts on grounds of adhesion or unconscionability, stating: “A court will find adhesion only when the party seeking to rescind the contract establishes that the other party used ‘high pressure tactics,’ or ‘deceptive language,’ or that the contract is unconscionable.

“Typical contracts of adhesion are standard-form contracts offered by large, economically powerful corporations to unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no opportunity to change the contract’s terms.”

To that end, and in the employment context, the United States Supreme Court stated as follows: “The unequal bargaining power between employers and employees is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context. Cf., e.g., Rodriguez de Quijas, supra, at 484, 109 S.Ct., at 1921-1922. … Such a claim is best left for resolution in specific cases.”  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991).

In light of the Supreme Court’s relatively clear language on the subject, a trial court’s unwillingness to challenge it in a specific case is quite understandable.

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