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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Apparently even the high-end technology sector has to play by the same rules regarding non-compete agreements as the rest of us; or, at least that’s the Department of Justice’s position.

In two actions that were recently filed in federal court in Washington D.C. (United States v. Adobe Systems, Inc., and United States v. Lucasfilm, Ltd.) the DOJ claimed that some of the highest-end companies worked together to bar recruiters from calling their most in-demand and skilled employees, creating a “do-not-call” list. Some companies went even further, agreeing to notify each other when making offers to each others’ employees and to not make counteroffers to their own employees offered a position by the other company.

And according to the Justice Department, that’s going too far, and inherently constitute (“per se,” in legalese) unlawful restraints on competition because they are not “reasonably necessary” to maintain the companies’ competitive advantages.

The DOJ is actually taking a smart tack in these cases, as they are not attacking the agreements in a  broad-based wholesale fashion; their settlement proposal carves out a niche for non-solicitation agreements that are of the variety commonly seen in joint ventures or settlement agreements that are reasonably limited in geographic scope and duration (much the same as is currently the law regarding non-compete agreements and non-solicitation agreements in New York).

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As noted in our earlier article, “Piercing the Corporate Veil – Critical Facts that You Will Need to Prove Your Case Under New York Law,” it is not an easy task to amass sufficient facts to survive an initial motion to dismiss a claim that seeks to pierce a corporation’s veil – let alone prove those facts at trial.

That’s why when a court allows those claims to survive – at least initially – the facts of those cases are noteworthy.

In Safety Management Systems, Inc.  v. Safety Software Unlimited, the defendant in this commercial litigation lawsuit sought court leave to amend its answer to assert additional counterclaims seeking to pierce the corporate veil. In support of its argument for allowing the amendment, the defendant claimed the following:

• That the plaintiff corporation was wholly owned by the individual plaintiff ;
• that the plaintiff paid herself and her employees unsustainably high salaries;
• That the plaintiff diverted corporate funds to her personal account;
• That the plaintiff co-mingled funds with her corporation.

Assuming these allegations are true is it any wonder that the court allowed this claim to survive?

I thought not.

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Earlier today, it was reported that Microsoft has sued Matt Miszewski, the former General Manager of one of its sales teams, as well as his new employer, Salesforce.com, who happens to also be one of Microsoft’s direct competitors, to enforce Miszewski’s non-compete agreement, and bar him from working for a direct competitor – particularly as their VP of the Global Sector, for one year.

From the allegations set forth in the article, this case sounds like the paradigm of a case where a New York court would enforce the non-compete. Here are some of the sordid details:

• Immediately prior to leaving Microsoft, Miszewski downloaded roughly 25,000 pages of business files and 600 MB of data to his personal laptop, much of which included sensitive, confidential and proprietary information;
• In the month of his departure, Miszewski helped author a memorandum setting forth Microsoft’s business strategy for the Public Sector for the coming year of 2011. This material was compiled well after his agreement to assume a new position as Salesforce’s VP of Global Sales was, for all intents and purposes, a “done deal”; and,
• While working for Microsoft, his job duties specifically entailed working with and modifying their “Worldwide Public Sector Government Cloud Playbook,” which containing Microsoft’s confidential and proprietary sales strategy for marketing Microsoft’s cloud computing offerings. Importantly, the Playbook contained vital information regarding Microsoft’s evaluation of its competitors in this market – including Salesforce.com.

This is precisely the type of trade secret material that New York’s courts will look to protect, and the type of non-compete agreement that the New York courts will likely uphold, because to do otherwise would all but encourage trade secret theft and unfair competition.

Thus, it is not surprising that, at least for the time being, the Washington State judge assigned to this case signed Microsoft’s proposed order temporarily restraining Miszweski from working for the new company in this capacity pending a hearing on the issue.

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Maybe the third time is the charm.

In a high-profile breach of contract and tortious interference lawsuit, the National Football League’s Tennessee Titans have sued former NFL coach ,and current USC coach Lane Kiffin, charging that he improperly poached their coaching ranks, inducing Titans running backs coach Kennedy Pola to breach his employment agreement with the Titans in favor of joining Kiffin at USC.

Unfortunately, the article discussing this lawsuit gives precious little details about the nature of the breach of contract. My guess is that there was some sort of non-compete clause in the agreement.

Assuming that is the case, here are some important factors that would be considered if it had been brought in New York: as noted in “Is My Non-Compete Agreement Enforceable Under New York Law?“, New York’s courts, as a general rule, strongly disfavor non-compete agreements because there are “‘powerful considerations of public policy which militate against sanctioning the loss of a man’s livelihood.”

Therefore, a New York court would look to see if the agreement with this coach was reasonable in its geographic scope and duration, whether it imposes an undue hardship on this particular coach, and whether it is reasonably calculated to protect the legitimate interests of the Titans.

That aside, since tortious interference claims require proof of an intentional act, the Titans would likely face an uphill battle in a New York court on those claims.

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Much to my clients’ chagrin (and yes, I get asked this question a lot), the instances where you can actually recover your legal fees expended on a case in New York are very rare.

But that doesn’t mean that there aren’t some circumstances where you can get them.

As noted in “How You Can Recover Your Legal Fees in a NY Breach of Contract Case,” one way you can recover legal expenses is if you have a written agreement that allows for the recovery of legal fees. (A verbal, or unwritten agreement on this issue will not suffice).

But what if (like most cases) you don’t have any such agreement?

Then you are left with two (2) other possibilities:

(1) if legal fees are provided for by statute or court rule (see, e.g., Matter of A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 5; see Baker v Health Mgt. Sys., 98 NY2d 80, 88, rearg denied 98 NY2d 728); or,

(2)  if the parties have “acted with disinterested malevolence’ [and have] . . . intentionally [sought] to inflict economic injury on [another party] by forcing [him or her] to engage legal counsel’ ” (Anniszkiewicz v Harrison, 291 AD2d 829, 830, lv denied 98 NY2d 611; see Rinaudo v City of Rochester, 148 AD2d 984).

As you might well imagine, the latter standard is extremely difficult to prove.

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