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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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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Just because you have a signed, written agreement doesn’t automatically mean that you win your breach of contract case. Let me explain.

Just over one year ago, I cheered a Nassau County trial court’s decision that slammed a defendant who reneged on his word (written, mind you) to pay a plaintiff his finder’s fee for bringing two sides together on a real estate deal. (See, “How to Prove a ‘Finder’s Fee’ Case Under New York Law“).

To be clear: there was no dispute that the defendant entered into the agreement or that he reneged on his word (or, to borrow the legal parlance, breached the contract). Rather, the central issue in the case is whether the contract was unenforceable as a matter of law.

“Why?” you ask.

Because Real Property Law § 442-d provides that “[n]o person . . . shall bring or maintain an action in any court of this state for the recovery of compensation for services rendered . . . in the buying, selling, exchanging, leasing, renting or negotiating a loan upon any real estate without alleging and proving that such person was a duly licensed real estate broker or real estate salesman on the date when the cause of action arose.”

Applying that statute, in its May 31 decision, New York’s Appellate Division, Second Department held as follows:

“Contrary to the Supreme Court’s conclusion, this prohibition applies even if the services rendered are characterized as those of a “finder” (see Dodge v Richmond, 5 AD2d 593, 595-596; Sorice v Du Bois, 25 AD2d at 521; Real Estate Strategies, Ltd v Arington Realty Group, LLC, 2010 NY Slip Op 32296[U] [2010]; Feldbau v Klarnet, 109 Misc 2d 32, 35-36).”

The outcome of this case is somewhat disturbing: the defendant gets away with breaking his word (and contract).

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After reading decisions that seemingly disregard late notice that is furnished to an insurer (see, e.g., “Late Notice to Insurer Not Fatal to Claim Under New York Law, Federal Court Holds“) you might be lulled into thinking that failing to furnish timely and proper notice of a claim to your insurer may not really be that big of a deal.

But it’s just not true.

As New York’s Appellate Division, First Department recently held in its June 2 decision in Continental Casualty Company v. Employers Insurance Company of Wausau, since plaintiff CNA “fail[ed] to prove that it gave [defendant] OneBeacon timely notice of any underlying asbestos action, the … judgment must be reversed.”

Here’s why this is a big deal: the legal costs that CNA sought to recover under this policy, which were incurred in defending numerous asbestos-related claims, totaled roughly $31 million.

And now CNA is stuck holding (nearly) the entire bag (OneBeacon had to foot part of the bill for some of the other claims).

Nothing sends this message as effectively as the Court’s decision, does it?

(For more on this topic, readers are directed to an old 2008 article of mine, whose central points are still valid, “5 Rules to Succeed in Filing an Insurance Claim“).

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Nearly one year ago, we wrote in general terms about how good faith is implied in New York contracts. This article, however, will focus on the underlying factors that New York’s courts will consider when applying this doctrine to non-solicitation agreements.

Fortunately, a hot-off-the-presses decision from New York State’s highest court offers some guidance – and some instructive language:

“Under New York common law, a seller has an “implied covenant” or “duty to refrain from soliciting former customers, which arises upon the sale of the ‘good will’ of an established business” (Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 283 [1981]) … A seller’s “implied covenant” not to solicit his former customers is ‘a permanent one that is not subject to divestiture upon the passage of a reasonable period of time … This is so because “[t]he essence of [these types of] transaction[s] is, in effect, an attempt to transfer the loyalties of the business’ customers from the seller, who cultivated and created them, to the new proprietor” (id.) …

“Notwithstanding this “implied covenant,” a buyer assumes certain risks when he purchases an existing business and attempts to transfer the loyalties or “good will” of that business as his own. For example, the customers of the acquired business, “as a consequence of the change in ownership,” may choose to take their patronage elsewhere (id.). Indeed, “the occurrence of a certain amount of attrition is one of the risks that the purchaser must assume when he acquires an established business” (id.). Moreover, the seller of a business is free to subsequently compete with the purchaser and even “accept the trade of his former customers, provided that he does not actively solicit such trade …  [such as by] sending targeted mailings or making individualized telephone calls to his former customers informing them of his new business ventures … On the other hand … so long advertisements [are] general in nature — and not specifically aimed at the seller’s former customers — [they are] permissible under New York law.

“While the “implied covenant” places certain barriers on a seller’s conduct, it in no way prohibits a former customer or client from gathering information about that seller. In the free market, consumers of goods and services have the right to make informed choices …Thus, a seller of “good will” may answer the factual inquiries of a former client, so long as such responses do not go beyond the scope of the specific information sought …[but may not] explain, for example, why he believes his products or services are superior …

For additional information on this topic, please see “New York Court Clarifies Standard For “Improper Solicitation of Old Clients.”

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In a fascinating – and significant – April 28 decision, New York State’s highest court answered the following question:

How far can you go to help your new employer solicit your former clients under New York law?

Here are some of the salient facts in the breach of contract and breach of fiduciary duty case of Bessemer Trust Co., N.A. v. Branin:

In this case, Branin was a former executive of Brundage, who sold its assets, including its good will, to Bessemer for $75 million in August, 2000, with $50 million of the purchase price being payable up front, and the remaining $25 million being contingent on Bessemer and its principals meeting certain performance benchmarks. Branin, who was Brundage’s largest individual shareholder, received just over $9 million as his share of the sale. Branin continued to work for Brundage for just under 2 years, at which point he sought different employment.

Although Branin did not have any written non-compete agreement barring solicitation of former clients (which, given the magnitude of the asset purchase agreement is, to say the least, rather puzzling), he went out of his way not to actively solicit any of his former clients that were part of the asset purchase agreement when he finally left in June, 2002. In fact, he didn’t even tell any of those clients he was leaving; rather, when these clients contacted Branin privately, he informed them that he was pursuing work with a different firm in the field because this new firm’s operating philosophy “was more appropriate for him.”

Some clients, including his largest one, went out of their way to follow him, and left Bessemer. And this lawsuit followed.

In response to a question posed by a federal appeals court, New York State’s highest court concluded its opinion as follows:

“The issue in which the Second Circuit seeks our guidance is to what degree a seller may assist his new employer in responding to inquiries made by a former client. Since the seller of “good will,” absent a restrictive covenant, may compete with a purchaser, we conclude that certain activity within a new employer’s firm must be permissible …

“While a seller may not contact his former clients directly, he may, “in response to inquiries” made on a former client’s own initiative, answer factual questions … a seller’s “largely passive” role at [a client] meeting does not constitute improper solicitation in violation of the “implied covenant.”

To my thinking, this is a good and logical rule.

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In a breach of contract lawsuit that was filed in New York this past Tuesday, Beyonce has been sued by video game maker Gate Five, who alleges that well after the ink was dry on their contract, Beyonce reneged on an exclusive licensing agreement that required her to have her name attached to “Starpower: Beyonce.”

According to documents filed with the Court, the company claims that Beyonce’s bad faith and breach of the agreement resulted in the ruination of their company, she attempted to hold Gate Five over a proverbial barrel by demanding even greater compensation than what she had previously agreed to at a critical juncture in the project’s development, which in turn caused their major financial backer to abandon the project.

Gate Five claims that Beyonce’s bad acts cost them their own $6.7 million investment in the project, as well as a claim for over $100 million in lost profits due to her breach of contract.

From my vantage point here are the salient points about this story:

1. At this juncture, all that has apparently been filed is a summons with notice – no formal complaint has been filed at this time (let alone any responsive documents from Beyonce’s counsel). Consequently, a lot of details have yet to emerge.
2. Gate Five claims that Beyonce’s own father – who is apparently her manager – has repudiated her actions as well. If that claim is true, that would certainly not bode well for Beyonce’s defense of the action.
3. At the risk of stating the obvious, it is highly doubtful that a $100 million lost profit claim that is grounded entirely on the premise of the projected profits of a still-undeveloped video game will survive dismissal. As noted in “How to Prove Lost Profits in a New York Breach of Contract Case,” mere speculation will not suffice.

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Just over one year ago, I wrote about how a New York County trial court refused to dismiss two at-will employees that worked as placement professionals, and were promised both salary and commission did not forfeit their earned commissions – even though they never reduced their agreements to writing, in derogation of the Statute of Frauds. (See, “At Will Employees’ Breach of Oral Contract for Unpaid Bonuses Survives Dismissal“).

An appeals court across the river in Brooklyn has now followed suit.

In the breach of contract action of  Bauccio v. Aon Recovery, Inc., the plaintiff, a consultant, had earned certain unpaid commissions working for two companies that  were later acquired by the defendant. Seeking to recoup his unpaid commissions, the plaintiff purportedly entered into an oral agreement with the defendant whereby the defendant would pay him not only for his past unpaid commissions, but for future commissions with respect to those clients he had already referred to the defendant.

Although the appellate court agreed that the defendant’s alleged promise to pay for future commissions was barred by the Statute of Frauds (which requires that such an agreement be reduced to writing), it declined to dismiss that branch of the plaintiff’s claim seeking payment of his earned commissions, and cited to an exception to the Statute of Frauds, stating:

“Pursuant to General Obligations Law § 5-701(a)(2), a special promise to answer for the debt, default or miscarriage of another person’ must be in writing, and subscribed by the party to be charged therewith.’ Under a longstanding exception to this rule, however, the promise need not be in writing if it is supported by a new consideration moving to the promisor and beneficial to him’ and provided, further, that the promisor has become in the intention of the parties a principal debtor primarily liable …

‘T”he plaintiff raised triable issues of fact as to whether his continued efforts to secure a particular client, Adecco, on behalf of the defendant constituted new consideration running to the benefit of the defendant, and whether the parties intended the defendant to become primarily liable for the unpaid commissions [that defendant's predecessors in interest] owed to the plaintiff.”

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