In response to the complaint, the defendant moved to dismiss the complaint on the grounds that since there was no written agreement between the parties, the breach of contract claim was barred by New York’s Statute of Frauds, in accordance with Uniform Commercial Code 2-201.

Ultimately, the Court sided with the plaintiff and denied the motion, citing three (3) important exceptions to the Statute of Frauds:

(1) Since the plaintiff sent invoices together with the goods which “afford a basis for believing that they reflect a real transaction between the parties,” this case falls under the “merchant’s exception” to the Statute of Frauds (UCC 2-201(2)), which states as follows:

“Between merchants if within a reasonable time a writing in confirmation of the contract and sufficient against the sender is received and the party receiving it has reason to know its contents, it satisfies the requirements of subsection 1) against such party unless written notice of objection to its contents is given within ten days after it is received”;

(2) Inasmuch as the defendant both received and accepted the goods, plaintiff’s claim falls within another exception to the Statute of Frauds, as codified by UCC §2-201(3)(c);  and,

(3) Contrary to the defendant’s contention that the case should be dismissed in accordance with NY Gen. Obl. Law 5-701 because the oral agreement was open-ended, and therefore incapable of being performed within one year, the Court held that this provision bars “only those contracts which, by their terms have absolutely no possibility in fact and law of full performance within one year.” Applying that rule to this case, the Court stated as follows:

“Here, the statute of frauds is not a bar to enforcement of the alleged oral agreement because its performance within one year was possible. The terms of the alleged oral agreement anticipated prospective purchases but did not bind either party to any particular transaction, and performance depended solely upon the will and desires of the two parties (Nat Nal Serv. Sta. v. Wolf, 304 N.Y. 332, 340, 107 N.E.2d 473). Diamond Dairy might or might not have placed orders with Hood and Hood might or might not have accepted them. Accordingly, neither party was bound by the terms of the alleged oral agreement “to do anything at any time, and consequently there is nothing in its terms to bring it within the statute of frauds.”

The moral of this particular case is fairly straightforward: even if you don’t have a formal written agreement, you may still be entitled to recover your losses under New York law.

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In Eversfield v. Brush Hollow Realty, the plaintiff was injured in a construction site accident that was caused by the improper placement of a portable toilet at the work site. The chief question confronted by the Court in this case was whether the subcontractor, who had agreed by contract to indemnify the GC against any “”claim, demand, cause of action, loss, expense or liability . . . arising directly or indirectly out of the acts or omissions of [the subcontractor] or its subcontractors, suppliers or agents, or the employees, in the performance of the work . . . or arising from the use or operation by [the subcontractor] of construction equipment, tools, scaffolding or facilities furnished to [the subcontractor] by [the general contractor] to perform the Work.”

The subcontractor contended that the indemnification provision was not triggered in this case because the portable bathroom at the center of this case did not constitute “construction facilities.”  Apparently they felt that having usable bathrooms for construction workers is neither necessary nor unavoidable. (Yikes!)

In reversing the trial court, however, the appellate court held that since the use of portable toilets at a construction site is a “necessary and unavoidable activity” in the performance of such work,  and therefore qualified as “facilities” within the meaning of a construction indemnification clause.

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As you might expect, the answer is a little bit complicated, and the determination of the right measure of damages is inherently fact-specific. That said, here are some of the major principles at play:

First, and as a threshold matter, the employee is entitled to recover the amount of salary and other benefits that (he, she) would have received under the contract – and here’s the important caveat – less certain deductions. (It’s the “fine print that always gets you, isn’t it.)

Those deductions allow the employer a set-off of those amounts that the employee, using his/her best efforts, either earned, or should have earned from other employment since the date that the agreement was ended. However, on this point the defendant bears burden of proving the amount the plaintiff could – or should – have earned through diligent efforts.

Additionally, although the newly-discharged employee is required to try to find similar employment, that does not mean that he/she is barred from starting his/her own business.  It is just that the damages will still be reduced by what plaintiff can reasonably be expected to earn from the venture during the unexpired term of the contract, Cornell v T. V. Development Corp., 17 NY2d 69, 268 NYS2d 29, 215 NE2d 349.

One final point is in order here: the expenses that were necessarily incurred by the employee in the course of seeking new gainful employment are recoverable – provided that the employee has conducted the job search in good faith, and with reasonable prudence, and skill.

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Six months later, ABC brings in its CFO’s son Peter into the company, who has just received his MBA. Within one week of Peter starting his job at ABC, Jim notices that 3 of ABC’s 25 store managers failed to forward him their monthly marketing proposals. Two months later, that number increased to 20 out of the 25. And now, he also learns from two of his favored vendors that Peter, whose title is now Senior Vice President, terminated ABC’s agreements with them – all without Jim’s knowledge, and that he circulated a confidential memorandum – which also bore the CEO and CFO’s signatures – directing that all sales and marketing efforts now be run through him, rather than Jim.

In the face of this embarrassment and the stripping of all his essential job duties, Jim feels compelled to resign. But he is concerned: the job market is much worse now than when he signed the contract, and if he quits, won’t he be automatically forfeiting his right to recover under the employment contract?

Fortunately for Jim, under New York law the answer is no. In New York, if an employee is hired to fill a particular position, any material change in (his, her) duties, or a significant reduction in rank may qualify as a breach of the employment contract. On the other hand, and in the interests of full disclosure, resignation is not without risk: although in this particular fact scenario it is unlikely, a jury may ultimately decide that the change in duties that the employee suffered were not in fact “significant,” and defeat the employee’s breach of contract claim.

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There was one “small” problem, however: the technology didn’t work.

So, you would think that my acquaintance should have no problem recovering his downpayment for the exclusive license fee under New York law as a breach of implied warranty, right? Well, not so fast.

Under Uniform Commercial Code section 2-316, there are circumstances where a vendor can validly disclaim either a warranty that the goods are fit for a particular purpose, or are even fit at all. One of the most common examples of this is where the buyer purchases the goods “as is.”

The moral of the story is obvious: you should not sign such an agreement unless, and at a bare minimum (and I don’t recommend this), you have first assured that the product actually works.

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So what does a plaintiff have to prove in order to win one of those cases?

Although the list is short, as a practical matter marshaling this proof is not simple:

The plaintiff must prove “that the employer made a regular practice of making severance payments and that the plaintiff detrimentally relied on the severance policy, Skarren v Household Finance Corp., 296 AD2d 488, 745 NYS2d 556; Hirschfeld v Institutional Investor, Inc., 260 AD2d 171, 688 NYS2d 31; see Gallagher v Ashland Oil, Inc., 183 AD2d 1033, 583 NYS2d 624; see also Spencer v Christ Church Day Care Center, Inc., 280 AD2d 817, 720 NYS2d 633 (in order to recover for accumulated vacation time, at will employee must establish regular practice of paying employees unused vacation and reliance upon that practice in accepting or continuing position).”

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But here’s the bad news: since demonstrating that you actually lost profits based upon the other side’s conduct – and if so, how much – is inherently somewhat speculative, how can you prove such damages under New York law? As you may have guessed, this is not such an easy task.

Here’s the general rule:

“In order to recover loss of future profits as damages for breach of contract under New York law, ² the plaintiff must establish the existence and the amount of lost profits with reasonable certainty, and that the lost profits were within the contemplation of the parties at the time the contract was made. Schonfeld v. Hilliard, 218 F.3d 164, 173 (2d Cir. 2000) (citing Kenford Co., Inc. v. Erie County, 67 N.Y.2d 257, 261 (1986) (“Kenford I”)) …

“To meet this burden, the plaintiff must establish (1) the existence of the lost profits with reasonable certainty, and (2) that the alleged loss is capable of proof with reasonable certainty. Kenford I, 67 N.Y.2d at 261. “[T]he damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes.” Id; see also 3497 Austin Boulevard Assoc. LLC v. M.K.D. Capital Corp., No. 04 Civ. 8596 (NRB), 2007 WL 1575265, at *2 (S.D.N.Y. May 30, 2007) (“Projections of future profits which are made on the basis of a ‘multitude of assumptions’ that require ’speculation and conjecture’ with few known factors do not provide the requisite certainty for recovery.”).

But what about in the case of a new, or start-up business? Does the same rule apply to them?

In short, yes, but the following should be borne in mind: since such businesses lack a track record, the courts have stated that  “evidence of lost profits from a new business venture receives greater scrutiny because there is no track record upon which to base an estimate.” Schonfeld, 218 F.3d at 172.

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So how do you prove one of these claims?

The plaintiff is required to prove the following 4 things: (1) that defendant’s employee AB was demonstrably incompetent, a particularly poor disposition, or given to reckless behavior; (2) that defendant either knew or should have known about this problem; (3) that the defendant could reasonably have foreseen that this employee’s “issues” would be likely to result in harm or damage to others; and, (4) that the defendant nevertheless failed to undertake appropriate care to either correct or fire this employee.

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Reading this decision, I can’t say I’m surprised; simply put, the plaintiff had absolutely no proof to support its claims other than rank speculation.

As the Appellate Court stated:

“This argument has no support in the record, which indicates that Tapestry approached defendant about joining its company after plaintiff rejected the partnership proposal. There is no evidence, other than plaintiff’s speculation, that defendant was negotiating during the two companies’ ultimately fruitless discussions (see Abrahami v UPC Constr. Co., 224 AD2d 231, 233 [1996] [fraud must be proven by clear and convincing evidence; "loose, equivocal or contradictory" evidence will not suffice] …

“The court properly dismissed the claim alleging that defendant acted as a faithless employee because there is no evidence that defendant was negotiating for his new position with Tapestry during the pendency of the business discussions between Tapestry and plaintiff. Nor is there any support for plaintiff’s contention that defendant was making use of confidential information while negotiating his employment with Tapestry.”

In fact, after reading this decision, and given how emphatic the appellate court’s opinion is, I can’t help but wonder: why did the plaintiff even bother appealing (or even bringing the claim in the first instance)?

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In Fwan Management Co., LLC v. 420 West Broadway Corp., a New York County trial court dismissed the unjust enrichment claims of a shareholder in a real estate cooperative and proprietary lessee of commercial property space’s claims that he had been overcharged by the landlord. And the reason that his claims were dismissed, as noted in my earlier blog post, “What You Can Do Under NY Law if You Don’t Have a Valid Contract,” was based upon a straightforward application of New York law:

“Generally, an enforceable written contract precludes recovery in quasi contract with respect to events arising from the same subject matter. See Curtis Properties Corp. v. Greif Companies, 236 AD2d 237, 239 (1st Dep’t 1997). An unjust enrichment cause of action is ‘precluded by the fact that a simple breach of contract claim may not be considered a tort unless a legal duty independent of the contract-i.e., one arising out of circumstances extraneous to, and not constituting elements of, the contract itself-has been violated.’ Brown v. Brown, 12 AD3d 176, 176 (1st Dep’t 2004). However, a plaintiff may proceed on both breach of contract and quasi-contract theories where there is a genuine dispute as to the existence of a contract. Id

Since, in this case, there was no question that the issues were governed by express contractual language, the plaintiff’s unjust enrichment (i.e., “quasi-contract”) claims were correctly dismissed.

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