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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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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Truth be told, the heading of this article is taken from a common usage, or vernacular, perspective; from a technical, legal perspective, it is simply wrong.

Here’s why: The term “liquidated damages,” at least under New York law, means that a court has determined as a matter of law that the specific amount of monetary damages stipulated to in a contract that are to be awarded to one side in the event of a breach of the agreement bear a rational relationship to the anticipated damages, and are reasonable. (For additional information on this topic, please see “How to Challenge the Validity of a Liquidated Damages Claim Under New York Law“).

But what happens under New York law if the court invalidates the liquidated damages clause? Is all lost?

The short answer is this: No.

Fortunately, the courts have expanded on this concept a bit, and given some guidance on this issue, stating:

“If the clause is rejected as being a penalty, the recovery is limited to actual damages proven” (Brecher v Laikin, 430 F Supp 103, 106 [SD NY 1977] [citations omitted]; see also 3 Farnsworth, Contracts § 12.18, at 304 [3d ed] [where a liquidated damages provision is an unenforceable penalty, "the rest of the agreement stands, and the injured party is remitted to the conventional damage remedy for breach of that agreement, just as if the provision had not been included"]).

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As noted elsewhere (see, e.g., “Why It’s So Hard to Recover Legal Fees in a NY Breach of Contract Case“) , the general rule in New York is that you cannot recover the costs you’ve incurred to defend a lawsuit that has been brought against you. Of course, there are some exceptions to that rule,  the most prevalent being where the two sides to the litigation had previously entered into a written agreement that provided for either side to recover their legal fees.

There is another limited exception to that rule: where the court determines that your adversary has engaged in “frivolous conduct.”

So what constitutes “frivolous conduct” under New York law?

Fortunately, it is defined by Uniform Court Rule §130-1.1 (c), which provides, in pertinent part, as follows:

(c) For purposes of this Part, conduct is frivolous if:

(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or

(3) it asserts material factual statements that are false.

As noted in the title to this article, however, it is extraordinarily rare that New York State’s courts will award costs and/or sanctions against the other side to a litigation. Therefore, you should never assume that a court will make you whole for defending a lawsuit that you personally deem “frivolous.”

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It should come as no surprise that this has increasingly become one of the most common – if not the most common – form of breach of contract as the economy has continued to falter. Some customers have professed their desire to pay your bills, but “they just don’t have the money right now.” More often, these non-paying customers will duck your calls altogether.

This leaves you in a really awkward position: if you aggressively pursue the money you’re owed, you are likely going to alienate someone who may have been a loyal customer for many years; on the other hand, you need to get paid as well.

There is also another important point to consider: if you decide to try to recover your fee through a breach of contract lawsuit, it is imperative that you assess beforehand whether a judgment against the defendant (your former client) will ultimately be collectible. Stated differently, if you win your case outright, and the court finds that you are owed your entire fee, you may be left with a truly Pyrrhic  victory, for an uncollectible judgment is essentially worthless.

And in that event, you will be worse off than before.

“How is that?” you ask.

Because you will have spent time, aggravation, and thrown good money (on lawyers) after bad.

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Sometimes the details of a breach of contract claim are so juicy it is hard to remain objective.

And I readily admit, after reading a rendition of the detailed allegations in the lawsuit that CBS brought against one of its writers, Lukas Reiter, it is hard not to believe or side with CBS.

In essence, CBS claims that after paying Reiter $250,000 to develop a television series, he promptly turned around and re-sold the rights to the series to one of CBS’s main competitors, NBC. At first blush, this seems like a very strong case, doesn’t it?

But anyone who has been around the litigation circuit for any appreciable period of time knows (or should know) that far more often than not, there is a very different side of the story.

And, as of right now, we don’t know a single thing about what this writer will contend in opposition to CBS. And it remains entirely possible that a judge or jury will side with the writer rather than CBS.

To borrow an analogy from the sports realm: that’s why sporting events aren’t decided on paper; they have to actually suit up and go out and play the game.

The same principle holds true here: until all of the relevant facts are brought out, it remains way too early to assess CBS’s likelihood of success. At this point, the complaint is just that – a series of allegations – and nothing more.

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This is a whole new world of creepy.

In an ethics opinion that was recently handed down, the New York County Lawyers Association’s Committee on Professional Ethics wrote that it is both “proper and ethical” for attorneys to vet prospective jurors by “passively” investigating the jurors’ social networking profiles, i.e., viewing what is publicly available without actively “friending” or contacting them directly.

While I understand that in some cases, this investigation can theoretically yield valuable information regarding a juror’s potential bias in a particular case – and in fact, there was a case last year in Missouri where such investigation revealed that a juror had lied about a material issue that ultimately resulted in a verdict being thrown out – I think that engaging in this practice is truly a double-edged sword for the attorney.

Here’s why:

Let’s assume the trial involves a breach of contract case. Let’s further assume that several of the jurors are professionals who maintain a LinkedIn profile, and that they pay for the high-end service that allows them to see everyone who viewed their profile. Should it come as any surprise if a juror is “creeped out” to learn that one of the attorneys was digging into their profile?

I doubt it.

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In a breach of contract and non-compete case I was recently hired to defend, I had a very odd first phone conversation with my adversary. And at the end of the call, I told him that I would be following up with a short e-mail memorializing our “pleasant conversation.”

His response took me by surprise: “Please don’t include in the letter that our conversation was pleasant; I might want to forward it to my client, and I don’t want them to know that our conversation was cordial.”

My response: “Are you serious?”

Answer: “Yes. Let’s just keep it professional.”

I admit, I was taken aback. And even though this isn’t the first time another lawyer has told me such a thing, it still bothers me. Here’s why: I go out of my way to emphasize to my clients that I will always try to be as pleasant as possible, and to extend courtesies to my adversaries. And there is nothing “unprofessional” about it.

To the contrary, as one of my colleagues recently put it: “You can disagree without being disagreeable.”

Quite frankly, I think attorneys who insist on maintaining that “litigation means war” or scorched earth policy do their clients a grave disservice. Here are but three (3) important reasons :

(1) by refusing to extend courtesies, the case will last longer, and prove more expensive for their clients, as they pursue needless fights over unimportant issues;

(2) by taking uncompromising and intractable positions, they may very well assure that either they or their client (or both) is viewed less favorably by the judge or jury; and,

(3) by refusing to work with the other side to the litigation, they are likely to alienate them, making it far more difficult – if not impossible – to resolve the case short of a full-blown trial, which is often contrary to the client’s best interests.

The moral of this story should be clear. If you think you want “an animal” who knows only one way to litigate, and is hell-bent on the other side’s destruction, stop and consider this: will he be working in your best interests?

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