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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In Malaty v. Malaty, the plaintiff Naguib Malaty sued his brother to compel the turnover of the defendant’s interest in a Brooklyn property that was supposedly purchased with plaintiff’s money, and for money damages in breach of conract and breach of fiduciary duty that the defendant purportedly owed to plaintiff’s two corporations.

Plaintiff had a few “minor” problems with his claim, however. First, he had no proof that his corporations were actually legitimate (based upon the evidence adduced at trial, the Court opined that these corporations for tax evasion purposes); Second, he had no written agreement memorializing the defendant’s agreement to transfer ownership of the subject property to plaintiff, as a result of which his claim was barred by New York’s Statute of Frauds.

In dismissing this branch of the plaintiff’s claim, the Court cited the underlying theory behind New York’s Statute of Frauds, which is over 100 years old:

“The purpose of the Statute of Frauds is sufficiently indicated by its title. It is a statute against frauds. It was designed to prevent litigation over oral agreements, where the terms are always dependent upon the uncertain and varying memory of witnesses. This evil was to be remedied by the reduction of the terms of the contract to writing, so that the parties might not misunderstand the particulars of the contract which they were making; that no one might be induced to enter a court of justice to vex the peace of his opponent without clear and definite evidence of the terms of the contract which formed the ground of action, equally accessible to both parties and to the court; and that perjury might not be invited to sustain a claim which never had any real existence.”

I find the irony in this decision amusing. The plaintiff figured that in attacking his brother’s integrity, no one would bother to question his own, and in so doing, lost sight of the fact that he could be setting himself up for an IRS audit and investigation.

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The underlying, earlier decision from which this more recent decision stems is even more important, because it serves an important reminder to attorneys litigating breach of contract and breach of employment agreement cases: make sure that your causes of action are not only supported with specific factual allegations, but that they are also separately and distinctly pled.

In short, since the Court found that the plaintiff had not particularized any specific violations of the Labor Law, but had only set forth enough facts to sustain a common law (as opposed to statutory) breach of contract claim, the plaintiff was not entitled to recover statutory damages under the Labor Law, and therefore, the Court dismissed the plaintiff’s claims seeking to recover liquidated damages and attorney’s fees based upon the defendants’ alleged violations of Labor Law § 198 (1-a), stating: “Breach of contract claims do not give rise to the relief afforded under Labor Law §198 (1-a). See Gottlieb v. Kenneth D. Laub & Co., Inc., 82 NY2d 457, 464 (1993); Pachter v. Bernard Hodes Group, 10 NY3d 609 (2008).”

One final note: since the plaintiff failed to allege enough factual particulars, his attempt to pierce the defendants’ corporate veil failed as well.

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According to the plaintiff in the Suffolk County case of Kimelstein v. Kimelstein, he was wrongfully frozen out of his 50% interest in a property that he and brother had acquired jointly through a non-party corporation.  More specifically, he contends that pursuant to an oral agreement he made with his brother in 2007, the plaintiff agreed to forgo his interest in the non-party corporation and sell his interest in the Defendant corporation as well as the real property it owned for the sum of $350,000, in exchange for his brother’s promise to make weekly payments in the amount of $850, until such time as Defendants were able to refinance the real property, after which the balance of the $350,000 would become due.

As I’m sure you can guess, the defendants stopped making payments, and now, they moved to dismiss the lawsuit on the grounds that the plaintiff’s claim is barred under New York’s Statute of Frauds because the claim pertains to real estate and there was no written contract.

Although the Court was constrained to dismiss the plaintiff’s breach of contract claims, the Court was clearly troubled by the facts of this case, and therefore allowed the plaintiff’s equitable claims for unjust enrichment and the imposition of a constructive trust to survive, stating:

“Plaintiff’s allegations that he was a family member, that Defendant promised him $350,000 to forego his interest in the property owned by L&J as well as the corporation, that Plaintiff spent time and money over seven years investing in L&J, are sufficient to withstand a motion to dismiss …

“Plaintiff has alleged that Defendants received valuable benefits, including his contributions over the years to the corporate entities and toward the purchase of the real property; that he has given up any claim to ownership of stock in at least one of the corporations and that it would be inequitable for the individual Defendant to hold title to both without affording plaintiff some sort of compensation.”

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Absolutely not, held a New York County trial court.

In Nichols v. SG Partners, Inc., the plaintiffs were employed by defendant as placement professionals, earning both a base salary as well as a percentage of defendant’s revenues generated for placements that the plaintiffs made, or commissions. After the plaintiffs found the working conditions “intolerable,” they resigned, and requested that the defendant pay them for the commissions they had earned during their employment. Not surprisingly, the defendant ignored these requests.

Accordingly, the plaintiffs sued the defendants, contending that the defendants were liable for breach of contract, breach of an implied covenant of good faith and fair dealing, unjust enrichment and violation of New York Labor Law (“Labor Law”) §193. The defendant then promptly moved to dismiss the case, arguing, among other things, that since the plaintiffs did not have a written contract the plaintiffs’ claims were barred under New York’s Statute of Frauds (N.Y. Gen. Obl. Law §5-701).

In rejecting the defendant’s argument, the Court cited a long litany of precedent for the proposition that “[B]ecause an at-will employment relationship may be freely terminated by either party at any time for any reason or even no reason, employment agreements of this type generally do not fall under the proscription of the Statute of Frauds.”

Importantly, the Court also noted that if it is later found at trial that an employer willfully withheld the plaintiffs’ wages, in derogation of Labor Law §198.1-a, “an additional amount as liquidated damages equal to twenty-five percent of the total amount of the wages found to be due” (Rasmussen v. Yellow River, Inc. 298 AD2d 322 [1st Dept 2002]; Wolintetz v. Island Stationary Corp., 16 Misc 3d 1133 [NY Dist Ct 2007] (withholding of payment of commissions was a willful act of retaliation for the plaintiff’s leaving the defendant’s employ)).

The message to employers is unmistakably clear: if you wrongfully withhold earned wages or payments due to your former employees, you do so at your own peril.

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“Once the commission is earned, it cannot be forfeited (see Davidson v. Regan Fund Mgt. Ltd., 13 AD3d 117 [2004];⁴ Yudell, 248 AD2d 189, supra). There is a long-standing policy against the forfeiture of earned wages, and this applies to earned, uncollected commissions as well (Weiner v. Diebold Group, Inc., 166, 166-167[1991]) …”

On the other hand, “although generally an at-will employee is not entitled to post-termination commissions, the parties are certainly free to provide otherwise in a written agreement.”

There is another important rule to consider, however. And that is the doctrine of contra proferentem, which states that an employment agreement should be construed against the drafter.  In this case, the Court held that had Management “meant to foreclose the possibility that plaintiff might earn a post-termination commission on a placement” arranged by plaintiff, it “could have said so explicitly.” And this they clearly failed to do.

The moral of the story is obvious: be very, very careful in drafting your employment agreements.

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But assuming the truth of the allegations in his complaint, that’s exactly what happened to Richard Snyder, who claims that he and the defendant (who was an acquaintance) had orally agreed that they would work together as a joint venture, to acquire and operate companies in the media business.  Although the plaintiff would not put up any personal funds, he would “share in the proceeds on any consummated transaction” in exchange for his efforts to assemble deals for the joint venture.

In 2004, defendant and a group of other investors agreed to acquire Warner Music from Time Warner for approximately $2.6 billion in cash. According to the complaint, the plaintiff was a major factor to the closing of this deal: he identified the opportunity, persuaded defendant of its merits, and helped to get debt financing and obtained financial information from the target company.

One month after inviting Snyder to make an investment in the acquired company, which he did, to the tune of $1.3 million, the defendant (allegedly) told plaintiff “[T]here’s no room here for you at Warner’s” and refused plaintiff’s demand for “a lot of money” for plaintiff’s contribution to the transaction.

Unfortunately for the plaintiff, there was never any written agreement. And that proved fatal to his breach of contract (a/k/a “unjust enrichment” or “quantum meruit”) claim.

In affirming the dismissal of the claim in Snyder v. Bronfman, New York’s highest court cited General Obligations Law § 5-701 (a) (10), which says, in relevant part, as follows:

“Every agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking . . .

“Is a contract to pay compensation for services rendered in negotiating a loan, or in negotiating the purchase, sale, exchange, renting or leasing of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein, including a majority of the voting stock interest in a corporation and including the creating of a partnership interest. ‘Negotiating’ includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction. This provision shall apply to a contract implied in fact or in law to pay reasonable compensation . . . .” (Emphasis added.)

I guess the “Three Mistakes To Avoid When Negotiating A Small Business Deal” are as true as ever.

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