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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Unlike its cousin, the fraud claim, negligent misrepresentation does not require a showing of malicious intent or recklessness by the defendant; rather, it requires that the plaintiff prove the following by a preponderance of the evidence:

(1) awareness by the defendant that his statement was to be used for a particular purpose or purposes;

(2) reliance by a known party or parties in furtherance of that purpose;

(3) some conduct by the defendants linking them to the plaintiffs and evincing defendants’ awareness of their reliance;

(4) that defendant’s statements or conduct exaggerated or misstated certain facts;

(5) that these misstatements resulted from the defendant’s negligence and/or lack of due diligence;

(6) that plaintiff relied on defendant’s misstatements; and,

(7) as a result, plaintiff suffered damages.

An important caveat bears mention, though.

As a New York Federal Court recently held in Five Star Development Resort Communities v. iStar RC Paradise Valley, “Under New York law, in order to state a claim for negligent misrepresentation, a plaintiff is required to allege that the speaker is bound to the other party ‘by some relation or duty of care’” outside a contract that may be between the parties.

Therefore, the Court continued, “In ordinary commercial contexts…it is imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.”  In other words, “[i]f the only interest at stake is that of holding the defendant to a promise, the courts have said that the plaintiff may not transmogrify the contract claim into one for tort.” JP Morgan Chase Bank, 350 F. Supp. 2d at 401 (quoting Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899 (2d Cir. 1980)).

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As the United States Supreme Court has held, in order to recover pension benefits for the breach of an ERISA plan, “a plaintiff must prove that his or her discharge was motivated by a specific intent to deprive him or her of pension benefits, and that the loss of such benefits was not a mere consequence of his or her termination ( see Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906, cert. denied 528 U.S. 817, 120 S.Ct. 56, 145 L.Ed.2d 49; Dister v. The Continental Group, 859 F.2d 1108, 1111).”

That, as I’m sure you can imagine, is extremely difficult to prove.

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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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In granting the defendants’ motions to dismiss these claims, the Court held as follows:

“[F]indings that corporation ‘fail[ed] to observe corporate formalities…had no contracts, no employees, and no independent office space…had no separate bank account…[and] no capital or assets at the time of trial’ insufficient to warrant finding of ‘domination’ … Indeed, plaintiff makes no allegation that the individual defendants intermingled personal and corporate funds, failed to deal with NHP on an arms-length basis, or in any meaningful way abused or disregarded the corporate form.

“Moreover, even if her allegations were sufficient with respect to domination, ‘complete domination of the corporation…standing alone, is not enough … Rather ‘[t]he party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene.’ Here, plaintiff makes no such allegation, contending solely that the corporation—as a corporation—perpetrated a fraud. Such allegations do not warrant veil piercing.”

Just another reminder why it is so difficult to pierce the corporate veil.

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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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In 101 Warren Street Associates LLV v. Prestige Homes Realty, LLC, the defendant real estate broker brought a prospective buyer for the plaintiff’s multi-million dollar residential condominium apartment, which at the time was still in the offering plan stages. According to the terms of the brokerage agreement, the broker was entitled to 4% of the sales price, as a result of which the seller advanced the defendant broker over $50,000, representing 20% of the anticipated commission on the sale of this unit.

As has frequently occurred in this economy, the buyer backed out of the deal, indicating that they could no longer afford the $6.8 million unit. Nevertheless, when the seller sought the return of its advance to the broker, though, the broker refused, noting that the seller did receive partial payment for the apartment as part of a settlement agreement it reached with the prospective buyer.

In holding that the seller was entitled to a refund of its advance (and that the broker was liable for breach of contract), the New York County trial court held as follows:

“Here, it is undisputed that the closing, scheduled for April 1, 2009, did not take place because the Buyer was unable to purchase the Unit. Paragraph 2(e), requires reimbursement if there is a failure to convey for any reason, requiring Broker to reimburse Seller with all amounts previously paid to it pursuant to the Brokerage Agreement.

“It is well established that a broker only earns its commission when it procures a buyer ready willing and able to purchase on terms agreed to by the seller. Eastern Consolidated Properties v. Lucas, 285 AD2d 421 (1st Dept. 2001); Prime City Real Estate Co., Inc. v. Hardy, 256 AD2d 80 (1st Dept. 1998). Consequently, the Broker did not earn its commission since it did not produce a Buyer that was ready, willing, and able to purchase the Unit. Accordingly, the Broker was not entitled to the commission because it did not earn it and therefore is not entitled to keep the percentage of the commission paid in advance.”

Fortunately for the broker, the Court did not award the seller its attorneys’ fees (which it could have).

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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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In Grimaldi v. Guinn, the plaintiff sued the Pennsylvania-based defendants for breach of contract, business fraud, and under New York’s deceptive advertising statute, General Business Law § 349, because he handed over his vintage 1969 Camaro to the defendants to add a specialized manifold and carburetor assembly.

Months later, his Camaro, which was valued at over $100,000 beforehand, was returned to him in bags.

In response to the plaintiff’s lawsuit, the defendants moved to dismiss on the grounds that the New York court lacked personal jurisdiction over them because they had no meaningful contacts with New York State. In affirming the trial court’s denial of the defendants’ motion, New York’s Appellate Division, Second Department reiterated the standard for conferring jurisdiction on a foreign (i.e., non-New York-based) defendant based on contacts that were made via the internet:

“The purposeful creation of a continuing relationship has been a contributing factor in finding sufficient contacts to justify the exercise of long-arm jurisdiction … If the foreign company maintains an informational Web site accessible to the general public but which cannot be used for purchasing services or goods, then most courts would find it unreasonable to assert personal jurisdiction over that company …

“However, passive Web sites, when combined with other business activity, may provide a reasonable basis for the assertion of personal jurisdiction … If a Web site provides information, permits access to e-mail communication, describes the goods or services offered, downloads a printed order form, or allows online sales with the use of a credit card, and sales are, in fact, made … then the assertion of personal jurisdiction may be reasonable.”

From the litany of cases from other jurisdictions cited by this opinion, it seems rather clear that this standard is equally applicable in other states as well. Therefore, when establishing your web presence and/or contacts with prospective clients or customers, it is critical that you remain cognizant of the jurisdictional implications of your communications.

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In a case that they brought in Federal Court in Upstate New York, Opto Generic Devices Inc. (“OGD”) sued Air Products & Chemicals Inc. (“ACC”) for breach of contract and for consequential damages, asserting that it lost profits when the defendant did not buy its products. In this case, the defendant admitted that the parties had entered into a series of agreements that delineated the scope of work to develop certain products for plaintiff, and included a $400,000 agreement for license rights to these products. In light of the ongoing working relationship between the parties, and the exchange of nearly $1,000,000 between them with regard to the development of this product, the plaintiff was caught off guard when the defendant never actually bought the finished product.

But the plaintiff had one “small” problem with their case – while the contract set forth the parties’ responsibilities as to patent prosecution and maintenance, commercial rights and licenses (i.e., it was a development contract), there was absolutely no provision requiring ACC to buy any OGD products. Consequently, I can’t say I’m surprised that the Court dismissed this aspect of their breach of contract action.

You know the old saying about what happens when you assume something …

It’s just another example of the costs of failing to reduce your agreements to writing.

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