No one likes being subpoenaed. No one. And non-party (i.e., you’re not one of the parties named in the case, which means you’re neither a plaintiff nor a defendant) subpoenas that are issued in the context of a business litigation or commercial litigation matter can be quite disruptive because the documents that may be sought can be quite voluminous.

So when are subpoenas legitimate, and when aren’t they legitimate? Or, in legalese, when will the court “quash the subpoena?”

The answer is that it depends on which part of New York you’re in. “How can that be?”, you ask. There’s a difference of opinion among the different appellate courts in New York. And while the courts have conceded that there isn’t a bright line test to determine the propriety of a non-party subpoena, here are some guidelines that one of New York’s appellate courts recently provided:

“[T]he party seeking discovery must first satisfy the threshold requirement that the disclosure sought is “material and necessary,” whether the request is directed to a party (see CPLR 3101 [a] [1]) or a nonparty (see CPLR 3101 [a] [4]). Entitlement to discovery of matter satisfying the threshold requirement is, however, tempered by the trial court’s authority to impose, in its discretion, appropriate restrictions on demands which are “unduly burdensome” (Scalone v Phelps Mem. Hosp. Ctr., 184 AD2d 65, 70 [1992]; see Kaye v Kaye, 102 AD2d 682, 691 [1984]) and to prevent abuse by issuing a protective order where the discovery request may cause “unreasonable annoyance, expense, embarrassment, disadvantage, or other prejudice to any person or the courts” (CPLR 3103 [a]).

In addition, and particularly when considering whether to enforce a subpoena against a non-party, the courts have considered whether the party issuing the subpoena has shown “that the disclosure sought cannot be obtained from sources other than the non-party.” Some examples of this might include where there is a discrepancy or inconsistency in a party’s statements, and the discovery sought from the non-party may help clarify the issue.

In the final analysis, if you are inclined to fight a subpoena, the decision as to whether you will have to comply with it will be left up to the discretion of a trial judge, and so long as that judge does not exhibit a clear abuse of discretion, an appellate court will not disturb that ruling.

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I get asked this question a fair amount, although it is rare that the person asking the question calls this doctrine by its formal, legal name. (Usually, it is more along the lines of “Didn’t they forfeit their right to complain …”). As you can probably surmise, waiver most often comes up in the context of a breach of contract claim, with party A contending that the other didn’t strictly abide by the written agreement’s terms, and party B claiming that both parties had been ignoring to a significant extent those strict contractual terms, and therefore, party A effectively waived its right to complain at this juncture.

In any event, New York’s courts have long held that “The essence of a waiver is an ‘intentional relinquishment of a known right.’” As a result, New York’s highest State court stated that “waiver requires a strong and clear showing of intent to waive.^‘”

Importantly, New York’s courts have also held that one party’s silence cannot create a waiver, because clear, affirmative action is needed; waiver cannot be effectuated by an ambiguous statement.

In short, as you might well imagine, waiver is far from easy to prove in New York.

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In the last year, I’ve been asked a few times whether you can incur personal liability merely by virtue of signing an agreement on  behalf of a corporation. Well, you need wonder no more, as a Suffolk County trial court in Cutler v. Collura-Repp has laid out the law on this issue in no uncertain terms:

“When an agent acts on behalf of a [corporation], the agent will not be personally liable for a breach of contract unless there is clear and explicit evidence of the agent’s intention to be personally liable …. even though he signed a contract without any language limiting his signature.” Weinreb v. Stinchfield, 19 A.D.3d 482, 797 N.Y.S.2d 521 (2d Dep’t 2005).

In order to assess whether the agent should be personally liable, the Court will engage in a two-part inquiry:

(1) whether the agent signed the agreement in her individual capacity, or merely on behalf of the corporation; and,

(2) whether the agent made a special promise to answer for the debt or default of the corporation (as called for by New York’s Statute of Frauds).

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I find it sad when people learn a lesson the hard way.

On the other hand, I understand why the Court, and the New York Legislature set up the rules in this fashion: simply put, if they allowed unlicensed contractors to still get paid for work that requires a license, then that would effectively abrogate the need for the license altogether.

And that’s precisely what happened in Enko Construction Corp. v. Aronshtein. In this Nassau County case, the plaintiff construction company sought payment of monies owed for the home improvement work it did, but wasn’t paid for, in either breach of contract or quasi-contract (i.e., the reasonable value of the services they rendered on equitable grounds, which is also referred to as “unjust enrichment” or “quantum meruit“). There was one “small” problem with its claim, though:  the plaintiff wasn’t licensed to do home improvement.

Thus, in dismissing the complaint, the Court held as follows:

“It is well settled that a home improvement contractor who is unlicensed at the time of the performance of the work for which he or she seeks compensation forfeits the right to recover damages based on either breach of contract or quantum meruit. B & F Bldg. Corp. V. Liebig, 76 N.Y.2d 689 (1990); Flax v. Hommel, 40 A.D.3d 809 (2nd Dept. 2007).”

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There are instances, like the case discussed in my recent blog post, “No Written Agreement? No Problem, Says NY Court,” where the failure to reduce your agreement to writing is not fatal to a breach of contract claim under New York law.

But there are other cases, like Springer v. Linden Seventh Day Adventist Church, where the failure to get a written contract spells death to the claim. And, as painful as it may be to the plaintiff, the Brooklyn judge deciding this case was absolutely right.

First, the plaintiff, who was producing a documentary on behalf of the church, never actually received the church board’s approval for the project. In fact, he never dealt directly with anyone that had authority to bind the church to any agreement. Second, they never agreed on any price for the services that he was going to render.

As noted by the Court, “plaintiff acknowledged that no material terms of the contract (including payment) were ever stated, defined, or agreed upon, and that the Church Board never agreed to pay him … There was no agreement as to the details of what type of film would be made, the starting or ending date of such production, and no price terms were discussed between plaintiff and defendants. Thus, plaintiff cannot sustain his claim for breach of contract (see Matter of Express Indus. & Term. Corp., 93 NY2d at 589).”

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As you might have guessed, as a practical matter it is far from simple to prove a tortious interference with contract claim under New York law, and here’s why:

The plaintiff must prove that the defendant both intentionally AND without justification induced a third party to break their contract with the plaintiff.

Why is that so hard?

The answer, I believe, lies in the latter prong – without justification – because that is where many defendants have successfully defeated tortious interference claims. And the way they’ve done it is by simply showing that their actions were done for their legitimate economic interests. Make no mistake: that is a very broad category.

In fact, New York’s highest court has held that this exemption applied not only where the defendant was a direct competitor of the plaintiff’s but even if they weren’t directly competing, and summarized the rule as follows:

“The existence of competition may often be relevant, since it provides an obvious motive for defendant’s interference other than a desire to injure the plaintiff; competition, by definition, interferes with someone else’s economic relations. Where the parties are not competitors, there may be a stronger case that the defendant’s interference with the plaintiff’s relationships was motivated by spite. But as long as the defendant is motivated by legitimate economic self-interest, it should not matter if the parties are or are not competitors in the same marketplace.” (Carvel Corp. v Noonan, 3 NY3d at 191.)

Obviously, this is not an easy hurdle to clear.

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I was recently contacted by a man who was dealt with unfairly by a much larger company he was trying to do business with. The bigger company, on a whim, decided that they didn’t want to do business with him anymore, so they came up with every reason they could muster – some legitimate, some not – to deem this poor guy in breach of contract.

The guy is intent on suing the big, bad company for breach of contract in a New York court; he is adamant that he doesn’t want to go to arbitration as called for in their agreement because he is convinced he won’t get a fair shake at arbitration (not to mention that it will prove rather expensive for him).

There’s one problem, however: as noted in an earlier article of mine,  it’s very difficult to invalidate a mandatory arbitration clause in New York. Even though he wanted to cast his claim as a business tort, as distinct from a straight breach of contract claim, I pointed out to him that if his attempt to circumvent the arbitration clause could be undone that easily, then mandatory arbitration clauses would be rendered virtually meaningless.

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Today’s New York Daily News is reporting that Victoria’s Secret has been sued for inducing the Chinese supplier for a New York and New Jersey-based shoe company to break its 25 year relationship with the shoe company in favor of an exclusive deal with Victoria’s Secret.

Now, let’s not be naive; the reason the story is being reported upon is because of the named defendant – Victoria’s Secret – and because anything that invokes their name – particularly if it even has the scent of a scandal – will sell.

But, the article does have some educational value, however. Although the article doesn’t spell it out, it actually sets forth some of the essential elements of a tortious interference with contract claim under New York law, pointing out that the plaintiff seeks to recover by dint of Victoria Secret’s acts of inducing the Chinese shoe makers to end their contract with Valley Lane, and how this act cost the plaintiffs in excess of $20 million in damages.

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If the unsubstantiated claims of this plaintiff are actually true, then I feel bad for the plaintiff.

But, as noted by the Court, therein lies the problem: the allegations are unsubstantiated.

In Lecce Penn Co. SPA v. Adrenaline Marketing & Promotions, Inc., the plaintiff sued in breach of contract and fraud to recover over $300,000 that they were purportedly owed. Fair enough.

But the plaintiff took it a step further: they tried to sue one of the shareholders of the defendant corporation personally.  Unfortunately for the plaintiff, they had no competent proof that this individual did anything that should have resulted in his being held personally liable for the corporate debt; in fact, the plaintiff did not even allege that he did anything that should have entitled them to pierce the corporate veil.

The thing that troubles me about this case is simply this: while I can understand that there are instances where the proof you expected to become available to support your claim doesn’t materialize, I don’t understand how the complaint itself can even fail to have any of the requisite allegations to support a claim seeking to pierce the corporate veil. That’s just poor draftsmanship.

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Over the last few months, I’ve been asked why certain mandatory arbitration provisions in an employment agreement couldn’t be invalidated on the grounds that the employees were “forced” to sign it against their will on threat of losing their job.

The reason is fairly simple: the courts – beginning with the United States Supreme Court – have clearly sided in favor of upholding arbitration provisions rather than invalidating them.

First, and at the outset, one New York Federal Judge held that claims of adhesion are generally considered objections to a contract and not to an arbitration provision. See Wright v. SFX Entm’t Inc., 00 Civ. 5354, 2001 WL 103433, at *3 (S.D.N.Y. Feb. 7, 2001). Applying this rule, the court held that the question of whether the arbitration clause was enforceable had to be determined by the arbitrator rather than the courts.

Moreover, and in any event, the courts generally disfavor invalidating contracts on grounds of adhesion or unconscionability, stating: “A court will find adhesion only when the party seeking to rescind the contract establishes that the other party used ‘high pressure tactics,’ or ‘deceptive language,’ or that the contract is unconscionable.

“Typical contracts of adhesion are standard-form contracts offered by large, economically powerful corporations to unrepresented, uneducated, and needy individuals on a take-it-or-leave-it basis, with no opportunity to change the contract’s terms.”

To that end, and in the employment context, the United States Supreme Court stated as follows: “The unequal bargaining power between employers and employees is not a sufficient reason to hold that arbitration agreements are never enforceable in the employment context. Cf., e.g., Rodriguez de Quijas, supra, at 484, 109 S.Ct., at 1921-1922. … Such a claim is best left for resolution in specific cases.”  Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S.Ct. 1647 (1991).

In light of the Supreme Court’s relatively clear language on the subject, a trial court’s unwillingness to challenge it in a specific case is quite understandable.

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