In Rubino, the plaintiff-accountant was retained to prepare financial projections for a proposed business venture. And he did it.

But when the defendant abandoned the project, he contended that he didn’t owe the plaintiff any money, because he only agreed to pay the plaintiff if the project went through. Not surprisingly, the plaintiff-accountant had a different understanding; he believed that he was going to be paid for the work he did whether the project went through or not.

Since there was no written contract, and the parties clearly did not have the same understanding (in legalese, a “meeting of the minds”), the Court was constrained to dismiss the plaintiff’s breach of contract claim. On the other hand, and nevertheless, the Court held that the plaintiff was still entitled to recover the reasonable value of the services that he rendered, which in legal terms is called “quantum meruit,” (and occasionally, “unjust enrichment“) because the Court held that the defendant’s purported belief that he should not have to pay the accountant unless he decided to pursue this business venture went through was unreasonable as a matter of law.

The moral of this story should be fairly obvious: just because you don’t have a written contract doesn’t mean that you can’t recover your losses.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

While I didn’t care for his tactics – particularly the latter two – what came next was inexcusable.

He flat-out charged the witness with disgracing his religion by failing to give “better” answers to the questions.

This attorney has made it to my (extremely short) list of people that I don’t communicate with unless it is in writing. And it is attorneys who practice in this fashion that has led to the “sterling” reputation that has made us the butt of so many lawyer jokes.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

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)).

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

So, you ask, under what circumstances are those clauses enforceable?

Well, first, and as a threshold matter, the question as to whether the parties agreed to arbitrate should be decided by a court, not an arbitrator. That said, and while “a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit” Merrill Lynch Inv. Managers v. Optibase, Ltd., 337 F.3d 125, 131 (2d Cir.2003) (per curium), the preference for arbitration is so strong that, “under the FAA, ‘any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.’ “ JLM Indus., Inc. v. Stolt-Nielsen SA, 387 F.3d 163, 171 (2d Cir.2004) (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983)).

So, what are the factors that a court looks to in deciding whether a case must go to arbitration?

The longstanding rule in New York is as follows:

“In deciding whether any part of an action should be directed to arbitration, [the] Court must determine: (i) whether the parties had an agreement to arbitrate; (ii) the scope of that agreement; (iii) if federal statutory claims are asserted, whether Congress intended those claims to be non-arbitrable; and (iv) if some, but not all, of the claims are subject to arbitration, whether to stay the balance of the proceedings pending arbitration. See JLM Indus., 387 F.3d at 169; Oldroyd v. Elmira Sav. Bank, FSB, 134 F.3d 72, 75-76 (2d Cir.1998).”

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Debtor D (we’ll call him “D,” for short) owes you tens of thousands of dollars for product that you delivered months ago. When you inquire as to what the delay is in receiving payment, you get a run-around, and ultimately find out that D’s company was taken over by a small, closely held company whose priorities clearly do not include paying your bills.  By now, you’ve put them on formal notice that unless D pays the bills in full, a breach of contract suit will be brought.

Recognizing that he will have no viable defense to your claim, the principal of D does what many short-sighted executives do: he divests the company of as many assets as possible, as quickly as possible, transferring properties into the name of his wife and other family members for little or no consideration. While many people in your situation would throw up their hands at this point, that may prove to be a terrible mistake. And that is because they are likely unaware of the doctrine of constructive fraud – the cousin of the alter ego/piercing the corporate veil doctrine.

Unlike common law fraud principles, which require a showing of intent to defraud (which is difficult to prove), New York’s Uniform Fraudulent Conveyance Act (‘UFCA’), as codified in Article 10 of the Debtor and Creditor Law at §§ 270-281, has several provisions that do not require a claimant to prove that the defendant had actual intent to commit a fraud, and some of these provisions, such as section 273-a (entitled “Conveyances by
defendants”), was specifically drafted to prevent debtors from escaping their obligations in a lawsuit. This doctrine is commonly referred to as “constructive fraud.”

There is one important catch, however: in New York, as in other jurisdictions, “[A] transfer may not be challenged as fraudulent unless it prejudices the complaining creditor.” In other words, in determining whether a creditor has been prejudiced, courts consider what rights, if any, the creditor would have had to levy on the property had the challenged conveyance not occurred. And if the creditor (i.e., you) would never have been able to recover any of that money because your claim was so far back in line of the creditors, you will still be out of luck.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

This rule is derived from the Federal Communications Decency Act of 1996 (CDA), which immunizes internet services immunity from liability for publishing false or defamatory material so long as the information was provided by another party, and thus treats internet publishers differently than it does corresponding authors in print, television and radio (see Batzel v Smith, 333 F3d 1018, 1026-1027 [9th Cir 2003], cert denied 541 US 1085 [2004]).

As noted by the Shiamili court, there is one small caveat to this rule, however: the immunity provided by the CDA applies only where the information that forms the basis of the state law claim has been provided “by another information content provider” (47 USC § 230[c][1], emphasis added). In accordance with this caveat to the general rule, an interactive computer service provider remains liable for its own speech (Universal Communication Sys. v Lycos, 478 F3d 413, 419-420 [1st Cir 2007]), or for its material contribution to the content of a third party’s statement (see Fair Hous. Council of San Fernando Val. v Roommates.com, 521 F3d 1157 [9th Cir 2008]). On the other hand, the ” development of information’ . . . means something more substantial than simply editing portions of an e-mail and selecting material for publication.”

In sum, an internet services provider cannot be held liable for the content published on its site unless it had an active role in determining the specific content that was published.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In this case, the plaintiff, a former assistant treasurer of the defendant bank, claimed that she was fired as a direct result of her attempts to expose suspicious irregularities with respect to several trade confirmations that had come to her attention. Although she acknowledged that she was an at-will (as opposed to a contract) employee (for more information on the limited rights of at-will employees under New York law, see “Why Most Breach of Contract/Wrongful Termination Claims By At-Will Employees Are Doomed To Fail“), she alleged that the defendant’s own “Personnel Policies and Practices Manual promised to protect her from adverse action in connection with reporting suspicious activities,” and that this promise gave rise to a contractual obligation to protect her from retaliatory termination.

According to the Court, there are two problems that prove fatal to her claim, however. First, the Manual only protected against retaliatory action those who file a Suspicious Activities Report (SAR) – which the plaintiff never did. Second, the Manual also contained an explicit disclaimer that allowed them to terminate any at-will employee.

Thus, the implication of this decision is two-fold:

1. If you are an employee, make sure you read carefully your employment manual before you undertake any actions that might affect your job; and,
2. If you are the employer, make sure that your employment manual is appropriately drafted to protect your right to terminate at-will employees.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In Robles v. Copstat Security, Inc., the plaintiffs brought a proposed class action on behalf of a class of all security guards employed by Copstat Security Inc. (Copstat Inc.), Copstat Security LLC, and Andrews International Inc. after the defendants allegedly failed to pay the plaintiffs’ earned overtime pay in violation of the Fair Labor Standards Act (FLSA) and New York’s Minimum Wage Act.

Although the Court noted that the plaintiffs’ allegations in support of their claim that the corporate veil should be pierced were rather “general and vague” (suggesting that these claims may later be dismissed unless additional facts are fleshed out), the Court also refused to dismiss the claims against the individual defendant Bellistri at the initial pleading stage. The Court cited plaintiffs’ claim that the defendants’ corporate veil should be pierced because Bellistri, as the lone shareholder of Copstat, exercised complete domination and control over Copstat, and in that role, Bellistri left the company terribly undercapitalized when he unilaterally took nearly all of Copstat’s assets, and thereby left the corporate defendants unable to satisfy any adverse judgment.

From a practical standpoint, it remains to be seen what the plaintiffs gain by the denial of the individual defendant’s motion to dismiss, because unless the plaintiffs have, or later uncover, facts that support their contention that the corporate veil should be pierced, they may be merely prolonging the ultimate dismissal of these claims.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In Interstate Foods, Inc. v. Lehmann, a decision that was recently published in the New York Law Journal, the president of wholesaler Lehmann Meats, Inc. was sued in his individual capacity for fraud because his company – which ceased doing business – issued several checks bearing his purported signature that were invalid.

In dismissing the plaintiff’s business fraud claims and rejecting the plaintiff’s attempt to pierce the veil of the defendant’s corporation, the Court noted that the plaintiff failed to adduce any competent proof that the president of the company was personally involved in the issuance of the checks. Therefore, the Court held, this case fell squarely within the ambit of the general rule that a corporate officer cannot be personally liable for alleged corporate fraud without the corporate officer’s personal involvement.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

In this case, Oltchin SA v. Zebulon Industries, et al., the defendant manufacturers failed to pay for the materials that were furnished to them by the plaintiff, a Romanian corporation. At the binding arbitration that was held before an international tribunal of the ICC, plaintiff was awarded damages of over $1.5 million. Thereafter, the plaintiff corporation had the award confirmed by a New York State court, and the award became a collectible judgment. Or so the plaintiff thought.

When the plaintiff went to enforce the judgment, it learned that the defendants had divested their corporation of all its assets. Consequently, they brought this case seeking to set aside those transactions as fraudulent and to pierce the defendants’ corporate veil(s).

Although the Court’s opinion was rendered in a very matter-of-fact manner, you can’t help but sense that the following sentiment underlies the Court’s opinion: there is absolutely no way I’m going to let these defendants get away with this charade on some procedural technicality.

Post Footer automatically generated by Add Post Footer Plugin for wordpress.