If there were such a contest, I think this case wins the “most absurd lawsuit of the day.”

In Kassis Management, Inc. v. Verizon New York, Inc., the plaintiff claimed damages in breach of contract and consumer fraud as a result of Verizon’s “promise” to move its phone service from one location to their new business location at no cost, and then later told plaintiff that it would only do so for an “excessive” fee.

Not surprisingly, when questioned under oath at a deposition, the plaintiff’s chief executive was “unable to quantify the incoming calls directed to plaintiff during non-business hours during [the relevant time period] nor was he able to identify any business opportunities that plaintiff lost due to missed phone calls.” (How did the plaintiff’s attorneys not know this before they actually went ahead and brought the lawsuit?)

The result of the lawsuit was equally unsurprising: the case was dismissed because, in the words of the court,

“Lost profits must be measured by reliable factors which go beyond mere speculation; While such profits need not be proven with mathematical precision, there needs to be more proof than what has been offered by plaintiff. See Locke v. Aston, 1AD3d 160, 161-2 [1st Dept 2003]. Much of the documentary evidence is not actually verifiable. Therefore, the court must dismiss this action based on the lack of reasonable certainty in calculating the injury to plaintiff.”

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Let’s start with the general rule: New York courts disfavor allowing parties to recoup their legal fees that are incurred in litigation. As New York’s courts have put it: “It is well settled that  legal fees are not recoverable unless provided under the terms of a contract or authorized by statute.” See, U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 N.Y.3d 592, 597, 789 N.Y.S.2d 470, 822 N.E.2d 777 [2004] )).

So, you may be wondering, how specific do you need to be, or what language do you need in your contract, in order to recover legal fees?

Fortunately, New York’s Appellate Division, First Department recently provided us with some guidance on this issue. In Nigri v. Liberty Apparel Co., Inc., the plaintiff sued to recover in breach of contract, and the defendants counter-claimed to recover the legal fees they incurred in defending the action, as well as in prosecuting their own counterclaims under the agreement.

In affirming the trial court’s award of a judgment allowing the defendants to recover their legal fees, the Appellate court cited the language in the underlying agreement that formed the basis for this ruling:

“The parties’ contract provided, in pertinent part, that the plaintiff would pay certain “Guaranteed Obligations,” which were defined as “one-half of all claims, actions, litigation, and other liabilities, costs and expenses (a) in [certain pending legal actions, including a customs matter]…,” and “all out-of-pocket expenses (including reasonable attorneys’ fees and disbursements) … incurred by [defendants] … in enforcing or collecting upon [the] Guaranty.”

The court went on to state that “[T]he clause ‘all claims, actions, litigation, and other liabilities, costs and expenses’ constitutes broad language that is generally interpreted to include attorneys’ fees.”

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They may have been naive, but they’re entitled to a shot at vindication before a jury, held New York’s Court of Appeals in DDJ Management LLC v. Rhone Group, LLC.

In this case, the plaintiffs sued to recover their losses after learning that the $4o million loans they extended to the defendants turned out to be based on some seriously cooked books. The defendants raised an interesting defense, which can be summarized as follows: “our books were so bad that you had no right relying on them to lend us the money.”

As noted in “Why Fraudulent Concealment Claims Are So Tough to Win,” one of the essential elements that a plaintiff must prove in order to establish a fraud claim under New York law is that she reasonably relied to her detriment upon the defendant’s representations. Applying this rule, many New York courts have dismissed fraud claims where the plaintiff’s purported reliance on the defendants’ representations was clearly unjustified, such as in Global Mins. & Metals Corp. v Holme (35 AD3d 93 [1st Dept 2006]), where the plaintiff fired an officer whom it found to be untrustworthy, and then inexplicably trusted that same officer’s verbal assurances that a transaction was completely innocent.

Importantly, New York’s High Court carved out a clear exception, and stated that one way to prove a fraudulent concealment claim under New York law is as follows:

“Where, however, a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred. In particular, where a plaintiff has gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry.”

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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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If you take an unreasonable position and refuse to pay for services that were rendered, you should be prepared to have a court rule against you. And that’s exactly what happened in John Anthony Rubino & Co. CPA v.  Schwartz (a decision that is scheduled to appear in tomorrow’s edition of the New York Law Journal).

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.

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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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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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Before addressing how you prove a negligent misrepresentation claim, we first have to define what it is – and what it isn’t.

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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I was recently confronted with an interesting question: an old acquaintance of mine paid for an exclusive license to market and sell a certain technology that was patented.

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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When your contract has been breached, your first reaction might very well be to bring a lawsuit in State or Federal Court. But that course of action may not be available, particularly if your written contract contains a clause mandating that all disputes be resolved by arbitration.

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).”

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