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Florida’s Law of Restrictive Covenants Re: Non-Solicitation of Customers by a Former Employee Violates New York Public Policy by Favoring Employers at the Expense of Employees

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined the Florida law on restrictive covenants re: non-solicitation of customers by a former employee violated the public policy of New York State.  Therefore the choice-of-law provision in the employee agreement was unenforceable.  The Court of Appeals went on to find that, applying New York law, questions of fact precluded a determination whether the non-solicitation agreement at issue should be enforced.  With respect to the public policy violation, the court explained:

… Florida law requires a party seeking to enforce a restrictive covenant only to make a prima facie showing that the restraint is necessary to protect a legitimate business interest, at which point the burden shifts to the other party to show that the restraint is overbroad or unnecessary (see Fla Stat § 542.335 [1] [c]). If the latter showing is made, the court is required to “modify the restraint and grant only the relief reasonably necessary to protect” the employer's legitimate business interests (Fla Stat § 542.335 [1] [c]). In contrast to this focus solely on the employer's business interests, under New York's three-prong test, “[a] restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. A violation of any prong renders the covenant invalid” … . Whereas Florida shifts the burden of proof after the employer demonstrates its business interests (see Fla Stat § 542.335 [1] [c]), New York requires the employer to prove all three prongs of its test before the burden shifts … . Further, Florida law explicitly prohibits courts from considering the harm or hardship to the former employee (see Fla Stat § 542.335 [1] [g] [1]). This directly conflicts with New York's requirement that courts consider, as one of three mandatory factors, whether the restraint “impose[s] undue hardship on the employee” … .

Additionally, under Florida law, courts are required to construe restrictive covenants in favor of protecting the employer's interests, and may not use any rules of contract interpretation that would require the construction of a restrictive covenant narrowly or against the restraint or drafter (see Fla Stat § 542.335 [1] [h]). In contrast, New York law provides that “[c]ovenants not to compete should be strictly construed because of the 'powerful considerations of public policy which militate against sanctioning the loss of a [person's] livelihood'” … . Brown & Brown, Inc. v Johnson, 2015 NY Slip Op 04876, CtApp 6-11-15

 

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In an Action Stemming from the Purchase of Residential Mortgage-Backed Securities, the Breach of Defendant’s Representations and Warranties Concerning the Borrowers’ Incomes, Occupancy Status and Debt Obligations Occurred on the Date the Contract Was Executed (Starting the Six-Year Statute of Limitations at that Point)—Defendant’s Obligation to Cure or Repurchase Did Not Constitute a Second Contract—Defendant’s Refusal to Cure or Repurchase, Therefore, Did Not Start the Running of Another Six-Year Limitations Period

The Court of Appeals, in a full-fledged opinion by Judge Read, in an action involving residential mortgage-backed securities, determined that a cause of action based upon breach of representations and warranties accrued on the date the contract was executed. A few years after the parties executed a mortgage loan purchase agreement (MLPA) and a pooling a servicing agreement (PSA) borrowers began to default, resulting in hundreds of millions in losses.  Upon investigation it was determined that the underlying mortgage loans failed to comply with the defendant’s representations and warranties about the borrowers’ incomes, occupancy status and existing debts.  The Court of Appeals held that the breach of the representations and warranties occurred when the MLPA was executed on March 28, 2006.  The action was commenced on the last day of the limitations period (on March 28, 2012), but was untimely because the contractual conditions precedent to suit had not been complied with as of that date. Plaintiff argued that the defendant’s refusal to cure or repurchase after notification in January, 2012, breached a second contract and started the six-year statute running from that point. The Court of Appeals held that the defendant’s repurchase obligation was not a valid agreement “to undertake a separate obligation, the breach of which does not arise until some future date…”.  “[Defendant’s] cure or repurchase obligation could not reasonably be viewed as a distinct promise of future performance. It was dependent on, and indeed derivative of, [defendant’s] representations and warranties, which did not survive the closing and were breached, if at all, on that date…” . ACE Sec. Corp. v DB Structured Prods., Inc., 2015 NY Slip Op 04873, CtApp 6-11-15

 

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Plaintiff Not Competent When Release Was Signed/Statute of Limitations Tolled by Plaintiff’s Mental Disability

The Third Department determined Supreme Court properly concluded the release signed by the plaintiff was not enforceable, because the plaintiff was not competent at the time it was signed, and the statute of limitations was tolled by plaintiff’s mental disability. Plaintiff suffered a brain injury when he was struck by a car in 1991. A few months later plaintiff signed a release provided by an insurance adjuster in return for $5000.  The case languished for years and Supreme Court denied defendant’s motion for summary judgment dismissing the case in 2014. The court explained the relevant law:

With respect to the release signed by plaintiff, “the burden of proving incompetence rests upon the party asserting incapacity to enter into an agreement [and], to prevail, plaintiff was required to establish that [his] ‘mind was so affected as to render [him] wholly and absolutely incompetent to comprehend and understand the nature of the transaction'” … . The incapacity must be shown to exist at the time the pertinent document was executed … . Regarding the statute of limitations issue, the toll for “insanity” provided by CPLR 208 is narrowly interpreted, the concept of insanity is “equated with unsoundness of mind” … and encompasses “only those individuals who are unable to protect their legal rights because of an over-all inability to function in society” … . The mental incapacity must exist at or be caused by the accident and continue during the relevant time … . Lynch v Carlozzi, 2015 NY Slip Op 04893, 3rd Dept 6-11-15

 

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“Lack of Standing” Defense to Foreclosure Action Is Waived If Not Raised in the Answer or a Pre-Answer Motion to Dismiss

The Second Department determined plaintiff was entitled to summary judgment on its foreclosure action, noting that any defense based upon plaintiff’s alleged lack of standing was waived because it was not raised in the answer or in a pre-answer motion to dismiss the complaint:

“A party’s alleged lack of standing to commence [an] action is a defense that is waived if not raised in an answer or in a pre-answer motion to dismiss the complaint” … . “Where, as here, the defendants in a mortgage foreclosure action waive the issue of standing by failing to assert the defense in an answer or pre-answer motion to dismiss the complaint (see CPLR 3211[e]), the plaintiff need not establish its standing in order to demonstrate its prima facie entitlement to judgment as a matter of law” … . In this case, the plaintiff established, prima facie, its entitlement to judgment as a matter of law for the unpaid principal balance of the note … . In this regard, the plaintiff presented the subject mortgage, the unpaid note, evidence of [defendant’s] default, and evidence demonstrating that the unpaid principal balance remaining on the note totaled $434,382.89 … . In opposition, [defendant] failed to raise a triable issue of fact … . JP Morgan Chase Bank, N.A. v Butler, 2015 NY Slip Op 04812, 2nd Dept 6-10-15

 

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Catheter, Although Deliberately Inserted During Surgery for Temporary Monitoring Purposes, Was a “Foreign Object” Within the Meaning of CPLR 214-a—Action Brought Within One Year of the Discovery of the Catheter (22 Years after Insertion) Was Timely

The Court of Appeals, in a comprehensive opinion by Judge Read, determined a catheter left in plaintiff’s heart after surgery in 1986 (when plaintiff was three years old) was a “foreign object.”  Therefore the statute of limitations did not start to run until the presence of the catheter was “discovered” in 2008.  Plaintiff’s complaint, brought within one year of discovery, was therefore timely.  The issue was whether the catheter could be considered a “fixation device” because it was intentionally inserted. If so, the one-year-from-discovery “foreign object” statute of limitations (see CPLR 214-a) would not have applied and the complaint would have been untimely. The Court of Appeals held that the catheter (which was to temporarily monitor heart function after surgery) was not a “fixation device” because, although it was intentionally inserted, it was not inserted to serve a “postsurgery healing function” and it was to be removed a few days after insertion. Thus the catheter was different in kind from a “fixation device,” such as a “stent” or a “suture,” deliberately inserted to serve a “healing function:”

Here, the catheter inserted in the left atrium of plaintiff’s heart performed no securing or supporting role during or after surgery. As explained by plaintiff’s expert, and uncontroverted by defendants, the catheters functioned like a sentinel, allowing medical personnel to monitor atrial pressure so that they might take corrective measures as required; the catheters were, in the words of plaintiff’s expert, “a conduit for information from [plaintiff’s] cardiovascular system.” Because the catheters under the facts of this case are therefore not fixation devices (or chemical compounds or prosthetic aids or devices), they are not categorically excluded from the foreign object exception in CPLR 214-a.

The question then becomes whether the catheters are analogous to tangible items like … clamps … or other surgical paraphernalia (e.g., scalpels, sponges, drains) likewise introduced into a patient’s body solely to carry out or facilitate a surgical procedure. We conclude that they are … .  Walton v Strong Mem. Hosp., 2015 NY Slip Op 04786, CtApp 6-10-15

 

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Administrator’s Delay In Seeking to Be Substituted for the Decedent In a Lawsuit Justified Dismissal of the Complaint with Prejudice

The Second Department determined the estate’s administrator’s more than five-year delay in seeking to be substituted for the decedent as plaintiff in a lawsuit (CPLR 1021), together with the administrator’s failure to provide an excuse for the delay and demonstrate the action had merit, warranted the dismissal of the complaint with prejudice:

CPLR 1021 provides, in pertinent part, that if the event requiring the substitution of a party “occurs before final judgment and substitution is not made within a reasonable time, the action may be dismissed as to the party for whom substitution should have been made, however, such dismissal shall not be on the merits unless the court shall so indicate.” CPLR 1021 requires a motion for substitution to be made within a reasonable time … . The determination of reasonableness requires consideration of several factors, including the diligence of the party seeking substitution, the prejudice to the other parties, and whether the party to be substituted has shown that the action or the defense has potential merit … .

Here, the administrator’s failure to effect the required substitution until more than 6 ½ years after the decedent’s death and nearly 5 ½ years after he was appointed administrator of the decedent’s estate evinced a lack of diligence on the part of the administrator in prosecuting this action, which had been pending for nearly 8 years at the time the administrator sought substitution … . The administrator failed to demonstrate a reasonable excuse for the delay in seeking substitution, which he did only after the defendants moved to dismiss the complaint … . Furthermore, the administrator failed to demonstrate a potentially meritorious cause of action through the submission of admissible evidence, and did not rebut the defendants’ allegations of prejudice. Accordingly, the Supreme Court providently exercised its discretion in granting the defendants’ motion pursuant to CPLR 1021 to dismiss the complaint, with prejudice…  Alejandro v North Tarrytown Realty Assoc., 2015 NY Slip Op 04792, 2nd Dept 6-10-15

 

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Injury While Lowering a Heavy Tank Entitled Plaintiff to Summary Judgment on His Labor Law 240 (1) Claim—Party’s Cross Motion Should Not Have Been Denied for Failure to Attach Pleadings—the Pleadings Had Been Provided to the Court by Other Parties

The First Department determined plaintiff was properly awarded summary judgment on his Labor Law 240 (1) claim.  A rope attached to a heavy tank being lowered down some stairs by plaintiff severed one finger and a portion of another (“grave injury”). The court found that the incident was gravity-related, plaintiff was not provided with adequate safety devices, and plaintiff’s actions were not the sole proximate cause of his injury. The court noted that another party’s cross-motion for summary judgment should not have been denied on the ground the pleadings were not attached to the motion papers.  The pleadings had been provided to the court by other parties. Serowik v Leardon Boiler Works Inc., 2015 NY Slip Op 04773, 1st Dept 6-9-15

 

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Delay In Bringing Action Seeking to Stop a Development Project Which Had Been Proceeding for Years Precluded the Grant of a Preliminary Injunction, Despite the Apparent Legitimate Nature of the Allegations

The Third Department determined a preliminary injunction halting a development project which had been proceeding for years should not have been granted.  The development project started with the annexation of land by the village, for which no referendum had been held.  The action brought by the plaintiffs alleged the failure to hold the referendum violated local law and further alleged a conflict of interest arising from the mayor’s acquisition of project property  In spite of the apparently legitimate grounds for the action, the Third Department determined the plaintiffs were unlikely to succeed because the action was brought so late and the project, consequently, had progressed so far:

We are unpersuaded by plaintiffs’ assertion that, in essence, the failure to conduct a referendum leaves the annexation subject to being set aside at any time in the future without regard to any time limitation. Cases involving an alleged failure to adhere to a voting requirement during an annexation have generally been found to be subject to a pertinent limitations’ period … . A statute of limitations may apply even when conduct inconsistent with a statute or the state constitution is alleged … . Simply stated, “a [s];tatute of [l];imitations does not have the effect of curing the underlying wrong, but rather extinguishes the right to judicial relief” … . We need not decide the particular limitations’ period for challenging an annexation made without a referendum — whether four months (see CPLR 217), six years (see CPLR 213) or some time in between (see e.g. CPLR 9802). Plaintiffs failed to establish a likelihood that a challenge to the annexation based upon the failure to conduct a referendum would be viable where, as here, over seven years have passed since the annexation. …

Next, we consider the 2010 development agreement, which plaintiffs contend is void because [the mayor] had a conflict of interest arising from the 2009 acquisition of some project property by himself and his parents (see General Municipal Law § 804). The 2nd Department, in a case affirmed by the Court of Appeals, has held that the three-year statute of limitations of CPLR 214 (2) applies to such a claim … . The [Mayor’s] deeds had been a matter of public record since 2009, before the 2010 development agreement was executed. Any conflict was known or should have been known as of the execution in 2010 of the development agreement, which was also a public document. This action was not brought until 2014.

Long delays can be relevant to the issue of whether equitable injunctive relief should be granted … . Although plaintiffs allege some unsavory (or worse) conduct by certain people involved directly or indirectly in the project, it is not clear from this record whether they can successfully show that the project defendants engaged in such conduct so as to prevent them from relying on equitable defenses such as laches … . Rural Community Coalition Inc v Village of Bloomingbury, 2014 NY Slip Op 04110, 3rd Dept 6-5-14

 

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Statutory Prohibition of Court Review of Civil Service Commission’s Determination (Where the Employee Elects to Appeal to the Commission Before Seeking Judicial Review) Does Not Apply When Constitutional Rights Are Implicated or Where the Agency Has Acted Illegally or In Excess of Its Jurisdiction

The Third Department determined, despite a statutory provision prohibiting judicial review when the employee elects to appeal to the Civil Service Commission before seeking judicial review, the courts have the power to review the agency’s determination when the agency has acted in excess of its jurisdiction. Here the petitioner asserted her employment was terminated based on charges brought after the statute of limitations on those charges had passed. The Third Department agreed.  Although there is an exception to the application of the one-year statute of limitations when the charges constitute crimes, here the allegations of misconduct did not include the requisite mens rea for the crime of official misconduct (intent to gain a benefit and knowledge the conduct was unauthorized).  Therefore the one-year statute of limitations applied. With respect to the power to review the agency’s determination, the Third Department wrote:

Civil Service Law § 76 (3) provides that where, as here, an employee has elected to appeal to respondent before seeking judicial review, “[t]he decision of [respondent] shall be final and conclusive, and not subject to further review in any court” (see also Civil Service Law § 76 [1]). Such explicit statutory language ordinarily bars further appellate review … . However, statutory preclusion of all judicial review of the decisions rendered by an administrative agency in every circumstance would constitute a grant of unlimited and potentially arbitrary power too great for the law to countenance … . Thus, even when proscribed by statute, judicial review is mandated when constitutional rights are implicated by an administrative decision or “when the agency has acted illegally, unconstitutionally, or in excess of its jurisdiction”… . Matter of De Guzman v State of New York Civ. Serv. Commn., 2015 NY Slip Op 04712, 3rd Dept 6-4-15

 

Dismissal of a Summary Judgment Motion as “Premature” Requires an Evidentiary Showing that Material Information Is In the Exclusive Possession and Control of the Moving Party

In the course of a decision concerning an easement and land ownership, the Third Department explained the proof requirements for a claim that a summary judgment motion should be dismissed as “premature.” The essence of the “premature” argument is that material facts are within the exclusive knowledge and possession of the moving party. The argument, to succeed, must be supported by an evidentiary showing. Here defendant argued that plaintiff failed to respond to certain discovery demands, but did not take the next step and demonstrate how the failure to respond deprived him of material information in plaintiff’s exclusive possession:

… [T]here was no basis to deny plaintiff’s summary judgment motion as premature. “Although a motion for summary judgment may be opposed with the claim that facts essential to justify opposition may exist but that such material facts are within the exclusive knowledge and possession of the moving party, the party opposing the motion must make an evidentiary showing to support that conclusion” … . Defendant pointed out that plaintiff failed to respond to certain discovery demands, but did not take the essential next step and show that her failure to do so deprived him of material information in her exclusive possession … . Bailey v Dimick, 2015 NY Slip Op 04704, 3rd Dept 6-4-15