You are here: / Contract Law
, , ,

IN THIS LABOR LAW ARTICLE 6 AND BREACH OF CONTRACT ACTION FOR UNPAID COMMISSIONS, PLAINTIFF, WHO SUED GAIA PRODUCE AS HIS EMPLOYER, SOUGHT TO AMEND THE COMPLAINT TO ADD ANOTHER PARTY AS HIS EMPLOYER; BASED UPON THE DEFINITION OF “EMPLOYER” IN THE LABOR LAW, THE PROPOSED AMENDMENT WAS PROPER AND SHOULD HAVE BEEN ALLOWED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff should have been allowed to amend the complaint to add a defendant, Nehoumovich. The suit against plaintiff’s employer, Gaia Produce, alleged the failure to pay commissions in violation of Labor Law article 6. Plaintiff alleged Nehoumovich was also plaintiff’s employer. Based on the definition of “employer” in the Labor Law, the Second Department held the proposed amendment was not palpably insufficient or patently devoid of merit:

“Article 6 of the Labor Law sets forth a comprehensive set of statutory provisions enacted to strengthen and clarify the rights of employees to the payment of wages” … . “Labor Law § 190(3) broadly defines an ’employer’ as ‘any person, corporation, limited liability company, or association employing any individual in any occupation, industry, trade, business or service'” … . “Under the ‘economic reality’ test, the relevant factors include whether the alleged employer (1) had the power to hire and fire the employees, (2) supervised and controlled employee work schedules or conditions of employment, (3) determined the rate and method of payment, and (4) maintained employment records” … . The Supreme Court is “also free to consider any other factors it deems relevant to its assessment of the economic realities” … .

Here, the proposed amendment to add Nahoumovich as a defendant was not palpably insufficient or patently devoid of merit … . The proposed amended complaint alleged, inter alia, that Nahoumovich was “responsible for . . . hiring and firing,” that he “supervised [the] [p]laintiff,” “assign[ed] [the plaintiff] responsibilities concerning negotiating, pricing, and collecting,” that he “was involved in determining the terms and conditions of [the plaintiff’s] employment” and “how [the plaintiff’s] commissions were calculated,” and that he “overs[aw] commission reports.” The plaintiff further submitted a transcript of his own deposition testimony regarding those allegations, and that of Nahoumovich, who acknowledged, among other things, that he made certain hiring recommendations, supervised the plaintiff, provided the plaintiff with directives, and set up the commission structure. The fact that Nahoumovich did not sign the plaintiff’s paychecks is not dispositive … . Under the totality of the circumstances presented here, the plaintiff plausibly alleged that Nahoumovich was an “employer” within the meaning of Labor Law § 190(3) … . Sproule v Gaia Produce, LLC, 2026 NY Slip Op 04971, Second Dept 8-12-26

Practice Point: Consult this decision for insight into the criteria for determining whether a party is an “employer” within the meaning of the Labor Law in an action seeking unpaid commissions.

 

,

ONCE THE PARTIES ENTERED A STIPULATION OF DISCONTINUANCE, SUPREME COURT WAS DIVESTED OF JURISDICTION; THEREFORE SUPREME COURT DID NOT HAVE JURISDICTION TO CONSIDER THE SUBSEQUENT MOTION TO VACATE THE STIPULATION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined Supreme Court had been divested of jurisdiction over the case when the parties entered a stipulation of discontinuance. Therefore Supreme Court did not have jurisdiction to consider the motion to vacate the stipulation of discontinuance:

“‘A motion must be addressed to a pending action'” … . A court lacks jurisdiction to entertain a motion after the action has been unequivocally terminated by the execution of an express, unconditional stipulation of discontinuance … “or actual entry of judgment in accordance with the terms of the settlement” … .

Here, the Supreme Court lacked jurisdiction to entertain the plaintiff’s motion, among other things, to vacate the stipulation of discontinuance and to restore the action to the court’s active calendar. The action was unconditionally discontinued by the stipulation of discontinuance executed by the plaintiff and the defendant and filed with the court, in which the plaintiff withdrew the complaint and discontinued all claims interposed in the action, and the stipulation was silent as to the court’s retention of jurisdiction for any purpose … . Accordingly, under the circumstances, the plaintiff’s requested relief was not available by way of a motion and could only be obtained by commencing a plenary action … . HSBC Bank USA, N.A. v Rini, 2026 NY Slip Op 04845, Second Dept 8-5-26

Practice Point: Here the parties entered a stipulation of discontinuance, thereby divesting the Supreme Court of jurisdiction over the case. Supreme Court therefore could not consider the subsequent motion to vacate the stipulation.

 

, , ,

PLAINTIFFS PROPERLY ALLOWED TO AMEND THE COMPLAINT TO ADD THE INSURER (WHICH PAID PLAINTIFFS FOR THEIR LOSSES) AS A PLAINTIFF UNDER THE RELATION-BACK DOCTRINE (AFTER THE STATUTE OF LIMITATIONS HAD RUN FOR AN INDEPENDENT SUBROGATION ACTION) (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, determined Supreme Court properly allowed plaintiffs to amend the complaint to add the insurer which paid plaintiffs’ losses as a plaintiff. The statute of limitations had passed for a separate subrogation action:

While an application to amend a pleading pursuant to CPLR 3025 lies within the court’s sound discretion, “there is no sound basis in law to grant amendment pursuant to CPLR 3025(c) to add an untimely claim” … . Thus, a pleading cannot be amended to assert a new claim for which the statute of limitations has expired unless the assertion of the new claim is deemed to relate back to an earlier operative pleading that was filed while the new claim still would have been timely (see id.). Whether a new claim relates back to the time of the filing of the earlier pleading is governed by CPLR 203(f), which provides:

“A claim asserted in an amended pleading is deemed to have been interposed at the time the claims in the original pleading were interposed, unless the original pleading does not give notice of the transactions, occurrences, or series of transactions or occurrences, to be proved pursuant to the amended pleading.”

In determining whether the original pleading provides the requisite notice of the transactions or occurrences underlying the proposed new claim, a court “should not . . . look[] beyond the four corners of the original pleading” … . * * *

… [T]he “transactions, occurrences, or series of transactions or occurrences” referenced in CPLR 203(f), and to be proved in support of the subrogation claim interposed in the proposed [amended complaint] — defendants’ management of the renovation project — are precisely the same “transactions, occurrences, or series of transactions or occurrences” alleged in the earlier complaints. As plaintiffs point out, the only effect of the assertion of the subrogation claim is to shift the claim for a portion of the damages allegedly caused by defendants’ alleged wrongdoing from the … plaintiffs to … their insurer. 217 Trust v VIR Constr., Inc, 2026 NY Slip Op 04824, First Dept 7-30-26

Practice Point: Here plaintiffs’ insurer, which paid plaintiffs for losses which are the subject of the complaint, was properly added to the complaint as a plaintiff, after the statute of limitations for a separate subrogation action had passed, pursuant to the relation-back doctrine.

 

, , ,

THE PARTIES IN THIS DIVORCE PROCEEDING ENTERED A LITIGATION FUNDING AGREEMENT IN WHICH DEFENDANT ADVANCED FUNDS TO PLAINTIFF IN RETURN FOR THE ASSIGNMENT OF PROCEEDS FROM THE DIVORCE CLAIM; DESPITE THE INCLUSION OF THE TERM “THIS IS NOT A LOAN” IN THE AGREEMENT, THE FIRST DEPARTMENT HELD THE AGREEMENT WAS IN FACT AN INVALID LOAN AT A USURIOUS 18.96% ANNUAL INTEREST RATE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Michael, reversing (modifying) Supreme Court, determined the parties’ divorce-litigation funding agreement was a usurious loan, not an investment, and was therefore void and unenforceable:

The parties entered into a Purchase and Sale Agreement, dated May 23, 2018 (the PSA), wherein defendant agreed to advance approximately$200,000 to plaintiff to fund the legal costs of plaintiff’s pending divorce action. In return, plaintiff agreed to assign to defendant his right to receive any proceeds from the divorce claim up to the amount owed to defendant under the PSA. The “Proceeds” consisted of “the total recovery from the Claim” and the “Claim” was defined as plaintiff’s right, title, and interest in and to any amount granted to plaintiff in connection with his pending divorce action, any appeal or settlement with respect thereto, and any related action. * * *

The PSA clarified that “THIS IS NOT A LOAN” and was expressly contingent on plaintiff’s “successful” recovery on the Claim. It proclaimed that “[i]f there is no recovery on the Claim, nothing will be owed to [defendant].” Yet, several provisions of the PSA together with the Sweetheart Guaranty … , entitled defendant to recoup the money it advanced plus interest even if “there is no recovery on the Claim,” such as in the event of plaintiff’s death or reconciliation with his wife. * * *

Considering the totality of the circumstances … , we find that the parties’ PSA was in fact a loan. The only remaining question is whether the loan was usurious. A loan is usurious if the interest exceeds the maximum legal rate of 16% (see General Obligations Law § 5-501[1], [2]; Banking Law § 14-a[1]). It is undisputed that under the PSA, interest accrued at 18.96% annually, which exceeds the legal limit. Denemark v New Ch. Capital, Inc., 2026 NY Slip Op 04553, First Dept 7-23-26

Practice Point: Consult this opinion for insight into when an agreement constitutes a “loan” subject to the usury law rather than an “investment.”

 

,

ALTHOUGH THE CONTRACT WAS BETWEEN SOPHISTICATED PARTIES, THE CLAUSE “THE OWNER AND ARCHITECT AGREE TO MUTUALLY WAIVE EACH OTHER [SIC] RIGHT TO SUE OR PLACE CLAIMS AGAINST EACH OTHER” WAS VOID AS AGAINST PUBLIC POLICY (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the contract clause “THE OWNER AND ARCHITECT AGREE TO MUTUALLY WAIVE EACH OTHER [sic] RIGHT TO SUE OR PLACE CLAIMS AGAINST EACH OTHER” was unenforceable as against public policy:

… [T]he waiver provision … purports to completely foreclose the possibility of any form of judicial or nonjudicial review. Although … the agreement was negotiated at arm’s length between sophisticated parties, freedom of contract is not merely an individual right, and enforcing the waiver provision has implications beyond the individual choices of the contracting parties … . In 159 MP Corp. v Redbridge Bedford, LLC (33 NY3d 353), the Court of Appeals upheld a waiver precluding the plaintiffs from commencing a declaratory judgment action. The Court of Appeals noted that “[c]ritically, the waiver clause at issue here does not preclude access to the courts but leaves available other judicial avenues through which plaintiffs may adjudicate their rights under the leases” … . The Court of Appeals specified that “the waiver does not impair plaintiffs’ ability to seek damages on breach of contract or tort theories” … .

Here, in contrast, the waiver provision precludes access to the courts and leaves no judicial or nonjudicial avenues through which the plaintiff may adjudicate his rights under the agreement. Thus, the waiver provision is void and unenforceable as against public policy … . Hochhauser v Urban Off. Architecture, PLLC, 2026 NY Slip Op 04491, Second Dept 7-22-26

Practice Point: A contract clause with waives all access to the courts is void as against public policy.​

 

, , , ,

THE LABOR LAW PREVAILING-WAGE PROVISIONS APPLY TO PUBLIC WORKS CONTRACTS; ANY CONTRACTUAL ATTEMPT TO SHORTEN THE STATUTE OF LIMITATIONS IS UNENFORECABLE (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Singas, answering two certified questions from the Second Circuit, determined (1) the Labor Law provisions requiring that workers receive the prevailing wage for public works projects apply irrespective of the language in a contract, and (2) any provisions purporting to shorten the statute of limitation periods in public works contracts are unenforceable:

We have accepted two certified questions from the United States Court of Appeals for the Second Circuit concerning third-party beneficiary breach of contract claims to enforce the right of a public works project employee to receive a prevailing wage under the Labor Law. We hold that Labor Law § 220 makes such claims available regardless of the underlying contract’s language and that given the unique status of the constitutional and statutory right to a prevailing wage, agreements to shorten limitation periods in public works contracts are unenforceable against such claims. ​Walton v Comfort Sys. USA (Syracuse), Inc., 2026 NY Slip Op 03911, CtApp 6-23-26

 

, , ,

THE DOCTRINE OF EQUITABLE ESTOPPEL SHOULD NOT HAVE BEEN APPLIED TO PRECLUDE THE VILLAGE FROM RAISING THE “FAILURE TO FILE A NOTICE OF CLAIM” DEFENSE TO DEFENDANT’S COUNTERCLAIM (CT APP).

The Court of Appeals, affirming the Appellate Division’s reversal of Supreme Court, in a full-fledged opinion by Judge Halligan, over a two-judge dissent, determined the defendant-developer, FPW, in a breach-of-a-real-estate-contract action brought by the plaintiff-village, was precluded from litigating a counterclaim because it never filed a notice of claim with the village. Supreme Court had ruled the doctrine of equitable estoppel precluded the village’s “lack-of-notice-of-claim” argument because the village was aware of the facts underlying the counterclaim from the start of the lawsuit and failed to raise the defense until the statute of limitations had run. The Court of Appeals rejected the equitable-estoppel argument:

We have explained that equitable estoppel generally “is not applied against the government, as a matter of policy, because to do so could easily result in large scale public fraud” and “violate the doctrine of separation of powers” … . Thus, “[w]e have recognized that estoppel may be warranted in unusual factual situations to prevent injustice . . . but we have limited its use against government agencies to all but the rarest cases” … . * * *

… [W]e conclude that the Village did not engage in wrongful or misleading conduct warranting the application of equitable estoppel. As the Appellate Division correctly determined, participation in litigation, without more, does not constitute action calculated to mislead or discourage a party from filing a notice of claim … . That holds true here, where the Village was pressing its own breach of contract claim and therefore had every reason to participate in discovery and related court conferences, independent of FPW’s counterclaim. Moreover, the Village’s answer to the counterclaim put FPW on notice that it was raising FPW’s “fail[ure] to perform all conditions precedent” as an affirmative defense, and compliance with a notice of claim statute such as CPLR 9802 “is a condition precedent” to an action against a municipality … . Incorporated Vil. of Freeport v Freeport Plaza W., LLC, 2026 NY Slip Op 03906, CtApp 6-18-26

Practice Point: Although the equitable estoppel doctrine can very rarely be applied to a municipality, the village did nothing improper or misleading which would warrant precluding the village’s “failure to file a notice of claim” defense to defendant’s counterclaim. There was a two-judge dissent.

 

, ,

DEFENDANT HAD SUFFICIENT CONTACTS WITH NEW YORK TO ALLOW THIS BREACH OF CONTRACT ACTION TO BE BROUGHT IN NEW YORK (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant, which issued preferred stock to plaintiff, had sufficient contacts with New York to bring the breach of contract action in New York:

Pursuant to the certificates of designation governing the preferred stock issued by defendant to plaintiff, defendant was required to provide dividends to a paying agent, which then provided the funds to a depository to pay the preferred stockholders. To facilitate dividend distributions, defendant designated entities located in New York as the paying agent and the depository. Further, defendant’s agreements with each of the depositories required the depository to maintain facilities in New York City. Defendant also contracted with multiple underwriters based in New York to sell the preferred stock. * * *

… [The] New York-based contacts are sufficiently related to plaintiff’s underlying breach of contract claim because “at least one element [of the cause of action] arises from the New York contacts” … . Defendant allegedly breached its duty under the certificates of designation not to sell stock to its affiliates “unless full cumulative dividends on the [preferred stock] . . . have been paid.” Defendant’s alleged breach consisted of not only its agreement to sell stock to one of its affiliates but also its failure to make full cumulative dividend payments to the preferred stockholders before completing the sale. … [D]efendant’s failure to make dividend payments, which necessarily would have been sent to its paying agent in New York, sufficiently connects defendant’s contacts with New York to the breach of contract cause of action … . Katz v Navios Mar. Holdings, Inc., 2026 NY Slip Op 03731, First Dept 6-11-26

Practice Point: Consult this decision for insight into when a defendant’s contacts with New York are sufficient to support a breach of contract action.brought in New York.​

 

, , ,

HERE THE VILLAGE SOUGHT TO ANNUL THE CITY’S IMPOSITION OF HIGHER SEWER CHARGES; THE CITY INTERPOSED SEVERAL COUNTERCLAIMS THAT WERE BASED ON THEORIES NOT INCLUDED IN THE CITY’S EARLIER NOTICE OF CLAIM WHICH ALLEGED ONLY BREACH OF CONTRACT; BECAUSE THE COUNTERCLAIMS RAISED THEORIES NOT ENCOMPASSED BY THE CITY’S EARLIER NOTICE OF CLAIM, THEY WERE DISMISSED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined all of the city’s counterclaims against the village should have been dismissed for failure to meet the “notice of claim” requirements. The village commenced this hybrid CPLR article 78 and declaratory judgment action seeking to annul the city’s determination to charge a higher rate for sewer services than had been charged under the parties “longtime agreement.” The city interposed counterclaims based on theories not encompassed by the city’s notice of claim. All the counterclaims should have been dismissed on that ground:

“CPLR 9802 sets forth the procedure by which certain actions against villages may be maintained” … . “In addition to providing for the maintenance of contract actions against villages, the statute also provides, in pertinent part, that ‘no other action shall be maintained against [a] village unless the same shall be commenced within one year after the cause of action therefor shall have accrued, nor unless a notice of claim shall have been made and served in compliance with [General Municipal Law § 50-e]’ ” …). Consequently, “[i]t is a condition precedent to, and indeed an essential element of, any cause of action . . . against a village that the [claimant] have served upon the village a notice of claim setting forth, inter alia, the nature of the claim and the items of damage or injuries claimed to have been sustained” … . “A claimant need not state a precise cause of action in haec verba in a notice of claim . . . , but a claimant may not raise in the [pleading] causes of action or legal theories that were not directly or indirectly mentioned in the notice of claim and that change the nature of the earlier claim or assert a new one” … . Furthermore, “the requirements of notice of claim statutes[, including CPLR 9802,] apply to the filing of counterclaims” … . “[T]he notice of claim requirements of CPLR 9802 [also] apply to . . . causes of action [or claims] for declaratory relief” … .

Here, the notice of claim was premised exclusively on the theory that the City was entitled to monetary damages and a declaratory judgment based on the Village’s alleged breach of the parties’ agreement. Conversely, the City’s first counterclaim seeks a declaration that the agreement had actually expired before the breach alleged in the notice of claim, and the third counterclaim seeks monetary damages for debt allegedly incurred by the Village after the purported expiration of the agreement. The fourth and fifth counterclaims for quantum meruit and unjust enrichment, respectively, are also premised on legal theories other than breach of contract. We thus conclude that those counterclaims improperly raise claims or legal theories “that were not directly or indirectly mentioned in the notice of claim and that change the nature of the earlier claim[s] or assert . . . new one[s]” … . Village of Allegany v City of Olean, 2026 NY Slip Op 03555, Fourth Dept 6-5-26

Practice Point: A condition precedent to an action against a village is the filing of a notice of claim. The condition applies to counterclaims and requests for declaratory judgments. Here the city’s earlier notice of claim against the village was based solely on an alleged breach of contract. The subsequent counterclaims raised by the city in response to the village’s Article 78 proceeding were based on theories not encompassed by the city’s earlier notice of claim and were dismissed on that ground.

 

,

A CONTRACT WHICH ALLOWS A PARTY “SOLE DISCRETION” TO ASSIGN A LOAN IS CONSTRAINED BY THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING; HERE IT WAS ALLEGED THE ASSIGNMENT WAS PART OF A “BACKROOM DEAL” TO EXCLUDE PLAINTIFF FROM A DEVELOPMENT PROJECT AND BENEFIT FROM A RESULTING WINDFALL; THE BREACH OF THE IMPLIED COVENANT CAUSE OF ACTION WAS REINSTATED BY THE COURT OF APPEALS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a three-judge partial dissent, reversing (modifying) thee Appellate Division, determined the cause of action alleging breach of the implied covenant of good faith and fair dealing should not have been dismissed. The complex facts of the case center around loans and contracts to develop a luxury residential tower. Under the Pledge Agreement at issue the defendant, Apollo, had “sole discretion” to assign a “junior mezzanine loan.” The majority concluded that the “sole discretion” did not override the implied covenant of good faith and fair dealing. Plaintiff alleged the assignment of the loan to “Spruce” was part of a “backroom deal” to push plaintiff out of the project’s capital structure and benefit from a resulting windfall:

We concur with the prevailing view among the Appellate Division departments—that a party’s “sole discretion” with respect to a right does not exculpate that party from complying with the implied covenant with respect to that right. Although “parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it might appear to a third party . . . [t]here exists an unavoidable tension between the concept of freedom to contract . . . and the equally fundamental belief that an enlightened society must to some extent protect its members from the potentially harsh effects of an unchecked free market system” … . In light of those competing interests, “rightly or wrongly, society has chosen to intervene in various ways in the dealings between private parties,” for example by “mandating the express or implicit inclusion of certain substantive or procedural provisions in various types of contracts” … . Indeed, one of those implicit substantive provisions is the implied covenant, which has the primary purpose of ensuring that “neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract,” when that conduct is “inconsistent with the other terms of the contractual relationship,” and yet not negotiated for in advance … .

This doctrine is even more important “where a contract contemplates the exercise of discretion,” or in other words awards one party the freedom to act in ways the contract may not directly foresee … . Accordingly, the implied covenant obligates the party with discretion act in good faith, and “not [] arbitrarily or irrationally,” when “exercising that discretion” … . A promisor’s discretion may not be used to violate a promise that “a reasonable person in the position of the promisee would be justified in understanding w[as] included” … . 111 W. 57th Inv. LLC v 111 W57 Mezz Inv. LLC, 2026 NY Slip Op 03376, CtApp 5-28-26

Practice Point: A contract provision allowing a party “sole discretion” to take certain actions is constrained by the implied covenant of good faith and fair dealing. i.e., a party cannot exercise discretion in a way that frustrates another party’s rights under the contract.

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy