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The Absence of Plaintiff’s (Buyer’s) Attorney’s Explicit Unconditional Approval of the Purchase Contract Invalidated the Contract, Despite Plaintiff’s Desire to Go Through with the Purchase

The Fourth Department, reversing Supreme Court, determined that an explicit (not implied) unconditional attorney approval of a real estate contract is a necessary pre-requisite for a valid contract. Here plaintiff’s attorney had approved the contract on the condition that an environmental warranty be provided by the sellers, a condition which was never met or explicitly waived. Despite plaintiff’s desire to go through with the purchase, defendant-sellers’ attorney correctly determined there was no valid contract of sale because plaintiff’s attorney never explicitly unconditionally approved it:

As the Court of Appeals has stated, “[c]larity and predictability are particularly important” in the area of law dealing with attorney approval of real estate contracts … . Here, we conclude that, although plaintiff could have unilaterally waived the environmental conditions that [his attorney] placed on his approval of the contract inasmuch as those conditions benefitted only him …, neither [of plaintiff’s attorneys] clearly and unequivocally did so. Thus, the contract was never unconditionally approved by plaintiff’s attorneys. * * *

“[C]onsiderations of clarity, predictability, and professional responsibility weigh against reading an implied limitation into the attorney approval contingency” … . If [plaintiff’s attorney] intended to waive the conditions placed … on … approval of the contract, he should have done so expressly and not left anything for inference, or he should have stated that he, as plaintiff’s counsel, unconditionally approved the contract as proposed by defendants. Because he failed to do so, we conclude that there was not a valid contract between the parties and that the court erred in directing defendants to sell the property to plaintiffs. Pohlman v Madia, 2015 NY Slip Op 07379, 4th Dept 10-9-15

 

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Forum Selection Clause in Nursing Home Admission Agreement Enforceable

The Second Department determined defendant nursing home’s motion to change venue based upon a forum selection clause in the admission agreement should have been granted. After her mother (a resident of defendant nursing home) died, plaintiff brought this action for medical malpractice in a county other than that designated in the admission agreement:

” A contractual forum selection clause is prima facie valid and enforceable unless it is shown by the challenging party to be unreasonable, unjust, in contravention of public policy, invalid due to fraud or overreaching, or it is shown that a trial in the selected forum would be so gravely difficult that the challenging party would, for all practical purposes, be deprived of its day in court'” … . Here, the plaintiff failed to show that enforcement of the forum selection clause would be unreasonable, unjust, or in contravention of public policy, or that the inclusion of the forum selection clause in the agreement was the result of fraud or overreaching … . Moreover, the plaintiff failed to demonstrate that a trial in Suffolk County would be so gravely difficult that, for all practical purposes, she would be deprived of her day in court … . Puleo v Shore View Ctr. for Rehabilitation & Health Care, 2015 NY Slip Op 07255, 2nd Dept 10-7-15

 

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Elements of Causes of Action for (1) Misappropriation of (a) Trade Secrets, (b) Business Ideas, and (c) Labor, Skills and Expenditures, (2) Breach of Fiduciary Duty (Delaware Law), (3) Aiding and Abetting Breach of Fiduciary Duty (Delaware Law), (4) Unjust Enrichment, and (5) Promissory Estoppel Described in Some Detail

The First Department, in a full-fledged opinion by Justice Richter, determined the complaint stated causes of action against the Cohen defendants for essentially stealing plaintiffs’ ideas for a website. Defendant Cohen, an investor, eventually served as chairman and CEO of a company formed by plaintiffs to develop the website. The complaint alleged that Cohen caused a strain among the partners which stalled the project. Cohen circulated a liquidation agreement which was never addressed by the other partners. Then, the complaint alleged, Cohen took the plaintiffs’ ideas and website-development work to the founders of Pinterest, which, the complaint alleged, was formed based upon the ideas Cohen misappropriated from plaintiffs. The plaintiffs sued the Cohen defendants and Pinterest. All the causes of action against Pinterest were dismissed by Supreme Court. The First Department held the complaint stated causes of action against the Cohen defendants for (1) breach of fiduciary duty (under Delaware Law), (2) misappropriation of trade secrets, (3) misappropriation of ideas, (4) and misappropriation of labor, skill and expenditures. (Apparently the unjust enrichment cause of action, which Supreme Court dismissed only re: Pinterest, was not a subject of the appeal.) The First Department found that all the causes of action against Pinterest were properly dismissed.   The opinion includes detailed descriptions of the elements of breach of fiduciary duty (Delaware law), aiding and abetting breach of fiduciary duty, unjust enrichment, misappropriation of trade secrets, misappropriation of ideas, misappropriation of labor, skills and expenditures, and promissory estoppel. The discussions are too extensive to be fairly summarized here.  Schroeder v Pinterest Inc., 2015 NY Slip Op 07232. 1st Dept 10-6-15

 

Zoning Change Prohibiting Subdivision Was Foreseeable, Developer Not Entitled to Rescind Contract for Land Purchase

The Second Department determined plaintiff-developer’s (RW’s) complaint seeking rescission of a contract for the purchase of land was properly denied and the cross-motion to dismiss the complaint was properly granted. RW argued that the zoning changes enacted by the town, which prohibited the subdivision plan contemplated by the contract, was not foreseeable. The court found that defendants had demonstrated the zoning change was, in fact, foreseeable and rescission was therefore not an available remedy:

” [T]he law of impossibility provides that performance of a contract will be excused if such performance is rendered impossible by intervening governmental activities, but only if those activities are unforeseeable'” … . Contrary to RW’s contention, a party seeking to rescind a contract must show that the intervening act was unforeseeable, even if the intervening act consisted of the actions of a governmental entity or the passage of new legislation … .

Here, RW did not show that it was unforeseeable that a change in the Town’s Zoning Code would render it impossible to subdivide the property as initially planned, and did not raise a triable issue of fact in opposition to [defendants’]  showing that such a change was foreseeable … . RW Holdings, LLC v Mayer, 2015 NY Slip Op 07020, 2nd Dept 9-30-15

 

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Forum Selection Clause in a “Release of Liability” Form Is Enforceable

The Second Department determined the forum selection clause in an “Equipment Rental Form and Release of Liability” signed by plaintiff prior to taking snowboarding lessons at defendant ski resort was enforceable. Plaintiff alleged injury caused by improper instruction and argued the form was an invalid contract of adhesion:

Contrary to the plaintiff’s contentions, the “Equipment Rental Form and Release of Liability” was not an unenforceable contract of adhesion, and enforcement of the forum selection clause contained therein does not contravene public policy … . Karlsberg v Hunter Mtn. Ski Bowl, Inc., 2015 NY Slip Op 06890, 2nd Dept 9-23-15

 

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Although Plaintiff Could Not Establish a Valid Mechanic’s Lien, Supreme Court Should Have Allowed the Action to Proceed As If it Were Brought As a Breach of Contract

The Second Department determined plaintiff’s complaint seeking foreclosure of a mechanic’s lien (re: work done pursuant to a contract) should not have been dismissed on the ground the notice of pendency (of the mechanic’s lien) had expired. Because the complaint alleged the existence of a contract, performance of plaintiff’s  obligation thereunder, the amount unpaid balance, and sought a personal judgment for any deficiency after the foreclosure sale, plaintiff’s action should have been allowed to proceed:

“… [U]nder the plain language of the Lien Law, the Supreme Court had the authority to retain the action and award a money judgment even though the lien had expired … . Section 17 of the Lien Law provides that the ‘failure to file a notice of pendency of action shall not abate the action as to any person liable for the payment of the debt specified in the notice of lien, and the action may be prosecuted to judgment against such person.’ The same rule applies where, as here, the notice of pendency expired during the pendency of the plaintiff’s action … . Section 54 of the Lien Law provides that if ‘the lienor shall fail, for any reason, to establish a valid lien in an action under the provisions of this article, he may recover judgment therein for such sums as are due him, or which he might recover in an action on a contract, against any party to the action.’ The complaint in this action alleged the existence of the contract, the plaintiff’s performance of its obligation thereunder, and the unpaid balance of the agreed price. Additionally, the ad damnum clause included a request for a personal judgment against the defendants for any deficiency remaining after a foreclosure sale. These allegations were sufficient to support an award of a personal judgment against the defendants even if the mechanic’s lien was defective …”. Aluminum House Corp. v Demetriou, 2015 NY Slip Op 06767, 2nd Dept 9-16-15

 

Plaintiff Not Entitled to Summary Judgment—Plaintiff Could Not Demonstrate Plaintiff’s Interpretation of the Contract Was the Only Reasonable Interpretation (Rendering the Contract Ambiguous)

Plaintiff sued under a brokerage agreement alleging entitlement to a fee in connection with the sale of defendant’s property. By the terms of the agreement, no fee was owed if the property was sold to “a private party identified as James Walker.” Ultimately the property was sold to “James Walker,” but defendant alleged the buyer was not James Walker but was merely using the name as a pseudonym to protect his privacy. The Second Department determined plaintiff was not entitled to summary judgment because it could not be found as a matter of law that plaintiff’s interpretation of the contract was the only reasonable interpretation. The court explained the relevant analytical criteria:

“The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties’ intent” … . “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” … . “To determine whether a writing is unambiguous, language should not be read in isolation because the contract must be considered as a whole” … . If the language of the contract is susceptible of more than one reasonable interpretation, the contract will be considered ambiguous … .

The threshold question of whether a contract is unambiguous, and the subsequent construction and interpretation of an unambiguous contract, are issues of law within the province of the court … . “[W]hen interpreting a contract, the court should arrive at a construction which will give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectations will be realized” … . Extrinsic and parol evidence of the parties’ intent may not be admitted to create ambiguity in a contract that is unambiguous on its face, but such evidence may be considered where a contract is determined to be ambiguous … .

* * * … [Here it] cannot be determined as a matter of law that the plaintiff’s interpretation … was the only reasonable interpretation … . NRT N.Y., LLC v Harding, 2015 NY Slip Op 06719, 2nd Dept 9-2-15

 

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Fees Owed by Seller to “Financial Advisor” Hired by Seller to Facilitate the Sale Were Excluded from the Asset Purchase Agreement (APA)—Doctrine of “De Facto Merger” Did Not Apply in Absence of “Continuity of Ownership”

The First Department, in a full-fledged opinion by Justice Friedman, over a full-fledged dissenting opinion by Justice Manzanet-Daniels, determined that the buyer of a business (TBA Buyer) did not assume the seller’s (TBA Seller’s) obligation to pay a financial advisor (Fidus) hired by TBA Seller to find a buyer and facilitate a sale. The opinion focused on the precise language of the asset purchase agreement (APA) and held that any monies owed by TBA Seller to Fidus were excluded, by the terms of the APA, from the assets and liabilities TBA Buyer purchased. Much of the opinion addresses the arguments made by the dissent. With respect to the dissent’s argument that TBA Buyer assumed TBA Seller’s obligation to pay Fidus under the “de facto merger” doctrine, the majority wrote:

While the general rule is that, absent a merger or consolidation, an entity purchasing the assets of another entity does not thereby acquire liabilities of the seller not expressly transferred in the sale …, a purchase-of-assets transaction may be deemed to constitute a de facto merger between seller and buyer, even if not formally structured as such, under certain conditions … . We have recognized, however, that “the essence of a merger” … is the element of continuity of ownership, which

“exists where the shareholders of the predecessor corporation become direct or indirect shareholders of the successor corporation as the result of the successor’s purchase of the predecessor’s assets, as occurs in a stock-for-assets transaction. Stated otherwise, continuity of ownership describes a situation where the parties to the transaction become owners together of what formerly belonged to each'” … . * * *

… [U]nder New York law, continuity of ownership is “the touchstone of the [de facto merger] concept” and “thus a necessary predicate to a finding of de facto merger” … . The purpose of requiring continuity of ownership is “to identify situations where the shareholders of a seller corporation retain some ownership interest in their assets after cleansing those assets of liability” … . Stated otherwise, “[t]he fact that the seller’s owners retain their interest in the supposedly sold assets (through their ownership interest in the purchaser) is the substance’ which makes the transaction inequitable” … . By contrast, where a “buyer pays a bona fide, arms-length price for the assets, there is no unfairness to creditors in . . . limiting recovery to the proceeds of the sale — cash or other consideration roughly equal to the value of the purchased assets would take the place of the purchased assets as a resource for satisfying the seller’s debts” … . Thus, “allowing creditors to collect against the purchasers of insolvent debtors’ assets would give the creditors a windfall by increasing the funds available compared to what would have been available if no sale had taken place” … .

In this case, there is no continuity of ownership between TBA Seller and TBA Buyer because, as the record establishes (and Fidus does not dispute), none of TBA Seller’s owners acquired a direct or indirect interest in TBA Buyer (and thus in the transferred assets) as a result of the asset purchase transaction … .  Matter of TBA Global, LLC v Fidus Partners, LLC, 2015 NY Slip Op 06698, 1st Dept 9-1-15

 

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Recovery Under the Doctrine of Quantum Meruit Was Proper—Proof of Damages Was Sufficient

The Second Department determined defendants, who did construction work without a written contract, were entitled to recover under the doctrine of quantum meruit.  The court noted that proof of damages may be based solely on oral testimony as long as the witness has knowledge of the actual costs:

The elements of a cause of action sounding in quantum merit are: (1) the performance of services in good faith, (2) the acceptance of services by the person to whom they are rendered, (3) the expectation of compensation therefor, and (4) the reasonable value of the services rendered … . Here, the trial court properly determined that the … defendants performed services in good faith, that the plaintiff accepted those services, and that the … defendants expected to be compensated therefor. The court also properly determined that the … defendants provided sufficient evidence of the reasonable value of their services. The unsigned agreement furnished evidence of such value … . In addition, the … defendants presented proposals that they submitted to the plaintiff for payment in connection with additional work that they performed, invoices and proof of payments to subcontractors, and invoices and proof of payments to suppliers of materials and equipment. The fair and reasonable value of the … defendants’ services may be properly based on evidence concerning the amount that they billed the plaintiff for such services, and the amounts that subcontractors billed them for their services and for costs of supplies and equipment … .

Moreover, “[p]roof of damages may be based solely on oral testimony as long as the witness has knowledge of the actual costs” … . The record demonstrates that the … defendants, who had 20 years of experience in construction and had built over 100 homes, had knowledge of the actual costs of the services being provided … . Therefore, the … defendants’ testimony provided further evidence of the reasonable value of the services performed … . Johnson v Robertson, 2015 NY Slip Op 06658, 2nd Dept 8-26-15

 

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Allegations of Fraud in the Inducement Did Not Invalidate the Arbitration Clause in the Agreement

The Second Department, over a dissent, determined that plaintiff’s motion to stay arbitration was properly denied. Plaintiff alleged that an agreement to sell her business and related real property was induced by fraud and, therefore, the arbitration clause in the agreement was invalid and unenforceable. The court noted that the agreement was properly signed by plaintiff’s attorney as her attorney-in-fact and plaintiff attended the closing where she signed the relevant documents. She was deemed, therefore, to have read and understood the documents. The court explained its limited role in determining whether a matter is arbitrable, and further explained that, absent fraud which permeated the entire agreement, the arbitration clause will still be enforced in the face of allegations of fraud in the inducement:

Arbitration is a favored method of dispute resolution in New York … . “[T]he announced policy of this State favors and encourages arbitration as a means of conserving the time and resources of the courts and the contracting parties” … . “New York courts interfere as little as possible with the freedom of consenting parties’ to submit disputes to arbitration” … . Parties to arbitration agreements should be prevented from using the courts as a vehicle to protract litigation … . The threshold issue of whether there is a valid agreement to arbitrate is for the courts … . Once it is determined that the parties have agreed to arbitrate the subject matter in dispute, the court’s role has ended and it may not address the merits of the particular claims … . * * *

… [T]he Court of Appeals ruled that an arbitration clause is generally separable from substantive provisions of a contract, so that an agreement to arbitrate is valid even if the substantive provisions of the contract are induced by fraud … . However, if a party can demonstrate that “the alleged fraud was part of a grand scheme that permeated the entire contract, including the arbitration provision, the arbitration provision should fall with the rest of the contract” … . “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” … . Here, the plaintiff failed to make such a showing. Ferrarella v Godt, 2015 NY Slip Op 06571, 2nd Dept 8-19-15

 

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