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WITH THE EXCEPTION OF THE FRAUD CAUSE OF ACTION, THE NONRECOURSE CLAUSE PRECLUDED THIS LAWSUIT AGAINST THE PRINCIPALS OF DEFENDANT CORPORATION; PLAINTIFF HAD WON AN ARBITRATION AWARD AGAINST DEFENDANT FOR OVER $200 MILLION AND BROUGHT THIS ACTION AFTER DEFENDANT FILED FOR BANKRUPTCY (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Higgitt, determined the nonrecourse clause in the contract between two sophisticated, commercial parties precluded plaintiff’s action. Plaintiff had won an arbitration award for over $200 million against defendant (Footprint) and this suit against Footprint’s principals was brought after Footprint filed for bankruptcy:

Plaintiff, a sophisticated commercial actor, knew that it was entering into a significant contractual undertaking with a special-purpose entity, and the contract provided for a specific dispute-resolution mechanism — arbitration — that carried with it a risk that the special-purpose entity would not be able to satisfy an ensuing award. Plaintiff could have bargained for protections to avoid or mitigate losses occasioned by the conduct of a judgment-proof special-purpose entity (e.g., conditions on Footprint’s ability to draw on the letter of credit, a payment guaranty from one or more of defendants, a narrow nonrecourse provision), but it chose to enter into the contract as written … . We cannot provide rough justice to plaintiff by dint of distorting the plain meaning of the contract to relieve plaintiff of the consequences of its contractual arrangement … . Similarly, we cannot, under the guise of contractual interpretation, disturb the clear, detailed allocation-of-risk-of-economic-loss scheme agreed upon by the parties … . Ultimately, plaintiff got the benefit of its bargain: arbitration on its cognizable claims against Footprint, which proceeding yielded a sizable award that was converted to a judgment. Iberdrola Energy Projects v Oaktree Capital Mgt. L.P., 2024 NY Slip Op 03798, First Dept 7-11-24

Practice Point: Sophisticated corporate commercial parties will be held to an unambiguous nonrecourse provision in their contract.​

 

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MOTHER BROUGHT A PETITION TO MODIFY CUSTODY AND ALLEGED SHE DID NOT CONSENT TO THE STIPULATION UNDERLYING THE EXISTING CUSTODY ORDER; BECAUSE THE STIPULATION WAS NOT IN THE RECORD AND ITS TERMS WERE NOT IN THE CUSTODY ORDER, A HEARING WAS REQUIRED (SECOND DEPT).

The Second Department, reversing Family Court, determined a hearing was required after mother alleged in her petition to modify custody she did not consent to the stipulation underlying the custody order. The stipulation was not part of the record and the custody order did not recount the terms of the agreement:

Pursuant to CPLR 2104, an agreement between parties is binding against them where, as here, it was reduced to the form of an order and entered. Since “settlement agreements must abide by the principles of contract law, ‘for an enforceable agreement to exist, all material terms must be set forth and there must be a manifestation of mutual assent'” … . CPLR 2104 does not require the parties or the court to place on the record an agreement between the parties that is reduced to an order. However, failing to do so makes the agreement open to collateral litigation … . Here, in light of the mother’s averment that she did not consent to the terms of the custody order, the fact that the terms of the settlement were not placed on the record, and the fact that there was no writing subscribed by the parties, there is an unresolved issue as to whether there was a manifestation of mutual assent to the terms set forth in the custody order. Matter of Izzo v Salzarulo, 2024 NY Slip Op 03751, Second Dept 7-11-24

Practice Point: If a custody order is based upon a stipulation which was not reduced to writing and the terms of the stipulation are not in the order, the order is subject to collateral litigation, here based on mother’s allegation she did not agree to the terms.

 

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AVILA WAS INJURED WHEN HER SPOUSE LOST CONTROL OF THE CAR AND STRUCK A PARKED CAR; THE POLICY EXPRESSLY STATED COVERAGE DID NOT EXTEND TO THE INSURED’S SPOUSE; IN THE ABSENCE OF AN EXPRESS PROVISION THE INSURER IS NOT REQUIRED TO COVER THE INSURED’S SPOUSE (SECOND DEPT).

he Second Department, reversing Supreme Court, determined the uninsured motorist claim by the driver’s spouse was precluded based on the policy. Avila was a passenger in a vehicle driven by her spouse who lost control of the car:

Pursuant to Insurance Law § 3420(g)(1), “no policy or contract shall be deemed to insure against any liability of an insured because of death of or injuries to his or her spouse or because of injury to, or destruction of property of his or her spouse unless express provision relating specifically thereto is included in the policy.” “‘[I]n the absence of an express provision in an insured’s policy, a carrier is not required to provide insurance coverage for injuries sustained by an insured’s spouse'” … . This provision creates “a statutory presumption that interspousal liability is excluded from coverage unless an express provision relating specifically thereto is included in the policy” … . Moreover, here, the language of GEICO’s policy provides that its liability coverage does not apply “[t]o any insured for bodily injury to the spouse of that insured.” Thus, Avila’s uninsured motorist claim was precluded … . Matter of Government Employees Ins. Co. v Avila, 2024 NY Slip Op 03481, Second Dept 6-26-24

Practice Point: Here the insured, Avila’s spouse, lost control of the car and hit a parked car. Avila was a passenger and was injured. The policy did not include a provision expressly covering the insured’s spouse. In addition, the policy expressly stated the insured’s spouse was not covered. Avila’s uninsured motorist claim was precluded.

 

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HERE A STIPULATION BETWEEN LANDLORD AND TENANT SETTING THE RENT FOR A RENT STABILIZED LEASE VIOLATED THE RENT STABILIZATION LAW (RSL) RENDERING THE STIPULATION VOID (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Halligan, determined “an agreement waiving a benefit of the Rent Stabilization Laws is void as against public policy. This rule is not altered by the tenant’s status. Accordingly, the stipulation at issue here, which required the tenant to waive his right to file a Fair Market Rent Appeal (FMRA), is void and did not provide a path to deregulation of the subject apartment:”

The Stipulation between McKinney [the tenant] and the landlord provided that McKinney “agrees to accept and the landlord agrees to offer a rent stabilized lease” in McKinney’s name at a rate of “$650 per month.” It also stated that “$1,650 per month is a fair rent for [the] apartment being removed from Rent Control,” a proviso apparently intended to set the initial legal regulated rent under the Rent Stabilization Laws (RSL). The Stipulation further provided that “[f]or as long as Ed McKinney is the tenant, his rent shall be $650 per month plus allowable rental increases.” The effect of that provision, which neither party disputes, was to ensure that McKinney would pay a preferential rate of $650, with subsequent increases tied to this number for the duration of his tenancy. McKinney also agreed “not to challenge the rent,” thereby waiving his right to challenge the amount of the initial rent through a Fair Market Rent Appeal (FMRA) proceeding. * * *

By securing McKinney’s explicit agreement “not to challenge the rent,” the Stipulation waived his right to file an FMRA. That bargain circumvented the statutory process, and consequently the Stipulation is void in its entirety as a matter of law … . Because the Stipulation is void, [the landlord’s] registration statement based on the Stipulation is as well, and therefore “neither party is entitled to rely on it” … and it cannot serve as the basis for deregulation. It remains to be determined whether the apartment was properly deregulated on some other ground. Liggett v Lew Realty LLC, 2024 NY Slip Op 03378, CtApp 6-30-24

Practice Point: Re: rent stabilized leases, a stipulation which sets the rent but provides that the tenant will not challenge the rent violates the Rent Stabilization Law rendering the stipulation void.

 

THE COURT OF APPEALS MAJORITY HELD THE APPELLATE DIVISION AND THE DISSENT WENT TOO FAR BY INTERPRETING A SHORT PHRASE WITH GRAMMATICAL AND SPELLING ERRORS TO HAVE AMENDED THE TERM OF THE CONTRACT, WHICH WAS UNAMBIGUOUS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Cannataro, reversing the Appellate Division, over a three-judge dissenting opinion, determined a short unintelligible phrase in the contract did not render the contract ambiguous and therefore did not allow the interpretation applied by the Appellate Division. The central issue was the term of the contract. The expiration date of the term of the contract was unambiguous. The term had expired by the time the transaction for which plaintiff sought a fee of $1.25 million was consummated:​

The muddled phrase “the with affect as of the date hereof” … does not create a factual issue with respect to the length of the Term, because that language is susceptible to only one reasonable interpretation … . … “[T]he with affect as of the date hereof” can easily be understood to mean “with effect as of the date hereof.” To reach that interpretation, one need only set aside a plainly extraneous article, the word “the,” and correct a common, one-letter spelling error (“effect” versus “affect”) … .. Employing this common-sense reading, [the phrase] has no impact on the length of the Term. …

The Appellate Division held that an ambiguity exists because, in its view, ” ‘the with affect as of the date hereof’ . . . could also be corrected to state ‘with the Effective Date as the date hereof’ ” … . The dissent similarly posits that the errors could be corrected to state “with the Effective Date hereof.” These strained readings treat [the phrase] as designed to amend the Effective Date of the original agreement, the primary but unstated effect of which would be to restart its three-year Term. MAK Tech. Holdings Inc. v Anyvision Interactive Tech. Ltd., 2024 NY Slip Op 03376, CtApp 6-20-24

Practice Point: Here the majority concluded a short phrase with grammatical and spelling errors did not render the contract ambiguous.

 

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ABSENT SELF-INTEREST OR SELF-DEALING, AN ATTORNEY CAN NOT BE LIABLE TO A THIRD PERSON FOR INDUCING THE CLIENT TO BREACH A CONTRACT WITH THAT THIRD PERSON (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined that the attorney’s (Treco’s) inducing his client (Reynolds) to breach a contract with a third person is not actionable:

“[I]nasmuch as the relationship created between an attorney and his [or her] client is that of principal and agent, an attorney is not liable for inducing his [or her] principal to breach a contract with a third person, at least where he [or she] is acting on behalf of his [or her] principal within the scope of his [or her] authority” … . “Absent a showing of fraud or collusion, or of a malicious or tortious act, an attorney is not liable to third parties for purported injuries caused by services performed on behalf of a client or advice offered to that client” … . Here, the Treco defendants demonstrated, prima facie, that Treco was acting on Reynolds’s behalf and within the scope of Treco’s authority as Reynolds’s attorney … . In opposition, the plaintiffs failed to raise a triable issue of fact. The evidence cited by the plaintiffs did not support a finding that Treco’s acts in representing Reynolds were motivated by any self-interest or self-dealing or that the acts personally benefitted Treco … . Kugel v Reynolds, 2024 NY Slip Op 03173, Second Dept 6-12-24

Practice Point: Absent self-interest or self-dealing, and attorney is not liable to a third person for inducing a client to breach a contract with that third person.

 

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A LANDLORD WHO SEEKS TO RETAIN PART OF A TENANT’S SECURITY DEPOSIT MUST PROVIDE THE TENANT WITH AN ITEMIZED STATEMENT OF THE DAMAGE WITHIN 14 DAYS OF THE VACATION OF THE PROPERTY; HERE THE ITEMIZED STATEMENT WAS SIX DAYS LATE, PRECLUDING SUMMARY JUDGMENT IN FAVOR OF THE LANDLORD (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the fact that defendant landlord did not comply with General Obligations Law section 7 (which requires the landlord who seeks to retain a portion of a security deposit for damage to the property to submit an itemized statement within 14 days of the tenant’s vacation of the property} precluded summary judgment in favor of the landlord. Here the landlord submitted the itemized statement six days late:

“In 2019, the legislature enacted the Housing Stability and Tenant Protection Act of 2019 (hereinafter HSTPA) (L 2019, ch 36)” … , “landmark legislation making sweeping changes to the rent laws and adding greater protections for tenants throughout the State” … . In order to use security deposit funds to pay the cost of repairing damages caused by a tenant … , a landlord must comply, among other things, with General Obligations Law § 7-108(1-a)(e), one of the statutory provisions enacted by HSTPA. Pursuant to General Obligations Law § 7-108(1-a)(e), “[w]ithin fourteen days after the tenant has vacated the premises, the landlord shall provide the tenant with an itemized statement indicating the basis for the amount of the deposit retained, if any, and shall return any remaining portion of the deposit to the tenant.” General Obligations Law § 7-108(1-a)(e) further provides that, “[i]f a landlord fails to provide the tenant with the statement and deposit within fourteen days, the landlord shall forfeit any right to retain any portion of the deposit” … . Cohen v Abruzzo, 2024 NY Slip Op 03163, Second Dept 6-12-24

Practice Point: Pursuant to General Obligations Law section 7, a landlord who seeks to retain part of a tenant’s security deposit must provide the tenant with an itemized statement of the damages within 14 days of the vacation of the property.

 

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DEFENDANTS’ CONDOMINIUM WAS DAMAGED BY FIRE FORCING THEM TO LIVE ELSEWHERE FOR A YEAR; THE ALLEGATION PLAINTIFF DID NOT MAKE TIMELY REPAIRS DID NOT RELIEVE DEFENDANTS OF THEIR CONTRACTUAL OBLIGATION TO PAY THE COMMON CHARGES (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined the fact that defendants’ condominium was damaged by fire, forcing defendants to live elsewhere for a year, did not relieve defendants of the obligation to pay the common charges during that time:

… [P]laintiff submitted, inter alia, the declaration of condominium, the condominium bylaws, an affidavit from the president of the plaintiff’s management company attesting to the defendants’ failure to pay the common charges and related fees, and a ledger for the defendants’ account. Thus, the plaintiff established, prima facie, that it was authorized to collect certain assessments of common charges and fees, that the defendants violated the bylaws by failing to pay the monthly common charges, and that it was entitled to recover the unpaid common charges, late fees, and reasonable attorneys fees … .

… [D]efendants failed to raise a triable issue of fact as to whether the common charges had been paid or as to the amount owed. The defendants also failed to raise a triable issue of fact as to whether their nonpayment was excused by the plaintiff’s alleged failure to make timely repairs to the unit … . “[A]n individual unit owner cannot withhold payment of common charges and assessments in derogation of the condominium’s bylaws based on defective conditions in his or her unit or in the common areas, or a disagreement with actions lawfully taken by the Board of Managers” … . Board of Mgrs. of Villas on the Lake Condominium v Policicchio, 2024 NY Slip Op 03026, Second Dept 6-5-24

Practice Point: A condominium owner cannot withhold payment of common charges based on defective conditions in the condominium or common areas. or based on disagreement with lawful actions by the Board of Managers.

 

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THE LAWSUIT SOUGHT RETURN OF A DOWN PAYMENT UNDER A REAL ESTATE CONTRACT; BECAUSE THE LAWSUIT DID NOT AFFECT TITLE, POSSESSION, USE OR ENJOYMENT OF THE PROPERTY A NOTICE OF PENDENCY IS NOT APPROPRIATE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the notice of pendency should have been cancelled because the lawsuit, which sought the return of a down payment under a real estate contract, did not affect title, possession, use or enjoyment of the real property:

Pursuant to CPLR 6501, “[a] notice of pendency may be filed only when ‘the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property'” … . “When the court entertains a motion to cancel a notice of pendency in its inherent power to analyze whether the pleading complies with CPLR 6501, it neither assesses the likelihood of success on the merits nor considers material beyond the pleading itself; ‘the court’s analysis is to be limited to the pleading’s face'” … .

Here, the complaint, on its face, only asserts causes of action to recover monetary damages and does not seek relief that would affect the title to, or the possession, use, or enjoyment of, the property. Mallek v Felmine, 2024 NY Slip Op 02808, Second Dept 5-22-24

Practice Point: A notice of pendency is appropriate only when the underlying lawsuit involves title, possession, use or enjoyment of real property. A suit for the return of a down payment does not warrant a notice of pendency.

 

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CITY RETIREES THREATENED WITH ELIMINATION OF THEIR EXISTING HEALTH INSURANCE AND AUTOMATIC ENROLLMENT IN A MEDICARE ADVANTAGE PLAN ENTITLED TO RELIEF UNDER THEIR PROMISSORY ESTOPPEL CAUSE OF ACTION (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Gesmer, determined the doctrine of promissory estoppel justified a permanent injunction prohibiting the city from “eliminating … retirees’ existing health insurance, automatically enrolling them in a new Aetna Medicare Advantage Plan, enforcing a June 30, 2023 deadline for retirees to opt out of the new plan, and implementing any other aspect of the City’s new retiree healthcare policy:”

… [T]he record shows a clear and unambiguous promise, made for more than 50 years, that upon an employee’s retirement, Medicare would provide the first level of hospital and medical insurance benefits and the City’s benefits program would provide the second level to fill in the gaps. * * *

… [T]he record shows detrimental reliance on the promise. * * *

… [P]etitioners have demonstrated injury. Many City retirees stated that their chosen providers and hospitals, like many healthcare providers, do not accept the MAPs [Medicare Advantage Plans]. The City’s plan to automatically enroll petitioners in the Aetna MAP and terminate their current Medigap coverage would result in injury to retirees whose medical providers do not accept the Aetna MAP. * * *

The particular manner in which the parties chose to litigate this action before Supreme Court resulted in a record with significant evidentiary support for petitioners’ position and very little support for respondents’ position. That record and the arguments the parties chose to make on appeal lead to the conclusion that petitioners are entitled to relief under their promissory estoppel cause of action. Matter of Bentkowski v City of New York, 2024 NY Slip Op 02771, First Dept 5-21-24

Practice Point: Here the promissory estoppel doctrine was applied to permanently enjoin the city from eliminating city retirees’ health insurance and automatically enrolling them in a Medicare Advantage Plan.

 

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