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Motion to Dismiss Pursuant to CPLR 3211 (a)(1) [Documentary Evidence] Should Not Have Been Granted—Plaintiff Rebutted the Presumption of Validity of the Forum Selection Clause of the Relevant Contract

The Second Department determined Supreme Court should not have granted defendants’ motion to dismiss based upon the forum selection clause in the relevant contract.  Plaintiff rebutted the presumption of the validity of the clause:

A party seeking dismissal of a complaint under CPLR 3211(a)(1) must submit documentary evidence that ” conclusively establishes a defense to the asserted claims as a matter of law'” … . A contract provision may constitute documentary evidence under CPLR 3211(a)(1) …, and a forum selection clause contained in a contract may provide a proper basis for dismissal of a complaint under CPLR 3211(a)(1) … . A 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” … . Accordingly, a forum selection clause will be given effect in the absence of a ” strong showing'” that it should be set aside … .

Here, the plaintiff has made the requisite strong showing that the forum selection clause in the nondisclosure agreement was “unreasonable.” Specifically, the plaintiff has contended, without contradiction, that neither the parties nor the agreement has any connection to the State of Delaware: none of the parties is located in Delaware, the nondisclosure agreement was not executed in Delaware, and performance of the agreement was not to take place in Delaware … . Accordingly, the prima facie enforceability and validity of the forum selection clause has been rebutted and, therefore, that clause does not “conclusively establish[ ] a defense to the asserted claims as a matter of law”… . US Mdse Inc v L & R Distribs Inc, 2014 NY Slip Op 07495, 2nd Dept 11-5-14

 

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Effects of Taking Property “As Is,” the Implied Covenant of Fair Dealing, and Constructive Eviction Discussed

Plaintiff-tenant took possession of the leased premises “as is.” Subsequently plaintiff stopped paying rent claiming that the condition of the elevator prevented the issuance of a certificate of occupancy.  In denying both parties’ motions for summary judgment (because plaintiff failed to show the condition of the elevator was the reason for the denial of the certificate of occupancy; and because the defendants failed to show it properly maintained the elevator), the Second Department explained the relevant contract principles:

A court’s fundamental objective in interpreting a contract is to determine the parties’ intent from the language employed and to fulfill their reasonable expectations … . “[A] written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms” … . Thus, “[i]t is the role of the courts to enforce the agreement made by the parties—not to add, excise or distort the meaning of the terms they chose to include, thereby creating a new contract under the guise of construction” … .

Moreover, “[i]mplicit in every contract is a covenant of good faith and fair dealing, which encompasses any promise that a reasonable promisee would understand to be included” … . “The implied covenant of good faith and fair dealing is breached when a party to a contract acts in a manner that, although not expressly forbidden by any contractual provision, would deprive the other party of the right to receive the benefits under their agreement” … . * * *

…[T]he fact that the plaintiff agreed to take possession of the leased premises in “as-is” condition does not necessarily warrant the conclusion that the plaintiff intended to waive any claims with respect to the portions of the building that were not leased to him, or to waive the landlord’s obligation to maintain the elevator. The defendants … argued that the provision of the lease which required them to “maintain the current elevator services and maintain and repair the elevator in reasonable condition” only obligated them to prevent any deterioration in the elevator service existing on the date that the parties entered into the lease. However, in light of the implied covenant of good faith and fair dealing, a reasonable tenant could interpret that provision as obligating the landlord to maintain the elevator free from violations and to promptly perform repairs, particularly if failing to do so could prevent the tenant from obtaining a certificate of occupancy for the leased premises. …

[Re: the defendants-landlords’ motion for summary judgment to recover unpaid rent:] “The obligation of a commercial tenant to pay rent is not suspended if the tenant remains in possession of the leased premises, even if the landlord fails to provide essential services” … . Before a tenant may withhold rent, the tenant must prove actual or constructive eviction … . To demonstrate constructive eviction, then, a tenant must vacate the premises … . Here, the defendants’ submissions failed to demonstrate, prima facie, that the plaintiff remained in possession of the leased premises and thus, was not constructively evicted. Prakhin v Fulton Towers Realty Corp, 2014 NY Slip Op 07487, 2nd Dept 11-5-14

 

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City Was “United in Interest” with Non-Profit Corporation Which Maintained Central Park Pursuant to a Contract with the City—Therefore Plaintiff, Who Was Allegedly Injured by a Truck Owned by the Non-Profit Corporation, Could Amend His Complaint to Include the Non-Profit Corporation After the Statute of Limitations Had Run—However the Extent to Which the City Was “United in Interest” Was Dictated by the Terms of the Contract

The First Department determined that the Conservancy, a non-profit corporation which maintains Central Park under a contract with the City of New York, was “united in interest” with the City.  Therefore, plaintiff, who allegedly had been injured by a maintenance truck owned by the Conservancy, could amend his complaint to include the Conservancy, even though the statute of limitations had run.  The ‘unity of interest” was defined by the terms of the contract.  Because the contract did not call for the City to indemnify the Conservancy for gross negligence, the complaint against the Conservancy could not include the gross negligence claim:

… [P]laintiff relied on the 2006 Central Park Agreement, a contract between the City and the Conservancy, a nonprofit organization, in which they acknowledged that they had formed an effective “public/private partnership.” Under the Agreement, the Conservancy is required to provide specified maintenance services in Central Park to the “reasonable satisfaction” of the City, and the City is broadly required to indemnify the Conservancy “from and against any and all liabilities . . . arising from all services performed and activities conducted by [the Conservancy] pursuant to this agreement in Central Park.” The City’s indemnification obligation, among other things, expressly excludes claims arising from gross negligence or intentional acts of the Conservancy or its agents or volunteers. As a result of the Agreement, the Conservancy acts, in effect, as an independent contractor fulfilling the City’s nondelegable obligation to maintain the City parks in reasonably safe condition … .

The City is vicariously liable for the Conservancy’s negligence in the course of providing maintenance in Central Park by virtue of the contractual indemnification provision, and the parties are thus united in interest … . Further, since the City has a nondelegable duty to maintain Central Park, it is vicariously liable for negligence committed by the contractor in the course of fulfilling that duty … . However, the City is correct that its interests are not united with those of the Conservancy with respect to the proposed gross negligence claim, and leave to assert that claim against the Conservancy is therefore denied. Brunero v City of New York Dept of Parks & Recreation, 2014 NY Slip Op 07444, 1st Dept 10-30-14

 

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Revised Retainer Agreement, Which Changed the Fee Arrangement from Hourly to a 40% Contingency, Was Not Unconscionable/the Continuing Representation Doctrine Will Not Extend the Statute of Limitations for an Action Seeking the Return of Gifts Made by a Client to Her Attorneys Where the Sole Basis for the “Continuing Representation” Is a Fee Dispute

The Court of Appeals, in a full-fledged opinion by Judge Read, determined that, under the facts, a 40% contingent-fee retainer-agreement was not unconscionable.  The court further determined the six-year statute of limitations for an action seeking the return of gifts given to attorneys by their client was not tolled by the continuing representation doctrine because the doctrine is not applicable if the “continuing representation” is a fee dispute between the attorneys and client.  The underlying action was a suit by the beneficiaries of an estate worth $1 billion against the executor of the estate.  The estate litigation went on for more than 20 years.  The wife of the decedent, Alice Lawrence, after paying some $18 million in attorneys' fees under a retainer agreement, sought and negotiated a new contingent-fee agreement (40% of the amount recovered).  Lawrence was actively involved in the litigation and was apparently very savvy concerning financial affairs.  After the contingent-fee agreement was entered, the case took a sudden turn when the executor agreed to settle for more than $100 million, entitling Lawrence's attorneys to a fee of more than $40 million. Reversing the appellate division, the Court of Appeals determined the contingent-fee retainer agreement must be enforced:

Courts “give particular scrutiny to fee arrangements between attorneys and clients,” placing the burden on attorneys to show the retainer agreement is “fair, reasonable, and fully known and understood by their clients” … . A revised fee agreement entered into after the attorney has already begun to provide legal services is reviewed with even heightened scrutiny, because a confidential relationship has been established and the opportunity for exploitation of the client is enhanced … . …[A]n unconscionable contract is generally defined as “one which is so grossly unreasonable as to be unenforceable according to its literal terms because of an absence of meaningful choice on the part of one of the parties [procedural unconscionability] together with contract terms which are unreasonably favorable to the other party [substantive unconscionability]” … . * * *

Absent incompetence, deception or overreaching, contingent fee agreements that are not void at the time of inception should be enforced as written … . …”[T]he power to invalidate fee agreements with hindsight should be exercised only with great caution” because it is not “unconscionable for an attorney to recover much more than he or she could possibly have earned at an hourly rate” … . * * *

We have never endorsed continuous representation tolling for disputes between professionals and their clients over fees and the like, as opposed to claims of deficient performance where the professional continues to render services to the client with respect to the objected-to matter or transaction. Nor do the rationales underlying continuous representation tolling support its extension beyond current limits. Matter of Lawrence, 2014 NY Slip Op 07291, CtApp 10-28-14

 

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No Privity Between Insured and Reinsurers Which Contracted Solely with the Insurer—Counterclaims by Insured Against Reinsurers Should Have Been Dismissed

The First Department, in a full-fledged opinion by Justice Freedman, reversed Supreme Court and dismissed counterclaims against reinsurers (NICO and Resolute) by the insured (Colgate) because no contract existed between the reinsurers and the insured. The contractual relationship was solely between the insurer (OneBeacon) and the reinsurers.  Colgate alleged that the actions of NICO and Resolute prevented Colgate from exercising control over lawsuits, including whether to settle or litigate. The underlying lawsuits alleged that talc produced by Colgate contained asbestos:

Colgate’s claims raise the issue of whether an insurance policyholder has rights against its carrier’s reinsurer, if the reinsurer administers the insured’s claims under the policy. In a typical reinsurance arrangement, where the carrier administers claims and the reinsurer merely indemnifies it in accordance with the “follow the fortunes” doctrine (see United States Fid. & Guar. Co. v American Re-Ins. Co., 93 AD3d 14, 23 [1st Dept 2012], mod 20 NY3d 407 [2013]), the insured can only state viable claims against the reinsurer in specific circumstances that do not pertain here. In this case, Colgate only holds the Policies with OneBeacon. The carrier’s reinsurer, NICO, and its affiliate, Resolute, both adjust Colgate’s Policy claims and indemnify OneBeacon for claim payouts. NICO’s and Resolute’s dual role does not, however, give rise to any liability to Colgate because Colgate lacks contractual privity with NICO and Resolute. In the absence of privity, Colgate’s breach of contract claims against NICO and Resolute fail. OneBeacon Am Ins Co v Colgate-Palmolive Co, 2014 NY Slip Op 07315, 1st Dept 10-28-14

 

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“But For” Causation Element of Tortious Interference with Contract and Prospective Business Relationship Not Present—Notwithstanding the Actions of the Defendants, there Was Evidence the Contract Was Cancelled for Financial Reasons

The Third Department, in finding the causes of action should have been dismissed, explained the “but for” element of tortious interference with contractual relations and prospective business relationships.  The complaint alleged that defendants made disparaging and false remarks about the plaintiff which caused plaintiff to lose a consulting contract.  However the evidence demonstrated the contract was cancelled for financial reasons.  Therefore the “but for” element was not present:

Causation is an essential element of a claim for tortious interference with contractual relations. Such a cause of action requires proof that, “but for” the defendants’ conduct, the plaintiff would not have breached its contract with a third party … .

In opposition to defendants’ motion for summary judgment, plaintiffs submitted a letter — not previously disclosed during discovery —… . * * * This letter established that, regardless of whether defendants acted in such a manner as to interfere with the consulting contract, the contract … was terminated for financial reasons … . Thus, it cannot be shown that “but for” defendants’ alleged interference, plaintiffs’ contractual relationship … would have continued … . Ullmanglass v Oneida Ltd, 2014 NY Slip Op 07234, 3rd Dept 10-23-14

 

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Surrogate’s Court Abused Its Discretion In Awarding Attorney’s Fees Greater than Those Called for by the Retainer Agreement—Evidence in Support of “Exceptional Circumstances” Justifying the Higher Fees Not Sufficient—Retainer Agreement Construed in Light Most Favorable to the Client

The Third Department determined Surrogate’s Court erred in awarding attorney’s fees in excess of those agreed to in the retainer agreement between the executors of an estate and the attorney hired to handle the estate.  Although the retainer agreement allowed for increased fees for “extenuating circumstances,” the Third Department found the proof of consultation and approval re: increased fees, required by the retainer agreement, lacking.  The court noted that a retainer agreement is construed in the light most favorable to the client:

Surrogate’s Court abused its discretion in fixing [the estate attorney’s] fee at $50,000. Surrogate’s Court is vested with broad discretion to fix the reasonable compensation of an attorney who renders legal services to a fiduciary of an estate, subject to modification only where that discretion has been abused (see SCPA 2110…). While the court is not bound by a retainer agreement when determining whether an unreasonable fee must be restricted …, a court “cannot award legal fees in excess of what has been agreed to by the parties in a retainer agreement” … . The attorney seeking fees bears the burden of establishing the reasonable value of the services rendered … . * * *

“The general rule that ‘equivocal contracts will be construed against the drafters’ is subject to particularly rigorous enforcement in the context of attorney-client retainer agreements,” such that we must construe the agreement in the light most favorable to the clients … . Matter of Benware, 2014 NY Slip Op 07218, 3rd Dept 10-23-14

 

1961 Royalties-Agreement Between Duke Ellington and Music Publishers Was Not Ambiguous and Could Not Be Interpreted to Refer to Parties (“Affiliates” of the Music Publishers) Which Did Not Exist In 1961—Therefore the Ellington Estate Was Not Entitled to a 50% Share of the Revenues Earned by Foreign Subpublishers With Which the Original Music Publishers Have Affiliated Since 1961

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over two dissenting opinions, determined that the terms of a 1961 royalties-agreement between Duke Ellington and music publishers were not ambiguous and must be applied as intended in 1961, even though the globalization of the music publishing business had a drastic effect on the royalty-revenues which could not have been anticipated in 1961.  The defendant music publishers which were parties to the 1961 agreement, in recent years, had become affiliated with a number of foreign subpublishers which did not exist in 1961.  The Ellington estate argued that the term “any other affiliate” (of the music publishers) in the agreement should be read to include all the recent foreign subpublishers so that the revenues earned by the foreign subpublishers would be shared by the estate. The Court of Appeals disagreed and held that only the “affiliates” contemplated by the agreement in 1961 were bound by the agreement:

Absent explicit language demonstrating the parties' intent to bind future affiliates of the contracting parties, the term “affiliate” includes only those affiliates in existence at the time that the contract was executed … . Furthermore, the parties did not include any forward looking language. If the parties intended to bind future affiliates they would have included language expressing that intent. Absent such language, the named entities and other affiliated companies of EMI's predecessor which existed at the time are bound by the provision, not entities that affiliated with EMI after execution of the Agreement. As it is undisputed that the affiliated foreign subpublishers at issue here were not affiliates at the time the Agreement was executed, they are not [parties to the agreement]. Ellington v EMI Music Inc, 2014 NY Slip Op 07197, CtApp 10-23-14

 

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The Prevailing Wage Statute Applies To All Work Reasonably Interpreted to Be Covered by the Statute—The Fact that the Application of the Statute Is Unsettled At the Time the Public Works Contract Is Entered Does Not Allow the Employer to Escape Its Reach Once the Law Is Settled

The Court of Appeals, in an opinion by Judge Smith, answered two certified questions posed by the Second Circuit about the application of the prevailing wage statute to workers engaged in the testing and inspection of fire protection equipment.  The statute requires employees doing construction, maintenance or repair on public works be paid not less than the prevailing rate of wages. The Second Circuit was asked to review the Labor Department Commissioner's ruling that the statute applied to the testing and inspection of fire protection equipment, but only prospectively.  The Second Circuit asked the Court of Appeals whether deference to the Labor Department's prospective application should be accorded, and further asked whether an employer who agrees to be bound to pay prevailing wages pursuant to section 220 has agreed to pay such wages for all work covered by the statute as the statute is reasonably interpreted, as opposed to only the types of work about which the law is settled at the time of the agreement.  The Court of Appeals determined the law should apply as it is correctly understood, not as the parties may have misunderstood it.  Ramos v SimplexGrinnell LP, 2014 NY Slip Op 07198, CtApp 10-23-14

 

Unambiguous Terms of a Release Must Be Enforced—Extrinsic Evidence of Intent Not Permitted

In affirming the dismissal of a complaint which was deemed barred by the terms of a release, the Second Department explained the criteria for the analysis of a release:

Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release … . A release is “governed by principles of contract law” …, and one “that is complete, clear, and unambiguous on its face must be enforced according to the plain meaning of its terms” … .

The plain language of a release is controlling, “regardless of one party’s claim that he [or she] intended something else” … . Where the scope of the release is unambiguous, “the court may not look to extrinsic evidence to determine the parties’ intent” … . “Whether or not a writing is ambiguous is a question of law to be resolved by the courts” …. Sicuranza v Philip Howard Apts Tenants Corp, 2014 NY Slip Op 07143, 2nd Dept 10-22-14

 

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