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Agent for Partially Disclosed Principal Is Personally Liable on the Contract

In finding the agent (Sussman) liable for a contract because the principal was not fully disclosed, the Second Department wrote:

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…[The evidence] indicates at best that Sussman was acting as an agent for a “partially disclosed principal,” in that the agency relationship was known, but the identity of the principal remained undisclosed (Restatement [Second] of Agency § 4[2]…). As an agent for an undisclosed principal, Sussman became personally liable under the contract (…Restatement [Second] of Agency § 321). Stonhard v Blue Ridge Farms, LLC, 2014 NY Slip Op 00985, 2nd Dept 2-13-14

 

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Labor Law Suit for Gratuities Not Preempted by Labor Management Relations Act or Prohibited by Collective Bargaining Agreement

In a full-fledged opinion by Justice Renwick, the First Department determined the plaintiffs, food and beverages servers at Madison Square Garden, had stated a cause of action against the defendant Garden under Labor Law 196-d. The plaintiffs alleged the Garden was not distributing to the plaintiffs all the “service charges” paid by customers who were led to believe the “service charges” were gratuities for the servers. The First Department rejected the Garden’s argument that the claims were preempted by federal law (Labor Management Relations Act [LMRA]) and, alternatively, subject to mandatory arbitration under the collective bargaining agreement [CBA].

Section 301 of the LMRA provides that “[s]uits for violation of contracts between an employer and a labor organization representing employees in an industry affecting commerce … may be brought in any district court of the United States having jurisdiction of the parties” (29 USC § 185[a]. The Supreme Court has interpreted this section to preempt state law claims “founded directly on rights created by collective bargaining agreements” as well as “claims substantially dependent on an analysis of a collective bargaining agreement'”… . * * *

Section 301 [of the LMRA] … does not preempt state claims when state law confers an independent statutory right to bring a claim … .Even if resolution of a state-law claim “involves attention to the same factual considerations as the contractual determination … such parallelism [does not mandate preemption]” … .

A defendant’s reliance on the CBA is not enough to “inject—a federal question into an action that asserts what is plainly a state-law claim”… . * * *

A CBA cannot preclude a lawsuit concerning individual statutory rights unless the arbitration clause in the agreement is “clear and unmistakable” that the parties intended to arbitrate such individual claims … . “A clear and unmistakable’ waiver exists where one of two requirements is met: (1) if the arbitration clause contains an explicit provision whereby an employee specifically agrees to submit all causes of action arising out of his employment to arbitration; or (2) where the arbitration clause specifically references or incorporates a statute into the agreement to arbitrate disputes” … . “Arbitration clauses that cover any dispute concerning the interpretation, application, or claimed violation of a specific term or provision’ of the collective bargaining agreement do not contain the requisite clear and unmistakable’ waiver because the degree of generality [in the arbitration provision] falls far short of a specific agreement to submit all federal claims to arbitration'”… . Tamburino v Madison Sq Garden LP, 2014 NY Slip Op 0895, 1st Dept 2-11-14

 

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Florida Choice of Law Provision Re: Covenants Not to Compete Unenforceable in New York/the Nonsolicitation Covenant at Issue Was Overbroad and Unenforceable

In a full-fledged opinion by Justice Whalen, the Fourth Department determined that Florida law re: covenants not to compete was “truly obnoxious” to New York law and the nonsolicitation covenant at issue was overbroad and unenforceable:

…[W]e conclude that Florida law prohibiting courts from considering the hardship imposed on the person against whom enforcement is sought is “ ‘truly obnoxious’ ” to New York public policy …, inasmuch as under New York law, a restrictive covenant that imposes an undue hardship on the employee is invalid and unenforceable for that reason ‘’’ .  Furthermore, while New York judicially disfavors such restrictive covenants, and New York courts will carefully scrutinize such agreements and enforce them “only to the extent that they are reasonably necessary to protect the legitimate interests of the employer and not unduly harsh or burdensome to the one restrained”…, Florida law requires courts to construe such restrictive covenants in favor of the party seeking to protect its legitimate business interests (see Florida Statutes § 542.335 [1] [h]). * * *

A non-solicitation covenant is overbroad and therefore unenforceable “if it seeks to bar the employee from soliciting or providing services to clients with whom the employee never acquired a relationship through his or her employment” … .  Here, the non-solicitation covenant purported to restrict [defendant] from, inter alia, soliciting, diverting, servicing, or accepting, either directly or indirectly, “any insurance or bond business of any kind or character from any person, firm, corporation, or other entity that is a customer or account of the New York offices of the Company during the term of [the] Agreement” for two years following the termination of Johnson’s employment, without regard to whether defendant acquired a relationship with those clients. We conclude that the language of the non-solicitation covenant renders it overbroad and unenforceable … . Brown and Brown Inc… v Johnson…, 1109, 4th Dept 2-7-14

 

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Stipulation of No Contact Rendered Performance of Contracts Impossible/Contracts Rescinded

In a full-fledged opinion by Justice Acosta, the First Department determined that a stipulation entered into in Family Court, which prohibited all contact between the plaintiff, a well-known jazz singer, and defendant, the owner of a jazz club, made the performance of the contracts entered into by the plaintiff and defendant impossible.  Plaintiff was therefore entitled to rescission of the contracts.  Plaintiff and defendant (Valenti) had been in a romantic relationship which fell apart and plaintiff initially sought an order of protection from Family Court:

“[I]mpossibility excuses a party’s performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible. Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract” … . The excuse of impossibility is generally “limited to the destruction of the means of performance by an act of God, vis major, or by law” … .

In this case, performance of the contracts at issue has been rendered objectively impossible by law, since the stipulation destroyed the means of performance by precluding all contact between plaintiff and Valenti except by counsel… . Kolodin v Valenti, 2014 NY slip Op 00745, 1st Dept 2-6-14

 

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Analytical Criteria Re: Res Judicata and the Interpretation of a Release Explained

The Second Department, in grappling with the effect of stipulations and a release stemming from divorce proceedings, explained the principles of res judicata (precluding mother’s action for payment of Bar Mitzvah fees) and the interpretation of a release (allowing mother’s action for teen tour expenses):

“Under the doctrine of res judicata, a party may not litigate a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. The rule applies not only to claims actually litigated but also to claims that could have been raised in the prior litigation” … . Under New York’s transactional approach to res judicata, “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy” … . Here, the Family Court properly granted the father’s objection to that portion of the Support Magistrate’s order which awarded the mother reimbursement of Bar Mitzvah fees. The father presented evidence showing that the mother’s claim against him arose from the same operative facts as a claim which was decided on the merits in the Supreme Court matrimonial action, in which she sought, inter alia, a finding of contempt against him for his nonpayment of the same Bar Mitzvah fees. The father thus demonstrated that the claim for Bar Mitzvah fees that was asserted against him in this proceeding could have been raised in the Supreme Court action. Thus, this claim was properly dismissed as barred by the doctrine of res judicata.

… ” A release is a contract, and its construction is governed by contract law'” … . Where a release is unambiguous, the intent of the parties must be ascertained from the plain language of the agreement … . Here, the mother established her prima facie entitlement to judgment as a matter of law on her claim for reimbursement of the teen-tour expenses. In opposition, the father failed to raise a triable issue of fact as to whether the claim was barred by the release contained in the parties’ stipulation of settlement. That release contained an exception that clearly and unambiguously allowed either party to pursue claims seeking to enforce the terms of the stipulation of settlement, as well as all prior stipulations entered into by the parties. This exception was applicable to the mother’s claim in this proceeding for reimbursement of teen-tour expenses. Viewed in its entirety, the terms of the stipulation of settlement make clear that it was not intended to preclude the mother’s claim in this regard. Matter of Singer v Windfield, 2015 NY Slip Op 00890, 2nd Dept 2-4-14

Contract of Adhesion/Unconscionable-Contract Cause of Action Should Have Survived Summary Judgment

The Second Department determined a hearing was required on respondents’ motion to dismiss the cause of action which alleged a contract of adhesion.  The action was brought against the respondents-operators of “three-quarter houses” by residents who had committed their housing allowances to the operators only to find themselves (according to the complaint) “living in abject and overcrowded conditions with no support services on site:”

A contract of adhesion contains terms that are unfair and nonnegotiable and arises from a disparity of bargaining power or oppressive tactics'” … . ” A determination of unconscionability generally requires a showing that the contract was both procedurally and substantively unconscionable when made'” … .

“In determining the conscionability of a contract, no set weight is to be given any one factor; each case must be decided on its own facts” … . “However, [in general, it can be said that] procedural and substantive unconscionability operate on a sliding scale; the more questionable the meaningfulness of choice, the less imbalance in a contract’s terms should be tolerated and vice versa” … . ” The determination of unconscionability is a matter of law for the court to decide'” … . ” Where there is doubt . . . as to whether a contract is fraught with elements of unconscionability, there must be a hearing where the parties have an opportunity to present evidence with regard to the circumstances of the signing of the contract, and the disputed terms’ setting, purpose and effect'” … . ” However, [w]here the significant facts germane to the unconscionability issue are essentially undisputed, the court may determine the issue without a hearing'” … . “Thus, on a motion for summary judgment, [t]he question . . . then is whether the record presents an issue as to the existence of unconscionability which should not be resolved without a hearing'”… . * * *

…[T]he plaintiffs submitted … affidavits of residents who signed the agreements in question and who stated that they signed the subject agreements under conditions that were procedurally unconscionable. Under these circumstances, a hearing was warranted on the issue of unconscionability, and as such, summary judgment should have been denied… .  David v #1 Mktg Serv Inc, 2014 NY Slip Op 00477, 2nd Dept 1-29-14

 

Supreme Court’s Reliance On a Punctuation Error to Support Its Contract Interpretation Rejected

In a full-fledged opinion by Justice Andrias, the First Department reversed Supreme Court’s interpretation of a contract clause, finding the interpretation was based upon a typographical error:

…”[I]t is a cardinal principle of contract interpretation that mistakes in grammar, spelling or punctuation should not be permitted to alter, contravene or vitiate manifest intention of the parties as gathered from the language employed” …. . … “[I]t is untenable that the parties would have intentionally left the meaning of their agreement to such vagaries as placement and punctuation” … . Penguin Group (USA) v Time/Warner Retail Sales & Mktg Servs Inc, 2014 NY Slip Op 00469, 1st Dept 1-28-14

 

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Analytical Criteria for Stipulation of Settlement Which Is Incorporated But Not Merged

In finding that a stipulation of settlement did not obligate the parties to file joint income tax returns, the Second Department explained the analytical criteria to be applied to a stipulation that is incorporated but not merged into a judgment of divorce:

” A stipulation of settlement which is incorporated but not merged into a judgment of divorce is a contract subject to principles of contract construction and interpretation'” … . ” Where such an agreement is clear and unambiguous on its face, the intent of the parties must be gleaned from the four corners of the instrument, and not from extrinsic evidence'” … . “A court may not write into a contract conditions the parties did not insert or, under the guise of construction, add or excise terms, and it may not construe the language in such a way as would distort the apparent meaning” … . “Moreover, a court cannot reform an agreement to conform to what it thinks is proper, if the parties have not assented to such a reformation”… . Tamburello v Tamburello, 2014 NY Slip Op 00342, 2nd Dept 1-22-14

 

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Valid State Purpose (Conserving Drinking Water) Did Not Relieve State of Liability Re: Breach of an Agreement to Provide a Certain Amount of Water to a Hydroelectric Power Provider

The Third Department determined that a contract with a hydroelectric power provider requiring a certain amount of water to be released from a reservoir was unambiguous and therefore must be enforced.  The amount of water released was less than called for in the contract due to a drought and concerns about the drinking water supply:

The parties to the agreement intended to resolve a dispute after defendants took claimant’s predecessor’s land in eminent domain.  Claimant’s predecessor wanted to ensure that sufficient water would reach its hydroelectric generation facility and accepted a considerably smaller amount of money than it sought, in exchange for the rights associated with the water release rates from the reservoir.  These rights would be far less valuable if defendants could deviate from the operating diagram’s release rates, and avoid liability in doing so, as long as defendants supported their actions with any State purpose. Pursuant to the agreement, defendants could only avoid liability if they deviated from the operating diagram’s release rates for a State canal use or purpose.  Because defendants altered the release rate for the purpose of preserving safe drinking water during a drought – a legitimate public and State purpose (see ECL 15-0105 [5]) – and not for a canal-related purpose, defendants are liable for breaching the contract… .  Erie Boulevard Hydropower v State, 516510, 3rd Dept 1-9-14

 

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Federal Arbitration Act Applies When Interstate Commerce Involved

The Second Department determined the parties had entered an agreement to arbitrate and, because interstate commerce was involved, federal arbitration law applied.  A New York architectural firm was hired re: the renovation and construction of buildings in Connecticut:

As a threshold matter, the defendants are correct in asserting that this action is governed by the Federal Arbitration Act (hereinafter the FAA) (9 USC § 1 et seq.), which applies to any arbitration agreement evidencing a transaction involving interstate commerce (see 9 USC § 2). * * *

Through the FAA, Congress has declared “a strong federal policy favoring arbitration as an alternative means of dispute resolution” … . In accordance with this policy, doubts as to the arbitrability of a claim are to be resolved in favor of arbitrability … .

On the other hand, arbitration is “a matter of consent, not coercion” … and “a party cannot be required to submit to arbitration any dispute which [it] has not agreed so to submit” … . Under the FAA, the determination as to whether the parties have entered into an agreement to arbitrate is made by applying ordinary state law principles governing the formation of contracts… . Highland HC, LLC v Scott, 2014 NY Slip Op 00089, 2nd Dept 1-8-14

 

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