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PLAINTIFFS ALLEGED THE RESIDENTIAL-MORTGAGE-BACKED-SECURITIES ISSUED BY THE DEFENDANT TRUSTEES WERE WORTHLESS BECAUSE OF DEFENDANTS’ BREACHES OF CONTRACTUAL, FIDUCIARY AND STATUTORY DUTIES; MOST (BUT NOT ALL) OF DEFENDANTS’ MOTIONS TO DISMISS WERE DENIED BASED UPON CONTRACT-INTERPRETATION PRINCIPLES (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court in this residential-mortgage-backed-securities case, over an extensive two-justice partial dissent, determined certain post-Event of Default breach of contract and breach of fiduciary duty claims should have been dismissed, and the pre-Event of Default document defect repurchase enforcement claims should not have been dismissed. “Plaintiffs purchased residential mortgage-backed securities (RMBS) certificates issued by RMBS trusts for which defendants served as the trustees. In six separate actions brought in May 2016, plaintiffs allege that their investments are almost worthless as a result of defendants’ breaches of their contractual, fiduciary, and statutory duties.” The majority decision focuses on refuting the arguments in the partial dissent, resulting in a comprehensive overview of contract-interpretation-law which is worth reading but cannot be fairly summarized here. Generally, Supreme Court’s denial of most of the defendants’ motions to dismiss was affirmed. IKB Intl., S.A. v Wells Fargo Bank, N.A., 2022 NY Slip Op 05058, First Dept 8-30-22

Practice Point: The plaintiffs in this residential-mortgage-backed-securities action alleged the certificates issued by the defendant trustees were almost worthless as a result of the defendants’ breach of contract and fiduciary and statutory duties. Most of the plaintiffs’ causes of action survived defendants’ motions to dismiss. The decision includes a comprehensive discussion of the law of contract-interpretation which is worth consulting.

 

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HERE THE DEFENDANT DID NOT COMPLETE THE TREATMENT REQUIRED BY THE PLEA AGREEMENT; THE GUILTY PLEA WAS THEREFORE INDUCED BY AN UNFULFILLED PROMISE WHICH USUALLY REQUIRES THAT THE PLEA BE VACATED; HERE SUPREME COURT FELT DEFENDANT SHOULD NOT HAVE BEEN TERMINATED BY THE TREATMENT PROGRAM AND PROPERLY EXERCISED DISCRETION IN FASHIONING A SENTENCE MUCH LESS THAN THAT REQUIRED BY THE PLEA AGREEMENT, LEAVING THE GUILTY PLEA IN PLACE (SECOND DEPT).

The Second Department determined Supreme Court properly exercised discretion in the face of defendant’s failure to complete treatment as required by the plea agreement. The court found that, although defendant had relapsed during the treatment for alcoholism, the relapse did not justify his being terminated by the program. Therefore the court did not vacate defendant’s guilty plea (on the ground it was induced by an unfulfilled promise) and fashioned a drastically reduced sentence (time served):

“[I]n most instances when a guilty plea has been induced by an unfulfilled promise either the plea must be vacated or the promise honored, but that the choice rests in the discretion of the sentencing court” … . In this case, the Supreme Court providently exercised its discretion in determining that, although the defendant spent more than a year in residential substance abuse treatment programs, specific performance of the conditional plea agreement was not warranted. Although the court did not believe that the defendant’s alcohol relapse and other reported problems at the final treatment program he attended were the real reason for his discharge, those issues nevertheless suggested that the defendant’s alcoholism, which played a role in his commission of the instant offenses, remained an unresolved concern.

Moreover, the manner in which this case was ultimately resolved essentially split the difference between what was promised if the defendant was successful in treatment, and the sentence the Supreme Court could have imposed if he was not. Although the defendant’s conviction of sexual abuse in the first degree was not vacated, he was effectively sentenced to time served, instead of four years in prison. In addition, the alternative sentence that was contemplated at the time of the defendant’s pleas of guilty included seven years of postrelease supervision. Because the court sentenced the defendant to definite terms of imprisonment, however, he avoided being subject to postrelease supervision … . People v Boissard, 2022 NY Slip Op 05042, Second Dept 8-24-22

Practice Point: Usually a guilty plea induced by a plea agreement that was not fulfilled will be vacated. Here the defendant did not wish to withdraw his guilty plea and the court properly exercised discretion in fashioning a sentence much more lenient than that required by the plea agreement. The judge took into account the defendant’s attempts to comply with the treatment required by the plea agreement, and expressed the opinion defendant should not have been terminated by the program.

 

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AN AGREEMENT SIGNED BY THE PLAINTIFF IN THIS MEDICAL MALPRACTICE ACTION REQUIRING THE DEPOSITION OF EXPERT WITNESSES 120 DAYS BEFORE TRIAL IS VOID AND UNENFORCEABLE AS AGAINST THE POLICY UNDERLYING THE EXPERT DISCLOSURE PROVISIONS OF THE CPLR (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Maltese, determined the agreement signed by plaintiff in this medical malpractice action which required the deposition of expert witnesses 120 days before trial was void and unenforceable:

The issue on this appeal is whether the defendants Benjamin M. Schwartz, M.D., and Island Gynecologic Oncology, PLLC (hereinafter together the defendants), may enforce a provision in an agreement that the defendant physician’s receptionist asked the injured plaintiff to sign among other routine medical releases prior to undergoing surgery. Pursuant to this provision, if a patient commenced a medical malpractice action against the defendant physician, each party’s counsel would have the right to depose the other parties’ expert witness(es) at least 120 days before trial. We hold that this provision is unenforceable as against public policy and, in any event, the defendants waived the right to enforce the provision. Furthermore, the entire agreement is unenforceable because the Supreme Court found certain other provisions to be unenforceable, the defendants do not challenge the court’s holding regarding those provisions on appeal, and those provisions are not severable from the remainder of the agreement, including the provision at issue on appeal. * * *

Requiring experts to be made available for deposition 120 days before trial also directly contradicts the provision in CPLR 3101(d)(1)(i) that gives trial courts the discretion to “make whatever order may be just” in the event that a party retains an expert in an insufficient period of time before the commencement of trial to provide appropriate notice. This statutory provision reflects the important public policy of allowing courts to retain discretion in their role as gatekeeper in determining the admissibility of expert testimony … . For all of the foregoing reasons, we conclude that, here, the public policy in favor of freedom of contract is overridden by these other important and countervailing public policy interests … . Mercado v Schwartz, 2022 NY Slip Op 04962, Second Dept 8-17-22

Practice Point: An agreement signed by a patient, who became a plaintiff in this medical malpractice action, which required the deposition of expert witnesses 120 days before trial is void and unenforceable as against the policy underlying the expert disclosure provisions of the CPLR.

 

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BREACH OF CONTRACT ACTIONS BY CERTIFICATEHOLDERS AGAINST THE TRUSTEE FOR RESIDENTIAL MORTGAGE BACKED SECURITIES TRUSTS DISMISSED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Pitt, reversing (modifying) Supreme Court, dismissed the remaining actions brought by certificateholders against the trustee (US Bank National Association) for residential mortgage backed securities (RMBS) trusts. The opinion is fact-specific, based upon contract language, and cannot be fairly summarized here:

This case involves residential mortgage-backed securities (RMBS). Usually, this type of case is filed by an RMBS trustee because they are generally the only party with standing to assert the trust’s right to compel repurchase of defective loans and to take action against the parties responsible for the improper servicing of loans. Here, however, plaintiffs, as certificateholders of nine RMBS trusts, bring this action for breach of contract against defendant U.S. Bank National Association, as trustee of the nine RMBS trusts, for failure to carry out its alleged duties as trustee in response to the contractual breaches by other transaction parties. The main issues raised in this appeal are: (1) whether the governing trust documents imposed contractual obligations on the trustee … to identify and take action before an event of default (EOD) arose (pre-EOD claims); and (2) whether plaintiffs may rely on the servicers’ annual assessments and the trustee’s letter to the servicer to satisfy the “written notice” element of the claim that the trustee breached its contractual obligations to take action as a “prudent” trustee after an EOD arose (post-EOD claims). Western & Southern Life Ins. Co. v U.S. Bank N.A., 2022 NY Slip Op 04886, First Dept 8-9-22

Practice Point: Here breach of contract actions by certificateholders against the trustee for residential mortgage backed securities trusts were dismissed.

 

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PLAINTIFF RENTED DEFENDANT’S COTTAGE AND WAS INJURED WHEN THE DECK COLLAPSED; PLAINTIFF’S CAUSES OF ACTION BASED UPON RES IPSA LQUITUR AND VICARIOUS LIABILITY FOR AN INDEPENDENT CONTRACTOR WHO CONSTRUCTED THE DECK SHOULD HAVE SURVIVED SUMMARY JUDGMENT; A PROPERTY OWNER HAS A NONDELEGABLE DUTY TO THE PUBLIC TO KEEP THE PREMISES SAFE, AN EXCEPTION TO THE GENERAL RULE THAT A PROPERTY OWNER WILL NOT BE LIABLE FOR THE ACTS OR OMISSIONS OF AN INDEPENDENT CONTRACTOR (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined plaintiff’s causes of action based upon res ipsa loquitur and vicarious liability for a contractor who constructed the deck should have survived a motion for summary judgment. Plaintiff rented a cottage from defendant. While plaintiff was on the deck, it collapsed:

In New York, in order to establish liability under that doctrine, the plaintiff must establish that the event was: “(1) of a kind which ordinarily does not occur in the absence of someone’s negligence; (2) . . . caused by an agency or instrumentality within the exclusive control of the defendant; [and] (3) . . . not . . . due to any voluntary action or contribution on the part of the plaintiff”…. . “The exclusive control requirement . . . is that the evidence must afford a rational basis for concluding that the cause of the accident was probably such that the defendant would be responsible for any negligence connected with it” … .. “The purpose is simply to eliminate within reason all explanations for the injury other than the defendant’s negligence” … . …

“Generally, a party who retains an independent contractor, as distinguished from a mere employee or servant, is not liable for the independent contractor’s negligent acts” … . The “most commonly accepted rationale” for that rule is that “one who employs an independent contractor has no right to control the manner in which the work is to be done and, thus, the risk of loss is more sensibly placed on the contractor” … . There are, of course, exceptions to the general rule. “A party may be vicariously liable for the negligence of an independent contractor in performing [n]on-delegable duties . . . arising out of some relation toward the public or the particular plaintiff” … . To determine whether a nondelegable duty exists, the court must conduct “a sui generis inquiry” because the court’s conclusion rests on policy considerations … . Although “[t]here are no clearly defined criteria for identifying duties that are nondelegable[,] . . . [t]he most often cited formulation is that a duty will be deemed nondelegable when the responsibility is so important to the community that the employer should not be permitted to transfer it to another” … . Here, we conclude that defendant owes a nondelegable duty to the public to maintain the premises in reasonably safe condition … , and thus that defendant failed to establish as matter of law that she may not be held liable for the actions of her independent contractor … . McGirr v Shifflet, 2022 NY Slip Op 04831, Fourth Dept 8-4-22

Practice Point: Here plaintiff was injured when the deck of the cottage rented from defendant collapsed. Plaintiff’s causes of action based on res ipsa loguitur and vicarious liability for the contractor who built the deck should not have been dismissed. There was a question of fact whether defendant had a nondelegable duty to the public to keep the premises safe, an exception to the general rule that a property owner is not vicariously liable for the acts or omissions of an independent contractor.

 

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THE POSTNUPTIAL AGREEMENT WAS NOT SIGNED UNDER DURESS AND WAS NOT UNCONSCIONABLE, SUPREME COURT REVERSED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court in this divorce action, determined the postnuptial agreement was not signed under duress and was not unconscionable:

Initially, we conclude that the court erred insofar as it held that plaintiff signed the 2017 agreement under duress as a result of defendant’s emotional abuse. An agreement is voidable on the ground of duress “when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of his [or her] free will” … . Generally, “the aggrieved party must demonstrate that threats of an unlawful act compelled his or her performance of an act which he or she had the legal right to abstain from performing” … . “[T]he threat must be such as to deprive the party of the exercise of free will” … . Here, even accepting as true plaintiff’s allegations that defendant persistently urged him to sign the 2017 agreement and threatened to tell the parties’ children of plaintiff’s wrongful actions in the past, such conduct did not amount to any unlawful acts on the part of defendant sufficient to constitute duress … .

… [P]laintiff failed to sustain his burden of establishing that the 2017 agreement was unconscionable. “An agreement is unconscionable if it is one which no person in his or her senses and not under delusion would make on the one hand, and no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense” … . The fact that defendant was represented by counsel but plaintiff was not is a factor for the court to consider, but is not dispositive … . As relevant here, in the 2017 agreement each party waived his or her rights in the other party’s separate property, which was defined in that agreement. … . …[T]he parties waived any right to receive maintenance. … Plaintiff … signed … three postnuptial agreements during the course of the marriage, and the testimony of both parties revealed that the parties conducted their finances in accordance with the terms of the agreements. … [I]t cannot be said that the 2017 agreement was such that it would “shock the conscience and confound the judgment of any [person] of common sense” … . Campbell v Campbell, 2022 NY Slip Op 04875, Fourth Dept 8-4-22

Practice Point: This decision includes concise descriptions of the criteria for determining whether a postnuptial agreement was signed under duress and whether the agreement is unconscionable.

 

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RENOVATION WORK ON DEFENDANTS’ TOWNHOUSE RENDERED PLAINTIFFS’ TOWNHOUSE, WHICH WAS NEXT DOOR, UNINHABITABLE; A LICENSE AGREEMENT WHICH GRANTED DEFENDANTS ACCESS TO PLAINTIFFS’ TOWNHOUSE INCLUDED A LIQUIDATED DAMAGES PROVISION WHICH WAS VALID AND ENFORCEABLE; PLAINTIFFS’ ACTION SOUGHT SOME EQUITABLE RELIEF BUT PRIMARILY SOUGHT MONEY DAMAGES; THEREFORE PLANTIFFS’ DEMAND FOR A JURY TRIAL SHOULD NOT HAVE BEEN STRUCK (FIRST DEPT).

The First Department determined, among many other issues not summarized here, the liquidated damages provision in the license agreement was enforceable and plaintiffs’ demand for a jury trial should not have been struck. Defendants purchased an historic townhouse next to plaintiffs’ townhouse. In the course of the defendants’ major renovations, plaintiffs’ townhouse was damaged. High levels of lead dust infiltrated plaintiffs’ townhouse forcing plaintiffs to move out. They never returned. The plaintiffs and defendants entered a license agreement giving defendants access to plaintiffs’ townhouse for 18 months. The liquidated damages provision entitled plaintiffs to $1000 a day for every day a temporary certificate of occupancy (TCO) was not obtained after the expiration of the license. The TCO was not obtained for 318 days entitling plaintiffs to $318,000. Although some equitable relief was requested, the suit primarily sought money damages. Therefore plaintiffs’ demand for a jury trial should not have been struck:

“Liquidated damages constitute the compensation which, the parties have agreed, should be paid in order to satisfy any loss or injury flowing from a breach of their contract” … . These provisions “have value in those situations where it would be difficult, if not actually impossible, to calculate the amount of actual damage” … . Liquidated damages will be sustained if, at the time of the contract, “the amount liquidated bears a reasonable proportion to the probable loss and the amount of actual loss is incapable or difficult of precise estimation” … . * * *

The court erred in granting [defendants’] motion to strike plaintiffs’ jury demand. The equitable relief sought by plaintiffs was incidental to their demand for money damages … ; to the extent plaintiffs seek to compel [defendants] to perform certain remediation work, monetary damages will afford full and complete relief … . Further, the claim for “abatement of and damages for a nuisance” is triable by a jury (CPLR 4101[2]). Seymour v Hovnanian, 2022 NY Slip Op 04705, First Dept 7-26-22

Practice Point: This decision includes a good discussion of how the validity of a liquidated-damages provision should be analyzed. The court noted that, although plaintiffs’ action sought some equitable relief, it primarily sought money damages. Therefore plaintiffs’ demand for a jury trial should not have been struck.

 

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ACTIONS PURSUANT TO NEW YORK CITY’S “FREELANCE ISN’T FREE ACT” (FIFA) WHICH ALLEGED DEFENDANTS FAILED TO PAY PLAINTIFFS-FREELANCERS SURVIVED MOTIONS TO DISMISS (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Moulton, in matters of first impression, interpreted the Freelance Isn’t Free Act (FIFA) in the context of motions to dismiss. The opinion is detailed and fact-specific and cannot be fairly summarized here. The plaintiffs alleged they were hired by defendants as freelancers and defendants’ failure pay was the basis of the lawsuits pursuant to FIFA. Most of the actions survived the motions to dismiss:

Enacted November 16, 2016 and effective May 15, 2017, FIFA is the first act of its kind in this country to provide legal protections for freelance workers against nonpayment for work performed … . FIFA defines a “freelance worker” as “any natural person or any organization composed of no more than one natural person, whether or not incorporated or employing a trade name, that is hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation” … . A central issue in this case is whether plaintiffs fit within this definition. Chen v Romona Keveza Collection LLC, 2022 NY Slip Op 04702, First Dept 7-26-22

Practice Point: New York City enacted the “Freelance Isn’t Free Act” (FIFA) in 2017–the first law in the nation to specifically address the failure to pay freelancers.

 

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THE ALLEGED MISPRESENTATION IN PLAINTIFF’S APPLICATION FOR CAR INSURANCE, I.E., THAT SHE LIVED IN NEW ROCHELLE AND THE CAR WOULD BE GARAGED THERE WHEN IN FACT SHE LIVED IN BROOKLYN AND THE CAR WOULD BE GARAGED THERE, WAS NOT DEMONSTRATED TO HAVE BEEN “MATERIAL” AS A MATTER OF LAW; THE INSURER HAD DENIED COVERAGE BASED UPON THE ALLEGED MISREPRESENTATION; THE INSURER’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the alleged misrepresentation in plaintiff’s application for car insurance was not demonstrated to have been “material” as a matter of law. Therefore defendant-insurer’s motion for summary judgment in this hit-and-run accident case should not have been granted. Plaintiff was alleged to have stated in her application that she lived in New Rochelle and the car would be garaged there, when in fact she lived in Brooklyn and the care would be garaged there:

The plaintiff allegedly was injured in a hit-and-run motor vehicle accident … . At the time of the accident, the plaintiff’s vehicle was insured by the defendant, Mercury Casualty Company (hereinafter Mercury). The plaintiff commenced this action to recover damages for breach of the insurance policy, alleging that Mercury breached the policy by failing to make payment on her claim under an uninsured motorists endorsement to the policy in connection with the subject accident. …Mercury moved … for summary judgment dismissing the complaint on the ground that it had no obligation to provide the plaintiff with benefits under the “fraud or misrepresentation” provision of the insurance policy. …

Mercury failed to demonstrate the materiality of the misrepresentation complained of, as a matter of law. Although Mercury submitted an affidavit of an underwriting supervisor who stated that it would have issued the plaintiff a different policy with a higher premium had the plaintiff disclosed her Brooklyn address, the underwriting guidelines submitted by Mercury do not state that it does not insure vehicles kept in Brooklyn or that policies insuring vehicles kept in Brooklyn are assessed a higher premium than those garaged in New Rochelle … . Rodriguez v Mercury Cas. Co., 2022 NY Slip Op 04656, Second Dept 7-20-22

Practice Point: To warrant a denial of coverage based on a misrepresentation in an application for insurance, the misrepresentation must be “material.” Here there was a question of fact on that question and the insurer’s motion for summary judgment should have been denied. It was alleged plaintiff stated in her application she lived in New Rochelle and the car would be garaged there, when in fact she lived in Brooklyn and the car was garaged there. The underlying incident was a hit-and-run accident.

 

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PLAINTIFF BANK IN THIS FORECLOSURE ACTION DID NOT DEMONSTRATE STRICT COMPLIANCE WITH THE NOTICE REQUIREMENTS OF RPAPL 1304, AS WELL AS THE NOTICE REQUIRMENTS SPELLED OUT IN THE MORTGAGE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff bank in this foreclosure action did not demonstrate compliance with the notice requirements of RPAPL 1304 and the mortgage:

… [P]laintiff failed to establish, prima facie, that RPAPL 1304 notices were mailed to each defendant by certified and first-class mail. The affidavit submitted in support of the plaintiff’s motion does not contain an attestation that the affiant had personal knowledge of the purported mailings nor does the affiant attest to knowledge of the mailing practices of the Law Offices of McCabe, Weisberg, and Conway, P.C., the entity that allegedly sent the notices to the defendants on behalf of the loan servicer … . …

… [P]laintiff’s submission also failed to demonstrate that the RPAPL 1304 notices allegedly sent to the defendants contained the requisite list of five housing counseling agencies serving the region in which the subject property is located … . …

… [P]laintiff further failed to establish that the RPAPL 1304 notices were sent by the “lender, assignee, or loan servicer” as required by the statute … . … [T]he RPAPL notices were allegedly sent on August 7, 2014, by the Law Offices of McCabe, Weisberg, and Conway, P.C., on behalf of Ocwen Financial, the plaintiff’s loan servicer. However, the limited power of attorney authorizing Ocwen Financial to act on behalf of the plaintiff, which was submitted by the plaintiff in support of its motion, states that it was executed on and effective as of September 17, 2014.  …

… [P]laintiff failed to establish, prima facie, that it complied with a condition precedent contained in the mortgage agreement, requiring the lender to send a notice of default prior to the commencement of the action. The plaintiff’s submission failed to show that the required notice was sent to the defendants by first-class mail or actually delivered to the notice address if sent by other means, as required by the terms of the mortgage agreement … . Deutsche Bank Natl. Trust Co. v Pariser, 2022 NY Slip Op 04534, Second Dept 7-13-22

Practice Point: Yet again, summary judgment in favor of the bank in a foreclosure proceeding is reversed because the bank did not prove strict compliance with the notice requirements of RPAPL 1304 and the mortgage. Reversals on these grounds have appeared every week for at least five years, maybe more.

 

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