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THERE ARE SUBSTANTIVE QUESTIONS OF FACT ABOUT THE NATURE OF THE AGREEMENTS BETWEEN PLAINTIFF EMPLOYER AND DEFENDANT EMPLOYEE RE: THE SALE OF DEFENDANT’S TAX PREPARATION BUSINESS TO PLAINTIFF AND WHETHER DEFENDANT SOLD HER CLIENT LIST TO PLAINTIFF; PLAINTIFF’S MOTION FOR A PRELIMINARY INJUNCTION ENFORCING THE RESTRICTIVE COVENANT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff-employer’s motion for a preliminary injunction in this violation-of-a-restrictive-covenant case should not have been granted. There were too many issues of fact about the nature of the parties’ agreement re: plaintiff’s purchase of defendant’s tax preparation business, including whether defendant turned over her client list to the plaintiff:

… [T]he plaintiff commenced this action against the defendant, its former employee, to recover damages for breach of contract. The plaintiff alleged … the parties entered into three agreements: a purchase agreement whereby the plaintiff purchased the defendant’s tax preparation business, including her client list; an agreement whereby the plaintiff employed the defendant as a tax preparer; and a confidentiality, nonsolicit, and noncompete agreement which, inter alia, contained restrictive covenants that, among other things, prohibited the defendant from soliciting the plaintiff’s clients. …

… [T]he plaintiff failed to demonstrate a clear right to relief and, thus, did not demonstrate a likelihood of success on the merits. “‘[A] restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee'” … . An employer’s interests justifying a restrictive covenant are limited “to the protection against misappropriation of the employer’s trade secrets or of confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary” … . Here, there are issues of fact as to what the parties agreed to, including whether the plaintiff purchased the rights to the defendant’s clients pursuant to the parties’ agreements and whether the plaintiff breached its own obligations pursuant to those agreements. Since these issues of fact exist, the plaintiff did not show a likelihood of success on the merits and, thus, failed to establish a clear right to preliminary injunctive relief … . R&G Brenner Income Tax Consultants v Fonts, 2022 NY Slip Op 04039, Second Dept 6-22-22

Practice Point: Where there are substantive questions of fact, a preliminary injunction should not be granted because a likelihood of success on the merits has not been demonstrated.

 

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IN ACCORDANCE WITH THE NURSING HOME REFORM ACT (NHRA), THE ADMISSION AGREEMENT SIGNED BY THE NURSING-HOME RESIDENT’S GRANDDAUGHTER DID NOT IMPOSE PERSONAL LIABILITY UPON THE GRANDDAUGHTER FOR PAYMENT OF THE COSTS OF THE RESIDENT’S CARE; THE GRANDDAUGHTER’S MOTION TO VACATE THE DEFAULT JUDGMENT SHOULD HAVE BEEN GRANTED AND THE BREACH-OF-CONTRACT COMPLAINT SHOULD HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the admission agreement signed by the nursing-home resident’s granddaughter (who was appointed guardian of her grandfather’s property) did not impose personal liability upon the granddaughter for payment of the cost of her resident’s care (provided by the plaintiff facility). Therefore, plaintiff should not have seized the granddaughter’s personal funds. The default judgment in favor of plaintiff should have been vacated, and the breach-of-contract complaint should have been dismissed:

… [t]he admission agreement in this case is subject to the Nursing Home Reform Act (hereinafter the NHRA). As relevant here, the NHRA provides that “[w]ith respect to admissions practices, a nursing facility must . . . not require a third party guarantee of payment to the facility as a condition of admission (or expedited admission) to, or continued stay in, the facility” … . However, that prohibition “shall not be construed as preventing a facility from requiring an individual, who has legal access to a resident’s income or resources available to pay for care in the facility, to sign a contract (without incurring personal financial liability) to provide payment from the resident’s income or resources for such care” … .

The admissions agreement set forth the relevant contractual obligations of the granddaughter, and the admissions agreement demonstrates as a matter of law that it did not render the granddaughter a “third party guarantee of payment” … .”The admission[s] agreement merely required the [granddaughter] to facilitate payment from the . . . resident’s available income and resources, and only to the extent that the [granddaughter] had access to such income and resources and only if [the granddaughter] could do so without incurring any personal financial liability” … . …

.. [T]he plaintiff failed to adequately allege a breach of the granddaughter’s contractual obligation to facilitate payment to the plaintiff from the resident’s “income or resources” … . Nassau Operating Co., LLC v DeSimone, 2022 NY Slip Op 04029, Second Dept 6-22-22

Practice Point: The Nursing Home Reform Act (NHRA) prohibits holding a third-party who signs an admission agreement personally liable for the costs of a resident’s care. The agreement may only obligate the third party to pay the costs from the resident’s assets (over which the third party exercises control).

 

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THE COVID EXECUTIVE ORDERS REQUIRING A SHUTDOWN AND REOPENING RESTRICTIONS DID NOT TERMINATE PLAINTIFF RETAIL STORE’S LEASE AS A MATTER OF LAW; THE DOCTRINES OF FRUSTRATION OF PURPOSE AND IMPOSSIBILITY DO NOT APPLY (FIRST DEPT).

The First Department determined plaintiff retail store (GAP) was not entitled to a termination of its lease by operation of law based upon the New York governor’s COVID shutdown order and subsequent reopening restrictions. Plaintiff relied on the doctrines of frustration of purpose and impossibility, neither of which was deemed applicable:

Plaintiffs admittedly were allowed to provide curbside and in-store pickup on June 8, 2020, and to reopen at half capacity, with masking and social distancing, on June 22, 2020. Moreover, they represent that they were allowed to reopen fully from June 2021, albeit with the mask requirements reimposed during the winter months. Contrary to plaintiffs’ contention, “frustration of purpose is not implicated by temporary governmental restrictions on in-person operations” … . …

We have already rejected plaintiff Gap’s contention that Executive Order No. 202.8 “rendered it objectively impossible to perform its operations as a retail store” where, as here, Gap filed its complaint after reopening was allowed (Gap, Inc. v 170 Broadway Retail Owner, LLC, 195 AD3d at 577). In addition, even if the reopening restrictions made plaintiffs’ ability to provide a flagship store experience more difficult, the pandemic did not render their performance impossible, as “the leased premises were not destroyed” … . Gap, Inc. v 44-45 Broadway Leasing Co. LLC, 2022 NY Slip Op 03980, First Dept 6-16-22

Practice Point: The COVID executive orders requiring GAP to shutdown its retail store and then imposed restrictions on reopening did not terminate GAP’s lease as a matter of law. The contract-law doctrines of frustration of purpose and impossibility did not apply.

 

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THE TENANT (A NET LESSEE), WHICH WAS OBLIGATED BY THE TERMS OF THE LEASE TO PAY PROPERTY TAXES, CAN CHALLENGE A PROPERTY-TAX ASSESSMENT BY FILING A GRIEVANCE PURSUANT TO REAL PROPERTY TAX LAW (RPTL) 524 (3); THE APPELLATE DIVISION HAD RULED ONLY THE PROPERTY OWNER COULD CHALLENGE THE ASSESSMENT (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, reversing the Appellate Division, determined a tenant who is obligated to pay property taxes can properly file a grievance contesting a property-tax assessment:

RPTL 524 (3) presents an ambiguity. The clause “person whose property is assessed” is not defined in the RPTL, and it lends itself to more than one reasonable interpretation … . * * *

… [W]e … hold that a grievance complaint filed with the assessor or board of assessment review at the administrative level by a net lessee who is contractually obligated to pay real estate taxes on the subject property satisfies RPTL 524 (3). Matter of DCH Auto v Town of Mamaroneck, 2022 NY Slip Op 03929, CtApp 6-16-22

Practice Point: Clearing up an ambiguity in Real Property Tax Law RPTL section 524, the Court of Appeals held that a tenant (a net lessee), which is obligated by the terms of the lease to pay the property taxes, can file a grievance challenging the property-tax assessment. The Appellate Division had held only the property owner could challenge an assessment.

 

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PLAINTIFFS ALLEGED THEY WERE OVERWHELMED BY THE DOCUMENTS THEY SIGNED AND DID NOT REALIZE THE DOCUMENTS TRANSFERRED THEIR PROPERTY TO DEFENDANT; THOSE ALLEGATIONS DID NOT SUPPORT SUMMARY JUDGMENT IN PLAINTIFFS’ FAVOR ON THEIR FRAUDULENT INDUCEMENT, UNJUST ENRICHMENT AND QUIET TITLE CAUSES OF ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiffs’ motion for summary judgment on their actions for fraudulent inducement, unjust enrichment and to quiet title should not have been granted. Plaintiffs alleged the were overwhelmed by the number of documents to sign and did not realize they documents transferred the property to the defendant:

… [T]he plaintiffs … each averred that the defendant misled them into believing that they were signing documents to arrange a short sale of the property when, in fact, they executed documents that transferred the property to the defendant. One of the documents … was the deed to the property that the plaintiffs signed. The plaintiffs do not aver in their affidavits or in the complaint that they failed to read the documents they signed or that they were illiterate, blind, or did not read English, nor do they allege that they expressed any difficulty in understanding what they were signing … . Instead, the plaintiffs contend that they were “overwhelmed by the paperwork” but do not allege any facts that would suggest that they were prevented from reading the documents prior to signing them or that they were forced to sign … . Holder v Folsom PL Realty, Inc., 2022 NY Slip Op 03890, Second Dept 6-15-22

Practice Point: Here the plaintiffs alleged they signed documents without realizing what they were agreeing to. Those allegations did not support summary judgment on their fraudulent inducement, unjust enrichment and quiet title causes of action. The plaintiffs did not allege they were prevented from reading the documents, or they could not understand the documents.

 

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THE STIPULATION ACKNOWLEDGING THE PRIOR DEBT DEMONSTRATED THAT THE DEED TRANSFERRING THE PROPERTY CREATED ONLY A SECURITY INTEREST AND DID NOT TRANSFER LEGAL TITLE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the transfer of property by deed did not transfer title, but rather was a security interest for a loan (a mortgage):

… [T]he … deed never conveyed legal title to the plaintiff, but merely created a security interest in the subject property. “A deed conveying real property, which, by any other written instrument, appears to be intended only as a security in the nature of a mortgage, although an absolute conveyance in terms, must be considered a mortgage; and the person for whose benefit such deed is made, derives no advantage from the recording thereof, unless every writing, operating as a defeasance of the same, or explanatory of its being desired to have the effect only of a mortgage, or conditional deed, is also recorded therewith, and at the same time” (Real Property Law § 320).

Here, the … stipulation clearly recited the existence of a prior debt, authorized the decedent to continue occupying the property subject to certain terms and conditions, obligated her to maintain the property, and, most importantly, expressly authorized her to “retain ownership of the subject [p]roperty” … upon full repayment of the debt. Contrary to the plaintiff’s contention, such characteristics bear all the hallmarks of a security interest—not an outright conveyance of legal title … . RTT Holdings, LLC v Nacht, 2022 NY Slip Op 03916, Second Dept 6-15-22

Practice Point: Here a deed transferring the property was deemed to have created a security interest for a prior debt which was acknowledged in a stipulation. Legal title, therefore, was not transferred by the deed.

 

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THE PROPERTY-INSURANCE EXCLUSION FOR “DETERIORATION” APPLIED TO THE BULGING WALL CAUSED BY THE DETERIORATION OF BRICKS, PRECLUDING COVERAGE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the “deterioration” exclusion in the property insurance policy applied to a bulging wall, precluding coverage:

Defendant met its initial burden on its motion by establishing as a matter of law that plaintiff’s loss is not covered under the policy because it resulted from “deterioration,” which condition was specifically excluded from coverage, and plaintiff failed to raise an issue of fact in opposition … . Unambiguous policy provisions are to be given their plain and ordinary meaning … , and the plain meaning of the exclusion in question “was to relieve the insurer of liability when its insured sought reimbursement for costs incurred in correcting . . . deterioration of the subject [premises]” … . Here, both defendant’s expert and plaintiff’s expert opined that the wall bulged due to deterioration of the bricks from exposure to moisture and freeze-thaw cycles. The only difference was that defendant’s expert opined that the wall had been deteriorating over an extended period of time, whereas plaintiff’s expert opined that the deterioration occurred over two months. Either way, the damage was the result of deterioration, and thus the policy exclusion applies and defendant is entitled to summary judgment … . S & J Props. of Watertown, LLC v Main St. Am. Group, 2022 NY Slip Op 03837, Fourth Dept 6-9-22

Practice Point: Here the bulging wall was caused by the deterioration of bricks. The “deterioration” exclusion in the policy applied and precluded coverage.

 

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THE “FOLLOW THE SETTLEMENTS” DOCTRINE DOES NOT APPLY TO A REINSURER WHERE THE PAYMENTS MADE BY THE PRIMARY INSURER WERE CLEARLY BEYOND THE SCOPE OF THE ORIGINAL POLICY (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the defendant reinsurer was not required to indemnify the plaintiff primary insurer because the primary insurer was not obligated to make the pay-out under its umbrella policy. The so-called “follow the settlements” doctrine did not apply because the payments made by the plaintiff were clearly beyond the scope of the original policy:

Where it applies, the follow-the-settlements doctrine “ordinarily bars challenge by a reinsurer to the decision of [the cedent] to settle a case for a particular amount” … . Specifically, under that doctrine, “a reinsurer is required to indemnify for payments reasonably within the terms of the original policy, even if technically not covered by it. A reinsurer cannot second guess the good faith liability determinations made by its reinsured . . . The rationale behind this doctrine is two-fold: first, it meets the goal of maximizing coverage and settlement and second, it streamlines the reimbursement process and reduces litigation” …  There are, however, limitations to the doctrine. The follow-the-settlements doctrine “insulates a reinsured’s liability determinations from challenge by a reinsurer unless they are fraudulent, in bad faith, or the payments are clearly beyond the scope of the original policy or in excess of [the reinsurer’s] agreed-to exposure” … . Utica Mut. Ins. Co. v Abeille Gen. Ins. Co., 2022 NY Slip Op 03815, Fourth Dept 6-9-22

Practice Point: Here the “follow the settlements” doctrine did not apply to a reinsurer who refused to cover payments made by the primary insurer because those payments were clearly beyond the scope of the original policy.

 

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ALTHOUGH THE PLAINTIFFS’ $96,000, CONSTITUTING TWO MONTHS’ RENT AND A SECURITY DEPOSIT, WAS TRANSFERRED TO DEFENDANT FROM AN ATTORNEY’S IOLA ACCOUNT, THE $96,000 CONSTITUTED AN “IDENTIFIABLE FUND” WHICH DEFENDANT “CONVERTED” WHEN IT WAS NOT RETURNED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Rodriguez, over a two-justice dissent, determined the $96,000 transferred from an attorney’s IOLA account to defendant landlord was an “identifiable fund” which was a proper subject of this conversion action. The fund was for two months rent and a security deposit on a lease. But the lease was never signed. By keeping the $96,000 defendant had converted the “identified fund.” One of the points in the opinion was that the transfer of funds to an attorney’s IOLA account does not necessarily render the funds incapable of being “identified:”

… [W]e now clarify that our prior decision in SH575 Holdings [195 AD3d 429], which found that funds were not specifically identifiable by virtue of being transferred into the IOLA account of an attorney involved in a Ponzi scheme, should not be read to preclude a cause of action for conversion when funds at issue have been commingled to any extent. Here, notwithstanding the funds’ transmission through plaintiffs’ attorney’s IOLA account, the funds’ temporary presence in that account did not constitute commingling under any measure pertinent to this cause of action. While the funds were in plaintiffs’ attorneys’ IOLA account, they remained plaintiffs’ funds. Consequently, this conclusion is not at odds with this Court’s holding in SH575 Holdings. Family Health Mgt., LLC v Rohan Devs., LLC, 2022 NY Slip Op 03796, First Dept 6-9-22

Practice Point: Here the plaintiffs’ security deposit and two-months rent amounting to $96,000 were transferred to defendant landlord from an attorney’s IOLA account. However the lease was never signed and defendant did not return the money. Despite the fact that the money was deposited in the IOLA account, it remained an “identifiable fund” and was therefore a proper subject for this conversion action.

 

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THE WIFE RAISED QUESTIONS OF FACT ABOUT (1) THE FAIRNESS OF THE NEGOTIATIONS FOR THE PRENUPTIAL AGREEMENT, (2) WHETHER HER ATTORNEY, CHOSEN FOR HER, ENGAGED IN MEANINGFUL NEGOTIATIONS, (3) WHETHER SHE RATIFIED THE AGREEMENT, AND (4) WHETHER SHE WAS ENTITLED TO TEMPORARY MAINTENANCE (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the wife raised questions of fact about the fairness of the prenuptial agreement negotiations and whether she ratified the agreement. The wife alleged her husband chose the attorney who represented her merely to ensure she understood the agreement and not to negotiate its terms. In addition, Supreme Court should not have denied the wife’s motion for temporary maintenance:

On the last day of negotiations between counsel, the wife averred that she was preparing to travel to Florida with the parties’ children. While the communications submitted by the husband in support of his motion indicate that counsel for the parties continued discussing potential changes to the agreement, there is conflicting evidence establishing the extent that the wife was meaningfully involved in those discussions. The wife further averred that the first opportunity she had to review the agreement was in Florida, at which point it was already in its final form. We find that the foregoing facts, if established, raise issues concerning whether the wife was meaningfully represented during the abbreviated negotiations, and also raise an inference that the husband did not intend on engaging in a good faith negotiation of the agreement from the outset, which, if true, would be sufficient to establish overreaching on his part … . …

We further … the husband’s contention that the wife ratified the agreement and is therefore foreclosed from challenging its validity. … [I]t is clear that the wife did not begin receiving benefits under the agreement until the husband commenced this divorce action, and she took sufficiently prompt action to challenge the validity of the agreement in the context of this litigation … . …

… Supreme Court improperly denied the wife’s cross motion for temporary maintenance. To this end, the wife argues that the maintenance provision of the agreement must be invalidated for failing to comply with the requirements of Domestic Relations Law former § 236 (B) (5-a) (f). We agree. Spiegel v Spiegel, 2022 NY Slip Op 03778, Third Dept 6-9-22

Practice Point: Here in this divorce action there were questions of fact whether the wife was meaningfully represented in the prenuptial-agreement negotiations and whether she ratified the agreement. In addition, pursuant to the Domestic Relation Law, Supreme Court should have awarded temporary maintenance.

 

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