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SUPREME COURT ADDRESSED THE MERITS OF THE ACTION WITHOUT DISCOVERY AND TRIAL; THE COURT SHOULD ONLY HAVE DECIDED WHETHER PETITIONER WAS ENTITLED TO A PRELIMINARY INJUNCTION; MATTER REMITTED FOR PROCEEDINGS BEFORE A DIFFERENT JUDGE (THIRD DEPT).

The Third Department, reversing Supreme Court and remitting the matter to a different judge, determined this breach-of-contract/preliminary-injunction/declaratory-judgment/Article-78 proceeding should not have been decided on the merits without discovery, the filing of a note of issue and a trial. The court should have decided only whether petitioner was entitled to a preliminary injunction. Petitioner is a contractor hired by respondents to install a water system for snow-making for ski trails. Respondents terminated the contract for cause and petitioner brought an action for a preliminary injunction (prohibiting respondents from awarding the contract to others without competitive bidding), a declaratory judgment, and breach of contract:

… Supreme Court should have confined … its determination to whether petitioner was entitled to a preliminary injunction. … Supreme Court prematurely resolved the merits of petitioner’s declaratory judgment cause of action and respondents’ counterclaims, without first affording the parties their rights to discovery and a jury trial on the claims/counterclaims raised in the plenary action (see CPLR 3103 [a]; 4101 …), and without a note of issue and certificate of readiness having been filed. Moreover, Supreme Court did not acknowledge or address petitioner’s third cause of action for breach of contract, even though the plenary action involves, at its heart, a contract dispute. Although petitioner also asserted a cause of action for a declaratory judgment, the award of declaratory relief hinges on the resolution of the contract dispute — that is, whether respondents wrongfully terminated the contract for cause under the terms of the contract. Matter of Murnane Bldg. Contrs., Inc. v New York State Olympic Regional Dev. Auth., 2021 NY Slip Op 05756, Third Dept 10-21-21

 

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A LOAN AGREEMENT WHICH ALLOWS THE LENDER TO CONVERT THE BALANCE TO SHARES OF STOCK AT A FIXED DISCOUNT CAN VIOLATE THE USURY STATUTE, WHICH WOULD THEREBY RENDER THE AGREEMENT VOID AB INITIO (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, over a partial dissent. answered two questions posed by the Second Circuit in the affirmative. “1. Whether a stock conversion option that permits a lender, in its sole discretion, to convert any outstanding balance to shares of stock at a fixed discount should be treated as interest for the purpose of determining whether the transaction violates N.Y. Penal Law § 190.40, the criminal usury law. 2. If the interest charged on a loan is determined to be criminally usurious under N.Y. Penal Law § 190.40, whether the contract is void ab initio pursuant to N.Y. Gen. Oblig. Law § 5-511:”

GeneSYS ID, Inc. (“GeneSYS”) is a publicly held corporation that produces various types of medical supplies. Adar Bays, LLC is a limited liability company based in Florida. On May 24, 2016, Adar Bays loaned GeneSYS $35,000. In exchange, GeneSYS gave Adar Bays a note with eight percent interest that would mature in one year. The note included an option for Adar Bays to convert some or all of the debt into shares of GeneSYS stock at a discount of 35% from the lowest trading price for GeneSYS stock over the 20 days prior to the date on which Adar Bays requested a conversion. Adar Bays could exercise its option starting 180 days after the note was issued and could do so all at once or in separate partial conversions. …

Six months and four days after the note was issued … Adar Bays requested conversion of $5,000 of debt into 439,560 shares of stock. GeneSYS refused … seeking to renegotiate the loan. … GeneSYS was trading for $0.024 per share, the conversion price was $0.011. Adar Bays … sued GeneSYS in the … Southern District of New York for breach of contract. GeneSYS filed a motion to dismiss arguing the contract was void because the loan’s rate of interest, including both the stated interest and conversion option, exceeded the criminal usury rate of 25%. Adar Bays, LLC v GeneSYS ID, Inc., 2021 NY Slip Op 05616 CtApp 10-14-21

 

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PLAINTIFF WAS STRUCK BY A PIECE OF A BUILDING FACADE WHICH CAME LOOSE; PLAINTIFF SUED TWO DEFENDANTS WHO HAD DONE WORK IN THE ROADWAY NEAR THE BUILDING, ALLEGING THE EXCAVATION LOOSENED THE FACADE MATERIAL; DEFENDANTS’ MOTIONS FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendants’ motions for summary judgment should not have been granted. Plaintiff was struck by a piece of the facade of a brownstone which came loose. Plaintiff sued Keyspan Energy Delivery and Harris Water Main and Sewer Contractors alleging excavation work done by the defendants near the building loosened the facade:

Keyspan established its prima facie entitlement to judgment as a matter of law … by demonstrating, through the submission of … an affidavit of a professional engineer, that its work in the roadway did not create the alleged dangerous condition … . However, in opposition, the plaintiffs raised triable issues of fact by submitting … an affidavit from a professional engineer that rebutted the opinion of Keyspan’s expert. …

Harris contracted with the building owners to complete work on a broken pipe connecting the building to the sewer line in the middle of the street. A contractual obligation, standing alone, generally will not give rise to tort liability in favor of a third party (see Espinal v Melville Snow Contrs., 98 NY2d 136, 140). “[A]n exception to this rule applies where the contracting party, in failing to exercise reasonable care in the performance of contractual duties, launches a force or instrument of harm, such as by creating or exacerbating a dangerous condition” … . The plaintiffs alleged that the vibrations from Harris’s work in the roadway created or exacerbated the alleged dangerous condition on the facade of the subject building. Harris’s submissions, which did not include an expert affidavit from a professional engineer, were insufficient to establish, prima facie, that its work in the roadway did not create or exacerbate the dangerous condition … . Payne v Murray, 2021 NY Slip Op 05576, Second Dept 10-13-21

 

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QUESTIONS OF FACT ABOUT THE LIABILITY OF THE ELEVATOR COMPANY UNDER A NEGLIGENT MAINTENANCE THEORY OR A RES IPSA LOQUITUR THEORY REQUIRED THE DENIAL OF THE COMPANY’S MOTION FOR SUMMARY JUDGMENT; PLAINTIFF ALLEGED THE ELEVATOR SUDDENLY ACCELERATED AND THEN STOPPED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined there were questions of fact whether the elevator company (Otis) was liable for injuries allegedly caused by the sudden acceleration and stop of the elevator under a negligent maintenance theory and a res ipsa loquitur theory:

The plaintiff’s expert, Patrick Carrajat, an elevator and escalator consultant, whose affidavit the plaintiff submitted in opposition to Otis’s summary judgment motion, concurred with McPartland’s [defendant’s expert’s] opinion that “the probable cause of the accident was a clipped interlock.” Carrajat disagreed, however, with McPartland’s contention that a clipped interlock was something Otis could not reasonably have been expected to prevent. In Carrajat’s view, proper inspection and maintenance would have revealed either improper adjustment, loosening or shifting, or excessive wear of certain components. Carrajat also explained why he disagreed with McPartland’s opinion that external factors, such as a person making contact with the hallway elevator doors or some sort of debris caught in the elevator’s “door sill,” could have caused the accident. …

The plaintiff also raised a triable issue of fact as to Otis’s liability under the doctrine of res ipsa loquitur by submitting proof that the sudden descent and abrupt stop of the elevator was an occurrence that would not ordinarily occur in the absence of negligence, that the maintenance and service of the elevator was in the exclusive control of Otis, and that no act or negligence on the part of the plaintiff contributed to the occurrence of the accident … . Syrnik v Board of Mgrs. of the Leighton House Condominium, 2021 NY Slip Op 05603, Second Dept 10-13-21

 

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WHERE (1) THE DISPUTE IS ABOUT WHETHER THE TENANT IS OBLIGATED TO REMOVE PROPERTY FROM THE PREMISES, (2) THE TENANT TIMELY SURRENDERS THE PREMISES, AND (3), THE LEASE IS SILENT ABOUT THE PAYMENT OF RENT AFTER THE TERM OF THE LEASE, USE AND OCCUPANCY DAMAGES ARE NOT AVAILABLE TO THE LANDLORD (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined “use and occupancy” is not an available measure of damages where the tenant timely surrendered the premises and there was nothing in the lease about additional rent after the term of the lease. The dispute here was whether the lease obligated the tenant to remove property from the premises:

… [U]se and occupancy is not an available measure of damages on plaintiff landlord’s claims. “[T]he measure of damages for a tenant’s breach of a covenant to surrender leased premises in a stipulated condition is limited to the reasonable costs of restoring the premises to that condition” … , absent a stipulation to such damages in the lease itself. Here, nothing in the relevant lease provisions provided for additional rent beyond the term of the lease as part of the damages for restoring the premises to the agreed upon condition. Nor is there a dispute that defendant tenant timely vacated the premises, and surrendered same to plaintiff landlord and that there were no rent arrears outstanding at the time of surrender. Thus, defendants would not be liable for use and occupancy, even if it were ultimately determined that tenant failed to comply with any removal obligations. 44-45 Broadway Leasing Co., LLC v 45th St. Hospitality Partners LLC, 2021 NY Slip Op 05452, First Dept 10-12-21

 

DEFENDANT BREACHED THE CONTRACT BY FAILING TO COMPLY WITH THE NOTICE-TO-CURE PROVISION BEFORE TERMINATING IT; THE REASON FOR TERMINATION, FAULTY WORK, WAS NOT EXEMPT FROM THE NOTICE-TO-CURE REQUIREMENT (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Acosta, determined defendant breached the contract by failing to comply with the notice-to-cure provision before terminating it. Defendant general contractor (Borough) subcontracted with plaintiff to perform steel work at a residential development project. The subcontract required plaintiff to supply and install steel for excavation support and the frame of the building, as well as provide a full-time safety manager and procure permits for a crane:

… [P]laintiff alleges that defendant failed to comply with the notice-to-cure provision before terminating the contract, gives us the opportunity to address the strict nature of these types of provisions and the very rare instances when they can be ignored. Defendant general contractor terminated the steel work subcontract it had entered into with plaintiff based on what was essentially a claim that plaintiff provided faulty work. … [D]efendant was obligated to give plaintiff the 10-day notice to cure provided in the contract … [.] [F]aulty work does not fall within the very limited and rare circumstances when the provision can be dispensed with, namely, where the other party expressly repudiates the contract or abandons performance or where the breach is impossible to cure. * * *

Borough sent plaintiff a written “notice of termination” stating that the subcontract would be terminated in three days from the date of the letter and that plaintiff was in default by “failing to provide sufficient manpower [] [and] failing to meet the schedule, safety regulations and qualified workmanship for the Project.” The letter further stated that plaintiff “failed to respond or delayed response to requests for crane usage” and “has delayed the performance and completion of the work.” * * *

Nothing in the record supports the conclusion that the plaintiff repudiated or abandoned the contract or could not have commenced and continued correction of the steel frame and other alleged safety violations in the 10-day period following receipt of notice to cure. … [T]he alleged default, faulty steelwork, constitutes nothing more than defective performance, which is “the very situation to which the cure provision was intended to apply” … . East Empire Constr. Inc. v Borough Constr. Group LLC, 2021 NY Slip Op 05455, First Dept 10-12-2​1

 

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THE PLAINTIFF DID NOT DEMONSTRATE COMPLIANCE WITH THE NOTICE PROVISION OF THE MORTGAGE IN THIS FORECLOSURE ACTION; PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined plaintiff’s motion for summary judgment in this foreclosure action should not have been granted. Plaintiff did not demonstrate compliance with the notice requirements in the mortgage:

… Supreme Court improperly determined that the plaintiff established, prima facie, that it complied with the notice requirement of paragraph 22 of the mortgage. Statements in Johnson’s [plaintiff’s vice president’s] affidavit, “‘which asserted that the notice of default was sent in accordance with the terms of the mortgage, [were] unsubstantiated and conclusory and . . . , even when considered together with the copy of the notice of default, failed to show that the required notice was in fact mailed by first class mail or actually delivered to the designated address if sent by other means, as required by the subject mortgage'” … . Johnson did not purport to have personal knowledge of the mailing of the default notice or any familiarity with the plaintiff’s mailing practices … . Ditech Fin., LLC v Naidu, 2021 NY Slip Op 05320, Second Dept 10-7-21

 

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THE PURCHASERS BREACHED THE CONTRACT OF SALE BY INFORMING THE SELLER THEY WOULD NOT ATTEND THE “TIME OF THE ESSENCE” CLOSING; THEREFORE THE PURCHASERS ARE ENTITLED TO RETURN OF THEIR DEPOSIT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the seller did not breach the contract for sale and the purchasers breached the contract by stating in a letter they would not attend the “time of the essence” closing. Therefore the purchasers were entitled to the return of their deposit:

The Supreme Court erred in determining that the purchasers were entitled to a return of their down payment because the seller breached the contract by failing to “close on the property free of violations.” Instead, the purchasers never placed the seller in default. * * *

… [A]s the purchasers advised by letter prior to the “time of the essence” closing that they would not appear at the closing, they breached the contract and forfeited their down payment, without the necessity of a tender on the part of the seller … . Xelo v Hamilton, 2021 NY Slip Op 05364, Second Dept 10-6-21

 

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THE CONTRACT WAS AMBIGUOUS CONCERNING WHETHER PLAINTIFF OR DEFENDANT WAS RESPONSIBLE FOR PAYING PROPERTY TAXES; THEREFORE THE DEFENDANT’S COUNTERCLAIM, WHICH WAS BASED UPON AN INTERPRETATION OF THE CONTRACT, SHOULD NOT HAVE BEEN DISMISSED (FOURTH DEPT). ​

The Fourth Department, reversing Supreme Court, determined the defendant’s third counterclaim seeking reimbursement for property taxes should not have been dismissed because the terms of the related contract were ambiguous. As part of a purchase agreement which never closed, the defendant was allowed to remain in the property in return for paying the property tax for six months. If the defendant remained in the property after six months defendant was to pay $800/month rent. Defendant remained in the property after six months but no one paid the taxes. Eventually defendant paid the accumulated property tax to avoid a tax auction:

Inasmuch as “a contract generally incorporates the state of the law in existence at the time of its formation” ,,, , defendant, as the titled owner, would have been responsible for the property taxes, absent a contractual provision to the contrary. Here, however, the contract was not truly silent on the issue of property taxes. It specifically provided that defendant would pay property taxes in one situation but then failed to address who would pay the property taxes in another situation … . Based on the maxim expressio unius est exclusio alterius, which applies to contracts as well as statutes … , “[w]here a [document] describes the particular situations in which it is to apply, an irrefutable inference must be drawn that what is omitted or not included was intended to be omitted and excluded” … . Inasmuch as the determination of the intent of the parties depends on a choice among reasonable inferences, we conclude that resolution of the third counterclaim should be left to a trier of fact. Dunn Auto Parts, Inc. v Wells, 2021 NY Slip Op 05185, Fourth Dept 10-1-21

 

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THE PURCHASE OF A CHECK CASHING BUSINESS DID NOT TRANSFER THE UNEMPLOYMENT INSURANCE OBLIGATIONS OF THE SELLER TO THE PURCHASER; THE LABOR LAW 581 CRITERIA FOR THE TRANSFER OF UNEMPLOYMENT INSURANCE OBLIGATIONS WERE NOT MET (THIRD DEPT).

The Third Department, reversing the Unemployment Insurance Appeal Board, determined the unemployment insurance obligations of PTL Check Cashing Corp. were not transferred to PLS Check Cashiers of New York Inc. when PLS entered an asset purchase agreement with PTL in order to acquire PTL’s license to operate at PTL’s former location in the Bronx:

“Labor Law § 581 establishes an experience-rating system that allows for variations in the unemployment insurance contribution rates from the standard rate of qualified employers in certain situations” … . Under the statute, when a business is transferred either whole or in part from one employer to another, the transferee shall take over and continue the unemployment insurance experience account of the transferor … . A transfer, however, will not be deemed to have occurred if (1) the transferee has not assumed any of the transferor’s obligations, (2) the transferee has not acquired any of the transferor’s goodwill, (3) the transferee has not continued or resumed the transferor’s business either in the same establishment or elsewhere, and (4) the transferee has not employed substantially the same employees as those of the transferor … . …

It is undisputed that PLS did not assume any of PTL’s financial obligations and did not hire any of its employees. Moreover, while PLS operated from the same Bronx location, its business included a variety of financial services and was not limited to check cashing, which was PTL’s sole business. Significantly, the ability to operate from the Bronx location was necessary in order for PLS to obtain a license from the Department of Financial Services given the geographic limitations applicable to businesses that offer check cashing services. Although the asset purchase agreement listed other property included in the sale, PLS’s president testified that the tangible assets were disposed of and the only asset that was of value was the opportunity to acquire the license to operate from the Bronx location. Notwithstanding the fact that goodwill was generally referenced as property included in the sale, PLS did not use PTL’s brand, logo or phone number and had its own customer base, negating any expectation that it would be patronized by PTL’s customers. In view of the foregoing, substantial evidence does not support the Board’s finding that a transfer of business occurred under Labor Law § 581 (4) such that PLS acquired the unemployment insurance experience rating of PTL … . Matter of PLS Check Cashiers of N.Y. Inc. (Commissioner of Labor), 2021 NY Slip Op 05142, Third Dept 9-30-29

 

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