Contract Law – Page 8 – New York Appellate Digest

IN ORDER TO SEEK COURT REVIEW OF AN ALLEGED VIOLATION OF A COLLECTIVE BARGAINING AGREEMENT BY AN EMPLOYER AND/OR A UNION, AN EMPLOYEE MUST BRING A PLENARY ACTION, NOT AN ARTICLE 78 PROCEEDING (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Wilson, affirming the dismissal of appellant-employee’s Article 78 petition, determined an employee who has exhausted the contractual grievance process and alleges the employer breached a collective bargaining agreement must bring a plenary action, not an Article 78 proceeding, for any further review:

… [W]hen a claim arises under a collective bargaining agreement that creates a mandatory grievance process, the employee “may not sue the employer directly for breach of that agreement but must proceed, through the union, in accordance with the contract. Unless the contract provides otherwise, only when the union fails in its duty of fair representation can the employee go beyond the agreed procedure and litigate a contract issue directly against the employer” … . Allegations that an employer has breached the collective bargaining agreement are contract claims that may not be resolved in an article 78 proceeding … . Thus, when an employee alleges that an employer has breached a term in a collective bargaining agreement, the proper mechanism is a plenary action alleging both breach of contract by the employer and breach of the duty of fair representation by the union … . * * *

The procedure applicable to an employee’s claim depends on the source of the right or benefit the employee asserts. Statutory or constitutional claims are appropriately brought in an article 78 proceeding … . Claims arising exclusively from an alleged breach of a term in a collective bargaining agreement must be brought through a civil action for breach of contract … and must meet the requirements set out in Ambach (70 NY2d at 508). Matter of Dourdounas v City of New York, 2025 NY Slip Op 01671, CtApp 3-20-25

Practice Point: An employee who, after exhausting the grievance mechanism in a collective bargaining agreement, seeks court review of whether the employer and/or the union breached the collective bargaining agreement must bring a plenary action, not an Article 78 proceeding.

March 20, 2025

Civil Procedure, Civil Rights Law, Contract Law, Employment Law

THE SIX-MONTH STATUTE OF LIMITATIONS IN THE EMPLOYMENT CONTRACT WITH PLAINTIFF WAS REASONABLE AND ENFORCEABLE; THEREFORE PLAINTIFF’S EMPLOYMENT DISCRIMINATION ACTION, WHICH WAS COMMENCED SIX MONTHS AND ONE DAY AFTER PLAINTIFF’S EMPLOYMENT WAS TERMINATED, WAS TIME-BARRED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the six-month statute of limitations in the employment contract with plaintiff was reasonable and enforceable. Therefore plaintiff’s action, which was commenced one day after the six-month limitation period had expired, was time-barred:

“Parties to a contract may agree to limit the period of time within which an action must be commenced to a period shorter than that provided by the applicable statute of limitations” … . “‘[A]n agreement which modifies the Statute of Limitations by specifying a shorter, but reasonable, period within which to [*2]commence an action is enforceable provided it is in writing'” … . CPLR 201 provides that an action “must be commenced within the time specified in this article unless a different time is prescribed by law or a shorter time is prescribed by written agreement.”

Pursuant to CPLR 3211(a)(5), “‘a moving defendant must establish, prima facie, that the time within which to commence the action has expired'” … . Once this threshold showing is met, the burden then shifts to the plaintiff to “‘raise a question of fact as to whether the statute of limitations was tolled or was otherwise inapplicable, or whether the action was actually commenced within the applicable limitations period'” … .

Here, the defendants produced the employment application, which contained the provision regarding the six-month limitations period and which was signed by the plaintiff. The plaintiff does not dispute that her employment was terminated on November 23, 2021. The defendants therefore established … that the limitations period expired on May 23, 2022. The plaintiff commenced this action on May 24, 2022, one day after the expiration of the limitations period. Salati v Northwell Health, 2025 NY Slip Op 01660, Second Dept 3-19-25

Practice Point: Here the six-month statute of limitations in plaintiff’s employment contract was deemed reasonable and enforceable. Therefore plaintiff’s employment discrimination action, commenced six months and one day after her employment was terminated, was time-barred.

March 19, 2025

Contract Law, Education-School Law, Employment Law, Fraud, Negligence

THE DEFENDANT SCHOOL IN THIS CHILD VICTIMS ACT CASE DID NOT DEMONSTRATE WHEN PLAINTIFF COULD HAVE DISCOVERED THE ALLEGED FRAUD WHICH INDUCED HIM TO SIGN RELEASES; THEREFORE THIS FRUAD-BASED ACTION SHOULD NOT HAVE BEEN DISMISSED AS TIME-BARRED; THE COMPLAINT STATED CAUSES OF ACTION FOR FRAUDULENT INDUCEMENT AND FRAUDULENT CONCEALMENT (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the defendant school in this Child Victims Act case (1) did not demonstrate the fraud-based causes of action to set aside or rescind the releases signed by the plaintiff were time-barred and (2) was not entitled to dismissal of the fraudulent inducement and fraudulent concealment causes of action. Plaintiff alleged he would not have signed the releases had he known the guidance counsellor who allegedly sexually abused him would be allowed to continue in his employment, and he would not have signed the releases had he known there were other instances of sexual misconduct by the guidance counsellor of which the school was aware: With respect to the statute of limitations for a fraud-based action, the court explained:

“A fraud-based action must be commenced within six years of the fraud or within two years from the time the plaintiff discovered the fraud or could with reasonable diligence have discovered it, whichever is later” (… see CPLR 203[g]; 213[8]). “The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was possessed of knowledge of facts from which the fraud could be reasonably inferred” … . “Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute. Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a [fraud-based cause of action] should not be dismissed on motion and the question should be left to the trier of facts” … . “Ordinarily, an inquiry into when a plaintiff should have discovered an alleged fraud presents a mixed question of law and fact” … .

Here, the defendant failed to establish that the causes of action to set aside or rescind the releases on the ground of fraud were time-barred pursuant to CPLR 3211(a)(5) … . “[T]here was no indication in the [amended complaint] or in the papers submitted by the defendant[ ] on [its] motion as to when the plaintiff became aware” of the alleged fraudulent conduct … . In any event, the plaintiff, in affidavits submitted in opposition to the motion, indicated that he learned of certain facts underlying the fraud-based causes of action in early 2021 … . The defendant failed to demonstrate that the plaintiff, by exercising reasonable diligence, could have discovered those facts at some point prior to the two-year period immediately preceding the commencement of this action … . Gormley v Marist Bros. of the Schs., Province of the United States of Am., 2025 NY Slip Op 01612, Second Dept 3-19-25

Practice Point: Here defendant did not demonstrate when plaintiff could or should have become aware of the defendant’s alleged fraud. Therefore the motion to dismiss the fraud-based action as time-barred should not have been granted.

Practice Point: Consult this decision for an explanation of what must be alleged to state causes of action for fraudulent inducement and fraudulent concealment in the context of setting aside or rescinding a release.

March 19, 2025

Contract Law, Education-School Law

PLAINTIFF, A CANISIUS COLLEGE STUDENT IN 2020, DID NOT STATE A CAUSE OF ACTION FOR BREACH OF IMPLIED CONTRACT BASED ON THE SHIFT FROM IN-PERSON TO REMOTE LEARNING BECAUSE OF COVID (FOURTH DEPT).

The Fourth Department, affirming Supreme Court, over a two-justice dissent, determined plaintiff did not state a cause of action for breach of contract based on the cessation of in-person classes at Canisius College during COVID:

Plaintiff contends on his appeal that the court erred in granting the motion insofar as it sought to dismiss the breach of contract cause of action to the extent it sought recovery of the tuition he paid to Canisius for the spring 2020 semester. “New York courts have long recognized that the relationship between a university and its students is contractual in nature . . . , and that specific promises set forth in a school’s bulletins, circulars and handbooks, which are material to the student’s relationship to the school, can establish the existence of an implied contract” (Rynasko v New York Univ., 63 F4th 186, 197 [2d Cir 2023] …). Here, however, we reject plaintiff’s contention because “the amended complaint contains only conclusory allegations of an implied contract to provide exclusively in-person learning during the spring 2020 semester which are unsupported by any specific promise that is material to” plaintiff’s relationship with Canisius … . We agree with the Second Department that, in this context, the cause of action for breach of contract requires an allegation of “a specific promise to provide the plaintiff with exclusively in-person learning” … . The amended complaint also fails to state, in anything more than a conclusory fashion, the manner in which plaintiff’s unspecified course of study was impacted by Canisius’s shift to remote operations … . McCudden v Canisius Coll., 2025 NY Slip Op 01539, Fourth Dept 3-14-25

March 14, 2025

Civil Procedure, Contract Law, Evidence, Legal Malpractice, Negligence

THERE WAS NO EVIDENCE SUBSTANTIATING THE PURPORTED “OFF THE RECORD” STIPULATION OF SETTLEMENT; THE TERMS OF THE SETTLEMENT AGREEMENT WERE NEVER FILED WITH THE COUNTY CLERK; A PRETRIAL CONFERENCE WITH THE JUDGE’S CLERK DOES NOT MEET THE “OPEN COURT” REQUIREMENT FOR A STIPULATION OF SETTLEMENT (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the purported stipulation of settlement of this legal malpractice action did not meet the requisite criteria and could not be enforced:

It is well settled that ” ‘[a]n oral stipulation of settlement that is made in open court and stenographically recorded is enforceable as a contract and is governed by general contract principles for its interpretation and effect’ ” (… see generally CPLR 2104). Here, however, in support of her cross-motion, plaintiff failed to attach any transcripts or other evidence substantiating the purported settlement agreement. Indeed, we conclude that “[t]he record provides no basis for concluding that an enforceable stipulation was entered into between the parties” inasmuch as “[p]ertinent discussions took place off the record” … . Plaintiff also failed to establish that the terms of the settlement agreement were ever filed with the county clerk (see CPLR 2104 …).

Even if plaintiff had submitted written evidence of the parties’ purported stipulation of settlement, we conclude that said stipulation was not entered in “open court” inasmuch as there is no dispute that the alleged settlement was reached during a pretrial conference with the court’s law clerk … . Indeed, the “open court requirement . . . is not satisfied in locations without a Justice presiding . . . , and it is not satisfied during less formal stages of litigation, such as a pretrial conference” … . Guzman-Martinez v Rosado, 2025 NY Slip Op 01483, Fourth Dept 3-14-25

Practice Point: Consult this decision for the criteria for an enforceable stipulation of settlement, i.e., a transcript or other evidence of the terms of any oral agreement, the filing of the terms of the agreement with the county clerk, and the entering of the agreement in open court with a judge presiding.

March 14, 2025

Civil Procedure, Contract Law, Fraud

HERE THE PLAINTIFF WAS IN PRIVITY WITH A NONPARTY WHICH WAS DEEMED TO HAVE HAD A “VICARIOUS DAY IN COURT” SUCH THAT THE DOCTRINE OF RES JUDICATA PRECLUDED PLAINTIFF’S ACTION (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-ledged opinion by Justice Scarpulla, determined the doctrine of res judicata required dismissal of plaintiff’s fraudulent conveyance cause of action. The lawsuit concerned disputed ownership of precious gems. The opinion is fact-specific and too complex to fairly summarize here. With respect to the application of the res judicata doctrine, the court wrote:

This appeal stems from a dispute between precious gemstone traders. Plaintiff Shanghai Pearls & Gems, Inc. … alleges that defendants … improperly transferred gems they received on consignment from nonparty Diamond Corporation Capital Group, LLC (D&M). The transferred gems included the “Pink Diamond,” in which plaintiff held a one-third interest, and the “Kashmir Sapphire.” * * *

Although defendants’ settlement with D&M did not release plaintiff’s original one-third interest in the Pink Diamond, plaintiff’s fraudulent conveyance claims based on that interest should be dismissed because the claims are barred by res judicata. Pursuant to the doctrine of res judicata, a valid final judgment precludes “future actions between the same parties or those in privity with them on any claims arising out of the same transaction or series of transactions . . . , even if based upon different theories or if seeking a different remedy” … .

A determination that privity exists, in the context of res judicata, must be based on a “flexible analysis” of the relationship between the party and the nonparty in the previous litigation … . This analysis, in turn, requires courts to consider “whether the circumstances of the actual relationship, the mutuality of interests, and the manner in which the nonparty’s interest were represented in the earlier litigation established a functional representation such that the nonparty may be thought to have had a vicarious day in court” … .

Here, plaintiff was in privity with D&M vis-À-vis the assignment of the interests in the Pink Diamond and Kashmir Sapphire. D&M’s claims against defendants in the bankruptcy proceeding and plaintiff’s claims against defendants in this action “are closely related in time, space, motivation, or origin” such that the claims “arise out of the same transaction, and res judicata should apply” … . Shanghai Pearls & Gems, Inc. v Paul, 2025 NY Slip Op 01433, First Dept 3-13-25

Practice Point: Although this opinion is complicated and fact-specific, it provides useful insight into the flexibility of the “privity” element of the res judicata doctrine. Here the nonparty with which plaintiff was in privity was deemed to have had a “vicarious day in court” triggering the application of the res judicata doctrine to the plaintiff’s action.

March 13, 2025

Contract Law, Employment Law, Insurance Law, Negligence

BOTH INSURANCE POLICIES WERE DEEMED TO COVER SEXUAL HARASSMENT CLAIMS AGAINST AN EMPLOYER AND ITS EMPLOYEE BROUGHT BY SEVERAL CO-EMPLOYEES SPANNING YEARS AND DIFFERENT WORKPLACES; THE POLICY LANGUAGE DID NOT RESTRICT THE COVERAGE FOR “RELATED” OR “INTERRELATED ACTS” TO A SINGLE PLAINTIFF (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Singh, determined the language of the two insurance policies covered sexual harassment claims against an employer and its employee brought by several co-employees spanning years and different workplaces. The case is fact-specific and turned on the contractual definition of “related wrongful acts” in one policy and “interrelated wrongful acts” under the other policy:

Nothing in the language of either policy restricts Related or Interrelated Wrongful Acts to those harming the same plaintiff. * * *

… [I] both policies, common facts and common causation are presented in the disjunctive. Shared causation is necessary only in that the allegations must “aris[e] from” the “common nexus or nucleus of facts.” “In insurance contracts, the phrase ‘arising out of’ is ordinarily understood to mean originating from, incident to, or having connection with. It requires only that there be some causal relationship between the injury and the risk for which coverage is provided or excluded” … . * * * Zurich Am. Ins. Co. v Giorgio Armani Corp., 2025 NY Slip Op 01335, First Dept 3-11-25

Practice Point: The language used in an insurance policy determines the coverage. Here the policy language was such that it covered sexual harassment claims spanning years and different workplaces brought by several plaintiffs as “related” or “interrelated acts.”

March 11, 2025

Contract Law, Evidence

ABSENT AMBIGUITY A COURT CAN NOT CONSIDER EXTRINSIC EVIDENCE TO INTERPRET A CONTRACT; HERE PLAINTIFF HAD BROUGHT TWO ACTIONS AGAINST THE CITY CHALLENGING TWO SEPARATE ARRESTS; THERE WAS NO INDICATION THE RELEASE ONLY APPLIED TO THE ACTION DESCRIBED IN THE CAPTION OF THE RELEASE; THE SPACE FOR DESCRIBING ANY ACTION TO BE EXCLUDED FROM THE RELEASE WAS LEFT BLANK; THEREFORE THE RELEASE APPLIED TO BOTH ACTIONS; THERE WAS A DISSENT (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, determined the release signed by plaintiff applied to both actions plaintiff had brought against the city, not just the action identified in the caption of the release. Plaintiff brought two separate actions challenging two arrests occurring 14 days apart. The release identified the action stemming from the second arrest and left a blank space to describe anything to be excluded from the release. That space was left blank. Supreme Court and the dissent determined that the plaintiff intended to exclude the first action from the release but plaintiff’s attorney inadvertently left the space for the exclusion blank:

Like any contract, a release must be “read as a whole to determine its purpose and intent,” and extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous … . “A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion” … . “More to the point, an ambiguity never arises out of what is not written at all, but only out of what was written so blindly and imperfectly that its meaning is doubtful” … .

Here, there was nothing surreptitious about the City sensibly filling in plaintiff’s name as the releasor, the case name and the index number referrable to Action 2, in the general release to identify the specific matter being settled. What followed are standard, boiler-plate operative terms of this general release, namely, a broadly worded waiver provision and a claim exclusion clause, both of which are clear and unambiguous. Thus, there was no legal basis for the motion court to use any extrinsic evidence, discern an unfounded ambiguity therefrom and ultimately surmise the parties’ intent to limit the scope of the general release to Action 2 … . Smith v City of New York, 2025 NY Slip Op 01198, First Dept 3-4-25

Practice Point: Here Supreme Court considered extrinsic evidence indicating that the release was meant to apply to only one of two actions plaintiff brought against the city. The First Department held that, because the release was not ambiguous, the court cannot consider extrinsic evidence. Therefore the release, by its terms, applied to both actions.

March 4, 2025

Civil Procedure, Contract Law, Conversion, Partnership Law

ALTHOUGH THE CAUSES OF ACTION WERE PLED AS “CONVERSION” AND “UNJUST ENRICHMENT,” THEY STEMMED FROM ALLEGED BREACHES OF THE PARTNERSHIP AGREEMENT; THEREFORE THE SIX-YEAR BREACH-OF-CONTRACT STATUTE OF LIMITATIONS APPLIED, NOT THE THREE-YEAR TORT STATUTE OF LIMITATIONS (SECOND DEPT).

The Second Department determined that, although the causes of action were couched as “conversion” and “unjust enrichment,” they stemmed from the alleged breach of a partnership agreement. Therefore the six-year contract, not the three-year tort, statute of limitations applied:

… [T]he causes of action were subject to a six-year statute of limitations rather than a three-year statute of limitations. “In determining which limitations period is applicable to a given cause of action, the court must look to the substance of the allegations rather than to the characterization of those allegations by the parties” … . “[W]hen damage to property or pecuniary interests is involved, the six-year statute governs regardless of how the theory of liability is described, as long as the asserted liability had its genesis in the contractual relationship of the parties” … . Thus, “where liability is premised on a contractual relationship, the six-year statute of limitations applies” … . Fernandes v Fernandes, 2025 NY Slip Op 00848, Second Dept 2-13-25

Practice Point: Here the causes of action for conversion and unjust enrichment stemmed from alleged breaches of the partnership agreement, so the breach-of-contract, not the tort, statute of limitations applied.

February 13, 2025

Contract Law, Limited Liability Company Law

HERE THE LLC AGREEMENT, IN ACCORDANCE WITH ITS TERMS, WAS UNILATERALLY AMENDED BY DEFENDANT SUCH THAT DEFENDANT’S PRIOR CONTRACTUAL OBLIGATION TO PLAINTIFF WAS EXTINGUISHED AFTER PLAINTIFF HAD PERFORMED; ALTHOUGH HARSH, THIS OUTCOME WAS SUPPORTED BY DELAWARE LAW AND WAS AFFIRMED BY THE MAJORITY OVER A THREE-JUDGE DISSENT (CT APP).

The Court of Appeals, affirming the Appellate Division, in a full-fledged opinion by Judge Singas, over a three-judge dissenting opinion, determined plaintiff was bound by the terms of an amended limited liability company (LLC) agreement which was unilaterally amended by defendant. The amended agreement included a merger clause which effectively nullified a prior oral agreement between plaintiff and defendant providing that defendant would buy-out plaintiff’s interest in the LLC after five years. Plaintiff had invested three million and his share of the LLC was worth over 11 million at the five-year mark:

… [T]he amended LLC agreement … contained a merger clause which states:

“This Agreement, together with the Certificate of Formation, each Subscription Agreement and all related Exhibits and Schedules, constitutes the sole and entire agreement of the parties to this Agreement with respect to the subject matter contained herein and therein, and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter, including the Original Agreement.” * * *

Upon his initial investment, plaintiff became bound by the original LLC agreement, including its clause dictating how its terms could be altered. Once the agreement was altered pursuant to its terms, plaintiff became bound by the amended LLC agreement, including its merger clause. Pursuant to the amended LLC agreement’s choice-of-law provision, Delaware law governs its interpretation and reach … . Under Delaware’s Limited Liability Company Act, which aims to “give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements” … , a member of an LLC “is bound by the limited liability company agreement whether or not the member . . . executes the limited liability company agreement” … . Plaintiff, as a member of [the LLC], is therefore bound by its operating LLC agreement—the amended LLC agreement—regardless of whether he signed it. * * *

Though an outcome whereby one member to a contract unilaterally extinguishes his contractual obligation, even after the other party has performed, may appear “harsh,” … Delaware law “unambiguously advises prospective investors in a closely held LLC (especially one considering a multimillion-dollar investment) to scrutinize the existing LLC agreement and condition their investment upon the clear written delineation thereunder of . . . their contracted-for rights in the event of any future amendments to the LLC agreement” … . Behler v Kai-Shing Tao, 2025 NY Slip Op 00803, CtApp 2-13-25

Practice Point: Here the LLC agreement was, in accordance with its terms, unilaterally amended by defendant to extinguish a prior contractual obligation owed plaintiff after plaintiff had performed. This harsh result was supported by Delaware law, which basically says anyone entering an LLC agreement which can be unilaterally changed should think twice.