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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: April 8, 2014

Attorney may not Include Statutory Fee Award when Calculating Contingent Fee Unless Specifically Included by the Retainer Agreement

On April 3, 2014, the Court of Appeals issued a decision in Albunio v. City of New York, 2014 NY Slip Op. 02325, addressing the proper calculation of an attorney’s contingent fee award in an action under the New York City Human Rights Law.

In Albunio, the plaintiffs, who were former NYPD officers, were awarded $986,671 in compensatory damages in their civil rights action. The plaintiffs’ counsel was awarded a statutory fee of $296,826.04 for her trial work and an additional $233,965 for her successful appellate work. The issue presented by the Court of Appeals was how the fee awards would factor into the plaintiffs’ 1/3 contingent fee agreement with their counsel. Because the parties had separate retainer agreements for the trial and the appeal, the two awards are considered separately. The trial award discussion is of greater significance, and occupies the bulk of the opinion.

The trial retainer agreement provided only that the attorney would receive a contingent fee equal to 33% percent “of the sum recovered, whether recovered by suit, settlement, or otherwise.” The First Department agreed with the attorney, and found that the statutory fee awards constituted part of the “sum recovered,” and included them in its calculation of the fee. The Court of Appeals reversed:

The terms of the Trial Agreement do not unambiguously provide that any statutory fees are part of the ‘sum recovered’ and therefore subject to the one-third contingency fee. The subsequent phrase, ‘by suit, settlement or otherwise‘ (emphasis added), might support an interpretation that ‘sum recovered’ is broad enough to encompass a statutory award. However, in ordinary parlance, a plaintiff’s ‘recovery’ denotes the amount payable by the defendant as compensation for the plaintiff’s injury, that is, the damages award or settlement. Moreover, the Trial Agreement does not so much as mention the possibility of statutorily awarded fees, the existence of which the average client is presumably unaware. The general rule that ‘equivocal contracts will be construed against the drafters’ is subject to particularly rigorous enforcement in the context of attorney-client retainer agreements . . . .

(Internal citations omitted.)

After holding that the trial retainer agreement was ambiguous, the Court of Appeals determined that the extrinsic evidence submitted by the attorney in support of her interpretation was insufficient, and announced that New York would follow the prevailing rule that “absent a contractual provision to the contrary . . . . the attorney should be entitled to receive either the contingent fee calculated on the amount of the damage recovery exclusive of any court-awarded fees, or the amount of the court-awarded fee, whichever is greater.” (Emphasis added).

In light of this decision, litigators in an action where statutory fees may potentially be awarded should explicitly address whether any statutory fees awarded will be considered part of the “recovery.” The Court of Appeals noted in passing that they “need not decide whether a retainer agreement entitling an attorney to court-ordered counsel fees in addition to the full contingency fee would be enforceable [but] such an arrangement would be subject to requisite scrutiny under applicable law and rules controlling the reasonableness of attorney compensation,” suggesting that courts might take a dim view of attempts by attorneys to obtain both a contingent fee on the recovery and statutory fees in the same action.

Posted: April 7, 2014

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on another proposed change to the rules of the Commercial Division.

Generally, under the proposed new rule:

any party would be able to seek assignment of a case to the Commercial Division by filing, within 90 days of service of the complaint, a Commercial Division RJI certifying that the case meets the requisite jurisdictional requirements. Failure to file an RJI within 90 days would preclude the party from later seeking transfer of the case to the Commercial Division, except by written application to the Administrative Judge for “good cause shown.” If an RJI is filed within 90 days without seeking assignment to the Commercial Division, any other party would have ten days to apply to the Administrative Judge for a transfer of the case to the Commercial Division. In addition, a non-Commercial Division Justice may request transfer of a case to the Commercial Division where jurisdictional requirements are met.

E-mail comments to rulecomments@nycourts.gov by June 2, 2014.

Posted: April 7, 2014

Court Addresses Remedies for Violation of Non-Compete, Non-Disclosure and Non-Solicitation Agreements

On March 28, 2014, Justice Kornreich of the New York County Commercial Division issued a decision in Admarketplace Inc. v. Salzman, 2014 NY Slip Op. 30813(U), regarding the enforcement of non-compete, non-disclosure and non-solicitation agreements.

In Admarketplace, “plaintiff adMarketplace Inc. (AMP) commenced [an] action to enjoin Salzman, a former employee, from working for VSW, a competitor. Salzman was accused of violating a contractual non-competition agreement, as well as misappropriating trade secrets and other confidential information that he allegedly was using to help VSW poach employees and clients from AMP.” The plaintiff sought an order “(1) compelling VSW to terminate AMP’s former employees; (2) enjoining defendants from using AMP’s confidential information; (3) enjoining defendants from soliciting AMP’s clients and employees; and (4) compensating it for the business AMP lost due to defendants’ unfair competition.” Among the points the court made in deciding the plaintiff’s motion were:

It is well settled that in order to be enforceable, an anticompetitive covenant ancillary to an employment agreement must be reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmtul to the public, and not unreasonably burdensome to the employee. The Court of Appeals has limited the cognizable employer interests under the reasonableness prong 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. A restriction on a former employee’s ability to work for a competitor is invalid unless the employee’s services were unique or extraordinary or if the job is considered a learned profession (such as law or accounting).

First, it is clear that the NDA’s prohibition of Salzman and Carney working for a competitor is unenforceable. They work in the pay-per-click online marketing industry, which is not a learned profession, and their services are not unique. The law is well settled that agreements barring such employees from working for competitors are unenforceable.

. . .

As for the prohibition on soliciting former employees, this court recently observed that there is scant case law on the enforceability of non-recruitment clauses. This court, persuaded by the analysis in Renaissance Nutrition and Lazer, upheld a two year non-recruitment clause because such a restriction is inherently more reasonable and less restrictive than non-compete clauses since it does not impact the employee’s ability to procure employment. Here, the duration of the NDA’s non-recruitment clauses is shorter than in OTG. Additionally, AMP has a legitimate interest in the protection of client relationships developed at the employer’s expense. The gravamen of AMP’s allegations is that VSW has been poaching employees from AMP, inducing them to switch companies for greater compensation hoping that bring proprietary information with them. A non-recruitment prohibition directly guts this channel of wrongful competition. This is reasonable and, therefore, enforceable. . . . .

[T]he existence of actual monetary damages here is questionable. Though AMP has been in court to argue three motions in this case, it has yet to identify any actual lost business. Though such proof is not required at this juncture, absent lost business, there is little relief to be had by AMP. As explained to the parties on multiple occasions, no one’s employment will be terminated as a result of this case. For AMP to recover from defendants, it must prove a nexus between the alleged violations of the subject restrictive covenants and revenue generated by defendants using confidential information.

(Internal quotations and citations omitted) (emphasis added).

This decision provides a useful summary of what the courts will (and will not) do in enforcing employment agreements. Significantly, as this decision shows, employment agreements–unlike most other contracts–are not necessarily enforced as written and instead are interpreted and enforced by the courts based on the overlay of law discussed above.

Posted: April 5, 2014

Transcripts and Videos of Arguments in the Court of Appeals for the Week of March 24, 2014, Now Available

Transcripts and videos of arguments in the Court of Appeals for the week of March 24, 2014, are now available on the Court of Appeals website.

On March 22, 2014, we noted three cases of interest from the oral arguments for the week of March 24, 2014:

  • Docket No. 71: Golden v. Citibank, N.A. (concerning whether a bank may refuse payment on a cashier’s check on a showing that it received no consideration for issuing the check). See the transcript and the video.
  • Docket No. 64: Clemente Brothers Contracting Corp. v. Hafner-Milazzo (concerning whether parties may by contract reduce the statutory one-year limit on reporting forgeries in UCC 4-406 to 14 days). See the transcript and the video.
  • Docket No. 81: CDR Créances S.A.S. v. Maurice Cohen; CDR Créances S.A.S. v, Leon Cohen (concerning the proper burden of proof for striking a defendant’s pleadings and dismissing an action for fraud on the court). See the transcript and the video.
Posted: April 5, 2014

Compliance with Notice and Cure Provision Condition Precedent to Bringing Suit

On March 28, 2014, the Fourth Department issued a decision in Accadia Site Contracting, Inc. v. Erie County Water Authority, 2014 NY Slip Op. 02194, affirming the dismissal of a breach of contract claim for failure to provide notice and an opportunity to cure.

In Accadia Site Contracting, the plaintiff sought to excuse its failure to perform a condition precedent to bringing a lawsuit: notice of the breach and an opportunity to cure the breach. The Fourth Department affirmed the dismissal, explaining:

the court properly granted defendant’s motion on the ground that plaintiff failed to satisfy a condition precedent. A condition precedent is an act or event, other than a lapse of time, which, unless the condition is excused, must occur before a duty to perform a promise in the agreement arises. Here, paragraph 10.05 of the contract mandated that plaintiff provide the project engineer with “[w]ritten notice stating the general nature of each Claim, dispute, or other matter” within 20 days of the event giving rise to the claim. It is well settled that contract clauses that require the contractor to promptly notice and document its claims made under the provisions of the contract governing the substantive rights and liabilities of the parties are conditions precedent to suit or recovery. . . . .

Plaintiff further contends that it was excused from compliance with the notice and reporting requirements of paragraph 10.05 based on defendant’s breach of the contract; that such compliance was prevented or hindered because of misconduct by defendant; and that such compliance would have been futile. Those contentions are unavailing. First, it is well settled that a party’s obligation to perform under a contract is only excused where the other party’s breach of the contract is so substantial that it defeats the object of the parties in making the contract, and plaintiff failed to raise a triable issue of fact whether defendant’s actions defeated the parties’ objectives in entering into the contract. With respect to plaintiff’s remaining two contentions, we conclude that there is no evidence to support plaintiff’s contentions that defendant’s misconduct frustrated its ability to comply with the applicable notice provision or that notice to the engineer would have been futile. We note in any event with respect to plaintiff’s second contention that, although it is undisputedly the rule that one who frustrates another’s performance cannot hold that party in breach, plaintiff failed to raise a triable issue of fact whether its performance with the notice and reporting requirements was prevented or hindered by defendant’s alleged misconduct.

(Internal quotations and citations omitted) (emphasis added).

This decision not only shows the general enforceability of notice and cure provisions, it shows the unwillingness of courts to accept pro forma excuses for failure to comply with those provisions.

Posted: April 5, 2014

Agency Agreement Within the Statute of Frauds

On March 26, 2014, Justice Ramos of the New York County Commercial Division issued a decision in William Morris Endeavor Entertainment, LLC v. Rivera, 2014 NY Slip Op. 50458(U), dismissing claims against TV personality Geraldo Rivera on Statute of Fraud grounds.

In William Morris, the plaintiff, the well-known William Morris talent agency, sued its former client Geraldo Rivera for unpaid commissions. The complaint alleged that the parties entered into a series of three-year written contracts between 1985 and 1994, and that WME had continued to represent Rivera until he had stopped paying commissions in 2010. Rivera claimed that the last written contract stated that he was to be represented only by one particular agent, and when that agent left WME in 2010, Rivera went with him, continued paying him commissions, and had never been represented or advised by any other WME agent.

Rivera moved to dismiss on the grounds that WME had failed to allege the existence of a written agreement that satisfied the Statute of Frauds. The court agreed, rejecting WME’s argument that the parties’ course of conduct since the last written contract expired in 1997 created an enforceable agreement:

The alleged Agency Agreement is an oral agreement, a logical construct on behalf of WME’s position. The writings executed by the parties in 1985, 1988, 1991 and 1994 all specified a three-year term. After 1997, they followed a consistent course of conduct in their dealings, but no written agreement controlled their behavior. Undoubtedly, the alleged Agency Agreement is unenforceable by application of the statute of frauds, as well-illustrated by a case on point . . . . Therefore, the Court concludes that the parties had no enforceable commission agreement after October 1997, because the statute of frauds requires a written agreement.

(Internal citation and quotation omitted.)

Posted: April 4, 2014

Court of Appeals Invites Amici Curiae on Real Property Law Issue

The Court of Appeals recently posted the following Notice to the Bar – Court Request for Amici Curiae on a real property law issue:

On April 3, 2014, this Court granted leave to appeal in Flushing Savings Bank, FSB v Bitar. The case is being treated as a normal-coursed appeal (see section 500.12 of this Court’s Rules of Practice).

In March 2010, plaintiff commenced this action against the defaulting note obligor and mortgagor, to foreclose a mortgage on certain real property. In June 2010, an order of reference was granted to plaintiff and a referee was appointed to compute the amount due to plaintiff and to conduct the sale of the property. Thereafter, plaintiff was granted a judgment of foreclosure and sale, which provided that should the proceeds of the foreclosure sale be insufficient to pay the amount reported due to plaintiff, that plaintiff may recover the amount of the deficiency from defendant upon a properly made motion for deficiency pursuant to RPAPL 1371.

In August 2011, the property was sold at a public auction to the highest bidder, plaintiff, for $125,000.00. In September 2011, the referee rendered his report of sale, which determined that at the time of sale, plaintiff was owed $793,724.75, leaving a deficiency of $668,724.75.

In October 2011, plaintiff’s certified appraiser inspected the property and determined that the fair market value of the property on the date of sale was $475,000.00. The appraiser prepared a one and a half page affidavit in which he stated that he “made a personal exterior and interior inspection of the [mortgaged] premises” and that he set the value of the property based on this “inspection and after review[] [of] comparable sales, examination of the neighborhood, market and general economic trends, comparable rentals, expense data and subject to the reasonable assumption that there [had] not been substantial changes in occupancy and condition.” Plaintiff moved to confirm the report of sale and for leave to enter a deficiency judgment against defendant in the amount of $318,724.75, which is the alleged amount due pursuant to the judgment minus the fair market value given by the appraiser. Defendant did not oppose plaintiff’s motion.

Supreme Court confirmed the referee’s report of sale but denied the branch of plaintiff’s motion which sought a deficiency judgment. The court held that plaintiff did not establish prima facie proof of fair market value of the property. The court concluded that plaintiff did not submit any appraisal, and instead plaintiff relied on the “appraiser’s conclusory four-paragraph affidavit which [did] not contain any specific information regarding how he reached his fair market value determination.”

Plaintiff appealed from that portion of the April 2012 order that denied its motion for permission to enter a deficiency judgment, and the Appellate Division affirmed. The court determined that plaintiff failed to make a prima facie showing of the value of the mortgaged premises. The court noted that, “the appraiser did not describe the subject premises or the results of his inspection and failed to append any of the evidence of comparable sales and market data upon which he relied in arriving at his opinion. Nor did plaintiff submit an actual appraisal report.”

The issues presented are (1) whether the courts below properly concluded that the affidavit of plaintiff’s appraiser was too conclusory to establish a prima facie showing of the fair market value of the property as of the foreclosure sale date; and (2) assuming that the affidavit was insufficient, whether the courts could deny plaintiff’s unopposed application for a deficiency outright, without making any express finding as to the value of the property, without holding a hearing on the value of the property, or without in some way affording plaintiff an opportunity to cure the alleged insufficiency in its proof.

The Court invites amicus to address these issues. Amicus motions must comply with section 500.23 of the Court’s Rules of Practice. Particular attention should be paid to section 500.23(a)(2) of the Rules. The text of the Rule is available on the Court’s website at:  http://www.courts.state.ny.us/ctapps/500rules.htm#Amicus

Questions may be directed by telephone to the Clerk’s Office at (518) 477-7705.

Posted: April 4, 2014

Court of Appeals Clarifies Standard for Quashing Non-Party Subpoenas

On April 3, 2014, the Court of Appeals issued a decision in Matter of Kapon v. Koch, 2014 NY Slip Op. 02327, clarifying a “subpoenaing party’s notice obligation to a non-party” under CPLR 3101(a)(4) and “the witness’s burden when moving to quash the subpoena.”

In Matter of Kapon, the Court of Appeals concluded:

that the subpoenaing party must first sufficiently state the circumstances or reasons underlying the subpoena (either on the face of the subpoena itself or in a notice accompanying it), and the witness, in moving to quash, must establish either that the discovery sought is utterly irrelevant to the action or that the futility of the process to uncover anything legitimate is inevitable or obvious. Should the witness meet this burden, the subpoenaing party must then establish that the discovery sought is material and necessary to the prosecution or defense of an action, i.e., that it is relevant.

(Internal quotations omitted). The Court explained: (more…)

Posted: April 3, 2014

Opportunity to Comment on Proposed Change to Commercial Division Rules

The Office of Court Administration has asked for public comment on another proposed change to the rules of the Commercial Division.

Generally, the proposal:

seeks to promote more efficient, cost-effective pretrial disclosure by establishing a “preference” in the Commercial Division for the use of “categorical designations” rather than document-by-document logging. The parties would be expected to address privilege log issues as part of the meet and confer process, “and to agree, where possible, to employ a categorical approach to privilege designations.” If a party objects to the categorical approach and insists on a document-by-document log, the producing party, “upon a showing of good cause, may apply to the court for the allocation of costs, including attorney’s fees incurred.” To ensure that a party receiving a categorical privilege log receives comprehensible information, a responsible attorney for the producing party would be required to submit a certification under 22 NYCRR § 130-1.I-a setting forth specific facts supporting the privileged status of the materials in each category. The proposal also would treat uninterrupted email chains as a single document.

E-mail comments to rulecomments@nycourts.gov by June 2, 2014.

Posted: April 3, 2014

Schlam Stone & Dolan Blogs

Last fall, Schlam Stone & Dolan LLP launched this Commercial Division Blog. We are pleased to announce that today we made our 200th post!

The Commercial Division Blog is just part of what we have been doing. Building on our long years of experience in the U.S. District Court for the Eastern District of New York, including over twenty years of writing the Eastern District Roundup column in the New York Law Journal, we also launched our EDNY Blog.

In light of the success of both the Commercial Division and EDNY blogs, we have now become contributors to Law.com. It’s behind their paywall (sorry), but for those with access, you can find our posts by searching for our firm name.