Category: Breach of Contract

The Commercial Division’s decision in Five Star Elec. Corp. v. Silverite Constr. Co. Inc.[1] demonstrates the narrow scope, and strict interpretation, of no-damages for delay provisions in a contract. In Five Star, New York County Supreme Court Justice Robert R....

Does an “agreement to agree” establish an enforceable contract?  Not if it fails to provide objective criteria for a court to enforce material terms, according to the Albany County Commercial Division’s decision in Media Logic USA, LLC v. Prinova US, LLC.[1]  But all may not be lost for plaintiffs spurned by a promise to do business, as Justice Richard M. Platkin explains how promissory estoppel may provide an alternative avenue for relief.  In the same opinion, a discovery-related allegation of unlawful recording prompted Justice Platkin to determine the scope of Illinois’s eavesdropping statute, explaining that it does not prohibit recording (and use thereof) of a participant’s own conversation, and does not apply at all to conversations recorded in New York.

A few months ago, a Commercial Division court granted summary judgment in favor of the plaintiff-landlord in a case involving a commercial lease for a gym that was closed due to COVID-19 restrictions.  The decision in Amherst II UE LLC v. Fitness Int’l, LLC, No. 806643/2021, 2021 NY Slip Op 51289(U) (Sup. Ct. Erie Cty. Dec. 8, 2021)—with extensive citations to recent cases—ultimately rejected the Defendant’s force majeure arguments and provides a good overview of the legal issues that have come up with commercial leases during the COVID-19 pandemic.

A recent ruling in the Suffolk County Commercial Division highlights the risk a party faces when agreeing to, and later attempting to, enforce an oral modification to a written contract.  In Castle Restoration LLC v. Castle Restoration & Construction, Inc.,[1] Commercial Division Justice Elizabeth Emerson determined that New York’s statute of frauds rendered an oral modification unenforceable and, ultimately, left the enforcing party with no remedy in its commercial dispute.

The Commercial Division’s decision in Rockmore v. Plastic Surgery Associates, LLP[i] demonstrates the broad scope of ERISA preemption and the difficulty of pleading breach of fiduciary duty and conversion claims alongside breach of contract claims.  In Rockmore, Albany County Supreme Court Justice Richard M. Platkin dismissed several claims brought by the departing member of a partnership of physicians.  The core claims—which concerned the funding of the partnership’s defined benefit plan—were preempted by ERISA.  Separately, Justice Platkin also dismissed breach of fiduciary duty and conversion claims as duplicative of a claim alleging a breach of the operative Partnership Agreement.

Does an assignment by a co-songwriter of that co-songwriter’s rights in exchange for a performance and use royalty entitle the co-songwriter to a share of the sale proceeds when the rights are later sold by the other co-songwriter to a third party? No, according to Justice Barry Ostrager’s recent decision in Levy v. Zimmerman. In his decision, Justice Ostrager dismissed a suit filed by the estate of songwriter Jacques Levy in the New York County Commercial Division seeking a share of the more than $300 million in proceeds from the sale by Bob Dylan of his song catalog to Universal Music Group.  In dismissing the case, Justice Ostrager ruled that a 1975 contract unambiguously limited Levy’s rights to a 35% royalty on the performance and use of the ten songs he co-wrote with Dylan in the early 1970s. 

In Hawk Mountain LLC v. RAM Capital Group LLC, the First Department held that, under New York General Obligations Law (“G.O.L.”) § 17-101, an acknowledgment of a debt tolled the limitations period for an action to recover a debt owed on a promissory note, even though the acknowledgment did not specifically mention the note at issue or the precise amount due on the note. This decision clarifies that “there is no requirement that an acknowledgement of a debt pursuant to [G.O.L.] § 17–101 leave no room for doubt as to the nature and quantum of the debt to be acknowledged.”

In GMX Technologies, LLC v. Pegasus Capital Advisors, L.P., Justice Andrea Masley of the New York County Commercial Division denied Defendants Pegasus Capital Advisors, L.P. (“Pegasus”) and The Leiber Group Inc.’s (“Leiber”) (collectively, “Defendants”) motion to dismiss a claim for declaratory judgment seeking to bar Leiber from exercising a put option in connection with its membership interest in Plaintiff GMX Technologies, LLC (“GMX”).  The opinion addressed whether a Delaware LLC member may exercise a put option when doing so would force the LLC into insolvency.

In Shatz v. Chertok, the First Department affirmed in part and reversed in part a decision by Justice Jennifer G. Schechter of the Commercial Division. The key issue on appeal was whether a New York limited liability company’s operating agreement that provided the managing member “sole and absolute discretion” over investment decisions barred a derivative claim for breach of fiduciary duty.  The First Department held that this contractual language did not bar a breach of fiduciary duty claim against the company’s manager.

Suppose a property owner hires a general contractor for a time-sensitive project.  The general contractor in turn hires a subcontractor.  After the project hits some snags and delays, the property owner tries to move things along by assuring the subcontractor that it will get paid for certain additional tasks that the owner requests.  However, the subcontractor never enters into a formal written agreement covering the additional work.  If the subcontractor is not fully paid for the work, can it successfully sue the property owner, the general contractor, or both for contractual or quasi-contractual damages?  A recent decision by Justice Andrea Masley of the Commercial Division in Corporate Electrical Technologies, Inc. v. Structure Tone, Inc., suggests that in certain circumstances, the answer is yes: the subcontractor can recover from the property owner or the general contractor for the additional work, even absent a written contract covering that work, based on the parties’ course of conduct.

There has been a new development in the Xerox and Fujifilm (“Fuji”) litigation:  Justice Ostrager of the New York Commercial Division declined to (i) certify the putative class, (ii) approve the proposed class settlement, and (iii) award the class attorney’s fees pursuant to a memorandum of understanding that was reached by defendant Xerox and putative class plaintiffs.  The material terms of this agreement—changes to the Xerox Board of Directors—already took effect prior to the Justice Ostrager ruling.

In Mountain & Isles, LLC v. Gillz, LLC,[4] Justice Masley of the Commercial Division provided a useful reminder of the continuing vitality of New York’s “automatic renewal doctrine” for contracts and its limitations.

Since high net worth individuals often operate and own assets through LLCs and other business entities, including foreign corporate entities, a plaintiff must satisfy the requirements of a veil-piercing claim in order to attach assets owned by such entities.  Failing to do so could frustrate a plaintiff’s ability to satisfy a judgment, as illustrated by Commercial Division Justice Barry Ostrager’s recent decision in Pacific Alliance Asia Opportunity Fund L.P. v. Kwok Ho Wan.

Attorneys drafting forum selection clauses were reminded of the distinction between permissive and mandatory forum language in Justice Andrea Masley’s recent decision, Duncan-Watt et al. v. Rockefeller et al., No. 655538/2016, 2018 BL 138448 (Sup. Ct., N.Y. Cty. Apr. 13, 2018). In Duncan-Watt, the Commercial Division ruled on Defendants’ motion to dismiss by holding that the dispute resolution clause in the parties’ licensing agreement failed to select Australian courts as the exclusive forum in which to litigate any disputes.  As a result, the Court concluded that the contractual language at issue only reflected the parties’ consent to jurisdiction in Australia—not that the dispute had to be litigated there.[1]

Operating agreements often specify dilution as the remedy for a failure to make a capital contribution.  But what if your business partner fails to make a contribution and you’d rather have the capital than an increased ownership share? If the agreement only provides for dilution as a remedy, can you still sue for monetary damages? In Oneiric Holdings LLC v. Leonelli,[1] Justice Marcy Friedman held that under Delaware law, the answer to this question is an unambiguous “no.”

In WL Ross & Co. v. Storper, a recent Commercial Division decision involving the private equity firm founded by U.S. Secretary of Commerce Wilbur Ross, Justice Andrea Masley suggested that New York courts can disregard choice-of-law provisions if the law of the state specified by the choice-of-law provision is “substantively similar” to that of New York on the topic at issue.  Attorneys who routinely draft agreements that contain choice-of-law provisions would do well to take note of this decision, as it may imply that more careful attention should be paid to such provisions when New York law is best avoided for strategic reasons.

Justice Anil Singh of the New York Commercial Division recently issued two decisions related to the long-running litigation between Russian businessmen Alexander Gliklad and Michael Cherney.  Gliklad v. Deripaska, No. 652641/2015, 2017 BL 137121 (N.Y. Sup. Ct. Apr. 25, 2017); Moquinon Ltd. v. Gliklad, No. 650366/2017, 2017 BL 137162 (N.Y. Sup. Ct. Apr. 6, 2017).  Both decisions dealt setbacks to Gliklad’s ability to collect after winning a $385 million judgment.

In Fidilio v. Hoosick Falls Productions, Inc., No. 654066/2016, 2017 BL 107640 (Sup. Ct. Mar. 22, 2017), Justice Eileen Bransten of the New York County Commercial Division granted a motion to compel arbitration of a dispute relating to a short-lived reality TV show, Scrappers.  Justice Bransten ruled that the arbitration clause in one agreement between Frank Fidilio, the show's creator, and Hoosick Falls Production, Inc. ("Hoosick"), the production company, required arbitration of Fidilio's claims against Hoosick brought under another agreement which was executed at the same time, by the same parties, governing the same subject matter.  Fidilio's remaining claims for breach of contract as a third-party beneficiary, unjust enrichment, and an accounting against Viacom International Inc. and the show's distributor, New 38th Floor Productions, Inc. ("New 38th"), were dismissed for failure to state a claim.  Fidilio provides important lessons for parties considering mandatory arbitration clauses in connection with transactions involving multiple agreements, as well as for litigants considering whether claims may be subject to mandatory arbitration under provisions of related agreements.

In a recent decision, Justice Anil Singh of the Commercial Division dismissed a counterclaim asserted by Visa against Wal-Mart for fraudulent inducement.  According to Justice Singh, Visa’s allegations failed to satisfy the collateral promise rule as its fraud claim did not concern misrepresentations of present material fact that were collateral to the contract.  Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., No. 652530/2016, 2017 BL 65006 (Sup. Ct. Feb. 27, 2017).

Justice Jeffrey K. Oing in the Commercial Division handed down a decision recently that discusses frustration of the occurrence of a condition precedent by parties to commercial contracts.  Nesconset ZJ 1 v. Nesconset Acquisition, LLC, No. 652719/2015, 2016 BL 339908 (Sup. Ct. Oct. 4. 2016).  The dispute in Nesconset involved agreements between buyers and sellers of nursing homes and related health care facilities.  The main issue in the case was whether the buyers could seek specific performance of the sales contract when the sellers’ conduct allegedly frustrated the satisfaction of condition precedents to the contract.  Justice Oing held that a seller who frustrates the buyer’s ability to satisfy a condition precedent will be unable to rely on the failure to satisfy that condition as justification to avoid the contract and will be subject to a claim for breach of the implied covenant of good faith and fair dealing.

Although defenses based on antitrust law are usually disfavored in breach of contract actions, they are permitted when an agreement on its face would require actions violating antitrust law.  On September 20, 2016, in Time Warner Cable Enters. LLC v. Universal Communications Network, Inc., 652407/2015, 2016 BL 316191 before Justice Oing the Commercial Division found that cable distribution agreements requiring a company to pay to have its channel carried in additional markets are not invalid on their face.

On August 18, 2016, in Obsessive Compulsive Cosmetics, Inc. v. Sephora USA, Inc., No. 652074/2015, 2016 BL 307244 (N.Y. Sup. Ct. Aug. 18, 2016), Justice Ramos handed down an order that allowed a plaintiff to proceed with claims for breach of two verbal agreements that were purportedly made after the parties had executed a written agreement stating that the contract cannot be changed except by written agreement of both parties.