February 12, 2015

ODE TO A BUSINESS TORT: COUNTERSUIT OVER GREEK SCULPTURE CRUMBLES TO THE GROUND


"The Greek sculpture is all melted away, as if it had been statues of ice; here and there a solitary figure or fragment remaining, as we see flecks and scraps of snow left in cold dells and mountain clefts, in June and July. For the genius that created it creates now somewhat else."

- Ralph Waldo Emerson, "Circles" (1841)


In Arnon Ltd v. Beierwaltes, -- 257 A.D.3d -- , -- N.Y.S.2d --, 2015 N.Y. Slip Op. 01156, 2015 WL 520742, at *1 (1st Dept., Feb. 10, 2015), plaintiff commenced a lawsuit against defendants, alleging breach of contract for terminating a sale under which defendants had agreed to sell it an antique Greek sculpture.

Defendants responded that plaintiff was the one who breached the agreement, and asserted counterclaims for, among other things, (1) fraudulent inducement and (2) tortious interference with prospective economic relations.

The court issued a temporary restraining order preventing defendants from transferring the sculpture to a new buyer. The parties then stipulated that the sculpture would be held at a storage facility pending the outcome of this action. Plaintiff then moved to dismiss defendants' counterclaims pursuant to CPLR ยง 3211(a)(7) for failure to state a claim.

The trial court, in Arnon LTD v. Beierwaltes, 2013 WL 5859555 (New York County, October 24, 2013)(Hon. Marcy S. Friedman, J.S.), granted the plaintiff's motion and dismissed defendants' fraudulent inducement counterclaim as duplicative of their breach of contract counterclaim, finding that the alleged misrepresentation made by plaintiff that it had the capability and intent to immediately pay for the sculpture amounted only to an "insincere promise of future performance" of the contract. First Bank of Ams. v. Motor Car Funding, 257 A.D.2d 287, 292 (1st Dept. 1999).

The trial court also dismissed the counterclaim for tortious interference with prospective economic relations. Such a claim requires a showing that the "interference" was accomplished by "wrongful means" or with "malicious intent." Carvel Corp. v. Noonan, 3 N.Y.3d 182, 191 (2004). "Wrongful means" includes "physical violence, fraud or misrepresentation, civil suits and criminal prosecutions, and some degrees of economic pressure" Id. at 191. Where the interfering conduct is a civil suit, it must be shown that the suit was "frivolous." Pagliaccio v. Holborn Corp., 289 A.D.2d 85 (1st Dept 2001).

Here, accepting defendants' allegations as true and affording them every favorable inference, the First Department held that defendants set forth sufficient facts to support their claim that plaintiff's action against them was frivolous. However, in order for conduct to constitute "tortious interference" with business relations, the First Department held that conduct directed that it must not be solely directed at the plaintiff itself, but at the party with which the plaintiff has or seeks to have a relationship." Carvel, 3 N.Y.3d at 192. As the lawsuit was not directed at the defendants' customers to induce them to terminate business relations with defendants, but was rather directed at defendants to prevent them from carrying out their obligations to sell the sculpture to the new buyer, the First Department rejected defendants' argument that their business relationships with each other have been damaged by plaintiff's suit, and therefore unanimously affirmed the rulings of the trial court.


By Heath J. Szymczak, Esq.
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Mr. Szymczak is a Partner at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York. He also serves as Chair of the NYSBA Business Torts and Employment Litigation Committee (TICL Section) and as Co-Chair of the ABA Tortious Interference Sub-Committee (Business Torts Committee).

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December 4, 2013

Comment sought on proposed NY Commercial Division rule on use of interrogatories (due 1-29-14).

September 7, 2013

Motion to Pierce Corporate Veil Granted; Evidence Shows Corporation Sham Entity.

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August 29, 2013

NYSBA TICL Section 2013 Summer Meeting - Photo Wrap Up


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August 16, 2013

LEVELING THE PLAYING FIELD: New York's "Employee Choice Doctrine" Can Improve Employer Positioning in Non-Compete Litigation


One of the most disruptive scenarios for any company is the departure of a key employee who has signed up to work for a competitor. In addition to the significant emotional aspects of the situation, companies find themselves suddenly vulnerable and facing considerable unanticipated business risks. Has the employee taken competitively sensitive trade secret information developed over years of hard work? Will that information now be used against the company? Did the employee sign a non-competition agreement and, if so, will it stand up in court? Unfortunately, restrictive covenants in non-competition agreements are largely disfavored by the courts. The legal system favors free market competition unless an employer can show that the competitive restriction is reasonable (both in time and location) and that it has a compelling reason to seek enforcement. An employer often faces a costly and time-consuming uphill legal battle to enforce a restrictive covenant.

There is, however, a little-known doctrine in New York state that may allow an employer to improve its position in potential non-compete litigation: the "employee choice doctrine." The doctrine applies where an employer conditions receipt of post-employment benefits (including stock options, pension benefits, and deferred compensation bonuses) upon compliance with a restrictive covenant. Significantly, as a consequence of this bargained-for exchange, restrictive covenants under this doctrine are fully enforceable without regard to reasonableness, in cases where the employee leaves voluntarily or is terminated for cause. Under the doctrine, if an employee violates the terms of such a noncompetition provision, any post-employment benefits conditioned upon compliance with that restrictive covenant are deemed forfeited.

New York is one of the few states that permits application of the "employee choice doctrine," and a recent case in the Fourth Department (which covers Central and Western New York) reaffirmed its applicability and enforcement (Lenel Systems Intern., Inc. v. Smith).(FN1) Thus, this doctrine continues to provide businesses with an avenue for shielding the risks associated with the loss of a key employee by provisioning benefit packages for retention or other purposes, in exchange for restrictive covenants. By understanding the nuances of this legal doctrine, businesses can and should consider the importance of preparing broad and fully enforceable noncompetition and other restrictive covenants to place key employees on notice regarding the implications of potential resignation and subsequent engagement in a competing business. Although the doctrine does have certain limitations, it presents employers with a possible way to level the legal playing field in the event of future litigation.

FN1. Lenel Systems Intern., Inc. v. Smith, 106 A.D.3d 1536, 966 N.Y.S.2d 618 (4th Dept. 2013 applying the Court of Appeals' decision in Morris v. Schroder Capital Mgt. Intl., 7 N.Y.3d 616, 620, 825 N.Y.S.2d 697, 859 N.E.2d 503 (2006).


By Heath J. Szymczak, Esq. and Bradley A. Hoppe, Esq.

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July 25, 2013

Limit Costs, Delays in Business Litigation - Buffalo Law Journal Article

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July 11, 2013

Join the NYSBA TICL Section in Annapolis for its Summer Meeting (8/18 to 8/21). Sign up by July 19, 2013 for reduced rates. See link below.

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April 23, 2013

Standardizing Efficiencies in Business Litigation

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March 23, 2013

Event Honors Hon. John A. Michalek and Celebrates the Commercial Division


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(From left: Kathleen M. Sweet, Hon. John A. Michalek, Tracee E. Davis, and Daniel E. Sarzynski)


On January 1, 1993, New York began its grand "business court experiment" with only four New York's Supreme Court justices in New York County. Twenty years later, on January 30, 2013, members of New York's 8th Judicial District (consisting of the counties of Western New York) came together to celebrate the growth and success of the Commercial Division, and to honor the contributions made by the Honorable John A. Michalek toward its advancement. The event also welcomed the incoming Commercial Division Justice, the Honorable Timothy J. Walker. The ceremony was jointly sponsored by the Commercial and Federal Litigation Section and the Bar Association of Erie County (BAEC). The event was held in the beautiful and historic Hotel Lafayette in Buffalo, New York.

As pictured above, an award was presented to Justice Michalek by Tracee E. Davis, Chair of the Commercial & Federal Litigation Section; Kathleen M. Sweet, BAEC President; and Daniel E. Sarzynski, Chair, BAEC Commercial & Bankruptcy Law Committee. Even before there was a Commercial Division, Justice Michalek has been no stranger to Commercial Law, developing a record of distinguished jurisprudence. As Presiding Justice, his courtroom has been noted for its thoroughness and efficiency. Justice Michalek praised his staff and law clerks for their hard work and expertise. He also praised the high caliber of advocacy delivered by the local bar practicing in the Commercial Part. Justice Michalek welcomed Justice Walker as the incoming Presiding Justice and offered to assist him in making the transition, a tradition of collegiality that has been passed along with each new justice since the Commercial Part's inception.

Justice Walker also has extensive experience in commercial litigation, having represented individual business owners, as well as Fortune 500 and multi-national organizations, while in private practice. He thanked Justice Michalek for his contributions, as well has the hard work of the 8th Judicial District's Administrative Judge, the Honorable Paula L. Feroleto, who was also in attendance. He remarked that he was very pleased to see Tracee Davis, having recently met her in New York City at the NYSBA's Annual Meeting a couple of weeks earlier. He emphasized the importance of the support of the Commercial and Federal Litigation Section, and affirmed his commitment to Chief Judge Jonathan Lippman's goal of continuing to improve the Commercial Division to make New York a place where companies will prefer to do business.

Over one hundred members of the bench and bar, together with friends and family, were in attendance. The Commercial and Federal Litigation Section was very well represented, including several members who came in from outside of Western New York. Section Chair Tracee Davis flew in from New York City; David H. Tennant (immediate past Section Chair) and Sharon M. Porcellio (former Section Chair) came in from Rochester; and Mitchell J. Katz (Co-Chair of the Commercial Division Committee) came in from Syracuse. Also in attendance was the NYSBA President-Elect, David M. Schraver (also from Rochester), as well as immediate past NYSBA President Vincent E. Doyle III. The strong showing from the NYSBA leadership was a demonstration of support to the Western New York contingent and the Commercial Division itself.

From its humble beginnings, New York now has a state-wide Commercial Division consisting of twenty-seven justices in eight counties and two entire judicial districts. By all accounts, the Commercial Division has been a tremendous success. Many states have followed New York's example, with business courts now found in over nineteen states. In 2010, even Delaware, known for its venerable Court of Chancery, created a separate business court which resembles the New York model. Most recently, Michigan has created a business court which will open its doors this year. The Commercial and Federal Litigation Section is committed to the advancement of the Commercial Division through the tireless work of its various committees and working groups. It also stands ready to assist Chief Judge Lippman's "Task Force on Commercial Litigation in the 21st Century" in ensuring that New York's Commercial Division is the premier forum for the adjudication of business disputes in the Nation.


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(From left: Heath J. Szymczak, David H. Tennant, Tracee E. Davis, Sharon M. Porcellio, and David M. Schraver)


By Heath J. Szymczak, Esq.

Mr. Szymczak is a Partner at Jaeckle, Fleischmann & Mugel, LLP in Buffalo, New York. He also serves as Chair of the NYSBA Business Torts and Employment Litigation Committee (TICL Section) and as Co-Chair of the ABA Tortious Interference Sub-Committee (Business Torts Committee).

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