Category Archives: lawsuit

May a Private Company Close off a Public Space that is an Officially Designated City Landmark Without Explanation?

Many have been wondering when JP Morgan Chase (“Chase”) will take down the fencing closing off Chase Manhattan Plaza, an architectural landmark in Lower Manhattan.  Public space activist have been trying to get the Landmark’s Preservation Commission (“Commission”) to step in, to no avail.  The Commission stated that Chase did not needs its permission to set up the fencing because it was removable and not attached to the plaza, therefore arguably temporary.

To date, plaza owner Chase has not offered a comment and has not dispelled the position that the site was blocked to keep Occupy Wall Street protesters away.  Chase has a permit for waterproofing repair work that includes a “no change in use, egress or occupancy” provision. However, open-space advocates have proclaimed that the fence itself has changed the  “use, egress or occupancy” of the site.  When a lawyer working on behalf of an open-space advocacy group requested information about the building in a Freedom of Information request, that request was denied because the Chase Manhattan Plaza building has been put on a list generated by the New York Police Department, that keeps the building permit plans confidential due to terrorism concerns.

This dispute over the fencing has taken place for months. A supporter of open and accessible public space recently sued the New York City Department of Buildings over its failure to disclose the permit plans.  At a recent hearing in State Supreme Court, there was a suggestion that sensitive information be redacted from the permits to allow the public access to the plans.  What the outcome of the dispute will be is unknown.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

 

What Types of “Housing-Related Disputes” Are Subject to Mandatory Alternate Dispute Resolution?

Under New Jersey’s Condominium Act, housing-related disputes are required to be settled via arbitration or a similar method of alternative dispute resolution (“ADR”). In a recent decision, the Appellate Division of the Superior Court of New Jersey clarified the types of disputes to which this applies and, hence, when ADR is and is not required. Bell Tower Condominium Association v. Haffert, Docket No. A-3218-10T2.

In that case, the plaintiff, Bell Tower Condominium Association (“Association”) owned a five-unit condominium in Sea Isle. The defendants, Pat Haffert and Terry Downey, owned one of the units. In May 2010, the Association’s Board approved an $80,000 special assessment for repairs. The Defendant Haffert was the fifth of the five Board members. Unfortunately, he was not present at the 2010 meeting during which the Board approved the assessment. Four of the unit owners were each assessed $14,400, but the defendants were assessed $22,400 because their unit was substantially larger than the other four. The defendants subsequently refused to pay the amount assessed to them.

The Association filed a complaint, demanding judgment in favor of the Association in the amount of $22,400 for the unpaid special assessment, as well as attorney’s fees and costs. The defendants filed a counterclaim asserting that the Association had failed to adhere to the Association’s Master Deed, bylaws and applicable statutes, and sought an order requiring arbitration or mediation of the dispute. The defendants relied heavily on a section of the Planned Real Estate Development Full Disclosure Act (“PREDFDA”), which requires condominium associations to establish an arbitration mechanism to resolve disputes between a condominium board and its unit owners. See N.J.S.A. 45:22A-44. However, a lower court determined that the PREDFDA requirements were inapplicable to condominiums containing fewer than ten units, and Bell Tower had only five. The lower court also concluded there was no genuine dispute about the validity of the assessment or the defendant’s obligation to pay their share. The court granted summary judgment in favor of the Association. The defendants appealed.

Upon review, the Appellate Division of the Superior Court of New Jersey considered whether the lower court erred when refusing to send the Association’s claim for judgment to arbitration. First, the Appellate Court noted that there is a strong public policy favoring arbitration, citing prior case law that held that “[l]itigation ought to be a last resort, not a first one.” Billig v. Buckingham Towers Condominium Association I, Inc., 287 N.J. Super. 551, 564 (App. Div. 1996). Additionally, the Appellate Division had previously construed the PREDFDA statute to require condominium associations to provide a means of resolving “housing-related disputes” as an alternative to litigation. See Finderne Heights Condominium Association, Inc. v. Rabinowitz, 390 N.J. Super. 154, 163 (App. Div. 2007).

The Bell Atlantic Court determined that the resolution of the appeal turned on whether the dispute between the Association and the defendants was a “housing-related dispute” within the meaning of N.J.S.A. 46:8B-14(k) (the statute did not define the term).  If the dispute was housing-related, the Association conceded that arbitration or some other method of ADR would be required.

Though the Court noted that the term “housing-related disputes” is broad, it is not ambiguous:

“In light of the autonomy that unit owners surrender by choosing to live in a condominium, we cannot agree with the Association that its management of the condominium’s common elements, and its imposition of special assessments, should be carved out as an exception to the broad right of unit owners to demand arbitration to resolve ‘housing related disputes.’…The term ‘housing-related disputes’ signifies that only disputes that arise from the parties’ condominium relationship are subject to the arbitration provisions of N.J.S.A. 46:8B-14(k). Any other dispute would be resolved either in the Law Division or in the municipal courts.”

Bell Tower at x.

The Court differentiated other disputes – such as an auto accident in a condominium parking lot – as examples of matters that would not be treated as “housing-related disputes.” The Court concluded that the dispute between the Association and the defendants did qualify as such a dispute under the language of the statute, and consequently, arbitration or other ADR was required to resolve the dispute.

“In sum, the strong public policy of this State favoring arbitration, the broad and unconditional language chosen by the Legislature when it used the term ‘housing-related disputes,’ and the present dispute’s origins in the disagreement over the scope of the special assessment, all compel the conclusion that under the statute, arbitration or other form of alternative dispute resolution is required.” Id. at x

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Can An Agreement Be Fully Integrated If the Parties Also Agree To Execute A Long Form Agreement In the Future?

The Federal District Court for the Southern District of New York recently decided that a licensing agreement between a television broadcast company and the owner of an animated children’s television series was fully integrated, despite a provision in the agreement which stated that the parties would execute a more detailed long form agreement in the future. 4Kids Entm’t, Inc. v. Upper Deck Co., 2011 U.S. Dist. LEXIS 58669 (S.D.N.Y. May 31, 2011).

The plaintiff in the suit, 4Kids Entertainment (“4Kids”), sued the Upper Deck Company and Upper Deck Entertainment, LLC (collectively “Upper Deck”) for breach of contract. In 2008, the two parties entered into a two-year licensing and broadcasting agreement for an animated children’s television series called the Huntik Series (“Huntik”). The Term Sheet for this agreement was executed by Upper Deck on February 26, 2008 and by 4Kids on March 4, 2008.

The Term Sheet licensed to 4Kids the right to broadcast Huntik within the United States, requiring it to air 26 episodes. It also granted 4Kids an exclusive option to license the television rights to any additional episode during the contract period, with the contract term being automatically extended by one year each time this option was exercised. The Term Sheet also included details regarding payment that would be owed to 4Kids.

A particularly crucial provision included in the Term Sheet was that both parties agreed to be bound by it until a long form agreement could be reached. The relevant provision read that “[t]he parties agree to execute a long form agreement on or before April 15, 2008… [and until such time], this Deal Memo shall serve as the binding agreement of the parties.” Id. at 9. However, the two parties never executed a long form agreement.

The Term Sheet required Upper Deck to pay an advance of $30,000 in two installments. They made the first installment, but failed to pay the second when it was due. 4Kids sought summary judgment in their favor for the amount owed, claiming Upper Deck breached its contract with the plaintiffs. Upper Deck argued the Term Sheet was ambiguous and offered parol evidence to support its argument.      

The parol evidence rule is a common law rule that prevents parties from introducing additional evidence that seems to contradict or add to terms agreed to in a contract. In order to determine if the parole evidence rule applies, courts must determine if an agreement is integrated. Id. at 14. An agreement is integrated if its represents the entire understanding of the parties to the transaction. Id. Under New York law, a contract that appears complete on its face is an integrated agreement as a matter of law. Id.

In 4Kids, the Court found the Term Sheet to be fully integrated, holding that the agreement sets forth every material contract term. Id. at 16-17. Additionally, the Court found that nothing in the contract suggested that the defendants’ failure to pay any specific amount prior to the due date for the second payment would excuse the making of that payment. The Court also held that “the fact that the Term Sheet contemplates the possibility of a longer and more detailed agreement,” containing the terms set forth herein in more detail as well as such terms as may be agreed to in writing by the parties after good faith negotiation . . . does not call this conclusion into question.” Id. at 17-18.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

When Does a Landlord’s Flat Legal Fee Violate the New Jersey Consumer Fraud Act?

May a landlord charge a tenant a fixed rate each time the landlord has to consult its lawyers for matters related to a lease agreement, even if that fixed rate is higher than the costs the landlord actually incurs?

The Appellate Division of the Superior Court of New Jersey considered this issue in a recent decision. Green v. Morgan Properties, Superior Court of New Jersey: Appellate Division (A-3203-10). In that case, the plaintiffs – tenants of apartment complexes owned by the defendant and landlord, Morgan Properties – were subject to a lease provision that required them to pay attorney’s fees of $400 plus costs anytime the landlord used the services of an attorney for any lease-related matter. The $400 fee applied regardless of whether or not litigation was commenced or whether the attorney was a member of the landlord’s in-house counsel. The landlord owned 131 apartment complexes in 10 states and filed an average of 200 evictions a month in Camden County alone.

The plaintiffs were sued on eviction complaints. In addition to alleging wrongful eviction, the plaintiffs also brought a claim under the Consumer Fraud Act (“CFA”), claiming that the attorney’s fees provision was unconscionable and that the landlord misrepresented the nature of the fees. The Law Division of the Superior Court of New Jersey in Camden County granted the defendant’s motion to dismiss, holding that a landlord is allowed to collect reasonable legal fees incurred in an eviction. The Court found the $400 fee to be reasonable. The plaintiffs appealed.

The Appellate Division rejected the plaintiffs’ claim that the landlord was barred from collecting attorney’s fees from tenants because it is represented by in-house counsel. However, the Court also found that the plaintiffs stated a claim upon which relief could be granted when they alleged that the landlord acted unlawfully in seeking legal fees that exceeded the costs incurred.

The Rules of Professional Conduct bar a non-lawyer from sharing in the fees of an attorney. R.P.C. 5.4 (a). An agreement between a lawyer and non-lawyer regarding the sharing of fees is void and unenforceable “because it is founded upon prohibited activity and is against public policy.” Green at 5 (citing Infante v. Gottesman, 233 N.J.Super. 310, 315 (App. Div. 1989).

Citing a Professional Ethics Opinion that dealt with this Rule of Professional Conduct, the Court stated that the “only situations in which a lawyer may properly permit a client to receive and retain fees paid by others on account of his legal services are when such payments are to reimburse the client in whole or in part for the client’s legal expenses actually incurred in the specific matter for which they are paid.” N.J. Adv. Comm. On Prof’l Ethics Opinion 93, 89 N.J.L.J. 248 (1966).

Though an attorney’s violation of the Rules of Professional Conduct does not give rise to a private cause of action against an attorney, the plaintiffs’ claims were directed instead against the non-attorney defendants, resting on an alleged illegality of the lease’s fees provision and misrepresentation of the nature of the fees sought. The Court held that the plaintiffs adequately alleged misrepresentation of the nature of the fees by showing that the defendants required legal costs of $400 when they had actually incurred costs much smaller than that. While fee-shifting provisions that set fixed amounts are sometimes allowable, they are subject to court review for their reasonableness. Id. at 6. The Appellate Court reversed and remanded the lower court’s decision on that basis.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

Does a New York Contractor Need A License To Sue For Breach of Contract?

New York Contractors who perform work without the requisite license could find themselves lacking the necessary tools to bring legal action against residence owners they contract to do business with.

In a recent New York case, the parties entered into a written contract that required the plaintiff to renovate the defendant’s residence. This included, among other tasks, building a second-story addition to the master bedroom. Enko Const. Corp. v. Aronshtein, 2011 WL 5222881 (N.Y.A.D. 2 Dept.). The project became larger than originally planned, resulting in the demolition of most of the original structure of the defendant’s residence. After the plaintiff had performed extensive work but before he had completed the project, the defendant terminated his services. The plaintiff sued in New York Supreme Court to recover damages for breach of contract and in quantum meruit (the measure of value) for services performed. The defendant moved to dismiss the complaint, claiming the plaintiff was not a licensed home improvement contractor. The Court granted the defendant’s motion, and the plaintiff appealed.     

New York law provides that “no person shall own, maintain, operate, engage in or transact a home improvement business…unless he [or she] is licensed therefore.” Nassau County Administrative Code, § 21–11.2 CPLR 3015(e) states that a complaint that seeks to recover damages for breach of a home improvement contract or to recover quantum meruit for home improvement services is subject to dismissal if it does not allege compliance with the licensing requirement. “An unlicensed contractor may neither enforce a home improvement contract against an owner nor seek recovery in quantum meruit.” J.M. Bldrs. & Assoc., Inc. v. Linder¸ 67 A.D.3d 738, 741.      

The plaintiff conceded that it did not possess the requisite license. Instead, it argued that it did not need a license, due to a statutory exemption to the requirement that applies to the construction of new homes. However, the Appellate Division of the Second Department of the Supreme Court of New York concluded that “[t]he statutory exemption for ‘construction of a new home’ is limited to the creation of a structure, where none previously existed…Even if a dwelling is stripped to the frame and rebuilt, the work constitutes the renovation of an existing home, not the erection of a new one.” J.M. Bldrs. at 740. Because it was undisputed that there was an existing home on the property when the plaintiff began its work, the Court held that the plaintiff was engaged in “home improvement” and thus was required to have the requisite license for such work. Additionally, the Court held that the defendant’s home fell within the Code’s definition of buildings “used as a private residence or dwelling place” even though the homeowners moved out temporarily while the plaintiff performed the renovations. 

The Court’s decision highlights the importance that contractors engaged in “home improvement” in New York ensure that they have the requisite license to perform their work before taking on such tasks. Failure to do so might leave them without legal grounds to recover from parties who terminate their services while a project is ongoing.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

When Someone is Charged with Tax Evasion, Can the Jury Consider the Defendant’s Previous Noncompliance with the IRS?

The answer is yes. Defendant’s prior non-compliance with federal tax laws can be used to prove the defendant’s intent to commit the crime charged.

This was addressed in a case heard in the United States Court of Appeals for the Third Circuit. US v. Daraio, 445 F. 3d 253 (C.A. 3 (N.J.), 2006). In that case, the grand jury returned an indictment charging Daraio, the Defendant, with one count of tax evasion for violating 26 U.S.C. §7201 and 18 U.S.C. §2. Specifically, the indictment charged Daraio with the following:

knowingly and willfully attempt[ing] to evade and defeat the payment of a substantial part of the payroll taxes due and owing by Eagle Security, Inc. to the United States for the quarterly period that included April 1994 through April 1998, in the amount of approximately $222,607.40, by directing clients of Eagle Security, Inc. to pay their unpaid balances that they owed to Eagle Security, Inc. to E.S.S. Co. Id.

The indictment charged that Daraio directed the clients of Eagle Security, Inc. to pay their unpaid balances to E.S.S. Co. around the same time IRS issued levies on ten clients of Eagle Security, Inc. Those levies required them to pay the IRS the balances that would otherwise be owing to Eagle Security. Id. The government introduced this evidence to prove Daraio’s willingness or intent based on her ‘general feelings or general attitude towards the IRS’. Id. The evidence included the following items:

(1) Payroll tax records for Joseph Daraio, Daraio’s husband, trading as ESS–Co. and Quest Investigators, pertaining to tax periods from 1989–1993 including the records themselves, as well as, for certain tax periods, certifications of a “lack of records” indicating the failure to file tax returns;

(2) Certifications by the IRS that Eagle Security did not file payroll tax returns in 1990–1993 and 1999–2004;

(3) Payroll tax records, again including certifications of lack of records, for ESS–Co., beginning in the third quarter of 1998 through the first quarter of 2004;

(4) Certifications of lack of records for ESS–Co. from 1992–1998 and 2000–2004;

(5) Corporate tax records for Eagle Security from 1990–2003,that showed that it had not filed forms with the IRS in 1999, 2001, and 2002;

(6) Corporate tax records for ESS–Co. from 1998–2003; and

(7) Joint personal income tax returns for Joseph Daraio and Daraio from 1984 and 1989–2003.

Id. at 256.

Before presenting this evidence at trial, the prosecutor filed and served a notice of its intent to introduce the evidence at trial. At trial, the lower court gave the following limiting instructions to the jury:

Ladies and gentlemen of the jury, you will soon, and at various other times during the trial, hear evidence of acts the defendant—of acts of the defendant that may be similar to those charged in the indictment, but which were committed on other occasions.

 You must not consider any of this evidence in deciding if the defendant committed the acts charged in this indictment. However, you may consider this evidence for other very limited purposes.

 If you find beyond a reasonable doubt from other evidence in this case, that the defendant did commit the acts charged in the indictment, then you may consider the evidence of similar acts allegedly committed on other occasions, to determine, one, whether the defendant had the intent necessary to commit the crime charged in the indictment; two, whether the defendant had the motive to commit the act charged in the indictment; or, three, whether the defendant willfully committed the acts for which she is on trial, or rather committed them by accident, negligence, or mistake.

Id. at 257.

After the jury returned a guilty verdict, Daraio appealed. The Court of Appeals rejected Daraio’s arguments and affirmed her conviction. In determining the admissibility of the evidence at issue, the Court applied the following four-part test:

(1) The evidence must have a proper purpose; Id. at 264.

(2) It must be relevant; Id.

(3) Its probative value must outweigh its potential for unfair prejudice; and Id.

(4) The court must charge the jury to consider the evidence only for the limited purposes for which it is admitted. Id.

The Court held that the evidence of Daraio’s “history of non-compliance with the IRS” was relevant to prove willfulness and the lower court’s limiting instructions were adequate to prevent any unfair prejudice. Id. at 265. The Court also relied on precedent which held that ‘a defendant’s past taxpaying record is admissible to prove willfulness circumstantially because such evidence is indicative of intent to evade the tax system.’ Id.

Thus, the Court allowed the admission of evidence of defendant’s prior taxpaying records to prove the defendant’s intent to evade taxes.

Comments/Questions: gdn@gdnlaw.com

© 2012 Nissenbaum Law Group, LLC

What are the limits of the Fiduciary Duty Owed by the Members of an LLC to One Another?

Recently, the Appellate Division of New York, revived a lawsuit over the fiduciary duty owed by members of a limited liability company (“LLC”) to one another in a real estate deal. Fiduciary duty means the duty of trust that one person owes another. In that case, there was an agreement between the members of the LLC that they did not have a fiduciary relationship. However, the Court held that the agreement failed to preclude the claims for the breach of fiduciary duty owed by the members to one another. Pappas v. Tzolis, 2011 WL 4089439, 1, 1 (N.Y. A.D. 2011).

In that case, Plaintiffs, Steve Pappas and Constantine Ifantopoulos and Defendant, Steve Tzolis, were partners in Vrahos, a limited liability company. Vrahos was specifically created to enter into a long-term lease of a building in lower Manhattan. The lease required the payment of a security deposit and personal guarantees from Tzolis and plaintiff Steve Pappas. The operating agreement specified that Tzolis would furnish the security deposit for the lease. It also stated that Tzolis would have the right to sublease the building as consideration for furnishing the security deposit. But, this right to sublease was conditioned on Tzolis making certain additional payments to Vrahos.

Tzolis exercised his right to sublease the building, but failed to make additional payments to Vrahos. A few months later, Tzolis offered to buy out his partner’s shares in Vrahos. Tzolis was to pay $1 million to Mr. Pappas and $500,000 to Mr. Ifantopoulos. At the time the parties executed the assignment agreement, they also signed a handwritten closing certificate. One of the terms of the closing certificate stated: “[E]ach of the undersigned Sellers agrees that Steve Tzolis has no fiduciary duty to the undersigned Sellers in connection with such assignments.” Id at 1. Shortly after the assignments to Tzolis became effective, he assigned the lease to a third party for $17.5 million.

The plaintiffs were outraged. They alleged that Tzolis had started the negotiations for the assignment of the lease months before he offered to buy their shares, and that Tzolis had a duty to inform them and share the profits from the deal. The plaintiffs filed a complaint with causes of action for breach of contract, fraud, breach of fiduciary duty, misappropriation of business opportunity, breach of the implied covenant of good faith and fair dealing and a derivative claim filed on behalf of Vrahos.

Tzolis moved to dismiss the complaint based on the terms of the closing certificate executed by the parties. The lower court granted Tzolis’ motion, finding that the plaintiffs had no cause of action because the contract “eliminates the fiduciary relationship that would, otherwise, be owed by the members to each other and to the LLC.” Id at 3.

 The Appellate Division disagreed with the lower court’s ruling. It held that “[A] fiduciary cannot by contract relieve itself of the fiduciary obligation of full disclosure by withholding the very information the beneficiary needs in order to make a reasoned judgment whether to agree to the proposed contract.” Id. at 5. It also held that the plaintiffs and the defendant were fiduciaries in matters relating to Vrahos until the closing of the buy-out transaction. Therefore, up until that moment, Tzolis had a fiduciary duty to disclose to his partners, the negotiations related to the assignment of the Vrahos lease.

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© 2012 Nissenbaum Law Group, LLC