Source: https://www.schlamstone.com/commercial/
Timestamp: 2019-04-21 10:13:39+00:00

Document:
Where, as here, a defendant does not timely respond to the complaint and the plaintiff moves for a default judgment and proffers an affidavit of merit showing defendants’ liability, the burden shifts to defendants to proffer a justifiable excuse for default and a meritorious defense.
Summit does not proffer any excuse for failing to respond to the AC, Jet alone a reasonable one. Indeed, Summit’s only attempt at addressing the reasonableness of its failure to respond to the AC is the purported lack of proper service on Seiden. That issue, while dubious, is a red herring. Even if Seiden was not served, that fact has no bearing on whether a default judgment should be issued against Summit. There is no question that Summit was served with the original complaint, appeared in this action by counsel and responded to the original complaint. It was properly served with the AC bye-filing at a time when it was represented by counsel.
Summit’s failure to explain its failure to respond to the AC is unsurprising. As discussed, the record is clear that it willfully defaulted. It made the tactical decision that defending the breach of contract claim was not worth its time or money because it is judgment proof. The record is equally clear that Summit, from the outset, frustrated the discovery process and that it chose to default to forgo engaging in discovery on the claims against it, including the breach of contract cause of action. Excusing Summit’s default, under the circumstances, would allow Summit to achieve maximum delay by requiring the parties to altogether reopen the ESI process when, had it not affirmatively chosen to default, all of the discovery would have efficiently proceeded in tandem from the outset.
If you are served with a complaint and fail timely to answer, the court can enter judgment against you: a default judgment. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether you have been properly served or if a default judgment has been entered against you.
The central issues before the Court are: (1) whether the buyout procedures of Section 10.6 of the Agreement are subject to the broad arbitration provisions contained in Section 13 .4; and (2) whether such an issue should be determined in the California Arbitration or by this Court.
If the buyout procedures of Section 10.6-whereby the parties select a neutral arbitrator to determine the value of Yucaipa’s interests in the Company-are not further subject to Section 13.4’s broad, general arbitration provision purporting to govern all disputes arising under the Agreement, then Sydell’s motion to compel a closing should be granted. If, however, the broad arbitration provisions of Section 13.4 govern disputes arising out of Section 10.6’s potentially separate valuation arbitration, then a closing should be stayed and the parties compelled to participate in the California Arbitration.
Sydell argues that Section 10.6 of the Agreement provides a streamlined valuation arbitration procedure in the event that Sydell exercises its right to redeem Yucaipa’s interest in the Company and the parties disagree about the valuation. Thus, Sydell argues that Section 10.6 contains its own arbitration process that is not subject to further JAMS arbitration under the Agreement’s broader dispute resolution provisions in Section 13.4.
Yucaipa, in its opposition and cross motion, asserts that the issue of whether disputes arising from the valuation arbitration-specifically, Yucaipa’s allegation that Sydell corrupted the valuation proceeding-is an issue of arbitrability that the California arbitrator, and not this Court, must determine. Thus, Yucaipa argues that the threshold issue of arbitrability must be determined in the California Arbitration.
All disputes, claims and controversies arising out of or relating to this Agreement, including any and all disputes, claims or controversies arising out of or relating to (i) the Company, (ii) any Member’s rights and obligations hereunder, (iii) the validity or scope of any provision of this Agreement, (iv) whether a particular dispute, claim or controversy is subject to arbitration under this Section 13.4 and (v) the power and authority of any arbitrator selected hereunder, that are not resolved by mutual agreement shall be submitted to final and binding arbitration before JAMS pursuant to the Federal Arbitration Act.
Thus, as Yucaipa asserts, the threshold issue of arbitrability must be decided by the California arbitrator before this Court can resolve the issue of whether the valuation should be confirmed and Yucaipa compelled to close on the buyout.
Ordinarily, a gateway dispute about whether the parties are bound by a given arbitration clause raises a ‘question of arbitrability for a court to decide. However, a court must defer to an arbitrator’s arbitrability decision when the parties submitted that matter to arbitration. This exception to the rule applies only when the parties’ arbitration agreement clearly and unmistakably provides that the question of arbitrability is to be determined by the arbitrator. Thus, the Federal Arbitration Act allows parties to agree by contract that an arbitrator, rather than a court, will resolve threshold arbitrability questions as well as underlying merits disputes.
Here, it is clear that Section 13 .4 of the Agreement provides that any and all disputes, claims and controversies arising out of or relating to whether a particular dispute, claim or controversy is subject to arbitration must be determined by a JAMS arbitrator. Thus, the California Arbitration must determine whether Yucaipa’s claims are arbitrable.
Further, the cases cited by plaintiff are distinguishable. For example, Natl. Union Fire Ins. Co. v Williams (223 AD2d 395 [1st Dept 1996) involves a promissory note and an indemnity agreement both with competing forum selection clauses. In National Union Fire Ins. Co., the Court found that National Union’s claims under the indemnity agreement were so distinct and separate from any legal claims under the note that the indemnity agreement’s forum selection cause was operative, and the indemnity claims would be heard in New York. The court dismissed National Union’s claim under the note on the ground that it was not brought in the appropriate forum pursuant to the note’s forum selection clause. Here, plaintiff’s own pleadings intertwine the 2010 Trust Agreement and the Joseph Agreement by seeking a declaration as to both which require a simultaneous review, as discussed below, as well as an interpretation of an. Agreement with a Delaware forum selection clause.
In CooperVision, Inc. v lntek Integration Tech., Inc., plaintiff brought claims under a software implementation agreement, which did not have a forum selection clause. Defendant Intek Integration Technologies argued that a software licensing agreement with a Washington state forum selection clause was integrated into the .implementation agreement, and thus, Washington was the proper forum. The court disagreed and held that plaintiff only brought claims arising out of the implementation agreement which did not provided for a mandatory forum. Again, plaintiff here seeks a determination involving both Agreements.
Further, plaintiff’s reliance on L-3 Communications Corp. v. Channel Technologies, Inc. for the proposition that, under New) York law, a party will not be bound to a forum selection clause in an agreement he did not sign is also misplaced. The non-signatory in that case bore no relation to the signatory to be implicitly included within the agreement’s forum selection clause. Here, plaintiff is an express and intended third-party beneficiary to the 2010 Trust Agreement. Although plaintiff argues that the 2010 Trust Agreement is separate and distinct from the Joseph Agreement, he asks the court to interpret both and declare certain provisions of each of them unenforceable and inapplicable. Thus, the 2010 Trust Agreement is one of two contracts forming the basis for this action. Further, the Joseph Agreement In Terrorem Clause explicitly incorporates the 2010 Trust Agreement, precluding plaintiff from bringing an action setting aside any provision of the 2010 Trust Agreement or bringing an action against any fiduciary under the 2010 Trust Agreement without clear and convincing evidence that such fiduciary’s conduct was grossly negligent or constituted willful misconduct. The court cannot make a determination as to whether plaintiff’s challenge to certain investment choices by the Defendant Trustees will set aside any provision of the 2010 Trust Agreement without analyzing that Agreement, which is subject to the Delaware forum selection clause.
Finally, plaintiff has not sufficiently demonstrated that the forum selection cause should be set aside as unreasonable, unjust, or overreaching, or because of fraud. In New York, forum selection clauses are prima facie valid and enforceable, and are not to be set aside unless a party demonstrates that the enforcement of such would be unreasonable and unjust or that the clause is invalid because of fraud or overreaching, such that a trial in the contractual forum would be so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court. Plaintiff’s contention that it is unreasonable and unjust to enforce the forum selection clause because Delaware courts view in terrorem provisions more favorably than New York courts is not sufficient. The 2010 Trust Agreement provides for the forum of Delaware. Nevertheless, both Agreements contain choice of law provisions regardless of the forum.
Plaintiff also opposes enforcement of the forum selection clause because the parties’ dispute lacks a sufficient nexus to Delaware. He argues that the decedent’s will was probated in New York, a trustee resides in New York, and all other related agreements and trusts were executed in New York and provide that New York law applies. However, the 2010 Trust Agreement is governed by Delaware law, appointed a Delaware entity as its initial Administrative Trustee, and designated Delaware as the intended initial situs of all trusts formed under it. Further, plaintiff, a Florida resident, provides no compelling reason why New York is a more convenient forum than Delaware.
New York generally enforces contracts as written, including contractual provisions specifying where a lawsuit may be brought. In exceptional circumstances, as this decision shows, even someone who is not a party to an agreement can be bound by the agreement’s forum selection clause. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure whether a contract limits where an action can be brought.
CPLR 3215(c) provides that if the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed. Although counterclaims are not specifically mentioned in CPLR 3215, the legislative history reveals that it was intended to apply to counterclaims, in addition to claims pleaded in a complaint. Here, Rosenberg has failed to (1) seek leave to enter a default judgment on his counterclaims against Lev within one year after default, (2) establish a reasonable excuse for his delay in seeking a default judgment on his counterclaims, and (3) demonstrate that his counterclaims are potentially meritorious. Accordingly, all of Rosenberg’s counterclaims against Lev, as set forth in his and Noah’s joint answer, dated Oct. 24, 2016, are dismissed as abandoned, without costs, pursuant to CPLR 3215(c).
If you are served with a complaint (or counterclaims, as happened in this case) and fail timely to answer, the court can enter judgment against you: a default judgment. But as this decision shows, failing timely to seek such a judgment can result in the dismissal of the claims that were the subject of the default. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether you have been properly served or if a default judgment has been entered against you.
This case presents a vexing question regarding the application of CPLR § 205(a). The parties agree that the FHLBB’ s claim in this Court, viewed in isolation, would be time barred because the alleged fraud occurred more than six years before the case was filed on November 2, 2017. The FHLBB’s claim can be saved from dismissal only if its filing date is deemed to relate back to the timely filing date of Moody’s I (April 20, 2011), or at least to the removal date of Moody’s II (May 27, 2011). That is where section 205(a) comes in.
If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff . . . may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action.
Limitations of actions are matters within the concern of the forum. Commencement of suit in another State will not toll or otherwise affect the provisions for limitation of actions in the State of the forum. It follows therefore that, assuming an action was commenced in the United States District Court in Florida where the cause of action arose within the contractual time limit, still that does not make available to the plaintiff the saving statute of New York.
This case presents the unusual (perhaps unique) situation in which the prior action was commenced outside of New York (Moody’s I) but terminated within New York (Moody’s IV). The parties have not cited, nor has the Court found, a case addressing the applicability of CPLR § 205(a) in that context. In the absence of binding authority on point, the Court finds that the most natural reading of the text of section 205(a) is that the FHLBB’s complaint in this case is timely because it was filed within six months of the termination of its prior action by a federal court sitting in New York. That conclusion is bolstered by the Court of Appeals’ admonition that the provision’s broad and liberal purpose is not to be frittered away by any narrow construction.
Here, there is a direct – albeit tumultuous – path from Moody’s I through Moody’s IV. Despite its travels between and among state and federal courts, it was one continuous action. Under federal law, the removal of the case from Massachusetts state court (Moody’s I) to Massachusetts federal court (Moody’s II) did not affect the filing date, which remains the time it was filed in state court.
In turn, after the transfer of the action from Massachusetts federal district court to the SDNY (Moody’s IV), 28 U.S.C. § 1631 provides that the action or appeal shall proceed as if it had been filed in or noticed for the court to which it is transferred on the date upon which it was actually filed in or noticed for the court from which it is transferred.
Although the Court is not bound to take account of federal court procedural rules in its application of CPLR § 205(a), doing so in this case is consistent with the overarching remedial purpose of the New York statute. The federal rules serve the same remedial purpose of avoiding the harsh application of the statute of limitations when the plaintiff is seeking to continue its timely-filed case in the proper forum. The Defendants here plainly have been on notice of the FHLBB’s claims since 2011. Moreover, the final resting place of the action immediately prior to the initiation of the instant case was a New York federal court, and thus applying section 205(a) is consistent with Baker and its progeny.
In sum, the Court finds that the FHLBB’s claim is timely, under CPLR § 205(a), because its prior action was timely commenced in 2011 and the instant case was initiated and served within six months of the termination of that action by the SDNY.
It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether a claim is barred by the statute of limitations.
Contrary to defendants’ contention, the doctrine of contra proferentem is inapplicable here, because the language of the agreement is unambiguous, and because the parties are sophisticated.
New York contract law–usually straightforward–has traps for the unwary, like the rule, which the court declined to apply here, that ambiguities in a contract are interpreted against the drafter. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.
CPLR 4503(a)(1) provides that unless the client waives the privilege, confidential attorney-client communications shall be protected from disclosure. As the Court of Appeals has explained, generally, communications between an attorney and a client that are made in the presence of or subsequently disclosed to third parties are not protected by the attorney-client. Thus, when a litigant or counsel voluntarily discloses privileged communications, by email or otherwise, a waiver will be found.
The general rule that a disclosure of a privileged communication will operate as a waiver of the attorney-client privilege is subject to an exception where it is shown that the client intended to maintain the confidentiality of the document, that reasonable steps were taken to prevent disclosure, that the party asserting the privilege acted promptly alter discovering the disclosure to remedy the situation, and that the parties who received the documents will not suffer undue prejudice if a protective order against use of the document is issued.
Although this rule has been articulated by the Appellate Division in the context of disclosures by attorneys, it has been persuasively applied by New York trial courts, and a substantially similar rule has been applied by federal courts, in the context of inadvertent disclosures by clients. The court follows this authority here.
It is further settled that the party who asserts the privilege has the burden of establishing that it has not waived the privilege.
Applying these standards, the court holds that plaintiffs have not met their burden of establishing that Mr, Otzlinger’s forwarding of the email chain did not result in a waiver of the attorney-client privilege. As a threshold matter, plaintiffs fail to meet their burden of showing that the disclosure of the email chain was inadvertent.
Mr. Otzlinger’s email to Mr, Ehvveiner inquired: “how do you see this?” The first email in the chain, beneath this email to Mr. Ehweiner, was an email from Mr. Otzlinger to, among others, Dr. Petra Wibbe, plaintiffs’ in-house counsel, agreeing that a settlement dialogue with GlobalFoundries should be undertaken and making suggestions about whom he could contact. Earlier emails in the chain by Dr, Wibbe and Richard Hegger, Semsysco’ s outside counsel, were also focused on the desirability of initiating settlement discussions before litigation was commenced. However, a still earlier email dated June 8, 2015, from Dr. Wibbe to Semsysco’s litigation counsel and others, on which Mr. Otzlinger was copied, discussed litigation strategy at length, including proposed changes to a draft “notice of breach” letter and possible damages claims. Mr, Ehweiner responded to Mr. Otzlinger’s email by suggesting a GlobalFoundries’ contact. His email stated: “I think Rutger would be an alternative.” Mr. Ehweiner’s responsive email also included the entire email chain.
Mr. Otzlinger acknowledges that he deliberately sent the “top email” (i.e., the first email in the chain beneath his email to Mr. Ehweiner) in order to facilitate settlement discussions. He asserts, however, that he inadvertently forwarded to Mr. Ehweiner certain emails involving privileged communications with Grunwald and Semsysco’s counsel. Mr. Otzlinger’s statement that he inadvertently forwarded the chain is wholly conclusory. He nowhere states that he was unaware that the email chain was attached. Nor does he address the fact that Mr. Ehweiner’s response also included the entire email chain, or claim that he was not put on notice by this responsive email that the entire chain had been forwarded. In addition, the top email expressly refers to statements by De Wibbe and Mr. Hegger, and cannot readily be understood without references to their underlying emails in the chain concerning settlement discussions.
In claiming that Mr. Otzlinger did not intentionally forward the entire email chain, plaintiffs argue that Mr. Otzlinger sent the email to Mr. Elnveiner after getting off a long flight to Taiwan and only one minute after sending the top email to Semsysco and Grunwald personnel and their counsel. Plaintiffs do not provide a meaningful explanation for the time difference between these emails. More important, Mr. Otzlinger himself does not make any claim that the circumstances under which he sent the email to Mr. Ehweiner caused him to inadvertently or unintentionally forward the entire email chain. For example, he does not claim in his affidavit that he erred in forwarding the chain because he acted so quickly-within one minute of his email to Dr. Wibbe — in sending the email to Mr. Ehweiner. Nor does he claim that the long flight caused him to inadvertently forward the chain.
As plaintiffs have not established the date of their discovery of the forwarding of the email chain, the court does not find that they have shown that their request for the return of the chain was prompt. The court accordingly holds, under the NY Times standard, that Mr. Otzlinger’s forwarding of the email chain resulted in waiver of the attorney-client privilege.
The court rejects plaintiffs’ contention that the waiver cannot extend to the Grunwald plaintiffs because Mr, Otzlinger has never been their officer or employee. The Appellate Division has held that a party who shares a common interest or counsel with another party cannot unilaterally waive the joint privilege on behalf of the other party. Plaintiffs fail to cite any authority that a waiver will not occur where the same counsel represents both parties, in this case related entities, and becomes aware of the disclosure but fails to timely assert the privilege on behalf of its clients.
An issue that arises in almost all complex commercial litigation is identifying evidence that should be withheld from production in evidence because it is subject to the attorney-client or other privilege. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the attorney-client, common interest, work product or other privileges or exemptions from production of evidence.
Civil usury is not available to corporations and, in any event, may be asserted by individuals for only loans with principal values up to $250,000. The criminal usury defense may be interposed by an entity or its guarantor as an affirmative defense for loans bearing interest rates greater than 25% of the principal amount per annum, provided that the principal amount did not exceed $2.5 million. Corporations and their guarantors may invoke a criminal usury defense only to offset claims relating to nonpayment of a loan; it cannot be employed as a means to effect recovery by the corporate borrower.
Preliminarily, the criminal usury defense does not apply to claims relating to nonpayment of defendants’ obligations under the $3 million 2014. Additionally, the criminal usury defense applies only to loans or forbearances that are absolutely repayable: the 2017 Restated Agreement is not a loan or forbearance and is not, therefore, susceptible to the defense.
Thus, the only criminal usury issues before the court’ at this juncture concern whether the criminal usury defense can survive this motion to dismiss to the extent the defense is asserted as an offset to plaintiffs’ nonpayment claims arising from the $2 million 2012 Loan, the only loan for which the statutory defense can be invoked.
Usurious intent-that the lender had a general intent to take more than the lawful rate of interest, but not necessarily to violate Penal Law 190.40-is an essential element of a usury defense. Where loan documents reflect an unlawful rate of interest on their face, usurious intent is inferred. Usurious intent is an issue of fact where, as here, the loan documents have a stated interest rate below the lawful limit, but payment of other fees arising from or collateral to the loan, calculated together with the interest, may result in rates per annum exceeding the lawful limit. Here, the lawful limit is the statutory 25% rate per annum, annualized across the life of the transaction. The determination whether fees constitute.disguised interest must consider all of the circumstances surrounding the transaction.
The record on this CPLR 3211 motion is insufficient to eliminate those facts necessary to form the basis of defendants’ criminal usury defense, as a matter of law, with respect to the 2012 Loan. Viewing the evidence in the light most favorable to defendants, the documents submitted by plaintiffs are not adequate to eliminate the usury defense with respect to the 2012 Loan and the fees/charges imposed throughout the course of that transaction. Plaintiffs argue that the documentary evidence establishes that all the fees paid for the 2012 Loan-even if the challenged success fees are included in the calculation of interest for usury purposes, did not exceed the maximum lawful interest rate per annum. The documents, however, do not sufficiently demonstrate what, if any, fees of any kind were incurred for the· 2012 Loan in the period from the maturity date, July 31, 2014, through March 2017. This gap in the record would require the court to impermissibly speculate, or assume, facts entirely absent from the documents submitted here.
Further, the documents do not identify facts surrounding the composition of the Payoff Agreement calculation, what costs, fees, interest, or remaining principal the calculation encompasses, and the precise amounts paid for those categories for the 2012 Loan; similarly, other sums in the Payoff Agreement, such as a catch-up success fee balance, are not identified as relating to any particular loan. In the absence of these and other facts regarding the 2012 Loan and the correlated February 2014 Letter imposing success fees for certain artworks, the court cannot find that all necessary facts forming the basis of defendants’ criminal usury defense have been.eliminated by the documentary evidence or determine as a matter of law-that a lawful rate of interest per annum was taken for the 2012 Loan, with or without inclusion of success fees in the calculation.
While the court rejects defendants’ arguments that the 2017 Restated Agreement is, itself, a criminally usurious transaction-since the 2017 Restated Agreement is not a loan to begin with-. plaintiffs have also failed to eliminate factual issues pertaining to the effect upon the 2012 Loan that was caused by execution of the 2017 Debt Agreements. For instance, the 2017 Debt Agreements alone do not adequately establish either that delivery of the Payoff Sum and execution of the 2017 Debt Agreements terminated the 2012 Loan and, instead, incorporated the February 2014 Letter for success fees into a new instrument simply consolidating/restructuring preexisting success fee obligations. Alternatively, plaintiffs’ documents fail to establish that the 2012 Loan was not terminated upon payment of the Payoff Sum and execution of the 2017 Debt Agreements, which, instead, limited the parties’ obligations and rights under the 2012 Loan to those concerning only future success fees under the February 2014 Letter.
In any event, the documents before the court on this CPLR 3211 motion do not eliminate, as a matter of law, all necessary factual issues upon which the criminal usury defense, with respect to only the 2012 Loan, is based. The usury counterclaim/affirmative defense is otherwise dismissed as to the remaining agreements at issue here; the 2014 Loan and 2017 Restated Agreement are not, as a matter of law, loans for which the statutory defense can be invoked.
New York’s usury laws can sometimes provide a defense to payment: the interest rate in an agreement can be so high that a court will not enforce it. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding whether the interest rate in an agreement or note is legal.
Defendants’ statute of frauds argument lacks merit. In arguing that a contract for the sale of securities must be in writing, defendants rely on case law citing to a former section 8-319 of the Uniform Commercial Code, which stated that a contract for the sale of securities is not enforceable unless there is some writing. That section was repealed, effective October 10, 1997, and was replaced by section 8-113, which provides: A contract or modification of a contract for the sale or purchase of a security is enforceable whether or not there is a writing signed or record authenticated by a party against whom enforcement is sought, even if the contract or modification is not capable of performance within one year of its making.
Here, the alleged agreement constitutes a contract for the sale or purchase of a security. Therefore, pursuant to UCC § 8-113, it is enforceable whether or not it is in writing.
Defendants also contend that General Obligations Law§ 5-701(a)(l) bars the enforcement of the alleged contract. That section provides that an agreement which by its terms is not to be performed within one year from the making thereof is not enforceable unless there is a written memorandum thereof signed by the party to be charged. However, UCC § 8-113 provides with respect to the sale of securities that such an agreement is enforceable whether or not it is in writing and even if it is not capable of performance within one year of its making.
Even assuming GOL, § 5-701 (a)(l) is applicable here, the Court of Appeals has long interpreted GOL, § 5-701 (a)(l) to encompass only those contracts which, by their terms, have absolutely no possibility in fact and law of full performance within one year. Here, the purported promise that Hill would be permitted to purchase a 30% equity stake in the company was capable of being fulfilled within one year. The purported agreement does not call for performance within any particular time span or schedule. Therefore, it is possible for the stocks to have been purchased/sold within one year.
In arguing that the promise is subject to the statute of frauds, defendants rely on D’Esposito v Gusrae, Kaplan & Bruno PLLC. In that case, the court found that plaintiffs causes of action for promissory estoppel, specific performance, and breach of contract, all based on a purported promise by defendants to make plaintiff a full partner/member of the defendant law firm, were barred by GOL, § 5-701 (a)(l). The court noted that irrespective of whether plaintiff might have become a partner within one year, he claimed that his right to a membership/partnership was to have continued indefinitely and even after he left the firm. The oral agreement he relied on thus called for performance of indefinite duration and was terminable within a year of its inception only by its breach and was thus barred by the statute of frauds. Defendants’ reliance on D’Esposito is misplaced because that case does not involve a promise to create a partnership, but rather a purported promise that plaintiff would have the right to acquire 30% of the shares in a corporation.
Contract law–usually straightforward–has traps for the unwary, like the requirement that some contracts be in writing (the statute of frauds). And as this decision shows, there are ways to escape from those traps. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.

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