I tried a case recently which made it clear that the way I did it might be a little out of the ordinary. Whether that’s a good or bad thing, is up to you.
It was a bench trial, so it was just the parties presenting their cases to a judge, not a jury. We were the Plaintiff in a commercial case, so we went first.
Our case was simple: We had a contract to perform a job for an agreed price; we completed the job, but the Defendant wouldn’t pay us what it promised.
How do you decide what a contract really means, at least in New York? There wouldn’t be a contract unless the parties agreed to something. When you sign a contract you think you know what the written words say; but how do you decide what they really mean? If you’re like most businesses in New York, contracts are important but the details don’t always matter until the trouble starts. That’s when they try to enforce the contract that they believe they have only to find out they actually agreed to something different and are left searching for a solution. Since a well-written contract should prevent problems like that, you should know what your business is getting into before you sign the contract; and for that you need to know the rules of contract interpretation.
In New York, the plain and ordinary meaning of the words used in the contract have to be enforced. Though that may sound like a simple thing to do, it’s easier in theory than in practice. Nevertheless, you have to start with the rules before you see how difficult they can be to apply.
The rules for interpreting a contract, how you decide what’s included, what gets read into it and what gets left out, i.e., what can be enforced because the parties actually agreed to it, were identified by the New York Court of Appeals in Uribe v. Merchants Bank of New York, 91 N.Y.2d 336, 341–42, 693 N.E.2d 740, 743 (1998):
How can you win your trial?
The other day I stopped by a meeting. I didn’t have a lot of time, so I didn’t plan to stay long, but I saw a map on a table. It had little dashed lines, weird-looking circles, and different shades of green. Another guy came over and we started talking about the map, but not really. We talked about the hills and valleys, ridges and streams, songs and floods and laughs and climbs; good stories, all.
That little map came alive. The map was what we saw and who we met, and the cadence we sang, still clear as a bell, at 10,000 feet.
We saw the blue sky and the bald eagles; felt the hot sun and the cold rain; wore the heavy backpacks and tasted the Lara Bars (don’t ask). The map wasn’t the story, but it let us live the story again.
It’s funny how little things can help tell a story; there’s no guaranty fancy gadgets or powerful software will. Lectures describing the minute details of an argument are no substitute for a good story. People love a good story.
A trial is really just a chance to tell your client’s story, to convince people she should get what she deserves. Even in commercial litigation, you get to put a name, and a face, on the company you represent, show the real people who make it work and tell their side of the story.
By the time you get to trial the facts are pretty much set in stone. There’s more than one way, however, to tell them. Present a straightforward timeline and you might put everyone to sleep. Tell a good story, with a who, a what, a where, a when, and, most importantly, a why, and people just might pay attention. Make it compelling and let the judge and the jury get to know your client, feel for your client, and chances are you’ll succeed; not always, but it can be your best shot.
If you read this blog you’ve probably seen this place the map shows. It’s gloriously miserable. It’s where you can sit at a stream and hear a subway car rumbling towards you just before you scramble up the overgrown side of a cliff to avoid the oncoming flood, barely picking up your gear as you go. The kind where you steer clear of the rattler minding its own business and try to avoid the streams that like to run through your tent. The kind with sleet so big you can have snowball fights with softballs in the summer, under double rainbows that come out when the sun comes back. The kind where you watch the sun rise over the canyons before you go to the top of the world, with snow-covered mountains and the desert on opposite sides. The kind you never quite dry off in, but no matter how wet you get, never quite get clean, either. Where you eat what you bring and hoist it at the end of the day because you want to be there to have it in the morning. And the place you laugh about, all this time later. Everyone should have a place like that. Continue reading
How do you dissolve a Limited Liability Company in New York?
Business owners don’t always plan for their business to end. They start with a lot of hope and count on it being a success. Things often change, though. Adversity strikes, cash flow slows, enmity grows, and positions harden. One owner might want to take more risks to turn things around, while the other becomes more cautious, not wanting to lose even more. Eventually, one might want the business to end while the other tries to keep it afloat. If that was your business, what would you do? A lot depends on the type of business entity involved; there are distinct rules for each.
Limited Liability Companies, otherwise known as LLC’s, are common in New York; and business disputes between owners are, too. It’s a good idea to know how to dissolve an LLC before you form one, because going to court to force the judicial dissolution of an LLC is not as easy as you might think. An interesting New York case, In re 1545 Ocean Ave., LLC, 72 A.D.3d 121, 893 N.Y.S.2d 590 (2nd Dept. 2010), proves this point.
1545 Ocean Ave. LLC (“1545 LLC”) was formed to purchase and develop a piece of real property, by rehabilitating an existing building and building a second one. It had only two members, Crown Royal LLC (“Crown Royal”), and Ocean Suffolk Properties LLC (“Ocean Suffolk”); each owned 50%. It had just two managers; one a member of Ocean Suffolk (Van Houten) and one a member of Crown Royal (King). Their relationship broke down over the renovation of the existing building. They wound up in court when one member (Crown Royal) tried to stop the renovation and have the court dissolve 1545 LLC, claiming the business couldn’t function as intended because the members were deadlocked; the other (Ocean Suffolk) tried to keep it alive saying, basically, that their only real dispute was that they couldn’t agree on the terms of a buyout.
The litany of complaints is impressive, demonstrates the bad blood between the members, and shows just how hard it was for 1545 LLC to complete its main purpose: to develop the property. The complaints sound familiar; they are about who’s doing the work, whether they are getting paid too much, and who’s ultimately running the business.
One of the managers, Van Houten, had a construction company (VHC) that began the renovation work. The manager from Crown Royal (King) alleged VHC did the work without his approval. The manager from Ocean Properties (Van Houten, who owned VHC) said VHC did the work because the managers (he and King) agreed it could, because there were no other bona fide bidders. King claimed VHC didn’t have the proper equipment to do the work efficiently and began the work without the required permits. Van Houten evidently billed for extras, including remediation of what he said were structural flaws in the building. King said he agreed to pay VHC’s invoice on the condition that it would no longer unilaterally work on the site; VHC evidently continued anyway. When the building permits were applied for, the town required an environmental review, which showed an environmental hot spot that had to be remediated. One of the members, Crown Royal, recommended a remediation firm, F&E, that provided an estimate. King said Van Houten hired, and paid for, a second firm to provide an estimate, without King’s approval. Van Houten said that Ocean Suffolk paid for both environmental reviews out of its own funds, and, that after F&E performed the remediation, he agreed to pay their bill even though it was more than 20% above their original estimate. King also complained that Van Houten would not meet regularly, and that the whole project was in jeopardy, though he admitted VHC’s work was “awesome.” Things got so bad that King (Crown Royal) said he wanted to withdraw his investment from 1545 LLC. Van Houten (Ocean Suffolk) took this to mean King resigned as manager. VHC (Van Houten’s Construction Company) continued to unilaterally work on the site, while the parties tried to negotiate a buy-out. The work was eventually stopped, about three weeks from completion, when Crown Royal sought judicial dissolution of 1545 LLC. Continue reading
The law aspires to be fair, though it may not always appear that way. Often that means enforcing fair procedures to try to reach a just outcome. A recent New York Insurance Law case makes this point. State Farm Fire and Casualty Company v. Chauncey McCabe, 2018 NY Slip. Op.04416 (3rd Dept., June 14, 2018), distills criminal law through the equitable doctrine of collateral estoppel to determine whether an intentional acts exclusion of a New York Homeowner’s Insurance Policy bars coverage for a liability claim for personal injuries arising from what appears to be an intentional act. Though you may not agree with the decision, the way it is reached is fair, to all involved.
In the case, two insureds made a claim to be defended and indemnified under their Homeowner’s Policy of Insurance against claims that their negligence caused another person serious personal injury. A Girlfriend alleged she hit her head on a cement wall after she tripped over a hazard left on the floor of the house her Boyfriend lived in with his mother, and the Boyfriend did not help her get medical attention. The Girlfriend sued them both, and they each made a claim for liability coverage.
The Insurance Company alleged there was no coverage for the Boyfriend because the loss was not an accident and the policy provided liability coverage for an “occurrence,” which was defined, basically, as an accident. It also alleged that a policy exclusion applied, which bars coverage for injuries caused by willful or malicious acts of an insured.
How do you know exactly what is included in your contract, and what is not? If your company enters into a contract to supply services, for example, the contract will include a provision for when and how you will be paid. What happens, though, if that provision, as it often does, includes a long list of terms, some very specific, some more general, and some catch-all? How do you determine, pursuant to New York law, what will have to happen for you, or your business, to be paid?
As we recently discussed, it is important to know how to determine what your contract means, either before you sign it, so you can credibly try to avoid potential liability once the contract comes into existence; or, after the parties are bound and a dispute arises, so you can resolve it or perhaps limit your liability for it. One way to do that is to apply the rules of contract interpretation to the particular language of your contract. In this article, we will examine how one such principle, ejusdem generis, is used to help determine exactly what a contract term means, or, even more likely, how a court will enforce it.
Ejusdem generis is a legal principle, which was defined, among other places, in 242-44 E. 77th St., LLC v. Greater New York Mut. Ins. Co., 31 A.D.3d 100, 103–04, 815 N.Y.S.2d 507, 510 (1st Dept. 2006):
The rules of contract interpretation are best learned from seeing how they are applied. To use them, successfully, is to know them. In our last article, we discussed some of the basic rules. We will now see how one of them, giving the words of the contract their plain and ordinary meaning, is applied by courts to common situations faced by New York businesses.
In Lake Const. & Dev. Corp. v. City of New York, 211 A.D.2d 514, 621 N.Y.S.2d 337 (1st Dept. 1995), a contractor sued the City of New York to be compensated for the additional work it said it performed to complete the brickwork on a public works construction project. In preparing its winning bid, it had relied on the City Engineer’s cost estimate, which it said showed one brick wall of 972 square feet, rather than the two free-standing walls the contractor claimed were necessary to complete the job. It obviously cost more to finish the job than the contractor estimated, so it tried to recoup at least some of its losses from the City. Though that might seem like a reasonable approach for a business to take, it did not work.
The mere fact that the contractor claimed the contract was ambiguous did not make it so. In upholding the lower court’s grant of summary judgement to the City dismissing the complaint, the First Department held that the relevant contract was clear and unambiguous that the contractor’s compensation was not based on the number of walls that needed to be constructed. As the court noted, at Lake Const. & Dev. Corp. v. City of New York, supra, 211 A.D.2d 514, 515, 621 N.Y.S.2d 337, 338 (1st Dept. 1995), “the parties’ contract unambiguously provided that the quantity of brickwork to be paid for under the contract ‘shall be based on the number of square feet of free-standing brickwall installed in accordance with the plans and specifications and directions of the Engineer’.”
What does your contract actually mean? You know what it says. You know what you meant when you signed the contract and committed your business to it. You thought it was clear and unambiguous. What do you do when the other party claims you breached the contract and wants damages? You know you fulfilled all your promises, duties, and obligations under the contract, and that the only way you breached it was if you promised something more, or different, than you thought you did. So how, exactly, do you read a contract to determine what it means?
The rules of contract interpretation for contracts governed by New York law are fairly straight forward, even if the contract language they are used to decipher can appear to be opaque or misleading For example, if the obligations of your New York business rested on the meaning of the phrase “face amount” as used in a commercial contract, with potential liability for hundreds of thousands of dollars of damages at stake, where would you start?
An interesting, if fairly old, case from the Appellate Division, First Department addressed that issue. In Am. Exp. Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 277, 562 N.Y.S.2d 613, 614–15 (1st Dept. 1990), the court set out the relevant rules for contract interpretation:
Sometimes something new is scary; something out of the ordinary gets you concerned. It might not be quite the same as you’ve run into before, or it might be something completely different. When you’re faced with something new, and you don’t know quite how to react, what would you do?
Would you find someone who’s faced the same type of problem before; someone who knows a little something about how to react; someone who can maybe come up with a game plan to solve your problem in the best way possible?
If you’re sick, you find a good doctor and maybe get a second opinion; if you need to wire a room to get light where no light has been before, you get a good electrician rather than run the risk of shocking yourself or burning down the house. If you’ve had an accident, you don’t go to a carpenter to fix your car, even if all you’re trying to do is put all of the pieces back together.
How can you prove something exists when it can’t be found? If you ask an investigator, or a New York Litigator, it may not be as hard as you think.
There are always facts to ponder. The other day I was listening to a podcast with an astrophysicist explaining Dark Matter. It was more interesting than it might sound.
Dark Matter: things are supposed to work a certain way, interact with each other according to certain well-defined rules. Think of Newton and the falling apple. But what if they don’t? What if the apple fell sideways, instead, as if something else is there, something you can’t see? What if the only way to tell that it’s there is because it should be, but you just can’t detect it? It would be something like looking at a dinner table with empty plates with crumbs, and pots and pans with scraps of food, but no one around. It just might have been a really good meal.
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