Nassau County to Pay; Landlord’s Insurance; Amendments in Writing

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Appeals Court orders Nassau County to pay school tax refunds

Appeals Court orders Nassau County to pay school tax refundsIn Baldwin Union Free School District v. County of Nassau, __A.D.3d__, 2013 WL 692766 (2d Dept. Feb. 27, 2013), this firm successfully represented 41 school districts in their challenge to Nassau County’s enactment of a local law that had removed the County’s obligation to pay all property tax refunds resulting from its assessing errors. According to the text of the invalidated local law, these errors had resulted in an annual refund obligation of approximately $80 million. The school districts estimated that the local law collectively threatened them with an annual refund obligation of approximately $52 million.

The Appellate Division, Second Department agreed with us that the County’s enactment violated the State Constitution and State law governing the enactment of local laws. In reaching this conclusion, the Court observed that in 1948 the State legislature had itself enacted a special law imposing the refund obligation upon the County. That special law had been enacted after the County had taken over the assessing function from the Towns of Hempstead, North Hempstead and Oyster Bay. The Court instructed that, although local governments generally have the authority to enact local laws that are inconsistent with special laws, a “county may only adopt local laws relating to the levy, collection and administration of local taxes [if the] local laws are consistent with State laws, irrespective of whether the State laws are general laws or special laws.” The Court concluded that the County’s local law therefore violated both article IX, section 2 (c)(ii)(8) of the state Constitution and Municipal Home Rule Law sec. 34(3)(a). It reversed a contrary lower court ruling and annulled the challenged law.

Landlords, check your insurance policy!

Landlords, check your insurance policy!Late last year, the highest Court of the State of New York in Bentoria Holdings, Inc. v. Travelers Indemnity Co., 20 N.Y.3d 65, 956 N.Y.S.2d 456 (2012), ruled that a building owner was not entitled to recover under an insurance policy for cracks its building sustained as a result of an excavation conducted on the neighboring lot, because the policy’s “earth movement” exclusion was expressly made applicable to “man-made” movement.

In Bentoria, Travelers Indemnity Company issued to the building owner an insurance policy covering “direct physical loss of or damage to” a building in Brooklyn. However, under the heading “EXCLUSIONS,” the policy provided:

“1. We will not pay for loss or damage caused directly or indirectly by any of the following…b. Earth movement…

(4) Earth sinking (other than sinkhole collapse), rising or shifting including soil conditions which cause settling, cracking or other disarrangement of foundations or other parts of realty. Soil conditions include contraction, expansion, freezing, thawing, erosion, and improperly compacted soil and the action of water under the ground surface;

all whether naturally occurring or due to man made or other artificial causes.”

The building had suffered cracks as a result of an excavation being conducted on the next lot. The building owner submitted a claim, which Travelers ejected, relying on the “earth movement” exclusion. The building owner sued for breach of the policy. The Supreme Court denied Traveler’s motion for summary judgment, and the Appellate Division affirmed, but granted leave to appeal to the New York State Court of Appeals. The Court of Appeals reversed.

In reversing and granting Traveler’s motion to dismiss the insurance claim, the Court distinguished its prior 2009 holding in Pioneer Tower Owners Ass’n v. State Farm Fire & Cas. Co., which in most respects was virtually identical to this recent case. The defendant there insured a building against “accidental direct physical loss” and the building had suffered cracks and other damages resulting from excavation on an adjoining lot. The insurance company had refused to pay, relying on the earth movement exclusion very similar to the one quoted in this case, with the distinction that the last words of the earth movement exclusion here–“ all whether naturally occurring or due to man-made or other artificial causes”–were absent in the earlier decision.
In Pioneer, the building owner had argued that the policy did not clearly exclude “an excavation–the intentional removal of earth by humans,” and the Court of Appeals found that argument to be “reasonable,” and held that the earth movement exclusion did not unambiguously remove excavation damage from the coverage of the policy. In this most recent case, however, the Court of Appeals held that the same argument is not available to the building owner because the policy expressly excluded earth movement “due to man-made or other artificial causes.”

Clearly, Travelers was well aware of the Court of Appeals’ earlier decision in Pioneer and adopted language in its insurance policies to avoid the holding of that case. Landlord’s should check their insurance policies carefully to see if their policy is governed by the reasoning in Pioneer or this recent decision of Bentoria, to make sure that the proper coverage that was intended is actually in place.

Put contract amendments in writing!

Put contract amendments in writing!A standard provision included in many commercial contracts is one requiring any modification of the agreement to be in writing and executed by the parties. Nonetheless, as recognized recently by the Appellate Division, First Department in Nassau Beekman, LLC v. Ann/Nassau Realty, LLC, 2013 WL 362816 (January 31, 2013), “courts are presented over and over again with litigation arising out of circumstances where one party to a contract wrongfully presumes, based on past practice, that an oral modification will be sufficient.” In this case, a buyer who did not appear at the contractually agreed upon closing time of a $50 million real estate deal was held to have breached the contract with the seller, even though it is undisputed that the parties met three hours after the scheduled closing time and continued to discuss the deal.

According to the purchaser, it was “standard practice” for the parties first to agree orally to push the closing date back, and then to later formalize it in a written amendment. The last contractually agreed-upon closing time was noon on September 25, 2008. According to the decision, the seller appeared but the purchaser did not. However, they met at 3:00 P.M. that same day, and subsequently exchanged e-mails referring to a proposed further amendment to the contract. No such written amendment was ever executed. Two months later the seller then informed the purchaser that it was terminating the agreement and keeping the $5 million down payment as damages; a remedy set forth in the contract.

The purchaser then sued the seller, alleging breach of contract and seeking return of the down payment and additional damages. Both sides moved for summary judgment and at the Supreme Court level the court granted the seller summary judgment dismissing the complaint. The purchaser appealed.

The Appellate Division, First Department concluded that despite the parties’ 3:00 P.M. meeting and subsequent email communications, the parties were bound by the written contract. The court rejected the purchaser’s argument that a written agreement was not necessary because the parties actually “performed” an amendment extending the closing time by meeting at 3:00 P.M. The court noted “at best, the 3:00 P.M. meeting could qualify as partial performance of the alleged oral modification.” The purchaser was relying upon a basic principle of law that partial performance of an alleged oral modification may permit avoidance of the requirement of a writing if such partial performance is “unequivocally referable to the oral modification.” However, as the court noted, the “‘unequivocal referable’ standard requires that the conduct be ‘explainable only with reference to the oral agreement.’ Where the conduct is ‘reasonably explained’ by other possible reasons, it does not satisfy this standard. If ‘the performance undertaken by plaintiff is also explainable as preparatory steps taken with a view toward consummation of an agreement in the future,’ then that performance is not ‘unequivocally referable’ to the new contract.” The e-mails the parties exchanged later were helpful to the purchaser. “Not only do the e-mails fail to even indicate that the closing was adjourned by agreement, but all these items were clearly explainable as preparatory steps taken with a view of attempting to arrive at a possible agreement in the future.” The court further recognized that “in the absence of a resulting written modification, the mere fact that the parties met at 3:00 P.M. does not negate plaintiff’s default at the 12:00 P.M. closing, or reflect an adjournment of that scheduled closing; it may be understood to merely reflect that defendant was willing to attempt to negotiate a new modification, as the parties had done once before, and which, if accomplished, would have nullified the default.” Since the purchaser had “already invested $9 million into the project, it had many reasons to continue meeting and negotiating in order to attempt to salvage the deal despite the expiration of the closing deadline, so meetings held after the time set for the closing do not establish that an extension was orally agreed to.” The court concluded that the purchaser’s case was “not saved by the alleged past practice or course of conduct by which the parties orally extended closing dates and only later executed a written modification.” “The parties’ past ability to arrive at a mutually acceptable written modification does not justify reliance on an assumption that they would be able to agree on the necessary written modification in the future.”

This case reinforces two basic contract principles: first, that it is important to include in a contract the typical “integration clause” requiring any modification of the agreement to be in writing and signed by the parties; and second, that the parties should adhere to their own contract and execute a written modification if that is what the parties intend, rather than later try to establish some oral agreement.

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