Non-Payment Proceeding | Broadway Defamation | Severance Clause

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Landlord’s Summary Proceeding Should Not Have Been Stayed

Landlord’s Summary Proceeding Should Not Have Been Stayed

In 2094-2096 Boston Post Road, LLC v. Mackies American Grill, Inc., before a landlord had the opportunity to commence this non-payment summary proceeding to recover possession of commercial premises, based on alleged arrears, its tenant had brought an action in the Supreme Court of Westchester County on related claims.

In this ensuing summary proceeding in Justice Court, the landlord moved for summary judgment on the petition for non-payment, and dismissal of the tenant’s counterclaims based on a no-counterclaims clause in the lease – which are routinely enforced. In opposition, the tenant argued its counterclaims were  “inextricably intertwined” with the landlord’s claim for rent, seeking total damages in excess of one and one-half million dollars, including counterclaims asserting that landlord had breached a lease “modification” agreement to complete certain construction work, and that landlord had fraudulently induced tenant to enter into the lease. The Justice Court, to avoid inconsistent rulings with the earlier Westchester Supreme Court action, sua sponte, held landlord’s motion in abeyance,  also noting that certain issues had been raised in the Supreme Court action which had not been raised in the summary non-payment proceeding. Sua sponte is Latin term meaning “on its own accord.”

The landlord appealed the Justice Court’s self-imposed stay. The Appellate Court reversed the stay noting a “strong rule against staying a summary proceeding pending a determination of an action in another court, as a landlord is entitled by statute to an expeditious determination of its claim that it is wrongfully being denied possession.”

The Appellate Court found under the circumstances, that the Justice Court “improvidently exercised its discretion” in staying the proceeding, reversing the order and remitting the matter to the Justice Court for a  determination on landlord’s motion. However, it also ruled that “insofar as the facts alleged in tenant’s counterclaims may constitute defenses to landlord’s claim for rent, and insofar as the counterclaims may be inextricably intertwined with those defenses, they are cognizable in the Justice Court proceeding notwithstanding the lease clause barring counterclaims. But, because the Uniform Judicial Court Act governing Justice Court jurisdiction provides, in pertinent part, that if “a counterclaim for money only in excess of $3,000 is interposed, the court may entertain it to the extent of $3,000 but it shall be deemed waived as to the excess above $3,000,” and because here, each of tenant’s counterclaims seeks damages in excess of $150,000, which, if pursued in the Justice Court, will be deemed waived as to the excess above $3,000 the Court held that “before determining landlord’s motion, the Justice Court shall provide tenant with an opportunity, if tenant be so advised, to withdraw without prejudice any or all of its counterclaims.”

Tell All the Gang on Forty Second Street that the Backer was Never There

Tell All the Gang on Forty Second Street that the Backer was Never There

In Rebecca Broadway Limited Partnership v. Hotton, a producer of a Broadway musical commenced an action against a publicity agent, alleging defamation, tortious interference with prospective business relations, and breach of contract. The publicist counterclaimed, alleging tortious interference with prospective business relations and defamation. The Supreme Court, New York County, granted summary judgment for the producer on the breach of contract claim, and determined that the producer’s claims for defamation and tortious interference should go to trial. The publicist appealed.

According to the decision of the Appellate Court, this case arose from an unsuccessful effort to produce a Broadway musical about a ghost. The plaintiff,  Rebecca Broadway Limited Partnership (“RBLP”), was formed in 2011 to stage a Broadway production of “Rebecca—The Musical,” a musical based on Rebecca, the famous 1938 gothic novel by Daphne du Maurier. “After it was reported that a major foreign invest or in the production had died, it emerged that the supposedly deceased backer had never been more than a ghost himself – the man had never existed, except as a deceptive construct conjured up by a dishonest fundraiser, who has since been incarcerated for this wrongdoing. The publicity agent for the show, when he began to suspect the truth about the supposedly deceased foreign investor, expressed his concerns to the producer’s principal, who essentially told him to keep quiet about it. Apparently stung by this dismissive treatment, the publicity agent sent four anonymous e-mails to another potential investor (this one an actual, living person), who had wished to remain anonymous. The last of these e-mails, sent under a fictitious name, made various highly negative allegations about the producer and the show’s prospects, and urged the potential investor not to back the play. After receiving this e-mail, the potential investor promptly withdrew from involvement in the production, preventing it from going forward.”

At issue on the appeal were the producer’s claims against the publicity agent for defamation, tortious interference with prospective business relations and breach of contract, based on the agent’s emails to the potential “angel investor” (as the producer refers to him). “Although neither the producer nor the publicity agent can be credited with angelic virtue,” the Court held that the Supreme Court correctly determined that the producer’s claims for defamation and tortious interference should go to trial. It also concluded that the Supreme Court “correctly determined that the record establishes that the producer is entitled to summary judgment as to liability on its claim for breach of contract against the publicity agent. The surreptitious and anonymous e-mails that the agent sent to the prospective investor—whose identity had been the producer’s confidential information—apparently were intended to sink the project, and accomplished that goal. The publicity agent thus ‘destroyed or injured the right of the producer to receive the fruits of its contract with the agent.’ That contract had been intended to facilitate the very theatrical production that the agent sabotaged by means of his e-mails, which he had only been able to send by misusing the producer’s confidential information. This is the very definition of a breach of the covenant of good faith and fair dealing that the law of New York implies in every contract.”

In contract law, the implied covenant of good faith and fair dealing is a general presumption that the parties to a contract will deal with each other honestly, fairly, and in good faith, so as to not destroy the right of the other party or parties to receive the benefits of the contract. It is implied in every contract in order to reinforce the express covenants or promises of the contract.

The Court said that faced with the revelation of the phantom investor, the producer had to make an election. “A party to a bilateral contract, when faced with a breach by the other party, must make an election  between declaring a breach and terminating the contract or, alternatively, ignoring the breach and continuing to perform under the contract. Such a party has no right to represent himself as continuing to perform under the contract—and continuing to receive the other party’s performance in exchange—while at the same time surreptitiously breaching his own duty by flouting his own implied duty of good faith and fair dealing.”

Here, the publicist “a sophisticated professional with many years of experience as a publicity agent for major Broadway productions, should have suspended his performance or terminated his agreement with RBLP if he sincerely believed that RBLP’s conduct would implicate him in a scandal. Alternatively, if RBLP had instructed the publicist to issue a materially false press release or to respond falsely to press inquiries (and there is no evidence that it ever did so), he would have had a right to refuse such a directive. He did not, however, have the right to continue as RBLP’s publicist while sending a prospective provider of needed capital an anonymous communication deprecating the entire production and suggesting that the producers were guilty parties in a fraudulent scheme.

Severance Clause in Office Manual Not Binding on Employer

Severance Clause in Office Manual Not Binding on Employer

In Cohen v. National Grid USA, management employees brought a breach of contract action against their former employer, alleging that they were entitled to severance pay as result of the sale of the employer and merger of employer’s parent corporation. The Supreme Court, Nassau County, denied the employer’s motion for summary judgment. The employer appealed and the Appellate Court recently reversed, holding that the severance pay provision in the employer’s policy manual, which provided severance pay to management employees if terminated without cause in event of the employer’s merger with another corporation, was not an enforceable obligation owing from the employer to its management employees.

According to the decision, in August 2007, KeySpan merged with National Grid USA. On July 28, 2008, KeySpan Communications was sold to Light Tower Fiber, LLC. The purchase agreement for the sale provided that for at least one year immediately following the sale, Light Tower and its affiliates would provide each former employee of KeySpan Communications who continued to be employed by Light Tower: (1) a base salary of no less than he or she had received before the sale; (2) a position at the same location at which he or she had worked prior to the sale; (3) employee benefits (other than benefits under a defined benefit pension plan) that were substantially similar to those provided to him or her prior to the sale; and (4) severance benefits that were no less favorable than the benefits provided for in the 2007 Severance Plan.

Although all of the plaintiffs, as former managers of National Grid, became employees of Light Tower pursuant to the purchase agreement, they subsequently commenced this action alleging that they were entitled to severance pay pursuant to the 2007 Severance Plan as a result of both the August 2007 merger of KeySpan and National Grid and the July 2008 sale of KeySpan Communications to Light Tower.

In concluding that the severance pay in National Grid’s policy manual was not an enforceable obligation owing from the employer to its management employees, the Appellate Court reasoned that “provisions contained in company policy manuals which, like the one in this case, can be amended or withdrawn unilaterally, do not constitute enforceable obligations owing from an employer to its employees absent a showing of a regular practice by the employer to provide the benefits now claimed, the employee’s knowledge of the practice, and his or her reliance upon such practice as evidenced by accepting or continuing employment as a result thereof.” Here, in support of the motion for summary judgment, the employer established that they did not have a regular practice of providing severance payments under the 2007 Severance Plan, and that even if they had such a practice, the managers did not rely on any such practice in accepting or continuing their employment after the 2007 merger and the 2008 sale.

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