Release of Security | Anticipatory Repudiation | Never on a Sunday

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An Unequivocal Release in a Settlement Bars a Claim for the Security Deposit

An Unequivocal Release in a Settlement Bars a Claim for the Security DepositWhere a landlord and tenant enter into a stipulation in a holdover summary proceeding mutually releasing each other from “all claims, demands, actions, and causes of actions of every kind and nature whatsoever arising out of the subject lease,” is the tenant barred, as a matter of law, from thereafter stating a cause of action for the return of the security deposit under the subject lease? The Nassau County Supreme Court said no, but we recently reversed that answer in an appeal to the Appellate Division, Second Department.

In Inter-Reco Inc. v. Lake Park 175 Froehlich Farm LLC and CLK-HP Froehlich Farm LLC, ___ A.D.3d ___ (2d Dept. 2013), the complaint sought the return of the tenant’s security deposit of $38,900 under a certain commercial lease agreement between the parties. The tenant itself admitted in its complaint that the security deposit was tendered to the landlords “in accordance with” the lease. The tenant also admitted in its complaint that it previously entered into a binding stipulation of settlement in a prior holdover summary proceeding, which contained a release stating as follows:

Upon full and timely compliance with all of the terms and conditions hereof by respondent-tenant, petitioner-landlord and respondent-tenant are deemed to have mutually released each other, their respective heirs, personal representatives, successors, and assigns of and from all claims, demands, actions and causes of actions of every kind and nature whatsoever arising out of the subject lease.

According to the stipulation of settlement, the release was deemed to be effective upon full and timely compliance with the tenant’s payment of $85,000 to landlords and its surrender of possession of the subject premises in the condition required under the lease by 5:00 p.m. on March 31, 2011. The tenant admitted in its complaint that both of these conditions were met.

Based upon the tenant’s verified admissions, the landlords moved to dismiss the complaint. The tenant cross-moved for leave to file an amended complaint to include two more causes of action for “unjust enrichment,” and for “reformation” of the stipulation of settlement.

The Supreme Court denied the landlords’ motion, concluding that “issues of fact exist ‘at this CPLR 3211 motion stage’ as to precisely what the parties intended concerning the plaintiff’s security deposit.” In other words, the Supreme Court concluded, incorrectly, that the stipulation of settlement which releases the parties from “all claims, demands, actions and causes of actions of every kind and nature whatsoever arising out of the subject lease,” was ambiguous as a matter of law, thereby requiring a trier of fact to determine the intent of the parties with regard to the security deposit under the subject lease.

The Appellate Division unanimously reversed, dismissing the action based upon the unequivocal release language in the stipulation. In so holding, the Court recognized that “[p]ublic policy favors the enforcement of settlements, and the release is ‘a jural act of high significance without which the settlement of disputes would be rendered all but impossible.’ Generally, a valid release constitutes a complete bar to an action on a claim which is the subject of the release, and should not ‘be converted into a starting point for renewed litigation.’” In rejecting the tenant’s argument, the Court further concluded that “[c]ontrary to the plaintiff’s contention, the terms of the release clearly and unambiguously encompass this action inasmuch as plaintiff’s claim to the disputed security deposit is contingent upon the terms of the subject lease.”

Time Limitations on Anticipatory Repudiation Action

Time Limitations on Anticipatory Repudiation ActionIn a recent appeal by the defendants in QK HealthCare Inc. v. InSource Inc., ___ A.D.3d ___ (2d Dept. 2013), an action to recover damages for “anticipatory repudiation” of a contract, the Appellate Division, Second Department, partly reversed, holding that although the cause of action to recover damages for anticipatory repudiation was properly stated, it was time-barred as against one of the defendants, which was contractually obligated to accept returns only until June 2006, more than four years before commencement of the action.

Anticipatory repudiation, also called an anticipatory breach, is a term in contract law that describes a declaration by the promising party to a contract, that it does not intend to live up to its obligations under the contract. When this occurs, the performing party to the contract is excused from having to fulfill its obligations and may sue for damages resulting from the breach, among other remedies. However, the repudiation can be retracted by the promising party so long as there has been no material change in the position of the performing party in the interim. A retraction of the repudiation restores the performer’s obligation to perform on the contract.

Here, in 2003 the plaintiff QK HealthCare, Inc., a wholesaler of prescription drugs, purchased several thousand units of a drug from the defendants, InSource Inc. and Henry Schein Inc., which are also prescription drug wholesalers. The plaintiff alleged that when it sought to arrange for the return of unsold units of the drug in 2005, which had expired or were about to expire, the defendants violated their respective return policies by refusing to accept the return. The plaintiff further alleged that the defendants’ conduct constituted an anticipatory repudiation of contracts between the parties and sought damages for the breach.

The defendants moved to dismiss the complaint as barred by the applicable statute of limitations. Statutes of limitations, which date back to early Roman Law, are a fundamental part of U.S. law. They are laws that restrict the time within which legal proceedings may be brought. These statutes, which apply to both civil and criminal actions, are designed to prevent fraudulent and stale claims from arising after all evidence has been lost or after the facts have become obscure through the passage of time or the defective memory, death, or disappearance of witnesses. A court cannot extend the time period unless the statute provides such authority.

On this appeal, the Court agreed with at least one of the defendants. It recognized that the general limitation applicable to actions to recover damages for breach of contract is six-years, beginning to run when the contract is breached or when one party fails to perform its contractual obligation. However, UCC 2-725(1) provides that “[a]n action for breach of any contract for sale [of goods] must be commenced within four years after the cause of action has accrued.” The Court stated that in applying a statute limitations “courts look to the reality, and the essence of the action and not its mere name.” It found that the “transactions between the parties, and the return policies, deal exclusively with the sale of goods and, as noted, UCC 2-725(1) provides the statute of limitations for an action to recover damages for breach of any contract for the sale of goods.”

Turning next to the issue of when the limitations period began to run, the Court recognized the general principle that “‘the statute of limitations begins to run when the cause of action accrues’ or, in other words, ‘when all of the facts necessary to the cause of action have occurred so that the party would be entitled to obtain relief in court.’” Although the complaint alleges that the defendants’ anticipatory repudiation occurred in December 2005, when they refused to accept the returns, the Court concluded that the statute of limitations on plaintiff’s anticipatory repudiation cause of action did not automatically begin to run at the point of the repudiation. Here, there was no allegation or evidence that the plaintiff elected to immediately deem the defendants in breach of the return policies, but instead elected to give the defendants an opportunity to retract and perform. In reaching its conclusion, the Court reaffirmed that a “plaintiff should not be penalized for leaving to the defendant an opportunity to retract his wrongful repudiation; and he would be so penalized if the statutory period of limitation is held to begin to run against him immediately.” It therefore left for another day the issue of what constituted a “commercially reasonable time” to await defendants’ performance. However, with respect to the defendant InSource, the Court did conclude that plaintiff’s repudiation claim against it is time barred on the ground that the plaintiff’s contract with InSource permitted returns only until June 2006, which was more than four years before the complaint was filed. The Court reasoned that when “plaintiff elects not to deem the repudiation as a breach, the statute of limitations ‘begins to run…from the date fixed for performance.’”

Absent a fixed contractual date of performance by a party, if an aggrieved party elects to await a commercially reasonable time for a repudiating party to perform, the statute of limitations does not begin to run immediately, and will remain a fact intensive issue, not suitable for a motion to dismiss the pleadings.

Never On A Sunday

Never On A SundayRecently in Edwards v. City of Middletown, ___ N.Y.S.2d ___ (Sup. Ct., Orange Cnty. 2013), a former police officer commenced an action seeking declaratory relief that she was impermissibly discharged as an officer in the City of Middletown, New York. One of the several arguments in support of her position was that the disciplinary proceeding before the Town Board which led to her dismissal was conducted in violation of Judiciary Law § 5, because one of the hearing dates was on a Sunday. The City argued that out of the multiple days of hearings, only one of the days was on a Sunday, and in any event, the petitioner expressly consented to the hearing being held on that day.

New York’s Judiciary Law § 5 states:

A court shall not be opened, or transact any business on Sunday, nor shall a court transact any business on a Saturday in any case where such day is kept as a holy day by any party to the case, except to receive a verdict or discharge a jury and for the receipt by the criminal court of the city of New York or a court of special sessions of a plea of guilty and the pronouncement of sentence thereon in any case in which such court has jurisdiction. An adjournment of a court on Saturday, unless made after a cause has been committed to a jury, must be to some other day than Sunday. But this section does not prevent the exercise of the jurisdiction of a magistrate, where it is necessary to preserve the peace, or, in a criminal case, to arrest, commit or discharge a person charged with an offense, or the granting of an injunction order by a justice of the supreme court when in his judgment it is necessary to prevent irremediable injury or the service of a summons with or without a complaint if accompanied by an injunction order and an order of such justice permitting service on that day.

The issue for the Court was that although Judiciary Law expressly prohibits a “court” from conducting any business on a Sunday, here the hearing was held by the Town Board as an administrative tribunal in an employee disciplinary hearing. Neither the parties nor the Court found any research squarely addressing whether a hearing held on the Sunday before the administrative tribunal was violative of the statute. After analyzing the common law and decisions in the analogous situation of arbitration proceedings, the Court concluded that because the Town Board was acting as an “administrative tribunal,” the hearing was a “quasi-judicial proceeding” which fell under Judiciary Law § 5’s auspices. As such, the Court also held: “The fact that petitioner here expressly consented to the hearing being held on a Sunday is of no consequence, since…the statute expresses the public policy of the State, and cannot be waived.” The Court also held that there was no merit to the City’s argument that it conducted the hearing on multiple days which were not Sundays, and the mere fact that one of the days was a Sunday should not negate the entire proceeding. Simply, the City was “prohibited from conducting a hearing where any part thereof occurred on a Sunday. To paraphrase Shakespeare, the faulthere, lies with [the City], not petitioner, in failing to abide by New York law.” The Court annulled the City’s decision and remanded the matter to the City for a new hearing and determination in compliance with New York law.

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