Rogers & Tartaro Business Litigation Blog : New York and Connecticut Business Litigation Lawyer & Attorney : Rogers & Tartaro Law Firm : Commercial Litigation : Westchester County NY, Fairfield County CT

In Washington State, several real estate buyers have sued their bank because they “prequalified” for mortgage loans and later failed to qualify for the loans. Under the law and the customs and practices of Washington State, they buyers lost some $175,000 n earnest money. The story, by Martha Neil is on ABAjounal.com (“Buyers Sue Bank: Bad Prequalification Cost Them Money”). That was Washington State but prequalification can be a problem also in Connecticut and New York.

Here at home, clients often expect a “speedy’ closing because they have “prequalified” for a loan. We have to explain that prequalification often means you have passed a quick credit check based on limited information. What gets you a mortgage loan is a “commitment” letter from the lender and that is based on a complete loan application, an appraisal of the property and other documentation. The delay for clients who expected a quick approval from their lender can be frustrating.

• Email This
• Print
• Comments
• Trackbacks

(Our announced once-per week posting schedule was meant to be flexible and when inspired, like this week, we will post more frequently).

A recent appellate case provides a practical reminder for individuals selling real estate properties. As a bonus, it involves a favorite New York procedural rule, the CPLR 3211(a)(7) motion to dismiss.   The case is Steve Elliot, LLC v. Teplitsky, 2009 Slip. Op. 01104 (2d Dep’t).

The court’s decision is short and to the point; this post will exceed it in length but the court does not digress to explain its reasoning to non-lawyers.

The Brokerage Agreement and Commission

A real estate broker sued for a commission although the closing on the sale apparently never took place. The court points out that the usual brokerage contract provides that a commission is earned when “he or she has produced a buyer ready, willing and able to purchase the property upon terms that are acceptable to the seller.” However, the court also points out that the parties are free to add whatever conditions they wish to their agreement. 

In this case, the defendant alleged that the agreement unambiguously provided that a commission would not be earned until after the closing had taken place. On that basis, the defendant asked the court to dismiss the complaint. The court declined to dismiss it because, to the court, the agreement was not all that unambiguous (or, cutting out the double negative, it was ambiguous). Thus, there was a question of fact as to when the parties intended the commission to be earned. That, in turn, means no dismissal. The case moves forward, ultimately to trial if it doesn’t settle first.

The reminder: both brokers and clients need to be aware of the contract language and if they intend to deviate from the standard language, they should do so in writing and unambiguously. 

The Procedural Issue

As for the procedural issue, this case involved a New York CPLR 3211(a)(7) motion to dismiss, a favorite because of the subtle nuances on which a case can turn. Superficially, this is a motion, like the Connecticut motion to strike, that “tests the sufficiency of the pleadings.” That means if the facts alleged in the complaint do not add up to a legal claim, the case is dismissed at the outset. Whether or not the facts can be proven is not an issue because even if prove, they do not amount to a legal claim. 

In Connecticut, on a motion to strike, the test is whether the facts alleged in the complaint state a claim and submission of evidence is not allowed; the complaint is evaluated on its own merits. In New York (at least in the Second Judicial Department), evidence is allowed and the test is whether the plaintiff has a claim.

The distinction, although it may seem to be “inside baseball” to the non-lawyer, is an important one. In this case, submitted evidence, probably the actual agreement, showed that the agreement was ambiguous and that was sufficient to defeat the motion to dismiss.   

The motion to dismiss and the motion to strike are, each in its own jurisdiction, important procedural options to short-circuit and end a lawsuit before it gets really expensive. But, the rule can work either way. In this case worked for the plaintiff by showing that the claim was viable.

• Email This
• Print
• Comments
• Trackbacks

This blog, as we’ve mentioned before, straddles the worlds of law (more particularly, litigation) and management. Our presumption is that powerful lessons and insights are available where they intersect.

Today, we discuss a Law.com article that hardly deals with legal issues and, instead is focused on management issues, more particularly the impact of how layoffs are handled on morale. The article is by Melanie A. Klinghoffer, a writer for Legal Times  and an attorney (“There’s a Better Way to Lay Off Employees”).

(There is discussion of the legal risks of layoffs in a recent post on the Connecticut Employment Law Blog by Daniel Schwartz, Reducing Risks in a Reduction in Force – Is There a Perfect Solution.)

With a focus on management issues, Ms Klinghoffer counsels that the better way to layoff employees involves a plan that incorporates three parts:

(1) provide sensitivity coaching for staff executing the downsizing, (2) develop a well-structured transition program for employees leaving the organization, and (3) carry out an internal reassurance and motivation program for remaining employees.

I recommend the article itself for elaboration and discussion of these elements. 

In my prior life before joining the Bar, I experienced layoffs from both sides: helping to plan them (when they were uncommon, if not unheard of in the company in question) and having been laid off. There is nothing pleasant about either side. I empathize, therefore, with the personal story that introduces the Law.com article. 

As mentioned, the emphasis is on management issues: layoffs can damage the morale of the remaining employees but the damage can be contained and minimized by careful planning, sensitivity and appropriate transition strategies. Not all of the specific suggestions will be applicable in all cases but in appropriate circumstances most make good sense.

Strictly speaking, the article is off-topic for us because the “better practices” identified in it are not drawn from the world of litigation. On the other hand, the article clearly identifies “better practices” so why quibble about the source. Besides, costly, avoidable litigation is always a possibility when layoffs are handled in something less than the better way.

• Email This
• Print
• Comments (1)
• Trackbacks

Last week the New Jersey Employment Law Blog discussed an amusing and interesting article about an Austrian company that would hire only people born under certain signs of the Zodiac (“What’s Your Sign? Really? You’re Hired”).

At first, I smiled and forgot about the post. But, then I thought about it a little.

NJELB was kinder than I might have been by observing hat the policy was not irrational. It was backed up by a statistical correlation. I might have pointed out that a statistical correlation establishes no cause and effect relationship. So, while not irrational, the policy was based on faulty reasoning. On the other hand, I would agree with NJELB that if the policy does not discriminate against a protected class and reflects the company’s business judgment (poor or otherwise), then the company would have every right to implement that policy here in the U.S.

That somewhat lengthy introduction leads to my point: As attorneys we are often in the position of counseling disgruntled employees that there is no law against quirky or even poor management. Often consultations are extended simply because it takes some time to draw out of the facts to distinguish between actionable discrimination and merely annoying, even counter-productive supervisory practices. In the interest of full disclosure, in the distant past I have had, as you might have guessed, first-hand experience with that kind of business judgment

Quirky management and arbitrariness, however, do not entirely escape judgment. The marketplace has a way of imposing its own judgment.

• Email This
• Print
• Comments
• Trackbacks

Daniel Schwartz’s Connecticut Employment Law Blog, which often has interesting, thought-provoking posts, reports that the New York Yankees have considered adding non-disparagement clauses in future contracts for managers and coaches (“Yankees Mull Non-Disparagement Clauses, but What Does One Look Like?”). Of course, the Yankees’ thinking was obviously a reaction to the Joe Torre book that has received recent media attention. CELB provides some examples of what a non-disparagement clause, in an employment or a severance agreement, might look like.

Here are the thoughts (or questions that popped into my mind: truth is a defense to a claim of defamation, is it also a defense to a claim of disparagement? Is one free to publish disparaging truths? Is there such a thing as a qualified privilege to disparage if the disparaging comments were published in the course of managerial duties?

Especially intriguing: the mutual non-disparagement clause. That would preclude bad references (but an easier approach would be to limit disclosure to confirmation of employment and dates of service). Can you commit disparagement by simply commenting publicly that your new shortstop (or sales manager) is a whole lot better than your old one? Or, by saying that a pitcher (or technology officer) is simply getting old?

Going beyond CELB’s discussion of what a disparagement clause looks like, I’m wondering what disparagement litigation looks like. It is obviously a breach of contract action. But, that leaves open the question of what constitutes disparagement.

For our blog readers, we would counsel to stay away from non-disparagement (but not necessarily confidentiality, non-compete or non-disclosure) clauses unless the circumstances make it absolutely necessary.  High profile organizations with ample resources, like the Yankees, might have to consider them.  But, in most other circumstances, interpretation and enforcement would seem to be a bigger problem than the disparagement itself.

• Email This
• Print
• Comments
• Trackbacks