Category: Uncategorized

By Patrick McCormick

What happens when rent is prepaid under a lease but the lease is purportedly terminated prior to the expiration of the term? The Court of Appeals in Eujoy Realty Corp. v. Wagner Communications, LLC addressed this issue.1

Landlord Eujoy owned a building in Queens with a steel frame structure on the roof for the placement of billboard advertisements. Tenant Van Wagner considered the billboard desirable because of its visibility to passing traffic on the Long Island Expressway. Van Wagner leased the billboard for a 15-year term commencing December 1, 2000 and ending September 30, 2015.

The lease specifically provided for the payment of “annual basic rent” for the period January 1, 2007 through December 31, 2007 in the amount of $96,243.00 in advance on January 1, 2007. The lease further provided that “Should this Lease be terminated for any reason prior to the date of its expiration [Van Wagner] shall not be entitled to the return of… any basic rent paid in advance and covering period beyond the date on which the lease is terminated…” The lease, however, provided several exceptions to this clause and allowed the apportionment of rent if the lease terminated due to a fire or casualty, condemnation or the enactment of any law making the billboard illegal. A rider to the lease also afforded Van Wagner the right to terminate the lease if the view of the billboard from the Long Island Expressway was ever “substantially obstruct[ed]” by “the erection of a new building or the increase in height of the building between the location [of the billboard] and the [LIE].”

In early January 2007 Van Wagner sent a check for $96,243.00 to Eujoy for the annual basic rent for the entire year of 2007. The check was dated January 2, 2007; however Van Wagner almost immediately stopped payment on the check claiming that it was “accidentally” and “erroneously” issued. Shortly thereafter, on January 16, 2007, Van Wagner’s Executive Vice President wrote a letter to Eujoy’s co-owner confirming a conversation with another co-owner advising that Van Wagner had terminated the Lease effective January 8, 2007 pursuant to the Rider and enclosed a check for $2,109.43 representing rent for January 1, 2007 to January 8, 2007.

Eujoy thereafter commenced an action against Van Wagner seeking the balance of the annual basic rent for 2007 in the amount of $94,137.57 and for reasonable legal fees and costs related to Van Wagner’s default.

Eujoy quickly moved for summary judgment arguing that “[t]he parties did not stipulate to apportion rent paid in advance and for the period following termination of [the lease] pursuant to [the Lease Rider] and Article 19 of the lease entitled it to its reasonable attorneys’ fees and costs.” Van Wagner cross moved for summary judgment “based on the lease” or, alternatively, for leave to amend its answer to include an affirmative defense of estoppel.

Van Wagner submitted an affidavit of its Executive Vice President claiming that in 2006 it became apparent that construction would eventually block the visibility of the billboard from the Long Island Expressway thus entitling tenant to invoke the termination clause in the rider and that upon his discussion by telephone with Eujoy’s co-owner late in 2006, Van Wagner “agreed [to] keep the advertisements posted, and thus pay rent to [Eujoy] for as long as [Van Wagner] could collect revenues from [its] customer…” The affidavit also stated that because Eujoy “accepted the benefits of [Van Wagner’s] extended use of the [billboard] through January 8, 2007 and agreed that the Lease would terminate as of that date…it should not be entitled to collect rent for any subsequent period.”

The Supreme Court denied Eujoy’s motion and granted Van Wagner’s cross motion holding that Eujoy was not entitled to any portion of prepaid rent because Van Wagner “did not pay any such rent because [it] stopped payment on the rent check before [Eujoy] cashed it.”

On appeal, the Appellate Division, with two dissents, reversed the Supreme Court’s order, granted Eujoy’s motion for summary judgment, denied Van Wagner’s cross motion in its entirety, and remanded the matter for a determination of attorneys’ fees. After final judgment, the Court of Appeals took up the case as of right because of the two Justice dissent and affirmed.

After discussing preservation issues, the Court of Appeals addressed the prepaid rent issue. Initially the Court reminded us of the common law rule that rent “is consideration for the right of use and possession of the leased property that a landlord does not earn until the end of the rental period” unless the parties expressly agree otherwise. The Court stated “when a lease sets a due date for rent, that date is the date on which the tenant’s debt accrues” and that “[r]ent paid ‘in advance’ (i.e. at the beginning of the term) is unrecoverable if the lease is terminated before the completion of the term, unless the language of the lease directs otherwise.” The Court repeated long-standing policy of a “strong preference for freedom of contract in the creation of leases, and although it may seem harsh for tenants, the courts assume that the parties have knowingly bargained for the provisions of their agreement. This is especially true in the case of arms-length commercial contracts negotiated by sophisticated and counseled entities. [Citation omitted.] Courts will give effect to the contract’s language and the parties must live with the consequences of their agreement. If they are dissatisfied …the time to say so [is] at the bargaining table.”

In addressing the lease, the Court noted that the lease described the rent as “annual basic rent,” which it cited as confirmation of the parties’ agreement and intent that rent be paid in advance in annual installments. The Court continued that the lease explicitly states that the tenant is not entitled to “the return” of any basic rent “paid in advance,” even if the lease is terminated prior to the expiration of the rental period unless one of the lease exceptions existed. The Court noted that while tenant never fully pay the rent due January 1, 2007 because it stopped payment of its check, that did not change the lease requirement that the rent became due on January 1, 2007 and under this lease the rent could not be apportioned because the lease did not terminate based on one of the exceptions specifically enumerated in the lease.

The Court determined that Van Wagner “accrued a debt for the annual basic rent under the terms of the lease when it remained in possession of the billboard after January 1, 2007, and there is nothing in the law or the language of the agreement the relieves it of that debt.”

Thus, when a tenant agrees to the payment of rent in advance, if it wants the ability to apportion the rent if the lease terminates early, such must be specifically provided for in the lease.

¹ 22 N.Y.3d 413 (2013)

By Christine Malafi

During the course of any given week, I encounter numerous volunteers at the Town programs in which my two sons participate. Sometimes, work schedule permitting, I am even one of those volunteers. Given current budget constraints, volunteers are needed to keep some municipal programs operating. As with private employers, however, sometimes a “public” volunteer is really an employee. Towns and Villages need to be careful to avoid adverse findings by the Federal and New York State Departments of Labor.

The Federal Fair Labor Standards Act (“FLSA”) requires both public and private entity employees to be paid minimum and overtime wages. The question of who qualifies as an “employee” under the FLSA is not as simple as you would expect. For public agencies, the State, and its subdivisions, there is an express exception in the FLSA to allow volunteer to perform public services without entitlement to wages. A public “volunteer” includes people who: (1) perform services for “civic, charitable, or humanitarian reasons, without promise, expectation or receipt of compensation;” (2) are not already providing similar services as an employee of the same public entity; (3) are not promised and do not expect to receive compensation; and (4) perform work without direct or indirect pressure or coercion. Additionally, a municipality may pay “expenses, reasonable benefits, or nominal fees” to a volunteer without risking the creation of an employment situation.

The determination as to whether a person is a volunteer under the FLSA is very fact specific and the totality of the circumstances will be closely examined. On June 18, 2014, the Second Circuit Court of Appeals addressed the issue for the first time, in Brown v. New York City Department of Education, finding that a young man who provided needed services for  40 hours a week over three years at a New York City high school was a public volunteer under the FLSA and not entitled to wages. Brown had begun “working” at the school to help his brother, who was an employee, because he was unable to find employment and wanted to build his resume, become a better person, and help students. He was, apparently, a very good worker, and both the school principal and his brother gave him token amounts of money, bought him lunch, and paid for his Metro Card over the years. He repeatedly requested a paid position, and was told that he did not have sufficient higher education to qualify for a paid position and that there was no money in the budget for another position. He was asked not to return to the school after a female student lodged a complaint against him (the specifics of which were not provided by the Court). Upon his “termination,” he sued for back wages.

In affirming the District Court’s dismissal of his action, the Second Circuit held that:

1. A person does not have to be solely motivated by civic, charitable, or humanitarian purposes to be considered a public volunteer (to build one’s resume is an acceptable purpose);
2. Whether or not a person expected compensation for their work is subject to an objective reasonableness standard; and
3. The court should look at the “economic realities” and other relevant factors of the situation to determine whether compensation could have been expected.

The Second Circuit Court acknowledged that the public volunteer exception is unique, and specifically noted that private sector employers have a more difficult time establishing that a volunteer is not an employee entitled to wages.

It is important that the FLSA not be construed in such a way so as to discourage volunteerism, and public agencies and municipalities should not be discouraged from accepting help from volunteers. The Second Circuit decision in Brown certainly encourages public entities and municipalities to accept volunteers without threat of liability for wages.

Some people believe that effective negotiators are born, not made, but this presentation will prove them wrong.  Join Joe Campolo as he shares the alternative negotiation strategies he relies on as a law firm managing partner and business owner to solve problems and get deals done.  The CLE course will take place on Tuesday, June 28 at the Hofstra University Club, 225 Hofstra Boulevard in Hempstead, from 8:30 a.m. to 10:10 a.m. (registration from 8:00 a.m.).  The seminar has been approved for both newly admitted and experienced attorneys for 2 New York CLE credits (1.5 Skills, 0.5 Ethics).  This course is free but registration is required.  To register, please email events@ultimateabstract.com.  Learn more.

Please join us on Wednesday, June 29 for a complimentary CLE on Secured Transactions presented by managing partner Joe Campolo.  This survey on the ins and outs of security interests will cover attachment, perfection, default, remedies, and tips for drafting security agreements.  Attendees will receive crucial guidance on the role of Article 9 of the Uniform Commercial Code in corporate transactions.

The course has been approved for 2.0 CLE credits (1.5 Professional Practice, 0.5 Skills) and is appropriate for both newly admitted and experienced attorneys.

Wednesday, June 29, 2016
8:30 a.m. – 10:30 a.m.

Campolo, Middleton & McCormick, LLP
4175 Veterans Memorial Highway, Suite 400
Ronkonkoma, NY 11779

This course is free but registration is required.  Please RSVP to Lauren Kanter-Lawrence, Esq., Director of Communications, at Lkanter@cmmllp.com or (631) 738-9100, ext. 322.

One of the fundamental issues that must be analyzed before commencing a lawsuit is whether you can obtain personal jurisdiction over the individual or entity you intend to sue.

When all of the parties reside or do business in the same state, or better yet the same county, personal jurisdiction becomes an afterthought. However, when the defendants reside and/or do business outside of New York, the question of whether you can obtain personal jurisdiction becomes critical. A recent decision in the Commercial Division, Suffolk County analyzed the key factors in determining whether personal jurisdiction exists and presents a cautionary tale for plaintiffs to consider when deciding on litigation against out-of-state defendants.

In Larsen v. Virtual Tech., Inc., 2014 NY Slip.Op. 50017(U) (Emerson, J.), the plaintiff, a New York resident, commenced a lawsuit against Virtual Technologies, Inc. (“Virtual”), a Delaware corporation whose principal place of business was in California. Plaintiff sought to recover $50,000 she loaned to Virtual based upon a default by Virtual under a promissory note. There was no dispute that the promissory note indicated that it was governed by the laws of the State of California and that it was executed in California. Virtual moved to dismiss the complaint on the basis that the court did not have personal jurisdiction over it under New York’s long-arm statute (CPLR 302(a)).

As noted by Justice Emerson in her decision in Larsen, CPLR 302(a)(1) allows New York courts to obtain personal jurisdiction over a non-domiciliary (out-of-state party) who transacts any business within the state if the plaintiff’s claim arises from the transaction of such business (citing Opticare Corp. v. Castillo, 25 A.D.3d 238, 243 (2d Dep’t 2005)). It is necessary to establish that the defendant’s activities within New York are purposeful and that there is a substantial relationship between the transaction of business and the claim asserted by plaintiff. Id.

Courts look at a variety of factors to determine whether an out-of-state defendant has actually “transacted” business in New York including, but not limited to: (i) whether the defendant has an on-going contractual relationship with a New York plaintiff; (ii) whether the contract at issue was negotiated or executed in New York and whether, after executing the contract, the defendant visited New York for the purpose of meeting the parties to the contract regarding the relationship; (iii) the choice-of-law clause in the contract; (iv) whether the contract required the defendant to send notices and payments into the forum state or subjected them to supervision by a corporation in the forum state. Patel v. Patel, 497 F.Supp 2d 419, 428 (E.D.N.Y. 2007).

In the Larsen case, even though plaintiff had an ongoing relationship with Virtual (and the subsequent entity Virtual formed), the Court noted that the promissory note at issue was only negotiated by telephone and mail and the defendants never actually came to New York either during the negotiation of the promissory note or after the note was executed to meet with the plaintiff. Also, the defendant never sent any payments under the note to New York and correspondence with the plaintiff was limited to a few letters and e-mails. Based on these facts and circumstances, coupled with the fact that the note was governed by the laws of the State of California, Justice Emerson held that the defendants’ contacts with New York were insufficient to establish that the defendants “intended to project themselves into ongoing New York commerce or that they purposefully availed themselves of the New York forum.”

Plaintiff also attempted to argue that the defendant transacted business in New York because it sold products in New York through its distributor and by selling products directly to national chain restaurants such as Dave and Busters and Chuck E. Cheese. However, the Court noted that there needed to be a substantial nexus between the business transacted and the cause of action sued upon. Because plaintiff’s claim did not arise from the defendants’ sale of products in New York, the Court found that there was no nexus between the business transacted in New York and the plaintiff’s claim. As a result, the defendants’ motion was granted and the case was dismissed due to lack of jurisdiction.

The Larsen case provides an important lesson for potential litigants who are dealing with potential out-of-state defendants. It is critical under such circumstances to review all of the party’s relevant New York contacts and the factors noted above before commencing litigation to ensure that jurisdiction over that party can be obtained.

By: Bernadette Starzee, Long Island Business News

Businesses involved in the sale of a particular product or service will, of course, employ salespeople to sell those products or services. In nearly all cases, sales representatives are paid some form of monetary commission based on their level of sales using some set of variables (i.e. percentage of each sale; percentage of each new contract; total number of sales, etc.).

While determining how a commission is calculated may be simple, figuring out when the commission is “earned” for purposes of it being a payable wage can sometimes be difficult in the absence of a written agreement or policy. A recent decision in the Commercial Division, New York County dealt with precisely this issue.

In Linder v. Innovative Commercial Systems LLC, 2013 NY Slip.Op. 51695(U) (Bransten, J.), Plaintiff Gary Linder (“Linder”) commenced a lawsuit against his former employer, Innovative Commercial Systems LLC (“ICS”), to recover sales commissions he believed he was owed after he was terminated. ICS is in the business of installing and maintaining residential and commercial security systems. As a salesperson, Linder was paid commissions based upon each new contract he procured for ICS, with a varying percentage based on whether it was an installation or maintenance contract. However, the actual commission payment was not made to Linder at the time the contract was procured, but instead when the customer paid the ICS invoices under that contract. This practice continued for a number of years and ICS would regularly provide Linder with all documentation regarding the account receivables and copies of checks when customers would make payments. Linder even assisted in collection efforts to obtain payments from delinquent customers on his accounts. As collection attempts on delinquent accounts continued to come up short, so too did Linder’s sales totals and, in 2009, he was fired.

After his termination, Linder commenced the lawsuit against ICS asserting numerous claims including breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and New York Labor Law violations – all relating to an alleged failure by ICS to pay him sales commissions after he was terminated. Both parties ultimately moved for summary judgment.

According to Linder, he “earned” his full sales commissions at the time each contract was procured and thus, he should have received what he was “owed” in commissions even after his termination. Indeed, Justice Bransten, citing Yudell v. Ann Israel & Assocs., Inc., 248 A.D.3d 189, 190 (1st Dep’t 1998), acknowledged that New York courts have held that once a commission is “earned,” it becomes a wage that cannot be forfeited and termination would not affect the employee’s right to receive that commission. Linder also pointed to the fact that there was no written agreement between the parties regarding the commissions, so the commission was earned “upon the employee’s production of a ready, willing and able purchaser of the services” (quoting Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008)).

However, ICS argued that Linder only “earned” his commissions when payments were made by customers and, as such, he would not be owed anything post-termination. The Court agreed. Citing to the same Court of Appeals decision in Pachter, Justice Bransten noted that the Court there had found that the absence of a written agreement was not determinative. In fact, the Court in Pachter held that when there is no written agreement, the commission is “earned” based on the parties’ express or implied agreement, and when there is an extensive course of dealings over a number of years, an implied contract is created regarding when a commission is “earned” and becomes a wage.

Justice Bransten, in granting summary judgment in favor of ICS and dismissing Linder’s complaint, held that based on the parties’ decade-long course of dealing which documented how commissions were calculated and the history of ICS only paying commissions to Linder upon payment from customers, there was an implied agreement as to the commission structure and ICS complied with its obligations regarding payment of commissions through the time Linder was eventually terminated.

The Linder case presents an important issue that should be reviewed by all employers if their business is one in which they are paying out sales commissions to employees. Having a written, agreed upon procedure or policy laying out how and when commissions are earned, and following through with that procedure or policy, is vital to avoid problems such as the one presented in this case.