Category: Uncategorized

By Patrick McCormick

Can an email exchange create a binding contract? In short, yes.

With more people working from home and transacting virtually than ever before due to the coronavirus pandemic, it’s imperative for business owners to understand how email communications can rise to the level of binding agreements. (There will be enough to clean up as things get back to normal, and the last thing you want to worry about is whether your business unwittingly became party to a contract while your conference room sat empty.)

Even before the current health crisis, courts have been called on with increasing frequency to address claims alleging the creation of a binding contract based upon an email exchange. As a preliminary matter, emails alone are indeed sufficient to create a binding contract. Consider Law Offs. of Ira H. Leibowitz v. Landmark Ventures, Inc., 131 A.D.3d 583, 15 N.Y.S.3d 814 (2d Dep’t 2015), which involved breach of contract claims related to services provided by the plaintiff. In examining emails exchanged by the parties, the Court found “[b]y the plain language employed” in the emails, it was clear that the plaintiff made an offer to provide services for a certain fee and that the defendant accepted the offer, creating a binding contract.

Bolstering the premise that a court won’t find the absence of the contract simply because all communications are in email form is In re Estate of Wyman, 128 A.D.3d 1157, 8 N.Y.S.3d 493 (3d Dep’t 2015). In that case, the decedent and the respondent purchased a parcel of real property. After the decedent’s death, her executor commenced a proceeding against the respondent to turn over ownership of the parcel to the estate, claiming that a series of emails between the decedent and respondent had created an enforceable contract to transfer ownership. The Appellate Division found that there was no contract, but not because the evidence was comprised solely of emails; rather, the emails did not include a price to be paid for the transfer of the property, a necessary term. The decision suggests that if the emails had included a price, the Court would have found a binding and enforceable contract in the exchange.

More recent cases echo the notion that so long as all the elements of an otherwise valid contract are met, the fact that the communications are emails won’t render the agreement unenforceable. Consider Schaffer v. View at Dobbs, LLC, 65 Misc.3d 133(A) (2019), in which the Court held that the parties created a binding contract through emails where the plaintiff wrote that upon the defendant’s approval of design drawings, the defendant was to pay him $10,000.00. The defendant responded via email, “Ok you have a deal.”

Similarly, in Kataldo v. Atlantic Chevrolet Cadillac, 161 A.D.3d 1059 (2d Dep’t 2018), the Court held that “an email message may be considered ‘subscribed’ as required by CPLR 2104, and, therefore, capable of enforcement, where it ‘contains all material terms of a settlement and a manifestation of mutual accord, and the party to be charged, or his or her agent, types his or her name under circumstances manifesting an intent that the name be treated as a signature’” (citing Forcelli v. Gelco Corp., 109 A.D.3d at 251 (2d Dep’t 2013)).

By contrast, the Second Department declined to hold an email exchange in which the plaintiff’s counsel had written “consider it settled” but then continued a discussion of further occurrences necessary to finalize the agreement. Teixeira v. Woodhaven Ctr. of Care, 173 A.D.3d 1108 (2d Dep’t 2019). This outcome echoes that of Weg v. Kaufman, 159 A.D.3d 774, 72 N.Y.S.3d 135 (2d Dep’t 2018), in which anesthesiologists disputed whether they were business partners or had an independent contractor relationship. Despite the existence of an independent contractor agreement stating that it comprised the entire agreement between the parties, the would-be business partner introduced an email that referenced splitting income as evidence that he was a 50-50 partner in the practice. But the Second Department found that “The parties’ relationship was governed by written agreements. The 2005 email… is not sufficient to draw” an inference of partnership because “it fails to set forth the material terms of a partnership agreement.” Id. at 777. (1)

While communicating by email may seem informal compared to the time-honored images of mahogany tables covered with legal treatises and lengthy documents, these cases make clear that parties to an email exchange must exercise care to avoid unintentionally creating a binding contract. An otherwise valid contract cannot be undone simply by concluding with “Sent from my iPhone.”

Please contact us with any questions about how to protect your business during this unprecedented time.

Footnotes

(1) See also Kolchins v. Evolution Mkts., 31 N.Y.3d 100, 73 N.Y.S.3d 519 (2018) (holding that a reasonable factfinder could determine that a binding contract was formed by the exchange of emails stating that “[t]he terms of our offer are the same [as the] terms of your existing contract” and outlined the core terms that were included in the prior written agreement. The plaintiff replied “I accept. pls [sic] send contract,” to which the defendant replied, “Mazel. Looking forward to another great run.” The Court found that the offer and acceptance language, “coupled with a forward-looking statement about the next stage of the parties’ continuing relationship,” evidenced the intent to be bound for purposes of surviving a motion to dismiss. Id. at 107).

In honor of this year’s 50th anniversary
of the historic Apollo 11 Moon Landing, it seems appropriate that Americans
look to the past, not only to see how far we’ve come, but to realize how
extraordinary some of the achievements of our forebearers were and to inspire
us to similar feats of excellence and innovation in the future. Those who
exhibit excellence and innovation, who exhibit a leadership which shows
humanity what they could and should be, can be found in every walk of life and
every field of study. Perhaps some of the clearest examples of leadership can
be found in the diverse history of America’s lawyers.

From the colonial era
through the present day, American lawyers have been leading the way in utilizing
the law to create a more just and equitable society. They took unpopular, even
dangerous positions at times, knowing that to lead is to follow your conscience.
Whether that is by using the law as training for the political arena and
presidential leadership as Abraham Lincoln did, or asserting their own rights
under the law at a time when this was controversial as Margaret Brent did, or
through arguing landmark cases as Thurgood Marshall did, there are many ways
American lawyers have historically shown leadership.

Many American lawyers have shown leadership
through the practice of the law itself. Margaret Brent (1601-1671) became the
first colonial woman to appear before a common law court in her duties as the
Governor’s attorney and executrix of his will in 1648. She also requested a
voice in the assembly and two votes, one as a landowner in her own right and
one as the Governor’s attorney. John Adams (1735-1826) represented the British
soldiers accused of murder at the Boston Massacre in March 1770, despite both his
objections to British actions towards the colonies and his own fear of
tarnishing his reputation, believing that everyone should get a fair trial. Thurgood
Marshall (1908-1993) had a long and distinguished career arguing civil rights
cases, starting with Murray v. Pearson
(1934) and culminating in Brown v. Board
of Education of Topeka (1954). His success provided a legal basis for
arguments that separate but equal was unconstitutional and helped pave the way
for the Civil Rights Act of 1964. The actions of these lawyers were strictly
within the law, their stage was the courtroom and yet their words set lasting
precedent for women’s rights, civil rights and the belief that the law should
be impartial and just to all.

American lawyers have also shown
leadership by applying the law outside the courtroom. Henry Clay (1777-1852)
had his own legal practice for over 50 years but was also a U.S. Senator,
Representative and Secretary of State. He was influential in developing the early
U.S. legal system as distinct from but built upon the English tradition, and
his debate, oratory and compromise abilities helped prevent the Civil War for
several decades. Richard Henry Dana, Jr. (1815-1882) joined the Merchant Marines
in his youth and eventually specialized in maritime law but was also a
distinguished writer. In his Two Years
Before the Mast (1840), a memoir from his years at sea and an American
classic, he brought the plight of sailors to the public’s attention. Belva
Lockwood (1830-1917) became the first female attorney to be allowed to practice
before the U.S. Supreme Court. She also ran for president in 1884 and 1888 –
the first woman to appear on official ballots – and drafted an
anti-discrimination bill passed by Congress in 1879. From applying law to the
political sphere to the field of writing and to women’s rights, these American
lawyers were also leaders outside the courtroom.

Finally, some American lawyers have led by
acting outside the law, only to be vindicated by history and time. Perhaps we
could point to Abraham Lincoln (1809-1865), who suspended habeas corpus in 1861 and 1862 to preserve the Union and was
retroactively granted the power to do so by Congress in 1863. Or we could speak
of Lyda Burton Conley (1869-1946) who challenged the government in Court over
the sale of the Huron Cemetery in Kansas City. The first attorney to argue that
burial grounds for Native Americans should be entitled to federal protection,
when she lost the case, she and her sisters took to guarding the cemetery
themselves against all trespassers. In 1916, with the support of the Kansas
Governor, the Huron Cemetery was established as a federal park.  

There are as many ways to exhibit leadership as there are ways in which to practice and apply the study of law. What is clear is that law and progress are inextricably bound together, and that American lawyers hold a unique place in their ability to utilize the law to lead America into the future.

Thank you to Michelle Toscano for her research and writing assistance with this article.

Westbury, NY – Campolo, Middleton & McCormick, LLP, a premier law firm, celebrated the official grand opening of its Westbury office with a ribbon-cutting officiated by the Westbury-Carle Place Chamber of Commerce on June 26. Town of North Hempstead Councilwoman Viviana L. Russell, whose district includes CMM’s office at 1025 Old Country Road, attended the ribbon-cutting and presented the firm with a Citation of Recognition and Merit on behalf of the Town. Opened on March 1 to support CMM’s rapid growth and for the convenience of their extensive client base in Nassau County and New York City, the Westbury office is the firm’s third location (in addition to Ronkonkoma and Bridgehampton) and its first in Nassau County.

CMM has enjoyed a rapid rise since its founding in 2008. Established with two partners in a small office, the firm now has over 30 lawyers working out of three offices along the spine of Long Island. CMM has become the firm of choice for clients with respect to their most challenging legal issues, significant business transactions, and critical disputes. The firm is well known for its philanthropic efforts through its charitable arm, CMM Cares, as well as its attorneys’ dedication to moving the Long Island economy forward through involvement with HIA-LI, Stony Brook University, and the Suffolk County Bar Association, among other respected organizations and institutions.

The full-service Westbury office is close to Nassau County
courts and government buildings in Mineola, as well as the bustling economic
hubs that make Nassau County such a robust business community. The office is
easily accessible by major highways and the Long Island Railroad and is home to
several CMM attorneys and staff members.

The ribbon-cutting took place in the atrium of 1025 Old Country Road, where CMM welcomed clients, friends, Chamber members, and local businesses to network and enjoy food, drinks, and a champagne toast. The firm chose iconic Westbury restaurant Tesoro’s to cater the event.

“We’re thrilled to make our expansion to Nassau County official,” said Managing Partner Joe Campolo. “We’re honored to serve our many existing clients in the area out of our new space, and look forward to working with the local business community to continue to grow the Long Island economy. Onward and upward!”

By Patrick McCormick

In an article published in last year’s Suffolk Lawyer, I discussed decisions that upheld the confidentiality of attorney-client communications, one of our oldest common law evidentiary privileges. The two cases in question – Stock v. Schnader Harrison Segal & Lewis LLP, 142 A.D.3d 210 (1st Dep’t 2016), regarding intra-firm communications by attorneys seeking ethical advice, and Rossi v. BlueCross and Blue Shield of Greater N.Y., 73 N.Y.2d 588 (1989), which provided protection to corporate communications that are predominantly legal in character – helped expand and develop attorney-client privilege into a robust doctrine. Now in two recent decisions by the First and Third Departments, the Appellate Division provided clarification regarding the limits of attorney-client privilege. 

In January 2019, the First Department, in Metropolitan Bridge & Scaffolds Corp. v.
New York City Hous. Auth., 168 A.D.3d 569 (1st Dep’t 2019), held that the
New York City Housing Authority (NYCHA) waived attorney-client privilege when
it placed the knowledge of its counsel at issue with respect to documents that
were the subject of a discovery dispute. Namely as NYCHA alleged the third-party
defendants defrauded their Law Department, they were required to establish
reasonable reliance on third-party defendants’ “alleged misrepresentation.” The
Court further held that NYCHA could not rely on attorney-client privilege to
redact or withhold documents while selectively disclosing other privileged
communications in support of their own interests. (See Deutsche Bank Trust Co. of Ams. v. Tri-Links Inv. Trust, 43
A.D.3d 56, 64 (1st Dep’t 2007); Orco Bank
v. Proteinas Del Pacifico, 179 A.D.2d 390, 390 (1st Dep’t 1992)).

The case concerned NYCHA’s alleged
nonpayment to Metropolitan for equipment and services provided at various NYCHA
residences. In response, NYCHA filed a third-party complaint alleging that the
third-party defendants (Liberty Architectural Products, et. al.) had conspired
to deceive NYCHA by submitting fraudulent certifications attesting that
Metropolitan’s former owners had never been convicted of a crime (a conviction
would have resulted in disqualification). Following a discovery dispute
concerning NYCHA’s failure to produce documents regarding the alleged
conspiracy and its reliance on the false certifications, NYCHA eventually
produced over 700 heavily redacted documents, and withheld another group of
over 400 documents as privileged. Another late production of documents followed
depositions. Plaintiff and Third-Party Defendants moved to compel NYCHA to comply
with prior discovery orders, and the Court granted the motion, taking issue
with NYCHA’s claims of attorney-client privilege.

On appeal, the First Department affirmed
the motion court’s decision, holding that “the court correctly found that
having placed the knowledge of its law department at issue, NYCHA waived
attorney-client privilege with respect to the subject documents” and further
that “NYCHA may not rely on attorney-client privilege while selectively
disclosing other self-serving privileged communications.” 168 A.D.3d at
571-572.

In a similar context, in February 2019,
the Third Department echoed the First Department’s clarification regarding
which material does not fall under attorney-client privilege. In Galasso v. Cobleskill Stone Prods., Inc.,
169 A.D.3d 1344 (3rd Dep’t 2019), Plaintiff, a shareholder of Cobleskill Stone
Products, Inc. (Defendant), alleged that pursuant to Business Corporation Law §§
706(d) and 716(c), the Defendant squandered corporate assets and “engaged in
self-dealing,” acting in self-interest rather than in the interests of the corporate
shareholders. In the course of discovery, Defendant requested a valuation of
stock report, which was prepared for Plaintiff by an independent business
valuation and advisory firm. Plaintiff refused to provide the report on the
grounds that the report was not material and necessary, and that it was furthermore
privileged information, at which time the Defendant moved to compel discovery.
The Supreme Court granted Defendant’s motion to compel discovery, after which
the Plaintiff appealed.

On appeal, the Third Department
unanimously upheld the lower court’s decision, holding that the Supreme Court
was vested with the discretion to determine whether discovery was “material and
necessary in the prosecution or defense of an action” (CPLR § 3101(a)). Key to
the Court’s analysis in determining the validity of the valuation report
falling under attorney-client privilege was Ambac
Assur. Corp. v. Countrywide Home Loans, Inc., 27 NY3d 616, 623 (2016),
which held that the party asserting attorney-client privilege was required to
establish that the communication in question was between an attorney and client
“for the purpose of facilitating the rendition of legal advice or services” and
was “predominantly of a legal character.” As the valuation report was not initially
created for litigation purposes, contained no legal information and was originally
for estate tax purposes, the Court judged it not to be “of a legal character.”

Most importantly, the Court specified that
because the valuation report expressed “serious and substantial concerns” to
Plaintiff based on its appraisal of Plaintiff’s stocks in Defendant, the
valuation report played a role in the commencement of legal action in this
matter. Thus, the court declared it “probative,” stating that it provided proof
or evidence for why Plaintiff brought allegations of gross malfeasance against
Defendant in the first place. Applying that logic, the Appellate Division
agreed with the lower court’s determination that the valuation report offered a
standard allowing the court to evaluate Plaintiff’s damages.

These recent decisions show that
attorney-client privilege can be inapplicable in instances where the
communications in question are the basis for bringing a legal action before the
court. Due to their very nature as intrinsic to the legal action in question,
the Court and all parties involved in the action must be allowed access to
information which may be classified as “privileged” in other instances.
Although the privilege offers vast protection, litigants and their counsel are
warned that they should not automatically assume attorney-client privilege
provides exemptions from disclosure for material and necessary information upon
which a legal claim is asserted. 

Campolo, Middleton & McCormick, a premier law firm with offices in Westbury, Ronkonkoma, and Bridgehampton, proudly announces that Senior Partner Patrick McCormick has been elected to the Executive Committee (as Secretary) of the Suffolk County Bar Association. This election is a significant professional milestone for McCormick, who has just completed a successful two-year term as Dean of the Academy of Law, the SCBA’s educational arm. McCormick will be sworn in at the SCBA’s 111th Annual Installation Dinner on June 7, 2019.

McCormick chairs the Appellate Practice group at CMM, having built a reputation as a strategic and talented appellate attorney over nearly three decades in the field. Representing clients in civil and criminal matters in both federal and state court, McCormick has argued numerous appeals, including three arguments at the New York State Court of Appeals, the state’s highest court. He is also a respected trial attorney, litigating all types of complex commercial and real estate matters, and also represents national commercial shopping centers, retailers, and publicly traded home builders in commercial and residential landlord-tenant matters.

The Suffolk County Bar Association is one of the largest
voluntary bar associations in New York State. As Dean of the Academy, McCormick
spearheaded the continuing education of thousands of New York lawyers. During
his tenure he helped bring the Academy into the future by increasing the number
of programs, utilizing new technology, and offering an unprecedented range of
topics, scheduling, and formats. In addition to his new role as Secretary and
prior roles on the Board of Directors and as Academy Dean, McCormick has served
the SCBA as Chair of the Appellate Practice Committee as well as on the
Commercial Division, Landlord/Tenant, and Real Property Committees. 

Hide and seek. It’s a cute game when kids play, but what about in the context of a contentious litigation? The cute game transforms into a cutthroat endeavor to seek any information to sabotage the opposition’s case. Given the prevalence of social media (even Grandma has a Facebook account nowadays), the first point of attack to collect necessary intelligence tends to be the opposition’s social media accounts. The instantaneous nature of social media provides a window into the opposition’s everyday life. They share where they are, what they are doing, and who they are with. Some social media users try to ensure the privacy of their information by taking advantage of certain privacy settings, which raises the question: is hiding certain information (by making the contents of a social media account private) enough to avoid disclosure during litigation?

The Court of Appeals recently answered this question in Forman v. Henkin, No. 1, 2018 WL 828101, at *4 (N.Y. Feb. 13, 2018), where the Court held that information contained in a Facebook account, whether public or private, must be disclosed so long as it is relevant to the claims at issue. Eager for the instant gratification we receive with each like or comment on a post, we sometimes lack the foresight to consider how the information we post on social media may ultimately be used to verify facts, or, even worse, to impeach credibility. Say a salesperson is accused of soliciting customers in violation of a non-compete agreement, or an employee claims entitlement to overtime wages, or, most commonly, an individual sustains personal injuries—you can be sure that the defendants are scrubbing the plaintiffs’ social media accounts for evidence disputing the credibility of the plaintiffs’ claims. Especially considering the recent decision in Forman, even if the plaintiffs try to hide such information by making their accounts private, the defendants will now be entitled to seek it.

In Forman, the plaintiff fell from a horse and alleged that she suffered severe spinal cord and brain injuries. The plaintiff claimed that her injuries resulted in cognitive deficits, memory loss, difficulties with written and oral communication, and social isolation. During her deposition, she testified that she had a Facebook account that she deactivated approximately six months after the accident and that before the accident she posted “lots” of photos of her “active” lifestyle.

Unsurprisingly, based on the plaintiff’s claims, the defendant requested an authorization to obtain the contents of her Facebook account. The plaintiff refused to provide an authorization, arguing that the defendant failed to establish a basis for access to the plaintiff’s private portion of her account because the public information contained on her profile included only one picture, and that picture did not contradict her claims. In opposition, the defendant contended that just because the public information viewable on plaintiff’s Facebook profile did not contradict her claims did not mean that the postings on the private portion of the account might contain something relevant to the defense.

Prior to Forman, parties avoided disclosing private information on social media accounts by relying on precedent that required the party seeking disclosure to identify relevant information contained in the social media account before seeking disclosure. However, the Court in Forman keenly noted that requiring a party to identify relevant information before seeking disclosure effectively permits the disclosing party to manipulate privacy settings to avoid disclosure. This is not to say that parties are now entitled to unfettered access to social media accounts simply by virtue of commencing a lawsuit. Disclosure still must be narrowly tailored to the claims at issue in the case. Nonetheless, the most important takeaway from this case is that parties can no longer hide behind the veil of privacy to avoid disclosing information that may be detrimental to their case.

We all get the urge to share information on social media, but once litigation commences, plaintiffs are well advised to consider the potential ramifications of each post and how it could be used against you. When all is said and done, litigation involves people, which means it necessarily entails emotions and the impulse to make your story heard. However, during litigation, social media is not the proper forum to share your personal thoughts, feelings, and photographs. Let your attorney advocate on your behalf to avoid having your case debilitated by contradictory posts on social media that impugn your claims and credibility. Remember—even if you try to hide them, your adversary will be permitted to seek them.

In April 2016, the Department of Justice (DOJ) launched an experimental Foreign Corrupt Practices Act (FCPA) enforcement policy known as the “Pilot Program.”  For those unfamiliar, the FCPA is a U.S. law that prohibits business from bribing foreign officials and requires certain accounting transparency among public companies.  The FCPA is enforced both criminally and civilly, has broad jurisdiction, and resulted in nearly $2 billion in settlements in 2017 alone.

The Pilot Program is, in effect, a mechanism for increasing self-reporting and cooperation by companies that may have violated the FCPA in exchange for penalty reductions and the possibility of a declination.  If a company (1) voluntarily discloses, (2) cooperates fully with investigators, (3) timely remediates by instituting an effective compliance program, and (4) disgorges all ill-gotten profits, then the company will receive a 50% reduction off the low end of the U.S. Sentencing Guidelines and even the possibility that the DOJ will not bring an action against the company.

The Pilot Program has been largely hailed as a success by the DOJ.  In the year and a half that the program was in effect, the DOJ FCPA unit received 30 voluntary disclosures, compared to 18 during the previous 18-month period.  On November 29, 2017, the Deputy Attorney General announced that DOJ would make permanent the Pilot Program and added its enforcement guidelines to the U.S. Attorneys Manual as Section 9-47.120, the “FCPA Corporate Enforcement Policy.”  As the voluntary disclosure guidelines become institutionalized, more companies should consider bringing credible allegations of foreign corruption to the attention of U.S. authorities.  But, self-reporting potential criminal liability is a delicate and daunting question that must be carefully considered.

To qualify as voluntary, a company’s disclosure must meet the definition set forth in U.S.S.G. § 8C2.5(g)(1) as occurring “prior to an imminent threat of disclosure or government investigation.”  In other words, knowing that the FBI is likely to execute a search warrant on your office the next day doesn’t give a company a window to disclose and expect a reduction in the sentencing guidelines.  Disclosure must also be timely—meaning within a reasonably prompt time after becoming aware of the offense—and fulsome—meaning that the company must disclose all relevant facts and disclose the individuals involved.

A company can meet the second requirement, full cooperation, by timely and continuously disclosing to the DOJ all facts discovered during the company’s internal investigation, including individual employees and third parties who may have engaged in criminal conduct.  The company must be proactive and facilitate access to third-party or foreign documents and witnesses, as well as make available to the DOJ officers and employees who possess relevant information.  Most challenging, perhaps, is the DOJ’s cooperation requirement that the company “deconflict” witness interviews and other investigatory steps with the DOJ.  In many cases, this means that the company may not interview its own employees regarding a potential FCPA violation until the DOJ has had an opportunity to do so.  Companies must conduct thorough and professional internal investigations of all alleged FCPA violations, but until a company interviews its employees it is difficult to decide whether voluntary disclosure is warranted in the first place.

Third, companies must be prepared to timely and adequately remediate the underlying problems that led to the FCPA violation.  This typically includes implementing or strengthening a compliance and ethics program, improving the company’s compliance culture, dedicating additional financial and personnel resources to anti-corruption compliance, and conducting compliance audits.  The DOJ also considers whether a company adequately disciplines employees involved in the misconduct or those with supervisory authority when assessing remediation.

When the DOJ decides that a company has cooperated fully, the company will receive a 50% reduction off the minimum sentencing guidelines and the DOJ generally will not require that the company appoint a monitor if the company has implemented an effective compliance remediation program.  However, companies can also receive so-called “limited credit” for full cooperation and timely and appropriate remediation even if the company did not voluntarily self-disclose.  Even though declination is no longer an option, the company will receive a 25% reduction off the low end of the sentencing guidelines range.  The largest carrot, however, in the DOJ’s new enforcement policy is the strong presumption in favor of resolving cases through a declination for companies that fully satisfy the requirements above.

The consequences of a FCPA criminal action can be severe.  In 2017, Telia, a Swedish company, paid $965 million in total penalties for FCPA offenses.  Companies with potential FCPA liability should consult with counsel and seriously consider voluntary disclosure before it is too late.

One of the more challenging and ever-evolving issues that we continue to see is determining what is necessary to obtain personal jurisdiction in New York State over an individual or business that resides or does business out of state. If you are dealing with real property in New York, a tort that occurred in New York, or a defendant who resides in or regularly does business in New York, jurisdiction is easily exercised.  The issue arises when the defendant you are seeking to sue in New York has few or no ties to the state.  In such cases, courts go through a very fact-specific analysis to determine whether the defendant has sufficient contacts within New York to avail itself of jurisdiction here.

A recent Suffolk County Commercial Division decision from Justice Emerson in Katherine Sales & Sourcing, Inc. v. Fiorella provides a great snapshot of what courts will consider when determining whether personal jurisdiction exists over an out-of-state defendant.  This derivative action centered on the plaintiff’s claims that defendants engaged in a scheme to defraud a company they jointly owned, Zingarr Sales and Marketing, by submitting fraudulent and inflated bills for services rendered to Zingarr and diverted contracts to a business separately owned by defendants, TGG Direct.

The rundown on the confusing cast of characters in this case: the plaintiff, Katherine Sales and Sourcing, is a New York corporation that owned a 50% interest in one of the nominal defendants, Zingarr, a New Jersey limited liability company that is authorized to do business in New York.  Zingarr is in the business of developing, manufacturing, and selling consumer goods to retail stores, online retailers and wholesalers and has offices in both New Jersey and New York. The other 50% owner of Zingarr is another nominal defendant, Emily Gottschalk, who also owns and manages a third nominal defendant, TGG, a New Jersey limited liability company with offices in New Jersey. Gottschalk and non-party Arthur Danzinger are co-managers of Zingarr.  Danzinger is also the president and a shareholder of Katherine Sales.  Gottschalk’s office is in New Jersey, while Danzinger’s is in New York. Defendant Robert Fiorella is a resident of California, where he maintains an office.  So, in summary, we have a New York plaintiff, nominal defendants in New York and New Jersey, and a defendant who resides in and has an office solely in California.  Fiorella made a motion to dismiss the case against him for lack of personal jurisdiction.

Fiorella was hired by Zingarr at Gottschalk’s request to perform certain consulting services for Zingarr over a period of seven months in 2014.  Fiorella performed all services in California, and never came to New York.

In her decision, Justice Emerson first noted that CPLR 302(a)(1) provides that the court can exercise jurisdiction over a nondomiciliary who transacts any business in New York if the plaintiff’s claims arise from the transaction of such business.  Opticare Acquisition Corp. v. Castillo, 25 A.D.3d 238, 243 (2d Dep’t 2005).  A single act of business in New York has been held to be sufficient under certain circumstances when the business activities in New York were purposeful and there is a substantial relationship between the transaction and the claim asserted.  Id.  While being physically present in New York when a contract is agreed to is generally sufficient to confer jurisdiction, courts will likely not exercise jurisdiction over a non-resident when the contract was negotiated solely by mail, phone, or fax without any New York presence by the out-of-state defendant.  Patel v. Patel, 497 F.Supp. 2d 419, 428 (E.D.N.Y. 2007).  

The court found that although Fiorella had an ongoing relationship with Gottschalk and Zingarr, he never entered New York to negotiate their consulting arrangement, to perform under that consulting arrangement, or for any reason related to his relationship with Gottschalk and Zingarr.  Fiorella’s only actual contacts with New York that directly related to the consulting services were through telephone calls and emails with Danzinger, which the Court found were incidental to the work Fiorella was performing for Gottschalk.  Indeed, Fiorella’s primary business relationship was with Gottschalk, who was located in New Jersey.  The Court also factored in that the calls and emails from Danzinger were initiated by Danzinger and Fiorella was merely responding, thus not actively and purposely availing himself to New York activities.  Fiorella also sent two of the products at issue to Danzinger in New York but, again, these were sent at Danzinger’s request and, as such, the court held that Fiorella was not purposely availing himself to New York.

The court went on to consider the other options to exercise jurisdiction over Fiorella under CPLR 302(a)(2) and (3), but found that the plaintiff could not establish that Fiorella committed a tortious act in New York nor could plaintiff establish that it has sustained any injury other than a financial loss in New York.

Based on this analysis, the court dismissed the Complaint against Fiorella for lack of jurisdiction.  While there is no concrete standard for analyzing the sufficiency of an out-of-state defendant’s contacts with New York, this decision further amplifies the importance of evaluating how you are going to obtain personal jurisdiction over an out-of-state defendant before you commence the lawsuit. If you are the plaintiff, it is critically important to know in advance whether the out-of-state defendant does any business in New York, has an office in New York, negotiated an agreement at issue in New York, held meetings in New York, performed services in New York, regularly communicated with individuals in New York, and so on.  As seen in this case, if you are unable to establish a New York presence for an out-of-state defendant, your case could be over before it begins.

Campolo, Middleton & McCormick, LLP represented Applied DNA Sciences, Inc. (NASDAQ: APDN) in the negotiation of an agreement with textile manufacturer Himatsingka America, Inc. to incorporate the company’s molecular tag technology, SigNature® T, in products sold to retailers such as Bed Bath & Beyond and Costco where source-traceable product is now available nationwide and online.

Applied DNA Sciences provides DNA-based supply chain, anti-counterfeiting and anti-theft technology, product genotyping, and product authentication solutions.  SigNature T is a molecular tag that attaches to cotton fiber at the gin, ensuring reliable traceability and verification throughout an entire supply chain. SigNature T enables verification that Pimacott®-branded products sold to consumers, including comforters, pillow cases, and shams, are made from pure Pima cotton, grown in the San Joaquin Valley, California. It also powers the Himatsingka-branded “HomeGrown™ – Cotton Proudly Grown in the USA” cotton products verifying traceability to gins in Arkansas, Texas, and California.

“Today, consumers care deeply about where their products originate.  With our technology, retailers and brands can be confident that the products on their shelves are true to the label,” said Dr. James Hayward, President and CEO of Applied DNA Sciences.

“One of the thrills of working on Long Island is when you can represent one of its gems,” said Joe Campolo, Managing Partner of Campolo, Middleton & McCormick.  “Applied DNA Sciences, under Jim Hayward’s leadership, is a truly innovative company and this deal will help bring product transparency to millions of consumers.”

Learn more about the important work of Applied DNA Sciences at adnas.com.

Dating back at least to the 18th century, the “American Rule” provides that each litigant pays his or her own attorneys’ fees, regardless of the outcome, unless provided otherwise by statute or a contract between the parties.  Justice Thomas, writing for the majority in the Supreme Court’s June 15, 2015 decision in Baker Botts v. ASARCO, LLC, referred to this rule as a “bedrock principle” that would serve as the Court’s basic point of reference in evaluating this dispute from the Fifth Circuit.

The case stemmed from defense of a bankruptcy fee application by two law firms that had represented respondent ASARCO in its bankruptcy.  Following the bankruptcy proceeding, the firms sought compensation under §330(a)(1) of the Bankruptcy Code, which provides that a bankruptcy court “may award . . . reasonable compensation for actual, necessary services rendered by” professionals.  The firms also filed fee applications as required.  The bankruptcy court eventually awarded $120 million in fees to the firms.  While that fee may not have thrilled ASARCO, at issue was an additional $5 million in fees for time that the law firms spent defending their fee applications, which the bankruptcy court determined the law firms could recover.  On appeal, however, the Fifth Circuit reversed, citing the American Rule and finding that the beneficiary of a professional fee application is the professional, not the litigant, and thus the professional is not entitled to compensation for defending a fee application.

The Supreme Court, in a 6-3 decision, agreed.  The Bankruptcy Code authorizes compensation “for actual, necessary services rendered,” which the parties did not dispute equaled $120 million.  But the bankruptcy rules “neither specifically nor explicitly authorize[] courts to shift the costs of adversarial litigation from one side to the other—in this case, from the attorneys seeking fees to the administrator of the estate—as most statutes that displace the American Rule do.”  Defense of a fee application, the Court determined, is a separate activity that does not factor into the compensation authorized under the Code.