News (All)

By Patrick McCormick

On May 7, 2019, the Court of Appeals in 159 MP Corp. v Redbridge Bedford, LLC, 2019 WL 1995526, agreed that a tenant’s waiver of the right to bring a declaratory judgment action based upon the specific terms of the commercial lease is enforceable. This waiver effectively precluded the tenant from obtaining a Yellowstone injunction, and could now allow commercial landlords to limit their tenants’ litigation options when landlords allege lease violations by their tenants.

In a split decision, the Court of Appeals ruled in favor of the right to freedom of contract so long as no laws are violated. Notably, the dissent reasoned that the tenant’s ability to litigate in summary proceedings was not sufficient to deny the tenant’s ability to commence a declaratory judgment action. Although the dissent noted that New York’s legislative history consistently sustained the right to declaratory judgment action, in keeping with other common-law decisions and with precedent dating back to England, both sides agreed that freedom of contract would be upheld in the interests of the safety, stability and the betterment of society, not as an individual right. But, the majority and minority disagreed as to whether this particular clause furthered that public policy.

The case concerned two commercial leases which granted Plaintiffs a twenty-year lease to operate a Foodtown supermarket, with an associated storage space, on a property in Brooklyn. Within each lease, Paragraph 67(H) stated: “Tenant waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease…” In March 2014, Defendant (landlord) served Plaintiffs (tenant) with a default notice and demanded Plaintiffs cure the violations or their leases would be terminated. Tenant subsequently commenced an action seeking a declaratory judgment that they hadn’t defaulted and sought a Yellowstone injunction to toll the cure period and prohibit the landlord from terminating the leases while the matter was before the Court.

In upholding the lease waiver provision, the Court of Appeals affirmed the lower Court’s observation that absent “violation of law or transgression of strong public policy,” both parties were free to execute whatever agreement they deemed acceptable (see 159 MP Corp. v. Redbridge Bedford LLC, 2015 NY Slip Op 32817(U) and Rowe v. Great Atlantic & Pacific Tea Co., 46 N.Y.2d 62 (1978)) and held that “there [was] no reason to relieve them of the consequences of their bargain” (see Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685 (1995)). The Court further assessed that the waiver did not prevent Plaintiffs from seeking all legal redress, that they had access to legal counsel, and that the terms of the agreement were very clear and precise and thus should be enforced “according to its terms” (see Vermont Teddy Bear Co. v. 538 Madison Realty Co., 1 N.Y.3d 470 (2004)). The Court further held that “in light of strong public policy favoring freedom of contract [(see New England Mut. Life Ins. Co. v. Caruso, 73 N.Y.2d 74 (1989)) and as a right granted in the Constitution (see U.S. Const. art. I, § 10[1])], [the] parties may waive a wide range of rights.”

In this case, public policy was upheld in favor of the landlords’ right to evict due to the specific language agreed to in the lease. This decision has the potential to alter landlord-tenant law in New York State for years to come, as commercial landlords will surely include a waiver of declaratory and Yellowstone relief in their leases going forward. Therefore, commercial tenants and their counsel should carefully review all draft agreements for explicit waivers of their right to seek Yellowstone relief, injunctive relief or declaratory judgments, and think carefully about whether the costs outweigh the benefits before giving up such legal recourse.

Campolo, Middleton & McCormick, LLP, a premier law firm with offices in Westbury, Ronkonkoma, and Bridgehampton, is proud to announce that Counsel Donald Rassiger has been recognized by Super Lawyers in 2019. The rigorous selection process is based on evaluation of 12 indicators including peer recognition and professional achievement in legal practice.

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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. Blue
Cross 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. 

By Christine Malafi

The New York Election Law has been updated for 2020. Click here to read more.

Employers, take note: New York State’s Election Law was recently amended as part of the state’s fiscal year 2020 budget amendments, and the changes have important, immediate implications for employers.   

As of April 12, 2019, Election Law § 3–110 requires that employees in New York who are registered voters may request and receive up to three hours paid time off to vote, regardless of their work schedule and without loss of pay. (Previously, the law allowed for an employee to request up to two hours of paid time off to vote, but only if the employee didn’t have four or more consecutive hours off between either the time the polls opened and the start of their shift, or the end of their shift and the time the polls closed.) Every employer must post the new Election Law requirements in a noticeable place, accessible to all employees and on company grounds, at least 10 days prior to every election, and leave the notice up through at least the close of the polls on Election Day. Additionally, employee handbooks need to be updated to reflect the new Election Law requirements.

Employees are allowed time off to vote only at the beginning or at the end of their work shift, at the employer’s discretion, unless another time is agreed upon between employee and employer. Employees must also notify their employer at least two days prior to an election if they require time off to vote. Notably, the time off is “up to” three hours, not three hours.

This law applies to all elections under the Election Law in its entirety—including primary and special elections. Specifically, the Election Law covers federal, state, county, city, town, or village office elections, as well as elections on ballot questions that are submitted to voters either state, county, city, town, or village-wide.  It does not apply to school district, fire district, or library district elections and budget votes, as these are generally governed by laws other than the Election Law.

The amended law does not indicate whether an employer is permitted to request proof of voter registration or require a voting receipt or other proof that the employee actually used their time off to vote. The law is also silent as to whether an employer may deduct paid time off to vote from an employee’s established paid time off (PTO) or if employers may instead create a separate category of time off specifically for voting. Please contact us to discuss your specific situation.

Changes such as this one can leave businesses, especially small businesses, scrambling to stay on top of the requirements and at increased risk for non-compliance. For any questions about how to implement these changes at your organization in the least disruptive way possible, please contact our office.