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March/1/2011

3rd Dept. Corp. Litigation Update

THIRD DEPARTMENT CORPORATE LITIGATION UPDATE
By:  Kelly Mooney Lester
Phillips Lytle LLP

(Fromthe March 2011 Newsletter

RAP Rules!  The rule against perpetuities (RAP) strikes again.  EPTL 9-1.1 (RAP) prevents parties from creating contingent interests in property that may not vest within the statutorily defined period of time.  In a unanimous decision authored by Justice Stein, the Third Department held that a contract violative of RAP on its face renders that contract null and void and divests the option-holders of any legal or record title in the subject property.  In this case, the parties entered into a written contract for sale of land and gave the buyer the sole option to purchase additional lots for future development.  The contract did not limit the time during which the options could be exercised.  The Court found the contract was violative of RAP on its face and that RAP’s "saving statute" (EPTL 9-3) did not apply because the options were not “dependent upon the action of an independent entity that would be expected to happen in the near future."  Even though the statutory period prescribed by RAPP had not yet passed, the Court deemed the contracts "null and void” and declared that “defendants hold no legal or record title to the remaining unsold lots."  TDNI Props., LLC v. Saratoga Glen Bldrs., LLC, 2011 NY Slip Op 78 - NY: Appellate Div., 3rd Dept. (January 6, 2011).

Oral Contract Claim Survives Statute of Frauds Challenge. Two contract claims survived a motion to dismiss.  The Court rejected defendant’s statute of frauds challenge finding that an oral modification "supplants the affected provisions of the underlying agreement while leaving the balance of its provisions unchanged" and, as a result, the written contract’s “at-will” termination provision survived.  The Court noted that NY’s statute of frauds is not implicated by oral agreements terminable at will “because such agreements are capable of completion within one year."  The Court also found that Plaintiff had adequately alleged breach of New York's implied covenant of good faith and fair dealing in the course of performance.  In this case, plaintiffs alleged that "defendant directed them to prepare a refund claim for 2005, but submitted its own claim and refused to review or submit the claim prepared by plaintiffs, thereby depriving plaintiffs of the benefits of the contract."  Gizara v. New York Times Co., 2011 NY Slip Op 308 - NY: Appellate Div., 3rd Dept. (January 20, 2011).

Article 78 Review Denied.  The Third Department refused to hear the Article 78 petition challenging a determination rendered by the Department of Labor on a prevailing wage charge (Labor Law 220[2][a]).  The DOL withheld petitioner’s payments on two public works contracts (as well as a separate contract) on the grounds that petitioner did not meet prevailing wage requirements.  The Court found that petitioners “made a deliberate and what appears to be a calculated decision not to contest any of the allegations made by respondent in this proceeding” and dismissed its Article 78 petition. In doing so, the Court applied the long-standing rule that default judgments are not appealable to defaults taken in administrative proceedings. Matter of Matsos Contr. Corp. v. New York State Dept. of Labor, 2011 NY Slip Op 125 - NY: Appellate Div., 3rd Dept. (January 13, 2011).

Subcontractor’s “Extra Work” Contract Claims Dismissed.  Plaintiff, a subcontractor, alleged that it was owed payment for substantial work performed on a hospital expansion project prior to execution of a written contract.  Plaintiff sued the general contractor and the hospital raising claims for breach of contract, unjust enrichment, quantum meruit, and account stated.  The lower court granted summary judgment to the defendants and the Third Department upheld that determination.  The Court found that since a subcontractor cannot maintain an action for breach of contract against a party with whom it is not in privity, plaintiff could not maintain a breach of contract action against the hospital unless it alleged work performed "that was outside the scope of, and in addition to, the subject matter of its contract with" the general contractor.  The court found that defendants had met their prima facie burden based on evidence "that the three invoices identified by plaintiff as representing the extra work performed had all been paid."  The Court also found that plaintiff "failed to submit proof that it performed any other work for [the hospital] outside the scope of- and in addition to - the subject matter of its subcontract with [general contractor]."  It is on these same grounds that the Court rejected plaintiff's claims for quantum meruit and unjust enrichment. Andrew R. Mancini Assoc., Inc. v. Mary Imogene Bassett Hosp., 2011 NY Slip Op 130 - NY: Appellate Div., 3rd Dept. (January 13, 2011).






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