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Paul Millus Writes, “Will Your Fiduciary Duty Claim be Timely When the Statute of Limitations Is No Longer Tolled?”

All attorneys should be aware that, pursuant to Governor Cuomo’s Executive Order 202.8 issued on March 20, 2020, the expiration of the applicable statute of limitations (“SOL”) on any claim has been tolled equal to the amount of the time left on the applicable SOL, without such tolling, until April 19, 2020.  We all should know as well that this tolling period has been extended several times-now until July 6, 2020.  So what better time than to get your ducks in a row on your breach of fiduciary duty claim?

To help in that regard, I refer you to a First Department decision on May 28, 2020 in the case of Habberstad, et al. v. Revere Sec. LLC, et al., 2020 NY Slip Op. 03071 which has reminded me  that a refresher may be in order regarding the SOL for a breach of fiduciary duty claim.

In this case, plaintiffs were thoroughly banished by the court for a number of reasons including, but not limited to, the fact that their breach of fiduciary claim was barred by a relevant trust agreement’s exculpatory clause which expressly relieved the defendant Trustees of liability for acts and omissions other than willful misconduct. (Duh- but to be fair, plaintiffs had an argument to escape this conundrum, it just did not carry the day!).  Nevertheless, the court brings to the fore the various issues regarding the applicable SOL in a breach of fiduciary duty claim.

Starting with the basics, the applicable statute of limitations for a breach of fiduciary duty depends on the substantive remedies sought.  Such that where the relief sought is equitable in nature (i.e., an accounting) the six-year limitations period of CPLR 213(1) applies.  However, if the claim is for monetary relief (which is often the case), a three-year statute of limitations alleging injury to property applies.  See Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep’t 2003).

There are certain exceptions, however.  A cause of action for breach of fiduciary duty based upon allegations of fraud is subject to a six-year period or more if the doctrine of equitable estoppel or the fraud discovery accrual rule applies, but I digress.  Nevertheless, as is often the case, there are exceptions to the exception. One such exception to the rule I just cited is when the fraud allegation is merely “incidental” to the claim asserted, such that the allegation of fraud is not essential to the cause of action pleaded except as an answer to an anticipated defense of statute of limitations.  As per Kaufman, the courts “look for the reality, and the essence of the action and not its mere name.”  Id. at 119. The Courts, of course, want to prevent the revival of otherwise stale claims.

So what does that mean to be “incidental” to the fraud claim?  In Marketxt Holdings Corp. v. Engel & Reiman, P.C., 693 F.Supp.2d 387 (S.D.N.Y. 2010), plaintiffs claimed that the defendants knowingly assisted in devising and implementing a fraudulent scheme to deprive plaintiffs of certain stock and to convert the proceeds of that stock to their own benefit. Plaintiff identifies two distinct transactions in which, it was alleged, the defendants aided and abetted fraud, breach of fiduciary duty, and conversion and that they participated in a conspiracy to effectuate a fraudulent conveyance.  Defendants argued that the plaintiff’s allegations of fraud were merely incidental to its conversion claims and that the shorter statute of limitations for conversion applied, thereby barring all of the plaintiff’s claims for accessorial liability.  On a motion to dismiss, the court held that the fraud claims were indeed incidental to the claim of conversion, reasoning that the gravamen of plaintiff’s amended complaint was that the defendants helped steal assets properly belonging to plaintiffs, yet all of the alleged fraudulent conduct was in furtherance of this scheme to divert corporate assets and that this conduct did not cause cognizable damage to plaintiff independent of that conversion.   From my review of the case law, this is a complicated issue which will require a well thought-out and drafted complaint

In Habberstad, the court also found the claims of fraud incidental to the fiduciary duty claims, stating that the plaintiff’s accusations against one of the defendants was not that he actively participated in the alleged fraud but that he “endorsed it rather than opposed it.”

If this was not enough, I have one further note to remember.  As noted by the court, in a breach of fiduciary duty action seeking equitable relief, under the Open Repudiation Toll Doctrine, if the defendants openly repudiate all of the fiduciary duties that are alleged to have been breached, the six-year period runs from the date of that “open repudiation.”  Finally, the Open Repudiation Toll Doctrine does not apply to claims asserted for monetary damages.

Paul Millus Authors, “What You Say On Your Tax Return Can And Will Be Used Against You In A Court of Law in a BCL Dissolution Proceeding”

You may be saying, after reading the title of this piece, that how can that not be true.  Indeed, it appears axiomatic.  Not so fast.  Yes, one would think that their signature on a government document warrants the truth of the contents therein, and, thus, the signatory would be bound by that confirmed fact if it were somehow relevant in a court proceeding.  However, it might not be as clear as one would think, or at least was not so clear in the First Department until May 21, 2020.

In its decision in the case of PH-105 Realty Corp. v. Elayaan, 2020 WL 2562558 (1st Dep’t 2020), the First Department ordered the unanimous reversal on the law of the lower court’s order granting defendants a motion for summary judgment and dismissing declaratory and unjust enrichment claims alleged by plaintiff in connection with its assertion that the plaintiff had a 75% ownership interest in 181 Edgewater LLC (“Edgewater”).

I will return to that decision in a moment, but the confusion lied in the First Department’s decision in the matter of Bhangi v. Baluch, 99 A.D.3d 587 (1st Dep’t 2012).  In Bhangi the trial court denied a petition for dissolution of a company where the petitioner alleged that she had a 50% ownership interest in Flag Time as required by Business Corporation Law § 1104.  The basis for her contention was that Flag Time’s federal tax return for the year 2000 indicated that she was a 50% owner of the corporation.  However, the lower court held and the First Department agreed that “without more, to satisfy petitioner’s burden, since corporate and personal tax returns, even when filed with government agencies are ‘not in and of [themselves] determinative’” citing Matter of Heisler v. Gingras, 90 N.Y.2d 682, 688 (1997).  To be sure, in the Bhangi case there was evidence which contravened petitioner’s contention, but the tax return was the tax return and, indeed, it was not enough.

Yet, in PH-105 Realty Corp., the First Department made it clear that to the extent its decision in Bhangi had been “interpreted as making the doctrine generally inapplicable with respect to factual statements of ownership and tax returns, we clarify that the doctrine [known as the ‘Tax Estoppel Doctrine’] applies where, as here, the party seeking to contradict the factual statements as to ownership in the tax returns signed the tax returns, and has failed to assert any basis for not crediting the statements.”

In so holding, the court ruled that the defendants were estopped to deny the 75% ownership interest in Edgewater that was asserted, it did not follow that plaintiff was entitled to summary judgment on its claim for a declaration that the individual remained a 75% owner of Edgewater or in the alternative unjust enrichment claim alleging an unlawful deprivation of that ownership right.  The court simply determined that, for the period 2010 through 2014, the signature by the defendant on the federal tax return was enough to counter an argument that, for that period, the plaintiff was not a 75% owner of the LLC.

The takeaway seems rather straightforward, which is something we all would have thought was rather straightforward from the outset.  If the party seeking to contradict factual statements as to ownership in tax returns sign the tax returns and could not discredit (which you generally would not), his assertion in those returns, it is, indeed, axiomatic that, for that particular period, he could not deny that which he confirmed on the returns—period.

Kevin Schlosser Authors, “Renewed Allure In Hiring “Private Judges” Under the CPLR”

In the wake of the Covid-19 crisis, there should be renewed interest in the often over­looked yet extremely useful provisions of the CPLR authorizing parties to hire a “referee,” or as I will call it here, a private judge, to de­termine commercial and business disputes. Believe it or not, the utility of a private judge to determine legal disputes has been around under the New York justice system for over a century. See Woodruff v. Dickie, 31 How. Pr. Rep. 164 (Sup. Ct. N.Y. Co., 1866).

The administrative judges and the office of court administration have certainly made pru­dent and understandable decisions in juggling issues of public health and safety in adminis­tering the massive New York state system of justice during this pandemic. Yet, counsel and their clients sure had a wake-up call when the entire e-filing system of the New York Courts was shut down except for cases deemed “essential.”

Authority and powers of pri­vate judges

Enter the availability of “pri­vate judges” as authorized by the CPLR. The authority for such an appointment is contained in CPLR 4001: “A court may appoint a referee to determine an is­sue, perform an act, or in­quire and report in any case where this power was hereto­fore exercised and as may be hereafter authorized by law.” The section governing the power and authority of the private judges who “determine an issue” is CPLR Article 43.

The parties to a case (once it is filed) can immediately stipulate to the ap­pointment of the private judge. CPLR 4317(a) provides: “The parties may stipulate that any is­sue shall be determined by a ref­eree.” Only in three limited cir­cumstances must leave of court by sought first: “Leave of court and designation by it of the referee is required for references in matrimonial actions; actions against a corporation to ob­tain a dissolution, to appoint a receiver of its property, or to distribute its property, un­less such action is brought by the attorney-general; or ac­tions where a defendant is an infant.” Id. Once the parties so stipulate and name their private judge, the clerk must issue an order effectuating the stipulation: “Upon the filing of the stipulation with the clerk, the clerk shall forthwith enter an order referring the issue for trial to the referee named there­in.” Id.

CPLR 4301 affords the private judge broad powers, equivalent to an elected Supreme Court Justice: “A referee to determine an issue or to perform an act shall have all the powers of a court in performing a like func­tion; but he shall have no power to relieve himself of his duties, to appoint a successor or to adjudge any person except a witness be­fore him guilty of contempt.”

The private judge has the power not only to issue a decision, but also a fully effective and enforceable judgment. See CPLR 5016(c) (“Judgment upon the decision of a court or a referee to determine shall be entered by the clerk as directed therein. When relief other than for money or costs only is granted, the court or referee shall, on motion, determine the form of the judgment.”)

Benefits and advantages of a private judge

There are plenty of benefits to hiring a pri­vate judge who is dedicated exclusively to the case at hand.

Flexibility and certainty

While the authority to appoint a private judge to determine issues in dispute derives from the CPLR, the private judge is free to conduct the affairs and proceedings at times, places and in a manner at his or her discre­tion. The parties chart their own course by stipulating to the private judge and coordinat­ing their respective schedules and procedural preferences with just one person, rather than the entire administration of the court system. Further, dates of all proceedings can be coor­dinated based upon the respective schedules of the parties and only one other person – the private judge. Imagine dates certain for hear­ings, trials and/or written submissions, which afford for advance planning.

Expertise

The parties jointly select the best person for the job. They can identify and choose some­one with precisely the experience, knowledge and temperament that fits the case needs.

Avoid cost and bureaucracy of ADR forums

Hiring a private judge can afford advantag­es over resolving a dispute in arbitration or adminis­tered through the large well-known dispute resolution or­ganizations. For one, hiring a private judge can avoid the administrative bureaucracy and cost associated with the large ADR forums and venues. In short, the private judge is at the “beck and call” of the parties themselves.

An Enforceable Judgment

Unlike arbitration awards, as noted above, the decision of a private judge can immedi­ately be reduced to an enforceable judgment. CPLR 5016(c). There is no extra step to insti­tute an entirely new proceeding under CPLR 7511 to confirm the private judge’s decision like there is after an arbitration award is is­sued. Thus, the additional time, expense and litigation is eliminated.

Full appeal rights preserved

Unlike in arbitration, the decision and judgment of the private judge are fully re­viewable on appeal through the New York Court system based upon all the grounds available to challenge any decision of a court. See Bed­ford v. Hol-Tan Co., 140 App.Div. 282, 285–286, 125 N.Y.S. 173, 175–176 (1st Dep’t 1910)(“A referee appointed to hear and determine has the same power and au­thority as a justice of the court, and his de­cision stands as the decision of the court. [CPLR 4319.] His decision can be reviewed and set aside only for the same reason and in the same manner as can a decision of the court.”); Hampton Bays Supply Co. v. Adler, 3 Misc.2d 224, 226, 147 N.Y.S.2d 775, 778 (N.Y. Sup. 1955). Therefore, the reluctance that attorneys and their clients may have to the relatively unchecked power of an arbitra­tor to definitively determine their dispute is ameliorated by the appellate review process.

In New York, we are very fortunate to have experienced, dedicated Commercial Divi­sion judges who work hard to provide a so­phisticated forum for resolving commercial disputes. Nevertheless, as we all try to find ways to resolve commercial disputes in the most cost-efficient and expeditious manner, thought should be given to the use of private judges as well. It may not be appropriate for all circumstances but it certainly presents an additional option.

Kevin Schlosser is a partner at Meyer, Suozzi, English & Klein, P.C., where he is chair of the Litigation and Alternative Dispute Resolution Department, which has a full roster of available private judges from virtually all disciplines of law.

Matthew Marcucci Authors, “Case Law May Guide NY Employers On COVID-19 Bias Risks”

Matthew MarcucciBy: Matthew Marcucci

The COVID-19 outbreak has affected all aspects of American life, and perhaps none so much as the employer-employee relationship. Important new federal and state laws now provide employees with virus-related paid leave and other protections.[1]

For example, the federal Families First Coronavirus Response Act mandates paid leave for certain categories of affected employees. And New York state has gone even further by passing COVID-19-related paid leave legislation that forbids employers from firing employees subject to orders of quarantine or isolation.

In short, COVID-19 has thrown the employer-employee relationship into flux. The new status quo includes enhanced obligations for employers under the New York State and New York City Human Rights Laws, or HRLs. These laws prohibit discrimination on the basis of traits such as race, creed, national origin and disability.

Now, the HRLs extend to discrimination involving COVID-19. Accordingly, New York employers must carefully navigate the post-pandemic world. As employers implement measures to mitigate the virus’s effects, they must ensure that such measures do not rise to the level of unlawful COVID-19-based discrimination.

New York City has responded most strongly to the outbreak. The city’s Commission on Human Rights announced that “[h]arassment and discrimination on the basis of race, national origin, age, and disability (including having COVID-19 or another serious illness) is illegal under the New York City Human Rights Law.”[2] This language strongly implies that the virus itself qualifies as a disability that triggers liability under the city’s HRL.

While New York state has not gone quite as far as the city, its Division of Human Rights, or DHR, has declared that discrimination involving COVID-19 can violate the state’s HRL. The DHR recently issued a fact sheet outlining some of the upshots of this development:[3]

  • Employees can file a complaint with the DHR if they believe they have been discriminated against because of a perceived connection between their race, national origin or disability and COVID-19.
  • Employers cannot fire their employees, send them home or tell them not to come to work because they think they may have been exposed to COVID-19 based solely on their race, national origin or disability.
  • Employers cannot terminate their employees or prevent them from working based on speculation that their race, national origin or disability indicates possible exposure to COVID-19.
  • Employers cannot discriminate against employees who choose to wear face masks as protection against possible exposure to COVID-19.
  • Employers who terminate or send home their employees for a discriminatory reason may be responsible for the employees’ missed wages.

At the federal level, things are less certain. The Americans with Disabilities Act also prohibits disability-based discrimination. But the agency that enforces the ADA, the U.S. Equal Employment Opportunity Commission, has not determined whether COVID-19 qualifies as a disability under the ADA.[4]

As the legal landscape continues to adjust to COVID-19, it is clear that the outbreak is changing basic aspects of some the most important laws for employers. And while courts have not yet had the opportunity to adjudicate claims of COVID-19-based discrimination under the HRLs, prior court opinions involving analogous claims provide critical guidance on how employers can limit their liability exposure going forward.

The definition of “disability” under the state’s HRL is expansive. Not only do physical or medical impairments count, but so too does a “record of such impairment” or a “condition regarded by others as an impairment.”[5] Even if an employee does not actually have COVID-19, therefore, employers likely will face liability for discrimination predicated on the false assumption that the employee does.

Employers should also consider whether they can provide their disabled employees with reasonable accommodations that would enable these employees to continue performing their essential job functions.

As a general matter, employers can terminate disabled employees without fear of violating New York law if their disabilities totally prevent these employees from performing their duties — even with the benefit of a reasonable accommodation.[6] But if the employer can provide disabled employees with reasonable accommodations that enable them to perform their essential job functions, then the law prohibits disability-based discrimination.

Courts apply a rigorously fact-specific test to assess whether an employer who terminated a disabled employee did so in a discriminatory manner. The “particular disability must be such that it prevents the particular individual from performing in a reasonable manner the particular activities involved in the job or occupation before an employer is permitted to terminate the individual employee.”[7]

Just because an employee has COVID-19 or is displaying symptoms is not enough to justify termination. Rather, employers should only begin contemplating adverse actions such as termination where no reasonable accommodation would enable an employee affected by the virus to perform his specific duties. And even then, employers must proceed with caution.

In Antonsen v. Ward in 1991, for example, a New York City police officer with Crohn’s disease convinced the New York Court of Appeals that his dismissal violated the state’s HRL. Although the officer had been successfully treated for the disease, the police commissioner argued that certain scientific literature established that the disease would recur.

Accordingly, the police commissioner contended that the officer’s dismissal did not violate the law. The court completely rejected this argument, stating:
Employment may not be denied based on speculation and mere possibilities, especially when such determination is premised solely on the fact of an applicant’s inclusion in a class of persons with a particular disability rather than upon an individualized assessment of the specific individual.[8]

The Antonsen case has powerful lessons in the COVID-19 era. First, employers cannot terminate employees on the assumption that, at some indeterminate point in the future, the virus’s lingering effects will prevent affected employees from doing their jobs.

Such a decision, based on speculation and mere possibilities, almost certainly would violate the law. More broadly, the Antonsen case demonstrates the highly individualized nature of a court’s inquiry into the reasons for an employee’s termination. Now, courts may assess whether an employer who terminated an employee affected by COVID-19 based its decision on the employee’s inclusion in the class of persons with the virus rather than an individualized assessment of the employee’s specific role in the company.

As to reasonable accommodations, employers should make every effort to engage in a good faith dialogue with their disabled employees about measures that might enable them to continue working. This point may become particularly important in situations where an employee has recovered from COVID-19 but continues to suffer long-term respiratory or other impairments resulting from the virus.

In Jacobsen v. New York City Health and Hospitals Corp. in 2014, for example, an employee of the New York City Health and Hospitals Corp., or HHC, who performed site inspections of asbestos abatement projects contracted a serious lung disease.

Upon returning to work after a medical leave of absence, the employee complained that he had difficulty breathing and repeatedly requested protective respiratory equipment. But the HHC denied these requests, and instead merely provided the employee with a dust mask. Eventually, the HHC terminated the employee, who alleged that the HHC had violated the state’s and city’s HRLs.

The HHC sought summary judgment dismissing the employee’s claims. But the New York Court of Appeals found that, as a matter of law, the HHC could not prevail. Specifically, the court held that the HRLs
generally preclude summary judgment in favor of an employer where the employer has failed to demonstrate that it responded to a disabled employee’s request for a particular accommodation by engaging in a good faith interactive process regarding the feasibility of that accommodation.[9]

Had the HHC taken the simple step of responding in good faith to the employee’s request, it might have entirely avoided this adverse result. Indeed, according to the court in Jacobsen, “where the employee seeks a specific accommodation for his or her disability, the employer must give individualized consideration to that request and may not arbitrarily reject the employee’s proposal without further inquiry.”[10]

The court wrote, “as a matter of common sense,” the employee’s request for a respirator “would have reduced [his] dust exposure and logically might have allowed him to continue working at construction sites at the time he asked for that accommodation.”[11]

The court’s decision placed the employee in a commanding position. Short of agreeing to settle the case, the HHC had no choice but to proceed to a full trial on the merits of the employee’s claims. Similarly, employees who recover from COVID-19 but suffer lingering effects may propose accommodations to enable them to work, and employers would be mistaken not to take these requests seriously.

In sum, employers must balance their efforts to deal with COVID-19 against their enhanced legal obligations under New York law. This changing landscape will continue to evolve, and employers should make every effort to keep pace.

 

Matthew A. Marcucci is an associate at Meyer, Suozzi, English & Klein, P.C.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.msek.com/publication/paid-covid-19-leave-navigating-available-benefits-under-the-federal-ffcra-and-new-york-state-law/.

[2] https://www1.nyc.gov/site/cchr/media/covid19.page.

[3] https://dhr.ny.gov/sites/default/files/pdf/postings/DHR_COVID19_DiscriminationHandout_032420.pdf.

[4] https://www.eeoc.gov/transcript-march-27-2020-outreach-webinar (“[I]t is unclear at this time whether COVID-19 is or could be a disability under the ADA.”).

[5] Matter of Antonsen v. Ward , 77 N.Y.2d 506 (1991).

[6] Jacobsen v. New York City Health and Hosps. Corp. , 22 N.Y.3d 824 (2014).

[7] Matter of Antonsen, supra.

[8] Id.; see also Matter of Brentwood Union Free School Dist. v. Kirkland, 126 A.D.3d 898 (2d Dep’t 2015) (“Although the petitioner proffered some evidence at the hearing that the complainant’s [lung disease] may have prevented him from performing the duties of the job in a reasonable manner, the petitioner did not have this information at the time it made its determination and, in any event, this evidence merely conflicted with other evidence in the record indicating that the complainant’s disability did not render him incapable of performing the duties of the job in a reasonable manner.”).

[9] Jacobsen v. New York City Health and Hosps. Corp., supra .

[10] Id.

[11] Id.

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Hon. Ira Warshawsky Authors, “The Neutral Facilitator – The Solution for Equitable and Fair Resolutions During Troubling Times”

What Day is it? Is it Tuesday?

No, It’s Sunday.

How was I able to solve this conundrum?   A question many of us have asked ourselves when all structure seems to have gone out of our lives in the last few weeks, so we literally don’t recall the day of the week. In my case I knew it was Sunday when I brought in the morning paper and it had the Sunday comics neatly folded within.

Regretfully, such a simple solution is not available to businesses across the nation on what has become known as “the time of coronavirus.” [a play on words from the book, Love in the Time of Cholera, by Gabriel Garcia Marquez.]

What do you say when your client comes to you and complains that he had to stop manufacturing widgets in that the main components of his widgets come from India and they just shut down the country?

Another client (landlord) complains that his rent hasn’t been paid because the tenant contends he is a “non—essential” business and all his employees are home (and barely) working from there?

Let’s look at the flip side – the client complains “how do I pay my rent when I have no income and my accounts receivable collection attempts have utterly failed?”

How about another more traditional example for those of us involved in business litigation. A client is a 50% shareholder in a profitable business. Her partner is the managing partner of the business. He changed the password on their bank accounts and she thinks he is moving funds to another account under his name only. In the good old days, a month ago, we would be preparing an OSC (Order to Show Cause) with a TRO (Temporary Restraining Order) and charging into court. But now…?

The New York Supreme Court-Civil, initially was only handling “essential matters” (as defined in Administrative Order 78/20; March 22, 2020). The Court now, as of April 13, 2020, started handling non-essential matters, including torts (medical malpractice and asbestos for example) commercial, matrimonial as well as trusts and estates. All of these matters are to be handled remotely via telephone conference or Skype for Business. Well, clearly this is good news. But this newest directive only applies to Pending Matters. Thus all the examples that I gave previously are still left outside the courthouse doors.

The disruptions caused by super storm Sandy or in fact any other natural disaster that might have struck the New York metro area will soon pale in comparison to the pandemic of 2020.

Your problems, and those of your clients or putative clients are not disappearing as time passes.

People enter into contracts to assure themselves of the reliability and the predictability of their relationship with another party. They expect the agreement to be fulfilled. When it is not, they expect recourse pursuant to the terms of the agreement. But now…?

Where is the legal process to handle these “non-essential” not yet pending, but very important matters? Does it exist? Are you or your clients willing to wait for some future date when a judge, jury or arbiter rules on your claim? Three or more years down the road? I think not.

The easiest, least expensive possible solution is the Neutral Facilitator. The Neutral Facilitator wants to help both sides reach their goals in times of crisis.

The solution to our commercial conundrum requires that our parties are willing to be flexible, and while we’re at it, creative. For example: A restauranteur in a high end Manhattan restaurant owed a meat supplier a great deal of money. Solution – He made partial payment in cash and gave the supplier meal coupons to use for himself or for anyone he wished to give them. The restauranteur gained new customers, the meat supplier created good will with an untold number of people and the business relationship continued. They entered into an agreement for what was supposed to be a long-term relationship. They did not want to see it destroyed, but rather looked to maintain it into the future.

Litigation looks to compensate one side or the other for damages. We don’t have the luxury of such a path at this time.

The Neutral Facilitator should work with the lawyers and their clients (the team-lawyer and client) to resolve their problems toward a continued future relationship, if at all possible.

He or she may frequently use collaborative negotiation.- sometimes called constructive, principled or interest-based negotiation. The key is an approach that treats the “relationship” as an important and valuable element of what’s at stake, while seeking an equitable and fair agreement. It could be the landlord-tenant or manufacturer-purchaser relationship, or the two partners in a battle for control of the company.

The Neutral Facilitator, along with the lawyer-client teams, will seek to uncover the true interests of both parties so that there can be more potential points of agreement. The bigger the pie (so to speak), the more likely that both parties can obtain a large enough piece to continue their relationship.

Just as a mediator may save the parties time, money and continued aggravation, a Neutral Facilitator may quickly act to assist the parties to revise an agreement, contract or lease to weather the current storm and continue their business relationship. In our shareholder example above, a Neutral Facilitator could hopefully convince both sides to reach an agreement that would prevent any further animosity and cobble together a resolution that could be revisited on a quarterly basis for review.

Obviously we need two (or more) parties willing to sit down (virtually) and discuss their issues, but it can be done.

The Neutral Facilitator IS the pathway to travel in this time of the Coronavirus.

_____________________________________________________

 

Hon. Ira B. Warshawsky, is a retired Justice of the Supreme Court, Nassau County, Commercial Division. He is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available nationwide for arbitrations and mediations.  He was voted a Top Ten Arbitrator in the New York Law Journal Reader Rankings Survey in 2013, 2015 & 2016. Further, in 2018, he was named a National Law Journal Alternative Dispute Resolution Champion, as part of a select group of only 46 nationwide. Judge Warshawsky is Of Counsel to Meyer, Suozzi, English & Klein, P.C., in Garden City, NY.

For any questions or comments, please contact Jacqueline I. Silvey, Esq. / NAM General Counsel, via email at jsilvey@namadr.com or direct dial telephone at 516-941-3228.

STOP THE WORLD (PLEASE!) I WANT TO GET OFF!

“Stop the World: I Want to Get Off” was a musical with Anthony Newley. It originally opened in London in 1961 and made it to Broadway in 1962. It was followed by a film in 1966 and a revival in 1978.

In the play, whenever something unsatisfactory happened to the lead character, named Littlechap, he called out, “Stop the World” and proceeded to address the audience directly.  This occurred multiple times throughout the performance.

During the week of March 9, 2020, there were numerous occasions where many of us wanted to scream “stop the world” as the markets plunged, the world of sports was put on hold and our country struggled to come to terms with a combination of threats (health, social, and economic) that most of us have never witnessed in our lifetimes. The coronavirus, Covid-19, has now been added to our lexicon.

We, as individuals, cannot do much about most of these things except to “soldier on” and follow good health habits.  The world continues to spin and our economy must go on as well. We cannot yell out, “stop the world.” It won’t work. We obviously are prioritizing the health and well-being of our employees, colleagues and families while keeping our organizations and economies moving forward.

The court system is practically on hold. Leadership has pushed the pause button. That does not mean, however, that legal matters must vegetate and become even older than they already are. Just because you cannot get your jury trial, that does not mean you cannot resolve your case in mediation or in arbitration. We all know that over 90% of all cases within our civil system settle before trial, so why delay?

The answer is Virtual Mediation and Virtual Arbitration.

What should you look for in order to accomplish either a virtual mediation or arbitration?  As you search for the right ADR vendor, who has both ADR and technical expertise, you may want to consider asking the following questions:

  1. Will my people be able to converse (virtually) without being in contact with the adversary? Are private virtual conference rooms available through your service?
  2. Will my exhibits be easily exchanged and used by the witness and my adversary? Bottom line, do you utilize and support document sharing technology?
  3. Will my staff be able to use their own devices from home, office or even on the road? Or must they be using specific equipment provided by the vendor?
  4. Is special software needed for my employee’s equipment and, if so, is there training available for my people as well as technology support during the course of the mediation or arbitration?
  5. What about security? How do you, the ADR vendor, provide for cybersecurity? Remember, as a lawyer you have an ethical duty to protect your client’s secrets. This carries over to how you choose a vendor. You have the responsibility for vetting a vendor who will, in some fashion, be in possession of your client’s information which may, or may not, be of a confidential nature.
  6. Does the ADR vendor offer flexibility in providing for multiple parties in different locations?

Remember the importance of your choice. This could be a substantial savings to you and your client in travel costs. And, perhaps more important, the ADR vendor you select should be able to provide you and your client with the confidence of a physically safe environment.

Remember also that one of the advantages of mediation is that it puts you in control of your case and not the court system, which should make for a more efficient and cost-effective process.

What may have been a nice novelty to experiment with a month ago, virtual dispute resolution is now a necessity, and appears to be for at least some months to come. Don’t wait. At least look seriously into the world of virtual mediation and arbitration as soon as possible. You might actually impress your clients with your ability to find an ADR firm that has successfully harnessed technology to serve your clients’ needs and save them money, now and in the future.

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Hon. Ira B. Warshawsky, is a retired Justice of the Supreme Court, Nassau County, Commercial Division. He is a member of NAM’s (National Arbitration and Mediation) Hearing Officer Panel and is available nationwide for arbitrations and mediations.  He was voted a Top Ten Arbitrator in the New York Law Journal Reader Rankings Survey in 2013, 2015 & 2016.  Further, in 2018, he was named a National Law Journal Alternative Dispute Resolution Champion, as part of a select group of only 46 nationwide. Judge Warshawsky is Of Counsel to Meyer, Suozzi, English & Klein, P.C., in Garden City, NY. 

Click here to view article on National Arbitration and Mediation (NAM)

Don’t Overlook Insurance Coverage For COVID-19 Losses

Businesses are advised not to overlook pursuing insurance coverage for losses sustained by the onslaught of the COVID-19 crisis.  It is especially important to keep in mind that many insurance policies have strictly enforced time limits for asserting claims.

The most likely source of coverage for a COVID-19 related loss is business interruption or loss of income coverage provided under a property casualty insurance policy.  Coverage may be available for actual physical loss, which may have occurred as a result of the COVID 19 virus crisis. For example, equipment or machinery that becomes inoperable due to lack of maintenance because the responsible employees could not come to work.  Or inventory that spoils or otherwise becomes worthless due to the interruption in the business cycle.

In addition, direct contamination can constitute a physical loss or damage to property. However, many policies set forth an exclusion from coverage for physical loss or damage caused by bacteria, toxins and other pathogens.  These provisions appear in some, but not all, policies, but claims are nevertheless worth pursuing because the law in this area is not fully developed and there is not clear precedent for the circumstances in which many businesses now find themselves.

Insurance companies may take the position that business interruption coverage will not apply to a loss from COVID-19 due to a lack of physical damage.  However, this exclusion does not summarily preclude coverage. In most policies, the direct physical loss exclusion provisions on which insurers would base their denial of coverage is not well defined. Courts have utilized a wide range of interpretations that have frequently found coverage notwithstanding the absence of physical damage.

Also, check to see if your policies contain coverage for environmental contamination or conditions, which coverages can provide insurance for business interruption and acts of civil authority without requiring a physical loss.  Checking the specific terms of your insurance policy, and how they operate in the specific context of your business’s losses, is imperative.  And, keep in mind that these policies often have very short time frames for making a claim.

Keep in mind further that state governments around the country, including New York, have begun to introduce legislation to mandate that commercial business interruption policies include COVID-19 as a covered loss on a retroactive basis.

Therefore, do not let an initial recommendation by an insurance agent or broker not to file a claim discourage you from continuing to pursue coverage both for the reason that existing law contains some exceptions to the physical harm requirement and because of the potential changes in insurance coverage law that may be enacted and provide for retroactive coverage. Rather, you should insist in writing that your broker file a claim.

Any blanket statement purporting to assert the legal outcome for all claims under all policies in all situations should be taken with a large grain of salt. Different policies have different terms, and the factual circumstances underlying each loss can vary dramatically from case to case.

WILL COVID-19 AFFECT DISSOLUTIONS UNDER THE BUSINESS CORPORATION LAW (“BCL”) CL OR LIMITED LIABILITY CORPORATION (“LLC”) LAW?

At some point in time, after the world comes back to life, we will be dealing with the aftereffects of the massive business shutdown as a result of the COVID-19 virus.  Many businesses will have to consider whether they have a future in a post-COVID 19 world.  Individual owners of those businesses may determine that it is in their personal interest to liquidate their holdings and consolidate cash for the difficult times ahead.

However, can a shareholder or LLC member seek a dissolution because that shareholder or member is in dire financial straits individually and is of the view that carrying on the business might serve to be a losing proposition for all?

For shareholders, there are three ways to seek dissolution:  pursuant to BCL §1104, §1104-a and/or “common law” dissolution.  An LLC member has fewer choices as judicial dissolution of an LLC in New York is governed by Section 702 of the LLC law.  Of course, all of this assumes that the shareholders and/or members of their respective business organizations did not have the foresight to prepare a shareholder agreement and/or operating agreement which precisely define the rights of a shareholder and/or member to withdraw.

BCL §1104 is available to those shareholders owning one-half of all votes of all outstanding shares of a corporation entitled to vote in an election of directors. The grounds are limited to:  (1) that the directors are so divided respecting the management of the corporation’s affairs that the votes required for action by the board cannot be obtained; (2) that the shareholders are so divided that the votes required for the election of directors cannot be obtained; and/or (3) that there is internal dissension and two or more factions of the shareholders are so divided that dissolution will be beneficial to the shareholders.

BCL §1104-a is available to those holders of shares representing 20% or more of all outstanding shares of the corporation. If that condition precedent exists, the grounds for dissolution are:  (1) the directors or those in control have been guilty of illegal, fraudulent or oppressive actions toward the complaining shareholders; and/or (2) the property or assets of the corporation are being looted, wasted or diverted for non-corporate purposes by its directors, officers or those in control of the corporation.  Under Section 1104-a the court must take into account (1) whether the liquidation of the corporation is the only feasible means whereby the petitioners may reasonably expect to obtain a fair return on their investment; and (2) whether liquidation of the corporation is reasonably necessary for the protection of the rights and interests of any substantial number of shareholders.

Under common law, such a claim is properly stated wherein it is alleged with sufficient factual detail that the shareholders in control have been looting their company’s assets at the expense of minority shareholders.  Leibert v. Clapp, 13 N.Y.2d 313, 315-316, 247 N.Y.S.2d 102 (1963).  It has been held that the remedy of common-law dissolution is reserved for egregious conduct.  Kassab v. Kasab, 56 Misc. 3d 1213(A), 65 N.Y.S.3d 492 (Sup. Ct. Queens Co. 2017), citing Kemp v. Beatley, Inc., 64 N.Y.2d 63, 69-70, 484 N.Y.S.2d 799 (1984).

For an LLC, the complaining member’s job is even more difficult.  There, dissolution is only available where the discord in disputes by and among the members are shown to be inimical to achieve the purpose of the LLC as stated in the articles of organization or operating agreement.  In sum, the evidence must demonstrate that it is “not reasonably practical to carry on the business” under the circumstances presented.  It is clear that judicial dissolution under Section 702 is a drastic remedy.  See, Matter of 1545 Ocean Avenue, LLC, 72 A.D.3d 121, 131, 893 N.Y.S.2d 590 (2d Dep’t 2010).

So, knowing the lay of the land, the question remains:  does the fact that an individual shareholder and or member finds himself in a financially distressed state, particularly as a result of the ongoing business shutdown, mean that the shareholder and/or member can use such a basis to claim dissolution of the respective business is an appropriate act?

Initially, the answer would be “no.”  The issue of financial hardship of a particular shareholder as a grounds for seeking dissolution has been addressed by several courts.  In Matter of Murphy, 120 A.D.2d 733, 735-736, 502 N.Y.S.2d 518 (2d Dep’t 1986) the court determined after a trial that the petitioners were seeking dissolution of several companies because they had accumulated a large amount of liquid assets and petitioners determined that they could make better use of those assets on their own.  The courts clearly stated “the mere fact that a closely-held corporation may have substantial liquid assets which a shareholder wishes to reach is an insufficient basis for judicial dissolution.”  On the issue of hardship, in Matter of Dubonnet Scarfs, Inc., 105 A.D.2d 339, 343, 484 N.Y.S.2d 541 (1st Dep’t 1985), the court ruled the petitioners had failed to present any legal authority holding that a shareholder, who is in personal financial difficulty, unrelated to the corporation, can demand to be bought out because he or she needs cash to satisfy personal creditors, adding “neither sympathy nor a shareholder’s need for cash qualify as either a statutory or common law ground for judicial dissolution.”

Normally that would be the end of it.  However, one can see a factual scenario developing whereby a business that has lost its market share to competitors during the shutdown as well as its key employees might not survive going forward despite the well-intentioned views of one or more of its shareholders.  Thus, while it may be true that the dissenting shareholder is experiencing severe financial difficulties as a result of forces related to COVID-19 or otherwise, one would think that there might be legitimate grounds, certainly under BCL §1104, to maintain the directors are “so divided respecting the management of the corporation’s affairs that the votes required for action by the board cannot be obtained.”  A similar argument might be made under §1104-a that, while a corporation’s assets are not being looted or diverted for non-corporate purposes they may be, in fact, “wasted” considering the business realities facing that corporation going forward.  The dissenting shareholder may argue that the majority are “throwing good money after bad” by continuing operations in light of economic realities that many businesses will face post-COVID-19 and that any remaining value to the company will be lost if the majority shareholders have their way and continue operations until, as the dissenting shareholder will argue, the eventual destruction of the company.

In a post-COVID-19 world, businesses are going to have to reevaluate how they do business and/or whether to continue to do business.  It might be the case that a dissenting shareholder can make a valid argument that continuing operations based on precise criteria and data-driven arguments support dissolution, notwithstanding, and/or in addition to, to the fact that the dissenting shareholder is suffering economically and in need of an inflow of cash.

Paid COVID-19 Leave: Navigating Available Benefits Under the Federal Families First Coronavirus Response Act and New York State Law

In response to the COVID-19 outbreak, the federal government and New York State have passed legislation providing eligible employees with paid leave for virus-related reasons.  New York State’s law and the federal Families First Coronavirus Response Act (“FFCRA”) overlap to some extent, and the chart included in this alert illustrates the benefits available to eligible employees.

Importantly, employees may be eligible for benefits under both laws.  Such employees may claim the benefits available under New York’s law when they exceed those available under the FFCRA.  For example, an employee subject to a quarantine order might be eligible for $2,884.62 in weekly benefits under New York’s law and $2,555 in such benefits under the FFCRA.  Because the difference between the benefits available under New York’s law and the FFCRA is a positive number—in this case, $329.62—the employee is entitled to the greater amount.

To be eligible for COVID-19-related leave, employees may have to provide their employers with an order of quarantine or isolation.  Employees can obtain such orders from their local health departments, and a list of local health departments in New York State is available here.

There are two important considerations for covered employers under the FFCRA:  (1) the small business exemption; and (2) tax credits that refund employers, dollar-for-dollar, for all COVID-19-related leave paid.

Although the FFCRA applies to employers with fewer than 500 employees, small businesses with fewer than 50 employees may be eligible for an exemption from certain of the law’s leave requirements.  Specifically, these small businesses may be exempt from the FFCRA’s requirements to provide leave to employees whose children’s schools or places of care are closed, or whose child care providers are unavailable, if:

  • Providing such leave would result in the business’s expenses and financial obligations exceeding available revenues, and cause the business to cease operating at a minimal capacity;
  • The absence of the employee(s) requesting leave would entail a substantial risk to the financial health or operational capabilities of the business because of their specialized skills, knowledge of the business, or responsibilities; or
  • There are not sufficient workers who are able, willing, and qualified, and who will be available at the time and place needed, to perform the labor or services provided by the employee(s) requesting such leave, and these labor or services are needed for the business to operate at a minimal capacity.

Employers with additional questions about the FFCRA should consult this website, which contains a wealth of useful information in the form of FAQs.

Finally, the FFCRA provides employers with refundable tax credits that reimburse them, dollar-for-dollar, for the cost of paying COVID-19-related leave.  This website hosted by the IRS explains how these tax credits work in precise detail.

Paid COVID-19 Leave: The FFCRA and New York State Law
Subject to a COVID-19 quarantine/isolation order.
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
0-10 employees. No paid COVID-19 leave, but employer still required to provide unpaid, job-protected leave for duration of the quarantine/isolation order. Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
0-10 employees,
and more than
$1mm in net income.

5 days of paid COVID-19 leave.

For the duration of the quarantine or isolation order, paid family leave (“PFL”) and short-term disability benefits (“DBL”) of up to $2,884.62 per week.

Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
11-99 employees.

5 days of paid COVID-19 leave.

For the duration of the quarantine or isolation order, PFL and DBL of up to $2,884.62 per week.

Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
100-499 employees. 14 days of paid COVID-19 leave. Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
500 or more employees. 14 days of paid COVID-19 leave. Not available.
Advised by health care provider to self-quarantine for COVID-19
(but no COVID-19 quarantine/isolation order).
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
Fewer than 500 employees. Not available. Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
Experiencing COVID-19 symptoms and seeking medical diagnosis
(but no COVID-19 quarantine/isolation order).
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
Fewer than 500 employees. Not available. Two weeks of paid COVID-19 leave, with a maximum of $511 per day ($2,555 per week, or $5,110 over the entire two week period).
Caring for someone subject to a quarantine/isolation order or advised to self-quarantine
(but no COVID-19 quarantine/isolation order).
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
Fewer than 500 employees. Not available. Two weeks of paid COVID-19 leave, with a maximum of $200 per day ($1,000 per week, or $2,000 over the entire two week period).
Caring for child whose school/place of care is closed for reasons related to COVID-19
(but no COVID-19 quarantine/isolation order).
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
Fewer than 500 employees. Not available.

Two weeks of paid COVID-19 leave, with a maximum of $200 per day ($1,000 per week, or $2,000 over the entire two week period).

Such employees may take up to
twelve weeks of total leave to care for their children whose schools have closed due to COVID-19.

  • They will receive no more than $200 per day (or $12,000 over the twelve week period).
  • As an alternative, they may substitute employer-provided leave or PTO for the first two weeks of that twelve week period, even if they would receive more than $200 per day.
Experiencing any similar condition specified by the Secretary of Health and Human Services
(but no COVID-19 quarantine/isolation order).
Employer Size New York State Paid COVID-19 Leave Federal Paid COVID-19 Leave
Fewer than 500 employees. Not available. Two weeks of paid COVID-19 leave, with a maximum of $200 per day ($1,000 per week, or $2,000 over the entire two week period).

Click here to view our other informative alerts on Covid-19.

What Can I Do If One of My Employees Tests Positive for COVID-19? Employer Rights and Obligations Under the Americans with Disabilities Act

By: Andrew J. Turro and Matthew A. Marcucci

The impact that COVID-19 continues to have on American businesses cannot be understated.  In the wake of this global pandemic, employers may find themselves confronted with employees who have either tested positive for the virus or are exhibiting symptoms.  Although the federal Americans with Disabilities Act (“ADA”) prohibits most employers from discriminating against employees on the basis of disability, employers can implement certain measures to protect their workplaces from becoming sites of infection.

The Equal Employment Opportunity Commission (“EEOC”) has issued an updated set of guidelines to aid employers who wish to lessen the threat of COVID-19 in their workplaces without running afoul of the ADA.  Crucially, the EEOC’s guidelines confirm that COVID-19 constitutes a “direct threat” under the ADA, meaning that a significant risk of substantial harm would result if someone with COVID-19—or symptoms of it—remained present in a workplace.  The chart below summarizes much of the salient information contained in the EEOC guidelines.

EEOC Guidelines:  COVID-19 and the ADA

Scenario Permissible Employer Action During Pandemic
The employee has tested positive for COVID-19.

The employer may send the COVID-19-positive employee home from work.

The employer should inform fellow employees of their possible exposure to COVID-19 but maintain confidentiality as required by the ADA. The fellow employees should then self-monitor for symptoms (i.e., fever, cough, or shortness of breath).

The employee is displaying symptoms of COVID-19. The employer may send the employee displaying COVID-19 symptoms home from work.
The employee reports
feeling ill at work.
The employer may ask the employee questions about their symptoms to determine if the employee has COVID-19.
The employee
calls in sick from work.
The employer may ask the employee questions about their symptoms to determine if the employee has COVID-19.
The employer wants to take its employees’ temperatures. The employer may take its employees’ temperatures, but such information is subject to the ADA’s confidentiality requirements.
The employee returns from travel, whether for business or personal reasons. If health officials recommend that people who visit specified locations remain at home until they no longer have COVID-19 symptoms, the employer may ask its employees if they are returning from these locations.
The employer wants to implement infection control measures. The employer may require such measures, including regular hand washing, coughing and sneezing etiquette, and proper tissue usage and disposal.
The employer wants its employees to wear
gloves and masks.
The employer may require employees to wear gloves or masks, subject to the ADA’s reasonable accommodation requirements (e.g., providing non-latex gloves to employees allergic to latex absent undue hardship to the employer).
The employee has failed to report to work for some time. The employer may ask why the employee failed to report to work, even if the employer suspects a medical reason, because asking an employee why they failed to report to work is not a disability-related inquiry under the ADA.
The employer wants a
doctor’s note before permitting employees to
return to work.
The employer may require employees who have been away from work to provide a doctor’s note or other documentation certifying their fitness to return to work.