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IMG_0297-300x225The law aspires to be fair, though it may not always appear that way.  Often that means enforcing fair procedures to try to reach a just outcome.  A recent New York Insurance Law case makes this point.  State Farm Fire and Casualty Company v. Chauncey McCabe, 2018 NY Slip. Op.04416 (3rd Dept., June 14, 2018), distills criminal law through the equitable doctrine of collateral estoppel to determine whether an intentional acts exclusion of a New York Homeowner’s Insurance Policy bars coverage for a liability claim for personal injuries arising from what appears to be an intentional act.  Though you may not agree with the decision, the way it is reached is fair, to all involved.

In the case, two insureds made a claim to be defended and indemnified under their Homeowner’s Policy of Insurance against claims that their negligence caused another person serious personal injury.  A Girlfriend alleged she hit her head on a cement wall after she tripped over a hazard left on the floor of the house her Boyfriend lived in with his mother, and the Boyfriend did not help her get medical attention. The Girlfriend sued them both, and they each made a claim for liability coverage.

The Insurance Company alleged there was no coverage for the Boyfriend because the loss was not an accident and the policy provided liability coverage for an “occurrence,” which was defined, basically, as an accident.  It also alleged that a policy exclusion applied, which bars coverage for injuries caused by willful or malicious acts of an insured.

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DSCF0815-300x225How do you know exactly what is included in your contract, and what is not? If your company enters into a contract to supply services, for example, the contract will include a provision for when and how you will be paid. What happens, though, if that provision, as it often does, includes a long list of terms, some very specific, some more general, and some catch-all?  How do you determine, pursuant to New York law, what will have to happen for you, or your business, to be paid?

As we recently discussed, it is important to know how to determine what your contract means, either before you sign it, so you can credibly try to avoid potential liability once the contract comes into existence; or, after the parties are bound and a dispute arises, so you can resolve it or perhaps limit your liability for it. One way to do that is to apply the rules of contract interpretation to the particular language of your contract.  In this article, we will examine how one such principle, ejusdem generis, is used to help determine exactly what a contract term means, or, even more likely, how a court will enforce it.

Ejusdem generis is a legal principle, which was defined, among other places, in 242-44 E. 77th St., LLC v. Greater New York Mut. Ins. Co., 31 A.D.3d 100, 103–04, 815 N.Y.S.2d 507, 510 (1st Dept. 2006):

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IMG_0912-225x300The rules of contract interpretation are best learned from seeing how they are applied.  To use them, successfully, is to know them.  In our last article, we discussed some of the basic rules.  We will now see how one of them, giving the words of the contract their plain and ordinary meaning, is applied by courts to common situations faced by New York businesses.

In Lake Const. & Dev. Corp. v. City of New York, 211 A.D.2d 514, 621 N.Y.S.2d 337 (1st Dept. 1995), a contractor sued the City of New York to be compensated for the additional work it said it performed to complete the brickwork on a public works construction project.  In preparing its winning bid, it had relied on the City Engineer’s cost estimate, which it said showed one brick wall of 972 square feet, rather than the two free-standing walls the contractor claimed were necessary to complete the job.  It obviously cost more to finish the job than the contractor estimated, so it tried to recoup at least some of its losses from the City.  Though that might seem like a reasonable approach for a business to take, it did not work.

The mere fact that the contractor claimed the contract was ambiguous did not make it so.  In upholding the lower court’s grant of summary judgement to the City dismissing the complaint, the First Department held that the relevant contract was clear and unambiguous that the contractor’s compensation was not based on the number of walls that needed to be constructed.  As the court noted, at Lake Const. & Dev. Corp. v. City of New York, supra, 211 A.D.2d 514, 515, 621 N.Y.S.2d 337, 338 (1st Dept. 1995), “the parties’ contract unambiguously provided that the quantity of brickwork to be paid for under the contract ‘shall be based on the number of square feet of free-standing brickwall installed in accordance with the plans and specifications and directions of the Engineer’.”

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DSCF0806-300x225What does your contract actually mean? You know what it says.  You know what you meant when you signed the contract and committed your business to it.  You thought it was clear and unambiguous.  What do you do when the other party claims you breached the contract and wants damages?  You know you fulfilled all your promises, duties, and obligations under the contract, and that the only way you breached it was if you promised something more, or different, than you thought you did.  So how, exactly, do you read a contract to determine what it means?

The rules of contract interpretation for contracts governed by New York law are fairly straight forward, even if the contract language they are used to decipher can appear to be opaque or misleading   For example, if the obligations of your New York business rested on the meaning of the phrase “face amount” as used in a commercial contract, with potential liability for hundreds of thousands of dollars of damages at stake, where would you start?

An interesting, if fairly old, case from the Appellate Division, First Department addressed that issue.  In Am. Exp. Bank Ltd. v. Uniroyal, Inc., 164 A.D.2d 275, 277, 562 N.Y.S.2d 613, 614–15 (1st Dept. 1990), the court set out the relevant rules for contract interpretation:

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https://www.newyorkbusinesslawyerblog.com/wp-content/uploads/sites/396/2018/05/Short.Beach_.Winter.Low_.Tide_-300x169.jpgSometimes something new is scary; something out of the ordinary gets you concerned. It might not be quite the same as you’ve run into before, or it might be something completely different. When you’re faced with something new, and you don’t know quite how to react, what would you do?

Would you find someone who’s faced the same type of problem before; someone who knows a little something about how to react; someone who can maybe come up with a game plan to solve your problem in the best way possible?

If you’re sick, you find a good doctor and maybe get a second opinion; if you need to wire a room to get light where no light has been before, you get a good electrician rather than run the risk of shocking yourself or burning down the house. If you’ve had an accident, you don’t go to a carpenter to fix your car, even if all you’re trying to do is put all of the pieces back together.

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FrozenHow can you prove something exists when it can’t be found?  If you ask an investigator, or a New York Litigator, it may not be as hard as you think.

There are always facts to ponder.  The other day I was listening to a podcast with an astrophysicist explaining Dark Matter.  It was more interesting than it might sound.

Dark Matter: things are supposed to work a certain way, interact with each other according to certain well-defined rules.  Think of Newton and the falling apple.  But what if they don’t?  What if the apple fell sideways, instead, as if something else is there, something you can’t see?  What if the only way to tell that it’s there is because it should be, but you just can’t detect it?  It would be something like looking at a dinner table with empty plates with crumbs, and pots and pans with scraps of food, but no one around. It just might have been a really good meal.

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Morning Valley View.P.S.R.When someone sues you or your company, you have to pick a lawyer who knows the rules of the game.   The rules are intricate and, even two situations that look similar, are not always governed by the same rules. When even judges can apply the wrong rule,  it is better  to know what should have happened, so you can decide what your options are.  That is what a good attorney does:  she explains what your options are, and  your realistic chances of success with each, so you can best protect your interests.

A recent appellate decision makes this point.  1259 Lincoln Place Corp. v Bank of N.Y., 2018 NY Slip Op 02177, Appellate Division, Second Department, was decided on March 28, 2018.  It really is a fight over a lot of money, disguised as an attempt to quiet title pursuant to RPAPL Art. 15; and the fight ultimately turned on which set of rules should be used to decide the dispute. The trial court selected one, and the Appellate Division determined that another should have been used.

The facts are straightforward:  A bank took a mortgage on a property in Brooklyn.  The mortgage secured a large loan.  The borrower evidently defaulted so the bank attempted to foreclose and filed a notice of pendency against the property.  The problem was, the borrower apparently did not own the property; even worse, the Bank already paid approximately $200,000 in property taxes on it.  The titled owner wanted to keep its property, so it sued the Bank to quiet title; i.e., it asked the court to declare it was the rightful owner of the property and to cancel the notice of pendency. The titled owner made a summary judgement motion, which means it asked the court to declare it the rightful owner of the property without a trial, just based on the motion papers alone.  Faced with losing the case outright, the Bank came up with a backup plan:  It tried to assert a new claim that it should have an equitable lien; i.e., it paid out money to maintain the property (the real estate taxes), which the rightful owner received the benefit of, so it is only fair that the Bank should get the money back.  The problem was that it needed the court’s permission, so it made a cross-motion to assert a counterclaim for an equitable lien to at least recover some of the money it paid.

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sunrise-963348-m.jpgThere was an interesting article in Wired.com, the magazine, recently that put a new twist on an old topic: What’s the best way to make sure the internet, and all of the information that travels on it every day, is safe? How do you really make cybersecurity, secure? After all, the safer the information, the more secure people will feel, and the use of the web, for everything from e-commerce to portable electronic healthcare records, will grow. The flip-side is just as true: the more hacks, hackers and data-breaches, the slower the pace of progress. The good will be harder to come by if the bad is hard to avoid.

Peter W. Singer, who wrote the article, entitled, “How to Save the Net: A CDC for Cybercrime,” which was posted on 08.19.14, 6:30 a.m., proposes an interesting idea.

The CDC, otherwise known as the Centers for Disease Control, is much in the news recently. Chances are, if you’ve seen news stories about the Ebola outbreak in West Africa, or the MERS outbreak earlier this year, the CDC has come up in more than just passing. It’s the clearinghouse for health related information, combating communicable diseases, the world over. There was just an article, by Betsy McKay, Nicholas Bariyo, and Drew Hinshaw, that appeared in the August 23-24, 2014 Weekend Edition of the Wall Street Journal in the Review Section, which talks about the invaluable help the CDC gave to another country that used to be at risk of virulent Ebola outbreaks. Uganda used to send blood samples to the CDC’s facilities in Atlanta, to be screened for Ebola. Now, thanks to technology and training the CDC provided, Ugandans do the same for themselves, in country, which lets them detect outbreaks of the deadly virus sooner, respond to them quicker, and stop them before they do large scale damage.

A central clearinghouse for ideas, both proven and proposed, to safeguard digital information seems like a good idea. Having a one size fits all approach, in which the government entity is the one upon whom everyone fighting the problem relies, may not be. That’s not really even the job the CDC is doing with Ebola.

Look at how the Federal Trade Commission is policing cybersecurity: the whole point of the its Reasonable Precautions cybersecurity standard, and its enforcement, and codification, on a case by case basis, is that “Reasonable Precautions” become reasonable, or not, based on the particular facts of a given situation. What might be the right protection for digital information exchanged between wholesale distributors and retailers, might not be sufficient to protect information between retailers and consumers, and that in turn might not be enough to safeguard patients’ healthcare histories when they are exchanged among medical providers. What might be a commercially reasonable effort to safeguard information in one industry, might not be in another.

The FTC encourages individual companies, and the industries in which they compete, to voluntarily join together to ensure data security. By making the terms Industry Standard Practices and Commercially Reasonable Efforts mean something substantive, companies can protect themselves against FTC enforcement actions for lax data security, as we’ve previously noted. Look no further than the April 7, 2014 decision of U.S.D.J. Esther Salas, in The Federal Trade Commission, Plaintiff, v. Wyndham Worldwide Corp., et al., Defendants, Civil Action No. 13-1887 (ES), United States District Court, D. New Jersey, to see why. If a company can’t figure out what the FTC wants it to do to protect its customers’ data, then it should create, and live by, Industry Standard Practices which will become Commercially Reasonable Efforts if all the major companies in the industry implement them. Many companies already say they do this anyway, right in their privacy policies. Instead of meaningless legal verbiage, make the terms mean something concrete; show they can work, and the FTC will have little to complain about, even if those efforts occasionally fail. Some of the most vulnerable industries, including retail, are banding together to do just that.

The Retail Industries Leaders Association, or RILA, as we previously noted, formed a voluntary clearinghouse, known as the Retail Cyber Intelligence Sharing Center, or R-CISC, to develop and share industry leading practices in cybersecurity, by communicating amongst themselves information they learn regarding threats and defenses. The reported backers of the initiative have put in a lot of effort: they’ve conferred with cybersecurity experts and involved interested government agencies. They also have a lot at stake: credit cards and financial information are common targets; just ask the RILA members.

One main benefit of a CDC for the wired world, according to Peter W. Singer, is the trust and confidence it will bring to all those who rely on it. By bringing the best and brightest together under one centralized government-funded roof, it would allow users to know that independent experts, with their best interests in mind, were on the job, fighting off the bad guys. That’s a good thing; but is that the only way to achieve it?

What if the businesses which hold their customers’ information on line were held accountable for not doing enough to protect that data? What if they faced the loss of business, and profits, as well as a government enforcement action, if they didn’t do enough? What lengths would they go to in order to keep their customers’ trust?

If you look at some quotes in the RILA press release, from the people involved in forming the R-CISC, you’ll see that trust is a recurring theme there, too:
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mountain-haze-1130128-m.jpgWe spent our last entry talking about when a trial court faced with a motion for summary judgement can consider an affidavit from an expert even though the expert was not disclosed until after the Note of Issue and Certificate of Readiness were filed. The answer, more often than not, at least in the Appellate Division, Second Department in New York: When the expert makes a difference by establishing the existence of a material issue of triable fact. See Rivers v. Birnbaum, 102 A.D.3d 26, 953 N.Y.S.2d 232 (2nd Dept. 2012), and Begley v. City of New York, 111 A.D.3d 5, 972 N.Y.S.2d 48, 72 (2nd Dept. 2013), leave to appeal denied, 23 N.Y.3d 903, 988 N.Y.S.2d 130 (2014).

Rivers v. Birnbaum, supra, and Begley v. City of New York, supra, were not the actual sea changes they might appear to be at first. Though important decisions, the rule they enunciated was applied in many cases before they were decided and the ones in which it was not applied were the exceptions that proved the rule.

King v. Gregruss Mgmt. Corp., 57 A.D.3d 851, 852-53, 870 N.Y.S.2d 103 (2nd Dept. 2008), was a personal injury action in which the plaintiff was injured when he tried to cut open a steel drum containing windshield washer fluid with an electric saw. The Second Department held that the trial court should not have considered the affidavit from the plaintiff’s expert in opposition to the defendants’ various motions for summary judgement and should have precluded the expert from testifying at any stage of the proceedings.

The expert in King v. Gregruss Mgmt. Corp., supra, undoubtedly would have made a difference. It just appears that there was no way to verify the facts on which his opinion was based and his testimony actually was more about basic, critical, and unverifiable facts, than scientific opinion. All told, the case is a fine example of a plan too smart by half, and illustrative of the type of behavior that more often than not will be penalized, if for no other reason than it should be. It is that behavior, more than the simple late disclosure of the expert, which prevented the expert’s affidavit from being considered:
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case-ilustration-1015897-m.jpgIt has been some time since we last spoke about the use of experts to oppose motions for summary judgement in New York. The topic, however, is still relevant. Some continue to believe there is a hard and fast rule, at least in the Appellate Division, Second Department, which forbids a trial court from considering an affidavit from an expert unless the party offering the expert’s affidavit served full expert’s disclosure pursuant to CPLR 3101(d)(1) prior to the filing of the Note of Issue and Certificate of Readiness or at least moved to vacate the Note of Issue and Certificate of Readiness if they had not served expert’s disclosure by then. As we pointed out in our last entries on the subject, there is no such concrete rule and there never really was. A case that should go to trial most often does; it withstands a motion for summary judgement, unless the party who uses the affidavit nefariously refused to disclose the expert in time.

There have been a series of decisions that have clarified that this is the rule. The first was Rivers v. Birnbaum, 102 A.D.3d 26, 953 N.Y.S.2d 232 (2nd Dept. 2012). Another, more recent example, is Begley v. City of New York, 111 A.D.3d 5, 972 N.Y.S.2d 48, 72 (2nd Dept. 2013), leave to appeal denied, 23 N.Y.3d 903, 988 N.Y.S.2d 130 (2014), which is especially instructive because of the way it summarizes the reasons for the rule. It holds, in relevant part:
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