Withholding of Consent in Lease Assignments
August 29, 2022
In the assignment of leases in the commercial and residential sector, there are various types of consent clauses and different issues that can arise thereunder. The two main ones that will be discussed in this blog are those clauses which allow the Landlord to unreasonably or arbitrarily withhold consent, and those that prohibit the Landlord in unreasonably or arbitrarily withholding consent.
In the lease agreement which allows the Landlord to unreasonably withhold consent, the Tenants have little to no options if the Landlord decides to withhold consent. The Landlord can withhold consent for objective or subjective considerations.
In the lease agreements which prohibit the Landlord from unreasonably withholding consent, the Tenants have greater freedom to assign and greater capability to enforce such rights. In enforcing such clauses, the Courts have not provided a bright line standard. Many of the cases addressing this issue define reasonableness in terms of cliches such as whether decisions are based on "objective, sensible factors of a substantial nature." The New York Courts have provided many considerations which can allow for the withholding of consent, and had clarified others which did not.
The first and one of the most important points for the Tenant to recognize is that a landlord cannot withhold consent in relying on any subjective concerns and personal desires. Ontel Corp. v. Helasol Realty Corp., 130 A.D.2d 639, 515 N.Y.S.2d 567 (1987). This implies there must be objective and quantifiable considerations on the basis of which the Landlord withholds his consent. Logan & Logan, Inc. v. Audrey Lane Laufer, LLC, 34 A.D.3d 539, 824 N.Y.S.2d 650 (2006). Some of these considerations have been detailed in the case law, such as: the financial responsibility of the [proposed assignee], the [proposed assignee's] suitability for the particular building, the legality of the proposed use and the nature of the occupancy. Id. Further objectively reasonable considerations were enunciated in American Book Company v. Yeshiva University Development Foundation, 59 Misc. 2d 31 (Sup. Ct., NY Cty, 1969), such as: identity of business character of the subtenant, or his suitability for the particular building, nature of the occupancy, and if the use the space will be the same as the prior Tenant’s. Other Courts have held that a subdivision of the space into multiple subtenancies was a reasonable basis for the Landlord to refuse consent to the sublease. Time Inc. v. Tager, 46 Misc. 2d 658 (Sup Ct., NY Cty. 1965).
The Tenants involved in such an action against their landlords should keep in mind that this would be a fact intensive inquiry, and that there are factors that the tenants can capitalize on to influence a Court decision for their favor. The most important course of conduct is to act reasonably. This would include timely seeking a request for consent; once consent is sought, the requesting party may want to develop a list of relevant information to request from the party seeking consent and from the proposed assignee; if this information is provided and request is denied, then they should seek justification (Courts have held that a nonconsenting party is unreasonable if it provides no reasons for the refusal after the reasons are requested).
One Giant Leap for Mankind: The Right to Repair
August 1, 2022
The Right to Repair is a proposed legislation which allows owners of electronic devices to repair their own appliances. In the past, phone repair technicians have abused their power, at the appliance owner’s expense, thereby making this a very important piece of proposed legislation. For instance, in 2016, there were two separate incidences in which Apple technicians, entrusted with a high degree of confidentiality, accessed explicit content from their consumers. In the first case, an Apple technician got intimate photos of a female apple consumer and knowingly and willingly publicized the content all over the consumers social media platforms. Needless to say, the consumer commenced an action against Apple. Though the woman sued Apple, the court went virtually through the entire trial without mentioning Apple, which effectively provided Apple with a shield against unwanted instead of allowing Apple to take responsibility for the actions of its employee on the record. In the second case, a phone technician accessed a customer's personal photos and sent them to his own phone. Thankfully, the technician was apprehended and was charged with felony computer invasion of privacy. However, the customer had no legal standing to seek remedy from the company for its employees’ unimaginable breach of privacy.
The ‘Right to Repair’ movement will force electronic companies like Apple and Samsung to sell individual electronic parts of cell phones and allow consumers the opportunity to take their phone repairs into their own hands. This alternative option will allow everyday customers the potential to maintain the confidential information on their devices as confidential. In recent news, the New York State legislature has passed the United States’ very first right to repair bill. The bill, called the Fair Repair Act, and requires all manufacturers to make tools, parts, and especially instructions for repair readily available to average consumers and independent shops so that once again, consumers can take repairs into their own. This is one big feat.
The Unprecedented Dangers of Technology Repair
July 25, 2022
Whenever a phone breaks or an account gets hacked, the first thing people do is contact their provider’s repair team. Whether it be a Genius Bar, an Apple store, or a Samsung technician they have access to the key information and data stored on your phone. This affects not only your personal data, but data you may have about other people. The dangers of accessing a medical or legal workers’ phone are insurmountable. Potentially acquiring the medical or legal information of countless individuals is a danger that just cannot be ignored or allowed to continue.
In 2016, a woman had her personal images uploaded by the technicians who were repairing her phone. She had no way of protecting her photos and information, and the technicians were able to access all of her data at ease. They manipulated what they found and threw her life into a chaotic spiral(1).
When a phone is handed over for repair, the technician typically requires the device’s passcode and keeps the phone for many hours, giving plenty of time for unprotected data to be accessed and duplicated. The real threat exists with how little the consumer knows. Technicians and repair people are extremely educated in manipulating and using technology, so giving them an unguarded phone gives them the ability to do things most people do not even know exist. They can replicate your information without a trace and the consumer would have no idea until the case of identity theft begins.
There is no way to prevent this threat without completely wiping your phone. This means that you must delete all your files, photos, apps, contacts- everything that you have on your phone to prevent companies from having this access. Currently, there is no alternative, and there always exists the possibility that your device cannot be wiped clean without the repair, leaving you absolutely no recourse! Companies like Google, Apple, and other big technology brands surprisingly have yet to find a way to get around this privacy issue. There is no privacy mode or repair mode that would prevent the technician from accessing your personal data. Not only that, but these companies actively require you give your PIN for diagnostic testing before repairs even begin. This means that these companies are not merely aware of this threat of breach of privacy, but actively generate it and do not provide any way around it.
One possible way around this threat would be to upload your information to a laptop or other device, and then reinstall it after the repair. However, it seems unwarranted for consumers to have to go through such strenuous methods to keep their own information safe and secure from those repairing their devices. Notwithstanding, this is a difficult and time-consuming process with a working phone. If your phone needs repair, it is unlikely this convoluted process would even be possible. A change is necessary, whether it be a method of hiding all the important data in your phone or a completely monitored repair process where the consumer can make sure that their data is secured.
This threat is dangerous for any consumer with both personal and professional ramifications. If you have banking or financial apps on your phone, all of your financial information is at risk. Personal photos, conversations, and contacts can be downloaded and exported easily without your consent. If you use a health app for medical records, those can be easily viewed, and your privacy is gone. Professionally, if you have confidential client information, important trade secrets, or company information, and send your phone in for repair all of that information is exposed. If a surgeon’s device contains the confidential and personal information of any of his patients, those patients are immediately at risk of breach of their right to privacy. Situations like this also bring up the question of the presence of a HIPAA (doctor-patient confidentiality) violation and whether or not the technician even has the right to go through that phone. Similarly, if an attorney has client information or case information in their emails or in files saved on their phone, attorney client privilege can be violated as those records can be viewed.
These are just some of the risks and threats that a consumer has when their phone is given for repair. Personal data needs to be secure and protected and change from the technology companies is necessary to protect the individual consumers. No one should ever be forced to give their unsecured device to anyone, including representatives of the companies who sell these devices in the first place.
Brodsky, S. (2021, June 9). Why you should guard your phone data during repairs. Lifewire. From https://www.lifewire.com/why-you-should-guard-your-phone-data-during-repairs-5188385
NY Evictions Skyrocket: Not Enough Attorneys for Tenants?
July 18, 2022
As pandemic restrictions have diminished and after New York’s eviction moratorium expired, eviction cases have skyrocketed. Over the past few months, the amount of eviction cases has surpassed the number of attorneys to represent tenants, leaving many Manhattan and Brooklyn tenants with no other option but to represent themselves in court (https://www.nbcnewyork.com/news/local/no-lawyers-left-for-hundreds-of-nyc-eviction-cases-this-month-legal-aid-says/3649891/).
The city’s rents have exploded immediately after hitting all-time lows during the pandemic, which caused a direct inflation in the number of evictions. Analysts and experts predict that the number of evictions will only grow from this point on (https://www.bbc.com/worklife/article/20220531-the-skyrocketing-rents-that-are-crippling-renters).
Since March, on average, landlords filed about 2,000 eviction cases per week, approximately 40 percent greater than the amount filed in mid-January. Since February, over 500 cases resulted in tenants being thrown out of their homes, which is about double the amount in all 20 months before (https://www.nytimes.com/2022/05/02/nyregion/new-york-evictions-cases.html).
Judges are expecting tenants to appear in person in court to for these cases to move along. However, as landlord-side attorneys are waiting on these cases to progress faster, tenant-side attorneys are overwhelmed by the workload (https://www.nytimes.com/2022/05/02/nyregion/new-york-evictions-cases.html).
In April, the Legal Aid Society informed court administrators that they cannot take on approximately 130 Manhattan cases and 100 Brooklyn cases. Legal Services NYC, another New York service group, does not have the capacity to take any more Brooklyn cases. Many other overbooked firms have also started denying cases in Queens and the Bronx (https://www.nydailynews.com/coronavirus/ny-covid-manhattan-brooklyn-housing-crisis-tenants-no-lawyers-20220418-spitwbafdrf2nlgfavzfwfktxa-story.html).
Before 2017, the law did not grant low-income tenants the right to free representation in court, causing what many viewed as an unfair imbalance of power. Almost all landlords used attorneys in court, while tenants are left to appear without representation, rendering them much more vulnerable to eviction. In 2017, the “Right to Counsel” law was passed, providing tenants facing eviction the right to free legal aid (https://www.thecity.nyc/2021/5/20/22444023/right-to-counsel-expands-citywide-why-thats-a-big-deal-tenants-nyc).
Despite the positive change this law has created, with the number of evictions increasing so greatly and rapidly, the groups that provide these pro bono services have been unable to keep up. As such, many tenants facing eviction are left in the same position they would have been without the newly instated “Right to Counsel” protection.
Tenant advocates believe that the services for subsidized legal assistance has reached a breaking point. Legal Services NYC’s executive director, Raun J. Rasmussen, has stated that several lawyers resigned since the increase in cases. The group has also been finding difficulty in hiring and training new lawyers, as all groups are competing to find newly graduated attorneys who have not yet found jobs (https://www.nytimes.com/2022/05/02/nyregion/new-york-evictions-cases.html).
Outside former Governor Andrew Cuomo’s Manhattan office, tenant advocates recently rallied for a new eviction moratorium. The service groups have joined these pleas, asking Chief Judge Janet DiFiore to require courts to reduce the rate of cases added to the calendar. However, agency spokesman Lucian Chalfen stated that the problem is due to the service groups being unable to carry out their work. Chalfen also added that slowing down the scheduling of cases only hinders the process for both landlords and tenants (https://www.nydailynews.com/coronavirus/ny-covid-manhattan-brooklyn-housing-crisis-tenants-no-lawyers-20220418-spitwbafdrf2nlgfavzfwfktxa-story.html).
The process has left many tenants feeling abandoned. People are unsure of how soon they could be evicted and how they could possibly prevent eviction without representation (https://www.nytimes.com/2022/05/02/nyregion/new-york-evictions-cases.html). While progress has been made to accommodate underprivileged tenants who are not able to afford a lawyer, another solution needs to put in place. The onus is on the legal profession as a whole to help those in need. Attorneys with established careers and firms must act, whether that means taking more pro bono cases or finding another way to support the citizens of New York.
Court of Appeals Regarding MLMIC
July 5, 2022
The New York Court of Appeals recently released its decision on the ongoing dispute with the demutualization of the medical malpractice insurer, Medical Liability Mutual Insurance Company (MLMIC). This case revolved around the 2018 demutualization of MLMIC where a litigation ensued regarding who would receive the $2.5 billion payout. MLMIC’s conversion plan stated that anyone who was a policyholder from 2013-2016 would receive cash compensation, but the controversy laid in deciding whether the employer-medical providers or the doctors were the policyholders. On May 19, 2022, the New York Court of Appeals ruled in favor of the doctors.
However, initially in 2019, the employer-medical providers had won. During this time a few legal professionals had cast doubt on this verdict. Attorney Alexander Paykin was one of them, and he expressed his doubts and a consensus opinion in an article published by the New York State Bar Association (NYSBA) in February of 2021. His article closely aligns with the decisions made by the New York Court of Appeals. In his article, Paykin argues that although many doctors relied on their employer-medical providers to purchase the insurance for them, they did not allow them to be a policyholder and receive dividend payments. Similarly, the New York Court of Appeals also reached their decision based on the same reasoning where they found that “Those payments by employers were merely for insurance coverage, not for an ownership interest in MLMIC.” Based on the decision, many doctors will get their deserved compensation for being policyholders, and it can be seen that some professionals, such as Alexander Paykin, had predicted this beforehand. If you are interested in reading more about the similarities or the case itself, Alexander Paykin’s article and the New York Court of Appeals’ decision are linked below:
1. Paykin’s Article: https://nysba.org/mlmics-demutualization-and-the-resulting-litigation/
2. New York Court of Appeals’ Decision: https://garfunkelwild.com/new-york-court-of-appeals-resolves-mlmic-dispute-by-concluding-that-employee-physicians-are-entitled-to-conversion-funds/
New York State's $800 million: COVID-19 Pandemic Small Business Recovery Grant Program
January 20, 2022
Small businesses in the State of New York have undoubtedly suffered as a result of the pandemic. To solve this problem, New York Government established The New York State Covid-19 Pandemic Small Business Recovery Grant Program, as a part of the State Fiscal Year 2021-2022 Budget which includes $800 million in grant funding for small businesses to cover COVID-19 related losses or expenses incurred between March 1, 2020, and April 1, 2021. These costs includes payroll costs, commercial rent or mortgage payments for NYS-based property (but not any rent or mortgage prepayments), payment of local property or school taxes associated with a small business location in NYS, insurance costs, utility costs, costs of personal protection equipment (PPE) necessary to protect worker and consumer health and safety, heating, ventilation, air conditioning costs, other machinery or equipment costs, supplies and materials necessary for compliance with COVID-19 health and safety protocols and other documented COVID-19 costs as approved by Empire State Development. (https://nysmallbusinessrecovery.com)
The grant amount given will be calculated based on a business's annual gross receipts for 2019 (this is subject to change by the Empire State Development). As for now (November 21, 2021), the amount given are:
- For annual gross receipts of $25,000 - $49,999.99, the award given will be $5,000 per business.
- For annual gross receipts of $50,000 - $99,999.99, the award given will be $10,000 per business.
- For annual gross receipts of $100,000 - $2,5000,000, the award is 10% of gross receipts with maximum grant $50,000
To get this funding, eligible applicants (small businesses, microbusinesses, and for-profit independent arts and cultural organizations) must meet some requirements. Firstly, Eligible firms must show a loss of at least 25% in annual gross receipts (by December 31, 2020, compared to 2019) or any other economic hardship caused by the COVID-19 epidemic. This could include difficulties arising from the requirement for the business to close, interrupt operations, or adapt itself due to compliance with protocols (health and safety) . Other than that, Applicants must also have yearly gross receipts of between $25,000 and $2.5 million in 2019 — up from $500,000 previously — and not owe any federal, State, or local taxes prior to July 15, 2020. Additional requirements also must be completed, and prospective applicants should review the entire list of qualifying requirements before applying. Id.
Apart from that, it is also worth bearing in mind that businesses that received federal aid during the pandemic, such as the up to $10,000 EIDN grant, the up to $250,000 PPP loans or the up to $150,000 Shuttered Venue Operator Grants, are still eligible for this fund. However, any business that has received a Restaurant Revitalization Fund award, and certain corporations and institutions, such as non-profits, churches, and businesses that engage in political or lobbying activist, are ineligible for this program. Id.
To ensure businesses get the full benefit of the fund, on June 25 of this year, Governor Andrew Cuomo signed legislation S.7230/A8033 which exempts funding granted through the COVID-19 Pandemic Small Business Recovery Grant Program from corporation franchise tax and personal income tax. This newly signed law went into effect immediately and covers taxable years beginning or after January 1, 2021. (Senate Releases Tax Waiver for Covid Pandemic.)
With all these efforts and help given, it is hoped that small business could be saved form the dreadful effect of the COVID-19.
March 30, 2021
Litigation is a staple of the American legal system and injured parties count on it to deliver justice. However, before prevailing in litigation, you need to ensure that the logistics of your case are handled properly. This begins with making sure that the case you started is properly served. The process is fairly simple and generally easy to follow, but a failure to act timely, in good faith and with due diligence can ultimately destroy even an otherwise viable case before anyone ever gets to addressing the merits. So let’s discuss proper service.
The delivery of legal papers is called service of process, and the person who does the actual delivery is called a process server.  A person who is directly involved in a pending case, such as the plaintiff, can never serve papers to a defendant themselves without the consent of a judge (which would be a very unusual request and would likely require extreme circumstances), but they can hire a process server to do it for them. In New York, a process server must be over the age of 18, but there is no state-wide license requirement.
This rule differs by specific areas and some municipalities require process servers to be licensed; for example, in New York City, an unlicensed process server may not serve paper more than 5 times in a year. The service of process is critical to the success of a case moving forward and it is important to make sure that the process server you choose is in compliance with New York’s CPLR  (Civil Practice Law & Rules). There are many process service agencies in New York that employ licensed process servers, so if you are self-represented, do make sure you confirm that you are working with a licensed processional. If you are represented by counsel, it is generally the practice that the attorney will take care of selecting and overseeing the process server.
While this may seem like a simple concept, if something goes wrong during service of process, your action could be dismissed, and you could even lose the ability to re-file your cause of action. At that point, it may be small consolation that the process server is to blame, given the process server is unlikely to be in a position to reimburse you for your losses – large liability insurance policies not being common among process servers. Many things could go wrong during the service of process and the result is referred to as defective service.
Service of process is generally governed by Article 3  of the CPLR, which directs with great specificity what proper service consists of. CPLR § 306(b)  requires the service of process to be made within 120 days of filing the initial complaint. If this is not completed, the court, upon motion of the other party, shall dismiss the action unless you show that you had “good cause” for the delay or that giving you more time to serve is “in the interest of justice”.
Generally, if the plaintiff shows “reasonably diligent efforts at service”, there is good cause. 
However, even if you cannot show “good cause”, you can still make an argument for the “interest of justice” standard to apply.  Under the interest of justice standard, the court will be “more flexible” and weigh different factors to determine if an extension should be granted , including whether you would suffer irreparable harm because the applicable Statute of Limitations  in your case was expiring and you would be unable to re-file, the length of the delay,  the true cause of the delay, your actions in attempting to resolve the delay, and more. For a clear set of examples, one can do much worse than the analysis offered by the 2nd Department in ___:
The 120-day service provision of CPLR 306-b can be extended by a court, upon motion, "upon good cause shown or in the interest of justice" (CPLR 306-b). "Good cause" and "interest of justice" are two separate and independent statutory standards (see Leader v Maroney, Ponzini & Spencer, 97 NY2d at 104). To establish good cause, a plaintiff must demonstrate reasonable diligence in attempting service (see Leader v Maroney, Ponzini & Spencer, 97 NY2d at 105-106). Good cause will not exist where a plaintiff fails to make any effort at service (see Valentin v Zaltsman, 39 AD3d 852 ; Lipschitz v McCann, 13 AD3d 417 ), or fails to make at least a reasonably diligent effort at service (see e.g. Kazimierski v New York Univ., 18 AD3d 820 ; Baione v Central Suffolk Hosp., 14 AD3d 635, 636-637 ; Busler v Corbett, 259 AD2d 13, 15 ). By contrast, good cause may be found to exist where the plaintiff's failure to timely serve process is a result of circumstances beyond the plaintiff's control (see U.S. 1 Brookville Real Estate Corp. v Spallone, 13 Misc 3d 1236[A], 2006 NY Slip Op 52141[U], *3 , citing Eastern Refractories Co., Inc. v Forty Eight Insulations, Inc., 187 FRD 503, 505 ; see also Greco v Renegades, Inc., 307 AD2d 711, 712  [difficulties of service associated with locating defendant enlisted in military]; Kulpa v Jackson, 3 Misc 3d 227, 235  [difficulties associated with service abroad through the Hague Convention]).
If good cause for an extension is not established, courts must consider the "interest of justice" standard of CPLR 306-b (see e.g. Busler v Corbett, 259 AD2d at 17). The interest of justice standard does not require reasonably diligent efforts at service, but courts, in making their determinations, may consider the presence or absence of diligence, along with other factors (see Leader v Maroney, Ponzini & Spencer, 97 NY2d at 105). The interest of justice standard is broader than the good cause standard (see Mead v Singleman, 24 AD3d 1142, 1144 ), as its factors also include the expiration of the statute of limitations, the meritorious nature of the action, the length of delay in service, the promptness of a request by the plaintiff for an extension, and prejudice to the defendant (see Leader v Maroney, Ponzini & Spencer, 97 NY2d at 105-106; Matter of Jordan v City of New York, 38 AD3d 336, 339 ; Estey-Dorsa v Chavez, 27 AD3d 277 ; Mead v Singleman, 24 AD3d at 1144; de Vries v Metropolitan Tr. Auth., 11 AD3d 312, 313 ; Hafkin v North Shore Univ. Hosp., 279 AD2d 86, 90-91 , affd 97 NY2d 95 ; see also Slate v Schiavone Constr. Co., 4 NY3d 816 ).
This safety net means that a plaintiff can save a case even if the Statute of Limitations has expired, but it is up to the judge to decide based on the context of the situation.
This firm recently resolved an action (Webster Bank v. Leinweber)  which perfectly illustrates why it is so important to ensure that your service of process is compliant with the CPLR and meets the reasonable diligence standard. In that action, plaintiff attempted to comply with service requirements of service on an individual by relying on CPLR § 308(4), which allows, after “due diligence” in first attempting at service in person  and/or by service to another individual that the defendant lives with and mailing a copy to the home address , the ability to serve by what is known as “nail and mail.” Nail & mail, is done by taping a copy of the summons to the door of the home, and mailing a copy to the address. However, that sort of service is should only be counted on as a last resort, after clearly demonstrating that the previous methods were tried with due diligence. Plaints must beware that "[t]he due diligence requirement of CPLR 308 (4) must be strictly observed, given the reduced likelihood that a summons served pursuant to that section will be received " and that as a result, attempts at service are heavily scrutinized.
The courts of New York have repeatedly held, to plaintiffs’ peril, that due diligence requires that prior to resorting to nail and mail, that plaintiff attempt to determine defendant’s employment status and attempt to serve process on defendants at work using either of the two preferred methods.  Further, even two out of three attempts to serve a defendant at home cannot be made on “weekdays during hours when it reasonably could have been expected that the defendant was either working or in transit to and from work” for it to be adequate due diligence at service. 
In the Webster Bank action, the plaintiff’s process server visited the defendant’s home on three occasions, all on weekdays, with the earliest attempt being 8:21 AM and the latest being 6:58 PM.  When our office was retained, our client was already facing a motion for default judgment and we therefore cross-moved for leave to put in a late answer to the complaint and to oppose the pending motion for default judgment based on our client’s untimely receipt of notice of the case.
The Court not only denied the plaintiff’s motion for default judgment, but went further, and on its own, dismissed the matter outright.  The Court cited to O’Connell and declared that the three attempts at service were within the time period “when Defendant may reasonably expected to have been working or commuting from work” and that due diligence was further lacking in that “the process server did not attempt to determine Defendant’s employment address.”
To that end, while you may not have a personal control of the process server’s precise conduct, always remember, whether it is for yourself of a client, that “nail & mail” service is to be avoided when at all possible, with erring on the side of caution being the only way to go.
5 Matter of Board of Managers of Copley Court Condominium v. Ossining, 973 N.E.2d 158, 19 N.Y.3d 869, 950 N.Y.S.2d 63 (2012), citing to Leader v. Maroney, Ponzini, 761 N.E.2d 1018, 97 N.Y.2d 95, 736 N.Y.S.2d 291 (2001)
6 Leader v. Maroney, Ponzini, 761 N.E.2d 1018, 97 N.Y.2d 95, 736 N.Y.S.2d 291 (2001), citing to Alexander, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, C306-b:3, at 483; and Siegel, NY Prac § 63, at 86-87 [3d ed]
7 See Id at 104-105. “The New York State Bar Association's Commercial and Federal Litigation Section Committee on Civil Practice Law and Rules characterized the interest of justice standard as "more flexible" than the good cause standard, specifically noting that "[s]ince the term `good cause' does not include conduct usually characterized as `law office failure,' proposed CPLR 306-b provides for an additional and broader standard, i.e., the `interest of justice,' to accommodate late service that might be due to mistake, confusion or oversight, so long as there is no prejudice to the defendant" (Bill Jacket, L 1997, ch 476, at 14 [citations omitted] [emphasis added]).”
9 Slate v. Schiavone Construction Company, 829 N.E.2d 665, 4 N.Y.3d 816, 796 N.Y.S.2d 573 (2005).
10 Supreme Court of the State of New York for the County of Kings, Index # 501917/2019
11 CPLR § 308(1)
12 CPLR § 308(2)
13 Gurevitch v. Goodman, 269 A.D.2d 355, 702 N.Y.S.2d 634 (2d Dept. 2000).
14 O'Connell v. Post, 27 A.D.3d 630, 811 N.Y.S.2d 441 (2d Dept. 2006).Gurevitch v. Goodman, supra; Moran v. Harting, 212 AD2d 517 (2d Dept. 1995); Walker v. Manning, 209 AD2d 691 (2d Dept. 1994)
15 O'Connell , supra, citing to Earle v. Valente, 302 AD2d 353 (2d Dept. 2003) and Annis v Long, 298 AD2d 340 (2d Dept. 2002)
16 NYSCEF Doc # 4, Affidavit of Service on Defendant, Index # 501917/2019
17 NYSCEF Doc # 45, Decision & Order, Index # 501917/2019
When Pledging a Patent as Collateral, Remember That You Stand to Lose it Instantly Upon Default
March 16, 2021
Recently, this firm had the opportunity to litigate the questions of (1) whether the transfer of a patent held as collateral is immediate; (2) whether such transfer enables the recipient to enjoin future business deals pending upon transfer; and (3) whether the plaintiff is the rightful owner of U.S. Patent #US9,820,515B2.
On October 25, 2015, Plaintiff Korovchenko entered into a licensing agreement for exclusive distribution of items to be produced by defendant Kenneth Crocket. In March 2017, the trade details, payment schedules, and price listings were finalized after extensive negotiation, as well as the terms of exclusivity regarding sales in Europe. Beginning in March 2018 and continuing over the following months, the Plaintiff sent the Defendant a total of $247,525 via a bank transfer upon establishment of a manufacturing contract. After delays in manufacturing, the Plaintiff inquired multiple times regarding the status of production and delivery of the items. After being promised a completion date by mid-July 2018, the Defendant had not received anything as of January 2019 and proceeded with legal action.
On August 28, 2019, the Plaintiff and Defendant entered into a settlement agreement for compensation considerations to the Plaintiff for the purchase of goods which were not delivered. As per the original manufacturing agreement, Plaintiff would be due $700,000 in liquidated damages if the Defendant failed to deliver, but the settlement was negotiated down to $500,000. The settlement was due to the Plaintiff on January 26, 2020 and time was of the essence. Furthermore, if the Defendant was able to make payment by November 29, 2019, he would benefit from a larger reduction and only be required to pay a total of $350,000.
As part of the settlement, Defendant placed ownership of the U.S. Patent #US9,820,515B2 in escrow with our firm, as Plaintiff’s counsel, as collateral for Defendant’s promises. The collateral pledge in the agreement provided that if by January 27, 2020 there was still any outstanding balance on the settlement, the Plaintiff reserved the right to file for transfer of ownership of the patent immediately and without notice. Upon the Defendant’s failure to pay the settlement fee by January 27, 2020, our office, to enforce our client’s rights, filed for transfer of ownership of U.S. Patent #US9,820,515B2. Shortly thereafter, Defendant attempted to transfer personal ownership of the patent to his business Radiate Athletics, in an effort to change ownership of the patent and avoid the collateral pledge.
Accordingly, our office pursued a Temporary Restraining Order (TRO) upon the patent, thereby disallowing further usage and transfer during the pendency of litigation to enforce the collateral pledge. The TRO was granted. The court reconvened on October 1, 2020 and the Defendant disputed the Plaintiff’s motion for injunction on future business dealings involving the Defendant’s use of the patent. Defendant claimed that Plaintiff did not have the right to halt his business dealings involving the patent as it was his only vehicle to acquire the aforementioned compensation in order to eventually pay on his defaulted obligations to Plaintiff as agreed in the settlement agreement. Defendant attempted to argue that he should get to keep the patent, even though he had defaulted on the payment schedule, because by keeping the patent he would eventually be able to settle with Plaintiff. Our office of course opposed, arguing that his right to recover his patent upon timely payment had expired and that at this point, the collateral pledged was rightly the property of Plaintiff. As part of the relief sought, we requested declaratory relief that the rightful owner of U.S. Patent #US9,820,515B2 is the Plaintiff.
In the Court’s decision, the Plaintiff emerged victorious in each of the three disputed areas.
As to the first question, as per the original settlement agreement, both parties consented to immediate transfer of the patent upon failure to compensate the client. As a result, our office, on behalf of Plaintiff, was entirely within our rights to immediately file for ownership.
As a result of the immediate transfer of ownership, the Plaintiff then had sole discretion on the usage and licensing of the patent and therefore, the defendant's claims to rightful use of the patent to acquire capital to eventually cure his default did not satisfy the Court.
Lastly, the Plaintiff received declaratory relief confirming that the Plaintiff is the rightful and sole owner of U.S. Patent #US9,820,515B2 and that Defendant’s rights in it had been extinguished.
To view the entirety of the Court’s file online, you can visit NYSCEF and search for Index # 651920/2019 in New York County Supreme Court or read the case on DocketAlarm here.
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Business Judgement Rule
February 24, 2021
An important decision was handed down recently from the New York County Supreme Court that gives a newfound power to co-op apartment shareholders. On February 9th, 2021, the justices in the matter of Kotler v. The 979 Corporation ruled that the co-op board could not deny a transfer of shares from a decedent lessee to a family member provided that the family member is proven to be financially responsible according to the proprietary lease agreement.
Additionally, the shareholder was awarded damages for the unreasonable withholding of consent to transfer shares by the co-op board as well as attorney’s fees ensured in the proprietary lease agreement. This is a large victory for shareholders and presents a weakness to the co-op boards’ shield by the Business Judgement Rule.
New York real estate includes a rather large number of co-op (cooperative) apartment buildings that may sound strange in suburban and rural areas but is quite common in large cities. A co-op apartment building is a building that is treated as a corporation and each apartment owner is a shareholder of the corporation . When you buy into a housing co-op, you are not purchasing real estate, but instead you are purchasing shares of the corporation . These shares, however, provide the shareholders with property leases and ownership. Just like in a regular corporation, a board of directors, in this case known as the co-op board, is elected to make decisions on behalf of the apartment building . In a co-op apartment everyone is committed to the same venture; one owner’s loss is borne by the entire building. Proving financial viability can be an invasive process, and often leads to decisions by the board to deny requests for ownership or sales to people they deem as “unfit” buyers.
Until recently, co-op boards were almost always protected in lawsuits by the Business Judgement Rule. This rule is meant to protect managers of corporations from legal liability for decisions they make in their day-to-day operations, and this rule applies to co-op boards because of the building’s corporate status. As long as the board is found to have been acting “in good faith,” they are protected from legal action on any decision they make . But some recent cases in New York have broken this seemingly absolute power of the boards and have given shareholders a new opportunity for success in court.
In the matter of The Estate of Helen Del Tozo v. 33 Fifth Avenue Owners Corporation , the co-op board denied the transfer of shares from the deceased Helen Del Tozo to her two sons Michael and Robert, without giving a reason. The court found that holding to paragraph 16(b) of the proprietary lease agreement, the board cannot withhold consent of transfer to a lessee’s family member (or members) who is deemed to be financially responsible. Instead of being protected by the Business Judgement Rule, in a case where there is a proposed transfer of shares to a lessee’s family member, the board is held to a “heightened standard of reasonableness” which is a higher standard of care compared to the Business Judgement Rule. The board must prove that said family member is not able to make their required payments. If they cannot do this, they must approve the transfer of shares to the family member(s).
In a similar fashion to The Estate of Helen Del Tozo, the recent ruling of Kotler v. The 979 Corporation  stated that the board must approve a transfer of shares to the deceased lessee’s daughter after she proved that she would be able to make regular maintenance payments. In this case, the deceased lessee’s daughter provided the court with extensive financial statements and proof of assets that have a greater value than the costs of maintaining the apartment and shares. Therefore, the co-op “had no lawful basis to demand a transfer fee.” 
Additionally, the court ruled that the board breached the lease by improperly withholding consent on the transfer of shares and that the new shareholder was entitled to monetary damages. In cases where the tenant breaches the lease, the board is entitled to have their legal fees paid for them by the tenant. This is a reciprocal rule, meaning that in a case where the co-op board breaches the lease, the tenant is entitled to legal fees. This ruling gives substantial power to shareholders who want to transfer their ownership in an apartment to a financially responsible family member – not only do shareholders and potential shareholders now have a way to get past the Business Judgment Rule, but they have the further potential to recover legal fees if the co-op board acts unfairly. Even without commencing litigation, this now puts an actual liability on boards and cooperatives to act fairly and reasonable, rather than being able to hide behind the protection and shield of the Business Judgment Rule.
If you have a dispute with a co-op board and want to know if you have legal rights and the ability to litigate, don’t hesitate to contact The Law office of Alexander Paykin, P.C., for a free initial phone consultation, where we can discuss the merits of your particular case.
4 136 A.D.3d 486, 488 (1st Dept 2016), aff’d 28 N.Y.3d 1114 (2016), available at http://nycourts.gov/reporter/3dseries/2016/2016_01039.htm
5 2021 NY Slip Op 00801, available at: http://nycourts.gov/reporter/3dseries/2021/2021_00801.htm
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