Understanding New York’s Business Judgment Rule

Officers and directors of start-up corporations are responsible for managing and directing the business’s affairs. As the business grows, so does the level of responsibility for officers and directors.  Under the “business judgment rule,” officers and directors of a corporation are immune from liability to the corporation for losses resulting from corporate decision making, within their authority, that were made in good faith and decided with reasonable skill and prudence. This is significant because the recovery of any successful claim against the company will be limited to the company’s assets only. Exceptions do exist. In my experience, matters where I would argue that the “business judgment rule” come up in the context of small businesses where there is a dispute between stakeholders and in homeowner’s associations and condominium/co-op boards where members dispute a decision. These kinds of cases turn on the facts of a case. So it is important that

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New York Non-Compete Agreements

The validity of a non-compete agreement in New York is measured in light of relevant principles and the particular facts and circumstances surrounding your business. Non-compete clauses are commonly found in employment agreements across many industries regardless of size or products / services offered. Non-compete agreements impose restrictions on future employment of employees.  The validity of a specific non-compete clause is taken on a case-by-case basis via courts in New York.  New York courts shall, generally, consider what is reasonable.  Those non-compete agreements that are considered “reasonable” are agreements with: The non-compete clause is no broader than is required to protect the NY business’s legitimate business interests; The non-compete clause does not unduly burden the employee; The non-compete clause does not injure the public; The non-compete clause is not for an unreasonable duration of time; and The non-compete clause has a reasonable and limited geographic scope. If an employee to a

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New York Shareholder, Member and Partnership Business Disputes In NY: New York Business Disputes & Litigation Basics

New York Business Disputes We handle numerous shareholder and member disputes.  The main reasons for these disputes are because of the lack of an adequate Shareholder, Operations or Partnership Agreement, the lack of due diligence or nefarious acts by a member, shareholder or controlling directors.  Analyzing whether to file a lawsuit is, often, a matter of economics. A civil law suit at the court of first instance may take over a year.  Your attorney in New York will need to file a complaint to in a NY court, file a reply to the defendant, depose witnesses, file pre-trial requests and make numerous appearances in court and at pre-trial conferences.  The process is cumbersome, time consuming and of course will not be cheap. Thus, we, always, sit down with our clients and do a detailed cost-benefit analyses.  Many New York law firms push to file a lawsuit for obvious reasons, however,

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Enforcing Foreign Judgments in New York: Personal Jurisdiction Necessary?

The New York State Court, in a case of first impression held that in personam jurisdiction is not necessary to recognize and enforce judgments in New York from a foreign court.  The case that decided the matter is Abu Dhabi Commercial Bank PJSC v. Saad Trading, Contracting & Fin. Services Co., 36 Misc. 3d 389, 948 N.Y.S.2d 533 (Sup. Ct. 2012). The case is a case of first impression in New York and is a pivotal case that will, likely, lead to more cases like this case being heard in New York courts. The court, in this New York case, granted summary judgment in favor of the Abu Dhabi Bank and, thus, recognized the U.K. judgment. The facts of the case are typical in international judgment enforcement matters. The Abu Dhabi Bank is a company established in the United Arab Emirates. Saad Trading is a Saudi Arabian limited partnership. The

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Validity and Enforceability of Electronic Signatures in New York

Federal law governs, in most cases in New York, when the use of an electronic signature is valid and enforceable.  The U.S. Electronic Signatures in Global and National Commerce Act (also called ESIGN Act) defines an electronic signature as “an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with intent to sign the record.” This definition covers a broad scope, as businesses use different means, methods and technologies that create electronic signatures, including: Check boxes or buttons that state you agree to certain terms and conditions; PIN numbers or passwords; Signing an electronic keypad; or A graphical representation, image or a scan of a handwritten signature. The ESIGN Act protects the validity and enforceability of signatures made electronically, including: A signature, contract, or other record relating to such transaction may not be denied legal effect, validity, or

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Suing The New York Government? Exceptions And Extensions To Statutes of Limitation / Notification Periods

When you are suing the New York government, there are strict time limitations for notice and filing your claim, but they are not without exception or without the ability to extend under special circumstances. Recently, we featured a blog post about the statute of limitations when suing a New York municipal entity or authority.  However, there are exceptions to the rule and motion practices you can attempt to pursue if none of those exceptions apply. These statutes of limitations and the statutory period of notice of claims are tricky depending on the nature of the claim and the legal status of the claimant, so consult an attorney in New York immediately should you choose to sue a New York municipal entity or authority. Claim Notification Exceptions in New York If your claim against a New York municipal entity or authority involves a claim by an infant (person under the age of

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Suing New York Banks in Equity: New York Equitable Accounting Remedy

Recently, we discussed a case where we were able to hold JPMorgan Chase to their word with regards to a stipulation made in a New York court.  We represented a defunct New York corporation suing for the return of a substantial amount of funds that the bank allowed a co-owner to withdraw without the two-signature authorization required by the New York corporate resolution.   Our theory of recovery was sound.  The relationship between the bank and its depositor being that of debtor and creditor, the bank cannot charge the account of the depositor with moneys paid out without authority. Although research has failed to disclose any New York cases directly on point, it is obvious that a check signed by one of two depositors, where both signatures are required, is not authority for such payment. Our client had contracted their rights away when they established the account with JPMorgan Chase.  You see,

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Negotiating New York Royalty Agreements

When negotiating the use of your intellectual property, patent or process in exchange for royalties, these three basic tips are key when commencing negotiating New York royalty agreements and royalty agreements throughout most of the world. This week, we discussed some lessons learned from the recent news that the famed Broadway troupe Blue Man Group was sued over a dispute over royalties brought by a composer as an example of how not to handle setting up a royalty agreement. Here, we’ll discuss factors to keep in mind while negotiating a royalty agreements so you can (hopefully) avoid issues. Words Matter – as do Nuanced Agreements Definitions, requirements and terms do not always mean what you think they mean. That is why you should include a section defining material terms in your agreement. These definitions can be crucial, and must be discussed with your attorneys so that the final document is clear and

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When Must Your NY Business Agreements Be In Writing?

While it is always advisable to put all your New York business agreements in writing, there are special rules that govern whether a particular contract must be in writing.  The following is the basics of the New York’s Statute of Frauds Sales of goods Like most states, sales transactions are governed in New York by the Uniform Commercial Code, which has a specific section on when it is necessary for your agreement to be in writing.  The section is referred to as the Statute of Frauds.  The Statute of Frauds in New York states that contracts in New York for the price of $500 or more is not enforceable unless there is some writing sufficient to indicate that a contract has been made.Please note that this doesn’t necessarily require a formal long-form contract – only some writing proving there is a contract.  Of course, the UCC contains conditions and further

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New York Independent Contractor or Employee? Taxi Union Sues Uber

Lawyers, in New York, representing 5,000 Uber drivers in New York City filed a lawsuit in NY on behalf of 10 of these alleged New York employees in federal court in Manhattan last week accusing the ride-share company of depriving these New York drivers of various employment protections they should have by declaring them as “independent contractors” rather than treating them as employees. This New York independent contractor lawsuit is a pivotal case that can lead to changes in Independent Contractor Law/Employment Law in New York.  We suggest a review of your independent contractor agreements by your attorney and, also, advise following this case closely if you have hired independent contractors. Get your New York attorney on this matter immediately. It is essential to have a carefully drafted independent contract agreement and protocols in place to assist in guaranteeing that an independent contractor is not deemed an employee. New York Taxi

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New York Defamation Law: Yelp Alerts Reviewers To Business’s “Questionable Legal Threats” In Response To Negative Reviews

Some New York businesses, including a New York dentist, have been turning to litigation to respond to negative reviews left about their businesses on the popular website, Yelp. Yelp is a website that crowd-sources recommendations and reviews of local businesses. Many businesses see an increase in business activity based upon positive reviews and recommendations left on the website, while others believe that their business good-will and reputation are harmed by negative reviews that may or may not be accurate. Buzzfeed recounts the story of a New York dentist that has sued at least three negative reviewers for speaking their mind about the services provided by this business. The increase in such activity has led Yelp to alert reviewers to businesses who make, in Yelp’s words, “questionable legal threats” against reviewers speaking their mind. The story also states that Congress is currently considering bills designed to protect consumers from such lawsuits based

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Liability of New York Shareholders for Unpaid Debt of a New York Company

If you reside in New York or wish to run a business in New York , it may be convenient to incorporate a business in New York. But before you do so, you should know a major disadvantage of incorporating a business in New York. Business owners tend to desire the protection that incorporation gives to its shareholders’ personal assets. But you should know of a significant exception to that rule in New York. Under N.Y. Business Corporation Law § 630, the ten largest shareholders in any non-public company can be held liable for wage claims made by corporate employees. This includes salaries, overtime, vacation, holiday, severance pay and a whole host of other types of pay. To compound matters, liability under this law is “joint and several,” meaning that a claimant can enforce a judgment against just one of the ten largest shareholders, who would then have to seek

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Successor Liability Pitfalls in New York

When buying or selling a New York business or any of a business’s assets under NY law, potential successor liability of the buyer is of primary concern.  New York Successor Liability Law is complex and the following is, only, intended as a brief overview of the matter. Successor liability in New York is liability that the buyer of a New York company’s assets may have for the liabilities of the seller of those assets performed prior to the purchase.  Essentially, a buyer would be compelled to pay off debt that the seller accumulated prior to completion of the transaction. The general rule in New York is that the buyer of company assets does not assume and is not liable for the seller’s liabilities unless otherwise expressly stated in the asset purchase agreement.  However, exceptions exist. New York Successor Liability Exception to General Rule Express or Implied Assumption by Buyer. This exception

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Buy-Sell Agreements for Multi-owner Businesses in New York: New York Buyout Agreement Basics

When there is more than one owner of a New York business, creating a New York-tailored buy-sell agreement can save time and money if a change of ownership occurs in the future. New York business owners know that circumstances can change at a moment’s notice.  That is why ensuring that your business is prepared for whatever waits around the corner is crucial.  Part of being fully prepared is having a New York law compliant buy-sell agreement in place. New York businesses of all forms and sizes with more than one owner should create a solid buy-sell agreement in anticipation of potentialities in many cases. A buy-sell agreement, also known as a buyout agreement, is a legally binding agreement between co-owners of a business that governs the situation if a co-owner chooses to leave the business, is forced to leave the business or passes away.  If the triggering event occurs, the other

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NLRB Judge Rules Chipotle Is Liable For Labor Violation For Enforcing “Unlawful” Social Media Policy

This week, the National Labor Relations Board (NLRB) ruled that Chipotle Mexican Grill had an “unlawful” social media policy that violated the National Labor Relations Act (NLRA). According to published reports which detail the facts of this particular case, the dispute stems from charges filed on the worker’s behalf by the Pennsylvania Workers Organizing Committee regarding Chipotle’s social media policy and allegations that the employee was wrongfully terminated. Apparently, Chipotle sought to enforce an “oudated” social media policy that was not lawful under the NLRA. This policy had already been replaced, but supervisors sought to enforce the older policy against an employee who made postings on Twitter criticizing his employer about adverse working conditions. Since the outdated policy is what prompted Chipotle to act, the NLRB found that Chipotle was liable for violations that occurred resulting from enforcing that improper policy.   According to the NLRB’s website, the NLRA protects the

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Federal Trademark Basics: What You Can Learn From The “New York Fashion Week” Trademark Controversy

A growing controversy over the use of a widely-known phrase in the New York fashion industry is a perfect example of why you need to protect your trade names and marks immediately. If you are fashion-forward, or a New York resident, then you have probably heard of the phrase “New York Fashion Week,” which signifies a week-long grouping of events where designers reveal their latest creations put on by the Council of Fashion Designers of America (“CFDA”) and WME-IMG (formerly known as William Morris Endeavor.) Recently, CFDA and WME-IMG were sued by Fashion Week, Inc. for infringing upon its use of the trademarked phrase “New York Fashion Week.” The lawsuit follows a ruling from earlier this year by the Trademark Trial and Appeal Board (TTAB) determining that CFDA and WME-IMG do not have legal rights to the name. In that trademark proceeding, CFDA argued that the trade organization and “its predecessors-in-interest

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Revised New York Court Rule for Submitting Confidential Documents in Commercial Litigation in NY

New changes in how New York Court’s Commercial Division will have litigant file confidential documents submitted takes effect today.  The changes are part of an amendment to the division’s Standard Form of Confidentiality Order that establishes a more formal process for submitting confidential documents in an e-filed case in New York. Litigants in counties with mandatory e-filing (like New York County) will be able to file redacted versions of the confidential documents, but then must move to seal the documents within seven days or they will be required to take steps to replace the redacted filings with un-redacted versions. Previously, litigants could file confidential documents as hard copies with a motion to seal, or sidestep the process of obtaining a formal motion to seal and submit papers directly to the assigned judge’s chambers without filing them. This created problems for New York appeals because without a proper motion on file,

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Collecting an Unpaid Debt in New York

New York debt collection requires street smart, a proactive game plan and the assistance, often, a debt collection lawyer in New York.  The following is the NY basic debt collection legal jargon that you should know. A creditor is a person or entity to whom money is owed.  Normally, a creditor gives something of value to a borrower (money or services) in exchange for a promise that the borrower will pay them back.  In most cases, repayment is accompanied by an additional payment of interest.  Examples of creditors include credit card companies, banks, or any other person or company that lends money.  However, other businesses, such as medical professionals, lawyers and accountants are creditors when they provide services in exchange for a promise to pay. A secured debt is a debt or loan that is guaranteed by collateral.  Collateral is an item of value that the creditor takes as payment if

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New York Alternative Dispute Resolution: New York Arbitration Basics

Many New York small businesses are turning to arbitration to solve disputes for a variety of reasons. Arbitration is an out-of-court proceeding where parties contract to have a third party neutral, called an arbitrator, hear evidence and then make a decision. Often, parties to a contract agree to arbitration when they sign an agreement, which outlines the location of the arbitration, number of arbitrators and apportionment of fees. Arbitration can be binding, which means that the parties are bound by arbitrator’s decision, or non-binding (sometimes called mediation), which means that either party may reject the arbitrator’s decision and go to court or binding arbitration. Arbitration can be voluntary, where the parties agree to arbitrate, or required by a contract or law. It is quite common for parties to a contract to agree to an arbitration clause for disputes arising out of and related to the subject matter of the contract.  Arbitration

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NY Franchising Red Flags

If you are thinking about entering into a franchise agreement in New York, please consider these New York Franchise Warning Signs.  All of the laws in New York that are intended to protect potential investors in franchises are not meant to act as a substitute for good business sense, so be aware of these common red flags, do your due diligence and hire a New York franchise lawyer to assist in the negotiation and evaluation of the franchise opportunity. Failure to Disclose Legally Necessary Details to Franchisees Under New York law, no offer or sale of a franchise can take place until the franchisor has registered franchise disclosure documents (FDD) with the state of New York.  Sometimes called a prospectus, the FDD contains 20+ different items of information about the franchise including the the history of the fanchisor, required fees and investment costs – among other things.If you do not receive

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