A New York Commercial and Construction Law Firm
Adams Leclair LLP is a litigation law firm that concentrates its practice in commercial and construction advocacy throughout upstate New York. Headquartered in Rochester, New York, we provide specialized counsel, honed by decades of experience in state and federal courts at the trial and appellate levels. We also represent clients in various administrative tribunals from local planning boards and boards of assessment review to state and federal agencies, such as Financial Industry Regulatory Authority (FINRA), the New York State Department of Labor, the EEOC, and the National Labor Relations Board.
Our practice areas additionally include employment, municipal, real property tax, estate and trust litigation. In September 2019, we combined the talents of the construction litigation practitioners from Adams Bell Adams, PC and the experienced commercial litigators from Leclair Korona Cole LLP which has helped us better structure our clients’ business affairs in ways that anticipate and avoid conflict. We are proud of the reputation we have earned among our peers and our clients for vigorous advocacy and effective representation.
When negotiating a contract, parties may choose to establish the damages owed if a party breaches. These pre-determined amounts, known as “liquidated damages”, commonly appear in real estate contracts, where the actual damages suffered from a breach are difficult to quantify.
For example, a contract may authorize a seller of real property to retain a buyer’s down payment if the buyer breaches by failing to appear at a closing. Moreover, a lease may also establish the amount owed to a landlord by a tenant based on a tenant’s breach, including an acceleration of rent.
Liquidated damages provisions are enforceable if they are not unconscionable or against public policy. The enforceability of liquidated damages clauses is frequently litigated. This blog highlights a pair of court decisions from this summer which demonstrate the fact-specific nature of this analysis.
Liquidated Damages Provision Upheld in Commercial Sale Contract
In July, the Appellate Division Fourth Department upheld a liquidated damages provision in a real estate contract which limited damages to the amount paid in escrow. See Rome Gas, Inc. v. Fastrac Properties I, LLC, 196 AD3d 1159 (4th Dept. 2021).
There, the liquidated damages clause stated: “In the event the Agreement is not closed due to the fault of the Seller, the money paid in escrow shall be returned to the Purchaser. In such event neither party shall have any further claim against the other.” Id. at 1159.
Following a breach by the Seller, the Purchaser sued the Seller and claimed additional damages beyond those provided by the liquidated damages provision. The Purchaser argued that the liquidated damages provision was “unconscionable and therefore unenforceable.” Id. The Fourth Department upheld the lower court’s ruling that the liquidated damages provision was valid and therefore damages were limited to its terms. The Fourth Department considered that the contract was negotiated by sophisticated commercial entities and evaluated the context, purpose, and effect of the liquidated damages provision to determine it was not procedurally or substantively unconscionable. The Court explicitly rejected the Purchaser’s argument that the contract was “procedurally unconscionable” because the Purchaser “was not initially represented by counsel” during negotiations. Id. at 1160.
Rome Gas provides an example of a non-breaching party arguing that a liquidated damages clause was unconscionable because it was too limited and did not fully compensate it for its damages. The case discussed below presents a more common example of a breaching party asserting that liquidated damages are disproportionate to the loss sustained and constitute an unenforceable penalty.
Liquidated Damages Provision Accelerating Rent Enforceable Against Guarantor
In May, the New York County Supreme Court examined a liquidated damages clause in a commercial lease. See Malcolm Shabazz Dev. Corp. v. Wu, 71 Misc. 3d 1221(A) (Sup. Ct. N.Y. Cnty. 2021). The provision made the tenant liable for rent through the balance of the lease term if the landlord terminated the lease based on the tenant’s breach. After the tenant breached, the landlord terminated the lease and then sued the tenant’s guarantor for amounts due, including liquidated damages.
In defense, the guarantor argued that the liquidated damages were an unenforceable penalty because the landlord was using the premises for its own benefit and therefore “did not sustain any damages from the loss of its tenant.” Id. at *2. The court rejected this argument, finding there the guarantor did not establish the alleged use of the premises by the landlord “would necessarily render the liquidated damages provision so disproportionate to plaintiff’s actual injury as to be an unenforceable penalty.” Id. at *3.
Significantly, the guarantee signed by the guarantor expressly waived unenforceability defenses. The court found “given this waiver of unenforceability-based defenses, [the guarantor] would remain obligated to pay post-termination liquidated damages under the lease even if those damages could not be assessed against the tenant.” Id.
As shown by the above cases, both breaching and non-breaching parties may assert that liquidated damages provisions are unenforceable. While this blog discusses commercial real estate matters, liquidated damages clauses are utilized in other contexts as well, including construction contracts for failing to complete projects by required dates and in employment contracts for breaches of restrictive covenants. The ability to enforce such these provisions depends on the language of the agreement at issue and the specific facts of the case.
Rob Yawman is an Associate Attorney at Adams Leclair LLP. Rob’s practice focuses on business litigation and commercial landlord and tenant disputes.
Since Governor Cuomo’s announcement in June of “New York Forward” – a lifting of many COVID-19 pandemic-related restrictions- much has changed. The Delta variant and sluggish vaccination rates, as well as the lack of vaccines available for children under age 12, have stalled the return to normalcy. Besides the toll the pandemic has taken on many individuals and families, business and municipalities must figure out how to operate in the face of mixed messages from government, and constantly changing rules.
On June 25, 2021, Executive Order No. 210 announced the expiration of Executive Orders 202 and 205, which had declared a state of emergency for New York due to the COVID-19 pandemic, as well as implemented quarantine restrictions on travelers to New York State. The series of Executive Orders 202 through 202.111 had, among multiple other measures, postponed various in-person meeting requirements for certain business corporations, not-for-profit organizations and religious entities, as well as for state and local boards and agencies.
To clarify meeting requirements, particularly for annual meetings required under the Business Corporation Law, the Governor signed S8412 in June 2020. This bill amended the Business Corporation Law, Not-for-Profit Corporation Law, and the Religious Corporations Law to allow eligible entities to conduct business and hold board meetings virtually unless specifically restricted by certificate of incorporation or by-laws. These rules were to remain in effect until the end of the declared emergency in New York.
In April of this year, S3917A amended this law further, extending the provisions allowing for virtual meetings to either December 31, 2021 or the end of the declared emergency, whichever is later. While currently the COVID-related emergency declaration has been lifted in New York, signaling that December 31, 2021 will be the end of loosened requirements for in-person meetings, the rise in Delta variant-related reinstituted COVID precautions indicates the potential for more amendments and delays in getting back to normal.
While the amendments to business, not-for-profit, and religious corporation law are certainly helpful, they do not affect requirements for in-person meetings in many other contexts, such as municipal boards and committees, including zoning boards, school boards, and numerous other local groups. These boards throughout the state adapted quickly to virtual meetings, as permitted under several subparts of Executive Order 202, incorporating required public access and input, at a time when local governments were struggling to cope with the pandemic. Now, with the expiration of the state of emergency, these boards have had to pivot just as quickly to resume in-person meetings, at a time when community transmission rates are increasing throughout the state.
On July 27, 2021, the CDC took a step back and issued guidance calling for fully-vaccinated individuals to resume masking indoors in areas of high transmission (at this point, most of the country) in response to the Delta variant. Starting this week, the NYC Health Department is requiring that people over the age of 11 show proof of vaccination in order to enter restaurants, theaters and gyms. The State Health Department has yet to change requirements, but has stated it’s reviewing the CDC recommendations. The WDNY has not waited for the state to issue guidance, but re-instituted a mask mandate for all persons, regardless of vaccination status, entering U.S. Courthouses in western New York as of August 3, 2021. And after only a few weeks of allowing adults to unmask with proof of vaccination, on August 12, 2021, the Unified Court System followed suit, announcing that masks would be required in the public parts of court buildings, regardless of vaccination status.
With the extreme fluctuations in direction, and lack of clarification or consistency from our top government officials, it is tempting to conclude that some of the pandemic era changes to the way businesses and other entities operate could and should become permanent. Businesses and state and local agencies have had to invest in technology and training to enable their employees to work from home, and to conduct business virtually. There is no reason this investment should go to waste when it could increase efficiencies in the post-COVID era.
On the whole, many businesses have adapted well to the challenges brought on by the pandemic. Companies have learned there are benefits to employee fluency with Zoom, Teams and other videoconferencing platforms. Some local municipal agencies reported greater public attendance and participation at virtual meetings. Further, many believe that remote and hybrid work is the new normal. There is no compelling reason that some of the changes allowed by Governor Cuomo’s Executive Orders should not be adopted on a permanent basis.
In the meantime, it is more important than ever for all types of entities to review the rules governing their own in-person meetings. Some of the rules authorizing virtual meetings will inevitably be repealed, or will expire, and entities need to stay on top of compliance for these activities.
Finally, New York will be under new leadership this week. It’s hard to predict at this point how the state will continue to balance the rise of COVID cases due the Delta variant with continued recovery from the pandemic.
Erin F. Casey is of counsel with the law firm of Adams Leclair LLP, and focuses on commercial and contract litigation. Erin can be reached at ecasey(Replace this parenthesis with the @ sign)adamsleclair.law. Emily Uhlig is an associate attorney with Adams Leclair LLP and can be reached at euhlig(Replace this parenthesis with the @ sign)adamsleclair.law.
Adams Leclair LLP is proud to announce more than half of the firm’s attorneys are selected for the 28th edition of The Best Lawyers in America©. This publication only accepts nominations from attorneys and honorees are awarded distinction after a rigorous peer review process.
The eight attorneys have been recognized in various categories according to their areas of practice. Seven Adams Leclair attorneys were recognized for their skills in commercial litigation and two for representation in construction matters. Tony Adams, Paul Leclair, and Mary Jo Korona have received accolades from Best Lawyers® for more than 15 consecutive years.
Adams Leclair LLP represents clients in a variety of areas, including construction and construction litigation, commercial litigation, and employment. The firm has offices in Rochester and Albany.
Rochester, NY—Steven E. Cole, managing partner of Adams Leclair LLP, has been recognized as “Lawyer of the Year 2022” by The Best Lawyers in America©.
This accolade is for Cole’s work in Bet-the-Company Litigation in the Rochester, New York region. Recognition comes from one of the most respected peer review publications in the legal profession. This distinction is widely regarded by both clients and legal professionals as a significant honor because it is conferred on a lawyer by his peers.
Cole has practiced commercial law in upstate New York for more than 25 years and is a founding partner of Adams Leclair LLP. He regularly represents companies and individuals in business-related disputes involving trade secrets, shareholder rights, restrictive covenants, and intellectual property. He also has extensive experience representing clients in the financial services industry, including investor disputes, regulatory inquiries, and disputes involving corporate raiding.
Cole has also been selected by his peers for recognition in the 28th Editions of The Best Lawyers in America© in the categories: Bet-the-Company Litigation, Commercial Litigation and Litigation – Securities.
Adams Leclair founding partner, Tony Adams will lead a webinar on September 30, 2021 to explain changes coming to New York State’s newly expanded prevailing wage law.
These changes will go into effect in January 2022 and will affect project costs and risks for those building or developing public work projects.
During the live webinar, Adams will define prevailing wage basics including traditional coverage for public work, prevailing wages and supplements, worker classification, extent of liability, and enforcement.
Also, Adams will identify new rules for 2022 including expanded project coverage, developer liability enforcement powers, and MWBE requirements.
Attendees can secure continuing education credit: NY CLE 1.50. Tuition is $199 but you can save 50% if you use the Discount Code: 09859010.
Register online at: www.lorman.com/ID409172
Questions: Call 866-352-9539