New York Law Review

Tag: Graubard Mollen

  • Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assocs., 93 N.Y.2d 508 (1999): Scope of Yellowstone Injunctions

    Graubard Mollen Horowitz Pomeranz & Shapiro v. 600 Third Ave. Assocs., 93 N.Y.2d 508 (1999)

    A Yellowstone injunction protects a tenant from eviction while the propriety of the underlying default is litigated, but it does not nullify other remedies to which a landlord is otherwise entitled under the lease agreement.

    Summary

    This case addresses the scope and effect of a Yellowstone injunction in a commercial lease dispute. A law firm (tenant) withheld rent due to alleged elevator service failures, and the landlord drew on a letter of credit as security. The tenant obtained a Yellowstone injunction. The court ordered the tenant to deposit rent into escrow during litigation. After the landlord prevailed on the issue of default, it sought interest on the arrears, as stipulated in the lease. The Court of Appeals held that the Yellowstone injunction did not negate the tenant’s obligation to pay interest under the lease, clarifying that such an injunction only prevents lease termination, not the enforcement of other lease terms.

    Facts

    The law firm leased commercial space from Associates. The lease included a provision for interest on late rent payments. A lease modification required the firm to maintain a $1,000,000 letter of credit. Due to alleged inadequate elevator service, the firm withheld rent. Associates drew on the letter of credit to cover the rent. Associates then issued a Notice to Cure for failure to replenish the letter of credit.

    Procedural History

    The firm sued for a declaratory judgment, arguing its rent obligation was suspended due to a partial eviction and that Associates exhausted its remedies. Associates counterclaimed for rent and interest. The Supreme Court granted the firm’s motion for a Yellowstone injunction, requiring the deposit of rent into an escrow account. After protracted litigation where the landlord prevailed, the Supreme Court awarded Associates rent and interest. The Appellate Division reversed the award of interest, but the Court of Appeals reversed the Appellate Division, reinstating the Supreme Court’s original order.

    Issue(s)

    Whether a Yellowstone injunction, granted to prevent the termination of a commercial lease, also nullifies a lease provision requiring the tenant to pay interest on late rent payments if the tenant is later found to be in default.

    Holding

    No, because a Yellowstone injunction’s sole purpose is to maintain the status quo by preventing the termination of a lease during litigation; it does not alter or supersede the other contractual obligations of the parties as defined in the lease agreement.

    Court’s Reasoning

    The Court of Appeals emphasized the limited purpose of a Yellowstone injunction, stating it is designed to “maintain[] the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.” The court relied on Waldbaum, Inc. v Fifth Ave. of Long Is. Realty Assocs., 85 N.Y.2d 600 (1995), which held that a Yellowstone injunction does not relieve the tenant of complying with other conditions precedent in the lease. The court reasoned that the escrow account established as a condition of the Yellowstone injunction was merely a security measure, akin to a bond, to ensure payment to the landlord if it prevailed. It highlighted that the tenant “always was obligated to comply with the provisions of the lease, despite the court order.” To deny the landlord interest would be inequitable, as it would effectively penalize the landlord despite its victory in the litigation. The Court stated that “The point of reference for defining the rights of the parties is not the court order; rather, it is the lease itself.”

  • Graubard Mollen Horowitz Pomeranz & Shapiro v. Moskovitz, 86 N.Y.2d 112 (1995): Fiduciary Duty and Solicitation of Clients by Departing Law Partners

    Graubard Mollen Horowitz Pomeranz & Shapiro v. Moskovitz, 86 N.Y.2d 112 (1995)

    Departing law partners breach their fiduciary duty when they secretly solicit firm clients for their personal gain before resigning, as this undermines the duty of loyalty among partners and exceeds the scope of permissible client communication.

    Summary

    This case concerns a dispute between a law firm and its departing partners, focusing on whether the partners breached their fiduciary duty by soliciting firm clients before their resignation. The New York Court of Appeals held that such pre-resignation, surreptitious solicitation is actionable, as it undermines the duty of loyalty partners owe each other. The court clarified that while attorneys can inform clients of their departure and remind them of their right to choose counsel, they cannot secretly lure clients away or lie about their rights. The court also addressed claims of breach of contract and fraud, finding material issues of fact that precluded summary judgment.

    Facts

    Irving Moskovitz and Seymour Graubard founded the plaintiff law firm in 1949. Moskovitz brought in F. Hoffman LaRoche & Co., Ltd. (Roche) as a client in 1959, with billings exceeding $1 million per year by the late 1980s. In 1982, the firm adopted a retirement program that included clauses stating retirees would not impair the firm’s client relationships and would integrate clients with other partners. After the phase-down period, Moskovitz, unhappy with the firm, contacted a legal search consultant about moving to another firm with his tax partners, Schiller and Young, indicating Roche would follow. Moskovitz negotiated with LeBoeuf Lamb Leiby & MacCrae, ensuring Roche’s approval before finalizing any arrangement.

    Procedural History

    The law firm sued Moskovitz, Schiller, and Young for fraud, breach of fiduciary duty, breach of contract, and unjust enrichment after they resigned and joined LeBoeuf. The trial court denied the defendants’ motion for summary judgment, except for claims based on guarantees of client retention. The Appellate Division affirmed, granting leave to appeal to the Court of Appeals. Only Moskovitz appealed.

    Issue(s)

    1. Whether a withdrawing partner breaches fiduciary duty by soliciting firm clients before announcing their resignation.
    2. Whether a contractual requirement that an attorney try to “integrate” or “institutionalize” clients into the firm is legally enforceable.
    3. Whether a cause of action for fraud is stated by alleging that a promisor lacked the intention to perform representations when making them.

    Holding

    1. Yes, because pre-resignation surreptitious solicitation exceeds what is necessary to protect client freedom of choice and undermines the duty of loyalty among partners.
    2. Yes, because such provisions do not compromise client freedom of choice or an attorney’s freedom to practice law, but simply obligate partners to use their best efforts to expose clients to other attorneys in the firm.
    3. Yes, because a false statement of intention is sufficient to support an action for fraud, even if it relates to an agreement between the parties.

    Court’s Reasoning

    The Court of Appeals balanced the fiduciary duty partners owe each other with the attorney’s responsibility to clients and client’s freedom to choose counsel. While attorneys can inform clients with whom they have a prior professional relationship about their impending withdrawal and new practice, and remind the client of its freedom to retain counsel of its choice, secretly attempting to lure firm clients to the new association is inconsistent with a partner’s fiduciary duties. The court emphasized that partners must maintain a “punctilio of an honor the most sensitive.” Regarding the breach of contract claim, the court found that the retirement agreement provision did not compromise client freedom. The court also held that a cause of action for fraud may arise when one misrepresents a material fact with no intention of complying with those representations. The court noted, “A false statement of intention is sufficient to support an action for fraud, even where that statement relates to an agreement between the parties.” Because there were material issues of fact the court determined that summary judgment was inappropriate.