Comments on Recent Cases: May and June 2020

Part of my work involves reading court decisions to keep abreast of how judges decide the types of cases I handle. Below, I share some thoughts on recent decisions.

Courts Enforce Contracts Despite the COVID-19 Pandemic

In a May 2020 decision, a federal court in New York refused to treat the pandemic as an excuse for gyms in one case to default on a settlement agreement, claiming that "economic hardship" did not constitute "impossibility."

I think the gyms in that case had a good argument and I wish the court had considered how this pandemic is different from ordinary economic hardships.

Depositions Play a Significant Role in Racial Discrimination Claims

Few employers think they are guilty of racial or sexual discrimination when they fire someone. But even for employers that comply with the law, responding to a discrimination claim may still require depositions and legal argument. This is why employers should take proactive measures to ensure they avoid the risk of litigation and prepare themselves well if a dispute arises.

Depositions played a prominent role in a recent federal court case in New York, where an employee alleged that a manager used a racial slur before he was fired because of his race. Even though the employee had no lawyer, the case still proceeded to depositions and the court considered a variety of possible claims that the employee could have brought. Ultimately, the court dismissed the claims because, among other reasons, the manager who used the racial slur was not the one who fired him and he used it after the firing. But the decision makes clear that the employee suffered some strategic disadvantages because he did not have counsel.

Employers should rigorously ensure that their employees know that racist and sexist behavior is unacceptable and be well prepared for depositions.

In Some Situations, Courts May Enforce Contracts Against Non-Parties

In most situations, a contract is only enforceable against the parties that sign it. But in some situations, courts enforce agreements against non-parties that have close relationships with the contract signatories.

A recent decision by the state appellate court in Manhattan applied this principle, when it refused to dismiss claims against non-signatories to various agreements. It did so because the defendants were “closely related” to the signatories and could reasonably foresee the contract being applied to them.

I see a lot of cases like this one, where plaintiffs allege that defendants engaged in a scheme to steal money by using a web of connected businesses to carry out a fraud. Doctrines like this one are useful in holding defendants liable despite their efforts to evade legitimate claims.

In Rare Situations, Plaintiffs Can Establish Negligence Without a Trial

Plaintiffs in negligence lawsuits should be prepared for the lengthy and costly processes of discovery and trial. But they may also prevail without a trial in rare circumstances.

A recent New York State court appellate decision upheld a plaintiff’s win in a negligence case without a trial, but noted that it was “the rare case” where a trial was not necessary for a litigant to establish negligence. In that case, the defendant was unable to provide any evidence that anyone else, including the plaintiff, caused the accident at issue.

Negligence plaintiffs should consider motions for summary judgment like the one in this case, but often the cost of the motion outweighs the likelihood of success.

Complaints Are Often Dismissed For Failing to Meet the High Burden for Pleading Fraud

Courts often dismiss fraud claims arising from inaccurate estimates. This is because the law places a high standard for plaintiffs to allege fraud.

The federal court in Manhattan recently dismissed a securities fraud case, where the plaintiffs alleged that a company lied to investors when it estimated the costs it would incur to address product claims. The company spent far more on repair costs than its earlier public estimates. But the court dismissed the fraud claims before discovery because, among other reasons, the estimates were mere opinions and not factually untrue statements and because the plaintiffs failed to allege specific facts that suggest the company knew the estimates were too low at the time it made them.

To reduce the risk of dismissal, plaintiffs bringing fraud claims should engage in a thorough investigation before filing a complaint. Although many litigants may rely on evidence obtained in discovery to support their claims, the high pleading standards for fraud require fraud plaintiffs to know more about their claims at an earlier stage than other plaintiffs.