Justia U.S. 2nd Circuit Court of Appeals Opinion Summaries

Articles Posted in Contracts
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AMTAX Holdings 227, LLC ("AMTAX") filed a lawsuit against CohnReznick LLP ("CohnReznick") in federal court, alleging breach of fiduciary duty, professional negligence, unjust enrichment, and fraud. The dispute arose from CohnReznick's calculation of a purchase price for a property under a right of first refusal agreement, which AMTAX claimed excluded exit taxes required by Section 42 of the Internal Revenue Code. AMTAX argued that this exclusion violated the agreement and federal law.The United States District Court for the Southern District of New York dismissed AMTAX's complaint for lack of subject matter jurisdiction. The court applied the Grable-Gunn test to determine whether the state-law claims presented a substantial federal issue that would warrant federal jurisdiction. The district court concluded that AMTAX's claims did not meet the criteria for federal question jurisdiction, as they did not necessarily raise a substantial federal issue and allowing federal jurisdiction would disrupt the federal-state balance.The United States Court of Appeals for the Second Circuit reviewed the district court's decision de novo. The appellate court agreed with the lower court's application of the Grable-Gunn test, finding that AMTAX's claims were primarily based on contract interpretation rather than federal tax law. The court held that the federal issue was not substantial enough to warrant federal jurisdiction and that exercising jurisdiction would disrupt the balance of state and federal judicial responsibilities. Consequently, the Second Circuit affirmed the district court's dismissal of the case for lack of subject matter jurisdiction. View "AMTAX Holdings 227, LLC v. CohnReznick LLP" on Justia Law

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In spring 2020, Czigany Beck, a full-time student at Manhattan College, paid tuition and a comprehensive fee for the semester. Due to the COVID-19 pandemic, the college transitioned to remote learning in March 2020, and Beck received only 46% of her education in person. Beck filed a class action lawsuit against Manhattan College, claiming breach of implied contract and unjust enrichment for not refunding a portion of her tuition and fees.The United States District Court for the Southern District of New York dismissed Beck's claims. The court found that the college's statements were not specific enough to constitute a promise for in-person classes or access to on-campus facilities. The court also ruled that the comprehensive fee was nonrefundable based on the college's terms, and thus Beck's unjust enrichment claim for fees was barred. The court granted summary judgment to Manhattan College on Beck's remaining unjust enrichment claim for tuition, concluding that the college's switch to online instruction was reasonable given the pandemic.Beck appealed to the United States Court of Appeals for the Second Circuit, arguing that the district court's judgment should be reversed based on the decision in Rynasko v. New York University. Manhattan College countered with decisions from the New York Supreme Court's Appellate Division, which supported affirming the district court's judgment. The Second Circuit identified a split between federal and state courts on New York contract-law principles and certified the question to the New York Court of Appeals: whether New York law requires a specific promise to provide exclusively in-person learning to form an implied contract between a university and its students regarding tuition payments. The Second Circuit reserved decision on Beck's appeal pending the New York Court of Appeals' response. View "Beck v. Manhattan College" on Justia Law

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Hamilton Reserve Bank, the beneficial owner of $250,490,000 in Sri Lankan government bonds, sued the Democratic Socialist Republic of Sri Lanka in the United States District Court for the Southern District of New York after Sri Lanka defaulted on the bonds. Over a year later, Jesse Guzman, Ultimate Concrete LLC, and Intercoastal Finance Ltd. sought to intervene, claiming Hamilton defrauded them by using their deposited funds to purchase the bonds and then refusing to allow them to withdraw their money.The district court denied the motion to intervene, holding that it lacked jurisdiction over the intervenors' claims. The court found that the claims did not derive from a "common nucleus of operative fact" with Hamilton's breach of contract claim against Sri Lanka, as required for supplemental jurisdiction under 28 U.S.C. § 1367(a).The United States Court of Appeals for the Second Circuit reviewed the case and affirmed the district court's decision. The appellate court held that the district court applied the correct "common nucleus of operative fact" standard for evaluating supplemental jurisdiction under Section 1367(a). The court concluded that the intervenors' claims, which involved a banking dispute with Hamilton, did not share substantial factual overlap with Hamilton's breach of contract claim against Sri Lanka. Therefore, the district court correctly determined it lacked jurisdiction over the intervenors' claims and denied their motion to intervene. View "Hamilton Reserve Bank v. Sri Lanka" on Justia Law

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Little Hearts Marks Family II L.P. ("Little Hearts") was a member of 305 East 61st Street Group LLC, a company formed to purchase and convert a building into a condominium. 61 Prime LLC ("Prime") was the majority member and manager, and Jason D. Carter was the manager and sole member of Prime. In 2021, the company filed for bankruptcy and sold the building to another company created by Carter. The liquidation plan established a creditor trust with exclusive rights to pursue the debtor’s estate's causes of action. Little Hearts sued Prime and Carter for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, breach of the implied covenant of good faith and fair dealing, and unjust enrichment, seeking damages for lost capital investment and rights under the Operating Agreement.The bankruptcy court dismissed all claims, ruling that they were derivative and belonged to the debtor’s estate, thus could only be asserted by the creditor trustee. The district court affirmed this decision.The United States Court of Appeals for the Second Circuit reviewed the case. The court affirmed the dismissal of the breach of fiduciary duty and aiding and abetting breach of fiduciary duty claims, agreeing that these were derivative and could only be pursued by the creditor trustee. However, the court vacated the dismissal of the breach of contract and breach of the implied covenant of good faith and fair dealing claims, determining that these were direct claims belonging to Little Hearts and could proceed. The unjust enrichment claim was dismissed as duplicative of the contract claims. The case was remanded for further proceedings consistent with this opinion. View "In re 305 East 61st Street Group LLC" on Justia Law

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Givaudan SA, a Swiss multinational manufacturer of flavors and fragrances, entered into a business relationship with Conagen Inc., a Massachusetts-based synthetic biology company. In 2016, the two companies executed a term sheet outlining several potential transactions, including Givaudan's purchase of a 5% equity stake in Conagen for $10 million and an exclusivity agreement for Conagen's intellectual property. Givaudan paid the $10 million and received the shares, but negotiations on the exclusivity agreement failed.Givaudan sued Conagen in the United States District Court for the Southern District of New York, claiming breach of contract, promissory estoppel, and unjust enrichment, seeking the return of its $10 million. After a bench trial, the district court found Conagen not liable on all claims and dismissed the case. Givaudan appealed the dismissal of its breach of contract claim.The United States Court of Appeals for the Second Circuit reviewed the case. The court affirmed the district court's decision, holding that Givaudan failed to prove damages, an essential element of a breach of contract claim under Delaware law. The court found that the $10 million payment for the 5% equity stake was a completed transaction and not contingent on the successful negotiation of the exclusivity agreement. The court also determined that the term sheet was a binding preliminary agreement that established a duty to negotiate in good faith, but Givaudan did not incur any costs or expenses that would qualify as reliance damages. Thus, the judgment of the district court was affirmed. View "Givaudan v. Conagen" on Justia Law

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The plaintiffs, a group of textbook authors, entered into publishing agreements with McGraw Hill, which included provisions for royalty payments based on the net receipts from sales of their textbooks. The agreements also stipulated that McGraw Hill would publish the textbooks at its own expense. The authors alleged that McGraw Hill breached these agreements by reducing royalty payments for textbooks sold through its online platform, Connect, which also includes additional course materials.The United States District Court for the Southern District of New York dismissed the authors' breach-of-contract claims, ruling that the contract definitions of "net receipts" unambiguously limited royalties to sales of the textbooks themselves, excluding other products sold through Connect. The court also found that McGraw Hill's reduction of royalties did not violate the contracts' requirement to publish the textbooks at its own expense, reasoning that Connect was more than just a publishing platform.On appeal, the United States Court of Appeals for the Second Circuit reviewed the case. The court agreed with the district court's interpretation of the "net receipts" clauses, affirming that the authors were only entitled to royalties based on the sales of their textbooks, not on additional content sold through Connect. However, the appellate court found merit in the authors' claim that McGraw Hill breached the "own expense" clause. The court concluded that the complaint plausibly alleged that McGraw Hill's new royalty calculation method effectively shifted some of the publishing expenses to the authors, contrary to the agreements.The Second Circuit vacated the district court's dismissal of the breach-of-contract claims related to the "own expense" clause and remanded the case for further proceedings consistent with its opinion. View "Flynn v. McGraw Hill LLC" on Justia Law

Posted in: Contracts
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The case involves a challenge to New York City's Guaranty Law, which was enacted in response to the COVID-19 pandemic. The law rendered personal guaranties of commercial lease obligations arising between March 7, 2020, and June 30, 2021, permanently unenforceable and identified efforts to collect on such guaranties as proscribed commercial tenant harassment. Plaintiffs, a group of New York City landlords, argued that the law violated the Contracts Clause of the U.S. Constitution.Initially, the United States District Court for the Southern District of New York dismissed the plaintiffs' constitutional challenges, but the United States Court of Appeals for the Second Circuit reversed the dismissal of the Contracts Clause challenge and remanded the case for further consideration. On remand, the district court granted summary judgment in favor of the plaintiffs, finding that the Guaranty Law was unconstitutional.The City of New York appealed, arguing that the plaintiffs lacked standing because the City did not enforce the Guaranty Law. The Second Circuit found that while the plaintiffs had standing at the pleadings stage due to the presumption of enforcement, they failed to meet the heightened burden on summary judgment to show a credible threat of imminent enforcement by the City. The City had unequivocally disavowed any intent to enforce the Guaranty Law against the plaintiffs.The United States Court of Appeals for the Second Circuit vacated the district court's award of summary judgment and remanded the case with instructions to dismiss for lack of subject matter jurisdiction. The court denied the City's request to vacate its earlier judgment reversing the dismissal of the Contracts Clause challenge and denied the City costs on the appeal due to its negligent delay in raising the enforcement-based standing challenge. View "Bochner v. City of New York" on Justia Law

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The case involves a dispute over fees related to contracts between independent solar generators (the plaintiffs) and National Grid USA Services Co., Inc. and its affiliate Niagara Mohawk Power Corporation (the defendants). The plaintiffs are required to pay costs for interconnecting their solar energy projects to the defendants' electric distribution grid, which includes a "tax gross-up adder" to offset the defendants' federal income tax liability. The plaintiffs sought a declaratory judgment that these interconnection payments are not taxable income and also sought to recover the allegedly unlawful tax-related fees through state-law claims for damages.The United States District Court for the Northern District of New York dismissed the case, finding that it lacked subject-matter jurisdiction. The court concluded that the plaintiffs' request for a declaratory judgment was barred by the Declaratory Judgment Act because the federal tax issue would only arise as a defense to a state-law breach of contract claim. The court also found that the plaintiffs' state-law claims did not raise a substantial federal question, as the federal tax issue was not significant to the federal system as a whole.The United States Court of Appeals for the Second Circuit affirmed the district court's judgment. The appellate court agreed that the plaintiffs' request for declaratory relief did not meet the threshold requirement for federal subject-matter jurisdiction, as the federal tax issue would only arise as a defense in a hypothetical state-law breach of contract claim. The court also found that the federal issue in the plaintiffs' state-law claims was not substantial, as it was fact-bound and situation-specific, and did not have broader significance for the federal government. Therefore, the district court's dismissal for lack of subject-matter jurisdiction was upheld. View "Sunvestment Energy Group NY 64 LLC v. National Grid USA Services Co., Inc." on Justia Law

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Malcolm H. Wiener, the plaintiff, purchased three life insurance policies from AXA Equitable Life Insurance Company in 1986. Over the years, Wiener's policies lapsed multiple times due to insufficient funds, but he managed to reinstate them each time. In 2013, the policies lapsed again, and AXA terminated them after Wiener failed to make the necessary payments within the grace period. Wiener claimed that AXA and his insurance agent, David Hungerford, caused the lapse by not sending premium notices and by changing the mailing address without his authorization. He also alleged that AXA wrongfully denied his application to reinstate the policies.The United States District Court for the Southern District of New York granted summary judgment in favor of AXA and Hungerford on all claims. The court found that AXA was not obligated to send premium notices after the policies lapsed and that Wiener had waived any objection to the address change by acquiescing for nearly five years. The court also concluded that Hungerford had no duty to notify Wiener of the lapse. Regarding the reinstatement claim, the court ruled that AXA's denial was not arbitrary and capricious, as it was based on Wiener’s low serum albumin levels, which were consistent with AXA’s underwriting guidelines.The United States Court of Appeals for the Second Circuit affirmed the district court’s summary judgment on the termination claims, agreeing that Wiener could not show that AXA’s failure to send premium notices caused the policies to lapse and that he had waived any objection to the address change. However, the appellate court vacated the summary judgment on the reinstatement claim, finding that there were genuine disputes of material fact regarding the actual reasons for AXA’s denial and whether those reasons were arbitrary. The case was remanded for further proceedings on the reinstatement claim. View "Wiener v. AXA Equitable Ins. Co." on Justia Law

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The case involves a contract dispute between Kenneth E. Salamone and RUFSTR Racing, LLC (Plaintiffs) and Douglas Marine Corporation (Defendant). Plaintiffs contracted with Douglas Marine to purchase a custom-made race boat and trailer for $542,117, making payments totaling $501,500. Douglas Marine failed to deliver the boat on time, leading Plaintiffs to cancel the contract. Douglas Marine sold the boat and engines for $375,000 but only remitted $50,000 to Plaintiffs. Plaintiffs sued for breach of contract, seeking damages.The United States District Court for the Northern District of New York held a jury trial, which found in favor of Plaintiffs, awarding them $131,171 in damages. Plaintiffs moved to alter the judgment under Fed. R. Civ. P. 59(e), arguing the jury's calculation was fundamentally erroneous and should be increased to $451,500. The district court agreed, ruling that the jury's verdict constituted a fundamental error and increased the damages to $451,500. Douglas Marine appealed, arguing the district court erred in increasing the damages and in not instructing the jury on a mitigation-of-damages defense. They also challenged the court's personal jurisdiction.The United States Court of Appeals for the Second Circuit reviewed the case. It found merit in Douglas Marine's argument that the district court improperly increased the damages award, ruling that the jury's verdict did not constitute fundamental error. The appellate court reversed the amended judgment to the extent it increased the damages and remanded the case for entry of a second amended judgment consistent with the jury's original award of $131,171. The court affirmed the district court's denial of Douglas Marine's post-judgment motion to dismiss for lack of personal jurisdiction. View "Salamone v. Douglas Marine Corp." on Justia Law