By Jacqueline A. Muttick, Esq.
First Department finds factual issues in §241(6) exclusion, and holds that claim by a lessee’s contractor triggers the lessor’s indemnityPermalink
By: Michael E. Kar, Esq.
Date: December 27, 2017
On March 1, 2018, the First Department entered their decision in Karwowski v. 1407 Broadway Real Estate LLC. This decision gleans two important considerations for insurers and practitioners, in the Appellate Division’s: (i) holding that a lessor’s indemnity provision will be triggered by a claim by a lessee’s contractor; and (ii) finding of factual issues with the lower court’s exclusion of a contractor’s workshop from liability under 241(6).
Factual issue found in Labor Law §241(6) analysis:
At the Supreme Court below, Plaintiff’s claims under Labor Law §241(6) were dismissed. Section 241(6) imposes on property owners (and lessee’s under Article 10 of New York Labor Law) the duty to provide reasonable protection and safety for workers, and to comply with all Department of Labor regulations. The issue in application of §241(6) was, primarily, centered around the physical location at which the injury took place. The location was the 16th floor of the building in question. A portion of the 16th floor was XCEL’s in practice, an area where they would keep materials and tools used for renovations within the building. However, no personnel or office furniture existed in a permanent capacity, and XCEL had no lease and did not pay any rent for the space. XCEL maintains a separate permanent office and workshop in Queens.
In support of their motion for summary judgment as to the applicability of Labor Law §241(6), Defendant Cayre asserted that the 16th floor is a permanent workshop where “for the past 10 years, the… plaintiff reported to work each day….” Their argument concludes that due to these facts the 16th floor is not the statutorily protected “area in which construction, excavation or demolition work is being performed….” N.Y. Labor Law §241(6).
Binding Arbitration: A New Timebomb for Lawyer and Client, by Arthur XanthosPermalink
Yesterday, the New York State Appellate Division, First Department, had the opportunity to consider a case involving an agreement containing both clauses. A limited liability company's operating agreement contained both an arbitration clause and a choice of law (New York) clause. But the commercial arbitration rules (mandated by the arbitration clause) conflicted with New York State law (mandated by the choice of law clause) in one important respect: commercial arbitration rules permit an arbitrator under some circumstances to assess punitive damages against a party to the arbitration. New York State law, on the other hand, does not permit an arbitrator to assess punitive damages. So when an agreement contains both clauses (commercial arbitration rules, and New York State choice of law), may an arbitrator award punitive damages?
Yes, said the Appellate Division in a sharply divided 3-2 decision. Matter of Flintlock Constr. Servs. LLC v. Weiss, 2014 NY Slip Op 05818 (8/14/2014). The majority held that the operating agreement's choice of law provision, in the absence of additional limiting language, "is insufficient to remove the issue of punitive damages from the arbitrator".
The Flintlock decision is problematic for two reasons: First, what do contracting parties do about their already executed agreements that now have conflicting clauses? It is barely overstatement to say that the overwhelming majority of shareholder agreements, operating agreements, asset sale agreements, and even employment agreements contain both of these clauses. Second, how should such agreements be drafted going forward? Pending an appeal of the Flintlock decision, attorneys should follow the First Department's direction and place limits on the arbitrator's power to impose punitive damages. The new clauses might read as follows:
"ARBITRATION. Any dispute arising under this agreement shall be resolved by arbitration before the [NAME OF ARBITRATION TRIBUNAL] in [LOCATION]. The arbitration shall be conducted under commercial arbitration rules then in effect, but the arbitrator(s) shall resolve the dispute in accordance with the laws of the State of New York without giving effect to principles of conflict of laws. The arbitrator(s) shall have the limitations on his, her and their power and authority as are found in New York State law, including without limitation no power or authority to award or assess punitive damages."
"CHOICE OF LAW. This agreement, its validity, construction, and enforcement, shall be governed by the laws of the State of New York, without giving effect to principles of conflict of laws."