Emails Between Counsel Create Agreement To Arbitrate, Even Where Contractual Arbitration Provision Would Have Been Unenforceable

 by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Arbitration (pd)Generally, when you end an email to your adversary with "we'll be awaiting your motion," something has gone wrong. This was certainly true in So v. Everbeauty, Inc.

In So, plaintiff sued defendant, his former employer, alleging that defendant had violated his rights under the New Jersey Law Against Discrimination and the Workers' Compensation Law. Shortly after the lawsuit was filed, defendant's counsel suggested to plaintiff's counsel that the matter should be arbitrated under the arbitration provision in plaintiff's employment contract. Plaintiff's counsel initially responded that his client was "leaning towards . . . going to arb," but that counsel still needed to speak with plaintiff, who was away on vacation. Later, plaintiff's counsel emailed defendant's counsel as follows: "I was able to speak to my client and we will proceed to arbitration. I can draft stip of dismissal." Two weeks later, however, plaintiff apparently had a change of heart. His counsel wrote to defendant's counsel stating that plaintiff had "instructed him to make efforts to avoid arbitration." Seeing the writing on the wall, plaintiff's counsel ended the email, "we'll be awaiting your motion."

As expected, defendant moved to compel arbitration, but did so in a somewhat unusual way. Defendant's counsel acknowledged that the arbitration provision in plaintiff's employment contract was unenforceable because it was not "sufficiently specific." But defendant argued that the back-and-forth between counsel created a separate, binding agreement to arbitrate. The trial court denied the motion, holding that (1) the emails between counsel did not "evidence a bargained for exchange but only a statement by plaintiff's counsel as to what his intentions were going forward in response to inquiries from defense counsel," and (2) there was no consideration to support the alleged agreement to arbitrate. Defendant appealed.   

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Back to Basics: Personal Guaranty Not Enforceable Without Consideration

by:  Peter J. Gallagher (@pjsgallagher) (LinkedIn)

Gas pump
Sometimes the most basic things can cause the biggest problems. One of the first lessons learned in the first year of law school is that a valid contract requires consideration – some benefit flowing to each side of the deal. In M. Spiegel & Sons Oil Corp. v. Amiel, the Appellate Division reminded us how failing to satisfy this basic requirement can derail an otherwise seemingly straightforward matter.

In Spiegel, defendants were two individuals who formed an LLC that operated two gas stations. The LLC purchased fuel oil from plaintiff. By March 2012, however, the LLC allegedly owned plaintiff more than $1 million for fuel oil deliveries, therefore plaintiff stopped making deliveries. Shortly thereafter, plaintiff entered into an agreement with the LLC pursuant to which the LLC agreed to make regular monthly payments to plaintiff to resolve its debt. As part of the agreement, the LLC entered into a promissory note with defendants for the full amount of the debt. Defendants were never asked to, and never agreed to, provide a personal guaranty in connection with the promissory note. But, shortly after the promissory note was signed, plaintiff asked defendants to sign a personal guaranty, which they did.  

The LLC eventually defaulted on the promissory note, and plaintiff sued defendants to recover on the personal guaranty. Both sides moved for summary judgment. The only fact issue that either side raised was whether there was adequate consideration for the personal guaranty. Plaintiff asserted that the personal guarantee was provided to induce plaintiff to continue to supply fuel oil to the LLC’s gas stations, therefore there was adequate consideration and the guaranty should be enforced. Defendants countered that, by the time the personal guaranty was presented to them, the LLC had already made arrangements to purchase fuel oil from a new supplier and therefore the personal guaranty was void for lack of consideration.

The trial court granted plaintiff’s motion and denied defendants’ cross-motion, holding that the guaranty was “clear and direct,” and that the “‘forbearance of the plaintiff to forego collection of the full amount’ and to ‘span out a payment plan’” provided adequate consideration. Defendants appealed and the Appellate Division reversed.

 

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