SDNY Greenlights Claims for Securities Fraud and RICO Violations Against Crypto Biz

Two weeks ago, the Southern District of New York rejected a defendant’s motion to dismiss claims that our firm filed in 2020 on behalf of a client who invested in a cryptocurrency business that turned out to be part of scheme of fraud and deceit.

Judge Ramos’ 28-page decision—available on Westlaw and Leagle—rejected the pro-se defendant’s motion to dismiss claims filed against him for violation of SEC Rule 10-b5, violation of Securities Act Section 12, fraudulent inducement, and violation of RICO Section 1962(c), among other claims. Judge Ramos also refused to dismiss our client’s veil-piercing allegations, which seek to hold the individual defendant liable for breaches by several business entities under his control.

The decision allows our client to proceed to prosecute its claims, and reflects the civil court remedies available to victims of business fraud, particularly in the crypto space, a notoriously freewheeling industry.

New York City's Freelance Isn't Free Act Will Create new Enforcement Mechanisms for Individual Freelancers

Freelancers and those hiring freelancers in New York City take note:  In May 2017, New York City’s “Freelance Isn’t Free” Act will take effect.  New York City passed the law in November 2016, and it is the first legislation in the country to create a range of legal rights to help to individual freelancers get paid.  The new law governs agreements for services between individual freelancers/independent contractors and anyone who hires them, when the value of the services to be provided exceeds $800. 

The law requires that the agreement be reduced to writing, and specifies information that must be included in the written agreement.  The law also provides that the hiring party must pay fees owed to the freelancer by the time stated in the written agreement, or “no later than 30 days after the completion of the freelance worker’s services.”  The law further prohibits any type of retaliatory action by a hiring party against a freelancer who exercises his rights under the law.

Perhaps most importantly, the law provides for significant penalties against any hiring party who fails to comply with the law’s provisions.  A hiring party who fails to timely pay the freelancer’s fees can be liable for the amount owed plus that amount again as a penalty.  A hiring party who fails to reduce the service agreement to writing upon the freelancer’s request can be liable for statutory damages of $250.  Moreover, if the hiring party fails to pay on time AND fails to provide a written contract on request, the hiring party can be liable for the unpaid amount plus two times that amount.  Finally, a freelancer who prevails on an action for any of these violations can recover his attorney fees incurred in bringing the action.

Similar types of enforcement mechanisms have been available to regular employees under federal and state law for decades.  But freelancers were left out in the cold: when an unpaid bill was relatively small, freelancers had trouble justifying paying attorney fees to collect, and hiring parties saw little downside to dragging out payment or simply not paying at all.  The Freelance Isn’t Free Act finally gives freelancers more ammunition in collecting what they’re owed, and adds protections for a growing section of the U.S. workforce.

Former Employer Notifying New Employer of Non-compete Agreement Doesn't Constitute Tortious Interference, Says New York County Supreme Court

In June 2016, the New York County Supreme Court handed down a decision that's not great for employees under non-compete agreements with their former employers.  In Ashley v. Westside Veterinary Center, the plaintiff employee, Ashley, was under a three-year non-compete agreement with her former employer, a veterinary practice called Westside Veterinary.  Ashley was fired from Westside Veterinary, and she subsequently took a position with a competing veterinary practice, Animal General.  Westside engaged legal counsel, and counsel sent a letter to Animal General, asserting that Ashley's employment with Animal General violated her non-compete, and gently threatening legal action against Animal General for interference with the non-compete.  Animal General fired Ashley within a week.

Ashley sued her former employer Westside Veterinary for tortious interference with prospective economic advantage, alleging that Westside had wrongfully interfered with her new employment by sending the letter.  Westside Veterinary eventually brought a motion for summary judgment to dismiss that claim.  The court granted Westside's motion, noting that where a defendant "sends a letter to the plaintiffs employer to enforce rights it believes are legal and enforceable, such conduct does not rise to the level of wrongful means necessary to prove a claim for tortious interference."  Ashley argued that the non-compete agreement was not, in fact, enforceable, that Animal General and its attorney should have known that, and thus to send a letter threatening to enforce the agreement was tortious.  The Court rejected this argument, stating "It is not relevant to the instant litigation whether the Non-Compete Agreement was actually enforceable against plaintiff or whether Westside should have known that the Non-Compete Agreement was not enforceable."  Apparently, defendants testified in depositions that they relied in good faith on counsel's advice that the agreement was enforceable, and legal counsel herself also testified that "she believed that the Non-Compete Agreement was legal and enforceable based on its scope."  Thus, the court concluded that the letter created no liability because Westside "merely notified Animal General that its purpose was to insist upon its rights under the Non-Compete Agreement, an agreement which Westside believed to be enforceable based on the advice and counsel of Attorney Parker, a partner at Proskauer Rose."

The case is particularly interesting for two points.  First, it means that former employers will be permitted to take action to protect their rights under non-compete agreements, even if those agreements might not be enforceable, and even if doing so might lead to the termination of a former employee's new at-will employment.  (This isn't uncommon.)  We think the agreement here was likely not enforceable (e.g., it was overbroad, Ashley had been fired, there were no trade secrets at stake), but that is a matter for another blog post.  Second, we see the plaintiff's counsel allowed during depositions to probe rather deeply into counsel's advice to the defendants and counsel's work product.  The heart of the dispute may have arisen from interpersonal factors not revealed in court documents, but the outcome sets precedent for New York employers and employees going forward.