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A recent lawsuit in New York focused on automatic renewal in NY. While not all states have auto renewal statutes [and you can find your state here: https://www.kirschenbaumesq.com/page/alarm-law-issues] it's likely that many are considering such laws. Every properly worded alarm contract will contain an automatic renewal provision, and all that I have read are fairly similar, providing that "... and this agreement will automatically renew for [like term] [for additional 5 years] [year to year thereafter] month to month ..."
New York permits automatic renewal but places a heavy notice burden on the supplier of the service before the renewal will be enforced. Failure to comply with the notice requirement renders the renewal term cancelable at will. Notice needs to be by personal delivery or certified mail within a 15 day window. No alarm companies in NY that I know of complies, yet all rely on the automatic renewal. I should note that those using the Standard Form Agreements [which is most alarm companies by the way] are exempt from complying because the statute does not pertain to month to month renewals.
In the recent case the Plaintiff installed and serviced ATM machines and received a transaction fee for each transaction. The agreement, signed July 2002, was for 5 years and renewed for 5 year periods. Defendant decided to terminate in December 2012, which was 6 months into the latest renewal period. Plaintiff sued and Defendant defended based on NY's auto renewal statute, GOL 5-903 that no notice had been given of renewal. The Judge agreed and the case was dismissed. The entire decision is below.
Here's what caught my attention. This "automatic renewal" provision does not read like the ones we see in alarm contracts, but the distinction I see does not appear to have been raised in the judge's decision. You don't see the familiar words "will automatically renew" in the contract. Rather, this contract gives the Service Provider the "the option, in its sole discretion, to extend this Agreement for additional periods of five(5) years each." That right to exercise an option to extend the agreement is not, in my view, an automatic renewal provision. We don't have the contract in the decision so we don't know whether there is anything in the contract that deals with how or when the option is to be exercised. We do know that the next sentence in this poorly drafted document provides: " agree that any changes in' processing or an early termination of the processing service with will cause a lost revenue due to extended warranty purchases, repairs and /or any up-front cost." This attempt by the drafter of the document to fix damages fails because there is no measure of damages fixed or formula by which to calculate damages.
Clearly the judge and apparently the lawyers considered the renewal option as an automatic renewal. The statute by its terms applies to contracts where "... term of the contract shall be deemed renewed for a specified additional period ..." Apparently no one notices that the contract in this case was not deemed to renew, but the Service Provider had to exercise an "option, in its sole discretion, to extend this Agreement ..."
Well, all I can say is that I didn't draft this contract and I wasn't hired to enforce it. You do have a choice who your attorney is. Choose wisely, my friend.
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POWERQUEST ENTERPRISES, INC., Plaintiff, - v -
MOHAMED K.M. MOJALY, individually and d/b/a ARN DELI
SUPERMARKET and TIMMY SALEK, Defendants. Index No.:
150832/13
SUPREME COURT OF NEW YORK, NEW YORK COUNTY
2014 N.Y. Misc. LEXIS 5853; 2014 NY Slip Op 33474(U)
July 31, 2014, Decided
NOTICE: THIS OPINION IS UNCORRECTED AND WILL NOT BE PUBLISHED IN THE PRINTED OFFICIAL REPORTS.
JUDGES: PRESENT: DEBRA A. JAMES, J.S.C.
OPINION BY: DEBRA A. JAMES
OPINION
Defendants move for summary judgment dismissing plaintiff's complaint on the
grounds that no valid contract renewal occurred due to the failure to comply
with General Obligations Law (GOL) §5-903 (2).
Plaintiff and defendants entered into a "Site Location Agreement" (Agreement)
dated July 10, 2002, pursuant to which plaintiff installed and provided
servicing for an Automated Teller Machine (ATM) upon defendants' store premises.
Plaintiff agreed to pay defendants a transaction fee of $1.65 per
transaction and the Agreement also contained an exclusivity clause requiring
defendants to use the plaintiff as the exclusive transaction processing service
provider for the premises during the term of the Agreement and any renewals.
Paragraph 11 of the Agreement stated in pertinent part
This Agreement shall be for a term of five (5) years from the date
of installation, unless amended or terminated by written agreement
signed by and or terminated by . .
. Notwithstanding anything contained herein to the contrary,
shall have the option, in its sole discretion, to extend
this Agreement for additional periods of five (5) years each.
agree that any changes in' processing or an early
termination of the processing service with will cause a
lost revenue due to extended warranty purchases, repairs and /or any
up-front cost.
According to plaintiff's complaint, in December 2012 defendants without
notice to or approval from plaintiff changed their data processing service
provider. Plaintiff claims that as a result of this alleged breach defendants
owe plaintiff damages in accordance with Paragraph 11 of the Agreement.
Defendants in support of their motion argue that they were entitled to seek
services from another provider because the Agreement had terminated, insofar as
it had not automatically renewed on the terms therein, due to plaintiff's
failure to comply with GOL 5-903.
GOL §5-903 (2) provides in pertinent part that
No provision of a contract for service, maintenance or repair to or
for any real or personal property which states that the term
of the contract shall be deemed renewed for a specified additional
period unless the person receiving the service, maintenance or repair
gives notice to the person furnishing such contract service,
maintenance or repair of his intention to terminate the contract
at the expiration of such term, shall be enforceable against the
person receiving the service, maintenance or repair, unless the person
furnishing the service, maintenance or repair, at least fifteen days
and not more than thirty days previous to the time specified for
serving such notice upon him, shall give to the person receiving the
service, maintenance or repair written notice, served personally or by
certified mail, calling the attention of that person to the existence
of such provision in the contract.
The court holds, and the plaintiff does not dispute, that the statute applies
to the Agreement at issue here. As stated by the Court,
General Obligations Law §5-903 does not define "personal property,"
although it broadly defines "person" as "an individual, firm, company,
partnership or corporation" and also states that its restrictions
apply unless "the person receiving the service" is served with
advanced notice calling its attention to the renewal clause in the
contract (General Obligations Law §5-903). The statute does not
require that the person own the "personal property" being serviced,
and section 5-903 has been analyzed by courts in a variety of
circumstances to determine its applicability. Personal property has
been interpreted to include intellectual property as well as
tangible personal property. The purpose of the notice provision is to
protect service recipients from the harm of unintended automatic
renewals of contracts for consecutive periods. Since §5-903 is
remedial in nature it is construed broadly.
Healthcare I.O., LLC v Tsai Chung Chao, 118 AD3d 98 (1st Dept 2014) (citations
omitted). The ATM servicing contract at issue clearly comes within the ambit of
the statute.
The issue on this motion is whether defendants have set forth a prima
facie case that plaintiff failed to comply with the statute so as to cause the
Agreement not to have been automatically renewed. Defendants' affidavit in
support of the motion which states that plaintiff has never personally delivered
or mailed by certified mail notice of the renewal to the affiant or the other
defendants suffices to meet defendants' prima facie burden.
In response, plaintiff's affidavit in opposition to the motion fails to set
forth cognizable evidence that at the expiration of the initial term of the
Agreement notice of the automatic renewal was either personally served upon or
sent by plaintiff to defendants. The affidavit by plaintiff's record-keeper
fails to cite any business records, such as a log or affidavit of service,
supporting the record-keeper's assertion that plaintiff served a notice of
such initial renewal upon defendants as required by the statute. In the absence
of such evidence plaintiff fails to raise an issue of fact that the statute was
complied and therefore the pursuant to the statute the contract was not renewed
upon its initial expiration.
The parties' continued performance under the original terms of the Agreement
following the expiration of its initial term does not revive the contractual
renewal provision. See Protection Indus. Corp. v DDB Needham Worldwide, Inc.,
306 AD2d 175 (1st Dept 2003) ("motion court properly found that General
Obligations Law §§ 5-901 and 5-903 render the automatic renewal clause in the
parties' contract unenforceable . . . even though defendant made payments after
the termination date"). Defendants have therefore shown, and plaintiff has
not raised an issue of fact, that the Agreement was not renewed after the
initial term and defendants were entitled to terminate the Agreement. See
Concourse Nursing Home v Axiom Funding Group, Inc., 279 AD2d 271 (1st Dept 2001)
.
As plaintiff's arguments were legally cognizable, the court shall dismiss
defendants' counterclaim.
Therefore, it is
ORDERED and ADJUDGED that defendants' counterclaim for sanctions is hereby DISMISSED, and it is further
ORDERED and ADJUDGED that defendants' motion for summary judgment is
GRANTED and plaintiff's complaint is DISMISSED with costs and disbursements to
defendants as taxed by the Clerk upon the submission of an appropriate bill of
costs; and it is further
ORDERED the Clerk is directed to enter judgment accordingly.
This is the decision and order of the court.
Dated: July 31, 2014
ENTER:
/s/ Debra A. James
J.S.C.
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