159 MP Corp. v. Redbridge Bedford, LLC

• Decision Date: 07 May 2019
• Docket Number: No. 26,26
• Citation: 33 N.Y.3d 353,128 N.E.3d 128,104 N.Y.S.3d 1
• Parties: 159 MP CORP., et al., Appellants, v. REDBRIDGE BEDFORD, LLC, Respondent.
• Court: New York Court of Appeals Court of Appeals

33 N.Y.3d 353

128 N.E.3d 128

104 N.Y.S.3d 1

159 MP CORP., et al., Appellants,

v.REDBRIDGE BEDFORD, LLC, Respondent.

No. 26

Court of Appeals of New York.

May 7, 2019

OPINION OF THE COURT

Chief Judge DiFIORE.

In New York, agreements negotiated at arm's length by sophisticated, counseled parties are generally enforced according to their plain language pursuant to our strong public policy favoring freedom of contract. In this case, commercial tenants who unambiguously agreed to waive the right to commence a declaratory judgment action as to the terms of their leases ask us to invalidate that waiver on the rationale that the waiver is void as against public policy. We agree with the courts below that, under the circumstances of this case, the waiver clause is enforceable, requiring dismissal of the complaint.

Plaintiffs 159 MP Corp. and 240 Bedford Ave Realty Holding Corp. executed two commercial leases with the predecessor-in-interest of defendant Redbridge Bedford LLC, the current owner of the subject building. Together, the twenty-year leases permit plaintiffs to occupy 13,000 square feet of property in Brooklyn to operate a Foodtown supermarket. Rents started at $341,628 per year and were to increase over the lifetime of the leases to $564,659.02, which included a ten-year option at escalating rents. While the lengthy and detailed leases contained a standard form, its terms were not accepted as boilerplate but rather contained numerous handwritten additions and deletions, initialed by the parties. Of particular relevance to this dispute, each lease also incorporated a 36–paragraph rider, which was also replete with handwritten additions and deletions. Paragraph 67(H) of the rider provides:

"Tenant waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease ... [I]t is the intention of the parties hereto that their disputes be adjudicated via summary proceedings" (emphasis added).

In March 2014, defendant sent notices to plaintiffs alleging various defaults and stating that plaintiffs had fifteen days to cure the violations in order to avoid termination of the leases. Before the cure period expired, plaintiffs commenced this action by way of order to show cause in Supreme Court seeking, as relevant here, a declaratory judgment that they were not in default. Plaintiffs also sought a Yellowstone injunction in order to prevent the owner from terminating the leases or commencing summary proceedings during the pendency of the declaratory judgment action. Defendant answered and cross-moved for summary judgment dismissing the complaint, arguing that the action and, thus, the request for Yellowstone relief were barred by the waiver clause in the leases.¹ In response, plaintiffs asserted, among other things,² that if interpreted in the manner urged by the owner, the waiver clause was unenforceable and that the waiver was premised on mutual mistake concerning the scope of summary proceedings.

Supreme Court denied plaintiffs' motion for a Yellowstone injunction, granted defendant's cross motion for summary judgment, and dismissed the action in its entirety. The court began by observing that, "absent some violation of law or transgression of strong public policy, the parties to a contract are basically free to make whatever agreement they wish, no matter how unwise it may appear to a third-party" ( 159 MP Corp. v. Redbridge Bedford LLC , 2015 N.Y. Slip Op. 32817(U), at *3, 2015 WL 13701792 [Sup. Ct., Kings County 2015], citing Rowe v. Great Atlantic & Pacific Tea Co. , 46 N.Y.2d 62, 67–68, 412 N.Y.S.2d 827, 385 N.E.2d 566 [1978] ). Relying on the plain language of the contract, the court concluded plaintiffs clearly waived the right to bring a declaratory judgment action and, in enforcing the provision, referenced the fact that the waiver did not

"prevent either side from performing the agreement or from recovering damages as a result of a breach or the parties' tortious conduct ... [and did not] deny plaintiffs all legal redress in this instance [because i]f plaintiffs dispute that they are in breach of the leases, they may raise any defenses they may have in any ... summary proceeding brought by defendant in Civil Court to evict them" ( 159 MP Corp. , 2015 N.Y. Slip Op. 32817(U), at *3 [citations omitted] ).

The court also rejected plaintiffs' mutual mistake argument, noting that plaintiffs had neither alleged fraud nor claimed they had been unable to review the leases with counsel ( id. ).

The Appellate Division, with one Justice dissenting, affirmed, determining that the declaratory judgment waiver was enforceable and barred plaintiffs' claim ( 159 MP Corp. v. Redbridge Bedford, LLC , 160 A.D.3d 176, 71 N.Y.S.3d 87 [2d Dept. 2018] ). The court commented, in light of the strong public policy favoring freedom of contract, that parties may waive a wide range of rights, observing that the parties here are "sophisticated entities that negotiated at arm's length" and entered contracts that defined their obligations "with great apparent care and specificity" ( id. at 187, 189, 71 N.Y.S.3d 87 ). Like Supreme Court, the Appellate Division emphasized that the waiver clause did not leave plaintiffs without other available legal remedies, noting that plaintiffs retained the right to receive notices under the leases (and thus cure defaults), to seek damages for breach of contract and tort, and to defend themselves in summary proceedings ( id. at 191, 71 N.Y.S.3d 87 ). Moreover, the Appellate Division observed that plaintiffs will remain in possession of the property unless summary proceedings are commenced and, if vindicated in a summary proceeding, would remain indefinitely until expiration of the leases ( id. at 191–92, 71 N.Y.S.3d 87 ). In contrast, if found to have been in default, plaintiffs would properly be evicted under the terms of the leases ( id. at 192, 71 N.Y.S.3d 87 ).

One Justice dissented, concluding that the waiver clause is void as against public policy and, thus, unenforceable ( 160 A.D.3d at 194, 71 N.Y.S.3d 87 [Connolly, J., dissenting] ). The dissent reasoned that declaratory relief serves the important societal function of providing certainty in contractual relationships and that the tenant's ability to litigate in summary proceedings commenced by the owner was not a sufficient substitute for the ability to commence a declaratory judgment action ( id. at 203–206, 71 N.Y.S.3d 87 ). The Appellate Division granted plaintiffs leave to appeal to this Court, certifying the question whether its order was properly made, and we now affirm.

We begin with the "familiar and eminently sensible proposition of law [ ] that, when parties set down their agreements in a clear, complete document, their writing should ... be enforced according to its terms" ( Vermont Teddy Bear Co. v. 538 Madison Realty Co. , 1 N.Y.3d 470, 475, 775 N.Y.S.2d 765, 807 N.E.2d 876 [2004] [citation omitted] ). As we noted in Vermont Teddy Bear , a seminal case involving a commercial lease, this rule has "special import in the context of real property transactions, where commercial certainty is a paramount concern, and where ... the instrument was negotiated between sophisticated counseled business people negotiating at arms length" ( id. [internal quotation marks and citation omitted] ). The lease provision at the center of this dispute could not be clearer. In it, plaintiffs "waive[d][the] right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease." Applying our well-settled contract interpretation principles, this unambiguous waiver clause reflects the parties' intent that plaintiffs be precluded from commencing precisely the type of suit they initiated here and, as such, this action was foreclosed by the plain language of the leases. Plaintiffs nonetheless ask us to relieve them of the consequences of their bargain, contending that the waiver clause violates a public policy strong enough to warrant a departure from the bedrock principle of freedom of contract. We reject that argument.

Freedom of contract is a "deeply rooted" public policy of this state ( New England Mut. Life Ins. Co. v. Caruso , 73 N.Y.2d 74, 81, 538 N.Y.S.2d 217, 535 N.E.2d 270 [1989] ) and a right of constitutional dimension (U.S. Const. art. I, § 10[1] ). In keeping with New York's status as the preeminent commercial center in the United States, if not the world, our courts have long deemed the enforcement of commercial contracts according to the terms adopted by the parties to be a pillar of the common law. Thus, "[f]reedom of contract prevails in an arm's length transaction between sophisticated parties ..., and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain" ( Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co. , 86 N.Y.2d 685, 695, 636 N.Y.S.2d 734, 660 N.E.2d 415 [1995] ).³ We have cautioned that, when a court invalidates a contractual provision, one party is deprived of the benefit of the bargain (see id. ; Rowe , 46 N.Y.2d at 67, 412 N.Y.S.2d 827, 385 N.E.2d 566 ). By disfavoring judicial upending of the balance struck at the conclusion of the parties' negotiations, our public policy in favor of freedom of contract both promotes certainty and predictability and respects the autonomy of commercial parties in ordering their own business arrangements.

Of course, the public policy favoring freedom of contract does not mandate that the language of an agreement be enforced in all circumstances. Contractual provisions entered unknowingly or under duress or coercion may not be enforced (see Matter of Abramovich v. Board of Educ. of Cent. School Dist. No. 1 of Towns of Brookhaven & Smithtown , 46 N.Y.2d 450, 455, 414 N.Y.S.2d 109, 386 N.E.2d 1077 [1979] ; see also Austin Instrument v....