Contract Term Waiving Right to Seek Yellowstone Injunction Enforceable

On May 7, 2019, the Court of Appeals issued a decision in 159 MP Corp. v. Redbridge Bedford, LLC, 2019 NY Slip Op. 03526, holding that a contract term waiving the right to seek a Yellowstone injunction was enforceable, explaining:

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. 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. The lease provision at the center of this dispute could not be clearer. In it, plaintiffs waived 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 and a right of constitutional dimension. 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, freedom 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. We have cautioned that, when a court invalidates a contractual provision, one party is deprived of the benefit of the bargain. 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. The doctrine of unconscionability also protects against unjust enforcement of onerous contractual terms which one party is able to impose upon the other because of a significant disparity in bargaining power. Plaintiffs raised none of these defenses.

Here, plaintiffs assert that the declaratory judgment waiver is unenforceable because it is void as against public policy. Thus, plaintiffs' challenge is not predicated on the circumstances surrounding the making of this particular agreement, such as allegations of unequal bargaining power, coercive tactics or lack of counsel — claims pertinent to other well-established contract defenses. Rather, plaintiffs' contention is that the right to bring a declaratory judgment action is so central and critical to the public policy of this state that it cannot be waived by even the most well-counseled, knowledgeable or sophisticated commercial tenant. We are unpersuaded.

We have deemed a contractual provision to be unenforceable where the public policy in favor of freedom of contract is overridden by another weighty and countervailing public policy. But, because freedom of contract is itself a strong public policy interest in New York, we may void an agreement only after balancing the public interests favoring invalidation of a term chosen by the parties against those served by enforcement of the clause and concluding that the interests favoring invalidation are stronger. Although we possess the power to set aside agreements on this basis, our usual and most important function is to enforce contracts rather than invalidate them on the pretext of public policy, unless they clearly contravene public right or the public welfare.

The fact that a contract term may be contrary to a policy reflected in the Constitution, a statute or a judicial decision does not render it unenforceable; that a public interest is present does not erect an inviolable shield to waiver. Indeed, we regularly uphold agreements waiving statutory or constitutional rights, indicating that we look for more than the impingement of a benefit provided by law before deeming a voluntary agreement void as against public policy. Many rights implicate societal interests and, yet, they have been determined to be waivable.

(Internal quotations and citations omitted).

One reason parties to commercial contracts worldwide choose to have them governed by New York law is that--with a few exceptions--under New York law, contracts are enforced as written. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where you are unsure how to enforce rights you believe you have under a contract.