Remedy for Prohibited Transfer is Voiding Transfer, Not Money Damages

On April 1, 2021, Justice Cohen of the New York County Commercial Division issued a decision in JDS Highline LLC v. 514 W. 24th St. Partners LLC, 2021 NY Slip Op. 31042(U), holding that the remedy for a prohibited transfer is voiding the transfer, not money damages, explaining:

Section 9.3 of the JVA provides that any transfer or assignment of interests in the Company will be "void and ineffective" without the consent of both parties. In its entirety, the provision reads:

Notwithstanding any other provision of his Agreement, any Transfer, sale, alienation, assignment, encumbrance, or other disposition in contravention of any of the provisions of this Agreement shall be void and ineffective, and shall not bind, or be recognized by, the Company.

Under New York law, assignments made in contravention of such a restriction are void if, as in this case, the contract contains clear, definite and appropriate language declaring the invalidity of such an assignment. Even assuming the alleged transfer occurred (which Defendants deny), the remedy for such a breach of the agreement is limited by its terms to nullification of the transfer. Plaintiffs reliance on section 9.7 is unavailing. The plain meaning of that provision is that the putative transferor remains bound by its obligations as a party to the agreement as if it had not transferred its interests. It does not impose an independent financial liability for breaching the non-assignment provision, for which the explicit remedy is nullification.

Plaintiffs reliance on Section 11.11 of the JV A ("Remedies Cumulative") is similarly misplaced. That section provides that "the rights and remedies given in this Agreement... shall not operate to bar the exercise of any other rights and remedies reserved to a Member under the provisions of this Agreement or given to a Member by law." This is not, however, a question of whether Plaintiff may choose among otherwise available remedies. Here, the contract itself specifies that nullification is the appropriate remedy. The general choice-of-remedies provision cannot reasonably be read to negate the specific language of Section 9.3.

(Internal citations omitted).

A key element in commercial litigation is proving damages. This decision discusses a claim where money damages were not an available remedy. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether money damages is an available remedy.