Exclusivity Fee in Term Sheet Constituted Liquidated Damages Provision and Barred Further Recovery

In a Decision and Order dated February 9, 2022, in Parkmerced Invs. v. WeWork Cos. LLC, Index No. 652094/2020, Justice Andrea Masley granted defendant WeWork’s motion to dismiss. Plaintiff alleged breach of contract, breach of the covenant and good faith and fair dealing, and promissory estoppel arising out a redevelopment in San Francisco with respect to which plaintiff and WeWork had signed a non-binding term sheet containing the material terms of WeWork’s investment in the project, including an exclusivity clause and a $20 million exclusivity fee. Ultimately, WeWork did not participate in the redevelopment project. In granting dismissal, Justice Masley read the exclusivity fee as a liquidated damages provision, explaining:

The court agrees with plaintiff that "[t]here is no reason why parties competent to contract may not agree that certain elements of damage difficult to estimate shall be covered by a provision for liquidated damages and that other elements shall be ascertained in the usual manner." (J. E. Hathaway & Co. v. United States, 249 US 460, 464 [1919]; see Town of North Hempstead v. Sea Crest Const. Corp., 119 AD2d 744, 746 [2d Dept 1986] [clause providing for liquidated damages for "delays" did not bar damages for defendants' "abandonment of the contract"].) Indeed, the parties here did so agree; there is a separate provision for attorneys' fees and WeWork seeks them here. (NYSCEF 4, WeWork's MOL at 13.) The Exclusivity Fee compensates plaintiff for the possibility of the Proposed Transaction not closing within the forty-three day period while plaintiff was not pursuing other investors, while the Attorney's Fees provision may be awarded to either party in the event that a party commences an action and prevails. Clearly, reading the Exclusivity Fee as a liquidated damage does not render the Attorney's Fees provision meaningless as they are two independent provisions that peacefully coexist.

Justice Masley also dismissed the breach of covenant of good faith and fair dealing and promissory estoppel claims.

The attorneys at Schlam Stone & Dolan frequently litigate disputes concerning terms sheets and liquidated damages. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.