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finding that although there was no duress, the plaintiffs' delay of ten months in alleging economic duress constituted a waiver of the claim
Summary of this case from Mathias v. JacobsOpinion
No. 00 Civ. 5773 (GEL)
April 23, 2001
Eric B. Levine, New York, N.Y. (Helen Davis Chaitman, Wolf, Haldenstein, Adler, Freeman Herz, LLP, New York, NY), for Plaintiffs 2 Broadway LLC and Tamir Sapir.
Jeffrey Q. Smith, New York, N.Y. (Deborah S. Burstein, King Spalding, New York, NY) for Defendant Credit Suisse First Boston Mortgage Capital LLC.
OPINION AND ORDER
Plaintiffs 2 Broadway LLC ("2 Broadway") and Tamir Sapir ("Sapir") sue defendant Credit Suisse First Boston Mortgage Capital, LLC ("CSFB" or "defendant") on a number of grounds arising from CSFB's unwillingness to grant plaintiffs an extension of credit for development of commercial real estate in lower Manhattan. Defendant moves to dismiss the Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing that all claims alleged in the Complaint were the subject of binding releases voluntarily executed by both parties when plaintiffs refinanced with another lender. For the reasons stated below, defendant's motion is granted.
BACKGROUND
I. Facts
Except where noted, the following material facts are alleged in plaintiffs' Complaint and accepted as true for purposes of defendant's motion. See, e.g., Collette v. St. Luke's Roosevelt Hosp., No. 00 Civ. 4864 (GEL), ___ F. Supp.2d ___, 2001 WL 194912 (February 27, 2001). Plaintiff 2 Broadway is a limited liability company organized under the laws of the State of New York (Compl. ¶ 1), and the "Managing Member" and 24% owner of a commercial property ("Building") located at 2 Broadway, New York, New York (id. Ex. A Art. 3.1.2). Plaintiff Sapir, who was born in Russia, is the sole shareholder of 2 Broadway. ( Id. ¶ 2.) Defendant CSFB is a commercial lender providing (among other investment-related services) financing for the purchase and development of commercial real estate. (Id. ¶ 6.)
On September 17, 1995, 2 Broadway Acquisition Corporation, the predecessor to plaintiff 2 Broadway, purchased the Building for $1.2 million. (Id. ¶ 7.) On December 18, 1997, 2 Broadway Acquisition Corporation borrowed $15.5 million from defendant CSFB for development of a 1.7 million square foot commercial real estate project in and around the Building. (Id. ¶ 8.) In April, 1998, plaintiff 2 Broadway borrowed an additional $21 million from CSFB, bringing the total loan to $36.5 million, secured by a consolidated first mortgage on the Building. (Id.) On July 29, 1998, 2 Broadway executed a ground lease for the entirety of the Building with the Metropolitan Transportation Authority ("MTA"). (Id. ¶ 9.) The 2 Broadway/MTA lease was expressly made superior to all subsequent Financing "with the exception of CSFB's existing mortgage" (id. ¶ 10), and was conditioned upon CSFB providing the MTA with a "Non-Disturbance Agreement" within forty-five days (id.). On September 14, 1998, the MTA rejected CSFB's proposed Non-Disturbance Agreement, leading 2 Broadway to refinance its loan with CSFB. (Id. ¶ 15.)
On December 16, 1998, 2 Broadway closed an $86.6 million bridge loan ("Bridge Loan") with CSFB. (Id. ¶ 16 Ex. A.) Like the original $36.5 million loan, the Bridge Loan was secured by a consolidated first mortgage on the Building. (Id.) 2 Broadway used the Bridge Loan to acquire, for approximately $35 million, a leasehold interest in property located at 90 Washington Street, and to pay various creditors and other expenses. (Id.)
The Bridge Loan was governed by an Amended and Restated Loan Agreement ("Loan Agreement"), signed by plaintiff Tamir Sapir, as "managing member" of 2 Broadway, and Alan Baum, as "Vice President" of defendant CSFB. ( Id. Ex. A.) The Loan Agreement contains over seventy pages setting forth in detail the terms and conditions of the Bridge Loan as well as the relationship and expectations of plaintiffs (as "Borrower") and defendant (as "Lender"). Relevant provisions of the Loan Agreement, which are set forth in full in an appendix to this opinion, expressly confirm that the agreement between the parties was for short-term, interim credit. ( Id.) CSFB, however, retained a right pursuant to Article 9.3 of the Loan Agreement to issue — in its "sole and absolute discretion" — a binding commitment for a permanent loan. (Id. Art. 9.3.) If CSFB elected to issue a permanent loan commitment, CSFB would be entitled to Additional Breakup Interest (the "break-up fee") if either of the following conditions occurred: (1) the permanent loan did not close before a date specified (the "Commitment Expiration Date"), (2) CSFB terminated the commitment, or (3) plaintiffs chose to refinance through another lender. (Id.) In the event the break-up fee was triggered on account of plaintiffs' financing through another lender, the Loan Agreement sought to ensure payment of the break-up fee by suspending CSFB's obligation to deliver documents satisfying or assigning its mortgage (or "any other Loan documents") to the new lender until the break-up fee was paid in full. (Id.)
The Loan Agreement also gave CSFB a right of first refusal concerning any additional financing on the Building (id. Art. 9.4), and placed both parties on notice that the terms of the Loan Agreement, "other Loan Documents, and all instruments referred to in any of them," could be extended, amended or modified only in a writing executed by both Lender and Borrower (id. Art. 6.7). Oral agreements to modify the Loan Agreement or "any other Loan document" were thus expressly prohibited. (Id.) The Loan Agreement designated March 31, 1999, as the "Maturity Date" for repayment of the principal $86.5 million balance together with interest "and all other amounts payable . . . under any other Loan Documents." (Id. Art. 2.4.) New York law is designated to govern, construe and enforce the agreement. (Id. Art. 6.11.)
The Loan Agreement defines "Loan Documents" as "any . . . document or agreement now or hereafter executed by Borrower or any other Person for the benefit of Lender securing, evidencing or otherwise relating to the [Bridge] Loan." (Id. Art. 1.)
On February 1, 1999, CSFB elected pursuant to Article 9.3 of the Loan Agreement to issue to plaintiffs a permanent loan commitment (the "Loan Commitment") for a $150 million first priority mortgage loan. (Id. ¶ 18 Ex. B.) The commitment letter and term sheet for the Loan Commitment expressly provided that any permanent financing was contingent upon certain events, including the satisfactory resolution of any pending litigation between 2 Broadway and the MTA. (Id. ¶¶ 17, 18 Ex. B.) The term sheet further provided that 2 Broadway would become liable for "an amount equal to the [break-up fee] (as defined in the Loan Agreement) in accordance with and subject to the terms and conditions of Section 9.3 of the Loan Agreement." (Id. Ex. B at 2.) The Loan Commitment did not close on or before the designated Commitment Expiration Date of February 28, 1999. (Id.) The Complaint alleges that representatives of CSFB agreed to extend that date (id. ¶¶ 20-22), though nothing in the Complaint suggests that such an agreement can be found in any written document, and Article 6.7 of the Loan agreement expressly forbids oral extensions or modifications of all loan-related documents. The Complaint nowhere alleges that plaintiffs ever accepted the Loan Commitment. Thus, under the terms of the Loan Agreement, 2 Broadway became liable for the break-up fee.
On March 16, 1999, Sapir sent a letter and proposed term sheet to CSFB "applying" for a permanent loan (the "March Proposal") in a substantially greater amount than the Loan Commitment proposed by CSFB in February. (Id. ¶ 23, Ex. C.) Sapir's March Proposal envisioned a $225 million loan, secured by the Building as well as additional collateral consisting of a property located at 100 Church Street. (Id. at 3.) The Complaint alleges that "by executing the March 16, 1999, transmittal letter, CSFB agreed that the Break-Up Fee provision in the transmittal letter accompanying the [Loan Commitment] was no longer in force." (Id. ¶ 23.) But nothing on the face of the March Proposal purports to constitute a binding commitment on the part of CSFB to extend the $225 million loan, to withdraw its prior commitment, or to give up any of its rights under prior agreements. To the contrary, the last page of the March Proposal expressly states:
I [Sapir] understand that this letter has been prepared for the sole purpose of discussing an opportunity to finance the Property and is not a commitment by CSFB to provide any financing whether described herein or otherwise. Any such commitment would arise solely after CSFB's Investment Committee approval. I hereby authorize you to present the proposed terms to your Committee and bind me to said terms, if approved, by the Committee.
(Id. at 6) (emphasis added). The Complaint nowhere alleges that CSFB's Investment Committee ever approved the March Proposal. The Complaint does allege, however, that representatives of CSFB made oral assurances that the $225 million loan would be approved on the terms set forth in Sapir's March Proposal. (Id. ¶ 25.) The Complaint further alleges that plaintiffs relied on these oral assurances to their detriment by (1) choosing not to accept a $230 million bridge loan offered by an independent third party financier (id. ¶ 25) and (2) settling its lawsuit with the MTA on terms plaintiffs "never would have agreed to . . . but for the assurance from CSFB that CSFB would close on the $225 million financing" (id. ¶ 28).
On May 10, 1999, eight days before settling their suit with the MTA, plaintiffs sent CSFB another application for a permanent $225 million loan (the "May Proposal"). (Id. Ex. D.) The terms of this proposal were substantially similar to the March Proposal, and, like the March Proposal. were made expressly contingent upon approval by CSFB's Investment Committee. (Id.) Though it is undisputed that the Investment Committee never approved the May Proposal either, the Complaint once again alleges that representatives from CSFB "verbally assured" plaintiffs that "approval of the Investment Committee would be a mere formality." (Id. ¶ 32.) Based on these "verbal assurances" the Complaint alleges that plaintiffs "had every reasonable expectation that the loan would close." (Id. ¶ 33.) By now, well past the Loan Agreement's March 31, 1999 maturity date, the full amounts on the Bridge Loan — including principal, interest, and fees — were due. (Id. Ex. A Art. 2.4.)
On June 1, 1999, CSFB informed Sapir that CSFB's Investment Committee had determined not to proceed with the May Proposal or any other transaction. (Id. Ex. E.) Though no reason for the decision was given in the letter, the Complaint alleges that representatives from CSFB "verbally notified" Sapir that the reasons for CSFB's decision not to consummate the loan was that CSFB had lost a lot of money in Russia and therefore "did not want to make a loan to a Russian." (Id. ¶ 34.)
In July, 1999, plaintiffs advised CSFB that CTL Capital ("CTL") had agreed to provide new financing for development of the Building property by way of a private bond offering. (Id. ¶ 36.) On September 17, 1998, CSFB prepared and sent plaintiffs a payoff statement ("Payoff Statement") setting forth the amounts due under the Loan Agreement. (Id. ¶ 38, Ex. F.) CSFB indicated that it would not assign its mortgage to the new lender unless and until CSFB was paid the amounts demanded in full. (Id. ¶ 40.) These amounts included the principal amount ($86.5 million) plus interest ($5.03 million), late charges ($2.595 million), and a break-up fee as set forth in the Article 9.3 of the Loan Agreement ($4.5 million), plus legal fees and additional late charges, for a total payoff amount of $99,813, 991.52. (Id. ¶ 30 Ex. F.) CSFB offered to waive portions of the late charges ($2.595 million) and the breakup fee ($2.5 million) if payment was made in full on or before September 30th. (Id.) The Payoff Statement closed with CSFB "reserv[ing] all rights and remedies under the Loan documents and/or applicable law, and nothing contained herein shall be deemed a waiver of any such rights and/or remedies." (Id.) Plaintiffs thereafter advised CSFB that they did not believe CSFB was entitled to a break-up fee, but committed to pay that fee if CSFB proved unwilling to change its position. (Id. Ex. G.)
Plaintiffs did not close its new financing with CTL until October 8, 1999. (Id. ¶ 39.) Prior to CSFB transferring its mortgage to CTL, the parties exchanged mutual release agreements (id. ¶¶ 41, 45), and plaintiffs agreed to pay CSFB an amount reduced from the sum quoted in the Payoff Statement (id. ¶ 45 Ex. H). The release agreements, which are set forth in full in the margin, were comprehensive. The payment received by CSFB included the $86.5 million principal amount owed by plaintiffs pursuant to the Loan Agreement, plus interest, late charges, and a break-up fee of $2.75 million. (Id. ¶ 45 Ex. H.) Total payment made by plaintiffs to CSFB amounted to $96,394,988.77 (id. Ex. H) — approximately $3.5 million less than the sums actually due under the terms of the Loan Agreement, as previously calculated by CSFB and as stated in its Payoff Statement (id. Ex. F). Upon payment of this sum, CSFB finally transferred its mortgage interest to CTL.
The release agreement executed by plaintiff 2 Broadway provides:
2 Broadway ("Releasor") . . . releases, discharges and acquits forever Credit Suisse First Boston Mortgage Capital LLC, . . . (the "Releasee"), Releasee's heirs, administrators, partners, officers, directors, shareholders, employees, agents, successors and assigns, from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckoning, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law admiralty or equity, which the Releasor and the Releasor's heirs, executors, administrators, partners, officers, directors, shareholders employees, agents, successors and assigns ever had, now or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing whatsoever against Release from the beginning of the world to the date of this Release. (Smith Aff. Ex. 2.)
The release agreement executed by plaintiff Sapir provides:
Tamir Sapir ("Releasor") . . . releases, discharges and acquits forever Credit Suisse First Boston Mortgage Capital LLC, . . . partners, officers, directors, shareholders, employees, agents, successors and assigns, from all actions, causes of action, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, controversies, agreements, promises, variances, trespasses, damages, judgments, extents, executions, claims and demands whatsoever, in law admiralty or equity, relating to or arising from a consolidated mortgage loan in the original principal amount of Eighty-six Million, Five Hundred Thousand and 00/100 Dollars ($86,500,000.00) extended by Releasee as lender, to 2 Broadway LLC, a limited liability company . . . as borrowers, on or about December 16, 1998, which the Releasor and the Releasor's heirs, executors, administrators, partners officers, directors, shareholders employees, agents, successors and assigns ever had, now have or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing whatsoever against Releasee from the beginning of the world to the date of this Release. (Smith Aff. Ex. 3.)
II. The Complaint
On August 3, 2000, plaintiffs filed the instant Complaint, alleging eight causes of action. Among other things, plaintiffs allege that CSFB violated the Equal Credit Opportunity Act, 15 U.S.C. § 1691, et seq., by refusing to consummate plaintiffs' proposed $225 million loan financing on the basis of Sapir's Russian national origin (id. ¶ 48-58); breached contracts formed by CSFB's purported acceptance of the March and May proposals (id. ¶ 59-71); and engaged in misrepresentation by inducing plaintiffs to rely on its alleged promises to close the $225 million loan if 2 Broadway settled its lawsuit with the MTA (id. ¶¶ 90-97).
Defendant moves to dismiss principally on the ground that the plaintiffs have released all claims alleged in the Complaint. The Complaint acknowledges the release agreements (id. ¶¶ 41 45), but alleges that they are voidable on grounds that they were compelled by plaintiff's "dire economic circumstances" (id. ¶ 41) and "extreme economic duress" (id. ¶ 45), caused in part by plaintiffs' reliance on CSFB's oral assurances that Sapir's $225 million loan proposal would be consummated.
Oral argument was held on March 9, 2001.
DISCUSSION
I. Jurisdiction
This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. § 1331 and 1367(a) and pursuant to the Equal Credit Opportunity Act, 15 U.S.C. § 1691 et seq. See, e.g., Leonard v. Dutchess County, 105 F. Supp.2d 258, 261 (S.D.N.Y. 2000). The parties are in agreement, however, that if the releases executed by the plaintiffs are binding and enforceable, then all of the claims in the underlying Complaint must be dismissed. (Tr. 27-29.) Consequently, the Court first addresses the enforceability of the release agreements at issue, because if, as defendant contends, plaintiffs released all claims alleged in the Complaint, then the Court need not determine the reach of the Fair Credit Reporting Act in this case. See, e.g., Berman v. Parco, 986 F. Supp. 195, 208 (S.D.N.Y. 1997) (appropriate to first address the meaning of a settlement agreement in case brought under federal question jurisdiction since if the agreement applied "the court need not determine" the reach of federal law); Nassau Bowling Proprietors Ass'n v. County of Nassau, 965 F. Supp. 376, 380-81 (E.D.N.Y. 1997) (addressing only the threshold issue of whether defendant exceeded its authority pursuant to New York State law in a case brought under federal question jurisdiction).
II. Legal Standard
In the context of a motion to dismiss the Court accepts "as true the facts alleged in the complaint," Jackson Nat'l Life Ins. Co. v. Merrill Lynch Co., 32 F.3d 697, 699-700 (2d Cir. 1994), and may grant the motion only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief."Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir. 1998) (internal citations omitted). When deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents attached to the complaint as exhibits or incorporated in it by reference. See Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993) ("the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference") (citing Fed.R.Civ.P. 10(c)). Though plaintiffs do not attach the release agreements to their Complaint, the Complaint explicitly references them (Compl. ¶¶ 41, 45), and therefore the agreements may be considered on this motion. See, e.g., Johns v. Town of East Hampton, 942 F. Supp. 99, 104 (E.D.N.Y. 1996) ("It is well established that when a `plaintiff fails to introduce a pertinent document as part of his pleading, a defendant may introduce that exhibit as part of his motion attacking the pleading'") (quoting 5 Charles A. Wright Arthur R. Miller, Federal Practice and Procedure: Civil 2d § 1327, at 762-63 (2d ed. 1990)). Accordingly, the well-pleaded factual allegations of the Complaint, as supplemented by these documents, are deemed true for purposes of this motion.
The Court will not however consider the affidavit submitted by Tamir Sapir in opposition to defendant's motion to dismiss. Before the Court is a 12(b)(6) motion filed in lieu of an answer and prior to commencement of discovery. Although courts may convert a Rule 12(b)(6) motion into a motion for summary judgment without formal notice to the parties, it is generally inappropriate for a court to do so when, as here, the parties have not had the opportunity to complete discovery and have not requested conversion. See, e.g., Cantor v. NYP Holdings, Inc., 51 F. Supp.2d 309, 310 (S.D.N.Y. 1999). Accordingly, defendant's motion will be treated as a 12(b)(6) motion and no materials will be considered unless they are incorporated by reference in the pleadings or are integral to plaintiffs' claims. The Court notes that the Sapir affidavit sheds no new light on the Complaint, nor does it contradict defendant's contentions, which accept plaintiffs' version of the facts as true for purposes of its motion to dismiss. (Def.'s Mem. Supp. at 9) (Tr. 12.) Moreover, the only party to use the Sapir affidavit in support of its position at oral argument was CSFB (Tr. 13-14), and plaintiffs have not cited to any portion of it in the argument section of their brief. Therefore, it cannot be said that plaintiffs are prejudiced by the Court's decision not to convert the instant motion into a motion for summary judgment — something which neither party requests — and the consequent omission of the Sapir affidavit from consideration.
III. The Release Agreements
Defendant's principal argument is that all the claims alleged in the Complaint were the subject of binding releases voluntarily executed by plaintiffs after plaintiffs refinanced with another lender in the Fall of 1999. Plaintiffs admit they signed these release agreements (Compl. ¶¶ 41 45), and that those agreements cover all the claims alleged in their Complaint (Tr. 27). Plaintiffs assert, however, (1) that the validity of the release agreements may not properly be addressed in a motion to dismiss (Pls.' Mem. Opp'n at 8-9) and (2) that the release agreements are unenforceable as a matter of law on grounds that plaintiffs executed them under economic duress (Pls.' Mem. Opp'n 9-11) (Compl. ¶¶ 41, 45). For the reasons that follow, the Court finds both these arguments without merit and concludes that the Complaint fails to state a claim as to why the release agreements should not be enforced.
A. Enforceability at Rule 12(b)(6) Stage
"It is well established under New York law that a valid release which is clear and unambiguous on its face and which is knowingly and voluntarily entered into will be enforced as a private agreement between parties." Berman v. Parco, 986 F. Supp. 195, 208 (S.D.N Y November 16, 1997) (internal quotation marks and citations omitted). Thus a release is binding on the parties absent a showing of fraud, duress, undue influence, or some other valid legal defense. See, e.g., Worth Construction v. ITRI Masonry Corp., No. 98 Civ. 2536 (CM), 2001 WL 209924, at *5 (S.D.N.Y. February 21, 2001) ("Since a release is a `jural act of high significance without which the settlement of disputes would be rendered all but impossible . . . the traditional bases for setting aside written agreements, namely duress, illegality, fraud or mutual mistake, must be established or else [it] stands'") (alterations in original) (quoting Mangini v. McClurg, 24 N.Y.2d 556. 563 (1969)).
It is appropriate to grant a motion to dismiss on the basis of a binding release agreement where, as here, the terms of the agreement are clear and unambiguous. See, e.g., Larmee v. Jewish Guild for the Blind, 72 F. Supp.2d 357 (S.D.N.Y. 1999) (dismissing plaintiff's Title VII and state law discrimination claims on grounds that the plaintiff "knowingly and voluntarily" entered into an agreement with her employer waiving all suits regarding the conditions or termination of plaintiff's employment); Goldberg v. Mfrs. Life Ins. Co., 672 N.Y.S.2d 39, 44 (1st Dep't 1998) (dismissing claims against insurance company where plaintiff had executed a "clear and unambiguous" release agreement). In Larmee, the court dismissed plaintiff's claims despite her minimal education and the "more stringent" legal standard for determining the voluntariness of an agreement releasing federal discrimination claims. 72 F. Supp.2d at 359. In Goldberg, the court rejected plaintiff's allegations that defendant made oral assurances contrary to the terms of the release since there was "[no reason to] look to extrinsic evidence to give meaning to a written contract such as the release before us where there is no need to do so." 672 N.Y.S.2d at 44 (internal citations omitted). Where sophisticated business entities execute mutual releases in the course of arm's length negotiations, courts are even more scrupulous in holding the parties to their bargain. See e.g., VKK Corp. v. National Football League, No. 99-7876, ___ F.2d ___, 2001 WL 252809, at *6 (2d Cir. March 14, 2001), ("the ability of a [sophisticated commercial actor] to disown his obligations under a contract or release . . . is reserved for extreme and extraordinary cases").
The release agreements at issue here are unambiguous. Plaintiffs agreed to waive "all actions . . . claims and demands whatsoever" that may have arisen in the course of their dealings with the defendant "from the beginning of the world to the date of [the] release." (Smith Aff. Exs. 2 3.) The defendant similarly agreed to waive all causes of actions it may have accrued against the plaintiffs. (Compl. ¶ 45.) As plaintiffs concede, all of their causes of action are based on conduct that occurred before the release was signed, and thus all are unambiguously covered by the release. (Tr. 27.)
Moreover, the release agreements were executed at the close of arm's length negotiations by exceedingly sophisticated commercial actors. It is plain on the face of the Complaint and its appended documents that plaintiffs routinely engage in the development of commercial real estate projects involving substantial sums of money. ( Id. ¶ 7-16; Ex. A Art. 3.) Likewise the defendant is a sophisticated commercial lender engaged in the principal business of financing multi-million dollar commercial real estate transactions. (Id. ¶ 6.) The Loan Agreement explicitly characterizes the relationship between the parties solely as borrower and lender negotiating at arm's-length (id. Ex. A Art. 6.18), and states that "both Lender and Borrower have contributed substantially and materially to the preparation of this Agreement" (id. Art. 6.24). The release thus falls squarely within the category of negotiated agreement between sophisticated parties that must be given greatest deference by the Court.
Plaintiffs are wrong, moreover, to suggest that allegations of economic duress necessarily give them a right to discovery in the face of comprehensive release agreements which expressly and unambiguously bars all of a complaint's underlying claims. See, e.g., Fruchthandler v. Green, 233 A.D. 214 (1st Dep't 1996) ("[complaint] was properly dismissed . . . since the release plaintiff executed relieved defendant from liability . . . and the allegations that such release was procured through economic duress were insufficient"). Unless the Complaint sufficiently states a claim to void the release agreements on grounds of economic duress, those agreements are enforceable and compel dismissal of all claims brought by plaintiff in this action. See, e.g., Oppenheimer Co. v. Oppenheim, Appel, Dixon Co., 86 N.Y.2d 685, 695 (1997) ("Freedom of contract prevails in an arm's length transaction between sophisticated parties such as these, and in the absence of countervailing public policy concerns there is no reason to relieve them of the consequences of their bargain").
B. Economic Duress
"A party seeking to avoid a contract because of economic duress `shoulders a heavy burden.'" Orix Credit Alliance, Inc. v. Bell Realty, Inc., No. 93 Civ. 4949 (LAP), 1995 WL 505891, at *3 (S.D.N.Y. August 23, 1995) (quoting Intern'l Halliwell Mines v. Continental Copper Steel Indus., 544 F.2d 105, 108 (2d Cir. 1976)). As the Second Circuit recently confirmed while enforcing a release agreement against sophisticated commercial actors, such agreements may be voided on grounds of economic duress only in "extreme and extraordinary cases." National Football League, 2001 WL 252809, at *6. This is so regardless of evidence that one side enjoyed "a decided economic advantage" over the other at the moment the agreements were executed:
[because] an element of economic duress is . . . present when many contracts are formed or releases given, the ability of a party to disown his obligations under a contract or release on that basis is reserved for extreme and extraordinary cases. Otherwise, the stronger party to a contract or release would routinely be at risk of having its rights under the contract or release challenged long after the instrument became effective.Id. at 5-6. See also Dufort v. Aetna Life Ins., 818 F. Supp. 578, 581 (S.D.N.Y. 1993) ("financial or business pressure of all kinds, even if exerted in the context of unequal bargaining power, does not constitute economic duress"). Therefore, to state a claim for economic duress, a sophisticated party must "do more than merely claim that the other party knew about and used his or her poor financial condition to obtain an advantage in contract negotiations." Dufort, 818 F. Supp. at 582 (citingKenneth D. Laub Co. v. Domansky, 568 N.Y.S.2d 601, 602 (1991)). Rather, the plaintiff must allege "that the defendant's actions deprived him of his free will, and that the ordinary remedy of an action for breach of contract would not be adequate." Berman v. Parco, No. 96 Civ. 0375 (KMW), 1996 WL 465749, at * 7 (S.D.N.Y. August 15, 1996)).
Plaintiffs have not done so here. When read in conjunction with its appended documents, the Complaint alleges no more than (1) that CSFB demanded from plaintiffs what was plainly owed to them under the terms of the Loan Agreement and (2) that CSFB knew about, though it did not cause, plaintiffs' precarious economic condition. Such allegations are legally deficient to state a claim for economic duress.
First, it is "well established that the threatened exercise of a legal right cannot constitute economic duress." Worth Construction v. ITRI Masonry Corp., No. 98 Civ. 2536 (CM), 2001 WL 209924, at *5 (S.D.N.Y. February 21, 2001) (internal citations omitted). See also Cooper Development Co. v. Friedman, No. 92 Civ. 7572 (JSM), 1994 WL 62846, at *4 (S.D.N.Y. 1994) ("Under New York Law, threats to enforce a party's legal rights under a contract — or even that party's interpretation of its rights — cannot constitute a wrongful threat sufficient to establish a claim of economic duress") (citing DiRose v. PK Management Corp., 691 F.2d 628, 633 (2d Cir. 1982)); MLI Indus. v. New York State Urban Dev. Corp., 613 N.Y.S.2d 977, (3d Dep't 1994) ("it is axiomatic that [defendants] cannot be guilty of economic duress for failing to grant further forbearance when they had no legal duty to do so").
Second, claiming that defendant took advantage of plaintiffs' precarious economic condition does not state a claim for economic duress unless it is fairly alleged that defendant "caused" such economic conditions. See, e.g., Orix Credit Alliance, 1995 WL 505891, at *4 ("Mere hard bargaining positions, if lawful, and the press of financial circumstances, not caused by the defendant, will not be deemed duress") (quoting Weinrab v. Int'l Banknote Co., 422 F. Supp. 856, 859 (S.D.N.Y. 1976)); Dufort, 818 F. Supp. at 581 ("A party raising economic duress must do more than merely claim that the other party knew about and used his or her poor financial condition to obtain an advantage in contract negotiations").
1. CSFB's Right to the Break-Up Fee
The Complaint in this case alleges that "without any legal justification, CSFB demanded that [plaintiffs] execute a release of all claims against CSFB," and that plaintiffs were "compelled by the dire economic circumstances in which they were placed by CSFB's wrongful conduct, to execute the releases." (Compl. ¶ 41.) But the exhibits attached to the Complaint demonstrate as a matter of law that CSFB did nothing other than what it was legally entitled to do under the Loan Agreement — an agreement hammered out between two sophisticated parties who expected to be able to rely on its terms. (Id. Ex. A. Art. 6.24.) Article 9.3 of the Loan Agreement provided CSFB with the right to issue a permanent loan commitment, and further provided that CSFB would be entitled to payment of a break-up fee if (1) CSFB exercised its right to issue the permanent loan commitment and either (a) the loan commitment did not close by a specified date or (b) plaintiffs secured financing from another lender. (id. Ex. A. Art. 9.3.) On February 1, 1999. CSFB issued its Loan Commitment and demanded that the loan close no later than February 28, 1999. (Id. Ex. B.) The Complaint does not allege that the Loan Commitment closed by that date, or that it ever closed at all. But even if it had, there is no dispute that on July 29, 1999, plaintiffs obtained alternate financing from CTL, an alternate, third-party lender (id. ¶ 36) — an event which by itself entitled CSFB to payment of the break-up fee (id. Ex. A. Art. 9.3). Moreover, once the break-up fee became due, the Loan Agreement expressly provided that CSFB had the right to refuse assign its mortgage to any other lender until the fee was paid. (Id.) Therefore, on the face of both the Complaint and its appended documents, CSFB had every right to require payment of the break-up fee before assigning its mortgage interest to CTL.
Plaintiffs' conclusory allegations to the contrary are contradicted by the documents attached to the Complaint, and are therefore insufficient to defeat the motion to dismiss See, e.g., Rapoport v. Asia Elecs. Holding Co., 88 F. Supp.2d 179, 182 (S.D.N.Y. 2000) (DNE) (where "documents contradict Plaintiffs' allegations . . . this Court must grant Defendants' motion to dismiss") (citing Feick v. Fleener, 653 F.2d 69, 75 (2d Cir. 1981)); Tectrade Int'l Ltd. v. Fertilizer Dev. Investment, B.V., 685 N.Y.S.2d 235 (1st Dep't 1999) (on a motion to dismiss "provisions of the parties' contract `prevail over the conclusory allegations of the complaint,' and although . . . the facts pleaded are presumed to be true and accorded every favorable inference, allegations consisting of bare legal conclusions, as well as factual claims . . . flatly contradicted by documentary evidence are not entitled to such consideration") (quoting 805 Third Avenue Co. v. M.W. Realty Assocs., 58 N.Y.2d 447, 451 (1983)).
The Complaint alleges that CSFB "had no legal right" to demand full payment under the Loan Agreement plus a break-up fee before assigning its mortgage interest to CTL. (Compl. ¶ 44.) It cites in support of that allegation "Exhibits C, D and G." (Id.) But those exhibits support CSFB's position. Exhibit C is the transmittal letter accompanying the March Proposal. Though this letter purports to void the break-up fee provision of the Loan Commitment, the letter expressly states that it "has been prepared for the sole purpose of discussing an opportunity to finance . . . and is not a commitment by CSFB to provide any financing whether described herein or otherwise." (Id. Ex. C. at p. 6.) Exhibit D is the transmittal letter accompanying the May Proposal and it contains this same paragraph, verbatim. (Id. Ex. D at p. 8.) Neither exhibit purports to nullify the terms of the Loan Agreement. Exhibit G is a letter drafted by Sapir in response to CSFB's Payoff Statement, in which CSFB demanded full payment of the break-up fee prior to delivering its mortgage to CTL. Citing his own March and May proposals, Sapir writes in this letter that CSFB forfeited its right to claim a break-up fee since it had "elected unilaterally to terminate the proposed permanent loan." Id.
Nothing in these exhibits supports the Complaint's allegation that CSFB "had no legal right" to demand a break-up fee. (Id. ¶ 44.) To the contrary, the terms of Exhibits C D are expressly conditioned upon approval by CSFB's Investment Committee — an event the Complaint admits never occurred — and Exhibit G does no more than tautologically reference Exhibits C D in support of its claim that CSFB forfeited its claim to a break-up fee. Therefore, because "the documents control in a motion to dismiss for failure to state a claim,"National Western Life Ins. Co. Co. v. Merrill Lynch, Pierce, Fenner Smith, Inc., 112 F. Supp.2d 292, 305 (S.D.N.Y. 2000) (internal citation omitted), and because all relevant documents in this case — including those cited at ¶ 44 of the Complaint — demonstrate that CSFB had every right to a break-up fee prior to delivering its mortgage interest to CTL, the Complaint fails as a matter of law to state a claim for economic duress. See, e.g., Feick v. Fleener, 653 F.2d 69, 75 (2d Cir. 1981) ("Since the documents upon which appellants based their claim show on their face absence of any grounds for relief, dismissal was proper").
Any claim that the March or May proposals led to an oral agreement to modify the Loan Agreement is defeated by the Loan Agreement's prohibition of oral agreements to modify its terms. (Id. Ex. A. Art. 6.7.)
The situation here is not unlike that in 805 Third Avenue Co. v. M.W. Realty Assocs., 58 N.Y.2d 447 (1983). There, defendant had sold plaintiff a portion of its air rights so that plaintiff could construct an office tower. See id. at 449. Pursuant to the agreement, defendant was to deliver the documents necessary to complete the final transfer of the air rights (including easement agreements and lot restrictions) upon delivery by the plaintiff of a promissory note, letter of credit and certain architectural drawings. See id. at 450. Eight months after commencement of excavation and construction plaintiffs demanded delivery of the necessary documents. See id. Defendant refused to do so unless plaintiff agreed to a modification of the original contract on terms more favorable to defendant. See id. Plaintiff agreed to the modification and then sought to void it on grounds of economic duress, arguing that defendant's refusal to deliver the documents was done "maliciously to apply economic duress to plaintiff because the defendant knew that . . . any delay in construction would cause serious and irreparable injury to plaintiff."Id. The court rejected plaintiff's claim and dismissed its complaint, concluding that "a party cannot be guilty of economic duress for refusing to do that which it is not legally required to do." Id. at 453. Since the parties' agreement did not establish "an absolute duty" on the part of defendant to deliver the documents, allegations that the defendant refused to do so could not support a claim to void the modification on grounds of economic duress. Id. The court went on to note in dictum that although plaintiff's allegations alone might state a claim for economic duress, the original contract was unambiguous and therefore "its provisions establish the rights of the parties and prevail over conclusory allegations of the complaint." Id. at 452. "Unlike those cases in which plaintiff's pleading is sufficient on its face, though his right to recover may be doubtful, this action is controlled by the contract annexed to the complaint." Id. at 453.
805 Third Avenue continues to be cited with approval in this Court.See, e.g., Worth Construction, 2001 WL 209924, at *7; Sudul v. Computer Outsourcing Servs. Inc., 917 F. Supp. 1033, 1046 (S.D.N.Y. 1996). In light of National Football League, which instructs courts to vigorously enforce release agreements in all but the most "extreme and extraordinary cases," 2001 WL 252809, at *6, the Court follows it here. As in 805 Third Avenue, plaintiffs' allegations are conclusory and directly contradicted by the unambiguous documentary record. As in 805 Third Avenue, plaintiffs' allegations do not establish that defendant did anything other than what it was entitled to do pursuant to the parties' original agreement. Thus, as in 805 Third Avenue, plaintiffs fail as a matter of law to state a claim for economic duress.
2. Plaintiffs' Precarious Economic Condition
Plaintiffs attempt to distinguish 805 Third Avenue, by citing a line of cases resting on the principle that defendants who coerce a plaintiff through lawful means may still be liable for economic duress if it is shown that the defendant affirmatively caused and then took advantage of plaintiff's precarious economic condition. (Pls.' Mem. Opp'n at 11-12.)See, e.g., U.S. West Fin. Servs., Inc v. Tollman, 786 F. Supp. 333, 338 (S.D.N.Y. 1992) ("A necessary element . . . is a showing that the victim's financial straits were caused by the other party") (internal quotation marks and citations omitted); National American Corp. v. Federal Republic of Nigeria, 448 F. Supp. 622, 644 (S.D.N.Y. 1978) (same). But that is not this case. The Complaint here only alleges that plaintiffs relied to their detriment on oral assurances made by representatives of CSFB that CSFB would consummate the March and May proposals. Assuming, as the Court must, that that is so, then the Complaint might state a claim on some theory of promissory estoppel for breach of such alleged oral representations; it does not however state a claim to void the release agreements on grounds of economic duress which must be sufficiently pled before a claim of promissory estoppel, or any other theory of liability, can go forward See e.g., Syklon Corp. v. Guilford Mills. Inc., 864 F. Supp. 353, 358 (S.D.N.Y. 1994) ("[a] valid general release bars suit on any cause of action arising prior to the date of its execution") (citations omitted). For no matter that plaintiffs may have relied on oral promises made by representatives of CSFB, by terms of the Loan Agreement, which remained binding on both parties at all times, such representatives had no authority to bind CSFB (Compl. Ex. A. Art. 6.7) or to modify any documents related to the Loan Agreement (id.). Plaintiffs expressly confirmed this understanding in the Loan Agreement:
Borrower further acknowledges Borrower's understanding that no officer or administrator of Lender has the power or authority from Lender to make an oral extension or modification or amendment of any such instrument or agreement [related to the Bridge Loan] on behalf of Lender.
(Id.)
Consequently, plaintiffs relied upon such "verbal assur[ances]" (id. ¶ 42) at their peril, and they cannot now claim a right to discovery to prove that the Loan Agreement does not mean what it plainly says. See In re 1567 Broadway Ownership Assoc., 202 B.R. 549, 556 (S.D.N.Y. 1996) (JGK) (where party explicitly disclaims intent to be bound absent written agreement it may not reasonably rely on subsequent oral representation). Nor can they cite such alleged oral promises to sustain an otherwise dubious claim for economic duress. See Coutts Bank (Switzerland) Ltd. v. Rachamin Anatian, 691 N.Y.S.2d 409, 410-11 (1st Dep't 1999) (allegation that party refused to honor unenforceable oral promise "fails to raise a factual issue as to economic duress" since "refusal to honor such unenforceable arrangement cannot serve as a predicate for . . . economic duress" as a matter of law) (citing 805 Third Ave, 58 N.Y.2d at 453)).
3. Plaintiffs' Ratification of the Release
Finally, even assuming the Complaint states a claim for economic duress (which it does not), in order to defeat the release agreements, plaintiffs were required to promptly repudiate them. See National Football League, 2001 WL 252809, at *8 (party challenging a release agreement on grounds of economic duress "was required to challenge its validity promptly after its execution, or not at all"); Legal Aide Society v. City of New York, 114 F. Supp.2d 204, 225 (S.D.N.Y. 2000) ("a party who seeks to void a contract by reason of duress must act promptly to repudiate the contract") (internal citations omitted). The releases at issue in this case were executed on October 8, 1999 (Compl ¶ 45); the Complaint was filed on August 3, 2000, nearly ten months later. (Id.) But "delays as short as six months have been held to constitute waiver of [an economic duress] claim," National Football League, 2001 WL 252809, at *5 (citingDirose v. PK Mgmt. Corp., 691 F.2d 628, 633 (2d Cir. 1982) (collecting cases in which delays ranging from six months to two years constituted waiver)), and the Complaint provides no explanation for plaintiffs' ten-month delay in commencing suit.
Moreover, it is generally the rule under New York Law that where a party receives good consideration for executing a release, and accepts the benefits of the release before commencing suit to challenge it, that party is held to have ratified the release and is thereby barred as a matter of law from alleging economic duress in its execution. See Capstone Enterprises v. County of Westchester, 691 N.Y.S.2d 574, 575 (2d Dep't 1999) ("Where a party has accepted the benefits of an agreement, and then seeks to repudiate the agreement on the ground of coercion, it must do so in timely fashion or any objection is waived and the agreement is ratified") (citing New York Tel. Co. v. Jamestown Tel. Corp., 282 N.Y. 365, 372-373 (1940)). There is no question on the face of the instant Complaint that plaintiffs received significant consideration in exchange for the release agreements. Pursuant to CSFB's second payoff statement (Compl. Ex. H), which was paid upon execution of the release agreements, the entire late charge owed by plaintiffs ($2.595 million) disappeared, as did almost half the break-up fee ($1.75 million). (Compare Id. Ex. F with Ex. H.) Therefore, even with the additional interest and legal fees accrued between the first and second payoff statements (totaling nearly $1 million (id. Ex. H)), on the face of the Complaint and its appended documents, plaintiffs executed the release agreements in consideration for roughly $3.5 million from CSFB, as well as a parallel release executed by CSFB (id. ¶ 45), which assured that plaintiffs would not be vulnerable to claims for additional fees — something they admittedly feared (id. ¶ 40). Yet plaintiffs did not initiate suit to repudiate the release agreements for nearly ten months after accepting such valuable consideration. On those undisputed facts, and absent any explanation in the Complaint as to what caused this ten-month delay, plaintiffs are precluded as a matter of law from challenging the validity of the release agreements on grounds of economic duress. See e.g., National Football League, 2001 WL 252809, at *5 ("A party may ratify a contract or release entered into under duress by intentionally accepting benefits under the contract") (internal quotation marks and citations omitted).
CONCLUSION
Defendant's motion to dismiss the Complaint is granted. Leave to amend is denied since nothing in the record gives any indication of what additional facts plaintiff would allege if permitted to amend. See Marchi v. Bd. of Coop. Educ. Svcs. of Albany, 173, F.3d 469, 477-78 (2d Cir. 1999) ("leave to amend . . . may be denied within the trial court's discretion where . . . amendment would be futile"). If any such additional facts exist, plaintiff may seek leave to amend by a properly-supported motion pursuant to Rule 15(a) of the Federal Rules of Civil Procedure.
SO ORDERED:
APPENDIX
Art. 2.4 Repayment of Outstanding Principal Balance
The entire Outstanding Principal Balance [$86.5 million], together with all accrued and unpaid interest thereon and all other amounts payable hereunder or under any of the other Loan Documents, shall . . . be due and payable in full on the Maturity Date [March 31, 1999].
Art. 2.7 Default Interest: Late Charges
(b) If any installment of interest or principal (including, without limitation, the entire Outstanding Principal Balance on the Maturity Date) is not paid when due, or if any other amount payable hereunder or under any other Loan Document is not paid when due, Borrower shall pay to Lender a late charge of three percent (3%) of the amount so overdue in order to defray part of the expense incident to handling such delinquent payment or payments. Such late charges shall be immediately due and payable without notice or demand by Lender. . . . Acceptance by Lender of any late charges or interest at the Default Rate shall not be deemed a waiver of any of Lender's rights hereunder or under the other Loan Documents with respect to such late payment.
Art. 6.7 No Oral Modification
Borrower recognizes that, in general, borrowers who experience difficulties in honoring their loan obligations, in an effort to inhibit or impede lenders from exercising their rights and remedies available to lenders pursuant to mortgages, notes, loan agreements or other instruments evidencing or affecting loan transactions frequently present in court the argument, often without merit, that some loan officer or administrator of lender made an oral modification or made some statement which could be interpreted as an extension or modification or amendment of one or more debt instruments and that borrower relied to its detriment upon such "oral modification of the loan document." For that reason, and in order to protect Lender from such allegations in connection with the transaction contemplated by this Agreement, Borrower acknowledges that this Agreement . . . and all instruments referred to . . . can be extended, modified or amended only in a writing executed by Lender and Borrower. . . . Borrower further acknowledges Borrower's understanding that no officer or administrator of Lender has the power or authority from Lender to make an oral extension or modification or amendment of any such instrument or agreement on behalf of Lender. commitment
Art. 6.13 Entire Contract
This agreement and the other Loan Documents, including all annexes, schedules and exhibits hereto and all other documents furnished to Lender in connection with this Agreement and/or the Loan, constitute the entire agreement between the parties hereto with respect to the subject matter hereof and therefor and shall supersede and take place of any other instruments purporting to be an agreement of the parties hereto relating to the transactions contemplated hereby, including, without limitation, any letter of intent or loan commitment letter.
Art. 6.18 No Partnership
Nothing contained in this Agreement of the other Loan Documents shall be deemed to create an equity investment in Borrower or the Premises on the part of Lender or a joint venture or partnership between Lender and Borrower, it being the intent of the parties hereto that only the relationship of lender and borrower shall exist with respect to the Premises.
Art. 6.24 Rule of Construction
This Agreement and other Loan Documents shall not be construed more strictly against one party than against the other merely by virtue if the fact that it may have been prepared by counsel for one of the parties, it being recognized that both Lender and Borrower have contributed substantially and materially to the preparation of this Agreement and the other Loan Documents.
Art. 9.3 Payment of Additional Breakup Interest
Notwithstanding anything to the contrary contained herein, if, on or before January 15, 1999(a) Lender . . . issues its binding commit-ment . . . for a permanent loan (the "Permanent Loan") to refinance the loan on terms and conditions . . . set forth [in] a "Permanent Loan Commitment", and (b) either (x) such Permanent Loan does not close (for any reason other than Lender's willful default thereunder) on or before the expiration date set forth therein, or (y) if Lender shall, in accordance with the terms thereof, terminate the permanent Loan Commitment, or (z) Borrower shall, under any circumstances, refinance the loan with a person other than Lender . . . then, in any such event, Borrower shall pay to Lender on demand additional interest in an amount equal to three percent of the loan amount set forth in the Permanent Loan Commitment (the "Additional Breakup Interest"). . . .
If the Additional Breakup Interest shall become due and payable, Lender shall not be obligated to deliver any documents satisfying or assigning the lien of the Mortgage, the Guarantee Mortgage or any other Loan Document securing the loan until such time as Lender receives the Additional Breakup Interest. Nothing contained in this Section 9.3 shall be construed to require Lender to issue the Permanent Loan Commitment or any other commitment, which issuance shall be subject to Lender's sole and absolute discretion.
Art. 9.4 Right of First Refusal
(a) Borrower shall . . . give Lender a written notice (a "Financing Notice") setting forth . . . any proposal by another Person to provide a new loan secured by the Premises or any proposal by Borrower, whether by way of a credit facility, mortgage repurchase facility or otherwise (each a "Proposed Financing"). . . .
(b) During the ten (10) calendar day period commencing on the date Lender receives a Financing Notice, Lender shall have the option (but not the obligation) to provide financing for Borrower on terms which shall match material terms of the Proposed Financing . . . by giving Borrower written notice. . . .