Commercial Division Blog

Posted: February 28, 2017 / Categories Commercial, Contracts

Contract Claim Dismissed; Definition of Defined Term Governed, Not Usual Understanding

On February 8, 2017, Justice Kornreich of the New York County Commercial Division issued a decision in CP JBAM Holdings LLC v. Shapiro, 2017 NY Slip Op. 30274(U), dismissing a breach of contract claim because the defined meaning of a key term governed, not the usual meaning of the term, explaining:

The primary issue in this case is whether Irene "obtained" the "Approvals", which section 2.2.4 requires her to do before being entitled to the first $9 million of the Approval Payment. While the verb used to describe her obligation under section 2.2.4 is "obtain", what it means to "obtain" the Approvals turns on what the Approvals, a defined term, actually encompass. The first of the Approvals, the LPC Approval, is expressly defined to include actual approval of the Plans by LPC.

Thus, the parties do not dispute that actual LPC approval (in the colloquial sense) is required for Irene to "obtain" the LPC Approval. That being said, the parties disagree about whether DOB had to actually approve the Plans as compliant with the myriad applicable regulatory requirements (e.g., zoning) for Irene to be said to have obtained the LAA Approval. That is because, unlike the LPC approval, which explicitly requires actual approval by the LPC, the LAA Approval is defined as follows:

the Plans shall be submitted to the New York City Department of Buildings [DOB] for a determination on the Plans['] compliance with the New York City Building Code, Zoning Resolution and New York State Multiple Dwelling Law standards for light and air.

. . .

To be sure, an agreement in which Irene was actually obligated to obtain DOB approval prior to being entitled to the $9 million would have been commercially reasonable. But that is not something that may inform the court's analysis. Nor is the fairness of the deal actually stuck by these sophisticated parties an issue. Instead, as Irene correctly contends, the Agreement very clearly delineates when actual regulatory approval is required and when it is not. To hold that the LAA Approval includes actual DOB approval would be to redefine the term LAA Approval. The court is not permitted to rewrite the Agreement in this manner.

There is no question that the parties and their counsel understand how the relevant regulatory approval processes work and the interplay between the various agencies that were required to bless the proposed condominium development. With this understanding, they only premised one payment - the final $1 million - on actual DOB approval. Their decision to omit DOB approval from the definition of LAA approval must be given effect. For this reason, JBAM's claims premised on Irene's failure to procure DOB approval are dismissed.

(Internal citations omitted).