Commercial Division Blog

Posted: June 10, 2017 / Categories Commercial, Contracts

Questions of Fact Preclude Summary Judgment on Reformation Claim

On June 8, 2017, the First Department issued a decision in Warberg Opportunistic Trading Fund L.P. v. GeoResources, Inc., 2017 NY Slip Op. 04537, discussing the requirements for establishing a claim for reformation.

In Warberg Opportunistic Trading Fund L.P., the plaintiff sought reformation of a contract. The First Department held that there were questions of fact regarding the claim, explaining:

A claim for reformation of a written agreement must be grounded upon either mutual mistake or fraudulently induced unilateral mistake, and to succeed, the party seeking relief must establish by clear, positive and convincing evidence that the agreement does not accurately express the parties' intentions. Reformation based upon a scrivener's error requires proof of a prior agreement between the parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement. The parties' course of performance under the contract, or their practical interpretation of a contract for any considerable period of time, is the most persuasive evidence of the agreed intention of the parties.

Given the need for clear, positive and convincing evidence of mutual mistake, we find that issues of fact are present that should have prevented summary judgment from being awarded to Waterstone. The evidence does not unequivocally show that either Waterstone or defendant believed the agreed upon floor price was $28.07. To be sure, defendant relied heavily on Wachovia to handle the warrant transaction, including the setting of the floor price, and Wachovia employees testified that they believed the floor price was intended to be $28.07. However, the evidence shows that defendant had a hand in the drafting process. Thus, we may not entirely disregard the deposition testimony of defendant's employees and counsel that they did not consider the $32.43 floor price in the final warrants to be the result of a mistake.

In any event, mutual mistake requires that both parties to an agreement have the same belief, and the evidence with respect to Waterstone's belief is too tenuous to justify summary judgment. For example, that Wachovia circulated a draft warrant with $28.07 as the floor price is surely supportive of Waterstone's theory. However, without any documentary evidence reflecting any prior communications concerning the price, or any testimony from Waterstone indicating what it believed the floor price was to be, it is impossible to find as a matter of law that Waterstone expected the true floor price to be $28.07. In addition to the absence of clear evidence of Waterstone's belief, its failure over the course of several years to affirmatively articulate a belief that the final floor price was a mistake, also militates against a grant of summary judgment. Although, as it argues, Waterstone might not have been able to allege all the circumstances of the purported floor price mistake until it obtained discovery in this action, it knew, or should have known from the outset, that the floor price in the final warrant was set at $32.43, which rendered the anti-dilution provision meaningless. Its failure to claim mutual mistake until 2013, even after it sought an adjustment in the exercise price in 2011 and initiated this lawsuit in 2012 based on the separate theory that the anti-dilution provision was merely being misinterpreted, undermines its claim that it believed that it had agreed to the $28.07 floor price and that there had been a drafting error.

(Internal quotations and citations omitted).