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Current Developments in the Commercial Divisions of the
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Posted: May 21, 2019

Court Rejects Economic Duress Claim

On May 6, 2019, Justice Masley of the New York County Commercial Division issued a decision in Kaye v. Levine Prospect, LLC, 2019 NY Slip Op. 31299(U), rejecting a economic duress defense, explaining:

A contract is voidable on the ground of duress when it is established that the party making the claim was forced to agree to it by means of a wrongful threat precluding the exercise of that party’s free will. A claim for economic duress must be premised on an entitlement to performance. Further, a contract is not voidable if the defendant refused to do that which it was not legally required to do.

Here, plaintiff claims that Levine threatened to breach the operating agreements of the parties’ numerous entities formed for each business venture property they purchased. Specifically, plaintiff propounds only vague, unsupported statements that the parties had, and defendants breached, obligations under the parties’ agreements, the parties’ contracts, and the parties’ entities’ operating agreements. Plaintiff explains vaguely, and without any support or detail regarding the terms of particular contracts at issue, that,

under the operating agreements of each of the parties’ real estate entities, LP and plaintiff, either directly or indirectly through [a particular property entity, would provide capital contributions to purchase properties, LP’s primary responsibility was to provide financing and obtain investments from third parties, whereas plaintiff’s primary responsibility was to operate and manage the properties through his management company, Stone.

First, plaintiff’s failure to identify with any specificity the agreements or the terms of the agreements that applied to the W. 18th and 47th Properties is fatal to its claim for economic duress with regard to Levine’s alleged threats to derail the sale and refinancing transactions for those two properties if plaintiff did not sign the Note. Plaintiff’s unsupported assertion that the operating agreements governing all of the parties’ 18 identified joint venture· properties-including those for the W. 18th and 47th Properties-obligated LP and plaintiff, either directly or indirectly through a special purpose entity, to provide capital contributions to purchase properties does not bear upon Levine’s alleged threats to refuse to sign paperwork to sell and/or refinance the W. 18th or 47th Properties, which the parties had already purchased.

Further, plaintiff’s generalized allegation that, under the operating agreements for those 18 different properties, LP’s primary responsibility was to provide financing and obtain third-party investments and plaintiff’s primary responsibility was to manage the properties is, likewise, far too vague to state a claim for economic duress as plaintiff has, not established that either defendant had any contractual obligation under any agreement to cooperate in a sale or refinancing of the W. 18th or 47th Properties. The allegations are devoid of necessary detail as to any alleged agreement for those two properties; for example, plaintiff does not state the actual parties to, the scope or duration of, or other necessary terms of any agreements controlling the W. 18th or 4 7th Properties, let alone defendants’ obligations under such agreements.

Plaintiff’s conclusory statement that Levine was fully aware of his obligations to [plaintiff] under the parties’ agreement and, in spite of that awareness, threatened that he would not sign the paperwork for the sale of W. 18th Property or the refinancing [of 47th Property, nor would he contribute another dollar in capital for the E. 18th Property, are also entirely vague and unsupported. Whether the agreements plaintiff asserts existed between the parties were oral partnership agreements, operating agreements of the property-business entities, or other contracts, the allegations are inadequate to state a claim for economic duress; as a threshold matter, plaintiff must state, with more than bare legal conclusions, unsupported or contradicted assertions, and obscure generalities, that defendants had an obligation to perform that which they improperly threatened to withhold. Absent a legal obligation to execute paperwork for the sale of the W. 18th Property or the refinancing of the 47th Property, there can be no economic duress arising from defendants’ threat not to consummate those transactions.

Plaintiff’s allegations do not establish that defendants had a contractual obligation to facilitate or consummate the transactions that were being negotiated for the w. 18th and 47th Properties, and, therefore, Levine’s alleged threat not to perform the sale or refinancing of those properties does not adequately state a wrongful act to support a claim for economic duress. In fact, the operating agreement for the W. 18th Property demonstrates that unanimous consent of the parties (as members of the relevant property entity) is required to effectuate any refinance or sale of that property; thus, there is no contractual obligation to effectuate a sale or refinance of that property under the applicable agreement.

Plaintiff’s allegations that Levine also threatened not to contribute additional capital or sign a guarantee in support of the parties’ E. 18th Property endeavor also do not support a claim for economic duress. Even if the E. 18th Property assertions in the complaint are not subject to the MIPRA’s claims release provisions-as discussed below-plaintiff’s allegations pertaining to an agreement for the E. 18th Property are also unsupported, vague assertions that are insufficient to demonstrate a legal obligation to perform those actions.

While plaintiff may have been subject to financial pressures and may have lacked equal bargaining power, that alone does not constitute a valid claim for economic duress.

Accordingly, the first cause of action for a declaratory judgment voiding the Note as procured under economic duress is dismissed.

(Internal quotations and citations omitted).

As this decisions discusses, a claim of duress can relate to economic duress, and not just the paradigm case of someone being forced to sign a contract with a gun to their head. But, as this decision also shows, the standards for pleading duress are demanding. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a contract entered into under duress.

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