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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 17, 2020

Defendant Liable for Breach of Term Sheet’s Obligation to Negotiate Lease in Good Faith

On January 6, 2020, Justice Schecter of the New York County Commercial Division issued a decision in DOLP 1133 Props. II LLC v. Amazon Corporate, LLC, 2020 NY Slip Op. 30274(U), holding that a defendant was liable for breach of a term sheet’s obligation to negotiate a final agreement in good faith, explaining:

This case concerns Amazon’s alleged breach of a letter of intent, dated July 2, 2014, pursuant to which Amazon negotiated leasing ten floors of a building owned by DOLP, located at 1133 Avenue of the Americas in Manhattan (the Building or DOLP’s Building). The LOI is nonbinding – except for paragraphs 27 and 28.

Paragraph 27 prohibited Amazon from disclosing the LOI and the parties’ negotiations to third-parties (see id. at 14). Paragraphs 28 required the parties to negotiate a lease in good faith and on an exclusive basis, expressly prohibiting Amazon from negotiating the leasing of any space with any other landlord, owner or other third party with respect to its space requirements contemplated for this particular transaction in the New York City metropolitan area.

. . .

Amazon unquestionably breached the LOI. Its discussions, which resulted in leasing the 34th Street Building, were in blatant violation of the LOI’s exclusivity provision. Amazon’s deception about the 34th Street Building was a breach of its obligation to negotiate in good faith. No reasonable finder of fact could conclude otherwise.

Amazon’s argument that the people who negotiated the 34th Street Building lease worked for a division not subject to the LOI and thus their actions cannot give rise to liability under the agreement is rejected. It does not matter which Amazon division negotiated the lease. An interpretation of the LOI allowing Amazon to evade the exclusivity requirement by having a division of its parent company negotiate with other landlords on its behalf is unreasonable. A contracting party cannot immunize itself by tasking an agent to engage in acts on its behalf that constitute a breach of the agreement. There is no question of fact that the negotiations for the 34th Street Building were done for Amazon’s benefit, and thus those negotiations breached the LOI.

In any event, there is no question of fact that employees of Amazon itself, and not employees of a separate legal entity, were involved in the negotiations. Indeed, Amazon has not submitted an affidavit or any other evidence refuting that its own employees participated in the negotiations. On the contrary, Amazon admits that the employees involved in the negotiations worked for a division of Amazon and not a separate legal entity. Schoettler also admitted at his deposition that the LOI applies to GREF.

There is no dispute that Schoettler was personally involved with DOLP and the 34th Street Building. Even if there was a question of fact about whether the people who were involved with the 34th Street Building worked for Amazon, Schoettler’s involvement itself makes any such questions immaterial. No reasonable finder of fact could conclude that the parties intended that Schoettler, who executed the LOI on Amazon’s behalf, was not bound by the exclusivity provision. There is also no question of fact that those at the most senior levels of Amazon were aware of the simultaneous negotiations for the 34th Street Building and DOLP’s Building and that Amazon, by early August of 2014, was no longer interested in DOLP’s Building.

Amazon breached its exclusivity and good faith obligations as early as July 17, 2014 when it began pursuing other properties. Those breaches became particularly egregious once Amazon decided, on August 1, 2014, that it was going with the 34th Street Building instead of DOLP’s Building. Amazon’s breaches continued until September 30, 2014, before which Amazon was purportedly negotiating with DOLP in good faith and on an exclusive basis even though it was actively negotiating a lease for the 34th Street Building Amazon lied to DOLP about what it was doing and falsely gave DOLP the impression that it was still interested in DOLP’s Building. Had DOLP known the truth, it could have stopped wasting money dealing with Amazon.

(Internal quotations and citations omitted).

The implied covenant of good faith and fair dealing is an important, if often misunderstood, part of New York law. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client face a situation where a party is being deprived of the benefits of its contract, even if you cannot point to a specific contract term that is being breached.

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