Scott E. Mollen
Scott E. Mollen ()

Contracts—Email Notices—Although Email Notice Was Not Registered or Certified Mail, as Required by Contract, Court Found That Email Did Not Undermine the Objectives of the Notice Requirement—Defendants’ Counsel Had Received and Responded to the Email Notice and Also Used Email as a Means of Communicating Notice and the Notice Provision Itself Could Be Modified By Email

The plaintiff sought a judicial declaration that she had validly exercised a right to terminate a contract to purchase residential property (contract), because of the condition of the property’s septic system and that the defendants had breached their contractual duty to return the plaintiff’s deposit. The defendants denied liability and asserted counterclaims for breach of contract, breach of covenant of good faith and fair dealing and for slander of title.

The plaintiff alleged, inter alia, that she had timely terminated the contract. The plaintiff argued that even if her “notice of termination did not strictly comply” with the contract’s notice requirement, the parties could, and did, “mutually agree to modify or eliminate” the notice requirement. The plaintiff also contended that the parties’ subsequent communications as to the septic system were “insufficient to revive or reinstate the terminated…contract.”

The defendants argued, inter alia, that the parties had not reached a mutual agreement to terminate the contract through emails which had been exchanged between their attorneys. Rather, the emails were merely settlement discussions, if not “posturing between attorneys” and the emails did not “constitute ‘notices’” under the notice requirement, since the messages had not been sent “by registered or certified mail nor delivered in person or by overnight courier.” The defendant further asserted that the parties had not modified the notice requirement in writing, and that judicial precedent which excused strict compliance with notice provisions were distinguishable because “the deviations from the [notice] provisions in those cases were minimal,” as opposed to “the deviation in the current case.”

The court granted the plaintiff’s motion for summary judgment and denied the defendants’ cross motion.

The defendant had argued that the plaintiff’s email notice terminating the contract was not a notice sent by certified or registered mail, or by person or overnight courier. The court found that the email did “not appear to have undermined any of the objectives” of the contract’s notice requirement. The court noted that the defendants’ counsel had “successfully and promptly received the email (given that he responded to it one day after it was sent); he did not overlook the relevant portion of the email (given that he responded to its attempt to terminate the…contract); he did not resist the ultimate relief requested in the email (i.e., the termination of the…contract); and documentation of receipt of the email was generated (given the attachment of the email to a subsequent email from defendants’ counsel).” Moreover, the defendants’ counsel also appeared to use email to communicate notice of termination of the contract.

Additionally, the court found that even if the notice had not complied with the notice requirement, such provision “could be modified by email” which permitted provisions of the contract to be modified in writing. Here, “[p]laintiff’s counsel requested in writing that defendants’ counsel ‘allow [his email of June 20, 2014] to serve as formal notice of [termination]…unless [the parties] can come to a new agreement for the septic system.’” The defendants argued that “their counsel never expressly consented to this request.” However, one day after plaintiff’s request, defendants’ counsel sent an email to plaintiff’s counsel stating that defendants had instructed him to cancel the contract and return the plaintiff’s deposit.

The defendants seemed to argue that the foregoing “response was not intended to express the consent requested by plaintiff’s counsel, but to serve as mere ‘posturing’ on the issue of a new septic system.” However, the court found that the defendants’ counsel’s response “unambiguously consented to the very subject of the notice: termination of the…contract.” Furthermore, the consent had been “communicated through the very method used to communicate the notice (and request): email.” The court noted that the response “sua sponte promised the return of plaintiff’s deposit, which would have been the result of a valid termination.” The court reasoned that “no reasonable factfinder could conclude that,” defendants’ counsel “did not consent (whether explicitly or implicitly) to plaintiff’s counsel’s request to allow his email to serve as formal notice of termination.”

Further, the court stated that even if the defendants had not expressed such consent to a June 21, 2014 electronic transmission, they had subsequently done so twice. The court rejected the defendants’ other arguments and granted the plaintiff’s motion for summary judgment.

Thurston v. Sisca, 1:14-CV-1150, NYLJ 1202766275592, at *1 (NDNY, Decided Aug. 22, 2016), Suddaby, J.


Securitization and Sale of Residential Mortgages—Breach of Contractual Duty to Notify Trustee of Defective Loans Gives Rise to Independent Claim for Breach of Contract—Under Deferential Standard Afforded Pleadings, Allegations are Sufficient to Support Negligence Claim—Although Parties May Contractually Agree to Limit Liability a Public Policy Exception Precludes Parties From Insulating Themselves From “Grossly Negligent Conduct”

A plaintiff appealed from a trial court decision which granted the defendant’s motion to dismiss causes of action “to the extent they seek damages inconsistent with,” inter alia, “terms of the repurchase protocols.” The dispute arose from “the securitization and sale of residential mortgages.” The plaintiff sought damages arising from “massive loan defaults that occurred, rendering the residential mortgage backed securities (RMBS)…virtually worthless.” The plaintiff alleged, inter alia, that the defendant had breached a “contractual duty to notify the trustee of the defective loans,” (notification duty), “giving rise to damages not governed by the sole remedies restrictions in the parties’ agreements, and also that [defendant's] gross negligence otherwise renders the sole remedies clauses unenforceable.”

The Appellate Division (court) held that consistent with its recent decision in Nomura Home Equity Loan v. Nomura Credit & Capital, 133 AD3d 96 (1st Dept. 2015), defendant’s alleged breach of its notification duty “gives rise to an independent, separate claim for breach of the parties’ agreements, which should not have been dismissed.” The court further held that “under the highly deferential standard afforded to pleadings, the…facts alleged in the…complaint are sufficient to support plaintiff’s claim of gross negligence, which should not have been dismissed….”

“[W]hen hundreds of the borrowers defaulted in making their mortgage payments, the RMBS became virtually worthless….” The mortgage loan purchase agreement (MLPA) embodied 39 warranties and representations made by the defendant in connection with the sale of the loans to the trust. Those representations were incorporated in a pooling and servicing agreement (PSA). Most of the representations related to “characteristics, quality and overall risk profile of the loans” and had been “made to the ‘best of the seller’s knowledge.’” The MLPA contained provisions which addressed the possibility of a breach, i.e.,

…if it is discovered…that the substance of such representation…is inaccurate and such inaccuracy materially and adversely affects the value of the related mortgage loan…then, notwithstanding the Seller’s lack of knowledge with respect to the substance of such representation…being inaccurate at the time the representation…was made, such inaccuracy shall be deemed a breach of the applicable representation….

The MLPA also provided that if any party discovered that any loans “breached a representation or materially and adversely affected the value of any loan…, then within 90 days of such discovery, the party discovering the defect had to notify the other parties” and the seller had “to cure…by…replacing the defective mortgage with an ‘eligible’ one, or repurchasing the affected loan at” a specified purchase price. The MLPA stated that the seller’s obligations to cure, repurchase or substitute for a defective mortgage “constitutes the sole remedy of the purchaser respecting…a breach of the representations ….”

The complaint alleged that the trust incurred more than $140 million in damages based on “the falsity of the representations…made by [the seller] with reckless indifference, because it did not adhere to the barest minimum of underwriting standards.” The trustee asserted that based on “a forensic examination of the RMBS,” there were “hundreds of loans that were of lesser quality than what [the seller] had represented,” e.g., some underlying borrowers had provided “inaccurate, if not outright false,” information and the seller “failed to verify.”

Incorrect information involved, inter alia, “incomes,” “employment statuses and/or employment histories,…actual debt obligations” and occupancy of the mortgaged properties. The plaintiff alleged that the seller “should have notified the trustee of these breaches because it knew of them, or could have discovered them with due diligence, given its superior access to” relevant documents and information. The plaintiff further alleged that “[d]espite the sole remedy provision,…contractual damages will not adequately compensate the trust for its losses.”

The defendant had moved to dismiss the complaint. The trial court dismissed a breach of contract claim that was based on the defendant’s failure to comply with its notification duty. The trial court disagreed that the seller’s “inaction constituted an independent breach of contract claim, finding that the requirement was not a contractual obligation, but merely a notification remedy.” The trial court also dismissed claims that the seller’s “conduct constituted gross negligence,” on the grounds that “‘the relief available to plaintiff is limited by the sole remedy provisions in the [PSA] and the [MLPA]….” Alternatively, the trial court held that even if MLPA’s and PSA’s sole remedy limitations were unenforceable, because of the defendant’s “willful misconduct or gross negligence, the complaint did not contain facts to sufficiently support that claim.”

In dismissing the notification duty claim, the trial court noted that the trustee’s arguments “were substantially the same as those raised in [Nomura].” However, after the parties had briefed the subject appeal, the court had modified the trial court’s decision in Nomura, “holding that under similar RMBS agreements,” a seller’s breach of its notification duty “states an independently breached contractual obligation, allowing a plaintiff to pursue separate damages….” Consistent with Normura, the court modified the trial court’s order dismissing the notification duty claim and reinstated it.

The court also noted, inter alia, that when parties agree “to a limitation on liability, that provision is enforceable, even against claims of a party’s own ordinary negligence….” However, there are exceptions and “as a matter of…public policy, a party may not insulate itself from damages caused by its ‘grossly negligent conduct’….” “Gross negligence” is “conduct that evinces a reckless disregard for the rights of others or smacks’ of intentional wrongdoing.”

The complaint alleged that the defendant had “acted with reckless indifference,” that “there were widespread breaches…and that [defendant] failed to adhere to even minimal underwriting standards or to verify basic and critical information about potential buyers; it further allege[d] that [defendant] had access to the underlying loan files and that more than half of the loans later reviewed by plaintiff’s forensic analysts revealed rampant breaches of the [representations]….”

Additionally, the complaint alleged that the defendant had “ignored its contractual obligations, disregarded the known or obvious risks that the loans…were defective and then failed to notify the trustee of any breaches or effectuate a cure/repurchase.”

The court held that those allegations of gross negligence were “sufficient to withstand dismissal at the pleading stage.” The court cited decisional precedent in other contexts and noted that, in certain contexts, that type of conduct has been held to “even support a claim of fraud.” The court acknowledged that some trial courts took “different approaches when faced with issues involving the scope of the sole remedies clauses in residential mortgage put-back actions.” However, since “this case is only at a pleading stage,” and consistent with its own precedent, the court held that the gross negligence claim should not be dismissed.

The defendant had argued that since the contractual limitations did “not completely insulate it from liability, the gross negligence exception…does not apply.” Prior judicial precedent “recognized that the public policy that prohibits a party from insulating itself from damages caused by grossly negligent conduct applies equally to a clause that completely exonerates a party from liability as well as to a clause limiting damages to something nominal…. The same rationale applies to sole remedies that are illusory.” The defendant contended that the subject “sole remedy clauses…would make the investors whole ‘by requiring that any such loans be repurchased.’”

The court explained that such conclusion “remains to be tested.” A prior Appellate Division decision (prior decision) “recognized that the remedy of specific performance in put-back cases might be impossible to fulfill….” The prior decision “left open the possibility that, even for ordinary breach of contract claims, equity may require an award of monetary damages in lieu of specific performance.” Moreover, the prior decision “is now pending before the Court of Appeals.” The court reasoned that whether the sole remedies clause “will make the investors whole cannot be ascertained at this stage of the litigation, militating in favor of permitting the allegations of gross negligence to remain.” Accordingly, the court reversed and denied the motion to dismiss.

Morgan Stanley Mtge. Loan Trust 2006-13ARX v. Morgan Stanley Mtge. Capital Holdings, 653429/12, NYLJ 1202765280805, at *1 (App. Div., 1st, Decided Aug. 11, 2016) Mazzarelli, J.P., Moskowitz, Richter, Gische, JJ. Opinion by Gische, J. All concur.


Commercial Real Estate Broker Granted Summary Judgment on Claim for Commission—Tenant Breached Exclusive Brokerage Agreement

The plaintiff, a licensed real estate broker, had entered into a written exclusive broker’s agreement (agreement), pursuant to which the defendants hired the plaintiff as their exclusive broker “to find, negotiate for, and secure commercial premises for defendants.” The agreement embodied the defendants’ agreement “to refer to plaintiff all inquiries and offers received by defendants” involving “the lease or purchase of premises, ‘regardless of the source of such inquiries or offerings….’” During the period when the agreement was in effect, the defendants learned that “a property that they were interested in leasing” was owned by “A.” The defendants did not refer “A’s” property to the plaintiff. Rather, the defendants began negotiating “to lease the property directly without involving plaintiff.” The defendants ultimately entered into a lease with “A,” without informing the plaintiff of their actions.

The plaintiff sued for its commission. An executive of “A” testified that if the defendants had advised him that they had an exclusive brokerage agreement with the plaintiff, “A” would have paid the plaintiff the commission that it sought in this litigation.

The court granted the plaintiff summary judgment on its claim for breach of the agreement. It was undisputed that the defendants had failed to refer to plaintiff any information about their negotiation’s and transaction lease with “A.” Moreover, “A’s” executive testified that “A” would have paid the plaintiff a full commission if it had known about the agreement.

The defendants had argued that the plaintiff cannot recover a commission from the defendants since the agreement specified that the plaintiff would look to the landlord, rather than to the defendants for their commission. The court explained that the plaintiff was suing the defendants based on the defendants’ breach of its contractual obligation under the agreement to provide the plaintiff with the “exclusive opportunity to negotiate the lease on behalf of defendants so that plaintiff would have had the opportunity to be paid a commission by the landlord.” The court also rejected the defendants’ argument that they had terminated the agreement for cause before any claim arose, since such claim lacked “any factual basis.”

The plaintiff and the executive of “A” had both agreed that the plaintiff’s commission would have been based on the standard rate “used for such transactions in Westchester County.” Accordingly, the court awarded summary judgment to the plaintiff in the amount of $190,023.65, together with interest, costs and disbursements.

Comment: As this case illustrates, some parties will ignore their obligations under an exclusive brokerage agreement and attempt to by-pass their broker. Sometimes, they will do so because they think that their broker may not learn all of the facts with respect to the timing of a transaction, e.g., perhaps the broker may think that the negotiations occurred after the expiration of an exclusive brokerage agreement. Some may think that if their broker does sue, the broker will settle for a lot less than the amount of their commission. If a commission is to be paid by the owner, why would a tenant risk incurring liability to the broker? It is possible that a tenant may think that if the owner believes that there is no broker involved, the owner may lease a property on terms more favorable than if the owner had to pay a brokerage commission. In most commercial leasing transactions, the contract will include representations as to whether a broker had rendered brokerage services in connection with the transaction and specify who will be responsible for payment of the brokerage obligation.

Cushman & Wakefield of Connecticut v. Access Private Duty Services at HJDOI, 652308/2014, NYLJ 1202766813727, at *1 (Sup., NY, Decided Aug. 8, 2016), Kern, J.

Contracts—Email Notices—Although Email Notice Was Not Registered or Certified Mail, as Required by Contract, Court Found That Email Did Not Undermine the Objectives of the Notice Requirement—Defendants’ Counsel Had Received and Responded to the Email Notice and Also Used Email as a Means of Communicating Notice and the Notice Provision Itself Could Be Modified By Email

The plaintiff sought a judicial declaration that she had validly exercised a right to terminate a contract to purchase residential property (contract), because of the condition of the property’s septic system and that the defendants had breached their contractual duty to return the plaintiff’s deposit. The defendants denied liability and asserted counterclaims for breach of contract, breach of covenant of good faith and fair dealing and for slander of title.

The plaintiff alleged, inter alia, that she had timely terminated the contract. The plaintiff argued that even if her “notice of termination did not strictly comply” with the contract’s notice requirement, the parties could, and did, “mutually agree to modify or eliminate” the notice requirement. The plaintiff also contended that the parties’ subsequent communications as to the septic system were “insufficient to revive or reinstate the terminated…contract.”

The defendants argued, inter alia, that the parties had not reached a mutual agreement to terminate the contract through emails which had been exchanged between their attorneys. Rather, the emails were merely settlement discussions, if not “posturing between attorneys” and the emails did not “constitute ‘notices’” under the notice requirement, since the messages had not been sent “by registered or certified mail nor delivered in person or by overnight courier.” The defendant further asserted that the parties had not modified the notice requirement in writing, and that judicial precedent which excused strict compliance with notice provisions were distinguishable because “the deviations from the [notice] provisions in those cases were minimal,” as opposed to “the deviation in the current case.”

The court granted the plaintiff’s motion for summary judgment and denied the defendants’ cross motion.

The defendant had argued that the plaintiff’s email notice terminating the contract was not a notice sent by certified or registered mail, or by person or overnight courier. The court found that the email did “not appear to have undermined any of the objectives” of the contract’s notice requirement. The court noted that the defendants’ counsel had “successfully and promptly received the email (given that he responded to it one day after it was sent); he did not overlook the relevant portion of the email (given that he responded to its attempt to terminate the…contract); he did not resist the ultimate relief requested in the email (i.e., the termination of the…contract); and documentation of receipt of the email was generated (given the attachment of the email to a subsequent email from defendants’ counsel).” Moreover, the defendants’ counsel also appeared to use email to communicate notice of termination of the contract.

Additionally, the court found that even if the notice had not complied with the notice requirement, such provision “could be modified by email” which permitted provisions of the contract to be modified in writing. Here, “[p]laintiff’s counsel requested in writing that defendants’ counsel ‘allow [his email of June 20, 2014] to serve as formal notice of [termination]…unless [the parties] can come to a new agreement for the septic system.’” The defendants argued that “their counsel never expressly consented to this request.” However, one day after plaintiff’s request, defendants’ counsel sent an email to plaintiff’s counsel stating that defendants had instructed him to cancel the contract and return the plaintiff’s deposit.

The defendants seemed to argue that the foregoing “response was not intended to express the consent requested by plaintiff’s counsel, but to serve as mere ‘posturing’ on the issue of a new septic system.” However, the court found that the defendants’ counsel’s response “unambiguously consented to the very subject of the notice: termination of the…contract.” Furthermore, the consent had been “communicated through the very method used to communicate the notice (and request): email.” The court noted that the response “sua sponte promised the return of plaintiff’s deposit, which would have been the result of a valid termination.” The court reasoned that “no reasonable factfinder could conclude that,” defendants’ counsel “did not consent (whether explicitly or implicitly) to plaintiff’s counsel’s request to allow his email to serve as formal notice of termination.”

Further, the court stated that even if the defendants had not expressed such consent to a June 21, 2014 electronic transmission, they had subsequently done so twice. The court rejected the defendants’ other arguments and granted the plaintiff’s motion for summary judgment.

Thurston v. Sisca, 1:14-CV-1150, NYLJ 1202766275592, at *1 (NDNY, Decided Aug. 22, 2016), Suddaby, J.


Securitization and Sale of Residential Mortgages—Breach of Contractual Duty to Notify Trustee of Defective Loans Gives Rise to Independent Claim for Breach of Contract—Under Deferential Standard Afforded Pleadings, Allegations are Sufficient to Support Negligence Claim—Although Parties May Contractually Agree to Limit Liability a Public Policy Exception Precludes Parties From Insulating Themselves From “Grossly Negligent Conduct”

A plaintiff appealed from a trial court decision which granted the defendant’s motion to dismiss causes of action “to the extent they seek damages inconsistent with,” inter alia, “terms of the repurchase protocols.” The dispute arose from “the securitization and sale of residential mortgages.” The plaintiff sought damages arising from “massive loan defaults that occurred, rendering the residential mortgage backed securities (RMBS)…virtually worthless.” The plaintiff alleged, inter alia, that the defendant had breached a “contractual duty to notify the trustee of the defective loans,” (notification duty), “giving rise to damages not governed by the sole remedies restrictions in the parties’ agreements, and also that [defendant's] gross negligence otherwise renders the sole remedies clauses unenforceable.”

The Appellate Division (court) held that consistent with its recent decision in Nomura Home Equity Loan v. Nomura Credit & Capital, 133 AD3d 96 ( 1st Dept. 2015 ), defendant’s alleged breach of its notification duty “gives rise to an independent, separate claim for breach of the parties’ agreements, which should not have been dismissed.” The court further held that “under the highly deferential standard afforded to pleadings, the…facts alleged in the…complaint are sufficient to support plaintiff’s claim of gross negligence, which should not have been dismissed….”

“[W]hen hundreds of the borrowers defaulted in making their mortgage payments, the RMBS became virtually worthless….” The mortgage loan purchase agreement (MLPA) embodied 39 warranties and representations made by the defendant in connection with the sale of the loans to the trust. Those representations were incorporated in a pooling and servicing agreement (PSA). Most of the representations related to “characteristics, quality and overall risk profile of the loans” and had been “made to the ‘best of the seller’s knowledge.’” The MLPA contained provisions which addressed the possibility of a breach, i.e.,

…if it is discovered…that the substance of such representation…is inaccurate and such inaccuracy materially and adversely affects the value of the related mortgage loan…then, notwithstanding the Seller’s lack of knowledge with respect to the substance of such representation…being inaccurate at the time the representation…was made, such inaccuracy shall be deemed a breach of the applicable representation….

The MLPA also provided that if any party discovered that any loans “breached a representation or materially and adversely affected the value of any loan…, then within 90 days of such discovery, the party discovering the defect had to notify the other parties” and the seller had “to cure…by…replacing the defective mortgage with an ‘eligible’ one, or repurchasing the affected loan at” a specified purchase price. The MLPA stated that the seller’s obligations to cure, repurchase or substitute for a defective mortgage “constitutes the sole remedy of the purchaser respecting…a breach of the representations ….”

The complaint alleged that the trust incurred more than $140 million in damages based on “the falsity of the representations…made by [the seller] with reckless indifference, because it did not adhere to the barest minimum of underwriting standards.” The trustee asserted that based on “a forensic examination of the RMBS,” there were “hundreds of loans that were of lesser quality than what [the seller] had represented,” e.g., some underlying borrowers had provided “inaccurate, if not outright false,” information and the seller “failed to verify.”

Incorrect information involved, inter alia, “incomes,” “employment statuses and/or employment histories,…actual debt obligations” and occupancy of the mortgaged properties. The plaintiff alleged that the seller “should have notified the trustee of these breaches because it knew of them, or could have discovered them with due diligence, given its superior access to” relevant documents and information. The plaintiff further alleged that “[d]espite the sole remedy provision,…contractual damages will not adequately compensate the trust for its losses.”

The defendant had moved to dismiss the complaint. The trial court dismissed a breach of contract claim that was based on the defendant’s failure to comply with its notification duty. The trial court disagreed that the seller’s “inaction constituted an independent breach of contract claim, finding that the requirement was not a contractual obligation, but merely a notification remedy.” The trial court also dismissed claims that the seller’s “conduct constituted gross negligence,” on the grounds that “‘the relief available to plaintiff is limited by the sole remedy provisions in the [PSA] and the [MLPA]….” Alternatively, the trial court held that even if MLPA’s and PSA’s sole remedy limitations were unenforceable, because of the defendant’s “willful misconduct or gross negligence, the complaint did not contain facts to sufficiently support that claim.”

In dismissing the notification duty claim, the trial court noted that the trustee’s arguments “were substantially the same as those raised in [Nomura].” However, after the parties had briefed the subject appeal, the court had modified the trial court’s decision in Nomura, “holding that under similar RMBS agreements,” a seller’s breach of its notification duty “states an independently breached contractual obligation, allowing a plaintiff to pursue separate damages….” Consistent with Normura, the court modified the trial court’s order dismissing the notification duty claim and reinstated it.

The court also noted, inter alia, that when parties agree “to a limitation on liability, that provision is enforceable, even against claims of a party’s own ordinary negligence….” However, there are exceptions and “as a matter of…public policy, a party may not insulate itself from damages caused by its ‘grossly negligent conduct’….” “Gross negligence” is “conduct that evinces a reckless disregard for the rights of others or smacks’ of intentional wrongdoing.”

The complaint alleged that the defendant had “acted with reckless indifference,” that “there were widespread breaches…and that [defendant] failed to adhere to even minimal underwriting standards or to verify basic and critical information about potential buyers; it further allege[d] that [defendant] had access to the underlying loan files and that more than half of the loans later reviewed by plaintiff’s forensic analysts revealed rampant breaches of the [representations]….”

Additionally, the complaint alleged that the defendant had “ignored its contractual obligations, disregarded the known or obvious risks that the loans…were defective and then failed to notify the trustee of any breaches or effectuate a cure/repurchase.”

The court held that those allegations of gross negligence were “sufficient to withstand dismissal at the pleading stage.” The court cited decisional precedent in other contexts and noted that, in certain contexts, that type of conduct has been held to “even support a claim of fraud.” The court acknowledged that some trial courts took “different approaches when faced with issues involving the scope of the sole remedies clauses in residential mortgage put-back actions.” However, since “this case is only at a pleading stage,” and consistent with its own precedent, the court held that the gross negligence claim should not be dismissed.

The defendant had argued that since the contractual limitations did “not completely insulate it from liability, the gross negligence exception…does not apply.” Prior judicial precedent “recognized that the public policy that prohibits a party from insulating itself from damages caused by grossly negligent conduct applies equally to a clause that completely exonerates a party from liability as well as to a clause limiting damages to something nominal…. The same rationale applies to sole remedies that are illusory.” The defendant contended that the subject “sole remedy clauses…would make the investors whole ‘by requiring that any such loans be repurchased.’”

The court explained that such conclusion “remains to be tested.” A prior Appellate Division decision (prior decision) “recognized that the remedy of specific performance in put-back cases might be impossible to fulfill….” The prior decision “left open the possibility that, even for ordinary breach of contract claims, equity may require an award of monetary damages in lieu of specific performance.” Moreover, the prior decision “is now pending before the Court of Appeals.” The court reasoned that whether the sole remedies clause “will make the investors whole cannot be ascertained at this stage of the litigation, militating in favor of permitting the allegations of gross negligence to remain.” Accordingly, the court reversed and denied the motion to dismiss.

Morgan Stanley Mtge. Loan Trust 2006-13ARX v. Morgan Stanley Mtge. Capital Holdings, 653429/12, NYLJ 1202765280805, at *1 (App. Div., 1st, Decided Aug. 11, 2016) Mazzarelli, J.P., Moskowitz, Richter, Gische, JJ. Opinion by Gische, J. All concur.


Commercial Real Estate Broker Granted Summary Judgment on Claim for Commission—Tenant Breached Exclusive Brokerage Agreement

The plaintiff, a licensed real estate broker, had entered into a written exclusive broker’s agreement (agreement), pursuant to which the defendants hired the plaintiff as their exclusive broker “to find, negotiate for, and secure commercial premises for defendants.” The agreement embodied the defendants’ agreement “to refer to plaintiff all inquiries and offers received by defendants” involving “the lease or purchase of premises, ‘regardless of the source of such inquiries or offerings….’” During the period when the agreement was in effect, the defendants learned that “a property that they were interested in leasing” was owned by “A.” The defendants did not refer “A’s” property to the plaintiff. Rather, the defendants began negotiating “to lease the property directly without involving plaintiff.” The defendants ultimately entered into a lease with “A,” without informing the plaintiff of their actions.

The plaintiff sued for its commission. An executive of “A” testified that if the defendants had advised him that they had an exclusive brokerage agreement with the plaintiff, “A” would have paid the plaintiff the commission that it sought in this litigation.

The court granted the plaintiff summary judgment on its claim for breach of the agreement. It was undisputed that the defendants had failed to refer to plaintiff any information about their negotiation’s and transaction lease with “A.” Moreover, “A’s” executive testified that “A” would have paid the plaintiff a full commission if it had known about the agreement.

The defendants had argued that the plaintiff cannot recover a commission from the defendants since the agreement specified that the plaintiff would look to the landlord, rather than to the defendants for their commission. The court explained that the plaintiff was suing the defendants based on the defendants’ breach of its contractual obligation under the agreement to provide the plaintiff with the “exclusive opportunity to negotiate the lease on behalf of defendants so that plaintiff would have had the opportunity to be paid a commission by the landlord.” The court also rejected the defendants’ argument that they had terminated the agreement for cause before any claim arose, since such claim lacked “any factual basis.”

The plaintiff and the executive of “A” had both agreed that the plaintiff’s commission would have been based on the standard rate “used for such transactions in Westchester County.” Accordingly, the court awarded summary judgment to the plaintiff in the amount of $190,023.65, together with interest, costs and disbursements.

Comment: As this case illustrates, some parties will ignore their obligations under an exclusive brokerage agreement and attempt to by-pass their broker. Sometimes, they will do so because they think that their broker may not learn all of the facts with respect to the timing of a transaction, e.g., perhaps the broker may think that the negotiations occurred after the expiration of an exclusive brokerage agreement. Some may think that if their broker does sue, the broker will settle for a lot less than the amount of their commission. If a commission is to be paid by the owner, why would a tenant risk incurring liability to the broker? It is possible that a tenant may think that if the owner believes that there is no broker involved, the owner may lease a property on terms more favorable than if the owner had to pay a brokerage commission. In most commercial leasing transactions, the contract will include representations as to whether a broker had rendered brokerage services in connection with the transaction and specify who will be responsible for payment of the brokerage obligation.

Cushman & Wakefield of Connecticut v. Access Private Duty Services at HJDOI, 652308/2014, NYLJ 1202766813727, at *1 (Sup., NY, Decided Aug. 8, 2016), Kern, J.