Opinion
103021/07.
Decided October 3, 2007.
Sukenik, Segal Greff, P.C., New York, NY.
Cahill Gordon Reindel LLP, Thorn Rosenthal, Gabriel Posner, New York, NY, For Defendant.
Defendant ZC Specialty Insurance Company (ZC) moves, pursuant to CPLR 3211 (a) (1), (5), and (7), to dismiss the complaint.
The complaint alleges that plaintiff Philips South Beach, LLC (Philips) sought a loan to be secured by a mortgage for property located in Florida known as The Shore Club Hotel. ZC agreed to provide mortgage insurance to Philips, and successfully solicited Greenwich Capital Financial Products, Inc. (Greenwich) to loan Philips $81 million dollars. ZC and Philips entered into a Reimbursement Agreement, pursuant to which Philips agreed to pay ZC an annual Surety Premium and a Termination Premium. The loan closed on or about April 30, 1999.
In or about early 2001, Philips sought to borrow more money, restructuring the mortgage guarantee, and modifying the Reimbursement Agreement. On or about May 25, 2001, the terms of the loan were modified and Greenwich increased the loan to $104 million. The terms of the Reimbursement Agreement and the annual Surety Premium and Termination Premium were also modified.
On or about July 1, 2002, Philips again restructured the loan, making it due in June 2006.
In 2005, Philips sought to obtain replacement financing which was scheduled to close in November 2005.
The complaint alleges that, in order to obtain the replacement financing, Philips was required to repay the mortgage loan and obtain a satisfaction or assignment of the mortgage. The complaint further alleges that Greenwich advised Philips that it would not accept prepayment of the mortgage loan or provide a satisfaction of mortgage unless and until Philips paid all the amounts it owed to ZC (approximately $1.5 million for the Surety Premium that would be due through June 1, 2006 plus approximately $5.2 million as a Minimum Final Surety Premium reflecting a November 2005 payment rather than a June 2006 payment [the Demanded Payment]). Although the complaint alleges that Philips refused to pay the Demanded Payment, that payment was ultimately made, the mortgage and insurance were terminated, and Philips obtained the desired refinancing.
On March 5, 2007, Philips filed this action, alleging that the mortgage insurance issued by ZC and the Demanded Payment were in violation of Article 65 of the Insurance Law, because ZC was not licensed to sell mortgage insurance in New York, as required by New York law (Insurance Law § 6503 [a]), that the type of mortgage insurance sold by ZC to Philips was not permitted under New York Law (Insurance Law § 6503 [a] [2] [3]), and that the premium rates were not filed with and approved by the Superintendent of Insurance as required by Insurance Law § 6504 (a). Although Philips is a Delaware company, ZC is a Texas company, and the Reimbursement Agreement provided that Illinois law would govern the agreement ( see Reimbursement Agreement § 9.08), Philips contends that the insurance policy is governed by New York Insurance Law because ZC's principal place of business is New York and the contacts and negotiations between the company were made in New York. Philips seeks damages in the amount of approximately $6.7 million (the amount of the Demanded Payment).
ZC moves to dismiss on the basis of a Settlement Agreement entered into by the parties, effective November 9, 2005, which contains a release of claims stating as follows:
[Philips, among others] hereby completely release and discharge [ZC, among others] from their respective liabilities and obligations under the Amended Surety Bonds, the Trust Agreement, and the Loan Documents. . . . The release described in this paragraph is intended by [Philips] to completely, finally and forever remise, release, acquit and forever discharge [ZC] of, from and against any and all manner of actions, causes of action, suits, debts, . . . contracts, controversies, . . . costs, damages, judgments, executions, claims and demands whatsoever (regardless of by or whom raised [ sic]), in law or in equity, known or unknown, sounding in contract or in tort, which [Philips] now [has], ever had or may ever have against [ZC] on account of, arising out of, or in connection with any thing, cause, matter, transaction, act or omission of any nature whatsoever of, or involving [ZC] from the beginning of time to and including the date hereof or to arise in the future, in any way related to [The Shore Club Hotel], the Amended Surety Bonds, the transactions described in any of the Loan Documents or the [release of the lien of the Mortgage . . . by defeasing the Loan]. . . . It is the intent and understanding of [Philips] that this is a complete and general release, reserving nothing, and that upon execution and delivery of this Settlement Agreement by [ZC] this release shall be fully effective and enforceable.
Settlement Agreement ¶ 4.
Philips contends that ZC refused to notify Greenwich that all sums due had been paid unless and until Philips paid the Demanded Payment and signed the Settlement Agreement containing the release; therefore, the release is invalid because it was agreed to under economic duress. Philips further contends that the release is unenforceable as against public policy, because it constitutes an extension of the allegedly unlawful insurance policy, and because ZC did not inform Philips of the illegal nature of the insurance when it demanded that the Settlement Agreement be signed.
Although an agreement may be voided where it was agreed to under economic duress ( Stewart M. Muller Constr. Co. v New York Tel. Co., 40 NY2d 955), financial and business pressures, "even if exerted in the context of unequal bargaining power" do not necessarily constitute economic duress. See Walbern Press v C.V. Communications, 212 AD2d 460, 461 (1st Dept 1995). Here, it was Philips that wished to prematurely terminate a mortgage (and insurance) contract, not ZC. If Philips believed it was improper for ZC to demand a Settlement Agreement which included a release as a condition of that premature termination, Philips could have challenged that demand in court. See Short v Keyspan Corporate Services, LLC, 11 Misc 3d 1076 (A), 816 NYS2d 701, 2006 WL 908629, *6 (Sup Ct, Kings County 2006) (availability of alternative such as pursuing claim in court of law "rules out a claim of duress which necessarily depends on the absence of choice'", quoting Joseph v Chase Manhattan Bank, N.A., 751 F Supp 31, 35 [ED NY 1990]). Furthermore, as the court noted in Short, "contracts induced by duress are voidable, not void; acceptance of benefits under the agreement constitutes ratification.'" Short v Keyspan Corporate Services, LLC, 2006 WL 908629, *6 (citation omitted). Philips has failed to show that the Settlement Agreement resulted from a "wrongful threat" rather than from vigorous bargaining tactics of ZC, "notwithstanding financial considerations which may have induced plaintiff to enter into the agreement." See Fruchthandler v Green, 233 AD2d 214, 214-215 (1st Dept 1996). Having accepted the benefit under the Settlement Agreement (permission to prematurely terminate the mortgage and insurance contracts in order to obtain new financing for its real estate project with a third party), it cannot now seek to reject the release contained in that agreement.
Philips argues that the release is unenforceable because it violates public policy, citing Kyff v Kyff ( 286 NY 71) and 3175 Holding Corp. v Schmidt ( 150 Misc 853 [Mun Ct, Borough of Manhattan, 1934]). In both cases, however, the releases sought to void future obligations expressly required by statute to protect an economically weaker class of persons (a husband's obligation to support his wife and a landlord's obligation to maintain an apartment). That is vastly different from voiding, as against public policy, all releases between contracting parties which would preclude litigation alleging violations of statute. See e.g. Short v Keyspan Corporate Services, LLC, supra, where release prevented plaintiff from bringing a lawsuit based upon claims of discrimination in violation of Executive Law § 2709, et seq.
Nor is the release unenforceable because ZC did not notify Philips of exactly what sort of future claims it might be releasing, or that the mortgage insurance was allegedly issued in violation of New York's Insurance Law. Certainly, in negotiating the Settlement Agreement, ZC was not required to give Philips what could well be characterized as legal advice. Finally, I reject Philips's argument that the release is invalid because it was not expressly provided for in the Reimbursement Agreement.
Thus, ZC's motion to dismiss based on the release is granted.
Since I conclude that the release is valid, it is not necessary to reach ZC's argument that Philips's effort to challenge the release is untimely. Were it necessary to reach that issue, I would be inclined to conclude that this lawsuit, filed nearly one and a half years after the Settlement Agreement was signed, is untimely. See Leader v Dinkler Management Corp., 26 AD2d 683 (2nd Dept 1966), affd 20 NY2d 393 (1967) (delay of six months constituted waiver of claim of economic duress in signing release); Powell v Oman Constr. Co., 25 AD2d 566 (2d Dept 1966) (delay of 11 months constituted waiver). Nor is it necessary to reach the parties' other arguments regarding whether plaintiff is entitled to reimbursement of the Demanded Payments.
Accordingly, it is hereby
ORDERED that the motion to dismiss is granted and the complaint is dismissed with costs and disbursements to defendant as taxed by the Clerk of the Court on submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.