Devash LLC v. German American Capital Corp.
959 N.Y.S.2d 10, 104 A.D.3d 71 (2013)
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Rule of Law:
A contractual provision limiting a party's remedies for a breach of contract is enforceable, even if the breach is intentional, so long as the breaching party's conduct is related to a legitimate economic self-interest and does not constitute fraudulent, malicious, or other similar wrongdoing unrelated to economic gain.
Facts:
- Devash LLC owned a 26-story office building financed by a $250 million mortgage loan, which was ultimately held by Bank of America, N.A. (BOA) as trustee.
- In January 2010, facing financial difficulty, Devash entered into loan restructuring negotiations with BOA and its special servicer, CWCapital Asset Management LLC.
- Based on CWCapital's assurances that a restructuring was under consideration, Devash continued to make interest payments and invested over $22 million in fresh funds into the property.
- During the negotiations, Devash sought approval for two substantial leases with HQ Global Workplaces LLC and William Morris Endeavor Entertainment LLC, which would have significantly improved its financial position.
- CWCapital withheld consent for the leases, notably insisting on an commercially unviable 'demolition clause' for the HQ lease.
- While negotiating with Devash, BOA and CWCapital were also secretly negotiating to sell the loan to The Related Companies, L.P. (Related), a developer planning to foreclose on the property.
- BOA and CWCapital allegedly withheld consent to the leases to keep the building vacant, making it more attractive for Related's planned foreclosure and demolition.
- On September 1, 2010, BOA sold and assigned the loan to an entity formed by Related, which immediately initiated foreclosure proceedings.
Procedural Posture:
- Devash LLC filed a complaint in the Supreme Court, New York County (a state trial court) against Bank of America, N.A., CWCapital Asset Management LLC, and others.
- The claims against defendants other than BOA and CWCapital were resolved via settlement.
- Defendants BOA and CWCapital filed a motion to dismiss the remaining causes of action (breach of contract and tortious interference) for failure to state a claim.
- The trial court granted the defendants' motion and dismissed the claims against them.
- Plaintiff Devash LLC, as appellant, appealed the dismissal to the Supreme Court, Appellate Division, First Department (an intermediate appellate court).
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Issue:
Does a contractual provision limiting a borrower's remedies for a lender's unreasonable withholding of consent to a lease to non-monetary relief bar a claim for money damages, even when the lender's actions are allegedly part of an intentional scheme to facilitate a third-party takeover of the property?
Opinions:
Majority - Saxe, J.
Yes. A contractual provision that explicitly limits remedies for a lender's unreasonable withholding of consent to injunctive or declaratory relief is enforceable and bars a claim for money damages, provided the lender's actions were motivated by a legitimate economic self-interest. The mortgage agreement here unambiguously limits plaintiff's remedies to non-monetary relief. While such clauses may be unenforceable in cases of 'intentional wrongdoing,' that exception applies only when the misconduct is 'unrelated to any legitimate economic self-interest,' such as fraudulent or malicious conduct. Here, plaintiff's own complaint alleges that defendants' actions were intended to 'maximize the lender’s available options and the value of the property and the loan.' This constitutes a legitimate economic self-interest, rendering the limitation-of-remedies clause enforceable. The tortious interference with contract claim against CWCapital fails because an agent cannot be held liable for inducing its principal to breach a contract while acting within the scope of its authority. The claim for tortious interference with prospective economic relations also fails because it requires a showing of culpable conduct, such as malice, which is negated by the defendants' admitted economic motivations.
Analysis:
This decision reinforces the enforceability of limitation-of-remedies clauses in sophisticated commercial contracts. It clarifies that the 'intentional wrongdoing' exception to such clauses is narrow, applying only to conduct that lacks any plausible economic justification, rather than to sharp business practices undertaken for financial gain. The ruling signals to commercial parties that courts will strictly construe such provisions, forcing an aggrieved party to pursue the specific remedies bargained for in the contract. This provides greater certainty for lenders and servicers, confirming that their contractually negotiated risk-management tools will be upheld against claims of bad-faith dealing motivated by economic self-interest.
