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      The Court of Appeals has affirmed the Second Department's holding in 159 MP Corp v Redbridge Bedford LLC and as a result, has ended Yellowstone Injunctions statewide when such injunctions are waived by sophisticated parties during commercial lease negotiations.  Previously, in the March 2018 edition of the Suffolk Lawyer, we discussed the Second Department's holding in the article "The End of Yellowstone Injunctions."Now, we address the Court of Appeal's holding, which is a far broader precedent, reaching issues of freedom of contract, beyond Yellowstone Injunctions.  In fact, as the dissent is quick to piont out, the majority has determined that freedom of contract may only be overcome by either a competing public policy if such policy is expressly set forth in a statute as a preclusion to contract or where the contractual provision at issue involves criminality.

     Initially, and as background on the core certified issue, the court explained that a Yellowstone Injunction is "a 'creative remedy' crafted by the lower courts to extend the notice and cure period for commercial tenants faced with lease termination... [while] permitting a tenant who loses on the merits of the lease dispute to cure the defect and retain the tenancy."  The specific issue certified before the court was whether a waiver of "the right to commence a declaratory judgment action as to the terms of a commercial lease is "void as against public policy."  The express rider language, at issue, was that "Tenant waives its right to bring a declaratory judgment action with respect to any provision of this Lease or with respect to any notice sent pursuant to the provisions of this Lease...[i]t is the intention of the parties hereto that their disputes be adjudicated via summary proceedings." The stated public policy that was set forth as contravening such language was that declaratory relief provides the benefit of "stabilizing uncertainty in contractual relations."

     The underlying dispute, between the parties, emerged when the tenant, in response to receipt of a notice to cure, moved the Supreme Court, by order to show cause, seeking "a declaratory judgment that they were not in default" together with a Yellowstone Injunction.  Initially, the Supreme Court denied the order to show cause and dismissed the case.  Then, the Appellate Division affirmed.  However, a dissenting Appellate Division Justice argued that "a tenant's ability to litigate in summary proceedings commenced by the owner was not a sufficient substitute for the ability to commence a declaratory judment action."  Therefore, the Appellate Division certified the question, whether its order was propertly made, to the Court of Appeals. 

     In affirming, the Court of Appeals looked to its holding in Matter of American Broadcasting Cos., Inc. v. Roberts.  Therein, the court stated "that a public interest is present does not erect an inviolable shield to waiver." Next, the court articulated two bases to override freedom of contract while stating that neither existed before the court.  The two bases were if either the legislature had identified a Yellowstone Injunction as being non-waivable or if it involved illegality.  Therefore, this holding reaches far beyond Yellowstone Injunctions and instead, sets precedent for when freedom of contract should give way to other public policy interests.  As such, the main takeaway from the holding was not merely the glacial shift in commercial landlord/tenant practice, but instead the court's reaffirmation of its adherence to the principles of freedom of contract.  As the court explained, freedom of contract must prevail for "New York's status as the preeminent commercial center in the United States, if not the world," to remain in place.  Moving forward, litigators should only argue that public policy overcomes freedom of contract if one of the two articulated bases exist.

Note:  Andrew M. Lieb is the managing Attorney at Lieb at Law, P.C. a law firm with offices in Smithtown and Manhasset.  He is a past co-chair of the Real Property Committee of the Suffolk County Bar Association and has been the Special Section Editor for Real Property for The Suffolk Lawyer for years.

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