Opinion ID: 612629
Heading Depth: 2
Heading Rank: 2

Heading: Interpharm's Duress Challenge to Its Release of Claims Against Wells Fargo

Text: Wells Fargo relies on the release provision of the May Forbearance Agreement to support its motion for dismissal; Interpharm defends that motion on the ground that the agreement was procured by economic duress. Under New York law, which both parties agree controls, a valid release constitutes a complete bar to an action on a claim which is the subject of the release. Centro Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276, 929 N.Y.S.2d 3, 952 N.E.2d 995 (2011) (internal quotation marks omitted). An otherwise valid release may, however, be void on several grounds, one of which is its procurement by economic duress. See id. (stating that signed release shifts the burden of going forward to the plaintiff to show that there has been fraud, duress or some other fact which will be sufficient to void the release (brackets, ellipsis, and internal quotation marks omitted)).
The doctrine of economic duress is grounded in the principle that courts will not enforce an agreement in which one party has unjustly taken advantage of the economic necessities of another and thereby threatened to do an unlawful injury. VKK Corp. v. NFL, 244 F.3d 114, 122 (2d Cir.2001) (internal quotation marks omitted). To void a contract on the ground of economic duress, the complaining party must show that its agreement was procured by means of (1) a wrongful threat that (2) precluded the exercise of its free will. See Stewart M. Muller Constr. Co. v. N.Y. Tel. Co., 40 N.Y.2d 955, 956, 390 N.Y.S.2d 817, 817, 359 N.E.2d 328 (1976); accord Sitar v. Sitar, 61 A.D.3d 739, 742, 878 N.Y.S.2d 377, 380 (2d Dep't 2009); see also Kamerman v. Steinberg , 891 F.2d 424, 431 (2d Cir.1989) (New York law ... establishes the following elements of economic duress: (1) a threat, (2) which was unlawfully made, and (3) caused involuntary acceptance of contract terms, (4) because the circumstances permitted no other alternative. (internal quotation marks omitted)). The principle, however, extends no further than equity demands. Thus, a mere demonstration of financial pressure or unequal bargaining power will not, by itself, establish economic duress. See Boshes v. Williamson, Picket, Gross, Inc., 276 A.D.2d 257, 258, 714 N.Y.S.2d 199, 199 (1st Dep't 2000); Edison Stone Corp. v. 42nd St. Dev. Corp., 145 A.D.2d 249, 256, 538 N.Y.S.2d 249, 253 (1st Dep't 1989); see also VKK Corp. v. NFL, 244 F.3d at 123 (recognizing frequency with which one commercial party to agreement will have decided economic advantage over other, and emphasizing that ability of party to disown contract obligations or release on that basis is reserved for extreme and extraordinary cases). The law demands threatening conduct that is wrongful, i.e., outside a party's legal rights. 805 Third Ave. Co. v. M.W. Realty Assocs., 58 N.Y.2d 447, 451, 461 N.Y.S.2d 778, 780, 448 N.E.2d 445 (1983). Thus, a threat to withhold performance that one is contractually obligated to provide in order to compel the other party to submit to new demands can constitute a wrongful threat. See id.; accord Bechard v. Monty's Bay Recreation, Inc., 35 A.D.3d 1131, 1132, 826 N.Y.S.2d 826, 827 (3d Dep't 2006). But a threat to exercise a legal right in pursuit of those same demands cannot. See 805 Third Ave. Co. v. M.W. Realty Assocs., 58 N.Y.2d at 453, 461 N.Y.S.2d at 781, 448 N.E.2d 445; accord Madey v. Carman, 51 A.D.3d 985, 987, 858 N.Y.S.2d 784, 786 (2d Dep't 2008); Faillace v. Port Auth. of N.Y. & N.J., 130 A.D.2d 34, 42, 517 N.Y.S.2d 941, 946 (1st Dep't 1987). In this respect, it is axiomatic that [a party] cannot be guilty of economic duress for failing to grant further forbearance when [it] ha[s] no legal duty to do so. MLI Indus. v. N.Y.S. Urban Dev. Corp., 205 A.D.2d 998, 1001, 613 N.Y.S.2d 977, 980 (3d Dep't 1994); accord Davis & Assocs., Inc. v. Health Mgmt. Servs., Inc., 168 F.Supp.2d 109, 114 (S.D.N.Y.2001).