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As It Turns Out, <i>Yellowstone</i> Waivers Are Enforceable
In an earlier article, Are Yellowstone Waivers Enforceable?, New York Law Journal, April 10, 2014, at 4, col. 1, we explored whether a commercial tenant could waive its common law right to seek a Yellowstone Injunction. At that time, there was no appellate authority directly on point. This all changed on Jan. 31, 2018, when the Appellate Division, Second Department ruled in 159 MP Corp., v Redbridge Bedford, LLC, 2018 WL 635946, 1 (2d Dept 2018) that the “commercial tenants' voluntary and limited waiver of declaratory judgment remedies in their written lease is valid and enforceable, and not violative of New York's public policy …”
Recap: What is a Yellowstone Injunction?
In Universal Communications Network, Inc. v 229 West 28th Owner, LLC, 85 AD3d 668 (1st Dept 2011), the First Department summarized that the “sole purpose of a Yellowstone injunction is to maintain the status quo so that a commercial tenant, when confronted by a threat of termination of its lease, may protect its investment in the leasehold by obtaining a stay tolling the cure period so that upon an adverse determination on the merits the tenant may cure the default and avoid a forfeiture.”
Yellowstone Waivers in Commercial Leases are Enforceable
In 159 MP Corp., plaintiffs-tenants entered into commercial leases for retail and storage space. Each lease was to run for 20 years from May 1, 2010, with a 10-year renewal option. In each lease, the tenants, in sum, waived their rights to bring a declaratory judgment action with respect to any default notice sent pursuant to the lease, which constitutes an implicit bar to obtaining a Yellowstone injunction. The commencement of such an action was grounds for immediate termination of the leases.
Defendant-landlord served each of the plaintiffs a notice to cure alleging various lease defaults. Before the cure period expired, plaintiffs moved for a Yellowstone injunction staying and tolling the cure period and enjoining defendant from terminating the leases or commencing a summary proceeding.
Supreme Court (Schmidt, J.) denied plaintiffs' motion, holding that such relief was prohibited by the leases. The Court held that plaintiffs had the opportunity to cure the alleged defaults and/or resolve the dispute through a summary proceeding, such that they were not without a remedy. The Court did not reach the issue of whether the Yellowstone waiver violated public policy.
The Majority's Decision Upholding the Waivers
The Second Department affirmed Supreme Court by a 3-1 margin, mainly relying on principles of freedom of contract. The majority first held that a “bedrock principle of our jurisprudence is the right of parties to freely enter into contracts …. Not only is the freedom to contract constitutionally protected, but federal and New York courts have recognized that the autonomy of parties to contract is itself a sacred and protected public policy that should not be interfered with lightly…” Id. at 6.
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