Let Freedom (of Contract) Ring: Yellowstone Waivers Are Enforceable

Analyzing the contractual provision in Redbridge, which waived the tenants' right to seek any declaratory relief, the majority held:

The declaratory judgment waiver is clear and unambiguous, was adopted by sophisticated parties negotiating at arm's length, and does not violate the type of public policy interest that would outweigh the strong public policy in favor of freedom of contract. Although plaintiffs argue otherwise, there is simply nothing in our contemporary statutory, constitutional, or decisional law indicating that the interest in access to declaratory judgment actions or, more generally, to a full suite of litigation options without limitation, is so weighty and fundamental that it cannot be waived by sophisticated, counseled parties in a commercial lease.

Id. at 5.

The majority likened Yellowstone injunction waivers to arbitration clauses stating that "despite the waiver clause, the judicial review available to plaintiffs is more generous than that available to parties whose contracts contain arbitration clauses," which courts routinely enforce. Id. at 6. Because the issue of whether the commercial lease has been breached must still be determined in the context of a litigation, the majority held that the Redbridge plaintiffs' "inability in this case to obtain Yellowstone relief does not prevent them from raising defenses in summary proceedings if commenced and thus vindicating their rights under the leases if the owners' allegations of default are baseless." Id. at 7.

In conclusion, the majority stated that "the right to commence a declaratory judgment action, although a useful litigation tool, does not reflect such a fundamental public policy interest that it may not be waived by counseled, commercial entities in exchange for other benefits or concessions." Id. at 7.

Dissent

In a lengthy and scathing dissent, Judge Wilson argued that freedom of contract is not an individual right, but rather a benefit for society as a whole; a consideration the majority failed to take into account. The dissent states that a party's right to declaratory relief is an essential element to the freedom of contract and that by allowing parties to waive the right to seek same, the majority "creates instability by undermining the purposes and benefits of the freedom of contract." Id. at 11. The dissent reasoned that a declaratory judgment action provides the parties "a conclusive determination, without the attachment of any damages or injunction" predated common law. Id. at 11.

By waiving the right to seek declaratory relief, the dissent argues, a commercial tenant is dependent on the landlord bringing a summary proceeding to determine the validity of the notice to cure. In closing, Judge Wilson admonishes the majority, stating that "the majority has now undone the faithful work of the courts over the past 50 years in creating the Yellowstone injunction …." Id. at 18.

Analysis

Pursuant to Redbridge, commercial leases contracting a waiver of the right to seek a declaratory judgment, including a Yellowstone injunction, will be enforced provided the lease was entered into by sophisticated business parties represented by counsel. It remains to be seen whether Yellowstone injunction waivers will become a negotiating point in every commercial lease. However, parties choosing to include these types of waivers would be wise to follow Redbridge closely and make sure the inclusion of the Yellowstone injunction waiver is the result of an arms' length transaction for which consideration is received.

*****

Joshua Kopelowitz is a member of Rosenberg & Estis. Richard Corde is an associate at the firm.