July 10, 2023

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

New York Law Journal

The court’s decision in Mallory could have profound implications for larger-sized companies that operate in multiple states throughout the country. And nowhere is this truer than in New York, where the state’s status as a global hotspot for foreign investment has attracted myriad out-of-state companies to register to do business within its borders.

For over half a century, the U.S. Supreme Court has generally held that a corporation can only be considered “at home”—and thus subject to the general jurisdiction of courts—in a state where it is either incorporated or maintains its headquarters. Recently, however, the court appeared to upend that precedent in Mallory v. Norfolk Southern Railway, No. 21-1168, 2023 WL 4187749 (June 27, 2023). In Mallory, the court held that a business may be subject to general jurisdiction in any state where it registers to do business—at least in cases where the state’s registration statute requires the company to consent to the general jurisdiction of that state’s courts.

To continue reading Tom Kurland and Dakotah Burns' article in the New York Law Journal, please click here.

March 30, 2023

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

As we have written about previously, the Commercial Division has held that certain types of preliminary agreements between parties constitute unenforceable “agreements to agree” under New York law. To avoid this fate, a party seeking to enforce such a contract must, among other things, point to language in the agreement that shows the parties’ intent to be bound by its terms. But discerning the parties’ intent from the contract language alone is not always a straightforward exercise. Recently, in SPG Cap. Partners LLC v. Cascade 553 LLC,[1] New York County Commercial Division Justice Robert R. Reed, Jr. considered this issue in connection with a term sheet signed by the parties in anticipation of a real estate investment that later fell through. The court’s decision in SPG Capital highlights the risks of using these types of agreements to obtain promises from a counterparty, and it underscores the importance of drafting clear expressions of intent to ensure that such contracts are enforceable.

BACKGROUND

In SPG Capital, the plaintiff, SPG Capital Partners LLC (“SPG”), reached an agreement in principle with the defendant, Cascade 553 LLC (“Cascade”), whereby SPG would provide a mortgage loan to Cascade in connection with a planned real estate development in Brooklyn.[2] Pursuant to the term sheet signed by the parties, SPG would provide a first mortgage loan to Cascade of $110,000,000, and Cascade would pay SPG $200,000 as a good-faith deposit. The term sheet stated that the document was “for discussion purposes only and [] subject to the Lender’s satisfactory completion of its due diligence, internal credit approvals and satisfactory legal review.”[3] It further provided that:

. . . [N]either Borrower or Guarantor will cause or permit any affiliates to obtain or attempt to obtain first mortgage financing for the Property with any party other than the Lender. The Borrower acknowledges that by commencing the due diligence investigation contemplated by this Term Sheet, Lender is devoting time and resources that it otherwise could be devoting to other projects. This paragraph shall survive the termination of this Term Sheet. In the event Borrower (or its affiliate) obtains first mortgage financing for the Property from another Lender, or ... otherwise elects not to proceed with the Loan, then Lender shall be entitled to retain the unapplied balance of the Good Faith Deposit and Borrower and Guarantor shall pay immediately, upon demand to Lender a breakup fee equal to 2% of the maximum principal balance of the proposed Loan Amount, as liquidated damages for the time and effort expended by Lender[.][4]

The loan process did not go as planned. For starters, Cascade had previously secured a first mortgage loan from another lender, and it needed to pay off that loan by the closing date specified in the term sheet to avoid triggering a default under the prior loan agreement. According to Cascade, it informed SPG “that it had to close on the first mortgage financing by April 20, 2017, at 1:00 p.m., or else it would not be able to pay off the existing first mortgage in a timely fashion.”[5] Cascade claimed that, despite receiving this notice, SPG not only failed to send finalized loan documents by the requested time, but also attempted to renegotiate the terms of the loan at “midnight on the scheduled closing date.”[6] Cascade rejected those new terms and decided to obtain financing from another company.[7]

SPG then sued Cascade, alleging that Cascade’s decision to secure a different first mortgage loan violated the term sheet’s requirement that Cascade not “obtain first mortgage financing . . . with any other lender.”[8] SPG also sought to enforce the term sheet’s liquidated damages clause, which required that Cascade pay “a breakup fee equal to 2% of the” loan amount in the event that Cascade obtained a different first mortgage loan.[9] SPG argued that even if the term sheet were otherwise unenforceable, these exclusivity provisions were “independently enforceable” because the document expressly stated that those provisions would “survive the termination of this Term Sheet.”[10] Cascade then countersued SPG, arguing that (i) the term sheet was unenforceable in its entirety; and (ii) Cascade was entitled to return of its $200,000 good-faith deposit under principles of “quantum meruit, unjust enrichment, and conversion.”[11] Both parties moved for summary judgment.[12]

THE COURT’S DECISION

In his January 6, 2023 decision, Justice Reed agreed with Cascade that the parties’ term sheet was unenforceable. The court found that “the document repeatedly emphasize[d] its nonbinding nature,” insofar as the term sheet was “expressly conditioned on the completion of the lender’s due diligence, further satisfactory negotiation by the parties, and the acceptance of the loan documents.”[13] The court noted that “in those cases where courts have found letters of intent or term sheets to be binding, courts have relied not only on the specificity of the details in the documents but a similar manifestation of intent,” which was nowhere to be found in the term sheet at issue.[14] Further, “virtually all the obligations in the term sheet fell upon” Cascade, whereas the agreement gave SPG “sole discretion” to “terminate the term sheet” and “determine the terms upon which it would extend credit.”[15] And although SPG agreed to perform due diligence in connection with the transaction, the term sheet “bound Cascade to refrain from seeking other financing without regard to whether [SPG] moved forward with its due diligence in a timely fashion or adhered to the other provisions in the term sheet.”[16] The court thus found that the lack of “mutuality of obligation” in the agreement, coupled with its nonbinding and conditional language, suggested that the parties did not intend to be bound by its terms.[17]

Moreover, the court rejected SPG’s alternative argument that the exclusivity provisions in the agreement—which forbade Cascade from obtaining a first mortgage loan from a different lender—were independently enforceable, even if the term sheet were otherwise an unenforceable agreement to agree. Justice Reed noted that courts have enforced similar terms only where the “exclusivity provision [states that it] shall survive the term sheet and is binding regardless of the binding nature of the term sheet.”[18] Here, although the document stated that the exclusivity provisions would “survive the termination of this Term Sheet,” there was “no statement that render[ed] the provision enforceable notwithstanding the nonbinding nature of the term sheet.”[19] The court thus found that the exclusivity provisions could not be severed from the rest of the document.

Lastly, the court granted Cascade’s motion for summary judgment in connection with its entitlement to the $200,000 good-faith deposit. Although the term sheet itself was not enforceable, the court held that Cascade was “entitled to return of this amount, less any money [SPG] may have spent during its due diligence,” on equitable principles of quantum meruit, unjust enrichment and conversion.[20]

TAKEAWAYS

The court’s decision in SPG Capital underscores the risks of relying on the promises made in preliminary agreements, like term sheets, that depend in whole or in part on the execution of some other binding contract in the future. According to SPG Capital, New York courts are generally reluctant to find such agreements enforceable absent language that demonstrates an express intent by the parties to be bound by the document’s terms. And even if the parties wish to make a subset of terms in the agreement enforceable, the court’s ruling suggests that they typically must do so by making clear that these terms are binding notwithstanding the nonbinding nature of the remainder of the document.

[1] 77 Misc. 3d 1222(A), 180 N.Y.S.3d 524 (Sup. Ct. N.Y. Cty. 2023).

[2] Id.at *1-2.

[3] Id.at *2.

[4] Id.

[5] Id.at *3.

[6] Id.

[7] Id.

[8] Id.at *2.

[9] Id.

[10] Id.at *5.

[11] Id.at *3. Cascade had also filed a counterclaim arguing that, to the extent the term sheet was enforceable, it was entitled to damages arising from SPG’s breach of the agreement. But Cascade did not press this claim in its summary judgment motion, so the court did not consider it in its decision. See id.at *7.

[12] Id.at *1.

[13] Id.at *4.

[14] Id.

[15] Id.at *6.

[16] Id.at *6.

[17] Id.

[18] Id.

[19] Id.

[20] Id.at *7.

Representative Matters

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Regularly represents multinational food, beverage, and cosmetics companies in putative class actions concerning product advertising and labeling.

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Represented leading European industrial conglomerate in suits alleging trade secret misappropriation.

Represented global industrial equipment and service provider in contract dispute regarding terms of merger agreement.

Represented European bank in connection with allegations brought by asset managers, pension funds, and central banks concerning alleged manipulation of the foreign exchange market.

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Represented prominent art museum in connection with investigations by the Manhattan District Attorney and U.S. Attorney’s Office concerning the provenance of pieces in the museum’s collection.

Advised art galleries and individual collectors on a range of issues, including provenance and ownership disputes, anti-money laundering laws, and compliance with sanctions programs.

Conducted internal investigations of companies and non-profit organizations in connection with allegations of commercial bribery and money laundering.

Conducted internal investigation of law firm in connection with allegations of malpractice brought by debtor in bankruptcy proceeding, and successfully negotiated settlement of claims with debtor.

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Represented mother and son who sought asylum in the United States after facing threats of extortion and murder by gang members in El Salvador, and successfully obtained relief under the Convention Against Torture that enabled both to remain in the United States.

Authored amicus brief in the U.S. Supreme Court concerning the government’s obligation under the Immigration and Nationality Act to conduct an individualized assessment of the propriety of detention of individuals seeking asylum in the United States.

Represented class of individuals asserting claims for deceptive business practices, unjust enrichment, and harassment against operator of three-quarter houses in New York. Successfully obtained multimillion-dollar damages award and injunctive relief.

Represented comic book artist in dispute with publisher involving unconscionable contract that purported to grant the publisher virtually all rights to the artist’s intellectual property.

Authored amicus brief in the U.S. Supreme Court concerning the availability of damages awards under the Religious Freedom Restoration Act in connection with federal agents’ unlawful placement of Muslim man on “No Fly List” in retaliation for his refusal to work as an informant in the American-Muslim community.

Speaking Engagements

Speaker, "Reviewing The Next Generation of Product Liability Claims in Cosmetics," ACI's 13th Annual Legal, Regulatory, and Compliance Forum on Cosmetics & Personal Care Products (March 12, 2026)
Panelist, "Incorporating Lessons from Recent Advertising Claims Class Actions Into Your Future Claims Substantiation Strategies," ACI's 8th Annual Legal, Regulatory, and Compliance Forum on Advertising Claims Substantiation (February 7, 2025)

Publications

July 10, 2023

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

The court’s decision in Mallory could have profound implications for larger-sized companies that operate in multiple states throughout the country. And nowhere is this truer than in New York, where the state’s status as a global hotspot for foreign investment...

New York Law Journal

March 30, 2023

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

July 5, 2022

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

New York’s consumer protection laws are particularly attractive to the plaintiff’s bar. One reason is the availability of “statutory” damages under New York’s General Business Law (“GBL”). While most states’ consumer protection laws limit plaintiffs’ recovery to their actual damages,...

July 10, 2023

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

New York Law Journal

March 30, 2023

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

July 5, 2022

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

September 29, 2020

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

On September 22, the U.S. Department of Labor ("DOL") announced new proposed regulations regarding when workers can be classified as independent contractors under the Fair Labor Standards Act (“FLSA”). The FLSA requires companies to provide overtime pay to, and to keep certain...

July 16, 2020

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

In the wake of punishing economic losses caused by COVID-19-related shutdown orders, business owners across the country have turned to their insurers for relief in the form of business interruption coverage. In New York, the state hit hardest by the pandemic, the...

Mealey's Emerging Insurance Disputes

July 6, 2020

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

In the wake of punishing economic losses caused by Covid-19-related shutdown orders, business owners across New York have turned to their insurers for temporary relief in the form of business interruption coverage. If recent reports are any indication, however, New...

Bloomberg Law

May 4, 2020

CARES Act: Unemployment Relief

On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or the “Act”), a $2 trillion COVID-19 relief and stimulus package that offers extraordinary financial assistance to employers who meet...

April 20, 2020

COVID-19 Update: Additional Guidance and Developments for Employers

As the COVID-19 pandemic and ensuing widespread shutdown of workplaces around the country continues (and for New Yorkers is expected to continue through at least May 15), government agencies have been busy issuing guidance relating to the many new laws...

April 7, 2020

CARES Act: Paycheck Protection Program (PPP) FAQs

On April 6, 2020, the Small Business Administration (the “SBA”) in consultation with the Department of the Treasury released additional guidance reflecting the implementation of the Paycheck Protection Program (“PPP”) of the CARES Act in a Frequently Asked Questions (FAQs) format...

All Publications

September 29, 2020

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

July 16, 2020

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

Mealey's Emerging Insurance Disputes

July 6, 2020

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

Bloomberg Law

May 4, 2020

CARES Act: Unemployment Relief

April 20, 2020

COVID-19 Update: Additional Guidance and Developments for Employers

April 7, 2020

CARES Act: Paycheck Protection Program (PPP) FAQs

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News

March 17, 2026

Firm Secures Summary Judgment in Public Nuisance Suit on Behalf of Coca-Cola

Patterson Belknap obtained a significant victory on behalf of our client, The Coca-Cola Company ("Coca-Cola"), in a suit in California state court challenging Coca-Cola's and co-defendants’ use of plastic packaging. Plaintiff, Earth Island Institute, alleged that defendants caused a public nuisance by promoting...

December 16, 2024

Patterson Belknap Announces Three New Partners and Three Counsel

April 28, 2023

Firm Secures Notable Dismissal for The Coca-Cola Company in Advertising Litigation Case

March 17, 2026

Firm Secures Summary Judgment in Public Nuisance Suit on Behalf of Coca-Cola

December 16, 2024

Patterson Belknap Announces Three New Partners and Three Counsel

April 28, 2023

Firm Secures Notable Dismissal for The Coca-Cola Company in Advertising Litigation Case

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Dakotah M. Burns

Publications

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

CARES Act: Unemployment Relief

COVID-19 Update: Additional Guidance and Developments for Employers

CARES Act: Paycheck Protection Program (PPP) FAQs

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

CARES Act: Unemployment Relief

COVID-19 Update: Additional Guidance and Developments for Employers

CARES Act: Paycheck Protection Program (PPP) FAQs

News

Firm Highlights

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

Documentation Requirements for COVID-19-Related Leave

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Dakotah M. Burns

Representative Matters

Admissions

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Speaking Engagements

Publications

Publications

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

'Mallory' Decision Could Have Profound Implications for Out-of-State Companies Registered to Do Business in NY

Commercial Division Finds Alleged Obligations Under Term Sheet Constitute Unenforceable Agreement to Agree

Federal Court to Consider Constitutionality of Juiced-Up Statutory Damages Awards in Consumer Class Actions

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

CARES Act: Unemployment Relief

COVID-19 Update: Additional Guidance and Developments for Employers

CARES Act: Paycheck Protection Program (PPP) FAQs

Department of Labor Announces Proposed Regulations Regarding Worker Classification Under the FLSA

COVID-19 Business Interruption Coverage – Chief Roadblocks And Potential Paths To Coverage For Commercial Losses In New York

INSIGHT: Business Interruption Recovery in New York—Two Cases Might Help

CARES Act: Unemployment Relief

COVID-19 Update: Additional Guidance and Developments for Employers

CARES Act: Paycheck Protection Program (PPP) FAQs

News

Firm Highlights