On July 14, 2023, Justice Chan of the New York County Commercial Division issued a decision in Newage Garden Grove, LLC v. Wells Fargo Bank, N.A., 2023 NY Slip Op. 32447(U), rejecting an economic duress claim, explaining:
Defendants argue that Newage’s economic duress claim should be dismissed because the purported misconduct underlying this claim is that Lender exercised its rights under the Loan Agreement in the event of a default. Furthermore, Defendants continue, the true basis for this claim is a disagreement over the Loan Agreement’s contractual terms, which cannot support an economic
duress claim. In response, Newage argues that it has sufficiently alleged that the payments sought by Rialto were not permissible, and that it had no choice but to accede to Rialto’ s wrongful demand so that it could refinance the Loan and
avoid losing the Property.
Under New York law, economic duress exists where a party is compelled to agree to terms set by another party because of a wrongful threat by the other party that prevents it from exercising its free will. A party, however, cannot be guilty of economic duress for refusing to do that which it is not legally required to do. Similarly, threats to enforce a party’s legal rights under a contract–or even that party’s interpretation of its rights- cannot constitute a wrongful threat sufficient to establish a claim of
economic duress. That a party is financially vulnerable and lacks equal bargaining power, alone, is not sufficient to state a claim for economic duress.Here, the Complaint alleges that Rialto coerced Newage into paying an unwarranted amount of interest, fees, and expenses by (1) claiming nonmonetary defaults and (2) refusing to release the liens on the Property. Newage further avers that it had no choice but to accede to Defendants’ unwarranted fees (under protest) to avoid foreclosure on the Property and further accrual of interest, fees, and expenses. Yet even accepting these facts as true and drawing all reasonable inferences, the court cannot conclude that Newage has stated a plausible claim of economic duress. Rather, the Complaint only supports a conclusion that Newage, made a calculated risk to pay off the Loan at a disputed amount and under protest in response to Defendants exercising their perceived contractual rights under the Loan Agreement. Although Newage may have felt economic pressure to pay Defendants and secure removal of the lien on the Property, nothing in the complaint suggests that Lender or Rialto acted in a threatening or unlawful manner beyond seeking a disputed payoff amount from Newage.
Relying on the First Department’s analysis in Beltway 7 Props. Ltd., Newage counters that its allegations of a forced payment under fear of foreclosure does adequately support a claim for economic duress. The court disagrees. In Beltway, plaintiff had appealed a ruling that the voluntary payment doctrine precluded its ability to sue defendants for allegedly improper late fee charges and interest payments that it had paid them to allow it to refinance its loan. One basis advanced by plaintiff to avoid application of the voluntary payment doctrine was economic duress. Specifically, plaintiff alleged a fear that defendants, who were the assignees of plaintiffs loan, would foreclose on the property securing the loan should plaintiff fail to pay them the amount demanded. In ultimately affirming dismissal of plaintiffs claim, the First Department notably did not hold that plaintiff adequately alleged a claim for economic duress. Rather, it merely acknowledged as part of its analysis that plaintiff may have established a question whether defendant may have had a right to extract a late charge from it.
Turning back to the case at hand, even assuming the First Department’s observation in Beltway has any precedential effect, the Complaint is devoid of any allegations that Defendants threatened to foreclose on the property in the absence of a payment (or even had a right to do so), or that Newage made its payment based on a fear (legitimate or otherwise) that Defendants would do so. At most, the Complaint alleges that Defendants would not release liens held on the Property absent payment, and it otherwise advances a stray, unsupported assertion that Newage faced losing the value of the Property in foreclosure. This lone conclusory allegation is insufficient to establish that Newage made its payment of $6.1 million in accrued default interest and fees against its free will. Defendants’ motion to dismiss Count VI of the complaint is granted.
(Internal quotations and citations omitted).