On August 23, 2023, Justice Crane of the New York County Commercial Division issued a decision in US Pony Holdings, LLC v. Fashion Footwear LLC, 2023 NY Slip Op. 32929(U), holding that a declaratory judgment claim was appropriate when it will affect the parties’ conduct, explaining:
The court denies DE Holdings’ motion to dismiss the first cause of action for a declaratory judgment that “DE Holdings’ Notice of Breach letter is void and the Exclusive Danskin License Agreement remains in full force and effect and Fashion Footwear is in good standing thereunder.”
Under CPLR 3001, the court may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed. The court may not issue a declaratory judgment where there is not a justiciable controversy or present prejudice to the seeking party, but rather hypothetical, contingent, or remote prejudice. However, declaratory relief may be appropriate where the declaration will have the immediate and practical effect of influencing the parties’ current conduct.
Fashion has stated a cause of action for declaratory judgment as to DE Holdings’ notice of breach and the status of the Danskin license agreement. Rather than hypothetical, the controversy over DE Holdings’ potential termination of the Danskin license agreement is a live, ongoing area of dispute. While DE Holdings has not formally terminated the agreement-at least not yet-the third-party complaint alleges that the notice of breach states that Fashion is in breach of the Danskin license agreement and that DE Holdings reserves all rights in respect of this breach. The notice of breach letter states, in no uncertain terms, that DE Holdings is entitled to exercise any and all of its rights including but not limited to immediate termination of the Danskin Agreement.
Thus, because DE Holdings is asserting that Fashion is in breach and that DE Holdings has the right to immediately terminate the Danskin license agreement-something that Fashion adamantly disputes-there is a justiciable controversy. A declaration either for or against Fashion will have the immediate and practical effect of influencing the parties’ current conduct, either by forcing DE Holdings to continue to work with Fashion under the Danskin license agreement or by permitting DE Holdings to terminate the agreement immediately. At this pleading stage, and on this record, it would be premature to grant this portion of the motion to dismiss.
DE Holdings’ arguments to the contrary are unavailing. DE Holdings argues that the cases involving declaratory judgments as to the validity of default notices on which Fashion relies are primarily inapposite Yellowstone injunction cases. While it may be true that those cases involved requests for Yellowstone injunctions, the analysis in those cases is not limited to situations involving Yellowstone injunctions. Similarly, the court rejects DE Holdings’ argument that the declaratory relief will not purportedly have any immediate or practical effect on the parties’ conduct. On the contrary, Fashion has alleged specifically that without being prevented from invoking the false basis for the alleged breach” in the notice of breach, DE Holdings will, at any moment, attempt to unlawfully terminate the Exclusive Danskin License Agreement.
(Internal quotations and citations omitted).