In Part I (posted May 6, 2013) we explored how the general principles of New York law with respect to “scrivener’s error”, “mutual mistake” and “reformation” were formulated by the Court of Appeals in the mid-to-late nineteenth century. In Part II (posted August 3, 2013) we reviewed how the law was developed and applied by the Court of Appeals to more complicated transactions in the twentieth century. And, in this final Part III, we analyze how the law continues to be followed and applied by the Court of Appeals and other courts in the current millennium.
As of this writing the Court of Appeals has addressed the issue of reformation only once in the twenty-first century. Simkin v. Blank, 19 N.Y. 3d 46 (2012).
In Simkin, “[t[he primary issue before [the Court of Appeals was] whether plaintiff has presented facts sufficient to support the reformation or setting aside of the parties’ marital settlement agreement based on a claim of mutual mistake pertaining to an investment account.” Id. at 49. The Court concluded that “plaintiff has failed to state a cause of action under CPLR 3211 and therefore dismisses the amended complaint”. Id.
The Court of Appeals set forth the background:
Plaintiff Steven Simkin (husband) and defendant Laura Blank (wife) married in 1973 and have two children. Husband is a partner at a New York law firm and wife, also an attorney, is employed by a university. After almost 30 years of marriage, the parties separated in 2002 and stipulated in 2004 that the cut-off date for determining the value of marital assets would be September 1, 2004. The parties, represented by counsel, spent two years negotiating a detailed 22-page settlement agreement, executed in June 2006. In August 2006, the settlement agreement was incorporated, but not merged, into the parties’ final judgment of divorce. Id.
The substance of the marital settlement agreement:
The settlement agreement set forth a comprehensive division of marital property. Husband agreed to pay wife $6,250,000 “[a]s and for an equitable distribution of property…and in satisfaction of the Wife’s support and marital property rights.” In addition, wife retained title to a Manhattan apartment (subject to a $370,000 mortgage), an automobile, her retirement accounts and any “bank, brokerage and similar financial accounts in her name.” Upon receipt of her distributive payment, wife agreed to convey her interest in the Scarsdale marital residence to husband. Husband received title to three automobiles and kept his retirement accounts, less $368,000 to equalize the value of the parties’ retirement accounts. Husband further retained “bank, brokerage and similar financial accounts” that were in his name, two of which were specifically referenced – his capital account as a partner at the law firm and a Citibank account Id at 49-50.
And the release provisions contained therein:
The agreement also contained a number of mutual releases between the parties. Each party waived any interest in the other’s law license and released or discharged any debts or further claims against the other. Although the agreement acknowledged that the property division was “fair and reasonable”, it did not state that the parties intended an equal distribution or other designated percentage division of the marital estate. The only provision that explicitly contemplated an equal division was the reference to equalizing the values of the parties’ retirement accounts. The parties further acknowledged that the settlement constituted “an agreement between them with respect to any and all funds, assets or properties, both real and personal, including property in which either of them may have an equitable or beneficial interest wherever situated, now owned by the parties or either of them, or standing in their respective names or which may hereafter be acquired by either of them, and all other rights and obligations arising out of the marital relationship.” Id at 50
The Court of Appeals then described the facts underlying the pending litigation:
At the time the parties entered into the settlement, one of husband’s unspecified brokerage accounts was maintained by Bernard L. Madoff Investment Securities (the Madoff account). According to husband, the parties believed the account was valued at $5.4 million as of September 1, 2004, the valuation date for marital assets. Husband withdrew funds from this account to pay a portion of his distributive payment owed wife in 2006, and continued to invest in the account subsequent to the divorce. In December 2008, Bernard Madoff’s colossal Ponzi scheme was publicly exposed and Madoff later pleaded guilty to federal securities fraud and related offenses. Id.
As a result of the disclosure of Madoff’s fraud, in February 2009 – about 2 ½ years after the divorce was finalized – husband commenced this action against wife alleging two causes of action: (1) reformation of the settlement agreement predicated on a mutual mistake and (2) unjust enrichment. The amended complaint asserts that the settlement agreement was intended to accomplish an “approximately equal division of [the couple’s] marital assets,” including a 50-50 division of the Madoff account. To that end, the amended complaint states that $2,700,000 of wife’s $6,250,000 distributive payment represented her “share” of the Madoff account. Husband alleges that the parties’ intention to equally divide the marital estate was frustrated because both parties operated under the “mistake” or misconception as to the existence of a legitimate investment account with Madoff which, in fact, was revealed to be a part of a fraudulent Ponzi scheme. The amended complaint admits, however, that funds were previously “’withdrawn’ from the ‘Account’” by husband and applied to his obligation to pay wife. Id at 50-51
Based upon the Madoff-related facts:
In his claim for reformation, husband requests that the court “determine the couple’s true assets with respect to the Madoff [a]ccount” and alter the settlement terms to reflect an equal division of the actual value of the Madoff account. The second cause of action seeks restitution from wife “in an amount to be determined at trial” based on her unjust enrichment arising from husband’s payment of what the parties mistakenly believed to be wife’s share of the Madoff account. Wife moved to dismiss the amended complaint on several grounds including a defense founded on documentary evidence (see CPLR 3211[a]) and for failure to state a cause of action (see CPLR 3211[a]). Id at 51.
The Court of Appeals described the prior proceedings:
Supreme Court granted wife’s motion and dismissed the amended complaint. The Appellate Division, with two Justices dissenting, reversed and reinstated the action (80 AD3d 401 [1st Dept 2011]). The Appellate Division granted wife leave to appeal on a certified question (2011 NY Slip Op 70450[U] ), and we now reverse and reinstate Supreme Court’s order of dismissal. Id.
And the arguments presented:
Wife argues that the Appellate Division erred in reinstating the amended complaint because the allegations, even if true, fail to appropriately establish the existence of a mutual mistake at the time the parties entered into their settlement agreement. Rather, she claims that, at most, the parties may have been mistaken as to the value of the Madoff account, but not in its existence. Wife also contends that allowing husband’s claims to go forward years after the division of property and issuance of a divorce decree would undermine policy concerns regarding finality in divorce cases. Husband responds that the amended complaint states a viable claim because the parties were both unaware and mislead as to the legitimacy of the Madoff account, which, in husband’s view, “did not in fact ever exist” due to the fraud occasioned on investors. Id at 51-52.
The Court of Appeals set forth the law as to marital settlement agreements:
Marital settlement agreements are judicially favored and are not to be easily set aside (see McCoy v. Feinman, 99 NY2d 295, 302 ; Christian v. Christian, 42 NY2d 63, 71-72 ). Nevertheless, in the proper case, an agreement may be subject to rescission or reformation based on a mutual mistake by the parties (see Matter of Gould v. Board of Educ. Of Sewanhaka Cent. High School Dist., 81 NY2d 446, 453 ; Chimart Assoc. v. Paul, 66 NY2d 570, 573 ). Similarly, a release of claims may be avoided due to mutual mistake (see Centro Empresarial Cempresa S.A. v. Am[e’]rica M[o’]vil, S.A.B. de C.V., 17 NY3d 269, 276 ). Based on these contract principles, the parties here agree that this appeal turns on whether husband’s amended complaint states a claim for relief under a theory of mutual mistake. Id at 52.
The law in general as to mutual mistake:
We have explained that “[t]he mutual mistake must exist at the time the contract is entered into and must be substantial” (Gould, 81 NY2d at 453). Put differently, the mistake must be “so material that…it goes to the foundation of the agreement” (Da Silva v. Musso, 53 NY2d 543, 552  [internal quotation marks and citations omitted]; see also 27 Lord, Williston on Contracts § 70:12 [4th ed] [“The parties must have been mistaken as to a basic assumption of the contract…Basic assumption means the mistake must vitally affect the basis upon which the parties contract”]). Court-ordered relief is therefore reserved only for “exceptional situations” (Da Silva, 53 NY2d at 552 [internal quotation marks omitted]). The premise underlying the doctrine of mutual mistake is that “the agreement as expressed, in some material respect, does not respect the meeting of the minds of the parties” (Gould, 81 NY2d at 453 [internal quotation marks and citations omitted]) Id at 52-53.
The legal arguments by the husband:
Although we have not addressed mutual mistake claims in the context of marital settlement agreements, the parties cite a number of Appellate Division cases that have analyzed this issue. Husband relies on True v. True (63 AD3d 1145, 1146 [2d Dept 2009]), where the settlement agreement provided that the husband’s stock awards from his employer would be “divided 50-50 in kind” and recited that 3,655 shares were available for division between the parties. After the wife redeemed her half of the shares, the husband learned that only 150 shares remained and brought an action to reform the agreement, arguing that the parties mistakenly specified the gross number of shares (3,655) rather than the net number that was actually available for distribution. The Second Department agreed and reformed the agreement to effectuate the parties’ intent to divide the shares equally, holding that the husband had established “that the parties’ use of 3,655 gross shares was a mutual mistake because it undermined their intent to divide the net shares available for division, 50-50 in kind” (id. at 1148). Id at 53.
Other cases relied on by husband involve marital settlement agreements that were set aside or reformed because a mutual mistake rendered a portion of the agreement impossible to perform. In Banker v. Banker (56 AD3d 1105 ), the Third Department reformed a provision of a marital settlement that required the subdivision of a parcel of real property because the parties were unaware of a restrictive covenant against further subdivision. Similarly, in Brender v. Brender (199 AD2d 665 ), the Third Department set aside a settlement provision that allowed the wife to purchase health insurance through her husband’s plan where both parties were mistaken in their belief that such coverage was available. Id.
And the legal arguments by the wife:
Wife in turn points to appellate cases denying a spouse’s request to reopen a marital settlement agreement where the final value of an asset was not what the parties believed at the time of the divorce (see Greenwald v. Greenwald, 164 AD2d 706, 721 [1st Dept 1991], lv denied 78 NY2d 855  [stating that “posttrial changes in value may not be used to reallocate the distribution of marital assets”]). In Kojovic v. Goldman (35 AD3d 65 , lv denied 8 NY3d 804 , for example, the First Department dismissed the wife’s reformation and rescission claims where the husband unexpectedly sold his interest in a company for $18 million after the divorce. And in Etzion v. Etzion (62 AD3d 646 , lv dismissed 13 NY3d 824 , the Second Department rejected the wife’s mutual mistake claim where the market value of the husband’s warehouse property substantially increased in value after the city adopted a rezoning plan subsequent to the parties’ settlement. Id at 53-54.
And applied the law to the facts:
Applying these legal principles, we are of the view that the amended complaint fails to adequately state a cause of action based on mutual mistake. As an initial matter, husband’s claim that the alleged mutual mistake undermined the foundation of the settlement agreement, a precondition to relief under our precedents, is belied by the terms of the agreement itself. Unlike the settlement agreement in True that expressly incorporated a “50-50” division of a stated number of stock shares, the settlement agreement here, on its face, does not mention the Madoff account, much less evince an intent to divide the account in equal or other proportionate shares (see Centro, 17 NY3d at 277 [explaining that “courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include”] [internal quotation marks and citation omitted]). To the contrary, the agreement provides that the $6,250,000 payment to wife was “in satisfaction of [her] support and marital property rights,” along with her release of various claims and inheritance rights. Despite the fact that the agreement permitted husband to retain title to his “bank, brokerage and similar financial accounts” and enumerated two such accounts, his alleged $5.4 million Madoff investment account is neither identified nor valued. Given the extensive and carefully negotiated nature of the settlement agreement, we do not believe that this presents one of those “exceptional situations” (Da Silva, 53 NY2d at 552 [internal quotation marks omitted]) warranting reformation or rescission of a divorce settlement after all marital assets have been distributed. Id at 504.
Even putting the language of the agreement aside, the core allegation underpinning husband’s mutual mistake claim – that the Madoff account was “nonexistent” when the parties executed their settlement agreement in June 2006 – does not amount to a “material” mistake of fact as required by our case law. The premise of husband’s argument is that the parties mistakenly believed that they had an investment account with Bernard Madoff when, in fact, no account ever existed. In husband’s view, this case is no different from one in which parties are under a misimpression that they own a piece of real or personal property but later discover that they never obtained rightful ownership, such that a distribution would not have been possible at the time of the agreement. But that analogy is not apt here. Husband does not dispute that, until the Ponzi scheme began to unravel in late 2008 – more than two years after the property division was completed – it would have been possible for him to redeem all or part of the investment. In fact, the amended complaint contains an admission that husband was able to withdraw funds (the amount is undisclosed) from the account in 2006 to partially pay his distributive payment to wife. Given that the mutual mistake must have existed at the time the agreement was executed in 2006 (see Gould, 81 NY2d at 453), the fact that husband could no longer withdraw funds years later is not determinative. Id at 54-55.
This situation, however sympathetic, is more akin to a marital asset that unexpectedly loses value after dissolution of a marriage; the asset had value at the time of the settlement but the purported value did not remain consistent. Viewed from a different perspective, had the Madoff account or other asset retained by husband substantially increased in worth after the divorce, should wife be able to claim entitlement to a portion of the enhanced value? The answer is obviously no. Consequently, we find this case analogous to the Appellate Division precedents denying a spouse’s attempt to reopen a settlement agreement based on post-divorce changes in asset valuation. Id at 55.
In the last few years, the Appellate Divisions have more regularly and routinely addressed issues relating to ”scrivener’s error”, “mutual mistake” and “reformation”.
Henry Schein, Inc. v. Broad Hollow Realty Co., 293 A.D. 2d 573, 740 N.Y.S. 2d 228 (2d Dept. 2002), was an action “to compel specific performance of an option to purchase real property[.]” Supreme Court granted plaintiff’s motion for summary judgment and denied defendant’s cross- motion to dismiss the complaint. The Appellate Division, as follows, summarily affirmed:
On September 30, 1993, the plaintiff, as tenant, entered into a 12-year lease with an option to purchase an office building owned by the defendants. The lease provided that the plaintiff may exercise the option to purchase by giving written notice on or before the eleventh anniversary date of the lease, and that the closing shall take place on a date “not later than 30 days prior to the expiration date of the initial term” of the lease. On June 10, 1999, the plaintiff exercised the option by giving written notice and requested that the defendants set a prompt closing date. The defendants responded with a letter setting the closing date for December 1, 2005. Id.
Following commencement of this action, the defendants moved, inter alia, for reformation of the lease to provide “that the closing of title…take place within 30 days of the Expiration Date” of the lease. The court properly denied the defendants’ motion to reform the contract in the absence of a high level of proof by way of clear and convincing evidence of a certainty of error in reducing the parties’ agreement to writing (see Chimart Assoc. v. Paul, 66 NY2d 570, 574; Aventine Inv. Mgt. v. Canadian Imperial Bank of Commerce, 265 AD2d 513, 514; Touloumis v. Chalem, 156 AD2d 230, 232). Id at 573-74.
In 1414 APF, LLC v. Deer Stags, Inc., 39 A.D. 3d 329, 834 N.Y.S. 2d 133 (1st Dept. 2007), the Appellate Division affirmed Supreme Court’s dismissal of plaintiff- commercial landlord’s claims against defendant-tenant.
The First Department set forth the facts:
Defendant is a commercial tenant in plaintiff’s building pursuant to a lease and amended lease entered into with plaintiff’s predecessors in interest. In September 1999, plaintiff’s predecessor and defendant entered into the first amended lease, which was, according to plaintiff, intended to (1) immediately add the 17th floor to defendant’s lease and increase the rent to $251,280; (2) move defendant from its original space to the 16th floor on January 1, 2000, making the demised premises the entire 16th and 17th floors; (3) extend the lease term for 10 years and three months from the date defendant received delivery of the 16th floor, assuming the landlord was able to do so; and (4) increase defendant’s annual rent to $265,240 for the final five years, three months of the new lease term. Id.
Plaintiff’s predecessor delivered the 17th floor to defendant immediately upon execution of the amended lease and delivered the 16th floor to defendant on or about January 1, 2000. Defendant began paying the increased rent of $251,280 on or about that date but refused to pay the increase to $265,240 in January 2005. Defendant relies on paragraph 4(B) of the amended lease, which provides, in pertinent part, that rent of $265,240 becomes due “From the fifth (5th) anniversary of the Rent Adjustment Date,” which is defined in the same paragraph as the fifth anniversary of the Substitution Space Adjustment Date (i.e., the date the 16th floor was delivered, January 1, 2000). Defendant thus argues that the increased rent is not yet due. Plaintiff notes that paragraph 4(A)(ii) of the lease required the increase in rent to be paid “From the Rent Adjustment Date” and that the inclusion of the words “the fifth (5th) anniversary of the” Rent Adjustment Date was a scrivener’s error. Id at 329-30.
When defendant continued to pay only the lower amount of rent, plaintiff commenced this action in March 2006, seeking (1) a declaratory judgment that defendant is obligated to pay rent at the rate of $265,240 per annum, from January 1, 2005 to the end of the lease term “by reason of the scrivener’s error and/or mutual mistake of the parties”; (2) reformation of paragraph 4(B) because of the scrivener’s error; (3) money damages for the difference between the amount of rent paid and the amount owed; (4) attorneys’ fees. Id at 330.
The Appellate Division affirmed dismissal of the “scrivener’s error” claim as barred by the statute of limitations:
Defendant moved to dismiss on the ground that the action was barred by the statute of limitations (CPLR 213), which was granted because all of plaintiff’s causes of action are “intrinsically intertwined to the same alleged ‘scrivener’s error”’ and were barred by the six-year statute of limitations. Id.
Plaintiff’s first cause of action, while claiming to seek declaratory judgment as to the proper amount of rent for the period commencing January 1, 2005, essentially seeks reformation of the lease based upon mistake. The statute of limitations on a claim of reformation based upon mistake is six years, accruing on the date of the mistake (CPLR 213; see National Amusements v. South Bronx Dev. Corp., 253 AD2d 358, 676 NYS2d 166 ). This rule also applies to scrivener’s errors (Matter of Wallace v. 600 Partners Co., 86 NY2d 543, 547, 658 NE2d 715, 634 NYS2d 669 . Although plaintiff argues that a two-year date of discovery accrual should apply here, we find that argument unpersuasive inasmuch as plaintiff presumably had the document containing the mistake in its possession and thus could not demonstrate the due diligence required pursuant to CPLR 203[g] to toll the statute of limitations (Federal Deposit Ins. Corp. v. Five Star Mgt., 258 AD2d 15, 20 692 NYS2d 69 ). The first cause of action was thus properly dismissed. Id.
However, the Appellate Division reinstated the cause of action for a declaratory judgment:
Plaintiff argues that its causes of action for declaratory judgment concerning the amount of rent owed by defendant, money damages for the difference in the amount of rent paid and the amount owed and counsel fees incurred as a result of defendant’s default in payment sound in breach of contract. Plaintiff essentially contends that since the lease cannot be enforced as written, and that it is ambiguous and irreconcilable, court intervention is required to determine the intention of the parties so as to give meaning to the document. These causes of action would not be barred by the statute of limitations as the alleged breach did not occur until defendant failed to pay the increased rent purportedly due on January 1, 2005. Id.
In those “limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part,” courts may interpret a document to carry out the intention of the parties “by transposing, rejecting, or supplying words to make the meaning of the contract more clear” (Wallace, 86 NY2d at 547-548). However, “[w]hether or not a contract provision is ambiguous is a question of law to be resolved by a court” (Van Wagner Adv. Corp. v. S&M Enters., 67 NY2d 186, 191, 492 NE2d 756, 501 NYS2d 628 ). Id at 331.
The agreement here contains irreconcilable ambiguities. If plaintiff did not deliver the space on the 16th floor, then the rent increase would occur five years after the amended lease was executed and defendant received the “Added Space” (the 17th floor) that occurred upon execution of the amended lease. However, if plaintiff did deliver the “Substitution Space” (the 16th floor) along with the 17th floor, which occurred at the time of the execution of the amended lease, then the “Rent Adjustment Date” was five years after the “Substitution Space Adjustment Date, meaning five years after the delivery of the 16th floor. Therefore, defendant’s rent would increase either five years after receiving the 17th floor, or ten years after receiving the 16th floor while already in possession of the 17th floor. In other words, defendant’s rent would increase faster if it did not receive the new space on the 16th floor than if it did. Additionally, the lease appears not to require any rent at all for the five years from the “Rent Adjustment Date” to the fifth anniversary of that date. Id.
Clearly, “by looking within the four corners of the document,” we find a lease with ambiguities that would lead to an absurd result (Matter of Stravinsky, 4 AD3d 75, 81, 770 NYS2d 40 ). Since plaintiff’s remaining causes of action seek to enforce the terms of the lease and sound in breach of contract, the noted ambiguities are sufficient to require court intervention to determine the intent of the parties. The motion should thus have been denied with respect to the second, third and fourth causes of action. Id.
In Stonebridge Capital, LLC v. Nomura International PLC, 68 A.D. 3d 546, 891 N.Y.S 2d 56 (1st Dept. 2009), the First Department affirmed dismissal of a complaint that sought reformation of an indenture based upon a purported “scrivener’s error”.
The First Department set forth the facts:
In September 2007, the parties entered into a complex transaction styled as a “loan”. Each of the counterclaim defendant 1042 Investor LLCs (collectively the 1042 Investors) sold a portion of its business to its employees through an employee stock ownership plan and invested the proceeds of the sale in public utility bonds in order to obtain tax benefits. The bonds were insured against default by certain financial guaranty insurers. Id at 547.
The bonds were then used to collateralize loans that the 1042 Investors obtained on the subject loan transaction. Plaintiff Stonebridge, as sponsor, made loans to the 1042 Investors and received as collateral the bonds that the 1042 Investors had purchased. Stonebridge then securitized these loans by issuing SEC-registered notes to Nomura. Id.
* * *
On July 9, 2008, Nomura declared Stonebridge in default because the rating of XL Capital’s financial guaranty insurance policy on the bonds had fallen below the default trigger level. Nomura also claimed higher interest based on the triggering of a downgrade yield. Id.
And described the prior proceedings:
Stonebridge brought this action for a declaration that it is not in default (third cause of action), for reformation of the subject clauses and to restrain the collateral trustees from acting on Nomura’s instructions regarding default. It alleged scrivener’s error by its own drafter (first cause of action) or mutual mistake (second) in making the triggers dependent on ratings of the “financial guaranty insurance policy related to the underlying bond”, instead of ratings of the “underlying bond”, which it claimed the parties had negotiated and had agreed to all along, and that Nomura had acknowledged the mistake and stated that it planned to correct it. Id at 547-48.
The issues on appeal:
At issue on appeal are clauses in the transaction documents which entitled Nomura to (1) an increased rate of interest on the notes if the Moody’s and S&P ratings for the bonds fell below a certain level (the “downgrade yield trigger”) (Stonebridge Indenture § 3.3) and (2) Nomura’s right to declare a default, accelerating the due date for payment on the notes, if the ratings fell even further (Stonebridge Indenture § 6.1[a][ii]; Investor Indentures § 6.1[a][v] Id at 547.
The Appellate Division then applied the facts to the law:
The allegations of scrivener’s error and mutual mistake were properly dismissed. Stonebridge’s allegations failed to meet the “heavy presumption that a deliberately prepared and executed written instrument manifest[s] the true intention of the parties” (George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219 385 NE2d 1062, 413 NYS2d 135 ). Since the parties did not agree among themselves with respect to the meaning of the disputed language, the court properly found that reformation on the basis of scrivener’s error was unavailable (see Nash v. Kornblum, 12 NY2d 42, 47, 186 NE2d 551, 234 NYS2d 697 ; Rosalie Estates v. Colonia Ins. Co., 227 AD2d 335, 337, 643 NYS2d 59 ). Id at 548.
The mutual mistake claim was also properly dismissed as Stonebridge failed to allege that the parties reached an agreement that was not reflected in the transaction documents, failed to state “exactly” what such agreement was, and thus failed to overcome the strong presumption against mutual mistake claims (see Harris v. Uhlendorf, 24 NY2d 463, 467, 248 NE2d 892, 301 NYS2d 53 ; William P. Pahl Equip. Corp. v. Kassis, 182 AD2d 22, 29, 588 NYS2d 8 , iv denied in part and appeal dismissed in part 80 NY2d 1005, 607 NE2d 812, 592 NYS2d 665 ). Id.
The court properly ruled upon the declaratory judgment claim as a matter of law, finding that the declaration sought by Stonebridge would not only render several sections of the indentures meaningless, but would deny Nomura any possibility of ever declaring an event of default, leaving the default provision without any force and effect (see Acme Supply Co., Ltd. v. City of New York, 39 AD3d 331, 332, 834 NYS2d 142 , Iv denied 12 NY3d 701, 904 NE2d 504, 876 NYS2d 349 ). To “avoid an interpretation that would leave contractual clauses meaningless” (150 Broadway N.Y. Assoc., L.P. v. Bodner, 14 AD3d 1, 6, 784 NYS2d 63  [internal quotation marks and citation omitted]), the court harmonized the unambiguous language of the indentures in conjunction with the language in a contemporaneous tax opinion (see Matter of Westmoreland Coal Co. v. Entech, Inc., 100 NY2d 352, 358, 794 NE2d 667, 763 NYS2d 525 ), finding that the disputed language related to the rating of the issuer of the financial guaranty insurance policy, which was the position espoused by Nomura. Id.
The facts in Newmark & Company Real Estate Inc. v. 2615 East 17 Realty LLC, 80 A.D.3d 476, 914 N.Y.S.2d 162 (1st Dept. 2011), were simply stated:
In the lease between defendant, as the landlord, and nonparty tenant, which was brought into the transaction by plaintiff broker, the subscribing parties represented that plaintiff was the exclusive broker for the transaction and that defendant would pay its commission. This clear representation, which was supported by additional documentary evidence, entitled plaintiff to its commission as a matter of law (Morris Cohon & Co. v. Russell, 23 NY2d 569, 574-575, 245 NE2d 712, 297 NYS2d 947 ; Helmsley-Spear, Inc. v. New York Blood Ctr., 257 AD2d 64, 687 NYS2d 353 ). We reject defendant’s claim that the relevant provision does not mean what it says, but resulted from a scrivener’s error (see Edward S. Gordon Co. v. Blodnick, Schultz & Abramowitz, 150 AD2d 212, 540 NYS2d 816 , iv denied 74 NY2d 613, 547 NE2d 102, 547 NYS2d 847 ). Id at 477.
The First Department noted that:
Although defendant did not sign the separate brokerage agreement proffered by plaintiff setting forth the details of its commission, that fact is not fatal either under the statute of frauds or as to enforceability. Several e-mail communications, supported by other documentary evidence, reflected that plaintiff and defendant were in regular contact negotiating the lease and, when the parties appeared to be close to agreeing to the lease terms, plaintiff e-mailed defendant a draft brokerage agreement, setting forth, inter alia, the particular commission that had been discussed. Plaintiff invited defendant’s revisions and defendant sent back, also by e-mail, handwritten revisions, which did not modify the commission, but only provided that it would be paid in specified increments. Plaintiff incorporated those revisions and sent the final copy back to defendant’s agent, and the record contains no evidence that defendant objected to, protested, or rejected any of the provisions in the last version of the agreement. Id.
And the Appellate Division concluded that:
An e-mail sent by a party, under which the sending party’s name is typed, can constitute a writing for purposes of the statute of frauds (see General Obligations Law § 5-701[b]]; Stevens v. Publicis S.A., 50 AD3d 253, 255-256, 854 NYS2d 690 , iv dismissed 10 NY3d 930, 892 NE2d 399, 862 NYS2d 333 . Defendant does not dispute its authorship of the e-mails, nor that they were sent by its agent, and contrary to defendant’s claims, there is no evidence that it rejected the final e-mail sent by plaintiff, which incorporated defendant’s revisions. The e-mail agreement set forth all relevant terms of the agreement, including the particular commission charged by plaintiff, and thus, constituted a meeting of the minds (cf. Naldi v. Grunberg, 80 AD3d 1, 13-14, 908 NYS2d 639 ). Id at 477-78.
In US Bank National Association as Trustee of the Banc of America v. Lieberman, 98 A.D.3d 422, 950 N.Y.S.2d 127 (1st Dept 2012), the First Department summarized the dispute:
Defendants, a husband and wife embroiled in a divorce action, had purchased a residence by personally signing the contract of sale and conducting the remainder of the transaction by power of attorney. The deed vested title in both spouses, but the note and mortgage executed on their behalf named only the husband as the borrower. Although the matrimonial court had directed the husband to make payments on the mortgage obligation, he defaulted, and plaintiff sought to foreclose on the property. However, because the property was held by the still married defendants as a tenancy by the entirety, and would only be subject to partition after the divorce decree became final (see Goldman v. Goldman, 95 NY2d 120, 122, 733 N.E.2d 200, 711 N.Y.S.2d 128 ; Freigang v. Freigang, 256 AD2d 539, 682 N.Y.S.2d 466 , plaintiff sought reformation to correct the inconsistency between the deed and the mortgage to add defendant wife’s name as a mortgagor. Id at 422-23.
The Court accepted the contentions of defendant (wife):
The motion court correctly granted defendant’s motion for summary judgment insofar as the affidavits and documents she submitted in support of her motion established her prima facie entitlement to such relief. Specifically, defendant established that upon closing (1) she acquired one-half undivided interest in the property at issue, which she holds with her husband as a tenant by the entirety; (2) that she was not a signatory to either the note or mortgage on the property; and (3) that having never applied for a mortgage, she never had any contact, let alone a relationship with plaintiff or its assignor. Since plaintiff seeks to foreclose on the property pursuant to the mortgage, a contract authorizing foreclosure upon the mortgagor’s failure to make the required payments, it must establish, inter alia, that defendant was a party to the mortgage and that she breached the same (Harris v. Seward Park Hous. Corp., 73 AD3d 425, 426, 913 N.Y.S.2d 161  [the essential elements of a cause of action for breach of contract are the existence of a contract, the defendant’s breach of that contract, and resulting damages]; JP Morgan Chase v. J.H. Elec. Of N.Y., Inc., 69 AD3d 802, 803, 893 N.Y.S.2d 237 ). Here, nothing submitted by plaintiff establishes that defendant was a party to the mortgage, let alone that she breached its terms. Accordingly, plaintiff failed to raise an issue of fact so as to preclude summary judgment in defendant’s favor. Id at 423.
And rejected the contentions of plaintiff (mortgagee):
Plaintiff’s cross motion for summary judgment was properly denied inasmuch as plaintiff failed to establish entitlement to reformation of the mortgage or the imposition of an equitable lien upon the property. “Reformation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties” (George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219, 385 N.E.2d 1062, 413 N.Y.S.2d 135 ). It is thus presumed that a deliberately prepared and executed document manifests the true intentions of the parties such that the proponent of reformation is required to proffer evidence, which in no uncertain terms, evinces fraud or mistake and the intended agreement between the parties (Chimart Assoc. v. Paul, 66 NY2d 570, 574, 489 N.E.2d 231, 498 N.Y.S.2d 344 ). Reformation on grounds of mutual mistake requires proof, by clear and convincing evidence, that an agreement does not express the intentions of either party (Migliore v. Manzo, 28 AD3d 620, 621, 813 N.Y.S.2d 762 . Reformation based upon a scrivener’s error requires proof of a prior agreement between parties, which when subsequently reduced to writing fails to accurately reflect the prior agreement (Harris v. Uhlendorf, 24 NY2d 463, 467, 248 N.E.2d 53 892, 30 NYS 2d 5 ). Here, beyond pointing to documents related to the purchase of the property which defendant either directly executed or which were executed by her attorney-in-fact, plaintiff fails to proffer any evidence establishing any intent that defendant was to be party to and/or be bound by the mortgage. The absence of such evidence thus precludes the conclusion urged by plaintiff, namely that defendant’s failure to execute the mortgage was a mutual mistake or a scrivener’s error. In fact, the very evidence proffered by plaintiff militates against such a conclusion, inasmuch as neither the mortgage nor the note, prepared by plaintiff’s assignor, had defendant’s name preprinted on it, as was her husband’s, neither document was executed by defendant’s attorney-in-fact on her behalf; he executed them solely on behalf of defendant’s husband. Plaintiff’s evidence thus supports the conclusion that it was both defendant, her husband and plaintiff’s assignor’s intent that defendant not be a party to the mortgage. Id at 423-424.
Migliore v. Manzo, 28 A.D. 3d 620, 813 N.Y.S.2d 762 (2d Dept. 2006), was “an action to reform a contract and to recover damages for breach of a restrictive covenant[.]”Supreme Court granted summary judgment dismissing the complaint on the ground that the plaintiff failed to join a necessary party. The Second Department reinstated the cause of action for breach of the restrictive covenant but affirmed dismissal of the claim for reformation.
The Second Department summarized the facts:
In this action – commenced in March 2003 – the plaintiff seeks reformation of the contract based on “mutual mistake” and “fraudulent inducement” theories. Specifically, the plaintiff alleges that: (1) although the written contract called for a sale of the stock, the parties actually intended to effectuate a sale of the Company’s assets, and (2) during the negotiations, the defendant misrepresented the Company’s income and expenses. The plaintiff also alleges that the defendant breached the restrictive covenant/noncompete provision set forth in the contract. Id at 621.
And, as to the reformation claim held that:
Notwithstanding the above, with respect to the first and second causes of action seeking reformation, we agree with the Supreme Court that the defendant met her prima facie burden of demonstrating entitlement to judgment as a matter of law, and that, in opposition, the plaintiff failed to raise a triable issue of fact (see Alvarez v. Prospect Hosp., 68 NY2d 320, 501 NE2d 572, 508 NYS2d 923 . In this regard, “[w]here a written agreement between sophisticated, counseled businessmen is unambiguous on its face, one party cannot defeat summary judgment by a conclusory assertion that, owing to mutual mistake or fraud, the writing did not express his own understanding of the oral agreement reached during negotiations” (Chimart Assoc. v. Paul, 66 NY2d 570, 571, 489 NE2d 231, 498 NYSd 344 ; see Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 218-221, 385 NE2d 1062, 413 NYS2d 135 ). Id at 622.
True v. True, 63 A.D. 3d 1145, 882 N.Y.S. 2d 261 (2d Dept. 2009), was “an action to reform the parties’ stipulation of settlement, which was incorporated but not merged in their  judgment of divorce[.]”
Supreme Court granted plaintiff/former husband’s motion for summary judgment . The Second Department modified and remanded the matter to the Supreme Court for further proceedings.
The Appellate Division summarized the facts:
The parties were married on May 26, 1991, and divorced by judgment dated March 28, 2005. The judgment of divorce incorporated the parties’ stipulation of settlement (hereinafter the agreement), executed on February 2, 2005, which provides, in Article XIII, that the plaintiff’s stock awards from his employer, Goldman Sachs, would be “divided 50-50 in kind.” To that end, the agreement specified that 3,655 shares of the stock awards were available for division and provided, based on a formula created by the plaintiff, that the defendant would receive 1, 894 of those shares. The defendant thereafter redeemed 1,894 shares and later, the plaintiff learned that only 150 shares remained. Id at 1146.
After the defendant rejected the plaintiff’s demand that she remit to him the shares or the value thereof in excess of her 50% share, the plaintiff commenced the instant action. After joinder of issue, the plaintiff moved, inter alia, for summary judgment and for an attorney’s fee. The plaintiff argued that a mutual mistake led the parties to erroneously use the gross number of shares, 3,655, which were the number of delivered and outstanding shares available prior to the payment of taxes, fees, and other withholdings, instead of the net number of shares. The plaintiff accordingly sought reformation of the agreement to reflect the net number of shares actually available for division. The defendant opposed, arguing that the only mistake was made by the plaintiff and, in any case, even if her receipt of 1,894 shares did not result in a 50-50 division of the subject shares, she specifically agreed to receive those shares in return for forgoing additional maintenance and health insurance. Id at 1146-47.
Recited the applicable law:
For a party to be entitled to reformation of a contract on the ground of mutual mistake, the mutual mistake must be material, i.e., it must involve a fundamental assumption of the contract (see Janowitz Bros. Venture v. 25-30 120th St. Queens Corp., 75 AD2d 203, 214, 429 NYS2d 215 ). A party need not establish that the parties entered into the contract because of the mutual mistake, only that the “material mistake…vitally affects a fact or facts on the basis of which the parties contracted” (id. at 214). Moreover, “proof of mistake must be ‘of the highest order’ [and] must ‘show clearly and beyond doubt that there has been a mistake’ and…it must show with equal clarity and certainty ‘the exact and precise form and import that the instrument ought to be made to assume, in order that it may express and effectuate what was really intended by the parties’” (id. at 215, quoting 13 Williston, Contracts § 1548, at 125 [3d ed]). Since “the thrust of a reformation claim is that a writing does not set forth the actual agreement of the parties,” both the parol evidence rule and the statute of frauds are inapplicable (see Chimart Assoc. v. Paul, 66 NY2d 570, 573, 489 NE2d 231, 498 NYS2d 344 ). Thus, a party seeking to reform a contract based on, for example, mutual mistake, may rely on extrinsic evidence even if the agreement is not ambiguous (id. at 573). Id at 1147.
And held that the plaintiff had established a mutual mistake:
Here, the plaintiff established, prima face, that Article XIII of the agreement contains a mutual mistake. First, both the final agreement and all five prior drafts thereof refer to the gross number of shares, as set forth in Goldman Sachs equity award summaries, as being available for division between the parties. Although an equity award summary dated January 25, 2005, was generated by the plaintiff in his capacity as a Goldman Sachs employee, he immediately shared that summary with the defendant and the defendant does not dispute the plaintiff’s contention that the parties and their counsel each relied on the summary during the final negotiation session on February 2, 2005. Although footnotes 3 and 4 on page 4 of that summary explain the distinction between gross and net shares, neither the parties nor their counsel apparently realized that the “3,655” number of shares they were using, based on page 2 of the summary, represented the gross shares, not the net shares that would actually be delivered after Goldman Sachs paid taxes and fees, and made other withholdings. As such, the reference in Article XIII to the defendant receiving 1,894 shares is erroneously based on one-half of the gross shares, as the parties did not consider that upon the defendant’s redemption of 1,894 shares, Goldman Sachs would use a significant number of the total number of gross shares to pay taxes and fees, and make other withholdings. Accordingly the plaintiff established, prima facie, that the parties’ use of 3,655 gross shares was a mutual mistake because it undermined their intent to divide the net shares available for division, 50-50 in kind (see Janowitz Bros. Venture v. 25-30 120th St. Queens Corp., 75 AD2d 214-215). In opposition to the plaintiff’s prima facie case, the defendant failed to raise a triable issue of fact. Id at 1147-48.
Asset Management & Capital Co., Inc. v. Nugent, 85 A.D. 3d 947, 925 N.Y.S. 2d 653 (2d Dept. 2011), was an action for, among other things, the partition and sale of real property in which Supreme Court granted the plaintiff’s motion to reform a 2008 stipulation of settlement. Supreme Court granted the plaintiff’s motion for summary judgment and the Appellate Division affirmed.
The Second Department summarized the controlling law:
“Stipulations of settlement are favored by the courts and not lightly cast aside…Only where there is cause sufficient to invalidate a contract, such as fraud, collusion [mutual] mistake or accident, will a party be relieved from the consequences of a stipulation made during litigation” (Hallock v. State of New York, 64 NY2d 224, 230, 474 NE2d 1178, 485 NYS2d 510  [citation omitted]). “For a party to be entitled to reformation of a contract on the ground of mutual mistake, the mutual mistake must be material, i.e., it must involve a fundamental assumption of the contract” (True v. True, 63 AD3d 1145, 1147, 882 NYS2d 261 ). “A party need not establish that the parties entered into the contract because of the mutual mistake, only that the ‘material mistake…vitally affects a fact or facts on the basis of which the parties contracted’” (True v. True 63 AD3d at 1147, quoting Janowitz Bros. Venture v. 25-30 120th St. Queens Corp., 75 AD 203, 214, 4279 NYS2d 215 ). Moreover, “proof of [mutual] mistake must be ‘of the highest order’, [and] must ‘show clearly and beyond doubt that there has been a [mutual] mistake’ and…must show with equal clarity and certainty ‘the exact and precise form and import that the instrument ought to be made to assume, in order that it may express and effectuate what was really intended by the parties’” (Janowitz Bros. Venture v. 25-30 120th St. Queens Corp., 75 AD2d at 215, quoting 13 Williston, Contracts [3d ed], § 1548, at 125; see Amend v. Hurley, 293 NY 587, 595, 59 NE2d 416 ). “Because the thrust of a reformation claim is that a writing does not set forth the actual agreement of the parties, generally neither the parol evidence rule nor the Statute of Frauds applies to bar proof, in the form or parol or extrinsic evidence, of the claimed agreement” (Chimart Assoc. v. Paul, 66 NY2d 570, 573, 489 NE2d 231, 498 NYS2d 344 ). Id at 948.
And applied the law to the facts:
Here, the plaintiffs established that the stipulation of settlement contains a mutual mistake. Specifically, the Condo Analysis Summary (hereinafter the summary) prepared by Michael T. Nugent, sued herein as Michael I. Nugent (hereinafter the defendant), which the parties agree formed the basis of the stipulation of settlement, reflects that the defendant’s expenditures above his one-half ownership interest in the subject premises totaled $83,925. Moreover, throughout this litigation – until he opposed the plaintiffs’ motion to reform the stipulation – the defendant consistently asserted, in pertinent part, that he was entitled to “reimbursement of one half of the amounts he has advanced [$83,925] plus interest thereon.” As such, the plaintiffs established that, in the stipulation, the parties intended for the defendant to receive, from the proceeds of sale of the subject premises, and before considering other adjustments, one half of $83,925, or $41,962.50. Id at 948-49.
However, both the stipulation and the summary are silent with respect to the fact that a $20,000 payment was made by the plaintiffs in February 2004 to pay down the mortgage principal on the subject real property. Since the stipulation properly characterized the $20,000 paid by the plaintiffs as a “reimbursement” to the defendant, and the parties intended first to credit the defendant for one half of the expenditures he incurred before crediting the plaintiffs for the $20,000 reimbursement, the Supreme Court properly determined that the amounts ultimately credited to the parties in the stipulation were the product of a mutual mistake, and properly granted the plaintiffs’ motion to reform the stipulation so as to direct the defendant to pay the plaintiffs the sum of $10,000 representing the plaintiffs’ overpayment to the defendant. Id at 949.
Baiting Hollow Properties, LLC v. Knolls of Baiting Hollow, LLC, 89 A.D. 3d 776, 932 N.Y.S.2d 160 (2nd Dept. 2011), was “an action, inter alia, pursuant to RPAPL article 15 to compel the determination of claims to real property and for a judgment declaring that the plaintiff is the owner of certain real property free of an easement claimed by the defendant[.]” Supreme Court, among other things, granted plaintiff’s motion for summary judgment “to declare that the plaintiff is the lawful owner of the subject property free of the easement claimed by the defendant, save for an easement by necessity for ingress and egress from the defendant’s property[.]” The Second Department reversed and granted “defendant’s cross for summary judgment on the second counterclaim to reform the easement agreement to correct a scrivener’s error and declare the easement, as reformed, to be a valid burden on the plaintiff’s property[.]”
As to the plaintiff’s claim, the Appellate Division held that:
The plaintiff made a prima facie showing of entitlement to judgment as a matter of law on its first cause of action for a declaration that the plaintiff is the lawful owner of the subject property free of an easement claimed by the defendant, save for an easement by necessity for ingress to and egress from the defendant’s property, by establishing that the purported grantor named in the recorded easement and right-of-way agreement, The Knolls of Fox Hill Phase V Section A, never had title to either the dominant or the servient parcels (see Matter of Estate of Thomson v. Wade, 69 NY2d 570, 573-574, 509 NE2d 309, 516 NYS2d 614 ; Sachar v. East 53 Realty, LLC, 63 AD3d 715, 880 NYS2d 331 ; Beachside Bungalow Preserv. Assn. of Far Rockaway v. Oceanview Assoc., 301 AD2d 488, 489, 753 NYS2d 133 ). Moreover, based on that showing that the easement and right-of-way agreement was invalid, and the undisputed showing that the defendant had entered onto the property in question and performed certain excavation work, the plaintiff also made a prima facie showing of entitlement to judgment as a matter of law on the issue of liability on the third cause of action alleging trespass (see Curwin v. Verizon Communications [LEC], 35 AD3d 645, 827 NYS2d 256 ). Id at 777-78.
However, in opposition to the plaintiff’s summary judgment motion, the defendant raised a triable issue of fact as to whether the failure to name the actual owner of the dominant and servient parcels, The Knolls of Fox Hill, Inc., as the grantor in the easement and right-of-way agreement was a mutual mistake of the parties to that agreement, entitling the defendant to reformation of the agreement to evince the actual intent of the parties thereto. Accordingly, the Supreme Court should have denied the plaintiff’s motion for summary judgment on the first cause of action and on the issue of liability on its third cause of action alleging trespass. Id at 778.
And, as to the defendant’s counterclaim, the Second Department stated that:
The Supreme Court erred in denying the defendant’s cross motion for summary judgment on its second counterclaim to reform the easement agreement to correct a scrivener’s error, and to declare the easement, as reformed, to be a valid burden on the plaintiff’s property in accordance with its terms. In support of the cross motion, the defendant established that the denomination of the grantor as The Knolls of Fox Hill Phase V Section A in the easement and right-of-way agreement was a mistake, and that, in accordance with the intent of the parties, the agreement should have named the grantor as The Knolls of Fox Hill, Inc., which owned the dominant and servient parcels (see Harris v. Uhlendorf, 24 NY2d 463, 248 NE2d 892, 301 NYS2d 53 ). Moreover, the defendant further established that the plaintiff, prior to its acquisition of the servient parcel, had actual notice of the easement and right-of-way agreement which had been recorded against the servient parcel and was excepted from its title insurance policy on the parcel (see Carla Realty Co. v. County of Rockland, 222 AD2d 480, 635 NYS2d 67 ; Flaherty v. Broadway Assoc. Ltd. Partnership, 171 AD2d 938, 566 NYS2d 982 ). The plaintiff failed to raise a triable issue of fact in response to the defendant’s showing in support of its cross motion. Id.
The First Department recently addressed a scrivener’s error/reformation claim in Warberg Opportunistic Trading Fund, L.P. v. GeoResources, Inc. 973, N.Y.S. 3d 187 (1st Dept. 2013) in which, at the outset, the Court stated that:
The primary issue in this case is whether a contract’s “notwithstanding” clause controls, where the clause would render inoperative a detailed formula in a correlated contract provision. We hold that it does. However, because plaintiffs have adduced evidence that the contract initially included a different floor price – and that defendant altered that price, perhaps due to a scrivener’s error – they should be permitted to proceed to discovery. If the error can be confirmed, plaintiffs may be entitled to reformation of the contract. At this stage in the litigation, dismissal would be premature. We therefore affirm the motion court’s denial of defendant’s motion to dismiss.
The Appellate Division outlined the essence of the dispute:
Sections 8(f) of the warrants are the anti-dilution provisions that form the centerpiece of the parties’ dispute. Section 8(f) contains a formula that provided for the adjustment of the exercise price if [the warrants] GeoResources issued or sold shares for less than the exercise price (of $32.43) or for no consideration at all. The warrants refer to such an issuance or sale as a “Trigger Issuance,” presumably because it would trigger the operation of the adjustment formula. Section 8(g) supplies a different formula by which the number of purchasable warrant shares would be adjusted upon an adjustment of the exercise price.
At the heart of the matter is section 8(h)’s “notwithstanding” clause, which provides a floor price. The clause reads:
“Notwithstanding any other provisions of Section 8(f) to the contrary, no adjustment provided for in Section 8(f) shall result in a reduction of the Exercise Price to an amount less than $32.43 per Warrant Share (as appropriately adjusted for the occurrence of any events listed in [other anti-dilution clauses of Section 8]).
It may strike the reader as bizarre that Section 8(h) prevents the reduction of the exercise price below $32.43, the exact exercise price initially established in the warrant. It seems that the formula in Section 8(f) would never come into effect because the exercise price could never be reduced. Indeed, this is the core issue, and it will be dealt with in the discussion below.
The Court outlined the law as to “notwithstanding provisions:
It is well settled that trumping language such as a “notwithstanding” provision “controls over any contrary language” in a contract (Handlebar, Inc. v. Utica First Ins. Co., 290 AD2d 633, 635 [3d Dept 2002], Iv denied 98 NY2d 601 ; see also e.g. Bank of N.Y. v. First Millennium, Inc., 607 F3d 905, 917 [2d Cir 2010] [“This Court has recognized many times that under New York law, clauses similar to the phrase (n)otwithstanding any other provision’ trump conflicting contract terms”]). This Court has likewise noted that “inconsistency provisions” – i.e. those that dictate which of two contract provisions should prevail in the event of an inconsistency – “are frequently enforced by courts” (Bank of N.Y. Mellon Trust Co., N.A. v. Merrill Lynch Capital Servs. Inc., 99 AD3d 626, 628 [1st Dept 2012]).
In construing statutes and contracts, the U.S. Supreme Court has remarked that “the use of…a notwithstanding’ clause clearly signals the drafter’s intention that the provisions of the notwithstanding’ section override conflicting provisions of any other section” (Cisneros v. Alpine Ridge Group, 508 US 10, 18 ). Thus, the effect of a “notwithstanding” clause will prevail “even if other provisions of the contract might seem to require…a [conflicting] result” (id. at 18-19).
Applied the “notwithstanding law” to the facts of the case:
Here, the “notwithstanding” provision in section 8(h) clearly overrides any conflicting provisions in Section 8(f). To the extent that Section 8(h) sets the floor price of purchasable warrant shares at $32.43 – the initial exercise price listed in the warrant – it renders the adjustment formula in Section 8(f) impotent. To be sure, one is compelled to wonder how Section 8(f)’s formula could have any effect whatsoever if 8(h)’s “notwithstanding” clause prevents the reduction of the initial exercise price of $32.43 to a lower amount. Nonetheless, the “notwithstanding” clause governs the contract, despite the presence of conflicting provisions. Plaintiffs are sophisticated institutional investors, and they could have appreciated the effect of Section 8(h)’s trumping language.
But nevertheless denied summary judgment:
Despite the dominance of the “notwithstanding” provision in Section 8(h), the evidence that plaintiffs submitted merits denial of defendant’s motion. A court can consider evidence submitted in opposition to a motion to dismiss “to remedy defects in the complaint” (Rovello v. Orofino Realty Co., 40 NY2d 633, 636 ). This is because “[m]odern pleading rules are designed to focus attention on whether the pleader has a cause of action rather than on whether he has properly stated one” (id. [internal quotation marks omitted]). The email and warrant that plaintiffs submitted suggests that, at least with respect to plaintiff Waterstone, the originally agreed upon “notwithstanding” clause in Section 8(h) established a floor price of “$28.07 per Warrant Share,” not $32.43. Whether plaintiffs will be entitled to reformation of the contract depends on the strength of their evidence.
Before a court will grant reformation of a contract, the party demanding this equitable remedy “must establish his right to such relief by clear, positive and convincing evidence” (Schultz v. 400 Coop. Corp., 292 AD2d 16, 19 [1st Dept 2002], quoting Amend v. Hurley, 293 NY 587, 595 ). The purpose of reformation is not to “alleviat[e] a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties” (George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219 ). In order to “overcome the heavy presumption” that the contract embodies the parties’ true intent, the party seeking reformation must “show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties” (id.).
In the present case, plaintiffs have set forth evidence that the trumping language in Section 8(h) of the warrants originally contained a floor price of $28.07, and that defendant unilaterally changed the price to $32.43. It is unclear whether plaintiffs contend that this alleged alteration was due to a scrivener’s error or fraud; indeed, they did not replead their fraudulent inducement claim. According to plaintiffs’ brief, they contend that “when the Purchase Agreement was signed by the original Warrant purchasers, Section 8(h) provided for a floor price of $28.07.” The emails in the record appear to be unsigned, as defendant noted. Nevertheless, a motion to dismiss should not be granted “so long as, when the plaintiff is given the benefit of every possible favorable inference, a cause of action exists” (Rovello, 40 NY2d at 634).
It is possible that plaintiffs can adduce an executed version of the warrant that contains the alleged $28.07 floor price. If that is the case, the formula in Section 8(f) would become operative and plaintiffs would have a claim for breach of contract. At this juncture, however, it is unascertainable whether plaintiffs can meet the stringent requirements of reformation; discovery ought to reveal whether they are capable of doing so. Therefore, the motion court properly denied defendant’s motion to dismiss as to the breach of contract claim.
Actions seeking reformation are always fact specific, on the one hand, and are adjudicated on a case-by-case basis, on the other. In all such proceedings, however, relief will only be granted in “exceptional situations” where the purported mistake is “material” and “undermines the foundation” of the agreement with proof of the “highest order” that is “clearly beyond doubt”. And, in the case of negotiated documents, the burden of proof on the issue of “scrivener’s error” is, in substance (however stated), “a high level of proof by way of clear and convincing evidence of certainty of error.”