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WITH THE EXCEPTION OF THE FRAUD CAUSE OF ACTION, THE NONRECOURSE CLAUSE PRECLUDED THIS LAWSUIT AGAINST THE PRINCIPALS OF DEFENDANT CORPORATION; PLAINTIFF HAD WON AN ARBITRATION AWARD AGAINST DEFENDANT FOR OVER $200 MILLION AND BROUGHT THIS ACTION AFTER DEFENDANT FILED FOR BANKRUPTCY (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Higgitt, determined the nonrecourse clause in the contract between two sophisticated, commercial parties precluded plaintiff’s action. Plaintiff had won an arbitration award for over $200 million against defendant (Footprint) and this suit against Footprint’s principals was brought after Footprint filed for bankruptcy:

Plaintiff, a sophisticated commercial actor, knew that it was entering into a significant contractual undertaking with a special-purpose entity, and the contract provided for a specific dispute-resolution mechanism — arbitration — that carried with it a risk that the special-purpose entity would not be able to satisfy an ensuing award. Plaintiff could have bargained for protections to avoid or mitigate losses occasioned by the conduct of a judgment-proof special-purpose entity (e.g., conditions on Footprint’s ability to draw on the letter of credit, a payment guaranty from one or more of defendants, a narrow nonrecourse provision), but it chose to enter into the contract as written … . We cannot provide rough justice to plaintiff by dint of distorting the plain meaning of the contract to relieve plaintiff of the consequences of its contractual arrangement … . Similarly, we cannot, under the guise of contractual interpretation, disturb the clear, detailed allocation-of-risk-of-economic-loss scheme agreed upon by the parties … . Ultimately, plaintiff got the benefit of its bargain: arbitration on its cognizable claims against Footprint, which proceeding yielded a sizable award that was converted to a judgment. Iberdrola Energy Projects v Oaktree Capital Mgt. L.P., 2024 NY Slip Op 03798, First Dept 7-11-24

Practice Point: Sophisticated corporate commercial parties will be held to an unambiguous nonrecourse provision in their contract.​

 

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