Interpharm, Inc. v. Wells Fargo Bank, National Association
655 F.3d 136
| 2d Cir. | 2011Background
- In 2006, Interpharm obtained a revolving line of credit up to $22.5 million under a Credit Agreement with Wells Fargo secured by accounts receivable, inventory and equipment.
- In 2007 Wells Fargo entered into an October Forbearance Agreement, forbearance from default remedies, and Interpharm admitted its default and owed Wells Fargo over $30 million.
- In January 2008 Wells Fargo increased default charges and reduced eligible accounts by excluding four wholesale customers' receivables.
- In February 2008 a longer forbearance was signed, Interpharm released pre-existing claims, and agreed to additional conditions and collateral; merger clause stated the agreement was the entire agreement.
- In March 2008 Wells Fargo reduced the inventory multiplier from 50% to 39.6%, later partially reversing with a May/June sequence of forbearances, and Interpharm released claims in May 2008.
- Interpharm filed suit December 31, 2008 alleging economic duress; district court dismissed based on the May 12, 2008 release and the forbearance contracts; Second Circuit reviews de novo and affirms dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the May 2008 release was procured by economic duress. | Interpharm contends duress invalidates release. | Wells Fargo asserts release valid absent wrongful threat. | Release enforceable; no plausible wrongful threat shown. |
| What is the standard to establish economic duress in NY law? | Duress requires wrongful threat precluding free will. | Threats must be wrongful; legal rights exercised are not wrongful. | Standard requires wrongful threat and lack of free will; not met here. |
| Did Wells Fargo's actions after default constitute a wrongful threat to induce forbearance? | Actions were aimed at pressuring for new terms beyond contract rights. | Actions were within Wells Fargo's contractual rights and reasonable discretion. | No plausible wrongful threat; actions within contract rights. |
| Were the specific 2008 conduct (interest charges, receivable exclusions, multiplier change) wrongful threats? | Alleged actions were coercive beyond contractual discretion. | Actions fell within reasonable discretion under the Credit Agreement. | No wrongful threat; each act within contractual discretion. |
Key Cases Cited
- VKK Corp. v. NFL, 244 F.3d 114 (2d Cir. 2001) (economic duress requires wrongful threat and lack of free will)
- 805 Third Ave. Co. v. M.W. Realty Assocs., 58 N.Y.2d 447 (N.Y. 1983) (wrongful threats advance beyond mere breach of contract rights)
- Bechard v. Monty's Bay Recreation, Inc., 35 A.D.3d 1131 (3d Dep't 2006) (wrongful threats require coercive conduct beyond contractual rights)
- MLI Indus. v. N.Y.S. Urban Dev. Corp., 205 A.D.2d 998 (3d Dep't 1994) (no duress where party has no legal duty to forbear)
- Jarecki v. Shung Moo Louie, 95 N.Y.2d 665 (N.Y. 2001) (merger clause strengthens parol evidence rule in contract interpretation)
- Mortimer Off Shore Servs., Ltd. v. Fed. Republic of Germany, 615 F.3d 97 (2d Cir. 2010) (deference to pleading standards in contract-based disputes)