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PPF Safeguard, LLC v BCR Safeguard Holding, LLC

Supreme Court of New York, Appellate Division, First Department

June 14, 2011, Decided; June 14, 2011, Entered

4938, 603565/09

Opinion

 [**392]   [*506]  Order, Supreme Court, New York County (Bernard J. Fried, J.), entered September 19, 2010, which, insofar as appealed from, denied plaintiffs' motion for partial summary judgment on their first cause of action for breach of an indemnity agreement and their fourth cause of action for a declaration that defendants must honor their obligations to indemnify plaintiffs for any covered payments due to any employees under the employment agreements and the side letter agreements, unanimously reversed, on the law, without costs, the motion granted, and it is declared that defendants must honor their obligations to indemnify plaintiffs for any covered payments due to any employees under the employment and side letter agreements.

The issue before us is whether defendants raise a viable "frustration of purpose" defense to plaintiffs' contractual indemnification claims. We hold that the defense is insufficient to defeat summary judgment.

On May 31, 2005, the  [***2] parties consummated a transaction under which plaintiff PPF Safeguard, LLC (PPF) purchased a 94% interest in plaintiff Safeguard Storage Properties, LLC (Safeguard), a self-storage business which at the time was headquartered in New Orleans. After the PPF acquisition, the remaining six percent interest in Safeguard was held by the three defendant limited liability companies (the LLC defendants), all of which were controlled by individual defendants Bruce Roch and Jack Chaney. In connection with the transaction, Safeguard, PPF, and the LLC defendants entered into a Securities Purchase Agreement, and PPF and the LLC defendants entered into an Amended & Restated LLC Agreement setting forth Safeguard's governance and operation. Pursuant to the LLC Agreement, Roch remained the company's chief executive officer and Chaney remained its chief operations officer. PPF's management role in Safeguard was limited.

Also on May 31, 2005, the LLC defendants, Safeguard and PPF entered into the indemnity agreement at issue in this appeal. The "Recitals" section of the agreement states that, before the PPF acquisition, Safeguard had entered into agreements with current and former Safeguard employees (the  [***3] employment agreements) which provided them with the right under certain circumstances to receive extra compensation which the employment agreements variously  [****2]  describe as incentive compensation,  [*507]  bonus payments, and participation payments (collectively, bonuses). The indemnity agreement further recites that, "[a]s a condition of PPF entering into the Securities Purchase Agreement and the [amended & restated LLC agreement]," the LLC defendants agree to indemnify  [**393]  Safeguard from liabilities arising from the bonus provisions in the employment agreements and "make good faith efforts to negotiate a termination of the [bonus] provisions of the [e]mployment [a]greements and replace them with alternative bonus arrangements paid for by [the LLC defendants] and acceptable to PPF."

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85 A.D.3d 506 *; 924 N.Y.S.2d 391 **; 2011 N.Y. App. Div. LEXIS 5007 ***; 2011 NY Slip Op 5121 ****

 [****1]  PPF Safeguard, LLC, et al., Appellants, v BCR Safeguard Holding, LLC, et al., Respondents.

CORE TERMS

indemnity agreement, employment agreement, bonus, indemnify, frustrated, employees, bonuses, summary judgment, renegotiate, Hurricane

Business & Corporate Compliance, Standards of Performance, Impossibility of Performance, Frustration of Purpose