Contract Ambiguity Defeats Dismissal of Declaratory Judgment Claim

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Posted on: Jan 19 2026

In Alphasense, Inc. v. Financial Tech. Partners LP, 2026 N.Y. Slip Op. 00185 (1st Dept. Jan. 15, 2026), the Appellate Division, First Department, considered whether Plaintiffs validly terminated an advisory agreement with Defendants under a “Key Man” provision. Plaintiffs alleged that Defendants’ managing partner, critical to the engagement, gradually stopped participating in essential advisory work, including investor meetings, introductions, and fundraising support, leading to termination in 2022. Defendants moved to dismiss, arguing the managing partner never ceased leading the team, that sporadic absences were insufficient to trigger the “Key Man” provision, and that Plaintiffs waived termination rights through continued performance and a 2015 amendment. Both the motion court and the First Department rejected these arguments, finding the provision ambiguous and fact-dependent, requiring further development.

Applicable Legal Principles

Declaratory Judgment

CPLR 3001 provides that 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 “primary purpose of declaratory judgments is to adjudicate the parties’ rights before a wrong actually occurs in the hope that later litigation will be unnecessary.”[1] A “declaratory judgment does not entail coercive relief, but only provides a declaration of rights between parties … [i]n other words, the declaration in the judgment itself cannot be executed upon so as to compel a party to perform an act.”[2]

Moreover, “where a full and adequate remedy is already provided by another well-known form of action,” declaratory relief is improper.[3]

Waiver

“A party to an agreement who believes it has been breached may elect to continue to perform the agreement and give notice to the other side rather than terminate it.”[4] When “performance is continued and such timely notice is given, the nonbreaching party does not waive the right to sue for the alleged breach.”[5] “However, by choosing not to terminate the contract at the time of the breach, the nonbreaching party surrenders his or her right to terminate later based on that breach.”[6]

In National Westminster Bank, U.S.A. v. Ross,[7] the court explained the waiver of contractual breaches as follows:

It is well-established that where a party to an agreement has actual knowledge of another party’s breach and continues to perform under and accepts the benefits of the contract, such continuing performance constitutes a waiver of the breach. It is equally well-settled that a party to an agreement who believes it has been breached may elect to continue to perform the agreement rather than terminate it, and later sue for breach; this is true, however, only where notice of the breach has been given to the other side.[8]

Alphasense, Inc. v. Financial Tech. Partners LP

Alphasense arose from a dispute between Plaintiffs, AlphaSense, Inc., AlphaSense OY, and AlphaSense, LLC (collectively “AlphaSense” or “Plaintiffs”), and Defendants, Financial Technology Partners LP and FTP Securities LLC (collectively “FTP” or “Defendants”), regarding an engagement for financial advisory services.

Plaintiffs engaged Defendants as their financial and strategic advisors pursuant to an Engagement Letter dated January 23, 2015, as later amended on October 9, 2015 (the “Agreement”). Plaintiffs alleged that, at the time they negotiated the Engagement Letter, they received express assurances from the managing partner at FTP that he would be personally and directly involved in the business relationship for the entirety of its duration. Accordingly, Plaintiffs negotiated for a “Key Man Termination” provision in the Engagement Letter (“Key Man Provision”) that allowed for the termination of the Agreement if the managing partner ceased his active involvement.

Plaintiffs alleged that the managing partner’s promised level of involvement receded shortly after the Agreement was signed, with minimal participation in the Company’s capital-raising efforts. Plaintiffs further alleged that from 2015 onwards, the managing partner did not attend any investor meetings in connection with the capital raising, and that Plaintiffs relied on their own resources for investor introductions and capital raising. Despite the managing partner’s alleged lack of involvement, Plaintiffs allegedly paid FTP approximately $22.4 million in fees since 2015.

On October 13, 2022, Plaintiffs terminated the Agreement by sending a letter to Defendants pursuant to the Key Man Provision. Plaintiffs alleged that the termination became effective on November 12, 2022, with Defendants’ entitlement to any additional fees for the eighteen months ending on May 12, 2024 (the “Tail Period”).[9] Defendants had not provided services to Plaintiffs since receiving the termination letter. Defendants did not formally respond to the termination notice until sixteen (16) months after receipt, on February 12, 2024, at which time they insisted that “the Engagement Letter remain[ed] in full force and effect.” Defendants also asserted that Plaintiffs owed fees on post-termination transactions plus accrued interest of $1,620,968.78. Plaintiffs claimed that they timely paid the post-transaction fees and no interest was owed.

Plaintiffs commenced the action on April 9, 2024. Pursuant to CPLR 3001, Plaintiffs sought a declaratory judgment that (1) the Key Man Termination was valid and enforceable, (2) FTP’s entitlement to fees expired at the end of the eighteen-month Tail Period as provided for in the Engagement Letter, (3) the Tail Period began to run thirty (30) days after Plaintiffs provided FTP with written notice of termination, and (4) no interest was owed to FTP.

On May 31, 2024, Defendants filed a motion to dismiss the complaint for failure to state a cause of action pursuant to CPLR 3211(a)(7).

Defendants argued that the complaint failed to allege facts showing that the Key Man Provision was triggered. They contended that Plaintiffs did not plausibly allege that the managing partner stopped leading or co‑leading the FTP team, as required under the Agreement. Instead, Plaintiffs identified only isolated instances in which the managing partner did not attend certain investor meetings or did not personally make introductions. According to Defendants, occasional absences could not reasonably be equated with a cessation of leadership. Defendants maintained that “leading” or “co‑leading” referred to providing strategic guidance, oversight, and high‑level direction, not personally performing every task. Delegation, they argued, was consistent with active leadership.

Defendants further emphasized that the engagement was co‑led by another senior colleague, TW. They asserted that Plaintiffs’ failure to address TW’s leadership role undermined their theory that the managing partner’s participation fell below the contractual threshold. Plaintiffs’ argument, in Defendants’ view, ignored the collaborative leadership structure contemplated by the parties.

Defendants also asserted that Plaintiffs improperly relied on pre-contract statements concerning the managing partner’s promised level of personal involvement. Because the Engagement Letter contained a merger clause, Defendants argued that such extracontractual statements could not impose obligations not found in the Agreement. If Plaintiffs believed that attendance at investor meetings or ongoing direct involvement was essential, they should have bargained for those terms expressly rather than seeking to retroactively add requirements through litigation, said Defendants.

Defendants further argued that Plaintiffs’ own timeline showed that any alleged termination right arose in 2015, when the managing partner supposedly ceased active participation. Plaintiffs nevertheless continued to perform under the Agreement for seven years, paid substantial fees, and accepted services without significant objection. Defendants claimed that this prolonged performance constituted a waiver of any termination rights and triggered the doctrine of election of remedies. They also contended that the Agreement’s no‑waiver clause did not preclude waiver arising from a course of conduct, noting that Plaintiffs continued to interact with the managing partner as late as 2021.

Defendants also maintained that Plaintiffs ratified the Engagement Letter by executing an October 2015 amendment that reaffirmed the Agreement in full, including the Key Man Provision. Combined with continued performance for years, Defendants argued that the amendment confirmed Plaintiffs’ intent to relinquish termination rights based on earlier alleged breaches.

Plaintiffs countered that the complaint adequately alleged that the Key Man Provision was triggered by the managing partner’s sustained lack of involvement. They identified multiple deficiencies: he provided no meaningful guidance, made no investor introductions, attended no investor meetings, offered no feedback on their pitch, and contributed minimal input to their fundraising efforts. In Plaintiffs’ view, these allegations showed a significant and ongoing decline in his role, not isolated absences.

Plaintiffs rejected Defendants’ suggestion that the managing partner may have been “leading behind the scenes,” arguing that this theory was speculative and contradicted their detailed factual allegations. They also clarified that they were not alleging a discrete triggering event in 2015 but rather a gradual decline from 2015 to 2022. Defendants’ Termination Response Letter, they argued, did not conclusively refute these allegations.

On waiver, Plaintiffs pointed to the Agreement’s no‑waiver clause requiring any waiver to be in a signed writing, which did not exist. They also noted that the Agreement permitted termination “at any time” upon cessation of active leadership, making their 2022 termination timely in light of the alleged gradual decline.

Plaintiffs rejected Defendants’ election‑of‑remedies theory, asserting they were simply exercising an express contractual right, not rescinding the Agreement. Finally, Plaintiffs argued that the 2015 amendment could not ratify future misconduct, particularly where the alleged decline occurred largely after that amendment.

The motion court denied the motion.

The motion court held that Plaintiffs sufficiently presented justiciable controversies sufficient to invoke the motion court’s power to render a declaratory judgment.

The motion court found that Plaintiffs adequately alleged facts supporting their claim that the Key Man Provision in the Engagement Letter was triggered by the managing partner’s gradual cessation of involvement with the FTP team responsible for providing financial advisory services to Plaintiffs. The motion court emphasized that the provision’s language was inherently subjective, and Defendants’ competing interpretation, as well as their dispute over whether and when the provision may have been triggered, underscored the existence of a justiciable controversy appropriate for declaratory judgment.

The motion court further determined that, irrespective of any pre‑contractual statements or negotiations, it could not adjudicate the parties’ respective rights or the validity of Plaintiffs’ alleged termination of the Agreement at the pre-answer stage of the action. Such issues required a factual record inappropriate for resolution on a motion to dismiss.

The motion court also rejected Defendants’ arguments based on waiver, election of remedies, and ratification. Although Defendants asserted that Plaintiffs forfeited any right to invoke the Key Man Provision by continuing to perform under the Agreement for roughly seven years after the managing partner allegedly ceased his active involvement, the motion court concluded that these arguments raised factual questions unsuited for dismissal under CPLR 3211(a)(7). Waiver, the motion court noted, “should not be lightly presumed” and generally requires a clear, intentional relinquishment of a known contractual right—an inquiry typically reserved for the trier of fact.

Defendants’ waiver theory relied on the premise that the Key Man Provision could be triggered only by a discrete event in 2015, after which Plaintiffs were obligated to terminate immediately or forever lose the right. The motion court rejected this construction, observing that Defendants identified no contractual language imposing a singular triggering moment. In contrast, said the motion court, the complaint alleged a steady decline in the managing partner’s involvement from 2015 through 2022, providing a plausible basis for concluding that the provision was triggered at some point during that multi‑year period.

Finally, the motion court found no clear evidence of Plaintiffs’ intent to waive their rights, particularly given the Agreement’s express no‑waiver clause requiring any waiver to be in writing. This same clause, noted the motion court, undermined Defendants’ ratification argument, as the alleged conduct triggering the Key Man Provision occurred after the parties’ 2015 amendment and could independently give rise to termination rights.

The Appellate Division, First Department, affirmed.

The Court held that the motion “court properly determined that the [Key Man] provision was open to interpretation and it was not appropriate to dismiss the complaint based only on the pleadings.”[10]

Regarding the declaratory judgment cause of action, the Court held that Plaintiffs adequately stated a claim “based on allegations that defendants’ managing partner ‘ceas[ed] his role of actively leading or co-leading the team providing the advisory services’ to plaintiffs.”[11] The Court explained that the complaint alleged “that the managing partner … failed to provide guidance or meaningful support, was absent from investor meetings, and offered no more than minimal input on fundraising efforts.”[12] These allegations, “made in the context of the other specific allegations,” said the Court, were “not conclusory and [were] relevant to the overall claim that the managing partner failed to lead or co-lead the team triggering the ‘key man’ provision.”[13]

The Court rejected Defendants’ argument that under the plain language of the Agreement Plaintiffs were required to specifically allege the precise moment that the managing partner ceased to actively lead or co-lead the team.[14] “As the motion court correctly determined,” concluded the Court, “the ‘key man’ provision, on its face, fail[ed] to resolve plaintiff’s declaratory judgment claim.”[15]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Klostermann v. Cuomo, 61 N.Y.2d 525, 538 (1984) (internal quotation marks omitted; emphasis added) (citations omitted). See also Gaul v. New York State Dep’t of Env’t Conservation, 25 Misc. 3d 679, 688 (Sup. Ct., Suffolk County), judgment entered sub nom., Gaul v. The New York State Dep’t of Env’t Conservation (Sup. Ct., Suffolk County 2009).

[2] Morgenthau v. Erlbaum, 59 N.Y.2d 143, 148 (1983).

[3] Automated Ticket Systems, Ltd. v. Quinn, 90 A.D.2d 738, 739 (1st Dept. 1982) (internal quotation marks and citation omitted), aff’d, 58 N.Y.2d 949 (1983).

[4] Albany Medical College v. Lobel, 296 A.D.2d 701, 702 (3d Dept. 2002) (citations, internal quotation marks and ellipses omitted, emphasis added).

[5] Id. at 702-03 (citations omitted).

[6] Id. (Citations, internal quotation marks and brackets omitted.)

[7] 130 B.R. 656 (S.D.N.Y. 1991), affd. sub nom., Yaeger v. National Westminster, 962 F.2d 1 (2d Cir. 1992).

[8] Id. at 675 (applying New York law) (citations omitted).

[9] The Agreement defined the “Tail Period” as “eighteen (18) months from the end of the Notice Period in the case of a Key Man Termination.”

[10] Slip Op. at *1 (citations omitted).

[11] Id.

[12] Id.

[13] Id.

[14] Id.

[15] Id.

Tagged with: Business Litigation, Commercial Litigation, Contract Construction, Contract Interpretation, Declaratory Judgment, Waiver