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'FILED: NEW. YORK COUNTY CLERK 03/23/20101 INDEX NO.

650235/2009
NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 03/23/2010
SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY
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MOTION SEQ. NO. 001) 00 z.
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The following papers. numbered 1 to were read on this motion tolfor


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Notice of Motion! Order to Show Cause - Affdavits - Exhibits ...


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Check one: FINAL DISPOSITION ~N-FINAL DISPOSITI
Check if appropriate: DO NOT POST
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: PART 45
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A TLANTIC DEVELOPMENT GROUP, LLC,

Plaintiff, Index No. 650235/09

-against- DECISION AND ORDER

99 CHURCH INVESTORS LLC, Sequence Nos. 001 and 002

Defendant.
- -- - -- -- - -- --- - --------- - - -------------- -- --- ---- ------------- -------- -- x

MELVIN L. SCHWEITZER, J.:

In this breach of contract action both paries move for summary judgment. The court

grants the motion (Sequence No. 001) of plaintiff Atlantic Development Group, LLC (Atlantic)

and denies the motion (Sequence No. 002) of defendant 99 Church Inyestors LLC (99 Church).

Background

Atlantic, a developer of affordable housing in New York City, and 99 Church, a

developer and manager of prime realty in New York City, entered into two contracts (the

Agreements) in November 2007 for the sale of 421-a tax certificates which are transferable

subsidies offered by the City of New York Department of Housing, Preservation and

Development (HPD). The Agreements contained substantially identical terms relevant to the

dispute at issue here. In the first Agreement (Crotona Parkway Agreement), 99 Church agreed to

purchase from Atlantic 190 421-a tax certificates and, in the other Agreement (Jessup II

Agreement), it agreed to purchase from Atlantic 2042 i -a tax certificates, to be issued by HPD

for $5,700,000 and $600,000, respectively.

99 Church secured its obligations under the Agreements by depositing into escrow two

letters of credit for Atlantic's benefit in the, amounts of $2,850,000 and $300,000 in connection
with the Crotona Parkway and Jessup II Agreements, respectively. Both Agreements provide

that in the event Atlantic is ready, wiling and able to perform and for any reason 99 Church fails

to deliver the purchase price for the 42 i -a tax certificates, and such default is not cured within

ten business days after written notice, "time being of essence with regard to such extended date,"

then Atlantic may draw down on the letter of credit as "its sole and liquidated damages."

At the closing of the sale under each Agreement, Atlantic was to deliver the 421-a tax

certificates with an assignment legally transferring the certificates. In exchange, 99 Church was

to deliver the entire purchase price either in cash or by paying a combination of cash and the

proceeds of the letter of credit it deposited for the relevant transaction. Each Agreement

provided that the consummation of the sale contemplated thereunder would take place at a

closing at the offces of Atlantic's attorney on a closing date specified in a notice delivered by

Atlantic to 99 Church. The notice was required to specify a closing date not earlier than ten

business days after the date of the notice. The closing under each Agreement was required to

take place no later than December 31, 2008. This date was defined in the Agreements as the

Outside Date.

In addition, each Agreement contains a prevailing party clausé, which provides that, "(iJn

the event a dispute arises between the paries, and any litigation, arbitration or other proceeding

is commenced to enforce the provisions of this Agreement, the prevailng part in litigation,

arbitration or proceeding shall be entitled to seek, claim and receive from the non-prevailing

party reasonable attorneys' fees and disbursements, including court costs through all appeals,

incurred by the prevailing party with respect thereto."

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Atlantic claims that it was ready, willing and able to fully perform the Agreements on

December 3 i , 2008 and that it had complied with all pre-closing steps required to be taken by the

Agreements. Atlantic argues there is no legitimate basis for 99 Church to assert that it did not so

comply and, accordingly, that Atlantic is entitled to summar judgment in this litigation.

99 Church counters that, in fact, Atlantic fail~d to meet its pre-closing obligations under the

Agreements and, accordingly, 99 Church is now entitled to summar judgment.

Discussion

On February i i, 2008 counsel for Atlantic delivered a closing notice with respect to the

Jessup Agreement and another unrelated agreement which scheduled closings for March 4,2008.

The notice was sent to 99 Church's counseL. These closings did not occur, or at least not the one

for the Jessup Agreement. On October 13,2008, Atlantic's counsel delivered another closing

notice for the Jessup Agreement, scheduled for October 27,2008. The notice was sent to

99 Church's counseL. On December 2,2008, Atlantic's counsel delivered another closing notice

for the Jessup Agreement rescheduling (emphasis added) the closing under that agreement for

December 17,2008. The notice was sent to 99 Church's counseL. The notice referenced the

prior notice which had the closing for October,27, 2008 and explained that due to delays in

obtaining negotiable certificates the October closing had been postponed. On December 4, 2008

counsel for Atlantic delivered a closing notice pertaining to an unspecified agreement, scheduled

for December 30, 2008. The notice was sent to 99 Church's counseL. It is salient that this notice

did not purport to re-schedule the December i 7,2008 closing of the Jessup Agreement yet again.

It is uncontested that on December 4,2008,99 Church clearly was aware that under the

two separate Agreements, one relating to the Jessup Property and the other relating to the

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Crotona Property, it was obligated, subject to closing conditions, to purchase prior to

December 3 i, 2008, two separate amounts of 421-acertificates from Atlantic. It is also

uncontested that on December 4, 2008, 99 Church had in hand the notices referred to above.

Also, there is uncontroverted testimony by counsel to Atlantic that, on or shortly after

December 4, 2008, counsel for 99 Church called him and requested that both closings be held on

December 30, 2008. This testimony is corroborated by the testimony of Atlantic's chief

executive officer that he leared at about this time that his attorneys and 99 Church's attorneys

had agreed to schedule both closings for December 30,2008.

On December 22,2008, Atlantic's counsel sent an email to 99 Church's counsel asking

"Will you be able to close (on both contracts) next week or would you prefer to close the week of

January 5." 99 Church's attorney responded on December 29, 2008 "Both Mike and Larr are

out this week. We wil touch base after the new year when they get back. Thanks." Pursuant to

the email exchange between attorneys, no closing under either the Jessup Agre~ment or the

Crotonu Agreement took place on December 30, 2008.

On the first business day of the new year, January 5,2009, Atlantic's counsel contacted

99 Church's counsel to schedule closings under the Jessup and Crotona Agreements. Atlantic's

counsel, emailed 99 Church's counsel that the closings would take place on January 9, 2009.

They did not occur. Atlantic's counsel then scheduled the closings for January 15,2009. They

also did not occur and, consequently, Atlantic sent notices of default to 99 Church regarding both

Agreements. The notices each triggered a ten-day cure period. 99 Church failed to cure, and

instead sent letters pertaining to each Agreement asserting that because the closings did not occur

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hy the Outside Date, each Agreement was null and void and that Atlantic should instruct the

escrow agent to return the letters of credit to 99 Church.

On April 22, 2009, Atlantic commenced this action seeking a declaration that 99 Church

defaulted under the Jessup and Crotona Agreements and that it is entitled to draw down on each

of the letters of credit. 99 Church counters that Atlantic's failures to comply with the terms of

the Agreements deprives it of the right to demand performance by 99 Church.

99 Church makes three arguments to support its position.

First it contends that no timely notice ever was given with respect to the Crotona

transaction. This is based on the fact that the December 4, 2008 closing notice did not specify

which transaction it pertained to and that the December 22, 2008 email was not in form a proper

notice of a closing transaction and, if it was, it was not timely. This position is without merit.

On December 4, 2008, 99 Church anticipated closing two transactions and had two

closing notices in hand. Admittedly, one did not specify the transaction to which it related, but,

in the circumstances, there can be no genuine dispute that the December 4 notice related to the

Crotona transaction. This is because there also was in 99 Church's hand a rescheduling notice,

dated December 2,2008, regarding the Jessup,transaction. Had Atlantic wanted to reschedule

the Jessup closing yet again, it would have sent another rescheduling notice. It did not do so. It

sent an initial scheduling notice which could apply only to the Crotona Agreement that had not

been scheduled or rescheduled in the December 2, 2008 notice. It is not conceivable that

sophisticated counsel for 99 Church thought otherwise.

Had there been any basis for confusion at this point, and the court is of the view there was

not the tàct that 99 Church's counsel requested on or shortly after December 4,2008, that both

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closings be held on December 30, 2008 confirms that on or shortly after December 4,2008 all

parties were of a mind that both closings were timely scheduled for December 30, 2008.

As to the subsequent email exchange between counsel for Atlantic and 99 Church

initiated on December 22,2008 by counsel for Atlantic, the court is of the view that this was not

an attempt to schedule or reschedule either closing to a date which did not comply with the terms

of the 0greements. It was merely a courtesy being extended by Atlantic's attorney to his

counterpart to avoid holding the closings in a traditional holiday week. And, in fact, the courtesy

was readily accepted by 99 Church's counsel, who revealed that his clients were not then in

New York and did not intend to be back until after the first day of the new year. This email offer

on December 22,2008, was an act of civility of the type which regularly occurs in New York's

competitive commercial real estate market and provides the lubricant for the orderly execution of

transactions here. The court wil not view it otherwise. Accordingly, the court holds that

99 Church's position with respect to the scheduling of the closings is devoid of merit.

99 Church next contends that the notices of closing sent by Atlantic's counsel do not

meet the requirements for the form of such notices set forth in the Agreements and, therefore,

excuse 99 Church's performance. They point out, for instance, that the notices were not

addressed to a particular executive of 99 Church, as is required by the Agreements. This position

is also c;evoid of merit. The notice provision of each of the Agreements provides that notice

given by or to the attorneys for the parties shall be deemed notice to the parties themselves. This

was precisely the common operating procedure adopted by the parties to the Agreements and it

was done so repeatedly and without objection by either of the parties. It, too, is a common

practice in complex real estate transactions in New York City which facilitates the effcient

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conduct of business. To expect the involvement of high level executives in the day-to-day

mechanics of transaction execution and closing details in these circumstances is unrealistic, and

any argument to the contrary is without substance. The law in New York is that "fa) par is

excused from complying with a contract only if the other part has committed a material breach,

that is. a breach that goes to the root of the contract." Rudin v Talisman, Rudin & DeLorenz,

l,C,. 14 Misc 3d 1218(A), 2005 WL 5097015, at *5 (Sup. Ct., N.Y. Cnty., Dec. 23, 2005); see

e.gViacom Outdoor, Inc. v Wixon Jewelers, Inc., 25 Misc 3d 1230(A), 2009 WL 4016654, at *2

(Sup. Ct.. N.Y. Cnty., Nov. 18,2009) ("A non-breaching party wil be discharged from further

performance of its obligations under a contract when the breach is 'so substantial that it defeats

the object of the parties in making the contract"') (citation omitted). Failure to put the executives

name on the notice was certainly not a material breach of the Agreements.

Finally, 99 Church contends that Atlantic breached its obligations under Section 9(a) of

the Agreements to apprise 99 Church of any "relevant pre-closing actions" ofHPD so that

99 Church could prepare for the closings under the Agreements. This breach, it contends,

excuses its performance under the Agreements,. There is no doubt that there was a flur of

pre-closing activity involving Atlantic and HPD. The court also assumes for the purpose of these

motions that Atlantic did not apprise 99 Church on a day-to-day basis of its communications with

HPD. There is no evidence proffered by 99 Church, however, which shows that any such failure

interfered with its ability to prepare for closing under either Agreement. No detailng of relevant

actions was called for in the circumstances. In any event, the failure to provide such details

could not in any way be considered a material default which excuses performance. See Rudin,

intra. 99 Church's only material obligation at closing was to deliver the purchase price for the

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42 I -a certificates. Had it been willing to do so, it could have performed without inconvenience.

It did not, and wilfully breached its payment obligations under the Agreements.

Accordingly, it is hereby

ORDERED that plaintiffs motion for summary judgment is granted; and it is further

ORDERED that defendant's motion for summary judgment is denied; and it is further

ORDERED that the parties submit to the court within thirt days of the entry of this

decision and order their positions as to the amount of attorneys' fees payable by 99 Church under

the Agreements.

March n. 20 i 0