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SUPREME COURT OF THE STATE OF NEW YORK - NEW YORK COUNTY
NYSCEF DOC. NO. 38 RECEIVED NYSCEF: 03/23/2010
'..vi L SCHWITER
99 ~.l.k~ LLC~
The following papers. numbered 1 to
MOTION SEQ. NO. 001) 00 z.
MOTION CAL. NO.
were read on this motion tolfor
Notice of Motion! Order to Show Cause - Affdavits - Exhibits ...
Answering Affidavits - exhibits
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Cross-Motion: Gt Yes r:.i No
Upon the foregoing papers; it is ordered that this motion
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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,
Index No. 650235/09 DECISION AND ORDER
Sequence Nos. 001
99 CHURCH INVESTORS LLC,
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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).
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
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."
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.
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
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
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
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
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
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
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
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
on the notice was certainly not a material breach of
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
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
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
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
decision and order their positions as to the amount of attorneys' fees payable by 99 Church under
March n. 20 i 0
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