Broadwall Am., Inc. v Bram Will-El, LLC
Annotate this CaseDecided on November 23, 2005
Supreme Court, New York County
BROADWALL AMERICA, INC., Plaintiff(s),
against
BRAM WILL-EL, LLC and WILLIAM MUSCHEL, LLC, Defendant(s).
603383/02
Westerman, Ball, Ederer & Miller, Garden City, New York, for the plaintiff.
Hodgson & Russ, LLP, New York, New York, for defendants.
Harold B. Beeler, J.
Plaintiff Broadwall America Inc. ("plaintiff" or "Broadwall") and defendants Bram Will-El LLC and William Muschel, LLC ("defendants") both move for summary judgment in this action for specific performance of a contract of sale involving two properties located at 734 and 736 Broadway in New York County. Defendants also move for an order declaring the notices of pendency filed against the subject properties null and void. Plaintiff cross-moves for sanctions and attorneys' fees. All motions are opposed.
On or about August 7, 2002, plaintiff and defendants entered into an agreement whereby plaintiff would have the option to purchase the subject properties for $13,000,000. The written contract required plaintiff to make an initial $50,000 payment to the owners, which it did, after which plaintiff had a due diligence period of 30 days (or by September 9, 2002) to decide whether to proceed with the purchase. Under the contract, plaintiff had until the day after the end of the due diligence period to either deposit $600,000 with the owner's attorney, thereby exercising plaintiff's option to purchase the properties, or cancel the option contract upon which plaintiff was entitled to a return of its $50,000 deposit, less $5,000 for defendants' legal fees. The balance of the purchase price was due at closing. $7,000,000 of the balance was to be paid by plaintiff in the form of a purchase money mortgage and the remaining $6,000,000 was due by cash or check at the closing. The closing was set to take place after due diligence. On or about [*2]September 9, 2002, defendants agreed to extend plaintiff's due diligence period to September 23, 2002.
On or about September 17, 2002, plaintiff commenced this action and moved by order to show cause for (i) an extension of the due diligence period, due to defendants' alleged failure to turn over necessary and promised documents; (ii) specific performance; and (iii) a $6,500,000 abatement of the $13,000,000 original purchase price. The parties stipulated to adjourn the order to show cause to October 25, 2002, which also extended the due diligence period to that date. Plaintiff then filed a second order to show cause for (i) an extension of the due diligence period; (ii) a $6,500,000 abatement of the $13,000,000 original purchase price; and (iii) a $292,500 abatement of the $600,000 option purchase amount.
On or about February 26, 2003, the court (J. Omansky) issued a decision and order granting in part and denying in part Broadwall's requests for relief. The order (i) stayed the expiration of the due diligence period for an additional 45 days from the date of service of the order with notice of entry; (ii) denied Broadwall's request for a $6,500,000 abatement of the purchase price and the $292,500 abatement of the $600,000 option exercise payment; and (iii) ordered defendants to produce various due diligence documents. The order was served with notice of entry on or about June 4, 2003, thus staying the due diligence period to July 24, 2003. Plaintiff then filed an order to show cause for "clarification" of that portion of Justice Omansky's February 26th order which denied plaintiff's request for a reduction of the purchase price and the option exercise payment and requested a temporary restraining order, which was granted, to further extend plaintiff's due diligence deadline to August 29, 2003. The parties then agreed by stipulations dated July 10, 2003 and July 31, 2003 to extend the due diligence period to August 29, 2003.
On or about August 27, 2003, plaintiff moved the Appellate Division, First Department for a temporary stay of the downpayment due under the option contract and the date by which plaintiff had to exercise its option. By order of the same date, Justice Mazzarelli granted plaintiff an interim stay pending determination of plaintiff's motion by a full bench.
On September 8, 2003, the court (J. Omansky) issued a decision and order denying plaintiff's motion for clarification and denying defendants' cross-motion to dismiss. On September 30, 2003, a full panel of the Appellate Division, First Department denied plaintiff's request for a preliminary appellate injunction and vacated the interim stay that had been ordered by Justice Mazzarelli on August 27, 2003. The following day, on October 1, 2003, plaintiff tendered to defendants a $600,000 check representing the option exercise payment, which defendants rejected.
Plaintiff appealed from Justice Omansky's September 8, 2003 order and, on or about April 30, 2004, oral argument was held before the Appellate Division, First Department with regard to plaintiff's appeals from both the February 26, 2003 order and the September 8, 2003 order. On or about May 20, 2004, the Appellate Division, First Department issued its decision unanimously affirming both orders.
In or about June of 2004, plaintiff filed a Chapter 11 bankruptcy petition (SDNY) and moved that court for permission to assume the subject option contract as well as for an order directing an immediate closing of title on the sale of the properties. Defendants cross-moved for the bankruptcy court to abstain from determining the issue of whether the contract was [*3]terminated prior to the petition date. On or about August 25, 2004 a hearing was held and, on September 28, 2004, the bankruptcy court (Judge Cornelius Blackshear) issued an order denying defendants' abstention motion and directing that plaintiff's motion to assume be converted to an adversary proceeding.
On or about October 19, 2004, plaintiff filed its adversary complaint and a hearing was held on or about October 27, 2004. On December 3, 2004, the bankruptcy court issued an order which granted plaintiff's motion to assume the option contract and which stated, in part: "The executory contract was not terminated or cancelled by the defendants or otherwise prior to the petition date and the executory contract remains executory."
Defendants moved the bankruptcy court for "clarification" of its December 3d order and on February 22, 2005 a hearing was held before Judge Blackshear which resulted in a March 15, 2005 order denying defendants' motion and a March 23, 2005 order granting plaintiff's motion to assume the option contract. The March 23, 2005 decision and order reads, in part:
"Upon the termination of the preliminary injunction, the debtors had a choice of either cancelling the contract or to pay to the sellers the final downpayment of $600,000 at the conclusion of the preliminary injunction, which did not conclude until September 30, 2003. By letter dated October 1, 2003 to the sellers the debtor tendered the final downpayment which is after the appellate division order of September 30, 2003 which gave the debtor injunction protection until that date. Therefore this Court determined upon the record before it that there did exist an executory contract for the debtor to assume. Thus, the court entered the order in the adversary proceeding granting declaratory judgment that the executory contract between the parties is an existing contract."
The bankruptcy court indicated in that decision that it was specifically leaving for this court's determination "the remaining issue of whether Broadwall still has the right to close title under the Contract".
Defendants argue two reasons for rejecting plaintiff's tender: first, that the tender was to be unconditional and that plaintiff's tender was impermissibly conditioned on abatement of the option contract purchase price and the buildings being in the financial and physical condition represented in the option contract; second, that the October 1, 2003 tender was untimely since the stay was lifted by the Appellate Division, First Department the day before, on September 30, 2003, and that plaintiff's time to make the tender had expired that same day, on September 30, 2003.
Plaintiff contends that defendants' proffered grounds for rejecting the October 1, 2003 tender were already heard and rejected by the bankruptcy court in the context of the bankruptcy court adversary proceeding and that the bankruptcy court's ruling therein is the "law of the case" which this court is bound to follow in deciding the remaining issue of specific performance, which the bankruptcy court specifically left for this court to decide. Plaintiff states that in order to be permitted to assume a contract under 11 USC 365(A) and Bankruptcy Rule 6006, a debtor must first demonstrate to the bankruptcy court that the contract remains in full force and effect. Thus, when Judge Blackshear ultimately granted permission for plaintiffs to assume the subject contract, he had to have first made the preliminary finding that the subject contract was a valid [*4]contract that had not been terminated. Plaintiff further argues that its reorganization plan was conditioned on its ability to assume the contract and acquire the properties and that it would not have been able to confirm its reorganization plan if the bankruptcy court had not ruled that the contract continued to be valid.
Substantively, plaintiff argues, as it did before the bankruptcy court, that its October 1, 2003 tender was timely because, according to the terms of the original contract (to which, plaintiff argues, all subsequent stipulations and stays necessarily relate back), plaintiff had until the day after the end of the due diligence period to make the tender; thus, if due diligence ended on September 30, 2003, the date that the First Department vacated its stay, then plaintiff had until the following day, to wit: October 1, 2003, to make the tender. In addition, plaintiff argues that, as per Syndicom v Tayaka, 275 AD2d 676 (1st Dep't 2000), at the time Justice Mazzarelli granted the temporary stay on August 27, 2003, the 2 days then remaining on the parties' stipulation to extend the due diligence period until August 29, 2003 was tolled; thus, when the First Department vacated the stay on September 30, 2003, plaintiff still had the 2 days remaining under the stipulation to conduct due diligence (to wit: until October 2, 2003) and, pursuant to the terms of the option contract, had until the following day (to wit: October 3d, 2003) to tender the monies, therefore, plaintiff's October 1, 2003 tender was timely.
Defendants state that a motion to assume is akin to a summary proceeding in which the bankruptcy court merely reviews the debtor's decision to adhere to a particular contract and determines whether assuming the obligations under the contract would be "a good business decision" but that it is not a substantive ruling on underlying disputed issues warranting collateral estoppel.
It is this court's opinion that the bankruptcy court did, in fact, make a substantive finding that the option contract was not terminated prior to the petition date, otherwise there would be no point to the bankruptcy court's direction to plaintiff's counsel to file the adversary complaint and for it to have entertained motions and held multiple hearings with regard to that very issue. Plaintiff's complaint in the adversary proceeding specifically requested a "declaration that the executory contract is a valid binding real estate contract that has not been terminated" and on December 3, 2004 the bankruptcy court (J. Blackshear) granted a declaratory judgment in the adversary proceeding, specifically decreeing that "the executory contract is a valid and existing executory contract that has not been terminated". In addition, on March 23, 2005, the bankruptcy court held that "this court determined upon the record before it that there did exist an executory contract for the debtor to assume." Whether making such substantive finding during the pendency of a bankruptcy petition is barred by the rule set forth in In Re Orion, 4 F3d 1095 (2d Cir. 1993), as defendants argue, is a matter for an appellate court, and not this court, to determine.
Even if the bankruptcy court had not already decided that issue, this court would have reached the same conclusion on the grounds that the 2 day period remaining on the parties' stipulation to extend plaintiff's time to complete due diligence to August 29, 2003 was tolled when Judge Mazzarelli signed the order on August 27, 2003 staying plaintiff's time to make the tender. See, Syndicom v Takaya, supra. Thus, when the Appellate Division, First Department's stay was vacated on September 30, 2003, plaintiff still had the 2 days under the parties' stipulation to make its tender and it did so within that time frame. In reaching this conclusion, [*5]the court relies on the reasoning set forth by the Court of Appeals in Post v 120 East End Avenue Corp., 62 NY2d 19, in discussing yellowstone injunctions, which was reiterated by the First Department in Syndicom, supra: "Once the merits had been decided by Supreme Court the stay terminated...If he [the commercial tenant] lost, he either cured the default during whatever part of the cure period remained or the lease expired and he was subject to removal by summary proceeding." Here it is undisputed that, after the First Department vacated its stay on September 30, 2003, plaintiff acted ie, forwarded its tender to defendants within the 2 day period remaining under the parties' stipulation.
In addition, plaintiff still had, pursuant to the terms of the original contract, until the day after the stay was lifted on September 30, 2003 to forward its tender, which it did on October 1, 2003. It is undisputed that under the terms of the original agreement, plaintiff had until the day after the end of the due diligence period to either deposit $600,000 with the owner's attorney or cancel the option contract. In light of the parties' original intentions under the option contract, it follows that all subsequent stipulations and court ordered stays served to extend plaintiff's due diligence period, not divest plaintiff of the extra day it was entitled to following the end of the due diligence period to make its tender.
With regard to the remaining issue that the bankruptcy court ruled was left for this court to decide, whether plaintiff still has the right to close title under the option contract, the court answers that question in the affirmative. In doing so the court notes that, in order to facilitate the closing, plaintiff has agreed to waive alleged rights under the contract with regard to the condition of the properties.
WHEREFORE, it is
ORDERED that plaintiff's motion for summary judgment and for specific performance by defendants is granted; and it is further
ORDERED that within 30 days of service of a copy of this order, the defendants are to specifically perform their obligations under the option contract of sale between the parties dated August 7, 2002 concerning the two properties located at 734 and 736 Broadway in New York County; and it is further
ORDERED that defendants' motion for summary judgment is denied; and it is further
ORDERED that plaintiff's cross-motion for sanctions and attorneys' fees is denied.
This is the decision and order of the court.
Dated:November, ___, 2005
ENTER:
______________________________________
HAROLD B. BEELER, JSC
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