Gotham Partners, L.P. v High Riv. Ltd. Partnership

[*1] Gotham Partners, L.P. v High Riv. Ltd. Partnership 2009 NY Slip Op 50201(U) [22 Misc 3d 1121(A)] Decided on January 5, 2009 Supreme Court, New York County Bransten, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on January 5, 2009
Supreme Court, New York County

Gotham Partners, L.P., GOTHAM PARTNERS, III, L.P., and GOTHAM HOLDINGS II, L.L.C., Plaintiffs,

against

High River Limited Partnership, Defendant.



602582/04



Andrew J. Levander, Esq. of Dechert LLP (for the Plaintiff) and Y. Donald Scharf, Esq., and Jerome Tarnoff, Esq., of Morrison Cohen LLP (for the defendant).

Eileen Bransten, J.

Plaintiffs Gotham Partners, L.P., Gotham Partners, III, L.P., and Gotham Holdings II, L.L.C. (collectively, "Gotham"), move pursuant to CPLR 3212 for summary judgment on the issue of indemnification and for an order entering judgment in its favor with respect to the Additional Purchase Price in accordance with the Stipulation and Order dated February 8, 2007. Defendant High River Limited Partnership ("High River") opposes the motion, and cross-moves for an order (1) pursuant to CPLR 3212 awarding it partial summary judgment in connection with Gotham's claim for indemnification and (2) awarding it reasonable costs and expenses in defending Gotham's indemnification claim.

BACKGROUND

Under an agreement dated March 1, 2003 (the "Agreement"), Gotham sold to High River 235,000 units (the "Sale Units") of limited partnership interest in Hallwood Realty Partners, L.P. ("Hallwood") for approximately $18,800,000 (Compl ¶¶ 6, 8). The Agreement provided for an additional purchase price if High River sold or otherwise transferred the Sale Units for a higher price within 36 months of the purchase date (the "Additional Purchase Price") (id.).

In May 2003, High River commenced a hostile tender offer for Hallwood's units, but Hallwood's board of directors unanimously determined, among other things, that the offer was inadequate (id. at ¶ 11). In July 2003, High River announced a proposal to acquire Hallwood in a merger transaction and also increased its tender offer price (id. at ¶ 12). Again, the Hallwood board of directors rejected the tender offer, but contemplated the merger transaction (id.). After [*2]discussions with High River and other potential bidders and investors, in June 2004, Hallwood, sought the approval of its unitholders to merge with a subsidiary of an entity called HRPT Properties Trust ("HRPT") (id. at ¶ 13). In July 2004, Hallwood's unitholders approved the merger (id. at ¶ 14).

As a result of the merger, High River was paid for each of the Sale Units it purchased from Gotham (id. at ¶ 17). Gotham took the position that High River's exchange of the Sale Units for a cash price constituted a sale or other transfer of the Sale Units under the Agreement and obligated High River to pay the Additional Purchase Price (id. at ¶ 18).

When High River refused, Gotham commenced this action asserting breach of contract and seeking to recover the Additional Purchase Price (id. at ¶ 19). By Decision and Order dated August 25, 2005, this Court granted Gotham's motion for summary judgment on the issue of liability for the Additional Purchase Price (Levander Affirmation, Ex B, at 12-13). In October 2006, the Appellate Division affirmed and, in March 2007, the Court of Appeals denied leave to appeal (Levander Affirmation, Ex E, at 1).

Gotham now moves pursuant to CPLR 3212 for summary judgment on the issue of indemnification. Specifically, it seeks reimbursement of attorneys' fees in connection with this case.

ANALYSIS

Motions for Summary Judgment

To obtain summary judgment, a movant must establish entitlement to judgment in its favor as a matter of law (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). The movant must proffer sufficient "evidentiary proof in admissible form" to demonstrate the absence of any material issues of fact (id.; Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

Conversely, to defeat a motion for summary judgment, the opponent must demonstrate that there are issues of material fact sufficient to require a trial (CPLR 3212 [b]). Thus, once the proponent of the motion makes a prima facie showing of entitlement to summary judgment, the burden then shifts to the opponent to demonstrate by admissible evidence the existence of a factual issue requiring a trial (Zuckerman, 49 NY2d at 560, 562).

The "fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent" (Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). "A contract is unambiguous if the language it uses has a definite and precise meaning, unattended by danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion'" (id. at 569-70, quoting Breed v Insurance Co. of N. Am., 46 NY2d 351, 355 [1978]). "Thus, if the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity" (id.). "Whether a contract is ambiguous is a question of law and extrinsic evidence may not be considered unless the document itself is ambiguous" (id.). [*3]

Section 7.10(a) of the Agreement states:

"Purchaser agrees to indemnify and hold Sellers . . . and each of their respective officers, directors, partners, managers and employees (each, a Seller Indemnified Person') harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including reasonable fees and expenses of counsel) which may at any time be imposed on, incurred by or asserted against any such Seller Indemnified Person, as a result of any action taken by (or failure to act of) Purchaser or its Affiliates following the execution . . . of this Agreement with respect to, or associated or in connection with, the Partnership or Purchaser's interest therein, including the Sale Units (provided, that for avoidance of doubt, such obligation of Purchaser shall not arise out of the entry of the parties into this Agreement or any breach by Sellers . . . of any of their representations, warranties, covenants or agreements hereunder)."(Klafter Affirmation, Ex A, at 7.)

Gotham now moves for summary judgment on indemnification for attorneys' fees, seizing upon the "any and all" language in asserting that the provision entitles it to indemnification. Based on the expansive scope of the provision, Gotham contends that the losses incurred in litigating the Additional Purchase Price constitute costs resulting from actions taken by High River following execution of the Agreement that are related to the Sale Units. Gotham further argues that neither of the exceptions in section 7.10 prevents it from obtaining summary judgment because the costs of the litigation did not arise out of the negotiation of the Agreement or a breach by Gotham.

High River argues, in opposition, that Gotham fails to establish entitlement to indemnification based on subsection 7.10(a) of the Agreement. High River maintains that an "obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed" (Hooper Assoc., Ltd. v AGS Computers, Inc., 74 NY2d 487, 491 [1989]), and urges that indemnification for losses resulting from its breach of the Agreement is not enumerated in subsection 7.10(a), and therefore, travels beyond the ambit of the indemnification provision.

High River, moreover, cross-moves for summary judgment, contending that the indemnification clause only covers losses related to third-party claims. Rather than focusing on subsection 7.10(a) in isolation, High River asserts that section 7.10 should be read as a whole and when read in conjunction with subsections 7.10(b) and (c), the entire indemnification scheme demonstrates an intention to apply only to third-party claims. Subsection 7.10(b) states: "If a third party commences any action or makes any demand against a Seller Indemnified Person, such Seller Indemnified Person will promptly notify Purchaser [High River] in writing of such action or demand . . ." (Klafter Affirmation, Ex A, at 7). This subsection also provides that "Purchaser shall, at its own expense, defend any action for which such Seller Indemnified Person is entitled to indemnification hereunder and shall be entitled to control the defense of such action with counsel (which counsel shall be chosen by Purchaser and reasonably acceptable to Sellers) . . ." (id. at 7-8). Subsection [*4]7.10(c) provides that "Purchaser shall have the right to settle any action . . ." (id. at 8).

In response, Gotham argues that High River is attempting to infer a third exception not expressly contained in subsection 7.10(a). Gotham maintains that if the parties intended to preclude indemnification upon breach of the Agreement, the parties would have done so.

Gotham further urges that, if the provision were limited solely to third-party claims, it would be meaningless to except from indemnification costs arising out the parties' negotiation of the Agreement (see Klafter Affirmation, Ex A, at 7 ["out of the entry of the parties into this Agreement"]). Gotham's position, moreover, is that subsections (b) and (c) are provisions that apply to some of High River's indemnification obligations and should not be misinterpreted to limit indemnification exclusively to third-party claims.

In Hooper Assoc., Ltd. v AGS Computers, Inc., the plaintiff prevailed in an action for breach of contract and later asserted that the contract's indemnification clause entitled it to recoup the attorneys' fees incurred in prosecuting the action (74 NY2d at 489). There, the contract provided:

"[Defendant] shall at all times indemnify and hold harmless [plaintiff], its successors and assigns and any of its officers, directors, employees representatives, and/or agents, and their heirs, executors, administrators, successors and assigns or each of them against and from any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees arising out of:

(i) Any breach by [defendant] of any express or implied warranty hereunder and any express representation or provision hereof, . . ."

(id. at 490 n 1). The Court of Appeals held that the indemnification clause did not contain language permitting the plaintiff to recover the fees from the defendant (id. at 492). The Court reasoned that the clause was typical of those providing indemnification of third-party claims (id.). Focusing on the subjects of the claims covered by the clause, the Court stated: "None are exclusively or unequivocally referable to claims between the parties themselves or support an inference that defendant promised to indemnify plaintiff for counsel fees in an action on the contract" (id.).

The standard that emerged from Hooper Assoc. was that in order to obtain summary disposition on the issue of indemnification for claims against a party, the provision must "exclusively or unequivocally" refer to the claims asserted (see id.; compare Great Northern Ins. Co. v Interior Constr. Corp., 7 NY3d 412, 417 [2006] [the provision was "broadly drawn and unambiguously evinced an intent that (the indemnitor) indemnify (the indemnitee) for the latter's own negligence, provided (the indemnitee) was not 100% negligent"]; with Tonking v Port Auth., 3 NY3d 486, 490 [2004] ["the language of the parties was not clear enough to enforce an obligation to indemnify . . . . If the parties intended to cover (the second third-party plaintiff) as a potential indemnitee, they had only to say so unambiguously"]).

The indemnification clause in the Agreement is readily distinguishable from the one in Hooper Assoc. The broad provision "for avoidance of doubt" specifically excludes two [*5]narrow categories of claims. It specifies that High River does not have to indemnify for losses that "arise out of the entry of the parties into this Agreement or any breach of [the Agreement by Gotham]" (Klafter Affirmation, Ex A, at 7 [emphasis added]). This language makes it unmistakably clear that the parties intended for High River to indemnify party and third-party losses caused by High River's breach of the Agreement, so long as the obligation does not relate to the entry into the Agreement itself. Moreover, construing the indemnification clause as pertaining only to third-party claims would render the language "arise out of the entry of the parties into this Agreement" meaningless and leave the provision "without force and effect" (see Hooper Assoc., 74 NY2d at 493, citing Corhill Corp. v S. D. Plants, Inc., 9 NY2d 595, 599 [1961]). In the end, the Agreement here, unlike the one in Hooper Assoc., contains language that makes it unmistakably clear that the parties intended for High River to indemnify Gotham for counsel fees in an action for breach of the Agreement.

Judgment in Favor of Gotham with Respect to the Additional Purchase Price

Under the Stipulation and Order dated February 8, 2007, the parties agreed that the Additional Purchase Price would not be reduced to judgment until the resolution of the indemnification issue or December 31, 2007, whichever was sooner (Levander Affirmation, Ex F, ¶ 6). If any right to indemnification was determined prior to the December 31, 2007 date, then both the Additional Purchase Price and the indemnification amount would be included as part of one final judgment (id.). If the issue of indemnification was resolved after December 31, 2007, Gotham would be entitled to petition the Court for a judgment in its favor in the amount of the Additional Purchase Price and other associated amounts pursuant to the Stipulation and Order (id.).

This motion was made on September 25, 2007 and originally scheduled to be argued on November 8, 2007. Pursuant to requests for adjournments, oral argument before this Court did not occur until June 17, 2008 and the issue of indemnification was not resolved before December 31, 2007. Accordingly, Gotham is entitled to entry of judgment with respect to the Additional Purchase Price, plus interest, as calculated in accordance with the Stipulation and Order dated February 8, 2007.

High River's Cross-Motion for Legal Expenses

High River further cross-moves for payment of its expenses in connection with defending Gotham's application for indemnification, contending that the Agreement entitles it to recover costs to defend the claim if the party seeking indemnification does not prevail. Because Gotham prevails on its indemnification claim, High River is not entitled to costs and expenses related to defending the claim.Accordingly, it is

ORDERED that Plaintiffs' motion for summary judgment is GRANTED; and it is further [*6]

ORDERED that the issue of the amount of such reasonable costs and attorneys' fees is referred to a special referee to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties enlarging the reference, as permitted by CPLR 4317 (a), to include the reasonable amount of costs and attorneys' fees incurred in this action, the special referee, or another person designated by the parties to serve as referee, shall determine the aforesaid issue; and it is further

ORDERED that a copy of this order with notice of entry shall be served on the Special Referee Clerk in the Motion Support Office in Room 119 to arrange a date for the reference to a special referee; and it is further

ORDERED that the Clerk of Court is directed to enter judgment in favor of Plaintiffs in the amount calculated pursuant to the Stipulation and Order dated February 8, 2007; and it is further

ORDERED that Defendant's cross-motion for partial summary judgment is DENIED.

This constitutes the Decision and Order of the Court.

Dated: New York, New York

January 5, 2009

E N T E R

Hon. Eileen Bransten