El-Ad 250 W. LLC v 30 Hubert St. LLC

[*1] El-Ad 250 W. LLC v 30 Hubert St. LLC 2009 NY Slip Op 50528(U) [23 Misc 3d 1101(A)] Decided on February 23, 2009 Supreme Court, New York County Ramos, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 23, 2009
Supreme Court, New York County

El-Ad 250 West LLC, Plaintiff,

against

30 Hubert Street LLC, Defendant.



601983/08



Appearances:

Ronald S. Greenberg

Karmer Levin Naftalis & Frankel LLP

1177 Avenue of the Americas

New York, New York 10036

Attorneys for the Plaintiff

Steven B. Feigenbaum

Levi Lubarsky & Feigenbaum LLP

1185 Avenue of the Americas, 17th Floor

New York, New York 10036

Attorneys for the Defendant

Charles Edward Ramos, J.

In motion sequence 001, the plaintiff El-Ad 250 West LLC ("El-Ad") moves for partial summary judgment on its first cause of action seeking declaratory judgment and dismissing the counterclaims interposed by the defendant 30 Hubert Street LLC ("Hubert"), which seek specific performance of the purchase and sale agreement executed by the parties (the "Agreement"), or in the alternative, damages for breach of the Agreement.

This action arises out of a failed real estate transaction, whereby Hubert was to purchase from El-Ad an eleven story office building located at 250 West Street, New York, New York, and the underlying real property (the "Property").

The complaint alleges that on November 20, 2007, Hubert executed the Agreement to purchase the Property from El-Ad, for a purchase price of $201 million dollars. Contemporaneously, Hubert made a $15 million deposit by delivering $5 million to El-Ad (the "Released Deposit") and delivering $10 million to the escrow agent (the "Escrow Deposit").

The parties then endeavored to complete the due diligence work, which included inspections, testing, and the obtaining of permits and approvals from various government agencies. There were numerous delays and disagreements, which prevented the completion of the work by the Closing Date.

Five days before the Closing Date, by letter, dated June 25, 2008, Hubert notified the escrow agent that El-Ad was in default of the Agreement and instructed the escrow agent not to release any portion of the Escrow Deposit unless directed by a final court order or until the parties resolved this issue.

By a second letter, dated June 29, 2008, Hubert informed El-Ad that it was in default of the Agreement for its bad faith breach of Section 8.1(a) of the Agreement.

On July 1, 2008, El-Ad sent written notice notifying Hubert that its failure to close on the Closing Date was a default under the Agreement and consequently, that El-Ad was terminating the Agreement. Additionally, El-Ad sent written notice to the escrow agent that Hubert failed to [*2]close and directed that the Escrow Deposit be released to El-Ad.

As of this date, the escrow agent maintains possession and control of the Escrow Deposit.

El-Ad filed a summons and complaint alleging two causes of action for declaratory judgment and breach of the Agreement. Hubert filed its answer asserting ten affirmative defenses and two counterclaims for specific performance and breach of the Agreement.

In this instant motion, El-Ad seeks partial summary judgment on its first cause of action for declaratory judgment and dismissal of Hubert's counterclaims. El-Ad contends that Hubert defaulted under the Agreement by its failure to close by the Closing Date.

Hubert opposes the motion, arguing that El-Ad breached Section 8.1(a) in bad faith by failing to cooperate with Hubert to complete the due diligence work. Additionally, Hubert contends that El-Ad cannot convey a fee simple interest in the Property, which Hubert argues is a breach of Section 10.1(b) of the Agreement. Furthermore, Hubert contends that its counterclaims raise factual issues that preclude the granting of summary judgment.

A motion for summary judgment requires that the movant sufficiently establish the cause of action or defense to warrant judgment as a matter of law. In the summary judgment context, the Court only determines if there are genuine triable issues of fact (S. J. Capelin Associates, Inc. v Globe Mfg. Corp., 34 NY2d 338, 341 [1974]).

El-Ad's first cause of action seeks a declaration that El-Ad is entitled to the Escrow Deposit because it properly terminated the Agreement upon Hubert's default.

El-Ad must first establish that Hubert failed to meet its obligations under the Agreement. Section 15.1 of the Agreement, titled Purchaser Default, states:

If...Seller [El-Ad] is ready, willing, and able to close, Purchaser [Hubert] has not terminated this Agreement pursuant to Section 4.2, 5.9, 10.4, 13.2, 14.1(b) or 15.2 hereof, and Purchaser shall default in the payment of the Purchase Price or if Purchaser shall default in any of its other obligations to be performed on the Closing Date...Seller's sole remedy by reason thereof shall be to terminate this Agreement, and upon such termination, Seller shall be entitled to retain the Deposit...as liquidated damages for Purchaser's default hereunder...and thereafter Purchaser and Seller shall have no further rights or obligations under this Agreement except for those that are expressly provided in this Agreement to survive the termination hereof.

El-Ad argues that it is entitled to the Escrow Deposit pursuant to Section 15.1 of the Agreement because it was ready, willing, and able to close by the Closing Date, and Hubert's failure to close constituted a default under the Agreement. Hubert did not terminate the Agreement, therefore, its provisions remained binding and in full force and effect.

Hubert first counterclaim argues that El-Ad is itself in default because it has failed to fulfill its obligations in bad faith pursuant to Section 8.1(a)(vii) and Section 10.1(b) of the Agreement.

Section 8.1(a)(vii) of the Agreement states:

"During the period from the date hereof until the Closing Date, Seller shall...at Purchaser's sole cost and expense, Seller shall reasonably cooperate with Purchaser's efforts to obtain permits for the Proposed Development, provided that (a) Seller shall have no obligation to cooperate with Purchaser to the extent Seller reasonably determines that any such cooperation would impair its rights with respect to the Property or result in any liability to Seller in the event Purchaser fails to close...or such cooperation would otherwise have an adverse affect on Seller...and (b) in no event shall Seller's failure to cooperate pursuant to this Section 8.1(a)(vii) be a default under this Agreement or otherwise provide Purchaser with any right to terminate hereunder so long as Seller has not acted in bad faith."

Hubert has submitted affidavits swearing to breaches by El-Ad. One affidavit from Spencer J. Romanoff, the vice president and general counsel of Coalco New York, which is a 50% owner of Hubert, states that El-Ad denied access to the building to conduct the due diligence work, delayed the execution of the Department of Buildings application for demolition, [*3]failed to provide the Development Documents [FN1], and delayed the performance of the sidewalk drilling. Hubert alleges these breaches were in bad faith and constitute defaults under the Agreement and frustrated its ability to obtain the financing it needed to close the transaction by the Closing Date.

However, pursuant to the Agreement, a default is only an actionable event if "such default shall continue for ten (10) days after notice..." (Agreement § 15.1). Hubert did not provide notice of the alleged defaults until June 29, 2008, one day before the Closing Date. Hubert's failure to preserve its rights under the Agreement by providing adequate notice to El-Ad of its defaults bars a finding that El-Ad is in default under the Agreement.

Therefore, Hubert's arguments that El-Ad's bad faith breaches constitute a default under the Agreement and thus, are a defense to Hubert's own default, fail because El-Ad is not in default under the Agreement. Hubert has not alleged that it was prevented from providing adequate notice to El-Ad of the defaults and has otherwise provided no explanation for its inaction.

Furthermore, Hubert's assertion that El- Ad's refusal to adjourn the Closing Date was unreasonable and an example of bad faith is contradicted by the fact that the Agreement made "time of the essence" (Agreement § 1.1). If a real estate contract provides that "time is of the essence," then the closing date becomes a material term and all parties must tender performance by that date, unless there has been a mutually agreed upon extension (Greto v Barker 33 Assoc., 161 AD2d 109 [1st Dept 1990]). Hubert does not allege there was an extension of the Closing Date.

No evidence has been submitted that would warrant a modification of the Agreement. It is well settled in the law that a Court must enforce a complete, clear, and unambiguous written agreement according to the plain meaning of its terms (Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). Consequently, El-Ad is entitled to a declaration that Hubert is in default of the Agreement.

Hubert asserts in its second counterclaim that it believed that the northern wall of the Property was a standard party wall. Generally, the property line is aligned with the centerline of a standard party wall. Thus, Hubert believed half of the northern wall of the Property is physically located on the Property and the other half of the wall is physically located on the adjacent lot. However, further inspection revealed that the nature of the party wall is ambiguous. It is unclear to what extent, if any, the party wall is physically located on the Property. El-Ad contends that Hubert waived its objections to any defects in the title in the Agreement.

Hubert argues that it El-Ad's inability to convey a fee simple interest is a breach of the Agreement. Furthermore, Hubert argues it never intended to waive its objections to such defects in title because it had no reason to believe that they were inaccurate.

Hubert's assertion that the ambiguous nature of the party wall is a defense to its default is undercut by Section 10.3(a) of the Agreement, which states:

"Purchaser acknowledges and agrees for the benefit of the Seller that...except as otherwise expressly stated in this agreement or in any agreement or instrument executed and delivered by Seller to Purchaser contemporaneously herewith, including by way of example but not limited to representations and warranties set forth in Section 10.1 of this Agreement and the limited warranty of title expressly set forth in the deed...Seller hereby expressly disclaims any and all representations and warranties of any kind or character, express or implied, with respect to the Property, and Purchaser agrees to accept the Property as is, where is, with all faults'...Seller has made and is not making any representations or warranties, express or implied, written or oral, as [*4]to...(E) any conditions at or which affect or may affect the property with respect to any particular purpose, use, development potential or otherwise (F) the area, size, shape, configuration, location, capacity, quantity, quality, cash flow, expenses or value of the Property or any part thereof (G) the nature or extent of title to the Property, or any easement, servitude, right-of-way, possession, lien, encumbrance, license, reservation, condition or otherwise that may affect title to the Property." [emphasis added].

The Agreement clearly contemplated that there may be some ambiguities with respect to the Property and allocated that risk to Hubert. Hubert cannot now claim that the ambiguous condition of the party wall was a mutual mistake when it agreed to take the Property "as is, where is, with all faults," which includes any defects in title related to the party wall. Hubert's risk is not limited by its belief that the deeds were accurate. The mere fact that Hubert failed to adequately assess the risk it was assuming is no defense. Hubert has not raised any fraud, collusion, mistake, or duress that warrants a modification of the Agreement (McCoy v Feinman, 99 NY2d 295, 302 [2002]).

Hubert's answer set forth ten affirmative defenses. The first affirmative defense for failure to state a claim and the second affirmative defense for failure to state a valid claim for declaratory judgment are duplicative and fail as a matter of law because El-Ad has identified a justiciable controversy (Krieger v Krieger, 25 NY2d 364, 366 [1969]). The third affirmative defense that El-Ad has not suffered damages is conclusory and not a defense to summary judgment. Hubert fails to allege any facts to support the fourth affirmative defense for unclean hands and the ninth affirmative defense for and waiver and estoppel. The fifth affirmative defense that El-Ad is in default, the sixth affirmative defense for frustration of purpose, and the tenth affirmative defense for breach of the Agreement all fail because this Court has determined that El-Ad was not in default of the Agreement for the above-mentioned reasons. This Court has already determined that Hubert agreed to take the Property "as is," thereby precluding the seventh affirmative defense for unilateral mistake and the eighth affirmative defense for mutual mistake.

Accordingly, it is

ORDERED that the plaintiff El-Ad 250 West LLC's motion for partial summary judgment on its first cause of action is granted.ORDERED that the defendant 30 Hubert Street LLC's first counterclaim is dismissed.

ORDERED that it is adjudged and declared that the defendant 30 Hubert Street LLC is in default of the purchase and sale agreement, and that plaintiff El-Ad 250 West LLC properly terminated the Purchase and Sale agreement and is entitled to receive the Escrow Deposit from the escrow agent, pursuant to the terms in the Purchase and Sale Agreement.

This constitutes the decision and order of this Court.

Dated: February 23, 2009

_________________________

J.S.C. Footnotes

Footnote 1: Development Documents include any estimates of construction costs, construction budgets, pre-construction analyses, all drawings, correspondence with the New York City Landmarks Preservation Commission, and all other documentation related to the potential development of the property (Agreement § 2.3).