Weiser v Exeter Capital Partners LLC

[*1] Weiser v Exeter Capital Partners LLC 2009 NY Slip Op 51406(U) [24 Misc 3d 1210(A)] Decided on June 11, 2009 Supreme Court, Nassau County Driscoll, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 11, 2009
Supreme Court, Nassau County

Joseph Weiser and the Jude Thaddeus Glen Clove Marina I, Inc., Plaintiffs,

against

Exeter Capital Partners LLC, EV/L-A GC Marina Holdings LLC and EV GC Marina Holdings Manager, LLC, Defendants.



017465-08



Plaintiff

Donald T. Rave

516-671-1295

Defendant

Mejias, Milgrim & Alvarado

516-333-7777

Timothy S. Driscoll, J.

This matter is before the court on Plaintiffs' motion for summary judgment, filed on January 13, 2009 and submitted May 8, 2009.[FN1]The Court grants Plaintiffs' motion. For the reasons set forth below, the Court 1) declares that Plaintiffs have no indemnification obligation to Defendants that would preclude release of the funds that the escrow agent currently holds; and 2) concludes that, pursuant to the terms of the parties' Escrow Holdback Agreement ("Escrow Agreement"), Plaintiffs are entitled to recover legal fees and other out of pocket costs they [*2]incurred in this litigation, and directs that a trial be conducted on that issue.

BACKGROUND

A. Relief Sought

Plaintiffs move for an Order, pursuant to CPLR ' 3212, directing that summary judgment be entered: 1) declaring that Plaintiffs are entitled to all the funds currently held pursuant to the terms of the Escrow Agreement, and that Plaintiffs have no obligation to indemnify Defendants; and 2) awarding Plaintiffs costs, including counsel fees, that they incurred in conducting this litigation, in accordance with the terms of the Escrow Agreement.

Defendants oppose Plaintiffs' motion on the grounds that 1) it is premature because the parties have not yet completed discovery; and 2) there are material issues of fact regarding Plaintiff's conduct that potentially affect the parties' claims to the escrow funds.

B. The Parties' History

This action arises from the sale and purchase of the Jude Thaddeus Glen Cove Marina ("Marina") pursuant to a Marina Purchase Agreement ("Purchase Agreement") datedJuly 25, 2007 between Plaintiffs and Defendant Exeter Capital Partners LLC .[FN2]

At the August 24, 2007 closing of that transaction, the parties entered into an agreement titled Escrow Holdback Agreement and Escrow Instructions ("Escrow Agreement"). The first paragraph of the Escrow Agreement states that the parties to the Escrow Agreement area) Plaintiffs Joseph Weiser ("Weiser") and the Jude Thaddeus Glen Cove Marina I, Inc., ("Marina I") designated collectively in the Escrow Agreement, and herein, as "Seller,"b) Defendant EV/L-A GC LLC ("EV/L-A"), designated in the Escrow Agreement, and herein, as "Purchaser," and c) Donald T. Rave, Esq., Seller's counsel, designated in the Escrow Agreement, and herein, as "Escrow Agent."

Paragraph 2 (a) of the Escrow Agreement provides that, in connection with the closing contemplated by the Purchase Agreement, the purchasershall deposit a portion of the Purchase Price [ [FN3] ] for the Property equal to $80,171.00 ("Environmental Funds") with Escrow Agent by having Escrow Agent retain the same out of Seller's proceeds at Closing.Purchaser and Seller acknowledge that the Environmental Funds constitute 66.6% of the face amount of Seller's collectible accounts receivable and are being held in escrow by the Escrow Agent pursuant to the terms of the Purchase Agreement and this Agreement to pay and secure Seller's general indemnity obligations under Section 7.6 of the Purchase Agreement related to environmental matters.

Paragraph 7.6 of the Purchase Agreement, titled "Non-Assumption of Liabilities; General Indemnities," reads as follows:

Except as expressly set forth herein, Purchaser is not assuming any liability of Seller. Except as expressly set forth herein, Seller shall indemnify and hold Purchaser harmless from loss, damage or liability resulting from Seller's operation of the Property prior to the Closing Date, and Purchaser shall indemnify and hold Seller harmless from loss, damage or [*3]liability resulting from Purchaser's operation of the Property from and after the Closing Date. Notwithstanding anything to the contrary herein, the aggregate limit of Seller's indemnity obligations under this contract shall not exceed $500,000 and, as to Joseph Weiser individually, shall expire at midnight on the first anniversary of the Closing. Without limiting the foregoing, Seller shall indemnify, defend and hold Purchaser harmless from any liability, loss, claim, damage or other expense including, without limitation, reasonable attorneys' fees, in connection with any claims made by boat owners in connection with the April Casualty and the events that caused or allegedly caused the April Casualty. This Section 7.6 shall survive the Closing or earlier termination of this Agreement.

By letter dated August 21, 2008 to the Escrow Agent (three days prior to the first anniversary of the closing), the Purchaser lodged a formal claim for the escrowed Environmental Funds in the amount of $80,171, which the Escrow Agent was holding pursuant to Paragraph 7.6 of the Purchase Agreement. In that letter, Purchaser advised the Escrow Agent that it had received a notice from the New York State Department of Environmental Conservation ("Department") regarding a permit dated April 30, 1997, issued to the Jude Thaddeus Glen Cove Marina. Seller provides a copy of that permit, which contains a paragraph titled "Description of Authorized Activity." That paragraph reads, in pertinent part, as follows:

Restoration, rehabilitation and maintenance of an existing Marina facility.

Installation of up to 2200 feet of replacement, new or repaired steel sheet pilebulkhead...435 feet of the bulkhead must be of a "low sill" design to allow the

wetland restoration to function.Purchaser advised the Escrow Agent, further, that the Department told Purchaser that Seller failed to comply with the terms of the permit, in particular the provision relating to the "low sill" requirement, and that the cost of compliance would exceed the funds in escrow. Purchaser also requested that, if the Escrow Agent would not agree to release the escrow funds to Purchaser, he continue to hold the escrow funds pending the resolution of Purchaser's claim. Purchaser also notified the Escrow Agent that Purchaser was demanding that Seller indemnify and hold Purchaser harmless from any claims, or other potential expenses, incurred as a result of Seller's (alleged) failure to comply with the terms of the permit.

Seller, through the office of his counsel, the Escrow Agent, denied the requested claim for indemnification by letter dated August 26, 2008. In that letter, Seller advised Purchaser that "nothing" in the materials that Purchaser provided with its August 21st letter "would trigger the indemnity provision of the contract or the Environmental Escrow." Seller noted, in that letter, that the permit to which Purchaser referred in its August 21st letter had expired pursuant to its own terms on April 29, 2007, prior to the execution of the Purchase Agreement.

Seller affirms that Purchaser's involvement with the Department was not as a result of any pending investigation or claim involving Seller, but rather a result of Purchaser's application, after the closing, for a permit to replace 350 linear feet of bulkhead. In support thereof, Seller provides a copy of a permit that the Department issued with respect to the Glen [*4]Cove Marina, with an effective date of November 20, 2008 and an expiration date ofNovember 19, 2013. That permit describes the "Authorized Activity" as, inter alia, "Replace approximately 350 linear feet of bulkhead, in kind and in place."

In the August 26, 2008 letter, Seller also advised Purchaser that "Unless Purchaser immediately consents to the release to Seller of the remaining escrow funds, we will have no alternative to commencing an action against Seller for a court order directing the release of the funds." Seller also makes reference, in that letter, to the provision in the Escrow Agreement that allows the prevailing party to recover legal fees and costs incurred in any such litigation.Paragraph 3.1 of the Escrow Agreement, titled "Release of Funds from Escrow - Disbursement Request," sets forth the procedure for Purchaser to make a disbursement request from the Escrow Agent, and for Seller to object to that request via an "Objection Notice." That Paragraph states as follows with respect to the recovery of counsel fees and other expenses:

The prevailing party in any dispute with respect to an Objection Notice shall be

entitled to recover its out-of-pocket legal fees and other out-of-pocket costs

incurred in connection with the litigation or other resolution of such dispute

from the non-prevailing party.Purchaser now affirms that Seller does not consent to the release of the escrowed funds and, therefore, Purchaser commenced this action seeking release of the money held in escrow and a declaration of the Seller's rights thereto.

Purchaser opposes Seller's application, on the grounds that 1) it is premature because no discovery has been completed; and 2) if the Court were to consider Seller application now, it must deny it because there are issues of fact "regarding the plaintiffs' operation of the property prior to the closing date, and whether said operation resulted in damages and/or loss to the defendants, thereby triggering Section 7.6 of the Purchase Agreement."

In support of Purchaser's assertion that issues of fact exist, Purchaser provides an Affidavit of Kenneth Picache, who affirms that he is a "member of the Defendant companies." Mr. Picache affirms, inter alia, that 1) after the closing date, he became aware of instances in which Seller failed properly to maintain the bulkhead, underground tanks and gas lines while they were operating the Marina; 2) specifically, after a storm on September 8, 2008, which resulted in a gasoline leak into the Marina's waters, it was discovered that the leak originated from the same location as other leaks that occurred while Seller controlled the property;3) Purchaser contacted an environmental consulting firm, which led to the discovery of soils affected by the petroleum; and 4) as a result, Purchaser had to take remedial steps, including the removal of gasoline tanks from service pending an evaluation.

Purchaser submits that, as a result of Seller's inattention to these issues during its operation of the property, Purchaser incurred significant monetary costs in making necessary repairs. Thus, Purchaser argues, Seller is not entitled to any of the escrow funds, because Seller's alleged mishandling of the property caused damages to Purchaser in excess of the funds in escrow.

C. The Parties' Positions

Seller submits that Purchaser has failed to establish its right to indemnification and, therefore, Seller is entitled to release of the funds in escrow. Seller submits, further, that Purchaser's contact with the Department was not as a result of any act or omission by Seller [*5]during its operation of the property, but rather a result of Purchaser's application for a permit after the closing date. Thus, Seller argues that, pursuant to the terms of the Escrow Agreement, Seller has no obligation to indemnify Purchaser under these circumstances, and the Court should grant Seller's motion for summary judgment.

Purchaser opposes Seller's motion. First, Purchaser argues that Seller's application is premature, as the parties have not yet completed discovery, which may disclose facts supporting Purchaser's claim that Purchaser suffered loss resulting from Seller's conduct prior to the closing. In addition, Purchaser submits that, in light of Mr. Picache's affidavit, there is an issue of fact regarding Seller's potential liability to Purchaser for its alleged misfeasance and, therefore, an issue as to the parties' entitlement to the escrow funds.

Seller disputes Purchaser's claim that Mr. Picache's affidavit raises an issue of fact. First, Seller submits that Mr. Picache's affidavit contains vague and conclusory allegations, rather than specific factual references. Second, Seller notes that the affidavit refers to a leak occurring after a storm on September 8, 2008, more than a year after the closing. Moreover, that affidavit, Seller argues, contains no evidence connecting the alleged damage from the storm to Seller's conduct while it was managing the property.

Seller also disputes Purchaser's contention that the Court should defer decision on this motion, pending discovery. Preliminarily, Seller affirms that Purchaser has not demanded discovery and, further, that Purchaser has been engaged in dilatory tactics, including its failure to serve an answer to the Verified Complaint ("Complaint") until approximately two (2) months after service of that Complaint, despite Seller's repeated demand for that answer. Seller also submits that Purchaser's request for discovery is made in bad faith, as Purchaser is now asserting, for the first time, damage due to an alleged post-closing leak, rather than providing evidence to prove its initial claim that the low sill bulkhead constituted an environmental violation.

RULING OF THE COURT

A. Standard for Summary Judgment

The party seeking summary judgment must establish an entitlement to judgment as a matter of law. Alvarez v. Prospect Hosp., 68 NY2d 320 (1986); Zuckerman v. City of New York, 49 NY2d 557 (1980). If the party moving for summary judgment fails to establish a prima facie entitlement to judgment as a matter of law, the motion must be denied. Winegrad v. New York University Medical Center, 64 NY2d 851 (1985); Widmaier v. Master Products, Mfg., 9 AD3d 362 (2d Dept. 2004); and Ron v. New York City Housing Auth., 262 AD2d 76 (1st Dept.1999). CPLR § 3212(b) further requires that, in ruling on a motion for summary judgment, the court must determine if the movant's papers justify holding as a matter of law "that there is no defense to the cause of action or that the cause of action or defense has no merit." In making this determination, the Court must view the evidence submitted by the moving party in a light most favorable to the non-movant. Marine Midland Bank, N.A. v. Dino & Artie's Automatic Transmission Co., 168 AD2d 610 (2d Dept. 1990). The Court may only grant summary judgment when there are no issues of material fact and the evidence requires the court to direct judgment in favor of the movant as a matter of law. Friends of Animals, Inc. v. Associated Fur Mfrs., 46 NY2d 1065 (1979).

B. The Terms of the Escrow Agreement and Purchase Agreement Control

It is hornbook law that an escrow is a written agreement that imports a legal obligation to deposit an instrument or property by the promisor with a third party to be kept by [*6]the latter in the capacity of a depository or escrowee until the performance of a condition or the happening of a specified event. At that point, the escrow agent releases/delivers the property or monies mandated by the terms of the escrow agreement. 55 New York Jurisprudence (Second Edition) § 1.

When the parties to a contract have set down their agreement in a clear and complete document, the document should, as a rule, be enforced according to its terms. Heinrich v. Phazar Antenna Corp., 33 AD3d 864, 865 (2d Dept. 2006). "The fundamental, neutral precept of contract interpretation is that agreements are construed in accord with the parties' intent [and] [t]he best evidence of what parties to a written agreement intend is what they say in their writing.' " Greenfield v. Phillies Records, 98 NY2d 562, 569 (2002), quoting Slatt v. Slatt, 64 NY2d 966, 967 (1985). A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms. Greenfield,98 NY2d at 569. A contract is unambiguous if the language employed has "a definite and precise meaning, unattended by the danger of misconception in the purport of the [agreement] itself, and concerning which there is no reasonable basis for a difference of opinion." Breed v Insurance Company of North America, 46 NY2d 351, 355 (1978), rearg. den. 46 NY2d 940 (1979). Such agreements must be read as a whole and interpreted to give effect to their general purposes without undue emphasis on particular words and phrases, as the meaning of the agreement may be distorted where undue emphasis is given to certain words or phrases and not others. Westmoreland Coal Co. v Entech Inc., 100 NY2d 352, 358 (2003). If an 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. Krystal Investigations & Security Bureau, Inc. v. United Parcel Service, Inc., 35 AD3d 817, 818 (2d Dept. 2006). A court may not rewrite into a contract conditions the parties did not insert by adding or excising terms under the guise of construction, nor may it construe the language in such a way as would distort the contract's apparent meaning. Slamow v. Del Col, 174 AD2d 725, 727 (2d Dept. 1991), aff'd. 79 NY2d 1016 (1992). These principles are particularly important in the context of a real property transaction, where commercial certainty is of paramount concern and where the agreement was negotiated between sophisticated counseled business people who negotiated at arm's length. South Road Associates, LLC v. Intern. Business Machines Corp., 4 NY3d 272, 277 (2005).Applying these principles to the matter sub judice, the Court concludes that the Purchase Agreement and Escrow Agreement are valid, enforceable contracts, and that their language controls under these circumstances. The Purchase Agreement contains numerous, detailed provisions related, inter alia, to a) the identification of the property, b) the purchase price,

c) the depositing of funds in escrow, d) title and survey matters, e) the parties' access to the property, f) Seller's representations, g) Purchaser's representations, and h) the closing. The Escrow Agreement, similarly, contains detailed provisions regarding, a) the specific sums that Purchaser would deposit into the escrow account, b) the matters to which those sums pertained, and c) the procedure for release of funds from escrow. Thus, the Court concludes that these contracts constitute complete memorializations of the parties' agreements, and the terms of these contracts control.

C. Purchaser has not Established the Existence of a Material Fact

For the Court to release the disputed escrow funds without a trial, it must be clear that no factual issues or viable claims exist under the closely scrutinized terms of the Escrow Agreement. Marriott Corp. v. Rogers & Wells, 81 AD2d 556 (1st Dept. 1981), aff'd. 92 AD2d [*7]478 (1st Dept. 1983). It is well settled that, in the event of a dispute, escrow funds may not be released until the conditions of the escrow agreement are fully performed and it is clear that no factual issues or viable claims exist under the closely scrutinized terms of the escrow agreement. Takayama v. Schaefer, 240 AD2d 21, 25 (2d Dept. 1998).

Applying these principles to the matter at bar, the Court concludes that Purchaser has not established an issue of fact as to its entitlement to the escrow funds. First, Purchaser attempts to establish a factual dispute by relying on counsel's characterization of Mr. Picache's affidavit. Counsel asserts that Mr. Picache's affidavit states that the Seller, inter alia, 1) misrepresented the conditions of the property/Marina, including, but not limited to, the bulkheads, underground tanks and associated piping; and 2) improperly and incorrectly removed four gasoline and underground storage tanks in 1981 (fifteen years prior to Seller's acquisition of the property in 1996), resulting in Purchaser's expenditure of "hundreds of thousands of dollars to rectify the problems." The Court may not, however, consider counsel's interpretation in evaluating the sufficiency of the evidence before it, as it is well settled that an affirmation of a party's attorney who lacks personal knowledge of the facts is without probative value and is insufficient to raise an issue of fact. Wisnieski v Kraft, 242 AD2d 290, 291 (2d Dept. 1997).

Moreover, Mr. Picache, himself, does not provide any relevant facts of which he has personal knowledge, and does not provide documentation supporting his conclusory assertions that the Seller "failed to assess and check the tank pit monitoring wells for the presence of floating product for several years," up to and including the closing date. In addition, his affidavit is bereft of personal knowledge of the consequences of a September 8, 2008 storm, which, he alleges, resulted in a gasoline leak into the water of the Marina. Finally, he does not offer personal knowledge that this leak originated from the same location of alleged gasoline leaks occurring during Seller's ownership of the property.The Court concludes that this lack of personal knowledge is fatally deficient to the Purchaser's attempt to rely on the affidavit to create a factual issue.

Purchaser does not offer any legally sufficient evidence to challenge the Escrow Agreement. Paragraph 3 of the Escrow Agreement requires the Purchaser to include, inter alia, "copies of notices, filings, invoices, penalties or other evidence supporting the Disbursement Request." Moreover, Paragraph § 7.4 of the Purchase Agreement, titled "Limitation of Representations," provides as follows:

Purchaser expressly acknowledges that, other than as expressly set forth in this Agreement, Seller makes no representations or warranties, express or implied, or arising by operation of law, including, but not limited to, any warranty of condition, habitability, merchantability, suitability or fitness for a particular purpose or otherwise. Except for Seller's representations set forth in Sections 7.1 and 9, Purchaser is purchasing the Property solely in reliance on Purchaser's own investigations and those of Purchaser's agents, and Purchaser is not relying on any statements, information, and/or other material provided by Seller or Seller's agents.

These provisions establish that 1) it was the parties' intent to require the Purchaser to provide documentation in support of his request for a disbursement of funds; and 2) the parties agreed that they had conducted their own due diligence with respect to the property prior to executing the Purchase Agreement.

In sum, the Court concludes that Seller is entitled to summary judgment based on [*8]the Escrow Agreement. Thus, it is incumbent upon Purchaser to demonstrate the existence of a factual issue requiring trial of the action, or tender an acceptable excuse for the failure to do so. Zuckerman v City of New York, supra, 49 NY2d at 562. Under all the circumstances, the Court concludes that Purchaser's conclusory and unsubstantiated allegations are insufficient to raise a triable issue of fact.

Finally, although the Court may delay determination of a summary judgment motion to allow for further discovery where evidence necessary to oppose the motion is unavailable to the opponent, there must be an evidentiary basis that suggests that discovery might lead to relevant evidence. A party's mere hope that discovery will reveal the existence of triable issues of fact is insufficient to delay determination on the issue of summary judgment. Lambert v Bracco, 18 AD3d 619, 620 (2d Dept. 2005). The Court concludes that, with respect to the matter sub judice, Purchaser had possession and/or access to documentation that might support its claim of a loss due to the absence of a low sill bulkhead or the other environmental issues to which they refer. The Purchaser's claim that it needs further discovery is particularly inappropriate where, as here, Purchaser has unnecessarily protracted the progression of this matter by its own delay in responding to the Complaint.

Accordingly, the Court 1) grants Seller's motion for summary judgment; and2) declares that Seller has no indemnification obligation to Purchaser that would preclude release of Environmental Funds in the amount of $80,171 that the Escrow Agent currently holds. presently held by the escrow agent.

D. Plaintiffs are Entitled to Counsel Fees and Other Expenses

Pursuant to Paragraph 3.1 of the Escrow Agreement, Seller, as the prevailing party, is entitled to recover out of pocket legal fees and other out of pocket costs incurred in connection with the instant litigation. Accordingly, the Court directs that a trial will be held on that issue, and directs counsel to appear before the Court for a conference on July 7, 2009 at 9:30 a.m., at which time the Court will schedule the trial.

All matters not decided herein are hereby denied.

This constitutes the decision and order of the Court.

ENTER

DATED: Mineola, NY

June 11, 2009

Hon. Timothy S. Driscoll

J.S.C. Footnotes

Footnote 1: This Court assumed responsibility for this case, and this motion, on May 8, 2009.

Footnote 2: By notice dated August 20, 2007, Exeter Capital Partners LLC assigned its rights under the Purchase Agreement to an affiliate, Defendant EV/L-A GC Marina Holdings LLC as successor in interest to Exeter Capital Partners LLC.

Footnote 3: The purchase price of the Marina Property was $14,250,000.