RSB Bedford Assoc. LLC v Ricky's Williamsburg, Inc.

[*1] RSB Bedford Assoc. LLC v Ricky's Williamsburg, Inc. 2012 NY Slip Op 50891(U) Decided on May 9, 2012 Supreme Court, New York County Fried, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 9, 2012
Supreme Court, New York County

RSB Bedford Associates LLC, Plaintiff,

against

Ricky's Williamsburg, Inc., d/b/a RICKY'S NYC and RICKY'S HOLDINGS, INC., Defendants.



602303/2009



For the Plaintiff:

GALLAGHER, HARNETT &

LAGALANTE, LLP

380 Lexington Avenue

New York, NY 10168

By: Brian K. Gallagher, Esq.

For the Defendant:

SANTAMARINA & ASSOCIATES

260 Madison Avenue, 17th Floor

New York, NY 10016

By: Gil Santamarina, Esq.

Bernard J. Fried, J.

By Motion Sequence No. 015, Plaintiff, RSB Bedford Associates, LLC ("Bedford"), seeks to reject in part and confirm in part the Report and Recommendation of Special Referee Louis Crespo, dated July 28, 2011 (the "Report"). By Motion Sequence No. 016, Defendants, Ricky's Williamsburg, Inc., d/b/a Ricky's NYC ("Ricky's") and Ricky's Holdings, Inc. ("Holdings"), seek, also, to reject in part and confirm in part the Report. By Motion Sequence No. 017, Plaintiff seeks an award of additional attorneys' fees. These three motions are consolidated for disposition.

Familiarity with this action, and with the extensive proceedings had prior to now, is presumed. Nonetheless, a very brief summary of the events giving rise to this litigation, and to [*2]some of the procedural history, is warranted.

This action arose out of Defendants' anticipatory breach of an agreement to lease commercial space in a building that Plaintiff planned to purchase. The agreement was comprised of both the lease, itself (the "Lease"), and a side letter, which the parties executed concurrently with the Lease (the "Side Letter"; together with the Lease, the "Contract"). Also executed contemporaneously with the Contract was a guaranty, pursuant to which Holdings guaranteed all obligations of Ricky's under the Lease (the "Guaranty").

By Order dated April 12, 2010, I granted Plaintiff's motion for partial summary judgment, as to liability, and I referred the issue of damages to a Special Referee to hear and report with recommendations. I also granted Plaintiff's request for attorneys' fees and costs, but only with respect to Holdings, pursuant to the Guaranty. However, by Order dated June 9, 2010, I granted Plaintiff's cross-motion to reargue the April 12, 2010 Order, and concluded that Ricky's was liable, along with Holdings, for costs and reasonable attorneys' fees. These two Orders, along with several others, which need not be addressed here, were affirmed by the November 10, 2011 Order of the Appellate Division, First Department (the "Appellate Division Order"). See RSB Bedford Assoc., LLC v. Ricky's Williamsburg, Inc., 91 AD3d 16 (1st Dep't 2011).

On January 11, 2011, Special Referee Louis Crespo began what would become a four-day hearing on the issue of damages.[FN1] Special Referee Crespo heard testimony, on behalf of Plaintiff, from Benjamin Bernstein ("Bernstein"), founder and member of Bedford, and a principal of Red Sky Cap LLC, a holding company and the operating partner of Bedford. Also testifying was Jonathan Bernstein, the father of Bernstein, and the principal of Coventry Real Estate Advisors, a partner involved in the transaction at issue. Jonathan Bernstein also provided certain legal services in connection with the transaction. David Maundrell, a principal of Apartments and Lofts.com, also testified on Plaintiffs behalf, as to the reasonableness of the rents that Bedford expected to collect from Ricky's and from the other anticipated commercial and residential tenants that would have occupied the premises had the Contract not been repudiated. Brian Gallagher ("Gallagher"), Plaintiff's counsel, also testified, as to the legal services he provided throughout this litigation. Testifying on behalf of Defendants was Adam Stupak, who worked as Ricky's broker on the Lease.

In addition to the four days of trial testimony, the Special Referee also received and reviewed many pages of documentary evidence.

Although Plaintiff sought an award of either $9,927,394.57 or $5,449,985.19 (both numbers include $762,834.57 in attorneys' fees), Special Referee Crespo concluded that they were entitled to only $609,923.12, plus interest, from both Defendants, and to an additional $226,479, plus interest, in attorneys' fees, from Holdings. Special Referee Crespo reached this conclusion on the basis of his determination that Plaintiff was entitled to recover "the present value of its damages from the repudiating party's breach of the contract." (Report at p. 34, ¶ 23.)

Special Referee Crespo accurately set forth the general rule for damages for repudiation of a contract, which is that a non-repudiating party may seek either expectancy damages, or special damages, which are designed to place the party in the position it would have held had the [*3]contract been performed, and restitutionary, or general damages, which are intended to place the party in as good a position as it would have held had the contract never been entered into. (Id. at p. 34, ¶ 25, citing In re Asia Global Crossing, Ltd., 404 BR 335, 341 (S.D.NY 2009) (applying New York law).[FN2]

The Special Referee concluded that the lost rents and future lost profits sought by Plaintiff fell into the category of expectancy, or special damages, and thus would only have been recoverable upon a showing that they were "foreseeable and within the contemplation of the parties at the time the contract was made. (Id. at p. 34-35, ¶ 26, citing Kenford Co. v. County of Erie, 73 NY2d 312 (1989).) Since Special Referee Crespo concluded that there was no credible evidence to demonstrate such foreseeability, he awarded to Plaintiff restitutionary damages, which included the costs incurred by Bedford in connection with the Lease, but he declined to award damages relating to the rents and profits Bedford claims it would have collected if the acquisition of the building had gone forward.

Specifically, Special Referee Crespo reports and recommends that Plaintiff recover: -

$16,224.23 in damages as a result of costs directly incurred by Bedford in connection with preparation of the space under the Lease, as well as the pop-up store and affiliated rental costs; -

$46,783.89 in damages as fees expended by Bedford in reliance on Ricky's promise to perform under the Contract; -

$121,665.00 in damages as a result of rents which Bedford paid to the building owner, after Ricky's had signed the Lease, in order to ensure that certain units of the building were delivered vacant; and -

$400,000 in damages as a result of the down payment delivered by Bedford to the building owner in connection with the planned acquisition of the property;[FN3] -

$25,250 as damages in connection with the legal fees directly related to drafting and negotiating the Contract. The Special Referee rejected Plaintiff's claim for an additional $150,000 in attorneys' fees because Plaintiff did not demonstrate that this sum constitutes restitutionary damages attributable to Ricky's repudiation; -

statutory interest on the above sums, calculated from June 15, 2009.

(See Report at pp. 40-46.) [*4]

Finally, although Plaintiff sought a total of $406,399.78 in attorneys' fees relating to this litigation, Special Referee Crespo reports and recommends an award, in favor of Plaintiff and against Holdings, only, of $226,479.00, plus statutory interest from April 12, 2010. This adjusted amount reflects the Special Referee's determination that certain of the sums billed were not reasonable, that some invoice entries appeared to be duplicative, and that certain of the fees billed related to preparation in connection with seeking the fee award, i.e., "fees on fees." (See id. at pp. 47-57.)

Before I discuss the parties' respective objections to the Special Referee's recommended award, I note that the segregation of $226,479 in liability attributable only to Holdings is erroneous. In reaching this conclusion, Special Referee Crespo inadvertently neglected to consider my Order dated June 9, 2010, in which I determined that Ricky's, along with Holdings, was liable for costs and attorneys' fees.[FN4] Therefore, insofar as it seeks to reject the portion of the Report that provides for an award, in favor of Plaintiff and against Holdings only, in the amount of $226,479 plus interest, Plaintiff's motion is granted. This portion of the Report, ONLY, is rejected. (See Nov. 16, 2011 Hr'g Tr. At 2.)

Notwithstanding the objections of both Plaintiff and Defendant, a review of the record reveals that Special Referee Crespo's findings with respect to these attorneys' fees is, in fact, supported by the evidence presented at the hearing. Therefore, this portion of the Report is confirmed in all other respects, and judgment on attorneys' fees, in the amount of $226,479, plus statutory interest from April 12, 2010, will be entered, in favor of Plaintiff, as against both Holdings and Ricky's. Baker v. Kohler, 28 AD3d 375, 375-76 (1st Dep't 2006) ("The report of a referee should be confirmed if its findings are supported by the record.").

Turning, now, to the parties' positions with respect to the rest of the award, it will come as a shock to no one that Plaintiff's objection is that the award is too low, while Defendants argue that the award is too high. The primary basis for Plaintiff's objection is the Special Referee's refusal to grant expectancy damages (in the form of lost rents and future lost profits). Defendants, on the other hand, contend that, although Plaintiff may be entitled to restitutionary damages, the damages awarded by the Special Referee encompass more than is necessary to put Plaintiff in the same position it would have occupied had the Contract never been entered into.

I turn, first, to Plaintiff's motion. Plaintiff argues that the Special Referee rejected these damages upon his conclusion that Bedford did not demonstrate that it would have been ready, willing, and able to consummate the acquisition of the property had it not been for Ricky's repudiation. However, Plaintiff argues, the Special Referee should not have addressed this question of "ready, willing and able," since it goes to liability, which had already been established by my April 12, 2010 Order. Moreover, the Appellate Division Order expressly stated that, "under the contracts, plaintiff's ability to close is irrelevant." RSB Bedford Assoc., LLC v. Ricky's Williamsburg, Inc., 91 AD3d 16, 22 (1st Dep't 2011). Since the Appellate Division Order further states, "Nor is the issue of plaintiff being ready, willing and able to close relevant to damages," id. at 23, Plaintiff argues that the Special Referee's discussion of this [*5]requirement renders his findings clearly erroneous.

If he had left aside the question of ready, willing and able, Plaintiff asserts, the Special Referee would have been able to conclude on the basis of the evidence that the rents Bedford would have collected from Ricky's, had the deal gone forward, amount to general damages under the Lease, and that the future profits it would have earned, once it completed its acquisition and development of the subject property also amount to general damages, since they were foreseeable pursuant to the terms of the Side Letter.

I disagree.

It may be that Special Referee Crespo found that there was insufficient evidence to support a conclusion that Plaintiff was ready, willing and able to close on the purchase of the property. However, his Report makes clear that this is not the sole basis for his determination as to the damages to which Plaintiff is entitled. Rather, his conclusion as to damages is very clearly based on his finding that lost rents and future lost profits were not recoverable as expectancy damages because there was a lack of credible proof demonstrating that these were foreseeable and within the contemplation of the parties at the time the Contract was entered into.

In order to demonstrate entitlement to expectancy damages, a plaintiff must show that "such unusual or extraordinary damages [were] brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting." Kenford Co. v. County of Erie , 73 NY2d 312, 319 (1989). Here, Special Referee Crespo concluded that there was insufficient proof that Ricky's understood that it would be liable for such extraordinary damages. "There is no documentary evidence in the record to support the finding that Ricky's understood that it was an anchor tenant' and that if it failed to take the space and repudiate the Lease it would be held accountable for any and all expectancy' damages." (Report at p. 35, ¶ 29.) Although Bedford argues strenuously that the testimony of its principal and expert demonstrated that expectancy damages were contemplated by the parties and thus foreseeable, Special Referee Crespo rejected this testimony. He concluded, specifically, that the testimony of Gallagher, Bernstein and Jonathan Bernstein was "colored by the [witness's] interest in the result that the plaintiff seeks." (Id. at pp. 29-30, ¶ 8.) He further rejected the testimony of Bernstein and Jonathan Bernstein relating to Ricky's purported understanding that Bedford "looked to Ricky's as the deal' for the project and that this was an important part of [Bedford's] plan to purchase' the property." (Id. at p. 37, ¶ 33.) He concluded that this "testimony in the absence of documentary evidence is insufficient," and further, that, "without any documentary proof, the testimony by plaintiff's agents or principals or members, etc. is not credible." (Id. at p.37. ¶¶ 33-34.)

Having conducted a four-day hearing, and having had the benefit of seeing, firsthand, the character and demeanor of the witnesses, the Special Referee is in the best position to make findings as to their credibility. I therefore decline to disturb these findings, and as such, I conclude that Special Referee Crespo's determination that the expectancy damages sought by Plaintiff were not foreseeable or contemplated by the parties is supported by the evidence.[FN5] [*6]Therefore, to the extent that Plaintiff seeks to reject these conclusions, Plaintiff's motion is denied.

Plaintiff also seeks an award of additional fees, which were not considered by the Special Referee. Special Referee Crespo rejected a post-hearing submission of invoices totaling $181,184.79, for services rendered and expenses incurred from December 1, 2010 through March 31, 2011. This submission was rejected only because they were submitted after the hearing, and the Special Referee thus refused to consider them. However, he did so without prejudice to Plaintiff's right to submit them in connection with this motion. (See Report at p. 29, ¶¶ 6-7.) Plaintiff has, accordingly, submitted them here, along with an additional affidavit, by which Plaintiff seeks recovery of attorneys' fees and costs, totaling $25,267.70, for the period April 16 through July 31, 2011. Upon review of these submissions, I conclude that Plaintiff is entitled to at least some portion of the amounts sought. I am therefore referring ONLY the issue of the reasonableness of these amounts to Special Referee Crespo, to hear and report with recommendations.

I turn, next, to Defendants' motion. Defendants agree wholeheartedly with the Special Referee's determination that only restitutionary, and not expectancy damages, should be awarded. However, Defendants contend that, notwithstanding this conclusion, Special Referee Crespo included in his award certain amounts that cannot be understood as restitutionary in nature. Defendants assert that the Report must be rejected to the extent that it includes such amounts in the award.

As set forth above, Special Referee Crespo's conclusion as to the non-availability of expectancy damages is amply supported by the evidence, and thus, insofar as it seeks to confirm this portion of the Report, Defendants' motion is granted.

With respect to the specific amounts included in the award, however, Defendants argue that the only sum that is appropriately restitutionary is the $25,250 in legal fees. They therefore argue that all other recommended damages must be rejected.

Defendants argue that the $46,783.89 in architecture, building and other fees, is not recoverable because Plaintiff did not adequately demonstrate that, after Ricky's repudiation, it terminated its contract to purchase the building. Defendants argue that if Plaintiff still planned to [*7]purchase the building, then it would have incurred all of these fees in any event. Similarly, Defendants argue that the $121,665 that Plaintiff made in payments to the building owner to secure certain vacancies, as well as the $400,000 down payment, both represent amounts that Plaintiff would have paid anyway, if it intended to go forward with its purchase of the property, after Ricky's repudiation. Defendants thus assert that these sums are not recoverable, since Plaintiff did not demonstrate that it subsequently terminated its contract to purchase the building. I find this argument to be unavailing, first, because the Special Referee clearly rejected any contention that the deal to purchase the building went forward after Ricky's repudiation (see Report at p. 30, fn. 17), and moreover, because Defendants do not deny that these amounts were actually paid by Plaintiff, in reliance on Plaintiff's performance. Such amounts thus clearly represent restitutionary damages, and so much of Defendants' motion seeking to reject this portion of the award is denied.

Defendants also seek to reject the Special Referee's conclusions with respect to the reasonableness of the $25,250 in legal fees incurred in connection with drafting and negotiating the Contract, and with respect to the $226,479 award of legal fees incurred in connection with this litigation. However, as previously stated (see p. 6), I see no basis to disturb Special Referee Crespo's findings as to the award of $226,479 plus interest. Nor do I see a basis to reject his conclusion as to the $25,250 damages award, since the inquiry required with respect to that number was not one of reasonableness, but rather, one of whether or not such amount constitutes restitutionary damages. (See Report at pp. 43-44, ¶ 58.) Since Defendants do not deny that these constitute restitutionary damages, this portion of Defendants' motion is also denied.

Finally, I turn to Motion Sequence No. 017, by which Plaintiff seeks to further increase its award of legal fees by including for consideration invoices, totaling $124,023.76, for services rendered and costs incurred during the period of July 1 through December 31, 2011. Plaintiff further seeks an order directing that Plaintiff be permitted to recover reasonable attorneys' fees and costs, including costs of collection, through satisfaction of judgment. Defendant opposes this motion on the basis of my Order, dated December 1, 2011, by which I denied Plaintiff's letter application to further supplement the record in connection with the pending motions to confirm/reject the Report. However, nothing in that Order prevented Plaintiff from making a new motion seeking to collect additional fees. Indeed, by Order dated February 15, 2012, I expressly authorized Plaintiff to make such a motion. Although I warned that I would consider the imposition of sanctions if I found the motion to be frivolous, a review of the now fully submitted motion reveals that it is not frivolous, and that Plaintiff may be entitled to some of the additional fees sought. Therefore, as I did with the supplemental fees sought in connection with Motion Sequence No. 015, I am referring ONLY the issue of the reasonableness of the attorneys' fees sought in connection with Motion Sequence No. 017, to Special Referee Crespo, to hear and report with recommendations.

Accordingly, it is

ORDERED that Plaintiff's motion to reject the July 28, 2011 Report of Special Referee Louis Crespo (Motion Sequence No. 015) is GRANTED in part and DENIED in part, as set forth in this Decision; and it is further

ORDERED that Defendants' motion to confirm in part and reject in part the Report (Motion Sequence No. 016) is GRANTED in part and DENIED in part, as set forth in this [*8]Decision; and it is further

ORDERED that the July 28, 2011 Report of Special Referee Louis Crespo is rejected, ONLY to the extent that it recommended an award of attorneys' fees of $226,479, in favor of Plaintiff and against Holdings only, and it is confirmed in all other respects; and it is further

ORDERED that, within ten days of service of this Order, with Notice of Entry, Plaintiff shall submit to the Court an affidavit as to whether any amount of the $400,000 down payment has been refunded by the seller of the building; and it is further

ORDERED that, upon receipt of said affidavit, the Clerk of the Court is directed to enter judgment, in favor of Plaintiff and against Defendants, Ricky's Williamsburg, Inc. d/b/a Ricky's NYC, and Ricky's Holdings, Inc., in the amount of: $184,673.12, representing the costs incurred with respect to the pop-up store, architecture and other fees, and rents paid by Bedford; plus $400,000 for the down payment, less the amount, if any, that has been refunded by the seller, as set forth by the expected affidavit from Plaintiff; plus $25,250 in legal fees; together with interest of 9% calculated from June 15, 2009; and it is further

ORDERED that the Clerk of the Court is directed to enter judgment, in favor of Plaintiff and against both Defendants, in the amount of $226,479, together with interest of 9% calculated from April 12, 2010; and it is further

ORDERED that Plaintiff's motion for an award of additional attorneys' fees (Motion Sequence No. 017) is GRANTED as to liability; and it is further

ORDERED that the issue of the reasonableness of the fees set forth in Motion Sequence No. 017, and the reasonableness of the supplemental fees sought in connection with Motion Sequence No. 015, is hereby referred to Special Referee Louis Crespo to hear and report with recommendations, except that, in the event of and upon the filing of a stipulation of the parties, as permitted by C.P.L.R. § 4317, 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 counsel for the Plaintiff shall, within 30 days from the date of this Order, serve a copy of this Order with Notice of Entry, together with a completed Information Sheet, upon the Special Referee Clerk in the Motion Support Office (Room 119M), who is directed to place this matter on the calendar of the Special Referee's Part for the earliest convenient date.

Dated: May 9, 2012ENTER:

____________________________

J.S.C. Footnotes

Footnote 1: The hearing dates were January 11, and February 7, 8 and 9, 2011.

Footnote 2:Although Plaintiff objects to the Special Referee's use of Asia Global Crossing as authority, its objection arises from that Court's application of the ready, willing and able standard to determine whether expectancy damages are recoverable. It is clear to me that Special Referee Crespo cited to this case not for its discussion of ready, willing and able, but rather, for its concise recitation of the general rule vis à vis the types of damages that are recoverable under a claim for repudiation of a contract. See also Emposimato v. CIFC Acquisition Corp., 30 Misc 3d 1233(A) at *12 (NY Cty. Sup. Ct. 2011) aff'd, 932 N.Y.S.2d 33 (1st Dep't 2011).

Footnote 3:Special Referee Crespo notes that the credible testimony at the hearing supported a conclusion that no part of this down payment had been returned to Bedford by the seller. However, he states, "To the extent the $400,000.00 was indeed returned in whole or in part after the hearing date, the defendant is entitled to a credit." (Report at p. 42, fn. 22.)

Footnote 4:As stated, my June 9, 2010 Order was affirmed by the Appellate Division. See RSB Bedford Assoc., LLC v. Ricky's Williamsburg, Inc., 91 AD3d 16 (1st Dep't 2011).

Footnote 5:Plaintiff also objects to the Special Referee's conclusion that the rental payments it would have received from Ricky's, had the Contract not been repudiated, amount to expectancy damages, and are thus not recoverable. Plaintiff argues, first, that I previously rejected this argument, when made by Defendants, in the context of their motion to dismiss or stay the damages hearing (Motion Sequence No. 004). However, in connection with that motion, Defendants argued that Plaintiff had no standing to sue for any damages because it was never in possession of the premises. (See Defendants' Memorandum of Law in Support of its Motion to Dismiss or Stay the Damages Hearing, or Alternatively, Staying the Hearing Pending Appeal, a copy of which is annexed to the August 18, 2011 Affidavit of Brian K. Gallagher, at Exhibit F.)

In contrast, Special Referee Crespo concluded that, because Plaintiff was not the owner of the building at the time the Contract was repudiated, Plaintiff was not in a position to collect rents from any tenant. Therefore, awarding Bedford the value of such rental payments would not serve to place it in the same position as if the Contract had never been executed. Rather, as the Special Referee concluded, an award including the value of the rental payments would amount to an award of expectancy, and not restitutionary damages. And, since there was no evidence to support a finding that such damages were foreseeable and within the contemplation of the parties, they are not recoverable.