Crestwood Loft Partners, LLC v Crestwood Sta. Plaza, LLC
Annotate this CaseDecided on December 11, 2013
Supreme Court, Westchester County
Crestwood Loft Partners, LLC, Plaintiff,
against
Crestwood Station Plaza, LLC, EDI INTERNATIONAL, P.C., AKRF, INC., STREET-WORKS, LLC, TOWN OF EASTCHESTER, and VILLAGE OF TUCKAHOE, Defendants.
58594/2013
Klapper & Fass
Attorneys for the plaintiff
170 Hamilton Avenue
White Plains, NY 10601
By NYSCEF
Andrew Greene & Associates, PC
Attorneys for Crestwood Station Plaza, LLC
202 Mamaroneck Ave.
White Plains, NY 10601
By NYSCEF
Francesca E. Connolly, J.
The following documents were read in connection with the defendant Crestwood Station Plaza, LLC's motion to cancel a notice of pendency:
The defendant's order to show cause, memorandum of law,
affirmation, affidavit, exhibits1-10The plaintiffs' memorandum of law in opposition, affirmation,
affidavits, exhibits11-22 [*2]
The defendant's reply affidavit, exhibits23-25
The plaintiff commenced this action to compel specific performance of the sale of certain real property located at 300 and 308 Columbus Avenue in the Village of Tuckahoe. Simultaneously with the commencement of the action, the plaintiff filed a notice of pendency that presently encumbers the property's title. The defendant Crestwood Station Plaza, LLC (hereinafter the defendant), the owner of the property, moves to cancel the notice of pendency pursuant to CPLR 6514 (b), or in the alternative, pursuant to CPLR 6515. The plaintiff opposes the motion.
FACTUAL AND PROCEDURAL BACKGROUND
On July 1, 2011, Street-Works, LLC entered into a purchase and sale agreement with the defendant to purchase the subject property for the sum of $3.2 million. The closing date was scheduled for November 20, 2011, "time being of the essence." The agreement provides that the seller "shall . . . not alter, modify, convey or dispose of, directly or indirectly, all or any portion of the Property or any rights or interests therein, without Purchaser's approval" (Purchase and Sale Agreement ¶ 5 [c]). The agreement further provides that the seller "shall . . . not market the Property, list the Property for sale with any broker, negotiate the sale of the Property, solicit or accept any offers for the purchase and sale of the Property, or attempt to do any of the foregoing, other than to or with the Purchaser" (Purchase and Sale Agreement ¶ 5 [f]). Additionally, the agreement provides:
If, prior to Closing, Purchaser breaches in any material respect any of its covenants, obligations, liabilities, or duties hereunder or its representations and warranties and such breach has not been cured within ten (10) business days after notice given by Seller to Purchaser, then Seller shall be entitled to cancel or terminate the closing escrow and prompt receipt of the Deposit from Escrow Holder as its sole and exclusive remedy and as liquidated damages for Purchaser's default under this agreement . . . .
(Purchase and Sale Agreement ¶ 13 [1]). With respect to a breach by the seller, the agreement provides:
If, prior to Closing, Seller breaches in any material respect any of its covenants, obligations, liabilities or duties hereunder or its representations and warranties hereunder and such breach has not been cured within ten (10) business days after notice given by Purchaser to Seller, Purchaser shall be entitled to: (i) terminate its obligations to purchase and Seller's obligations to sell the Property and not proceed with closing . . . or (ii) specific performance of Seller's obligations hereunder, including Seller's obligation to sell the Property in accordance with the terms of this Agreement . . . .
(Purchase and Sale Agreement ¶ 13 [2]).
[*3]
That agreement was subsequently amended a number of times, including a Fourth Amendment dated June 22, 2012, which assigned Street-Works' rights in the agreement to the plaintiff.
The plaintiff and defendant entered into a Fifth Amendment on August 15, 2012, extending the closing date to February 15, 2013, "Time of the Essence." That amendment requires that the plaintiff pay $500,000 as liquidated damages if the closing does not occur on or before February 15, 2013.
A Sixth Amendment to the purchase and sale agreement, dated February 8, 2013, provides that, subject to certain "Extension Payments," the closing date "may be extended by the Purchaser to no later than the close of business on March 15, 2013 ( Extended Closing Date'), time of the essence, by notice to Seller on or before February 15, 2013." Additionally, "Purchaser shall have the additional right to extend the Extended Closing Date to no later than the close of business on April 15, 2013 ( Final Closing Date'), time of the essence, by notice to the Seller on or before March 15, 2013." The amendment contains a schedule of extension payments, which provides that the sum of $50,000 shall be paid to the seller "on notice of the Extended Closing Date," and the additional sum of $25,000 payable seven days after notice of the Extended Closing Date. Finally, the sum of $50,000 is payable to seller on notice of the Final Closing Date.
By letter dated February 14, 2013, Giulio Monaco, as managing member of the defendant, sent the plaintiff a "Notice of Cancellation of the Purchase and Sale Agreements and the Amendments thereto." The letter states, in relevant part,
Further to our telephone conversation earlier today, please be advised based upon your admission on behalf of the Purchaser of your unwillingness to furnish the required extension payment associated with the most recent Sixth Amendment to the Purchase and Sale Agreement, Seller hereby deems same to be an anticipatory breach and hereby elects to accelerate the default provisions set forth within both the Agreement and the Amendments thereto.
(Affirmation in Opposition, Exhibit E).
The parties undisputedly failed to close on February 15, 2013, although they assert different legal and factual reasons for how and why a sale was not consummated.
By letter dated March 6, 2013, Monaco informed the plaintiff:
I write to you in follow up to our meeting of last week at your office wherein you, your senior partner, and your equity investor advised me that you would be unable to complete the above referenced transaction nor were you willing to make the payment obligations previously agreed to in accordance with the 5th and 6th Amendment to the Purchase and Sale Agreement. Inasmuch as you advised me on [*4]February 14th via telephone and in our meeting last week that the Purchaser disclaims its duty to perform under the contract and that you were unable to meet the conditions of both the 5th and 6th Amendments to the Purchase and Sale Agreement, same is hereby considered an anticipatory breach of the Purchase and Sale agreement and I am left with no choice but to pursue my remedies.
(Affidavit in Reply, Exhibit A [4] [Fourth Exhibit to the Verified Answer]).
By letter dated April 2, 2013, the plaintiff gave the defendant notice that it was in breach of section 5 (f) of the purchase and sale agreement since the defendant's members had negotiated their membership interests to Monaco. The plaintiff's principal contended: "I did not admit Purchaser's unwillingness to pay the extension payment associated with the Sixth Amendment to the PSA and you have no right to accelerate the closing under the PSA." The plaintiff further argued that, "even if Purchaser had failed to timely make the extension payment, the PSA requires Seller to give Purchaser a notice to cure before it could terminate the PSA, provided of course, that Seller is not in default" (Affirmation in Opposition, Exhibit F).
On May 31, 2013, the plaintiff commenced this action seeking specific performance of the agreement (as amended), or, in the alternative, judicial findings that the plaintiff had a $150,000 lien on the property representing the amount of its security deposit, a lien in excess of $1 million representing investments and improvements it made on the property during the contract period, and damages in excess of $1 million. The plaintiff alleges that the defendant breached the contract when, on or about October 9, 2012, Guilio Monaco, Jr., acquired all of the membership interests of the defendant without the plaintiff's prior approval. The plaintiff also alleges that the defendant breached the contract when, on or about February 14, 2012 (one day prior to the time-of-the-essence date), it attempted to terminate the agreement and cancel the closing due to the plaintiff's purported unwillingness to furnish the required extension payment. The plaintiff contends that the attempt to terminate the contract without first giving a notice to cure also constituted a breach.
Motion to Cancel the Notice of Pendency
The defendant now moves to cancel the notice of pendency pursuant to CPLR 6514 (b) or, in the alternative, for discretionary cancellation pursuant to CPLR 6515. The defendant contends that the plaintiff was not ready, willing, and able to close on the property. In an affidavit in support, Guilio Monaco, one of the defendants' principals, avers that, on February 14, 2013, he was advised by Jeffrey Levian, one of the plaintiff's principals, that the plaintiff was "unable to close on the date required and unable to make the extension payment required by the Sixth Amendment" (Monaco Affidavit ¶ 7). Monaco treated this as an anticipatory breach.
In further support of its contention that the plaintiff was not ready, willing, and able to close, the defendant cites to the plaintiff's participation in a federal court action, Street-Works Development LLC and Crestwood Loft Partners LLC v John H. Richman (SDNY Civil Action No.13 CV 0774) (see Defendant's Exhibit 4 [Second Amended Federal Complaint]). The plaintiffs in the federal [*5]action were Street-Works Development LLC (hereinafter Street-Works) and the plaintiff in the instant action (Crestwood Loft Partners LLC). Street-Works is a member of Crestwood Loft Partners LLC (see id. ¶ 5). The federal suit alleges that Street-Works and the federal defendant, John H. Richman, formed an oral joint venture to participate in the development of 300 and 308 Columbus Avenue, Tuckahoe (see id. ¶¶ 7-8).[FN1] As part of the joint venture, Street-Works and Richman agreed to pursue private and institutional investors to fund the project (see id. ¶ 11). Street-Works secured funding from certain private investors of approximately $670,000, and in July 2011 a purchase and sale agreement was entered into to purchase the subject property (see id. ¶¶ 16-18). However, as the federal complaint alleges, in December 2011, "it became clear that [Richman] had no capital to invest in the Project; could not bring any private capital to invest in the Project and had failed to interest any institutional money in the Project" (see id. ¶ 21). In the summer of 2012, Richman and Street-Works came to a disagreement about wether the project should go forward, and, in September 2012, Street-Works purported to terminate its relationship with Richman (see id. ¶ 43). However, it was alleged that Richman "wrongfully continued to represent himself as part of the Project" (see id. ¶ 45). Street-Works alleged that Richman improperly contacted Cigna Affiliates Realty Investment Group, LLC (hereinafter Cigna), an investor who had executed a letter of intent to provide $4.8 million in financing for the project, and caused Cigna to doubt whether the project could successfully go forward (see id. ¶¶ 52-53). Cigna demanded that Street-Works obtain a full release from Richman before it would provide the financing for the project, but Richman refused to cooperate (see id. ¶¶ 57-64). The federal complaint alleges that, as a result of Richman's actions, "the closing date for the [purchase and sale agreement] expired with plaintiff unable to purchase the Property" and "plaintiffs were forced to abandon the Project" (see id. ¶¶ 66-67).
The defendant argues that the foregoing allegations by the plaintiff against Richman in the federal action are admissions that it lacked the financing to close on the subject property on February 15, 2013, the time-of-the-essence date established by the Sixth Amendment to the purchase and sale agreement. Thus, it contends that the notice of pendency in the instant action should be vacated. The defendant submits that, in the alternative, the Court should condition the continuation of the notice of pendency upon a requirement that the parties post undertakings in an amount fixed by the Court. The defendant contends that any bond this Court requires it to post should not exceed $672,000, the amount of the damages sought to be recovered in the federal action. The defendant further contends that the plaintiff should be required to post a bond in the amount of $3,200,000, the purchase price of the property.
In opposition to the motion, the plaintiff contends that its principals had sufficient cash on hand, and that its dispute with Richman did not impair its ability to close. The plaintiff contends that the defendant's February 14, 2013 letter accusing the plaintiff of anticipatorily breaching the contract of sale was, itself, an anticipatory breach by the defendant, and that the plaintiff never communicated an intention to breach the agreement. The plaintiff also contends that it was entitled to notices to cure under the provisions of the contract of sale, which the defendant never provided. The plaintiff contends that Monaco's purchase of the membership interests in the defendant entity were [*6]strategically done for the purpose of taking advantage of the work that the plaintiff had done towards development of the property during the contract period, and that Monaco himself was not ready or willing to sell the property. The plaintiff's principal, Jeffrey Levien, alleges that Monaco "was not looking to close but rather [was] looking to eliminate a contract vendee and take over a Project" (Levien Affidavit ¶ 41). Levien lists approximately $800,000 in expenses that the plaintiff made to advance the property's development during the contract period, including costs associated with land use approvals, moving electrical lines, and environmental reviews (see id. ¶¶ 53-54). The plaintiff argues that an undertaking would not adequately protect it given the uniqueness of the property.
DISCUSSION/ANALYSIS
"Once a notice of pendency [has] been filed, it may only be cancelled, upon motion, for one of the reasons set forth in CPLR 6514 or 6515" (Whelan v JTT Contractors, Inc., 155 AD2d 451, 451 [2d Dept 1989]). Although cancellation of the notice of pendency filed in this case pursuant to CPLR 6514 is not warranted, as discussed below, the Court will require contingent double bonding pursuant to CPLR 6515.
Pursuant to CPLR 6514 (b): "The court, upon motion of any person aggrieved and upon such notice as it may require, may direct any county clerk to cancel a notice of pendency, if the plaintiff has not commenced or prosecuted the action in good faith." In the matter at bar, the Court finds that the defendant failed to establish that the plaintiff commenced this action in bad faith, and therefore, the branch of the motion which is for cancellation of the notice of pendency pursuant to CPLR 6514 is denied (see Lessard Architectural Group, Inc., P.C. v X & Y Dev. Group, LLC, 88 AD3d 768, 770 [2d Dept 2011] ["In this case, it cannot be concluded, based upon the conflicting allegations of the parties, that the plaintiff commenced this action in bad faith, or is using the notice of pendency for an ulterior purpose"]).
CPLR 6515, entitled "Undertaking for cancellation of notice of pendency; security by plaintiff," provides in relevant part:
In any action other than a foreclosure action as defined in subdivision (b) of section 6516 of this article or for partition or dower, the court, upon motion of any person aggrieved and upon such notice as it may require, may direct any county clerk to cancel a notice of pendency, upon such terms as are just, whether or not the judgment demanded would affect specific real property, if the moving party shall give an undertaking in an amount to be fixed by the court, and if:1. the court finds that adequate relief can be secured to the plaintiff by the giving of such an undertaking; or2. in such action, the plaintiff fails to give an undertaking, in an amount to be fixed by the court, that the plaintiff will indemnify the moving party for the damages that he or she may incur if the notice is not cancelled.[*7]
(see CPLR 6515). Subdivision two of this statute has been described as a "double bonding" approach, in which "the court can cancel the notice of pendency upon posting of [a] bond by the defendant unless plaintiff posts an undertaking that will indemnify the defendant for any damages flowing from the notice of pendency" (see Purchase Real Estate Group, Inc. v Jones, 489 F Supp 2d 345, 348 [SDNY 2007], citing Andesco, Inc. v Page, 137 AD2d 349, 357 [1st Dept 1988]).
While a consideration of the likelihood of success on the merits is "irrelevant to determining the validity of [a] notice of pendency" (see 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313, 320 [1984]), it is proper to consider the likelihood of success on the merits when considering whether to discretionarily cancel a notice of pendency pursuant to CPLR 6515 (see Sparks Associates, LLC v North Hills Holding Co. II, LLC, 74 AD3d 1183, 1184 [2d Dept 2010] [holding that the Supreme Court improvidently exercised its discretion in denying the defendant's motion to cancel a notice of pendency where the plaintiff did not have a strong likelihood of success on the merits of its cause of action for specific performance"]; 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d at 320; see also Purchase Real Estate Group, Inc. v Jones, 489 F Supp 2d at 348 ["Though the New York Court of Appeals has not issued a definitive statement on this issue, certain New York State courts have held that it is appropriate for courts to consider, among other things, the merits of the plaintiff's lawsuit and the plaintiff's likelihood of success in considering whether to permit a notice of pendency to be cancelled via one or more undertakings"]).
Here, considering the submissions on the motions, the Court considers the plaintiff's likelihood of success on the merits to be low. A party suing for specific performance of a contract to purchase real property must show that it was ready, willing, and able to perform (see Zeitoune v Cohen, 66 AD3d 889, 891 [2d Dept 2009]). The allegations that the plaintiff made against its co-venturer Richman in the separate federal action appear to show that Richman's actions interfered with the plaintiff's ability to obtain the necessary financing it needed to close on the sale. Although the plaintiffs' principals have submitted affidavits to this Court averring that they personally possessed the funds necessary to close, the ability to pay is irrelevant if these parties were not ready or willing to pay at the time of the sale unless the purchase was financed by a loan. Specifically, the plaintiff alleged in the federal action that, as a result of Richman's actions, it was "forced to abandon the Project" (Defendant's Exhibit 4 ¶ 67). Even though the plaintiff contends that the defendant anticipatorily breached the contract by the February 14, 2013 notice of cancellation, "[a]n anticipatory breach by the party from whom specific performance is sought excuses the party seeking specific performance from tendering performance, but not from the requirement that the party seeking specific performance establish that he or she was ready, willing, and able to perform" (Zeitoune v Cohen, 66 AD3d at 891).
Given the unique nature of real property, this Court finds that adequate relief cannot be afforded to the plaintiff simply by requiring the defendant to post an undertaking pursuant to the "single bonding" approach in CPLR 6515 (1).
However, "[the] double bonding' approach [outlined in CPLR 6515 (2)] is considered preferable even where the plaintiff's likelihood of success is doubtful" (Andesco, Inc. v Page, 137 [*8]AD2d at 357 [emphasis added]; see Ansonia Realty Co. v Ansonia Associates, 117 AD2d 527 [1st Dept 1986]; Purchase Real Estate Group, Inc. v Jones, 489 F Supp 2d at 348), and, here, the Court finds that the double bonding approach in subdivision two of CPLR 6515 is appropriate to afford the parties adequate security.
Accordingly, the only remaining matter is to determine the amount of the undertakings that the parties should be required to post. The Court finds that the defendant's proposal that it be required to post an undertaking in the amount of $672,000, the amount of the damages sought to be recovered in the federal action, is insufficient. The complaint seeks to recover the plaintiff's deposit of $150,000 plus approximately $1 million in damages attributable to improvements the plaintiff made to develop the property during the contract period, which the plaintiff claims the defendant will unjustly benefit from if it is permitted to retain the property. The affidavit of the plaintiff's principal submitted in opposition to the defendant's motion contains a summary of this development work, which he claims cost the plaintiff in excess of $800,000 (see Levien Affidavit ¶ 54). Although the defendant disputes some of these alleged expenses, the ultimate merits of the plaintiff's allegations should be determined through the litigation process and not on this motion. While it may be appropriate to consider whether the property has increased in value during the contract period in considering the amount of an undertaking necessary to protect the plaintiff (see Andesco, Inc. v Page, 137 AD2d at 357), here, the record is barren as to the current appraised value of the property. Under these circumstances, the defendant should be required to post a bond in the amount of $1.15 million, representing the total of the plaintiff's deposit and the alleged damages resulting from improvements it made to the property.
The Court also finds the defendant's proposal that the plaintiff be required to post an undertaking in the amount of $3,200,000, the contract price of the property, is excessive. If the defendant prevails, the contract price is not likely to be reflective of its damages (see Ansonia Realty Co. v Ansonia Associates, 117 AD2d at 527-528 ["The undertaking imposed upon plaintiff as a condition to retention of the notice of pendency, $38,500,000, representing the balance of the purchase price, is, however, totally disproportionate to any damages which defendant may suffer as a result of the continuance of the notice"]). Instead, the defendant's damages will consist of, among other things, the lost opportunities to develop or sell the property, and the carrying costs of maintaining the property and paying the taxes during the pendency of the lawsuit (see Andesco, Inc. v Page, 137 AD2d at 358 ["an undertaking . . . will adequately indemnify defendant seller for increased capital gains taxes incurred after January 1, 1987, the cost of maintaining the nearly vacant building and the loss of interest on the $6.5 million contract price to the other prospective purchaser"]; see also Purchase Real Estate Group, Inc. v Jones, 489 F Supp 2d at 349 [in setting the amount of the undertaking, the court considered, among other things, "the costs involved with the continued upkeep and maintenance of the Subject Property as long as the sale cannot be completed"]). Payments that the plaintiff has already paid towards the purchase price of the contract also afford the defendant protection (see Andesco, Inc. v Page, 137 AD2d at 358 [noting that the $500,000 down payment held in escrow, together with an undertaking set by the court, affords the defendant protection]). [*9]
The amount of the defendant's potential damages is difficult to ascertain from this record. There are indications in the record that at one point the defendant paid $210,000 in outstanding real estate taxes from funds paid to it by the plaintiff (Monaco Affidavit ¶ 4), and that on a separate occasion, taxes in the amount of $20,338.78 were due to the Village of Tuckahoe (see Fourth Amendment to the Purchase and Sale Agreement ¶ [5] [a] [i]). Although the record does not reflect the current outstanding taxes on the property, or the actual taxes on the property owed on an annual basis, the amount of taxes that were owed at various points during this contract gives the Court some framework to assess the scale of the tax burden on the defendant. Moreover, there is no evidence that the property has increased or decreased in value (cf. Andesco, Inc. v Page, 137 AD2d at 358). Accordingly, given the absence of evidence from which the Court can ascertain the defendant's potential damages, prudence warrants that the Court be conservative in setting the undertaking which the plaintiff should be required to post. Accordingly, the Court finds in its sound discretion that the plaintiff should be required to post an undertaking in the amount of $500,000 if it wishes to retain the notice of pendency (assuming the defendant first posts its required undertaking) (cf. Purchase Real Estate Group, Inc. v Jones, 489 F Supp 2d at 349 ["it is this Court's view that Defendants did not present sufficient information to justify their request for a $5 million undertaking from Plaintiff"]).
In summary, if the defendant posts an undertaking in the amount of $1.15 million, the notice of pendency will be canceled unless the plaintiff posts a bond in the amount of $500,000. The parties' time limits to accomplish this double bonding are set forth in the decretals below.
Based upon the foregoing, it is hereby
ORDERED that pursuant to CPLR 6515 (2), if the defendant Crestwood Station Plaza, LLC posts a bond to indemnify the plaintiff in the amount of $1,150,000 within 20 days of service this order with notice of entry, the notice of pendency shall be cancelled, unless within 40 days of service of this order with notice of entry, the plaintiff posts a bond to indemnify the defendant Crestwood Station Plaza, LLC in the amount of $500,000; and it is further
ORDERED that motion of the defendant Crestwood Station Plaza, LLC to cancel the notice of pendency is otherwise denied; and it is further,
ORDERED that the parties are directed to appear in the Preliminary Conference Part on January 6, 2014 at 9:30 a.m., in Courtroom 811 of the Westchester County Courthouse at 111 Dr. Martin Luther King, Jr., Boulevard, White Plains, New York 10601; and it is further
ORDERED that all other relief requested and not decided herein is denied.
This constitutes the decision and order of the Court.
Dated: White Plains, New York
December 11, 2013 [*10]
Footnotes
Footnote 1: The same property at issue in the case at bar.
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