Blackburn Food Corp. v Ardi, Inc.

[*1] Blackburn Food Corp. v Ardi, Inc. 2017 NY Slip Op 27369 Decided on October 25, 2017 Supreme Court, Suffolk County Emerson, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on October 25, 2017
Supreme Court, Suffolk County

Blackburn Food Corp., Brian Blackburn and Pamela Blackburn, Plaintiffs,

against

Ardi, Inc., Armand's Restaurant, Inc., Armand LaMacchia, Individually and as Shareholder of Ardi, Inc. and as Shareholder of Armand's Restaurant, Inc., Gregory N. Ferraris, Individually and as Shareholder of Ardi, Inc. and as Administrator of the Estate of Richard J. Ferraris and as Executor of the Estate of Susan Ferraris, Richard S. Ferraris, Individually and as Shareholder Ardi, Inc., Defendants.



609895-15



FLECK, FLECK & FLECK

Attorneys for Plaintiffs

1205 Franklin Avenue, Suite 300

Garden City, New York 11530

JEFFREY HERZBERG, P.C.

Attorneys for Defendants Ardi's, Inc., Armand's Restaurant, Inc. and Armand LaMacchia

300 Rabro Drive, Suite 114

Hauppauge, New York 11788
Elizabeth H. Emerson, J.

DECISION AFTER TRIAL

On or about January 15, 2012, the plaintiffs entered into an agreement with the defendant Ardi, Inc., and Armand LaMacchia to lease a restaurant owned and operated by the defendant Armand's Restaurant, Inc. (the "defendants"). The lease was for a term of 10 years. A rider thereto gave the plaintiffs an option to purchase the premises for $975,000 as long as they were not in default of the lease. The rider also gave the plaintiffs credits against the purchase price. The credits consisted of "the amount of the base rent actually paid for Years 1, 2 and 3, exclusive [*2]of taxes, insurance and utilities...together with the total 'Key Money' paid ($150,000)."[FN1] While the rider initially provided for the option to terminate 30 days prior to the end of year three, a supplemental rider extended the time within which the plaintiffs had to exercise the option until "30 days prior to Year five (5) of the Lease Agreement."[FN2] The supplemental rider was silent, however, on whether the credits against the purchase price were also extended until year five.

The plaintiffs exercised the option to purchase the premises in year four of the lease. On July 21, 2015, their attorney sent notice to the attorney for the defendants that they wished to exercise the option. The letter provided, in pertinent part, as follows:

"I request you forward a Contract of Sale to me within seven (7) days with the indicated purchase price of $975,000.00 and credits for the key money of $150,000.00 and for three (3) years of rent payments totaling $144,000.00."

The defendants took the position that the plaintiffs' right to receive credits for the rent paid in years one, two, and three and for the key money expired at the end of year three. Thus, the defendants would not proceed with the sale unless the plaintiffs paid the full purchase price of $975,000. The plaintiffs commenced this action on September 15, 2015: (1) for specific performance of the option at the reduced purchase price of $681,000 and (2) to recover rent paid after they exercised the option. The plaintiff moved and the defendants cross moved for summary judgment. By an order dated January 26, 2017, this court found that the option language was reasonably susceptible of more than one meaning. Accordingly, the motion and cross motion were denied.

The matter proceeded to trial on May 8, 9, and 31, and June 19, 2017. The plaintiffs called four witnesses: (1) James Fischer, the attorney who represented the defendants in connection with the drafting of the lease and riders, (2) Deborah Kooperstein, the attorney who represented the plaintiffs in connection with the drafting of the lease and riders, (3) James Going, the attorney who represented the plaintiffs in connection with their exercise of the option, and (4) the plaintiff Brian Blackburn. Although counsel for the defendants represented to the court that Armand LaMacchia would testify, the defendants did not call any witnesses. A total of 23 exhibits, 20 for the plaintiffs and three for the defendants, were introduced into evidence. Post-trial memoranda were received by the court on July 18 and 31, 2017, respectively.

The court finds to be self-serving the testimony of both James Fischer and Deborah Kooperstein. The court also finds that they did not have personal knowledge of the facts [*3]underlying the parties' agreement. The testimony of Brian Blackburn reflects that the Blackburns negotiated the terms of the agreement directly with Armand LaMacchia, who was the majority shareholder of the corporate defendants. Moreover, the e-mails between Fischer and Kooperstein reflect that they were not personally involved in the negotiations between the parties. Kooperstein's e-mail to Fischer dated November 29, 2011, in particular, reflects their lack of involvement in the negotiations. In that e-mail, Kooperstein states:

"Good morning Jim, I was able to speak with Brian Blackburn yesterday afternoon...I explained that the financial end of their deal is something for the parties to agree on and that I try to arrive at a document that protects them and yet is acceptable to the other side and doesn't break the deal. SO, they have to continue to talk...and keep us in the loop."

Accordingly, the court declines to credit the testimony of either James Fischer or Deborah Kooperstein.

James Going represented the Blackburns in connection with their application for a liquor license. In addition, he advised them to form a corporation before signing the lease, which they did. The defendant Blackburn Food Corp. is the corporation that they formed. Going continued to represent the Blackburns and the corporation after they executed the lease and riders. Specifically, he represented them in connection with their exercise of the option. Accordingly, the court finds that James Going did not have personal knowledge of the facts underlying the parties' agreement and, therefore, declines to credit his testimony.

Brian Blackburn was the only witness to testify who had personal knowledge of the facts leading up to the parties' agreement. He testified that Armand LaMacchia initially offered to sell the Blackburns the business and the building for $975,000, but that they did not want to buy the building at that time. LaMacchia then offered them an option to purchase the building for $975,000 with credits for the key money and the first three years' rent. Although the initial draft of the lease and rider did not include a credit for the key money, it was included in the final version executed by the parties. Paragraph 43 of the rider provides, in pertinent part, as follows:

"Provided tenant is not in default of this Lease Agreement, it shall have the Option to Purchase the Premises for the purchase price of Nine Hundred Seventy Five Thousand ($975,000.00) Dollars subject to the terms herein. Tenant shall receive a credit against the purchase price in the amount of base rent actually paid for Years 1, 2 and 3, exclusive of taxes, insurance and utilities...together with the total 'Key Money' paid ($150,000.00). The option to purchase shall terminate thirty days prior to the end of Year 3 unless earlier terminated by Tenant's default under this Lease Agreement."

The supplemental rider extended the time that the Blackburns had to exercise the option from three to five years. It provides, in pertinent part, as follows:

"Landlord/seller and Tenants /purchasers agree that the option to purchase is an exclusive option of tenants/purchasers and this exclusive option period shall expire 30 days prior to Year five (5) of the Lease Agreement (emphasis added)."

The Blackburns executed the supplemental rider on December 6, 2011. Brian Blackburn testified that he was confused as to whether the option, as amended by the supplemental rider, included a credit for two more years of rent payments, i.e., for five years of rent payments instead of three. In an e-mail dated December 14, 2011, Deborah Kooperstein advised the Blackburns [*4]that Armand LaMacchia would only agree to the first 3 years of rent being set-off against the purchase price, not five years of rent. Kooperstein urged the Blackburns to accept the deal; and, in an e-mail of the same date, Brian Blackburn indicated that they were "ready to sign." The Blackburns re-executed the supplemental rider on December 22, 2011.

Brian Blackburn testified that he believed the option extended to five years the credit for the rent paid in the first three years. The court finds this interpretation to be consistent with the written agreement. Paragraph 43 of the rider gave the Blackburns a three-year option to purchase the premises for $975,000 with credits against the purchase price for the base rent actually paid in the first three years and the key money. The supplemental rider merely extended the option for another two years. There is no language in the supplemental rider regarding the purchase price or the credits, and nothing in the supplemental rider indicates that the Blackburns would not receive the credits if they exercised the option in year four or five of the lease.

A lease, like any other contract, is to be enforced in accordance with the expressed intention of the contracting parties (Goldman v Orange County Chapter, New York State Assoc. for Retarded Children, Inc., 121 AD2d 683, 684). In the context of real property transactions, where commercial certainty is a paramount concern and where, as here, the instrument was negotiated at arms length between sophisticated, counseled business people, courts should be extremely reluctant to interpret an agreement as impliedly stating something that the parties have neglected to specifically include (Vermont Teddy Bear Co., 1 NY3d 470, 475). Hence, courts may not by construction add or excise terms, nor distort the meaning of those used, and thereby make a new contract for the parties under the guise of interpreting the writing (Id.).

The court finds that the defendants' interpretation of the parties' agreement violates this rule by adding language to the supplemental rider limiting the availability of the credits. Had that been the parties' intent, they could easily have provided for the Blackburns to receive the credits only if they exercised the option in years one, two or three of the lease. In the absence of any such language, the court declines to interpret the supplemental rider as impliedly stating something that the parties have neglected to specifically include (Id.).

The court also finds that the defendants' interpretation is inconsistent with the December 14, 2011, e-mail from Deborah Kooperstein. The pertinent part of that e-mail is as follows:

"Dear Brian and Pam, Armand's lawyer got back to me this morning and we talked through a few points. Armand's ONLY objections are two in number No.1 only the first 3 years of rent will be a set-off against the purchase price, not 5 years of rent and #2 the inclusion of the kitchen equipment as tangible assets you could sell if you do not exercise your option is not acceptable (emphasis added)."

This e-mail makes clear that Armand LaMacchia's only objection to extending the option to five years was increasing the amount of the rent credit. Although LaMacchia did not want to increase the credit from three to five years' rent, he did not object to extending the time within which the credit would be available to year five of the lease.

Armand LaMacchia had personal knowledge of the parties' negotiations and was present in the courtroom during the trial, but did not testify on his own behalf. The failure of a party to a civil case to testify on his own behalf normally gives rise to an unfavorable inference (Prince, Richardson on Evidence§ 3-140 [Farrell 11th ed 1995] at 92). Thus, the court finds that, had he testified, Armand LaMacchia would not have contradicted the testimony of Brian Blackburn, nor [*5]would his testimony have supported the defendants' interpretation of the parties' agreement (Id. at 91-92). Accordingly, the court finds that the parties' intent was to extend the time within which the Blackburns had to exercise the option with credits to five years.

A condition precedent to exercising the option was that the Blackburns not be in default of the lease. The defendants' contention that the Blackburns did not comply with the insurance requirements found in the lease is supported by the testimony of James Fischer, who had no personal knowledge of the underlying facts, and is contradicted by the testimony of Brian Blackburn. Blackburn testified that Armand LaMacchia wanted the plaintiffs to pay for building insurance, which they were not required to obtain under the lease. Blackburn also testified that a tenant cannot obtain insurance for a building he does not own. The court credits the testimony of Brian Blackburn, the only witness to testify with knowledge of the underlying facts. The defendants' contention that the Blackburns failed to pay the property taxes for the premises is contradicted by the documentary evidence and by the testimony of Brian Blackburn. The record reflects that James Fischer did not send the Blackburns a bill for the property taxes due on June 1, 2012, until July 13, 2012. Brian Blackburn testified that, once he received the bill, he immediately paid it and all subsequent property tax bills. Accordingly, the court finds that the Blackburns were not in default of the lease when they exercised the option.

It is well settled that, in order to validly exercise an option to purchase real property, one must strictly adhere to the terms and conditions of the option agreement (Weisman v Adler, 187 AD2d 647, 648). The court finds that the plaintiffs fully complied with the terms and conditions of the option to purchase the premises. They, therefore, validly exercised the option (see, Tsoulis v Abbott Bros. II Steak Out, Inc., 82 AD3d 1612, 1613).

To prevail on the first cause of action for specific performance, the plaintiffs must establish that they have the financial ability to purchase the property in order to demonstrate that they are ready, willing, and able to perform (see, Grunbaum v Nicole Brittany, Ltd., 153 AD3d 1384 at *1, citing Kaygreen Realty co., LLC v IG Second Generation Partners, L.P., 78 AD3d 1010, 1015 ). The plaintiffs submitted a term sheet from Bridgehampton National Bank dated April 20, 2015, and a letter from the same bank dated April 18, 2017, both of which indicate that the bank is willing to lend them $700,000 to complete their purchase of the premises. Thus, the plaintiffs have demonstrated that they are ready, willing, and able to purchase the premises at the reduced purchase price of $681,000. Accordingly, the court finds for the plaintiff on the first cause of action for specific performance.

The second cause of action seeks to recover rent paid by the plaintiffs after they exercised the option. The plaintiffs argue that they were purchasers in possession and, as such, no longer obligated to pay rent after July 21, 2015.

When, as here, a tenant exercises an option to purchase real property pursuant to a lease, the relationship between the parties is converted to that of a vendor and vendee, and the landlord-tenant relationship merges with the vendor-vendee relationship (In re Bayside Marina, Inc., 282 BR 285, 289; see also, Kaygreen Realty co., LLC v IG Second Generation Partners, L.P., supra). When a merger has occurred, the owner of the property is not entitled to an award for use and occupancy of the premises from the vendee in possession unless the parties clearly intended a contrary result (Fulgenzi v Rink, 253 AD2d 846, 848; Barbarita v Shilling, 111 AD2d 200, 201-202). An intention to deviate from the general rule and to avoid a merger may be [*6]directly expressed in the agreement or may be inferred from a medley of factors such as the terms of the agreement, the circumstances of its making, and the subsequent behavior of the parties (Id. at 202).

The court finds that an intention to deviate from the general rule and to avoid a merger may be inferred from the language of the rider and the parties' subsequent behavior. In paragraph 42 of the rider the plaintiffs agreed to pay rent "in equal monthly installments in advance on the first (1st) day of each month during the entire lease term(emphasis added)." The plaintiffs also agreed, in paragraph 46 of the rider, to pay the real-estate taxes as additional rent "with respect to every lease year or part thereof during the time of this Lease Agreement(emphasis added)." Moreover, the plaintiffs acknowledged in the parties' stipulated statement of facts dated May 5, 2017, that "[r]ent and obligations under the lease have been paid either directly to Ardi, Inc. or to court per order of court (emphasis added)."[FN3] The court finds that, under these circumstances, the landlord-tenant relationship continued even after the plaintiffs exercised the option. Accordingly, the court finds for the defendants on the second cause of action to recover rent paid after July 21, 2015.

Dated: October 25, 2017

J.S.C. Footnotes

Footnote 1:The "Key Money" was the purchase price of the business. In a separate asset-purchase agreement dated January 15, 2012, the plaintiff Blackburn Food Corp. agreed to buy for $150,000 all of the assets and good will of the restaurant business owned and operated by the defendant Armand's Restaurant, Inc.

Footnote 2:The parties have been operating under the assumption that this language extended the plaintiffs' time to exercise the option through year five of the lease. A careful reading of the language, however, reveals that the option was not extended until the end of year five, but "30 days prior to year five," which is the end of year four. It is undisputed that the plaintiffs exercised the option prior to the end of year four on July 21, 2015. Since the parties' misinterpretation does not change the outcome, the court will not correct it for purposes of this decision.

Footnote 3:Pursuant to orders of this court dated March 20, 2017, and June 28, 2017, respectively, the rent for November 2016 and subsequent months was deposited with the Suffolk County Comptroller's Office.