Island Estates Mgt., Inc. v MBA-Manorhaven, LLC
Annotate this CaseDecided on August 10, 2006
Supreme Court, Nassau County
Island Estates Management, Inc., Plaintiff,
against
MBA-Manorhaven, LLC, Defendant.
11518-05
COUNSEL FOR PLAINTIFF
Certilman, Balin, Adler & Hyman, LLP
90 Merrick Avenue - 9th Floor
East Meadow, New York 11554
COUNSEL FOR DEFENDANT
Chadbourne & Parke LLP
30 Rockefeller Plaza
New York, New York 10112
Leonard B. Austin, J.
BACKGROUND
Plaintiff, Island Estates Management, Inc. ("Island Estates"), seeks specific performance of a real estate contract dated December 11, 1998, ("Contract"), into which it entered with Defendant, MBA-Manorhaven, LLC ("MBA-Manorhaven") for the purchase of real property in the Village of Manorhaven while the purchase price was to be based upon the number of units approved for the subdivision of the property, no amount was specified. Nevertheless Island Estates paid MBA-Manorhaven a deposit of $350,000 on signing the contract.
The Contract provides Island Estates with a 60-day review period in which to investigate the property during which time Island Estates could freely terminate the contract. It is not disputed that this review period was extended by written agreement several times.
The Contract contains other time limitations, as well. Section 9.04 details certain "milestones" in connection with Island Estates obtaining municipal approvals for the construction of a residential townhouse development. More specifically, § 9.04(a) and (b) afforded Island Estates twelve months from the "Execution Date" in which to obtain a special use and zoning permit and 30 months to obtain a resolution of the Manorhaven Village Board authorizing the filing of a subdivision map and to satisfy all conditions necessary for the subdivision approval. Section 9.04(c) of the Contract provides that if Island Estates (except as set forth in subparagraph [e]) failed to meet its milestones,
Seller may at its option, upon thirty-days written notice to Buyer (the "Milestone Notice") terminate this Agreement, whereupon, subject to the Buyer's rights to cure as hereinafter set forth in subparagraph (d) of this Section 9.04, the Deposit shall be immediately refunded to Buyer . . . .
Section 9.04(d) further provides:
Seller shall not be entitled to terminate this Agreement for failure to meet the milestones set forth in this Section 9.04(a) and (b) if;
(i) within thirty days of receipt of the Milestone Notice, Buyer has met all of the applicable milestones; or
(ii) the failure to meet such milestones cannot by its nature be cured within said thirty-day period and Buyer has already taken all acts and completed all applications and submissions required in order to meet such milestones (i.e. the failure to meet such milestone is wholly outside of the control of the Buyer) and Buyer has commenced and [*2]continues to diligently pursue all actions necessary to meet such milestones.
In the case of clause (ii) of this subparagraph (d), the deadlines to meet such milestones, and the right of Seller to terminate this Agreement, shall be deemed to be extended by the number of days that the failure to meet such milestones was reasonably wholly outside of the control of Buyer."
In contrast, Section 9.05(a) of the Contract provides:
In addition to any other rights and remedies which Seller may have hereunder, if for any reason whatsoever Buyer has not met all conditions for Closing hereunder by a date that is twenty-four months from the Execution Date . . . Seller may, at its sole and absolute discretion, at anytime thereafter (subject to the last sentence of this Section 9.05 subsection (a)) upon written notice to Buyer, immediately terminate this Agreement whereupon the Deposit shall be immediately refunded to Buyer and thereafter the parties shall have no further rights against or duties to each other under this Agreement. * * * If Buyer has not met all conditions for Closing by the Section 9.05 Deadline (as hereinafter defined) and Seller has not yet delivered written notice of such failure to Buyer, Seller may not deliver such notice and terminate this Agreement if, prior to the delivery of such notice, Buyer meets all conditions for Closing as provided herein."
Section 9.05(b) provides that Island Estates may extend the Section 9.05(a) deadline three months by paying $100,000 for each such extension. An extension could be obtained four times, up to an aggregate extension of one year. Island Estates never availed itself of this option. In addition, the Contract provides that the conditions precedent to closing; to wit: Plaintiff's obtaining municipal approvals necessary to develop a residential townhouse development on the subject property, are "solely for the benefit of the Buyer" and that such conditions may be waived by the Buyer (§5.06).
Island Estates alleges that, although MBA-Manorhaven had represented that there was no environmental contamination on the property, significant environmental contamination was found. As a result, amendments to the contract were entered into on February 9, 2000 and March 26, 2002.
The February 9, 2000 amendment terminated Island Estates' Review Period. However, it extended the milestone deadlines and Island Estates' time in which to be ready to close so as to offset the time it took MBA-Manorhaven to procure an agreement with the New York State Department of Environmental Conservation ("DEC") regarding the cleanup. A Voluntary Agreement with the DEC was ultimately executed by MBA-Manorhaven on January 2, 2001, thereby extending the § 9.05(a) closing deadline for Island Estates until June 14, 2002. The February 9, 2000 amendment provided that MBA-Manorhaven would be responsible for and would pay all cleanup costs incurred in investigating, remediating, or responding to environmental conditions at the property pursuant to the DEC Voluntary Cleanup Agreement up to $400,000.00 and that Island Estates would pay at closing, or after closing to the extent such cleanup costs were incurred thereafter, all such cleanup costs in excess of that amount, provided however, that the parties agreed to each pay one-half of all such cleanup costs in excess of [*3]$600,000.
The February 9, 2000 amendment further provided that if the parties "reasonably" concluded prior to closing that the present value of the cleanup costs required by the DEC was likely to exceed $1,000,000.00, then either party had the option to terminate the contract upon written notice to the other. MBA-Manorhaven agreed to promptly refund the amount of the deposit to Island Estates. However, the February 9, 2000 amendment also provided "that such termination notice shall not take effect if the party receiving such notice agrees within 10 business days of receiving such notice that it will pay and be responsible for all such cleanup costs in excess of $1,000,000.00."
The March 26, 2002 amendment increased the threshold cleanup costs amount which permitted termination from $1,000,000 to $2,000,000 and required MBA-Manorhaven to provide Island Estates with a copy of any cleanup related documents such as bills, invoices or payment demands prior to paying any such bill, invoice, or other payment demand, so as to allow for Island Estate's comments and input.
A Findings Statement issued by the Village of Manorhaven on January 16, 2003, in connection with the SEQRA review noted the ongoing cleanup remediation efforts and stated: "[t]he subject property will not be developed with the proposed residential use until the terms of the Agreement have been satisfied and all necessary remediation has been performed to the satisfaction of the NYSDEC."
Island Estates was purchasing the property for residential development. If, after expiration of the Review Period, Island Estates did not terminate the contract pursuant to §8.01, Island Estates was obligated, pursuant to §9.01 of the Contract, to apply to the Village of Manorhaven for a Special Use Permit for the property. The plan to be submitted to Manorhaven was to provide for no fewer than 96 individual units.
Section 9.02 gave either party to the Contract the right to terminate if the subdivision was approved for fewer than 78 units.
The Contract did not set a specific closing date. Article 1 defined closing date as "...the date which is up to 15 business days after Subdivision Approval, unless this Contract is terminated by Buyer or Seller pursuant to Section 9.02."
On April 21, 2003, Manorhaven issued a Special Use Permit to Island Estates permitting the construction of 96 units on the site. On December 13, 2004, Manorhaven approved the Site Plan. However, the Special Use Permit and the Site Plan approval were expressly contingent upon receipt of approval by the DEC and the New York State Department of Health. Thus, development of the site could not begin until remediation of the environmental contamination on the site had been completed.
By letter dated July 12, 2005, MBA-Manorhaven cancelled the Contract pursuant to §9.05(a), asserting that Island Estates had not met its obligations to satisfy all conditions for closing within 24 months of the "Execution Dated" as amended. MBA-Manorhaven asserts that under this provision, the closing had to take place by June 14, 2002 or it had the unilateral right to cancel the contract at any time.
By separate letter of the same date, MBA-Manorhaven terminated the contract pursuant to the March 26, 2002 amendment which allowed for termination if the [*4]anticipated clean-up costs exceeded $2,000,000.[FN1] In response to this letter, Island Estates exercised its option to accept responsibility for clean-up costs in excess of $2,000,000, excluding costs associated with the clean-up outside of the property lines and subject to a review and audit of the clean-up costs already paid by MBA-Manorhaven. Island Estates also waived its rights to obtain municipal approvals prior to closing and indicated the ability, readiness and willingness to close.
On or about the same date, Island Estates commenced this action seeking specific performance of the Contract.
The first cause of action seeks specific performance of the contract. This cause of action is premised primarily upon MBA-Manorhaven's failure to comply with the provisions of the March 26, 2002 amendment to the Contract. This amendment provided that MBA-Manorhaven would pay the first $400,000 in clean-up costs. Island Estates agreed to pay at closing all clean-up costs incurred to date in excess of $600,000 provided however, that Island Estates and MBA-Manorhaven agreed to pay one-half of all clean-up costs in excess of $600,000. Paragraph 10 of the March 26, 2002 amendment also provided that prior to paying any clean-up costs, MBA-Manorhaven would provide with a copy of the bill, invoice or payment request to Island Estates for its comments. Island Estates alleges MBA-Manorhaven failed to comply with this provision since it never provided Island Estates with bills, invoices or requests for payment.
Island Estates further alleges, in the second cause of action, that MBA-Manorhaven breached the contract by failing expeditiously remediate the environmental conditions. This claim is based, in part, upon a letter from the DEC to the Manorhaven which states MBA-Manorhaven has "...not always been as aggressive about remediating pollution as they have been about debating its existence or its potential to impact future homeowners."
Essentially, Island Estates asserts the closing was contingent upon it obtaining final approval of its Special Use Permit and Site Plan. These could not be obtained until the environmental pollution have been completed. Remediating the environment conditions was the obligation of MBA-Manorhaven. MBA-Manorhaven breached the contract by failing to take appropriate and timely action to remediate the environmental conditions and by failing to provide Island Estates with copies of the bills, invoices or demands for payment for the environmental remediation. MBA-Manorhaven is now using its breach as a basis for cancelling the contract.
Island Estates is willing to waive these breaches and all other conditions precedent and close.
DISCUSSION
A. CPLR 3211(a)(1) - Standard
CPLR 3211(a)(1) permits the court to dismiss an action based upon documentary [*5]evidence. A cause of action will be dismissed when the documentary evidence submitted in support of the motion conclusively resolves all factual issues and establishes a defense as a matter of law. Montes Corp. v. Charles Friehofer Baking Co., Inc., 17 AD3d 330 (2nd Dept. 2005); 730 J & J LLC v. Fillmore Agency, Inc., 303 AD2d 486 (2nd Dept. 2003); and Berger v. Temple Beth-el of Great Neck, 303 AD2d 346 (2nd Dept. 2003).
B. CPLR 3211(a)(7) Standard
CPLR 3211(a)(7) permits the Court to dismiss a complaint that fails to state a cause of action.
When deciding such a motion, the court must determine whether the plaintiff has a legally cognizable cause of action and not whether the action has been properly plead. Guggenheimer v. Ginzburg, 43 NY2d 268 (1977); and Rovello v. Orofino Realty Co., 40 NY2d 633 (1976); Well v. Yeshiva Rambam, 300 AD2d 580 (2nd Dept. 2002); and Frank v. DaimlerChrysler Corp., 292 AD2d 118 (1st Dept. 2002). The complaint must be liberally construed, and plaintiff must be given the benefit of every favorable inference. Leon v. Martinez, 84 NY2d 83 (1994); Mitchell v. TAM Equities, Inc., 27 AD3d 703 (2nd Dept. 2006); and Paterno v. CYC, LLC, 8 AD2d 544 (2nd Dept. 2002). The court must also accept as true all of the facts alleged in the complaint and any factual submissions made in opposition to the motion. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); and Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409 (2001); and Also Enterprises, Ltd. v Premier Lincoln-Mercury, Inc., 11 AD3d 493 (2nd Dept. 2004).
If, from the facts alleged in the complaint and the inferences which can be drawn from the facts, the court determines that the pleader has a cognizable cause of action, the motion must be denied. Sokoloff v. Harriman Estates Development Corp., supra ; and Stucklen v. Kabro Assocs., 18 AD3d 461 (2nd Dept. 2005).
While factual allegations contained in the complaint are deemed true, legal conclusions and facts contradicted on the record are not entitled to a presumption of truth. In re Loukoumi, Inc., 285 AD2d 595 (2nd Dept. 2001); and Doria v. Masucci, 230 AD2d 764 (2nd Dept. 1996).
C. First Cause of Action Specific Performance
To obtain specific performance on a contract for the sale of real estate, plaintiff must establish that it performed substantially all of its obligations under the contract, was ready, willing and able to perform on the date set for closing, or, if time was not of the essence, on a the date set by the parties or within a reasonable time thereafter, the defendant failed or refused to close and that plaintiff does not have an adequate remedy at law. Fallati v. Mackey, -A.D.3d- , 818 NYS2d 341 (3rd Dept. 2006). See also, Paglia v. Pisanello, 15 AD3d 373 (2nd Dept. 2005); and EMF General Contracting Corp. v. Bisbee, 6 AD3d 45 (1st Dept. 2004).
"When the terms of sale of real property do not make time of the essence, and no party has otherwise made time of the essence by providing notice to that effect, the law permits a reasonable time in which to tender performance, regardless of whether the [*6]terms of the sale designate a specific date for performance (citations omitted)" Ramnarain v. Ramnarain, 30 AD3d 394 (2nd Dept. 2006).
The Contract does not make time of the essence. The closing date set in the contract provided for a closing within fifteen (15) business days after Subdivision Approval. Subdivision Approval has not yet been obtained. Final approval was contingent upon completion of the on-going environmental remediation.
Island Estates claims that MBA-Manorhaven is also attempting to use its breach of the contract as amended as the basis for cancellation of the contract. The February 9, 2000 letter requires MBA-Manorhaven to take all commercially reasonable actions to remediate the environmental conditions on the property and obtain a "No Further Action Letter" from the DEC. MBA-Manorhaven entered into a Voluntary Agreement with the DEC to remediate the environmental conditions on January 1, 2001.
The February 9, 2000 letter makes receipt of a "No Further Action Letter" or receipt of an agreement from the DEC stating MBA-Manorhaven has performed all actions required to remediate the soil contamination a condition precedent to closing.
The contract alleges MBA-Manorhaven has failed to take commercially reasonable actions to remediated the soil contamination. Paragraph 13 of the Amended Complaint specifically alleges DEC has advised the Village of Manorhaven that MBA-Manorhaven has "...not always been as aggressive about remediating pollution as they have been about debating its existence or its potential to impact future homeowners." This coupled with the fact that more than four years have elapsed since MBA-Manorhaven entered into a Voluntary Agreement with the DEC to remediate the soil conditions permits the Court to infer, for the purposes of this motion that MBA-Manorhaven has not used commercially reasonable action to remediate the environmental conditions.
Paragraph 10 of the March 26, 2002 letter provides that prior to paying a bill, invoice or other charge for environmental remediation, MBA-Manorhaven would provide Island Estates with copies of bills, invoices or other charges for comment. MBA-Manorhaven has failed to comply with this provision.
A party cannot use its own breach of a contract as a basis for cancelling a contract. See, Marvel Entertainment Grp. Inc. v. ARP Films, Inc., 684 F. Supp. 818, 819-20 (S.D.NY 1988). When a party breaches an executory contract, the other party to the agreement has the choice of treating the contract as breached and to immediately sue for breach of contract or to continue to treat the contract as valid. See, Emigrant Industrial Savings Bank v. Willow Builders, Inc., 290 NY 133 (1943); and Inter-Power of New York, Inc. v. Niagara Mohawk Power Corp., 259 AD2d 932 (3rd Dept. 1999).
MBA-Manorhaven asserts that §9.05 gives it the unfettered right to cancel the contract if Island Estates failed to close within the time limits set therein, as amended.
The parties to a real estate contract have an implied duty to deal fairly and act in good faith. Austin v. Trybus, 136 AD2d 940 (4th Dept. 1988); and Norgate Homes, Inc. v. Central State Bank, 82 AD2d 849 (2nd Dept. 1981). The implied covenant of good faith and fair dealing requires that contracting parties will not take any action which will have the effect of destroying the rights of the other party to receive the benefit of the contract. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., supra ; and [*7]Dalton v. Educational Testing Service, 87 NY2d 384 (1995).
The complaint sufficiently pleads a violation of this implied covenant. MBA-Manorhaven is alleged to have been less than diligent in remediating the environmental conditions. Closing was conditioned upon Island Estates obtaining final approval of its Special Use Permit and Site Plan. Final approval of these items is conditioned upon remediation of the environmental conditions.
Reduced to its simplest terms, MBA Manorhaven asserts it can breach the contract as amended or fail to perform the obligations it undertook under the contract as amended and cancel the contract with Island Estates having a remedy other than the refund of the deposit paid on contract if the time to close as fixed by §9.05(a) as amended has expired. MBA-Manorhaven cannot avoid or evade its contractual obligations by failing to comply therewith. See, Kooleraire Service and Installation Corp. v. Board of Education of the City of New York, 28 NY2d 101 (1971); and Lager Assocs. v. City of New York, 304 AD2d 718 (2nd Dept. 2003)
The first cause of action states a claim upon which relief can be granted. Defendant's motion to dismiss must be denied.
D. Second Cause of Action Breach of Contract
The second cause of action is premised upon Island Estates agreeing to exercise its option to pay environmental clean-up cost in excess of $2,000,000 and waiving as conditions precedent to closing the obtaining of a Special Use Permit, site plan approval, architectural review board approval and any necessary variances.
Paragraph 3 of the March 26, 2002 agreement provides if the environmental clean-up costs are anticipated to exceed $2,000,000, either party may terminate the contract. However, the contract will not be cancelled for this reason if the party receiving notice of cancellation advises the other party within ten (10) business days of receipt of the notice that it will pay an be responsible for all clean-up costs in excess of $2,000,000.
By letter dated July 12, 2005, MBA-Manorhaven cancelled the contract because clean-up costs are anticipated to be in excess of $2,000,000. By letter dated July 20, 2005, Island Estates indicated that it was exercising its option to pay all clean-up costs in excess of $2,000,000. Since Island Estates timely exercised its option to pay clean-up costs in excess of $2,000,0000, the letter sent by MBA-Manorhaven seeking to terminate the contract based upon the Paragraph 3 of the March 26, 2002 letter was rendered ineffective to cancel the contract.
A provision in a real estate contract which makes the closing contingent upon the purchaser obtaining subdivision approval is for the benefit of the purchaser. Laxrand Const. Corp. v. R.S.C.A. Realty Corp., 135 AD2d 685 (2nd Dept. 1987). Thus, it can be waived by the purchaser. Id.
Where a closing is conditioned upon purchaser obtaining a variance by a fixed date and seller's actions, after that fixed date has passed, reflect an intent to waive the right to cancel, the seller may not cancel the contract without first advising the purchaser that time is of the essence. Moray v. DBAG, Inc., 305 AD2d 472 (2nd Dept. 2003). Indeed, where the actions of the seller contribute to the delay in obtaining [*8]municipal approval, questions of fact exist as to whether the seller has waived its right to cancel the contract. Ehrenpreis v. Klein, 260 AD2d 532 (2nd Dept. 1999).
In this case, MBA-Manorhaven asserts that the "drop dead" date under §9.05(a), as amended, expired on June 14, 2002. MBA-Manorhaven did not exercise its right to cancel the contract under that provision until July 12, 2005. The lapse of over three years between the date upon which MBA-Manorhaven's right to cancel accrued and the exercise of that right clearly coupled with its failure to set a time is of the essence date, clearly establishes that this cause of action alleges a claim upon which relief can be granted.
Accordingly, it is,
ORDERED, that Defendant's motion to dismiss the complaint pursuant to CPLR 3211(a)(1) and CPLR 3211(a)(7) is denied; and it is further,
ORDERED, that counsel for the parties are directed to appear for a preliminary conference on September 13, 2006 at 9:30 a.m.
This constitutes the decision and Order of the Court.
Dated: Mineola, NY _____________________________
August 10, 2006 Hon. LEONARD B. AUSTIN, J.S.C.
Footnotes
Footnote 1:The March 26, 2002 letter amendment is sometimes referred to in the papers as the April 13, 2002 letter. The typewritten date on the letter is March 26, 2002. This date is crossed out and above it is handwritten the date April 13, 2002.
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