85 Fifth Ave. 4th Floor, LLC v I.A. Selig, LLC

[*1] 85 Fifth Ave. 4th Floor, LLC v I.A. Selig, LLC 2006 NY Slip Op 52542(U) [14 Misc 3d 1219(A)] Decided on October 3, 2006 Supreme Court, New York County Goodman, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through February 22, 2007; it will not be published in the printed Official Reports.

Decided on October 3, 2006
Supreme Court, New York County

85 Fifth Ave. 4th Floor, LLC, Plaintiff,

against

I.A. Selig, LLC, THE OLD GLORY REAL ESTATE CORPORATION, MICHAEL SALZHAUER, IAN SELIG, ROBERT MANNHEIMER, JAIME INCLAN, CLAUDIA CATANIA, D. NARDONE, JOHN DOES "1" through "10" being and intended to be those unknown persons on the Board of The Directors of The Old Glory Real Estate Corporation, Defendants.



601082/06

Emily Jane Goodman, J.

This action involves a contract between plaintiff 85 Fifth Ave. 4th Floor, LLC and defendant I.A. Selig, LLC (the seller), for the purchase and sale of a commercial cooperative space, the fourth floor of a building located at 85 Fifth Avenue, New York, New York (the property). Plaintiff seeks a preliminary injunction prohibiting defendants from selling, transferring or assigning the shares and proprietary lease relating to the property.

The seller and defendant I.A. Selig, individually, cross-move for an order, pursuant to CPLR 3211 (a) (7), dismissing the case. Defendants The Old Glory Real Estate Corporation (the Coop Corporation), Michael Salzhauer, Robert Mannheimer, Jaime Inclan, Claudia Catania, and D. Nardone (the Coop Defendants) also cross-move to dismiss the case, pursuant to CPLR 3211 (a) (1), (3), and (7) and CPLR 3212.

Plaintiff 85 Fifth Ave. 4th Floor, LLC, is a limited liability company whose members include three attorneys, Raymond R. Granger, Richard Levitt, and Nicholas Kaizer, and one non-attorney, Timothy Smith. The plaintiff LLC had intended to use the property for law offices. The property is currently occupied by Mario Valente Collezioni, Ltd., pursuant to a lease.

Plaintiff initially entered into a contract with the seller to purchase the property in February 2005 for $2,700,000, subject to a financing contingency. Because of plaintiff's difficulty in obtaining financing, plaintiff gave notice of cancellation, the contract was cancelled, and the down payment returned.

In November 2005, the seller again placed the property on the market, and plaintiff made an offer of $3,150,000 for the property, without a financing contingency. On November 29, [*2]2005, plaintiff and the seller entered into a contract for the sale of the property, providing that the plaintiff could seek up to 85% financing of the purchase price, with no financing contingency. The contract was subject to the approval of the Coop Corporation.In January 2006, the plaintiff's broker submitted a package of materials to the seller's broker seeking approval of the coop's board of directors. The package contained information pertaining to Granger, Levitt and Kaizer and indicated that plaintiff was obtaining financing that totaled 125% of the purchase price. Plaintiff alleges that Selig, who was a member of the board of directors, reviewed the package and advised plaintiff that he was confident that the board would approve the purchase. Selig states, however, that because he had a conflict of interest regarding the sale of the unit, he was taking no role in the board's approval process and did not review the package, but merely glanced at it. In any event, on February 9, 2006, the board of directors e-mailed the seller indicating that it had found plaintiff to be an "unsuitable candidate" and declined its request for admission to the coop. According to Selig, on February 10, 2006, he sent an e-mail to seller's broker, indicating that the board had found plaintiff's package weak financially and attaching the board's e-mail. Although the complaint alleges that plaintiff did not receive notification, at deposition, the seller's broker stated that, on February 10 or 11, he forwarded the e-mail denying plaintiff's application to plaintiff's broker.

On March 8, 2006, plaintiff delivered supplemental information to the board members concerning the fourth member of the LLC, Timothy Smith, requesting that the board reconsider its purchase application. The board refused to consider the additional information.

On March 9, 2006, the seller terminated the contract and returned plaintiff's down payment.

The complaint asserts six causes of action: 1) breach of contract against the seller; 2) breach of contract against the Coop Corporation; 3) breach of duty of good faith and fair dealing against the seller and the corporation; 4) tortious interference with contract against the corporation and board members; 5) civil conspiracy to breach the contract and tortiously interfere with the contract against all defendants; permanent injunction against the seller and the Coop Corporation.

The court will initially consider the defendants' cross motions to dismiss or for summary judgment, because if they are granted, plaintiff's motion for a preliminary injunction will be rendered moot.

First Cause of Action: breach of contract against seller [FN1]

Plaintiff asserts that the coop's proprietary lease is intended for the purchaser's benefit, that the board failed to provide proper notice of its decision not to approve plaintiff's purchase of the property, and that pursuant to section 52 of the proprietary lease, consent was deemed given. Therefore, according to plaintiff, the seller was bound under its contract with plaintiff to convey the shares appurtenant to the property, and that by cancelling the contract, the seller breached the contract with plaintiff.

Section 52 of the Proprietary Lease states as follows: The consent or denial to consent, of the Landlord, shall be delivered to the Tenant [*3]by registered or certified mail, return receipt requested, mailed no later than thirty (30) days after the request for consent, or delivered to the Tenant in person and receive a dated receipt therefor, within the same time. If such consent or denial of consent shall not be sent or delivered in person, to the Tenant, by the Landlord, within the time above limited, it shall be deemed that the consent of the Landlord has been given to such assignment or underletting.

Proprietary Lease, ¶ 52 (b) (6).

Plaintiff contends that the following portion of the coop's Certificate of Incorporation shows that the proprietary lease was intended create third-party beneficiary rights in the proprietary lease: The purposes for which [the Corporation] is to be formed are the owning, holding, buying, selling, mortgaging, renting and exchanging of real property, improved and unimproved, and the management and development of real property generally....

Certificate of Incorporation, at 1.

Plaintiff argues that the language of the above provisions establishes that the proprietary lease was intended for the benefit of purchasers. In order to sue as a third-party beneficiary plaintiff must show that it was the intended beneficiary of the contract and not merely an incidental beneficiary. Zelber v Lewoc, 6 AD3d 1043 (3d Dept 2004); LaSalle Natl. Bank v Ernst & Young LLP, 285 AD2d 101 (1st Dept 2001). There is nothing in paragraph 52 (b) (6) which even mentions the purchaser, and it certainly does not give the purchaser any explicit right to the type or timing of notification provided for the seller. Nor is there any language in the Certificate of Incorporation which shows that the purchaser is anything but a mere incidental beneficiary of the contract. The court concludes, therefore, that the plain language of the provisions quoted show that the rights and duties under the proprietary lease are intended to benefit the coop and shareholder and not prospective purchasers.

While recognizing that prospective purchasers of shares in a coop corporation are not generally considered third-party beneficiaries of a proprietary lease between the coop and the seller (see Woo v Irving Tenants Corp., 276 AD2d 380 [1st Dept 2000], citing Sims v Darwood Management, Inc., 147 AD2d 373 [1st Dept 1989]; Soho Bazaar, Inc. v Board of Managers of Soho Intl. Arts Condominium, 266 AD2d 65 [1st Dept 1999]), plaintiff argues that New York courts have recognized that under appropriate circumstances, the buyer can be considered a third-party beneficiary. See Matter of Chapman v 2 King St. Apts. Corp., 8 Misc 3d 1026(A), n3, 806 NYS2d 444, 2005 WL 1961330 (Sup Ct, NY County 2005); Cohen v Seward Park Hous. Corp., 7 Misc 3d 1015(A), 801 NYS2d 231, 2005 WL 954867 (Sup Ct, NY County 2005). In Chapman, where the plaintiff seeking third-party beneficiary status was the child of the shareholder, the proprietary lease specifically gave family members a preferred status. Therefore, the court concluded that plaintiff had third-party beneficiary status and had "different and more favorable rights to acquire the Apartment than an unrelated purchaser would have to run the usual gauntlet of Board approval." Chapman v 2 King St. Apts. Corp., 2005 WL 1961330, at *4. In Cohen, the plaintiffs were existing shareholders, and therefore not " mere contract vendees.'" [*4]Cohen v Seward Park Hous. Corp., 2005 WL 954867, at *3. Thus, the cases relied on by plaintiff are distinguishable from this matter, and, if anything, support the application of the general rule here.

Since the provision governing notice to the shareholder of the board's decision regarding sale of the shares is intended for the benefit of the shareholder, the shareholder can waive strict compliance with its provisions. See In re Estate of Prime, 184 Misc 2d 796, 799 (Sur Ct, Erie County 2000), citing Knight v Kitchin, 237 App Div 506, 512 (4th Dept 1933)(a party may waive any provision of a contract made for his benefit). The board notified the seller immediately of its decision to reject the purchase application, but it did so by e-mail rather than by registered or certified mail or personal delivery. The seller was certainly permitted to accept the e-mail notification as compliance with the notification provision.

Plaintiff argues that its breach of contract claim turns on facts, and therefore, that the motion to dismiss must be denied; however, the breach of contract claim, as pleaded in the complaint, depends on the notification provision in the proprietary lease, on which plaintiff cannot rely.

Since the contract between plaintiff and the seller was, on its face, contingent upon approval by the board of plaintiff's application for purchase, when that approval was denied by the board, the seller was permitted to terminate the contract, and doing so did not constitute a breach, as a matter of law. Therefore, plaintiff's first cause of action for breach of contract against the seller must be dismissed.

Second Cause of Action: breach of contract against the Coop Corporation

Plaintiff contends that the coop board unreasonably withheld consent for plaintiff's purchase of the property, and, that by so doing, the coop breached the proprietary lease, which provides: [t]enant, for itself, its distributees, executors, administrators, legal representatives, successors and assignees, expressly covenants that it shall not agsign [sic] sell or transfer this lease or the shares of the Landlord's shares of stock assigned to the demised premises, or underlet or suffer or permit, the demised premises, or any part of the same to be used by others, without the prior written consent of the Landlord corporation in each instance. Such consent shall not be unreasonably withheld.

Proprietary Lease, ¶ 52.

This court has already concluded that plaintiff is not a third-party beneficiary of the proprietary lease, which is a contract between the Coop Corporation and the seller/shareholder.

Therefore, plaintiff cannot rely on paragraph 52 of the proprietary lease.[FN2]

Since it is clear that there was no contract between plaintiff and the Coop Corporation, plaintiff's cause of action for breach of contract against the coop must be dismissed and the court need not consider whether, as plaintiff contends, the Coop Corporation unreasonably withheld its [*5]approval of plaintiff's purchase application.

Third Cause of Action: Breach of duty of good faith and fair dealing against the seller and the Coop Corporation

Plaintiff alleges that by refusing to cooperate, refusing to tender shares, ignoring plaintiff's inquiries and failing to deliver information in a timely manner, the seller and Coop Corporation breached the duties of good faith and fair dealing.

Implicit in every contract is a duty of good faith and fair dealing. Skillgames, LLC v Brody, 1 AD3d 247, 252 (1st Dept 2003). The implied covenant of good faith does not, however, create obligations beyond those stated in the contract. Black Car and Livery Ins., Inc. v H & W Brokerage, Inc., 10 Misc 3d 1075(A), 814 NYS2d 889 (Sup Ct, Nassau County 2006). Nor can a claim for breach of good faith substitute for an unsustainable claim of breach of contract. Skillgames, LLC v Brody, 1 AD3d at 252.

If plaintiff's claim for breach of good faith and fair dealing were entirely independent of his breach of contract claims, it might, under certain circumstances, be sustainable. See Banc of America Commercial Fin. Corp. v Issacharoff, 188 Misc 2d 790, 797 (Sup Ct, NY County 2000). Here, however, no independent basis for such a claim has been asserted.[FN3] Since there was no contract between plaintiff and the Coop Corporation, there is no implied duty of good faith and fair dealing.

There was a contract between plaintiff and the seller; therefore, an implied duty of good faith existed. Since, however, no breach of contract by the seller occurred, plaintiff's claim based upon the implied duty of good faith and fair dealing fails as well. See Skillgames, LLC v Brody, 1 AD3d at 252.

Fourth Cause of Action: Tortious interference with contract against Coop Corporation and board members

Plaintiff contends that the Coop Corporation and the members of the board of directors tortiously interfered with his contract with the seller when it refused to approve his purchase application. Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom. Israel v Wood Dolson Co., 1 NY2d 116, 120 (1956); see also NBT Bancorp v Fleet/Norstar Fin. Group, 87 NY2d 614 (1996).

Lama Holding Co. v Smith Barney Inc., 88 NY2d 413, 424 (1996).

Here, although there was a contract between plaintiff and the seller, and the Coop [*6]Corporation and board members were aware of that contract, because no breach of contract occurred, the cause of action for tortious interference with the contract must fail as a matter of law. This is particularly true where the alleged interference constitutes a failure to approve the application for sale, a contingency which was contemplated in the contract. See Levine v Yokell, 245 AD2d 138, 139 (1st Dept 1997).

Fifth Cause of Action: Civil conspiracy to breach the contract and tortiously interfere with the contract against all defendants

Plaintiff alleges that although they knew that plaintiff was a qualified purchaser, the defendants knowingly acted in concert to unreasonably deny approval of the sale.

With respect to the claims of conspiracy to breach the contract of sale, a party cannot be held liable for conspiracy to breach a contract to which he is a party. Health-Loom Corp. v Soho Plaza Corp., 209 AD2d 197, 198 (1st Dept 1994); see also Callahan v Gutowski, 111 AD2d 464, 465 (3d Dept 1985). Nor is such a claim valid with respect to the alleged co-conspirators. Id.

Furthermore, since there was no breach of contract, and no tortious interference with a contract, there can be no actionable claim for conspiracy in connection with those claims. Alexander & Alexander of New York, Inc. v Fritzen, 68 NY2d 968, 969 (1986) ("[a]llegations of conspiracy are permitted only to connect the actions of separate defendants with an otherwise actionable tort"); see also Linden v Lloyd's Planning Service, Inc., 299 AD2d 217, 218 (1st Dept 2002).

Sixth Cause of Action: Permanent injunction against the seller and Coop Corporation

Since the court has concluded that no breach of contract occurred when the seller terminated the contract, plaintiff has no basis for an injunction prohibiting the transfer of shares to a third party. Therefore, the sixth cause of action must be dismissed as well, and plaintiff's motion for a preliminary injunction is denied.

Although they have not made a formal motion, in their papers defendants Selig and I.A. Selig LLC request sanctions against plaintiff. That request is denied.

Accordingly, it is hereby

ORDERED that plaintiff's motion for a preliminary injunction is denied and the temporary restraining order is vacated; and it is further

ORDERED that the cross motions of defendants I.A. Selig, LLC, Ian Selig, and the Coop Defendants are granted, and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk of the Court on submission of an appropriate bill of costs; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

This Constitutes the Decision and Order of the Court.

Dated: October 3, 2006

ENTER:

_______________________ [*7]

J.S.C. Footnotes

Footnote 1: Plaintiff consents to the dismissal of Ian Selig, individually, from this cause of action.

Footnote 2: Plaintiff also contends that the Coop Corporation breached the proprietary lease by giving improper notice of its decision to reject plaintiff's purchase application. This claim also fails for the reasons set forth in the discussion of the first cause of action.

Footnote 3: To the extent that plaintiff seeks to base its claim for breach of good faith on the seller's purported failure to obtain approval of the sale from the board, the court notes that, pursuant to the contract, sale was contingent upon approval of the board, and no special duty was placed on the seller to seek or obtain that approval. See Weisner v 791 Park Ave. Corp., 6 NY2d 426, 434 (1959).