Beagle Developers, LLC v Long Is. Beagle Club No. II, Inc.
Annotate this CaseDecided on August 28, 2008
Supreme Court, New York County
Beagle Developers, LLC, Plaintiff,
against
Long Island Beagle Club No.II, Inc., Long Island Beagle Club, Inc., and Twomey, Latham, Shea, Kelley, Dubin & Quartararo LLP, Defendants.
601113/07
Plaintiff was represented by Bryan Cave LLP, 1290 Avenue of the Americas, New York, NY 10104, (212) 541-2000, William Hibsher, Esq.
Defendants Long Island Beagle Club, Inc. and Long Island Beagle Club #II, Inc. were represented by Meyer, Suozzi, Englis & Klein, P.C., 900 Stewart Avenue, Garden City, NY 11530-9194, (516) 741-6565, Abraham B. Krieger, Esq.
Defendant Twomey, Latham, Shea, Kelly, Dubin & Quartararo, LLP was represented by Catalan, Gallardo & Petropoulous, LLP, 100 Jericho Quadrangle, Jericho, NY 11753, (516) 931-1800, Matthew K. Flanagan, Esq.
Herman Cahn, J.
Motion sequence numbers 002, 003 and 004 are consolidated for disposition.
In motion sequence number 002, plaintiff Beagle Developers, LLC (Developers) moves for summary judgment on its amended complaint for breach of an agreement by defendants Long Island Beagle Club (LIBC) and Long Island Beagle Club #II (LIBC II) to convey the property located at 1178 Edwards Avenue, Calverton, New York (the Property).
Defendant Twomey, Latham, Shea, Kelley, Dubin & Quartararo LLP (Twomey Latham) was the attorney for LIBC and LIBC II and was the escrow agent which held the down payment on the Property.
In motion sequence number 003, Twomey Latham moves for summary judgment [*2]dismissing the complaint as to it.
In motion sequence number 004, defendants LIBC and LIBC II move for summary judgment
dismissing the complaint as to them.
FACTS
LIBC II is the surviving entity after a merger between it and LIBC, which took place in 2003. LIBC was a not for profit corporation.
LIBC II and Developers entered into a contract on March 22, 2005, for the sale of the Property for the total purchase price of $16 million, with a down payment of $1 million (the Agreement). Developers sought the Property in order to subdivide it into residential lots, and build single-family homes thereon.
Pursuant to the contract, Developers deposited $750,000.00 of the deposit amount with
Twomey Latham, the escrow agent under the contract. The contract provided for a 60-day
contingency period, which was extended to 75 days, during which Developers was to perform
environmental, engineering, zoning, and abstract studies to determine the suitability of the
Property for Developers' intended use. By the terms of the contract, if Developers concluded that
the property was not suitable for its intended use, Developers could cancel the contract by written
notice of cancellation, and Developers would receive its deposit back. If Developers did not
cancel, it was required to deposit an additional $250,000 with Twomey Latham. The contract
provides:
Upon receipt of the $250,000 set forth herein, the Seller's attorney may release the
entire Contract deposit to the Seller and the parties agree that such payment is non-refundable
regardless of the result of this transaction, other than the Seller's willful default in closing.
Mot seq no 004, Ex. H, Contract (Agreement), ¶ 1.02 (d). A rider to the
contract states:
Notwithstanding anything to the contrary contained in paragraph 1.02 (d) of the
Contract, in the event the Seller elects to withdraw the deposit prior to closing, the Seller shall
secure the downpayment amount to be released by collateral or assets deemed acceptable to the
Purchaser in advance. If any part of the downpayment is released to Seller, Purchaser shall have
the right to record the contract.
Agreement, Rider, ¶ 13.
During the 75-day period, Developers obtained a title report from Sneeringer Monahan Provost Redgrave Title Agency, Inc. (Sneeringer), dated April 18, 2005, and sent letters on April 19, 2005 and May 19, 2005, to Twomey Latham advising it of title exceptions and objections. Not all of the exceptions and objections were addressed during the 75-day period. Nonetheless, Developers chose not to cancel the contract, and tendered the down payment balance of $250,000 to Twomey Latham on or about June 7, 2005. Twomey Latham released the escrow money to LIBC II on January 2, 2006, without advising Developers, and without obtaining its assent. No collateral was given upon release of the funds.
The Agreement provides that LIBC II would provide "good and marketable fee simple title to
the Property," and that Developers would accept such title subject to certain enumerated
"Permitted Encumbrances." Agreement, ¶ 2.01 (a). The contract further provides that if the
title report contained exceptions which are not within the scope of the Permitted Encumbrances,
such [*3]exceptions being defined as Title Objections, LIBC II
shall take such action as shall be necessary to cure or dispose of title objections in a
manner reasonably acceptable to Purchaser and Purchaser's title insurance company, but, except
as described below, Seller shall not be obligated to make any effort or expend any amounts to
dispose of Title Objections. If Seller fails to cure or dispose of Title Objections within 30 days
after notice, Purchaser may (i) accept such title as Seller is able to convey or (ii) terminate this
Agreement. If Purchaser terminates in accordance with this subsection, Seller shall reimburse
Purchaser for its customary title charges and the cost of its survey, upon delivery of three
blueprint copies thereof. Any Title Objections consisting of liens, judgments or other
encumbrances which were placed on the Property after Seller acquired title to it and which Seller
can cure or discharge by the payment of money shall be so cured or discharged, or bonded in
such fashion as to cause Purchaser's title insurer to omit same as title exceptions in Purchaser's
Title Report.
Agreement, ¶ 2.02 (c) (struck text in original).
On December 14, 2006, Developers and LIBC II executed an amendment to the contract that extended the closing date up to a maximum of June 7, 2007, but required payment by Developer of $50,000.00 for each 30-day extension of the contract, commencing December 15, 2006. The amendment provides for $40,000.00 of each such payment to be credited to the purchase price, and that the additional payments be immediately released to LIBC II.
Developers made one extension payment of $50,000.00 to Twomey Latham on December 15, 2007, but failed to make a second payment, which was due on or before January 8, 2007. LIBC II then deemed Developers in default of the contract and amendment, and sent a law day notice, scheduling the closing for February 26, 2007. Developers responded by sending a law day/time of the essence closing notice, also for February 26, 2007.
As the time for the closing approached, Sneeringer, the title agency, requested additional information for the title report, including LIBC's bylaws and the resolution adopted by its board of directors concerning the conveyance of the Property to LIBC II. Sneeringer also still required proof of compliance with Not-for-Profit Corporation Law § 903, which requires notice of a meeting to every member of the corporation, as well as proof that the plan of merger was approved by a two-thirds majority of the membership; a copy of LIBC's bylaws that were in effect at the time of the 2003 conveyance; compliance with the filing requirement for the certificate of merger; and further explanation regarding the status of a farm road that traversed the Property.
LIBC II engaged Fidelity National Title Insurance Company (Fidelity) to obtain a marked up title report and presumably to issue a policy, and to appear at the closing, because LIBC II had learned that Developers had not instructed Sneeringer to appear at the closing.
On February 26, 2007, both sides attended the failed closing. Fidelity was there, and was willing, ready and able to insure title. LIBC II contends that it, too, was ready, willing and able to convey title.
Developers contends that it had cashiers checks for the balance of the purchase price, but that LIBC II's counsel did not provide the missing information, with the exception of the clarification regarding the farm road. LIBC II maintained that Fidelity's report obviated the need for information regarding the sale from LIBC to LIBC II and other exceptions. Developers avers [*4]that Fidelity's report did not refer to the transfer of title from LIBC to LIBC II, nor did it provide proof that the certificate of merger had been properly filed. Consequently, Developers left the closing without the transaction having taken place.
Later that day, Developers' attorney delivered a letter to LIBC II's counsel outlining the ways in which, according to Developers, LIBC II had failed to proffer good and marketable title, as required by the contract, and demanded return of the down payment. LIBC II refused to return the down payment and declared Developers in default. LIBC II asserts that the contract provided for it to retain the down payment as liquidated damages and that such provision is enforceable.
Developers contends that it expended substantial funds in its efforts to obtain subdivision approval for the Property and for other matters. It denies LIBC II's assertions that it was seeking to be relieved of its contractual obligations due to a downward turn in the market.
Plaintiff filed this action in this court, and then filed a second action in Suffolk County. The
two cases were consolidated in this court.
DISCUSSION
Motion Sequence
Number 002
Satisfactory Title
Developers argues that it is entitled to return of its down payment, because LIBC II failed to provide satisfactory title. It contends that it had legitimate concerns about the transfer of the Property from a not-for-profit corporation to LIBC II, because the transfer could later be challenged by a member of the not-for-profit corporation. Developers asserts that it was only after Sneeringer received the plan of merger, which was mere days before the law day closing, that Sneeringer became aware that evidence would be required that the members of LIBC were properly notified of the merger vote and that a proper vote was taken. Developers emphasizes that it had the right to select the title insurer and was not obligated to accept Fidelity's report, which, it claims, did not address the legitimate concerns raised by Sneeringer. Developers relies on case law which holds that title to land is unmarketable if it exposes the purchaser to the hazard of possible litigation, or if title is clouded by apparent defects or reasonable misgivings. See New York Invs. v Manhattan Beach Bathing Parks Corp., 229 App Div 593 (2d Dept 1930), affd 256 NY 162 (1931) (contract provided that title should be approved and insured by specified title company, which approval was not obtained); see also Newmark v Weingrad, 43 AD2d 983, 984 (2d Dept), affd on memorandum decision below 35 NY2d 832 (1974).
Plaintiff is correct in asserting that the agreement required LIBC II to "deliver good and
marketable fee simple title to the Property" (Agreement, ¶ 2.01 [a]). It is also correct that it
had the right to designate its own title company. Its right in that regard was, however, limited.
The Agreement provides that plaintiff would accept title subject to certain enumerated "Permitted
Encumbrances." Id. The Agreement further provides that if the title report ordered by
Developers contains exceptions that are not within the scope of the Permitted Encumbrances,
those further exceptions being defined as "Title Objections,"
Seller shall take such action as shall be necessary to cure or dispose of title
objections in a manner reasonably acceptable to Purchaser and Purchaser's title insurance
company, but except as described below, Seller shall not be obligated to make any effort or
expend any amounts to dispose of Title Objections. If Seller fails to cure or dispose of Title
Objections within 30 days after notice, Purchaser may (i) accept such title as Seller is able to
convey or (ii) terminate this Agreement. If [*5]Purchaser
terminates in accordance with this subsection, Seller shall reimburse Purchaser for its customary
title charges and the cost of its survey, upon delivery of three blueprint copies thereof. Any Title
Objections consisting of liens, judgments or other encumbrances which were placed on the
property after Seller acquired title to it and which Seller can cure or discharge by the payment of
money shall be so cured or discharged, or bonded in such fashion as to cause Purchaser's title
insurer to omit same as title exceptions in Purchaser's Title Report.
Id., ¶ 2.01 (c) (struck text in original).
In accordance with the above provision, LIBC II did not have an obligation to cure the exceptions that are the subject of the parties' disagreement regarding the title. Developers had 60 days (extended to 75 days) after signing the contract to perform various studies, including a title search, and 30 days after informing LIBC II within which to terminate the agreement if LIBC II did not cure any Title Objections. Developers obtained the title report and informed LIBC II of the concerns in a timely manner. Developers opted to proceed with the transactions despite LIBC II's failure to cure. Thus, Developers chose option (i), and agreed to accept such title as LIBC II was able to convey. Such title may well be less than marketable title, but it was what Developers eventually agreed to accept, and it is therefore bound by its such agreement
Further, the fact that Developers' title agency was unwilling to accept and insure the title that LIBC II provided, does not alter this outcome. The contract provided for LIBC II to provide good and marketable title. Such a provision does not require title to be free of all doubt, but only such doubt as would interfere with a sale of the property. Voorheesville Rod and Gun Club v Tompkins Co., 82 NY2d 564, 571 (1993). In any event, after the time to terminate had passed, without the contract having been terminated, Developers agreed to "accept such title as [LIBC II] is able to convey" (Agreement, ¶ 2.01 [c]), and was obligated to accept such title, regardless of the exceptions that might be formed on a title report.
Developers argues that LIBC II is misconstruing the contract, and that it uses the defined term "Title Objections" interchangeably with the general term "title objections," and thereby distorts the intent of the contract. It is unclear precisely what Developers considers to be the distinction. Developers seems to argue that the waiver in paragraph 2.01 applies only to minor technical title defects. However, those minor technicalities are those excluded in paragraph 2.01 (a). Developers acknowledges that the exceptions enumerated in section 2.01 (a) of the Agreement were given a defined term in that section, that term being "Permitted Encumbrances." In order to give meaning to the term "Title Objections" (see Matter of Missionary Sisters of Sacred Heart, Ill. v New York State Div. of Hous. & Community Renewal, 283 AD2d 284, 288 [1st Dept 2001]), it must mean something other than Permitted Encumbrances. The only logical conclusion is that it means exceptions to title other than the Permitted Encumbrances.
The use of "title objections" and "Title Objections" in the Agreement is somewhat troubling. However, the Agreement states explicitly that LIBC II was not required to make any effort to dispose of Title Objections, which are defined as exceptions to title other than Permitted Encumbrances. The use of "title objections" in the same paragraph does not create an obligation on LIBC II's part to cure exceptions that are specifically not required to be cured. Consequently, LIBC II was not required to "make any effort or expend any amounts" to dispose of any other title objections. Agreement, ¶ 2.01 (c). [*6]
Developers further contends that the 75-day period does not apply to the title issues involved in this controversy. It maintains that paragraph 1.02 (c) relates to environmental due diligence only.
While the paragraph as originally drafted appears to be limited to environmental issues, the
parties added in "zoning and abstract studies" to the items subject to the time period provided by
that paragraph. Thus, the parties agreed that the waiver applied to zoning and title issues, as well
as environmental ones. The fact that two different time periods were given in different
paragraphs of the Agreement (60 days from the signing of the Agreement and 30 days from when
LIBC II was notified of objections) does not alter the applicability of the waiver. At most, it
could raise a question as to the appropriate deadline for terminating the Agreement, if there were
a conflict between the two time periods. That issue is not presented here and the waiver
contained in paragraph 1.02 applies to the title report as well as to environmental issues.
Escrow Funds
Developers contends that LIBC II acted in breach of the agreement in accepting the escrow funds almost a year before the closing was scheduled and in accepting the $50,000.00 payment in December 2006. Developers argues that LIBC II was required to secure the down payment amount released by collateral acceptable to Developers. It further maintains that this breach leaves it in the position of trying to recover its down payment and being forced to expend resources to do so. Developers cites case law to support its position that an escrow is intended to be held until all the terms of an Agreement are complied with, so that the parties can be returned to the status quo in the event of a dispute. See Ansonia Realty Co. v Ansonia Assoc., 142 AD2d 514 (1st Dept 1988).
Developers ignores the fact that the Agreement did not anticipate the return of the escrow payment even if the transaction fell through. The Agreement provided for release of the escrow funds after Developers deposited the additional $250,000.00. Agreement, ¶ 1.02 (d). However, the rider to the Agreement provided for LIBC II to secure the down payment by collateral or assets deemed acceptable to Developers.
While Developers asserts that the breach caused it to have to expend funds to recover the down payment, it has not demonstrated that it is entitled to return of the down payment. The Agreement provides for the return of the down payment only if the transaction were terminated before the 75-day deadline, or if LIBC II willfully defaulted in closing. Here, Developers maintains that LIBC II's failure to provide the material requested by its title agency constitutes willful default. Agreement, ¶ 1.02 (d). However, the Agreement specifically provides that LIBC II had no obligation to provide those materials. Under such conditions, LIBC II's failure does not constitute willful default. With respect to the $50,000.00 payment, the parties specifically provided that such monies would be released immediately to LIBC II. Thus, the release of those funds also does not constitute a breach. Mot seq no 004, Ex. M at 2.
Even in the event that Developers could demonstrate a material breach, its only recourse is
under paragraph 5.01 of the Agreement, which provides that Developers can recover the costs of
its title and survey. It does not provide for Developers to recoup the down payment. Thus,
Developers has not demonstrated that it sustained any damage by virtue of the allegedly improper
manner in which the escrow funds were released, and further fails to support its claim for a return
of those amounts.
[*7]Bad Faith
Developers contends that LIBC II acted in bad faith when it failed to respond to Sneeringer's requests for more documents. It points to the fact that some of the documents were in Twomey Latham's files, but were not produced to Sneeringer.
LIBC II contends that Developers waited until the last minute to request the documents, despite knowing about the issues regarding the prior transfer of the property for nearly two years. LIBC II further maintains that the issue was not genuine, because LIBC merged with LIBC II prior to the transfer. As a result, not only was the transfer unnecessary, but notice under the Not-For-Profit Corporation Law was likewise unnecessary. As argued by LIBC II, even were there any merit to Developers' concerns, it waived any entitlement to have LIBC II provide any documents or have LIBC II attempt to resolve any issues when 30 days elapsed after the first notice of exceptions, and LIBC II had not adequately responded. At that point, Developers had the option of cancelling the transaction or accepting whatever title LIBC II was able to transfer. Thus, LIBC II was not obligated to do anything further, and its failure to provide further information on the last business day prior to the closing cannot be deemed bad faith.
Developers contends that, by providing some information to Sneeringer after the 75-day period elapsed, LIBC II waived the requirement that Developers make a choice between accepting title and terminating the agreement and was, as a result, required to provide the information Sneeringer required. Developers' position is without merit.
The Agreement specifically provides that it cannot be modified except by a written
instrument signed by the parties. Agreement, ¶ 6.09. Here, there is no written instrument
waiving LIBC II's right to enforce paragraph 2.01 of the Agreement. Additionally, the Agreement
provides that even if a party waives a right under a provision of the Agreement, such waiver will
not constitute a waiver of that party's rights at any other time. Id., ¶ 6.05. Therefore,
even if LIBC II had waived its right not to provide further materials regarding title to Developers
at some point, it was not required to provide additional materials indefinitely.
Twomey Latham's Release of the Escrow Funds
As discussed above, Twomey Latham released the escrow funds to LIBC II without obtaining collateral or assets acceptable to Developers, in advance. Twomey Latham also disbursed the $50,000.00 payment within days of its receipt. Relying on Don Buchwald & Assoc. v Rich (281 AD2d 329 [1st Dept 2001]) and Swersky v Dreyer and Traub (219 AD2d 321 [1st Dept 1996]), Developers maintains that it is entitled to punitive damages because Twomey Latham's breach of it fiduciary duty was in willful and wanton disregard of Developers' rights.
As previously stated, Twomey Latham was authorized to release the $50,000.00 payment without any preconditions. It released the $1,016,712.00 without obtaining Developers' assent, and without obtaining collateral in violation of the rider to the Agreement.
The Agreement provides that the escrow agent would have no liability except for "gross
negligence, willful misconduct or fraud." Agreement, ¶ 1.20 (e). The amended complaint
does not allege gross negligence, willful misconduct or fraud. Nor has Developers pleaded any
conduct that it contends would fulfill that requirement. Consequently, Developers has failed to
demonstrate any entitlement to summary judgment on this claim, as well.
Motion Sequence Number 003
In this motion, Twomey Latham seeks summary judgment dismissing the complaint as [*8]against it on essentially the same grounds that it opposed Developers' motion for summary judgment as against it.
As discussed above, Developers had no right to return of the down payment under the terms
of the contract. Therefore, Developers cannot demonstrate that it suffered any damage as a result
of the release of those funds. Its only potentially compensable damage, which it does not seek in
its amended complaint, is the cost of the title search and survey. Further, Developers has not
alleged any gross negligence, willful misconduct or fraud, which would be necessary to assert
liability against Twomey Latham. Thus, Developers' claim as against Twomey Latham is
dismissed.
Motion Sequence Number 004
LIBC and LIBC II seek summary judgment, arguing that Developers waived its right to
cancel the Agreement based upon purported title exceptions, and agreed to accept title that LIBC
II was able to convey. As a result of Developers' breach, LIBC II contends that it is entitled to
retain the down payment as liquidated damages, and that Developers' commencement of this
action violates the Agreement's waiver of litigation provision.
Breach by Developers
LIBC and LIBC II contend that Developers waived its right to cancel the Agreement based upon exceptions to the title that were found during the 75-day period after the contract was signed. It agreed to accept title that LIBC II was able to convey. By refusing to accept that title at the law day closing, LIBC and LIBC II aver that Developers breached the contract.
While Developers points to the various problems with the title, including the manner in
which the Property was transferred from LIBC to LIBC II, these issues were part of the title
search that was required to be done during the initial 75 days after the contract was signed. The
Agreement provides that, if the Title Objections were not resolved, Developers could either
terminate the Agreement or accept such title as LIBC II could convey. It elected to do the latter. It
cannot now contend that LIBC II breached the Agreement by conveying such title as it was able
to convey, when the concerns were known during the 75-day period. Rather, Developers
breached the contract by failing to go forward with the closing after having waived the
exceptions to the title.
Down Payment
The contract provides that LIBC II was entitled to retain the down payment as liquidated damages in the event of Developers' breach.
Developers does not address the specifics of whether LIBC II is entitled to retain the down
payment in the event that Developers breached the Agreement. It merely reiterates its position
regarding the events, and concludes that LIBC II breached the Agreement. Under such
circumstances, Developers has not disputed that LIBC II is entitled to retain the down payment if
Developers is found to be in breach. Nor has Developers disputed LIBC and LIBC II's assertion
that Developers has violated the Agreement's waiver of litigation provision. That provision
states:
Purchaser agrees that except for the Seller's willful default, that the Purchaser hereby
waives any claims to the non-refundable contract deposit and waives any claim for damage
regarding the loss thereof, except as previously provided herein.
[*9]
Agreement, ¶ 2.05.
Inasmuch as Developers has failed to demonstrate any default, much less a willful default by LIBC II. Developers is in violation of the waiver of litigation provision.
Developers has also failed to counter LIBC and LIBC II's showing that LIBC II is entitled to
retain the down payment, by the terms of the Agreement. The Agreement specifically provides
that the down payment is not refundable, except for very limited circumstances not implicated
here, and that the down payment would constitute liquidated damages. Developers has not argued
that the liquidated damage provision should not be enforced, nor does the court see any reason
not to enforce it. Consequently, LIBC II may retain the down payment.
CONCLUSION
Accordingly, it is
ORDERED that plaintiff's motion (motion sequence number 002) for summary judgment on its complaint is denied in its entirety; and it is further
ORDERED that the motion of defendant Twomey, Latham, Shea, Kelley, Dubin & Quartararo, LLP (motion sequence number 003) is granted, and the complaint is dismissed as against said defendant, with costs and disbursements as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the motion of defendants Long Island Beagle Club, Inc. and Long Island Beagle Club #II, Inc. (motion sequence number 004) is granted and the complaint is dismissed as against said defendants, with costs and disbursements as taxed by the Clerk of the Court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.
Dated: August 28, 2008
ENTER:
___/s/______________________
J.S.C.
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