Island Estates Mgt., Inc. v MBA-Manorhaven, LLC

[*1] Island Estates Mgt., Inc. v MBA-Manorhaven, LLC 2008 NY Slip Op 52115(U) [21 Misc 3d 1121(A)] Decided on October 10, 2008 Supreme Court, Nassau County Austin, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 10, 2008
Supreme Court, Nassau County

Island Estates Management, Inc., Plaintiff,

against

MBA-Manorhaven, LLC, Defendant.



11518-05



COUNSEL FOR PLAINTIFF

Jaspan Schlesinger Hoffman, LLP

300 Garden City Plaza

Garden City, New York 11530

COUNSEL FOR DEFENDANT

Proskauer Rose, LLP

1585 Broadway

New York, New York 10036

Leonard B. Austin, J.

Defendant, MBA-Manorhaven, LLC, moves for summary judgment dismissing the complaint.

BACKGROUND

This is an action for specific performance of a contract for the sale of real property. Defendant, MBA-Manorhaven, LLC ("MBA"), is the owner of an 11-acre tract of land located [*2]in the Village of Manorhaven, overlooking Manhasset Bay on the North Shore of Long Island. The property was formerly owned by the Thypin Steel Company ("Thypin"), which used it for the storage and cutting of steel products. Before Thypin acquired the property, it was owned by the federal government which allowed defense contractors to use the property as a manufacturing site. At one time, it was also used as an airport.

On December 11, 1998, Plaintiff, Island Estates Management, Inc. ("Island Estates"), entered into a written contract to purchase the property from MBA in order to effect a residential subdivision. The purchase price was dependent upon the number of townhouses which Island Estates would be able to construct on the property. More specifically, the purchase price was to be $125,000 per unit for the first 88 townhouses in the "approved subdivision" and $100,000 per unit for each townhouse over and above that number. The contract provided that MBA, as the seller, was not required to close the transaction unless the buyer obtained an approval to subdivide the property into at least 78 units. Thus, the minimum purchase price was $9.75 million, subject to apportionment for real estate taxes and assessments. Island Estates paid MBA the sum of $350,000 at the time of execution of the contract as a down payment.

The contract provided that the property was conveyed "as is." In view of the property's prior use, it was understood that MBA made no warranties or representations concerning the "physical or environmental conditions" of the property.[FN1] Pursuant to Contract § 8.01, Island Estates had a 60 day "review period" to perform physical and environmental inspections of the premises. In the event that the results of the inspections were "unsatisfactory," in its sole discretion, Island Estates had the right to cancel the contract.

In the event that Island Estates did not cancel the contract within the 60 day review period, the contract provided that it was to apply immediately for a special use zoning permit. Within 90 days of receipt of the special use permit, Island Estates was to submit an application to subdivide the property into a minimum of 96 lots. If the subdivision was approved for fewer than 78 units, Island Estates had the right to cancel the contract and obtain a return of its deposit. If approval was for fewer than 78 units, MBA also had the right to cancel the contract, unless Island Estates agreed to pay the $9.75 million minimum purchase price. If MBA terminated for lack of subdivision approval, it was required to return the deposit and reimburse Island Estates for its "total costs" up to a maximum of $50,000. "Total costs" was defined as reasonable out-of-

pocket engineering, legal and other professional fees and expenses, including the cost of environmental inspection of the property.

Pursuant to Contract § 9.04, Island Estates was required to obtain the special use and zoning permits within twelve months of the execution of the contract. Additionally, it was required to obtain subdivision approval from the Village of Manorhaven ("Village") within 30 [*3]months of the execution date. If, for any reason, Island Estates failed to meet these "milestones", MBA was entitled to terminate the contract upon 30 days written notice.

Significantly, the contract provided that MBA was not entitled to terminate the contract if Island Estates' failure to meet the milestone was "wholly outside of the control of [purchaser]." The contract provided that if the subdivision development was determined to be a "Type I action...thereby requiring the preparation and submission by [purchaser] of an environmental impact statement", the purchaser would immediately commence the preparation of such statement. In those circumstances, the 12-month and 30-month periods would be extended by the "length of the delay caused solely by the process of complying with [the Environmental Quality Review Act]."[FN2]

Pursuant to Contract § 9.05, if "for any reason whatsoever" the purchaser did not met all the conditions for closing within 24 months from the execution of the contract, the seller was entitled to terminate the contract on written notice and return the deposit to the purchaser. Additionally, if the premises were determined to be a "Type I action" and the purchaser "diligently pursued all actions required to comply with SEQRA," the seller was to reimburse the purchaser for its "total costs," subject to the $50,000 limit. The purchaser was permitted to extend this deadline for a 3-month period by serving written notice and depositing an additional $100,000 towards the down payment, which would also be added to the purchase price. The purchaser was entitled to a maximum of four such 3 month extensions.

Shortly after executing the contract, Island Estates retained CA Rich Consultants ("CA Rich") to perform a "Phase I environmental assessment of the property." In February 1999, CA Rich submitted a report finding that 12 underground petroleum storage tanks had previously been located on the site. Based on soil sampling and other analysis, CA Rich further determined that there was evidence of heavy metal and petroleum contamination on the property.

On March 11, 1999, the parties entered into a letter agreement drawn by Chadbourne & Parke, which was then MBA's attorney. The letter agreement amended the contract by extending the review period to April 9, 1999. In the letter agreement, MBA agreed that, if Phase II testing revealed the presence of "hazardous materials" as defined by the agreement, MBA would pay the reasonable cost of remediation up to $100,000. Additionally, MBA agreed that upon expiration of the review period, it would indemnify Island Estates for the reasonable cost of remediation up to the same amount. While the agreement referred to Island Estates as being "unconditionally obligated to close on the purchase" after the review period, the deal was still [*4]subject to subdivision approval for the minimum number of units. On March 30, 1999, although the review period had not yet terminated, Island Estates submitted an application for a special use zoning permit to the Village.[FN3]

CA Rich conducted a Phase II environmental investigation and submitted a report, finding "limited metals contamination in the soil" of the property. In any event, CA Rich recommended the excavation and off-site disposal of the contaminated soil, which it estimated to be 30-40 cubic yards, or approximately 50 tons of material. It is unclear whether CA Rich submitted a cost estimate for this work and, if so, whether the cost estimate was shared with MBA.

In June 1999, MBA retained its own environmental consultant Roux Associates ("Roux"), to conduct a "limited ground-water quality investigation." Based on its investigation, Roux determined that chlorinated volatile organic compounds, or

"CVOC's", present in the ground water exceeded standards set by the New York Department of Environmental Conservation ("DEC"). Roux further concluded that "some or all" of the CVOC's resulted from ground water flowing from commercial properties located above the site. In a report, dated July 6, 1999, Roux proposed four alternative remediation plans, ranging in cost from $216,000 to $2.68 million. On July 14, 1999, the Village, in its capacity as lead agency, required the preparation of a draft environmental impact statement ("EIS"). On January 17, 2000, Roux submitted a "voluntary cleanup program application" to the DEC on behalf of MBA.

In February 2000, the parties executed another letter agreement, amending the contract. In the letter agreement, the parties agreed that the review period was terminated and the contract remained "in full force and effect." MBA agreed to apply to the DEC for a "voluntary action agreement" within 30 days from the date of the letter.[FN4] MBA further agreed to take "all commercially reasonable actions" necessary to obtain a "no further action letter" from the DEC, provided that "seller shall not be obligated under the contract to perform any remedial or responsive actions" not required by the agency. In ¶ 5, the letter agreement recited that the purchaser's obligation to consummate the purchase was conditioned upon, in addition to the conditions set forth in the contract, receipt of a "no further action letter," consent order, or voluntary action agreement.

Pursuant to the letter agreement, Island Estates promised to agree to any "long-term site restrictions" required by the DEC based on the environmental condition of the premises.

In ¶ 8 of the February 2000 letter agreement, MBA agreed to pay all costs of investigation and remediation of environmental conditions up to $400,000. Island Estates was to pay the costs in excess of $400,000, provided that the parties were to split any costs in excess of [*5]$600,000. If purchaser or seller reasonably concluded that the "present value" of remedial actions required by the DEC was likely to exceed $1 million, that party could terminate the contract upon written notice. Upon termination, the down payment would be refunded. However, if termination was by MBA, Island Estates would also be reimbursed for remediation costs paid pursuant to ¶ 8. The contract could not be terminated if the other party agreed to be responsible for remediation costs in excess of $1 million.

The February 2000 letter agreement provided that the deadline for Island Estates to obtain special use and zoning permits was extended to 24 months from the date of execution. The deadline for Island Estates to obtain subdivision approval was extended until 39 months from that date. Pursuant to ¶ 9, the deadline for Island Estates to meet all of the conditions of closing was extended for an additional period of time "equal to the period from July 1, 1999 until the date of the VA Agreement, or a consent order or other agreement with the DEC...is signed by the DEC." On January 2, 2001, the DEC

signed MBA's voluntary cleanup agreement which MBA executed on June 23, 2000.On March 26, 2002, the parties executed another letter agreement, amending the contract.[FN5] Pursuant to the March 2002 letter agreement, the parties deleted ¶ 5 of the February 2000 letter agreement which had provided that Island Estates' obligation to consummate the purchase was contingent upon receipt of a "no further action letter," VA agreement or consent order. Instead, the letter agreement provided that Island Estates was not required to close the transaction until subdivision approval was obtained and the DEC approved a "remediation work plan" pursuant to the voluntary agreement between MBA and the DEC. Island Estates agreed to comply with all reasonable requirements imposed by the DEC concerning the remediation and use of the property. The parties' arrangement for apportionment of cleanup costs was maintained, except that Island Estates' obligation to pay cleanup costs was due at closing and the parties' maximum exposure for cleanup costs was increased to a "present value" of $2 million. Island Estates' obligation to pay its share of cleanup costs at closing was to be secured by a letter of credit in the face amount of $500,000 for a term of one year, renewable on an automatic basis. Finally, the March 2002 letter agreement provided that Island Estates would close the transaction "immediately" upon satisfaction of the conditions to its performance under the contract.

In June 2002, Jamie Ascher (Ascher"), an engineering geologist with the DEC, wrote to Roux concerning DEC's investigation of the site. Ascher stated that while the remaining subsurface piping was not required to be removed, certain "protective measures" would be required to be employed. These measures included raising the site elevation by two feet through the addition of top soil, installing "protective vapor barriers" beneath each dwelling, and prohibiting the dwellings from containing "first floor living space" or "subsurface basements." Although Ascher did not specify his concern with regard to human health, the reference to [*6]"vapor barriers" suggests that it involved the air quality of the project.

In August 2002, a final EIS was submitted to the Village. On January 16, 2003, the Village's Board of Trustees ("Trustees") approved Island Estates' application for a special permit allowing the construction of 96 townhouses. The Trustees' decision granting the permit contained the proviso that, "the subject property will not be developed ...until the terms of the [voluntary cleanup] agreement have been satisfied and all necessary remediation has been performed to the satisfaction of the [DEC]." On December 15, 2004, the Trustees granted subdivision approval on condition that parking not be permitted on interior streets and "all necessary approvals by the DEC" were obtained by Island Estates.

Zoning Board approval was not as readily forthcoming. On July 12, 2005, the Village's Board of Zoning Appeals ("Zoning Board") held a public hearing on Island

Estates' application for a variance from several zoning restrictions, including a restriction on raised decks. Presumably, the raised deck variance was necessary because of the DEC's prohibition on first floor living space. At the hearing, the Zoning Board continued the application pending a report from the DEC on the environmental condition of the property.

On the same day as the Zoning Board hearing, MBA purported to terminate the contract, giving not one but two notices of termination. In the first notice, MBA purported to terminate pursuant to Contract § 9.05 in that Island Estates had not met all of the conditions for closing within the deadline required by the contract as amended. In a second notice, MBA purported to terminate pursuant to the March 2002 letter agreement on the ground that cleanup costs exceeded $2 million.

In response to the second notice, Island Estates exercised its option to avoid termination by assuming responsibility for cleanup costs in excess of the $2 million limit. In response to the termination notice issued pursuant to Contract § 9.05, Island Estates purported to "waive" the condition relating to zoning and other Village approvals, implying that the condition was for its benefit. Thus, Island Estates rejected both notices of termination and asserted that it was ready, willing, and able to proceed with the contract. On July 20, 2005, the same date that Plaintiff rejected the notices of termination, MBA tendered Plaintiff's down payment plus accrued interest as well as $50,000, representing Island Estates' total costs pursuant to contract § 9.05(a).

DISCUSSION

This action for specific performance of the contract was commenced on October 11, 2005. MBA now moves for summary judgment dismissing the complaint on the ground that it properly terminated the contract. Defendant stresses that Contract § 9.05 provides that it was entitled to terminate the contract "for any reason whatsoever," if Island Estates failed to meet all of the conditions to closing within the required time period. Since Contract § 9.05 provided that Island Estates was required to meet the conditions within 24 months from the date of execution of the contract, the initial deadline was December 11, 2000.

Pursuant to the February 2000 letter agreement, the § 9.05 deadline was extended for "an additional period of time equal to the period from July 1, 1999 until the date the VA Agreement...is signed," or January 2, 2001. Thus, according to MBA, the February 2000 letter [*7]agreement provided for a 550 day extension, and the new deadline was June 14, 2002.[FN6]

Alternatively, MBA argues that Island Estates is not entitled to specific performance because it was not ready, willing and able to close because it did not intend to seek financing until the property was fully remediated and its letter of credit,

securing its obligation for cleanup costs, lapsed shortly before the contract was terminated.

In opposing summary judgment, Island Estates argues that MBA's purported termination pursuant to Contract § 9.05 was improper. It asserts that the conditions in Contract § 9.05 were for its sole benefit, MBA was thus prevented from terminating the contract by the covenant of good faith and fair dealing, and MBA elected to proceed with performance rather than terminating the contract. Island Estates argues that it is not required to show that it was ready, willing and able to perform because MBA's failure to remediate the property prevented the transaction from closing.

A party for whose sole benefit a condition is included in a contract may waive compliance with the condition. W.W.W. Assoc. v. Giancontieri, 77 NY2d 157, 162 (1990). However, when the parties set down their agreement in a clear, complete document, their writing should as a rule be enforced according to its terms. Goldstein v. Accuscan, Inc., 2 N,Y,3d 811,812 (2004) quoting, Signature Realty, Inc. v. Tallman, 2 NY3d 810 (2004). Evidence outside the four corners of the document as to what was really intended, but unstated or misstated, is generally inadmissible to add to or vary the writing. Great South Bay Family Medical Practice, LLP v. Raynor, 35 AD3d 808 (2nd Dept. 2006). This rule imparts stability to commercial transactions by safeguarding against fraudulent claims. W.W.W. Assoc. V. Giacontieri, supra, quoting Fisch, New York Evidence § 42 at 22 (2nd ed.) It is particularly applicable to real property

transactions, "where commercial certainty is a paramount concern". Id.

Contract § 9.05 clearly and unambiguously confers the right to terminate the contract on MBA, if Island Estates did not meet all the conditions for closing within the required time period. Moreover, the section specifically contemplates a situation where Island Estates' failure to meet the conditions was due to the environmental contamination of the property. In these circumstances, the Court cannot interpret Contract § 9.05 contrary to its express terms as being solely for Island Estates' benefit.

However, contractual rights may be waived if they are knowingly, voluntarily and intentionally abandoned. Fundamental Portfolio Advisors v. Tocqueville Asset Mgt., 7 NY3d 96, 104 (2006). A waiver may be established by affirmative conduct or by failure to act so as to [*8]evince an intent not to claim a purported advantage provided by the contract. General Motors Acceptance Corp. v. Cent. School District, 85 NY2d 232, 236 (1995). A waiver should not be lightly presumed and must be based on a clear manifestation of intent to relinquish a contractual protection. Fundamental Portfolio Advisors v. Tocqueville Asset Management, supra at 104. An intent to waive a contractual right may be inferred despite a "no waiver" clause in the agreement. Madison Ave. Leasehold v. Madison Bentley Assoc., 30 AD3d 1, 6 (1st Dept.), affd. other grds., 8 NY3d 59 (2006). Generally, the existence of an intent to forego a contractual right is a question of fact. Fundamental Portfolio Advisors v. Tocqueville Asset Mgt., supra at 104.

A waiver, to the extent that it has been executed, cannot be expunged or recalled. Nassau Trust Co. v. Montrose Concrete Prods. Corp., 56 NY2d 175, 184 (1982). However, a waiver is not a binding agreement, and, to the extent that it is executory, a waiver may be withdrawn, provided that the party whose performance has been waived is given notice of withdrawal and a reasonable time after notice within which to perform. Id. An estoppel rests upon the word or deed of one party upon which another rightfully relies and, so relying, changes his position to his detriment. Id. It is imposed by law in the interest of fairness to prevent the enforcement of rights which would work fraud or injustice upon the person against whom enforcement is sought. Id. The right to cancel a contract is a contractual provision which may be waived. See, Golfo v. Kycia Assoc., 45 AD3d 531 (2nd Dept. 2007). If the other party has changed his position in reliance on a failure to cancel, a party may be estopped from canceling

the contract, at least until the other party has had a reasonable opportunity to complete performance.

On a motion for summary judgment, it is the proponent's burden to make a prima facie showing of entitlement to judgment as a matter of law by tendering sufficient evidence to demonstrate the absence of any material issues of fact. JMD Holding Corp. v. Congress Financial Corp., 4 NY3d 373, 384 (2005). Failure to make such a prima facie showing requires denial of the motion, regardless of the sufficiency of the opposing papers. Id.

Although the deadline for Island Estates to meet the conditions to closing was June 16, 2002, MBA did not purport to terminate the contract until July 12, 2005. By failing to serve notice of termination, and continuing to work on a remediation plan, MBA waived compliance with the June 16, 2002 deadline until over three years after the deadline had passed. On this motion for summary judgment, it is MBA's burden to establish that Island Estates did not change its position in reliance on MBA's failure to cancel, or that Island Estates was granted a reasonable time after withdrawal of the waiver to complete performance. The Court concludes that MBA has not carried this burden.

Island Estates obtained an irrevocable standby letter of credit in favor of MBA in the amount of $500,000 on June 18, 2002, shortly after the extended Contract § 9.05 deadline had passed.[FN7] The letter of credit was issued by the State Bank of Long Island ("State Bank") and [*9]provided that it was to be automatically renewed for successive one-year terms, unless State Bank gave written notice 50 days prior to expiration of the letter of credit, as provided in the March 2002 letter agreement. The letter of credit was renewed each year for the next three years, although there may have been a brief delay in the last extension.[FN8] Indeed, on July 8, 2005, shortly before MBA purported to

terminate the contract, State Bank extended the letter of credit through June 18, 2006. Since Island Estates would of necessity have incurred expense, and likely provided security for State Bank to issue and renew the letter of credit, MBA has not established that Island Estates did not change its position in reliance upon MBA's failure to cancel the contract.

MBA's purported termination of the contract on July 12, 2005 effectively operated as a notice that its waiver of the extended deadline was being withdrawn. Despite Island Estates' change of position, MBA was required to allow Island Estates only a reasonable amount of time after July 12th for the conditions of subdivision and zoning approval to be met. DEC approved the Remedial Action Work Plan on May 3, 2006. Presumably, final subdivision approval and the zoning variance would have followed shortly after the DEC's action. In view of the time and money invested in the project, a 10 month delay after withdrawal of the waiver was not per se unreasonable. Thus, MBA has not established that Island Estates was granted a reasonable time after the waiver was withdrawn to complete performance. In any event, the reasonableness of the time permitted is a question of fact which cannot be resolved on this motion.

To obtain specific performance, it is necessary for a purchaser to show that it was ready, willing and able to fulfill its contractual obligations. ADC Orange, Inc. v. Coyote Acres, Inc., 7 NY3d 484, 490 (2006). A party to a contract cannot rely on the failure of another to perform a condition precedent where the party has frustrated or

prevented the occurrence of the condition. Id. In ADC Orange, a contract for the sale of real property contained a condition requiring the purchaser to obtain subdivision approval for the construction of 25 dwellings. In an action by the purchaser for specific performance in ADC Orange, the court held that the purchaser was excused from being ready, willing, and able to proceed if the seller frustrated the subdivision approval process.

In the case at bar, the Village conditioned its subdivision approval and the granting of a zoning variance upon approval by the DEC of the EIS. Although Island Estates was responsible for the preparation of the EIS, preparation of a Remedial Action Work Plan was the responsibility of MBA. MBA is responsible for delay caused by its consultant. On this motion for summary judgment, it is MBA's burden to show that it did not frustrate the conditions of subdivision approval and issuance of the zoning variance by failing to prepare the Remedial Action Work Plan in a reasonably expeditious fashion. Determination of that issue is a question of fact which cannot be decided on this motion. ADC Orange, Inc. v. Coyote Acres, Inc., supra.

On March 7, 2005, Ascher, of the DEC, wrote to Roux commenting on its revised [*10]Remedial Action Work Plan and requesting that Roux resubmit the Plan after incorporating Ascher's comments. Among other items, Ascher requested Roux to expand the "AS/SVE system" to address residual groundwater contamination, provide for post-remedial monitoring as directed by the DEC, and omit the existing reference in

the Plan to controls and monitoring. Roux did not submit a new remedial plan until August 18, 2005; after MBA had already purported to terminate the contract. Since MBA has not established that Roux could not have submitted the new plan earlier, it has not established that it did not frustrate the subdivision and zoning approval process. Moreover, Island Estates was entitled to a reasonable time after MBA withdrew its waiver to be ready, willing, and able to perform the contract.

Accordingly, it is,

ORDERED, that Defendant's motion for summary judgment is denied; and it is further,

ORDERED, that counsel for the parties are directed to appear for a status conference on November 14, 2008 at 9:30 a.m.

This constitutes the decision and Order of the Court.

Dated: Mineola, NY_____________________________

October 10, 2008Hon. LEONARD B. AUSTIN, J.S.C.

Footnotes

Footnote 1:Since the manager of MBA was Richard Thypin, MBA was clearly aware of the prior history and use of the property.

Footnote 2:Article 8 of the Environmental Conservation Law, ("ECL") § 8-0101, et seq. is referred to as the Environmental Quality Review Act. ECL § 8-0109(2) provides that all state or local agencies shall cause to be prepared an environmental impact statement on any action which they approve which may have a significant effect on the environment. Department of Environmental Conservation regulation § 617.4 lists certain "Type I actions" as being more likely to require the preparation of an EIS than unlisted actions. For example, DEC regulation § 617.4(b)(5) provides that the construction of 50 or more new residential units, not to be connected to existing community or public water and sewerage systems, constitutes a Type I action. While the proposed development was to be connected to the Port Washington water and sewer systems, the parties clearly contemplated that the Village would require the preparation of an EIS.

Footnote 3:Since the report is dated April 12, 1999, it appears that the review period had been further extended by the parties.

Footnote 4:Presumably, the "voluntary action agreement" application referred to the voluntary cleanup application which had already been submitted.

Footnote 5:Although the typewritten letter agreement was dated March 26, 2002, the date was changed by hand to April 3, 2002, presumably by Plaintiff. The Court will refer to the agreement as the March 2002 letter agreement.

Footnote 6:Because ¶ 9 of the February 2000 letter agreement refers to an extension "for an additional period of time equal to the period" from July 1, 1999 until the date the VA Agreement was signed, the parties appear to have intended that both the first day and last day of the period be counted. Additionally, an extra day should be allowed because 2000 was a leap year. Thus, the actual extension provided by § 9.05 is 552 days, and the extended deadline was actually June 16, 2002.

Footnote 7: Although the March 2002 letter agreement required that the letter of credit be delivered within 15 days, i.e. by April 18, 2002, MBA appears to have waived compliance with the 15-day deadline.

Footnote 8:Although MBA asserts that the letter of credit had "lapsed," it has not submitted a notice of non-renewal by State Bank. Thus, it appears there was merely a delay in issuance of the extension.