Destiny USA Holdings, LLC v Citigroup Global Mkts. Realty Corp.Annotate this Case
Decided on July 17, 2009
Supreme Court, Onondaga County
Destiny USA Holdings, LLC, Plaintiff,
Citigroup Global Markets Realty Corp., Defendant.
John C. Cherundolo, J.
The plaintiff in the above-named matter comes before this Court via Order
to Show Cause, dated June 9, 2009, seeking an Order pursuant to CPLR §6301, compelling
the defendant to specifically perform its obligations to fund pending loan advances under the
parties' Amended and Restated Building Loan, Project Loan and Security Agreement, dated
February 15, 2007 (the "construction loan agreement"), in accordance with the express terms of
the construction loan agreement, or, alternatively, enjoining the defendant from refusing to fund
such pending advances. The matter came on for oral argument before this Court on June 16,
2009, and at that time, each side had ample opportunity to present their case via oral argument.
Since the date of oral argument, there have been court-supervised settlement discussions, which
have not resulted in a resolution of all the issues among the parties. As a result, this Court now
issues the following decision, based upon all actions and proceedings to date had in this matter,
upon all documents, affidavits, and exhibits submitted to the Court, and upon all oral arguments
that have been presented to the Court at the time of oral argument.
RELEVANT FACTS BEFORE THE COURT
The plaintiff brings this action to enjoin the defendant from implementing a scheme to avoid their obligation to fund a certain construction loan, dealing with Phase I of Destiny USA. The particular document at issue here is an agreement by and between the parties, and others, known as the "Amended and Restated Building Loan, Project Loan and Security Agreement", dated February 15, 2007 (hereinafter referred to as "construction loan agreement"). Plaintiff contends that the defendant, without cause or reason, has concocted a scheme in which to avoid future payments of approximately sixty-eight million, four hundred thousand dollars ($68,400,000.00) under the construction loan agreement, and by doing so, has and will continue to cause irrevocable harm to the plaintiff and others as a result of these actions. The defendant in response takes the position that the failure to fund the remaining draws under the construction loan agreement is a result of two items, both occasioned by default of the plaintiff. First, defendant contends that the plaintiff has a "Deficiency" as defined by the contract documents, and as a result of that "Deficiency", the defendant has no further obligation to fund the construction loan agreement until the "Deficiency" is fully resolved. Second, the defendant avers [*2]that the plaintiff is in default of interest payments, due May 5, 2009, and that plaintiff failed to cure the "Deficiency" when asked to do so.
As a result of the defendant's failure to fund, the plaintiff initiated the filing of a summons and complaint, dated June 9, 2009, which alleges six, separate and distinct causes of actions. The First Cause of Action seeks to have the Court issue a declaratory judgment invalidating the Notice of Deficiency, dated May 20, 2009, and the Notice of Default, dated June 5, 2009. The plaintiff also seeks to have the Court declare that there is no continuing default underlying the default notice, because of the tender of interest payment due May 5, 2009 to the defendants. In the papers before the Court, the plaintiff also seeks to have a declaration that the term "Deficiency" does not include tenant improvements. It is this sought declaration which underlies the validity of the other two requested declarations. Plaintiff also seeks, by way of a Second Cause of Action to have the defendant specifically perform its obligations under the construction loan agreement and remedy the breach of the construction loan agreement and anticipatory repudiation of that loan agreement. Plaintiff further seeks to have the Court order the funding of the 27th and 28th (and now 29th) draw requests submitted to the defendant. The remaining four causes of action deal with breach of the construction loan agreement and anticipatory repudiation of the construction loan agreement, equitable estoppel based on the detrimental reliance by the plaintiff on the defendant's conduct and representations, alleged breach of the defendant's covenant of good faith and fair dealing. The Sixth Cause of Action is supportive of the motion before this Court for preliminary injunction and seeks a permanent injunction, alleging that the plaintiff has a strong likelihood of success, and most likely will succeed on the merits, and as a result, is entitled to both temporary and permanent injunctive relief.
Defendant responds to the complaint by asserting that the plaintiff has created a
"Deficiency" in the budget that corresponds to the construction loan documents and construction
loan agreement, and as a result of this "Deficiency", and the terms and conditions of the
construction loan agreement, the defendant has a valid right to declare a "Deficiency". Defendant
also urges that it was within its right to declare a default by virtue of the plaintiff's failure to cure
the deficiency, and also by virtue of the plaintiff's failure to pay certain interest and costs that
were due May 5, 2009. Defendant also alleges that the project is a "failed project" and that there
are "no tenants" and, as a result, the defendant should have no obligation to further fund under
the construction loan agreement.
HISTORY OF THE PROJECT AND ITS FINANCING
The project in question is part of Destiny USA, a project initiated by Destiny USA Holdings, LLC. In its basic form, the project is a unique extension to the Carousel Center Mall that was constructed on an old landfill between Hiawatha Boulevard and Onondaga Lake.[FN1] The first extension of the Carousel Center Mall is known as Phase I of Destiny USA, which is an approximate eight hundred and fifty thousand square foot (850,000 +/-) building extension to the Carousel Center Mall. The project was designed to showcase "state-of-the-art" green [*3]technology, renewable energy resources, and sustainable design for both construction and operations. Plaintiff asserts that, when completed, Destiny USA will include an innovative design combining research, retail, entertainment, dining, hospitality and tourism. The project has created expectations to create tens of thousands of jobs, attract millions of visitors to an otherwise economically depressed region, and add millions of dollars annually into the local and state government economy.
Destiny USA, as an overall plan, has garnered enthusiastic support of federal, state and local governments. To that end, it has become known as the model "private - public partnership" for economic development, for green development and for sustainable development.[FN2] A myriad of incentives have been given to the preferred developer (the plaintiff) to go forward with Destiny USA. The project is a public improvement project, with the City of Syracuse Industrial Development Agency (SIDA), taking a lead role in the development. In fact, with regard to Phase I, which is at issue in this lawsuit, SIDA has contributed one hundred seventy million dollars ($170,000,000.00) to the project, along with the plaintiff's forty million dollars ($40,000,000.00) to initiate and start the project known as Phase I.
Citigroup was also instrumental in securing funding for the project. Citigroup agreed to participate in the funding and management of the project, to the extent that it would loan one hundred fifty five million dollars ($155,000,000.00) towards the project via the construction loan agreement. In return, Citigroup would also act the agent for all of the construction proceeds, including the developer's forty million dollars ($40,000,000.00), SIDA's one hundred seventy million dollars ($170,000,000.00), and the bank's one hundred fifty five million dollars ($155,000,000.00).
As clearly set forth in the construction loan agreement, Citigroup would act as the fiduciary agent, and as such, would hold all of the monies that would be distributable through the draw process set up under the loan agreements.
This unique funding system would allow for Citigroup, as fiduciary agent, to disburse first the two hundred ten million dollars ($210,000,000.00) invested by SIDA and the developer, and then pay the remaining one hundred fifty five million dollars ($155,000,000.00) under the construction loan agreement that Citigroup would be lending to the project.
Given the green nature of the project, multiple governmental incentives have been promised to the preferred developer and the project. Because of the SIDA involvement in the project, there is a requirement that Phase I be completed by August 1, 2009, and that Phase II be started at or about that time.
For the roles that it has played in the project's financing, Citigroup has earned approximately
one hundred twenty three million dollars ($123,000,000.00) to date, in fees, interest, and other
costs in connection with the project. Indeed, at the project's inception, Citigroup was more than
excited to be involved in the creation of Destiny USA, as Dan Thompson of Citigroup said as
[*4]We believe in combating climate change through market-based solutions. And one of our first partnerships was with (the City of Syracuse and the owners of Destiny) in the visionary project that is Destiny USA. And we're particularly pleased with that commitment. And I'm very excited to talk to you today about the new financing paradigm for green economic development. If you think about the Destiny model and think about why its different, the Mayor (of Syracuse) used the term public/private partnership and often that is an overused term, but here it really applies. Here, from the developer's standpoint, the developer is taking the up-front risk in getting the associated upside and the City is getting, at no cost and no risk, a targeted economic development project and the long-term benefits of economic development, green, etc.
Those enthusiastic assertions of commitment were consistent with Citigroup's apparent agreement to provide construction financing, first executed in 2005, and then amended in the 2007 construction loan agreement, together with their underwriting of the bonds and "ground-breaking financial paradigm" for the project.
And so it was that the parties worked together, including the plaintiff, defendant, SIDA, City of Syracuse, and other governmental agencies, to begin construction of Phase I of Destiny USA. Things continued, apparently without significant problem, until the 27th draw under the construction loan agreement. That draw was for work that was done during March of 2009, invoiced during April of 2009, and was to be paid by May 5, 2009. Twenty six requests for payment and draws had been previously paid. However, on May 5, 2009, no payment was made by the defendant. Fifteen days after the funding date, on May 20, 2009, the defendant issued a Notice of "Deficiency", alleging that the project was over fifteen million dollars ($15,000,000.00) deficient pursuant to the formula called for in the construction loan agreement. A demand was made upon the plaintiff to pay into the project the alleged "Deficiency". On June 5, 2009, the defendant served upon the plaintiff a Notice of Default and Acceleration, declaring the loan in default by virtue of the fact that the deficiency had not been resolved, and that the interest due May 5, 2009 had not been paid by the plaintiff as required.
What happened prior to these events is important to this Court in the determination to be made here. Citigroup, over the course of the construction, exercised its fiduciary role as funding agent, and authorized and directed that monies be paid based upon the requisitions that they received on a monthly basis from plaintiff. The project loan is an advancing term construction loan whereby the borrower is given monthly draws or advances for monies spent and work done to date. Citigroup played a dual role in that it was both agent and lender, and thus assumed responsibility for disbursing all of the funds for the project.
Starting in February of 2007 and running through June of 2008, Citigroup disbursed over one hundred sixty six million dollars ($166,000,000.00) in funds responsive to the first sixteen monthly draw requests made by Destiny USA. All were approved. The first two hundred ten million dollars ($210,000,000.00) disbursed by Citigroup was money that they, in their capacity as fiduciary agent, held from SIDA and the developer.
With the 17th, 18th and 19th draws (July, August and September, 2008) Citigroup asserted a "Deficiency" under the terms of the contract. Destiny USA disputed the existence of such a "Deficiency", and while the discussions were continuing, Citigroup continued to fund and pay the draw requests in a timely manner. It should also be noted that during this period of time, the [*5]construction loan agreement, and the working relationship was such that any interest due as of the date of payment of the draw, would be deducted or paid from the draw and credited for interest and other costs by the defendant.
The 20th draw request, which was for work done September of 2008, was submitted by Destiny USA and was to be funded on October 5, 2008. This, notably, was the first time when Citigroup money was to be used to pay the requisition or request for draw.
In September, Citigroup issued another "Deficiency" notice (alleging approximately twenty million dollars ($20,000,000.00) of a "Deficiency") comprised primarily of tenant improvement costs. At that time Citigroup informed Destiny that it would no longer waive or defer its notice with respect to any portion of the alleged calculated deficiency. Citigroup, however, funded twelve days past the contractually required time period (October 17, 2008) and recouped its interest due, making no objection to the fact that the interest payment was late.
On November 11, 2008, the parties sought to resolve the escalating "Deficiency" claims. Destiny USA took the position that the only costs to be included in the deficiency calculation were those required by the plans and specifications, and that tenant improvements and other similar items were not to be included in the formula, as such expenditures were not part of the agreed plans and specifications. Plaintiff argued, therefore, they were not to be included in any "Deficiency" calculation. At that time, the parties had a series of discussions with regard to the alleged "Deficiency" and apparently it was agreed that the Tenant Improvement costs would not be included in calculating "Deficiency". The next six draws (requests 21 - 26) were timely made, and any calculation of "Deficiency" did not include Tenant Improvement costs and expenses. Although Citigroup did make claims of deficiency in lesser amounts (i.e., three hundred twenty nine thousand one hundred eighty eight dollars ($329,188.00) with regard to the 25th draw), Citigroup continued to fund each draw as they became due, although sometime between two and thirteen days late of the projected payment date. Any interest payments that were to be made by the loan proceeds were paid at the time of funding, without any comment or complaint by Citigroup of any of its agents, officers or employees.[FN3]
The 27th request for draw was submitted during April, 2009, and was to be paid on May 5, 2009. The pay date came and went, and between that date and May 20, 2009, Citigroup had its people at the scene evaluating the propriety of the requisition for the 28th payment, which was due to be paid on June 5, 2009. Plaintiff wrote the defendant during that time seeking a meeting to discuss the alleged "Deficiency". Defendant never responded to that request.
It is claimed by the plaintiff in this case that on May 20, 2009, that for no apparent reason, Citigroup gave a "Deficiency" notice in the amount of fifteen million one hundred ninety seven thousand nine hundred thirty two dollars ($15,197,932.00). This notice was delivered via Citigroup's new attorneys, Paul, Weiss, Rifkind, Wharton and Garrison, LLP. It is agreed by the parties that the Tenant Improvement expenses were the primary reason for the alleged deficiency. [*6]Apparently some thirteen million five hundred thousand dollars ($13,500,000.00) of the alleged "Deficiency" was allocated towards Tenant Improvement costs. Subsequently, Citigroup has refused to provide further funding, and costs and obligations of over twenty five million dollars ($25,000,000.00) have accumulated with regard to work and expenses on the project. Plaintiff claims that Citigroup has breached its obligation, both as funding agent and as a lender to provide the appropriate payments for the 27th and 28th (now 29th) payments.
Subsequent to the Notice of Deficiency of May 20, 2009, plaintiff's attorneys asked for a meeting with defendant's attorneys in hopes of resolving the issue with regard to the claimed deficiency. Instead of a response to that request, they received a Default Notice, dated June 5, 2009, which declared the note in default, for failure to cure the deficiency, and failure to pay interest when it was due. The notice also accelerated the loan and requested payment in full.
It is argued by plaintiff that Citigroup determined that honoring funding under the loan agreement must have given way to internal pressures to preserve its own liquidity.[FN4]
Once the defendant in this action stopped advancing monies pursuant to the draw requests, all work being done on the project ceased. Much of the property has been boarded up, and at this time, there is no additional work being done at the project, even though the project is 90% complete.
Plaintiff takes the position that because of the fact that the defendant stopped making
payments under the construction loan agreement, it is impossible to complete the project, and as
a result, the plaintiff is being irreparably harmed and will continue to be irreparably harmed
unless the defendant is compelled to make payments as agreed under the construction loan
agreement. The defendant argues that the "Deficiency" is real, that they are within their rights to
issue the default letter as they did. They also argue that the project is a failure and that there are
no tenants which have been signed for the new space. Defendant takes the position that it is fully
legally allowed to stop payment for these reasons, which brings the issue squarely before this
STANDARD FOR PRELIMINARY INJUNCTION
Plaintiff in this action seeks this Court to issue a preliminary injunction, in essence, ordering the defendant to comply with the loan agreement and the provisions of that loan [*7]agreement, and to continue making payments under the construction loan agreement.
An injunction is a court order requiring a party to take or (more often) refrain from taking certain actions. Graham v. Board of Supervisors of Erie County, 49 Misc 2d 459, 267 NYS2d 383.
A preliminary injunction is a provisional remedy designed to maintain the status quo between the parties until litigation is concluded. Uniformed Firefighters Association v. City of New York, 79 NY2d 236; Wall Street Garage Parking Corp. v. New York Stock Exchange, Inc., 2004 WL 727069. A preliminary injunction prevents the defendant from violating plaintiff's rights with respect to the subject of the underlying action. Berger v. Raab, 161 AD2d 865. Once ordered, a preliminary injunction remains in affect until the final judgment is entered or the injunction is vacated. Heisler v. Gringras, 238 AD2d 702.
Injunctions may be either prohibitory or mandatory. A prohibitory injunction is preventative in nature, in that it prohibits the continuance of a wrongful activity, or the commencement of a threatened or anticipated wrongful activity. Bisca v. Bisca, 108 Misc 2d 227, 437 NYS2d 258. A mandatory injunction - such as is requested here - directs a party to perform a specific act to maintain the status quo. Bisca v. Bisca, 108 Misc 2d 227. Generally, New York courts consider mandatory injunctions to be among the most severe of remedies. St. Paul Fire and Marie Insurance Co. v. York Claims Service, Inc., 765 NYS 573; GWS Service Stations, Inc. v. Amico Oil Co., 75 Misc 2d 40, 346 NYS2d 132. It has been said that mandatory injunctions can be fraught with extreme danger and should, therefore, be granted only with extreme caution. A mandatory injunction should not be granted, absent extraordinary circumstances, where the status quo would be disturbed and the plaintiff would receive the ultimate relief sought. Beckhard Richlan Szerbaty and Associates, LLP v. AMCC Corp., 2004 WL 1852489.
New York Civil Practice Law and Rules §6301 authorizes preliminary injunctions in two circumstances. First, when the defendant threatens to violate, or actually violates, plaintiff's rights respecting the subject of the underlying action and the threatened or actual violation tends to render a judgment ineffectual. Second, when the plaintiff seeks, and would be entitled to a permanent injunction restraining the defendant from an act that, if committed while the case was pending, would injure the plaintiff.
A preliminary injunction determination lies within the trial court's sound discretion. Borenstein v. Rochel Properties, Inc., 176 AD2d 171. Generally, New York courts consider preliminary injunctions to be "drastic remedies" that should be granted sparingly. When a preliminary injunction would afford plaintiff the very relief sought in the underlying litigation, courts are especially loathed to grant the application. See City of Buffalo v. Mangan, 49 AD2d 697.
In evaluating a request for preliminary injunction such as before this Court, the Court of Appeals has established a three-prong test for the courts to use in their discretion. To succeed on a preliminary injunction motion, it is generally well-established that the plaintiff must show: (1) a probability of success on the merits of an underlying action; (2) a danger of irreparable injury if an injunction is not issued; and (3) a balancing of the equities in plaintiff's favor. Aetna Insurance Co. v. Capasso, 75 NY2d 860.
In this Court's review of preliminary injunction cases in New York State, it is clear that [*8]New York courts do not apply the three-prong test uniformly and mechanically. The analysis is one designed to be flexible and remedies are often tailored to the facts of a specific case. Courts are specifically given discretion to weigh the irreparable harm and balance the equities.
The plaintiff is the one who has the burden of proof of establishing each of the three elements by clear and convincing evidence. Network Financial Planning, Inc. v. Prudential Bache Securities, Inc., 194 AD2d 651.
With regard to the first prong, the plaintiff must make a prima facie showing of entitlement to the relief sought in the underlying action. It is well-settled that plaintiff need not demonstrate certain success in the underlying action, but the plaintiff is not entitled to preliminary injunction when the underlying case will fail as a matter of law. See Tucker v. Toia, 54 AD2d 322.
With regard to the second prong needed for preliminary injunction - that of irreparable injury - any injury is irreparable if it is "real" and if plaintiff lacks an adequate remedy at law. Lesron Junior, Inc. v. Feinberg, 13 AD2d 90. To determine whether or not there is an adequate remedy of law, the court must look to see whether the legal remedy alleged is plain, certain, prompt, complete, and as effective as an injunction. Lesron Junior, Inc. v. Feinberg, 13 AD2d 90. What is clear from the cases is that the plaintiff lacks an adequate legal remedy (and the injury is irreparable) if money damages are insufficient compensation. Klein, Wagner and Morris v. Klein, 186 AD2d 631.
Case law dictates that money damages are insufficient when compensation is incalculable. Such examples are when there is an injury to good will. Battenkill Veterinary Equine, PC v. Cangelosi, 1 AD3d 856; Hay Group, Inc. v. Nadel, 170 AD2d 398; or the injury is to a unique property or business. Vestron, Inc. v. National Geographic Society, 750 F. Supp. 586; or if the injury goes to the very heart of the plaintiff's business. Long Island Daily Press Publishing Co. v. Tomitz, 12 Misc 2d 480. Such injuries must be real, not illusory or speculative. Faberge International, Inc. v. DiPino, 109 AD2d 235, and the threat of injury must be immediate. Richmond Dance Ensemble, Inc. v. City of New York, NY LJ March 23, 2005; People v. Anderson, 137 AD2d 259. It is axiomatic that the threatened or ongoing harm must be to the party seeking the injunction. Martin v. Dayton Seaside Corp., 25 Misc 2d 264.
The third prong of the preliminary injunction analysis requires the plaintiff to demonstrate, again, by clear and convincing evidence, that the balance of equities weighs in their favor. Aetna Insurance Co. v. Capasso, 75 NY2d 860. To satisfy this prong, the plaintiff must show that the irreparable injury is more burdensome on the plaintiff than the harm caused to the defendant by the injunction. McLaughlin Piven Vogel, Inc. v. Nolan and Co., 114 AD2d 165. The subjectively of the balance of equities analysis enables the court to craft provisional remedies flexibly. As a result, the facts of each case must control the nature and extent of the preliminary injunction.
Importantly, as part of the "balancing of the equities" prong of the preliminary injunction test, courts may consider the affect that a preliminary injunction would have on the public interest at large. Spring - Gar Community Civic Association v. Homes for the Homeless, Inc., 135 Misc 2d 689, 516 NYS2d 399.
It is within the above parameters that this Court must evaluate whether or not the defendant's
actions are such that the preliminary injunction should issue. It is within this body of [*9]law that this Court must determine whether or not a preliminary
injunction should issue in this case.
I - LIKELIHOOD OF SUCCESS
The first prong of the three-prong test sets forth in Aetna Insurance Co. v. Capasso, 75 NY2d 860, which New York courts routinely apply in evaluating whether a preliminary injunction should issue, is whether or not the plaintiff can show a probability of success on the merits of the underlying action. The plaintiff must make a prima facie showing of entitlement to the relief sought in the underlying action before a court should entertain discretion in granting preliminary injunction.
In this case, the determination of whether or not the plaintiff has a probability of success in the underlying action depends a great deal upon the unique financing tool that was put in place here and the actual language which defines the formula to be used by the parties to determine whether or not a "Deficiency" has occurred.
Plaintiff asks the Court to look to the very language of the document which frames the relationship by and between the parties. That document, attached as Exhibit "4" to the Affidavit of Bruce A. Keenan, dated June 9, 2009, is the "Amended and Restated Building Loan, Project Loan and Security Agreement, dated as of February 15, 2007, (construction loan agreement) by and between Destiny USA Holdings, LLC and Citigroup Global Markets Realty Corp., as agent and initial lender. That document, at least in this Court's opinion, clearly and unequivocally spells out the terms and conditions by which the parties have agreed to conduct themselves with regard to the unique transaction of financing before this Court. The plaintiff contends that by the bare language of the contract documents, that clearly and unequivocally Tenant Improvement costs are not to be included in the calculation that would lead to the determination of a "Deficiency". The defendant, on the other hand, urges this Court that the document itself makes the budget concerning the project the primary item of review in determining "Deficiency", and that from the budget if there is a deficiency as defined by the documents, then there exists a "Deficiency" under the agreement.
To make this determination, the Court must look closely to the documents by and between the parties, and determine whether or not, in the literal meaning of the documents, they are "budget based" or not.
Section 1.1 of the agreement (starting on page 2) has a list of terms which are defined in the contract documents. Some of the terms that are important to this Court in coming to a conclusion as to whether or not the "Deficiency" is "budget based" or not and whether or not Tenant Improvement costs should be included in the "Deficiency" formula are laid out in Section 1.1.
For example, "budget" is defined, in pertinent part, as follows:
"Budget" means the project construction and development budget prepared by, or on behalf of, borrower...(which) (i) sets forth borrowers' estimates for budgeted construction categories of all items of direct and indirect costs and expenses to be incurred or payable with respect to the foregoing, (ii) includes all direct and indirect costs estimated to be incurred in connection with the leasing of the project in relating to the ownership and operation of the project, (iii) specifies whether each such item constitutes a hard cost, a soft cost or a project cost, and (iv) specifies [*10]each direct and indirect cost that is to be funded from the proceeds of the Facility...
(Agreement, page 7)
This definition clearly assumes that there are costs that are included in the budget that are both to be paid from the loan facility, and those which are not. This definition of budget, at least by virtue of the controlling document between the parties, calls for direct and indirect cost estimates with regard to the project, whether they are to be paid by the bank and/or lenders or not. It is also noteworthy, at least in this Court's view, that the term "budget" is found nowhere in determining whether or not there is a "Deficiency" as determined by the contract documents.
Additionally, Tenant Improvement costs (TI costs) is defined in the agreement as:
Tenant improvement costs and allowances incurred by Borrower in connection with renewing existing Leases or executing new Leases for space located in the Mortgaged Property.
Thus, in the construction loan agreement, Tenant Improvement costs are those dealing with renewing existing leases or executing new leases for space within the property. The primary question this Court must answer is what is the direct relationship of the budget to the definition of "Deficiency" as defined under the contract documents.
In looking to see how it is determined that proceeds are to be used, again, the loan agreement Section 2.2 (page 46) provides that proceeds of the building loan shall be used only to pay hard costs and soft costs constituting costs of improvement. Proceeds of the loan shall also be used to pay interest on the loan, transaction costs (not otherwise paid from the equity account or from equity contributions) and fees due pursuant to the fee letter.
This provision makes it clear that loan proceeds, and advances of those loan proceeds "shall also be used to pay interest on the loan". Indeed, the custom and practice by and between the parties was exactly that. Each month, an advance under the contract documents would be made, and interest would either be deducted or paid at that time. If the payments were late, it is not surprising that the defendant would not quibble about the payment of the interest, knowing that the proceeds of the loan would be used to pay the interest on the loan. That, indeed, was the custom and practice by and between the parties throughout the course of the loan - up until the 27th advance.
Perhaps the two most defining definitions out of the contract documents are the definitions for "Deficiency", and "Plans and Specifications". The budgets submitted to this Court are telling. A budget changes from time to time. Line items change as well. The budgets act as a living/breathing document expanding and narrowing as the construction moves forward. Many items are/or may be paid by the loan facility. Many items included in the budget are not. Many other items may be paid, or supported, by incentives from federal, state and local governments. For example, the Brownfield litigation - it is submitted to this Court - may bring as much as fifty seven million dollars ($57,000,000.00) to over one hundred million dollars ($100,000,000.00) that might be used to complete budget items - or create new ones.
The preamble to the agreement states, in pertinent part, as follows:
WHEREAS, Borrower has requested that the Lenders arrange and administer a construction financing facility (the "Facility") and make (i) the building loan...to fund the costs associated [*11]with development and construction of a shopping center/tourist destination containing at least eight hundred thousand gross square feet and related facilities and improvements as more specifically set forth in the plans and specifications (as hereinafter defined), and (ii) the project loan...to fund certain design and pre-development costs and other costs associated with the project (as hereinafter defined).
(Loan Agreement, page 1)
Clearly, the "Plans and Specifications" are a requirement of the funding, and the definition
of "Plans and Specifications", at least according to the contract documents, is as follows:
...shall include, without limitation, a description of the materials, equipment and fixtures necessary for the construction of the required improvements, in each case as approved by agent, together with any other architectural, structure, foundational and elevator plans and specifications prepared by any person retained or to be retained by borrower...
"Plans and Specifications" means (i) the preliminary plans and specifications for construction of the required improvements as identified on Schedule 6 attached hereto, (ii) the updated and revised plans and specifications to be delivered pursuant to Sections 3.5 and 5.2(f) and other plans and specifications prepared for or to be prepared by or on behalf of borrower after the date hereof...
So, it is clear to this Court that the "Plans and Specifications", at least as concerns the calculation of any "Deficiency", deals with those plans and specifications prepared either at the time of the original contract or thereafter which would bring the "Required Improvements" to completion.
Under the terms and conditions of the contract, the word "completion" is defined as:
"Completion" means, with respect to the project, the stage at which the development, construction and equipping of the project shall be (100% complete) substantially in accordance with the plans and specifications and all legal requirements including all punch list items with respect thereto and a permanent Certificate of Occupancy has been issued (but excluding work being performed for or by any tenants that is not being funded from facility proceeds).
(Emphasis by the Court)
Ancillary to the definition of completion is the definition of "Required Improvements", which is defined, again, in loan agreement Section 1.1 (page 40), as follows:
"Required Improvements" means the demolition of any existing improvements located on the Land and the Construction on the Land of a structure comprising a shopping center/tourist destination containing approximately eight hundred forty eight thousand square feet of LA together with related facilities, parking facilities, amenities, and improvements substantially in accordance with the plans and specifications. The required improvements, exclusive of related facilities and parking facilities shall consist of at least eight hundred thousand square feet of LA.
[*12](Emphasis by the Court)
Perhaps the key language - at least to this Court - that deals with the "Deficiency" definition is the very definition of "Deficiency" as it is outlined in the contract documents. The loan agreement provides as follows:
"Deficiency" means, at any given time, the amount by which the balance of (i) the Building Loan yet to be advanced by the Lenders pursuant to this agreement, plus (ii) the balance of the Project Loan, yet to be advanced by the Lenders pursuant to this agreement, plus (iii) funds available for disbursement from the Construction Account, the Equity Account, and/or the Recap Account, for unfunded Budget Costs in accordance with the Agreed Funding Schedule, is less than the actual sum, as estimated by Agent in its reasonable judgment (with respect to Hard Costs and consultation with the Construction Consultant), which will be required to complete the construction of the Required Improvements in accordance with the Plans and Specifications, the Construction Schedule, all legal requirements in this Agreement, and to pay all unpaid costs in connection therewith. Such estimates shall be binding and conclusive provided it is made in good faith and absent manifest error.
(Emphasis by the Court)
The crux of the controversy with regard to "Deficiency" is the "actual sum" of the minus side of the "Deficiency" equation. The express definitions above, together with the other definitions included in the document, including "Required Improvements", "all unpaid Costs", "substantial completion" and "budget" make it clear from the express language of the operative definitions of these terms, that the requisite characteristic of relevant expenses is that they be for "Required Improvements" within the "Plans and Specifications". In other words, it is irrelevant whether or not such expenses are in the budget, and in fact, anticipated that many of the expenses that might be in the budget will not be subject to this calculation (see definition of "Budget", "Costs", and "Completion").
Based on the very definitions before this Court in the construction loan agreement - the controlling agreement by and between the parties - "budget based" calculations do not play a role in the calculations of "Deficiency" under the contract documents. It has been conceded by defendant (through counsel at oral argument) that the "Plans and Specifications" do not include specific plans for tenant space or tenant improvements. It was also agreed at oral argument that, given the plans and specifications - as they currently exist - no significant "Deficiency" would exist assuming the definition is not "budget based". Likewise, defendant does not dispute that costs incurred relating to "the ownership and operation of the project" are significantly broader - and certainly not tied to - "Required Improvements" and "Plans and Specifications".
It is a fundament tenet of New York law that unambiguous provisions of a contract must be given their "plan and ordinary meaning". Thus, a written agreement that it is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms, without reference to extrinsic materials outside of the four corners of the document. Goldman v. White Plains Center for Nursing Care, LLC, 896 NE2d 662; WWW Associates v. Giancontieri, [*13]566 NE2d 639. Indeed, it is well-settled in New York law that extrinsic and/or parole evidence is not admissible to create an ambiguity in a written agreement which is complete and clear and unambiguous upon its face. Olson v. Kehoe Component Sales, Inc., 242 AD2d 902.
The agreement between the parties - in this Court's opinion - is clear and unambiguous. The fact that the defendant disputes this interpretation does not render it ambiguous. Goldman v. Metro Life Insurance Co., Inc., 841 NE2d 742; Metropolitan Life Insurance Co. v. RJR Nabisco, Inc., 906 F2d 884.
The construction loan agreement, no doubt, was drafted by sophisticated business parties and experienced counsel that, certainly, negotiated and drafted the loan agreement with great care and certainty. The drafters could have insured that the term "Deficiency" was a "budget based" cost overrun assessment rather than the way they couched the terms as to how a "Deficiency" would be determined under the course of the contract. That they chose not to do so is further proof that this is not what they intended. Indeed, it is clear from the contract that the intention was that the definition of "Deficiency" be not "budget based", but be based upon a very strictly applied formula, as outlined in the contract documents. International Fidelity Insurance Co. v. County of Rockland, 98 F. Supp. 2d 400. As a result, this Court finds, by the very clear nature and terms of the contract itself, that the term "Deficiency" as used in the contract documents is not a "budget based" definition, but rather one that deals with the very terminology of "Plans and Specifications", "Required Improvements", "Substantial Completion", "Deficiency", "TI Costs", "Project", "Proceeds", and "Use of Proceeds". This Court finds, as a matter of law, that the language is clear and unambiguous in the contract, and that "Tenant Improvements" are not defined as being part of any "Deficiency" calculation. Having made this finding, this Court hereby voids the Notice of Deficiency of May 20, 2009 to the extent that the deficiency letter or notice was, in part, based on the inclusion of tenant improvements into the equation to determine whether or not there was such a deficiency.
To the extent that the alleged deficiency was used in the June 5, 2009 letter to form the basis of default, this Court further vacates the Default Notice, at least with regard to the reliance upon the alleged "Deficiency", as this Court finds that there was no significant "Deficiency" as of the date of the Notice of Deficiency (May 20, 2009), and as of the date of the Notice of Default (June 5, 2009).
But, the Default Notice also contained a provision alleging that the default was also as a result of the failure to pay interest to the defendant as due under the contract. The clear nature of the relationship by and between the plaintiff and defendant was such that all loan interest was paid at the time that advances were made under the loan agreement. In fact, pursuant to the very definition of "Use of Proceeds" (loan agreement Section 2.2, page 46), it was clear that proceeds of the loan shall also be used to pay interest on the loan. Clearly, the custom and practice by and between the parties was that when the payments were made pursuant to the loan agreement, that interest would be automatically either deducted and/or paid to the defendant on a regular basis. That included not only those payments that were made by the defendant on time, but also those payments that were made late.
This Court having found that the defendant's determination of "Deficiency" is not appropriate, leads this Court to the next logical step that the failure to pay the loan interest on time was not something that was as a result of the plaintiff's actions, but rather of the defendant [*14]itself. It is the defendant's fault that the loan interest was not paid on time. Custom and practice that had developed between the parties was that the loan interest would routinely be paid at the time that the advances were paid on a monthly basis. It is not the plaintiff's fault that the May 5, 2009 interest payment was not made timely. It was the defendant's fault.
That notwithstanding, on or about June 6, 2009, and again on June 12, 2009, the plaintiff tendered to the defendant the total sum of the interest outstanding - that being two hundred forty three thousand eight hundred fifty five dollars and twenty three cents ($243,855.23). The undisputed facts in this case show that not only was the interest payment tendered, but that it was rejected. The undisputed facts further show that the reason why the interest payment was late, both by custom and practice by and between the parties, and by the loan agreement itself (Section 2.2), is that the interest generally and routinely was paid out of the proceeds payable each month to the plaintiff under the loan agreement.
As a result, this Court finds that the Default Notice, dated June 5, 2009, is null and void. That Notice was based on an erroneous definition and calculation of "Deficiency" and based upon an erroneous assumption that the loan interest was not timely paid, readily available, ready to be paid, or otherwise. What is clear to this Court is that at a time when the parties were presumably negotiating in good faith, the defendant took it upon itself to hastily declare a default, presumably with the idea of trying to foreclose any further discussion and/or advances under the loan agreement.
All that the plaintiff needs to show, to satisfy the first prong of the three-prong test, is that there is a probability of success on the merits of the underlying action. To that extent, this Court has concluded, as a matter of law, that with regard to the underlying action, the plaintiff has proven, by clear and convincing evidence - in fact, unrebutable and undeniable evidence - that the determination of "Deficiency" by the defendant in this case was erroneous, and the Notice of Deficiency was in error and is otherwise null and void. The plaintiff has also proven, by clear and convincing evidence, both by the custom and practice by and between the parties, and by the very documents attached to the motion papers, that the interest payment - or lack thereof - that was due May 5, 2009, generally would be taken from loan proceeds, and to the extent it was not, it was fully tendered to the defendant, both on June 6, 2009 and June 12, 2009.
This is a court of equity. Thus, within the courts discretion, a remedy can be made, given the facts and circumstances as they exist by and between the parties. In this case, this Court declares that the Notice of Deficiency, dated May 20, 2009, to be null and void, and that the determination of "Deficiency" is in error, and this Court further finds that the Notice of Default and Acceleration, for the reasons mentioned above, is likewise null and void. This Court determines, as a matter of law, that the defendant has the obligation, under the contract documents, to pay the advances as they are due under those contract documents. This Court further finds that the defendant, for whatever reason, has failed to comply with the contract documents, and is in breach of that contract accordingly. The Court having made these determinations, it is clear that the plaintiff is successful on the merits of the underlying action vis-à-vis the fact that the defendant breached its contract, breached its fiduciary duty as agent, and has otherwise come into default itself under the contract documents.
But, defendant argues that because there are allegedly no signed leases and because - in their opinion - the project is a "failure", that there should be no obligation on behalf of that [*15]defendant to further fund the project. The defendant seeks to rewrite the loan agreement. There is nothing in any of the definitions of "Deficiency" or otherwise that has a requirement that there be any tenants whatsoever at this stage of the construction. There is, likewise, no requirement that - at this stage - the project be a success or otherwise. In fact, rather, there is a net operating income test that comes into play in January of 2010 - some six months removed from today. The arguments thus made by defendant are specious, without substance in law and fact, and irrelevant to the issues before this Court.
In New York, a party must comply strictly with the contract provisions requiring that it provide notice of breach and/or deficiency and an opportunity to cure prior to the issuance of a valid notice of termination or default. Putman High Yield Trust v. Bank of New York, 7 AD3d 434. Here, the defendant has chosen to base its Notice of Deficiency and ultimately its Default Notice on two very specified bases. First, that there is a "Deficiency", and second that the May interest was not paid.
At no time was it alleged in either the Notice of Deficiency or the Default Notice that there was a lack of tenants or a failure to adequately complete the project or have a successful project as a cornerstone for the notices. Once a party declares a default on one ground under New York law, it may not subsequently defend the declaration of default on a different ground. Leventhal v. New Valley Corp., 1992 WL 15989; O'Connor v. Board of Education, 65 Misc 2d 40; Woollard v. Schaffer Stores Co., Inc., 247 AD 844.
The defendant's speculative assertions that it will not be able - in the future - to meet certain milestones, is an issue that is not before this Court. If anything, these are issues which the defendant put forth in oral argument only to - in some fashion - add some legitimacy to its claim in this case.
This Court having found that there is no "Deficiency" under the contract documents and
further finding that the Notice of Deficiency of May 20, 2009 and the Default Notice of June 5,
2009 are null and void, the question now that needs to be answered by this Court is whether or
not there is a danger or irreparable injury if an injunction is not issued.
II - THE ANALYSIS AS TO WHETHER THERE
IS A DANGER OF IRREPARABLE INJURY IF AN
INJUNCTION IS NOT ISSUED,
III - WHETHER THE EQUITIES BALANCE
IN THE PLAINTIFF'S FAVOR
The Court must now analyze whether or not there is expected injury to the plaintiff, and if so, whether the injury is irreparable and/or real. Coupled with this is the inquiry as to whether or not the plaintiff lacks an adequate remedy at law. Lesron Junior, Inc. v. Feinberg, 13 AD2d 90. Finally, in part and parcel of this analysis will be, whether or not the equities support the plaintiff's request for preliminary injunction.
With regard to the request for preliminary injunction, the defendant asserts to the Court [*16]that if, in fact, defendant is incorrect, the plaintiff's remedy is one at law - for money damages. They insist that the money damages are calculable and that, as a result, a preliminary injunction should not be issued.
Plaintiff, however, first relies upon Section 8.13 of the construction loan agreement which
provides, in pertinent part, as follows:
Failure to Consent. If Borrower shall seek the approval by or consent of Agent or the Lenders hereunder under the Note, or any of the other Loan Documents, and Agent or the Lenders shall fail or refuse to give such consent or approval, then Borrower shall not be entitled to any damages for any withholding or delay of such approval or consent by Agent or the Lenders, it being intended that Borrower's sole remedy shall be to bring an action for injunction or specific performance, which remedy for injunction or specific performance shall be available only in those cases where Agent has expressly agreed hereunder or under any of the other Loan Documents not to unreasonably withhold or delay its consent or approval.
It is this Court's opinion, based on the language submitted in Section 8.13 of the construction loan agreement, that the issue of loan advances falls squarely within the ambit of Section 8.13, and the refusal to fund advances to the plaintiff permits the plaintiff to seek (and obtain, if successful) specific performance and/or injunctive relief.
That notwithstanding, this Court's view of the evidence presented to it during the course of oral arguments and the papers submitted to this Court, makes it clear, (Section 8.13 notwithstanding), plaintiff is entitled to a preliminary injunction in this matter.
Destiny USA is a novel, unprecedented and wholly unique venture. It is a public improvement project, with SIDA taking the lead, and the preferred developer - Destiny USA Holdings, LLC - doing the building, planning and construction. The issue before this Court is not just the issue of the money not being paid by the defendant in accord with the contract documents. The issues go far beyond that.
The banking market today is much unlike it was a year ago or even in 2007 when the construction loan agreement was created. There was a cataclysmic financial market crash in the fall of 2008, which has left a residual of lack of liquidity in the banking system not only in the United States, but throughout the world.[FN5] What is equally clear, if the defendant continues to fail to pay in accord with the contract documents, and does not pay for the work that is done and/or being done - or needs to be done to conclusion, then there is no possible way that the plaintiff can continue and complete the project. The project, by all accounts, is at least 90% complete.[FN6] "The [*17]project needs to be completed in order to fulfill certain City and SIDA obligations - at the earliest by August 1, 2009.[FN7] What is clear, is that the damages in this case are incapable of proof with reasonable certainty. There are a myriad of reasons for this, and it goes far beyond the 68.4 million dollars yet to be paid by defendant as part of their funding obligations.
New York courts have long recognized irreparable harm where, as here, the damages are either speculative, difficult to determine or otherwise incapable of measurement. AIU Insurance Co. v. Robert Plan Corp., 44 AD3d 355; Pfizer, Inc. v. PCS Health Systems, Inc., 234 AD2d 18; Penstraw, Inc. v. Metropolitan Transit Authority, 200 AD2d 442; Paddock Construction Co., Ltd. v. Automated Swim Pools, Inc., 130 AD2d 894.
Here, the plaintiff faces significant irreparable harm. Such harm exists, not only by virtue of the failure to fund, but because of the failure to fund and the inability to complete the project, has threatened multiple levels of federal, state, and municipal incentives as well as other losses to not only itself, but the community as a whole.
It is readily agreed by all parties that there has been and unprecedented collapse of the credit markets. Courts throughout the country have approved the availability of specific performance as a remedy to borrowers on a construction loan where other funding is unavailable. Selective Builders, Inc. v. Hudson City Savings Bank, 349 A2d 564; see, Specific Performance of Contracts to Provide Permanent Financing, 60 Cornell Law Review 718; First National State Bank v. Commonwealth Federal Savings and Loan Association, 610 F2d 164; 805 3rd Ave. Co., Inc. v. New York Life Insurance, Co., 9/22/1982 NYLJ pg. 12, column 1.
Destiny USA is a unique development project, indeed, and an unprecedented real estate venture with a public/private financing model that even the defendant itself acknowledged was "groundbreaking" and part of "the new financing paradigm for green economic development" (Keenan Affidavit, Exhibits "1", "3"). Given the fact that the construction project itself is unique, that, in and of itself, would support plaintiff's request for preliminary injunction. See VanWagner Advertising Corp. V. S & M Enterprises, 67 NY2d 186 @ 193, 501 NYS2d @ 632. New York courts have recognized that certain real property transactions are inherently unique and will, therefore, grant specific performance when the subject matter of a loan agreement relates to real property. Bregman v. Meehan, 125 Misc 2d 332; Spoolan Realty Corp. v. Haebler, 147 Misc. 9. The fact that it is a green project is unique. The fact that it is a public/private enterprise with SIDA taking the lead as land owner, lender, and a participant in the overall transformation of what otherwise was a blighted area in the City of Syracuse adds uniqueness to the project. The development of a Brownfield site into a tourist attraction, "living laboratory", and all housed within cutting-edge green technology further adds to the uniqueness of the project. Indeed, the resulting value of the project to the real property, to the community, and to the plaintiff as a whole is simply incalculable. A complete stoppage of work at this time, and a failure to complete the project, coupled with the loss of governmental based incentives, will, indeed, put the project at risk as well as all of the tax benefits and other incentives accordingly. This project is totally unique and no doubt will be subject to irreparable harm if not completed [*18]timely. See Southampton Wholesale Food Terminal, Inc. v. Providence Produce Warehouse Co., 129 F. Supp. 663.
This project was designed to be a unique entertainment, retail and research destination of an unprecedented scale with a vision that would reinvigorate the Syracuse economy. Destiny USA's image, brand and reputation are inextricably linked to the success of the project. The project itself was devised and undertaken to establish Destiny USA's brand and generate new business opportunities, both for Destiny and Syracuse locality. The defendant's breaches of its commitments and the stoppage of work on the project will undoubtably substantially tarnish Destiny's business, brand image and reputation.[FN8]
Beyond that, however, there are two series of municipal bonds that have been issued to support the project.[FN9] With no replacement financing available, the project will (and has) shut down. The existing Carousel Center will be harmed as well by an empty structure with an incomplete facade facing the vast majority of drive-by traffic. This will seriously damage the economic viability of the mall, the PILOT bond holders who rely on sales are Carousel to support the credit behind the debt, and the very investors that Citigroup acted as fiduciary agent throughout the course of this transaction. Such breach would also cause extensive and irreparable harm to Onondaga County and the economy of the City of Syracuse.[FN10] In only a few short weeks since the shut down, there have been hundreds of tradesmen and others who have lost their jobs, companies that have had their contracts imperiled, and the area has experienced great amounts of job losses in manufacturing, trades, transportation, utilities, and even information technology.[FN11] This is no garden variety of contract dispute. This is a project, known by all when they entered into it, to be truly unique, both from a project nature and from a financing nature. Citigroup, as both funding agent and one of the lenders, fully recognized the scope of the uniqueness of the project.
Indeed, this Court is satisfied that not only is there a chance that the plaintiff will be irreparably harmed, but that that harm has already been manifest. Such examples of harm that come to mind are as follows: (1) plaintiff will be deprived of sixty eight million four hundred thousand dollars ($68,400,000.00) in financing that cannot be replaced in the current economic environment; (2) Destiny's image, brand and reputation and ability to attract tenants is all linked to the successful completion of the project. If the project is not completed, all of that will suffer [*19]and it will be impossible to attract tenants; (3) the Brownfield remediation was recently approved by the Appellate Division of New York State, and a myriad of Brownfield credits will be forthcoming to the developer, agents and/or employees which will be lost if financing is not available and the project was not completed; (4) the likelihood of municipal bond defaults exists if the project does not get completed; (5) the likely loss of other economic benefits, including benefits from bond sales, benefits from tax PILOT contributions, and a myriad of other governmental benefits from federal, state and local authorities will be lost; (6) there will be significant job losses in manufacturing, trade, transportation and utilities; (7) there will be a profound impact on the community, both surrounding Carousel Center Mall and otherwise; (8) there will be significant potential impact on the existing Carousel Center Mall; (9) for the City of Syracuse and the State of New York there will be losses on the PILOT bonds that were issued to help finance the project; (10) there may be lost bond holders who purchased SIDA PILOT bonds that will be rendered possibly worthless; (11) for the community, there will be loss of hundreds of much needed jobs in connection with construction and operation of the project; (12) for the community, there will be loss of tens of hundreds much needed retail and operational jobs that would have been available upon completion; (13) for the tenants of the existing Carousel Center Mall, there will be a loss of increased traffic that the expansion of the mall would have generated; (14) for the City of Syracuse and the State of New York, there will be a loss of millions of dollars in tax revenues; (15) for Destiny USA, the loss of projected net operating revenues that it would have realized as well as current costs it has expended to date in advancing the project; (16) the injury to the reputations of Destiny USA, the City of Syracuse and the State of New York and Central New York resulting from the failure of this highly publicized, much anticipated project; and (17) loss to the country at large in terms of security and energy dependence by failure of the flagship project in the use of renewable "green energy".
Clearly, the project is unique. Clearly, its success and survival is something that is vitally important to the City of Syracuse, County of Onondaga, bond holders, and all others who live in and about the City of Syracuse and Central New York. Indeed, specific performance is a proper remedy where the subject matter of the particular contract is unique and has no established market value. VanWagner Advertising Corp. v. S & M Enterprises, 67 NY2d 186; Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409; Leasco Corp. v. Taussig, 473 F.2d 777.
Based on all of the above, this Court sees significant irreparable harm, not only possible, but actually occurring as a result of the defendant's failure to fund under the terms of the construction loan agreement. This Court further sees no adequate remedy at law, particular inasmuch as timing is of significance with regard to the project, the completion date, and the relative benefits to be obtained from federal, state and local incentives. The equities weigh very favorably in favor of the plaintiff in this case. Indeed, there is a significant public interest that demands that the project be completed, and in a timely fashion.
As a result, this Court finds that there is real, existing, and immediate irreparable harm being
suffered by the plaintiff. This Court further finds that the equities balance significantly in favor
of the plaintiff. As a result, plaintiff's request for specific performance must be granted, and
defendant must be compelled to make the 27th, 28th (and now 29th) payments under the terms of
the contract agreements.
Based on the oral arguments before this Court, and based on all of the materials submitted to this Court, it is clear that the plaintiff's request for preliminary injunction must be granted. Plaintiff has proven, by clear and convincing evidence, all three prongs of the test necessary to have a mandatory preliminary injunction issue against the defendant. Now, upon all actions and proceedings before this Court, and upon oral arguments of counsel, and this Court having had due deliberation thereon, it is herebyORDERED, ADJUDGED AND DECREED, that the Notice of Deficiency, dated May 20, 2009, is hereby declared null and void and is vacated and set aside as a nullity, and it is further
ORDERED, ADJUDGED AND DECREED, that the Notice of Default, dated June 5, 2009, is hereby declared null and void and is vacated and set aside as a nullity, and it is further
ORDERED, ADJUDGED AND DECREED, that the term "Deficiency" as that term is used in the construction loan documents is not "budget based" and the cost of "Tenant Improvements" shall not be used in determining whether a "Deficiency" exists under the construction loan agreement, and it is further
ORDERED, ADJUDGED AND DECREED, that this Court finds that the defendant, Citigroup Global Markets Realty Corp., has breached its agreement to fund under the construction loan agreement, as both Lender and as Funding Agent, and it is further
ORDERED, ADJUDGED AND DECREED, that the defendant, Citigroup Global Markets Realty Corp., shall pay all suns due pursuant to the 27th draw (or advance) under the construction loan agreement on or before Wednesday 12:00 Noon, July 22, 2009, and it is further
ORDERED, ADJUDGED AND DECREED, that the defendant, Citigroup Global Markets Realty Corp., shall pay all suns due pursuant to the 28th draw (or advance) under the construction loan agreement on or before Wednesday 12:00 Noon, July 22, 2009, and it is further
ORDERED, ADJUDGED AND DECREED, that the defendant, Citigroup Global Markets Realty Corp., shall pay all suns due pursuant to the 29th draw (or advance) under the construction loan agreement on or before Wednesday 12:00 Noon, July 22, 2009, and it is further
ORDERED, ADJUDGED AND DECREED, that defendant, Citigroup Global Markets Realty Corp., shall pay all future sums due as draws or advances under the construction loan agreement as they come due without further delay or interference, and it is further
ORDERED, ADJUDGED AND DECREED, that a hearing is hereby scheduled, before this Court, on July 28, 2009 at 10:30 a.m., to determine whether there is a current "Deficiency" under the formula contained in the construction loan agreement (not including "Tenant Improvements") and if so, how much of a deficiency exists, and it is further
ORDERED, ADJUDGED AND DECREED, that upon the resolution of that
hearing, the Court will decide the nature, amount and type of any performance bond as may be
necessary to secure "completion" of the project (as that term is defined in the
construction loan agreement), and/or to deal with any alleged (or proven) "Deficiency", following the hearing.
DATED: July 17, 2009.
S/ John C. Cherundolo
Hon. John C. Cherundolo, A.J.S.C.
Footnote 1: For a more complete history of the project see this Court's Decision in Destiny USA Development, LLC v. New York State Department of Environmental Conservation, 19 Misc 3d 1144(A), 867 NYS2d 16, affirmed and modified on other grounds by the Appellate Division, Fourth Department, June 5, 2009 (2009 WL 1570205).
Footnote 2: Even the defendant in this matter has recognized the valuable investment in Destiny USA as part of Citigroup Global Markets Realty Corp. plan to direct fifty billion dollars over the next ten years to address global climate change through investments, financing, and related activities in supportive of alternative energy and clean energy.
Footnote 3: It should be noted that in the spring of 2009, defendant had a change of attorneys, and it is alleged that with the change of attorneys came a change of view with regard to the calculation of "Deficiency". Whether that is accurate or not is not controlling to this Court, but the Court notes it as part of the oral argument of the plaintiff in this matter.
Footnote 4: While before the Court in anecdotal fashion, the Court is well-aware, and takes judicial notice of the fact that in the fall of 2008 there was widespread panic in the banking industry, and that Citigroup itself was immersed deeply in liquidity issues, so much so that it had to receive from the federal government some 44.5 billion dollars in TARP monies as well as additional guarantees from FDIC and others. In taking judicial notice, this Court does not rely extensively on this, except to raise the awareness that, in fact, there is a liquidity crisis that is continuing in the world money market place, and the defendant surely cannot be immune to liquidity issues.
It should also be noted that the claimed "Deficiency" is, in reality, less than 5% of the total capital to finance the project - three hundred sixty five million dollars ($365,000,000.00). Also, it is alleged by plaintiff that they had invested an additional four hundred million dollars ($400,000,000.00) in pre-construction costs in additional to the forty million dollars ($40,000,000.00) delivered to the lending agent and fiduciary, Citigroup. The Budget documents include a provision for cost overruns that exceeds eleven millions dollars ($11,000,000.00 +/-).
Footnote 5: Indeed, it may be the lack of liquidity that is leading Citigroup to take the route that it has taken in this case. This Court does not decide that, but rather looks at the larger picture and only wonders whether, in fact, Citigroup has taken the direction that they have taken in this case simply to preserve liquidity, despite the multiple federal government and FDIC advances that have conferred billions of dollars in funds and guarantees upon them.
Footnote 6: The timing of defendant's refusal to pay becomes suspect, particularly when the project is 90% complete and there are significant time deadlines which need to be met by the developer to assure receipt of the many governmental incentives.
Footnote 7: In recent days, the City has demanded a two million five hundred thousand dollar ($2,500,000.00) payment from the preferred developer to reimburse the City for expected loss of sales tax revenues that, otherwise, would have been due to the City had the project not been interrupted.
Footnote 8: Work has now been halted on the project for approximately three (3) weeks. Liens for work performed as a result of defendant's failure to fund exceed ten million dollars ($10,000,000.00).
Footnote 9: With Citigroup acting as one of the two underwriters this was part of the defendant's "new financial paradigm".
Footnote 10: While these, in and of themselves, are not direct damages of the plaintiff herein, as a matter of public policy, a failure to complete the Destiny Phase I will have a significant impact globally throughout Central New York, Onondaga County and the City of Syracuse.
Footnote 11: Current estimates of unemployment in Central New York show that over 8 ½% of eligible workers are out of work. The shut down of this project, as a matter of public policy, not only increases this number, but takes away the benefits premised if the project was successfully completed.