Downtown Realty Operating Corp. v Flatiron 21 Assoc., LLC
Annotate this CaseDecided on December 9, 2010
Supreme Court, New York County
Downtown Realty Operating Corporation and FLATIRON 21ST STREET, LLC, Plaintiff(s),
against
Flatiron 21 Associates, LLC, Defendant(s).
603676/2005
For Plaintiff:
Edward N. Gewirtz, Esq.
BRONSTEIN, GEWIRTZ & GROSSMAN, LLC
60 East 42nd Street, Suite 4600
New York, New York 10165
For Defendant
Alan S. Lewis
CARTER LEDYARD & MILBURN LLP
2 Wall Street
New York, New York 10005
Marcy S. Friedman, J.
This action arises out of a contract for the purchase and sale of real property located at 30 West 21st Street in Manhattan. Defendant-seller Flatiron 21 Associates, LLC ("Flatiron") moves for summary judgment dismissing the complaint of plaintiff-buyers, Downtown Realty Operating Corporation and Flatiron 21st Street, LLC (collectively "Downtown") for rescission, and for summary judgment on Flatiron's counterclaims for liquidated damages, abuse of process, and costs. Downtown cross-moves for summary judgment on its complaint against Flatiron for [*2]rescission.
The standards for summary judgment are well settled. The movant must tender evidence, by proof in admissible form, to establish the cause of action "sufficiently to warrant the court as a matter of law in directing judgment." (CPLR 3212[b]; Zuckerman v City of New York, 49 NY2d 557, 562 [1980].) "Failure to make such showing requires denial of the motion, regardless of the sufficiency of the opposing papers." (Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985].) Once such proof has been offered, to defeat summary judgment "the opposing party must show facts sufficient to require a trial of any issue of fact' (CPLR 3212, subd. [b])." (Zuckerman, 49 NY2d at 562.)
The material facts are as follows: The parties entered into a Purchase and Sale Agreement for the premises, dated June 24, 2005. This Agreement provided for a purchase price of 25 million dollars and a down payment of 2.5 million dollars which was made at or about the time of execution of the Agreement. The Agreement provided for a closing date 60 days from the date of execution, but permitted seller or purchaser, by giving notice to the other party, to adjourn the closing date for an additional 30 days, with such date "being time of the essence with respect to purchaser's obligations." (Agreement § 1.1 [D], [A].) It is undisputed that Downtown exercised its option to adjourn the initial closing date to September 21, 2005, with time of the essence. As a result of this exercise of the option to adjourn, the down payment was released from escrow and paid to Flatiron, as provided in the Agreement. (Id. § 3.2.) It is also undisputed that, at Downtown's request, the closing date was further adjourned to October 7, 2005, with time of the essence. In consideration for the adjournment, Downtown agreed to pay liquidated damages of $6,181 per day, commencing on September 21, 2005 and continuing through the adjourned closing date, as memorialized in an agreement dated September 19, 2005. (D.'s Motion Ex. C.)
There is a sharp dispute between the parties as to whether they reached an agreement to adjourn the closing date beyond October 7, and whether Flatiron was able to deliver insurable title as of October 7. By letter dated October 14, 2005, Flatiron purported to terminate the Agreement on the ground that Downtown defaulted in its obligations under the Agreement by failing to close on October 7. (Complaint ¶ 23.)
The instant action was commenced on or about October 17, 2005. Plaintiff filed a notice of pendency on that date. Plaintiffs' initial complaint pleaded a sole cause of action for specific performance, alleging that the parties had agreed to adjourn the October 7 closing date, and that the contract was not effectively terminated and remained in full force and effect. (See id. ¶¶ 18-25.) Notwithstanding Flatiron's purported termination of the contract on October 14, 2005 and the commencement of this action, the parties continued to negotiate a closing date. Flatiron served a motion for summary judgment dismissing the specific performance claim, which was initially returnable on December 23, 2005. By stipulations dated March 7, March 28, May 3, June 1, and July 5, 2006, the motion was adjourned based on settlement negotiations. (D.'s Motion Ex. O.) Stipulations dated August 2, August 23, and September 26, 2006 stated that the motion was further adjourned "because the parties are finalizing settlement negotiations that may result in a resolution of this matter. The parties expect that a closing is reasonably likely to occur in the near future." (Id.) On October 26, 2006, Flatiron agreed to an adjournment to November 16 "to permit Plaintiffs a final opportunity to close on the contract." By letter dated November 15, 2006, Flatiron set December 6, 2006 as a final closing date, time of the essence. (D.'s Motion [*3]Ex. Q.)
By notice of motion dated November 13, 2006, plaintiff sought leave to amend the complaint. The proposed amended complaint pleaded causes of action for both specific performance and rescission. (D.'s Motion Ex. S.) However, after service of the motion to amend and before decision on the motion, by letter dated January 2, 2007, plaintiff withdrew the notice of pendency and substituted a proposed amended complaint that pleaded only a cause of action for rescission. (D.'s Motion Ex. AA.) By decision and order dated June 6, 2007, this court granted Downtown's motion to amend its complant to replace its claim for specific performance with a claim for rescission.
Downtown's Rescission Claim
As a threshold matter, the court holds that Downtown may not obtain rescission based on Flatiron's inability to convey title on October 7, 2005, as Downtown itself takes the position that it agreed to adjourn the closing beyond that date, and Downtown continued to pursue a claim for specific performance for approximately 15 months after October 7. As Downtown continued to seek specific performance, it "cannot now repudiate the contract by citing the defendants' alleged breach." (Chung-Li Chou v Main St. Assocs., 208 AD2d 670, 671 [1st Dept 1994].)
Even if Downtown's rescission claim were maintainable based on Flatiron's alleged inability to convey marketable title on October 7, Flatiron demonstrates as a matter of law that this claim is without merit. More particularly, in moving for summary judgment, Flatiron argues that it was ready, willing, and able to convey insurable title on the October 7, 2005 time of the essence closing date. It contends, in the alternative, that by the December 6, 2006 adjourned time of the essence closing date, the alleged exception to title had been removed. In opposition to the motion, Downtown argues that the June 6, 2007 order found that triable issues of fact "exist as to whether Flatiron breached the Agreement by virtue of an inability to deliver insurable title on the October 7 time of the essence closing date." (June 6 order at 8.) On the record that has been fully developed since that determination, however, the court finds that the triable issue of fact no longer exists.
It is well settled that "[i]n order to place the vendor of realty under a contract of sale in default for a claimed failure to provide clear title, the purchaser normally must first tender performance himself and demand good title. Tender of performance by the purchaser is excused only if the title defect is not curable, for in such a case it would serve no purpose to require the purchaser to go through the futile motions of tendering performance." (Ilemar Corp. v Krochmal, 44 NY2d 702, 703 [1978] [internal citations omitted]. See also Steinberg v Linzer, 27 AD3d 451 [2d Dept 2006].)
To the extent that Downtown's claim for rescission is based on the October 7, 2005 closing date, Flatiron makes a prima facie showing that it was ready and able to convey marketable title on that date. It is undisputed that plaintiff failed to tender performance on the October 7 closing date. (Amended Complaint ¶ 19.) Flatiron submits the testimony of Francis Hoffman, Associate Branch counsel of non-party Commonwealth Land Title Insurance Company, plaintiff's title insurer for the purchase of the property. When asked at his deposition whether he had "any reason to believe that common exception No. 6 [the subject exception] would have been an impediment to the ability of [Flatiron] to convey title to the property on or after September 15 of 2005," he replied: "None." (Hoffman Dep. at 42.) [*4]
Similarly, Flatiron makes a prima facie showing that it was ready, willing, and able to convey marketable title to Downtown on the December 6, 2006 time of the essence closing date. Flatiron demonstrates that, no later than August 21, 2006, the exception to title had been removed. (See D.'s Motion Ex. T.)
In opposition, Downtown fails to raise a triable issue of fact. Downtown never declared time to be of the essence and never sought performance of the contract either on or after the October 7, 2005 closing date. Moreover, it submits no evidence in opposition to Flatiron's showing that the alleged title defect was not in fact an impediment to closing even as of the October 7, 2005 closing date.
Nor does Downtown raise a triable issue of fact on its claim that Flatiron interefered with its ability to obtain financing. Downtown's assertions in this regard are wholly conclusory (see Aff. Of Howard Levy, dated July 12, 2010), and are therefore insufficient to raise a triable issue of fact on Downtown's rescission claim.
Flatiron's Counterclaims
Flatiron also moves for summary judgment on its counterclaims for abuse of process, attorney's fees, and liquidated damages under the parties' agreement.
As to Flatiron's abuse of process claim, it is well settled that the elements of abuse of process are "(1) regularly issued process . . . , (2) an intent to do harm without excuse or justification, and (3) use of the process in a perverted manner to obtain a collateral objective." (Curiano v Suozzi, 63 NY2d 113, 116 [1984]; accord Casa De Meadows Inc. (Cayman Is.) v Zaman, 76 AD3d 917, 908 NYS2d 628 [1st Dept 2010].) "If process has a legitimate purpose, the allegation that it was misused does not suffice to state a claim for abuse of process." (Id. at 632. See also Roberts v Pollack, 92 AD2d 440 [1983].) "It is not enough that the actor have an ulterior motive in using the process of the court. It must further appear that he did something in the use of the process outside of the purpose for which it was intended." (Hauser v Bartow, 273 NY 370, 374 [1937].) It is further settled that the filing of a notice of pendency may be the basis for an abuse of process claim. (See Casa De Meadows Inc. (Cayman Is.), 908 NYS2d at 632; Felske v Bernstein, 173 AD2d 677 [1st Dept 1991].)
Although Flatiron's abuse of process counterclaim is not clearly pleaded, it appears to allege that Downtown abused process by filing and maintaining the specific performance claim, notwithstanding that Downtown was never ready, willing, and able to perform its obligations under the Purchase and Sale Agreement. (See e.g. Amended Answer ¶¶ 66, 68, 69.) This allegation does not state a colorable claim for abuse of process. It is well settled that "the institution of a civil action by summons and complaint is not legally considered process capable of being abused." (Curiano v Suozzi, 63 NY2d 113, 116 [1984].)
Flatiron also appears to allege that Downtown abused process by filing and maintaining the notice of pendency notwithstanding Downtown's "frivolous" maintenance of the specific performance claim. (See Amended Answer ¶¶ 65, 68-69.) However, the undisputed facts do not support a claim for abuse of process based on the filing and maintenance of the notice of pendency. As found above, the parties, both sophisticated business entities, were engaged in negotiations over a multi-million dollar transaction for a period of approximately 12 months from November 2005 to November 2006. The counterclaim does not contain any factual allegations that the negotiations over this period were not conducted in good faith. The court [*5]finds that the parties' course of conduct in engaging in these protracted negotiations is consistent only with the finding that Downtown was "using the notice of pendency for its proper purpose, to prevent [Flatiron] from selling the property" until the negotiations could be completed or "until there was a judicial determination that [Downtown] could obtain specific performance." (See Berman v Silver, Forrester & Schisano, 156 AD2d 624, 625-626 [2d Dept 1989].) Moreover, upon the failure of the parties' negotiations in November or December 2006, Downtown promptly withdrew the notice of pendency, a fact that is also inconsistent with Flatiron's contention that the notice of pendency was used for an improper purpose.
Flatiron contends that Downtown used the notice of pendency as "leverage" to renegotiate the Purchase and Sale Agreement (Answer ¶ 70), or as leverage to force Flatiron to refund Downtown's down payment. (D.'s Memo. Of Law In Support at 27-28.) Flatiron bases this assertion on Downtown's acknowledgment that real estate values had dropped and its decision in November 2006 to amend its complaint to seek rescission. (See Letter Dated November 17, 2006 from Richard Seltzer to Alan Lewis [D.'s Motion Ex. V].) This change of position was, as stated above, accompanied by Downtown's prompt withdrawal of its notice of pendency, and cannot serve to support an abuse of process claim under these circumstances in which there is no factual showing by Flatiron that the negotiations by Downtown to purchase the property in the proceeding year were not conducted in good faith.
Based on Flatiron's pleadings and the undisputed facts, the abuse of process counterclaim should be dismissed. In so holding, the court notes defendant Flatiron has not sought, either in its pleadings, or on the instant motion, damages from Downtown for damages allegedly sustained while the notice of pendency was in effect. (See CPLR 6514.)
As to Flatiron's claims for attorney's fees, the parties' Agreement provides for attorney's fees for the "prevailing party" on a specific performance claim, not a rescission claim. (See Agreement § 12.1[B].) To the extent that Flatiron argues that Downtown's voluntary discontinuance of its specific performance claim renders it the prevailing party on that claim, this contention is unavailing. Voluntary withdrawal of a claim prior to any judicial determination does not render the opposing party a prevailing party. (See Mucerino v Firetector, Inc., 306 AD2d 330 [2d Dept 2003].)
Finally, as to Flatiron's claim against Downtown for liquidated damages under the parties' September 19, 2005 Agreement, it is undisputed that this Agreement extended the closing date from September 21, 2005 to October 7, 2005, in consideration for Downtown's agreement to pay Flatiron "as liquidated damages, the additional amount of $6,181.00 per day, commencing on the TOE Date [September 21, 2005] and continuing through the earlier to occur of the Closing and the Adjourned Closing Date [October 7, 2005].") (D.'s Motion Ex. C.) The Agreement further provided that "[e]xcept as expressly set forth to the contrary herein, the Agreement shall remain in full force and effect and in accordance with its terms." Section 19.4 of the Purchase and Sale Agreement provides that it may not be "changed, modified, terminated or discharged, . . . except by a written instrument which . . . (b) shall be executed by the party against whom enforcement of the change, modification, termination, discharge or waiver shall be sought." (D.'s Motion Ex. A.)
There is no dispute that plaintiff did not seek a closing prior to October 7, 2005. Downtown argues that it is not liable for liquidated damages under the Agreement because [*6]Flatiron agreed to further extend the closing date beyond October 7. While there is a triable issue of fact as to whether Flatiron consented to the further adjournment, such adjournment would not bar Flatiron's claim to liquidated damages because the Agreement, by its terms, provided for Downtown to pay damages unless it sought an earlier closing date. There is nothing in the Agreement that obviates Downtown's obligation for liquidated damages from September 15, 2005 to October 7, 2005 based upon a further adjournment of the closing date. Flatiron should accordingly be awarded liquidated damages.
It is accordingly hereby ORDERED that Flatiron 21 Associates, LLC's motion for summary judgment is granted to the extent that it is
ORDERED that plaintiffs Downtown Realty Operating Corporation's and Flatiron 21st Street, LLC's complaint is dismissed, and the Clerk is directed to enter judgment accordingly; and it is further
ORDERED that defendant Flatiron 21 Associates, LLC is awarded judgment against plaintiffs Downtown Realty Operating Corporation and Flatiron 21st Street, LLC in the amount of $98,896.00, plus interest at the statutory rate from October 7, 2005, plus costs and disbursements as taxed by the Clerk, and the Clerk is directed to enter judgment accordingly; and it is further
ORDERED that the cross-motion of plaintiffs Downtown Realty Operating Corporation and Flatiron 21st Street, LLC is denied in its entirety.
This constitutes the decision and order of the court.
Dated:New York, New York
December 9, 2010
___________________________
MARCY FRIEDMAN, J.S.C.
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