Vance Assoc., LLC v One Flatbush Ave. Prop., LLC

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Vance Assoc., LLC v One Flatbush Ave. Prop., LLC 2017 NY Slip Op 32157(U) October 11, 2017 Supreme Court, Kings County Docket Number: 508278/2016 Judge: Sylvia G. Ash Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [*FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 1] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 At an IAS Term, Comm-I I of the Supreme Court of the State ofNew York, held in and for the County of Kings, at the Courthouse, at Civic Center, Brooklyn, New York, on the I Ith day of October, 2017. PRES ENT: HON. SYLVIA G. ASH, Justice. -----··----------------------- -----------X VANCE ASSOCIATES, LLC, Plaintiff(s), DECISION AND ORDER Index # 50&278/2016 - against ONE FLATBUSH AVENUE PROPERTY, LLC, Mot. Seq. l & 2 Defendant(s). ------------------------------------------X The following e-filed papers numbered 3 to 27 read herein: Papers Nwnbered Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) Annexed_ _ _ _ _ _ _ __ Opposing Affidavits (Affirmations) _ _ _ _ _ _ _ __ 3 - 26 Reply Affidavits (Affirmations) _ _ _ _ _ _ _ _ __ After oral argument and upon the foregoing papers, Defendant's motion to dismiss the complaint is denied. Plaiptiffs cross-motion for summary judgment is also denied. Plaintiff, VANCE ASSOCIATE, LLC, brings this action for breach of contract against Defendant, ONE FLA l'BUSH A VENUE PROPERTY, LLC, for Defendant's failure to pay additional compensation in accordance with the parties' vvTitten agreement dated April 6, 2015. Prior to April 6,.2015, Plaintiff owned the property located at 11-17 Flatbush Avenue in Brooklyn, New York ("Flat bush Property"). By agreemeni dated May 29, 2014 (the "PSA"), Plaintiff agreed ID sell the Property to I Flatbush Avenue Property Owner, LLC. ("l Flatbush"). Before the c!Dsing date of April 6, 2015, the parties agreed to allow the name of the purchaser to be changed from I Flatbush to that of One Flat bush Avenue Property, LLC. The Flatbush Property is situated in the middle of two properties that adjoin it - one located on the comer of Flatbush Avenue and 1 of 7 [*FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 2] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 Fulton Street ("Comer Property") and the other known as 570 Fulton Street ("Fulton Property"). Around the time that the PSA was entered into, Defondant, or a company affiliated with Defendant, owned the Corner Property and an unrelated entity owned the Fulton Property, which was also on the market for sale. On April 6, 2015, at the closing for the Flatbush Property, the parties entered into a security agreement ("Security Agreement"), which provides, in relevant part, as follows: l. Covenant: For a term commencing on [April 6, 2015] and expiring on ... October 5, 2~16 (the "Expiration Date") .. ., if [Defendant], its members and partners, and the members, partners, shareholders, officers, directors, employees, representatives and agents or each ofthe foregoing (collectively, "Flatbush-Relatcd Entities") or any affiliate of [Defendant], or any successor or assigns of [Defendant] enters into an agreement to acquire additional floor area development rights associated with the Fulton Property (the "Development Rights"), Vance, or its designees, shall be entitled to additional compensation (the "Additional Compensation") in an amount as calculated i~ Section 2.2(d) of the PSA, which shall be payable in accordance with the terms set forth in Section 2.2(d) of the PSA. Section 2.2(d) of the PSA provides, in relevant part, as follows: If, prior to the Closing Date, or within eighteen (18) months after the Closing Date, Buyer or any Buyer Related Entities or affiliate of Buyer, or successor or assigns ofBuyer enters into an agreement to acquire additional floor area development rights associated with the land commonly known as 570 Fulton Street, Brooklyn, New York (the "Development Rights"), the Seller, or its designee, shall be entitled to additional compensation (the "Additional Compensation") in an amount equal to the total number of zoning square feet ("ZFA") of Development Rights so acquired multiplied by Thirty-five and 00/100 Dollars ($35.00). The Additional Compensation shall be payable to Seller on the date that Buyer or any Buyer Related Entities or affiliate of Buyer, or suecessor or assigns of Buyer acquires the Development Rights. According to Plaintiff, on or before September 18, 2015, an affiliate of Defendant, 570 ~ Fulton Street Property LLC ("570 Fulton") acquired the Fulton Property, including 139,000 zoning square feet of development rights associated with the bull ding lot. Based upon the provisions in the 2 2 of 7 [*FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 3] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 Security Agreement and the PSA, Plaintiff contends, in its motion papers, that it is entitled to $6,615,000.00 in additional compensation (139,000 multiplied by $35.00). With the instant motion, Defendant moves to dismiss Plaintiffs breach of contract claim for failure to state a cause of action on the basis that the PSA's conditional payment clause, and the clause in the Security Agreement that cross-references it, is triggered only if Defendant or its affiliate purchases transferrable air rights at the Fulton Property for the purpose of transferring those air rights to the Flatbush Property (also known as the "Development Site"). According to Defendant, Plaintiff ' is entitled to additional cdp1pensation only ifuefendant acquires "additional floor area development rights" to build a larger building on the Development Site but that Plaintiff is not entitled to such payment if Defendant acquires the Fulton Properly as a free-standing development without transferring the development rights to the Development Site. Defendant argues that Plaintiffs interpretation of the conditional payment clause renders the term "additional" superfluous and devoid of meaning. Further, that if "additional" is accorded its distinct and separate meaning, that the conditional payment clause cannot possibly apply to any acquisition of rights at the Fulton Property but must be restricted to circumstances where the acquisition of air rights is additive to those that the Development Site enjoyed already. In support of its interpretation, Defendant points to the example provided in the conditional payment clause which provides: "By way of example, if Buyer acquires 20,000 ZF A of Development rights, the Seller, or its designee, would be entitled to additional compensation in an amount equal to S700,000.00." Defendant argues that, because the Fulton Property had 86,300 total square feet of development rights,' the example of purchasing only 20,000 square feet illustrates whatth<l words of the contract mean: that if Defendant "added" 20,000 square feet to the Development Site from rights acquired in the Fulton Property, Plaintiff was entitled to additional compensation. ' Plaintiffs complaint alleges that the Fulton Property has 86,300 square feet of development rights. In its motion papers, however, Plaintiff asserts that the Fulton Property has 139,000 square feet of development rights. 3 3 of 7 [*FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 4] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 Defendant additionally argues that had the parties intended for the Security Agreement to be triggered upon the purchase of any rights at the Fulton Property, then the contract would have been drafted to state so explicitly. Defendant submits that the subject transaction involves a sophisticated Plaintiff whose principal, Aaron Stauber, possesses over 25 years of commercial real estate experience, and that Plaintiff was represented in the subject transaction by Jonathan Kamin, a lawyer with 17 years of experience. That, as such, if Plaintiff and its attorney intended for the additional compensation to be triggered upon the purchase of any rights relating to the Fulton Property, without qualification, they knew how to express that in a document and would have done so. In opposition to Defendant's motion, Plaintiff argues that a natural reading of the conditional payment clause establishes that "additional" refers to floor area development rights beyond those already associated with the Flat bush Property at the time of the PSA, that is, "supplementary to what is already present or available." Plaintiff further argues that Defendant's interpretation is not supported by the contractual language as the conditional payment clause does not contain terms such as "unused," "excess," or "transferred." Secondly, Plaintiff contends that Defendant's interpretation yields an absurd result in view of the Security Agreement's "trigger date" and "payable date" requirements. Plaintiff states that its right to additional compensation is triggered when an affiliate of Defendant "enters an agreement to acquire" the Fulton Property's development rights. That this additional compensation is then payable when the affiliate actually acquires those rights. According to Plaintiff, because the affiliate cannot transfer rights before acquiring them, it is illogical to interpret the conditional payment clause as requiring Defendant's affiliate to do exactly that to trigger the additional compensation. Plaintiff contends that Defendant's interpretation also nullifies the Expiration Date contained in the Security Agreement because it allows Defendant to sidestep the conditional payment clause by having an affiliate purchase the Fulton Property's development rights before the Expiration Date and then simply hold off on transferring those rights until after the Expiration Date passes. 4 4 of 7 [*FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 5] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 On the other hand, Plaintiff contends that its interpretation aligns perfectly with the circumstances surrounding the agreements. Specifically, that at around the time of the PSA, the Fulton Property was also for sale. According to Plaintiff, it is "real estate I 01" that the Flatbush Property would be worth more to a developer who also owned or controlled the Fulton Property's development rights, especially ifthe developer already owned the Corner Property. Plaintiff states that the additional value stemming from owning an adjoining property's development rights derives from the opportunity to control buildable space regardless of what the buyer ultimately decides to do with the property, and thus, negotiating a sale that takes into account the amount of adjoining space that the buyer controls is perfectly reasonable. Based on the for~going, Plaintiff asserts that it is entitled to summary judgment because it has established that "an affiliate" of Defendant acquired the Fulton Property's floor area development rights before the Expiration Date and Defendant has failed to pay Plaintiff additional compensation in accordance with the parties' agreements. With regards to whether 570 Fulton is "an affiliate" of Defendant, Plaintiff states that the PSA defines "affiliate" to mean "any Person (as defined below) that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another Person." "Person" shall mean a natural person, partnership, limited partnership, limited liability company, corporation, trust, estate, association, unincorporated association or other entity." Plaintiff asserts that, according to the relevant LLC agreements, 570 Fulton is owned, through 570 Fulton Mezz, by the same entity that controls Defendant, One Venture. As to the amount bfadditional compensation, although Plaintiffs complaint alleges that 570 Fulton acquired only 86,300 zoning square feet of development rights, Plaintiff does not dispute Defendant's estimation of 189,000 zoning square feet based on One Venture's LLC agreement reflecting same. In reply, Defendant disputes that adding the Fulton Property to the contiguous property configuration added an/value because the Comer Property and Flatbush Property together created 5 5 of 7 [* FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 6] NYSCEF DOC. NO. 76 INDEX NO. 508278/2016 RECEIVED NYSCEF: 10/12/2017 a sufficient development site. Defendant also contends that it had no interest in acquiring the Fulton Property at the time of the PSA or at closing. Had Defendant been interested, Defendant states that it would not have agreed to pay Plaintiff any premium for the acquisition of the Fulton Property since it would not have made the Flathush Property inherently more valuable. With regards to Plaintiffs motion for summary judgment, Defendant argues same must be denied as premature because Defendant is entitled to deposition discovery. Further, that the motion should be denied because 570 Fulton was not an "affiliate" because the entity was created after the parties entered into the PSA and Security Agreement. Finally, that Plaintiff's increased demand of $6.6 million is impermissible because Plaintitl's complaint demands damages of only $3,020,500 and Plaintiff must therefore seek leave to amend its complaint to seek increased damages. Further, that Plaintiffs reliance on One Venture' s LLC agreement as establishing the acquired square footage is erroneous since the 189,000 figure represents the potential square footage if a developer sought to re-zone the property upon application to the City Planning Commission. It is Defendant's position that, by purchasing the Fulton Property, 570 Fulton acquired 71,920 square feet of development rights and that this is ba5ed upon documents produced by Plaintiff's principal, .Mr. Stauber. Discussion On a motion to dismiss a plaintiff's claim pursuant to CPLR §3211 [a][7] for failure to state a cause of action, the court is not called upon to determine the truth of the allegations (see Campaign for Fiscal Equity v State, 86 NY2d 31}7, 317 [1995]). Rather, the comt is required to afford the pleadings a liberal construction, take the allegations of the complaint as true and provide plaintiff the benefit of every possible inference (Kamchi v Weissman, 125 AD3d 142, 150 [2d Dept 2014)). Here, Defendant'iS motion to dismiss for failure to state a cause of action must be denied as Plaintiff has stated a valid cause of action. Defendant's motion is essentially one for summary judgment as it argues that the subject agreements are unambiguous and precludes Plaintiff's claims. Plaintiff also submits that the agreements are clear on their face but argues that summary judgment 6 6 of 7 [* FILED: KINGS COUNTY CLERK 10/12/2017 03:29 PM 7] INDEX NO. 508278/2016 NYSCEF DOC. NO. 76 RECEIVED NYSCEF: 10/12/2017 is warranted in its favor. Thus, the issue before the Court is whether either party is entitled to summary judgment. It is a well established principle that "[t)he construction and interpretation ofan unambiguous written contract is an issue oflaw within the province of the court, as is the inquiry of whether the writing is ambiguous in the first instance" (Law Ojji ofJ Stewart Moore, P.C. v Trent, 124 AD3d 603, 603 (2d Dept 2015]). "If the language is free from ambiguity, its meaning may be detennined as a matter oflaw on the basis of the writing alone without resort to extrinsic evidence" (Id). Where a court determines that the terms of the agreement are ambiguous and the intent of the parties becomes a matter of inquiry, parol evidence is permitted to determine that intent (Weiner v Anesthesia Assocs.. P. C., 203 AD2d 454, 454-55 [2d Dept 1994]). Here, the Court finds that the subject conditional payment clauses are not unambiguous as it relates to whether the parties intended the ;mrchase of the Fulton Property to trigger the additional compensation and, therefore, extrinsic evidence is needed to determine the true intent of the parties. Although the existence of an ambiguity does not necessarily preclude summary judgment (see Hudson-Part Ewen Assoc., L.P. v Chien Kuo, 165 AD2d 301, 303 [3d Dept 1991 )), where, as here, there has been little to no discovery and the facts and circumstances surrounding the subject transaction have yet to be thoroughly ferreted out, the Court finds that any grant of summary judgment would be premature. The Court therefore denies summary judgment with leave to renew upon completion of party depositions. This constitutes the Decision and Order of the Court. ENTER, SYLVIA G. ASH, J.S.C. 7 7 of 7

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