MARY KAY VYSKOCIL, UNITED STATES BANKRUPTCY JUDGE.
The claims in this adversary proceeding arise out of a failed real estate transaction involving a proposed sale by the Debtor-Plaintiff 1111 Myrtle Avenue Group LLC (the "
Defendant demands specific performance under the Agreement and money damages in an amount to be determined at trial, but no less than $35,500,000 plus interest, costs, and reasonable attorneys' fees. See Ans. ¶ 27. At trial and in its briefing, Defendant did not focus on its claim for specific performance, and instead pressed for a return of the contract deposit, as well as unspecified damages as a result of the Plaintiff's allegedly willful misconduct. See Defendant's Post Trial-Brief [ECF No. 36] at 13, 25. Indeed, as framed by the Defendant-Purchaser, "[t]he central issue in this case is whether Purchaser was required to close on the sale of the Property on July 28, 2015, and whether, as a consequence of that failure, the Debtor is entitled to retain the Deposit." Defendant's Post-Trial Brief [ECF No. 36] at 1.
Both parties consented, on the record at the Final Pre-Trial Conference, to entry of final judgment by this Court. The Court held a two-day trial in this adversary proceeding and heard testimony of seven witnesses and received 50 documents in evidence.
For the reasons set forth below, the Court finds that the Defendant-Purchaser breached the Agreement by appearing at, but refusing to proceed with, the closing. Accordingly, the Plaintiff-Seller is entitled to retain the $7.5 million contract deposit as liquidated damages pursuant to the Agreement. Judgment should be entered in favor of the Plaintiff-Seller in the amount of $7.5 million and the Defendant's counter-claims should be dismissed.
The Plaintiff-Seller and the Defendant entered into a Sale and Purchase Agreement dated June 20, 2014 [TX 1] (the
This dispute arises from the unconsummated scheduled closings in this case. Lurking beneath the surface of the delays in these closings were related transactions contemplated by each of the parties — first, the Plaintiff-Seller's desire to perform a "section 1031 like-kind exchange" (expressly contemplated by the Agreement [see TX 1, ¶ 22])
TX 1, ¶ 23 (emphasis added).
The Agreement provided for a closing on April 30, 2015 and did not stipulate that time was of the essence. See TX 1, ¶ 8. In fact, the Agreement expressly allowed for the specified closing date to be adjourned. See TX 1, ¶ 8. The closing was initially tentatively scheduled for April 28, 2015 [see 8/16 Trial Tr. 38:3-8], but it did not proceed on that date. See 8/17 Trial Tr.
By agreement of the Parties, the closing was rescheduled for some time in May 2015. See 8/17 Trial Tr. 32:6-17. Mr. Brunner testified that shortly before the second scheduled closing in May 2015, he and his partner, Abraham Mandel, met with Seller's Mr. Alishaev. See 8/17 Trial Tr. 32:18-33:1. At the meeting, Mr. Alishaev indicated he was going to get a loan in order to replace the Deposit amount now spent on another transaction and requested an extension of time until the end of July. See 8/17 Trial Tr. 33:3-8; see also 8/16 Trial Tr. 32:13-19. Mr. Brunner testified that he neither agreed nor disagreed with giving an extension. See 8/17 Trial Tr. 33:9-19. According to Mr. Brunner, Defendant-Purchaser was ready to close at that point [see 8/17 Trial Tr. 33:10-12],
The closing date was tentatively rescheduled for June 30, 2015. See 8/17 Trial Tr. 33:22-24; see also 8/16 Trial Tr. 59:12-17. However, as the new closing date approached, Plaintiff-Seller could not receive a firm confirmation from the Defendant's lawyer that the closing would proceed as scheduled. See 8/16 Trial Tr. 62:14-19. Plaintiff-Seller established at trial that, then unbeknownst to the Seller [see 8/16
Defendant-Purchaser's principal, Mr. Brunner, testified that in the time leading up to the rescheduled closing, he was engaged in negotiations with a real estate investor named Kevin Lalezarian [see 8/16 Trial Tr. 154:1] to assign, or "flip," the Agreement. See 8/17 Trial Tr. 51:23-52:3. While the Defendant-Purchaser was permitted to assign the Agreement, paragraph 23 clearly significantly limited the Defendant's right to assign the contract only to entities owned or controlled by the Defendant-Purchaser. TX 1, ¶ 23. The evidence at trial left little doubt that Purchaser's Brunner deliberately concealed his negotiations with Mr. Lalezarian from the Plaintiff-Seller. See 8/17 Trial Tr. 51:23-52:15; see also 8/17 Trial Tr. 155:4-156:17; TX 24; TX 26.
Mr. Lalezarian was called by the Plaintiff-Seller to testify at trial and the Court found him to be an objective and credible witness. He testified that he first became aware of the Property after a businessman named Jeffery Kahen, with whom Mr. Lalezarian previously had purchased property, was approached by Sam Rottenberg, a real estate broker working with the Defendant-Purchaser. See 8/16 Trial Tr. 154:5-25; 8/17 Trial Tr. 29:19. After Mr. Kahen brought the deal to Mr. Lalezarian's attention, they both began negotiating with Mr. Rottenberg. See 8/16 Trial Tr. 154:17-25. Mr. Lalezarian was made aware that Rottenberg represented a group that was in contract to purchase the Property. See 8/16 Trial Tr. 155:3-8. Mr. Lalezarian understood that the deal would be structured such that the Defendant-Purchaser would assign the Agreement to purchase the Property to Brooklyn Myrtle LLC, an entity formed by Messrs. Lalezarian and Kahen for the purposes for acquiring and developing the Property. See 8/16 Trial Tr. 155:21-156:5.
Mr. Lalezarian testified that at one point during the negotiations, the parties to the "flip transaction" agreed on a price of $21.5 million, one million dollars more than the underlying purchase price under the Agreement with the Plaintiff-Seller. See 8/16 Trial Tr. 165:13-20. But, as the negotiations continued, the parties failed to finalize an agreement [see 8/16 Trial Tr. 163:12-15] because, inter alia, the Defendant-Purchaser apparently wanted a higher price for the flip. See 8/16 Trial Tr. 157:2-21; 163:19-24; 170:19-171:7. Ira Nesenoff, an attorney who represented Mr. Lalezarian with respect to negotiation of the assignment and purchase agreements [see 8/16 Trial Tr. 156:16-20], was also called by the Plaintiff-Seller as a trial witness. Mr. Nesenoff testified that while the original offer was for $23.5 million, three million more than the underlying purchase price, his client (Lalezarian) "was always holding fast at" $21.5 million. See 8/16 Trial Tr. 199:14-16; see also 8/16 Trial Tr. 202:4-10, 21-23; TX 3. Mr. Brunner, on the other hand, testified that he had negotiated an assignment of the Agreement with Mr. Kahen for $23.5 million [see 8/17 Trial Tr. 30:4-22] and it was the other side that kept "re-trading" Mr. Brunner on the price. See 8/17 Trial Tr. 34:5-35:3. In any event, the parities to the flip made clear that they never came to an agreement on a price for the flip transaction, and ultimately, by July 2015, the negotiations broke down. Based on the testimony
Other aspects of these negotiations on the contemplated "flip" transaction inform the Court's finding regarding Defendant-Purchaser's unwillingness and inability to close on the sale. As noted, the Agreement expressly limited the Purchaser's ability to assign the Agreement to entities owned or controlled by principals of the Purchaser-Defendant, i.e. Messrs. Abraham Mandel and Ira/Shifra Hager. See TX 1, ¶ 23. Purchaser's Mr. Brunner testified that any agreement on the flip transaction drafted by the attorneys for Mr. Lalezarian (Ira Nesenoff, Esq.) and Defendant-Purchaser (Jeffry Zwick, Esq.) [see 8/17 Trial Tr. 92:16-20], would conform to paragraph 23 of the Agreement. See 8/17 Trial Tr. at 53:19-54:1. However, no basis was given for this supposed understanding and the Court finds this testimony simply not credible in light of the unequivocal testimony of Mr. Lalezarian that he did not intend for Mr. Hager or Mr. Mandel to be partners with Brooklyn Myrtle LLC in the acquisition of the Property. See 8/16 Trial Tr. 156:3-11.
Importantly, Mr. Lalezarian testified that he became aware of the limitations on assignment in the Agreement during his negotiations with the Defendant [see 8/16 Trial Tr. 162:1-12], and once aware of the paragraph 23 limitations on assignment, Mr. Lalezarian "explicitly required a consent of the owner of the [P]roperty." 8/16 Trial Tr. 162:10-12. The Court finds credible Mr. Lalezarian's testimony that he would not proceed without obtaining the Plaintiff-Seller's consent. See 8/16 Trial Tr. 162:16-18; see also 171:16-22. Indeed, at some point, Mr. Lalezarian met directly with the Plaintiff-Seller's principal and discussed whether Plaintiff-Seller would consent to an assignment of the Agreement. See 8/16 Trial Tr. 165:3-12. Plaintiff-Seller conveyed that in order to provide its consent to an assignment, it would need to be paid a portion of the amount Brooklyn Myrtle LLC was paying the Defendant-Purchaser for the assignment. See 8/16 Trial Tr. 165:21-23. At one point, the parties discussed a fee of $350,000 for the Plaintiff-Seller's consent to the assignment [see 8/16 Trial Tr. 141:18-145:24; 165:21-166:2; see also TX 43; TX 63], but there was never an agreement reached to obtain the Plaintiff-Seller's consent to an assignment.
The evidence is clear that shortly before the closing date, issues arose with respect to the location for the closing [see TX 24], which the Court finds were driven wholly by the contemplated assignment. One day before the scheduled closing, on the evening of June 29, 2015, in an email to Seller's Mr. Ambalu, Purchaser's attorney, Mr. Zwick, suddenly insisted that the closing take place at the office of Ira Nesenoff, Esq.
Despite Purchaser's efforts to hide its attempt to flip the Agreement, during the time leading up to the adjourned June 30 closing date, Seller's Mr. Ambalu "had a hunch" that the Defendant-Purchaser "was trying to keep something from" the Plaintiff-Seller [8/16 Trial Tr. 65:13-16], and in particular, suspected a potential unauthorized assignment of the Agreement. See id. at 65:13-66:2. Seller's Ambalu testified that, in his mind, if the closing took place at their offices, Seller could control the deal in order to ensure nothing was "going on behind closed doors." See 8/16 Trial Tr. 65:19-66:2. Therefore, the Plaintiff-Seller initially refused to relocate the closing when Defendant-Purchaser made its demand to do so the evening before the closing. See TX 24; see also 8/16 Trial Tr. 63:10-65:10. And, when Mr. Zwick alerted Mr. Nesenoff about his difficulty in changing the closing location to Mr. Nesenoff's office, Mr. Nesenoff asked, "[w]e are the purchaser's lender [w]hy is that unusual?" Mr. Zwick responded: "I guess they know the circumstances surrounding the `loan.'" See TX 10.
When asked whether he "deliberately failed to advise the [S]eller [of the potential assignment to Mr. Lalezarian] because [he] didn't want [the Seller] to know about the assignment of the contract," Mr. Brunner testified that he "had no obligation under the contract[] to notify the seller of any assignments."
Despite his suspicion, Mr. Ambalu ultimately agreed to have the closing at Mr. Nesenoff's office [see 8/16 Trial Tr. 66:3-19], and on the morning of June 30, emailed Mr. Zwick advising him that the Plaintiff was prepared to close at Mr. Nesenoff's office later that day. See TX 27; see also 8/16 Trial Tr. 66:3-16. Notwithstanding the Seller's agreement, the closing never took place. See 8/16 Trial Tr. 71:12-13; TX 42. It is clear from the evidence at trial that the potential flip deal disrupted the anticipated June 30 closing.
The evidence establishes that Plaintiff-Seller was taking steps to proceed with the June 30 closing, but Defendant Purchaser did not cooperate. In response to Mr. Ambalu's email asking for information to prepare the deed and closing documents, at the eleventh hour on the morning of the closing, Mr. Zwick provided the name of a new entity that was to be listed as purchaser on the deed. See TX 27; see also 8/16 Trial Tr. 68:6-7. Seller's Mr. Ambalu testified that he understood that the principals who created the entity were "Abraham Mandel or Isaac/Shifra Hager," [see 8/16 Trial Tr. 68:7-12] in accordance with the assignment provision of the Agreement. See TX 1, ¶ 23. He further testified that he was not advised that the entity was created by Mr. Lalezarian. See 8/16 Trial Tr. 68:17-24. Mr. Ambalu testified that there was a further issue in that he had not received an updated title report from Reliable Abstract, the entity Mr. Ambalu understood was the title company for the closing. See 8/16 Trial Tr. 69:14-21. In an attempt to seek clarification, Mr. Ambalu emailed Mr. Zwick, stating that he had called Reliable Abstract and was told that Mr. Zwick asked the title company to "hold off." See TX 42; see also 8/16 Trial Tr. 70:3-13. Mr. Zwick responded that a different title company would be reaching out shortly; however none ever did. See TX 42; see also 8/16 Trial Tr. 70:17-20. Mr. Ambalu then asked Mr. Zwick to, among other things, provide the name of the new title company, and Mr. Zwick ultimately responded that it was unlikely the closing would be going forward on June 30. See TX 42; see also 8/16 Trial Tr. 70:20-71:9. The Parties did not close on June 30. See 8/16 Trial Tr. 71:12-13.
On July 2, 2015, Mr. Ambalu emailed Mr. Zwick to arrange a new proposed closing date. See TX 42. Having received no response, the Parties were unable to consensually reschedule a closing. See TX 42; see also Plaintiff's Post-Trial Brief [ECF No. 37] at 13. Now armed with the knowledge of an unauthorized assignment,
TX 43 (emphasis in original). In addition to declaring that time was of the essence and setting a closing for July 28, 2015, the letter offered the Defendant-Purchaser a way to proceed with an unauthorized assignment. The TOE Letter stated that "[t]he price for consent to the assignment is $350,000 [and] anything short of that and there will be no assignment." Id. at 2.
The Defendant admitted at trial, and there can be no dispute that the Defendant and its counsel, Mr. Zwick, received the TOE Letter on July 15, 2015 [see 8/17 Trial Tr. 35:12-20; see also 8/17 Trial Tr. 131:16-25], thirteen days before the Law Day. See TX 67. In response to the TOE Letter, on July 17, 2015, the Defendant-Purchaser sent a letter rejecting the demand and requesting an adjournment. See TX T. On July 27, 2015, the Defendant-Purchaser sent a second letter, notifying the Plaintiff it was "exercise[ing] its right pursuant to Section 8 of the Contract to adjourn the closing until August 27, 2015...." TX C.
It is undisputed that on "Law Day" (July 28, 2015), the parties met, as provided for in the TOE Letter, at the law offices of Goldberg Weprin Finkel Goldstein LLP, counsel to Plaintiff-Seller, to conduct the closing. See TX 47 (transcript of closing ceremony). Shortly before the start of the closing, on the morning of July 28, 2015, the Defendant had filed an action in New York state court,
Purchaser's Mr. Brunner testified that he brought his tablet PC to the closing, and during the closing, logged onto his bank's website and showed the Plaintiff-Seller that he had sufficient funds in a number of accounts to close. See 8/17 Trial Tr. 37:21-24. It is undisputed that none of the accounts were in the Defendant's name [see 8/17 Trial Tr. 73:21-74:6], and that, in fact, Mr. Brunner never opened a bank account in the name of the Defendant-Purchaser. See 8/17 Trial Tr. 17:14-17. Mr. Brunner testified that, at the closing, the Plaintiff gave him two options — either pay an additional $350,000 for consent to the assignment or accept the return of the $7.5 million Deposit. See 8/17 Trial Tr. 36:24-37:2; 207:7-15.
The parties never consummated the Agreement. See Joint Pretrial Order at 1-2. Plaintiff-Seller contends that, before the closing ceremony ended, it declared the Defendant-Purchaser in default. See Plaintiff's Post-Tr. Br. at 15.
Shortly after the failed closing ceremony, on September 1, 2015, the Plaintiff filed a voluntary chapter 11 petition with this Court. As a result, pursuant to section 362 of the Bankruptcy Code, the state court action commenced by the Defendant-Purchaser was stayed. On September 25, 2015, the Plaintiff commenced this adversary proceeding. In its complaint, the Plaintiff seeks a judgment declaring the Defendant in default under the Agreement and awarding the $7.5 million contract Deposit as liquidated damages pursuant to the terms of the Agreement.
On November 20, 2015, Defendant filed its answer and counterclaims against the Plaintiff [ECF No. 5]. The Defendant denies the material allegations in the Complaint and maintains it was ready, willing, and able to close on July 28, 2015. The Defendant's counterclaims seek specific performance and money damages of no less than $35,500,000 plus interest, purportedly arising from the Plaintiff's alleged breach of the Agreement and other misconduct. The Defendant also asserts counterclaims for breach of implied covenant of good faith and fair dealing and unjust enrichment.
Under New York Law, "[t]o establish a prima facie case for breach of contract, a plaintiff must plead and prove: (1) the existence of a contract; (2) a breach of that contract; and (3) damages resulting from the breach." Nat'l Mkt. Share, Inc. v. Sterling Nat. Bank, 392 F.3d 520, 525 (2d Cir. 2004) (internal citations omitted). With respect to a contract for a sale of real property, "where a seller seeks to hold a purchaser in breach of contract, the seller must establish that it was ready, willing, and able to perform on the time-of-the-essence closing date, and that the purchaser failed to demonstrate a lawful excuse for its failure to close." Donerail Corp. N.V. v. 405 Park LLC, 100 A.D.3d 131, 138, 952 N.Y.S.2d 137, 142 (1st Dep't 2012). Here, there is no dispute that the Agreement existed. Thus, the dispositive issues are whether the time is of the essence notice was reasonable, and if so, whether the Plaintiff-Seller was ready, willing, and able to close on Law Day, and whether the Defendant-Purchaser was ready, willing, and able to close on Law Day or failed to demonstrate a lawful excuse for its failure to close.
Ordinarily, under New York law,
Where time is not of the essence, "the law permits the respective parties a reasonable time in which to tender performance, regardless of whether the contract specifies a particular date on which such performance is to be tendered." Mader v. Mader, 101 A.D.2d 881, 882, 476 N.Y.S.2d 195, 197 (2d Dep't 1984); see also Citizens Bank & Trust Co. v. Se-Fish Assocs., 2003 WL 22383564, at *4 (W.D.N.Y. Sept. 30, 2003) (citing Savasta v. 470 Newport Assoc., 82 N.Y.2d 763, 765, 603 N.Y.S.2d 821, 623 N.E.2d 1171 (1993); Tupper v. Wade Lupe Const. Co., 39 Misc.2d 1053, 242 N.Y.S.2d 546, 549 (N.Y. Sup. Ct. 1963)). On the other hand, where time is of the essence with respect to a real estate contract, "each party must tender performance on law day," the date specified, "unless the time for performance is extended by mutual agreement." Grace v. Nappa, 46 N.Y.2d 560, 565, 415 N.Y.S.2d 793, 389 N.E.2d 107, 109 (1979) (citations omitted). If time is of the essence, failure to close on the designated law day by either party is a default of the agreement. See id.; see also Sherman v. Real Source Charities, Inc., 41 A.D.3d 946, 947, 837 N.Y.S.2d 432, 433 (3d Dep't 2007).
It is well settled that when the original agreement does not make time of the essence, one party unilaterally may subsequently make time of the essence. See Taylor v. Goelet, 208 N.Y. 253, 258, 101 N.E. 867, 868 (1913); see also Madison Park Owner LLC v. Schneiderman, 93 A.D.3d 555, 556, 940 N.Y.S.2d 605, 606 (1st Dep't 2012); Decatur (2004) Realty, LLC v. Cruz, 73 A.D.3d 970, 971, 901 N.Y.S.2d 368, 369 (2d Dep't 2010) (citing Cave v. Kollar, 296 A.D.2d 370, 371, 744 N.Y.S.2d 497 (2d Dep't 2002); Savitsky v. Sukenik, 240 A.D.2d 557, 558, 659 N.Y.S.2d 48 (2d Dep't 1997)); Liba Estates, Inc. v. Edryn Corp., 178 A.D.2d 152, 153, 577 N.Y.S.2d 19, 20 (1st Dep't 1991). "[E]ither party can make time of the essence by giving clear and unequivocal notice that the contract must be performed within a certain reasonable time." N. Triphammer Dev. Corp. v. Ithaca Assocs., 704 F.Supp. 422, 429 (S.D.N.Y. 1989) (internal citations omitted). When determining the validity of a party's notice to convert an agreement into one in which time is off the essence, courts generally scrutinize the notice for three criteria to ensure that the communication:
Nehmadi v. Davis, 63 A.D.3d 1125, 1127, 882 N.Y.S.2d 250, 252 (2d Dep't 2009) (citing Moray v. DBAG, Inc., 305 A.D.2d 472, 760 N.Y.S.2d 193 (2d Dep't 2003)). The Court concludes that each of these criteria are satisfied in the TOE Letter at issue here. See TX 43.
First, and as stated above, "[t]he law requires clear, distinct and unequivocal notice for time to be made of the essence." N. Triphammer Dev. Corp. v. Ithaca Associates, 704 F.Supp. 422, 429 (S.D.N.Y. 1989) (internal quotation omitted). The Defendant argues that the TOE Letter here was not clear, distinct, and unequivocal as required in order to be effective under New York law. See Defendant's Post Trial-Brief [ECF No. 36] at 16. The Defendant asserts that the "TOE Letter is long, vague, and ambiguous," and sought unilaterally to change the terms of the Agreement by requiring the Defendant to pay $350,000 for the Plaintiff's consent to the assignment. See id. The Plaintiff, on the other hand, maintains that the TOE Letter was clear, distinct, and unequivocal. See Plaintiff's Post-Tr. Br. at 18.
The TOE Letter is a two page document, hardly "long" or "rambling" as Defendant contends. See Def. Pre-Trial Br. at 9. The very first paragraph alerts the Purchaser that one of the two purposes of the letter is to declare that time is of the essence and the notice is clearly set forth on the second page. See TX 43. In bold face, the letter specifies the declared closing date and goes on in bold uppercase type to recite that time is of the essence. See id. In the same pertinent paragraph, the letter clearly and unequivocally advises Purchaser that failure to appear and tender performance under the Agreement shall be a material breach entitling seller to, inter alia, liquidated damages. See TX 1, ¶ 15.
In contending that the TOE Letter is not clear and unequivocal, the Defendant-Purchaser further argues that "the Purported TOE Letter unnecessarily obfuscated the parties' rights under the Contract [b]y requiring Purchaser to appear at the July 28th Closing and pay the Debtor a $350,000 price increase if Purchaser intended to exercise its right to assign the Contract ...." Joint Pretrial Order at 14. The Court does not agree with the Defendant-Purchaser's characterization of the letter. The time is of the essence language is clear and calls for performance "under the contract," i.e. the Agreement (TX 1). The second stated purpose of the letter is to address Purchaser's attempted assignment. While the Defendant is correct that paragraph 23 of the Agreement "permitted an assignment by its terms" [Def. Post-Tr. Br. at 16], the Defendant conveniently ignores the clear restrictions placed on assignment in the Agreement. The Agreement makes clear that the only permissible assignee is "a newly formed ... entity formed to take title to the Property, owned or controlled by Abraham Mandel or Isaac/Shifra Hager." See TX 1, ¶ 23. There is no evidence that Mr. Mandel or the Hagers were owners or had a controlling share in the potential assignee, and indeed the evidence is to the contrary. In fact, as noted above, Kevin Lalezarian, the proposed assignee, testified unambiguously that he had no intention to involve Mr. Mandel or the Hagers in Brooklyn Myrtle LLC. See 8/16 Trial Tr. 156:6-11. As such, any assignment to Mr. Lalezarian was not permissible.
The TOE Letter was sent both to declare time of the essence and to address this issue.
As such, the Court concludes that, contrary to the Defendant's contention, the TOE Letter is clear, distinct, and unequivocal, and plainly calls for tender of performance by both sides "under the Contract." The $350,000 fee was not a unilateral change to the terms of the Agreement. Instead, the TOE Letter also offered Defendant-Purchaser a way to proceed with an unauthorized assignment in exchange for a fee for the Plaintiff's consent to an assignment that did not satisfy the limitations previously agreed to by the Parties as set forth in paragraph 23. Given the history of difficulties with bringing the deal to a close, the attempt by Defendant-Purchaser to conceal the assignment in the first instance, and the apparent desire of Defendant-Purchaser to assign the Agreement in order to close, it was reasonable for Plaintiff-Seller to include the option of a fee for consent in the letter. The inclusion of the fee in the TOE Letter does not defeat the fact that it was unequivocal notice under New York law that time was of the essence.
A unilateral notice that time is of the essence must give the other party a reasonable time to close. See Ballen v. Potter, 251 N.Y. 224, 229, 167 N.E. 424, 425 (1929) (citations omitted). It has long been held that "[w]hat constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case." Zev v. Merman, 73 N.Y.2d 781, 783, 536 N.Y.S.2d 739, 533 N.E.2d 669 (1988) (citing Ballen v. Potter, 251 N.Y. 224, 167 N.E. 424 (1929); Murray Co. v. Lidgerwood Mfg. Co., 241 N.Y. 455, 459, 150 N.E. 514 (1926)); see also N. Triphammer Dev. Corp. v. Ithaca Assocs., 704 F.Supp. 422, 430 (S.D.N.Y. 1989). Therefore, whether notice was reasonable is determined on a case-by-case basis.
Plaintiff-Seller argues that the notice period was reasonable. The Plaintiff cites to the previously scheduled closings and delay occasioned by Defendant-Purchaser's efforts to conceal a planned assignment from the Seller to support its position that thirteen days' notice was reasonable. See Pl. Post-Tr. Br. at 19-20. Additionally, the Plaintiff relies on the Defendant's claim that it was ready, willing, and able to close in June, arguing Defendant therefore should have been ready to close in July. The Plaintiff also alleges bad faith, claiming that the Defendant "stalled the closing on multiple occasions so as to perpetuate the charade relating to the Lalezarian assignment ...." Id. at 20.
The Court concludes that, under the circumstances, the thirteen day notice was reasonable. As an initial matter, numerous cases have found reasonable notice periods shorter than the notice given here. See, e.g., Spodek v. Feibusch, 246 A.D.2d 528, 528, 666 N.Y.S.2d 946 (2d Dep't 1998) (finding 13 days reasonable); James v. James, 205 A.D.2d 735, 736, 614 N.Y.S.2d 907 (2d Dep't 1994) (same); Zev v. Merman, 134 A.D.2d 555, 558, 521 N.Y.S.2d 455, 458 (1987), aff'd, 73 N.Y.2d 781, 536 N.Y.S.2d 739, 533 N.E.2d 669 (2d Dep't 1988) (finding eight days reasonable); Tom Jones Realty Corp. v. Frick, 144 A.D.2d 451, 533 N.Y.S.2d 995, 996 (2d Dep't 1988) (finding eight days reasonable where only one closing obligation was remaining); Shannon v. Simon, 128 A.D.2d 859, 859, 513 N.Y.S.2d 778, 779 (2d Dep't 1987) (finding 12 days reasonable); cf. 3M Holding Corp. v. Wagner, 166 A.D.2d 580, 581, 560 N.Y.S.2d 865, 867 (2d Dep't 1990) (same); Nissenbaum v. Ferazzoli, 143 A.D.2d 823, 533 N.Y.S.2d 140, 141 (2d Dep't 1988) (finding five days unreasonable); Mazzaferro v. Kings Park Butcher Shop, Inc., 121 A.D.2d 434, 435, 503 N.Y.S.2d 134, 135 (2d Dep't 1986) (finding seven days unreasonable).
The facts and circumstances of this case support the conclusion that thirteen days' notice was reasonable. This is especially true given the sophisticated nature of the Parties and their extensive experience with real estate transactions. In light of the Defendant-Purchaser's unresponsiveness with respect to scheduling the June 30 closing and follow-up attempts to reschedule a firm closing date, and the Defendant's attempt to conceal the assignment of the Agreement, which justifiably led to concerns regarding the Defendant-Purchaser's ability to close, the Court concludes that the notice here was reasonable and appropriate. Finally, in light of the testimony of Defendant-Purchaser's Mr. Brunner that the Defendant-Purchaser was ready to close without an assignment in April and May [see 8/17 Trial Tr. 32:9-14], it follows that steps necessary to close certainly should have been underway prior to July 28 given the previously repeated scheduled closings in this case. It is counter-intuitive for the Defendant to maintain it was prepared to close months before the July 28
The Defendant-Purchaser argues that the "TOE Letter is a long, rambling missive," and is not clear, distinct, and unequivocal notice that failure to perform on Law Day would amount to a default of the Agreement. See Def. Pretrial Br. at 9. The Court finds that the TOE Letter clearly informed the Defendant-Purchaser that if it did not perform on Law Day, it would be in default. The two-page TOE Letter recited plainly and concisely:
TX 43. The Court concludes that this language satisfies the requirements of New York law.
Cases in which courts have found language in purported time of the essence notices to be ineffective are easily distinguishable. For example, in Nehmadi v. Davis, a seller's notice attempting to make time of the essence failed to include language alerting the buyer that failure to appear at the closing would lead to a default. See 63 A.D.3d at 1127, 882 N.Y.S.2d 250. The letter also was not sent to the buyer as required by the contract, but instead to the buyer's attorney. See id. The Appellate Division held that the notice was ineffective. See id. Similarly, in Marcantonio v. Picozzi, the court found that two letters sent by a party attempting to convert a real estate contract into one in which time was of the essence was not "clear, distinct, and unequivocal." See 46 A.D.3d 522, 523-24, 846 N.Y.S.2d 647 (2d Dep't 2007). There, the first letter did not inform the counter-party that a failure to tender payment at the closing would be a default. See id. at 524, 846 N.Y.S.2d 647. While the second letter did include that information, the court held that it was sent too late to allow a reasonable time to perform. See id. Here, by contrast, the Plaintiff-Seller provided clear and unambiguous notice that if it failed to tender performance under the Agreement, Purchaser would be in material default and Seller would seek, inter alia, to retain the contract Deposit.
In sum, this Court finds the language in the TOE Letter is clear, distinct, and unequivocal, as required by New York law. The fact that the Plaintiff was putting the Defendant on notice that time was of the essence is apparent from the operative language. It cannot credibly be disputed that the bold-face type of the date and time, coupled with capitalizing of the phrase "time being of the essence," would put any reader on notice that time was declared to be of the essence. Second, in light of all of the circumstances, it was reasonable for the Plaintiff-Seller to declare
Plaintiff-Seller has satisfied its burden to prove that it tendered performance on Law Day. The closing ceremony was attended by, among others, Seller's Mr. Ambalu [see 8/16 Trial Tr. 75:15-16], Purchaser's Mr. Brunner [see 8/17 Trial Tr. 36:16-20], counsel for each side [see TX 47], and Robert Schroeder on behalf of the title company, Royal Abstract. See TX 47 at 6:5-6. During the closing ceremony, the Plaintiff-Seller tendered documents effectuating its performance under the Agreement. See TX 47 at 16:11-20:6; see also 8/16 Trial Tr. 76:25-77:10. Based on the tender made on behalf of the Plaintiff-Seller, the representative of the title company cleared title and confirmed that Plaintiff-Seller was in a position to convey title. See TX 47 at 28:25-29:20; see also 8/16 Trial Tr. 76:17-18; TX 47 at 35:19-20; 8/17 Trial Tr. 217:6-20; 210:11-23.
The Defendant-Purchaser nonetheless disputes that Plaintiff-Seller was ready, willing, and able to close on June 30. See Def. Post-Tr. Br. at 7-8. The Defendant relies heavily on the Plaintiff's failure to return the Deposit to the IOLA account until June 30, 2015 to support its argument that while the Defendant-Purchaser was ready, willing, and able to close during those times, the Plaintiff had neither the intention nor the ability to close in April or in June. See id. at 14. The Defendant maintains that it was only once the Deposit was returned to the IOLA account that the Plaintiff declared a time is of the essence closing. See id. at 14-15.
It is true, as Defendant-Purchaser argues, that Plaintiff-Seller likely was not ready, willing, and able to close in the April-May timeframe initially contemplated by the Parties since Plaintiff-Seller had spent the contract Deposit on an unrelated transaction. See 8/17 Trial Tr. 31:7-25. However, the adjournments of the closings in April and May were consensual, or at a minimum unopposed. At that point, the Parties were working cooperatively. As Mr. Brunner testified, Defendant-Purchaser was trying to be reasonable. See 8/17 Trial Tr. 33:12-14. And, the record makes clear that while Defendant-Purchaser now professes that it was prepared to close in April/May without any assignment of the Agreement, in fact, Defendant-Purchaser's attorney was working as early as February 2015 with Mr. Nesenoff, the attorney for the would-be assignee Mr. Lalezarian. See TX 2; see also Def. Post-Tr. Br. at 5. The Court finds that it was the behind the scenes unsuccessful negotiations by the Defendant-Purchaser with the assignee that caused the closing on the Agreement not to go forward on June 30 and Defendant-Purchaser ultimately to breach the Agreement by failing to tender performance on Law Day.
The Defendant also argues that the tender of title by Plaintiff-Seller at the July 28
The Defendant further contends that Plaintiff-Seller's tender was not adequate and raises a number of complaints in this regard. Specifically, Defendant-Purchaser claims that no legal description was attached to the deed. Moreover, the Defendant argues that the Plaintiff-Seller failed to deliver sufficient representations and warranties and estoppels, which were conditions precedent to the Purchaser's obligation to perform under the contract. Along the same lines, Defendant-Purchaser's real estate attorney, Mr. Hansen, testified that, at the closing, he raised a number of objections to the Plaintiff-Seller's tender, including that the ACRIS documents omitted certain information [see 8/17 Trial Tr. 188-89], the payoff letter was outdated [see 8/17 Trial Tr. 190-92], the title affidavit did not remove the tenants-in-possession exception from the title report [see 8/17 Trial Tr. 199-201], the Plaintiff-Seller failed to deliver organizational documents that were acceptable to the title company [see 8/17 Trial Tr. 201], and the closing statement listed the $350,000 fee, even though the Defendant maintained there would be no assignment [see 8/17 Trial Tr. 204-07].
In response, Plaintiff-Seller maintains that it made a complete tender at the July 28
The Court did not find Mr. Hansen's testimony credible, and cannot conclude that any minor deficiencies rendered the Plaintiff-Seller's tender at the July 28
In short, Defendant-Purchaser seems to be reaching for purported deficiencies in the documentation that Plaintiff-Seller provided in order to distract from Defendant-Purchaser's failure to tender performance at the Law Day closing. The Court finds that any such deficiencies were immaterial and/or curable. Most significantly, there can be no dispute that the title company cleared title to the Property. See TX 47 at 29:19-20; see also 8/17 Trial Tr. 210:17-23. The Court therefore finds that Plaintiff-Seller has met its burden to establish that it was ready, willing, and able to close on July 28
Having concluded that the TOE Letter validly converted the transaction into one in which time was of the essence and that Plaintiff-Seller was ready, willing, and able to close on Law Day, the dispositive question is, as Defendant itself recognizes [see Def. Post-Tr. Br. at 1], whether the Defendant breached the Agreement on Law Day. The Court finds that the Defendant-Purchaser was not ready, willing, and able to tender performance on Law Day and concludes that the Defendant's failure to tender performance on July 28, 2015 constitutes a material breach of the Agreement.
The record reflects that as late as the day before Law Day, Defendant-Purchaser was seeking financing to close on the sale. It is undisputed that on July 27, Defendant-Purchaser reached out to Sterling Bank, with whom it previously had been in contact, to inquire about a potential loan to Purchase the Property. See TX 46. The bank responded that it needed additional information and would prepare a list of open items in connection with a
Plaintiff-Seller established at trial and it is undisputed that Defendant-Purchaser entered the closing not with a check [see 8/17 Trial Tr. 215:20-25], but instead with a complaint commencing an action against the Plaintiff in state court and a tablet PC on which it displayed bank account information for entities that were not the Purchaser under the Agreement. See 8/17 Trial Tr. 37:21-24; see also 8/17 Trial Tr. 17:14-17; 8/17 Trial Tr. 74:3-6. Manifestly, displaying on a tablet PC at a closing that there purportedly was sufficient money in an account of someone other than the Purchaser to cover the purchase price and closing costs does not constitute tender of the purchase price as required by the Agreement. Moreover, it is undisputed that no bank accounts ever have been opened in the Defendant's name [see 8/17 Trial Tr. 17:14-17; see also 8/17 Trial Tr. 73:21-74:6] and that Defendant-Purchaser did not tender funds at the closing to close on the transaction. See 8/16 Trial Tr. 92:21-25; see also 8/17 Trial Tr. 65:23-66:20. As such, the Plaintiff has met its burden of proving that Defendant-Purchaser breached the Agreement.
In light of the Plaintiff having made out a prima facie case that the Defendant was in breach, the burden shifts to the Defendant to prove that it was ready, willing, and able to tender the purchase price at the closing. See, e.g., No. 1 Funding Ctr., Inc. v. H & G Operating Corp., 48 A.D.3d 908, 910-11, 853 N.Y.S.2d 178, 182 (3d Dep't 2008); Fridman v. Kucher, 34 A.D.3d 726, 728, 826 N.Y.S.2d 104, 105 (2d Dep't 2006); Goller Place Corp. v. Cacase, 251 A.D.2d 287, 288, 672 N.Y.S.2d 923 (2d Dep't 1998). There is no dispute that:
The only reasonable inference to be drawn from the evidence is that the Defendant-Purchaser did not have the funds to close on the transaction on Law Day. The Court therefore finds that the Defendant has failed to demonstrate its ability or willingness to close on Law Day. The Court concludes that by failing to tender the purchase price at the valid time is of the essence closing, the Defendant materially defaulted on the Agreement.
Pursuant to the express terms of the Agreement, the Plaintiff is entitled to retain the Deposit as liquidated damages. See TX 1, ¶ 15. Numerous cases make clear that the non-breaching party may retain a contract deposit without regard for or a showing of actual damages. See, e.g., Maxton Builders, Inc. v. Lo Galbo, 68 N.Y.2d 373, 378, 509 N.Y.S.2d 507, 502 N.E.2d 184, 186 (1986); Uzan v. 845 UN Ltd. P'ship, 10 A.D.3d 230, 238, 778 N.Y.S.2d 171, 176 (1st Dep't 2004); Armas v. Yuska, 2 A.D.3d 660, 661, 768 N.Y.S.2d 641 (2d Dep't 2003). Indeed, "[u]nlike some other jurisdictions, New York maintains the rule that the seller of real property may retain the full down payment in the event of the buyer's breach, regardless of whether that sum bears any relation to the seller's expected loss." Spirit Locker, Inc. v. EVO Direct, LLC, 696 F.Supp.2d at 307 (E.D.N.Y. 2010) (citing Maxton Builders, Inc., 68 N.Y.2d 373, 381-82, 509 N.Y.S.2d 507, 502 N.E.2d 184 (1986); Collar City P'ship I v. Redemption Church of Christ of the Apostolic Faith, 235 A.D.2d 665, 651 N.Y.S.2d 729, 730 (3d Dep't 1997); see, e.g., No. 1 Funding Ctr., Inc. v. H & G Operating Corp., 48 A.D.3d 908, 910-11, 853 N.Y.S.2d 178, 182 (3d Dep't 2008) (holding seller entitled "to retain all moneys it received from [purchaser] pursuant to the contract" where purchaser "submitted no documentation or other evidence establishing that it had the funds necessary to purchase the property on the date of the closing."); Goller Place Corp. v. Cacase, 251 A.D.2d 287, 288, 672 N.Y.S.2d 923 (2d Dep't 1998) (holding purchaser failed to make prima facie showing of entitlement to specific performance where purchaser "submitted no documentation or other proof to substantiate his assertion that he had the funds necessary to purchase the property and thus, [was] unable to prove that he was ready, willing, and able to close the sale as a matter of law.").
Under New York law, a party seeking specific performance of a contract must show that "it was ready, willing and able to fulfill its contractual obligations." ADC Orange, Inc. v. Coyote Acres, Inc., 7 N.Y.3d 484, 490, 824 N.Y.S.2d 192, 857 N.E.2d 513, 517 (2006) (internal citations omitted); see also Goller Place Corp. v. Cacase, 251 A.D.2d 287, 288, 672 N.Y.S.2d 923 (2d Dep't 1998). Specifically, "[a] purchaser
The Defendant-Purchaser concedes that if the Court were to determine that Purchaser was not ready, willing, and able to close, Purchaser is foreclosed from seeking specific performance under the Agreement. See Def. Post-Tr. Br. at 24. Defendant-Purchaser's acknowledgement that the Court may find it was not ready, willing, and able at the closing is also fatal to its claim for money damages. See, e.g., 3801 Review Realty LLC v. Review Realty Co. LLC, 111 A.D.3d 509, 510, 975 N.Y.S.2d 36, 37 (1st Dep't 2013) (concluding a party's "inability to demonstrate that it was ready, willing and able to fulfill its contractual obligations at closing also precludes it from recovering money damages." (internal citation omitted)). And, the Agreement explicitly provides that while the Purchaser may commence an action for specific performance if the Seller "willfully fails to tender title," "under no circumstances may Purchaser sue Seller for damages (actual or consequential)." See TX 1, ¶ 15(a). Defendant nonetheless seeks money damages. See Ans. ¶ 27. Under New York law, "a buyer in a damages suit... must show that it was ready, willing and able to close the transaction — i.e., that but for the seller's repudiation, the transaction could and would have closed." See Pesa v. Yoma Dev. Grp., Inc., 18 N.Y.3d 527, 531, 942 N.Y.S.2d 1, 965 N.E.2d 228, 230 (2012).
As set forth above, Plaintiff has established both that Plaintiff-Seller tendered performance at the closing and that Defendant-Purchaser was not ready, willing, and able to close on Law Day. The Defendant-Purchaser has not rebutted this showing by proving that it was ready, willing, and able to close on Law Day. Accordingly, the Defendant is not entitled to specific performance or money damages.
For the foregoing reasons, the Court concludes that Defendant-Purchaser materially breached the Agreement by appearing at, but refusing to proceed with, the closing on Law Day. The Plaintiff-Seller is entitled to retain the $7.5 million contract Deposit as liquidated damages pursuant to the Agreement. Judgment should be entered in favor of the Plaintiff-Seller, the Debtor, in the amount of $7.5 million and the Defendant's counter-claims should be dismissed.
Counsel for the Plaintiff-Seller shall prepare and settle a judgment consistent
TX 1, ¶ 15.
