CARLA E. CRAIG, Bankruptcy Judge.
This matter comes before the Court on the motion of 1988 Morris Ave LLC, 1974 Morris Ave LLC, 700 Beck St LLC, 1143 Forest Ave LLC, and 1821 Topping Ave LLC (collectively, the "Defendants") seeking summary judgment (the "Summary Judgment Motion") dismissing this action commenced by FMTB BH LLC (the "Plaintiff") for specific performance in connection with five contracts of sale to purchase five parcels of real property. For the following reasons, the Summary Judgment Motion is denied.
This Court has jurisdiction of this proceeding pursuant to 28 U.S.C. § 1334(b), and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. A bankruptcy judge may hear a non-core proceeding that is related to a bankruptcy case. 28 U.S.C. § 157(c)(1). This non-core proceeding is related to this bankruptcy case because the sale contracts are the only scheduled assets of the estate.
Unless otherwise noted, the following facts are undisputed, or are matters of which judicial notice may be taken.
On June 19, 2017, the Plaintiff entered into five separate contracts of sale, as follows: (1) to purchase 1988 Morris Avenue, Bronx, NY ("1998 Morris Ave.") from Defendant 1988 Morris Ave LLC (the "1988 Morris Avenue Contract"); (2) to purchase 1974 Morris Avenue, Bronx, NY ("1974 Morris Ave.") from 1974 Morris Ave LLC (the "1974 Morris Avenue Contract"); (3) to purchase 700 Beck Street, Bronx, NY ("700 Beck St.") from 700 Beck Street LLC (the "700 Beck Street Contract"); (4) to purchase 1143 Forest Avenue, Bronx, NY ("1143 Forest Ave.") from 1143 Forest Ave LLC (the "1143 Forest Avenue Contract"); and (5) to purchase 1821 Topping Avenue, Bronx, NY ("1821 Topping Ave.") from 1821 Topping Ave LLC (the "1821 Topping Avenue Contract," and, together with the 1988 Morris Avenue Contract, the 1974 Morris Avenue Contract, the 700 Beck Street Contract, the 1143 Forest Avenue Contract, and the 1821 Topping Avenue Contract, the "Contracts," and each, a "Contract"). (Defs.' Stmt. of Undisputed Facts ¶ 1, ECF No. 39-27; Markowitz Decl. Exs. A-E, ECF Nos. 39-2 - 39-6; Pl.'s Resp. ¶ 1, ECF No. 40-1.)
The Plaintiff made the following down payments pursuant to the Contracts: (1) $25,833.33 under the 1988 Morris Avenue Contract; (2) $25,833.33 under the 1974 Morris Avenue Contract; (3) $34,4444.44 under the 700 Beck Street Contract; (4) $34,444.44 under the 1143 Forest Avenue Contract; and (5) $34,444.44 under the 1821 Topping Avenue Contract. (Defs.' Stmt. of Undisputed Facts ¶ 1, ECF No. 39-27; Pl.'s Resp. ¶ 1, ECF No. 40-1.) The Contracts did not contain a mortgage contingency. (Defs.' Stmt. of Undisputed Facts ¶ 2, ECF No. 39-27; Pl.'s Resp. ¶ 2, ECF No. 40-1.) Each Contract provided that, in the event of a default by the Plaintiff, the remedy of each Defendant was limited to retaining the down payment made under that Contract. (Defs.' Stmt. of Undisputed Facts ¶ 3, ECF No. 39-27; Pl.'s Resp. ¶ 3, ECF No. 40-1.) The Contracts do not contain a cross-default provision, and therefore, a default under one Contract is not default under the other Contracts. (Defs.' Stmt. of Undisputed Facts ¶ 7, ECF No. 39-27; Pl.'s Resp. ¶ 7, ECF No. 40-1.)
On August 22, 2017, the Defendants' real estate counsel sent the Plaintiff's counsel a time of the essence letter for each Contract, scheduling closings for September 14, 2017. (Defs.' Stmt. of Undisputed Facts ¶ 9, ECF No. 39-27; Markowitz Decl. Ex. F, ECF No. 39-7; Pl.'s Resp. ¶ 9, ECF No. 40-1.) Those closings did not occur, and on October 27, 2017, the Defendants' counsel sent a second set of time of the essence letters, scheduling closings for October 2, 2017. (Defs.' Stmt. of Undisputed Facts ¶ 10, ECF No. 39-27; Markowitz Decl. Ex. G, ECF No. 39-8; Pl.'s Resp. ¶ 10, ECF No. 40-1.) Those closings also did not occur.
On October 4, 2017, the Plaintiff and the Defendants executed an addendum to each Contract (collectively, the "Addenda"), which, among other things, authorized the down payments made under the Contracts to be released to the Defendants, provided for an additional deposit of $169,000 per Contract, and scheduled a third time of the essence closing date of December 18, 2017. (Defs.' Stmt. of Undisputed Facts ¶¶ 11, 12, ECF No. 39-27; Markowitz Decl. Ex. I, ECF No. 39-10; Pl.'s Resp. ¶¶ 11, 12, ECF No. 40-1.)
On October 17, 2017, 1988 Morris Ave LLC, 1974 Morris Ave. LLC, and the Plaintiff executed a license agreement (the "License Agreement"), authorizing the Plaintiff to access 1974 Morris Ave. and 1988 Morris Ave. to perform specified work at those properties.
On October 19, 2017, the down payments were released to the Defendants in accordance with the Addenda, and the Plaintiff made the additional $169,000 deposit under each Contract. (Defs.' Stmt. of Undisputed Facts ¶ 13, ECF No. 39-27; Pl.'s Resp. ¶ 13, ECF No. 40-1.)
On the morning of December 18, 2017, the Plaintiff's counsel emailed letters dated December 15, 2017 to the Defendants' counsel rejecting the December 18, 2017 closing. (Defs.' Stmt. of Undisputed Facts ¶ 27, ECF No. 39-27; Markowitz Decl. Ex. V, ECF No. 39-23; Pl.'s Resp. ¶ 27, ECF No. 40-1.) The closings did not take place on December 18, 2017. (Defs.' Stmt. of Undisputed Facts ¶ 27, ECF No. 39-27; Pl.'s Resp. ¶ 27, ECF No. 40-1.) The parties dispute why the closings did not occur, and that dispute lies at the heart of this Summary Judgment Motion.
On April 23, 2018, the Plaintiff filed a voluntary petition under chapter 11 of Title 11 of the United States Code (the "Bankruptcy Code"), and commenced this action for specific performance, or alternatively, for damages. On August 14, 2019, the Defendants filed this motion for summary judgment (ECF No. 39), which the Plaintiff opposed.
Summary judgment is appropriate when "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). In ruling upon a summary judgment motion, the court's job is not to resolve disputed issues of fact, but to determine whether a genuine issue of fact exists.
The Defendants argue that the Plaintiff's failure to tender performance on law day, December 18, 2017, is fatal to the Plaintiff's specific performance claim, and therefore, summary judgment must be entered in the Defendants' favor. In response, the Plaintiff argues that New York law excuses a plaintiff from tendering performance when the defendant breaches the contract prior to closing, or anticipatorily breaches the contract.
Under New York law, `"[a] plaintiff seeking to maintain an action for specific performance or for damages for nonperformance of a contract must demonstrate that a tender of his or her own performance was made, unless tender was waived or the necessity for such a tender was obviated by acts of the other party amounting to an anticipatory breach of the contract or establishing that such party would be unable to perform.'"
New York law is clear that the Plaintiff was not required to tender performance under the Contracts and appear on law day if the Defendants breached, or anticipatorily breached, the Contracts. The Plaintiff argues that the Defendants failed to provide access to the properties as required by the Contracts, constituting a breach that excused the Plaintiff from tendering performance on law day. The Plaintiff argues that access was necessary for multiple reasons: (1) to obtain financing from any conventional or hard money lender; (2) to conduct due diligence with respect to the leases that were to remain in place after the purchase and, conversely, to confirm that other units were vacant as required; (3) to inspect the premises for damage; and (4) to complete repairs to 1947 Morris Ave. and 1988 Morris Ave. under the License Agreement. (Pl.'s Mem. of Law. In Opp'n at 2-3, ECF. No. 40). The Plaintiff further argues that the Defendants anticipatorily breached the Contracts by failing to satisfy the title issues raised by the Plaintiff's title company in advance of the closing, and therefore, appearing at the closing would have been futile.
The Defendants argue that the Plaintiff requested access to the properties on unreasonably short notice. (Defs.' Stmt. of Undisputed Facts ¶ 18; Markowitz Decl. Ex. O, ECF No. 39-16.) The Defendants further argue that, to constitute an anticipatory breach, the title issues must have been incurable, and the issues raised by the Plaintiff's title company were not incurable.
The Plaintiff disputes that it requested access on unreasonably short notice, and argues that the Defendants prevented the Plaintiff from accessing the properties starting in November 2017, when it was denied access to 1974 Morris Ave. and 1988 Morris Ave. to complete work pursuant to the License Agreement. The Plaintiff alleges that access was not provided until January 22, 2019, after a demand for inspection during this litigation. (Pl.'s Mem. of Law in Opp'n, at 4, ECF No. 40.)
The Contracts explicitly required the Defendants to allow the Plaintiff to access the properties, and contains conditions to closing that would necessitate the Plaintiff's access to verify that the conditions were satisfied. Each contract contains the following provisions:
(Markowitz Decl. Exs. A-E, ¶¶ 12, 16, ECF Nos. 39-2 - 39-6.)
The riders to the Contracts each provide that the premises are being sold "AS IS . . . subject to reasonable use, wear and tear and natural deterioration between now and the closing date," but that "the appliances, plumbing, heating and electrical systems shall be in working order and roof should be free of leaks at closing." (Markowitz Decl. Ex. A-E, Seller's Rider to Contract ¶ 5, ECF Nos. 39-2 - 39-6.)
In support of its argument that the Defendants refused access to the properties as required by the Contracts, the Plaintiff provided the Declaration of Joseph Riegler, a former member of the Plaintiff.
Mr. Riegler stated that he attempted to contact Mr. Strong on November 30, 2017, and was told that contact should be directed to the Defendants' new attorney, for whom Mr. Strong would provide contact information. (Riegler Decl. ¶ 10, ECF No. 40-3; Riegler Decl. Ex. B., ECF No. 40-3.) Mr. Riegler again contacted Mr. Strong on December 1, 2017 to request the new counsel's information, but was not provided with it until December 3, 2017. (Riegler Decl. ¶¶ 11-12, ECF No. 40-3; Riegler Decl. Ex. B, ECF No. 40-3.) Though Mr. Strong informed Mr. Riegler on December 3, 2019 that he is no longer authorized to act on behalf of the Defendants, Mr. Riegler stated the Defendants' new counsel was unresponsive, and Mr. Riegler again requested access from Mr. Strong on December 9, 2017 and December 10, 2017. (Riegler Decl. ¶¶ 12-14, ECF No. 40-3.)
Exhibit B to Mr. Riegler's declaration is a text message conversation evidencing Mr. Riegler's requests access to "[Beck], [F]orest, and [T]oppings" on December 9, 2017, and access to "[F]orest" and "[B]eck" on December 10, 2017. (Riegler Decl. Ex. B, ECF No. 40-3.) Though the texts do not specify the property addresses, it is sufficiently clear that they relate to 700 Beck St., 1143 Forest Ave., and 1821 Topping Ave. The Defendants' new counsel officially denied access on December 11, 2017, stating "I am not authorized at this time to provide that access. We need to see real movement from your side to get to a closing date." (Markowitz Decl. Ex. M, ECF No. 39-14.) At the time the Defendants' counsel sent that email, though, the time of the essence closing date was already scheduled, pursuant to the Addenda, for one week later, on December 18, 2017.
In addition to the failure to provide access as required under the Contracts, the Addenda, and the License Agreement, the Plaintiff asserts that Defendant 700 Beck St LLC misrepresented the existence of a commercial lease at 700 Beck St. The parties do not dispute that the sale of 700 Beck St. included an existing commercial lease to a day care facility. The Defendant 700 Beck St LLC provided a copy of the commercial lease to the Plaintiff. (Defs.' Stmt. of Undisputed Facts ¶ 20, ECF No 39-27; Markowitz Decl. Ex. S, ECF No. 39-20.) The Plaintiff raised concerns about the validity of the commercial lease, and, therefore, the accuracy of the rent roll for 700 Beck St. (Defs.' Stmt. of Undisputed Facts ¶ 20, ECF No 39-27; Pl.'s Resp. ¶ 20, ECF No. 40-1.) Mr. Riegler explained that the Plaintiff's title company requested a subordination, non-disturbance, and attornment agreement with respect to the commercial lease, which was not provided, "altert[ing the Plaintiff] to a potential problem." (Riegler Decl. ¶¶ 17, 18, ECF No. 40-3.) The Plaintiff asserts that, during discovery, the principal of 700 Beck St LLC, Rafael Telahun, stated that the commercial tenant never took possession of the premises. (Pl.'s Mem. of Law in Opp'n at 8, ECF No. 40; Riegler Decl. ¶ 18, ECF No. 40-3; Neuhaus Decl. Ex. B, Telahun Dep. 95:17-18, ECF No. 42-3.)
The Plaintiff also argues that 700 Beck St., 1143 Forest Ave., and 1821 Topping Ave. were not vacant of residential tenants as required by the Contracts. (Pl.'s Mem. of Law in Opp'n at 13, ECF No. 40.) In support, the Plaintiff relies on the deposition of Mr. Strong, in which he stated that those properties were not vacant and free of tenancies as of December 18, 2017 as required by the Contracts, and that there were no plans to remove them. (Neuhaus Decl. Ex. C, Strong Dep. 36-38, ECF No. 42-4).
The Defendants argue that the only circumstance that excuses a plaintiff from tendering performance on law day is the presence of uncurable title defects, and that other actions or inactions by a defendant are insufficient to excuse the plaintiff from tendering performance on law day. In support, the Defendants cite
However, the Defendants are misreading
In this case, Mr. Riegler's declaration that the Plaintiff was locked out of 1988 Morris Ave. and 1974 Morris Ave. after the License Agreement was executed, and that access was denied to 700 Beck St., 1143 Forest Ave., and 1821 Topping Ave., together with the deposition testimony of Mr. Telahun that the commercial tenant never took possession, and Mr. Strong's deposition testimony that 700 Beck St., 1143 Forest Ave., and 1821 Topping Ave. were not vacant of residential tenants, raise genuine issues of material fact with respect to whether the Defendants breached the Contracts, thereby excusing the Plaintiff from tendering performance on December 18, 2017. Given this determination, there is no need to address whether there also existed uncurable title issues on law day.
Because the Plaintiff raised a genuine issue of material fact with respect to the Defendants' breach of the Contracts, the Defendants' argument that summary judgment must be granted due to the Plaintiff's failure to tender performance on law day must be rejected. If it is ultimately found that the Defendants did, in fact, anticipatorily or actually breach the Contracts, the Plaintiff's burden on the specific performance claim would be to establish that it was ready, willing, and able to close. In that regard, the Plaintiff submitted the declaration of Joel Leifer, stating that, if the Plaintiff was unable to obtain financing through a conventional or hard money lender, he was willing to fund the purchases of the properties under the Contracts.
The Defendants argue that the Plaintiff's failure to attend the closings is prima facie evidence that the Plaintiffs were not ready, willing, and able to close. In support, the Defendants cite two recent New York Appellate Division cases,
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Because the Defendant has not established that the Plaintiff was not ready, willing, and able to close under the Contracts, and because the Plaintiff raised a genuine issue of material fact with respect to the Defendants' breach under the Contracts, the Defendants' summary judgment motion is denied. A separate order will issue.