45 John Ny, LLC v. HS 45 John LLC (In re HS 45 John LLC)
| Decision Date | 09 February 2018 |
| Docket Number | Adv. Proc. No. 16–01180 (SHL),Case No. 15–10368 (SHL) |
| Parties | IN RE: HS 45 JOHN LLC, Debtor. 45 John NY, LLC, Plaintiff, v. HS 45 John LLC, Defendant. |
| Court | United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York |
GOLDBERG WEPRIN FINKEL GOLDSTEIN LLP, Counsel for HS 45 John LLC, 1501 Broadway, 22nd Floor, New York, NY 10036, By: J. Ted Donovan, Esq.
SHER TREMONTE LLP, Counsel for 45 John NY, LLC, 80 Broad Street, Suite 1301, New York, NY 10004, By: Justin M. Sher, Esq., Mark Cuccaro, Esq.
Before the Court is the motion of HS 45 John LLC (the "Defendant" or the "Debtor") for summary judgment dismissing this adversary proceeding [ECF No. 9] (the "Motion"), and the motion of 45 John NY, LLC (the "Plaintiff" or the "Purchaser") opposing the Motion and cross-moving for summary judgment [ECF No. 16] (the "Cross–Motion" and, together with the Motion, the "Motions"). For the reasons stated below, the Court denies both Motions.
To understand the present Motions, some background on Debtor's related bankruptcy case is necessary. The Debtor filed for Chapter 11 relief on February 20, 2015. Defendant's Response to Plaintiff's Statement of Allegedly Undisputed Facts ("Undisputed Facts") ¶ 1 [ECF No. 18]. Debtor was the proposed purchaser of the real property located at 45 John Street, New York, NY (the "Property") under a September 19, 2014 contract with 45 John Lofts LLC, the owner at that time. Undisputed Facts ¶¶ 2–3. The Debtor alleges that after making a down payment of $14.33 million toward the $65.9 million purchase price, the principals of 45 John Lofts LLC, Chaim Miller and Sam Sprei, misappropriated the bulk of the deposit and then failed to close. Motion ¶ 7. The resulting default interest and potential foreclosure action motivated Debtor's Chapter 11 filing. Id. ¶ 8.
In its resolution of the bankruptcy, the Debtor together with 45 John Lofts LLC (collectively the "Sellers") agreed to sell the property to the Purchaser. Cross–Motion at 2; Undisputed Facts ¶ 3. The parties entered into an Asset Purchase Agreement, dated October 19, 2015 (the "APA") [ECF 1–1], for the sale and purchase of the Property. Undisputed Facts ¶ 3. The APA set a purchase price of $73M. APA § 3.1. For the purposes of this adversary proceeding, the relevant provisions of the APA include the following definitions and representations:
The APA was approved by this Court pursuant to the Order Confirming Debtor's Chapter 11 Plan Of Reorganization As Supplemented And Approving The Sale Of Real Property At 45 John Street, New York To 45 NY LLC Free And Clear Of All Claims, Liens, Taxes And Non–Permitted Encumbrances dated December 22, 2015 (the "Approval Order") [Case No. 15–10368, ECF No. 184].
Purchaser closed on the Property on January 15, 2016 (the "Closing"). Motion ¶ 9. Before closing on the Property, the Purchaser conducted on-site due diligence during which it encountered a cell tower structure on the Property (the "Cell Tower"). Undisputed Facts ¶ 8. As it turned out, an earlier fee owner of the Property had entered into an N.Y. Structure Lease Agreement, dated December 14, 2004 (the "Cell Tower Lease"), with Lin Cellular Communications Corporation (NY), LLC, which subsequently became Cingular Wireless PCS LLC (also known as AT & T Wireless) (hereinafter "AT & T"). Undisputed Facts ¶ 9. On or around the date of the Closing (January 15, 2016), the parties established an escrow of $25,000 to be held by "Kevin Nash, Esq. of Goldberg Weprin Finkel Goldstein LLP, as disbursing agent under the Plan ... pending resolution of the motion to terminate or reject the [AT & T] Cell Tower Lease," and memorialized by an "Escrow Receipt." Complaint to Recover Money From Debtor Ex. B (the "Escrow Agreement") [ECF No. 1]. The parties dispute what was known by whom regarding the Cell Tower Lease at the time of the Closing, what representations were made regarding any planned removal of the Cell Tower, the purpose and scope of the Escrow Agreement, and the impact of the Cell Tower on the condition of the Property. See Undisputed Facts.
Ultimately, the Debtor filed Debtor's Motion To Terminate Cell Tower Lease Or Alternatively To Reject Cell Tower Lease (the "Rejection Motion") [Case No. 15–10368, ECF No. 188]. That Rejection Motion was opposed by AT & T. See AT & T's (A) Objection To Debtor's Motion To Terminate Cell Tower Lease or Alternatively To Reject Cell Tower Lease And (B) Motion Pursuant To FRCP 60(B) For Relief From Sale Order (the "Rejection Objection") [Case No. 15–10368, ECF No. 193]. In late June 2016, the Court held a hearing on the Rejection Motion (the "Rejection Hearing"), at which time the Court denied the Rejection Motion and granted AT & T's requested relief under Rule 60(b) of the Federal Rules of Civil Procedure ("FRCP"). See H'rg. Tr. [Case No. 15–10368, ECF No. 223]. The Court memorialized its ruling with a subsequent order dated July 11, 2016 (the "Rejection Order") [Case No. 15–10368, ECF No. 221]. No appeal was filed from the Rejection Order.
At the Rejection Hearing, the Court touched on the issue of potential Debtor liability related to the Cell Tower Lease as it attempted to ascertain the parties' views on their respective rights and any anticipated additional litigation. After the Court explained that its understanding at that time was that such liability was limited to the $25,000 held in escrow, the Court requested confirmation of its understanding from Debtor's counsel while inviting "anybody else [to] chime in if they disagree[d] or ... want[ed] to be heard on th[e] issue." Hr'g. Tr. 14:18–20. Debtor's counsel responded affirmatively and Purchaser's counsel said nothing. Hr'g. Tr. 14:18–15:7. The Court followed up on these comments with a similar observation in the Rejection Order, while explicitly preserving AT & T and Purchaser's "rights, claims, and defenses under the Cell Tower Lease and applicable non-bankruptcy law ...." Rejection Order at 2. The parties dispute the significance of the Court's statements as well as each other's responses (or lack thereof). These disputes are at the core of the Motion and Cross–Motion.
On July 6, 2016, Purchaser commenced the instant adversary proceeding asserting claims against Debtor for breach of contract under the APA. See Complaint to Recover Money From Debtor (the "Complaint") at 4, ¶ 17 [ECF No. 1]. In the Complaint, Purchaser alleges that Debtor breached the APA by (1) failing to ensure the Property was "free and clear of all claims, liens, taxes and encumbrances of any kind or nature whatsoever" (APA § 2.1); (2) failing to ensure the Property was "vacant and no person or entity ha[d] any right or option to lease or acquire any portion thereof" (APA § 7.1.30); and (3) falsely representing that it had "not entered into any leases, licenses, or other occupancy agreements, or any service contracts or other contracts or agreements affecting any portion of the John Street Property" (APA § 7.1.5). Purchaser contends that the result of these alleged breaches of the APA is that Purchaser is unable to use the premises as intended. Complaint ¶ 15; see id. ¶ 14 (); see Declaration of Vlad Tsirkin ("Tsirkin Decl.") ¶ 13 [ECF No. 16–8]. Purchaser specifically requests that the Court award damages of $500,000 (Complaint ¶ 20), which matches its report of AT & T's estimated cost to remove or relocate the Cell Tower (Complaint ¶ 17). Purchaser contends that it is now entitled to prevail on its claims as a matter of law. See Cross–Motion at 1.
Debtor does not deny the existence of a contract or that Purchaser upheld its performance obligations by paying the purchase price. Rather, Debtor challenges the breach allegations and offers several affirmative defenses that it argues should result in summary judgment in its favor. Specifically, Debtor argues that Purchaser waived its contractual rights to sue for breach of the APA by its actions in relation to the Rejection Hearing (including the creation of the escrow), and that the Court's Rejection Order precludes Purchaser's Complaint under the doctrines of res judicata, collateral estoppel, and the law of the case. Motion ¶ 22; Debtor's Reply Memorandum of Law in Further Support of Motion for Summary Judgment Dismissing ("Debtor Reply and Opp.") at 4–6 [ECF No. 17]. Debtor asserts that if it does not prevail on its affirmative defenses, the Court should deny summary judgment to the Purchaser because Debtor has not breached APA Sections 7.1.5 or 7.1.3, and because in regards to Purchaser's rights to sue, the APA and Escrow Agreement read together are at best ambiguous. Debtor Reply and Opp. at 4.
FRCP 56 governs the granting of summary judgment and is made applicable to this adversary proceeding under Rule 7056 of the Federal Rules of Bankruptcy Procedure. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the [movant] is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett , 477 U.S. 317, 322, 106 S.Ct....
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