Shahab Karmely, SK Greenwich LLC v. Eitan Wertheimer, Ezra Dagmi, W-D Grp. (2006) LP

• Decision Date: 09 December 2013
• Docket Number: Docket No. 12–3781–CV.
• Citation: 737 F.3d 197
• Parties: Shahab KARMELY, SK Greenwich LLC, Plaintiffs–Appellants, v. Eitan WERTHEIMER, Ezra Dagmi, W–D Group (2006) LP, W–D Group NY1, LLC, John Does, 4–20, 443 Greenwich LLC, 443 Greenwich Partners LLC, W. Family 1 Ltd., Defendants–Appellees, Anglo Irish Bank Corporation Limited, Defendant.
• Court: U.S. Court of Appeals — Second Circuit

737 F.3d 197

Shahab KARMELY, SK Greenwich LLC, Plaintiffs–Appellants,

v.Eitan WERTHEIMER, Ezra Dagmi, W–D Group (2006) LP, W–D Group NY1, LLC, John Does, 4–20, 443 Greenwich LLC, 443 Greenwich Partners LLC, W. Family 1 Ltd., Defendants–Appellees,Anglo Irish Bank Corporation Limited, Defendant.

Docket No. 12–3781–CV.

United States Court of Appeals,Second Circuit.

Heard: June 26, 2013.

Decided: Dec. 9, 2013.

David A. Pellegrino, Phillips Nizer LLP, New York, NY (Chryssa V. Valletta, Carl D. LeSueur, Phillips Nizer LLP, New York, NY; John J. Giardino, NYT Law Group, New York, NY, on the brief), for Appellants.

Stephen R. DiPrima, New York, NY (Bradley R. Wilson, Wachtell, Lipton, Rosen & Katz, New York, NY, on the brief), for Appellees.

Before: NEWMAN, WINTER, and DRONEY, Circuit Judges.

JON O. NEWMAN, Circuit Judge.

This appeal presents the recurring issue of whether relevant documents are ambiguous, precluding their interpretation on a motion to dismiss, but the issue arises in the unusual context of an agreement for a loan from a lender to himself and his partner. A minor though intriguing issue, rarely if ever encountered in a judicial opinion, is whether the character “i” identifying a subparagraph in one of the documents is a lower case letter “i” or a lower case version of a Roman numeral “I,” sometimes referred to as a romanette.¹

Plaintiffs–Appellants Shahab Karmely and SK Greenwich LLC appeal from the August 21, 2012, order of the United States District Court for the Southern District of New York (Robert P. Patterson, Jr., District Judge), granting the motion to dismiss by Defendants–Appellees Eitan Wertheimer, Ezra Dagmi, 443 Greenwich LLC, 443 Greenwich Partners, LLC, W. Family 1 Ltd., W–D Group (2006) LP, W–D Group NY1, LLC, and John Does 4–10.

We conclude that in two respects the documents are ambiguous, precluding dismissalof the Amended Complaint, and we therefore remand for further proceedings.

Background

The following facts are taken from the Amended Complaint and assumed to be true for purposes of the motion to dismiss.

People and entities. Appellant Karmely is an experienced New York City real estate developer. Appellee Eitan Wertheimer is an Israeli citizen, and Appellee Ezra Dagmi is a dual citizen of Israel and the United Kingdom. Dagmi and Werthheimer are close friends and partners in real estate ventures. Dagmi and his family have had a close personal relationship with Karmely and his family for more than 35 years. Dagmi has repeatedly referred to this relationship as a “family relationship of trust.”

The entities involved are:

—Appellant SK Greenwich, LLC (“SK Greenwich”) a Delaware Limited Liability Company, of which Karmely is the sole member;

—Appellee W–D Group (2006) LP (“W–D Lender”), an Israeli limited partnership, controlled by Wertheimer and Dagmi;

—Appellee W–D Group NY1 LLC (“W–D Partner”), a Delaware Limited Liability Company, of which W–D Lender is the sole member;

—Appellee 443 Greenwich Partners LLC (“443 Partners” or the “Company”), a Delaware Limited Liability Company, of which SK Greenwich and W–D Partner are the sole members;

—Appellee 443 Greenwich LLC (“Greenwich Owner”), a Delaware Limited Liability Company, of which 443 Partners is the sole member;

—Anglo Irish Bank Corporation PLC (“Anglo Irish Bank”).

In 2005, Wertheimer and Dagmi approached Karmely about developing a multi-billion dollar real estate portfolio. Karmely agreed to act as a developer for this venture, and instead of requiring a customary development fee, agreed to accept a percentage of the profits on each development as compensation for his services. In September 2006 SK Greenwich agreed with W–D Partner to form the Company to purchase and develop a building at 443–53 Greenwich Street, New York, N.Y. (the “Property”). SK Greenwich, i.e., Karmely, contributed approximately $5 million and W–D Partner, i.e., Wertheimer and Dagmi, contributed approximately $20 million of capital to the Company, for which they received 20 percent and 80 percent ownership interests, respectively, of the Company.

In September 2006, the Company created Greenwich Owner, which purchased the Property for $113 million. To fund the purchase and development of the Property, two loans were obtained. The Company obtained an $85 million mortgage loan from Anglo Irish Bank Corporation PLC (the “Anglo Senior Loan”), with a maturity date of October 1, 2008. SK Greenwich and W–D Partner obtained a $20 million mezzanine loan (the “Mezzanine Loan”) from W–D Lender, with a maturity date of October 1, 2009.²

The documents. Several documents are relevant to this litigation. We only identify them at this point and set forth their relevant terms in the paragraphs that follow:

—an Operating Agreement to govern the operation and management of the Company, signed, as MEMBER, by W–D Partner and SK Greenwich;

—a Mezzanine Loan Agreement, signed, as LENDER, by W–D Lender and, as BORROWER, by W–D Partner and SK Greenwich;

—a Promissory Note, signed, as BORROWER, by W–D Partner and SK Greenwich, in favor of W–D Lender;

—a Pledge and Security Agreement (“Pledge Agreement”), signed, as PLEDGOR, by W–D Partner and SK Greenwich, and, as Lender, by W–D Lender.

—a Subordination and Intercreditor Agreement (“Intercreditor Agreement”), signed, as SENIOR LENDER, by Anglo Irish Bank and, as MEZZANINE LENDER, by W–D Lender.

All five documents are dated September 7, 2006.

The Mezzanine Loan was senior to the equity investments of SK Greenwich and W–D Partner in the Company, but subordinate to the Anglo Senior Loan. The Mezzanine Loan Agreement gave W–D Lender, upon an “Event of Default,” the remedies provided by the Loan Documents, which included the Pledge Agreement. The Pledge Agreement gave W–D Lender the right to foreclose on the interests of either SK Greenwich or W–D Lender in the Company (hence in the Property) upon an “Event of Default.” The Mezzanine Loan Agreement provided several definitions of an “Event of Default.” A major issue on this appeal, discussed in detail below, is which of two of these definitions applied to nonpayment of the Mezzanine Loan. One definition identified nonpayment of the Promissory Note as an Event of Default only if there was Available Net Cash Flow.

The Promissory Note, evidencing the Mezzanine Loan, stated that it would mature on October 1, 2009. It was secured by 100 percent of the ownership interests of W–D Partner and SK Greenwich in the Company, i.e., their shares in the Company, which owned the Property through Greenwich Owner.

The Pledge and Security Agreement obligated SK Greenwich and W–D Partner to “pay or satisfy all of the Obligations” including the full amount of the Promissory Note.

The Intercreditor Agreement recited the agreement of Anglo Irish Bank to lend $85 million to Greenwich Owner. Paragraph 4(d) of the Intercreditor Agreement provided:

Until all of Borrower's [ i.e., the Company's] obligations under the Anglo Senior Loan Documents have been paid and performed in full, no payment whatsoever shall be made to Mezzanine Lender [ i.e., W–D Lender] by or on behalf of Borrower [ i.e., the Company], Mezzanine Borrower [ i.e., W–D Partner and SK Greenwich], or any Guarantor for or on account of any amount due under the Mezzanine Loan Documents.

Despite the prohibition on payment of the Mezzanine loan prior to the full payment of the Anglo Senior Loan, the Intercreditor Agreement also provided that “upon the occurrence of an event of default under the Mezzanine Loan Documents,” W–D Lender could commence an “Enforcement Action” to “enforce the Mezzanine Pledge or conduct a sale of the Ownership Interests pursuant to the Mezzanine Pledge.” Id. ¶ 7(b). The Intercreditor Agreement also stated, “This agreement is for the sole benefit of the Anglo Senior Lender, Mezzanine Lender, and their respective successors and permitted assigns.” Id. ¶ 22.

Extension of the Anglo Senior Loan. In the summer of 2008, a few months before the Anglo Senior Loan was to mature, the Company was preparing to spend more than $500,000 developing the Property. The Company still needed to remove tenants, develop architectural and design plans, obtain proper building and zoning permits, and secure construction financing. In anticipation of these steps, Karmely and Dagmi, as the Company, negotiated an extension of the Anglo Senior Loan from a maturity date of October 1, 2008, to December 31, 2009—a date ninety days after the stated maturity of the Mezzanine Loan. There was no discussion, however, about extending the Mezzanine Loan maturity date past October 1, 2009. In exchange for the extension, the Company had to pre-pay an interest and carry reserve of several million dollars, provide $20 million in personal security for the loan, and give a $10 million personal completion guaranty. Relying upon Dagmi's alleged statements that the W–D entities would fund the project to completion, SK Greenwich posted $4.3 million in cash, representing its share of the required capital contribution. In a meeting on December 9, 2008, Wertheimer reaffirmed Dagmi's commitment to fund the project to completion.

Throughout 2009, SK Greenwich continued its efforts to redevelop the Property by meeting with designers, architects, and contractors. The Company again requested an extension of the Anglo Senior Loan. The Anglo Irish Bank agreed, but the extension was conditioned upon the Company's paying $1.2 million as an interest and carry reserve. SK Greenwich paid approximately $250,000 of that amount. In July 2010, Anglo Irish Bank again extended the maturity date of the loan, this time to December 31, 2010.

Default and sale of SK Greenwich's interests. On September 30, 2010, W–D Lender sent a letter to SK Greenwich and W–D Partner, stating that the principal and interest on the Mezzanine Loan, due on October 1, 2009, had not been paid and that an Event of Default had occurred under the Mezzanine Loan Agreement and the Pledge Agreement. On October...