904 Tower Apartment LLC v. Mark Hotel LLC, 10 Civ. 9701 (LLS)
| Decision Date | 20 May 2016 |
| Docket Number | 10 Civ. 9701 (LLS) |
| Parties | 904 TOWER APARTMENT LLC and MADISON APARTMENT 905 LLC, Plaintiffs, v. THE MARK HOTEL LLC, MARK HOTEL SPONSOR LLC, THE MARK HOTEL OWNERS CORP., ALEXICO GROUP, LTD., 205 EAST 45 LLC, SIMON ELIAS, IZAK SENBAHAR and JOHN DOES 1-10 Defendants. |
| Court | U.S. District Court — Southern District of New York |
ORIGINAL
Plaintiffs 904 Tower Apartment LLC and Madison Apartment 905 LLC move for summary judgment against Mark Hotel Sponsor LLC, Mr. Simon Elias, and Mr. Izak Senbahar for breach of contract, damages in the amount of approximately $2,593,750 plus prejudgment and postjudgment interest, and for dismissal of Mark Hotel Sponsor LLC's and Mark Hotel LLC's (collectively, "Mark Hotel's") counterclaims for legal fees and tortious interference.
All named defendants move for summary judgment dismissing all of plaintiffs' claims, and granting defendant Mark Hotel summary judgment on its counterclaims.
For the following reasons, both motions for summary judgment are denied.
Unless otherwise stated, the following facts are taken from each party's Local Rule 56.1 Statement of Undisputed Facts.
The Mark Hotel project involved the gutting and renovation of a historic building in the Upper East Side of Manhattan for conversion into a hotel and luxury cooperative apartments. This action arises out of the proposed sale of two cooperative apartments (units 904 and 905) of the Mark Hotel.
After a series of proceedings involving pleadings (three complaints, including amendments) of seven claims, four counterclaims, and twelve affirmative defenses, the claims remaining in this action as a whole are comprehensible. Plaintiffs want the return of their deposits (totaling $2,593,750) for defendants' claimed breach of contract, failure of performance, and fraud in rescission proceedings before the New York Attorney General. Defendants counterclaim for recovery of their legal fees and costs defending this litigation, and damages for plaintiffs' alleged tortious interference with their contracts and relationship with their prospective purchasers and lender.
The issues addressed in these cross-motions for summary judgment are narrower. They are confined to plaintiffs' breach of contract claim, and defendants' counterclaims for legal fees and tortious interference.
A motion for summary judgment shall be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552 (1986) (). The movant's materials "must be viewed in the light most favorable to the opposing party." Adickes v. S. H. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 1608 (1970). United Indus. Corp. v. IFTE plc, 293 F. Supp. 2d 296, 299 (S.D.N.Y. 2003) ().
As a threshold matter, defendants argue that plaintiffs' pursuit of their breach of contract claim is barred because it was already adjudicated against them ("res judicata") by the NewYork Attorney General's denial of their 2009 application for rescission of their purchase agreements and return of their down payments. On a full analysis of that argument in an earlier opinion, I ruled that the proceeding was not sufficiently quasi-judicial to be preclusive, see 904 Tower Apartment LLC v. Mark Hotel LLC, 853 F. Supp. 2d 386, 392-94 (S.D.N.Y. 2012). Defendants now contend that analysis should be re-evaluated in light of subsequent New York court determinations that the Attorney General's determinations are entitled to be treated as res judicata.1 See CRP/Extell Parcel I, L.P. v. Cuomo, 101 A.D.3d 473, 474 (App. Div. 1st Dep't 2012); Coffey v. CRP/Extell Parcel I, L.P., 117 A.D.3d 585, 585 (App. Div. 1st Dep't 2014), lv. dsmssd., 24 N.Y.3d 934, 17 N.E.3d 1142, 993 N.Y.S.2d 545 (Mem) (2014); Bevilacqua v. CRP/Extell Parcel I, L.P., 126 A.D.3d 429, 429 (App. Div. 1st Dep't 2015); Sapphire Inv. Ventures, LLC v. Mark Hotel Sponsor LLC, 131 A.D.3d 821, 822 (1st Dep't 2015).
Accepting2 the New York State courts' treatment of its Attorney General's decision as res judicata, there remains agenuine dispute of material fact whether plaintiffs at that time knew of or could have litigated defendants' purportedly material nondisclosures regarding the Mark Hotel project's financing, which precludes granting summary judgment in favor of defendants on res judicata grounds.
Plaintiffs now argue for rescission because of defendants' alleged nondisclosure of loan defaults and the failure to pay sums due at maturity, and the ad-hoc loan extensions that were not supported by guarantees--information they allege was not available to them or reasonably ascertainable at the time of the Attorney General's proceeding. They say:
It was neither known at the time nor presented in this application that (1) all the project's loans had been in default due to failure to pay at maturity for six weeks prior to this; (2) defendants had received letters indicating defaults on loans for two other interrelated projects financed by the same lender; (3) defendants had received a notice of default from the mezzanine lender; (4) the maturity dates were extended only to May 31, 2009 on which date additional default was certain; and (5) Defendants had in fact defaulted on May 31, 2009 and were still in default of those loans at the time of the application.
Plaintiffs' Counterstatement to Defendants' Local Rule 56.1 Statement ¶ 99. Defendants argue that plaintiffs' application was:
premised on most (but not all) of the issues that plaintiffs have asserted in this action, including allegations based on non-disclosure of information about the financing of the Mark Hotel renovation project, non-designation of the Suites for stays of unlimited duration, non-formation of Owners Corp., thephysical condition of the Suites and the Building, expiration of the Offering Plan, failure to reschedule the closing on reasonable notice and failure to allow a reasonable inspection.
Defendants' Local Rule 56.1 Statement ¶ 99.
As stated in Sapphire (131 A.D.3d at 821):
To the extent plaintiffs' action is based on defendants' alleged failure to disclose the financial entanglement between the Mark Hotel and two other distressed hotels, it is not barred by the doctrines of res judicata or collateral estoppel. The claims and issue of financial entanglement were never raised or decided in the AG's proceeding, nor could they have been raised there, as plaintiffs did not discover the evidence of financial entanglement until after the AG issued its determination.
The dispute whether plaintiffs knew of or could have raised the nondisclosures as grounds in their application to the Attorney General for rescission precludes granting summary judgment in favor of defendants on res judicata grounds.
Both parties move for summary judgment on plaintiffs' breach of contract claim as a matter of law.
On January 31, 2008, plaintiff 904 Tower Apartment LLC entered into a purchase agreement with defendant Mark Hotel Sponsor LLC to purchase a cooperative share for $8.45 million, placing a deposit of $2,112,500 into escrow with Mark Hotel Sponsor LLC's attorneys, Kramer Levin Naftalis & Frankel LLP. That same day, plaintiff Madison Apartment 905 LLC entered into a purchase agreement with Mark Hotel Sponsor LLC to purchase theshare corresponding to the adjacent apartment for $1.925 million, placing a deposit of $481,250 into escrow with Kramer Levin Naftalis & Frankel LLP. Altogether, those deposits totaled $2,593,750.
The purchase agreements plaintiffs executed with Mark Hotel Sponsor LLC incorporated the offering plan and its amendments.
Making complaints about the condition of the premises, plaintiffs failed to appear or close on April 23, 2009 and Mark Hotel Sponsor LLC declared them in default. The purchasers of two other cooperative apartments closed on their purchases before May 1, 2009.
The parties agree that Sponsor had a duty to disclose material changes to the operating plan and that failure to do so would permit plaintiffs to rescind their purchases. They disagree over whether the missed payments, refinancing, or the mezzanine lender's financial problems were material.
A fact is material if there is "a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." State v. Rachmani Corp., 71 N.Y.2d 718, 726, 525 N.E.2d 704, 708, 530 N.Y.S.2d 58, 62 (1988) (quotations omitted).
Courts have granted summary judgment finding as a matter of law a sponsor's default was a material nondisclosure:
The failure to disclose the sponsor's inability to meet mortgage payments, the commencement of an action by various unit owners, and the failure of certain unit owners to pay the common charges, were unquestionably "material" non-disclosures, i.e., giving rise to a substantial likelihood that a reasonable shareholder would consider it important. This is so even if the defendants believed in good faith that the mortgage would be extended, or the action settled.
State v. Manhattan View Dev., Ltd., 191 A.D.2d 259, 259, 595 N.Y.S.2d 13, 13 (App. Div. 1st Dep't 1993) (citing Rachmani). The facts in Manhattan View were summarized by the trial court (State v. Manhattan View Dev., Ltd., No. 43017/90, 1991 WL 11764815 (Sup....
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