Banc of Am. Sec. LLC v. Solow Bldg. Co. II, L.L.C.

• Decision Date: 26 October 2010
• Citation: 911 N.Y.S.2d 277,77 A.D.3d 533
• Parties: BANC OF AMERICA SECURITIES LLC, Plaintiff-Respondent, v. SOLOW BUILDING COMPANY II, L.L.C., Defendant-Appellant, Bank of America Corporation, Defendant.
• Court: New York Supreme Court — Appellate Division

911 N.Y.S.2d 277

77 A.D.3d 533

BANC OF AMERICA SECURITIES LLC, Plaintiff-Respondent,

v.SOLOW BUILDING COMPANY II, L.L.C., Defendant-Appellant,Bank of America Corporation, Defendant.

Supreme Court, Appellate Division, First Department, New York.

Oct. 26, 2010.

Boies, Schiller & Flexner, LLP, Armonk (David Boies of counsel), for appellant.

Davis Polk & Wardwell LLP, New York (Robert F. Wise, Jr. of counsel), for respondent.

GONZALEZ, P.J., SAXE, McGUIRE, ACOSTA, ROMÁN, JJ.

Orders, Supreme Court, New York County (Richard B. Lowe, III, J.), entered October 29, 2008, and December 19, 2008, which, inter alia, granted plaintiff's motion to enforce a stipulation of settlement and directed defendant to execute all the documents necessary to effectuate the settlement, modified, on the law, to delete the directive that defendant make a payment of $ 5 million to plaintiff, and to insert a directive that defendant's obligation to make such payment be submitted to arbitration, and otherwise affirmed, without costs.

The court properly enforced the June 2008 term sheet which recited that it was binding and contained all material terms of the parties' settlement in principle.The requirements to execute the sublease agreement, ostensibly for defendant's benefit to avoid running afoul of a mortgage covenant, and other documents, were not material additions, but were merely intended to effectuate those terms that were material.In fact, plaintiff was ready to vacate the premises on the stipulated schedule, and agreed to turn over possession to defendant, through an affiliate created to honor the mortgage covenant under a sublease.Defendant, however, without stating a reason, refused to execute the settlement agreement.

Plaintiff likewise was not precluded from seeking enforcement despite not having surrendered by the "time is of the essence" deadline provided in the term sheet, since its insistence on defendant's first signing an acceptance of surrender as required by paragraph 23B of the lease ( see99 Realty Co. v. Eikenberry,242 A.D.2d 215, 216, 660 N.Y.S.2d 583[1997] ) was not a repudiation; in any event, the deadline was extended by agreement.The only reason the surrender did not occur on the scheduled date was defendant's refusal to sign the papers necessary to effectuate the transfer of possession.Under New York law, surrender of leased premises requires acceptance by the landlord in order to become effective ( Reisler v. 60 Gramercy Park N. Corp.,88 A.D.2d 312, 318, 453 N.Y.S.2d 186[1982]["Surrender does not occur unless there is an unequivocal act of the tenant, accepted by the landlord"] ).

The orders enforced a stipulation of settlement, i.e., the term sheet, pursuant to CPLR 2104, and did not confirm an arbitration award.Even if arguendo the orders referred to an award, they did not constitute premature judicial involvement with interlocutory or procedural arbitral rulings ( cf.Mobil Oil Indonesia v. Asamera Oil [Indonesia],43 N.Y.2d 276, 281, 401 N.Y.S.2d 186, 372 N.E.2d 21[1977] ).Defendant did not raise any substantive issues before the arbitrator and waived any supposed procedural deficiencies ( seeMorgan Guar. Trust Co. of N.Y. v. Solow,114 A.D.2d 818, 822, 495 N.Y.S.2d 389[1985], affd.68 N.Y.2d 779, 506 N.Y.S.2d 674, 498 N.E.2d 147[1986] ).That is, thearbitrator's involvement and retention of jurisdiction over certain matters did not preclude enforcement in court, since defendant failed to present any arbitrable issues to the arbitrator despite the opportunity to do so.Of greater significance is the fact that the orders on appeal did not mention or confirm an arbitration award pursuant to CPLR article 75, but, rather, enforced a stipulation of settlement pursuant to CPLR 2104.

Inasmuch as the parties agreed to arbitrate disputes arising from the term sheet, however, the issue as to whether defendant was required to make a$ 5 million payment to plaintiff should be decided by the arbitrator ( Matter of Smith Barney Shearson v. Sacharow,91 N.Y.2d 39, 49, 666 N.Y.S.2d 990, 689 N.E.2d 884[1997]["New York courts interfere as little as possible with the freedom of consenting parties to submit disputes to arbitration"][internal quotation marks omitted] ).

We have considered defendant's other contentions and find them unavailing.

All concur except McGUIRE, J. who concurs in a separate memorandum as follows:

McGUIRE, J. (concurring).

Although I come to the same place as the majority, I get there by a different road.Explaining our divergence requires the relevant facts to be set forth at some length.

After years of contentious litigation in this action, plaintiff tenant and defendant landlord agreed to mediate their disputes before a retired federal judge, Nicholas H. Politan.In short order, those efforts resulted in an "Agreement in Principle," namely, a three-page "Term Sheet," dated June 10, 2008, designed to provide for a "global resolution and final disposition" of all pending litigation and claims.The Term Sheet provides that it is governed by New York law, that it is "a legal, valid and binding obligation, enforceable against [each party]," that "all material terms of the settlement in principle ... are incorporated into this Agreement," that the parties intended to enter into a "definitive" agreement, a "Settlement Agreement," which "will incorporate such terms as may be necessary and appropriate to effectuate the settlement reflected in the [Term Sheet]" and that the Settlement Agreement "must be executed ... by June 24, 2008, or a date thereafter mutually agreed upon."The Term Sheet also requires plaintiff"to vacate andsurrender" 20 of the floors it leased by August 15, 2008 and the remaining 3 floors by September 15, 2008.In advance of the expiration of the lease on October 31, 2008, the parties also agreed that "time is of the essence with respect to the Surrender Schedule, and that any delay in complying with this schedule shall be a breach of the Settlement Agreement."Although the term "surrender" is a defined term, the definition is tautological as it is defined to mean little more than "to vacate and surrender the premises."Paragraph 6 of the Term Sheet effectively provides for plaintiff to receive a total of $15 million from defendant, either through rent reductions for the lease's last three months or, at defendant's option, through a letter of credit in favor of plaintiff.Finally, paragraph 9 provides for "binding arbitration" before Judge Politan of "any disputes arising ... with respect to this Agreement."

After agreeing to defer the date for execution of the Settlement Agreement, counsel for the parties drafted and negotiated a draft Settlement Agreement.As an August 15, 2008 letter from plaintiff's counsel to defendant's counsel states, "as of ... August 13, we had reached agreement on all open terms, subject only to afinal management review on both sides."Nonetheless, the bright prospect of finality raised by the Term Sheet soon dimmed.

Although the parties had agreed to extend the execution date to August 26, 2008, they did not agree-at least not expressly-to extend past August 15 the deadline for plaintiff to begin surrendering the premises.On August 15, defendant's counsel informed plaintiff's counsel that defendant's management had not approved the draft.In a letter that same day, plaintiff's counsel expressed plaintiff's "surprise[ ] and chagrin[ ]" at being so informed, and stated that plaintiff's management had been willing that day both to execute the draft and surrender the specified 20 floors.Counsel further stated, however, that because defendant was not willing to execute the draft, plaintiff was not willing to proceed with the surrender.By letter dated August 19, 2008, defendant's counsel asserted that under the Term Sheet, plaintiff's time-of-the-essence obligation to begin surrendering the premises on August 15, 2008 was independent of the obligation of both parties to execute the Settlement Agreement by an agreed-upon date; plaintiff could have but did not negotiate for its surrender obligation to be contingent on execution of the Settlement Agreement; a substantial cause of the delay in executing the Settlement Agreement was plaintiff's "request for a material term never negotiated at the mediation-terminating its obligations under theLease prior to October 31, 2008"; defendant was and remained willing to accept surrender of the floors; and defendant would continue to work on coming to agreement on the Settlement Agreement.

As discussed below, the draft Settlement Agreement was not executed before the deadline for its execution, which was extended from August 26 to August 29, 2008.A key if not the sole reason it was not executed is that the parties disagreed over whether, under the Term Sheet, the surrender of the premises entailed a termination of the leasehold as to the surrendered premises.A first draft of the Settlement Agreement, prepared by defendant's counsel, provided that the lease would remain in effect.Plaintiff, however, contended that under New York law, a "surrender" terminates a lease as to the surrendered premises.According to plaintiff, defendant's counsel informed plaintiff's counsel that defendant could not agree to any early termination of the lease because it was prohibited from doing so by mortgage covenants.In an effort to solve this problem, defendant's counsel proposed and drafted, subject to his client's approval, a sublease arrangement pursuant to which the lease would not terminate on surrender.Rather, pursuant to the terms of subsequent drafts of the Settlement Agreement, an affiliate of defendant would be created that would assume all of plaintiff's obligations under the lease and defendant would guarantee the affiliate's performance.

Although the parties continued to try to finalize an agreement after the letters of August 15 and 19, they were unsuccessful.Pursuant to paragraph 9 of the Term Sheet, as is...