Cipriano v. Glen Cove Lodge

• Decision Date: 28 October 2003
• Citation: 801 N.E.2d 388,769 N.Y.S.2d 168,1 N.Y.3d 53
• Parties: MICHAEL CIPRIANO, Appellant-Respondent, v. GLEN COVE LODGE #1458, B.P.O.E., et al., Respondents, and GASPER BUFFA, Respondent-Appellant.
• Court: New York Court of Appeals Court of Appeals

1 N.Y.3d 53

801 N.E.2d 388

769 N.Y.S.2d 168

MICHAEL CIPRIANO, Appellant-Respondent, v. GLEN COVE LODGE #1458, B.P.O.E., et al., Respondents, and GASPER BUFFA, Respondent-Appellant.

Court of Appeals of the State of New York.

Argued September 11, 2003.

Decided October 28, 2003.

Sordi & Sordi, LLP, Glen Cove (Michael Sordi of counsel), for appellant-respondent.

Vincent P. Taranto, P.C., Glen Cove (Vincent P. Taranto of counsel), for respondent-appellant.

Ryan, Brennan & Donnelly LLP, Floral Park (John M. Donnelly of counsel), for respondents.

Chief Judge KAYE and Judges G.B. SMITH, CIPARICK, GRAFFEO and READ concur.

OPINION OF THE COURT

ROSENBLATT, J.

In this real property case, we are called upon to adjudicate the rights and remedies of the three parties before us: the holder of a right of first refusal, the buyer of the property and the seller.

I.

In June 1955, five trustees of the Benevolent and Protective Order of Elks, Glen Cove Lodge #1458 (Lodge) entered into a stipulation with Gasper Buffa—who was selling a parcel of land to the Lodge—that promised Buffa a "first option to re-purchase" the property at fair market value in the event the Lodge offered the premises for sale.¹ For the first three decades following the grant of this right, the Lodge scrupulously honored its obligations to Buffa. In October 1995, after it had received a bona fide offer to purchase the property, the Lodge extended Buffa the opportunity to exercise his right. In a letter of October 28, 1995 (inadvertently dated 1996), Buffa declined, but said he wanted to keep his "options open" should the Lodge's deal fall through. Again, in May 1996 and December 1996, the Lodge advised Buffa that it had received bona fide offers for the property and extended him the right of first refusal. In both instances, Buffa declined.

In 1997, the Lodge entered into negotiations with Michael Cipriano for the sale of the property, and on February 10, 1998, the Lodge sent Cipriano a proposed agreement. After substantial delay, the Lodge and Cipriano entered into a contract of sale on July 2, 1999. The agreement, however, was not made contingent on Buffa waiving his right of first refusal, nor did it disclose the existence of that right. Cipriano agreed to pay $550,000 for the property, with $55,000 down. The contract set August 2, 1999 as the closing date. A rider to the contract further provided that:

"In the event title is unmarketable, the sole remedy of the Purchaser will be to accept such title as the Seller shall be able to deliver without abatement in the purchase price, or in the alternative, to cancel this Agreement and receive a refund of the Contract down payment, together with the net charges actually charged to the Purchaser for the examination of title, without insurance . . . and cost of a survey. Upon such refund . . . the Seller shall not be liable for any other costs or damages whatsoever."

When Cipriano and the Lodge entered into the contract, Cipriano evidently had notice of Buffa's outstanding right of first refusal. Indeed, Buffa and Cipriano, as long-time members of the Lodge, were well acquainted with one another. Nevertheless, based on the Lodge's representations, Cipriano was led to believe that Buffa had waived his right. In an August 3, 1999 letter, Cipriano asked the Lodge to confirm that it had Buffa's written waiver, and to produce it. The Lodge, however, ignored the request. Two days later, Cipriano informed the Lodge that Buffa had not waived his right of first refusal, and, indeed, wanted a price for the waiver. On August 9, Cipriano wrote the Lodge, demanding "immediate clarification" concerning the status of Buffa's right of first refusal.

Contrary to the Lodge's representations to Cipriano, Buffa had never waived his right of first refusal. Indeed, the Lodge never extended Buffa the opportunity to exercise his right before or after it entered into its contract with Cipriano, even though Buffa advised the Lodge of his claim. In a September 2, 1999 letter to the Lodge, Buffa expressed his "sincere interest in exercising his `re-purchase right'" and asked for a copy of the executed contract for his review. The Lodge ignored this request as well. Instead, it demanded proof of Buffa's right of first refusal. On September 20, Buffa forwarded the Lodge a copy of the 1955 agreement creating the right. He again asked the Lodge for a copy of the Lodge's contract with Cipriano, and again the Lodge ignored the request.

On September 15, 1999, the Lodge wrote Cipriano to inform him that Buffa had not effected a waiver, and it furnished Cipriano a copy of Buffa's "purported right of first refusal." The Lodge also reminded Cipriano that it was "unwilling to bring any action or proceeding or to expend any money or expense with respect to this title issue" and asked him if he was willing to take title, subject to Buffa's right. On September 24, 1999, Cipriano wrote the Lodge, asking it to clarify its position regarding the status of Buffa's right of first refusal. When the Lodge failed to reply, Cipriano, by a letter dated October 4, 1999, again asked the Lodge to explain its position with respect to Buffa's rights. On October 5, in a letter to Cipriano, the Lodge reaffirmed the position it assumed in its September 15 letter: that Cipriano could take title, subject to Buffa's right of first refusal, but without abatement of the purchase price.

Meanwhile, Cipriano initiated negotiations with Buffa, with the goal of buying out Buffa's preemptive right. These discussions proved unavailing and delayed Cipriano's closing with the Lodge. Finally, in a letter to Cipriano dated December 28, 1999, the Lodge attempted to cancel its contract and returned Cipriano's down payment of $55,000. On January 3, 2000, Cipriano sent the check back, rebuking the Lodge for its attempt at unilateral cancellation. The Lodge responded on January 13, instructing Cipriano to close on January 28. It warned that time was of the essence and that it would count Cipriano's failure to appear as a default entitling it to keep the down payment. On January 26, 2000, Cipriano informed the Lodge that he was initiating litigation to quiet title and that he did not intend to close on January 28. On January 27, the Lodge informed Cipriano that he had committed an anticipatory breach and that it would keep the down payment.

Cipriano brought this action against the Lodge and Buffa. He alleged that the Lodge could not and did not deliver marketable title to the property, and that the Lodge had interfered with his contractual right to the property. Cipriano sought specific performance and damages for breach of contract. In its answer, the Lodge denied Cipriano's allegations and argued that when Cipriano signed the contract he had notice of Buffa's claims to the property. The Lodge also counterclaimed against Cipriano for failing to attend the scheduled January 28, 2000 closing. This default, the Lodge asserted, entitled it to keep the down payment. In his answer, Buffa claimed that he held a valid right of first refusal, that the Lodge violated that right by contracting with Cipriano and that it had failed to extend him an offer to purchase the property or even furnish him with a copy of the contract. Buffa moved for dismissal of Cipriano's claim and filed a cross claim against the Lodge for damages or specific performance of his right of first refusal.

On the Lodge's motion for summary judgment, Supreme Court dismissed Cipriano's claim and Buffa's cross claim and granted summary judgment on the Lodge's counterclaim. It also granted Buffa's motion for summary judgment on Cipriano's complaint against him. The court determined that the "Lodge was always ready, willing and able to honor its contractual obligations" and that Cipriano had received his bargained-for performance. As to Buffa's cross claim, the court held that Buffa could not exercise his right of first refusal because the Lodge "[was] not selling the property to plaintiff and indeed abandoned the transaction prior to its consummation."

Cipriano and Buffa appealed. The Appellate Division modified Supreme Court's judgment, upholding dismissal of Cipriano's complaint and Buffa's cross claim, but issuing a declaration in favor of the Lodge allowing it to keep the down payment. As to Buffa, the Court observed that he had "never exercised his right of repurchase." (297 AD2d 649, 653 [2002].) Finally, the Court affirmed Supreme Court's grant of summary judgment for the Lodge on its counterclaim against Cipriano. We granted Cipriano and Buffa leave to appeal, and we now modify.

II. Buffa's Right of First Refusal

This Court last addressed the enforceability of a right of first refusal in LIN Broadcasting Corp. v Metromedia, Inc. (74 NY2d 54 [1989]). All the parties claim that LIN supports their position. In LIN, we settled the question of "whether a contractual right of first refusal, which has been triggered by a contract to sell to a third party, may be exercised during the specified duration of the right but after the third-party transaction has been abandoned" (id. at 56-57). Stressing the difference between an option and a right of first refusal, we held that the grantor of a right of first refusal is obligated to give the holder of the right only an opportunity to buy the property. The grantor is not obligated to "render more than its promised performance . . . by keeping the offer open for the period specified in the first refusal clause" (id. at 62). The holder of a right of first refusal must be given the opportunity to exercise the preemptive right, but the right is extinguished when the contract with the third party expires or is abandoned.

In Yudell Trust I v API Westchester Assoc. (227 AD2d 471, 473 [2d Dept 1996]), the Appellate Division elaborated on our holding in LIN by concluding that someone who holds a right of first refusal may create a "binding contract" with the grantor by...