Concord Assocs., L.P. v. Ept Concord, LLC

• Decision Date: 30 July 2015
• Docket Number: 519886
• Citation: 2015 NY Slip Op 06393
• Parties: CONCORD ASSOCIATES, L.P., et al., Appellants, v. EPT CONCORD, LLC, et al., Respondents.
• Court: New York Supreme Court — Appellate Division

2015 NY Slip Op 06393

CONCORD ASSOCIATES, L.P., et al., Appellants, v. EPT CONCORD, LLC, et al., Respondents.

519886

Appellate Division of the Supreme Court of the State of New York

Calendar Date: June 4, 2015

Decided and Entered: July 30, 2015

Before: Garry, J.P., Rose, Devine and Clark, JJ.

DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, White Plains (Alfred E. Donnellan of counsel), for appellants.

Morrison Cohen LLP, New York City (Kristin Roy of counsel), for respondents.

Rose , J.

MEMORANDUM AND ORDER

Appeal from an order of the Supreme Court (LaBuda, J.), entered July 7, 2014 in Sullivan County, which, among other things, granted defendants' motion for partial summary judgment.

Plaintiff Concord Associates, L.P. purchased approximately 1,600 acres of real property located in Sullivan County in 1999, and plaintiffs began an effort to develop a resort and casino project there. In 2007, they sought an infusion of capital from entities associated with defendants and ultimately borrowed over $162 million from defendant EPT Concord, LLC. The loan was secured by most of plaintiffs' real property and, when plaintiffs defaulted, the parties entered into a settlement agreement that included a transfer of title to the real property securing the loan to defendant EPT Concord II, LLC (hereinafter EPT).

As part of the settlement, the parties also entered into a casino development agreement (hereinafter CDA), which permitted plaintiffs to continue with their efforts to build the casino component of their original project on a small adjacent parcel that they had retained, but required them to obtain financing for their project "in substantially the form" of a master credit agreement (hereinafter MCA) annexed to the CDA. Successfully doing so within a certain time frame would trigger provisions of the CDA granting plaintiffs various rights and interests in portions of the real property that they had transferred to EPT. For its part, EPT executed a restrictive covenant, pursuant to which it agreed not to build a competing casino as part of its development of adjacent resort facilities on the transferred real property. However, the restrictive covenant provided that it would expire on December 31, 2011, unless plaintiffs first obtained financing "insubstantially the form" of the MCA. The terms of the MCA required plaintiffs to finance their casino project primarily by means of a traditional construction loan of up to $275 million personally guaranteed by their principal, Louis R. Cappelli, and established, among other things, requirements for equity investment, maximum debt load and interest payments.

When plaintiffs were unable to secure the construction loan required by the MCA, they then put forward an alternative financing proposal, the centerpiece of which was a $395 million high-yield bond issue. In June 2011, after it appeared to plaintiffs that EPT would reject their proposal, they commenced this action seeking declarations that their proposed bond financing comported with the terms of the MCA and, therefore, the restrictive covenant should not expire. Defendants joined issue and counterclaimed for declarations that, among other things, plaintiffs had failed to offer financing for the project in substantially the form of the MCA and, therefore, the restrictive covenant should expire by its own terms. Plaintiffs moved to dismiss these two counterclaims, and defendants moved in turn for partial summary judgment on those counterclaims. Meanwhile, EPT advanced a proposal to build a casino on its adjacent property, thereby placing it in direct competition with plaintiffs. At oral argument on the motions, plaintiffs also moved for the recusal of Acting Supreme Court Justice Frank LaBuda, which motion the court denied ¹. At defendants' request, Supreme Court then converted plaintiffs' motion to dismiss to one for summary judgment, denied it and granted defendants' motion in all respects. Plaintiffs now appeal.

Initially, plaintiffs argue that Acting Justice LaBuda abused his discretion in denying their motion for recusal. We agree. "[W]hile we discern no statutory basis for [the court's] disqualification in this matter, the Rules Governing Judicial Conduct do compel a judge to act at all times in a manner that promotes public confidence in the integrity and impartiality of the judiciary, to refrain from allowing family, social, political or other relationships to influence his or her judicial conduct or judgment and to avoid even the appearance of impropriety. Further, while the decision of whether to recuse oneself from a particular matter lies within the discretion of the deciding judge, that discretion is not unlimited" (Matter of Concord Assoc., L.P. v LaBuda, 121 AD3d 1270, 1272 n 3 [2014] [internal quotation marks, brackets and citations omitted]). Indeed, disqualification is warranted "when alleged bias and prejudice arise from an extrajudicial source and result in an opinion on the merits based on the outside source" (People v Wilkins, 147 AD2d 729, 730 [1989], lv denied 73 NY2d 1023 [1989]; see People v Moreno, 70 NY2d 403, 405 [1987]).

In our view, the appearance of bias and prejudice from an extrajudicial source looms over Acting Justice LaBuda's disposition of the case due to the earlier public comments of his wife, Kathleen LaBuda. In the months before Acting Justice LaBuda denied plaintiffs' recusal request and issued his order awarding summary judgment to EPT, Kathleen LaBuda, in her official capacity as the majority leader of the Sullivan County Legislature, vice chair of its Committee on Community and Economic Development and a member of the County Casino Impact Committee, had publicly voiced her support in favor of EPT's competing casino proposal, and those statements of support were reported by local and regional news outlets. In denying plaintiffs' request, however, Acting Justice LaBuda stated that he was unaware of his wife's public support for the EPT proposal and, in any event, it would "in no way impact[] upon [his]impartiality and fairness." These reassurances were belied by the language of the order awarding summary judgment to defendants, in which the court stated that a decision in favor of plaintiffs would be "against public policy." According to Acting Justice LaBuda, by "d[oing] nothing to develop the property from the time of acquisition, "plaintiffs were acting contrary to "[t]he legislative intent behind the development of casino gambling in New York," namely, "to revitalize economically depressed regions of the state, specifically including the Catskills."

Considering the irrelevancy of these comments to the issues before the court and the parallels between them and the public comments of Kathleen LaBuda in support of EPT's casino proposal, Acting Justice LaBuda's inclusion of such inherently legislative and policy considerations as a basis for his order displays a striking lack of "sensitivity to the aroma of favoritism [that] such a favorable disposition could engender" (Matter of George [State Commn. on Jud. Conduct], 22 NY3d 323, 330 [2013]). Under the circumstances, it seems to us that Acting Justice LaBuda should have recognized that this was a situation in which his "impartiality might reasonably be questioned" (22 NYCRR 100.3 [E] [1]), and, therefore, we must conclude that his failure to recuse himself constituted a clear abuse of discretion (see Matter of Johnson v Hornblass, 93 AD2d 732, 732-733 [1983]; People v Zappacosta, 77 AD2d 928, 929-930 [1980]; compare People v Glynn, 21 NY3d 614, 618-619 [2013]).

Nevertheless, we will consider plaintiffs' remaining arguments pursuant to our obligation "to review the record to determine if any issues of fact exist[]" (Merritt Hill Vineyards v Windy Hgts. Vineyard, 61 NY2d 106, 110 [1984]; accord Morehouse v Lagas, 274 AD2d 791, 794 [2000]). Initially, we find that conversion of plaintiffs' motion to dismiss to a motion for summary judgment is proper because the issues raised in plaintiffs' motion to dismiss were confined to issues of law that have been extensively briefed and argued by the parties (see Spilka v Town of Inlet, 8 AD3d 812, 813 [2004]; Historic Albany Found. v Breslin, 282 AD2d 981, 983-984 [2001], lv dismissed 97 NY2d 636 [2001]). Further, we reject plaintiffs' assertion that a motion for summary judgment is premature. The record contains all of the necessary documents to determine the adequacy of plaintiffs' financing proposal, and their claims that conducting additional discovery could yield material and relevant evidence regarding EPT's purportedly unlawful motives for rejecting the bond financing are, at best, speculative (see Jacobs v Mazzei, 112 AD3d 1115, 1118 [2013], lv dismissed 22 NY3d 1172 [2014]).

Turning to the merits, plaintiffs' central argument is that their alternative financing package "provided substantially the same benefits" as the MCA and, thus, issues of fact exist regarding whether their high-yield bond proposal satisfied the CDA's financing requirement. In our view, however, the issue is whether plaintiffs' financing proposal is "in...