Goldman v. Burch, 87 Civ. 7189 (BN).

• Decision Date: 25 November 1991
• Docket Number: 87 Civ. 7189 (BN).
• Parties: Jane H. GOLDMAN and Allan Howard Goldman, as Executors Under the Last Will and Testament of Sol Goldman, Deceased, Plaintiffs, v. Robert BURCH, Individually and as Trustee Under Trust Known as GC-1 Trust, Defendant.
• Court: U.S. District Court — Southern District of New York

778 F. Supp. 781

Jane H. GOLDMAN and Allan Howard Goldman, as Executors Under the Last Will and Testament of Sol Goldman, Deceased, Plaintiffs, v. Robert BURCH, Individually and as Trustee Under Trust Known as GC-1 Trust, Defendant.

87 Civ. 7189 (BN).

United States District Court, S.D. New York.

November 25, 1991.

Stephen H. Penn & Associates, Noel W. Hauser, New York City, for plaintiffs.

Gibson, Dunn & Crutcher, Mitchell A. Karlan, New York City, for defendant.

OPINION, FINDINGS OF FACT AND CONCLUSIONS OF LAW

NEWMAN, Senior Judge, United States Court of International Trade, sitting as a United States District Court Judge by Designation:

INTRODUCTION

This diversity action, 28 U.S.C. § 1332(a), presents complex issues of contract interpretation relating to the sale of the Dorset Hotel operations ("Hotel") in New York City.

Plaintiffs, citizens of the State of New York and executors of the Sol Goldman estate, seek recovery of $807,621.81 as the amount allegedly overpaid by the decedent ("Goldman") to defendant, Robert D. Burch ("Burch"), a citizen of the State of California and Trustee of the GC-1 Trust ("Trust"), under a Purchase Agreement executed on April 9, 1987 ("Agreement") and a First Amendment to Purchase Agreement pertaining to the Dorset Hotel Operations ("Amendment").

Defendant, seller of the Hotel on behalf of the Trust, counterclaims for damages in the sum of $419,179.76 for alleged breaches by Goldman of the Agreement and Amendment relating primarily to various post-closing adjustments and prorations. The building and land of the Hotel, owned by other trusts of which Burch was the trustee, were covered by separate transactions that closed on or about May 15, 1987 and are not in issue. Hence, only the contracts relating to the Hotel operations as a "going business" are in dispute.

On March 23, 1990 Judge Miriam G. Cedarbaum granted Burch's motion for summary judgment in his individual capacity, but denied such motion as trustee on the ground there is a genuine issue of disputed fact with respect to the intent of the parties to the contracts. For Judge Cedarbaum's oral opinion, see record of proceedings, Tr. of March 23, 1990 hearing, at 24, 38-9).

On November 9, 1990 this action was reassigned to the writer for purposes of trial. A bench trial was held on January 23-24 and May 20-22, 1991. At the conclusion of trial, decision was reserved. Filing of posttrial submissions by the parties was completed in late August 1991. Findings of fact and conclusions of law in compliance with Fed.R.Civ.P. 52(a) follow.

FINDINGS OF FACT

1. Burch, a lawyer for over 35 years, is a partner in the law firm of Gibson, Dunn & Crutcher. He specializes in trust law and acts as trustee of 33 trusts having aggregate net assets in excess of $500,000,000.

2. Sol Goldman died in 1987 after the transactions at issue. He was one of the country's most successful real estate investors whose extensive New York City holdings are well known. The original purchaser of the hotel under the Agreement and Goldman's predecessor in interest was a New York corporation wholly owned and controlled by Goldman known as GSL Enterprises, Inc.

3. Excluding attached exhibits and an index, the Agreement is 48 pages in length, complex and highly sophisticated. The Amendment is fourteen pages, modifies certain provisions of the Agreement and adds new provisions. Both documents were preceded by several preliminary drafts carefully thought out and reviewed by attorneys on both sides. Goldman was represented and advised in the contract negotiations by a longtime experienced attorney, Edward Breger, Esq., who testified at trial on behalf of plaintiffs. Moreover, before the parties executed the Agreement, Goldman's representatives spent several days at the Hotel examining the books and records and communicating with Ms. Gonzaga Woods, the president of the Hotel's managing agent, Bing & Bing Management, Inc. ("B & B"). An outstanding $2 million loan from Dr. Peter Bing ("Bing") to the Hotel was reflected in the Hotel's financial statement, books and records.

4. The total price for the entire deal— the Hotel's land, building and operations— was approximately $77 million: $72 million for the land and building; and approximately $5 million for the Hotel operations as a going business.

5. The Agreement stipulated that the closing take place on April 30, 1987, that time was of the essence, but Goldman could adjourn the closing for reasonable cause—no later than May 7, 1987 (§ 4.01). However, as discussed infra, closing did not occur on that date and the parties entered into the Amendment, of which § 2 is pivotal to the present controversy.

6. The Hotel sold liquor under a license issued to Burch. The Agreement provided that Goldman would promptly apply for a license. However, the Agreement further stipulated that if Goldman had not received a license by the closing date, he would, with certain stipulations relating to reservation of title to the liquor in the seller, an escrow account for liquor revenues, an indemnification agreement protecting Burch from liability, and other conditions and restrictions for Burch's legal protection, operate the Hotel after closing and sell liquor utilizing Burch's license.

7. Further, the parties stipulated in § 6.02(1)(vi) of the Agreement, that if prior to closing, either party reasonably determined that the arrangement for the sale of liquor by Goldman under Burch's license violated the law, (a) the parties would not be bound by the original arrangement and would attempt in good faith to agree upon an alternative arrangement for the sale of liquor in a lawful manner, and (b) neither party would be obligated to agree to any arrangement that would be less advantageous to it, economically or otherwise, than the arrangement initially agreed upon.

8. Subsequently, counsel for both parties advised their respective clients that the legality of the arrangement in the Agreement for Goldman to sell liquor in the Hotel after closing using Burch's license was dubious. Following the advice of his liquor counsel, Burch decided he would not follow the questionable arrangement he had agreed upon with Goldman in the Agreement involving lending Goldman his liquor license.

9. Goldman was unable to obtain a liquor license for the Hotel by May 7, 1987, the last possible closing date under the Agreement, and the closing for the Hotel operation did not take place by the deadline. The transactions involving the Hotel's land and building closed as scheduled on or about May 15, 1987.

10. Pursuing the "escape clause" in § 6.01(1)(vi) of the Agreement regarding liquor sales, Goldman and Burch reached an agreement on an alternative arrangement, and they entered into the Amendment on May 8, 1987. The impetus for the Amendment, as expressed in RECITAL B was to remedy potential legal problems regarding the provisions of the Agreement of April 9, 1987 for continued sale of liquor at the Hotel under Burch's license following the closing until Goldman could obtain his own license (§ 6.02(1)(i) through (v)).

11. The Amendment provided for extension of the closing date on the Hotel Operations to no later than September 30, 1987 (whether or not Goldman had obtained a license), continued ownership and management of the Hotel operations by the Trust in the interim (a so-called "Seller Management Period") and the sale of liquor under Burch's license and retention by the Trust of cash receipts from liquor sales until closing.

12. The sale of the Hotel operations closed on September 30, 1987, and hence the Seller Management Period ran from May 15 to September 30, 1987.

13. Goldman understood that pursuant to the Amendment, the Trust would continue to have the ownership, management and sole control of the Hotel's operations during the Seller Management Period (May 16, 1987 to September 30, 1987); that the Trust would continue to manage and operate the Hotel in the same manner as prior to the Seller Management Period; that the Trust would retain the working capital on hand, and Goldman would advance additional working capital if requested to do so by the Trust. Moreover, Goldman agreed he would pay the Trust in addition to the $5 million purchase price, 10% of such price per annum from May 7, 1987 (final date for closing under the April 9th Agreement) until the actual closing date (not later than September 30, 1987). The ten percent increase was solely compensation to the Trust for delay in receiving and reinvesting the purchase price funds.

14. The Amendment further stipulated in § 2 that to the extent the Trust retained the net cash on hand of the Hotel as of September 30, 1987, the purchase price of the Hotel operations was to be decreased by the "Net Profits" of the Hotel during the Seller Management Period. The parties defined "Net Profits" as "the difference between cash receipts (other than those retained by Seller the Trust pursuant to Section 7(a) below) and cash disbursements * * *"; "Net Profits" also excluded recognition of any cash receipts from the sale of alcoholic beverages and cash expenses relating to the purchase of alcoholic beverage inventory for the Hotel to the extent such expenses were paid out of cash receipts from the sale of alcoholic beverages.

15. As required by the Amendment, on May 15, 1987 Goldman furnished Burch with a letter of credit in the amount of $5.2 million as security for payment of the purchase price. The figure of $5.2 million assumed a closing date no later than September 30, 1987 and that there would be no "Net Profits" during the Seller Management Period.

16. Under § 6 of the Amendment, the parties agreed that during the Seller Management Period, the Trust and B & B would have exclusive control over the operations and management of the Hotel, even if Goldman objected to the Trust's management decisions, with the proviso that the Trust would "continue operating the Hotel in a manner...