Harborside Refrigerated Services, Inc. v. Vogel

• Decision Date: 18 March 1992
• Docket Number: No. 567,D,567
• Citation: 959 F.2d 368
• Parties: HARBORSIDE REFRIGERATED SERVICES, INC., Plaintiff-Appellant, v. Howard VOGEL; Edward Benenson, Defendants-Appellees. ocket 91-7783.
• Court: U.S. Court of Appeals — Second Circuit

Page 368

959 F.2d 368

23 Fed.R.Serv.3d 1169

HARBORSIDE REFRIGERATED SERVICES, INC., Plaintiff-Appellant, v. Howard VOGEL; Edward Benenson, Defendants-Appellees.

No. 567, Docket 91-7783.

United States Court of Appeals, Second Circuit.

Argued Nov. 26, 1991.

Decided Feb. 25, 1992.

As Amended March 18, 1992.

Edwin M. Mulholland, Garden City, N.Y., for plaintiff-appellant.

Mark S. Arisohn, Goodkind, Labaton & Rudoff, New York City, for defendants-appellees.

Before: OAKES, WALKER, Circuit Judges, and PARKER, District Judge. ^*

WALKER, Circuit Judge:

Plaintiff-appellant Harborside Refrigerated Services, Inc., ("Harborside") appeals from a judgment of the United States District Court for the Southern District of New York (Kevin Thomas Duffy, Judge), entered March 20, 1991, granting defendants-appellees Howard Vogel and Edward Benenson's ("Vogel and Benenson") motion for summary judgment and dismissing Harborside's complaint. We hold that the district court erred in denying Harborside relief pursuant to an option agreement between the parties, and accordingly reverse.

BACKGROUND

The current dispute arose out of a business arrangement between Uiterwyk Cold Storage Corporation ("UCS"), predecessor in interest to Harborside Refrigerated Services, Inc., and Edward Stephen of Tampa, Inc. ("EST"), predecessor in interest to Vogel and Benenson. In 1972, the Tampa Port Authority of Hillsborough County, Florida ("TPA"), approved UCS' application to build a cold storage warehouse ("the warehouse") in the Port of Tampa. To facilitate this project, UCS enlisted EST who entered into a ground lease with TPA. UCS then entered into an occupancy lease with EST, obtained a construction loan and built the warehouse. EST later obtained a permanent loan from the John Hancock Mutual Insurance Company and executed a promissory note in John Hancock's favor. The promissory note was secured by the first mortgage lien against EST's leasehold interest (the "Hancock mortgage"). At the time of the current dispute, Harborside was making monthly payments under the occupancy lease to Vogel and Benenson, of which Vogel and Benenson paid $22,717.52 per month to TPA under the ground lease, and kept $4,899.15 as a monthly profit.

UCS and EST also executed two agreements giving UCS the option to purchase EST's ground leasehold in the TPA property. This case concerns the second of these, dated July 25, 1989, which superseded the first and was entitled the Amended Option Agreement (the "Agreement"). The Agreement granted UCS the right to exercise its option during two one-year periods: (1) during the year beginning July 25, 1987, UCS had the right to purchase the leasehold at a price of $2,115,000.00; and (2) during the year beginning July 25, 1990, it could acquire the leasehold for $1,835,000.00. The Agreement required that, in order to exercise its option, UCS provide written notice to EST and fix a closing date for between thirty and ninety days after delivery of notice. It further gave UCS the choice either of paying the full purchase price in cash, or of assuming the Hancock mortgage and paying the difference between the purchase price and the principal balance due on the mortgage with ten percent of this cash difference due at the time of exercise.

On July 25, 1987, Harborside provided Vogel and Benenson notice of its intention to exercise its option and to close on August 27, 1987. Harborside elected to assume the Hancock mortgage, which on the closing date had an outstanding balance of $1,900,922.70, and to pay Vogel and Benenson only the cash difference of $214,077.30.

                It enclosed on option deposit of ten percent, or $21,407.73.   By letter dated August 3, 1987, however, Vogel and Benenson returned the check and rejected the attempted exercise of the option.   Vogel and Benenson argued that certain language in the agreement established the purchase price at fair market value, not the fixed sum of $2,115,000.00
                

On July 30, 1987, Vogel and Benenson filed a complaint in the district court seeking a declaratory judgment as to the correct purchase price of the leasehold. Vogel and Benenson asserted that the parties specified a set price only to satisfy the demands of the Hancock lenders and never intended it to be binding. Harborside moved for summary judgment declaring that the option exercise price was the fixed price stated in the Agreement. By order dated January 3, 1989, the district court granted defendant Harborside's motion for summary judgment and on January 23, 1989 entered judgment declaring that

the defendant has the right under paragraph 2 of the Amended Option Agreement to exercise an option to acquire plaintiffs' long-term leasehold for $2,115,000, which option was timely and properly exercised in writing by defendant Harborside by letter dated July 25, 1987.

Vogel and Benenson filed their notice of appeal of this Judgment on February 17, 1989 but, on April 14, 1989, notified Harborside that they were unilaterally withdrawing the appeal.

On June 29, 1989, Harborside again noticed its intent to exercise the option with a closing date this time of August 17, 1989. As before, Harborside elected to assume the Hancock mortgage and to pay only the $214,077.30 cash difference between the now-established purchase price of $2,115,000.00, and the $1,900,922.70 balance due on the mortgage at the time of the originally scheduled, August 27, 1987, closing. Harborside deducted from the purchase price $4,899.15 for each month from August 27, 1987, to August 17, 1989 representing the profit margin by which its lease payments to Vogel and Benenson exceeded the latter's mortgage payments, on the theory that if the transaction had closed on August 27, 1987 Harborside would have paid the mortgage payments directly and no profit would have been earned. Accordingly, Harborside tendered a check for $9,649.77, ten percent of the newly calculated cash difference of $96,497.70. Vogel and Benenson, by letter dated July 19, 1989, again rejected Harborside's attempt to exercise the option and returned the check.

This time, Harborside brought suit in the district court. Its complaint, dated May 4, 1990, requested a declaration that: (1) The June 29, 1989 option exercise was in compliance with the Agreement and with the district court's prior judgment; (2) The mortgage's principle balance, for the purpose of calculating the cash payment, was as it stood on August 27, 1987, the original closing date; (3) Harborside received credit for its payments on the lease in excess of what it would have paid on the mortgage if the transaction had closed on August 27, 1987. In October 1989, Harborside moved for summary judgment.

Vogel and Benenson cross-moved for summary judgment dismissing the complaint, contending that "Harborside cannot possibly assume a mortgage balance that has not existed since August 27, 1987." The cash amount, they argued, should be calculated using the mortgage balance at its then-present level of $1,594,991.28, leading to a cash payment of $520,008.72. Moreover, they asserted their right to retain the profits earned over the full length of the leasing arrangement. Finally, Vogel and Benenson claimed that Harborside, who would have to satisfy $850,000 in ad valorem real estate taxes assessed against the property, might not be in a position to close the transaction because it might not qualify to assume the mortgage under John Hancock's application process.

In an order filed March 8, 1991, the district court granted Vogel and Benenson's motion for summary judgment and dismissed Harborside's complaint. The district court credited Vogel and Benenson with the mortgage payments from August On April 1, 1991, Harborside served by mail a Motion to Alter or Amend the Judgment pursuant to Rule 59. The affidavit in support of the motion alleged that the district court had mistakenly: (a) found that Harborside had sat on its rights "for more than six months," without acknowledging that its delay was due in substantial part to Vogel and Benenson's appeal of the January 23, 1989 judgment; (b) found that the "Hancock Mortgage has been reduced by Vogel/Benenson through mandatory monthly amortization payments," without acknowledging that the cash for these payments had come from Harborside's lease payments; (c) found that Harborside needed approval of the mortgagee to assume the mortgage, when in fact this was not required; and (d) omitted certain language from the judgment not material to this appeal and failed to make clear that his order did not affect Harborside's second option to purchase the leasehold during the year commencing July 25, 1990. Harborside requested that the district court either enter summary judgment in its favor, or alternatively strike the language referring to Harborside's having "lost its rights in the Hancock Mortgage."

                1987 to August 1989, holding that Harborside should not benefit from the mortgage payments since the mortgage had been "amortized by its [i.e. Harborside's] own terms."   The court concluded that "I am not prepared to fashion a remedy that permits Harborside to assume a mortgage as it existed more than three years ago."   The district court then concluded that Harborside's delay until June 29, 1989, following its January 3, 1989 order, to re-notice its intent to exercise the option foreclosed it from pursuing the transaction.   While acknowledging that its order had provided that "the sale could close with August 27, 1987 terms," the court ruled that Harborside "took a risk by not setting a closing date until more than six months after" that order, and had thereby given up its rights to these terms.   Any other reading of its January 3, 1989 ruling, it held, would be "inequitable," since "[m]y January 3, 1989 order ... cannot be construed to last beyond the point that the deal would be efficacious only for Harborside."   The district court also relied on Vogel and Benenson's assertion that Harborside might

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