Lee v. BSB Greenwich Mort. Ltd. Partnership, PLAINTIFF-APPELLANT

• Citation: 267 F.3d 172
• Decision Date: 01 August 2000
• Docket Number: PLAINTIFF-APPELLANT,DEFENDANT-APPELLEE,Docket No. 00-6324,CONSOLIDATED-DEFENDANTS
• Parties: (2nd. Cir. 2001) JOHNSON LEE,, v. BSB GREENWICH MORTGAGE LIMITED PARTNERSHIP, BSB GREENWICH MORTGAGE LIMITED PARTNERSHIP,, LEE & LEE CONSTRUCTION COMPANY, WATERFORD OF GREENWICH ASSOCIATES,, FEDERAL DEPOSIT INSURANCE CORPORATION, J. CALZONE CO., WEATHERTIGHT ROOFING SYSTEMS, INC., DEFENDANTS
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 172

267 F.3d 172 (2nd. Cir. 2001)

JOHNSON LEE, PLAINTIFF-APPELLANT, v. BSB GREENWICH MORTGAGE LIMITED PARTNERSHIP, BSB GREENWICH MORTGAGE LIMITED PARTNERSHIP, DEFENDANT-APPELLEE, LEE & LEE CONSTRUCTION COMPANY, WATERFORD OF GREENWICH ASSOCIATES, CONSOLIDATED-DEFENDANTS, FEDERAL DEPOSIT INSURANCE CORPORATION, J. CALZONE CO., WEATHERTIGHT ROOFING SYSTEMS, INC., DEFENDANTS.

Docket No. 00-6324

August Term, 2000

UNITED STATES COURT OF APPEALS For the Second Circuit

Argued: June 8, 2001

Decided October 9, 2001

Appeal from an order of the United States District Court for the District of Connecticut (Alan H. Nevas, Judge) denying Plaintiff-Appellant Johnson Lee's motion for an order in aid of enforcement of an amended stipulated judgment of strict foreclosure. The District Court, through its approval, adoption, and ratification of the Magistrate Judge's recommendation, found that the term "gross sales proceeds" in the amended stipulated judgment was ambiguous and thus consulted extrinsic evidence to interpret the term, which it did in favor of Defendant-Appellee BSB Greenwich Mortgage Limited Partnership.

We hold that the term "gross sales proceeds" in the amended stipulated judgment is not ambiguous and must be given its plain meaning.

Reversed and remanded.

[Copyrighted Material Omitted] Daniel S. Steinberg, Bondy & Schloss (Joseph S. Rosenthal, on the brief), New York, Ny, for Plaintiff-Appellant.

Everett E. Newton, Murtha Cullina (Matthew J. Budzik, on the brief), Hartford, Ct, for Defendant-Appellee.

Before: Kearse, Straub, and Sack, Circuit Judges.

Straub, Circuit Judge.

Plaintiff-Appellant Johnson Lee ("Lee") appeals from an order of the United States District Court for the District of Connecticut (Alan H. Nevas, Judge) denying his motion for an order in aid of enforcement of an amended stipulated judgment of strict foreclosure. Under a provision in the amended stipulated judgment, Lee was to receive consideration from Defendant-Appellee BSB Greenwich Mortgage Limited Partnership ("BSB") in an amount that depended on the "gross sales proceeds of... Unsold [condominium] Units." The parties disagreed over the meaning of that term. The District Court, approving, adopting, and ratifying the recommendation of Magistrate Judge Holly B. Fitzsimmons, found the provision ambiguous and, after considering extrinsic evidence, ruled that the term excludes the portion of the condominium units' sales proceeds that only offset costs incurred in customizing the units above a standard amenities allowance. The District Court thus found that BSB correctly calculated the "gross sales proceeds" and therefore did not violate the stipulated judgment.

For the reasons given below, we conclude that the term "gross sales proceeds of... Unsold Units" is not ambiguous and can only refer to the aggregate proceeds of the condominium units as they were actually sold-that is, to the total proceeds including the increased revenue corresponding to any extra customization costs. Accordingly, we reverse and remand for calculation of the gross sales proceeds in light of this opinion and, if appropriate, entry of an order in aid of enforcement of the amended stipulated judgment.

BACKGROUND

In 1985, Johnson Lee and his real estate development companies, Lee & Lee Construction Corp. and Montgomery & Lee, obtained four mortgages from The Bank Mart to finance the planning and construction of the Waterford of Greenwich project, a four-building luxury condominium complex in Connecticut. The mortgages were secured by real property, including the Waterford property. In the late 1980s, Lee and his companies defaulted on the mortgages. The Bank Mart consequently instituted four foreclosure actions in Connecticut state court, but soon itself became insolvent. Thus, in 1991, the Federal Deposit Insurance Corporation ("FDIC") was appointed receiver of The Bank Mart and took over the foreclosure actions. FDIC removed the foreclosure actions to the United States District Court for the District of Connecticut, and the four actions were consolidated in 1992. In March 1995, the District Court entered a stipulated judgment of strict foreclosure as to the four mortgaged properties. In this stipulated judgment, the District Court valued the four properties and assessed the debts owed by Lee and his companies to FDIC.

One day after entry of the stipulated judgment, FDIC sold and assigned to BSB its interests in each of the mortgages and notes at issue in the four consolidated foreclosure actions. BSB, as a result, was substituted as plaintiff in the District Court actions. In April 1995, BSB and Lee entered into an amended stipulated judgment of strict foreclosure, which varied the terms of and superseded the original stipulated judgment between Lee and FDIC. This amended stipulated judgment adopted the property values and debt amounts set forth in the original stipulated judgment, and provided that if by a certain date Lee paid BSB the total debt owed, BSB would release the mortgages and dismiss the actions. If, however, Lee did not pay his debt, the partially completed Waterford project would be transferred to BSB and Lee would be released from his obligations under all of the mortgages.

The amended stipulated judgment also contemplated the continued cooperation by Lee in the ongoing construction of the Waterford after BSB's acquisition of the property. In exchange for such cooperation, BSB agreed to provide Lee with certain compensation. First, as up-front consideration, BSB agreed to transfer to Lee one unit in the condominium complex, subject to the restriction that Lee could not resell the unit until twenty-one of the remaining twenty-two unsold units¹ in the complex were sold, or three years from the date of the transfer to Lee, whichever occurred first. Second, the agreement provided for two types of back-end consideration. In paragraph 29 of the amended stipulated judgment, the parties agreed that upon the completion of all remaining construction required to resell the uncompleted unsold units in the Waterford, including all common areas and all amenities, BSB would pay Lee the amount by which the actual construction costs were less than the budgeted amount of $4,900,000, up to a maximum of $100,000.² In paragraph 30, the parties agreed that if the "gross sales proceeds of 21 of the 22 Unsold Units" were less than $26,500,000, Lee would have the option to purchase the remaining completed unsold unit for the amount by which the gross sales proceeds were less than $26,500,000. Am. Stipulated J. at 18-19. If Lee chose not to exercise this option, BSB was to sell the final unsold unit and pay Lee the amount by which the gross sales proceeds of all units sold exceeded $26,500,000, up to a maximum of $1,000,000. If, on the other hand, the "gross sales proceeds of 21 of the 22 remaining Unsold Units" equaled or exceeded $26,500,000, BSB was to convey the final completed unsold unit to Lee by quit-claim deed. Id. at 19. BSB also agreed to keep Lee reasonably informed as to marketing and sales progress.³ The amended stipulated judgment defines "Unsold Units" as "[s]uch condominium units comprising the Waterford Property other than Condominium Unit 10." Id. at 4. It does not, however, define "gross sales proceeds."

In 1995, BSB acquired the Waterford project pursuant to the stipulated judgment and began marketing and selling the unsold units. In doing so, BSB found that many prospective purchasers wanted their uncompleted units customized to suit their particular preferences. Rather than allowing each buyer to hire his or her own workers to perform customization work, which would have complicated the construction and sale of the units, BSB agreed to supervise construction of the buyers' selected amenities using workers of the buyers' choosing and to add the customization costs to the final price of the units rather than billing the buyers separately. BSB did not intend to reap a profit from the customization work, but rather planned to increase the final unit prices only by the amounts charged by the workers.

Accordingly, BSB altered its form purchase agreement to include an allowance for "Seller's Work," representing the portion of the purchase price allotted to completing the units according to the buyers' wishes. The seller's work allowance for the units in one building was $150,000 and for the units in two of the other buildings was $225,000.⁴ If the actual cost of performing the buyer's requested work was more or less than the seller's work allowance, BSB would adjust the purchase price of the unit accordingly. Thus, in certain instances buyers requested extra amenities which raised the cost above the seller's work allowance; BSB passed these costs onto the buyers through an increased purchase price. In those cases where purchasers wished to use their own contractors to complete uncompleted units, units were sold without any "seller's work." BSB sold these units after discounting the purchase prices by either $150,000 or $225,000, depending on the building in which the unit was located.

The last completed unsold unit was Unit 1. On January 30, 1998, BSB entered into a purchase agreement to sell Unit 1 to a third party for $1,275,000. Before doing so, BSB did not notify Lee that the other unsold units had been sold or provide Lee with information regarding the marketing and sale of Unit 1. When Lee discovered that twenty-one of the twenty-two remaining units had been sold, he asked BSB for an account of the gross sales proceeds of those units. The parties thereupon discovered that they disagreed over the meaning of the term "gross sales proceeds of 21 of the 22 Unsold Units." BSB claimed that the "gross sales proceeds of 21 of the 22 Unsold Units" totaled $24,674,200, entitling Lee to purchase Unit 1 for $1,825,800, or the difference between $24,674,200 and $26,500,000. In arriving at the $24,674,200 figure, BSB had excluded the increase...