Lugosch v. Conroy
| Decision Date | 06 November 1997 |
| Docket Number | C.A. No. 97-492. |
| Citation | 985 F.Supp. 40 |
| Parties | J. Daniel LUGOSCH III and Peter Steingraber, as General Partners of Providence Place Group and Providence Place Group, LLC v. Alexius C. CONROY, Providence Place, Inc. and the Conroy Development Company, Inc. |
| Court | U.S. District Court — District of Rhode Island |
George E. Lieberman, Licht & Seminoff, Providence, RI, Gael Mahoney, Bruce E. Falby, Hill & Barlow, Boston, MA, for Plaintiffs.
Joseph V. Cavanagh, Jr., Karen Ann Pelczarski, Blish & Cavanagh, Providence, RI, Bud G. Holman, Paul F. Doyle, Kelley, Drye & Warren, LLP, New York City, for Defendants.
J. Daniel Lugosch, III, Peter Steingraber, and Providence Place Group, LLC ("Lugosch plaintiffs") seek a declaratory judgment to the effect that Lugosch's purchase of Robert Congel's general partnership interest in Providence Place Group ("PPG") did not violate the transfer restrictions, representations or warranties contained in an October 13, 1989, agreement (the "1989 Agreement") among Lugosch, Congel and defendant, Alexius C. Conroy.
The background facts are undisputed and are set forth in this Court's contemporaneous Memorandum and Order with respect to a related motion for summary judgment. (See J. Daniel Lugosch III and Peter Steingraber, as General Partners of Providence Place Group and Providence Place Group, LLC v. Alexius C. Conroy, Providence Place, Inc. and the Conroy Development Company, Inc., C.A. No. 97-492 Memorandum and Order dated November 6, 1997.) For present purposes, those facts may be summarized as follows.
In 1989, Conroy, through Providence Place, Inc. ("PP"), a corporation that he controlled, held options to purchase land in the city of Providence (the "site") In October of that year, Conroy and PP entered into an agreement (the "1989 Agreement") with PPG, also referred to as "Pyramid," a general partnership in which Congel and Lugosch were the general partners. The gist of the agreement was that, in exchange for the sum of $8 million, PP would assign its options to a limited partnership (the "Retail Venture Limited Partnership") to be formed between PPG, as the general partner, and Conroy, as a limited partner. PPG was to have a 90% interest in the partnership and Conroy was to have a 10% interest. The purpose of that partnership was to develop a retail shopping mall on the site.
The 1989 Agreement also provided for the formation of a second limited partnership (the "Office Venture Limited Partnership") that later would have the right to construct an office tower and, perhaps, an hotel on top of the buildings housing the retail stores. The parties' roles in this second limited partnership were reversed. Conroy was to be the general partner with a 90% interest and PPG was to be a limited partner with a 10% interest.
By 1996, Congel, who up until then had provided most of the money, began experiencing cash flow problems and became disenchanted with the project. In February 1997, Congel sold his general partnership interest in PPG to Lugosch. At the same time, Lugosch and Steingraber, who had previously formed a limited partnership called Providence Place Group Limited Partnership ("PPGLP") as the entity to complete the Retail Project,1 entered into a "financing" agreement with Nomura Asset Capital Corporation ("Nomura").
The subject of this trial is Conroy's claim that Lugosch's purchase of Congel's interest in PPG violates the transfer restrictions, representations and warranties contained in the 1989 Agreement. More specifically, Conroy relies on a provision in the 1989 Agreement that prohibits transfers of ownership interests in Pyramid that divest Pyramid's "Key Partners" of control over Pyramid. Conroy contends that the term "Key Partners" refers to both Lugosch and Congel.
The Lugosch plaintiffs seek a declaratory judgment in their favor with respect to Conroy's claim. The arguments that they make are:
1. That the term "Key Partners," as used in the 1989 Agreement, refers to either Congel or Lugosch.
2. Even if the 1989 Agreement, as originally written, is not construed in that manner, it, subsequently, was modified by the parties to permit Lugosch's purchase of Congel's interest.
3. That Conroy waived or is estopped from asserting any right that he may have had to object to the Congel buy out.
4. That, in any event, Conroy's claim must fail because he did not sustain any damages as a result of the buy out.
The first and last arguments will be addressed at the outset because they can be disposed of rather summarily. The second and third arguments turn on the facts developed at trial and will be addressed in that context.
The first step in ascertaining the meaning of the transfer restrictions imposed by the 1989 Agreement is to examine the agreement itself. If those provisions are clear and unambiguous, the inquiry ends there and the provisions must be applied as written. W.W.W. Assocs., Inc. v. Giancontieri, 77 N.Y.2d 157, 565 N.Y.S.2d 440, 444, 566 N.E.2d 639, 642 (1990). If an ambiguity exists, extrinsic evidence may be considered to ascertain the intent of the parties. Kailasanathan v. Mysorekar, 234 A.D.2d 425, 651 N.Y.S.2d 124, 125 (1996); Mercury Bay Boating Club Inc. v. San Diego Yacht Club, 76 N.Y.2d 256, 557 N.Y.S.2d 851, 857, 557 N.E.2d 87, 93 (1990). Whether or not the provisions of an agreement are ambiguous is a question for the Court. W.W.W. Assocs., Inc., 565 N.Y.S.2d at 444, 566 N.E.2d at 642; Kailasanathan, 651 N.Y.S.2d at 125.
The pertinent transfer restrictions, representations and warranties contained in the 1989 Agreement are set forth in II.5. and VII.A.1. Section II.5. provides:
Pyramid represents and warrants that it is a New York general partnership, that Robert J. Congel, of Fayetteville, New York and J. Daniel Lugosch, III of Dover, Massachusetts (the "Key Partners") are general partners of Pyramid, and that the Key Partners shall remain general partners notwithstanding any changes in composition of Pyramid, and that no assignment of Pyramid's interest hereunder shall release Pyramid, Robert J. Congel or J. Daniel Lugosch, III from liability hereunder.
Section VII.A.1. states:
Prior to the completion of construction of ... the Retail Project ... (ii) Pyramid shall not directly or indirectly transfer its interest in the Retail Project, provided that Pyramid may assign its interest in the Retail Project to any entity controlled by the Key Partners. The foregoing prohibition shall also apply to direct or indirect transfers of ownership interests in ... Pyramid if, as a result of such transfer Pyramid ... ceases to be a person or entity satisfying the requirements stated in ... (ii), as applicable.
(emphasis added).
These provisions are clear and unambiguous. Section VII.A.1. expressly prohibits the "transfer of `ownership interests'" in ... Pyramid if, as a result of such transfer ... Pyramid ... ceases to be a person or entity satisfying the requirements stated in ... (ii)." It is plain that an "entity satisfying the requirements stated in (ii)" refers to an "entity controlled by the Key Partners."
Here, there is no question that Congel transferred an ownership interest in Pyramid. However, the Lugosch plaintiffs contend that, after the transfer, Pyramid continued to be controlled by the "Key Partners" because that term refers to either Lugosch or Congel or to both of them. Such an interpretation is at variance with both the wording of the transfer restriction, itself, and the representations and warranties section of the agreement.
Section VII.A.1. refers to "Key Partners" in the plural. In addition, Section II.5. defines the term "Key Partners" as Congel and Lugosch. Moreover, in that section, it is represented and warranted that "the Key Partners shall remain general partners notwithstanding any changes in composition of Pyramid." (emphasis added). Thus, the only reasonable way in which to construe the term "Key Partners" is that it means both Lugosch and Congel.
The Lugosch plaintiffs' argument that any breach of the 1989 Agreement is immaterial because Conroy sustained no damages as a result of the Congel buy out is flawed for several reasons. First and foremost, the question of what damages Conroy may have sustained is beyond the scope of this trial. In severing this aspect of the Lugosch plaintiffs' declaratory judgment request and accelerating it for trial, the Court limited the issues to be addressed in this phase of the case. Those issues were identified as: whether the Congel buy out violated the 1989 Agreement, as it may have been modified; and, if so, whether Conroy had waived or was estopped from asserting any right to, now, challenge the transfer. Since Conroy presumably relied on that specification of issues, it would be patently unfair to penalize him for any failure to present evidence of damages.
In addition, the Lugosch plaintiffs, argument ignores Conroy's contention that the transfer restriction had value to him because it insured the continued participation of Congel whose involvement Conroy considered important to the success of both the retail and office projects. Violation of such a provision in a bargained for exchange would not have to be accompanied by proof of monetary damages in order to be actionable.
Because some of the elements of modification, waiver and estoppel are similar and because there is considerable overlapping of the facts required to prove those elements, the Court will address those arguments together. Inasmuch as the 1989 Agreement was amended to provide that it "shall be governed by the laws of the State of New York," New York law will be applied.
Under New York law, a written contract may be modified orally or by the acts and conduct of the parties. Recon Car Corp. of New York v. Chrysler Corp., 130 A.D.2d 725, 515 N.Y.S.2d 829,...
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