ONH 14 53rd ST, LLC v. TPG RE Fin. 2, Ltd.
| Decision Date | 04 May 2023 |
| Docket Number | Index No. 502059/2023 |
| Citation | 2023 NY Slip Op 50421 (U) |
| Parties | ONH 14 53rd ST, LLC, and ONH 14 53rd ST MEZZ, LLC, Plaintiffs, v. TPG RE Finance 2, Ltd., Defendant. |
| Court | New York Supreme Court |
Unpublished Opinion
Plaintiffs are represented Scott M Kessler, Esq., Akerman LLP, 1251 Avenue Of The Americas
Defendant is represented by Jefferson E Bell, Esq., Gibson Dunn & Crutcher LLP,
The following e-filed papers read herein:
NYSCEF Doc Nos.
MS 1
Defendant's motion to dismiss the complaint pursuant to CPLR 321l(a)(l) and (a)(7) is decided as follows:
Background
On September 25, 2020, plaintiffs, ONH 14 53rd ST, LLC, and ONH 14 53rd ST Mezz, LLC (collectively "ONH" or plaintiffs) borrowed $88.9 million (the "Loan") from defendant, TPG RE Finance 2, Ltd. ("TPG"), to buy and renovate a commercial property in Brooklyn known as the "Whale." According to plaintiffs, their principal, Elie Schwartz ("Schwartz"), and TPG executives have a long-standing and solid personal and business relationship spanning over a decade, which was built on trust and confidence based on the success of their prior dealings. Purportedly due to this close relationship, in the summer of 2022, when TPG decided that it would sell plaintiffs' notes on the Whale, TPG officers reached out to Schwartz and provided plaintiffs with the opportunity to purchase the Loan at a significant discount before marketing them to the public.
Thus on October 26, 2022, TPG and ONH entered into a loan purchase agreement (hereinafter the "LPA") whereby ONH purchased the Loan for $60 million ("Purchase Amount"), which was approximately a $20 million discount off the outstanding principal balance of plaintiffs' Loan. At signing and pursuant to the LPA, ONH put down $5 million as an "Initial Payment," which would be credited towards the Purchase Amount, with a "Closing Date" of November 30, 2022. The LPA further provided that ONH could extend the Closing Date to December 15, 2022 by making an "Additional Payment" of $2 million by November 30, 2022 (the "LPA Extension"). Such Additional Payment would also be credited towards the Purchase Amount. ONH would pay the remaining balance of $53 million by the Closing Date with "time being of the essence."
In the event ONH failed to make any of the $5 million, $2 million, or $60 million payments, the LPA deemed such failure to pay a "Rescission Event," which authorized TPG to apply the payments to the outstanding balance of the Loan rather than the Purchase Amount. It is undisputed that plaintiffs paid the Additional Payment but failed to pay the balance on December 15, the Closing Date. On December 19, 2022, TPG notified plaintiffs of this Rescission Event.
On January 20, 2023, plaintiffs commenced this action asserting five causes of action: breach of the LPA, breach of the LPA's implied covenant of good faith and fair dealing, promissory estoppel, a declaratory judgment whether a Rescission Event under the LPA has occurred, and a permanent injunction enjoining TPG from closing on a sale, assignment, or other disposition of the notes and loans with any other buyer.
According to plaintiffs, from the very beginning of their discussions with TPG, plaintiffs informed TPG that they intended to hire Cushman & Wakefield ("Cushman") as their broker for the transaction's financing as Cushman had a head start on the complexity of the building's operations, financial performance, and projections, having already been engaged by TPG to market the Loan to potential purchasers other than plaintiffs. Plaintiffs allege that, during the course of their negotiations with TPG, ONH, on multiple occasions, expressly told TPG that the only way it could timely close was by using Cushman as its broker. Plaintiffs further allege that TPG never objected to ONH's planned use of Cushman as its broker or informed ONH of any conflict with ONH's use of Cushman as its broker. However, once the LPA was executed and the $5 million down-payment was made, TPG claimed that Cushman's involvement created a previously undisclosed conflict of interest for TPG that it would not waive. Further, TPG only informed plaintiffs that it would not waive the supposed conflict a couple of weeks before November 30. As a result, plaintiffs represent they made the Additional Payment to extend the Closing Date to December 15.
At the time of the LPA Extension, plaintiffs allege that TPG assured them that they would allow ONH sufficient time to obtain the necessary financing to close the LPA and would extend the closing date further if necessary to ensure ONH's ability to do so. Plaintiffs allege that Schwartz's long-standing relationship with TPG caused ONH to rely on TPG's oral promises of extending the closing date beyond December 15 as TPG, in the past, routinely agreed to grant extensions and refrain from terminating agreements to allow Schwartz's business to succeed, which, in turn, has enriched TPG by tens of millions of dollars.
Plaintiffs contend that TPG's promise to further extend the Closing Date is evidenced by the LPA amendment, which took nearly two weeks to finalize and was not fully executed until December 15, 2022, the date of the extended Closing Date. ONH asserts that it would not have entered into the amendment on December 15 if it thought TPG was going to insist that it close that day. Furthermore, under the LPA, TPG was obligated to fund $1.8 million in tenant improvement costs. Although TPG agreed to advance those funds to cover most of the $2 million Additional Payment, TPG did not provide those funds until on or about December 15, 2022, when the amendment to the LPA was fully executed. ONH asserts that it would never have entered into the extension and allowed TPG to use ONH's $1.8 million to fund the Additional Payment or pay an additional $200,000, knowing that those funds would disappear if TPG insisted on a December 15 Closing Date. Plaintiffs contend that it only agreed to enter into the modification and make the Additional Payment based on TPG's repeated assurances and promises that the December 15, 2022 closing date would be extended as necessary so that ONH could obtain financing and close.
TPG moves to dismiss the complaint in its entirety. TPG argues that plaintiffs' breach of contract claim ignores the parties' actual contract and cannot be sustained because (1) ONH breached the LPA by not paying the remaining $53 million by December 15; (2) plaintiffs waived and released any claims that it had against TPG under section four of the LPA which contains a general release; and (3) the alleged oral promise to further extend the Closing Date is too vague to be enforced, is not supported by consideration, and is flatly contradicted by the plain language of the LPA.
In addition, TPG argues that plaintiffs' claim of damages is too speculative insofar as it relies on multiple independent decisions by third parties falling plaintiffs' way. Specifically, that plaintiffs would have needed to retain Cushman, find a financing source within the time provided in the LPA, and convince that source to lend plaintiffs $53 million despite plaintiffs having defaulted under the original Loan agreement with TPG.
Regarding plaintiffs' other causes of action sounding in promissory estoppel, breach of the implied covenant of good faith and fair dealing, declaratory judgment, and permanent injunctive relief, TPG argues that same should be dismissed as each is duplicative of the breach of contract claim and is foreclosed by the plain language of the LPA. Moreover, TPG asserts that a claim for promissory estoppel is not viable where there is an express agreement that governs the subject matter. Additionally, that plaintiffs' requested permanent injunction, to enjoin TPG from ever selling or assigning the Loan to any buyer other than plaintiffs, is wildly overbroad and negates a key part of the LPA, which permits TPG to "market the Loan and engage potential purchasers" for an eventual sale to a third party.
In opposition, plaintiffs contend that TPG made false representations to induce ONH to pay millions of dollars while frustrating ONH's ability to obtain financing. Plaintiffs submit that the documentary evidence demonstrates that, at the same time...
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