Pine St. Assocs., L.P. v. Southridge Partners, L.P.

• Citation: 2013 N.Y. Slip Op. 02854,965 N.Y.S.2d 15,107 A.D.3d 95
• Parties: In re PINE STREET ASSOCIATES, L.P., Petitioner–Appellant, v. SOUTHRIDGE PARTNERS, L.P., et al., Respondents–Respondents.
• Decision Date: 25 April 2013
• Court: New York Supreme Court Appellate Division

107 A.D.3d 95
965 N.Y.S.2d 15
2013 N.Y. Slip Op. 02854

In re PINE STREET ASSOCIATES, L.P., Petitioner–Appellant,
v.
SOUTHRIDGE PARTNERS, L.P., et al., Respondents–Respondents.

Supreme Court, Appellate Division, First Department, New York.

April 25, 2013.

[965 N.Y.S.2d 16]

Becker & Poliakoff, LLP, New York (Lance Gotthoffer of counsel), and Reed Smith LLP, New York (Gil Feder and John L. Scott, Jr. of counsel), for appellant.

Robinson Brog Leinwand Greene Genovese & Gluck, P.C., New York (Lawrence S. Hirsh of counsel), and Moses & Singer LLP, New York (Steven R. Popofsky and Jason Canales of counsel), for respondents.

PETER TOM, J.P., RICHARD T. ANDRIAS, ROLANDO T. ACOSTA, DAVID B. SAXE, HELEN E. FREEDMAN, JJ.

ACOSTA, J.

[107 A.D.3d 96]The primary issue in this case is whether the tender of securities[107 A.D.3d 97]to petitioner by respondent Southridge Partners L.P., an investment fund (the fund), satisfies respondent's obligation under an arbitral award to complete the redemption of petitioner's interest in the fund in cash or in kind. We hold that Southridge owes petitioner the same dollar amount regardless of whether it chooses to satisfy its obligation “in cash” or “in kind.” We thus reverse Supreme Court's orders and remand for an evidentiary hearing to determine whether the obligation has been met.

In 2005, petitioner Pine Street Associates, L.P., invested approximately $8.3 million in the fund. In 2008, Pine Street requested a “full redemption” of its investment from Southridge, effective December 31, 2008. Under the terms of Southridge's

[965 N.Y.S.2d 17]

Sixth Amended and Restated Limited Partnership Agreement (the agreement), withdrawal of a limited partner occurs upon the partner's request for redemption of all of its interest. Southridge acknowledged Pine Street's request and reported that the value of Pine Street's distributive class of interest at redemption was approximately $8,076,457.85. In March 2009, Southridge informed Pine Street of its decision to postpone redemption of Pine Street's class of interests pursuant to Section 7.2(f) of the Agreement. ¹

In April 2009, Pine Street filed a demand for arbitration, alleging that Southridge engaged in bad faith in failing to honor its request to redeem. Following a two-day arbitration hearing, the arbitrator rendered an award, dated January 18, 2010, interpreting the Agreement as permitting Southridge to exercise its discretion as to when to redeem “only ... under certain defined circumstances and [if] exercised reasonably in good faith.” The arbitrator then found that “[Southridge] failed to establish a credible evidentiary basis for the existence of those defined circumstances, or the reasonableness of their exercising discretion, that delayed the redemption of [Pine Street's] interest then or now.” On the basis of that finding, the arbitrator rendered the following award in favor of Pine Street:

1. Notwithstanding any other provision of the Agreement, (a) within thirty (30) days from the date of this Award, [Southridge] shall redeem no less [107 A.D.3d 98]than forty percent (40%) of the balance of [Pine Street's] interest in [the Fund] in cash; and (b) within ninety (90) days from the date of this Award, [Southridge] shall complete the redemption of [Pine Street's] interest in [the Fund] in cash or in kind, plus interest at the legal rate on said balance then remaining from October 1, 2009, until paid in full.

2. Within forty five (45) days from the date of this Award, [Southridge] shall provide [Pine Street] with an accounting of [Pine Street's] interest and position in [the Fund] (represented to be $8,079,457.85 [ sic ] as of December 31, 2008) from January 1, 2008, to said date.”

On February 17, 2010, in compliance with paragraph 1 of the arbitration award, Southridge paid Pine Street $3,195,064 in cash, representing approximately 40% of the stated value of Pine Street's remaining interest in the fund ($7,987,660.19).

On April 20, 2010, Southridge also transferred a variety of stock certificates (whose value is disputed) to Pine Street. In a cover letter, Southridge informed Pine Street that it had delivered the stock certificates, “almost entirely” completing the redemption of Pine Street's interest in the fund in kind. The letter also stated that “[a]n additional certificate, representing only a single-digit percentage of the remaining redemption value [would be forwarded] shortly. Upon such delivery, the award will have been satisfied in full.” On May 27, 2010, Southridge assigned to Pine Street a portion of its rights, in the amount of $151,258.80 plus interest, in a promissory note due December 31, 2009, and in two stock certificates, each for 500,000 shares in Akers Biosciences, Inc.

On or about November 24, 2010, approximately 10 months after the arbitrator issued the arbitration award, Pine Street filed a petition to confirm the award and for entry of judgment. In response,

[965 N.Y.S.2d 18]

Southridge argued that the motion was belated, and that because it had satisfied the award some time before, confirmation was unnecessary. Pine Street did not dispute Southridge's representation that the award had been paid in full. Supreme Court granted the petition to confirm the award, and on May 12, 2011 entered judgment.

By order to show cause dated May 18, 2011, Southridge moved to enjoin and restrain Pine Street from seeking to enforce the judgment entered, “unless and until the Court determined that the judgment has not in fact been satisfied and has delineated the terms and conditions of any such enforcement.” Southridge [107 A.D.3d 99]stated that it had just recently learned that Pine Street's position was that Southridge had not satisfied the award. In his affidavit in support of the motion, counsel stated that Pine Street had refused Southridge's proposal to litigate the issue of whether the award had been satisfied. In opposition, Pine Street argued that the in-kind portion paid in securities was worth far less than the $4.5 million (the remaining 60%) to which it was entitled under the award, its expert had valued the tendered securities at no more than $245,000. In reply, Southridge disputed the $245,000 amount, but it made no claim that the tendered securities were worth $4.5 million.

Supreme Court granted a temporary restraining order on May 18, 2011, enjoining Pine Street from seeking to enforce the judgment. By order entered September 7, 2011, the court granted Southridge's motion to enjoin Pine Street from enforcing the judgment pending the determination as to whether the award had been satisfied. The court first noted that Southridge's motion did not seek a ruling whether it had already satisfied the judgment, although it evidently intended to seek such a ruling, and that “Pine Street never questioned the adequacy of Southridge's payments in satisfaction of the award, either before the arbitrator or before [this] Court, until about a year after those payments were made.” The court further found that “the securities that would satisfy the in-kind portion of the judgment should have been 60% of Pine Street's security interests in [the Fund] as of January 18, 2010” since the in-kind portion “did not specify that the securities had to equal a particular dollar amount.” Having defined “in kind” in that manner, the court concluded that the record was insufficient to determine whether the securities rendered by Southridge in the spring of 2010 represented at least 60% of Pine Street's interests in the Fund as of January 18, 2010. The parties were directed to settle an order and appear for a conference on October 6, 2011. Pine Street thereafter filed a notice of appeal.

In a letter dated September 28, 2011, Pine Street, through its attorney, communicated to the court that, “with a full reservation of all of its rights,” it did not intend to further litigate the issue of whether Southridge had complied with the court's directives, i.e., satisfied the arbitration award, but would pursue its position on appeal. On October 6, 2011, the court held a conference during which the parties agreed that a satisfaction of judgment should be entered and the case closed, subject to any determination made concerning the order on appeal. On the same [107 A.D.3d 100]day, the court entered an order directing Pine Street to submit a satisfaction of judgment on notice. Pine Street filed a notice of appeal from that order.

As a threshold matter, we begin by observing that a party may oppose an arbitral award either by motion pursuant to CPLR 7511(a) to vacate or modify the award within 90 days after delivery of the award or by objecting to the award in

[965 N.Y.S.2d 19]

opposition to an application to...