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AYERSLEE CORP., N.V. v. OVERLOOK SPONSOR CORP.

October 8, 1985

AYERSLEE CORPORATION, N.V., Plaintiff, v OVERLOOK SPONSOR CORP., SOLSTEAD ASSOCIATES, TRABOSSOM ASSOCIATES, BOS HOLDING CORP., FIRST BOSTON, INC., G. WARE TRAVELSTEAD, and SCOTT LOWRY, Defendants


The opinion of the court was delivered by: SPRIZZO

SPRIZZO, D.J.:

Plaintiff Ayerslee Corp., N.V. ("Ayerslee") and defendant Overlook Sponsor Corp. ("Overlook") formed Plaza 49 Associates, a limited partnership, for the purpose of constructing an office building in Manhattan called Tower 49. At all relevant times herein, Ayerslee has been the sole limited partner and Overlook has been the sole general partner of Plaza 49 Associates.

Ayerslee sues Overlook and others who, directly or indirectly, are entitled to a share of the profits from the Tower 49 project, *fn1" seeking a declaratory judgment that Ayerslee's interest in the proceeds generated by Tower 49 has not been and cannot be reduced below 15%, and demanding both a preliminary and a permanent injunction enjoining the defendants from distributing any proceeds from the Tower 49 project unless 15% of those proceeds are distributed to Ayerslee. Ayerslee bases its claim on the alleged violation by defendants of various provisions of partnership agreements entered into with respect to the development of Tower 49, and the alleged breach by Overlook of its fiduciary duty, as general partner of Plaza 49 Associates, to Ayerslee as limited partner.

 The parties filed cross-motions for summary judgment. At oral argument the parties agreed to waive trial on all issues, stating that there was no need for the Court to hear oral testimony. Therefore, the Court decides the case on the merits on the papers filed with respect to the summary judgment motions, and additional materials filed with leave of the Court after oral argument. This Opinion and Order constitute the Court's findings of fact and conclusions of law in accordance with Fed. R. Civ. P. 52.

 FACTS

 In mid-1980 Ayerslee entered into a number of land contracts to acquire a group of contiguous properties in midtown Manhattan ("the premises"), paying nearly one million dollars in fees, down payments and deposits. Closings on the various properties were scheduled, commencing in July of 1981 and continuing through 1982, at which times the balances due on the properties had to be paid. Feasibility reports, prepared with respect to developing the premises and constructing Tower 49, indicated that the cost of consummating the land purchase contracts and constituting the building would exceed $108,000,000.00.

 In May of 1981, Ayerslee commenced negotiations with Overlook to form a joint venture with respect to the Tower 49 project. On June 30, 1981, Ayerslee and Overlook entered into a limited partnership agreement creating Plaza 49 Associates (the "Plaza 49 Agreement"). The stated purpose of the Plaza 49 Associates partnership was to acquire ownership of the various properties Ayerslee had contracted to purchase and to develop the premises for purposes, inter alia, of sale, lease or conversion into cooperative or condominium ownership. Pursuant to the Plaza 49 Agreement, Ayerslee assigned the land contracts to Plaza 49 Associates. Ayerslee received $500,000.00 from the partnership on account of the deposits and other expenses already paid by Ayerslee, with the balance treated as a loan to the partnership.

 Overlook, as general partner, contributed more than $3,000,000.00 to Plaza 49 Associates, and assumed responsibility to supervise the development and to provide or obtain the sums necessary for conducting the partnership business. The Plaza 49 Agreement delegated to Overlook and any future general partners all the rights, powers and privileges of a general partner provided in the Uniform Limited Partnership Act, and "the right in their discretion to do all things and to take all action which they deem in good faith necessary or appropriate to develop the Premises in the manner in which the General Partners believe it most feasible and appropriate." See Plaza 49 Agreement at P 10(a) (contained in Ex. A. to the Affidavit of David S. Solomon ("Solomon Aff.") in Support of Defendants' Motion for Summary Judgment). Under the Agreement, Ayerslee consented to "any sale or other disposition, encumberance, mortgage or lease . . . by the General Partners on behalf of the Partnership affecting the Partnership Property or any part thereof on such terms and conditions as may be approved by the General Partners in their sole discretion . . . ." See Plaza 49 Agreement at P 11(b). With respect to distributions and profits, the Plaza 49 Agreement provided that the net profits, case flow and capital proceeds of the partnership would be distributed to the partners, with 22.5% going to Ayerslee and 77.5% to Overlook.

 The Plaza 49 Agreement expressly provided for future financing of the Tower 49 project from sources other than Ayerslee or Overlook, including the introduction of additional partners to Plaza 49 Associates on terms within Overlook's sole discretion. The Agreement stated at paragraph 5(g) that "the admission of additional . . . Partners . . . shall not diminish the interest of [Ayerslee] in Partnership capital, income, profits or distributions . . . ." However, it also provided that:

 
Notwithstanding anything to the contrary contained in Paragraph 5(g) or elsewhere in this Agreement, the General Partners shall have the right in their sole discretion to grant an equity participation to any mortgagee of the Partnership Property, and in such case the interests of the General Partners and the Limited Partners shall each be reduced pro-rata by the percentage of the equity participation. For example, if 50% of the equity in the Partnership is granted to the mortgagee, the interest of the General Partners shall be reduced from 77-1/2% to 38-3/4% and the interest of the Limited Partners shall be reduced from 22-1/2% to 11-1/4%.

 Plaza 49 Agreement at P 6(d).

 Overlook encountered difficulty in obtaining the funds required for the July, 1981 closings, and postponed those closings until August 20, 1981. On or about August 14, 1981, Overlook forwarded to Ayerslee a proposed partnership agreement between Plaza 49 Associates and defendant Trabossom Associates (the "Solstead Agreement"), whereby Plaza 49 Associates and Trabossom would become the general and limited partners of a new limited partnership, Solstead Associates. The proposal, subsequently adopted without substantive change, provided that Plaza 49 Associates would transfer to Solstead its rights under the various land contracts constituting the partnership property of Plaza 49 Associates, and that Trabossom would provide the funds required for the August 20 closings and would arrange for a $24 million loan to Solstead. Pursuant to the Solstead Agreement, Plaza 49 Associates and Trabossom would each receive a 50% equity interest in Solstead. Plaza 49 would no longer have any ownership interest in Tower 49 itself. The Solstead Agreement specifically provided for admission of additional partners into Solstead on the consent of Plaza 49 Associates and Trabossom, for purposes of contributing funds to the Tower 49 development, with pro rata reduction of the percentage interests of all Solstead partners. See Solstead Agreement at P 2.11 (contained in Exhibit B to the Solomon Aff.). *fn2"

 By letter dated August 18, 1981, Overlook notified Ayerslee that Trabossom requested Ayerslee's consent to the execution of the Solstead Agreement by Plaza 49 Associates, and also advised Ayerslee of Ayerslee's right, pursuant to paragraph 26 of the Plaza 49 Agreement, to advance the funds necessary for the closings. By letter to Overlook dated August 19, 1981, Ayerslee stated that it would not exercise its right to advance the funds. Rather, Ayerslee agreed to give its consent to the formation of Solstead, as requested by Trabossom, on the condition that Ayerslee's interest in Plaza 49 Associates be increased, "subject to the unlimited dilution contemplated by the Solstead Agreement." *fn3"

 On August 20, 1981, Ayerslee and Overlook executed in amendment to the Plaza 49 Agreement (the "Amended Plaza 49 Agreement"), which provided that Ayerslee consented to the formation of Solstead, and that Ayerslee's interest in profits and distributions under the Plaza 49 Agreement was increased from 22.5% to 30%, while Overlook's interest was decreased from 77.5% to 70%. *fn4" Thereafter, also on August 20, 1981, Plaza 49 Associates and Trabossom ...


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