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TERRYDALE LIQUIDATING TRUST v. BARNESS

October 24, 1986

TERRYDALE LIQUIDATING TRUST, Plaintiff,
v.
HERBERT BARNESS, et al., Defendants; SAN FRANCISCO REAL ESTATE INVESTORS, INC., Counterclaimant and Third-Party Plaintiff, v. TERRYDALE LIQUIDATING TRUST, et al., Counterdefendants and Third Party Defendants



The opinion of the court was delivered by: SAND

SAND, J.

Defendants, San Francisco Real Estate Investors, Inc. and its directors (collectively "SFREI"), have moved, pursuant to certain contractual provisions, for an award of attorneys' fees incurred in the successful defense of a lawsuit between SFREI and plaintiff Terrydale Liquidating Trust (hereinafter "TLT"), a successor-in-interest to Terrydale Realty Trust ("TRT"). The events giving rise to the instant motion have been explained in detail in prior opinions in this complex litigation. See Terrydale Liquidating Trust v. Barness, et al., (Opinion, 82 Civ. 7290, August 26, 1986); see also Terrydale Liquidating Trust v. Barness, et al., 611 F. Supp. 1006 (S.D.N.Y. 1984); Terrydale Liquidating Trust v. Gramlich, 549 F. Supp. 529 (S.D.N.Y. 1982); Bolton v. Gramlich, 540 F. Supp. 822 (S.D.N.Y. 1982). Although familiarity with these prior opinions is assumed, we present a brief review of certain critical background facts in order to frame the context in which we must decide SFREI's motion for an award of attorneys' fees.

 BACKGROUND

 This motion grows out of a struggle for control of TRT. On January 9, 1981, BCG Associates (hereinafter "BCG"), an entity controlled by the individuals who now control TLT, commenced an unsolicited tender offer for a portion of TRT's outstanding shares. In the wake of the unsolicited offer, TRT sold to SFREI, in February of 1981, approximately 80% in value of TRT's assets, specifically, four office buildings located in Denver, Colorado. In addition, the TRT trustees (now ex-trustees) adopted and disclosed a plan to liquidate TRT and to distribute the proceeds of the SFREI sale, along with the remaining trust assets, to the TRT shareholders. Liquidating dividends were declared and the value of TRT stock declined. By January of 1982, the BCG group had obtained a majority interest in TRT. Subsequently, on January 28, 1982, the TRT shareholders approved the creation of TLT and elected as TLT trustees a slate of nominees controlled by the BCG group. TLT, newly controlled by what is in essence a defeated tender offeror, then became a named plaintiff in a suit (i) against the former TRT trustees, charging that they sold the TRT assets at distress prices to defeat the tender offer, and (ii) against SFREI, alleging that SFREI aided and abetted the sale and in any event had sufficient notice of the trustees' alleged breach to warrant the equitable claim of restitution.

 By Opinion dated November 19, 1984, 611 F. Supp. 1006, this Court, inter alia, granted in part SFREI's motion for summary judgment and dismissed plaintiff's claim that SFREI aided and abetted the TRT trustees' alleged breach of fiduciary duty. Concluding, however, that material questions of fact existed as to whether the TRT trustees had breached their fiduciary obligations and whether SFREI had sufficient notice thereof which would warrant imposition of liability as a constructive trustee, this Court denied SFREI's motion for summary judgment on the restitution claim. See 611 F. Supp. at 1033.

 A trial ensued and by Opinion dated August 26, 1986, this Court dismissed TLT's complaint. Specifically, the Court found that by voting for the transaction with SFREI and the liquidation plan, the TRT trustees breached neither TRT's Declaration of Trust nor the fiduciary duty they owed to TRT's shareholders. In addition, we found that there was no basis upon which to conclude that SFREI should, have known that a breach occurred and thus held to be constructive trustees of the subject properties. See Opinion, 82 CIV 7290 at p.28, August 26, 1986. Accordingly, TLT's equitable claim for restitution was dismissed.

 Successor Liability

 SFREI's present motion for an award of attorneys' fees is based on Paragraph 15 of each of the purchase and sale agreements which were executed in February of 1981 by SFREI and TRT in connection with the sale of the Denver properties. Paragraph 15 states:

 "ATTORNEYS' FEES. Each party shall pay its own attorneys' fees. If, however, any dispute between the parties hereto should result in litigation, the prevailing party shall be reimbursed for all reasonable costs, including, but not limited to, reasonable attorneys' fees."

 SFREI argues that TLT is the successor-in-interest to the obligations and liabilities of TRT and as such is bound by the contractual obligations contained in Paragraph 15. In light of the fact that SFREI was the "prevailing party" in the underlying lawsuit, it seeks to recover from TLT the reasonable attorneys' fees SFREI incurred in conducting its defense.

 TLT urges denial of SFREI's motion for attorneys' fees on a number of grounds. First, TLT argues that TLT is not the party that executed the purchase and sale agreements and, accordingly, is not bound to honor TRT's obligations thereunder. In this connection, TLT emphasizes that the purchase and sale agreements do not explicitly bind TRT's successors and assigns.

 We reject the contention that TLT is not a successor party obligated by the terms of the purchase and sale agreements between TRT and SFREI. The nature of the relationship between TRT and TLT and the history of this litigation belie TLT's contention that it is not a successor to TRT's rights and obligations.

 On February 5, 1982, the trustees of TRT and the recently elected trustees of TLT executed a Termination and Liquidating Trust Agreement (hereinafter "Termination Agreement") which, inter alia, dissolved TRT and created TLT. Pursuant to the Termination Agreement, all of the "assets, properties, claims and rights" of TRT were transferred and assigned to TLT "subject to all liabilities and obligations of [TRT]." See Termination Agreement at p.3. TLT's broad assumption of liability was accompanied by correspondingly broad language empowering the TLT trustees to use the trust assets to satisfy TRT's obligations. The Agreement directed that the trust estate "be held and disposed of ... for the uses and purposes" as set forth therein. Id. The TLT trustees, as trustees in dissolution, were given the authority to "pay any and all expenses, costs, fees ... or other charges which are obligations or liabilities of [TRT] or [TLT] (including, but not limited to, all expenses, costs, fees or other charges appropriately arising from any valid indemnification agreement or any proper resolution of the [TRT] Board of Trustees providing for indemnification of [TRT] trustees or third parties." Id. at p.8.

 The broad assumption of liability in the Termination Agreement, a document which was executed approximately a year after the execution of the purchase and sale agreements at issue in the present dispute, illuminates the intentions of TRT and TLT as TRT proceeded towards liquidation. TLT's express assumption negates the significance that TLT seeks to place on the absence of express language binding successors and assigns in the TRT-SFREI purchase and sale agreements. The plain language of the Termination ...


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