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PARKE-HAYDEN, INC. v. LOEWS THEATRE MGMT. CORP.

April 20, 1992

PARKE-HAYDEN, INC., Plaintiff, against LOEWS THEATRE MANAGEMENT CORP., Defendant.

SWEET


The opinion of the court was delivered by: ROBERT W. SWEET

Sweet, D. J.

Plaintiff Parke-Hayden, Inc. ("Parke-Hayden") has moved pursuant to Fed. R. Civ. P. 56 for an order granting summary judgment in its favor on the First Claim contained in the complaint. Defendant Loews Theatre Management Corp. ("Loews") has also moved for partial summary judgment in its favor dismissing the Third and Fourth Claims of the complaint as well as Parke-Hayden's request for punitive damages in connection with the First and Third Claims. For the following reasons, Parke-Hayden's motion is denied; Loews's motion is granted.

 The Parties

 Parke-Hayden is a licensed real estate brokerage firm which is a New York corporation with its principal place of business at 98 Cutter Mill Road in Great Neck, New York.

 Loews is a Delaware corporation with its principal place of business at 400 Plaza Drive in Secaucus, New Jersey. Through its subsidiary and affiliated corporations, Loews engages in the operation and management of movie theaters throughout the United States.

 The Facts

 This lawsuit arises out of two unconsummated real estate transactions to which Loews was a party and in which Parke-Hayden acted as broker. With regard to both transactions, Parke-Hayden seeks to recover brokerage commissions, as well as punitive damages, from Loews.

 The 72nd Street Property

 The First Claim of the Complaint, on which Parke-Hayden seeks summary judgment, involves property located at 72nd Street and Broadway in New York City (the "72nd Street Property") and negotiations by Loews to lease the 72nd Street Property and construct and operate a partially below-grade movie theater complex (the "72nd Street Transaction").

 Sometime in early 1988, Hy Teich ("Teich"), the president of Parke-Hayden, brought the 72nd Street to the attention of Loews's employee, Gil Littman ("Littman"), Teich Dep. at 32, who had been hired by Loews in December 1987 to locate potential theater sites for Loews. Littman had started searching for a theater site in the neighborhood of West 72nd Street in early 1988. It is unclear which of the men approached the other: Littman testified that he asked Teich, a longtime friend, to find potential sites for Loews in that area, Littman Dep. at 20; Teich, on the other hand, testified that he "made someone aware . . . that we had this outrageous corner. Teich Dep. at 32. In any event, Teich showed Littman the Beacon Theater and the 72nd Street Property. Id. at 22.

 According to Littman's testimony, when Teich showed him the 72nd Street Property, Littman said "Teich, we want the deal." Id. at 26. Lou Korman ("Korman"), who was at all relevant times chairman of Loews's parent, Columbia Pictures Entertainment, Inc. ("Columbia"), told Littman to make the deal, and Littman called Teich and said "hey, we want the deal. Let's go." Id. at 27; see also Teich Dep. at 32 (Korman told Teich directly that "I'd like to get that property"). Teich conveyed Loews's interest to Philip Pilevsky ("Pilevsky"), a general partner of Broadway-72 Associates (the "Owner"), the owner of the 72nd Street Property. Teich reported back to Littman that Pilevsky was not interested in a transaction with Loews for that property. Littman insisted that Teich continue trying to get the 72nd Street Property. When Littman informed Korman that Pilevsky would not do the deal, Korman said that he did not care "what it takes. Make the deal. Get 72nd Street. Get Teich and make the deal." Id. at 27, 30. Littman thereafter had "Teich continue to work for (Loews) to get the deal" by calling him at all hours of the day and night "to make sure he understood that I wanted it." Id.; see also Teich Dep. at 34 (Littman told Teich to "try to get it. Try to get it.").

 In his affidavit, Pilevsky states that he never asked Teich to seek a lessee for the 72nd Street Property and did not have the property listed with any broker, Pilevsky Aff. P3, and that when Teich approached him, he told Teich that he did not want to lease the property to Loews. Id. Subsequently, according to Pilevsky, Teich repeatedly asked him to agree to Loews's proposal. Finally, Teich persuaded Pilevsky to enter into negotiations with Loews. Id. P4.

 Negotiations took place over approximately the next two years. During the negotiations, according to Pilevsky, Teich would often ask him to agree to points desired by Loews, and, "as a result of his efforts, agreements were reached." Pilevsky Aff. P5. Indeed, Teich's role in this regard is confirmed by former Loews President and Chief Operating Officer, Jerry Esbin ("Esbin"). Esbin testified that "he [Teich] would convey various things that I [Esbin] wanted to Mr. Pilevsky." Esbin Dep. at 26. The purpose of his conveying such information was "to allow [Loews] to ultimately get the deal that [Loews] wanted." Id. at 28. According to Littman's deposition testimony, if anything came up with respect to the 72nd Street Transaction, Esbin would say "get to Teich. Let's say some business point came up that bothered Jerry, or something. He said, get Teich and have him take care of this with Phil [Pilevsky]." Id. at 32. At the same time, Esbin's testimony clearly establishes that he regarded and understood Teich to be acting as broker for the Owner. See, e.g., id. at 27.

 By about March 1990, Loews and the Owner reached agreement on term, rent, taxes, construction of the theater, options for additional years, air rights, changes in zoning and mortgages. Esbin Dep. at 31. Esbin testified that at that point he told Mr. Teich that there would be a deal based on everything negotiated to that point, namely, the "economic points." Esbin Dep. at 55. Esbin testified that at the time the economic points were negotiated, Loews did not take into consideration the possible results of asbestos tests or rock borings. id. at 58.

 After negotiations and many drafts of a lease, a "final lease" was prepared and agreed to by both parties, which, according to Parke-Hayden, was ready for execution. Pilevsky Aff. P9, Ex. A. This lease agreement, like the drafts before it, provided that Parke-Hayden was the sole broker or finder and that the Owner would pay Parke-Hayden its brokerage commission for the lease transaction. Pilevsky Aff. Ex. A P35.01. After they worked out the rent, Esbin told Teich that "with respect to those points that we have discussed the economic points, up to that point, . . . everything was satisfactory to me and there would be a deal based on everything at that point." Esbin Dep. at 55.

 Nevertheless, as Esbin testified, all of the points had not yet been negotiated at that time. Esbin Dep. at 54-55. Because the theater complex was to be partially below-grade, demolition of the existing building and construction of a new facility would be necessary. Loews contends that it had always conditioned its signing of the lease upon satisfactory results from soil and environmental tests at the 72nd Street Property. Thus, according to Loews, as of April 1990, the "critical point concerning the expense of excavating bedrock and removing asbestos from the property had yet to be negotiated." Loews Memo. in Opp. at 7. Loews claims that this condition was known to both Teich and the Owner as early as January 1990 when the parties began negotiating a formal agreement for Loews to conduct the tests (the "Access Agreement"). Teich, on the other hand, testified that it was his understanding that the test results had no bearing on the parties' obligation to go forward on the deal. Teich Dep. at 118-19.

 The physical due diligence revealed the presence of rock and asbestos. The estimated cost of excavation would increase the cost of the project by $ 800,000 to $ 1,000,000. Esbin informed Pilevsky that he was concerned about bearing the one million dollar cost of excavation and asbestos removal and inquired about possible concessions from the Owner. According to Pilevsky, he "immediately agreed to work that out with him. . . . The possible cost of the rock excavation was not a stumbling block and would not have hindered our closing this deal." Pilevsky Aff. P16; see also Esbin Dep. at 95. However, according to Loews, it determined that it could not accept the risk and expense involved in blasting the rock at the 72nd Street Property and decided not to go through with the transaction. See Benjamin 1/6/92 Aff. P3.

 Meanwhile, in or about September 1989, Columbia had been taken over by Sony Corp., at which time Korman exited as Columbia's chief executive officer and Peter Guber ("Guber") and Jon Peters ("Peters") took the helm. Sometime in the end of April or beginning of May 1990, Guber and Peters replaced Bernie Myerson with Alan Friedberg ("Friedberg") as Loews's Chairman. Esbin was relieved of his position in May 1990. It is undisputed that Loews's new management terminated the 72nd Street Transaction and made no attempt to close a lease with the Owner.

 The Danbury Transaction

 The Third and Fourth Claims of the Complaint, which Loews seeks to have dismissed on summary judgment, relate to a proposed joint venture agreement between Loews and real estate developers Pilevsky and David Lavipour ("Lavipour"), who formed an entity known as PL Danbury Cinemas Associates ("PL Associates"). The purpose of the proposed joint venture was to construct and operate a motion picture cinema at a site in Danbury, Connecticut (the "Danbury Transaction"). According to Parke-Hayden, Teich was retained by the proposed joint venture as a broker to facilitate the transaction. This assertion is not disputed on this motion.

 Negotiations took place beginning in the spring of 1989. Loews was, and in fact continues to be, subject to a 1952 consent judgment (the "Consent Judgment") under which it is enjoined "from acquiring or continuing to own any beneficial interest in any motion picture theatre in conjunction with an actual or potential independent exhibitor." Smith 12/6/91 Aff. Ex. B, art. III, P5(b). Each draft of the proposed partnership agreement contained a clause referring to the Consent Judgment and providing that the proposed partners would not do anything to cause Loews to be in violation of the Consent Judgment. See, e.g., id. Ex. C, at 22-23, 44-45, 46-47.

 In early 1990, Loews learned that Lavipour and Pilevsky had interests in other motion picture theaters, whereupon Loews informed all of the parties that it needed to obtain Department of Justice ("DOJ") approval for the proposed transaction. In February 1990, Loews contacted its antitrust counsel, Allen Kezsbom of Fried, Frank, Harris, Shriver & Jacobson, to request that he obtain an opinion from the DOJ that the Danbury Transaction would not constitute a violation of the Consent Judgment. On March 6, 1990, Kezbom sent a letter to Frederick Haynes of the Antitrust Division of the DOJ outlining why the proposed Danbury Transaction did not violate the Consent Judgment. Kezbom subsequently forwarded to the DOJ the proposed ...


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