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SPECIALTY MALLS OF TAMPA, INC. v. RIVERBANK LANDSCAPE

United States District Court, S.D. New York


July 14, 2004.

SPECIALTY MALLS OF TAMPA, INC., Appellant,
v.
RIVERBANK LANDSCAPE, LTD., ARISTOCRATIC COACH CORP., JOHN FAYOLLE, Appellees.

The opinion of the court was delivered by: RICHARD HOLWELL, District Judge

OPINION

This is an appeal taken from the decision of the Bankruptcy Court of the Southern District of New York, pursuant to 28 U.S.C. § 158(a), denying the motion of appellant Specialty Malls of Tampa, Inc. ("Specialty Malls" or "appellant") for an order directing the chapter 11 Trustee ("Trustee") of appellee Riverbank Landscape Ltd. ("Riverbank") to pay Specialty Malls a breakup fee in connection with the sale of a parcel of real property owned by Riverbank. For the reasons set forth below, the decision of the Bankruptcy Court is affirmed.

BACKGROUND

  The facts recited herein are based on the designation of the record filed by appellant. An involuntary Chapter 7 bankruptcy petition was filed against appellee Riverbank in May 2000, which was later converted to one under Chapter 11. [R-243 at ¶¶ 3-4.]*fn1 A Trustee was appointed to oversee the sale of Riverbank's assets, including several parcels of real property. Specialty Malls made an offer on one parcel, and negotiated a contract with the Trustee for the purchase of that parcel. The contract as executed provided for a breakup fee of $60,000 to be paid to Specialty Malls in the event that the property was sold to a third party making a higher or better offer. Paragraph 37 of the contract reads in relevant part as follows:

(a) The obligations of the parties under this Agreement are and shall be subject to, and contingent upon, obtaining an order from the United States Bankruptcy Court approving this Agreement and the sale of the premises to Purchaser. . . .
. . .
(c) Purchaser . . . acknowledges[] that obtaining the aforesaid order may be subject to any "higher or better" offers from third parties. In the event that such a third-party offer is made, and Seller, in his sole discretion, deems such offer higher or better than that set forth in this Agreement, or if Seller shall be so directed by the Bankruptcy Court, then Seller may elect to cancel and terminate this Agreement. . . .
(d) In the event that this Agreement shall be terminated by Seller as set forth in the preceding subsection (c), then in recognition of the substantial costs incurred by Purchaser in evaluating the premises, negotiating this Agreement and otherwise devoting its time, attention and resources to this transaction, upon closing of the aforesiad [sic] third-party offer, and receipt of the purchase price for the premises, seller shall within a reasonable time thereafter, if authorized by the Bankruptcy Court, pay to Purchaser the sum of $60,000.
[R-164 ("Contract of Sale").] An addendum to the contract was later executed by the parties, providing that in the event the Trustee could not obtain satisfactory financial accommodations from mortgagees of the property in question within 30 days from the date of the contract, the Trustee would have the discretion to cancel the contract. The second paragraph of this addendum reads as follows:
[I]n the event that the Agreement shall be terminated by Seller as set forth in this Addendum to Rider, then in recognition of the substantial costs incurred by Purchaser in evaluating the Premises, negotiating this Agreement and otherwise devoting its time, attention and resources to this transaction, upon closing of a sale of the Premises with a third-party, and receipt of the purchase price for the Premises, Seller shall within a reasonable time thereafter, if authorized by the Bankruptcy Court, pay to Purchaser the sum of $60,000.
[R-236 at 33 (Exhibit "A" to Affidavit of Thomas Little).]

  An auction sale for the property was held on January 25, 2002, at which higher or better offers than Specialty Malls' were made and one was ultimately accepted. The Bankruptcy Court, by Order dated February 5, 2002, approved the sale to the highest or best offeror, [R-179 at ¶ 3], authorized sale to the second-highest bidder in the event that the highest bidder defaulted [Id. at ¶ 15], and authorized payment of the breakup fee to Specialty Malls [Id. at ¶ 26]. Paragraph 26 of the Order reads as follows:

The Trustees are hereby authorized to pay Specialty Malls of Tampa, Inc. the sum of $60,000 as its break-up fee upon the closing of the transactions contemplated by this Order.
[Id.]

  The highest bidder thereafter defaulted and the sale was not consummated [T-3:25-4:1], and the second-highest bidder declined to purchase the property [R-243 at ¶ 11]. The property was thus not sold pursuant to the January 25 auction. Subsequently, the Bankruptcy Court modified the automatic stay for the first and second mortgages of the property, permitting the mortagees to commence foreclosure proceedings. [Id. at ¶ 12.] Prior to the commencement of such proceedings, the Trustee decided to hold a second auction sale on September 18, 2002. Specialty Malls did not participate in the second auction. [T-5:8-9; R-243 at ¶ 12.] The property was sold at the September 18, 2002 auction, and the sale closed. [R-236 at ¶ 9; R-243 at ¶ 12.] By motion dated December 3, 2002, Specialty Malls sought the entry of an order by the Bankruptcy Court directing the Trustee to pay the breakup fee referred to in paragraph 37(d) of the sale contract and paragraph 26 of the Bankruptcy Court's February 5, 2002 Order. The Bankruptcy Court denied the motion on the record at a hearing held August 13, 2003. A notice of appeal was filed on or about August 28, 2003. The appeal presents only one issue: whether the Bankruptcy Court erred in denying appellant's motion for an order directing the payment of a breakup fee. Appellant argues that it is entitled to this payment by the contract or, in the alternative, by the equitable doctrine of quantum meruit.

  DISCUSSION

  A. Standard of Review

  When reviewing a decision of the Bankruptcy Court pursuant to 28 U.S.C. § 158(a), findings of fact are reviewed for clear error, and conclusions of law are reviewed de novo. F.R.Bankr.P. 8013; In re DeTrano, 326 F.3d 319, 321 (2d Cir. 2003); In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir.), cert. denied, 502 U.S. 808, 112 S.Ct. 50, 116 L.Ed.2d 28 (1991). This appeal requires the interpretation of a contract. There is a signal lack of jurisprudential consensus on whether contractual interpretation involves pure questions of fact, pure questions of law, or mixed questions of fact and law. See Antilles S.S. Co. v. Am. Hull Ins., 733 F.2d 195, 203 (2d Cir. 1984) (Newman, J., concurring) (citing cases and treatises). However, the Second Circuit has held that when "the language of the contract is unambiguous and conveys a definite meaning, then the interpretation of the contract is a question of law for the court." Bourne v. Walt Disney Co., 68 F.3d 621, 629 (2d Cir. 1995) (citations and internal punctuation omitted). Contractual language "is not ambiguous when it has a definite and precise meaning . . . concerning which there is no reasonable basis for a difference in opinion." Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992) (internal citations omitted).

  The threshold question of whether contractual language is ambiguous is a question of law. Quiroz v. United States Postal Serv., No. 00 Civ. 9772, 2004 WL 32859, *3 (S.D.N.Y. Jan. 6, 2004) (citing Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp., 818 F.2d 260, 263 (2d Cir. 1987)). "When the meaning of a contract is litigated, a reviewing court ordinarily looks only at the words used by the drafters, who presumably understood what they intended." Seiden, 959 F.2d at 426. As I discuss in further detail below, examination of the language of paragraph 37 of the sale contract and the addendum reveals no ambiguity. Accordingly, I review the Bankruptcy Court's decision de novo.

  B. Intent of Parties

  It is well settled that the objective of the court, in interpreting a contract, is "to give effect to the intent of the parties as revealed by the language they chose to use." Id. at 428. Here, the language of the sale contract sets forth with clarity the conditions that must obtain before Specialty Malls is entitled to receive a breakup fee. Paragraph 37(d) provides, first, that the agreement to sell the property to Specialty Malls must have been terminated by the Trustee pursuant to "the preceding subsection (c)" — that is, the Trustee must have received a higher or better offer that it chose (or was directed by the Bankruptcy Court) to accept. Second, paragraph 37(d) provides that "upon closing of the aforesiad [sic] third-party offer, and receipt of the purchase price for the premises," the Trustee shall pay the breakup fee within a reasonable time thereafter. Third, paragraph 37(d) further provides that the payment of the breakup fee is contingent upon the Bankruptcy Court's authorization of the payment.

  The parties evidently chose to restrict the payment of the breakup fee to a specific circumstance: the cancellation of the sale contract by reason of the Trustee's acceptance of a higher or better offer, the closing of that offer, the payment of the purchase price, and the Bankruptcy Court's approval of the payment of the breakup fee. The court must assume that if the parties had bargained for a less restrictive set of conditions, that set of conditions would have been stated in the contract.

  The conditions set forth in the agreement were not met. While the contract was terminated because of the Trustee's acceptance of a higher or better offer, both the sale to the highest bidder as well as the proposed sale to the second highest bidder failed to close. Moreover, the Bankruptcy Court authorized payment of the breakup fee only "upon closing of the transactions contemplated by this Order" — those transactions included the sale of the property to the highest or second highest bidder at the January 25, 2002 auction, but did not encompass the subsequent sale of the property to the high bidder at the September 18, 2002 auction. Because the necessary conditions as spelled out in paragraph 37(d) did not obtain, I conclude that the language of the contract does not entitle Specialty Malls to a breakup fee.

  Appellant urges that the addendum should be read to reflect the intent of the parties that the breakup fee be paid even absent the condition that the property is sold to, and the purchase price received from, the bidder whose higher or better offer was the reason for the Trustee's cancellation of its sales contract with Specialty Malls. It points to the language of the addendum, which conditions payment of the breakup fee on "a closing of a sale of the Premises with a third-party, and receipt of the purchase price for the Premises," in contrast to the more restrictive language of paragraph 37(d) of the contract, which conditions payment "upon closing of the aforesiad [sic] third-party offer and receipt of the purchase price for the premises" (emphasis added). I am not persuaded that this difference in language reflects the parties' intent to make the conditions for payment of the breakup fee more liberal in any circumstance other than that set forth in the addendum. The intent of this addendum is clear on its face: it is meant to permit the Trustee to cancel the contract with Specialty Malls if it were unable to obtain satisfactory financial accommodations from mortgagees in a timely fashion. The second paragraph of the addendum, cited above, defines conditions for payment of the breakup fee in the event that the contract was canceled under the circumstances defined in the first paragraph of the addendum. These circumstances — like those described in paragraph 37(c) of the contract — did not come to pass, and appellant has not given the court reason to suppose that the parties intended to provide for payment of the breakup fee under any circumstances other than those contemplated in these two provisions. C. Quantum Meruit

  The appellant contends that, even if it is entitled to no relief on the contract, the court should grant equitable relief based on the efforts expended, costs incurred, and opportunities lost in the course of performing due diligence and negotiating the transaction. It argues that it played the role of a "stalking horse" for Trustee at the January 25, 2002 sale,*fn2 and that the sale fell through due to no deficiency of performance on its part. (Appellant Br. 10.)

  As the appellant correctly observes, in order to recover under the equitable doctrine of quantum meruit, a party "must show that he performed services in good faith; the defendant accepted the services; both parties expected that plaintiff would be compensated for the services; and the defendant failed to pay plaintiff reasonable value for the services rendered." DiBella v. Hopkins, 187 F. Supp.2d 192, 201 (S.D.N.Y. 2002) (citing Longo v. Shore & Reich, Ltd., 25 F.3d 94, 98 (2d Cir. 1994)). Even if the appellant can make this showing, quantum meruit recovery is not available if there is an enforceable contract governing the subject matter. Aniero Concrete Co. v. New York City Const. Auth., 308 F. Supp.2d 164, 179 (S.D.N.Y. 2003) (quoting R.B. Ventures, Ltd. v. Shane, 112 F.3d 54, 60 (2d Cir. 1997)). The contract at issue here was enforceable to the relevant extent that if the contract were terminated under the circumstances contemplated by paragraph 37(c) or the addendum, the Trustee would have still been contractually obligated to pay the breakup fee so long as the other necessary conditions obtained. Since the conditions under which the breakup fee must be paid are fully covered by the enforceable contract between Specialty Malls and the Trustee, the equitable remedy of quantum meruit is inapplicable in this case.*fn3

  CONCLUSION

  For the foregoing reasons, the decision of the Bankruptcy Court to deny the motion of Specialty Malls to direct the Trustee to pay a breakup fee of $60,000 is hereby AFFIRMED.

  SO ORDERED.


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