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Destiny USA Holdings, LLC v. Citigroup Global Markets Realty Corp.

November 13, 2009

DESTINY USA HOLDINGS, LLC, RESPONDENT,
v.
CITIGROUP GLOBAL MARKETS REALTY CORP., APPELLANT.
DESTINY USA HOLDINGS, LLC
v.
CITIGROUP GLOBAL MARKETS REALTY CORP.,



The opinion of the court was delivered by: Pine, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

As corrected through Wednesday, March 10, 2010

24 Misc 3d 1222(A), 2009 NY Slip Op 51550(U), modified.

{**69 AD3d at 213} OPINION OF THE COURT

The primary issue on this appeal is whether plaintiff, Destiny USA Holdings, LLC (Destiny Holdings), is entitled to a preliminary{**69 AD3d at 214} injunction requiring defendant, Citigroup Global Markets Realty Corp. (Citigroup), to fund "pending draw requests" on a loan structured as "an advancing term loan." Citigroup contends that such relief is not available because the action is one for breach of contract and Destiny Holdings could be compensated monetarily for any damages allegedly sustained. Supreme Court disagreed and, inter alia, granted the preliminary injunction sought (Destiny USA Holdings, LLC v Citigroup Global Mkts. Realty Corp., 24 Misc 3d 1222[A], 2009 NY Slip Op 51550[U] [2009]). For the reasons that follow, we conclude that the court properly determined that Destiny Holdings is entitled to a preliminary injunction requiring Citigroup to fund "pending draw requests" but that the court erred in granting other relief that was neither requested nor appropriate and in failing to set an undertaking.

Factual Background

In 2005 Citigroup agreed to provide financing for the first phase of Destiny Holdings' "Destiny USA" expansion project. The first phase of the "Destiny USA" project involved the"development and construction of a shopping center/tourist destination containing at least 800,000 gross square feet and related facilities and improvements." Other phases were to include the construction of a hotel as well as retail, entertainment and dining facilities. The "Destiny USA" project was to be funded using a unique financing model for green economic development. Phase one of the project, the only phase at issue on this appeal (hereafter, Project), was to be funded using money from three sources: Destiny Holdings, proceeds from bonds issued by the City of Syracuse Industrial Development Agency (SIDA) and approximately $155 million to be loaned by Citigroup.

In February 2007 the parties entered into an Amended and Restated Building Loan, Project Loan and Security Agreement (Agreement), which detailed the development and funding of the Project. Pursuant to the Agreement, Citigroup agreed to act as both a lender and as the agent for all of the lenders. As the agent, Citigroup was responsible for approving all advances of money, regardless of whether the advances came from funds of Destiny Holdings, SIDA or Citigroup. Although the Agreement states that the money from Destiny Holdings and SIDA would be held in various escrow accounts, there is no evidence in the record that Citigroup created separate escrow accounts or in{**69 AD3d at 215} any way segregated the money that it would be loaning to the Project. Pursuant to the Agreement, loan advances were made after Destiny Holdings submitted its monthly draw request and various conditions precedent were met. Citigroup could deny a draw request if it determined that a "Deficiency" existed. A Deficiency occurred when the money required to complete construction of the "Required Improvements" exceeded the money yet to be advanced and other available funds.

In February 2007 Citigroup began disbursing the monthly advances. With respect to the 17th, 18th, and 19th draw requests, made in the summer of 2008, Citigroup alleged that there were Deficiencies and included allocations for Tenant Improvement Costs (TI Costs) in its calculations of those Deficiencies. Destiny Holdings disputed the calculations and, in November 2008, representatives of both parties met to discuss the inclusion of TI Costs in Deficiency calculations. Following that meeting, TI Costs were excluded from Deficiency calculations for the 20th through 26th draw requests.

The 27th draw request was submitted in April 2009, with a funding due date of May 5, 2009. On May 20, 2009, Citigroup sent Destiny Holdings a Deficiency notice, alleging that Destiny Holdings was deficient by over $15 million. Virtually all of the claimed Deficiency was based on the inclusion of TI Costs in calculating the Deficiency. When Destiny Holdings failed to cure the Deficiency within 10 business days, Citigroup declared the loan in default. Although Destiny Holdings submitted the 28th and 29th draw requests, Citigroup has not funded any draw request since declaring the loan in default. Destiny Holdings contends that the Project is approximately 90% complete.

Procedural History

On June 9, 2009, Destiny Holdings commenced this action asserting six causes of action, including one for breach of contract, as well as causes of action seeking a declaratory judgment, specific performance, and both preliminary and permanent injunctions. On the same date, Destiny Holdings moved for a preliminary injunction seeking to compel Citigroup "to fund the pending loan advances . . . or, alternatively, enjoining Citigroup from refusing to fund such pending advances." Destiny Holdings also sought to compel Citigroup "to comply with the procedural requirements of the construction loan agreement when approving future loan advances--in particular, the contractually-mandated calculation of a 'Deficiency' under that agreement."{**69 AD3d at 216}

In deciding the motion for a preliminary injunction, Supreme Court: (1) determined that the Notice of Deficiency was null and void and vacated it; (2) determined that the Notice of Default was null and void and vacated it; (3) determined that the term "Deficiency" was not a budget-based term and that TI Costs could not be used in calculating whether a Deficiency existed; (4) determined that Citigroup had breached the Agreement; (5) ordered Citigroup to fund the 27th draw request; (6) ordered Citigroup to fund the 28th draw request; (7) ordered Citigroup to fund the 29th draw request; (8) ordered Citigroup to "pay all future sums due as draws or advances under the [Agreement] as they come due without further delay or interference" (2009 NY Slip Op 51550[U] at *20); (9) scheduled a hearing to determine whether there was a current Deficiency; and (10) reserved until after that hearing any decision on the nature, amount and type of performance bond.

Citigroup appeals, contending that the court erred in granting a preliminary injunction, in granting the ultimate relief sought in the complaint and in failing to require Destiny Holdings to provide a substantial undertaking.

General Provisions of Law

In order to establish its entitlement to a preliminary injunction, the party seeking the injunction must establish, by clear and convincing evidence (see Network Fin. Planning v Prudential-Bache Sec., 194 AD2d 651 [1993]), three separate elements: "(1) a likelihood of ultimate success on the merits; (2) the prospect of irreparable injury if the provisional relief is withheld; and (3) a balance of equities tipping in the moving party's favor" (Doe v Axelrod, 73 NY2d 748, 750 [1988]; see J. A. Preston Corp. v Fabrication Enters., 68 NY2d 397, 406 [1986]; Miller v Powers, 30 AD3d 1060, 1061 [2006]). Entitlement to a preliminary injunction "depends upon probabilities, any or all of which may be disproven when the action is tried on the merits" (J. A. Preston Corp., 68 NY2d at 406). " 'A motion for a preliminary injunction is addressed to the sound discretion of the trial court[,] and the decision of the trial court on such a motion will not be disturbed on appeal, unless there is a showing of an abuse of discretion' " (Abramo v HealthNow N.Y., 305 AD2d 1009, 1009 [2003]; see Axelrod, 73 NY2d at 750).

We agree with Citigroup and the dissent that provisional injunctive relief has historically been "limited to equitable actions where the defendant threatened to violate the rights of{**69 AD3d at 217} the plaintiff 'respecting the subject of the action, which would tend to render the judgment ineffectual' " (Credit Agricole Indosuez v Rossiyskiy Kredit Bank, 94 NY2d 541, 545 [2000]). That is because, generally, "in a pure contract money action, there is no right of the plaintiff in some specific subject of the action; hence, no prejudgment right to interfere in the use of the defendant's property; and no entitlement to injunctive relief pendente lite" (id.). In such situations, the "plaintiff has an adequate remedy in the form of monetary damages, and injunctive relief is both unnecessary and unwarranted" (D&W Diesel v McIntosh, 307 AD2d 750, 751 [2003]).

The same reasoning applies with respect to a cause of action for specific performance. "In general, specific performance will not be ordered where money damages 'would be adequate to protect the expectation interest of the injured party' " (Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 415 [2001]). Because money is fungible, a party seeking enforcement of an agreement to lend money would be expected to borrow money elsewhere and recover damages based on the higher costs associated with the ...


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