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Riverside South Planning Corp. v. CRP/Extell Riverside

November 24, 2009


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

This opinion is uncorrected and subject to revision before publication in the New York Reports.

In this breach of contract case, we are asked to determine the scope of a sunset clause that appears in a 1993 Letter Agreement relating to the development of a parcel of real property. Because we agree with the Appellate Division that, under the provision in question, the obligations in the agreement ceased in 2003 -- two years before defendant purchased the property -- we affirm the judgment dismissing plaintiff's claim.

In 1984, Penn Yards Associates, a partnership controlled by Donald Trump, purchased the Penn Central Railroad Yards -- a 76-acre parcel located on the West Side of Manhattan known as Riverside South. Trump floated two proposed development plans in the late 1980s that were opposed by civic groups. Eventually forging an alliance with six of the organizations that had opposed those plans, in 1991 Trump entered into a Memorandum of Understanding with these groups regarding a new Development Plan. The new plan focused on environmental sustainability and design criteria, specified the number, size and permissible uses of the buildings to be erected and reserved space for art studios, parks and other open spaces. With Trump's assistance, plaintiff Riverside South Planning Corporation (RSPC) was formed, an entity comprised of representatives of each of the six groups, along with Trump and a named President.

Thereafter, Trump and the RSPC worked together to obtain support from government officials for the Development Plan and, in 1992, formal approval was obtained from the City of New York. Penn Yards recorded a 284-page Restrictive Declaration with the New York City Register memorializing that approval. Having been recorded in the chain of title, the declaration imposed numerous restrictions on the owner that would run with the land and bind any developer as well as any successors or assignees.*fn1

On March 31, 1993, Donald Trump entered into a four-page Letter Agreement with the RSPC to "confirm our arrangement to continue working together." After identifying some issues that remained outstanding, Trump agreed that, if he used "Special Permits," he would develop the property in substantial conformity to "design guidelines"*fn2 and would not apply for any major modifications or rezonings (with specified exceptions) without the approval of a majority of the members of the RSPC. Trump further agreed to work with the RSPC to oversee the design and construction of the parks and open space in conformity with approved Park Drawings and Park Specifications and to delegate his future park maintenance obligations to an independent Park Maintenance Entity (subject to certain conditions). In exchange, the RSPC consented to continue its support of the project and to take whatever actions necessary to secure government permits and facilitate development. The contract also contained additional provisions addressing funding for the RSPC and the potential for future dissolution of the planning corporation.

Most relevant to this case, a sunset provision was included on the third page of the four-page Letter Agreement stating that "[t]he agreements contained herein" would continue for 10 years, unless either of two conditions were no longer fulfilled, in which case they would cease earlier. In a subsequent paragraph, the developer agreed that if he sold "any Parcel of the Subject Property," he would assign to the purchaser the obligations in the contract. Appended to the agreement and incorporated by reference was a two-page document entitled "Legal Requirements." This addendum clarified that "[n]othing contained in the Letter Agreement is intended to, nor shall be interpreted to, create an interest in real property, a constructive trust, easement, lien or other encumbrance upon the Subject Property," which was consistent with a provision in the Letter Agreement itself stating that the contract would not be recorded in the chain of title.

In 1994, Penn Yards sold the Riverside South property to Hudson Waterfront Assoc. L.P., an entity in which Trump had a non-controlling interest. After the transfer, in his capacity as a partner in Hudson Waterfront, Trump entered into another contract with the RSPC noting that he would continue to be a partner in the project and accepting, on behalf of Hudson Waterfront, the obligations imposed in the 1993 Letter Agreement, with certain caveats. It is undisputed that Hudson Waterfront fully complied with the 1993 Letter Agreement while it owned the property.

According to the allegations in RSPC's complaint, in 2005 Hudson Waterfront sold the Riverside South property (or a portion of it) to defendant CRP/Extell Riverside LLP ("Extell"), a company unrelated to Donald Trump. Upon purchase of the property, Extell signed a document in which it agreed to assume any duties and obligations that continued to exist under the 1993 Letter Agreement but stated that it was not admitting that there were any continuing obligations or that the contract remained in effect.

RSPC alleges that, for several months, Extell acted consistently with the Letter Agreement by funding and consulting with the RSPC. However, toward the end of 2005, Extell announced that it planned to construct a building that contained more glass on the exterior facade than would be consistent with the Design Guidelines and it failed either to seek approval from the RSPC or to conduct an energy efficiency analysis required by the guidelines. Extell then rebuffed RSPC's attempts to participate in the planning process and ultimately declared that it was not bound by the Letter Agreement because, by virtue of the sunset clause, that contract had expired in March 2003, 10 years after it was signed.

In November 2007, RSPC commenced this breach of contract action seeking enforcement of the 1993 Letter Agreement, arguing that the contract remained in effect. Extell answered and moved to dismiss the claim on the basis of documentary evidence, relying on the plain language of the sunset clause and contending that, since Extell did not purchase the property until two years after the agreement expired, it had no obligations under that contract and therefore could not be sued for its breach.

Supreme Court denied the motion to dismiss, reasoning that the sunset clause was ambiguous because it did not appear at the end of the agreement and, as a result, could be interpreted as applying only to the obligations that preceded it in the document. Since the clause relating to assignment to successors -- the provision under which obligations might have been passed on to Extell -- appeared after the sunset clause, the court concluded that the assignment clause might still have been in effect when the property was purchased by Extell.

In a divided decision, the Appellate Division reversed and granted Extell's motion to dismiss. The majority held that the sunset clause plainly established that the Letter Agreement had expired, at the latest, 10 years after it was executed, meaning that it was of no force or effect when Extell acquired the property in 2005. The court was unpersuaded that the placement of the provision on the third page of the contract --as opposed to at the end -- permitted the conclusion that the sunset clause applied only to obligations that appeared in the text before it rather than the entire agreement. The two-justice dissent would have upheld the order denying the motion to dismiss as it agreed with Supreme Court that the sunset clause was ambiguous. The dissent surmised that the parties might have intended to limit Trump's obligations to 10 years but to bind successors for a longer period of time if they thought it likely that Trump would sell the property soon after the letter agreement was signed. Plaintiff appeals to this Court as of right on the two-justice dissent and we now affirm.

Our rules of contract interpretation are well-established. "When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms," and this rule is applied with special force "in the context of real property transactions, where commercial certainty is a paramount concern, and where the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length" (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 NY3d 470, 475 [2004] [internal quotation marks, ellipses and citations omitted]). Courts may not "by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing" (Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001][internal quotation marks and citations omitted]).

In this dispute, the primary issue is whether there is ambiguity in the language of the sunset clause. "Whether an agreement is ambiguous is a question of law for the courts . . . Ambiguity is determined by looking within the four corners of the document, not to outside sources" (Kass v Kass, 91 NY2d 554, 566 [1998][citations omitted]). The entire contract must be reviewed and "[p]articular words should be considered, not as if isolated from context, but in the light of the obligation as a whole and the intention of the parties manifested thereby. Form should not prevail over substance and a sensible meaning of words should be sought" (Atwater & Co. v Panama R.R. Co., 246 NY 519, 524 [1927]). ...

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