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Liani v. Baker

June 28, 2010


The opinion of the court was delivered by: Glasser, United States Senior District Judge


The appellants Simon Liani ("Liani") and Sheldon Good & Company Auctions North East, LLC ("Sheldon Good") each appeal different portions of a bankruptcy court decision denying their cross-motions for summary judgment. The proceeding below was an adversary action arising out of the bankruptcy of Aston Baker ("Baker"). For the reasons stated below, the decision of the Bankruptcy Court is affirmed in part, reversed in part, and remanded for further proceedings.


The Court assumes familiarity with the adversary action and the bankruptcy proceedings out of which it arose, and only the facts that are directly relevant to the substance of these appeals will be recounted. On November 15, 2001, Baker filed a petition for relief under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the Eastern District of New York ("Bankruptcy Court"). On January 25, 2002, the case was converted to a case under Chapter 11. On June 20, 2005, the Bankruptcy Court issued an order (the "Retention Order") authorizing the retention of Sheldon Good to auction off four of Baker's real properties, including one located at 490 New York Avenue, Brooklyn, NY (the "New York Avenue property"). In its role as auctioneer, Sheldon Good prepared a Bidder's Packet containing information about the New York Avenue property and held open houses on nine separate dates at which prospective buyers and their experts could inspect the property. Liani ordered the Bidder's Packet on July 20, 2005, and received it approximately two weeks later. He did not attend any of the open houses.

On September 27, 2005, Sheldon Good held a public auction of the four properties, which Liani attended. Prior to the auction, Liani signed a Bidder's Affidavit acknowledging, among other things, that the properties would be sold "where is" and "as is." Liani subsequently placed the winning $5 million bid for the New York Avenue property. Liani executed a Purchase and Sale Agreement ("PSA") and deposited a down payment of $325,000.00 with Sheldon Good, as escrow agent.

The PSA called for Liani to make an additional deposit payment of $212,500.00 by the second business day following the auction, but Liani failed to do so. On October 27, 2005, the Bankruptcy Court found Liani to be in default, and Baker informed Liani as well by a letter dated the following day. In a letter dated October 31, 2005, Liani demanded the return of his down payment, alleging misrepresentations in connection with the sale. On November 29, 2005 the Bankruptcy Court approved the sale of the New York Avenue property by Sheldon Good to another purchaser.


On December 22, 2005, Liani brought an adversary action against Baker and Sheldon Good seeking the return of his $325,000 down payment. On March 15, 2006, Sheldon Good filed a counterclaim against Liani and a cross-claim against Baker arguing that Sheldon Good is entitled to retain 50% of the down payment and that Baker must indemnify Sheldon Good for legal costs. On October 12, 2007, Liani filed a motion for summary judgment against Baker and Sheldon Good. On October 19, 2007, Baker filed a cross-motion for summary judgment against Liani, and Sheldon Good filed a motion for summary judgment on its cross-claim against Baker. The bankruptcy court denied the motions of Liani and Sheldon Good, but granted Baker's cross-motion for summary judgment, thus awarding him the entirety of the $325,000 down payment. Liani and Sheldon Good separately appeal the denials of their motions. These appeals have been consolidated for decision here.


1. Standard of Review

a. Appeal from Bankruptcy Court

When reviewing a decision of the Bankruptcy Court, the District Court will "review conclusions of law de novo, and findings of fact under a clearly erroneous standard." In re Ionosphere Clubs, Inc., 922 F.2d 984, 988 (2d Cir. 1990). The Court "review[s] a grant of summary judgment de novo, taking all factual inferences in favor of the non-moving party." In re Blackwood Assocs., L.P., 153 F.3d 61, 67 (2d Cir. 1998).

b. Summary Judgment

A party will be granted summary judgment when the record shows "that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). The moving party bears the burden of demonstrating that there exists no genuine issue of material fact. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). When considering whether the movant has met its burden, the court must draw all reasonable inferences in favor of the non-moving party. Matsushita, 475 U.S. at 586. Summary judgment "is inappropriate when the evidence is susceptible of different interpretations or inferences by the trier of fact." Hunt v. Cromartie, 526 U.S. 541, 553 (1999).

2. Forfeiture of Deposit

Liani makes four arguments as to why he is entitled to the return of his down payment. First, he argues that he was not a qualified bidder under the terms of the PSA, and thus, because his bid at the public auction was invalid and should never have been accepted, his down payment should be returned. Second, he argues that even if his bid was valid, Baker's and Sheldon Good's refusal to allow lead-paint testing gave him the right to rescind the contract. Third, Liani argues that the PSA should be invalidated because material misrepresentations by Sheldon Good concerning the New York Avenue property amounted to fraud in the inducement. Fourth, he argues that the down payment should be returned because Mr. Baker, in a hand-written letter, disclaimed any interest in it. These arguments will be addressed in turn.

a. Condition Precedent

Paragraph 42 of the PSA includes the following statement: "The seller advises all prospective buyers that they are expected to waive the opportunity to conduct a risk assessment or inspection of the presence of lead-based paint and/or lead-based paint hazards or their bids or offers to purchase will not be considered." PSA ¶ 42. Prior to the auction, Liani signed the PSA, and he concedes that it is a valid contract by which he is bound. Liani's Br. 16 ("Appellant does not dispute the validity of the contract, and in fact . . . specifically asked the Court to uphold the validity of the contract of sale (the PSA)."). Liani argues, however, that he did not initial the lead-paint inspection waiver referred to by paragraph 42 of the PSA. The waiver was included in Exhibit D of the PSA. Although Liani did initial the top of Exhibit D, entitled "Disclosure of Information and Acknowledgement" and subtitled "Lead-Based Paint and/or Lead-Based Paint Hazards," he did not initial the specific lead-paint waiver language in the spaces provided. We will assume for purposes of this appeal that this indicates Liani's refusal to agree to the waiver.*fn1

Liani argues that the quoted language in paragraph 42 of the PSA operates as a condition precedent and that, because he did not waive the lead paint inspection, his bid could not be considered under the PSA's own terms. The Court agrees with Liani that paragraph 42 creates a condition precedent. This does not, however, invalidate Liani's bid at the public auction. It is hornbook law that a condition precedent intended for the benefit of one party may not be invoked by the other party to invalidate the contract. See 13 Williston on Contracts § 39:24 ("[T]he beneficiary of a contract provision, including a condition precedent, has the power to excuse its failure or nonoccurrence, and to compel performance by the other party, so long as the other party has no interest in the occurrence of such condition."); see also Walter E. Heller & Co., Inc. v. Am. Flyers Airline Corp., 459 F.2d 896, 901 (2d Cir. 1972) (citing New York cases for the proposition that "it is hornbook law that a condition precedent in favor of one of the parties may be waived by that party."); cf. A.H.A. Gen. Constr., Inc. v. N.Y. City Hous. Auth., 699 N.E.2d 368 (N.Y. 1998) ("[I]t is a well-settled and salutary rule that a party cannot insist upon a condition precedent, when its non-performance has been caused by himself." (internal quotations omitted)). A condition precedent may be waived either explicitly or implicitly by conduct. PB Ams. Inc. v. Cont'l Cas. Co., No. 09 Civ. 1969 (LAP), 2010 WL 532306, at *6 (S.D.N.Y. Feb. 9, 2010); ESPN, Inc. v. Office of Comm'r of Baseball, 76 F. Supp. 2d 383, 389 (S.D.N.Y. 1999).

Normally, the most persuasive evidence to determine for whose benefit a particular contract provision was intended is the actual language of the contract itself. See W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639, 642 (N.Y. 1990); Oak Bee Corp. v. N.E. Blankman & Co., Inc., 551 N.Y.S.2d 559, 561 (N.Y. App. Div. 1990). In this case, however, Liani concedes in his own brief that the waiver language was placed in the PSA for the benefit of Baker and Sheldon Good. Liani's Br. 13--14 ("[B]y insisting on the waiver, Appellees Sheldon Good and Aston Baker were attempting to shield themselves from potential liability from lead paint disclosure in the millions of dollars."); id. at 15 ("[T]he broker sought to avoid that liability by only selling to a bidder that would waive the right to inspect and made that waiver a condition precedent to being accepted as a bidder on the property.").

Having accepted Liani's bid at the open auction despite his failure to initial the lead-paint inspection waiver,*fn2 Baker and Sheldon Good effectively waived this condition precedent. Liani, who did not stand to benefit from the inspection waiver, has no grounds for complaint if his bid was accepted without requiring the waiver.

b. Inability to Conduct Lead-Paint Inspection

Liani next argues that even if his bid was validly accepted, because he did not execute a lead-paint inspection waiver, he retained his rights to inspect for lead-paint, and the inability to do so justified the rescission of the sale. The first question, then, is what is the source of the asserted right to inspect. Liani argues that his right to inspect has its basis in the Residential Lead-Based Paint Hazard Reduction Act of 1992, 42 U.S.C. § 4851, et seq., specifically, 42 U.S.C. § 4852d and its implementing regulations.

Section 4852d does not by itself directly impose duties on the sellers of property. Sweet v. Sheahan, 235 F.3d 80, 86-87 (2d Cir. 2000) ("[T]he statute imposes obligations on the agencies to promulgate regulations which will then - and only then - impose obligations on sellers and lessors."). Rather, the statute instructs the Environmental Protection Agency to adopt regulations regarding the inspection of property for lead-paint prior to sale. 42 U.S.C. § 4852d. The implementing regulations, codified at 24 C.F.R. § 35 and 40 C.F.R. § 745, do impose certain requirements on sellers of property.

Under 40 C.F.R. § 745.110, a purchaser of residential property must either be provided a period of time in which to inspect the property (which opportunity must be acknowledged by the purchaser in writing, see 40 C.F.R. § 745.113(a)(5)) before being contractually bound, or must waive in writing the right to inspect. Furthermore, under 40 C.F.R. § 745.113(a)(2)--(3), a seller must provide a purchaser with information on any known lead-paint based hazards. Liani alleges that Baker and Sheldon Good violated § 745.110 by not providing him with an opportunity to inspect after he did not sign the waiver. Further, he alleges that they have violated § 745.113 by failing to provide him with the results of prior lead-paint tests.

Even assuming that the statute applies to the sale at issue,*fn3 it provides no remedy for Liani. The statute states in very clear language that its violation does not give the ...

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