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Cornerstone Realty Group, Inc. v. Baum

September 28, 2010

CORNERSTONE REALTY GROUP, INC. AND CORNERSTONE REALTY GROUP, LLC, PLAINTIFFS,
v.
FRED BAUM, KONSTANIN LEVIEV, AND THE LEVIEV DEVELOPMENT, LLC, DEFENDANTS.



The opinion of the court was delivered by: Hon. Norman A. Mordue, Chief U.S. District Judge.

MEMORANDUM-DECISION AND ORDER

INTRODUCTION

In this action, plaintiffs Cornerstone Realty Group, Inc. and Cornerstone Realty Group, LLC (together, "Cornerstone")*fn1 claim defendants wrongfully caused Cornerstone to lose its contractual option to purchase and develop over 400 lots owned by Greene County ("County"). On March 24, 2008, this Court issued a Memorandum-Decision and Order (Dkt. No. 25) granting defendants' motion to dismiss the complaint, with leave to replead certain causes of action. On April 14, 2008, plaintiffs filed and served an amended complaint (Dkt. No. 26). After lengthy discovery, the parties stipulated (Dkt. No. 64) to dismiss with prejudice the second, fourth, fifth, and sixth claims in the amended complaint, leaving only the first cause of action for breach of contract against Leviev LLC and the third cause of action for "fraud/fraudulent scheme" against all three defendants.

Defendant Fred Baum ("Baum") moves (Dkt. No. 65) for summary judgment dismissing the third cause of action. Defendants Konstantin Leviev ("K. Leviev") and The Leviev Development, LLC ("Leviev LLC") move (Dkt. No. 69) for summary judgment dismissing the first and third causes of action. As set forth below, the Court grants both motions and dismisses the action in its entirety.

BACKGROUND

Briefly, the undisputed facts are as follows. Sleepy Hollow Lake ("Sleepy Hollow") is a 2200-acre subdivision community in Greene County, managed by the Association of Property Owners of Sleepy Hollow Lake, Inc. ("APO"). By early 2002, as a result of tax foreclosures, the County held title to over 400 parcels in Sleepy Hollow. On July 19, 2002, the County and APO entered into a Development Rights Agreement ("County/APO-DRA"), which gave APO "the exclusive option to purchase, develop, market and sell the County owned properties in Sleepy Hollow[.]" The agreement stated that the County "specifically desires by this contract to facilitate the transfer of County-owned lots to private third party individuals who agree to build homes on the lots." The County/APO-DRA acknowledged that APO had separately contracted with Cornerstone to develop and market certain of the properties. The County/APO-DRA provided that it would "terminate automatically and immediately upon Cornerstone's failure to build 20 homes to completion by December 31, 2003."

On the same date, July 19, 2002, APO and Cornerstone entered into a separate Development Rights Agreement ("APO/Cornerstone-DRA"). This agreement provided Cornerstone with "the exclusive option to purchase, develop, market and sell" certain identified

County-owned properties, a total of about 440 lots. The agreement was for a term of two years, to be extended for an additional two years "if, within eighteen (18) months of the effective date of this Agreement, construction is complete of at least twenty (20) single family homes."

In or about December 2002, Roy G. Jacobs ("Jacobs") on behalf of Cornerstone*fn2 began negotiating an agreement with defendant Fred Baum. Eventually Baum proposed that Cornerstone enter into a development agreement with Leviev LLC as developer, with Baum acting as project manager. On May 30, 2003, Cornerstone and Leviev LLC entered into the Purchase Agreement ("Cornerstone/Leviev Purchase Agreement") that is the subject of the present action. The agreement provided that Leviev LLC "shall acquire all lots for construction and use good faith and diligent efforts to complete 20 single-family residences, and convey same to third-party purchasers on or before December 31, 2003." The agreement acknowledged that it was "also subject to the terms and provisions" of the County/APO-DRA and the APO/Cornerstone-DRA, and Leviev LLC agreed to comply with the terms of those agreements.

Leviev LLC did not complete 20 homes by December 31, 2003. In July 2004 the County passed Resolution No. 291-04 providing that it would enter into a new agreement with APO on

the condition that there would be no third-party beneficiary to the contract. On November 17, 2004, the County passed Resolution No. 440-04 rescinding Resolution No. 291-04 and stating that "the County no longer wishes to offer to contract with the Homeowner's Association under the terms and conditions set forth in that Resolution." On February 16, 2005, the County and Leviev LLC signed a contract for Leviev LLC to purchase all the County-owned lots for $1.5 million.

In January 2005, Cornerstone commenced a CPLR Article 78 proceeding against the County and APO. Cornerstone Realty Group, LLC v. County of Greene, 859 N.Y.S.2d 893 (Table), 2005 WL 6075236 (N.Y. Sup. June 6, 2005), aff'd 814 N.Y.S.2d 343 (3d Dep't 2006). Cornerstone sought a ruling that the County's resolution be deemed of no force and effect and a declaration that the County/APO-DRA was "valid and binding on the parties thereto." The Third Department found that the County/APO-DRA was "an option contract requiring strict compliance with its terms" and affirmed Supreme Court's declaration that the County/APO-DRA had ended by its own terms when the December 2003 deadline passed without the completion of 20 homes.

The amended complaint (Dkt. No. 26) claims that when Leviev LLC agreed to build the 20 homes "it already had a preconceived and undisclosed intention of not building the 20 homes in anticipation of Cornerstone Inc.'s contract with the APO expiring, only for Leviev Development to take Cornerstone Inc.'s place as the developer of Sleepy Hollow Lake." It further alleges that Leviev LLC failed to make good faith and diligent efforts to construct or convey homes pursuant to the Cornerstone/Leviev Purchase Agreement, that it breached that agreement, and that the breach was part of a calculated scheme on the part of Baum, K. Leviev and Leviev LLC to become the sole developers of Sleepy Hollow.

THE CONTRACTS

County/APO-DRA

The July 19, 2002 Development Rights Agreement entered into by Greene County and APO ("County/APO-DRA") gave APO "the exclusive option to purchase, develop, market and sell the County owned properties in Sleepy Hollow[.]" The agreement stated that the County "specifically desires by this contract to facilitate the transfer of County-owned lots to private third party individuals who agree to build homes on the lots." It acknowledged that APO had separately contracted with Cornerstone to develop and market certain of the properties. The County/APO-DRA agreement provided that APO would pay the County $125 for each lot during the first two years of the contract, $225 in the third year, $325 in the fourth year, $425 in the fifth year, and $525 in the sixth year.

The term of the County/APO-DRA agreement was as follows:

4. This agreement shall terminate automatically and immediately upon the earliest of:

(a) Six (6) years from the effective date of this agreement, or

(b) The effective date of the termination of Cornerstone's contract with the APO, or

(c) Upon the mutual written consent of the parties to this agreement[, or]

(d) Cornerstone's failure to build 20 homes to completion in Sleepy Hollow by December 2003.

The agreement further provided: "Upon termination of this agreement, for any reason, all rights conveyed under this agreement shall revert to the County."

APO/Cornerstone-DRA

On the same date, July 19, 2002, APO and Cornerstone entered into a separate

Development Rights Agreement ("APO/Cornerstone-DRA"). The agreement provided:

1. Exclusive Development Rights.

a. The APO hereby conveys to Cornerstone the exclusive option to purchase, develop, market, and sell the certain properties identified within the Pilot Redevelopment Plan ("PRP")....

b. The APO hereby conveys the exclusive option rights for the term of this Agreement. Upon termination of this Agreement, for any reason, all rights shall revert to the APO.

4. Sale of Property

a. The APO shall enter into an agreement with the County for the purchase and sale of the real estate parcels within the PRP.

b. Upon request from Cornerstone, the APO shall buy from the County and then sell Cornerstone the listed parcels among the properties in the PRP.

c. The price per lot, to be paid by Cornerstone to APO, shall be as follows:

i. $375.00 per lot for the first twenty (20) lots selected by Cornerstone;

ii. $500.00 per lot for the next ten (10) lots selected by Cornerstone;

iii. $750.00 for the next twenty (20) lots selected by Cornerstone; and,

iv. $1,000.00 for the next fifty (50) lots selected by Cornerstone.

d. The APO, upon receipt of monies from Cornerstone for the purchase of parcels and the exercise by the APO of its option to purchase parcels from the County, shall pay the County for said parcels in accordance with the agreement between the County and the APO.

Among other obligations, Cornerstone agreed to construct at least three model homes at locations to be agreed upon between the parties; pay all dues and fees of APO upon taking title to each lot; work diligently to obtain building permits from appropriate municipalities; and pay for and provide to APO a survey map and deed description of all lots sold by Cornerstone. Cornerstone agreed that it "shall not sell any lots, consolidated or unconsolidated, without contracts to construct single-family homes on said lots."

The APO/Cornerstone-DRA further provided:

8. Term.

a. This Agreement shall have an effective date of July __, 2002.

b. This agreement shall terminate automatically and immediately upon the earliest of:

i. Two (2) years from the effective date of this Agreement as stated in Section 8(a); or

ii. The effective date of the termination and removal of Cornerstone pursuant to Section 7 of this Agreement [which lists numerous defaults or breaches not in issue here];

iii. Upon mutual written consent of the parties to this Agreement.

c. This Agreement shall be extended for an additional two (2) years from the effective date of this Agreement if, within eighteen (18) months of the effective date of this Agreement, construction is complete of at least twenty (20) single family homes on lots within the PRP. This Agreement shall be extended further for an additional two (2) years if, upon the fourth anniversary of the effective date of this Agreement, construction is complete on at least forty-five (45) homes on lots sold by Cornerstone under this Agreement.

d. The term of the County/APO Agreement shall run for six years. Within the first twenty-four months of the County/APO Agreement the APO shall develop a Master Redevelopment Plan ("MRP"). Upon acceptance of the MRP by the County and local municipalities, the APO shall review the MRP with Cornerstone. Upon agreement of Cornerstone and APO in writing, the APO will ...


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