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Donald Hoolan and Mary Hoolan v. Stewart Manor Country Club

August 23, 2012

DONALD HOOLAN AND MARY HOOLAN, PLAINTIFFS,
v.
STEWART MANOR COUNTRY CLUB, LLC, NICHOLAS A. PELLEGRINI, AND JOHN DOE NO. 1 TO
JOHN DO NO. 20 INCLUSIVE, THE LAST TWENTY NAMES BEING FICTITIOUS AND UNKNOWN TO PLAINTIFF AND INTENDED TO BE PERSONS OR ENTITIES HAVING OR CLAIMING AN INTEREST IN OR TO THE EQUIPMENT AND/OR EQUIPMENT LEASE WHICH IS/ARE THE SUBJECT OF THIS ACTION, DEFENDANTS.



The opinion of the court was delivered by: Hurley, Senior District Judge:

MEMORANDUM AND ORDER

Plaintiffs Donald and Mary Hoolan ("plaintiffs") commenced this diversity action asserting, inter alia, that defendant Stewart Manor Country Club, LLC had breached a contract of sale, and alleging that defendant Nicholas Pellegrini ("Pellegrini"), an attorney, had breached a "duty of good faith and diligence" by representing both plaintiffs (as the sellers) and Stewart Manor Country Club, LLC (as the buyer) in the sale. (Compl. ¶ 33.)

Presently before the Court is plaintiffs' motion, made pursuant to Federal Rule of Civil Procedure ("Rule") 56, seeking summary judgment in their favor and against Stewart Manor Country Club, LLC as to certain of plaintiffs' breach of contract claims. Plaintiffs also seek summary judgment dismissing the counterclaim asserted against them by defendants. Finally, plaintiffs seek to withdraw (1) their breach of contract claims that stem from Stewart Manor Country Club, LLC's alleged failure to pay for Donald Hoolan's health and medical insurance coverage, and (2) all claims against Pellegrini and the "John Doe" defendants. For the reasons set forth below, plaintiffs' motion is denied in all respects.

BACKGROUND

The material facts, drawn from the parties' Local Civil Rule 56.1 Statements, are undisputed unless otherwise noted.

The Parties

Donald and Mary Hoolan are a married couple. For many years prior to 2006, Donald Hoolan ("Donald") was the sole owner of Stewart Manor Country Club, Inc., a New York corporation, that ran a catering business known as the Stewart Manor Country Club, Inc.,*fn1 located at 51 Salisbury Avenue, Stewart Manor, New York. The Village of Stewart Manor (the "Village") owns the physical building that houses the catering events, as well as every piece of personal property within that building. Plaintiffs contend that Stewart Manor Country Club, Inc. owned a license from the Village that enabled it to operate the country club. (Pls.' 56.1 ¶ 4.)

Defendants dispute plaintiffs' assertion that Stewart Manor Country Club, Inc. "owned a license" from the Village. (Defs.' Response to Pls.' 56.1 ¶ 4.) Rather, defendants contend that Stewart Manor Country Club, Inc. was a "lessee" of the Village, and held a lease that "enabled Stewart Manor Country Club, Inc. to run the Country Club." (Id.)

The Contract of Sale

When plaintiffs decided to retire and move to Florida, they decided to sell their rights to operate the country club business to Pellegrini, whom Donald had known for many years. Pellegrini, along with other individuals, formed a limited liability company called Stewart Manor Country Club, LLC for the purpose of acquiring plaintiffs' rights to operate the country club business.

Subsequently, Pellegrini drafted a contract of sale (the "Contract of Sale"), which was executed on November 10, 2006. Plaintiffs assert that Donald, who did not retain a lawyer in connection with the sale, "relied on Pellegrini." (Pls.' 56.1 ¶ 7.) Pellegrini asserts that he informed Donald that "I was not representing [Donald] in any capacity, and was in fact representing myself and my interests." (Decl. of Nicholas Pellegrini, dated Dec. 29, 2011 ("Pellegrini Decl.") ¶ 14.) Donald does not dispute that he signed an undated document entitled "Acknowledgment," which set forth, inter alia, Donald's acknowledgment that Pellegrini was "not representing him as [an] attorney[ ]" in connection with the transaction between Stewart Manor Country Club, Inc. and Stewart Manor Country Club, LLC. (Pellegrini Decl., Ex. A.)

The parties initially anticipated that Stewart Manor Country Club, Inc. would assign its lease agreement with the Village*fn2 to Stewart Manor Country Club, LLC. In fact, the Contract of Sale explicitly states that the parties' agreement was contingent upon the ability of Stewart Manor Country Club, Inc. "to assign the existing Lease for the Premises" to Stewart Manor Country Club, LLC. (Decl. of Donald Hoolan, dated Sept. 22, 2011 ("Hoolan Decl."), Ex. D at ¶ 23.) The Village, however, refused to approve any assignment of the lease. Accordingly, the parties agreed that Donald would terminate Stewart Manor Country Club, Inc.'s lease with the Village, and then Stewart Manor Country Club, LLC would sign a new lease directly with the Village. (See Pls.' 56.1 ¶ 8; Defs.' Response to Pls.' 56.1 ¶ 8; Defs.' 56.1 ¶ 15.) Stewart Manor Country Club, Inc. did ultimately terminate its lease with the Village, and Stewart Manor Country Club, LLC signed a new lease directly with the Village. It is unclear from the record whether these events occurred before or after the November 10, 2006 execution of the Contract of Sale.

The Contract of Sale provided that the total purchase price to be paid by Stewart Manor Country Club, LLC was $800,000. (Hoolan Decl., Ex. D ¶ 3.) This amount was broken down as follows: (1) $25,000 was due upon execution of the Contract of Sale; (2) $350,000 was due "[u]pon execution and delivery of Bill of Sale"; (3) $25,000 was due one year from the closing date; and (4) the remaining $400,000 would be paid pursuant to a promissory note, the terms of which were set forth in Schedule A of the Contract of Sale. (Id.) Schedule A provided:

1. The Promissory Note shall be paid to Seller [i.e., Stewart Manor Country Club, Inc.] as follows:

a. $1,500 per week

$1,500 per week (cash)

b. Purchaser [i.e., Stewart Manor Country Club, LLC] shall pay the health insurance for Mr. Donald Hoolan under a group plan, family coverage.

Such payments shall continue until the date that the total paid under A & B above, combined, equal the sum of $400,000. Said payments shall be made to Donald Hoolan and/or his wife Mary Hoolan.

On such date, Seller shall provide Purchaser with a satisfaction of the Note and no further sums shall be due pursuant to this Agreement. (Hoolan Decl., Ex. D at "Schedule A".) No promissory note reflecting these terms is included in the record before the Court, and it is unclear whether any such promissory note was ever drafted or signed.

The Contract of Sale also contains a "Liquidated Damages" provision that stated:

Any willful, capricious or other inexcusable default hereunder on the part of either party shall entitle the aggrieved party to the sum of $25,000 as liquidated damages for breach of this contract in addition to repayment in full of any sum paid hereunder as aforesaid, said amount being hereby agreed upon by reason of the difficulty in reducing the exact damages actually sustained to a mathematical certainty. (Hoolan Decl., Ex. D ¶ 12.)

The Events That Allegedly Transpired Between the Execution of the Contract of Sale and the Transaction's Closing

Defendants contend that certain problems arose between the time the Contract of Sale was executed on November 10, 2006 and the time the transaction closed, more than one year later on November 26, 2007. According to defendants, Pellegrini's due diligence uncovered that "the building had substantial structural issues that required significant investment," and that "the business was not as profitable as Mr. Hoolan represented." (Defs.' 56.1 ¶ 18.) In addition, and most importantly for present purposes, defendants "discovered a potential sales tax delinquency, as well as four judgments against Stewart Manor [Country Club,] Inc." (Id.) As a result, defendants claim, "the Contract of Sale, including the purchase price, was negotiated, and renegotiated." (Id. ¶ 19.) According to defendants, "[b]y the time the transaction closed, almost all of the terms of the Contract of Sale changed, to some extent." (Id.)

As evidence of these changes, defendants point to a "Term Sheet," dated September 13, 2007, which was signed by Pellegrini. (Pellegrini ...


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