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Maestro West Chelsea SPE LLC v. Pradera Realty Inc.

Supreme Court, New York County

October 9, 2012

Maestro West Chelsea SPE LLC and KADIMA TENTH AVENUE SPE LLC, Plaintiffs.
v.
Pradera Realty Inc. a/k/a PRADERA REALTY CORP., Defendants.

The attorneys on the matter are Gregg L. Weiner, Esq. of Fried, Frank, Harris, Shriver & Jacobson, LLP (for the Plaintiffs) and David A. Wolf, Esq., and Steven Landy, Esq., of Steven Landy & Associates, PLLC (for the Defendants).

Eileen Bransten, J.

Motion Sequence Nos. 001 and 003 are consolidated for disposition. In Motion Sequence No. 001, Plaintiffs seek a preliminary injunction, a mandatory injunction and a permanent injunction. Defendant opposes.

In Motion Sequence No. 003, Defendant moves to dismiss the complaint. Plaintiffs oppose.

I. BACKGROUND

Plaintiffs own property located at 319, 321, 323 and 325 10th Avenue and 507, 509, 511, 513 and 515 West 28th Street in Manhattan, New York (the "Property"). Compl., ¶ 14. Plaintiffs plan to develop a mixed use residential and retail complex on the Property (the "Project"). Id. at ¶ 1, 16.

Defendant owns real estate adjacent to Plaintiff's Property. Id. at ¶ 15. Defendant also has unused air rights for its property (the "Air Rights"). Plaintiffs needed additional air rights to build the Project in compliance with New York City zoning regulations. Id. at ¶ 15-17. Consequently, after extensive negotiations, Plaintiffs contracted in March of this year to purchase Defendant's Air Rights for $4.6 million (the "Contract"). Id. at ¶ 18. As per the terms of the Contract, Plaintiffs placed a $460, 000 down payment into escrow. Id. at ¶ 19.

A. The Contract's Terms

The Contract provides that the sale of the Air Rights will close, at the latest, on December 26, 2012. Id. Before the sale can close, Defendant must obtain a "Waiver and Subordination" from JPMorgan Chase ("JPMC"), which holds the mortgage on Defendant's property (the "Waiver"). Defendant must obtain the Waiver within thirty days of the execution of the Contract (the "Waiver Contingency Period"). Id. at ¶¶ 6-7. The Contract requires Defendant to use its "best efforts" to obtain the Waiver. Id. at ¶ 7. If Defendant's attempt to obtain the Waiver is unsuccessful, the Contract provides that Plaintiffs may themselves seek the Waiver from JPM. Id. The Contract further states that Plaintiffs may extend the Waiver Contingency Period as needed to obtain the Waiver.

Under Paragraph 8(C)(ii) of the Contract, Plaintiffs may unilaterally extend the closing date "from time to time, ... in [their] sole discretion in which case the Closing, at [Plaintiffs'] election, shall be moved back day for day by the number of days" necessary for the Plaintiffs to obtain the Waiver. Affirmation of Gregg L. Weiner ("Weiner Affirm."),

Ex. B (the "Contract"), ¶ 8(C)(ii).

B. Defendant's Failure to Obtain the Waiver

Plaintiffs claim that Defendant waited several weeks after executing the Contract to submit an application to JPM to obtain the Waiver. Third Affirmation of Gregg L. Weiner, ("Third Weiner Affirm."), Ex. A ("Lalezarian Aff."), p. 3. Plaintiffs allege that Defendant further complicated the process of obtaining the Waiver by submitting a "sloppy, " "poorly-prepared" Waiver application to JPM. Id.

Defendants claim that they promptly attempted to obtain the Waiver after entering into the Contract. Memorandum of Law in Support of the Defendant's Motion to Dismiss the Complaint ("Def. Memo"), p. 4. Defendant's state that, on May 11, 2012, over a month after the parties entered into the Contract, JPMC sent Defendant a proposal requiring Defendant to pay a pre-payment penalty of $1, 800, 000 in exchange for the Waiver. Affirmation of Steven Landy in Support of Defendant's Order to Show Cause to Dismiss the Complaint ("Landy Affirm."), Ex. H, p. 6. Defendant rejected JPMC's proposal. Def. Memo, p. 4.

Plaintiffs assert that, after rejecting JPMC's offer, Defendant interfered with Plaintiffs' ability to exercise their contractual right to attempt to obtain the Waiver by instructing JPMC not to communicate with Plaintiffs. Compl., ¶ 27.

On May 15, 2012, Defendant's counsel informed Plaintiffs' counsel that Defendant had "been unable to attain the waiver from the bank.... Unless [Plaintiffs are] able to obtain same, please advise how to return the down payment." Landy Affirm., Ex. J, p. 1.

On June 5, 2012, Defendants' counsel informed Plaintiffs' counsel that "[n]either party has been []able to obtain the waiver. Please be advised the [Defendant] is terminating this transaction." Landy Affirm., Ex. K, p. 3.

Plaintiffs' counsel sent Defendant's counsel a series of e-mails explaining that Plaintiffs had extended the Waiver Contingency Period, and confirming that Plaintiffs planned to continue to work towards obtaining the Waiver. Id. Defendant insisted that "[t]his deal is over." Id. at p. 1.

On June 13, 2012, Defendant sent Plaintiffs a "Notice of Termination of Purchase and Sale Agreement." Defendant contends this notice terminated the Contract (the "Termination Letter"). Landy Affirm., Ex. L, p. 1.

On June 15, 2012, Defendant followed up the Termination Letter by sending a letter to JPMC stating that Defendant had "terminated its purchase and sale agreement with [Plaintiffs]." Landy Affirm., Ex. M, p. 1. Defendant further informed JPMC that "it is [Defendant's] position that [JPMC was] under no obligation to continue discussing the matter or to engage in further negotiations" with Plaintiffs regarding the Waiver. Id.

Plaintiffs brought the instant action on June 20, 2012. Plaintiffs bring causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing. Plaintiff also brings causes of action for a declaratory judgment, a preliminary injunction and a permanent injunction. Plaintiffs seek specific performance of the Contract in addition to compensatory damages.

II. STANDARD OF LAW

"On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction." Leon v. Martinez, 84 N.Y.2d 83, 88 (1994). The court accepts the facts as alleged in the non-moving party's pleading as true and accords the non-moving party the benefit of every possible favorable inference. Id. "[A] court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint and the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one." Id. (internal citations omitted).

III. ANALYSIS

A. Defendant's Motion to Dismiss the Complaint

1. Breach of Contract

a. The "Best Efforts" Clause

Defendant first moves to dismiss Plaintiffs' claim for breach of contract on the grounds that the Contract is void. Defendant argues that the Contract's "best efforts" clause is invalid because it "contains no objective criteria or guidelines against which Defendant's efforts can be measured." Def. Memo, p. 12. Consequently, reasons Defendant, "the Contract is unenforceable on the ground of uncertainty and vagueness." Id.

As Judge Friendly commented in Bloor v. Falstaff Brewing Corp., 601 F.2d 609 (2d Cir. 1979), the law in New York concerning best efforts clauses is "far from clear." Since Bloor, the Appellate Divisions have continued to issue conflicting rulings on whether contracts containing best efforts clauses must also include "objective criteria" for those clauses to be enforceable.

The Court of Appeals has not directly spoken on the issue of best efforts clauses since its 1972 decision in Van Valkenburgh, Nooger & Neville, Inc. v. Hayden Publ'g Co., Inc., 30 N.Y.2d 34 (1972). In Van Valkenburgh, the Court of Appeals enforced a contract's best efforts clause despite the contract's lack of objective criteria by which to measure the breaching party's behavior.

Notwithstanding the ruling in Van Valkenburgh, the First and Second Departments of the Appellate Division have, at times, held that best efforts clauses are only enforceable when accompanied by "objective criteria" or "clear guidelines" for their enforcement. See Timberline Dev. v. Kronman, 263 A.D.2d 175, 178-80 (1st Dep't 2000); see also Strauss Paper Co. v. RSA Exec. Search, Inc., 260 A.D.2d 570, 571 (2d Dep't 1999). First Department cases are unclear whether this "objective criteria" standard applies to both express best efforts clauses as well as implied best efforts clauses. The cases are also unclear whether the "objective criteria" need be included in the contract containing the implied or express best efforts clauses, or whether the "objective criteria" could be established from the circumstances of the case.

The First Department established the "objective criteria" standard in Timberline Dev., 263 A.D.2d at 178-80. In Timberline, the First Department held that:

The requirement to employ reasonable efforts or best efforts, ' as it is generally expressed, in the performance of contractual obligations is deemed to be implicit in every agreement. However, to be enforceable, there must be objective criteria against which a party's ...


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