Allen G. Reiter, for appellants.
Steven A. Engel, for respondents.
This lawsuit is one of several between business entities controlled by plaintiffs Leonard Grunstein and Murray Forman and defendant Rubin Schron (see also Schron v Troutman Sanders LLP __N.Y.3d __  [decided today]). Cammeby's Funding LLC (Cam Funding) is a limited liability company managed by Schron, a real estate investor; Fundamental Long Term Care Holdings LLC (Fundamental) is a limited liability company whose sole members are Grunstein — formerly Schron's attorney — and Forman — formerly Schron's investment banker.
In 2003, SWC Property Holdings LLC (SWC), another company controlled by Schron, acquired the facilities and real estate occupied by a string of 26 nursing homes and, through subsidiaries, leased these properties to an independent operating company. In 2006, Grunstein and Forman purchased all of the issued and outstanding capital stock of these nursing homes, having formed Fundamental in December 2005 for the purpose of owning companies that manage healthcare facilities. Grunstein and Forman each contributed $50 in equity for a half interest in Fundamental; they paid $10 million for the stock, financed by debt. Additionally, Schron executed a covenant not to sue on any claims that SWC, the landlord, might have against the nursing homes.
On July 1, 2006, Fundamental and Cam Funding entered into an option agreement entitling Cam Funding (or its designee) to acquire one-third of Fundamental's membership units for a strike price of $1, 000, provided the option was exercised on or before June 9, 2011. This agreement was signed by Forman, as manager of Fundamental, and was accepted and agreed to by Schron, as manager of Cam Funding, and Grunstein and Forman, the sole members of Fundamental.
The agreement's preamble states that the option was given "[i]n consideration of the mutual covenants and agreements hereinafter set forth, and for $10 and other good and valuable consideration (the receipt and adequacy of which is hereby acknowledged by the Parties [i.e., Fundamental, Grunstein, Forman and Cam Funding])." Section 3 provides that "on the requested closing date... [Fundamental] shall execute and deliver to [Cam Funding]... (i) certificates for the Acquired Units, and (ii) all resolutions, documents and instruments necessary or required to properly issue to [Cam Funding] all of the Acquired Units" (emphasis added). Section 4 specifies that, upon exercise of the option, Cam Funding " shall be admitted as a member of [Fundamental]" (emphasis added).
Sections 5 and 6 obligate Fundamental, Grunstein and Forman to facilitate, and prohibit their interference with, Cam Funding's exercise of the option. Specifically, in section 5, Fundamental agreed not to
"cause, suffer or permit any of its subsidiaries to, enter into any agreement or commitment with any unitholder, subscriber, officer, director or employee or other person that would conflict with or interfere with any of the rights of [Cam Funding] under this Agreement, including (without limitation) the exercise of the Option, and any such conflicting agreement or commitment shall be deemed void and of no force or effect."
Similarly, in section 6, Grunstein and Forman, as the sole members of Fundamental, promised not to take any action inconsistent with the option and, upon Cam Funding's exercise of it, to
"(a) consent to the issuance of the Acquired Units to [Cam Funding], (b) consent to the admission of [Cam Funding] as a member of [Fundamental], and (c) cause [Fundamental] to carry out its obligations herein and to execute and deliver such amendments and schedules to the Operating Agreement of [Fundamental] to reflect the issuance of the Acquired Units to [Cam Funding]" (emphases added).
Finally, section 15 sets out a standard merger clause, stating that there was no "agreement or understanding (whether written, oral, express, implied or otherwise)... respecting any of the matters contained in this Agreement except for those expressly set forth in this Agreement." As a result, the option agreement encompassed
"the entire agreement and understanding of the Parties [i.e., Fundamental, Grunstein, Forman and Cam Funding], and supersedes and completely replaces all prior and other representations, warranties, promises, assurances and other agreements and understandings (whether written, oral, express, implied or otherwise) among the Parties with respect to the matters contained in this Agreement."
On December 20, 2010, Cam Funding notified Fundamental in writing that it was exercising the option, designating Quality Health Services LLC to acquire the ownership interest, specifying January 20, 2011 at its lawyers' offices as the date and place of closing, and enclosing a certified check for $1, 000. On January 18, 2011, Fundamental responded that, pursuant to its operating agreement, "no membership units in Fundamental can be issued to [Cam Funding] until... [Cam Funding] ...