Paul Shechtman, for appellant.
Andrew J. Levander, for respondent.
In this case, we conclude that the option contract at issue is valid and enforceable and that the optionor may not introduce parol evidence to import a separate obligation as consideration for the agreement. We therefore affirm the order of the Appellate Division.
Leonard Grunstein and Murray Forman manage and indirectly own plaintiff SVCare Holdings LLC (SVCare), which operates nursing homes through a subsidiary. Rubin Schron, a real estate investor, controls a number of entities, including defendant Cammeby's Equity Holdings LLC (Cam Equity) . For years, Grunstein was Schron's attorney and Forman was his investment banker.
In 2004, Grunstein and Forman sought Schron's participation in the acquisition of Mariner Health Care, Inc., a publicly held company engaged in the nursing home business . Schron agreed to finance the $1.3 billion purchase of Mariner; Grunstein and Forman did not contribute any funds to the buyout. The deal was structured to provide that Schron, through a corporate entity (SMV Property Holdings LLC), would own the underlying real estate and a separate company would manage the facilities. SVCare and its operating subsidiary, SavaSeniorCare LLC (Sava), were formed to carry out the operating and administrative functions. In other words, Schron's company was to hold title to the properties and Grunstein's and Forman's companies (SVCare and Sava) were to manage the nursing homes.
The transaction closed in December 2004 and involved two written agreements relevant to this appeal, both of which were amended in June 2006 . First, Cam Equity (the Schron entity) received an option to acquire 99.999% of the membership units of SVCare. The consideration given by Cam Equity to SVCare for the option was described in the contract as "the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration (the receipt and adequacy of which is hereby acknowledged by the Parties)." Under the terms of the agreement, Cam Equity had until June 2011 to exercise the option at the strike price of $100 million. In the event that Cam Equity exercised the option but later sold the company, the contract specified that Cam Equity could retain no more than $400 million of the sale proceeds, with any remaining moneys to be assigned to SVCare. The option agreement also contained a merger clause, which stated:
"This Agreement contain[s] the entire agreement and understanding of the Parties... 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."
The second pertinent contract related to the Mariner transaction was a loan agreement under which another of Schron's entities — Cammeby's Funding III LLC (Cam III) — agreed to lend $100 million to SVCare for the purpose of capitalizing its subsidiary, Sava. The loan agreement and the option contract were executed on the same date in December 2004 and amended on the same day in June 2006 as part of a refinancing of the Mariner transaction. At some point after the refinancing, the relationship between the parties deteriorated.
In anticipation that Cam Equity would exercise the option, Grunstein, Forman and their related companies (including SVCare) commenced this action in March 2010 under the caption Mich II Holdings LLC v Schron . The only claim relevant to this appeal is the fifteenth cause of action in the complaint, wherein SVCare alleges that the option is unenforceable because the consideration underlying its agreement to offer the option was contingent on Cam III loaning it $100 million, which SVCare claims was never paid.
Despite the pending litigation, Cam Equity gave written notice to SVCare of its intent to exercise the option in June 2010. When SVCare refused to honor the option, Schron and his affiliated entities (including Cam Equity) brought a separate lawsuit — Schron v Troutman Sanders LLP — seeking specific performance of the option agreement.
Cam Equity later moved in limine in the Schron suit for the exclusion of any parol evidence by SVCare intended to show that the $100 million loan was the "other good and valuable consideration" referenced in the option agreement. In the Mich II action, Cam Equity also filed a motion to dismiss SVCare's fifteenth cause of action that asserted similar claims.
Supreme Court consolidated and granted both motions in favor of Cam Equity, concluding that the option and loan were entirely separate agreements; that the option was supported by consideration, namely, the mutual covenants cited; and that SVCare could not offer extrinsic evidence regarding the $100 million loan obligation that was not mentioned in the option agreement. The Appellate Division affirmed (97 A.D.3d 87 [1st Dept 2012]), and we granted SVCare leave to appeal from so much of the Appellate Division order that affirmed the dismissal of the fifteenth cause of action in the Mich II litigation (19 N.Y.3d 811 ).
In the meantime, following a 10-day bench trial in the Schron action, Supreme Court issued a decision in September 2012 determining that Cam III had, in fact, fully funded the $100 million loan to SVCare pursuant to the loan ...