FILED: BRONX COUNTY CLERK 02/15/ :22 PM INDEX NO /2017E NYSCEF DOC. NO. 41 RECEIVED NYSCEF: 02/15/2018

Transcription

1 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF BRONX x PRONO REALTY LLC, : : Index No.: 29005/2017E Plaintiff, : : ORAL ARGUMENT REQUESTED -against- : : ESPLANADE PROPERTIES LLC, BARICH : REALTY LLC, and RICHARD J. NACLERIO : d/b/a RAN ENTERPRISES, : : Defendants. : : x REPLY MEMORANDUM OF LAW IN FURTHER SUPPORT OF DEFENDANTS' MOTION TO DISMISS PLAINTIFF'S AMENDED COMPLAINT HERRICK, FEINSTEIN LLP Ross L. Hirsch Rebecca L. Newman 2 Park Avenue New York, New York Tel: (212) Fax: (212) Attorneys for Defendants 1 of 13

2 TABLEOFCONTENTS f!mle TABLE OF AUTHORITIES... ii ~~ PRELIMINARY STATEMENT... 1 ARGUMENT... 2 I. FIRST CAUSE OF ACTION: PURCHASER ADMITS ITS OWN BREACH OF THE CONTRACT DOCUMENTS... 2 A. Purchaser's Breach is Fundamental... 2 Faith" B. Purchaser's Argument About "Good Is Utterly Irrelevant, ~ ~ By Purchaser's Own Admission... 4 C. Purchaser's Justification for Abatement Is Belied by the Contract Documents... 6 II. SECOND CAUSE OF ACTION: PURCHASER CONCEDES THE FALLACY OF TWO OF THE ALLEGED ACTS OF BREACH, AND THE THIRD IS UNDERMINED BY THE CONTRACT DOCUMENTS... 7 III. PURCHASER DOES NOT DEFEND ITS REMAINING CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF... 9 CONCLUSION of 13

3 TABLE OF AUTHORITIES f!mle Cases LLC v. Solis Realty, 23 A.D.3d 107, 801 N.Y.S.2d 31 (1st Dep't 2005) Creston Ave. Realty LLC v. M.P.M. Mgmt. Corp., No. 8083/05, 2012 WL (Sup. Ct. Bronx Cnty. Apr. 20, 2012)...3, 4 Calligar v. Fradkoff, 154 A.D.2d 495, 546 N.Y.S.2d 121 (2d Dep't 1989)...3 Karl v. Kessler, 47 A.D.3d 681, 850 N.Y.S.2d 164 (2d Dep't 2008)...4 Mehlman v Union Ave. Corp., 46 A.D.3d 338, 847 N.Y.S.2d 547 (1st Dep't 2007)...2 Mokar Props. Corp. v..h.all, Hall, 6 A.D.2d 536, 179 N.Y.S.2d 814 (1st Dep't 1958)...4 Naso v. Haque, 289 A.D.2d 309, 734 N.Y.S.2d 214 (2d Dep't 2001) of 13

4 Defendants, the Naclerio Parties, respectfully submit this memorandum of law in further support of their pre-answer motion to dismiss Prono's Complaint.1 Complaint. PRELIMINARY STATEMENT Purchaser's opposition brief is less noteworthy for its accusations and inflammatory rhetoric2 rhetoric than for the dispositive admissions that it makes. As Purchaser acknowledges, in its own words: "In August 2017, Plaintiff notified Defendants that Plaintiff had elected to proceed with the purchase of the Property in accordance with Section 3(B) of the Rider to the Contract, which provides that 'Purchaser may elect, by giving the Seller due notice thereof to accept such title as the Seller is able to convey without abatement of the Purchase Price for defects, objections or " encumbrances of title. (Prono Br. at 7). Rather than proceed with this election, "Plaintiff refused and commenced this price." action for specific performance with an abatement of the purchase (Prono Br. at 1). In this precise circumstance explicitly recited by Purchaser - i.e., where an "exculpation clause" is triggered by a title objection, but the purchaser then "refused" to make the required election of remedies and instead demanded "an abatement of the purchase price" - New York courts consistently have found the hold-out purchaser to be in breach and the contract to be terminated. To avoid this result and to justify its alternative claim for breach of contract, Purchaser has raised several arguments that seek to manipulate and mischaracterize the terms of the Contract Documents, New York jurisprudence, and Purchaser's own documentation. Gamesmanship aside, Purchaser, by its own admission, breached the contract and the contract has been terminated. Moreover, Purchaser's claim for breach also fails because: (a) 1 Terms defined in Defendants' opening submission bear the same meaning herein. 2 The Naclerio Parties vehemently deny the accusations of deceit and bad faith, which are an affront to decades of ethically sound business practice and dedication to the community, but refrain from a rebuttal here given the procedural posture of the case and the Complaint's fundamental deficiencies as a matter of law. 4 of 13

5 Purchaser seeks to impose obligations on Seller with respect to "Lot 14" that are not reflected in the Contract Documents; (b) Purchaser does not dispute that any possible causal link between the alleged breach and the alleged harm (i.e., the loss of the transaction) was severed by the termination of the contract due to Purchaser's own failure to make the required election. Purchaser also does not make any effort to defend its claims for equitable and injunctive relief. Accordingly, Seller's motion to dismiss should be granted in its entirety. ARGUMENT I. FIRST CAUSE OF ACTION: PURCHASER ADMITS ITS OWN BREACH OF THE CONTRACT DOCUMENTS A. Purchaser's Breach is Fundamental There is no dispute between the parties as to the basic matters of law and fact dispositive of Purchaser's first cause of action, inventively labeled "specific performance with abatement": 1) The "general" rule is that "when a contract for the sale of real property contains a clause specifically setting forth the remedies available to the buyer if the seller is unable to satisfy a stated condition, fundamental rules of contract construction and enforcement require that we limit the buyer to the remedies for which it provided in the sale contract." (Prono Br. at 11). See also LLC v. Solis Realty, 23 A.D.3d 107, 113, 801 N.Y.S.2d 31, 31 (1st Dep't 2005). 2) The purchaser's election of remedies through an industry-standard "exculpation clause" is either (a) close with the defect (and with no abatement in price), or (b) terminate the contract with a return of the down-payment. 3) Under New York law, the purchaser's failure to make this mandated election under an "exculpation clause" and/or its insistence on a different option is itself a breach warranting termination of the contract. See, e.g., Mehlman v Union Ave. Corp., 46 A.D.3d 338, 5 of 13

6 343, 847 N.Y.S.2d 547, 551 (1st Dep't 2007); Calligar v. Fradkoff, 154 A.D.2d 495, 498, 546 N.Y.S.2d 121, 124 (2d Dep't 1989). 4) Paragraph 3 of Rider here is an exculpation clause falling squarely with the jurisprudence in that it "limits the purchaser to one of two options in the event objections to title cannot be removed by the seller: (a) elect to take title in the form Seller is able to convey; or (b) cancel the contract and accept a refund of the earnest money deposit." (Prono Br. at 9). Paragraph 3 explicitly states that Option A is "without abatement of the Purchase Price for defects, objections or encumbrances of title." (Prono Br. at 7). 5) On August 15, 2017, Purchaser notified Seller that Paragraph 3's Exculpation Clause was triggered because "Seller is unable to convey title to the Premises required pursuant to the Contract" due to title objections raised by Purchaser's title insurers. (Compl., Ex. H). 6) Through the same August 15th letter, Purchaser further acknowledged that it had to "proceed with the purchase of the Premises in accordance with Section 3(B) of the Rider to the Contract." (Prono Br. at 7). 7) However, instead of electing one of the two remedies available to it, Purchaser "refused," demanded an abatement to the Purchase Price and then "commenced this action for specific performance with an abatement of the [P]urchase [P]rice." (Prono Br. at 1) (emphasis added). Under these circumstances and guiding principles of New York jurisprudence, as per the case law presented in Seller's opening submission, Purchaser's admitted "refusal" to elect a remedy constitutes a breach warranting termination of the Contract Documents. For example, in 2386 Creston Ave. Realty LLC v. M.P.M. Mgmt. Corp., No. 8083/05, 2012 WL , at *6 (Sup. Ct. Bronx Cnty. Apr. 20, 2012), this Court held that the purchaser breached the contract when it failed to either cancel the sale or take the property subject to the cloud on title and, 6 of 13

7 instead, "seemingly elected neither of these remedies" by demanding that seller establish an escrow account for satisfaction of the violation, "which was not contemplated by any clause in the parties contact." Here, as in 2386 Creston Ave., Purchaser elected neither of the contractually-delineated remedies, instead demanding "specific performance with an abatement." Purchaser's election of "Door Number 3" is a clear breach of the Contract Documents. B. Purchaser's Argument About "Good Purchaser's Own Admission Faith" Is Utterly Irrelevant, By In opposing dismissal of its first cause of action, Purchaser's central defense is that exculpation clauses are "inoperative in situations where - as here - a seller has acted in bad faith or has itself caused the inability to convey title in accordance with the contract." (Prono Br. at 9). This exception to the rule has absolutely no application here, as evidenced by Purchaser's own pleadings and its own documentation annexed to the Complaint, including the August 15th 15 letter. If a seller, in bad faith, causes the inability to convey title, it cannot exploit its own misconduct by forcing purchaser to make an election of remedies. In the cases relied upon by Purchaser, that is what happened - i.e., a seller's bad faith conduct is alleged to have resulted in the inability to convey title. See e.g., Naso v. Haque, 289 A.D.2d 309, 310, 734 N.Y.S.2d 214, 215 (2d Dep't 2001) ("defendant's inability to convey marketable title was self-created"); Mokar Props. Corp. v. Hall, 6 A.D.2d 536, , 179 N.Y.S.2d 814, 819 (1st Dep't 1958) (finding that a party cannot exculpate himself from liability "when his own conduct is the cause of the nonperformance of that condition"). Here, there is no allegation that Seller had control over the title objection referenced in the August 15th letter or created the title objection. See Karl v. Kessler, 47 A.D.3d 681, 682, of 13

8 N.Y.S.2d 164, 165 (2d Dep't 2008). Moreover, there is no alleged link (nor could there be) between the alleged "bad faith conduct" (Seller's alleged failure to seek the neighboring landowner's consent in the subdivision process) and the objections to title raised by Purchaser's title insurer. There is no link alleged in the Complaint - either in its original form or as amended. There is no link identified in the August 15th 15 letter through which Purchaser triggered the Exculpation Clause. There is no link identified in any of the other letters annexed to the Complaint. Rather, realizing the error of its ways, Purchaser has now sought to retroactively manufacture an unrelated act of "bad faith" as a justification for failing to adhere to the strict requirements of the Exculpation Clause. This tactic cannot save Purchaser from dismissal. The opening salvo of Purchaser's August 15th 1 annexed as MM H to the Complaint, destroys Purchaser's own argument: As you know the Seller is unable to convey title to the Premises as required pursuant to the Contract. Royal Abstract of New York LLC had the Premises searched and analyzed by two underwriters, Fidelity National Title Group and Stewart Title Insurance Company. Fidelity declined to provide insurance to the Premises altogether, and Stewart will insure only with certain unpermitted exceptions pertaining to the portion of the Premises that lies within the bed of Noell Avenue. (Compl., Ex. H). Nowhere in this paragraph does Purchaser suggest that the title insurers' position: (a) had any correlation to the subdivision application; or (b) was impacted, in any way, by the conduct of Seller. Likewise, nowhere in Purchaser's prior June 30th letter (Compl., Ex. G) does Purchaser connect the subdivision application to the objections being raised by Purchaser's title insurer. Indeed, the June 30th 30 letter makes clear that the impediment raised by title companies relates "to a portion of the Premises that lies within the mapped area of the Noell Avenue" - the oddity that part of the Premises lies in what is known as Noell Avenue. Purchasers informed Seller that if and when the title company provides its definitive position as to whether title can be conveyed under those circumstances, Purchaser will make the required 8 of 13

9 election. Again, Purchaser does not suggest that the subdivision application has any bearing on the title objection or the insurability of the Premises.3 Premises. Accordingly, Purchaser's attempt to invoke the "bad faith" exception to New York law on exculpation clauses fails because even if the Purchaser's "due diligence" allegation is proven true (which it would never be because it is fictional, and legally deficient for the reasons set forth in Part II below), it still has no correlation with the title objection raised by Purchaser in triggering the Exculpation Clause. C. Purchaser's Justification for Abatement Is Belied by the Contract Documents Purchaser also argues that its demand for specific performance with an abatement is warranted because the "contract included a calculation of the price per square foot of land and the ability to decrease the purchase price if the premises conveyed was less than 99,500 square feet." (Prono Br. at 1). Purchaser's characterization of the Contract Documents is flatly contradicted by the clear and unambiguous terms of the Contract Documents themselves. Paragraph 19 of the Rider provides for an adjustment of the Purchase Price if, and only if, the Contract Survey certifies a square footage number different than 99,500 square feet. (Rider, 19). The Contract Survey, prepared by a licensed surveyor and provided to Purchaser on July 1, 2016, certified that the delineated premises was, in fact, comprised of 99,500 square feet. (Hirsch Aff., Ex. 2). Accordingly, the Purchase Price remained unaltered with no possibility of future adjustment. 3 In Paragraph 43 of its Complaint, Purchaser alleges that its adjustment of the Purchase Price "was not based on any objection to the marketability of title, nor on any defect, objection, or encumbrance of title to the Premises." Premises. Clearly, Purchaser recognized that Paragraph 3 of the Rider (which applies to "objections to the marketability of title" title") does not provide for an abatement, so it pleaded - in an amended - pleading whatever it needed to plead in 15th order to take its claims outside of that provision. Regardless, Purchaser can neither rewrite the August letter in hindsight nor invent a contractual basis to demand an abatement where none exists. 9 of 13

10 Paragraph 19 does not, as Purchaser now argues, provide for a broad and perpetual "ability to decrease the purchase price" or give Purchaser the right to make an "election" to adjust the Purchase Price. There is no basis in Paragraph 19, Paragraph 3, or in any other provision of the Contract Documents, for Purchaser, in August 2017, to demand a reduction in the Purchase Price because it was informed by its title company that clean title could not be delivered. Purchaser cannot now rewrite the contract to justify its breach of contract. The First Cause of Action must be dismissed. II. SECOND CAUSE OF ACTION: PURCHASER CONCEDES THE FALLACY OF TWO OF THE ALLEGED ACTS OF BREACH, AND THE THIRD IS UNDERMINED BY THE CONTRACT DOCUMENTS In its Second Cause of Action for breach of contract, Purchaser identified three purported breaches: "(a) failing and refusing to seek the consent of the neighboring property owner, Gabrielli, to the bargained-for subdivision; (b) failing to obtain the complete subdivision of the Premises so as to convey to Purchaser the area described on Schedule 'A' attached to the Contract; and (c) failing to convey title to the Premises free and clear of all exceptions." (Compl., 59). In its opposition, Purchaser concedes that the first and seconds grounds (i.e., (a) and (b) above) are unsustainable by not, in any way, defending Seller's argument that the Contract Documents do not obligate it to obtain the subdivision or deliver title free and clear. Indeed, Purchaser explicitly admits that "There is no obligation in the Contract to obtain the subdivision...".". (Prono Br. at 14) (emphasis in original). Thus, Purchaser is left only with its allegation that Seller did not comply with its "due diligence" obligation because it not "seek the consent" of the neighboring property owner. This argument fails for several reasons. 10 of 13

11 First, as a threshold matter, Purchaser could not have been damaged by such alleged conduct. As Seller argued in opening submission - and as Purchaser did not contest - if the Court accepts Seller's argument that the Contract Documents terminated as a result of Purchaser's failure to elect a remedy when presented with a title objection, then the question of Seller's due diligence on the subdivision application is a moot and irrelevant sideshow. Second, Purchaser's argument is premised, and reliant upon, a mischaracterization of the Contract Documents. Purchaser alleges that: "[B]ecause a portion of the Property that Defendants agreed to convey (i.e., the easterly 30 feet of Noell Avenue also known of Lot 14 in Block 5252) was, upon information and belief, owned collectively by the Defendants and the neighboring property owner (i.e., Gabrielli), Defendants were obligated to seek the participation and/or consent of Gabrielli in order to successfully Property..."." subdivide that portion of the Property... (Prono Br. at 5-6; Compl. 21). Lot 14 and this (false) notion of co-ownership are not addressed in the subdivision provision in the Contract Documents.4 Documents. In reality, as reflected in the express terms of the Contract Documents, the subdivision was sought because Seller was only conveying part of the land that Seller owned, which extended over multiple tax lots. In the Contract, the Premises are described as: "Section: 17, Block 5251, Lots: 59, 53, 5, 24, p/o 57 and p/o 16." (Contract, p. 1). The subdivision was merely intended to separate what Seller was keeping on Lots 57 and 16 from what it was conveying on those lots (with "p/o" Lots 57 and 16, meaning "part of"). (Rider, 16; Compl., 1). Thus, Paragraph 16 of the Rider references Lots 57 and 16, and only Lots 57 and 16, with respect to the obligation to pursue a subdivision. Purchaser does not allege - nor 4 As an aside not necessary to determine on this motion, though Purchaser interchangeably refers to Gabrielli as "the owner" neighboring property and the "co-owner," the latter description is a falsehood. Seller and Purchaser do not "co-own" "collectively" or own anything. Seller owns the Premises to be conveyed under the Contract Documents. 11 of 13

12 could it, given the work put in by Seller - that Seller did not comply with all of its subdivisionrelated obligations with respect to Lots 57 and 16. In contrast, nowhere in the Contract Documents - including the Paragraph 16 - is there a reference to "co-owned property," Lot 14, or any obligation imposed on Seller vis-à-vis Lot 14. Accordingly, Purchasers' argument - that "engag[ing] with the neighboring property owner" was a "required predicate to subdivision in conformity with the Contract" (Prono Br. at 1) - is unsupported by the Contract Documents themselves. Put simply, the Contract Documents do not require Seller to seek the consent of the neighboring property owner (or any non-existent "coowner") in connection with the subdivision of Lot 14. Third, the cases that Purchaser cites to support its "due diligence" claim are immaterial. Oddly, Purchaser merely recycles the same jurisprudence that it relied on it trying to justify its failure to make an election under the Exculpation Clause. (Prono Br. at 16-18). However, these cases - discussing a seller's alleged bad faith efforts to render title undeliverable - have no bearing on the alleged breach of a specific contractual obligation to exercise due diligence in pursuing the subdivision application. Unsurprisingly, the referenced jurisprudence does not support the extra-contractual expansion of a seller's obligations, as Purchaser seeks to do here by imposing obligations on Seller with respect to Lot 14. III. PURCHASER DOES NOT DEFEND ITS REMAINING CLAIMS FOR DECLARATORY AND INJUNCTIVE RELIEF Purchaser also asserts three add-on causes of action for declaratory judgment and injunctive relief. Seller moved to dismiss those cause of action. In its opposition, Purchaser did not even endeavor to defend the infirm claims for extraordinary relief. For this reason and for the reasons articulated in Seller's moving submission, these claims must be dismissed. 12 of 13

13 CONCLUSION For the foregoing reasons and those stated in the opening submission, the Naclerio Parties, as Seller, respectfully request that this Court enter an Order dismissing the Complaint with prejudice and awarding Seller such other relief as this Court deems just and proper. Dated: New York, New York February 15, 2018 HERRICK, FEINSTEIN LLP By: /s/ Ross L. Hirsch Ross L. Hirsch Rebecca L. Newman 2 Park Avenue New York, New York Tel: (212) Fax: (212) Attorneys for Defendants I 13 of 13