Opinion
Index No. 452630/2014
02-07-2022
BERSIN PROPERTIES, LLC, Plaintiff, v. NOMURA CREDIT & CAPITAL, INC., NCCMI, Inc., Defendant.
The following e-filed documents, listed by NYSCEF document number (Motion 006) 264, 265, 266, 267, 268, 269, 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 281, 282, 283, 284, 286, 287, 288, 289, 290, 291, 292, 293, 294, 295, 296, 297, 298, 299, 300, 301, 302, 303, 304, 306 were read on this motion to/for PRECLUDE.
The following e-filed documents, listed by NYSCEF document number (Motion 007) 312, 313, 314, 315, 316, 317, 318, 319, 320, 321, 322, 323, 324, 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 335, 336, 337, 338, 339, 340, 341, 342, 343, 344, 345, 346, 347, 348, 349, 350, 351, 352, 353, 354, 359, 360, 361, 362, 363, 364, 365, 366, 367, 368, 369, 370, 371, 372, 373, 374, 375, 376, 377, 378, 379, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 397, 398, 401, 402, 403, 404, 405, 406, 407, 408, 409, 410, 411, 412, 413 were read on this motion to/for JUDGMENT - SUMMARY.
Defendants Nomura Credit & Capital, Inc. and NCCMI, Inc. (collectively, Nomura) move for an order, excluding the Expert Report of Richard K. Hollowell dated May 18, 2020 (Hollowell Report) offered by plaintiff Bersin Properties, LLC (Bersin), and precluding Mr. Hollowell from offering expert opinions in connection with any substantive motion or at trial in this action (motion No. 006). Defendants further move for an order granting them summary judgment dismissing the complaint (motion No. 007).
This breach of contract action arises out of the parties' obligations under a loan agreement pursuant to which Nomura agreed to loan Bersin $135 million for Bersin's renovation of an existing shopping mall in upstate New York. Bersin claims that, in February 2009, Nomura breached its obligations to extend the loan's maturity date and to advance over $54 million in funding under that loan. Nomura moves for summary judgment urging that the undisputed evidence shows that Bersin failed to meet a condition precedent to extending the loan and failed to meet the loan's requirements for such loan advance. Bersin contends that there are triable issues of fact as to whether it was excused from the condition precedent for the extension based on Nomura's bad faith conduct and whether Nomura's refusal to fund the advance was in breach, since the amounts requested were within the loan budget.
BACKGROUND
In January 2007, Bersin sought financing from Nomura to renovate, redevelop, and re-lease the Medley Centre, an existing 830,000 square foot shopping mall in Rochester, New York (NYSCEF Doc. No. 360, Bersin's Rule 19-a counterstatement of material facts [Rule 19-a counterstatement], ¶¶ 1-2). Bersin and Nomura entered into a loan agreement dated January 29, 2007 (the Loan Agreement) and related agreements (NYSCEF Doc. Nos. 316, 317, 318).
Loan Agreement
Under the Loan Agreement, Nomura agreed to provide up to $135 million in financing to renovate the mall to attract new and existing additional tenants (the Project) (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶¶ 2-3). Interest was to be paid monthly at a floating rate of 1.75% (the Spread) over LIBOR (id. , ¶ 4; NYSCEF Doc. No. 316, Loan Agreement § 2.2.3). Initially, the Project involved renovating common areas and existing tenant spaces as well as construction of a combined multiplex theater and food court called the "ThEATery Space," the erection of a new parking facility, and the acquisition and renovation of space for a new J.C. Penney store (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 5; NYSCEF Doc. No. 316, Loan Agreement definitions at p. 2, 6, 15-17, 22-23, 29, 39). Bersin intended to eventually transform the Medley Centre into a super-regional mall and a "lifestyle center" (Rule 19-a counterstatement, response ¶ 5).
Under the Loan Agreement, Nomura would provide Bersin with $22.6 million to retire Bersin's pre-existing acquisition debt, and would loan Bersin an additional $112.4 million (for a total of $135 million) in construction financing (NYSCEF Doc. Nos. 316, 317, 318). The $112.4 million could be used to pay for project-related expenses, construction-related costs, operating expenses, leasing expenses, tenant improvements, and certain land acquisitions, according to the Project budget (Project Budget) (Rule 19-a counterstatement, ¶ 6; NYSCEF Doc. Nos. 316 and 317, Loan Agreement §§ 2.1.4, 2.1.6, 5.1.34, and exhibit O [Funding Categories Schedule]). Under section 2.2.4 of the Loan Agreement, Bersin could use the loan proceeds to reimburse itself for its acquisition costs with respect to the acquisition loan and could "pay or reimburse" itself for costs under the building loan and the project loan (NYSCEF Doc. No. 316, Loan Agreement § 2.1.4).
Loan Term and Extension
The Loan Agreement provided for an initial two-year term with an option to extend the Loan's initial maturity date (February 9, 2009) (Initial Maturity Date) for three successive one-year periods (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 8). Section 2.8 required Bersin to satisfy the following terms and conditions to obtain such extension: (a) no default shall have occurred or be continuing; (b) provide timely notice to Nomura; (c) re-certify the continuing accuracy of the representations and warranties within the Loan Agreement; and (d) at least 10 business days prior to the start of the extension period, deliver an interest rate cap agreement (IRCA). An IRCA is a type of debt service insurance for floating interest rate loans. Pursuant to an IRCA, a third party agrees that if the loan's benchmark interest rate (in this case, LIBOR) rises above a contractually determined point, called the Strike Price, the third party will pay the increased debt service coming due to the lender (NYSCEF Doc. No. 266, affirmation of Richard A. Eldin, dated August 25, 2020, ¶ 7). It ensures the lender of a floating rate loan that it will receive interest payments during the loan term even if interest rates rise above the borrower's ability to pay (id. ). The lower the Strike Price, the higher the risk that the third party will be required to pay interest to the lender, and the higher price it will charge the borrower for the IRCA (id. , ¶ 9). Section 2.2.7 required Bersin to maintain an IRCA with an aggregate notional amount "equal to the Outstanding Principal Balance (by way of extension and/or replacements or by supplementing with additional [IRCAs] upon each Loan Advance hereunder)" (NYSCEF Doc. No. 316, Loan Agreement § 2.2.7[a]). The notional amount for obtaining an IRCA is "the amount of principal for which the interest rate insurance is being purchased" (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 11). Under section 2.10.1(d)(xviii), every loan advance Bersin requested was conditioned on Bersin's submission, along with the draw request, of "[e]vidence satisfactory to [Nomura] that the ‘Notional Amount’ of the [IRCA] shall be no less than the Outstanding Principal Balance, after giving effect to any proposed Loan Advance" (NYSCEF Doc. No. 316, Loan Agreement § 2.10.1 [d][xviii] at 70).
The Loan Agreement contained a formula for determining the Strike Price for each IRCA that Bersin was required to deliver (NYSCEF Doc. No. 316, Loan Agreement, definitions, "Strike Price," "Proforma Net Cash Flow," and "Spread" at 38, 28, and 37). The Strike Price was the percentage obtained by dividing (1) anticipated net income from the mall and Bersin's deposits, if any, into the Debt Service Reserve Account (DSRA) (Proforma Net Cash Flow) by (2) 105% of the outstanding principal balance during the year (Notional Amount) and then subtracting the Spread of 1.75% (see NYSCEF Doc. No. 266, Edlin affirm. ¶ 11). The agreement also provided that Bersin "shall have the right to effect an increase in the applicable Strike Price by virtue of depositing additional amounts into the DSRA (and thereby increasing Proforma Net Cash Flow)" (id. , § 2.2.7[f]).
Funding Obligation
The loan provided for a two-year funding period ending on February 9, 2009. Bersin was required to submit all loan advance requests during that time (id. , section 2.1.9[c]). The only exception to this would be if Bersin were in the middle of construction, the completion of which was delayed by a force majeure event. If Bersin properly exercised its right to extend the loan term, it could present a draw request for the completion of that ongoing construction (id. ).
The IRCAs
In January 2007, Bersin calculated the Strike Price for its initial IRCA using the initial funding of $23.5 million as the Notional Amount and Proforma Cash Flow equal to $2 million. Bersin indicated that "initial DSRF [DSRA] deposit will be $2,000,000" (NYSCEF Doc. No. 385, 1/11/07 email from Daniel Thompson to Anthony Alicea and Debra Paoli [Nomura]; see also NYSCEF Doc. No. 269). Ultimately, the 2007 IRCA contained a notional amount of $40 million, so that Bersin could exceed the $23.5 million in borrowing during the IRCA's one-year term, with a Strike Price of 6.35% (NYSCEF Doc. No. 322). During the first year of the loan term, Nomura advanced $7.3 million to Bersin pursuant to Bersin's draw requests (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 18).
In 2008, Bersin calculated the Strike Price for a replacement IRCA, which based Proforma Net Cash Flow on the mall's actual income for the prior year of $62,110.54, yielded a negative Strike Price for the Notional Amount of $40 million. Since it would be impossible to purchase an IRCA with a negative strike rate (see id. , ¶ 22), Nomura agreed to accept an IRCA covering a $40 million Notional Amount at a Strike Price equal to then-current LIBOR, and Bersin did not make a deposit to DSRA to increase the Proforma Net Cash Flow (id. , ¶¶ 19-22). In February 2008, Bersin obtained a one-year IRCA at a Strike Price of 3.15% for a Notional Amount of $40 million (id. , ¶ 23).
In January 2009, Nomura deducted $629,000 from a Loan Advance request submitted by Bersin (id. , ¶ 27). The $629,000 consisted of project expenses that had previously been requested and advanced or that had exceeded the maximum amount of loan proceeds allocated or available for such expenses (id. , ¶ 28). Bersin had received total Loan Advances in the amount of over $44 million as of February 9, 2009, and has not repaid any portion of the principal borrowed under the Loan or any interest since that date (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶¶ 29-30).
In late 2009, Bersin sought to extend the Initial Maturity Date of the Loan Agreement. On December 30, 2008, Bersin had provided Nomura with written notice of its election to extend the Initial Maturity Date and stated that, not later than 10 business days prior to the first day of the extension option (that is, February 9, 2009), it would obtain and deliver to Nomura evidence of the requisite IRCA (NYSCEF Doc. No. 338). Bersin also represented in the letter that it met the other conditions precedent to obtaining such an extension (id. ; see NYSCEF Doc. No. 316, Loan Agreement § 2.8). As in the prior year, the strike rate formula in the Loan Agreement resulted in a negative strike rate because the Project was not generating net income at the time, and Bersin reached out to Nomura to determine an alternative strike rate. In both January 28 and January 29, 2009 emails, Bersin's then CFO, Jeffrey Echt, sought to confirm with Anthony Alicea of Centerline Capital Group (Centerline), Nomura's loan servicer, the Strike Rate for the IRCA, but received no response (NYSCEF Doc. No. 340). On February 6, 2009, Echt sent Alicea and Jeremy Stoler, also of Centerline, an email asking if Nomura "requires an interest rate cap at this time. If required, please provide the relevant information such as the notional amount and the strike rate" (NYSCEF Doc. No. 342).
By letter dated February 6, 2009, Nomura "confirm[ed] that, subject to [Bersin's] satisfaction of the conditions set forth in the Section 2.8 of the Loan Agreement, not later than February 9, 2009, including without limitation, the requirements of Section 2.8 (a) and (c) thereof, the Maturity Date of the Loan shall be extended for the first extension term of one (1) year, i.e., the Extended Maturity Date shall be February 9, 2010" (NYSCEF Doc. No. 341). On that same date, Nomura extended Bersin's deadline for delivering a replacement IRCA to February 20, 2009, (NYSCEF Doc. No. 341; see also NYSCEF Doc. No. 360, Rule 19-a counterstatement ¶ 36).
On February 9, 2009, Centerline informed Bersin that Nomura advised that the Strike Rate for the replacement IRCA is "at current 1 month LIBOR" (NYSCEF Doc. No. 343). On February 9, 2009, Bersin's 2008 IRCA expired, and it did not obtain a replacement (NYSCEF Doc. No. 360, Rule 19-a counterstatement ¶ 38, 41). Bersin did not contact Nomura before or after the February 20, 2009 IRCA deadline.
The Draw Requests
Also, on February 9, 2009, after 5 pm, Bersin submitted a draw request seeking a $54,024,326 Loan Advance ($54 million Draw Request) (NYSCEF Doc. No. 345, Feb 9, 2009 email with $54 million requisition). This draw request was accompanied by invoices documenting several hundred thousand dollars in expenses (NYSCEF Doc. No. 345). On February 9, 2009, at 6:03 pm, Bersin sent Nomura a memo from Bersin's counsel, Dickstein Shapiro LLP, which asserted that this Loan Advance request was both pursuant to the Loan's force majeure provision, based on the economic downturn, and in the ordinary course (NYSCEF Doc. No. 346 at 4), and Bersin's representative testified that it was both (NYSCEF Doc. No. 337, deposition of James R. Guiliano, dated June 25, 2019 [Guiliano tr] at 50-51). The $54 million Draw Request sought Loan Advances of (1) $8 million for the acquisition of three parcels of land; (2) over $42 million for potential future tenant improvements related to the ThEATery and nine other tenants; and (3) nearly $4 million for leasing, mall operations, and soft costs (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 50; see NYSCEF Doc. No. 345). As of February 9, 2009, Bersin had started demolition and was pulling up floors in the mall (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 49).
The Loan Agreement contained specific terms and conditions that Bersin was required to satisfy to obtain Loan Advances (NYSCEF Doc. No. 316, Loan Agreement §§ 2.10, 2.11, 2.12, 2.13). For example, for Bersin to receive advances for construction costs under the Building Loan, it had to submit for Nomura's approval plans and specifications, building permits, and contracts with architects and contractors (id. , §§ 2.10.1 [b], [d], [g], [h]; and § 2.10.2). For advances for costs of operations, leasing, and construction, Bersin was required to submit completed and itemized certificates for payment from the construction manager or trade contractor and architect, together with invoices and the amount paid to each contractor as of the date of the application and the amount to be paid from the loan advance to each trade contractor (id. , § 2.10.1[d][ix]). It also was to submit leases and estoppel certificates from tenants (id. , § 2.12.1[e]). For Project Loan Advances, Bersin was required to submit all invoices for project loan costs or Bersin's receipted bills therefor "or other reasonable proof of expenditure or payments due" to the construction administrator (id. , § 2.11.1[c]). Similarly, for loan advances for soft costs, Bersin was required to submit "invoices to all items of Soft Costs covered thereby or receipted bills therefor, or other reasonable proof of expenditure or payments due reasonably acceptable to [Nomura] or [Centerline]" (id. , § 2.12.1[d]). The permitted advances for property acquisitions were to be made directly to the title company effectuating the acquisition at the time of closing (id. , § 2.13.7[a]).
As of February 9, 2009, Bersin did not have any sales contracts to purchase the three parcels for which it sought advances in the $54 million Draw Request (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶¶ 52-53). Bersin also did not have any permits or contracts for construction for the ThEATery or any of the tenant improvements (NYSCEF Doc. No. 337, Guiliano tr at 94), although earlier in 2008 it had shared its construction budget with Nomura and its construction plans and schedules with Centerline (NYSCEF Doc. No. 360 Rule 19-a counterstatement, ¶ 54). Bersin had not incurred the ThEATery or tenant improvement expenses by that date. It also had not paid $12.7 million in connection with the Regal Turnkey Advance that was requested in the $54 million Draw Request (NYSCEF Doc. No. 337, Guiliano tr at 94, 96). The $54 million Draw Request included six segments of signed leases and no tenant estoppel certificates (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶ 58).
By letter dated February 10, 2009, Nomura rejected the $54 million Draw Request (NYSCEF Doc. No. 347). By letter dated May 19, 2009, Nomura declared the Loan in default (NYSCEF Doc. No. 378).
In 2014, Bersin commenced this action, asserting claims for breach of contract and breach of the duty of good faith and fair dealing (NYSCEF Doc. No. 284, amended complaint). The claim for breach of the duty of good faith was dismissed. The remaining claim for breach of contract alleges that Nomura breached the Loan Agreement by failing to extend the Loan's maturity date, and by failing to fund the $54 million Draw Request and $629,000 from a January 2009 draw request. Bersin seeks $600 million in damages based on lost profits.
These Motions
In moving for summary judgment, Nomura argues that the undisputed facts show that Bersin failed to meet the condition precedent to extending the Loan because it failed to procure the required IRCA. It asserts that Bersin could have procured a compliant IRCA but chose not to, and, without it, the Loan expired and Bersin could not seek Loan Advances under either the force majeure exception or in the ordinary course. Nomura argues that Bersin's obligation to obtain the IRCA was not excused, nor was it rendered impossible as a matter of law.
In addition, Nomura contends that, even assuming the IRCA had been in place, the $54 million Draw Request did not satisfy the agreement's criteria for Loan Advances. It was not an appropriate force majeure request because the 2009 global financial crisis was not a force majeure event, and construction had not commenced. As an ordinary request, Nomura contends that Bersin was seeking advances for future expenses that had not yet been incurred, and the amounts sought for land acquisitions were not payable until closing. On the issue of damages, Nomura urges that, under section 10.12 of the Loan Agreement, Bersin waived the right to monetary damages, and such waivers are valid and binding. Bersin's counsel represented in open court that it was only seeking lost profits as its damages (see NYSCEF Doc. No. 136, transcript on motion to dismiss at 150-151), and, in light of the broad waiver of damages, Nomura adds, it is clear that consequential damages in the form of lost profits were not within the contemplation of the parties (see Kenford Co. v County of Erie , 67 NY2d 257, 261-262 [1986] ), and are not recoverable as a matter of law.
In opposition, Bersin argues there are several issues of fact. First, it contends that there is an issue as to whether it timely sought the IRCA. Second, it urges there is a triable issue as to whether it was required to procure an IRCA at or above the Loan's existing notional amount of $44 million based on the parties' course of dealing. Third, it asserts a dispute about whether Nomura intentionally delayed responding to Bersin's requests for strike rate information to frustrate the loan extension. It argues that Nomura's demand for a LIBOR strike rate was unreasonable and in bad faith because it would have resulted in a commercially unreasonable IRCA, costing over $400,000 for the year (the 2008 IRCA cost $36,100). Nomura's LIBOR strike rate frustrated Bersin's ability to satisfy the condition, leading Bersin to believe the IRCA requirement was excused and that the Loan was extended. Next, Bersin contends that it is disputed whether it was required to make DSRA deposits to obtain a commercially feasible IRCA or whether that requirement was also waived.
On the draw requests, Bersin contends that there are triable issues about whether Nomura wrongfully denied them. It argues that under section 2.1.4 (b) and (c) of the Loan Agreement, it was entitled to use loan proceeds to fund future expenses. It urges that at least $40.8 million of the $54 million Draw Request was within the scope of the original budget and should have been funded. Bersin maintains that Nomura improperly denied the request on the ground that Bersin intended to expand the scope of the Project, but Nomura was aware back in April 2009 that Bersin was intending to create not just a mall but a "lifestyle center" (NYSCEF Doc. No. 330, 4/22/2008 memo at 4). Bersin further urges that funding was permitted during the extended loan term, to February 9, 2010, and that it had until that date to cure deficiencies and make further draw requests.
Finally, on damages, Bersin argues that section 10.12 of the Loan Agreement only bars money damages for breaches of "an obligation to act reasonably and promptly" (NYSCEF Doc. No. 317, Loan Agreement), and that its claim for Nomura's breach of its duty of good faith is distinct from this provision (see Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank , 99 AD3d 554, 557-558 [1st Dept 2012] ). It contends that it is entitled to reliance damages—it incurred damages based on its reliance on Nomura's false promise to fund the loan. Its claim for lost profits is based on Nomura's interference with completion of the initial phases of the Project and will return to it the benefit of the parties' original bargain. It points out that it was a successful developer, there was an existing mall with anchor tenants in place, it had obtained additional municipal financing and further had access to bridge financing at the loan's conclusion. Bersin counters that these expectation damages were clearly within the parties' contemplation at the time they entered into the Loan Agreement.
In reply, Nomura argues that it did not waive or abandon the IRCA criteria and that it did not obligate itself to negotiate interest rate protection that Bersin deemed commercially reasonable. It asserts that a negative strike price is a clear indicator that Bersin's income was insufficient and that a deposit to DSRA was necessary. In 2008, it offered to accept, as an accommodation to Bersin, an IRCA with a LIBOR Strike Price without requiring Bersin to make a deposit to DSRA, but this accommodation was not a waiver of the IRCA requirement (see NYSCEF Doc. No. 317, Loan Agreement §§ 10.4 and 10.5). It did not prevent Bersin from performing -- and financial distress is not a legal excuse for failure to perform. Moreover, even if Bersin had delivered a replacement IRCA, its $54 million Draw Request was improper. There was no force majeure event, and no portion of the amount requested was to pay for completing construction that was halted or delayed due to such an event. As an ordinary course request, Bersin admits that it did not have documents necessary for the amounts requested because the costs had not yet been incurred. On damages, Nomura argues that Bersin does not demonstrate any tortious conduct that would preclude Nomura from invoking the Loan Agreement's damages waiver. As to lost profits, Nomura asserts that knowledge that a breach might cause lost profits is not an agreement to assume liability for that loss ( Kenford Co. v County of Erie , 73 NY2d 312, 320 [1989] ; ERC 16W L.P. v Xanadu Mezz Holdings LLC , 133 AD3d 444, 444 [1st Dept 2015] ).
Nomura also moves to preclude Bersin's expert's, Richard K. Hollowell's, report regarding the IRCA requirement. It argues that Hollowell is offering opinions on the parties' legal obligations, an issue reserved for the trial court. His opinions interpreting the Loan Agreement and relying on industry custom and commercial reasonableness are not relevant to the interpretation of this unambiguous contract. Further, Nomura asserts that there is nothing complex or technical about the IRCA provision that is beyond the factfinder here.
Bersin urges that Hollowell's report and opinions provide industry expertise that will assist the court in determining core fact issues at trial. Hollowell will opine on the purpose and function of an IRCA, how to calculate the Strike Price under the Loan Agreement, whether the Strike Price was commercially attainable, and whether it was commercially unreasonable for Nomura to deny extension of the loan. It urges that Hollowell's report, by providing his industry-specific knowledge, will help the court in adjudicating whether Nomura excused compliance with the IRCA requirement.
DISCUSSION
The motion for summary judgment is granted and the complaint is dismissed. The motion to preclude Hollowell's expert report is denied as moot.
"[T]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact" ( Ayotte v Gervasio , 81 NY2d 1062, 1063 [1993] [internal quotation marks and citation omitted]; Winegrad v New York Univ. Med. Ctr. , 64 NY2d 851, 853 [1985] ). "Failure to make such showing requires denial of the motion regardless of the sufficiency of the opposing papers" ( Winegrad v New York Univ. Med. Ctr. , 64 NY2d at 853 ; see also Lesocovich v 180 Madison Ave. Corp. , 81 NY2d 982, 985 [1993] ).
The party opposing summary judgment has the burden of presenting evidentiary facts sufficient to raise triable issue of material fact ( Zuckerman v City of New York , 49 NY2d 557, 562 [1980] ). The court is required to examine the evidence in the light most favorable to the party opposing the motion ( Sillman v Twentieth Century-Fox Film Corp. , 3 NY2d 395, 404 [1957] ; Tronlone v Lac d'Amiante Du Quebec , 297 AD2d 528, 528-529 [1st Dept 2002], affd 99 NY2d 647 [2003] ).
The Loan Extension
On a claim for breach of contract, the plaintiff must establish the existence of a contract, the plaintiff's performance, the defendant's breach, and resulting damages ( Alloy Advisory, LLC v 503 W. 33rd St. Assoc., Inc. , 195 AD3d 436, 436 [1st Dept 2021] ; VisionChina Media Inc. v Shareholder Representative Servs., LLC , 109 AD3d 49, 58 [1st Dept 2013] ; Harris v Seward Park Hous. Corp. , 79 AD3d 425, 426 [1st Dept 2010] ). The plaintiff must identify the specific provisions of the contract that the defendant breached (see Reznick v Bluegreen Resorts Mgt., Inc. , 154 AD3d 891, 893 [2d Dept 2017] ; Barker v Time Warner Cable, Inc. , 83 AD3d 750, 751 [2d Dept 2011] ; Great Ajax Operating Partnership L.P. v PCG Reo Holdings, LLC , 2020 NY Slip Op 30545(U) [Sup Ct, NY County 2020], affd 192 AD3d 420 [1st Dept 2021] ). A claim for breach of the duty of good faith can arise where a party to a contract does not technically breach, but instead, effectively deprives the other party of the benefits it bargained for under the contract (see Richbell Info Servs. v Jupiter Partners , 309 AD2d 288, 302 [1st Dept 2003] ; O'Neill v Warburg, Pincus & Co. , 39 AD3d 281, 282 [1st Dept 2007] ). This covenant, however, may not contravene the contract terms or add obligations to it (see Cohen PDC, LLC v Cheslock-Bakker Opportunity Fund, LP , 94 AD3d 539, 540 [1st Dept 2012] ). Bersin's breach of contract claim is based on Nomura's failure to extend the term of the loan and to fund the $54 million Draw Request and $629,000 of the January 2009 draw request, and asserts a theory of breach of the covenant of good faith and fair dealing.
Nomura has made a sufficient showing that it did not breach the parties' Loan Agreement, that Bersin failed to perform its obligations, and that there was no breach of the duty of good faith. The Loan Agreement unambiguously required that Bersin satisfy four conditions precedent to qualify for extension of the Loan's Initial Maturity Date, three of which it had satisfied and one, obtaining a replacement IRCA to cover the extension period, which it did not. Section 2.8 required Bersin to satisfy the following terms and conditions to obtain such extension: (a) no default shall have occurred or be continuing; (b) provide timely notice to Nomura; (c) re-certify the continuing accuracy of the representations and warranties within the Loan Agreement; and (d) at least 10 business days prior to the start of the extension period, deliver an interest rate cap agreement (IRCA) (NYSCEF Doc. No. 316, Loan Agreement at 65). Section 2.2.7(a) also provided that Bersin must "at all times during the term of the Loan" have in place one or more IRCA's with "an aggregate notional amount equal to the Outstanding Principal Balance" (id. ). With respect to Loan Advances, section 2.10.1(d) (xviii) conditioned Bersin's right to receive Loan Advances on presentation of "evidence satisfactory to [Nomura] that the ‘Notional Amount’ of the [IRCA] shall be no less than the Outstanding Principal Balance, after giving effect to any proposed Loan Advance" (id. ). These provisions make clear Bersin's obligation to obtain a replacement IRCA in order to extend the Initial Maturity Date from February 9, 2009 to February 9, 2010.
Nomura presents evidence that in January 2007 and February 2008 Bersin obtained the appropriate one-year IRCAs. It is undisputed that the February 2008 IRCA covering the Notional Amount of $40 million expired and was not replaced by Bersin.
Nomura also presents proof that this IRCA requirement was not waived. The Loan Agreement clearly provides in section 10.4 that no waiver is effective "unless the same shall be in writing signed by the party against whom enforcement is sought" and that any waiver "shall be effective only in the specific instance, and for the purpose, for which given" (NYSCEF Doc. No. 317, Loan Agreement at 156-157). Section 10.5 further provides that no "failure ... on the part of [Nomura] in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privileges hereunder ... shall operate as or constitute a waiver thereof" (id. , Loan Agreement at 157). There is no dispute that there is no writing by Nomura waiving the IRCA condition precedent. In addition, under section 10.5, even if Nomura did not insist on strict performance of the condition that the Notional Amount of the IRCA must include Loan Advances in 2008, the agreement plainly provides that that shall not operate as a waiver of that requirement.
Bersin fails to raise a triable issue of material fact. First, it asserts a triable issue as to the timeliness of seeking the extension of the Loan. The Loan Agreement, however, was not terminated because Bersin did not timely seek to extend it. Rather, it was terminated because Bersin never obtained a replacement IRCA at all. Whether it was timely is not material. Bersin next asserts that there is a triable issue as to whether Nomura waived the requirement that the IRCA cover more than the Loan's current Notional Amount. As discussed above, the Loan Agreement contained unambiguous no waiver provisions. Bersin presents no evidence of any writing signed by Nomura waiving such requirement, or any conduct clearly and unequivocally manifesting its intent to relinquish this right (see Homapour v Harounian , 200 AD3d 575 [1st Dept 2021] [waiver is intentional relinquishment of known right, and must be unambiguous, explicit and unmistakable]; Matthew Adam Props., Inc. v United House of Prayer for All People of the Church on the Rock of the Apostolic Faith , 126 AD3d 599, 600-601 [1st Dept 2015] ; EchoStar Satellite L.L.C. v ESPN, Inc. , 79 AD3d 614, 617 [1st Dept 2010] ). Moreover, again, the loan was terminated because Bersin failed to get any IRCA for the extension of the term.
Bersin's argument that there is a triable issue as to whether Nomura intentionally frustrated the loan extension, thereby excusing Bersin's performance, is unpersuasive. Bersin claims that Nomura delayed responding to Bersin's requests for strike rate information to prevent it from satisfying the IRCA condition. Bersin's reliance on Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank (99 AD3d 554 ), is unavailing, as that case is factually distinguishable. There, the plaintiff developer received a commitment letter from the defendant bank for a loan to develop a condominium. A condition for the loan was "a satisfactory appraisal report" which met certain requirements. Plaintiff had obtained such an appraisal, but defendant delayed closing and then demanded a further extension agreement requiring plaintiff to obtain a new appraisal. While plaintiff obtained a new appraisal, this appraisal was "restricted." Two months later, defendant sent plaintiff a new commitment letter decreasing the amount of the loan. Plaintiff refused to sign the new commitment, and defendant refused to lend the funds. On defendant's motion to dismiss, the Court refused to dismiss plaintiff's contract claim, finding that if defendant "delayed closing on the commitment despite plaintiff's satisfaction of all pre-conditions, including a timely appraisal within the dictated range, solely in order to avoid its contractual obligation by justifying its later insistence on a new appraisal," then defendant may have frustrated or prevented plaintiff's compliance with the contract's condition precedent ( id. at 557-558 ). The Court further found that the duty of good faith may have been breached by defendant based on the timing and circumstances of its insistence on a new appraisal (id. ).
Here, in contrast, it is undisputed that Bersin did not satisfy the contract condition — it did not obtain an IRCA at all -- and Nomura did not change or add more conditions to Bersin's obligations. Further, the prevention doctrine applies only where a party affirmatively prevents the other party from satisfying the condition (see Kooleraire Serv. & Installation Corp. v Board of Educ. of City of NY , 28 NY2d 101, 106 [1971] ; see Center for Specialty Care, Inc. v CSC Acquisition I, LLC , 185 AD3d 34, 42 [1st Dept 2020] ; Adler v Solar Power, Inc. , 2018 WL 1626162, * 6, 2018 US Dist LEXIS 54771 [SD NY 2018] [applying New York law] [must show affirmative obstruction or inaction where duty to act]). Nomura presents proof that in early February 2009, it accommodated Bersin by providing a positive strike price of then-current LIBOR, like it provided the prior year, and the notional amount of $44 million, so that Bersin could obtain the required IRCA. Bersin fails to present any evidence that it then sought an IRCA through its IRCA broker, or that it obtained one. Even if there was some delay in Nomura responding to Bersin's request for a strike price, it responded and extended the time within which Bersin had to obtain the IRCA to February 20, 2009, but Bersin failed to do anything. Bersin fails to present any evidence that Nomura did anything that actually and actively prevented Bersin from satisfying the condition precedent. Contrary to Bersin's contention, Nomura's failure to provide or agree to what Bersin deemed a more advantageous strike price does not constitute active frustration.
Next, Bersin urges that buying an IRCA at the strike price Nomura provided would have required it to pay an unreasonably high price of almost $500,000, thereby rendering its performance impossible. When a party to a contract makes "a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome" ( Kel Kim Corp. v Central Mkts. , 70 NY2d 900, 902 [1987] ). Impossibility will only excuse a party's performance when the subject matter of the contract is destroyed or "the means of performance makes performance objectively impossible" (id. ). Economic hardship or financial difficulty, even to the extent of bankruptcy or insolvency, does not excuse performance of a contract (see 407 E. 61st Garage v Savoy Fifth Ave. Corp. , 23 NY2d 275, 281 [1968] ; Valenti v Going Grain, Inc. , 159 AD3d 645, 645 [1st Dept 2018] [performance not excused based on financial difficulty or economic hardship]; Urban Archaeology Ltd. v 207 E. 57th St. LLC , 68 AD3d 562, 562 [1st Dept 2009] ["impossibility occasioned by financial hardship (due to downturn in economy) does not excuse performance of a contract"]; General Elec. Co. v Metals Resources Group , 293 AD2d 417, 418 [1st Dept 2002] [financial disadvantage to contracting party was not a basis to rely upon impossibility of performance doctrine]; Stasyszyn v Sutton E. Assoc. , 161 AD2d 269, 271 [1st Dept 1990] ). The higher price of the IRCA did not excuse Bersin from satisfying that obligation. Thus, the issue of whether Bersin could afford an IRCA at LIBOR is not a basis to excuse the condition precedent. Further, as Nomura points out, the Loan Agreement provided a way for Bersin to affect an increase in the Strike Price. Under section 2.2.7(f):
"[Bersin] shall have the right to effect an increase in the applicable Strike Price by virtue of depositing additional amounts into the Debt Service Reserve Account (and thereby increasing Proforma Net Cash Flow). Such deposits must be made prior to the date on which the required additional or replacement Rate Cap Agreement is obtained"
(NYSCEF Doc. No. 316, Loan Agreement, § 2.2.7[f]). Bersin was aware of this and, in 2007, achieved a 6.35% Strike Price by promising to make a $2 million debt service deposit (NYSCEF Doc. Nos. 319-322). Bersin's argument that there is a dispute as to whether it was required to make such deposits to obtain a commercially reasonable IRCA misses the point. The Loan Agreement did not require such deposits, but it was a way for Bersin to achieve the strike price it deemed acceptable.
In connection with its theory of breach of the duty of good faith, Bersin urges that Nomura's offer of a strike price at then-current LIBOR was not commercially reasonable and thus breached such duty. All contracts contain an implied covenant of good faith and fair dealing ( Dalton v Educational Testing Serv. , 87 NY2d 384, 389 [1995] ). Under this covenant, neither contracting party "shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" ( ABN AMRO Bank, N.V. v MBIA Inc. , 17 NY3d 208, 228 [2011] [internal quotation marks and citation omitted]). Where a contract includes the exercise of discretion, this implied covenant requires the discretion not be exercised in bad faith so as deprive the other party of the benefits of the bargain ( Dalton v Educational Testing Serv. , 87 NY2d at 389 ). This implied obligation is in furtherance of other provisions of the parties' agreement. An obligation cannot be implied "which would be inconsistent with other terms of the contractual relationship" ( Murphy v American Home Prods. Corp. , 58 NY2d 293, 304 [1983] ). It cannot create independent contractual rights or nullify express terms of the contract ( National Union Fire Ins. Co. of Pittsburgh, Pa. v Xerox Corp. , 25 AD3d 309, 310 [1st Dept 2006] ). Breach of bad faith claims arise typically in two situations: one where the contract provides for the exercise of discretion but does not expressly state that discretion must be exercised reasonably ( Dalton v Educational Testing Serv. , 87 NY2d at 392 ); and two, where a party exercises a contract right with "bad faith targeted malevolence in the guise of business dealings" ( Richbell Info. Servs., Inc. v Jupiter Partners, L.P. , 309 AD2d at 302 ). A negotiated contract provision, however, cannot be nullified by asserting that the defendant acted "in bad faith" or deliberately contrived to deprive plaintiff of the benefits of the bargain (see Phoenix Capital Invs. LLC v Ellington Mgt. Group, L.L.C. , 51 AD3d 549, 550 [1st Dept 2008] ). Moreover, if the contract contains an express covenant governing a subject, courts will not imply a covenant with regard to the same subject (see Cohen PDC, LLC v Cheslock-Bakker Opportunity Fund, LP , 94 AD3d 539, 540 [1st Dept 2012] ).
Here, Bersin is seeking to nullify the negotiated provision requiring it to obtain an IRCA, with its conclusory claims that Nomura was acting unfairly or commercially unreasonably to deprive it of the benefits of the Loan Agreement. It is undisputed that Nomura's right to deny extension of the Loan's Maturity Date based on Bersin's failure to obtain an IRCA was a bargained-for provision of the agreement, and that the loan was terminated in accordance with that provision. Bersin's conclusory assertions that Nomura refused to renegotiate a better strike price in order to terminate the loan and exit commercial lending falls short of the kind of fraudulent or malevolent scheme that would support a breach of the implied covenant claim. In addition, to hold that Nomura had to provide an additional accommodation on the Strike Price would impose obligations upon it beyond those already required by the Loan Agreement and would be inconsistent with its right to terminate the loan upon Bersin's failure to provide an IRCA (see Dalton v Educational Testing Serv. , 87 NY2d at 389 ; see also U.S. Bank Natl. Assn. v Ables & Hall Bldrs. , 696 F Supp 2d 428, 445 [SD NY 2010] [applying NY law] [covenant "does not extend so far as to undermine a party's general right to act in its own interests" or be used to force defendant to forbear from exercising its rights under the contract] [quotation marks and citation omitted]). The Strike Price calculation and Bersin's obligation to obtain the IRCA are subject to and governed by the express and unambiguous terms and conditions in the Loan Agreement, and Bersin does not establish or raise a triable issue that Nomura engaged in any oppressive, arbitrary or underhanded conduct (see Cohen PDC, LLC v Cheslock-Bakker Opportunity Fund, LP , 94 AD3d at 540 ). Nomura had the right under the Loan Agreement to deny extension where Bersin did not obtain an IRCA and nothing in that agreement limited that right (see Fesseha v TD Waterhouse Inv. Servs. , 305 AD2d 268, 268 [1st Dept 2003] ).
Loan Draws
Nomura makes a sufficient showing that Bersin's $54 million Draw Request failed to satisfy requirements under the Loan Agreement for such advances. First, contrary to Bersin's argument, while section 2.1.4 of the Loan Agreement, entitled "Use of Proceeds" provides with respect to both Building Loan Costs and Project Loan Costs that the loan proceeds shall be used by Bersin to "pay or reimburse itself" for such actual costs, those terms do not mean that Bersin may seek all future costs without regard to all other Loan requirements. Whether Bersin had already paid a project expense (i.e., was to be reimbursed) or whether it was going to use the proceeds to pay a project expense, it could only obtain the advances if there were a present obligation to pay the expense. Pursuant to the Loan Agreement, all draw requests were required to satisfy criteria tailored for each category of project expense being requested and include documentation that Bersin had already incurred the expenses to be funded (NYSCEF Doc. No. 316, Loan Agreement, §§ 2.10, 2.11, 2.12, 2.13). For example, before it could receive any advances for construction costs, it had to submit and obtain Nomura's approval of plans and specifications, building permits, and contracts with contractors and architects (id. , § 2.10.1[b], [g], [h] ["Construction Documents" and "Major Contracts" must be delivered]). For advances for costs of construction, operations, and leasing, the Loan Agreement required Bersin to submit completed and itemized certificates for payment from the construction manager or trade contractor and architect, together with invoices and the amount paid to each contractor at the date of the application, and the amount to be paid from the loan advance to each contractor (NYSCEF Doc. No. 316, Loan Agreement § 2.10.1[d][ix]). Bersin also was obligated to submit a fully executed copy of all leases approved by Nomura, a detailed description of the specific improvements to be undertaken pursuant to the lease, and the party responsible for constructing such improvements, as well as estoppel certificates from the tenants (id. , § 2.12.1[e]). For acquisition costs, funding could only be obtained at closing under approved contracts to acquire specifically identified parcels (id. , Loan Agreement at 18). To interpret section 2.1.4 -- as Bersin contends -- as permitting advances for not yet incurred future expenses, would render all these specific criteria for advances meaningless (see Ronnen v Ajax Elec. Motor Corp. , 88 NY2d 582, 589 [1996] [interpret contract so as not to render any provision "meaningless or without force or effect"]).
It is undisputed that Bersin did not have permits or construction contracts for the ThEATery or any of the other tenant improvements for which it was requesting over $42 million in funding, and that it had not incurred the expenses (NYSCEF Doc. No. 360, Rule 19-a counterstatement ¶ 54; NYSCEF Doc. No. 337, Guiliano tr at 94). It also had not paid the $12.7 million in connection with the Regal Turnkey Advance also sought in its draw request (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶57; NYSCEF Doc. No. 337, Guiliano tr at 94, 96). It also is undisputed that while Bersin sought $8 million for the acquisition of three parcels of land, it admittedly did not have any sales contracts to purchase any of those parcels of land (NYSCEF Doc. No. 360, Rule 19-a counterstatement, ¶¶ 52-53). Further, while the draw request included copies of four final leases, it included only segments of three other signed leases, and did not include tenant estoppel certificates (id. , ¶ 58). These flaws in Bersin's $54 million Draw Request were not simply a failure to provide documentation that existed. Rather, it was requesting future funding without having met the specific requirements — of contracts, permits, invoices, etc. -- to receive Loan Advances for such expenses. Bersin's argument that its expert testified that $40.8 million of the $54 million was within the scope of the original loan budget, and, therefore, should have been funded is unavailing. As Nomura aptly points out, compliance with the budget is a necessary, but not sufficient, condition to funding. It still had to satisfy the detailed funding criteria specified in the Loan Agreement, which it admittedly did not. Bersin's request did not satisfy the requirements for an ordinary course funding under the Loan Agreement, and Bersin does not raise a triable issue of fact.
Nomura also demonstrates that this draw request did not qualify as a force majeure request. Section 2.1.9(c) specified that if Bersin did not submit a written request to Nomura for Loan Advances for the Building Loan and the Project Loan by February 9, 2009, Nomura
"shall have no further obligation whatsoever under this Agreement to fund the Loan Advances, provided that , if prior to the Completion Date [Bersin] (i) properly exercises its right to extend the term of the Loan in accordance with the provisions hereof and, (ii) presents [Nomura] with a properly prepared Advance Request for a single Loan Advance (for construction that has commenced but not then completed due to the occurrence of a force majeur[e] event), then [Nomura] upon its reasonable approval of such Advance Request will make the applicable Loan Advance"
(NYSCEF Doc. No. 316, Loan Agreement § 2.1.9[c]). As discussed above, Bersin failed to extend the term of the Loan. In addition, the 2008 financial crisis does not qualify as a force majeure event (see Kel Kim Corp. v Central Mkts. , 70 NY2d at 902-903 ; Urban Archeology Ltd. v 207 E. 57th St. LLC , 68 AD3d at 562 [severe economic crisis not force majeure event]). Further, Bersin was not requesting the cost of completing already commenced construction that was halted due to such an event. The request did not satisfy the requirements under the force majeure exception as a matter of law.
Bersin contends that funding was permitted during the extended loan term to February 9, 2010, and that it had until that date to cure deficiencies and make further draw requests. This argument is not persuasive. The loan term ended on February 9, 2009. It would have been extended to February 9, 2010 only if Bersin had obtained the IRCA, which it did not.
Nomura also demonstrates that it did not breach the Loan Agreement by withholding $629,000 from Loan Advances requested by Bersin in November and December 2008. Nomura presents evidence that it determined, and Bersin confirmed, that $629,000 of those requested advances did not meet the contractual conditions for funding. Part of this amount, $160,000, consisted of amounts Bersin had already requested and received (NYSCEF Doc. No. 360, Rule 19-a counterstatement ¶ 28, NYSCEF Doc. No. 337, Guiliano tr at 25-26; NYSCEF Doc. No. 335, 1/6/09 email). The remainder exceeded the maximum loan proceeds allocated for that Project category and was for a future franchise fee that was not yet due (NYSCEF Doc. No. 360, Rule 19-a counterstatement ¶ 28; NYSCEF Doc. Nos. 334 and 337, Guiliano tr at 28, 30-31). Bersin presents no proof and, in fact, never addresses this $629,000 at all in its opposition. This fails to raise a triable issue as to breach of contract.
Damages
Finally, on the element of damages, the Loan Agreement is clear that Bersin waived the right to seek monetary damages based on a claim that Nomura "acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement ... [Nomura or its agents] had an obligation to act reasonably or promptly" and that its sole remedy was limited to "injunctive relief or declaratory judgment" (NYSCEF Doc. No. 317, Loan Agreement § 10.12). Contract provisions that clearly limit liability for money damages are enforceable particularly when entered into by sophisticated contracting parties (see Metropolitan Life Ins. Co. v Noble Lowndes Intl. , 84 NY2d 430, 435-436 [1994] [upholding damages waiver for lost profits and other financial loss]; Base Vil.Owner LLC v Hypo Real Estate Capital Corp. , 92 AD3d 541, 541 [1st Dept 2012] ). This money damage waiver provision applies to Bersin's breach of contract claim to the extent that it asserts that Nomura failed to act reasonably and that it acted in bad faith, particularly where the purported bad faith nonperformance was motivated by Nomura's economic self-interest (see Metropolitan Life Ins. Co. v Noble Lowndes Intl. , 84 NY2d at 438-439 ; see also Electron Trading, LLC v Morgan Stanley & Co. LLC , 157 AD3d 579, 581 [1st Dept 2018] [intentional wrongdoing that could render a limitation of liability and exclusion of potential damages provision unenforceable is "that which is unrelated to any legitimate economic self-interest"] [internal quotation marks and citation omitted]; Base Vil.Owner LLC v Hypo Real Estate Capital Corp. , 92 AD3d at 541 [the liability-limiting provision "was not rendered ineffective by allegations of misconduct that ‘smack’ of intentional wrongdoing or willful, malicious or bad faith conduct"]).
Bersin's contention that it seeks reliance damages "based on Nomura's false promise that it would abide by its obligations under the Agreement and fund the Loan" is unavailing (NYSCEF Doc. No. 359, opposition memorandum of law at 19). This claim sounds in fraud — that Nomura fraudulently intended not to lend Bersin the funds. Bersin has not and cannot plead such a claim under the facts of this case (see Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank , 99 AD3d at 557 [fraudulent inducement of contract may only be predicated on an insincere promise of future performance where the alleged false promise is collateral to parties' contract]). Moreover, an intent not to perform a contract does not permit greater damages than actual nonperformance ( Metropolitan Life Ins. Co. v Noble Lowndes Intl. , 84 NY2d at 435 ). To the extent that Bersin seeks damages based on its reliance interest, such as expenditures made in preparation of performance less any loss Bersin would have suffered had the contract been performed, Bersin fails to allege or present proof of such damages (see St. Lawrence Factory Stores v Ogdensburg Bridge & Port Auth. , 13 NY3d 204, 208 [2009] ). In addition, reliance damages are only permitted as an alternative to expectation damages, such as lost profits and benefit of the bargain ( id. at 208 ).
Bersin primarily seeks lost future profits, as it admitted to this Court (see NYSCEF Doc. No. 136 at 150-151). New York has a "relatively demanding standard for an award of lost profits" ( Kidder, Peabody & Co., Inc. v IAG Intl. Acceptance Group N.V. , 28 F Supp 2d 126, 131 [SD NY 1998], affd 205 F3d 1323 [2d Cir. 1999] ), and applies a near per se rule rejecting plaintiffs' attempts to collect purported lost profits from a business venture with no prior track record to support claims of future success:
"First, it must be demonstrated with certainty that such damages have been caused by the breach and, second, the alleged loss must be capable of proof with reasonable certainty. In other words, the damages may not be merely speculative, possible or imaginary, but must be reasonably certain and directly traceable to the breach, not remote or the result of other intervening causes"
( Kenford Co. v County of Erie , 67 NY2d at 261 [affirming vacation of award of lost profits as damages for failure to construct a stadium]; accord Ashland Mgt. v Janien , 82 NY2d 395, 403 [1993] [a "party may not recover damages for lost profits unless they ... are capable of measurement with reasonable certainty" and to make this showing, a plaintiff must demonstrate that its damages are measurable "based upon known reliable factors without undue speculation"]). Moreover, if a new business is seeking loss of future profits, a stricter standard is imposed because "there does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty" ( Kenford Co., Inc. v County of Erie , 67 NY2d at 261 ). In light of these rules, most of the leading cases have ruled that lost profits are not recoverable ( Great Earth Intl. Franchising Corp. v Milks Dev. , 311 F Supp 2d 419, 432 [SD NY 2004] [granting summary judgment dismissing lost profits claim]; see e.g. Kenford Co., Inc. v County of Erie , 67 NY2d at 261-263 ; Olsenhaus Pure Vegan, LLC v Electric Wonderland, Inc. , 116 AD3d 449, 450 [1st Dept 2014] ; Matter of Mehta v New York City Dept. of Consumer Affairs , 162 AD2d 236, 237 [1st Dept 1990] [no lost profits where business not established and in operation for a definite period of time and calculations based on similar businesses are too speculative]).
The undisputed facts here require dismissal of Bersin's claim for lost profits for failure to meet New York's stringent standards for proving such damages. First, there is nothing in the Loan Agreement which would support a finding that the parties contemplated lost profits as damages for breach. In fact, the broad waiver of money damages in section 10.12 provides evidence that the recovery of lost profits as consequential damages was not within the contemplation of the parties at the execution of the contract or at the time of its alleged breaches (see Kenford Co., Inc. v County of Erie , 67 NY2d at 262 ; RXR WWP Owner LLC v WWP Sponsor, LLC , 145 AD3d 494, 495 [1st Dept 2016] ; Kantor v 75 Worth St., LLC , 95 AD3d 718, 718 [1st Dept 2012] [nothing in record indicates parties contemplated liability for plaintiff's failure to realize profits from new business]). Contrary to Bersin's argument, simply because Nomura knew that Bersin intended to renovate the mall and that a breach might cause lost profits, that is not an agreement to assume liability for that loss (see Kenford Co. v County of Erie , 73 NY2d at 320 ). "Every party entering into a commercial contract does so with the intention of earning profits," and if courts adopted Bersin's logic they would nullify the Court of Appeals' limitation in Kenford Co. v County of Erie (73 NY2d at 321 ) requiring that the parties must contemplate a claim for lost profits when entering into the contract ( Great Earth Intl. Franchising Corp. v Milks Dev. , 311 F Supp 2d at 434 ). Even if there were contemplation of lost profits, Bersin's lost future profits are attributable to its failure to obtain an IRCA, a condition precedent to the extension of the Loan Agreement, and its own failure to satisfy the requirements for the $54 million Draw Request (see RXR WW Owner LLC v WWP Sponsor, LLC , 145 AD3d at 495 ).
Next, while Bersin submits an expert report, the ultimate conclusions are still projections. Where, as here, expert projections must assume a completed and successfully operating mixed-use facility, a mall and "Lifestyle Center," and there are only a limited number of such facilities, in very different locales from Rochester, New York, to use as a comparison. "Quite simply, the multitude of assumptions required to establish projections of profitability over the life of [the] contract require speculation and conjecture, making it beyond the capability of even the most sophisticated [expert] procedures to satisfy the legal requirements of proof with reasonable certainty" ( Kenford Co., Inc. v County of Erie , 67 NY2d at 262 ). Even if its claim is limited to the "Initial Phases," it is based on projections of future profitability, and at the time of the purported breaches, the Project was at the early development stage, only some demolition had been done, construction contracts and permits had not been obtained, and Bersin had not achieved any profitability at the Project (in fact, in February 2009, the mall had no income at all). This is insufficient as a matter of law (see Digital Broadcast Corp. v Ladenburg, Thalmann & Co., Inc. , 63 AD3d 647, 647-648 [1st Dept 2009] [where plaintiff was a development stage company and had never generated revenue, there was no reasonable basis of experience to estimate lost profits]; O'Neill v Warburg, Pincus & Co. , 39 AD3d 281, 282-283 [1st Dept 2007] ; see also Kantor v 75 Worth St., LLC , 95 AD3d at 719 ). Thus, summary judgment is granted to Nomura dismissing the complaint.
Preclusion of Expert
Finally, given that Bersin's claims are being dismissed, Nomura's motion to exclude Bersin's expert's (motion No. 006), Richard K. Hollowell's, testimony is denied as moot. Nevertheless, if this court were to consider this motion, it would be granted. First, Hollowell's opinions interpret the Loan Agreement's unambiguous IRCA provisions, which properly is a task to be undertaken by this court ( Good Hill Master Fund L.P. v Deutsche Bank AG , 146 AD3d 632, 637 [1st Dept 2017] ). "[E]xpert witnesses should not be called to offer opinion as to the legal obligations of parties under a contract" ( id. at 637 [expert opinion not necessary to determine whether credit default swap agreement was breached] [internal quotation marks and citation omitted]). Bersin's expert, by opining on the "commercial reasonableness" of Bersin's obligation to obtain an IRCA in 2009, impermissibly seeks to interpret the parties' obligations, and to add terms to their agreement. While the provision on the calculation of the Strike Price might be somewhat difficult with its algebraic formula, its interpretation is not beyond the ken of the typical factfinder (id. ; see Hendricks v Baksh , 46 AD3d 259, 260 [1st Dept 2007] ). It does not involve issues of such technical or scientific complexity that it requires an expert to explain it to the court ( Good Hill Master Fund L.P. v Deutsche Bank AG , 146 AD3d at 637 ).
Accordingly, it is
ORDERED that defendants' motion to preclude (motion No. 006) the expert report of Richard K. Hollowell offered by plaintiff is denied as moot; and it is further
ORDERED that defendants' motion for summary judgment (motion No. 007) is granted and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.