Opinion
TS300098–17
12-13-2017
FOX Y GARCIA CONSTRUCTION & DEVELOPMENT CORP., Plaintiff, v. BRIJALL REALTY CORP., S.A.K.B Real Estate Development Corp., and 961–969 Westchester Avenue Inc., Defendants.
By: PETER M. RIVERA, GOLDSTEIN HALL PLLC, Esq., 175 Huguenot Street, Suite 229, New Rochelle, NY 10801, 914.371.6403, Attorneys for Plaintiff. KATHLEEN R. BRADSHAW, ESQ., 3114 East Tremont Avenue, Bronx, New York 10461, 718.931.4400, Attorney for Defendants.
By: PETER M. RIVERA, GOLDSTEIN HALL PLLC, Esq., 175 Huguenot Street, Suite 229, New Rochelle, NY 10801, 914.371.6403, Attorneys for Plaintiff.
KATHLEEN R. BRADSHAW, ESQ., 3114 East Tremont Avenue, Bronx, New York 10461, 718.931.4400, Attorney for Defendants.
Sabrina B. Kraus, J.
BACKGROUND
This action was commenced by FOX y GARCIA CONSTRUCTION & DEVELOPMENT CORP (Plaintiff) against BRIJALL REALTY CORP., S.A.K.B REAL ESTATE DEVELOPMENT CORP., and 961–969 WESTCHESTER AVENUE INC (collectively "Defendants") asserting $40,000.00 in damages as a result of breach of contract. The action was commenced in Supreme Court, Bronx County under Index Number 309524–2009.
PROCEDURAL HISTORY
The summons and verified complaint were filed on November 23, 2009. The action was originally commenced in Supreme Court, Bronx County, under Index Number 309524–2009. Proof of service was filed January 28, 2010.
Defendants appeared by counsel, on March 1, 2010, and filed a verified answer and four counterclaims on June 17, 2010. The answer asserts five affirmative defenses including: failure to state a cause of action, bad faith, that Plaintiff beached the terms of the contract and was thus not entitled to terminate the Agreement, and that the contract required the dispute be resolved by mediation. The counterclaims seek damages based on alleged breaches of contract by Plaintiff.
Plaintiff filed Lis Pendens for each of the three properties that are the subject of this litigation on January 11, 2011.
The preliminary conference order is dated February 24, 2011, and a compliance order is dated July 18, 2011.
On March 23, 2015, Defendants moved for an order cancelling the Lis Pendens and dismissing Plaintiff's second cause of action for attorneys' fees. The motion was granted by the court (Guzman, J), pursuant to a decision and order dated September 15, 2015.
A note of issue was filed on January 27, 2016, and on September 18, 2017, Supreme Court (Gonzalez, J) issued an order transferring the action to Civil Court, pursuant to CPLR § 325(d).
Trial commenced on November 27, 2017, and was set to continue on November 28, 2017. On November 28, 2017, the court granted Plaintiff's application to reopen its case to present additional witnesses, and granted Defendants' application for a continuance to December 5, 2017, to prepare for the additional witnesses. On December 5, 2017, the trial continued and concluded. The action was adjourned to December 11, 2017, for submission of post trial memoranda, and on December 11, 2017, the court reserved decision.
FINDINGS OF FACT
Defendants are the owners of three adjacent plots of land on Westchester Avenue in the Bronx, more specifically identified as :
Block 2704—Lots 1, 39, 42, 44 and Block 2715—Lot 1 (collectively the "Property").
THE AGREEMENT
On or about April 1, 2008, the parties entered into a development agreement regarding the Property (The Agreement)(Ex 1). The Agreement provided that the project would include approximately 100 residential units, a community space to provide social services for the residents of the property, and commercial space on the street level.
The Agreement provided that funding was anticipated through the New York City Housing Development Corporations's (HDC) Low–Income Affordable Marketplace Program (LAMP).
LAMP provided low-cost financing for affordable rental housing reserved for people earning a maximum income of up to 60 percent of AMI. Loans were provided to private for profit and non-profit developers through first mortgages, made available with the proceeds from the sale of tax-exempt bonds. First Mortgages were combined with below market interest rate (BMIR) second mortgages and funded through HDC's corporate reserves at a one-percent interest rate. The use of tax exempt bonds qualifies the development to receive four percent federal Low–Income Housing Tax Credits (LIHTC) furthering the affordability of the apartments (taken from NYU Furman Center Directory of New York City Affordable Housing Programs furmancenter.org).
The Agreement provided:
it will be necessary for the Parties to undertake construction and secure construction and permanent financing, obtain equity funding through the use of federal low-income housing tax credits, secure approvals and commitments from government agencies, provide for property management and leasing of the Project ....
The Agreement Further provided that if Plaintiff determined in its "sole discretion" within 16 months:
...that the Project is not feasible due to a lack of funding interest by HDC and/or HPD, (Plaintiff) shall have the option to terminate this Agreement by sending written notice to (Defendants) and, upon the receipt of the written notice, the Parties shall have no further obligations hereunder excepting a full settlement and accounting of any and all carrying charges and predevelopment expenses incurred to advance the Project. Any expenses owed by either Party shall be paid no later than 30 days following receipt of the written notice.
The Agreement further provided for an acquisition price of $2,400,000.00 for the Property by an HDFC subject to certain contingencies.
Finally, The Agreement has a provision pertaining to carrying charges which provides:
The Parties agree to split the carrying charges for the Property during the Development Period. It is agreed upon the execution date of this Agreement that (Plaintiff) shall be responsible for half of the carrying charges for the Property up to the amount of $10,000 per month until the termination of this Agreement. (Plaintiff) shall make said payments to (Defendants) by the 15th of each month.
In the event that this Agreement is terminated as set forth above, (Defendants) shall have thirty (30) days from the date of the termination notice to reimburse (Plaintiff)the full amount of its portion of the carrying charges paid to (Defendants) up to a maximum of $60,000.00. If (Defendants) fail(s) to reimburse (Plaintiff) in full by the date set forth in the notice of termination, (Plaintiff) reserves the right to file a lien against the Property to preserve its rights of collection.
TESTIMONY OF SHELDON FOX
The first witness to testify for Plaintiff, was Sheldon Fox (Fox). Fox is the President of Plaintiff, and testified that Plaintiff is a holding corporation used to develop affordable housing projects. Fox's duties as President include seeking out new business and finding viable developments, and making proposals regarding possible developments to the City of New York. Fox has been involved in real estate development and construction for over 30 years.
The funding process for affordable housing involved identifying the site, preparing an economic pro forma and a presentation to HPD. In Fox's experience getting approval from HPD on such a project can take from six months to five years. When HPD gives an initial approval or go ahead for a project, it is not in writing but orally. The commitment letter from HPD is not typically issued until within 30 days of the closing, and then only after all of the other funding sources are in place. HPD will never reject or disapprove a proposed project in writing. When assessing economic feasibility HPD looks at the capital structure to make sure there is enough to fund the construction, but also looks at projected gross income and operating expenses.
To date, Fox has been involved with eight projects that are similar to the project at issue in this litigation.
Negotiations with Defendants regarding The Agreement started around November 2007. The original intention behind the proposed deal was to develop some commercial space on the ground floor, some community space, and low income apartments above the ground floor. The estimated cost of the project was 30 million dollars.
Fox included a provision in The Agreement allowing Plaintiff to terminate if, in its sole discretion, it determined that the project was not feasible due to a lack of interest by HPD, because he had no ownership interest in the property, and he wanted an "out" if things did not work out with HPD. Fox acknowledged that The Agreement provided for interim payments to Defendants towards the carrying costs, and he requested an accounting of the carrying costs from Defendants but was never provided with one. Despite not being provided with an accounting, Plaintiff made a total of $40,000 in interim payments towards carrying costs between April and July 2008. Plaintiff paid $10,000 on April 25, 2008 and May 30, 2008 and $20,000 on July 25, 2008.
Fox made no further payments after July 2008, because economic conditions had taken a turn for the worse, and he did not feel that the project was going to move forward.
On September 3, 2008, Fox met with Susan Kensky an Assistant Commissioner for Development at HPD to make a presentation regarding three projects, including the project with Defendants. At the meeting, Fox presented HPD with the financial pro forma and discussed the viability of trying to get the project into the pipeline towards fruition. Fox also presented HPD with a schematic drawing/zoning analysis prepared by the architect. HPD stated at the meeting that they were not interested in this type of project at that time, and that Fox could come back with a different type of proposal. HPD indicated no interest in moving forward with any of the three projects Fox presented at the meeting.
After the meeting, Fox had conversations with defendants principals, Janet Boophsinge (JB) and Ken Brijlall (KB), to let them know what had happened, and over the next month he consulted with the architect, to see if there was a way to make the project more economically feasible. Fox went back to the architect to redraw the footprints of the project with the objective of reducing the commercial space and the acquisition price, but Defendants would not agree to reduce the allotted commercial space or the acquisition price.
In 2007 and 2008 Robert Garcia (Garcia) was a partner and shareholder of the Plaintiff corporation, Garcia was a licensed electrician and worked with Fox who is a Certified Public Accountant. Garcia dealt primarily with construction issues for Plaintiff. Garcia was hospitalized in November 2008, and died in March 2009.Garcia had brought Fox and the Defendants together for the project.
TERMINATION OF THE AGREEMENT
On September 23, 2008, Defendants' attorney transmitted a letter to Plaintiff's counsel stating that Plaintiff was in default under the terms of the agreement " ... in that they have not made the monthly payments to contribute to the carrying costs of the project." The letter requested that Plaintiff cure the default "... so further action is not required (Ex A)."
Shortly, thereafter, Fox issued the November 5, 2008 Termination Letter (Ex 2). The letter stated:
Though the letter has a date of November 5, 2009, the court credits Fox's uncontested testimony that the year was a typographical error and that it should have been dated November 5, 2008.
I regret to inform you that based upon a lack of funding interest by HPD and HDC, coupled with great uncertainty in the Tax Credit market the Project is not feasible at this time. We have been working together with you, our architect and HPD/HDC to produce a mixed use building that makes economic sense to all parties concerned.
Yields in the tax credit market have been greatly affected by the recent economic downturn, and there is great uncertainty related to the current tax exempt bond marketplace.
As per the terms of our development agreement, kindly reimburse us the $40,000 that we have paid you to date as our share of the carrying charges of the property.
The letter indicates at the top that it was transmitted by facsimile on November 5, 2008.
Defendants never made the requested reimbursement so Plaintiff commenced this action. Fox further testified that Defendants filed bankruptcy and Plaintiff filed a notice of claim for the $40,000.
The court had requested that counsel provide pertinent copies of the bankruptcy records with the post trial memoranda. The only document provided was one page by the Plaintiff's attorney, which indicates that Plaintiff filed a Notice of Claim on August 11, 2016. Neither party has taken the position that the debt has been discharged or that any aspect of the bankruptcy proceeding precludes this court from ruling on the parties' claims.
TESTIMONY OF BEN WARNEKE
Benjamin Warnke (BW) was called by Plaintiff as a witness. BW is a community developer and works through his corporation Alembic Community development. BW's duties include overseeing day to day operations, negotiations with lenders and investors, underwriting and performing financial feasibility studies.
BW has been in the real estate field since the late 1980s, and his work history includes stints with commercial banks, HPD and not for profit organizations. In 1987, BW started his own consulting firm, and BW has been a developer for the past 13 years. BW has developed 17 projects, including 15 which involved affordable and or supportive housing. Most of these projects were financed through HPD with Low Income Tax Credits.BW and Fox have partnered together on several projects. BW has also done consulting work for Fox.
BW testified about the process of presenting projects to HPD and their procedures for approving projects to move forward or discouraging them. BW has never seen HPD indicate in writing when a proposed project is not approved or they do not wish to move forward with it. While HPD will issue a commitment letter for an approved project that is done at the tail end of the deal.
BW consulted with Fox on the project covered by The Agreement. In 2008, BW was asked to look at the architectural feasibility of the project, and to translate that into numbers by creating a development budget and an operating budget. BW developed a pro forma for the project.
BW was present at the September 3, 2008 meeting where Fox made the presentation to HPD regarding the Project. HPD did not show any interest in the project, and indicated that certain elements of the Project did not align with the City's priorities at that time. In particular HPD did not approve of the acquisition price for the land and the amount of space designated for commercial use. HPD wanted to keep the development costs low. The numbers were not attractive to HPD at that time after consideration of the tax credit yield.
Susan Kensky, the director of development for HPD, who Fox and BW met with, was not interested in the project but left open the possibility to reconsider it if the commercial space was reduced and the number of residential units was increased. HPD did not ask BW or Fox to move forward on any of the three projects presented at that meeting.
BW and Fox discussed the Project further after the meeting, and they went back to the architect and asked if it was possible to decrease the commercial space and increase the number of residential units. The architect stated this could be done.
BW was not paid for his work on the Project, and never sought any payment for same. BW's understanding with Fox was that they would discuss compensation, if HPD determined the project was feasible.
The court found BW to be a very credible witness.
TESTIMONY OF JB AND KB
JB is the president of the three corporate Defendants.
JB testified that: there were 17 commercial tenants in place that were removed from occupancy as part of Defendants' compliance with The Agreement; and that the tenants left without executing any surrender agreements; that Defendants carrying charges exceeded $20,000 per month; that she could not recall the identity of any of the tenants she had removed from the property; and that she was no longer in possession of their written leases.
On cross-examination, JB contradicted her testimony on direct that all of the tenants had been removed and revised it to say that 95% of the tenants had been removed, or that 15 out of 17 tenants had been removed.
JB acknowledged that Fox had told her in September 2008 that HPD was not moving ahead with the project, but testified, without credibility, that Fox did not state the reasons for the decision. JB also knew at that point that Fox was going to be seeking a refund of the $40,000 he had already paid. JB acknowledged that she would not agree to reduce the commercial space in the project or to lower the acquisition price for the property.
KB also testified. KB's testimony mostly duplicated that of JB. In some respects the testimony of JB and KB differed. KB testified that three tenants were paid to leave, and that one of the tenants was paid $45,000 to vacate. KB testified all of the tenants were vacated from the property and that the last tenant was put out in December 2008, after the termination letter had been issued by Fox.
The court found the testimony of both witnesses for Defendants, particularly that of JB to lack credibility, and to the extent that JB's testimony conflicted with Fox's testimony the court credits Fox over JB. The court notes that JB's testimony, in addition to lacking credibility failed to be corroborated by documentary evidence. No leases were admitted into evidence. No evidence of any actual eviction proceedings was submitted at the trial. JB testified that certain tenants were bought out, but offered no proof of any of the alleged payments, nor any agreement evidencing surrender in exchange for said payments.
In particular the court found lacking in credibility: JB's testimony that she was told prior to executing the agreement that Fox had already met with HPD regarding the project; that Fox never communicated to her after the September 3, 2008 meeting with HPD that HPD was not interested in moving forward with the project; that HPD had approved the project prior to the execution of the Development Agreement; that Fox told JB that he and Garcia had had several meetings with HPD regarding the Project and that HPD had approved it; that JB ousted from possession 17 commercial tenants within four months of execution of the Development Agreement; that JB had no recollection of being told about the September 3, 2008 meeting with HPD; that JB had no recollection of being asked to reduce the commercial space and increase the number of residential units; and that JB paid two of the tenants to vacate.
The court concludes that JB's testimony was completely lacking in credibility and the court gives little weight to said testimony. The court also does not credit the testimony of KB, which was somewhat less detailed then JB's.
DISCUSSION
The elements for a breach of contract include the existence of a contract, the plaintiff's performance thereunder, the defendant's breach thereof, and resulting damages [ Harris v. Seward Park Hous. Corp. , 79 AD3d 425, 426, (2010) ].
Here it is undisputed that a contract existed between the parties. Much of the testimony elicited was about the principals understanding of the contract. Most of this testimony is irrelevant. As the terms of the contract are not ambiguous, the court will not consider any extrinsic evidence in interpreting the contract.
"In cases of contract interpretation, it is well settled that when parties set down their agreement in a clear, complete document, their writing should ... be enforced according to its terms. This principle is particularly important in the context of real property transactions, where commercial certainty is a paramount concern, and where ... the instrument was negotiated between sophisticated, counseled business people negotiating at arm's length" ( South Rd. Assoc., LLC v. International Bus. Machs. Corp., 4 NY3d 272, 277, 793 N.Y.S.2d 835, 826 N.E.2d 806 [internal quotation marks omitted] ). "Where such an agreement is clear and unambiguous on its face, the parties' intent must be construed from the four corners of the agreement, and not from extrinsic evidence" ( Cleva v. Cleva, 139 AD3d 785, 786, 31 N.Y.S.3d 551 [internal quotation marks omitted] ).
[ ELBT Realty, LLC v. Mineola Garden City Co. , 144 AD3d 1083, 1083—84, (2016) ].
Defendants essentially make two claims in opposition to the relief sought by Plaintiff. The first is that Plaintiff had no right to terminate the Agreement as and when it did, and the second is that Plaintiff is precluded from suing for the breach of contract because Plaintiff had failed to make certain payments due under the contract.
The court finds neither argument persuasive nor a basis to preclude recovery by Plaintiff.
BY ITS EXPLICIT TERMS THE AGREEMENT PERMITTED PLAINTIFF TO TERMINATE THE AGREEMENT IF PLAINTIFF DETERMINED IN ITS SOLE DISCRETION THAT THE PROJECT WAS NOT FEASIBLE DUE TO A LACK OF INTEREST BY HPD
The Agreement provided clearly and unequivocally that Plaintiff had the right to terminate the contract if Plaintiff decided in its sole discretion that HPD was not interested in moving ahead and funding the project.
" ... (T)he plain language of the contract makes clear that termination of the contract was a possibility and the parties, who were sophisticated, counseled business entities negotiating at arm's length over a prolonged period of time, should have understood and expected that termination of the agreement could occur during that specified window of time ... (ELBT Realty, LLC, Supra at 1084)." Defendants should have understood and expected that the termination of the Agreement could occur during the specified window period and that the decision as to whether HPD had a lack of interest was Plaintiff's alone and did not need to be substantiated by further evidence (Id. )
Defendants argue correctly that there is an implied covenant of good faith in every contract. However, where a contract allows one party to terminate for reasons to be determined in that party's sole discretion, the covenant of good faith and fair dealing cannot serve to negate that provision ( Transit Funding Associates LLC v. Capital One Equipment Finance Corp. 149 AD3d 23 citing ELBT Realty LLC v. Mineola Garden City Co 144 AD3d 1083 ). Where termination is based on the exercise of discretion, the implied covenant of good faith includes a promise not to act arbitrarily or irrationally ( Dalton v. Educational Testing Service 87 NY2d 384, 389 ). There is no credible evidence from the record at trial that Plaintiff acted in an arbitrary or irrational matter in electing to terminate The Agreement.
PLAINTIFF'S FAILURE TO MAKE THE PAYMENTS FOR CARRYING COSTS FOR AUGUST THROUGH OCTOBER 2008 DOES NOT PRECLUDE RECOVERY
Certainly "[w]hen a party has breached a contract, that breach may excuse the non-breaching party from further performance if the breach is material’ " ( New Windsor Volunteer Ambulance Corps v. Meyers, 442 F3d 101, 117 [2d Cir 2006] ). In such a case, "the non-breaching party is discharged from performing any further obligations under the contract, and ... may elect to terminate the contract and sue for damages" ( NAS Elec. v. Transtech Elec. PTE, 262 F Supp 2d 134, 145 [SD NY 2003] ). However, while the non-breaching party may elect either to cease to perform under the contract or to continue to perform:
conduct indicating an intention to continue the contract in effect will constitute a conclusive election, in effect waiving the right to assert that the breach discharged any obligation to perform. In other words, the general rule that one party's uncured, material failure of performance will suspend or discharge the other party's duty to perform does not apply where the latter party, with knowledge of the facts, either performs ... despite the breach, or insists that the defaulting party continue to render future performance.
( 14 Lord, Williston on Contracts 43:15, at 626 [4th ed] [footnotes omitted]; see e.g. Liebowitz v. Elsevier Science, 927 F Supp 688, 702 [SD NY 1996] ).
[ Casita, LP v. Maplewood Equity Partners (Offshore) Ltd. , 17 Misc 3d 1137(A) ].
In the case at bar, assuming arguendo that the failure to pay the carrying costs for August through October 2008 constituted a material breach of contract by Plaintiff, Defendants made it clear by their conduct that they elected to enforce Plaintiff's performance and continue the contract, rather than choosing to terminate the contract on account of the breach.
Defendants made no written demand for the interim payments until late September 2008, after they had been told by Fox that he was not moving forward with the contract and would be seeking a return of his payments. The demand itself is a request for performance under the Agreement not a termination of the Agreement for the alleged breach.
Plaintiff made the payments due for carrying costs for April through July 2008. Pursuant to the terms of the Agreement, an additional three payments totaling $30,000 came due prior to the November 5, 2008 termination by Plaintiff. Thus Plaintiff should have paid $70,000 under the contract rather than $40,000. However, pursuant to the terms of the contract after the November 5, 2008 termination, Plaintiff was entitled to received $60,000 back within 30 days of the November 5, 2008 termination.
Based on the foregoing, Plaintiff is entitled to a judgment against Defendants in the amount of $30,000.00 plus interest from December 5, 2008 and costs. Defendants are entitled to keep $10,000 out of the $40,000 paid, but the balance of Defendants' counterclaims are dismissed. Defendants failed to establish any breach of contract entitling them to further damages.
This constitutes the decision and order of the Court.