Opinion
No. 49320/01.
2012-02-22
NEW YORK TILE WHOLESALE CORP., Plaintiff, v. THOMAS FATATO REALTY CORP. and Garden Estates LLC, Defendants.
Feder Kaszovitz, New York, for Plaintiff. Delbello, Donnellan, Weingarten, White Plains, for Defendant.
Feder Kaszovitz, New York, for Plaintiff. Delbello, Donnellan, Weingarten, White Plains, for Defendant.
DAVID SCHMIDT, J.
The following papers numbered 1 to 13 read herein:
+-----------------------------------------------------------------------------+ ¦Papers ¦Numbered ¦ +--------------------------------------------------------------+--------------¦ ¦Notice of Motion/Order to Show Cause/Petition/Cross Motion and¦1–27–9 ¦ ¦Affidavits (Affirmations) Annexed ¦ ¦ +--------------------------------------------------------------+--------------¦ ¦Opposing Affidavits (Affirmations) ¦10–11 ¦ +--------------------------------------------------------------+--------------¦ ¦Reply Affidavits (Affirmations) ¦3 ¦ +--------------------------------------------------------------+--------------¦ ¦Affidavit (Affirmation) ¦ ¦ +--------------------------------------------------------------+--------------¦ ¦Other Papers Memoranda of Law ¦4–512–13 ¦ +--------------------------------------------------------------+--------------¦ ¦Plaintiff's attorney's letter dated November 8, 2011 ¦6 ¦ +-----------------------------------------------------------------------------+
Upon the foregoing papers, in this action by plaintiff New York Tile Wholesale Corp. (plaintiff) alleging breach of a lease agreement and seeking specific performance and damages, plaintiff moves for an order, pursuant to CPLR 3212, granting it summary judgment on the issue of liability on the first, second, and third causes of action of its complaint, and severing all remaining issues as to damages. Defendants Thomas Fatato Realty Corp. (Fatato Realty) and Garden Estates LLC (Garden) (collectively, defendants) cross-move for an order granting them summary judgment dismissing plaintiff's first, second, and third causes of action as against them.
BACKGROUND
Fatato Realty is a real estate management company that owns and manages commercial and residential properties in Brooklyn, New York. Ronald Fatato is the president of Fatato Realty, and he owns a majority of Fatato Realty's shares. Prior to October 2000, Fatato Realty was the record owner of real property located at 283–301 Fourth Avenue, in Brooklyn, New York (the property). The property is improved with three buildings, which total approximately 51,000 square feet. The buildings include a warehouse which is connected to a one-story brick garage and a two-story medical center.
Fatato Realty, as the owner and landlord of the property, entered into a lease, dated September 23, 1986, with plaintiff (whose name was then Marble Flooring, Inc.), as the tenant, wherein Fatato Realty leased a portion of the property to plaintiff for storage and warehousing for a term of five years. The lease was executed by Ronald Fatato, on behalf of Fatato Realty, and by Milton Zuckerbrod, on behalf of plaintiff. The lease superseded a prior lease for the property entered into between Fatato Realty and plaintiff (in the name of Marble Flooring Corp.) on or around December 18, 1981 and which had commenced on January 1, 1982. A rider to the lease, in paragraph 42, provided that “[i]n the event of a sale of this property, the tenant has the first right of refusal.” The lease was continually renewed and extended with the last lease extension expiring on April 30, 2002, and, as amended, the lease continued to contain the same right of first refusal.
On October 12, 2000, Fatato Realty sold the property for $2.295 million to Garden. Plaintiff claimed that Fatato Realty never notified it that it was about to sell the property and that Fatato Realty did not give it an opportunity to exercise its right of first refusal under the rider to the lease. Plaintiff asserted that it was completely unaware of this sale for more than one year after the sale since Fatato Realty continued to bill it for the rent and kept up the appearance that it remained the owner of the property.
On December 18, 2001, plaintiff filed this action against Fatato Realty and Garden. Plaintiff's first cause of action seeks a judgment rescinding the sale of the property from Fatato Realty to Garden and directing Fatato Realty to specifically perform its obligation under the rider to the lease to offer the property to it for sale and to transfer the property to it. Plaintiff's second cause of action seeks damages against Fatato Realty for breach of the lease. Plaintiff's third cause of action alleges that Garden was aware of its right of first refusal, and asserts a claim of tortious interference with its contractual rights by Garden. Plaintiff's fourth, fifth, and sixth causes of action allege that Fatato Realty overstated the square footage of the property leased by it, and, respectively, seek damages for overpayment of rent and other charges and expenses, reformation of the lease, and a return of the overpayment of its security deposit.
By a decision and order dated May 7, 2002, Justice Melvin S. Barasch granted a cross motion by plaintiff insofar as it sought a preliminary injunction enjoining Garden and Fatato Realty, during the pendency of this action, from transferring or encumbering the property or interfering with its tenancy. Justice Barasch based that decision and order upon the fact that the rider to the lease contained a right of first refusal, plaintiff's showing that the property was sold to a third party, Garden, and plaintiff's assertion that it had never received notice of the sale.
Subsequently, plaintiff moved for summary judgment in its favor on its first, second, and third causes of action, and defendants cross-moved for summary judgment dismissing plaintiff's first, second, and third causes of action. In support of their cross motion, defendants submitted evidence showing that Garden was formed as a limited liability company on July 25, 2000, that its members were (and continue to be) R & I Garden Corp. (R & I), which owns a two-thirds interest in Garden, and Shaya B. Developers, Inc. (Shaya), which owns a one-third interest in Garden. Fatato Realty pointed out that since it owns 90% of R & I, and Itzhak Katan (Katan) (who is a real estate developer with expertise in construction), owns the remaining 10% interest in Garden, this gave it a majority interest of 60% in Garden.
Fatato Realty, in its cross motion, further explained that in 2000, it had decided to develop the property by constructing residential rental apartments, and that, in order to do so, it formed Garden, in which it joined with Katan and Jeshayah Boymelgreen (Boymelgreen) (who had construction expertise and a construction company). Fatato Realty asserted that it had previously worked with Katan and Boymelgreen in developing other properties and that, by forming Garden, it joined with them so that they would provide the financing and construction expertise needed for the development of the property.
Fatato Realty, in support of its cross motion, pointed to the fact that Garden's operating agreement provided that the members' capital contributions were those amounts necessary to acquire and develop the property, and that to the extent that any member contributed funds to the project in excess of that member's proportionate share of the capital contributions due, that excess would be considered a loan owed to such contributing member. Fatato Realty claimed that its capital contribution to Garden, through R & I, was the property, which it transferred to Garden on October 12, 2000. Fatato Realty asserted that since the market value of the property (which plaintiff had claimed was approximately $8,250,000) greatly exceeded the value of its proportionate capital contribution to Garden, Garden, in accordance with its operating agreement, agreed to repay Fatato Realty the sum of $2,295,000. In addition, Fatato Realty claimed that plaintiff, through its principals, Edward Zuckerbrod and Milton Zuckerbrod, were well aware of its plans to develop the property in 2000 and of its intent to transfer title to the property in order to do so, and it submitted affidavits and other proof supporting this claim. Plaintiff, however, claimed that Fatato Realty never gave it written notice of the transfer of the property by it to Garden.
By a decision and order dated May 15, 2003, Justice Barasch, before any discovery in this action took place, denied plaintiff's motion and granted defendants' cross motion. Justice Barasch found, as a matter of law, that the transfer of the property to Garden did not constitute a “sale” that triggered the right of first refusal based upon the fact that Fatato Realty indirectly held a 60% interest in Garden.
Following an appeal by plaintiff, the Appellate Division, Second Department, by a decision and order dated December 13, 2004 (New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp., 13 AD3d 425, 426 [2004] ), modified Justice Barasch's May 15, 2003 decision and order by denying defendants' cross motion with leave to renew plaintiff's motion and/or defendants' cross motion upon completion of discovery, and reinstating plaintiff's first, second, and third causes of action. It also reversed an order dated November 12, 2003, which had granted a motion by defendants to vacate the preliminary injunction dated May 7, 2002 and reinstated it ( id.). In so ruling, the Appellate Division, Second Department, found that plaintiff's motion and defendants' cross motion were premature since no discovery had yet taken place, and because neither party, at that early stage of the action, and in light of the allegations of plaintiff's complaint, was entitled to judgment as a matter of law ( Id. at 427).
In rendering its December 13, 2004 decision and order, the Appellate Division noted that “[c]ourts in this state and elsewhere ... have held that the sale to a third party of a partial interest in leased premises may, under certain circumstances, trigger a right of first refusal” ( Id. at 428;see also Colonie Motors v. Heritage Corp. of NY, 61 A.D.2d 1105 [1978];Prince v. Elm Inv. Co., 649 P.2d 820 [1982] [Utah] ). It found that since the property was transferred from Fatato Realty to Garden, an entity in which Fatato Realty indirectly held a 60% membership interest, “[t]he transfer of title in this case was not the equivalent of an outright sale' of the property to a third party in an arm's length transaction, since Fatato [Realty], both before and after the restructuring, maintained either ownership of, or a controlling interest in, the property” (New York Tile Wholesale Corp., 13 AD3d at 428).
However, the Appellate Division, in its December 13, 2004 decision and order, held that since “the restructuring did, in effect, result in the transfer of a 40% interest in the property to unrelated third parties” and because Fatato Realty had “conceded that the purpose of the restructuring was to redevelop the property into townhouses and condominium units,” it was premature for the Supreme Court to have dismissed plaintiff's first three causes of action ( id.). It found that to the extent that plaintiff could “establish that Fatato [Realty] and Garden, in bad faith, effected the restructuring in order to redevelop and resell the property to third parties while precluding ... plaintiff from acquiring it through the exercise of its right of first refusal, a cause of action for breach of the lease may lie against Fatato [Realty]” ( id.; see also Quigley v. Capolongo, 53 A.D.2d 714 [1976],affd sub nom. Quigley v. Ithaca Coll., 43 N.Y.2d 748 [1977];cf. Power Test Petroleum Distribs. v. Baker–Tripi Realty Corp., 190 A.D.2d 845 [1993];Kings Antiques Corp. v. Varsity Props., 121 A.D.2d 885, 886 [1986] ). It further found that “a cause of action for tortious interference with performance of the lease may lie against Garden” (New York Tile Wholesale Corp., 13 AD3d at 428;see also Slifer–Weickel, Inc. v. Meteor Skelly, 140 A.D.2d 320, 322 [1988] ).
Following the December 13, 2004 decision and order of the Appellate Division, defendants produced certain documents in discovery. These documents included a contract (the City View contract) dated June 8, 2000 executed by Fatato Realty, as the seller, to sell the property to City View Gardens, LLC (City View), as the purchaser, for a purchase price of $2,295,000, to be paid by a $25,000 deposit, $1,400,000 as an allowance for the principal amount still unpaid on existing mortgages, a purchase money note and mortgage from City View to Fatato Realty of $770,000, and the payment of a balance of $100,000 due at closing. Fatato Realty does not have a majority interest in City View, which is beneficially owned one-third by Boymelgreen, one-third by Katan, and one-third by Fatato Realty, with Katan and Fatato Realty owning their interests through their ownership of R & I. Plaintiff argues that since Fatato Realty entered into the City View contract on June 8, 2000, over one month before Garden was created on July 25, 2000 and since Fatato Realty does not have a majority interest in City View, the City View contract triggered its right of first refusal.
In addition, defendants, in discovery, produced New York City and New York State Real Property Transfer Tax Returns (the RPT Forms) with respect to the property, which were executed and filed by defendants contemporaneously with the sale of the property to Garden on October 12, 2000. In the RPT Forms, the box is checked indicating an “arms length transfer” in response to the instruction to check all of the conditions that apply to the transfer. The RPT Forms describe the transfer of the property from Fatato Realty to Garden as a transfer of a 100% interest in the property for a purchase price of $2.295 million with real estate transfer taxes computed and paid on the basis of that purchase price. Plaintiff relies upon the fact that the RPT Forms contained no statement that Fatato Realty received additional consideration in the form of an interest in Garden, or that the consideration for the transfer involved anything other than the $2.295 million purchase price. Plaintiff argues that defendants are estopped and bound by their factual description of the transaction as reported and sworn to by both defendants in these RPT Forms that were filed at the closing.
Plaintiff, by its instant motion, now seeks summary judgment based upon the City View contract and the RPT Forms. Defendants oppose plaintiff's motion and have cross-moved for summary judgment.
Defendants, in opposing plaintiff's motion, contend that Fatato Realty abandoned the City View contract, and, therefore, it did not trigger plaintiff's right of first refusal. They also contend that the fact that the arm's length transfer box was checked in the RPT Forms is of no import since it does not mean that Fatato Realty does not own 60% of Garden.
Defendants, in support of their cross motion, argue that the Appellate Division, in its December 13, 2004 decision and order, has already ruled that the transfer of the property from Fatato Realty to Garden was not an arm's length sale triggering plaintiff's right of first refusal and that this constitutes the law of the case. Defendants further argue that plaintiff had actual notice that Fatato Realty was taking on partners to develop the property since it informed plaintiff, through Edward Zuckerbrod, of this fact, and that plaintiffs never sought to purchase it. In addition, defendants contend that plaintiff has failed to establish, as a matter of law or fact, that they acted in bad faith in transferring the property to Garden. Defendants also contend that plaintiff's request for specific performance must fail because plaintiff's right of first refusal extends only to that portion of the property that plaintiff leased, which consists of approximately 25,000 square feet. Defendants additionally assert that there is no evidence to demonstrate that plaintiff was ever ready, willing, and able to purchase the property.
DISCUSSION
The City View Contract
As noted above, plaintiff relies upon the City View contract in support of its motion. Plaintiff argues that the City View contract triggered its right of first refusal and that the existence of the City View contract demolishes defendants' defense (which was upheld by the Appellate Division) that the transfer of title by Fatato Realty to Garden was not the equivalent of an outright “sale” of the property to a third party in an arm's length transaction because Fatato Realty only held a 33% interest in City View, rather than a controlling or majority interest in it. It is well established, however, that a right of first refusal is extinguished and evaporates when a contemplated sale to a third party is abandoned ( see Cipriano v. Glen Cove Lodge No.1458, B.P.O.E., 1 NY3d 53, 60 [2003];LIN Broadcasting Corp. v. Metromedia, Inc., 74 N.Y.2d 54, 62–63 [1989] ). Defendants maintain that the City View contract was abandoned since the property was never sold to City View, and, therefore, it has no effect on plaintiff's right of first refusal so as to have any impact upon the Appellate Division's holding in its December 13, 2004 decision and order.
Specifically, defendants assert that the City View contract was abandoned because Fatato Realty never planned on transferring the property to City View. Ronald Fatato, in his sworn affidavit, explains that he and the others planned on creating a new entity of which Fatato Realty would own 60%, to which the property would be transferred. He states that whenever Fatato Realty transferred property to a company for development, a new limited liability company was created, and that City View was merely intended to be a “placeholder” until the new limited liability company, Garden, was formed.
Plaintiff disputes defendants' argument that the City View contract was abandoned, contending that the documentary evidence shows that the City View contract was assigned from City View to Garden. Such documentary evidence consists of the October 12, 2000 closing statement prepared by Glenn N. Schlesinger, Esq., as the attorney for Garden, for the sale of the property from Fatato Realty to Garden, which describes the transaction as one by which Garden obtained title “pursuant to a written contract of sale and rider dated June 8, 2000 and October 12, 2000, between seller and purchaser.” The purchase price shows credits to Garden of a $1,400,000 allowance for existing mortgages, a purchase money mortgage of $604,441.90, deposits/payment on contract of $190,558.10, and $100,000 paid by it at the closing. While it is undisputed that the purchase price reflected in the City View contract is the same as that paid by Garden and that no other contract was ever signed by Garden, the terms of payment are not identical, since the amount of the purchase money note and mortgage from City View to Fatato Realty was $770,000.
Plaintiff also points to the fact that the contract deposit made by City View was credited to Garden's purchase. In addition, plaintiff asserts that the deposition testimony of Ronald Fatato, Boymelgreen, and Glenn Schlesinger, Esq. show that the City View contract was assigned by City View to Garden and provided the terms for the closing. Plaintiff, therefore, contends that by virtue of the City View contract, Fatato Realty relinquished control of the property and triggered its right of first refusal. Plaintiff further contends that since the terms of the City View contract were never provided to it, in writing or otherwise, the requisite notice was not given to it, resulting in a breach of its right of first refusal. Plaintiff claims that defendants never informed it of the execution of the City View contract or its terms.
However, while plaintiff may not have been aware of the City View contract, the fact remains that Fatato Realty did not transfer the property to City View, in which it held only a 33% interest, but, rather, it transferred the entire property to Garden, an entity in which it owned a 60% interest. Thus, unless plaintiff can establish that the restructuring was performed in bad faith, its first, second, and third causes of action will not lie, as previously held by the Appellate Division ( see New York Tile Wholesale Corp., 13 AD3d at 428).
In any event, as discussed below, there are other material triable issues of fact raised which would preclude plaintiff from obtaining summary judgment.
The RPT Forms
Plaintiff asserts that defendants, in the RPT Forms, certified under oath, that the transaction was an “arm's length transfer” (by checking the box on the RPT Forms to this effect) and that the consideration consisted of a purchase price of $2,295,000. Plaintiff contends that if this transfer consisted of a capital contribution transaction in which Fatato Realty was receiving an interest in Garden so that the market value of the property was greater than $2,295,000, the RPT Forms would have been required to reflect that fact. Specifically, plaintiff states that in the “Condition of Transfer” section of the RPT Forms, defendants should have checked off box “l” for “[t]ransfer to business entity in exchange for an interest in the business entity” and it failed to do so. Plaintiff also states that defendants should have filled out Schedule F of the RPT Forms setting forth and explaining the full consideration, including the “fair market value of the real property or economic interest therein at the time of transfer,” “other consideration received from the business entity,” and the “value of shares of stock or partnership interest received in exchange for the real property or interest therein,” and that no such entries were made by them. Plaintiff claims that if Fatato Realty were only transferring a 40% interest, it should not have sworn in the RPT Forms that the percentage of interest transferred was 100%.
Courts have generally found that the doctrine of quasi estoppel, as a matter of policy “extends to prevent a party from asserting, without ample explanation, a factual position in a legal proceeding that is directly contradicted by his or her tax return” (Mikkelson v. Kessler, 50 AD3d 1443, 1444 [2008];see also Estate of Ginor v. Landsberg, 159 F3d 1346, 1998 WL 514304, *1 [2d Cir1998]; American Mfrs. Mut. Ins. Co. v. Payton Lane Nursing Home, Inc., 704 F Supp 2d 177, 194 [ED N.Y.2010]; Meyer v. Ins. Co. of Am., No. 97 Civ 4678, 1998 WL 709854, *11 [SD N.Y. Oct. 9, 1998]; Mahoney–Buntzman v. Buntzman, 12 NY3d 415, 422 [2009];Gagen v. Kipany Prods., Ltd., 27 AD3d 1042, 1044 [2006];Naghavi v. New York Life Ins. Co., 260 A.D.2d 252, 252 [1999];PL Diamond LLC v. Becker–Paramount LLC, 16 Misc.3d 1105 [A], 2007 N.Y. Slip Op 51298[U], *10 [Sup Ct, N.Y. County 2007]; Zemel v. Horowitz, 11 Misc.3d 1058[A], 2006 N.Y. Slip Op 50276[U], *5 [Sup Ct, N.Y. County 2006] ).
However, the application of such estoppel “is highly fact-specific” (American Mfrs. Mut. Ins. Co., 704 F Supp 2d at 194;see e.g. United States v. West Prods., Ltd., 168 F Supp 2d 84, 88–89 [SD N.Y.2001] ), and has been limited “to situations where the risk of inconsistent results threatens the integrity of the judicial process” (Simon v. Safelite Glass Corp., 128 F3d 68, 72–73 [2d Cir1997] ). “In other words, the previous purported inconsistent statement must have a material effect on the outcome of the subsequent proceeding” (American Mfrs. Mut. Ins. Co., 704 F Supp 2d at 194;see also Simon, 128 F3d at 72–73;Negron v. Weiss, 2006 WL 2792769, *4 [EDNY 2006] ).
Furthermore, plaintiff's argument that the transfer to Garden was an arm's length sale based upon the box checked on the RPT Forms ignores the well settled principle that “the substance rather than the form of a transaction is controlling” (PL Diamond LLC, 2007 N.Y. Slip Op 51298[U], *8) and “the emphasis should be on economic reality” (United Housing Foundation v. Forman, 421 U.S. 837, 848 [1975] [internal quotation marks and citation omitted] [holding that the fact that the federal securities laws defined securities as including stock was not dispositive of whether the sale of stock in a cooperative apartment should be considered the sale of a security]; see also International Trade Admin. v. Rensselaer Polytechnic Institute, 936 F.2d 744, 748 [2d Cir1991] [courts look to “the economic substance of the transaction” rather than its form]; 801 S. Fulton Ave. Corp. v. Radin, 138 A.D.2d 561, 562 [1988] [the “circumstances, rather than the name given to the arrangement, are dispositive in determining the nature of the arrangement”] ).
“[T]he doctrine of quasi estoppel does not apply if a party asserts that the same facts have different legal effects or consequences in different settings” (PL Diamond LLC, 2007 N.Y. Slip Op 51298[U], *10). “The submission of a legal argument is of a different character than an inconsistent framing of one's factual pleadings,” and, therefore, is not a basis for such estoppel (Matter of Excelsior 57th Corp. [Kern], 218 A.D.2d 528, 529–530 [1995] [internal quotation marks and citation omitted). “It is also well-settled that parties to a transaction may structure that transaction in a manner that will minimize the tax consequences and that such structuring does not change the essential nature of the transaction” (PL Diamond LLC, 2007 N.Y. Slip Op 51298[U], *11). Moreover, this form of quasi estoppel “does not apply if the initial statement was the result of a good faith mistake or an unintentional error” (American Mfrs. Mut. Ins. Co., 704 F Supp 2d at 194;see also Stevenson–Misischia v. L'Isola D'Oro SRL, 2011 N.Y. Slip Op 30044[U] [Sup Ct, N.Y. County 2011], affd85 AD3d 551 [2011] ).
Here, defendants maintain that the checking of this box was merely intended to mean that 100% of the property was sold to Garden. Ronald Fatato asserts, in his sworn affidavit, that he is not a certified public accountant or an attorney nor are the other Fatato Realty partners, Katan and Boymelgreen, and that this box was checked, as opposed to another box on the RPT Forms, because 100% of the property was transferred to Garden. He notes that the RPT Forms do not change the fact that Fatato Realty owned 60% of Garden, nor do the RPT Forms state who owns Garden. Fatato Realty also points out that it has always maintained control of the entire property and has executed a lease with Garden which provided for no rent to be paid. Fatato Realty asserts that this shows that the transfer was not truly an “arms length” sale within its legal definition. Thus, based upon the above, it appears that the statements on the RPT Forms merely constitute a characterization of the transaction, as opposed to a representation of defendants' ownership interest.
While plaintiff, in support of its position, additionally cites the deposition testimony of Glen Schlesinger, Esq. and Joe Longo, Esq., the attorneys for Garden and Fatato Realty, who testified that from their perspective, the transfer was an arm's length sale, Mr. Schlesinger, Esq. further testified that Katan had told him before the closing of the transfer of the property between Garden and Fatato Realty that Fatato Realty and Katan were going to be partners in the property (Mr. Schlesinger, Esq.'s Dep. Transcript at 167).
Estoppel by certification does not preclude defendants as a matter of law from disputing the nature and legal effect of the transfer to Garden ( see Roth v. Speilman, 25 AD3d 383, 384 [2006] ). Defendants' statement on the RPT Forms is not necessarily a repudiation that a capital contribution by Fatato Realty to Garden, by its contribution of the property, had occurred ( see Ray v. Ray, 61 AD3d 442, 447 [2009] ). “Documents of this type ... even when filed with government agencies, are not in and of [themselves] determinative' “ ( Matter of Pappas v. Corfian Enters ., Ltd., 22 Misc.3d 1113[A], 2009 N.Y. Slip Op 50109[U], *5, affd76 AD3d 679 [2010], quoting Matter of Heisler v. Gingras, 90 N.Y.2d 682, 688 [1997];see also Roth, 25 AD3d at 383–384). “Estoppel, and its related theories (e.g., waiver, acquiescence and course of conduct) should be generally inapplicable as bases to determine controversies of this kind” (Matter of Heisler, 90 N.Y.2d at 686–687;see also PL Diamond LLC, 2007 N.Y. Slip Op 51298[U], *10–11).
Thus, while it is true that “[a] party to litigation may not take a position contrary to a position taken in an income tax return” (Mahoney–Buntzman, 12 NY3d at 422;see also Meyer v. Insurance Co. of Am., 1998 WL 709854, *10 [SD N.Y.1998]; Naghavi, 260 A.D.2d at 252;Zemel, 2006 N.Y. Slip Op 50276 [U], *5), defendants' present position is not necessarily contrary to the declarations made on the RPT Forms.
Although the arm's length transfer box was checked, this was because 100% of the property was transferred to Garden. The characterization of the transfer on the RPT Forms does not change the nature of the transaction which occurred. No where in the RPT Forms do they indicate that Fatato Realty did not own 60% of Garden, and the checking of this box does not mean that Fatato Realty did not own 60% of Garden. Therefore, the existence of the RPT Forms is insufficient to provide a basis to change the holding of the Appellate Division with respect to Fatato Realty's ownership interest in Garden.
Checking the “arm's length transfer” box is also not inconsistent with defendants' present position that it transferred 100% of the property to Garden or that Fatato held a 60% interest in Garden through R & I. As noted above, the RPT Forms do not indicate that Fatato does not own 60% of Garden, which is the issue that was addressed by the Appellate Division, and is central to the instant motion and cross motion. The RPT Forms have markedly different legal effects or consequences related to taxes than they do with respect to the position taken by defendants in this litigation. Thus, the RPT Forms are not dispositive of this action, but, at most, they raise an issue of fact as to whether such characterization was based upon a good faith mistake and/or unintentional error.
Notice to Plaintiff
Defendants, in support of their cross motion, have submitted an affidavit by Ronald Fatato, in which he asserts that the principals of plaintiff, Edward and Milton Zuckerbrod, had actual notice of Fatato Realty's new partners, the transfer of title, and the plans for the development of the property with Katan and Boymelgreen. Ronald Fatato claims that despite this notice, at no time prior to October 2000 did the Zuckerbrods or any other representative of plaintiff ever seek to exercise the right of first refusal to purchase the property. He states that plaintiff, instead, sought to capitalize on its knowledge of the proposed development by attempting to sell an adjacent building which it owned at a premium.
Plaintiff, however, in opposition to defendants' cross motion and in support of its motion, points to the fact that it was never provided with written notice of Fatato Realty's intent to transfer the property. Plaintiff claims that no contract of sale was ever disclosed to it and that it was never given the opportunity to meet the terms of the sale to Garden.
Ronald Fatato asserts, however, that he gave plaintiff oral notice of the development in conversations which he had with Edward Zuckerbrod. Specifically, Ronald Fatato states that he told Edward Zuckerbrod about Fatato Realty's intent to develop the property, along with Katan and Boymelgreen, into residential rental apartments prior to the time that the property was transferred to Garden. He asserts that he personally introduced Edward Zuckerbrod to Boymelgreen as an additional partner of Fatato Realty. Fatato Realty points to the deposition testimony of Edward Zuckerbrod, which confirms that these conversations took place (Edward Zuckerbrod's Dep. Transcript at 57–62). These conversations raise triable issues of fact regarding whether the transfer was made secretly and in bad faith, as contended by plaintiff and as to plaintiff's actual notice of the transfer prior to its occurrence. Thus, neither plaintiff nor defendants have shown that they are entitled to summary judgment based upon the issue of notice.
Bad Faith Issue
Defendants, in further support of their cross motion, argue that they are entitled to summary judgment because they did not act in bad faith to preclude plaintiff from acquiring the property. They assert that the fact that Fatato Realty, through Ronald Fatato, in late 1999 and early 2000, prior to the transfer of the property, informed plaintiff, through Edward Zuckerbrod, that it was taking on partners (Katan and Boymelgreen) to develop the property, shows that they could not have been acting in bad faith and attempting a secret transfer of the property. They also assert that the fact that in 2000, Fatato Realty agreed to extend plaintiff's lease, rather than permitting it to expire before transferring the property to Garden, and the fact that their attorney willingly forwarded to plaintiff and its attorneys a copy of the lease shows that they were not acting in bad faith. Defendants additionally reiterate their argument that since Fatato Realty transferred the property to a company in which it held a 60% interest (i.e., Garden) shows that they did not act in bad faith. These assertions, however, merely raise triable issues of fact, which are not ripe for determination by summary judgment.
The Property Subject to the Right of First Refusal
Defendants argue that plaintiff's right of first refusal extends only to that portion of the property which was leased by it, consisting of approximately 25,000 square feet. Defendants contend that as a result, plaintiff cannot compel the sale of the property to it and it is, therefore, not entitled to specific performance, which is the relief sought by it in its first cause of action. Defendants further contend that since Fatato Realty never intended to transfer or sell only the leased portion of the property, plaintiff also cannot compel the sale to it of only the leased portion.
A defendant cannot defeat a plaintiff's right of first refusal “by offering it for sale only as part of a larger parcel” (Saab Enters. v. Wunderbar, 160 A.D.2d 931, 932 [1990];see also Whiteface Resort Holdings, LLC v. McCutchen, 52 AD3d 1106, 1107 [2008];Johnnies Pelham Rd. Serv., Inc. v. Thomas, 26 AD3d 415, 416 [2006]; South Amherst, Ltd. v. H.B. Singer, LLC, 13 AD3d 515, 516 [2004];K.S. & S. Rest. Corp. v. Yarbrough, 104 A.D.2d 486, 487 [1984];C & B Wholesale Stationery v. De Bella Dresses, 43 A.D.2d 579, 580 [1973];Costello v. Hoffman, 30 A.D.2d 530, 531 [1968] ). In North Vil. Liqs. v. Vascof Realty Corp. (48 N.Y.2d 770, 772 [1979] ), the Court of Appeals held that where a plaintiff has the right of first refusal in premises leased by it, it would have had the right of first refusal in the event of a sale of the leased premises or in the event that the entire parcel, including the leased premises, were offered for sale. The Court of Appeals, in North Vil. Liqs. (48 N.Y.2d at 770–772), therefore, granted the plaintiff therein partial summary judgment for an order setting aside the conveyance of realty and granting it damages for breach of first option provision.
However, since Fatato Realty asserts that it never intended to sell only the leased portion of the property, if plaintiff's right of first refusal extended only to the leased portion of the property, plaintiff would not be entitled to specific performance of the right of first refusal contained in the lease to purchase only the leased portion of the property ( see Johnnies Pelham Rd. Serv., Inc., 26 AD3d at 415–416;Tarallo v. Norstar Bank, 144 A.D.2d 157, 159 [1988];K.S. & S. Rest. Corp., 104 A.D.2d at 487;C & B Wholesale Stationery, 43 A.D.2d at 580;Klein v. Gelb, 34 A.D.2d 1079, 1080 [1970];Sautkulis v. Conklin, 1 A.D.2d 962, 962 [1956],affd2 N.Y.2d 919 [1957];New Atl. Garden, Inc. v. Atlantic Garden Realty Corp., 201 App.Div. 404, 411–412 [1922],affd237 N.Y. 540 [1923] ). Plaintiff also would not be able to compel conveyance of the entire property, of which the leased premises are but a part, upon the terms offered Garden if its right of first refusal did not extend to such entire property ( see Johnnies Pelham Rd. Serv., Inc., 26 AD3d at 416;397 W. 12th St. Corp. v. Zupa, 20 AD3d 335, 336 [2005];Rome Sav. Bank v. Husted & Son, 171 A.D.2d 1048, 1049 [1991];Saab Enters., 160 A.D.2d at 932;Tarallo, 144 A.D.2d at 159;K.S. & S. Rest. Corp., 104 A.D.2d at 487). It has been held that in that situation, where title to the larger parcel has already passed in accordance with a contract to a third party, the appropriate remedy would be “to compel a reconveyance of the leased premises and grant an injunction barring their sale to anyone other than the grantee of the option without first offering the leased premises to said grantee” (Tarallo, 144 A.D.2d at 159–160). Defendants contend that plaintiff's right of first refusal is unenforceable because it violates the Statute of Frauds since the lease does not contain a specific price to purchase the leased portion of the property.
Plaintiff contends that the Appellate Division, in its December 13, 2004 decision and order, already implicitly rejected this argument by defendants by reinstating its claim for specific performance, as well as the preliminary injunction, which it applied to the whole property. This contention is unavailing since the Appellate Division did not specifically address this argument or reach this issue in its December 13, 2004 decision and order, but, instead, found summary judgment not to be warranted based upon other grounds.
“Lease interpretation is subject to the same rules of construction as are applicable to other agreements” (Matter of Wallace v. 600 Partners Co., 205 A.D.2d 202, 205 [1994],affd86 N.Y.2d 543 [1995], quoting Matter of Cale Dev. Co. v. Conciliation & Appeals Bd., 94 A.D.2d 229, 234 [1983],affd61 N.Y.2d 976 [1984];see also George Backer Mgt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211, 217 [1978];International Chefs v. Corporate Prop. Invs., 240 A.D.2d 369, 370 [1977] ). “In interpreting a contract, the intent of the parties governs” (American Express Bank v. Uniroyal, Inc., 164 A.D.2d 275, 277 [1990];see also International Chefs, 240 A.D.2d at 370). “A contract should be construed so as to give full meaning and effect to all of its provisions” (American Express Bank, 164 A.D.2d at 277;see also Trump–Equitable Fifth Ave. Co. v. H.R.H. Constr. Corp., 106 A.D.2d 242, 244 [1985],affd66 N.Y.2d 779 [1985];Integrated Sales v. Maxell Corp. of Am., 94 A.D.2d 221, 227 [1983] ). “Words and phrases are given their plain meaning” (American Express Bank, 164 A.D.2d at 277;see also Mazzola v. County of Suffolk, 143 A.D.2d 734, 735 [1988] ).
“It is well settled that [t]he interpretation of an unambiguous contractual provision is “a function for the court” ‘ “ (Destiny USA Holdings, LLC v. Citigroup Global Mkts. Realty Corp., 69 AD3d 212, 218 [2009], quoting Pyramid Brokerage Co. of Buffalo, Inc. v. Atlas Auto Glass, Inc., 39 AD3d 1176, 1177 [2007], quoting Teitelbaum Holdings v. Gold, 48 N.Y.2d 51, 56 [1979];see also W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 [1990] ). “The parties' intention should be determined from the language employed, and where the language is clear and unambiguous, interpretation is a matter of law to be determined solely by the court” (Matter of Wallace, 205 A.D.2d at 205;Hartford Acc. & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 171–172 [1973];Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 460 [1957] ). “In such circumstances resort cannot be had to extrinsic evidence to contradict the express terms of the writing” (Matter of Wallace, 205 A.D.2d at 205;see also Brainard v. New York Cent. R.R. Co., 242 N.Y. 125, 133 [1926] ).
Thus, “[w]here the intent of the parties can be determined from the face of the agreement, interpretation is a matter of law and the case is ripe for summary judgment” (American Express Bank, 164 A.D.2d at 277;see also Pharm. Horizons v. Sterling Drug, 127 A.D.2d 514, 515 [1987];Levin v. Hoffman Fuel Co., 94 A.D.2d 640, 641 [1983],affd60 N.Y.2d 665 [1983] ). “On the other hand, if it is necessary to refer to extrinsic facts, which may be in conflict, to determine the intent of the parties, there is a question of fact, and summary judgment should be denied” (American Express Bank, 164 A.D.2d at 277;see also IBM Credit Fin. Corp. v. Mazda Motor Mfg .[USA] Corp., 152 A.D.2d 451, 452 [1989];Leighton's, Inc. v. Century Circuit, 95 A.D.2d 681, 682 [1983];Integrated Sales, 94 A.D.2d at 227).
“If there is ambiguity in the terminology used ... and determination of the intent of the parties depends on the credibility of extrinsic evidence or on a choice among reasonable inferences to be drawn from extrinsic evidence, then such determination is to be made by the jury” (Hartford Acc. & Indem. Co., 33 N.Y.2d at 172). “Whether an agreement is ambiguous is a question of law for the courts” (Kass v. Kass, 91 N.Y.2d 554, 566 [1998];see also Van Wagner Adv. v. S & M Enters., 67 N.Y.2d 186, 191 [1986];9394 LLC v. Farris, 10 AD3d 708, 709–710 [2004] ).
Here, as set forth above, the right of first refusal contained in the lease provides that “in the event of a sale of this property, the tenant has the first right of refusal.” As defendants point out, the only property described anywhere in the lease is in the paragraph providing that “[t]he Landlord hereby leases to the Tenant the following premises: 305 Second Street, Brooklyn, N.Y.approximately 10,000 sq. ft. and 260 First Street, Brooklyn N.Y.-approximately 15,000 sq. ft.” Defendants note that no where in the lease is the entire property (Tax Block 969, Lot 1), which consists of over 51,000 square feet mentioned. Defendants contend that the term “this property,” therefore, could only refer to the described leased portion of the property, consisting of approximately 25,000 square feet, and that the use of the term “this” makes it apparent that the right of first refusal extended only to such leased property.
Plaintiff notes that the lease uses the word “premises” 51 times, each time referring to the leased space occupied by it, but uses the word “property” only in the right of first refusal clause. It contends that the word “property” must, therefore, be interpreted as having a different meaning from the word “premises.” Plaintiff also points to a photograph of the leased property, and asserts that the leased property is an odd shaped jagged slice of the property which runs through two adjacent buildings. Plaintiff maintains that the way the property is configured evidences that the right of first refusal clause was intended to extend to the whole property, rather than just to the leased portion of it, and that this is the only commercially reasonable interpretation of the right of first refusal clause.
Defendants assert that the entire property, consisting of three buildings, could easily be subdivided. Defendants have submitted an opinion letter of Cornelius F. Dennis, the former Deputy Commissioner of the New York City Department of Buildings, which indicates that the entire property is able to be subdivided. Defendants further point out that the survey and certificates of occupancy show that the property previously consisted of three separate tax lots (Lots 1, 16, and 65), and was changed to two separate tax lots (Lots 1 and 16), and then changed to one tax lot (Lot 1), and that the portion of the property which plaintiff leased on Second Street was previously a separate tax lot known as Block 969, Lot 65. Therefore, an issue of fact is raised as to whether the property could have been subdivided and whether the intention of the parties to the lease was to grant a right of first refusal only as to the leased portion of the property.
Thus, the court finds that the term “property” is ambiguous so as to raise triable issues of fact as to the intention of the parties. In view of this ambiguity in the terminology used and inasmuch as the determination of the intent of the parties depends upon the credibility of extrinsic evidence and on a choice among reasonable inferences to be drawn from the extrinsic evidence, this determination may not be made as a matter of law upon this motion and cross motion for summary judgment. Consequently, since this issue remains unresolved, plaintiff's entitlement to specific performance based upon the right of first refusal given to it in the lease cannot be determined at this time.
In addition, “[s]pecific performance may be granted only where the holder of the right of first refusal is shown to be ready, willing, and able to purchase the property, not only when the right ripens, but also when specific performance is ordered' “ (Cipriano, 1 NY3d at 61, quoting 25 Williston, Contracts § 67:85, at 504 [4th ed]; see also Wei Hong Hu v. Sadiqi, 83 AD3d 820, 821 [2011] ). Here, plaintiff has not satisfied its burden of showing that it was ready, willing, and able to buy the property.
Plaintiff has never stated, in correspondence to Fatato Realty or in a sworn affidavit, that it was ready, willing, and able to purchase the property in 2000 or 2001. In fact, in a letter from plaintiff's attorney to Fatato Realty's attorney, dated November 28, 2001, plaintiff's attorney only stated that plaintiff, as the tenant of 305 Second Street and 260 First Street, had sustained substantial damages and that it would seek to recover such money damages as well as provisional relief to enjoin any further disturbance or development of the property in violation of its rights. Such letter makes no mention of plaintiff's intent or ability to purchase the property. Moreover, as noted above, defendants claim that plaintiff's principal, Edward Zuckerbrod, was well aware of Fatato Realty's development of the property prior to its development and sale to Garden, but did not express plaintiff's willingness or ability to purchase it. Defendants assert that to allow plaintiff to purchase the property at this time for the $2,295,000 price paid by Garden, a price which they claim was substantially below its market value (since it was based upon the excess amount above Fatato Realty's proportionate capital contribution to Garden), would yield plaintiff a potential windfall. On the other hand, plaintiff contends that it was never provided with the terms of the sale to Garden, and, therefore, was denied the opportunity to express its willingness and ability to purchase it. Thus, the existence of a triable issue of fact as to whether plaintiff was ready, willing, and able to purchase the property precludes the granting of summary judgment.
Tortious Interference with Contract Claim
Defendants, in their cross motion, also seek summary judgment dismissing plaintiff's third cause of action as against Garden for tortious interference with contract. Plaintiff's third cause of action alleges that Garden tortiously interfered with the lease between it and Fatato Realty. “Tortious interference with contract requires the existence of a valid contract between the plaintiff and a third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom” (Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 424 [1996];see also Beecher v. Feldstein, 8 AD3d 597, 598 [2004] ). “To impose liability, a defendant must induce or intentionally procure a third-party's breach of its contract with the plaintiff and not merely have knowledge of its existence” (Beecher, 8 AD3d at 598;see also Lama Holding Co., 88 N.Y.2d at 425).
Here, the Appellate Division has held that a cause of action for tortious interference with performance of the lease may lie against Garden ( see New York Tile Wholesale Corp., 13 AD3d at 428). While defendants argue that plaintiff has failed to establish the intentional inducement by Garden to breach the lease, it has not demonstrated this as a matter of law. Rather, since triable issues of fact remain outstanding as to the issue of whether Fatato Realty and Garden, in bad faith, effected the restructuring in order to redevelop and resell the property while precluding plaintiff from acquiring it through the exercise of its right of refusal, summary judgment dismissing this cause of action must be denied.
CONCLUSION
Accordingly, plaintiff's motion and defendants' cross motion for summary judgment are both denied.
This constitutes the decision and order of the court.