Opinion
023027/2007.
Decided April 8, 2008.
PROSKAUER ROSE, LLP, ATTENTION: MICHAEL T. MERVIS, ESQ., ATTORNEYS FOR PLAINTIFF, VERTICAL INDUSTRIAL PARK ASSOCIATES.
WOLLMUTH MAHER DEUTSCH, LLP, ATTENTION: PAUL R. DEFILIPPO, ESQ., MATHEW B. WEST, ESQ., ATTORNEYS FOR DEFENDANTS HILCO REAL ESTATE, LLC HILCO MERCHANTS, RESOURCES, LLC
PLATZER SWERGOLD KARLIN LEVINE GOLDBERG JASLOW, LLP ATTENTION: STEVEN D. KARLIN, ESQ., ATTORNEYS FOR RAYMOURS FURNITURE COMPANY, INC. Intervenor.
This motion by defendants for an order pursuant to CPLR §§ 3211(a) 1 and 7 dismissing the complaint, or dismissing plaintiff's request for specific performance is granted in part and denied in part.
Plaintiff commenced this action for specific performance of a contract and to recover damages resulting from a breach of that contract which concerns a lease of commercial property situate in Middle Village, Queens, (the "Vertical Lease"). Plaintiff is the owner of the aforesaid property. The Tenant is under the supervision of the Bankruptcy Court. Most of the 80 or so leases of the Tenant were auctioned on November 30, 2007 to the highest bidder, defendants in this action, which also purchased the right to liquidate all the Tenant's assets in a Going Out of Business Sale. See Exhibit B to defendants' motion. At Section 3.1(f) the Designation Rights to certain leases, including but not limited to the Vertical Lease, were not conveyed. The auction and purchase of the rights to the Going Out of Business Sale were approved by Order of the Bankruptcy Court dated December 4, 2007 (the Approval Order).
The issue pivotal to a determination of this motion is whether the right to assign the Vertical Lease (a Designation Right) was transferred to defendant, or retained by the Tenant.
If the right to assign the Vertical Lease was transferred in the auction to defendant, an agreement between plaintiff and defendant could result in the plaintiff regaining control of the Middle Village Premises (the Vertical Agreement). The parties entered into the Vertical Agreement on November 27, 2007 which provided in pertinent part that if defendant was successful in its bid to purchase the right to liquidate the Tenant's assets, including the Designation Rights on the leases, it would advise Tenant to reject the Vertical Lease in exchange for certain consideration from plaintiff. A rejection of The Vertical Lease would enable plaintiff to re-let it for fair market value.
Conversely, if the Vertical Lease, including the right of assignment, was not transferred to defendant a subsequent agreement, (the Asset Agreement), with Intervenor, Raymours Furniture Company, (Intervenor or Raymours), could result in the Tenant assigning the Vertical Lease to Raymours, subject to approval by the Bankruptcy Court. As a brief aside, that application has been made to the Judge presiding over the Bankruptcy proceeding who has abstained from acting on the shrewd appreciation that to do so would result in divesting this court of jurisdiction over an action which is a matter of State law.
To summarize: under the Vertical Agreement the Vertical Lease returned to plaintiff but under the Asset Agreement the same Lease would be assigned to Intervenor.
A third variant is stated in the complaint; it claims that the Designation Rights of all 80 leases were sold to defendant, but in the agreement made between defendant and Raymours, defendant promised to instruct Tenant to assign the Vertical Lease to Raymours. Under this scenario the Tenant's terms of the Vertical Lease would continue and Raymours would enjoy a lease at below market value, and a breach of the Vertical Agreement would result, assuming it is enforceable.
Clearly, the complaint describes two mutually incompatible agreements relative to the future of the Vertical Lease. The gravamen of the complaint is that defendant has not upheld his promise to cause Tenant to reject the lease. The plaintiff is left with the choice of remedies — sue for breach of contract or for specific performance. EMT Gen Contract v Brisbee , 6 AD3d 45 (1st Dept 2004). In the present procedural posture, the court must determine whether the complaint states a cause of action for either breach of contract or for specific performance.
There is but one cause of action although specific performance and damages for breach are sought. There is authority that specific performance can be an independent cause of action or a specific remedy. Ruder v Lincoln Rochester Trust, 18 AD2d 763 (1962). Defendant has not made an issue out of the two incongruous theories in a single cause of action, and for purposes of this motion neither shall the court. The terms upon which plaintiff bases his right and those wherein defendant assumed his obligation have been set forth amply in the complaint. There is, therefore, no confusion as to whether plaintiff seeks damages for a contract defendant has abandoned or the performance of one that continues to exist. Plaintiff is of course at liberty to plead inconsistent theories and the fact that one is legal and one is equitable does not persuade the court to procedurally reject the pleadings.
The breach of the Vertical Agreement rests on defendants' failure to fulfill their duty to direct the Tenant to reject the Lease and "causing Levitz [Tenant] to file the Raymours Assignment Motion." Complaint ¶ 21. It seeks the recovery of millions of dollars in damages if it cannot rent the Middle Village Premises at fair market value. The elements, the contract, defendants' failure to perform and damages, are clear. Lehman v Lehman, 182 Misc 2d 22 (1999). Specific performance used as a remedy can be available when damages are inadequate to enforce a contract. Id.
The complaint also pleads a cause of action for specific performance to compel defendant to cause the Tenant to reject the Lease. The elements of a cause of action for specific performance of a contract "are that the plaintiff was willing and able to perform its remaining obligations, that defendant was able to convey the property, and that there was no adequate remedy at law (see Piga v Rubin, 300 AD2d 68, lv denied 99 NY2d 646[2003])." EMF Gen Contr. Corp. v Bisbee, 6 AD3d 45 (1st Dept 2004).
Defendants argue that the complaint should be dismissed on three grounds. The first is that documentary evidence, i.e. the Approval Order of the Bankruptcy Court, at Section 3.1(f), conclusively shows that the Designation Rights of leases to be assumed by Agent (defendant) are exclusive of "(z) the real property lease for the Store and Warehouse, approx 174000 square feet, in Middle Village NY, store no. 20504 (the " Middle Village Lease"); provided, however, the Merchant agrees that it shall file a motion with the Bankruptcy Court promptly after the Closing Date seeking authorization and approval of the assumption and assignment of the Middle Village Lease to Raymours Furniture Company, Inc. . . ."
Defendants argue that only Hilco Real Estate, not Hilco Merchant Resources LLC is a signator to the Vertical Agreement and Hilco Real Estate did not obtain Designation Rights or any other rights vis-vis the Vertical Lease therefore specific performance should not be granted. It should also be denied because the Vertical Agreement was contingent upon approval by the Bankruptcy Court of an agreement granting Hilco Real Estate the Designation Rights since there is no such approval there is failure of a condition precedent. In the same vein, there has been no Bankruptcy Court order approving the rejection of the Vertical Lease by January 31, 2008 — a term in the Vertical Agreement.
Finally, it is argued that the claims against HMR should be dismissed as it is not a signatory to the Vertical Agreement and thus cannot be bound to its terms.
Plaintiff argues in opposition that defendant HMR is in a joint venture with HRE and is bound to the Vertical Agreement. Further, that the fact that the condition precedent did not occur, that is Bankruptcy Court approval of rejection of the lease no later than December 31st is immaterial since defendants action prevented it's occurrence. Moreover, there is no impediment to defendants instructing Tenant to reject the Vertical Lease.
It is old law that in reviewing a motion to dismiss the court will accept as true the averments of the plaintiff and evaluate whether a cause of action is stated. If it is, the plaintiff will have its day in court subject to disclosure of the material facts. In engaging in such endeavor the court does not have to over look statements which are plainly untrue nor important matters which are stated with patent conclusions. Cardinal Freight v Kingsway, 2008 WL 620558 citing to Olszewski v Water of Orchard Park, 303 AD2d 995 (4th Dept 2003). In addition, when documentary proof is submitted as a basis for dismissal, it must definitively dispose of the plaintiff's claim as a matter of law, Levenherz v Povinelli , 14 AD3d 658 , 659 (2d Dept 2005), so that a complete defense to the claim is established.
The ultimate relief of an injunction to perform is before this court. It is of more concern in this action than is normally experienced. If the Vertical Lease is not assigned and approved by June 5th, 2008, it is by operation of law deemed rejected. Thus, an order denying equitable relief in this case after discovery and trial would be a pyrrhic victory.
At this stage of the decision the court holds that a cause of action for breach of contract is stated. There is a contract, the terms of which are sufficiently definite as to leave no ambiguity, the rights and duties of the parties are enunciated and the documentary defense does not constitute a complete defense as a matter of law. Although defendant makes much of the non-existence of conditions precedent it cannot be said from a review of the pleadings that conduct by the defendant did not cause that circumstance and the Court declines to dismiss the breach of contract claim. See A.H.A General Construction v New York Housing Authority, 92 NY2d 21, 31 (1998) (a "condition precedent is linked to the implied obligation of a party not to do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.").
To warrant specific performance the contract must be capable of being performed without adding to its terms. EMF Gen Contr Corp, 6 AD3d at 51. The subject contract is not . The court cannot decree that a specific right as to real property be turned over to the plaintiff when there is no definite right of the defendant in that property.
The plaintiff and the Intervenor are competitors for the Vertical Lease and are subject to the strictures of State law. State law holds that specific performance is available where remedies at law are inequitable, Id., Eisman v Josephtal, 71 Misc 288 (1911). The parties to the Vertical Agreement are sophisticated business men who well know that breaches of contract are compensable in damages to put the non-breaching party in the position it would have been if the non-performing party had performed. Damages are part of the lexicon of business decisions, and plaintiffs insistence on performance is unrealistic. Plaintiff insists that performance is not impossible, but provides no authority for the proposition that defendant has control over property that was reserved from the sale, with approval of the Bankruptcy Court. Plaintiff questions defendants averment that the Designation Right to the Vertical Lease was not conveyed to defendant. But, it provides no legal authority for rejecting the express language in article 3.1(f) of the Approval Order. In sum, the court is not bound to accept conclusory statements by plaintiff in considering a motion to dismiss, and when a document, here the Approval Order, expressly controverts an averment in the complaint the cause of action can be dismissed.
On the basis of the foregoing, it is
ORDERED that the cause of action for specific performance is dismissed.