Opinion
No. 018039/2013.
03-11-2015
KOLANU PARTNERS, LLC, Plaintiff, v. Aaron PERRY, Defendant.
Jonathan M. Davidoff, Davidoff Law Firm, PLLC, New York, for Plaintiff. Jarred I. Kassenoff, Newman Ferrara LLP, New York, NY, for Defendant.
Jonathan M. Davidoff, Davidoff Law Firm, PLLC, New York, for Plaintiff.
Jarred I. Kassenoff, Newman Ferrara LLP, New York, NY, for Defendant.
Opinion
JAMES E. D'AUGUSTE, J.
Plaintiff Kolanu Partners, LLC (“Kolanu” or the “Sponsor”) alleges that Defendant Aaron Perry breached a condominium purchase agreement and moves, pursuant to CPLR 3212, for summary judgment against Perry. For the reasons stated herein, Kolanu's motion for summary judgment is denied in all respects and, upon searching the record, this Court grants summary judgment in favor of Perry, thereby dismissing this action.
Factual Background
Kolanu was the developer and sponsor of a condominium building known as Crossing 23rd Condominium (the “Condominium”), located at 121 East 23rd Street in Manhattan. The Condominium contains several commercial units and ninety-five residential units owned individually by each purchaser (collectively, the “unit owners”). The Condominium was formed pursuant to an Offering Plan filed by Kolanu with the Attorney General of the State of New York on or about January 18, 2005. Perry obtained title to unit 8B of the Condominium (the “Unit”) in June 2005 pursuant to a February 14, 2005 Purchase Agreement entered into with Kolanu (the “Purchase Agreement”). Perla Aff. Exh. C.
The “Offering Plan” collectively includes the Condominium's Declaration; its By–Laws, stating the rules of the Condominium and its governing Board of Directors (the “Board”); its Rules and Regulations; and any amendments thereto.
The Offering Plan provides that the “Sponsor will apply, on behalf of the Unit Owners, to the New York City Department of Housing Preservation & Development (HPD') for a partial real estate tax exemption under Section 421–a of the New York Real Property Tax Law ” (the “tax abatement”). Perla Aff. Exh. A at 132 (Offering Plan, Part I, § T). The Offering Plan also provides that the unit owners will each pay a pro rata reimbursement of the Sponsor's costs related to successfully obtaining the contemplated tax abatement (“abatement costs”) and that the Board, as agent for Sponsor, will collect reimbursement from the residential unit owners. Id. at 134–35. The Offering Plan specifically states, in relevant part, that:
[i]n the event that a partial real estate tax exemption is granted, all Residential Unit Owners will be required to reimburse Sponsor for all of Sponsor's costs in obtaining such exemption including, but not limited to, Sponsor's legal and filing fees, consulting fees, application expenses and the cost of purchasing 421–a eligibility certificates. Id. The Offering Plan sets forth how the unit owners' respective pro rata shares will be calculated and ultimately collected. Id. at 135. The pro rata share “will be collected by the Board, as agent for Sponsor, in four equal annual installments on January 2nd of each year.” Id. The Offering Plan also sets forth the remedy to be applied if a unit owner fails to pay its pro rata share of the reimbursement. According to the Offering Plan, [i]f any Residential Unit Owner fails to pay its pro rata share as set forth above, the Board, as agent for Sponsor, shall be entitled to (and, if Sponsor so requires, shall) assess late charges and/or place a lien on such Residential Unit as if such unpaid amounts were Common Charges and such amounts shall be payable by the Residential Unit Owners without setoff or deduction of any kind. Id.
Section T of the Offering Plan includes specific details relating to the estimated costs of obtaining the tax abatement and calculating each unit owner's pro rata reimbursement. These factors alone preclude summary judgment because they raise questions of material fact relating to the actual calculation and propriety of Perry's pro rata share of the abatement costs demanded by Kolanu.
The City of New York issued its final approval of Kolanu's tax abatement application on January 19, 2007, triggering the unit owners' obligation to reimburse Kolanu for its abatement costs. When the Board refused to demand reimbursement from the unit owners, Kolanu commenced its own collection efforts by sending payment demands directly to the unit owners, including Perry. Perry Aff. ¶¶ 6–7; id. Exh. A (July 29, 2011 letter from Kolanu to Perry demanding payment of $9,552.00). When Perry failed to honor Kolanu's independent collection demands, Kolanu commenced this action to recover Perry's alleged pro rata share of the abatement costs, demanding reimbursement in the amount of $8,902.51 with interest from January 2, 2008, costs and disbursements of this action, attorneys' fees, and an equitable lien on Perry's Unit.
See also Perla Aff. Exh. I (May 25, 2009 letter from Kolanu to property manager Cooper Square Realty, Inc. seeking to proceed with recovery of Kolanu's abatement costs); Perla Aff. Exh. J (July 9, 2009 letter from Cooper Square Realty, Inc. to unit owners, on behalf of Kolanu, seeking reimbursement from individual unit owners of Kolanu's abatement costs totaling $1,174,473.00, indicating Perry's obligation to be $8,902.00).
Kolanu contends that by signing the Purchase Agreement, Perry agreed to reimburse Kolanu on a pro rata basis for its abatement costs due to the Offering Plan's incorporation by reference. Kolanu alleges that Perry breached his contract and was unjustly enriched by failing to pay his pro rata share of the abatement costs. Furthermore, Kolanu argues that although the Offering Plan delegates power to the Board to collect reimbursement payments from the unit owners and place equitable liens on residential units, Kolanu, as principal, retains the power under agency law to collect reimbursement payments and can collect Perry's share of the abatement costs and place a lien on his Unit. Kolanu also argues that it is entitled to attorneys' fees in this action based on the language of Article 35 of the Purchase Agreement.
Perry argues that Kolanu, as the Condominium's Sponsor, lacks the authority to demand reimbursement directly from unit owners or to assert a lien on the Unit because the Offering Plan expressly confers the power to collect and enforce these payments on the Board and not on the Sponsor. Perry also argues that because the Offering Plan does not authorize this plenary action as a procedural device to collect reimbursement payments, the entire action is not permitted and must be dismissed. Alternatively, Perry argues that even if Kolanu is entitled to maintain this action, summary judgment must be denied because the amount Kolanu seeks is based on flawed calculations and because the interest charges and attorneys' fees demanded are not recoverable under the Offering Plan.
Perry asserts that Kolanu's request for interest from January 2, 2008 lacks merit for several reasons. Perry argues, inter alia, that the Board never demanded reimbursement for Kolanu's abatement costs from the unit owners upon which interest could accrue. Moreover, Perry contends that even if Kolanu were authorized to collect reimbursement payments, Kolanu is seeking interest from January 2008, which is approximately three and one half years before its July 29, 2011 demand letter to Perry. See Kassenoff Aff. ¶¶ 42–49.
Article 11 of the Purchase Agreement incorporates by reference the terms of the Offering Plan and provides that in the event of any inconsistency with the Purchase Agreement, the Offering Plan governs. Perla Aff. Exh. C Art. 11.2.
Procedural Background
Kolanu commenced this action by way of a CPLR 3213 motion, seeking summary judgment in lieu of complaint against Perry for $12,173.91. Kassenoff Aff. Exh. B (Summons and Notice of Motion). Kolanu's motion, however, was denied by order of this Court (Reed, J.) dated December 4, 2013 because the documentary evidence failed to meet the limited criteria for that motion. Kassenoff Aff. Exh. C. When Kolanu's motion for summary judgment was denied, pursuant to CPLR 3213, the moving and answering papers were deemed to be the complaint and answer, respectively, in this plenary action. Id. Kolanu now moves, pursuant to CPLR 3212, for summary judgment in the amount of $8,902.51 plus interest, allegedly representing Perry's pro rata reimbursement for Kolanu's abatement costs. Kolanu also claims that it is entitled to costs and disbursements, attorneys' fees, and an equitable lien on Perry's Unit.
This Court found that “[s]ummary judgment pursuant to CPLR 3213 is not appropriate based upon the documentary evidence submitted by plaintiff on this motion—in which plaintiff includes (remarkably, for this type of procedural device) a couple dozen separate exhibits.” Order dated December 4, 2013.
Discussion
Kolanu's motion for summary judgment is denied because the Offering Plan confers authority only upon the Board to collect and enforce a residential unit owner's pro rata reimbursement for Kolanu's abatement costs. Since Perry never refused to pay a proper demand from the Board to reimburse Kolanu's abatement costs, this Court finds that Perry is neither in default under the Offering Plan nor in breach of the Purchase Agreement. Moreover, the Offering Plan does not authorize Kolanu to maintain this action as a procedural means to collect a unit owner's reimbursement for Kolanu's abatement costs. Accordingly, Kolanu's motion for summary judgment is denied. Upon searching the record pursuant to CPLR 3212, this Court finds no lawful basis for Kolanu to maintain this action and that no remaining issues of material fact exist to support a judgment in favor of Kolanu. Based upon the discussion infra, this Court, pursuant to CPLR 3212, grants summary judgment in favor of Perry, thereby dismissing this case. See Dunham v. Hilco Constr. Co ., 89 N.Y.2d 425, 430 (1996).
Both parties raise numerous arguments that have little to do with the rights and obligations of either party under the Purchase Agreement and the documents it incorporates by reference. The Court has considered these arguments and finds it unnecessary to address them beyond what is discussed in this Court's decision.
Kolanu Lacks Standing
Kolanu argues that it retains the power of the Board to demand the unit owners' pro rata reimbursement of its abatement costs based on principles of agency law. In support of this proposition, Kolanu contends that it may collect reimbursement payments for abatement costs even though the Purchase Agreement provides, through incorporation by reference of the Offering Plan, that the Board has the sole power to collect any reimbursement. Kolanu relies on Corcoran v. Scolaro, 46 N.Y.S.2d 278 (Sup.Ct., Kings County 1943), for the principle that “[a]n agent is one who acts for or in the place of another by authority from him” and that the agent “is a substitute, a deputy, appointed by the principal, with power to do the things which the principal may or can do,” “primarily to bring about business relations between the [principal] and third persons.” Id. at 280, rev'd on other grounds, 267 A.D. 871 (2d Dep't 1944). Kolanu also relies on Kuhn v. City of New York, 274 N.Y. 118 (1937), to argue that “the power to act and bind a principal comes from the acts of the principal and not from his agent.” Id. at 134. However, the cases Kolanu cites are readily distinguishable. In Corcoran, the court was determining an entirely different factual issue: whether a party may act as agent for an unappointed principal. 46 N.Y.S.2d at 280. In Kuhn, at issue before the court was a worker's compensation case in which the Court discussed agency law in the context of an employer's vicarious liability for an employee's acts. 274 N.Y. 118.
Contrary to Kolanu's assertion, this is not a simple agency case; it is instead a contract interpretation case requiring the construal of terms. In New York, it is black letter law that a contract must be enforced by its terms as written. Vt. Teddy Bear Co. v. 538 Madison Realty Co., 1 NY3d 470, 475 (2004). Specifically, when parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms. We have also emphasized this rule's special import 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. Id. (internal quotation marks, alterations, and citations omitted). Additionally, “courts may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing.” Id. (internal quotation marks and citation omitted).
Under the language of the Purchase Agreement and the documents incorporated by reference, Kolanu does not independently have the power to demand reimbursement for abatement costs, interest on such payment, or an equitable lien on a residential unit. The Offering Plan expressly empowers the Board, as the Sponsor's agent, to collect the individual unit owners' pro rata reimbursement for Kolanu's abatement costs and authorizes the Board to enforce these payments in the manner provided for. This Court will enforce the parties' agreement in accordance with its terms. The Purchase Agreement, the Offering Plan, and the By–Laws are all documents Kolanu drafted and filed with the New York State Attorney General. Although Kolanu could have included a provision in the Offering Plan authorizing it, as the Sponsor, to collect and enforce reimbursement from the unit owners for its abatement costs—that provision was omitted. “In such circumstances, courts should be extremely reluctant to interpret an agreement as impliedly stating something which the parties have neglected to specifically include.” Id. (internal quotation marks and citation omitted). Further, when ambiguities in a written contract exist, the contract must be read in favor of the non-drafting party. In re Flintlock Constr. Servs., LLC v. Weiss, 122 AD3d 51, 61 (1st Dep't 2014). Kolanu drafted the Purchase Agreement, and thus it must be read in favor of Perry's interpretation of the contract.
Kolanu asserted at oral argument that the Board assigned its right to prosecute this action as a result of a lawsuit. Such litigation would have no impact on the result reached in this action since Perry was not a party to the litigation and, in any event, there is no basis to rewrite Kolanu's agreement with Perry.
Absent contractual authority, this Court will not allow Kolanu to step into the Board's shoes to collect reimbursement and cannot allow Kolanu to circumvent the terms incorporated by reference into the Purchase Agreement. Based on the terms of the Offering Plan, this Court finds that Kolanu lacks standing to maintain this action as Kolanu is not permitted to take direct action against a unit owner to recover abatement costs. Since Kolanu is not permitted to maintain this action, Kolanu's claims for breach of contract and unjust enrichment are without merit. Thus, Kolanu cannot seek a money judgment with interest against a unit owner or place an equitable lien on a unit. Accordingly, Kolanu's motion for summary judgment is denied in all respects. Having ruled that Kolanu lacks standing to prosecute this action, the Court also searches the record to grant summary judgment to Perry, dismissing the action.
Attorneys' Fees
While academic in view of this Court's finding that Kolanu lacks standing to litigate this matter, the Court also notes that Kolanu's demand for attorneys' fees is improper. New York follows the long-standing “American Rule,” which precludes the prevailing party from recouping legal fees from the losing party “except where authorized by statute, agreement or court rule.” U.S. Underwriters Ins. Co. v. City Club Hotel, LLC, 3 NY3d 592, 597 (2004). As discussed below, the agreements entered into by the parties do not provide for attorneys' fees in this instance.
Kolanu commenced this action based on Perry's alleged breach of the Purchase Agreement, which incorporates by reference the Offering Plan and obligates Perry, based on a proper demand by the Board, to reimburse Kolanu's abatement costs. Kolanu claims, based on Article 35 of the Purchase Agreement, that it is entitled to attorneys' fees for this action. Article 35 provides that:
Purchaser shall be obligated to reimburse Sponsor for any legal fees and disbursements incurred by Sponsor in defending Sponsor's rights under this Agreement or, in the event Purchaser defaults under this Agreement beyond any applicable grace period, in canceling this Agreement or otherwise enforcing Purchaser's obligations hereunder. The provisions of this Article shall survive closing of title or the termination of this Agreement.
Perla Aff. Exh. C Art. 35. Alternatively, Kolanu relies on section 6.2.4 of the By–Laws, part of the Offering Plan, which provides that “[i]f any Residential Unit Owner fails to pay its pro rata share as set forth above, the Board, as agent for Sponsor, shall be entitled to (and, if Sponsor so requires, shall) assess late charges, default interest and the cost of collecting same.”Id. Exh. B § 6.2.4.
Perry agrees that the Purchase Agreement allows the Sponsor to recover legal fees for litigation related to enforcing its terms, but not for terms of the Offering Plan, which does not provide authorization, much less attorneys' fees, for actions to enforce the reimbursement of the Sponsor's abatement costs. Perry argues that the Purchase Agreement cannot serve to inject an otherwise non-existing attorneys' fee provision into the terms of the Offering Plan by reason of their incorporation by reference in the Purchase Agreement. In this regard, Perry points to the express words of the Purchase Agreement that grant the Sponsor “legal fees and disbursements incurred by Sponsor in defending Sponsor's right under this Agreement ”—but not for defending its rights under the terms of the Offering Plan. Id. (emphasis added).
Kolanu's claim for attorneys' fees is merely an attempt to use the Purchase Agreement as a conduit to obtain direct relief to something it was never entitled to in light of the fact that Kolanu is not permitted to demand reimbursement. Instead, Kolanu is actually suing for a breach of the Offering Plan, which provides only for the recovery of costs expended in collecting reimbursement from unit owners. To hold otherwise would effectively render meaningless the limitation in the Offering Plan that only costs, not attorneys' fees, are collectable. Perlbinder v. Bd. of Managers of 411 E. 53rd St. Condo., 65 AD3d 985, 987 (1st Dep't 2009) (“[W]here two seemingly conflicting contract provisions reasonably can be reconciled, a court is required to do so and to give both effect.” [internal quotation marks and citation omitted] ).
Moreover, Kolanu's legal argument raises, at most, the possibility of an ambiguity between the terms of the Purchase Agreement and the terms of the Offering Plan. In determining which document controls, the Purchase Agreement itself has an order of preference clause resolving the issue. The Purchase Agreement states that the terms of the Offering Plan are fully incorporated therein with the following caveat: “In the event of any inconsistency between the provisions of this Agreement and the [Offering] Plan, the [Offering] Plan shall govern. ” Perla Aff. Exh. C Art. 11.2 (emphasis added). New York courts have routinely enforced order of preference clauses. See, e.g., JGA Const. Corp. v. Burns Elec. Co., 145 A.D.2d 945 (4th Dep't 1988). This Court finds no reason under the uncontested facts of this case to depart from this principle of contract construction as it would be applied to the interpretation of the parties' contractual rights and obligations.
In addition, the Purchase Agreement's language itself raises a second possible ambiguity: whether its authorization for the Sponsor to recover attorneys' fees extends to the incorporated terms of the Offering Plan or relates exclusively to the terms of “this Agreement. ” Id. Art. 35. The Court finds that the Purchase Agreement itself should not be read to provide for attorneys' fees for three reasons. First, the document was drafted by Kolanu, and when ambiguities in a written contract exist, the contract must be read in favor of the non-drafting party. In re Flintlock Constr. Servs., 122 AD3d at 61. Second, even if Kolanu were permitted to maintain this action, only the Board, and not Kolanu, would be permitted to recover costs expended in collecting reimbursement. A contract providing for the recovery of “costs” is interpreted to exclude attorneys' fees, absent express language to the contrary. Golub v. Bd. of Managers at Greentree at Murray Hill, 2009 N.Y. Slip Op. 30631, 2009 WL 833366 (Sup.Ct., N.Y. County 2009), citing Royal Disc. Corp. v. Luxor Motor Sales Corp., 9 Misc.2d 307, 308 (App. Term, 1st Dep't 1957). Third, the rule followed in New York is that a claim for attorneys' fees should not be awarded unless the language of the contract makes it “unmistakably clear” that the winning side should be awarded fees. Hooper Assocs., Ltd. v. AGS Computers, Inc., 74 N.Y.2d 487, 492 (1989) ; Gotham Partners, L.P. v. High Riv. Ltd. P'ship, 76 AD3d 203, 204 (1st Dep't 2010).
After drafting the contract, Kolanu cannot go back and try to modify the terms by means of expanding the interpretation of words beyond their clearly expressed meaning. See Vt. Teddy Bear, 1 NY3d at 475. In writing the contract, Kolanu should have specifically provided for the collection of attorneys' fees for a violation of the Offering Plan if that was its desired intent. Since “[l]egal fee clauses must be strictly construed,” Kolanu's claim for attorneys' fees would have to be denied independently, even if it had standing. Duane Reade v. Highpoint Assocs. IX, LLC, 36 AD3d 496, 497 (1st Dep't 2007).
Conclusion
For the reasons stated above, Kolanu's motion for summary judgment is denied in all respects and, upon searching the record, this Court grants summary judgment in favor of Perry, thereby dismissing this action. The Clerk is directed to enter judgment accordingly. This constitutes the decision and order of this Court.