Posadas De P.R. Assocs. v. Condado Plaza Acquisition, LLC

Full title: POSADAS DE PUERTO RICO ASSOCIATES, LLC, Plaintiff, v. CONDADO PLAZA…

Court: STATE OF NEW YORK SUPREME COURT COUNTY OF MONROE

Date published: Apr 14, 2021

2021 N.Y. Slip Op. 31182 (N.Y. Sup. Ct. 2021)

Opinion

Index #: E2020003156

04-14-2021

POSADAS DE PUERTO RICO ASSOCIATES, LLC, Plaintiff, v. CONDADO PLAZA ACQUISITION, LLC, CONDADO PLAZA ACQUISITION LAGOON, LLC, and CONDADO PLAZA ACQUISITION OCEAN, LLC, Defendants.

APPEARANCES Aaron Marks, Esq. KIRKLAND & ELLIS LLP Attorneys for Plaintiff Anthony D. Dougherty, Esq. TARTER KRINSKY & DROGIN, LLP Attorneys for Defendants

Odorisi, J.

NYSCEF DOC NO. 346 APPEARANCES Aaron Marks, Esq.
KIRKLAND & ELLIS LLP
Attorneys for Plaintiff Anthony D. Dougherty, Esq.
TARTER KRINSKY & DROGIN, LLP
Attorneys for Defendants DECISION Odorisi, J.

This action arises out of the alleged breach of an agreement to sell relating to the Condado Plaza Hilton in San Juan, Puerto Rico.

Pending before this Court is Posadas' motion for summary judgment pursuant to CPLR 3212, an order in the amount of the Earnest Money, a determination that Posadas is entitled to its reasonable attorneys' fees and costs, a declaration in the form requested by the Complaint, and dismissal of Defendants' affirmative defenses and counterclaims.

Based upon a review of: Plaintiff's Notice of Motion dated November 11, 2020 (Doc. #181), the Affirmation of Aaron Marks, Esq. dated November 11, 2020, with exhibits (Docs. #182-208), the Affidavit of Byron Blount dated November 10, 2020, with exhibits (Docs. #209-223), the Affidavit of Marta S. Ramírez-lsern dated November 10, 2020, with exhibits (Docs. #224-231), and the Affirmation of Erik Quarfordt, Esq. dated November 10, 2020, with exhibits (Docs. #232-234)- all submitted in support of the motion for summary judgment; the Affirmation of Anthony D. Dougherty, Esq. dated December 18, 2020, with exhibits (Docs. #258-273), the Affirmation of Scott M. Markowitz, Esq. dated December 17, 2020, with exhibits (Docs. #274-276), the Affidavit of Roys Poyiadjis dated December 18, 2020, with exhibits (Docs. #277-288), the Affirmation of Jonathan E. Temchin, Esq dated December 24, 2020 (Doc. #293), the Affirmation of Jonathan E. Temchin, Esq. dated December 24, 2020 (Doc. #294), and the Affirmation of Jonathan E. Temchin, Esq. dated December 24, 2020 (Doc. #295)- all submitted in opposition to the motion for summary judgment; and the Affirmation of Erik Quarfordt, Esq. dated January 12, 2021, with exhibit (Docs. #306-307), as well as upon virtual oral argument, this Court hereby GRANTS Plaintiff's motion for summary judgment in its entirety

Facts

Posadas owned the Condado Plaza Hilton hotel facility (the "Hotel") in San Juan, Puerto Rico at all times relevant to this litigation. The Hotel features 572 guest rooms, four outdoor swimming pools, five restaurants and six bars/lounges. Since Hurricanes Irma and Maria in September 2017, the Hotel has had limited service, operations and staff due to damages incurred in those storms. While marketing the property, Posadas disclosed that the Hotel had negative earnings before interest, taxes, depreciation and amortization ("EBITDA"), and net operating income ("NOI") starting in the third quarter of 2019. The Hotel also owed large amounts of nonrecourse mezzanine debt, on which interest continued to accrue. At the time the Hotel was put up for sale, it had a negative cash flow and/or earning dating back to at least September 2017.

On July 10, 2019, Posadas began to market the Hotel for sale through broker Jones Lang LaSalle. The Hotel was marketed as a distressed sale, as it was in need of renovations and repairs following the aforementioned hurricanes. On November 20, 2019, after negotiations in New York through New York-based real estate lawyers, Posadas and CP Acquisition entered into a Purchase and Sale Agreement ("the Agreement"), whereby Posadas agreed to sell and CP Acquisition agreed to purchase the Hotel and various associated property for $31,000,000 in a short sale. Posadas contends that $31,000,000 for a property such as this is a low price, indicative of the distressed nature of the property.¹ In the Agreement, the parties agreed the closing would take place on December 31, 2019, though options to extend were provided for as well. Posadas alleges that the Agreement's terms reflect the short sale nature of the transaction: the property was sold "as-is", there were minimal and qualified conditions precedent, and there were several pages of disclaimers.

1 In June 2019, the Gran Meliá Hotel in Puerto Rico, a 621 room hotel, sold for $120,000,000; in July 2015, the San Juan Beach Hotel, a 96 room hotel, sold for $20,000,000.

The Agreement also provided for Defendants to transfer $3,100,000 (the "Earnest Money") into an escrow account administered by an Escrow Agent. The Earnest Money was intended to provide liquidated damages to Posadas in the event Defendants failed to close.

CP Acquisition then assigned its rights and obligations under the Agreement to its affiliates, CP Lagoon and CP Ocean through Notices of Assignment. CP Acquisition, CP Lagoon and CP Ocean are each limited liability companies affiliated with Capital Partners, Inc., the New York-based family office of Roys Poyiadjis.

After execution of the Agreement, over the next few months, Defendants sought to extend the closing date as contemplated by the Agreement, stating that it was seeking debt financing or equity co-investors on acceptable terms and also that it was facing delays in obtaining tax concessions from the Puerto Rican treasury. Pursuant to the Agreement, Buyer could extend the closing date until no later than February 28, 2020 upon payment of $1 million in additional Earnest Money, bringing the total Earnest Money to $4.1 million. On December 18, 2019, CP Acquisition exercised that option to adjourn the closing date to February 28, 2020. On February 28, 2020, Buyer sought a further extension until March 6, 2020, again for the purpose of finding debt financing or equity co-investors. The parties then entered into the First Amendment to the Agreement.

As the March 6, 2020 closing date approached, Buyer again asked to delay the closing, stating that it was not prepared to close. Posadas agreed to another extension to March 17, 2020,and also insisted on several additional terms set forth in the Second Amendment to the Agreement, including depositing an additional $1 million of Earnest Money and requiring Buyer to agree to waive all conditions precedent to closing. The Second Amendment also included a provision that if the deal failed to close, Posadas could immediately release the Earnest Money as liquidated damages and Buyer would not have a right to object to such release.

On March 12, 2020, the Governor Wanda Vázquez Garced of Puerto Rico declared a state of emergency to combat the effects of COVID-19. Thereafter, on March 15, 2020 Garced ordered the closure of non-essential governmental operations, businesses, and public accommodations and ordered an island-wide curfew. Notaries and law offices were consequently closed, and the March 17, 2020 closing could not proceed. Posadas and Condado entered into the Third Amendment to the Agreement, rescheduling the closing for the later of April 17, 2020 or five days after real estate closings were again possible in Puerto Rico, as long as that was before July 31, 2020. That reopening occurred in Puerto Rico on May 4, 2020.

Though not required by any agreements between the parties, on May 4, 2020 Posadas notified Defendants that the closing was scheduled for May 11, 2020. Defendants objected to the closing date by letter dated May 6, 2020 and did not appear or deposit the purchase price. Posadas' Puerto Rico counsel was present to sign the conveyance documents and Posadas' New York deal counsel duly delivered the Closing Documents, but the closing did not occur. On that same date, Posadas sent Defendants notice of termination of the Agreement based on Condado's failure to close earlier that day. Defendants responded and asserted that the Agreement remained in effect.

On May 8, 2020, unknown to Posadas, Defendants filed suit in the Tribunal of First Instance in San Juan, Puerto Rico and sought and received an order allowing it to record a lis pendens ex parte. In the Puerto Rico lawsuit, Defendants sought to invoke the doctrine of rebus sic stantibus to rewrite the contract, alleging that "good faith would be hurt or an injustice caused by obligating their specific performance." Puerto Rico Complaint, ¶92.

Posadas sent Defendants a letter on May 13, 2020, demanding withdrawal of the lis pendens and noting that the Agreement contains an exclusive jurisdiction provision designating New York. Defendants rejected the request to dismiss the Puerto Rico action, thus beginning the pending litigation in this Court.

Procedural History

Defendants herein commenced an action on May 8, 2020 in the Tribunal of First Instance in San Juan, Puerto Rico and sought and received an order allowing it to record a lis pendens ex parte before Posadas was aware of the Puerto Rico lawsuit. The lis pendens enjoined Posadas from remarketing the hotel to any other potential buyers. In the Puerto Rico Action, Buyer demanded that Posadas transfer the hotel to them at a much lower price, claiming that the doctrine of rebus sic stantibus enabled the court to rewrite the fundamental price and other terms of the partes' Agreement, among other arguments.

This action was commenced on May 18, 2020, when Posadas submitted an ex parte order to show cause. The following TRO provision was granted by the Court:

[P]ending hearing and determination of this application and the entry of an Order thereon, or until further Order of this Court, Defendants are temporarily enjoined and restrained from taking any action in the Puerto Rico Action, or in any court other than this Court, to prevent Posadas from prosecuting its claims in this Court. . . .

Posadas at the same time also moved for summary judgment in the Puerto Rico action.

By Decision dated July 16, 2020, the Court granted Plaintiff's application and denied a cross motion by Defendants. Shortly thereafter, the Puerto Rico Court dismissed the Puerto Rico Action on Posadas' motion. Defendants then sought a stay or modification of the July 16 Injunction Order from the Fourth Department, and Justice Smith of the Fourth Department declined to sign the proposed Order to Show Cause.

Defendants then moved in this Court to restrain Posadas from selling the hotel and related assets and also requested a modification to the anti-suit injunction to permit Defendants to appeal the Puerto Rico decision. The Court granted a TRO as to the sale of the hotel.

On August 18, 2020, Defendants filed a notice of appeal with the Court of Appeals in Puerto Rico seeking to revive the Puerto Rico Action.

Thereafter, this Court issued an Amended Order to Show Cause on August 28, 2020, directing Defendants to post an undertaking in the sum of $9,200,690 to protect Posadas against potential economic harms created by the previously granted TRO. On September 2, 2020, Posadas informed the Court that the undertaking still had not been posted, and the Court on September 8, 2020 stated that a second amended Order to Show Cause would be signed on September 10, 2020 if the undertaking had not yet been posted. Just before that deadline, Condado filed a voluntary bankruptcy petition, admittedly to obtain an extension of the TRO without posting the undertaking. This action was then removed by Condado to Bankruptcy Court. Condado concedes that the bankruptcy filing was an effort to extend the temporary restraining order without posting the undertaking.

Posadas moved for dismissal in Bankruptcy Court. After briefing from both sides and oral argument, on October 5, 2020, the Bankruptcy Court issued a decision in Posadas' favor, including a finding that the PSA terminated as of May 11, 2020 and that Defendants' contract interpretation arguments were wrong. After a further hearing, during which Condado indicated there would not be an appeal and they would consent to a structured dismissal and remand to this Court, the Bankruptcy Court issued an Amended Decision finding that it had subject matter jurisdiction over the removed action and vacating the temporary restraining order prior to remand.

Posadas made two applications for contempt, and the Court recently granted both.

The Hotel was sold to a third party in December 2020.

Legal Analysis

A party seeking summary judgment "must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact." Alvarez v Prospect Hosp., 68 NY2d 320, 324 (1986). "Failure to make such a prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers." Id. See also, Christopher P. v Kathleen M.B., 174 AD3d 1460 (4^th Dept 2019). "Once this showing has been made, however, the burden shifts to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action." Alvarez, 68 NY2d at 324 (citation omitted).

Collateral Estoppel

Collateral estoppel "bars the relitigation of 'an issue of fact or law actually litigated and resolved in a valid court determination essential to the prior judgment.'" Nicotra v CNY Family Care, LLP, 184 AD3d 1191, 1193 (4^th Dept 2020) (citation omitted). This doctrine is applicable where "four conditions are fulfilled: (1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits." Id. (citation omitted). "The doctrine of collateral estoppel is based on the principle that a party, or one in privity with a party, should not be allowed to relitigate an issue previously decided against it." Homes v McCrea, 186 AD3d 1043, 1044 (4^th Dept 2020). "Whether collateral estoppel applies is . . . a question of law turning on the identity of the issues involved and whether there was a full and fair opportunity to litigate the issue in the prior proceeding." Matter of Guimarales [New York City Bd. of Educ.- Roberts], 68 NY2d 989, 991 (1986). "The party seeking to invoke collateral estoppel has the burden to show the identity of the issues, while the party trying to avoid application of the doctrine must establish the lack of a full and fair opportunity to litigate." Matter of Dunn, 24 NY3d 699, 704 (2015).

Here, there is no question that there was an identity of issues and a full and fair opportunity to litigate when this very action was removed to Bankruptcy Court following Condado's filing. Rather, Condado most ardently takes aim at the ability of the Bankruptcy Court to make determinations on these issues that carry over upon the remand to this Court.² Both parties discuss at length the decision rendered by the Bankruptcy Court in this action when this matter was removed to Bankruptcy Court after Condado's voluntary Chapter 11 filing, a filing Condado acknowledges was made for the purpose of avoiding the posting of the undertaking required by this Court in September 2020.

2 Defendants argue that a full opportunity to litigate was not presented in the Bankruptcy Court because discovery did not occur on the issues determined therein. For the reasons stated elsewhere in this Decision, the Court disagrees that discovery on those issues was warranted or necessary.

The doctrine of collateral estoppel applies to bar the relitigation of an issue determined by a Bankruptcy Court. See Bauhouse Group I, Inc. v Kalikow, 190 AD3d 401 (1^st Dept 2021); Little Rest Twelve, Inc. v Zajic, 187 AD3d 545 (1^st Dept 2020); Breslin Realty Dev. Corp. v Shaw, 72 AD3d 258, 265 (2^nd Dept 2010); McNeary v Senecal, 197 AD3d 835, 836 (3^rd Dept 1993); Tutor Perini Building Corp., individually and as to Count I of the Complaint, on behalf of all others similarly situated v New York Regional Center, LLC, et al., 2021 WL 965909, *22 (SDNY March 15, 2021). Specifically, a bankruptcy court can resolve issues relating to specific performance. See McNeary, 197 AD3d at 837. Particularly where, as here, the order dismissing the bankruptcy expressly states "that all of its orders would survive the dismissal," as 11 U.S.C. §349(b) permits. United States for Use & Benefit of Island Insulation Servs., Inc. v DCI Danaco Contractors, Inc., No. 07-CV-1165 (SJ), 2008 WL 1148075, at *4 (EDNY Dec. 23, 2008).

Here, Defendants were the debtors in the bankruptcy proceedings. In those proceedings, the issue of whether the Agreement was properly terminated pre-bankruptcy had to be determined. The Bankruptcy Court decided the issues presented against Condado after full briefing from counsel and oral argument, and the Bankruptcy Court's determination is entitled to preclusive effect in this case. The Bankruptcy Court decided the very issue at the heart of this litigation: whether Posadas was obligated to deliver goodwill as a condition precedent to closing and answered that question in the negative after the parties were given a full and fair opportunity to be heard. Whether Posadas had the contractual right to terminate the Agreement because Condado had breached was dispositive of whether the Bankruptcy Court could dismiss Condado's petition, and thus that issue had to be determined by the Bankruptcy Court. Moreover, the Bankruptcy Court had jurisdiction to enter an order determining that- because the Agreement had terminated pre-petition- Condado had no rights under 11 U.S.C. §108. The Bankruptcy Court also had jurisdiction over this case after Condado removed it as it related to the bankruptcy case.

As such, the Court herein need only determine whether Posadas has established prima facie entitlement to summary judgment and whether Condado's affirmative defenses prevent judgment in favor of Posadas.

Posadas has established prima facie entitlement to summary judgment. As to the Closing date and time, this Court is in agreement with the findings of the Bankruptcy Court. See In re Condado Plaza Acquisition LLC, No 20-12094 (MEW), 2020 WL 6038813, at *10 (Bankr. SDNY Oct. 9, 2020). Posadas noticed the Closing for May 11, 2020, and the Closing did not occur as required. The May 11 Closing Date was calculated correctly under the terms of the Third Amendment to the Agreement. Time was unambiguously of the essence pursuant to the Agreement:

SECTION 14.21. Time is of the Essence. Seller and Buyer agree that time is of the essence with respect to the obligations of Seller and Buyer under this Agreement.

Agreement, §14.21 (Doc. #210).

The Agreement further provides that "[t]he Closing Date shall in no event occur later than the later of (i) the Outside Closing Date and (ii) the Buyer's Outside Closing Date, as applicable, unless agreed in writing by the parties hereto." Id. at §2.3(a). Moreover the Second Amendment provides:

Waiver of Closing Condition. Buyer hereby agrees that (i) Buyer has waived all conditions precedent to Closing, and (ii) notwithstanding anything to the contrary contained in the Purchase Agreement (including without limitation, Section 14.5(b)), in the event that the Closing does not occur on the New Scheduled Closing Date, (x) Escrow Agent shall immediately release the Earnest Money to Seller and (y) Buyer shall not have any right to object to the release of the Earnest Money to Seller.

Second Amendment, §2.

Posadas has established a prima facie case as to whether time was of the essence.

Posadas also has made a prima facie showing that it was ready, willing and able to perform on May 11, 2020, and indeed, has demonstrated that it tendered performance. Posadas designated Noel Vera-Ramirez, its Puerto Rico counsel, and he was present to sign the documents at the Closing before a notary, who was also present. The Closing was able to lawfully take place in Puerto Rico on that date, and the Closing was lawfully perfomable by a notary on that date. The law office where the closing was to take place was open by appointment; if someone had arrived on Condado's behalf they would have been able to execute the Closing Documents. The Closing Documents were delivered by Posadas' New York counsel, duly executed, to the Escrow Agent as required by the Agreement.

Posadas was able to convey the property to Condado and was not in breach. While Condado claims that Posadas could not perform because the Agreement required Posadas to convey a viable and operational Hotel, the Agreement unambiguously and specifically disclaimed any promise as to the condition of the assets being transferred:

. . . BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, SELLER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF LAW, WITH RESPECT TO THE ASSETS OR THE CONDITION OF THE ASSETS. BUYER AGREES THAT THE ASSETS WILL BE SOLD AND CONVEYED TO (AND ACCEPTED BY) BUYER AT THE CLOSING IN THE THEN EXISTING CONDITION OF THE ASSETS, AS IS, WHERE IS, WITH ALL FAULTS, AND WITHOUT ANY WRITTEN OR VERBAL REPRESENTATIONS OR WARRANTIES WHATSOEVER, WHETHER EXPRESS OR IMPLIED OR ARISING BY OPERATION OF LAW, OTHER THAN AS EXPRESSLY SET FORTH IN THIS AGREEMENT. . . .

Id. at §7.4(a).

Posadas did not promise to convey a viable and operational Hotel, and as noted by the Bankruptcy Court there is no viable argument that Posadas breached or otherwise could not perform under the Agreement, as amended. Section 3.4(a)(i) of the Agreement does not impose a duty on Posadas to deliver the Hotel in a certain working condition:

Operation. Use commercially reasonable efforts to cause Property Manger to operate and maintain the Property substantially consistent with the operation and maintenance of the Property over the previous three (3) month period. Notwithstanding anything to the contrary contained herein, Seller shall not be required (A) to cure, remove or close out any Violations, (B) to make any capital improvements, replacements or repairs to the Property, (C) to maintain any property insurance on the Property or (D) to maintain operations at the hotel.

Id. at §3.4(a)(i) (emphasis added).

To the extent Condado contends that Posadas failed to maintain operations and maintenance consistent with that of the previous three month period, as the Bankruptcy Court noted, "[i]t plainly would not have been 'commercially reasonable' for Posadas to conduct operations in defiance of governmental shutdown orders. As a matter of law, the failure to offer a hotel in 'operating condition' on May 11- which Condado concedes was due to external regulations- did not constitute a failure by Posadas to use 'commercially reasonable efforts to maintain operations." See In re Condado Plaza Acquisition LLC, 2020 WL 6038813, at *9.

Likewise, Condado's agreement to purchase goodwill did not require the delivery of a hotel in operating condition. As discussed infra, Condado's argument related to goodwill is directly at odds with the unambiguous provisions of the Agreements and Amendments thereto, which conclusively refute Condado's allegations as a matter of law. See J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324, 334 (2013). Section 6.2(a) specifically provides that Posadas was obligated to use "commercially reasonable efforts" to transfer the "Asset-Related Property" (which the Agreement defines to include goodwill), but states that a failure to transfer "any or all" of the Asset-Related Property "shall not be deemed a failure of condition precedent to Buyer's obligations to consummate the Closing." Agreement, §6.2 (Doc. #210). Moreover, the Agreement at Section 7.4 specifically disclaims - in bold, all capital letters- any representation, warranty, condition, or continency regarding the "Condition of the Assets." Id. at §7.4. Indeed, the Agreement provides that the assets are to be sold and conveyed "as is, where is, with all faults. . . ." Id. The Agreement required Condado to close whether the value of goodwill was positive or negative.

Not only has Posadas established a prima facie case as to its readiness, willingness and ability to close, it also sets forth prima facie proof that Condado breached the Agreement by failing to close. Condado did not deposit the purchase price with the Escrow Agent on the Closing date and time. Condado did not appear before the notary at the place set for Closing. Those failures constituted material breaches and entitled Posadas to terminate the Agreement.

Additionally, even if the foregoing were not the decision of the Court, summary judgment in favor of Posadas is warranted based on the same reasoning set forth in the Bankruptcy Court's Amended Decision, the reasoning of which this Court fully adopts.

Condado can defeat the motion for summary judgment at this point only if an asserted affirmative defense has merit.

Failure of Consideration

Afailure of consideration will warrant rescission. See Callanan v Keeseville, Ausable Chasm & Lake Champlain R.R. Co., 199 NY 268, 284 (1910). "It is not permitted for a slight, casual or technical breach, but, as a general rule, only for such as are material and willful, or, if not willful, so substantial and fundamental as to strongly tend to defeat the object of the parties in making the contract." Id. "Failure to perform in every respect is not essential, but a failure which leaves the subject of the contract substantially different from what was contracted for is sufficient." Id. See also, Babylon Assoc. v County of Suffolk, 101 AD2d 207, 215 (2^nd Dept 1984). "As an extraordinary remedy, rescission is appropriate only when a breach may be said to go to the root of the agreement between the parties." Septembertide Pub., B.V. v Stein and Day, Inc., 884 F2d 675, 678 (2^nd Cir 1989). Accord, Faunus Grp. Int'l, Inc. v Ramsoondar, 2014 WL 2038884, *3 (SDNY May 16, 2014) ("An action for rescission based on failure of consideration lies '[w]here a Plaintiff has received little or nothing of value. . . .") (citations omitted). Where parties have agreed upon the consideration to be exchanged, "[a]bsent a claim of fraud or unconscionability, the adequacy of consideration is not a proper subject for judicial scrutiny." Spaulding v Benenati, 57 NY2d 418, 423 (1982).

As Posadas notes, a 572-room oceanfront hotel, even if in need of renovation and suffering lower occupancy than usual, has substantial value. While by Closing the Hotel was somewhat less valuable than it was previously, Condado, a sophisticated party represented by counsel, assumed that risk, and reaffirmed the risk in each amendment made to the Agreement.

To the extent Condado claims a failure of consideration due to the inability to transfer goodwill, that argument is not successful. The Agreement omitted any representations about goodwill, excused Condado from taking commercially unreasonable actions to maintain the value of goodwill, and stipulated that failing to transfer Asset-Related Property, including goodwill, "shall not be deemed a failure of a condition precedent to Buyer's obligations to consummate the closing." Agreement, at §6.2(b). The Agreement itself contemplated the transaction going forward even if delivery of part of the consideration was not possible. See, e.g., Cobalt Multifamily Inv's I, LLC v Bridge Cap. (USVI), LLC, 2007 WL 2584926, at *6 (SDNY Sept 7, 2007) (rejecting failure of consideration despite a claim that an essential asset was not delivered because the party "received substantial consideration, indeed, all the consideration for which it bargained" as reflected in the agreement).

A change in goodwill was a possibility inherent in this transaction. Posadas was selling a distressed asset- a building in need of rehabilitation on an island that experienced frequent hurricanes. As such, in the Agreement the parties agreed to an "as-is" sale and also agreed that the inability to deliver the Asset-Related Property (which unambiguously includes goodwill) would not excuse either party from failure to close on the time is of the essence date. The premise of the sale of the Hotel in the case at bar was not destroyed by an alleged reduction in the value of one of the many assets that made up the sale. Even if there was a reduction in goodwill prior to the Closing date, Condado nevertheless stood to purchase assets of substantial value, including the Hotel and the ocean front property on which it sat. Goodwill was not the only component of the transaction, and certainly was not the most important based on a plain reading of the parties' unambiguous Agreement.

Condado's failure of consideration defense does not excuse Condado's failure to perfom the Agreement and does not create an issue of fact.

Documentary Evidence

Documentary evidence is an ordinary defense. It is "'mere surplusage which serves no purpose in an answer, belonging more properly in a motion to dismiss under CPLR 3212(a)(7).'" Salerno v Leica, Inc., 258 AD2d 896 (4^th Dept 1999) (citation omitted). "Nevertheless, although its inclusion in the answer is inappropriate, it should not be subject to a motion seeking dismissal of the defense or 'provide a basis to test the sufficiency of the complaint.'" Id. (citation omitted). This defense does not prevent Posadas' motion for summary judgment in any respect.

Commercial Impracticability and/or Impossibility

The commercial impracticability defense set forth by Condado appears to be premised upon the Uniform Commercial Code's impracticability provisions. As the Agreement at bar involves the sale of land, the UCC is not implicated.

As for the defense of impossibility, "[t]he excuse of impossibility of performance is generally limited to the destruction of the means of performance by an act of God or by law." Diagnostic Mobile Imaging v Salamanca Dist. Hosp., 191 AD2d 974, 975 (4^th Dept 1993). "'[W]here impossibility or difficulty of performance is occasioned only by financial difficultly or economic hardship, even to the extent of insolvency or bankruptcy, performance of a contract is not excused.'" Id., citing 407 E. 61^st Garage v Savoy Fifth Ave. Corp., 23 NY2d 275, 281 (1968). This is a "narrow" defense and "performance should be excused only in extreme circumstances." Kel Kim Corp. v Central Mkts., 70 NY2d 900, 902 (1987). "Impossibility excuses a party's performance only when the destruction of the subject matter of the contract or the means of performance makes performance objectively impossible." Id. "Moreover, the impossibility must be produced by an unanticipated event that could not have been foreseen or guarded against in the contract." Id.

In the context of a hotel closure, the Court of Appeals specifically held that the impact of "financial difficulty or economic hardship" even if bankruptcy becomes a reality does not excuse performance because the party "could have and should have insisted that the agreement provide for the anticipated contingency of economic hardship."407 E. 61^st Garage, 23 NY2d at 281-82.

Here, closing on the Hotel was not impossible. The legal obstacles had been lifted and the Closing was scheduled and set to occur. Of course, Condado's argument stems from the alleged "impossibility" associated with the a decrease in value of the Hotel. While Condado entered into an Agreement it eventually deemed unprofitable, due in large part to the pandemic, the deal was not impossible. Additionally, Condado reaffirmed the contract even after the event that it claims was unforeseeable began (the COVID-19 pandemic). At best, Condado's claims amount to allegations of financial difficulty or economic hardship.

Frustration of Purpose

"For a party to a contract to invoke frustration of purpose as a defense for nonperformance, 'the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense.'" PPF Safeguard, LLC v BCR Safeguard Holding, LLC, 85 AD3d 506, 508 (1^st Dept 2011) (citation omitted). This doctrine applies "'when a change in circumstances makes one party's performance virtually worthless to the other, frustrating his purpose in making the contract.'" Id. "The doctrine of frustration of purpose does not apply unless the frustration is substantial. It is not enough that the transaction has become less profitable for the affected party or even that he will sustain a loss." Rockland Dev. Assoc. v Richlou Auto Body, 173 AD2d 690, 691 (2^nd Dept 1991) (citation omitted).

Here, the frustration of purpose defense fails. As noted supra, Condado repeatedly reaffirmed the Agreement in the Amendments after the COVID 19 pandemic was not only foreseeable but had materialized. In the Third Amendment in particular Condado chose to accept the risks of the pandemic and reaffirmed the Agreement. A downturn in the hospitality industry during a pandemic is not unforeseeable. The risks of epidemics and pandemics is well known, and if they so chose, the parties could have guarded against such risks by including a force majeure clause, but they chose not to do so.

Additionally, the temporary business impact the pandemic had on the Hotel did not destroy the entire basis for the Agreement. At Closing, Condado still stood to receive an ocean-side hotel and the potential for a lucrative business, which is exactly how the Hotel was marketed- as a property in need of renovation and new management. Condado alleges that the asset it contracted to purchase had lost value; that allegation does not support a frustration of purpose defense, particularly where, as here, the parties had explicitly agreed to an "as is" sale.

Failure to State a Cause of Action

For the reasons stated supra with respect to the documentary evidence defense, this defense is surplusage and does not prevent the motion for summary judgment.

Failure to Satisfy Conditions Precedent

In the Second Amendment, Condado expressly agreed to "waive[] all conditions precedent to Closing." Second Amendment, §2. This defense does not prevent granting the motion for summary judgment.

Release, Accord, and Satisfaction, Res Judicata, Laches, Waiver, Ratification and Estoppel

These defenses are insufficiently pled and have no basis in the record before the Court in any event. There is no allegation of a release in this case, nor an allegation of an accord and satisfaction. Res judicata applies, as set forth supra, but does not provide a defense for Defendants in any respect. Laches is inapplicable because this action was timely commenced. Finally, waiver, ratification and estoppel are boilerplate defenses and lack a factual basis. These defenses do not prevent Posadas' motion for summary judgment.

Unclean Hands

This is an equitable defense that Posadas contends should be dismissed because this is an action for money damages, with the Agreement providing a set sum of liquidated damages. Condado contends in opposition, however, that in addition to liquidated damages, Posadas also seeks an award of attorneys' fees, which Condado claims is unwarranted, excessive and likely inflated. In response to the attorneys' fee claim, Condado seeks to assert unclean hands.

Posadas is entitled to dismissal of the unclean hands defense. Condado's oppositon is vague and appears to foreshadow general objections to Posadas' future fee application that does not sound in equity and does not require the assertion of an affirmative defense. The unclean hands defense is dismissed, without prejudice to Condado's right to object to any attorney fee application made by Posadas.

Breach

For the reasons stated supra with respect to Posadas' motion for summary judgment, Condado's defense of breach lacks merit and is dismissed.

Failure to Mitigate

For the reasons stated under the unclean hands defense, the failure to mitigate defense should also be dismissed, without prejudice to Condado's right to object to any attorney fee application made by Posadas.

Damage Causation

For the reasons set forth supra, this defense is dismissed.

Offset

For the reasons stated supra, this defense is dismissed.

Earnest Money

In the event of a default by Condado, the Agreement provides, in relevant part:

In the event Seller terminated this Agreement pursuant to Section 12.1(a)(ii), the Escrow Agent shall immediately disburse the Earnest Money to Seller, and upon such disbursement Seller and Buyer shall have no further obligation under ths Agreement, except those which expressly survive such termination. Buyer and Seller hereby acknowledge and agree that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by Seller as a result of a such default by Buyer, and agree that the Earnest Money is a reasonable approximation thereof. Accordingly, in the event that Buyer breaches this Agreement by materially defaulting in the performance of any of its obligations under this Agreement, the Earnest Money shall constitute and be deemed to be the agreed and liquidated damages of Seller, and shall be paid by the Escrow Agent to Seller as Seller's sole and exclusive remedy hereunder; provided, however, that the foregoing shall not limit Buyer's obligation to pay to Seller all attorneys's fees and costs to enforce the provisions of this Section 12.1.

Agreement, §12.1(d).

In New York it is well settled "that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment." Maxton Bldrs. v Lo Galbo, 68 NY2d 373, 378 (1986). See also, Heaner v Reed, 2 AD3d 683, 685 (2^nd Dept 2003). In accordance with the Court's findings supra, Posadas properly terminated the Agreement and is entitled to the Earnest Money.

Attorneys' Fees and Costs

In Section 12.1(d), set forth supra, provides for the recovery of fees and costs in certain circumstances. Posadas commenced this action to secure the release of the Earnest Money as liquidated damages and contends it has incurred legal fees and expenses defending its right to terminate the Agreement, including fees incurred by Condado's removal of this action to Bankruptcy Court and in defending the proceedings commenced by Condado in Puerto Rico.

Posadas is entitled to summary judgment on the issue of attorneys' fees. Determination of the amount of fees and costs due will be determined by the referee previously appointed in this action.

Counterclaims

Each of Condado's counterclaims is premised upon Condado not being in breach of the Agreement when it failed to close on May 11, 2020. As set forth supra, the Court determines that Condado's failure to close on May 11, 2020 was a breach of the Agreement. As such, Condado is not entitled to relief on its' counterclaims for specific performance, declaratory relief, injunctive relief, and for foreclosure of a vendee's lien to secure the Earnest Money. For the reasons stated supra, Posadas is entitled to dismissal of Condado's counterclaims.

CONCLUSION

Posadas is GRANTED summary judgment on the first cause of action due to Condado's default and failure to pay Posadas the Earnest Money. On the second cause of action, Posadas is GRANTED summary judgment and the Court declares that Condado materially breached the terms of the Agreement by failing to complete the Closing on May 11, 2020, that Posadas was entitled to terminate the Agreement and properly terminated the Agreement, that Posadas was entitled to disbursement of the Earnest Money, that Condado breached the Agreement when it objected to the Escrow Agent immediately disbursing the Earnest Money, that this action was brought to enforce Section 12.1 of the Agreement and Condado is accordingly obligated to pay Posadas' attorneys' fees and costs pursuant to the Agreement, that Condado has no legal or equitable rights in or to the assets at issue and all lis pendens filed are null and void, and that New York has exclusive jurisdiction over all actions arising from or related to the Agreement. Finally, as set forth in the reasoning of this Court's Decision dated July 9, 2020 (Doc. #65), New York has exclusive jurisdiction over this matter as set forth in the Agreement at Section 14.14, and as such Condado is liable to damages suffered by Posadas caused by the Puerto Rico litigation, including attorneys' fees and costs.

Posadas is directed to submit a Proposed Order within thirty days.

Signed at Rochester, New York on April 14, 2021.

/s/ _________

HONORABLE J. SCOTT ODORISI

Supreme Court Justice