| RM Realty Holdings Corp. v Moore |
| 2009 NY Slip Op 05682 [64 AD3d 434] |
| July 7, 2009 |
| Appellate Division, First Department |
| RM Realty Holdings Corp., Appellant, v Peter Moore etal., Respondents. |
—[*1] Ganfer & Shore, LLP, New York (Mark A. Berman of counsel), for respondents.
Order, Supreme Court, New York County (Charles E. Ramos, J.), entered June 14, 2007,which, in this breach of contract action, granted plaintiff's motion to reargue and, uponreargument, vacated its prior order dismissing the complaint without prejudice and granteddefendants' motion to dismiss the complaint with prejudice, affirmed, without costs.
Plaintiff is the owner of the penthouse unit (unit 8) in a condominium building. Outside thepenthouse is a 3,200-square-foot terrace. Pursuant to the offering plan, the terrace is a limitedcommon space to which plaintiff has exclusive access. At the same time plaintiff closed on thepurchase of the penthouse from defendant 145 Americas LLC, it entered into a "DevelopmentRights Agreement" (DRA) with it and its managing member, defendant Peter Moore. Moore,who owns unit 4 in the building, also owns all of the building's air rights. Paragraph 1 of theDRA transferred 2,000 square feet of those air rights to plaintiff "immediately adjacent to theterrace on the same level of Unit 8." The DRA expressly reflected the parties' understanding thatthe purpose of the air rights transfer was to facilitate plaintiff's plan to increase the interior spaceof the penthouse. The DRA further provided, in paragraph 5, that plaintiff's "authorization willbe required in case other owners of air rights want to build in the area immediately adjacent tohis unit."
Six months after the DRA was executed, defendants sold certain air rights not transferred bythe DRA to a developer that was planning to construct a high-rise hotel on property located westof the condominium building. Between the footprint of the planned hotel and the condominiumbuilding is a 50-foot-wide public plaza, which the parties appear to agree cannot be developed.Accordingly, when construction of the hotel is complete, its eastern wall will be at least 50 feetaway from the western wall of the condominium building.
Sometime after learning of the sale of air rights to the hotel developer, plaintiff commencedthis action for breach of contract. It alleged that, among other things, defendants violatedparagraph 5 of the DRA by not obtaining plaintiff's authorization before selling air rights to thehotel developer.
Defendants moved to dismiss the original complaint on several grounds, including that theycould not have breached paragraph 5 of the DRA because the documentary evidence [*2]established that the hotel developer did not intend to "build in thearea immediately adjacent to [plaintiff's] unit." In response to the motion, plaintiff served anamended complaint that withdrew all of the claims except the breach of contract cause of action.According to the amended complaint, plaintiff and defendants "intended and agreed that the rightof refusal pursuant to paragraph 5 of the [DRA] would apply to all property and buildingsimmediately adjacent to Unit 8, including the relevant property owned by [the hotel developer]."
Notwithstanding the amendment, the motion court considered the motion to dismiss, andgranted it. The court found the words "immediately adjacent" to be unambiguous and that thehotel, when built, would not be "immediately adjacent" to either plaintiff's existing penthouseapartment or the terrace appurtenant to it. Plaintiff moved to reargue, stating that, at oralargument of the original motion, the court erroneously adopted defendants' counsel's statementthat, as a limited common element, the terrace appurtenant to plaintiff's penthouse is somethingin which "everyone in the building shares and shares alike." Thus, plaintiff surmised, the courtmust have concluded that, because another unit owner in the building could have built on theterrace, DRA paragraph 5 must have been intended to apply to that eventuality. Plaintiff arguedthat because as a "limited common element" it had exclusive use of the entire terrace, and no unitowner could have built on it, DRA paragraph 5 must have referred to the hotel.
The court granted reargument but adhered to its original decision and dismissed thecomplaint with prejudice. It stated that counsel for defendants did appear to misstate thedefinition of the term "limited common element" but it made clear that the original orderdismissing the complaint did not rely on that definition. Instead, the court held that plaintiff'scontention that the term "immediately adjacent" extended to the air rights over the hotel propertywas "absurd and contrary to the [DRA] as a matter of law."
A written agreement is ambiguous only if it is reasonably susceptible of more thanone interpretation (Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]). In decidingwhether an agreement is ambiguous we should " 'examine the entire contract and consider therelation of the parties and the circumstances under which it was executed. Particular wordsshould be considered, not as if isolated from the context, but in the light of the obligation as awhole and the intention of the parties as manifested thereby. Form should not prevail oversubstance and a sensible meaning of words should be sought' " (Kass v Kass, 91 NY2d554, 566 [1998], quoting Atwater & Co. v Panama R.R. Co., 246 NY 519, 524 [1927]).
Here, the interpretation of paragraph 5 of the DRA offered by plaintiff, that the hotel will be"immediately adjacent" to its penthouse (or even the edge of the terrace), is not reasonable. Hadthe parties intended to give plaintiff the right to block the construction of a building 50 feet awayfrom the edge of the terrace, it is perhaps plausible that they would have referred to that propertyas being simply "adjacent" to "the unit," whether "the unit" meant the penthouse alone or theterrace as well. However, it defies logic that they would have added the modifier "immediately,"which implies an absence of appreciable space between "the unit" and the structure that is to be"built." Moreover, if, as plaintiff contends, the parties were referring to the hotel, theypresumably would have specifically said so in the agreement.
It also strains credulity that defendants would have given plaintiff perpetual carte blanche toblock potentially lucrative transfers of air rights to developers in the trendy Soho neighborhoodwhere the condominium building is located. The dissent claims that this "ignores [*3]basic economics" and that had plaintiff not insisted on theright to approve the sale of any of Moore's air rights it would have behaved as an "economicsrube." However, the dissent then acknowledges the possibility that, if its interpretation ofparagraph 5 is correct, plaintiff "got the better of the deal by becoming an equal partner in thoseair rights." In other words, the dissent recognizes that Moore may have been an "economicsrube" by granting plaintiff the unfettered and eternal right, not even limited by the requirementthat plaintiff act reasonably, to forever block the sale of any of his air rights. The dissentultimately disposes of the issue by calling it "irrelevant." However, it is not irrelevant. It isprobative as to whether plaintiff's proposed interpretation of the DRA is reasonable.
In any event, an examination of the DRA reveals that its clear intention was to transfer toplaintiff the air rights necessary to permit it to construct an addition to its penthouse apartment.Reading the DRA "as a whole" (Kass, 91 NY2d at 566), it is quite evident that paragraph5 was included to ensure that defendants would not permit other condominium owners to impedeplaintiff's ability to build on the terrace. That no other condominium owner could have built onthe terrace due to the terrace's status as a limited common element to which plaintiff hadexclusive use does not change the conclusion that paragraph 5 of the DRA is not ambiguous. Theonly alternative meaning which plaintiff ascribes to paragraph 5, that a hotel 50 feet away is"immediately adjacent" to the terrace, is simply not a reasonable one, and this does not renderthe provision ambiguous. It is far more reasonable to interpret paragraph 5 as an additionalassurance to plaintiff that its right to use the terrace area was inviolate, and that no one couldbuild in the area in which, pursuant to paragraph 1, it was purchasing the air rights.
Nor is discovery necessary. Any such discovery would simply be an opportunity for plaintiffto uncover parol evidence to attempt to create an ambiguity in an otherwise clear andunambiguous agreement. Unless this Court were to find an ambiguity, such parol evidencewould be inadmissible at trial or on a subsequent motion for summary judgment (seeW.W.W. Assoc. v Giancontieri, 77 NY2d 157, 163 [1990], citing IntercontinentalPlanning v Daystrom, Inc., 24 NY2d 372, 379 [1969]).
The dissent's parsing of the phrase "the area immediately adjacent to [its] unit" in paragraph5 of the DRA is, in contravention of well-settled canons of contract interpretation, an exercise inelevating form over substance (W.W.W. Assoc., 77 NY2d at 163). In concluding thatthose seven words could express the parties' intention that plaintiff had the ability to block thesale of air rights to the hotel's developer, the dissent fails to follow the rule that "courtsexamining isolated provisions 'should then choose that construction which will carry out theplain purpose and object of the [agreement]' " (Kass v Kass, 91 NY2d at 567, quotingWilliams Press v State of New York, 37 NY2d 434, 440 [1975], quoting EmpireProps. Corp. v Manufacturers Trust Co., 288 NY 242, 249 [1942]). No matter howvociferously the dissent argues that the term "immediately adjacent" has no "definite and precisemeaning," it cannot escape the fact that the alternative meaning it ascribes to the term is simplynot reasonable. Again, ambiguity in a written agreement only exists if there is more than onereasonable interpretation of the language at issue (see Chimart Assoc. v Paul, 66 NY2dat 573).
Further, the dissent's statement that paragraph 5 would, under defendants' interpretation, besuperfluous, does not require that we determine the DRA to be ambiguous. The clause may havebeen superfluous to the extent it was not necessary to secure plaintiff's rights. It did not,however, negate another provision in the DRA. In Bretton v Mutual of Omaha Ins.Co. (110 AD2d 46 [1985], affd 66 NY2d 1020 [1985]), cited by the dissent, theinterpretation urged by the [*4]plaintiff would have required thata clause in the subject insurance policy expressly limiting coverage to "certain specified losses"be completely ignored. This Court held that if it accepted the plaintiff's construction, it wouldviolate the rule that "[a] court, no matter how well intentioned, cannot create policy terms byimplication or rewrite an insurance contract" (id. at 49). Here, accepting defendants'interpretation of paragraph 5 does not alter the purpose of the DRA nor render any otherprovisions of the DRA meaningless.
The plain purpose of the DRA was to ensure that plaintiff would have an unfettered right toexpand the penthouse. Defendants' interpretation of paragraph 5 promotes that purpose.Plaintiff's interpretation does not. Indeed, given that both paragraph 1 and paragraph 5 of theDRA utilize the term "immediately adjacent," it is unreasonable to interpret paragraph 5 ascreating an obligation that has nothing to do with plaintiff's plan to expand its living space.Concur—Mazzarelli, J.P., Buckley and DeGrasse, JJ.
McGuire, J., dissents in a memorandum as follows: Plaintiff purchased the penthouse unit ofa Manhattan building. Defendant 145 Americas LLC was the sponsor of the condominiumoffering in the building and defendant Moore was the managing member of 145 Americas. Theunit occupied the northeast portion of the roof of the building and a terrace took up theremaining area of the roof. Pursuant to the relevant "declaration of condominium," plaintiff hadsole use of the terrace.
On the same date plaintiff purchased the unit, the parties entered into a "Development RightsAgreement" (the agreement). The agreement provides, in relevant part:
"Whereas, [plaintiff] is purchasing condo unit 8 ('Unit 8') . . . ;
"Whereas, [Moore] is purchasing condo unit 4D ('Unit 4D') . . . ;
"Whereas, the development and air rights for the Building (the 'Development Rights') areappurtenant to Unit 4D;
"Whereas, Moore is a manager of the Sponsor;
"Whereas, as an inducement to [plaintiff] to purchase Unit 8, Moore is granting to [plaintiff]a portion of the Development Rights . . .
"1) Effective the date on which [plaintiff] closes on the purchase of Unit 8, Sponsor andMoore hereby grant to [plaintiff] 2,000 square feet of Development Rights (the 'Air Rights')immediately adjacent to the terrace on the same level of Unit 8.
"2) It is understood that the grant of Air Rights described in the above paragraph 1 is for thepurpose of allowing [plaintiff] . . . to increase the interior square footage of Unit 8and, if [plaintiff] has not built within such Air Rights increasing the surface of Unit 8, the AirRights will be assignable to third parties both within or without the area immediately adjacent[to] Unit 8 . . .
"5) [Plaintiff's] authorization will be required in case other owners of air rights want to buildin the area immediately adjacent to his [sic] unit."[*5]
The agreement gave plaintiff two benefits: 2,000 squarefeet of air rights "immediately adjacent to the terrace" and the power to determine whether topermit another "owner[ ] of air rights . . . to build in the area immediately adjacentto [plaintiff's] unit."
Approximately six months after plaintiff purchased the unit and entered into the agreement,defendants entered into a contract with a third party, Bayrock, pursuant to which defendants soldapproximately 27,000 square feet of air rights around the building to Bayrock. Bayrockpurchased the rights to increase the size of its building on the lot adjacent to the lot of thebuilding containing plaintiff's unit.
Plaintiff commenced this action against defendants seeking damages for breach of theagreement. Plaintiff claims that under paragraph 5 of the agreement, defendants needed (butfailed to obtain) its authorization to transfer the air rights to Bayrock because it is an "owner[ ] ofair rights [and] want[s] to build in the area immediately adjacent to plaintiff's unit." Plaintiffalleges that once Bayrock completes construction of its building the views from plaintiff's unitwill be substantially reduced, thereby diminishing the unit's value. Defendants moved to dismissthe action under CPLR 3211 (a) (1) and (7) on the ground that Bayrock's building is not"immediately adjacent to [plaintiff's] unit." Supreme Court granted the motion and dismissed thecomplaint "without prejudice." The court subsequently granted plaintiff's motion to reargue and,upon reargument, vacated its original decision and granted the motion to dismiss "withprejudice." This appeal by plaintiff ensued.
This appeal turns on the meaning of the phrase "the area immediately adjacent to [plaintiff's]unit." Plaintiff argues that the "area" includes the space over Bayrock's building becauseBayrock's parcel is immediately adjacent to the building containing plaintiff's unit. Alternatively,plaintiff argues that dismissal of the action on a CPLR 3211 motion is inappropriate because thephrase is ambiguous and its meaning turns on extrinsic evidence that must be evaluated by thetrier of fact. Defendants maintain that the phrase "immediately adjacent" is unambiguous andmeans the area abutting the walls of plaintiff's condominium. Thus, in defendants' view,"the terrace is what is 'immediately adjacent' to [plaintiff's] Commercial Unit." Becauseplaintiff's unit (so defined to exclude the terrace) is approximately 100 feet away from Bayrock'sbuilding, defendants assert that Bayrock will not build a structure "in the area immediatelyadjacent to [plaintiff's] unit."
The principles of contract law we must apply in resolving this appeal are well settled. "[A]written agreement that is complete, clear and unambiguous on its face must be enforcedaccording to the plain meaning of its terms" without reference to extrinsic evidence(Greenfield v Philles Records, 98 NY2d 562, 569 [2002]). "A contract is unambiguous ifthe language it uses has a definite and precise meaning, unattended by danger of misconceptionin the purport of the [agreement] itself, and concerning which there is no reasonable basis for adifference of opinion" (id. [internal quotation marks and citation omitted]). Conversely, acontract is ambiguous if on its face it is reasonably susceptible of more than one interpretation(see Chimart Assoc. v Paul, 66 NY2d 570, 573 [1986]). Where a contract is ambiguous,extrinsic evidence of the parties' intent may be submitted by the parties and evaluated by the trierof fact (see Greenfield, 98 NY2d at 569; Amusement Bus. Underwriters v AmericanIntl. Group, 66 NY2d 878, 880 [1985] ["when a term or clause is ambiguous and thedetermination of the parties' intent depends upon the credibility of extrinsic evidence or a choiceamong inferences to be drawn from extrinsic evidence, then the issue is one of fact"]). Whether acontract is ambiguous is a question for the court (Kass v Kass, 91 NY2d 554 [1998]),and if the [*6]court concludes that an ambiguity exists thecontract cannot be construed as a matter of law (see Zuckerwise v Sorceron Inc., 289AD2d 114 [2001]).
The phrase "in the area immediately adjacent to [plaintiff's] unit" is, on its face, reasonablysusceptible of more than one interpretation and therefore ambiguous. The word "area," which isnot defined in the agreement, is a term of uncertain scope. "Area" means "a particular extent ofspace or surface or one serving a special function" (Merriam-Webster's Collegiate Dictionary 65[11th ed 2006]); "any particular extent of space or surface," "a geographical region" and "thespace or site on which a building stands; the yard attached to or surrounding a house" (RandomHouse Webster's Unabridged Dictionary 110 [2d ed 2001]). Equally imprecise is the phrase"immediately adjacent," which modifies the "area" that is the subject of paragraph 5 of theagreement, and it also is not defined in the agreement. "Adjacent" means "lying near, close, orcontiguous; adjoining; neighboring" (id. at 25), and "immediately" is defined as "with noobject or space intervening," "closely" (id. at 957). As is obvious, the phrase "areaimmediately adjacent to" has no definite and precise meaning.
The phrase "[plaintiff's] unit," which is the measuring rod of the area affected by theagreement, also is ambiguous. Plaintiff contends that under paragraph 5 its "unit" includes theterrace, of which plaintiff has sole use under the "declaration of condominium." Under plaintiff'sview of the word "unit" in paragraph 5, defendants were required to obtain its authorization totransfer air rights that are "in the area immediately adjacent" to the condominium unit itself andthe terrace. Defendants contend that the word "unit" means the condominium exclusive of theterrace, and under paragraph 5 of the agreement plaintiff's authorization was required only "if thetransfer of air rights was effectuated in order to build a structure that abutted [plaintiff's unit] orthe [building housing the unit]." Notably, in several places in the agreement the parties refer toplaintiff's condominium as "Unit 8" and make separate references to "the terrace." In paragraph5, and only paragraph 5, the parties refer to plaintiff's "unit"—the "u" is lower-case andthe numeral "8" is omitted—thus indicating that "the unit" in paragraph 5 denotessomething other than the condominium unit itself (see NFL Enters. LLC v Comcast Cable Communications, LLC, 51AD3d 52, 60-61 [2008, Gonzalez, J.] ["The use of different terms in the same agreementstrongly implies that the terms are to be accorded different meanings"]). Accordingly, the phrase"in the area immediately adjacent to [plaintiff's] unit" is reasonably susceptible of more than oneinterpretation.
Another problem plagues defendants' construction of the agreement. Under defendants'construction of paragraph 5, "the area immediately adjacent to [plaintiff's] unit" is the terrace andthe terrace alone. Plaintiff, however, already enjoyed exclusive use of the terrace under the"declaration of condominium," and under defendants' construction of paragraph 5 plaintiff onlyobtained a right to prevent another from building on the terrace—a right plaintiff alreadyhad under the "declaration of condominium." Thus, as defendants' construction rendersparagraph 5 superfluous, it is "unsupportable" (Suffolk County Water Auth. v Village of Greenport, 21 AD3d 947,948 [2005], citing Lawyers' Fund for Client Protection of State of N.Y. v Bank Leumi TrustCo. of N.Y., 94 NY2d 398 [2000]). As we have stated, an agreement's "terms should not beassumed to be superfluous or to have been idly inserted" (Bretton v Mutual of Omaha Ins.Co., 110 AD2d 46, 50 [1985, Sullivan, J.], affd 66 NY2d 1020 [1985]).
The majority writes that: "the interpretation of paragraph 5 of the [agreement] offered byplaintiff, that [Bayrock's building] will be 'immediately adjacent' to its penthouse (or even the[*7]edge of the terrace), is not reasonable. Had the partiesintended to give plaintiff the right to block the construction of a building 50 feet away from theedge of the terrace, it is perhaps plausible that they would have referred to that property as beingsimply 'adjacent' to 'the unit,' whether 'the unit' meant the penthouse alone or the terrace as well.However, it defies logic that they would have added the modifier 'immediately,' which implies anabsence of appreciable space between 'the unit' and the structure that is to be 'built.' "
This is pure wordplay, with the majority simply switching one ambiguous phrase foranother. The majority holds that the phrase "immediately adjacent" unambiguously excludes abuilding 50 feet from plaintiff's terrace (the majority implicitly concedes, as it must, that areasonable construction of the term "unit" in paragraph 5 includes the terrace) because an"appreciable space" exists between the building and plaintiff's unit. To repeat: the phrase"appreciable space" is no less ambiguous than the phrase "immediately adjacent." The phrase"appreciable space" is unambiguous only if it "has a definite and precise meaning, unattended bydanger of misconception in the purport of the [agreement] itself, and concerning which there isno reasonable basis for a difference of opinion" (Greenfield, 98 NY2d at 569 [internalquotation marks and citation omitted]). Obviously, it has no such "definite and precise meaning."The majority implicitly concedes the point, even as it writes that I make it "vociferously," bywholly failing to supply a "definite and precise meaning."
The majority claims that it "strains credulity that defendants would have given plaintiffperpetual carte blanche to block potentially lucrative transfers of air rights to developers in thetrendy Soho neighborhood where the condominium building is located." This ignores basiceconomics. The majority ignores the economic reality that the value of the unit defendants wereseeking to sell to plaintiff (and thus the amount plaintiff would pay to defendants) would bereduced if defendants retained carte blanche to sell all the development and air rights forthe building. Thus, only an economics rube would have allowed defendants to retain perpetualcarte blanche authority over the sale of air rights that could significantly reduce the value of theproperty (unit 8, including the terrace) defendants were offering to sell. What makes more senseis precisely what from a plain reading of paragraph 5 apparently did occur: the parties agreed toshare the right to transfer the air rights. Whether plaintiff got the better of the deal by becomingan equal partner in those air rights (or, more accurately, in a subset of those air rights, asplaintiff's authorization is not required to the extent other owners of air rights do not want tobuild in the area "immediately adjacent" to its unit) cannot be determined on this record and isirrelevant in any event. The majority also ignores that a rational party in plaintiff's positionwould have an economic incentive to agree to a future sale of air rights if its equal share of thesale proceeds exceeded the decline in value of the unit that would result from the transfer of theair rights. Of course, there is no reason to think that defendants ignored that incentive in agreeingto make plaintiff an equal partner with respect to the sale of certain of the air rights (and thus noreason to think that paragraph 5 represents economic folly by defendants).
The majority also writes that: "In any event, an examination of the [agreement] reveals thatits clear intention was to transfer to plaintiff the air rights necessary to permit it to construct anaddition to its penthouse apartment. Reading the [agreement] as a whole . . . , it isquite evident that paragraph 5 was included to ensure that defendants would not [*8]permit other condominium owners to impede plaintiff's ability tobuild on the terrace. That no other condominium owner could have built on the terrace due to theterrace's status as a limited common element to which plaintiff had exclusive use does notchange the conclusion that paragraph 5 of the [agreement] is not ambiguous. The only alternativemeaning which plaintiff ascribes to paragraph 5, that a [building] 50 feet away is 'immediatelyadjacent' to the terrace, is simply not a reasonable one, and this does not render the provisionambiguous. It is far more reasonable to interpret paragraph 5 as an additional assurance toplaintiff that its right to use the terrace area was inviolate, and that no one could build in the areain which, pursuant to paragraph 1, it was purchasing the air rights" (citation and internalquotation marks omitted).
The majority is able to conclude that as a matter of law the sole intent of the agreement "wasto transfer to plaintiff the air rights necessary to permit it to construct an addition to hispenthouse apartment," only by effectively reading paragraph 5 out of the agreement. That isexactly what the majority does in reducing paragraph 5 to "an additional assurance to plaintiffthat its right to use the terrace was inviolate, and that no one could build in the area in which. . . it was purchasing the air rights." Because plaintiff already had an inviolate rightto use the terrace under the "declaration of condominium," this "additional assurance" isvacuous. Moreover, under the majority's construction of paragraph 5, plaintiff would have hadno ground for complaint if Bayrock "want[ed] to build in the area" six inches from plaintiff'sterrace. Not surprisingly, the majority does not take issue with me on this point. Although themajority pays lip service to the obligation to read the agreement as a whole, it flouts thatobligation by rendering paragraph 5 nothing more than surplusage.
Finally, the majority errs in asserting that plaintiff's construction of paragraph 5 "creat[es] anobligation that has nothing to do with plaintiff's plan to expand its living space." The value of theexpanded living space that plaintiff was contemplating unquestionably would be affectedadversely by, for example, construction of a towering hotel on the adjacent lot. For that reason,just as unquestionably, the obligation plaintiff contends it negotiated for—the obligationthe majority reads right out of the agreement—cannot reasonably be divorced from thoseexpansion plans.
In sum, the phrase "in the area immediately adjacent to [plaintiff's] unit" is, on its face,reasonably susceptible of more than one interpretation and therefore ambiguous. Because theagreement cannot be construed as a matter of law on this appeal from an order dismissing thecomplaint on a pre-answer motion to dismiss (see e.g. Hambrecht & Quist Guar. Fin., LLC v El Coronado Holdings,LLC, 27 AD3d 204 [2006]; Hirsch v Food Resources, Inc., 24 AD3d 293 [2005]), I wouldreverse the order dismissing the complaint "with prejudice," reinstate the complaint and remandthe matter for further proceedings. [See 2007 NY Slip Op 31629(U).]