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The Georgetown Company, LLC, GEORGETOWN 19TH STREET PHASE I, LLC, GEORGETOWN 19TH STREET DEVELOPMENT LLC, IAC/GEORGETOWN 19TH STREET, LLC, Plaintiffs, v. IAC/Interactive Corp., HTRF VENTURES, LLC, IAC 19TH STREET HOLDINGS, LLC, Defendants.
The following e-filed documents, listed by NYSCEF document number (Motion 005) 87, 134, 142. 205 - 313, 315 — 570, 580, 585, 586 were read on this motion for SUMMARY JUDGMENT (AFTER JOINDER).
Plaintiffs, The Georgetown Company, LLC (the "Georgetown Company"), Georgetown 19th Street Phase I, LLC ("Georgetown Phase I"), Georgetown 19th Street Development, LLC ("Georgetown Development"), and IAC/Georgetown 19th Street LLC ("IAC/Georgetown"), commenced this action seeking a declaration that they are entitled to one-half of a $35 million fee associated with the development rights on a property in the High Line area in Manhattan's West Chelsea District (see Amended Complaint, NYSCEF Doc. No. 87).
On this motion, defendants, IAC/Interactive Corp. ("IAC/Interactive"), HTRF Ventures, LLC ("HTRF"), and IAC 19th Street Holdings, LLC ("IAC Holdings"), move, pursuant to CPLR 3212, for summary judgment dismissing the Amended Complaint. Alternatively, defendants move to dismiss the Amended Complaint on the grounds that plaintiffs lack standing and contractual authority to bring this action.
The following facts are gleaned from the submission of the parties. Georgetown Company is a privately held real estate investment and development company (id.). Georgetown Phase I is an affiliate of Georgetown Company, and the managing member and 100% economic owner of IAC/Georgetown (id.). Georgetown Development is also an affiliate of Georgetown Company (id.).
IAC/Interactive is a media and internet company focused on the areas of search, applications, online dating, media, and ecommerce (id.). HTRF and IAC Holdings are affiliates of IAC/Interactive (id.). IAC Holdings is also a member of IAC/Georgetown (id.).
Non-party Responsive Realty, LLC ("Responsive") owned zoning lots 12 and 54 of block 690, located at 555 West 18th Street, New York, New York, in Manhattan's West Chelsea District (the "Property") (id.). Responsive also owned adjacent zoning lots 20 and 29 (id.).
In 2002, IAC/Interactive and Georgetown Company began working on a plan to develop IAC's new headquarters (the "Headquarters Project") on the Property (id.). On March 9. 2004, the parties entered into a series of interrelated contracts governing their relationship, the lease of the Property, and the construction of the headquarters (id.). In particular, the parties entered into an Operating Agreement, pursuant to which Georgetown Phase I created IAC/Georgetown (id.). In addition, Responsive leased zoning lots 12 and 54 to IAC/Georgetown pursuant to a Ground Lease (id.). IAC/Georgetown, in turn, subleased the zoning lots to HTRF (see Sublease, NYSCEF Doc. No. 217). Georgetown Development and HTRF entered into a Development Agreement for the Headquarters Project (see Development Agreement, NYSCEF Doc. No. 214).
Georgetown Phase I and IAC Holdings also entered into a Letter Agreement, which states, in part:
"2. Each IAC Entity and Georgetown Entity agrees if it now has or hereafter obtains any right or option to purchase or lease any other property (or any interest in any other property) located within the same square block as the Land or within the five square blocks immediately adjacent to the Land (any and all such property is hereafter referred to as "Adjacent Property"), IAC or an IAC Entity designated by IAC, or Georgetown or a Georgetown Entity designated by Georgetown, as applicable, shall have the right to participate with such IAC Entity or Georgetown Entity in such transaction on an equal economic and control basis "
(Letter Agreement, NYSCEF Doc. No. 218).
Plaintiffs state that parties believed that the Headquarters Project would enhance the High Line area and be a catalyst for further development in that area (see Complaint, supra). Plaintiffs also state that the parties believed that they could benefit from such increased interest (id.). Plaintiffs further assert that the parties agreed to share equally in the benefits of any transaction relating to either party's additional opportunities in the High Line area (id.).
When the parties executed the Development Agreement and Letter Agreement in 2004, the applicable zoning laws limited the size of the buildings that could be built on the properties in the High Line area (id.). Thereafter, plaintiffs worked with the City of New York (the "City") to modify the zoning regulations (id.).
In June 2005, the City adopted the zoning regulations modifications proposed by plaintiffs to enact new zoning regulations for the High Line area (id.). The new zoning regulations created a right to acquire additional development rights that benefited plaintiffs, IAC/Interactive, and Responsive (id.). Among these additional development rights, the new zoning regulations allowed plaintiffs, IAC/Interactive, and Responsive to acquire additional square footage by creating the right to purchase a development metric known as floor area ratio ("FAR") for zoning lots 12 and 54 and zoning lots 20 and 29, upon the merger of the four lots for zoning purposes (id.). Plaintiffs state that, after the new zoning regulations were enacted, they undertook other efforts in connection with zoning lots 20 and 29, including engaging architects and contractors, developing pro formas, collaborating with hotel and restaurant experts, meeting with stakeholders, and conducting environmental studies (id.).
Thereafter, non-party Related Companies ("Related") offered to purchase zoning lots 20 and 29 from Responsive (the "Related Transaction") on condition that these lots were also part of the new zoning scheme and would obtain additional FAR rights to those lots (id.). To effectuate the Related Transaction, Responsive, as owner, IAC/Georgetown, as tenant, and HTRF, as subtenant, agreed to the merger of zoning lots12 and 54 with zoning lots 20 and 29 for zoning purposes (see Declaration of Zoning Lot Restriction, NYSCEF Doc. No. 225). Responsive, IAC/Georgetown, and HTRF then sold their rights to purchase FAR rights, at a discount, for use of the newly merged zoning lots (see Rights Free Agreement, NYSCEF Doc. No. 359). Related paid $35 million to IAC/Georgetown and HTRF for those rights and others, pursuant to a Rights Fee Agreement (id.). The $35 million, which is the subject of this litigation, is currently being held in escrow (see Escrow Agreement, NYSCEF Doc. No. 221).
In this action, plaintiffs essentially claim that, under the terms of the Letter Agreement, the parties agreed that they would share equally the benefit if either party obtained the right to purchase any interest in other property on the same square block or within a five-block radius and that, as such, plaintiffs are entitled under contract, or in equity, to one-half of the $35 million that Related paid for the property development rights (see Amended Complaint, supra). In the first cause of action, seeking a declaratory judgment on contract rights to the $35 million payment, plaintiffs allege that the Letter Agreement provides that both parties would share the economic benefits of any transaction related to other property on an equal basis (id.). The second cause of action, seeking a declaratory judgment on unjust enrichment, alleges that plaintiffs are entitled to share in the $35 million payment to prevent unjust enrichment by IAC/Interactive (id.).
Defendants answered, generally denying the allegations in the Amended Complaint, asserting multiple affirmative defenses, and alleging numerous counterclaims seeking, among other things, a declaration that it is entitled to the entire $35 million held in escrow (see Answer and Counterclaims, NYSCEF Doc. No. 142).
Plaintiffs deny the allegations in the counterclaim (see Reply to Counterclaim, NYSCEF Doc. No. 211).
By order entered August 24, 2018, this Court (Sherwood, J.) denied defendants' motion to dismiss the Amended Complaint (see Order, NYSCEF Doc. No. 134).
Defendants now seek summary judgment dismissing the Amended Complaint, or dismissing plaintiffs' claims, for lack of standing and contractual authority.
Lack of Standing and Contractual Authority to Bring Suit
Contrary to defendants' position, Georgetown Phase I, Georgetown Development, and IAC/Georgetown have standing to bring this action. The Letter Agreement expressly encompasses an agreement to perform by "[e]ach Georgetown Entity" (NYSCEF Doc. No. 218, ¶ 2, supra), and plaintiffs have "an actual stake in the matter being adjudicated" (Society of Plastic Indus. v County of Suffolk, 77 NY2d 761, 772 ). Thus, the branch of the motion that seeks to dismiss the Amended Complaint against Georgetown Phase I, Georgetown Development, and IAC/Georgetown is denied.
It is well established that the proponent of a summary judgment motion 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 (see Zuckerman v City of New York, 49 NY2d 557, 562 ). Failure to make such prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 ). Once such proof has been offered, 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 (see Zuckerman v City of New York, supra, at 562). In reviewing a motion for summary judgment, the court must view the evidence in the light most favorable to the nonmoving party (see Branham v Loews Orpheum Cinemas, Inc., 8 NY3d 931, 932 ). However, mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient to defeat summary judgment (see Zuckerman v City of New York, supra).
As stated, plaintiffs seek judgment declaring that, under the terms of the Letter Agreement, they are entitled to share equally in the $35 million fee paid to IAC/Georgetown and HTRF by Related. Alternatively, plaintiffs seek judgment declaring that defendants will be unjustly enriched if they are permitted to retain the entire $35 million.
The Court "may render a declaratory judgment having the effect of a final judgment as to the rights and other legal relations of the parties to a justiciable controversy whether or not further relief is or could be claimed" (CPLR 3001). A declaratory judgment is intended "to declare the respective legal rights of the parties based on a given set of facts, not to declare findings of fact" (Thome v Alexander & Louisa Calder Found., 70 AD3d 88, 100 [1st Dept 2009]). The general purpose of a "declaratory judgment is to serve some practical end in quieting or stabilizing an uncertain or disputed jural relation either as to present or prospective obligations" (James v Alderton Dock Yards, 256 NY 298, 305 ). Thus, a declaratory judgment requires a "justiciable controversy," in which not only do the plaintiffs "have an interest sufficient to constitute standing to maintain the action but also that involves present, rather than hypothetical, contingent or remote, prejudice to plaintiffs" (American Ins. Assn. v Chu, 64 NY2d 379, 383 ).
Here, as stated, plaintiffs maintain that, under the terms of the Letter Agreement, they are entitled to one-half of the $35 million held in escrow, since defendants were presented with an opportunity to merge zoning lots 20 and 29 with zoning lots 12 and 54. Specifically, plaintiffs claim that, by virtue of the Related Transaction agreements, Related acquired the right of Responsive, IAC/Georgetown, and HTRF to purchase an interest in other property, namely their right to purchase the additional development rights from the City, at a discount, for use on zoning lots 20 and 29 upon the merger of the four zoning lots. Plaintiffs also claim that Related paid Responsive, IAC/Georgetown, and HTRF $35 million in consideration for their consent and for relinquishing their right. Plaintiffs further claim that the Letter Agreement governs this transaction because it involves an economic benefit arising from the right to purchase an interest in other property that Responsive, IAC/Georgetown, and HTRF obtained by virtue of the new zoning regulations. Thus, plaintiffs claim that they are entitled to one-half of the $35 million paid by Related.
In seeking summary judgment, defendants offer the parties' agreements and transcripts of their examinations before trial ("EBT") to support the position that IAC/Georgetown did not obtain any right to purchase an interest in "other property" in the Related Transaction, as contemplated by the Letter Agreement. Defendants assert that the Related Transaction agreements expressly provide that IAC/Georgetown and HTRF "surrender and release," not obtain, "any right or claim they have to the IAC/Georgetown Additional Development Rights" (Related Transaction Agreement, NYSCEF Doc. No. 220). Defendants also rely on the parties' EBT testimony that IAC/Georgetown and HTRF did not obtain any rights to purchase FAR (see Joseph Rose EBT, NYSCEF Doc. No. 231; Martin Miner EBT, NYSCEF Doc. No. 232; Adam Flatto EBT, NYSCEF Doc. No. 233; Jared Schlosser EBT, NYSCEF Doc. No. 236; Barry Haskel EBT, NYSCEF Doc. No. 238; Mitchell Korberg EBT, NYSCEF Doc. No. 239, 240).
In addition, defendants assert that they did not obtain any right to purchase additional FAR for use on zoning lots 20 and 29. Defendants argue that, pursuant to the Sublease, HTRF assumed all rights and obligations of IAC/Georgetown under the Ground Lease. Defendants contend that they were the owners of any FAR rights that were bound to zoning lots 12 and 54 as of 2004. According to defendants, therefore in 2004, when IAC/Georgetown and HTRF relinquished their rights to FAR for zoning lots 12 and 54, they were relinquishing a pre-existing right, not a newly obtained right to other property, as contemplated by the Letter Agreement.
Defendants further contend that the 2005 West Chelsea rezoning could not have given them any new interest in property. Defendants assert that, on June 23, 2005, the City amended its zoning regulations to create the Special West Chelsea District, making certain areas under the High Line eligible for additional FAR if owners helped the City restore, maintain, or provide access to the High Line. In addition, defendants state that an owner had to satisfy certain requirements in order to obtain a certification from the chair of the City's Planning Commission that the owner was eligible for additional FAR. With respect to block 690, defendants maintain that zoning lots 12 and 54 had to merge with zoning lots 20 and 29 into a single zoning lot to be eligible for additional FAR. Defendants assert that IAC/Interactive never had the ability to satisfy the conditions required for certification, and that only Related ever sought or received certification.
Defendants maintain that Related purchased zoning lots 20 and 29 from non-party Mendon for $205 million, and sought to acquire all available FAR from the merger of zoning lots 12 and 54 with zoning lots 20 and 29 into a single zoning lot. According to defendants, although IAC/Georgetown was a party to the Related Transaction, it was merely consenting to the transaction in a ministerial fashion, as agent for HTRF, since HTRF had exclusive decision-making authority over the Related Transaction.
As such, defendants argue that the terms of the four above-mentioned agreements make clear that the FAR rights that were conveyed as part of the Related Transactions were not newly-acquired rights to other property, as contemplated by the Letter Agreement. Rather, defendants claim that, as of 2004, they were the sole owners of all present and future FAR for zoning lots 12 and 54. Thus, defendants contend that plaintiffs were not entitled to any proceeds from the sale of the FAR.
In opposition, however, plaintiffs rely on the Letter Agreement and EBT testimony to support their position that said agreement created a 50/50 partnership between the parties, and that defendants would be in breach of the agreement, or would be unjustly enriched, if they were permitted to retain the entire $35 million fee from the Related Transaction. Plaintiffs insist that the High Line rezoning created a right or option for the parties. According to plaintiffs, the consent to the zoning lot mergers was a prerequisite to unlocking the valuable bundle of bonus development rights, thereby effectively giving the parties a veto right with regard to obtaining the bonus development rights. Plaintiffs assert that while the parties ultimately opted to sell their rights created by the High Line rezoning, they exercised the option to merge the zoning lots and unlock the ability to purchase bonus development rights. Plaintiffs also assert that the entire $35 million value was created solely by the extensive efforts taken by Georgetown Company and its affiliates to conceive, facilitate, and implement the rezoning regulations that/were adopted by New York City.
Plaintiffs cite several cases to support their assertion that development rights or air rights are interests in real property within the meaning of the terms in the Letter Agreement (see Harmit Realties LLC v 835 Ave of Am., L.P., 128 AD3d 460, 460 [1st Dept 2015]["air rights are an interest in real property"]; Hahn v Hagar, 153 AD3d 105, 111 [2d Dept 2017]["development rights are clearly real property"]). Plaintiffs also assert that the right or option was to purchase an interest in other property. Plaintiffs state that the High Line rezoning created the right or option to purchase the additional development rights, namely the additional FAR, from the City, and that payment in exchange for development rights is a purchase. Plaintiffs further contend that the fact that IAC//Georgetown and HTRF opted to relinquish the rights for $35 million was merely ministerial, and that it was the agreement to merge the lots that created the entitlement to purchase the additional FAR.
In addition, plaintiffs argue that only the Letter Agreement is at issue in this action, and that the intent of the parties at the time of the Letter Agreement was that they were partners obligated to share equally in the opportunities presented, an obligation that plaintiffs fulfilled by presenting an opportunity to defendants. Plaintiffs maintain that the terms of the Letter Agreement should be interpreted considering the intent of the parties to be equal partners. Plaintiffs offer the testimony of their counsel for the Related Transaction, Jeffrey Lenobel, who testified, in essence, that the parties to the Letter Agreement intended to have equal control and equal economic interest in the transaction (see Jeffrey Lenobel EBT, NYSCEF Doc. No. 235).
In reply, defendants argue that the Letter Agreement does not contemplate the Related Transaction, and thus, plaintiffs do not have the right to participate with "equal economic and control basis" in the transaction. Defendants also argue that the Letter Agreement contemplates a "purchase or lease," not a relinquishing or sale of its rights to below-market FAR as part of a merger of four adjacent lots.
Defendants also contend that, in any event, the Related Transaction agreements show that defendants did not obtain a right to purchase an interest in other property, within the meaning of the terms of the Letter Agreement. Defendants insist that in the Related Transactions they surrendered any right they had to utilize any additional FAR before the zoning lots were even merged.
On review of the submissions, the Court concludes that the existence triable issues of fact preclude summary judgment on plaintiffs' claim for judgment declaring that, under the Letter Agreement, they are entitled to share equally in the $35 million fee that Related paid to IAC/Georgetown and HTRF. Plaintiffs allege that, under the terms of the Letter Agreement, in 2005 when the City adopted zoning regulation modifications, the modified regulations permitted the merger of zoning lots 12 and 54 with zoning lots 20 and 29 to form on zoning lot, and that, upon the merger, defendants obtained "a right or option to purchase other property or any interest in any other property) located within the same square block as the Land [the IAC Headquarters]" within the meaning of the terms of the Letter Agreement. Plaintiffs further claim that defendants' transfer of the newly acquired right to purchase FAR at a discount triggered plaintiffs' "right to participate with [defendants] in such transaction on an equal economic and control basis" under the terms of the Letter Agreement.
"The fundamental rule of contract interpretation is that agreements are construed in accord with the parties' intent" (Riverside South Planning Corp. v CRP/Extell Riverside, L.P., 60 AD3d 61, 66 [1st Dept 2008]). "The best evidence of what parties to a written agreement intend is what that say in their writing" (Slamow v Del Col, 79 NY2d 1016, 1018 ). In accordance with these principles, a court should interpret a contract "so as to give full meaning and effect to the material provisions" (Beal Sav. Bank v Summer, 8 NY3d 318, 324 , quoting Excess Ins. Co. Ltd. v Factory Mut. Ins. Co., 3 NY3d 577, 582 ).
Relying on the parties' agreements for the IAC Headquarters, defendants urge that any newly acquired FAR rights were attached to zoning lots 12 and 54 at the time the parties entered into the Ground Lease and Sublease and, thus, were not a newly acquired right to "other property" within the meaning of the Letter Agreement. However, the submissions establish that the right to purchase FAR at a discount was triggered by the merger of zoning lots 12 and 54 with zoning lots 20 and 29 (see NYSCEF Doc. No. 225, supra). Furthermore, the FAR available for purchase on the newly merged zoning lot could only be used collectively of either zoning lot 20 or 29 (id.). As such, a question of fact exists as to the applicability of the term "other property" as used in the Letter Agreement. In addition, questions of fact are raised as to the intent of the parties in entering into the 2004 agreements and Letter Agreements. As such, the Court cannot conclusively declare the respective legal rights of the parties, as a matter of law, based on the submissions. Thus, the branch of the motion that seeks summary judgment dismissing plaintiffs' claim for judgment declaring that, under the Letter Agreement, they are entitled to share equally in the $35 million fee that Related paid to IAC/Georgetown and HTRF is denied.
The branch of the motion that seeks summary judgment dismissing the claim for judgment declaring that defendants will be unjustly enriched if they are permitted to retain the entire $35 million is also denied. Unjust enrichment is a quasi-contract theory of recovery, and is an obligation imposed by equity to prevent injustice in the absence of an actual agreement between the parties concerned (see IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 142 (2009]). In order to prevail on a claim for unjust enrichment, plaintiffs must prove that defendants were enriched at plaintiffs' expense, and that it is against equity and good conscience to permit defendants to retain what is sought to be recovered (see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 ).
Although "the existence of a valid and enforceable agreement governing a particular subject matter of the dispute ordinarily precludes recovery in quasi contract for events arising out of the same subject matter" (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388), "where there is a bona fide dispute as to the existence or the application of a contract in the dispute in issue, a plaintiff may proceed upon a theory of quasi contract as well as breach of contract" (Goldman v Simon Prop. Group, Inc., 58 AD3d 208, 220 [2d Dept 2008]).
Here, plaintiffs assert that the Letter Agreement is the only contact at issue in this action, and that, under said agreement, they are entitled to recover half of the $35 million fee from the Related Transactions. However, defendants assert that the Letter Agreement is inapplicable since all the work performed by plaintiffs was done pursuant to the Development Agreement. Given the dispute regarding the applicability of the Letter Agreement in this action, plaintiffs may conceivably be entitled to recover under the theory of unjust enrichment upon proofs to be offered at trial.
Accordingly, it is hereby
ORDERED that the motion of defendants IAC/Interactive, HTRF, and IAC Holdings, pursuant to CPLR 3212, for summary judgment dismissing the Amended Complaint, is denied.
ROBERT R. REED, J.S.C.
Robert R. Reed, J.
Response sent, thank you
Docket No: Index No. 651304/2016
Decided: January 12, 2023
Court: Supreme Court, New York County, New York.
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