Court Opinion

ID: 2742978
Source: CourtListenerOpinion
Date Created: 2014-10-16 15:06:07.397752+00
Date Added: 2024-06-11T12:41:40.102553
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: October 16, 2014                   517392
________________________________

ST. LAWRENCE FACTORY STORES,
                    Appellant,
      v
                                            MEMORANDUM AND ORDER
OGDENSBURG BRIDGE AND PORT
   AUTHORITY,
                    Respondent.
________________________________

Calendar Date:   September 10, 2014

Before:   Lahtinen, J.P., McCarthy, Rose, Lynch and Devine, JJ.

                             __________

     David C. Buran, Colchester, Vermont, for appellant.

      Harter Secrest & Emery, LLP, Rochester (A. Paul Britton of
counsel), for respondent.

                             __________

Lynch, J.

      Appeals (1) from that part of an order of the Supreme Court
(Rogers, J.), entered March 29, 2013 in St. Lawrence County, upon
a decision of the court in favor of defendant, and (2) from the
judgment entered thereon.

      The history of this breach of contract action, which was
commenced in 1992, is chronicled in three prior decisions of this
Court (49 AD3d 1069 [2008]; 26 AD3d 700 [2006]; 202 AD2d 844
[1994]). The underlying dispute arises out of a 1990 sale option
contract giving plaintiff, a general partnership, the option to
purchase an undeveloped tract of land in the City of Ogdensburg,
St. Lawrence County for purposes of constructing a retail factory
outlet. As relevant here, following a bench trial in 2006,
Supreme Court found that defendant breached the contract in bad
                              -2-                517392

faith by failing to complete the closing on January 17, 1992, but
that plaintiff failed to prove damages. After this Court
affirmed (49 AD3d 1069 [2008], supra), the Court of Appeals
determined that the dismissal before trial of plaintiff's claim
for reliance damages was in error (13 NY3d 204 [2008]). That
Court reinstated plaintiff's claim for reliance damages, defined
as "damages based on [its] reliance interest, including
expenditures made in preparation for performance or in
performance, less any loss that the party in breach can prove
with reasonable certainty the injured party would have suffered
had the contract been performed" (id. at 208 [internal quotation
marks and citation omitted]). Correspondingly, "it is equally
fundamental that the injured party should not recover more from
the breach than [it] would have gained had the contract been
fully performed" (Freund v Washington Sq. Press, 34 NY2d 379, 382
[1974]). After a trial on remittal limited to the issue of
reliance damages, Supreme Court found that defendant proved with
reasonable certainty that plaintiff would not have been able to
recover its performance expenses had the contract been performed,
since the proposed construction of a factory outlet at the site
was not feasible. As a result, the court limited the damages
award to the recovery of the option payment and expenses for a
survey and soil testing. Plaintiff appeals.

      Essentially, plaintiff maintains that Supreme Court's
decision is against the weight of the trial evidence, contending
that defendant failed to meet its burden of demonstrating that
plaintiff would not be able to recover its expenses had it closed
on the property. "Upon review of a nonjury trial verdict, this
Court independently review[s] the probative weight of the
evidence, together with the reasonable inferences that may be
drawn therefrom, and grant[s] the judgment warranted by the
record while according due deference to the trial court's factual
findings and credibility determinations" (Fitzpatrick v Animal
Care Hosp., PLLC, 104 AD3d 1078, 1079-1080 [2013] [internal
quotation marks and citations omitted]). As noted by Supreme
Court, reliance damages are recoverable "provided they are
proximate in effect, and are not speculative or uncertain in
character and were fairly within the contemplation of the parties
when the [contract] was made, or might have been foreseen as a
consequence of a breach of its covenants" (Friedland v Myers, 139
                              -3-                517392

NY 432, 436 [1893]; see Restatement [Second] of Contracts § 349;
13 NY3d at 208).

      A key feature of the underlying option to purchase was that
plaintiff was required to build a retail factory outlet on the
property, which could not be developed for any other purpose. To
that end, plaintiff presented testimony showing substantial
efforts were undertaken throughout 1990 and 1991 to secure
prospective tenants and financing for the actual construction of
the project. Plaintiff asserted performance expenses totaling
$576,176 based, in part, on various expenses incurred by both the
partnership and Frank Arvay, its managing partner, in efforts to
secure tenants and financing, and in designing and marketing the
project. Notably, the expense total also includes a "developer's
fee" of $140,625 and "partners leasing fees" of $90,150.

      By the closing date, however, plaintiff had yet to secure
financing. Although plaintiff had secured a number of lease
commitments, in December 1991, an anchor tenant sent a
cancellation notice of its lease. As a result, 17 leases
remained, representing approximately 56% of the gross leaseable
space, but six of these were terminable at will. There were also
six letters of intent to lease. Negotiations were still ongoing
to secure financing through First Toronto Group, the only
remaining prospective lender, but Arvay was uncertain as to
whether he informed that lender that an anchor tenant had
cancelled.

      In this context, Supreme Court credited the testimony of
David Schwaner, defendant's expert witness, that the project was
not feasible as of January 1992. Schwaner, a commercial real
estate appraiser, testified that it was difficult to obtain
financing for real estate development projects in the early
1990s. Schwaner also disputed the assertion of Emmanuel Halper,
plaintiff's expert, that financing became easier to obtain in
1992. After performing an analysis of shopping center sales in
St. Lawrence County from 1992 through 2010, Schwaner opined that
retail properties had been significantly overbuilt in St.
Lawrence County. Based on the size of the project and the
changing currency exchange rates with Canada, Schwaner testified
that the project was too small to attract Canadian customers – a
                              -4-                517392

significant contention given that plaintiff marketed the project
as reliant on a Canadian customer base. While we previously
determined that Arvay was entitled to pursue this project on
behalf of the partnership (202 AD2d at 845), his partner's
refusal to participate certainly compromised their prospects. To
illustrate, Key Bank offered financing conditioned on personal
guarantees by the partners – a condition that could not be met
because, as Arvay conceded, his partner would not have signed the
guarantee. As Supreme Court emphasized, plaintiff had been
rejected by over 30 lenders, and had contacted up to 90 lenders
without success. Moreover, the court found no credible evidence
that tenants who had signed letters of intent remained interested
in the project. Although Halper painted a much brighter picture
for the project, Supreme Court found his testimony less
compelling, noting that he did not factor in the demand for
retail shopping facilities in St. Lawrence County or the
demographics of the area. Given the dispute between experts, we
defer to Supreme Court's assessment of their credibility.

      On this record, we find ample support for Supreme Court's
determination that the project was not feasible. We are not
persuaded by plaintiff's thesis that the project could have
succeeded at some future point or that the partnership could have
recouped its expenses by selling the project to another
developer. That plaintiff was able to sell a different,
undeveloped project to a new developer does not mean that the
same opportunity would have arisen here, and to assert as much is
simply speculative. Moreover, we do not agree with plaintiff's
assertion that defendant was required to demonstrate that
plaintiff could never recover its losses. The standard here is
one of "reasonable certainty" based on circumstances presented at
the time of the breach, and a reasoned assessment of the
project's potential. Consistent with Schwaner's testimony, Arvay
conceded that a drought in financing continued through 1994, and
that by 1998 it was no longer feasible to attract Canadian
customers for the project. All told, Supreme Court reasonably
concluded that the factory outlet center would not have been
built and that plaintiff would have been unable to recoup its
preparation expenses even if it had purchased the property from
defendant at the January 1992 closing.
                              -5-                  517392

      We do find that an adjustment in the interest award is
required. Supreme Court duly awarded interest pursuant to CPLR
5001 on each damage item from the "earliest ascertainable date
the cause of action existed," i.e., January 17, 1992. Plaintiff
maintains that he was also entitled to an award of interest
pursuant to CPLR 5002 from the court's November 2006 judgment
finding that defendant had breached the parties' contract, as in
a bifurcated trial (see Love v State of New York, 78 NY2d 540,
544 [1991]). We agree. The dispositive point from Love is that
plaintiff's right to be compensated for damages became fixed upon
the court's breach of contract determination (see id.). That
there has been an extensive delay in defining and computing the
amount of plaintiff's reliance damages "is of no moment" (id.).
As such, we conclude that plaintiff is also entitled to
prejudgment interest under CPLR 5002 calculated from the date of
the breach of contract determination.

     Lahtinen, J.P., McCarthy, Rose and Devine, JJ., concur.

      ORDERED that the order and judgment are modified, on the
law, without costs, by awarding prejudgment interest pursuant to
CPLR 5002; matter remitted to the Supreme Court for a
recalculation of interest; and, as so modified, affirmed.

                             ENTER:

                             Robert D. Mayberger
                             Clerk of the Court