Claim For Union Benefit and Pension Payments in Office Building Sale Dismissed

logoRosenberg & Estis, P.C. Secures Dismissal and Judgment for Attorneys' Fees and Costs

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Rosenberg & Estis, P.C., on behalf of Lightstone Acquisitions III LLC and 485 Seventh Avenue Associates, successfully moved to dismiss a claim for union benefit and pension payments arising out of the sale of an office building in midtown Manhattan. In addition, Rosenberg & Estis secured a judgment for its client's attorneys' fees and costs incurred in connection with the now-dismissed action.

Luise A. Barrack, managing member and chair of the firm's litigation department, and Alexander Lycoyannis, a member of the firm's litigation and appeals departments, represented the client before Justice Arthur F. Engoron of the New York State Supreme Court, New York County.

"The decision represents a significant victory for our client, and demonstrates the broad scope of the firm's expertise," Barrack said. "While Rosenberg & Estis specializes in real estate law, we routinely address issues outside of this focus in litigation, prevailing for our clients and achieving their goals."

485 Shur LLC, the plaintiff, sold 485 Seventh Avenue, a 16-story office building between West 36th and West 37th streets, to Rosenberg & Estis's client in November 2014. The building, which has since been repositioned as a hotel, is subject to a union benefit and pension plan in favor of the building's unionized employees.

Applicable federal law -- ERISA (the Employee Retirement Income Security Act of 1974), as amended by MPPAA (the Multiemployer Pension Plan Amendments Act of 1980) -- provides that a building owner that ceases contributing to such a plan, whether by selling the building or otherwise, incurs "withdrawal liability" to the fund administering the plan. Applicable law further provides that a seller may shift such withdrawal liability to a purchaser, but only if three specific conditions are met and provided for in the contract of sale.

As Rosenberg & Estis established in its motion to dismiss, the seller's complaint did not allege that such conditions were met, and the contract of sale did not contain the provisions required by law to shift liability to the purchaser.

"The seller relied on various assignment contracts executed in connection with the purchase to argue that it had contractually shifted its obligation to satisfy the withdrawal liability to purchaser," said Lycoyannis. "However, as we successfully argued in our motion, the seller's withdrawal liability was imposed by law and not by any contract, rendering these assignment agreements irrelevant. Moreover, while the seller claimed that the parties 'intended' the contract documents to transfer withdrawal liability to purchaser, we established that any such subjective 'intent' (which did not, in fact, exist) would be is insufficient to transfer such liability; strict compliance with the relevant statutes was required."

The complaint's lack of merit was confirmed by the seller's actions after the closing and prior to the commencement of this action. After the closing, the union commenced an action in federal court to recover the withdrawal liability, totaling nearly $300,000, from the seller. The seller repeatedly demanded that the purchaser pay the withdrawal liability, but the purchaser refused to do so. Thereupon, however, the seller did not implead the purchaser into the federal action, but instead voluntarily paid the withdrawal liability to settle such action -- strongly suggesting that the seller believed its contractual claims asserted in this action would have been unsuccessful in federal court.

In his decision, Justice Engoron granted the purchaser's motion to dismiss the complaint for the above-stated reasons, among others. Justice Engoron concluded: "Thus, because [the purchaser's] obligation to indemnify [the seller] is triggered only by a breach of the Contract Documents, and the documentary evidence establishes that [the seller's] Withdrawal Liability was imposed by operation of law and not by reason of any breach on the part of [the purchaser], there is no legal or factual basis for Seller's claims and the complaint must be dismissed as the documentary evidence 'conclusively establishes a defense to the asserted claims as a matter of law.'"

Furthermore, the seller's breach of contract claim was based, in part, on the contract of sale for the subject building, which contained a provision awarding attorneys' fees to the prevailing party in any action seeking to enforce the contract. As a result of Supreme Court granting Rosenberg & Estis's motion to dismiss the complaint, the purchaser was the prevailing party in the action. Accordingly, Supreme Court granted the purchaser judgment as to liability for all reasonable costs and expenses incurred in connection with the action, including, without limitation, reasonable attorneys' fees and court costs actually incurred. The amount of such liability will be fixed at a hearing to be held before a special referee.