485 Shur LLC v Lightstone Acquisitions III and 485 Seventh Avenue Associates LLC

Rosenberg & Estis, P.C. represented Lightstone Acquisitions III LLC and 485 Seventh Avenue Associates LLC before Justice Arthur F. Engoron of the New York State Supreme Court, New York County, successfully moving to dismiss a claim for union benefit and pension payments arising out of the sale of an office building in midtown Manhattan. Rosenberg & Estis also secured a judgment for its client’s attorneys’ fees and costs incurred in connection with the now-dismissed action. 485 Shur LLC, the plaintiff, sold 485 Seventh Avenue to Rosenberg & Estis‘s client in November 2014. The building is subject to a union benefit and pension plan in favor of the building’s unionized employees. Applicable federal law 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; and further, 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. The seller relied on various assignment agreements executed in connection with the purchase to argue that it had contractually shifted its obligation to satisfy the withdrawal liability to purchaser. However, as Rosenberg & Estis successfully argued in its 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, Rosenberg & Estis 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. In addition, 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. Concluding: “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 ruling, 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.