Preview
INDEX NO. 907530-23
FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM
NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024
STATE OF NEW YORK
SUPREME COURT COUNTY OF ALBANY
COMMERCIAL DIVISION
DECISION & ORDER
DOWNSTATE AT LICH HOLDING
COMPANY, INC.,
Plaintiff,
-against-
FORTIS PROPERTY GROUP, LLC,
Defendant.
FORTIS PROPERTY GROUP, LLC and FPG
COBBLE HILL ACQUISITIONS, LLC,
Counterclaim Plaintiffs,
-against-
DOWNSTATE AT LICH HOLDING
COMPANY, INC.,
Counterclaim Defendant,
and
NYU HOSPITALS CENTER,
Counterclaim Defendant.
Index No.: 907530-23
(Judge Richard M. Platkin, Presiding)
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APPEARANCES:
PROSKAUER ROSE LLP
Attorneys for Downstate at LICH Holding Company, Inc.
(Peter J.W. Sherwin, Lee Popkin and Adam Farbiarz, of counsel)
Eleven Times Square
New York, New York 10036
BOIES SCHILLER FLEXNER LLP
Attorneys for Fortis Property Group, LLC and FPG Cobble Hill Acquisitions, LLC
(George F. Carpinello and Jenna C. Smith, of counsel)
30 South Pearl Street, 11 Floor
Albany, New York 12207
BECKER, GLYNN, MUFFLY, CHASSIN & HOSINSKI LLP
Attorneys for NYU Langone Hospitals (formerly known as NYU Hospitals Center)
(Richard N. Chassin, Zeb Landsman, Paula Eppinghaus and Kevin Lin, of counsel)
299 Park Avenue, 16th Floor
New York, New York 10171
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Hon. Richard M. Platkin, A.J.S.C.
Plaintiff/counterclaim defendant Downstate at LICH Holding Company, Inc. (“Downstate
at LICH”) moves for: (1) dismissal of the counterclaims alleged by defendant/counterclaim
plaintiff Fortis Property Group, LLC (“Fortis”); and (2) summary judgment on its sole cause of
action, which seeks to enforce an $8 million commercial guarantee against Fortis (see NYSCEF
Doc No. 1 [“Complaint”]). Fortis opposes the motions and cross-moves for the summary
dismissal of the Complaint.
Fortis and its affiliate, counterclaim plaintiff FPG Cobble Hill Acquisitions, LLC
(“Cobble Hill”), move for leave to amend their corrected Verified Answer and Amended
Counterclaims (see NYSCEF Doc No. 80 [“VAC”]) to plead, as an additional affirmative
defense, that the guarantee did not become effective due to the failure of a condition precedent.
The motion to amend is unopposed.
Counterclaim defendant NYU Hospitals Center (“NYUHC”) moves, pre-answer, to
dismiss the counterclaims alleged against it by Fortis and Cobble Hill.
BACKGROUND
A The Parties
Downstate at LICH is a not-for-profit corporation affiliated with the State University of
New York (“SUNY”) (see Complaint, { 2).
Fortis is a real-estate investment, operating, management and development company with
its principal place of business in New York (see VAC, Amended Counterclaims [“ACC”], § 9).
Cobble Hill is an affiliate of Fortis (see id., J 10).
NYUHC, now known as NYU Langone Hospitals, is a not-for-profit corporation
affiliated with New York University (see id., J 12).
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B. Downstate at LICH’s Complaint
Downstate at LICH entered into a First Amended and Restated Purchase and Sale
Agreement (“PSA”) with Fortis, Cobble Hill and NYUHC, effective as of June 30, 2014 (see
Complaint, { 7; NYSCEF Doc No. 2 [PSA]). Under the PSA, Downstate at LICH (“Seller”)
agreed to sell, and Cobble Hill (“Purchaser”) agreed to purchase, “a group of premises” for the
total sum of $240 million, with the closing to occur “in three stages” (Complaint, § 8).
First, there would be an “Initial Closing,” at which Purchaser would pay $120 million to
Seller, less one-half of the $24 million down payment and other specified adjustments, and
receive title to the parcels described as the “Initial Closing Premises” (id., ] 9; PSA, §§ 1.1, 2.1).
Next, there would be a closing as to the “New Medical Site,” which is referred to as the
“NMS Closing” (PSA, § 4.1 [b]). The conveyance of the New Medical Site to Purchaser was
made subject to Purchaser’s obligation to re-convey the premises to NYUHC to construct a
“New Medical Building” (Complaint, § 9; see PSA, §§ 1.1 [a], 1.3 [a], 15.1 [b]).
The PSA then called for a “Final Closing,” at which Purchaser would pay Seller the
remaining balance of funds due and receive title to the remaining two premises, referred to as the
“Final Closing Premises” (Complaint, J 9; see PSA, §§ 1.1, 2.1).
“In order to secure Purchaser’s obligation to acquire the Final Closing Premises,
Fortis agreed to deliver to Seller at the Initial Closing a guarantee to pay Seller $3 million if
Purchaser defaults in its obligation to acquire the Final Closing Premises, which amount is in
addition to Seller’s right to retain the downpayment” (Complaint, { 10).
“As the Initial Closing approached, Seller, Purchaser, and Fortis agreed that $22 million
of the downpayment could be used in the Initial Closing, rather than $12 million. This
reduction in the remaining downpayment, however, would be offset by a further $5 million
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downpayment to be paid by Purchaser within six months, payment of which Fortis would
guarantee, and by increasing the default guarantee from Fortis by $5 million from $3 million to
$8 million” (id., § 11; see NYSCEF Doc No. 3 [‘“Waiver”]).
The Initial Closing was held on September 1, 2015, and Fortis and Downstate at LICH
entered into a guarantee agreement as of such date (see Complaint, { 13; NYSCEF Doc No. 5
[*Guarantee”]). Fortis unconditionally guaranteed the full amount of the “Guaranteed
Obligation” ($8 million) “when and if due” pursuant to Sections 2.3 and 14.1 (b) of the PSA and
Sections | (C) and 1 (D) of the Waiver (Complaint, {| 14; see Guarantee, § 1.1), and those
sections trigger Fortis’s payment obligation “if Purchaser defaults in its obligation to
consummate the Final Closing and acquire the Final Closing Premises” (Guarantee at 2; see
PSA, §§ 2.3, 14.1 [b]; Waiver, § 1 [C]).
After some back and forth, the parties eventually agreed to a “Final Closing Deadline” of
August 8, 2023 (see Complaint, {fj 21-30, 36-37). Under the PSA, “TIME SHALL BE OF
THE ESSENCE FOR THE PARTIES TO CONDUCT THE FINAL CLOSING ON OR
BEFORE THE FINAL CLOSING DEADLINE” (PSA, § 4.5 [c] [emphasis in original]).
On July 28, 2023, Seller reminded Purchaser of the August 8, 2023 Final Closing
Deadline and confirmed that it was ready, willing and able to close (see Complaint, { 39).
On August 8, 2023, Seller “tendered to Purchaser all of its deliverables with respect to the
Final Closing . . . and was ready, willing and able to close,” thereby satisfying the “conditions
precedent set forth in Section 4.2 (e)” of the PSA “to Purchaser’s obligations to consummate the
purchase of the Final Closing Premises and pay the Final Amount” (id., { 40).
However, “Purchaser failed to pay the Final Amount or comply with its other obligations
under the PSA” (id., 41). Instead, Purchaser asserted that: (i) Seller failed to apply closing
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credits of least $70 million, and as much as $100 million, that allegedly were promised by SUNY
officials; and (it) NYUHC had not vacated the Final Closing Premises in “good order,” which
was said to be a condition precedent to Purchaser’s obligation to close (see id., {{] 42-43; see also
NYSCEF Doc No. 34).
On August 9, 2023, Seller notified Purchaser and Fortis that (1) Purchaser was in default
of its obligations under the PSA for failing to consummate the Final Closing by August 8, 2023,
and (2) Seller was terminating the PSA based on Purchaser’s default (see Complaint, {ff 45-46).
Later the same day, Seller commenced this action to recover $8 million from Fortis under
the Guarantee (see id., {J 48-52).
C Fortis and Cobble Hill’s Counterclaims — “The Rest of the Story”
Fortis and Cobble Hill maintain that this was not the “simple transaction for the sale of
certain properties in Brooklyn” portrayed in the Complaint (VAC at 7).
The relevant history is said to date back to 2011, when SUNY and/or Downstate at LICH
acquired substantially all of the assets of Long Island College Hospital (“LICH”) “in the hope
that LICH would act as a satellite hospital for [SUNY’s] largest facility, University Hospital of
Brooklyn, and provide training opportunities for [SUNY medical] residents” (ACC, 13).!
However, LICH operated at dramatic losses, putting SUNY/Downstate at LICH “in a precarious
financial position” and making them “the target of litigation and public outrage” (id., {{] 14-15).
The SUNY Board of Trustees voted to close LICH in February 2013, “citing its dire
financial condition” (id., 16). The closing was opposed by unions, community groups and
others concemed about the impact on “low-income community members” (id., { 17). As a result
' As discussed at oral argument, Fortis and Cobble Hill inexplicably refer to Downstate at LICH by the
defined term “SUNY?” in all oftheir pleadings and motion papers (see e.g. VAC at 7), leaving it unclear at times
which factual allegations are directed at plaintiff Downstate at LICH versus nonparty SUNY (see generally
NYSCEF Doc No. 147 at 7-11).
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of lawsuits bought in Supreme Court, Kings County (“Lawsuits”) (see id., { 18), SUNY was
temporarily enjoined from closing LICH or reducing the level of services (see id., § 20).
By July 2013, LICH reportedly was operating at a loss of $15 million per month, while
SUNY remained embroiled in litigation (see id., 22). Given the massive losses, SUNY
proposed to “cease operating LICH as soon as possible in favor of a new operator” (id., {| 23).
On July 17, 2013, “SUNY issued a Request for Proposals (‘RFP’) to offer health care
services at the LICH campus, or in the community proximate to LICH, consistent with the health
care needs of the community, and to purchase the LICH property, plant and equipment” (id., |
24). Fortis was “one of the five bidders who submitted proposals in response to that RFP, and a
SUNY committee designated Fortis’s proposal as the highest scorer. However, as a result of
intense public criticism and political pressure, SUNY’s trustees decided to postpone the decision
to award the RFP to Fortis” (id.).
“As a result of further public criticism and pressure from the ongoing litigation, SUNY
re-opened the RFP process to the original bidders, allowing them to further refine the medical
components of their proposals” (id., { 25).
SUNY agreed to conduct a third RFP as part of settlement of the Lawsuits (see id., 26).
Under the settlement, the RFP would be opened to new bidders and favor proposals that included
a full-service hospital (see id.). The settlement agreement allowed SUNY to discontinue
providing medical services at LICH as of May 22, 2014 (see id., § 28).
“Fortis’s proposal was in third place after the nine proposals submitted in response to the
third RFP were evaluated” (id., | 35). However, after the two highest-ranked bidders were
unable to consummate a binding agreement with Downstate at LICH, Fortis was declared the
winner (see id., ff] 36-37).
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“The central component of Fortis’s proposal, which it submitted on March 19, 2014, was
its health care partnership with NYUHC” (id., 41). “Fortis’s proposal was centered around
providing healthcare to the community through NYUHC, and included NYUHC’s
commitment . . . to lease between 50,000 and 60,000 square feet of space at market rates from
Fortis. In other words, NYUHC would provide and manage health care services at LICH as a
tenant of Fortis” (id., {{ 41-42).
NYUHC’s commitment was reflected in a December 30, 2013 letter of intent, which
provided that if Fortis acquired certain premises and constructed a “New Medical Building,”
NYUHC would lease the premises and operate a medical facility (id., {| 44-45). The parties
agreed in principle to a 20-year lease of the New Medical Building for a price of $55 per square
foot, with 2% annual increases (see id., | 46).
“The parties originally contemplated that it would take 2-3 years for completion of the
new facility. In the interim, NYUHC would run an emergency department in the old hospital and
Fortis would pay the operating expenses for that building, thereby relieving SUNY of this heavy
financial obligation” (id., 4 47).
Fortis’s bid was accepted, and the parties entered into a Purchase and Sale Agreement
dated June 30, 2014 (see NYSCEF Doc No. 42 [“Original PSA”}), by which Cobble Hill would
purchase about two dozen parcels from Downstate at LICH for $240 million (less certain,
specified credits), with Fortis serving as a limited guarantor of Cobble Hill’s performance.
According to Fortis, “the single most significant factor in [its] decision to sign the
Original PSA” was NYUHC’s commitment to substantially increase the amount of leased
medical space in the New Medical Building (ACC, ff] 49-50). “Then, after the Original PSA was
signed, NYUHC did a dramatic about-face” (id., ] 51).
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“SUNY and NYUHC held a series of meetings, without Fortis, in which NYUHC
procured SUNY’s commitment to revise the deal to cut out Fortis from the construction and
leasing of the New Medical Building. NYUHC further procured SUNY’s commitment to require
Fortis to buy the property on which the New Medical Building would be constructed but to
convey the property directly from SUNY to NYUHC for no consideration. Basically, NYUHC
was demanding a $60 million donation (in the form of land) from Fortis” (id., { 52). NYUHC
also decided that it would not hire Fortis to build the medical facility (see id., 54).
Because “NYUHC’s commitments were most critical to Fortis in its submission of a $240
million purchase price in connection with its proposal” (id., 55), “Fortis refused to proceed
with the deal as proposed by SUNY and NYUHC, and advised SUNY that it would substitute
NYUHC with another healthcare provider” (id., 59). But “SUNY did not want Fortis to replace
NYUHC with another healthcare provider because doing so, according to SUNY, would lead to
bad press and likely further legal challenges to the RFP process” (id., 60).
Instead, “senior SUNY officials, particularly Vice-Chancellor Jim Malatras,” convinced
Fortis to proceed with the “new deal” by promising “credits against the final purchase price for
all of the losses and expenses incurred by Fortis as a result of NYUHC’s change of position” (id.,
{9 61, 70). These credits allegedly would make Fortis whole for: (i) “the loss of NYUHC’s
market rate rent” (id., § 61); (ii) Fortis’s expenses “to complete the demolition work required for
NYUHC to build its New Medical Building” (id., {| 62); (iii) the value of the land to be conveyed
to NYUHC for the New Medical Building (see id., { 63); (iv) Fortis’s operating expenses during
the period in which NYUHC operated an interim emergency department (see id., §] 87); and (v)
the costs to Fortis of delaying construction of its residential tower, which, for engineering
reasons, could not proceed until substantial completion of the New Medical Building (see id., {]
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92-93). The value of these credits consisted of the fixed sum of $75 million, together with
expenses, totaling to $96 million (see id., {§ 5, 93-98).
“SUNY could not be seen publicly to amend the deal documents to reflect the agreement
regarding credits to be applied in favor of Fortis against the final purchase price due to the
controversy surrounding the project, but assured Fortis that there would be dollar-for dollar
credit” (id., 71). Fortis accepted SUNY’s commitment, which was “made both orally and in
writing, embodied in emails exchanged by Malatras with representatives of Fortis and further
delineated in a letter from Malatras to Fortis’s representatives” (id., { 64).
In October 2014, Downstate at LICH, Cobble Hill, Fortis and NYUHC executed the
PSA, which was made effective as of June 30, 2014 (see id., ff 75, 81; PSA at 1). Under the
new arrangement, Cobble Hill, as Purchaser, agreed to pay Downstate at LICH, as Seller, for the
New Medical Site, but to convey the premises to NYUHC at no charge (see PSA, § 1.3 [a]).
Further, the PSA assigned to NYUHC the obligation to construct the New Medical Building and
provide medical services therein (see id., § 15.1 [b-d]).
As restructured, the deal called for the three closings described supra: (1) the Initial
Closing, at which Cobble Hill would pay about one-half of the purchase price and receive title to
the Initial Closing Premises; (2) the closing on the New Medical Site, which was made subject to
Cobble Hill’s obligation to re-convey the land to NYUHC for construction of the New Medical
Building after demolishing existing structures; and (3) a Final Closing, at which Cobble Hill
would pay the balance of funds due and receive title to the Final Closing Premises.
The PSA obliged NYUHC to operate an emergency department prior to the New Medical
Building becoming operational (see id., § 10.3 [b]). To provide for that, Downstate at LICH
agreed to lease portions of the old medical premises (“Interim Medical Premises”) to Cobble Hill
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under an “Amended Interim Lease” that obliged Cobble Hill to sub-lease the space to NYUHC
under an “Interim Sublease” (id., §§ 1.1 [b], 10.3 [b]; see NYSCEF Doc Nos. 20-21 [Amended
Interim Lease and Interim Sublease, both dated October 7, 2014 and made effective as of June
30, 2014]; see also ACC, Jf 77-79, 82). The PSA conditioned Cobble Hill’s obligation to
proceed to the Final Closing on, among other things, NYUHC having “vacated the Interim
Medical Premises pursuant to the terms of the Interim Sublease” (PSA, § 4.2 [e] [vii]).
The financial terms established by the PSA, including down payments, credits and the
scope of Fortis’s guarantee, were modified on August 21, 2015 through a letter “waiver”
agreement (see VAC, §f 11, 17; NYSCEF Doc No. 22 [“Waiver”], § 4 [C], [D]).?
The Initial Closing was held on September 1, 2015 (see ACC, 83). Per the PSA,
Downstate at LICH conveyed the sixteen (16) initial parcels to Cobble Hill in exchange for $120
million (see id.). Of that sum, “approximately $60 million represented the property to be
conveyed to NYUHC at zero cost within a year, with the New Medical Building to be
constructed within three years” (id.).
For its part, Fortis delivered the Guarantee to Downstate at LICH, promising to pay $8
million if Cobble Hill failed to proceed to the Final Closing (see id., | 88; Guarantee, § 1.1).
“The Guarantee, by its terms, requires approval and execution by the Attorney General and the
Comptroller of the State of New York”; however, “[n]o such approval was given” (ACC, { 89;
see Guarantee, § 2.2).
“NYUHC began operating an interim emergency department . . . in partnership with
Fortis” following the Initial Closing (ACC, {[ 86). “When Fortis agreed to pay operating
expenses for the old LICH hospital building so that NYUHC could operate the emergency
? The parties also executed a First Amendment to the PSA in September 2015 (see NYSCEF Doc No. 23),
which is not at issue herein.
i
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department there, NYUHC was supposed to move into its New Medical Building within 2-3
years of the initial closing” (id., | 87). However, the “closing for the NYUHC property did not
occur until 2020, and NYUHC’s move . . . did not occur until 2023, several years behind
schedule” (id.; see also id., Jf 90-91).
“NYUHC knew that Fortis could not start vertical construction of its adjoining residential
tower (‘Two River Park’) on one of the parcels purchased as part of the [Initial Closing] until
NYUHC had substantially completed its facility, because a portion of the Fortis building was to
be cantilevered over the NYUHC building” (éd., 92). “As a result of NYUHC’s delay, Fortis
was not able to . . commence construction of [the tower] and .. . incurred carrying costs
exceeding $12.1 million, and ultimately lost $50 million of equity when it was forced to convey
Two River Park and two other ‘cross-collateralized’ parcels to its lender” (id., 93).
Overall, Fortis and Cobble Hill claim to have incurred about “$96 million in lost value
and additional costs” (id., {{] 94-98) that they claim are subject to the alleged agreement of
SUNY officials “to make Fortis whole for any and all increased costs and losses caused by the
fundamental change in the deal structure” (id., 1 99)3
D. The Final Closing
On April 28, 2023, Downstate at LICH gave notice of the Final Closing, which was
scheduled for June 9, 2023 (see NYSCEF Doc No. 26). NYUHC then assured Cobble Hill and
Fortis on May 24, 2023 that the Interim Medical Premises would be vacated by such date (see
NYSCEF Doc No. 27).
3 The $96 million consists of the value of the land donated to NYUHC ($58 million), operating expenses
for the interim emergency department ($14.2 million), demolition of the NYUHC site ($11.6 million) and expenses
and losses associated with the delay in constructing Two River Park ($12.1 million) (see id., {¥] 94-98).
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On June 8, 2023, Cobble Hill wrote to Downstate at LICH, stating that the obligation to
proceed to a Final Closing Date had not been triggered because (i) the “specialty pharmacy” was
not yet operating on the New Medical Premises, and (ii) there had been no substantiation of
NYUHC’s claim that it will have vacated the Interim Medical Premises by the Final Closing
Date (NYSCEF Doc No. 28). There was no claim of entitlement to dollar-for-dollar credits (or
other extra-contractual set-offs) in that correspondence or at the June 9, 2023 tender (see
NYSCEF Doc No. 33).
The parties eventually agreed to an August 8, 2023 Final Closing Deadline. However,
Cobble Hill refused to close, citing: (i) NYUHC’s failure to vacate the Interim Medical Premises
“in good order,” as required by the PSA and Interim Sublease; and (ii) Downstate at LICH’s
“refus[al] to credit [promised losses and expenses] against the final amount” (NYSCEF Doc No.
34 at 3-4; see NYSCEF Doc No. 29; see also ACC, J 100-107).
E This Litigation
Downstate at LICH commenced this action on August 9, 2023, seeking to recover $8
million from Fortis under the Guarantee based on Cobble Hill’s alleged default.
Fortis joined issue on September 19, 2023 by serving an answer that interposed various
affirmative defenses, alleged 14 counterclaims, and joined NYUHC as a counterclaim defendant
(see NYSCEF Doc No. 11 [“Original Answer”]). Fortis also filed a notice of pendency based on
its counterclaim for specific performance (see NYSCEF Doc No. 36 [“NOP”]).
On October 3, 2023, Downstate at LICH filed two motions: (1) a motion under CPLR.
3211 (a) (1) and (7) for dismissal of Fortis’s counterclaims and cancellation of the NOP (see
NYSCEF Doc No. 13); and (2) a motion under CPLR 3212 for summary judgment on its claim
under the Guarantee (see NYSCEF Doc No. 37).
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On November 3, 2023, Fortis filed opposition to the motions and cross-moved under
CPLR 3212 for dismissal of the Complaint (see NYSCEF Doc No. 69).
Fortis also filed a Verified Answer and Amended Counterclaims on the same date (see
NYSCEF Doc No. 68), which was later re-filed as corrected (see NYSCEF Doc No. 80 [VAC];
see also NYSCEF Doc No. 100). In this amended pleading, Fortis acknowledges its contractual
duty to provide the Guarantee (see ACC, { 88), but adds the allegation that “[t]he Guarantee, by
its terms, requires approval and execution by the Attorney General and the Comptroller of the
State of New York. No such approval was given” (id., | 89).4
Also on November 3, 2023, Fortis sent a letter to Downstate at LICH asserting that “[t]he
Guarantee has never come into effect because it has never been countersigned and approved by
the Attorney General and State Comptroller, despite the passage of over eight years since it was
signed by the parties” (NYSCEF Doc No. 74). “In any event, Fortis hereby revokes, rescinds
and terminates the [G]uarantee” (id.).
Fortis then moved for leave to amend the VAC to add “an affirmative defense of a failure
of condition precedent: that the Guarantee . . . is invalid because the . . . Attorney General and
Office of the Comptroller did not approve and sign it” (NYSCEF Doc Nos. 103-104, 106).
“Given the liberal standard for amending a pleading,” Downstate at LICH did “not oppose this
motion” (NYSCEF Doc No. 108 at 2).
On December 1, 2023, Downstate at LICH sought leave to supplement the motion record
by “providing a true and correct copy of the Guarantee that includes thereon AG and OSC
4 The VAC also added Cobble Hill as a counterclaim plaintiff to certain causes of action and pleaded new
causes of action for (i) a declaration that the Guarantee is invalid or unenforceable and (ii) return of the down
payments made to Downstate at LICH. The amended pleading further alleges that the commitments for additional
credits “were made both orally and in writing” (ACC, § 64), but limited the source of those alleged commitments to
James Malatras alone (compare Original Answer, Counterclaims, { 66, with VAC, ACC, {| 70; see also ACC, ff 61-
66).
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approvals” (NYSCEF Doc No. 111). The Court granted leave but allowed Fortis to respond
through a brief supplemental filing (see NYSCEF Doc Nos. 130, 133-138).
Fortis argued that the Guarantee was “merely an offer with a condition precedent to
formation” prior to Attorney General and Comptroller’s approvals (NYSCEF Doc No. 141 at 1
[emphasis omitted]). Fortis therefore contends that it was entitled to revoke the offer on
November 3, 2023, “before the AG and OSC ever approved it, which rendered the document null
and void” (id.).
Finally, on December 1, 2023, NYUHC filed a pre-answer motion to dismiss Fortis’s
counterclaims under CPLR 3211 (a) (1), (5) and (7) (see NYSCEF Doc No. 114).
Oral argument was held on March 8, 2024, a certified transcript was filed on March 12,
2024 (see NYSCEF Doc No. 147 [“Transcript”]), and this Decision & Order follows.
GENERAL PRINCIPLES
On a motion to dismiss for failure to state a cause of action under CPLR 3211 (a) (7), a
court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of
every possible favorable inference, and determine only whether the facts as alleged fit within any
cognizable legal theory” (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). “Dismissal . . . is
warranted if the plaintiff fails to assert facts in support of an element of the claim, or if the
factual allegations and inferences to be drawn from them do not allow for an enforceable right of
recovery” (Connaughton v Chipotle Mexican Grill, Inc.,29 NY3d 137, 142 [2017]).
“{A] motion pursuant to CPLR 3211 (a) (1) must be granted where the documentary
evidence ‘conclusively refutes [claimant’s] factual allegations’ and establishes a defense as a
matter of law” (Doller v Prescott, 167 AD3d 1298, 1299 [3d Dept 2018], quoting Kolchins v
Evolution Mkts., Inc., 31 NY3d 100, 106 [2018]).
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“To dismiss a cause of action pursuant to CPLR 3211 (a) (5) on the ground that it is
barred by the applicable statute of limitations, a defendant bears the initial burden of
demonstrating, prima facie, that the time within which to commence the action has expired”
(Krog Corp. v Vanner Group, Inc., 158 AD3d 914, 915 [3d Dept 2018] [internal quotation marks
and citations omitted]). “Ifthe defendant meets this burden, the burden then shifis to the plaintiff
to raise a question of fact as to whether the statute of limitations has been tolled or was otherwise
inapplicable, or whether the action was actually commenced within the period propounded by the
defendant” (id. at 916 [internal quotation marks, brackets and citations omitted]).
Finally, “[t]o prevail on a motion for summary judgment, the moving party must establish
prima facie entitlement to judgment as a matter of law by adducing sufficient competent
evidence to show that there are no issues of material fact” (Staunton v Brooks, 129 AD3d 1371,
1372 [3d Dept 2015]). If the movant fails to satisfy this burden, the motion must be denied,
“regardless of the sufficiency of the opposing papers” (Alvarez v Prospect Hosp., 68 NY2d 320,
324 [1986]). But if the movant meets the initial burden, the burden shifts to the nonmoving party
to demonstrate the existence of disputed material facts or a legal defense to the claim (see id.).
I DOWNSTATE AT LICH’S MOTION TO DISMISS COUNTERCLAIMS
Downstate at LICH moves under CPLR 3211 (a) (1) and (7) for the dismissal of the
counterclaims alleged by Fortis and Cobble Hill and for cancelation of the NOP.
A Claims Based on the Alleged Promise of Credits
Certain of the counterclaims are based on the alleged promise of credits against the $120
million to be paid by Cobble Hill at the Final Closing, a promise allegedly intended to ameliorate
the financial impact of the changes to the deal structure made at NYUHC’s behest (“Revised
Deal Structure”). These are the counterclaims for declaration of contractual rights (Count II),
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specific performance (Count V, in part), breach of contract (Count VI) and breach of the implied
covenant of good faith and fair dealing (Count X, in part). Downstate at LICH argues principally
that the counterclaims based on the alleged promise of credits are barred by the merger and
disclaimer clauses of the PSA and Waiver.
“The purpose of a merger clause is to require the full application of the parol evidence
tule in order to bar the introduction of extrinsic evidence to alter, vary or contradict the terms of
the writing” (Jarecki v Shung Moo Louie, 95 NY2d 665, 669 [2001] [citation omitted]). Thus, a
merger clause typically precludes a party from presenting allegations or evidence of prior oral or
written agreements between the parties regarding the same subject matter (see id.; Transcan Sys.,
Tuc. v Seldat Distrib., Inc., 209 AD3d 911, 913 [2d Dept 2022]; Stevens & Thompson Paper Co.,
Inc. v Niagara Mohawk Power Corp., 49 AD3d 1011, 1014-1015 [3d Dept 2008]; cf: Safariland,
LLC v H.B.A. Agencies, Lid., 198 AD3d 519, 520-521 [1st Dept 2021)).
“Where the contract specifically disclaims the existence of . . . representations, a cause
of action alleging breach of contract based on such a .. . representation cannot be maintained”
(Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518, 521 [2d Dept 2007]; see Cobalt
Partners, L.P. v GSC Capital Corp., 97 AD3d 35, 42 [1st Dept 2012]).
The Original PSA was signed on June 30, 2014, and the alleged promise of credits was
made by a SUNY official, James Malatras, sometime prior to the October 7, 2014 signing of the
amended PSA (see ACC, {ff 61-81). Despite the claimed promise, the amended PSA provided.
Cobble Hill with the same closing credits as the Original PSA, without making any provision for
losses and expenses attributable to the Revised Deal Structure (see PSA, §§ 2.1 [c], [d]; 13.2 [a]
[i]). And the PSA includes both a merger clause and broad disclaimers regarding extra-
contractual representations:
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All prior statements, understandings, representations and
agreements between the Parties, oral or written, are superseded by,
and merged into, this [PSA] and the Incorporated Documents, which
alone fully and completely express the agreement among the Parties
in connection with the transactions contemplated hereby and which
is entered into after full investigation, no Party relying upon any
statement, understanding, representation, or agreement made by
another not embodied in this [PSA] or the Incorporated
Documents. . . . (id., § 26.3).
Additionally, Section 9.2 declares that the PSA, “‘as written, contains all of the terms of
the agreement entered into between the Parties” (id., § 9.2), and it sets forth Cobble Hill’s
acknowledgment and agreement that neither Downstate at LICH, its affiliates nor the State of
New York “have made any representations . . . , or held out any inducements, to [Cobble Hill],
other than as expressly set forth [in the PSA]” (id.).
The parties then executed the Waiver on August 21, 2015. The Waiver modified certain
financial terms of the transaction, including the credits that Cobble Hill would receive at the
Final Closing, but did not grant any additional credits to Cobble Hill on account of the Revised
Deal Structure (see Waiver, § 1 [E]). And, like the PSA, the Waiver “supersedes all prior
agreements, whether written or oral, among the Parties with respect to its subject matter and
constitutes a complete and exclusive statement of the terms of the agreement between the Parties
with respect to its subject matter” (id., § 6).
Thus, following the alleged promise of additional credits by a SUNY official, Fortis and
Cobble Hill assented to the PSA, an intricate 110-page contract among hyper-sophisticated
commercial parties that: (i) “alone fully and completely express[es] the agreement among the
Parties in connection with the transactions, «6, ‘contains all of the terms of the agreement entered
into between the Parties,” and “supersede[s]” and “merge[s]” any “prior statements,
understandings, representations and agreements between the Parties, oral or written”; (ii)
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confirms that neither “Seller nor any of Seller’s Affiliates nor the State of New York have made
any representations ..., or held out any inducements, to [Cobble Hill], other than as expressly
set forth [in the PSA]”; and (iit) disclaims reliance “upon any statement, understanding,
representation, or agreement made by another not embodied in [the PSA]” (PSA, §§ 9.2, 26.3).
And just ten months later, the contracting parties revisited the financial terms of the PSA in the
Waiver, another integrated agreement that made no provision for credits attributable to the
Revised Deal Structure.
On these facts, any claimed prior oral or written promise of additional credits “was
necessarily extinguished” when the amended PSA became effective (Jorres v D’Alesso, 80 AD3d.
46, 53 [1st Dept 2010]). “At that point, [Fortis and Cobble Hill] could not expect to rely on any
previous understanding or oral representation that was not included in the mutually executed
written document” (id.).
In concluding that the counterclaims predicated upon the alleged promise of credits are
barred by the express terms of the PSA and Waiver, the Court is unpersuaded by Fortis and
Cobble Hill’s contention that the alleged promise is an “instrument” that “constitute[s] part of the
same transaction” as the PSA and Waiver, and, therefore, must be “be interpreted together” with
the formal agreements (BWA Corp. v Alltrans Express U.S.A., Inc., 112 AD2d 850, 852 [1st Dept
1985]). This argument is based on the principle that, “{iJn the absence of anything to indicate a
contrary intention, instruments executed at the same time, by the same parties, for the same
purpose, and in the course of the same transaction will be read and interpreted together, it being
said that they are, in the eye of the law, one instrument” (id.).
Even if Malatras’s alleged oral promis
Preview
INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 STATE OF NEW YORK SUPREME COURT COUNTY OF ALBANY COMMERCIAL DIVISION DECISION & ORDER DOWNSTATE AT LICH HOLDING COMPANY, INC., Plaintiff, -against- FORTIS PROPERTY GROUP, LLC, Defendant. FORTIS PROPERTY GROUP, LLC and FPG COBBLE HILL ACQUISITIONS, LLC, Counterclaim Plaintiffs, -against- DOWNSTATE AT LICH HOLDING COMPANY, INC., Counterclaim Defendant, and NYU HOSPITALS CENTER, Counterclaim Defendant. Index No.: 907530-23 (Judge Richard M. Platkin, Presiding) 1 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 APPEARANCES: PROSKAUER ROSE LLP Attorneys for Downstate at LICH Holding Company, Inc. (Peter J.W. Sherwin, Lee Popkin and Adam Farbiarz, of counsel) Eleven Times Square New York, New York 10036 BOIES SCHILLER FLEXNER LLP Attorneys for Fortis Property Group, LLC and FPG Cobble Hill Acquisitions, LLC (George F. Carpinello and Jenna C. Smith, of counsel) 30 South Pearl Street, 11 Floor Albany, New York 12207 BECKER, GLYNN, MUFFLY, CHASSIN & HOSINSKI LLP Attorneys for NYU Langone Hospitals (formerly known as NYU Hospitals Center) (Richard N. Chassin, Zeb Landsman, Paula Eppinghaus and Kevin Lin, of counsel) 299 Park Avenue, 16th Floor New York, New York 10171 2 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 Hon. Richard M. Platkin, A.J.S.C. Plaintiff/counterclaim defendant Downstate at LICH Holding Company, Inc. (“Downstate at LICH”) moves for: (1) dismissal of the counterclaims alleged by defendant/counterclaim plaintiff Fortis Property Group, LLC (“Fortis”); and (2) summary judgment on its sole cause of action, which seeks to enforce an $8 million commercial guarantee against Fortis (see NYSCEF Doc No. 1 [“Complaint”]). Fortis opposes the motions and cross-moves for the summary dismissal of the Complaint. Fortis and its affiliate, counterclaim plaintiff FPG Cobble Hill Acquisitions, LLC (“Cobble Hill”), move for leave to amend their corrected Verified Answer and Amended Counterclaims (see NYSCEF Doc No. 80 [“VAC”]) to plead, as an additional affirmative defense, that the guarantee did not become effective due to the failure of a condition precedent. The motion to amend is unopposed. Counterclaim defendant NYU Hospitals Center (“NYUHC”) moves, pre-answer, to dismiss the counterclaims alleged against it by Fortis and Cobble Hill. BACKGROUND A The Parties Downstate at LICH is a not-for-profit corporation affiliated with the State University of New York (“SUNY”) (see Complaint, { 2). Fortis is a real-estate investment, operating, management and development company with its principal place of business in New York (see VAC, Amended Counterclaims [“ACC”], § 9). Cobble Hill is an affiliate of Fortis (see id., J 10). NYUHC, now known as NYU Langone Hospitals, is a not-for-profit corporation affiliated with New York University (see id., J 12). 3 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 B. Downstate at LICH’s Complaint Downstate at LICH entered into a First Amended and Restated Purchase and Sale Agreement (“PSA”) with Fortis, Cobble Hill and NYUHC, effective as of June 30, 2014 (see Complaint, { 7; NYSCEF Doc No. 2 [PSA]). Under the PSA, Downstate at LICH (“Seller”) agreed to sell, and Cobble Hill (“Purchaser”) agreed to purchase, “a group of premises” for the total sum of $240 million, with the closing to occur “in three stages” (Complaint, § 8). First, there would be an “Initial Closing,” at which Purchaser would pay $120 million to Seller, less one-half of the $24 million down payment and other specified adjustments, and receive title to the parcels described as the “Initial Closing Premises” (id., ] 9; PSA, §§ 1.1, 2.1). Next, there would be a closing as to the “New Medical Site,” which is referred to as the “NMS Closing” (PSA, § 4.1 [b]). The conveyance of the New Medical Site to Purchaser was made subject to Purchaser’s obligation to re-convey the premises to NYUHC to construct a “New Medical Building” (Complaint, § 9; see PSA, §§ 1.1 [a], 1.3 [a], 15.1 [b]). The PSA then called for a “Final Closing,” at which Purchaser would pay Seller the remaining balance of funds due and receive title to the remaining two premises, referred to as the “Final Closing Premises” (Complaint, J 9; see PSA, §§ 1.1, 2.1). “In order to secure Purchaser’s obligation to acquire the Final Closing Premises, Fortis agreed to deliver to Seller at the Initial Closing a guarantee to pay Seller $3 million if Purchaser defaults in its obligation to acquire the Final Closing Premises, which amount is in addition to Seller’s right to retain the downpayment” (Complaint, { 10). “As the Initial Closing approached, Seller, Purchaser, and Fortis agreed that $22 million of the downpayment could be used in the Initial Closing, rather than $12 million. This reduction in the remaining downpayment, however, would be offset by a further $5 million 4 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 downpayment to be paid by Purchaser within six months, payment of which Fortis would guarantee, and by increasing the default guarantee from Fortis by $5 million from $3 million to $8 million” (id., § 11; see NYSCEF Doc No. 3 [‘“Waiver”]). The Initial Closing was held on September 1, 2015, and Fortis and Downstate at LICH entered into a guarantee agreement as of such date (see Complaint, { 13; NYSCEF Doc No. 5 [*Guarantee”]). Fortis unconditionally guaranteed the full amount of the “Guaranteed Obligation” ($8 million) “when and if due” pursuant to Sections 2.3 and 14.1 (b) of the PSA and Sections | (C) and 1 (D) of the Waiver (Complaint, {| 14; see Guarantee, § 1.1), and those sections trigger Fortis’s payment obligation “if Purchaser defaults in its obligation to consummate the Final Closing and acquire the Final Closing Premises” (Guarantee at 2; see PSA, §§ 2.3, 14.1 [b]; Waiver, § 1 [C]). After some back and forth, the parties eventually agreed to a “Final Closing Deadline” of August 8, 2023 (see Complaint, {fj 21-30, 36-37). Under the PSA, “TIME SHALL BE OF THE ESSENCE FOR THE PARTIES TO CONDUCT THE FINAL CLOSING ON OR BEFORE THE FINAL CLOSING DEADLINE” (PSA, § 4.5 [c] [emphasis in original]). On July 28, 2023, Seller reminded Purchaser of the August 8, 2023 Final Closing Deadline and confirmed that it was ready, willing and able to close (see Complaint, { 39). On August 8, 2023, Seller “tendered to Purchaser all of its deliverables with respect to the Final Closing . . . and was ready, willing and able to close,” thereby satisfying the “conditions precedent set forth in Section 4.2 (e)” of the PSA “to Purchaser’s obligations to consummate the purchase of the Final Closing Premises and pay the Final Amount” (id., { 40). However, “Purchaser failed to pay the Final Amount or comply with its other obligations under the PSA” (id., 41). Instead, Purchaser asserted that: (i) Seller failed to apply closing 5 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 credits of least $70 million, and as much as $100 million, that allegedly were promised by SUNY officials; and (it) NYUHC had not vacated the Final Closing Premises in “good order,” which was said to be a condition precedent to Purchaser’s obligation to close (see id., {{] 42-43; see also NYSCEF Doc No. 34). On August 9, 2023, Seller notified Purchaser and Fortis that (1) Purchaser was in default of its obligations under the PSA for failing to consummate the Final Closing by August 8, 2023, and (2) Seller was terminating the PSA based on Purchaser’s default (see Complaint, {ff 45-46). Later the same day, Seller commenced this action to recover $8 million from Fortis under the Guarantee (see id., {J 48-52). C Fortis and Cobble Hill’s Counterclaims — “The Rest of the Story” Fortis and Cobble Hill maintain that this was not the “simple transaction for the sale of certain properties in Brooklyn” portrayed in the Complaint (VAC at 7). The relevant history is said to date back to 2011, when SUNY and/or Downstate at LICH acquired substantially all of the assets of Long Island College Hospital (“LICH”) “in the hope that LICH would act as a satellite hospital for [SUNY’s] largest facility, University Hospital of Brooklyn, and provide training opportunities for [SUNY medical] residents” (ACC, 13).! However, LICH operated at dramatic losses, putting SUNY/Downstate at LICH “in a precarious financial position” and making them “the target of litigation and public outrage” (id., {{] 14-15). The SUNY Board of Trustees voted to close LICH in February 2013, “citing its dire financial condition” (id., 16). The closing was opposed by unions, community groups and others concemed about the impact on “low-income community members” (id., { 17). As a result ' As discussed at oral argument, Fortis and Cobble Hill inexplicably refer to Downstate at LICH by the defined term “SUNY?” in all oftheir pleadings and motion papers (see e.g. VAC at 7), leaving it unclear at times which factual allegations are directed at plaintiff Downstate at LICH versus nonparty SUNY (see generally NYSCEF Doc No. 147 at 7-11). 6 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 of lawsuits bought in Supreme Court, Kings County (“Lawsuits”) (see id., { 18), SUNY was temporarily enjoined from closing LICH or reducing the level of services (see id., § 20). By July 2013, LICH reportedly was operating at a loss of $15 million per month, while SUNY remained embroiled in litigation (see id., 22). Given the massive losses, SUNY proposed to “cease operating LICH as soon as possible in favor of a new operator” (id., {| 23). On July 17, 2013, “SUNY issued a Request for Proposals (‘RFP’) to offer health care services at the LICH campus, or in the community proximate to LICH, consistent with the health care needs of the community, and to purchase the LICH property, plant and equipment” (id., | 24). Fortis was “one of the five bidders who submitted proposals in response to that RFP, and a SUNY committee designated Fortis’s proposal as the highest scorer. However, as a result of intense public criticism and political pressure, SUNY’s trustees decided to postpone the decision to award the RFP to Fortis” (id.). “As a result of further public criticism and pressure from the ongoing litigation, SUNY re-opened the RFP process to the original bidders, allowing them to further refine the medical components of their proposals” (id., { 25). SUNY agreed to conduct a third RFP as part of settlement of the Lawsuits (see id., 26). Under the settlement, the RFP would be opened to new bidders and favor proposals that included a full-service hospital (see id.). The settlement agreement allowed SUNY to discontinue providing medical services at LICH as of May 22, 2014 (see id., § 28). “Fortis’s proposal was in third place after the nine proposals submitted in response to the third RFP were evaluated” (id., | 35). However, after the two highest-ranked bidders were unable to consummate a binding agreement with Downstate at LICH, Fortis was declared the winner (see id., ff] 36-37). 7 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 “The central component of Fortis’s proposal, which it submitted on March 19, 2014, was its health care partnership with NYUHC” (id., 41). “Fortis’s proposal was centered around providing healthcare to the community through NYUHC, and included NYUHC’s commitment . . . to lease between 50,000 and 60,000 square feet of space at market rates from Fortis. In other words, NYUHC would provide and manage health care services at LICH as a tenant of Fortis” (id., {{ 41-42). NYUHC’s commitment was reflected in a December 30, 2013 letter of intent, which provided that if Fortis acquired certain premises and constructed a “New Medical Building,” NYUHC would lease the premises and operate a medical facility (id., {| 44-45). The parties agreed in principle to a 20-year lease of the New Medical Building for a price of $55 per square foot, with 2% annual increases (see id., | 46). “The parties originally contemplated that it would take 2-3 years for completion of the new facility. In the interim, NYUHC would run an emergency department in the old hospital and Fortis would pay the operating expenses for that building, thereby relieving SUNY of this heavy financial obligation” (id., 4 47). Fortis’s bid was accepted, and the parties entered into a Purchase and Sale Agreement dated June 30, 2014 (see NYSCEF Doc No. 42 [“Original PSA”}), by which Cobble Hill would purchase about two dozen parcels from Downstate at LICH for $240 million (less certain, specified credits), with Fortis serving as a limited guarantor of Cobble Hill’s performance. According to Fortis, “the single most significant factor in [its] decision to sign the Original PSA” was NYUHC’s commitment to substantially increase the amount of leased medical space in the New Medical Building (ACC, ff] 49-50). “Then, after the Original PSA was signed, NYUHC did a dramatic about-face” (id., ] 51). 8 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 “SUNY and NYUHC held a series of meetings, without Fortis, in which NYUHC procured SUNY’s commitment to revise the deal to cut out Fortis from the construction and leasing of the New Medical Building. NYUHC further procured SUNY’s commitment to require Fortis to buy the property on which the New Medical Building would be constructed but to convey the property directly from SUNY to NYUHC for no consideration. Basically, NYUHC was demanding a $60 million donation (in the form of land) from Fortis” (id., { 52). NYUHC also decided that it would not hire Fortis to build the medical facility (see id., 54). Because “NYUHC’s commitments were most critical to Fortis in its submission of a $240 million purchase price in connection with its proposal” (id., 55), “Fortis refused to proceed with the deal as proposed by SUNY and NYUHC, and advised SUNY that it would substitute NYUHC with another healthcare provider” (id., 59). But “SUNY did not want Fortis to replace NYUHC with another healthcare provider because doing so, according to SUNY, would lead to bad press and likely further legal challenges to the RFP process” (id., 60). Instead, “senior SUNY officials, particularly Vice-Chancellor Jim Malatras,” convinced Fortis to proceed with the “new deal” by promising “credits against the final purchase price for all of the losses and expenses incurred by Fortis as a result of NYUHC’s change of position” (id., {9 61, 70). These credits allegedly would make Fortis whole for: (i) “the loss of NYUHC’s market rate rent” (id., § 61); (ii) Fortis’s expenses “to complete the demolition work required for NYUHC to build its New Medical Building” (id., {| 62); (iii) the value of the land to be conveyed to NYUHC for the New Medical Building (see id., { 63); (iv) Fortis’s operating expenses during the period in which NYUHC operated an interim emergency department (see id., §] 87); and (v) the costs to Fortis of delaying construction of its residential tower, which, for engineering reasons, could not proceed until substantial completion of the New Medical Building (see id., {] 9 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 92-93). The value of these credits consisted of the fixed sum of $75 million, together with expenses, totaling to $96 million (see id., {§ 5, 93-98). “SUNY could not be seen publicly to amend the deal documents to reflect the agreement regarding credits to be applied in favor of Fortis against the final purchase price due to the controversy surrounding the project, but assured Fortis that there would be dollar-for dollar credit” (id., 71). Fortis accepted SUNY’s commitment, which was “made both orally and in writing, embodied in emails exchanged by Malatras with representatives of Fortis and further delineated in a letter from Malatras to Fortis’s representatives” (id., { 64). In October 2014, Downstate at LICH, Cobble Hill, Fortis and NYUHC executed the PSA, which was made effective as of June 30, 2014 (see id., ff 75, 81; PSA at 1). Under the new arrangement, Cobble Hill, as Purchaser, agreed to pay Downstate at LICH, as Seller, for the New Medical Site, but to convey the premises to NYUHC at no charge (see PSA, § 1.3 [a]). Further, the PSA assigned to NYUHC the obligation to construct the New Medical Building and provide medical services therein (see id., § 15.1 [b-d]). As restructured, the deal called for the three closings described supra: (1) the Initial Closing, at which Cobble Hill would pay about one-half of the purchase price and receive title to the Initial Closing Premises; (2) the closing on the New Medical Site, which was made subject to Cobble Hill’s obligation to re-convey the land to NYUHC for construction of the New Medical Building after demolishing existing structures; and (3) a Final Closing, at which Cobble Hill would pay the balance of funds due and receive title to the Final Closing Premises. The PSA obliged NYUHC to operate an emergency department prior to the New Medical Building becoming operational (see id., § 10.3 [b]). To provide for that, Downstate at LICH agreed to lease portions of the old medical premises (“Interim Medical Premises”) to Cobble Hill 10 10 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 under an “Amended Interim Lease” that obliged Cobble Hill to sub-lease the space to NYUHC under an “Interim Sublease” (id., §§ 1.1 [b], 10.3 [b]; see NYSCEF Doc Nos. 20-21 [Amended Interim Lease and Interim Sublease, both dated October 7, 2014 and made effective as of June 30, 2014]; see also ACC, Jf 77-79, 82). The PSA conditioned Cobble Hill’s obligation to proceed to the Final Closing on, among other things, NYUHC having “vacated the Interim Medical Premises pursuant to the terms of the Interim Sublease” (PSA, § 4.2 [e] [vii]). The financial terms established by the PSA, including down payments, credits and the scope of Fortis’s guarantee, were modified on August 21, 2015 through a letter “waiver” agreement (see VAC, §f 11, 17; NYSCEF Doc No. 22 [“Waiver”], § 4 [C], [D]).? The Initial Closing was held on September 1, 2015 (see ACC, 83). Per the PSA, Downstate at LICH conveyed the sixteen (16) initial parcels to Cobble Hill in exchange for $120 million (see id.). Of that sum, “approximately $60 million represented the property to be conveyed to NYUHC at zero cost within a year, with the New Medical Building to be constructed within three years” (id.). For its part, Fortis delivered the Guarantee to Downstate at LICH, promising to pay $8 million if Cobble Hill failed to proceed to the Final Closing (see id., | 88; Guarantee, § 1.1). “The Guarantee, by its terms, requires approval and execution by the Attorney General and the Comptroller of the State of New York”; however, “[n]o such approval was given” (ACC, { 89; see Guarantee, § 2.2). “NYUHC began operating an interim emergency department . . . in partnership with Fortis” following the Initial Closing (ACC, {[ 86). “When Fortis agreed to pay operating expenses for the old LICH hospital building so that NYUHC could operate the emergency ? The parties also executed a First Amendment to the PSA in September 2015 (see NYSCEF Doc No. 23), which is not at issue herein. i 11 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 department there, NYUHC was supposed to move into its New Medical Building within 2-3 years of the initial closing” (id., | 87). However, the “closing for the NYUHC property did not occur until 2020, and NYUHC’s move . . . did not occur until 2023, several years behind schedule” (id.; see also id., Jf 90-91). “NYUHC knew that Fortis could not start vertical construction of its adjoining residential tower (‘Two River Park’) on one of the parcels purchased as part of the [Initial Closing] until NYUHC had substantially completed its facility, because a portion of the Fortis building was to be cantilevered over the NYUHC building” (éd., 92). “As a result of NYUHC’s delay, Fortis was not able to . . commence construction of [the tower] and .. . incurred carrying costs exceeding $12.1 million, and ultimately lost $50 million of equity when it was forced to convey Two River Park and two other ‘cross-collateralized’ parcels to its lender” (id., 93). Overall, Fortis and Cobble Hill claim to have incurred about “$96 million in lost value and additional costs” (id., {{] 94-98) that they claim are subject to the alleged agreement of SUNY officials “to make Fortis whole for any and all increased costs and losses caused by the fundamental change in the deal structure” (id., 1 99)3 D. The Final Closing On April 28, 2023, Downstate at LICH gave notice of the Final Closing, which was scheduled for June 9, 2023 (see NYSCEF Doc No. 26). NYUHC then assured Cobble Hill and Fortis on May 24, 2023 that the Interim Medical Premises would be vacated by such date (see NYSCEF Doc No. 27). 3 The $96 million consists of the value of the land donated to NYUHC ($58 million), operating expenses for the interim emergency department ($14.2 million), demolition of the NYUHC site ($11.6 million) and expenses and losses associated with the delay in constructing Two River Park ($12.1 million) (see id., {¥] 94-98). 12 12 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 On June 8, 2023, Cobble Hill wrote to Downstate at LICH, stating that the obligation to proceed to a Final Closing Date had not been triggered because (i) the “specialty pharmacy” was not yet operating on the New Medical Premises, and (ii) there had been no substantiation of NYUHC’s claim that it will have vacated the Interim Medical Premises by the Final Closing Date (NYSCEF Doc No. 28). There was no claim of entitlement to dollar-for-dollar credits (or other extra-contractual set-offs) in that correspondence or at the June 9, 2023 tender (see NYSCEF Doc No. 33). The parties eventually agreed to an August 8, 2023 Final Closing Deadline. However, Cobble Hill refused to close, citing: (i) NYUHC’s failure to vacate the Interim Medical Premises “in good order,” as required by the PSA and Interim Sublease; and (ii) Downstate at LICH’s “refus[al] to credit [promised losses and expenses] against the final amount” (NYSCEF Doc No. 34 at 3-4; see NYSCEF Doc No. 29; see also ACC, J 100-107). E This Litigation Downstate at LICH commenced this action on August 9, 2023, seeking to recover $8 million from Fortis under the Guarantee based on Cobble Hill’s alleged default. Fortis joined issue on September 19, 2023 by serving an answer that interposed various affirmative defenses, alleged 14 counterclaims, and joined NYUHC as a counterclaim defendant (see NYSCEF Doc No. 11 [“Original Answer”]). Fortis also filed a notice of pendency based on its counterclaim for specific performance (see NYSCEF Doc No. 36 [“NOP”]). On October 3, 2023, Downstate at LICH filed two motions: (1) a motion under CPLR. 3211 (a) (1) and (7) for dismissal of Fortis’s counterclaims and cancellation of the NOP (see NYSCEF Doc No. 13); and (2) a motion under CPLR 3212 for summary judgment on its claim under the Guarantee (see NYSCEF Doc No. 37). 13 13 of 46 INDEX NO. 907530-23 NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 On November 3, 2023, Fortis filed opposition to the motions and cross-moved under CPLR 3212 for dismissal of the Complaint (see NYSCEF Doc No. 69). Fortis also filed a Verified Answer and Amended Counterclaims on the same date (see NYSCEF Doc No. 68), which was later re-filed as corrected (see NYSCEF Doc No. 80 [VAC]; see also NYSCEF Doc No. 100). In this amended pleading, Fortis acknowledges its contractual duty to provide the Guarantee (see ACC, { 88), but adds the allegation that “[t]he Guarantee, by its terms, requires approval and execution by the Attorney General and the Comptroller of the State of New York. No such approval was given” (id., | 89).4 Also on November 3, 2023, Fortis sent a letter to Downstate at LICH asserting that “[t]he Guarantee has never come into effect because it has never been countersigned and approved by the Attorney General and State Comptroller, despite the passage of over eight years since it was signed by the parties” (NYSCEF Doc No. 74). “In any event, Fortis hereby revokes, rescinds and terminates the [G]uarantee” (id.). Fortis then moved for leave to amend the VAC to add “an affirmative defense of a failure of condition precedent: that the Guarantee . . . is invalid because the . . . Attorney General and Office of the Comptroller did not approve and sign it” (NYSCEF Doc Nos. 103-104, 106). “Given the liberal standard for amending a pleading,” Downstate at LICH did “not oppose this motion” (NYSCEF Doc No. 108 at 2). On December 1, 2023, Downstate at LICH sought leave to supplement the motion record by “providing a true and correct copy of the Guarantee that includes thereon AG and OSC 4 The VAC also added Cobble Hill as a counterclaim plaintiff to certain causes of action and pleaded new causes of action for (i) a declaration that the Guarantee is invalid or unenforceable and (ii) return of the down payments made to Downstate at LICH. The amended pleading further alleges that the commitments for additional credits “were made both orally and in writing” (ACC, § 64), but limited the source of those alleged commitments to James Malatras alone (compare Original Answer, Counterclaims, { 66, with VAC, ACC, {| 70; see also ACC, ff 61- 66). 14 14 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 approvals” (NYSCEF Doc No. 111). The Court granted leave but allowed Fortis to respond through a brief supplemental filing (see NYSCEF Doc Nos. 130, 133-138). Fortis argued that the Guarantee was “merely an offer with a condition precedent to formation” prior to Attorney General and Comptroller’s approvals (NYSCEF Doc No. 141 at 1 [emphasis omitted]). Fortis therefore contends that it was entitled to revoke the offer on November 3, 2023, “before the AG and OSC ever approved it, which rendered the document null and void” (id.). Finally, on December 1, 2023, NYUHC filed a pre-answer motion to dismiss Fortis’s counterclaims under CPLR 3211 (a) (1), (5) and (7) (see NYSCEF Doc No. 114). Oral argument was held on March 8, 2024, a certified transcript was filed on March 12, 2024 (see NYSCEF Doc No. 147 [“Transcript”]), and this Decision & Order follows. GENERAL PRINCIPLES On a motion to dismiss for failure to state a cause of action under CPLR 3211 (a) (7), a court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v Martinez, 84 NY2d 83, 87-88 [1994]). “Dismissal . . . is warranted if the plaintiff fails to assert facts in support of an element of the claim, or if the factual allegations and inferences to be drawn from them do not allow for an enforceable right of recovery” (Connaughton v Chipotle Mexican Grill, Inc.,29 NY3d 137, 142 [2017]). “{A] motion pursuant to CPLR 3211 (a) (1) must be granted where the documentary evidence ‘conclusively refutes [claimant’s] factual allegations’ and establishes a defense as a matter of law” (Doller v Prescott, 167 AD3d 1298, 1299 [3d Dept 2018], quoting Kolchins v Evolution Mkts., Inc., 31 NY3d 100, 106 [2018]). 15 15 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 “To dismiss a cause of action pursuant to CPLR 3211 (a) (5) on the ground that it is barred by the applicable statute of limitations, a defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired” (Krog Corp. v Vanner Group, Inc., 158 AD3d 914, 915 [3d Dept 2018] [internal quotation marks and citations omitted]). “Ifthe defendant meets this burden, the burden then shifis to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled or was otherwise inapplicable, or whether the action was actually commenced within the period propounded by the defendant” (id. at 916 [internal quotation marks, brackets and citations omitted]). Finally, “[t]o prevail on a motion for summary judgment, the moving party must establish prima facie entitlement to judgment as a matter of law by adducing sufficient competent evidence to show that there are no issues of material fact” (Staunton v Brooks, 129 AD3d 1371, 1372 [3d Dept 2015]). If the movant fails to satisfy this burden, the motion must be denied, “regardless of the sufficiency of the opposing papers” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). But if the movant meets the initial burden, the burden shifts to the nonmoving party to demonstrate the existence of disputed material facts or a legal defense to the claim (see id.). I DOWNSTATE AT LICH’S MOTION TO DISMISS COUNTERCLAIMS Downstate at LICH moves under CPLR 3211 (a) (1) and (7) for the dismissal of the counterclaims alleged by Fortis and Cobble Hill and for cancelation of the NOP. A Claims Based on the Alleged Promise of Credits Certain of the counterclaims are based on the alleged promise of credits against the $120 million to be paid by Cobble Hill at the Final Closing, a promise allegedly intended to ameliorate the financial impact of the changes to the deal structure made at NYUHC’s behest (“Revised Deal Structure”). These are the counterclaims for declaration of contractual rights (Count II), 16 16 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 specific performance (Count V, in part), breach of contract (Count VI) and breach of the implied covenant of good faith and fair dealing (Count X, in part). Downstate at LICH argues principally that the counterclaims based on the alleged promise of credits are barred by the merger and disclaimer clauses of the PSA and Waiver. “The purpose of a merger clause is to require the full application of the parol evidence tule in order to bar the introduction of extrinsic evidence to alter, vary or contradict the terms of the writing” (Jarecki v Shung Moo Louie, 95 NY2d 665, 669 [2001] [citation omitted]). Thus, a merger clause typically precludes a party from presenting allegations or evidence of prior oral or written agreements between the parties regarding the same subject matter (see id.; Transcan Sys., Tuc. v Seldat Distrib., Inc., 209 AD3d 911, 913 [2d Dept 2022]; Stevens & Thompson Paper Co., Inc. v Niagara Mohawk Power Corp., 49 AD3d 1011, 1014-1015 [3d Dept 2008]; cf: Safariland, LLC v H.B.A. Agencies, Lid., 198 AD3d 519, 520-521 [1st Dept 2021)). “Where the contract specifically disclaims the existence of . . . representations, a cause of action alleging breach of contract based on such a .. . representation cannot be maintained” (Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518, 521 [2d Dept 2007]; see Cobalt Partners, L.P. v GSC Capital Corp., 97 AD3d 35, 42 [1st Dept 2012]). The Original PSA was signed on June 30, 2014, and the alleged promise of credits was made by a SUNY official, James Malatras, sometime prior to the October 7, 2014 signing of the amended PSA (see ACC, {ff 61-81). Despite the claimed promise, the amended PSA provided. Cobble Hill with the same closing credits as the Original PSA, without making any provision for losses and expenses attributable to the Revised Deal Structure (see PSA, §§ 2.1 [c], [d]; 13.2 [a] [i]). And the PSA includes both a merger clause and broad disclaimers regarding extra- contractual representations: 17 17 of 46 INDEX NO. 907530-23 NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 All prior statements, understandings, representations and agreements between the Parties, oral or written, are superseded by, and merged into, this [PSA] and the Incorporated Documents, which alone fully and completely express the agreement among the Parties in connection with the transactions contemplated hereby and which is entered into after full investigation, no Party relying upon any statement, understanding, representation, or agreement made by another not embodied in this [PSA] or the Incorporated Documents. . . . (id., § 26.3). Additionally, Section 9.2 declares that the PSA, “‘as written, contains all of the terms of the agreement entered into between the Parties” (id., § 9.2), and it sets forth Cobble Hill’s acknowledgment and agreement that neither Downstate at LICH, its affiliates nor the State of New York “have made any representations . . . , or held out any inducements, to [Cobble Hill], other than as expressly set forth [in the PSA]” (id.). The parties then executed the Waiver on August 21, 2015. The Waiver modified certain financial terms of the transaction, including the credits that Cobble Hill would receive at the Final Closing, but did not grant any additional credits to Cobble Hill on account of the Revised Deal Structure (see Waiver, § 1 [E]). And, like the PSA, the Waiver “supersedes all prior agreements, whether written or oral, among the Parties with respect to its subject matter and constitutes a complete and exclusive statement of the terms of the agreement between the Parties with respect to its subject matter” (id., § 6). Thus, following the alleged promise of additional credits by a SUNY official, Fortis and Cobble Hill assented to the PSA, an intricate 110-page contract among hyper-sophisticated commercial parties that: (i) “alone fully and completely express[es] the agreement among the Parties in connection with the transactions, «6, ‘contains all of the terms of the agreement entered into between the Parties,” and “supersede[s]” and “merge[s]” any “prior statements, understandings, representations and agreements between the Parties, oral or written”; (ii) 18 18 of 46 INDEX NO. 907530-23 FILED: ALBANY COUNTY CLERK 04705/2024 10:54 AM NYSCEF DOC. NO. 148 RECEIVED NYSCEF: 04/05/2024 confirms that neither “Seller nor any of Seller’s Affiliates nor the State of New York have made any representations ..., or held out any inducements, to [Cobble Hill], other than as expressly set forth [in the PSA]”; and (iit) disclaims reliance “upon any statement, understanding, representation, or agreement made by another not embodied in [the PSA]” (PSA, §§ 9.2, 26.3). And just ten months later, the contracting parties revisited the financial terms of the PSA in the Waiver, another integrated agreement that made no provision for credits attributable to the Revised Deal Structure. On these facts, any claimed prior oral or written promise of additional credits “was necessarily extinguished” when the amended PSA became effective (Jorres v D’Alesso, 80 AD3d. 46, 53 [1st Dept 2010]). “At that point, [Fortis and Cobble Hill] could not expect to rely on any previous understanding or oral representation that was not included in the mutually executed written document” (id.). In concluding that the counterclaims predicated upon the alleged promise of credits are barred by the express terms of the PSA and Waiver, the Court is unpersuaded by Fortis and Cobble Hill’s contention that the alleged promise is an “instrument” that “constitute[s] part of the same transaction” as the PSA and Waiver, and, therefore, must be “be interpreted together” with the formal agreements (BWA Corp. v Alltrans Express U.S.A., Inc., 112 AD2d 850, 852 [1st Dept 1985]). This argument is based on the principle that, “{iJn the absence of anything to indicate a contrary intention, instruments executed at the same time, by the same parties, for the same purpose, and in the course of the same transaction will be read and interpreted together, it being said that they are, in the eye of the law, one instrument” (id.). Even if Malatras’s alleged oral promis