The state Court of Appeals on Thursday reversed a February 2016 order by the Appellate Division, First Department, that Muss Development was not required to return a prospective buyer's nearly $4 million deposit on a parcel of land on Raritan Bay in Staten Island (NYLJ Sept. 5).

In an opinion written by Associate Judge Eugene Fahey, New York's highest court ruled that the commencement of an action seeking 'rescission and/or reformation' of a contract does not constitute an anticipatory breach of such an agreement, in the case that involved a botched sale of waterfront property known as Princes Point. Additionally, the appeals court denied the defendant-respondent's motion for partial summary judgment.

The Court of Appeals disagreed with the lower court's ruling in Princes Point v. Muss Development, 601849/08. In that unanimous Appellate Division ruling, Justice Rolando Acosta wrote that “because a rescission action unequivocally evinces the plaintiff's intent to disavow its contractual obligations, the commencement of such an action before the date of performance constitutes an anticipatory breach.”

Fahey wrote for the Court of Appeals, “on this record—and particularly in the view of the repeated movement of the new outside closing date—we cannot conclude that the commencement of this action reflects a repudiation of the contract,” in the opinion. ”At the core of this appeal is the unsettled question whether the 'commencement of an action, particularly one seeking recession, is an anticipatory breach.'”

He noted that “for an anticipatory repudiation to be deemed to have occurred, the expression of intent not to perform by the repudiator must be 'positive and unequivocal.'”

Fahey further wrote, “the Appellate Division certified for our review the question whether 'the order of the Supreme Court, as affirmed by [the Appellate Division was] properly made?'” and “accordingly, the Appellate Division order should be reversed, with costs, the motion of defendants for partial summary judgment on the third counterclaim denied, and the certified question answered in the negative.”

In 2004, Princes Point entered into a contract with companies controlled by the Muss family—one of the largest real estate developers in New York City—to buy the oceanfront parcel of land on Staten Island. Princes Point made a $1.9 million down payment on the $35.9 million purchase price for the land with a condition that Muss Development must get approval from the government to develop more than 100 houses on the land. But after 2005's Hurricane Katrina in Louisiana and Alabama prompted inspections in New York, state regulators found that there were defects in the seawall and ordered Muss Development to fix it.

In March 2006, Princes Point and Muss Development amended their contract to extend the “drop dead date,” the outside closing date, to June 2007. The amendment included a purchase price increase to $37.9 million from $35.9 million. The down payment also was increased to nearly $4 million under the amended contract, which also required Princes Point to pay half the cost of repairing the seawall and to get government approval to develop roughly 100 houses on the land.

A month before the closing date, however, Princes Point brought a rescission action against Muss Development, arguing that the company had concealed defects in the remediation work.

In the opinion released yesterday, Fahey continues to say that the Appellate Division “correctly observes” that the commencement of a declaratory judgment action doesn't constitute an anticipatory breach because the judgment action just seeks to define the rights and obligations of the parties involved. The Court of Appeals, however, did not agree with the lower court's conclusion that an action seeking rescission of a contract is “markedly different” from a declaratory judgment action.

“This action is one based on the terms under which the amendments to the contract were entered and essentially seek to nullify those terms. A declaratory judgment action would produce a ruling as to the rights of the parties under the terms of the contract and would determine the meaning of those terms,” Fahey wrote. “Nevertheless in this context … there was no 'positive and unequivocal' repudiation (Tenavision, 45 NY2d at 150). There is no material difference between this action and a declaratory judgment action.”

The “mere act of asking for judicial approval to avoid a performance obligation is not the same as establishing that one will not perform that obligation absent such approval,” Fahey continued.

John Ciulla, a partner at Long Island-based Rosenberg Calica & Birney—which represented Princes Point—told the New York Law Journal Friday that the opinion from the appeals court was “gratifying.”

“We're very happy with the outcome of the appeal. We always believed when we took the decision on appeal that we were correct on the law,” he said during a phone interview. Princes Point, Ciulla said, is “evaluating” their options on how to best “effectuate the court's decision” and how to recover some of the payments they had made for the property.

Scott Mollen, a partner at Herrick Feinstein who is representing respondent Muss Development, said in an email that they were “pleased that the court denied the plaintiff's request for reverse summary judgment and that this decision does not impact prior trial court and Appellate Division decisions that dismissed every one of the seller's claims for fraud against our client and which upheld our claim that the contract had expired by its terms.”

“We understand and have great respect for the Court of Appeals, which has now held that the subject action for rescission was in essence tantamount to a declaratory judgment action and was not an unequivocal signal that the buyer would not perform its contractual obligations,” Mollen added.

“Time will tell whether some sellers who cannot obtain the financing necessary to timely close their contracts, will employ rescission suits, as well as declaratory judgment suits as a tactic to buy more time and tie up a property in litigation.”

Mollen said that Muss Development expects to “prevail” on all of the counterclaims at the trial level on remand.

Chief Judge Janet DiFiore and Associate Judges Jenny Rivera, Leslie Stein, Michael Garcia and Rowan Wilson concurred with the opinion. New Associate Judge Paul Feinman did not take part.

Contact the reporter Josefa Velasquez at [email protected]; Twitter: @J__Velasquez