The following e-filed papers read herein: NYSCEF Doc Nos. MS 1 7-18 MS 2 34-54 Decision & Order Upon the foregoing papers, the motion for canceling the notice of pendency by proposed intervenor-defendant Third Street Gowanus Owner LLC and defendants Eyal Ben-Yosef, PCLING LLC, and Gowanus GP Ventures LLC, and the cross-motion by plaintiff Orange Gowanus LLC for judgment on its claims and injunctive relief are decided as follows: Background On or about February 25, 2022, plaintiff Orange Gowanus LLC (“plaintiff”) and defendants Eyal Ben-Yosef, PCLING LLC, and Gowanus GP Ventures LLC (collectively “defendants”) entered into an operating agreement for nonparty Third Street Development LLC (“Third Street”). In or about March 2022, Third Street, through its wholly owned subsidiary proposed intervenor-defendant Third Street Gowanus Owner LLC (“Owner LLC”), purchased real property located at 125 Third Street, Brooklyn New York (“Property”), for approximately $22.5 million. In or about January 2023, Third Street received a buyout offer for the Property from Rotem Rosen and his affiliated companies (“Rosen”). On or about January 23, all four members (plaintiff and defendants) of Third Street held a meeting where the parties voted on whether to accept Rosen’s buyout offer. Two defendants (Approving Members) voted to approve a straight sale of the Property to Rosen for $27.5 million, and plaintiff (Non-Approving Member) voted to disapprove the straight sale. Section 9.2(a) of the operating agreement provides that if at any time any member desires to effectuate the sale of the entire project pursuant to a bona fide written offer from any person other than a member or an affiliate of a member, then an initiating member shall give written notice to each member and call a meeting of the members, at which the members shall decide whether to accept or reject the offer received. The operating agreement further provides that: “(b)…… If any Member votes to accept the Buyout Offer, any nonapproving Member (the “Non-Approving Member”) shall have the right, within fifteen (15) Business Days of said vote, to inform the approving Members (the “Approving Members”) that it wishes to purchase their entire Membership Interest in the Company, at a price equal to that which such Approving Members would individually have received if the Buyout Offer was accepted and effected and the Company was liquidated in accordance with Section 8.2 (“Membership Interest Purchase Price”)……” “(c) The closing of the sale of the Membership Interest to the Non- Approving Members in accordance with Section 9.2 (b) shall take place not later than four (4) months after the giving of the Membership Interest Purchase Notice……” On or about February 13, 2023, plaintiff delivered a written notice (“Notice”) to defendants and Third Street stating that it elected to acquire defendants’ membership interests in Third Street pursuant to section 9.2(b) of the operating agreement for an amount equal to what defendants would have received under the straight sale. The Notice also includes an estimated calculation of the amount each defendant would have received under the straight sale and a request for confirmation of the amount. On February 15, 2023, counsel for defendant Ben-Yosef responded with a letter (“Attorney Letter”) to plaintiff asserting that the Notice is invalid due to its failure to comply with the terms of the operating agreement. Specifically, that plaintiff’s calculation of the amount due to the Approving Members was wrong and the Notice was untimely. Plaintiff commenced this action on February 22, 2023 seeking a judicial declaration that its exercise of the right to purchase defendants’ membership interest in Third Street was timely and valid and that defendants are prohibited from transferring the Property to Rosen or any other purchaser. Plaintiff asserted that the Notice only contains an estimated amount due to defendants as plaintiff lacks the financial records of Third Street and that plaintiff requested defendants to confirm the amount. Plaintiff filed a notice of pendency on the same day. On April 10, 2023, defendants filed an answer denying plaintiff’s allegation and asserting counterclaims against plaintiff for : (a) breach of fiduciary duty; (b) violation of the covenant of good faith and fair dealing; (c) a judicial declaration that plaintiff has forfeited its right to purchase defendants’ membership interest and that they may proceed with Rosen’s buyout offer; (d) breach of contract for the promised $750,000 pre-emptive equity; and (e) breach of contract for unauthorized hiring and payment of vendors. Defendants allege that plaintiff had access to all relevant financial information of Third Street. Additionally, that plaintiff purported to exercise its rights to purchase their membership interest despite knowing that it lacked the funds to complete the purchase. Besides the inaccurate amount due, defendants allege that the Notice also fails to include a release of defendants as guarantors under the existing mortgage as Rosen’s buyout offer includes repayment of the existing mortgage. Moreover, defendants allege that plaintiff failed to fund its promised $750,000 equity by February 2, 2023 under a subscription agreement and an exercise/waiver form. Defendants further allege that plaintiff retained a new architect and a new structural engineer to complete compliance with the Department of Building (“DOB”) and made unauthorized payments of $786,000 to vendors, which delays the project and damages the Property. On March 9, 2023, Owner LLC and defendants moved, under motion sequence one, for an order (a) permitting Owner LLC to intervene in this action; (b) canceling the notice of pendency; and (c) granting expedited discovery and directing plaintiff to respond to defendants’ first set of interrogatories and requests for production within ten days. On April 20, 2023, plaintiff crossmoved, under motion sequence two, for (a) judgment on its claim for a judicial declaration that plaintiff properly exercised its contractual right to purchase defendants’ membership interest in Third Street and plaintiff’s time to exercise such contractual right is tolled; (b) injunctive relief prohibiting defendants from transferring title to the Property; and (c) an order treating plaintiff’s mortgage payment as loan to Third Street rather than equity. Defendants’ motion to cancel the notice of pendency Defendants argue that Owner LLC should intervene in this action because (a) Owner LLC has a real, substantial interest in the outcome of this litigation; (b) Owner LLC’s interests are not adequately represented by defendants given that none of the defendants can seek to clear title as the owner of the Property; and (c) Owner LLC’s intervention at this stage of the litigation would cause no prejudice to any party. In addition, defendants argue that the notice of pendency should be canceled because plaintiff filed same as an attempt to bring the Property to the brink of foreclosure in hopes of purchasing defendants’ membership interests cheaply. Defendants assert that plaintiff’s baseless filing of the notice of pendency is causing the Property continuing financial harm including daily carrying costs, and delays in construction that will jeopardize the ability of the Property to qualify for tax abatement. Moreover, defendants contend that plaintiff does not have a direct interest in the Property supporting its filing of the notice of pendency because a membership interest in a limited liability company is personal property and a member has no interest in specific property of the limited liability company. Furthermore, defendants argue that the court should grant expedited discovery. Defendants point out that plaintiff was unable to fund the purchase and future expenses of the Property including mortgage interest, real estate taxes and maintenance expenses. Defendants assert that expedited discovery is appropriate in this case where relevant facts regarding plaintiff’s financial ability are exclusively in the possession of plaintiff and such discovery will not unduly burden plaintiff as defendants requested only a limited number of documents and interrogatories narrowly tailored to the issue of plaintiff’s financial ability. In opposition, plaintiff claims that the instant motion by defendants arises out of their bad faith effort to impede its rights, diminish the value of the Property, and prevent its opportunity to pursue legitimate business. Plaintiff argues that the complaint seeks a judicial declaration that prevents the sale of the Property to Rosen, and thus seeks relief that affects title, possession, use or enjoyment of the Property. Plaintiff further argues that defendants’ reliance on 5303 Realty Corp. v. O & Y Equity Corp., 64 NY2d 313 [1984] is not justified as the dispute in this case differs sharply from that in 5303 Realty. Notably, plaintiff contends that in 5303 Realty, the only conveyance at issue was of shares in a corporation, even though the intent was to effectively convey real property avoiding payment of real property transfer taxes. In this case, plaintiff asserts that the dispute arose when defendants agreed to sell the Property to Rosen, while plaintiff objected to the sale. Plaintiff contends that a straight sale to Rosen would constitute an actual transfer of title to the Property. In addition, plaintiff argues that expedited discovery is unwarranted because plaintiff’s financial condition only becomes relevant after an establishment of its contractual right to purchase defendants’ membership interest. Plaintiff’s motion for judgment on its claims and injunctive relief In support of its cross-motion, plaintiff’s sole member Andrew Bradfield (“Bradfield”) avers that (a) there is long-standing business association and acquaintance between Rosen and defendants and that Rosen proposed an ownership structure that would have retained defendants’ ownership interest, while extinguishing plaintiff’s; (b) defendants failed to make payment to the architect Ramy Isaacs (“Issacs”) and engage a structural engineer to complete compliance with the DOB by filing required drawings, additionally, defendants denied plaintiff’s proposal to make payment to Issacs despite the April 2023 deadline for filing with the DOB; (c) plaintiff made payments to vendors to meet the filing deadline; (d) plaintiff was forced to retain a new architect and engage a new structural engineer at a cost of more than $280,000, which has been or will be funded solely by plaintiff; (e) defendants failed to pay their portion of the mandatory mortgage payment of $207,611 due in April 2023 and withdrew $25,000 from the company account for their personal benefit just before the mortgage was due; (f) plaintiff negotiated an extension of the April mortgage with the lender and paid $179,111.11 directly to the lender, as well as $28,500 to satisfy a lien against the Property; and (g) defendants refuse to contribute its pro rata capital while plaintiff has contributed more than its pro rata interest. Plaintiff argues that its exercise of the purchase right is valid because section 9.2(b) of the operating agreement provides for a notice requirement and nothing more. Plaintiff asserts that defendants’ contention based on inaccuracy of the amounts due is meritless because nothing under section 9.2(b) requires plaintiff to calculate the amounts due, much less that it do so with any specific degree of accuracy. Similarly, plaintiff asserts that the alleged release under the existing mortgage is also baseless. Plaintiff contends that interpretation of a contract is limited to the language of the contract and there is no ambiguity in the operating agreement. In addition, plaintiff argues that the four-month window to close on the purchase of defendants’ membership interest has not begun to run. Plaintiff asserts that it exercised the purchase right with every intention of identifying funding and closing within four months and it was unable to do so only because of defendants’ rejection of the Notice. Plaintiff contends that it will be significantly damaged financially if it defaults on the purchase option. Moreover, plaintiff argues that injunctive relief is necessary to prevent defendants from selling the Property to Rosen. First, plaintiff argues that it is likely to succeed on the merits because the Notice was timely and valid as argued above. Second, plaintiff argues that it would suffer irreparable harm. Plaintiff contends that a mere payout of its financial stake in Third Street from the sale to Rosen is inadequate because there is intangible value in the project, such as significant future value and reputational benefits by completing the project. Third, plaintiff argues that the balance of equities weighs in its favor because section 9.2(b) requires that defendants receive the same value from plaintiff as they would have received from the sale to Rosen, which is identical to plaintiff’s stated intention. Further, plaintiff argues that injunctive relief is necessary to protect the value of Third Street by classifying its payment of $207,000 for the April mortgage and any future payment as a loan. Plaintiff contends that section 1.7(d) of the operating agreement requires that the managing member of the company seek capital first through outside debt funding, then by raising additional equity from members or by accepting an investor member loan. Plaintiff further contends that defendants, as the managing members, have not yet raised any outside debt funding. Discussion Upon a timely motion, any person shall be permitted to intervene in any action: (a) when a statute of the state confers an absolute right to intervene; or (b) when the representation of the person’s interest by the parties is or may be inadequate and the person is or may be bound by the judgment; or (c) when the action involves the disposition or distribution of, or the title or a claim for damages for injury to, property and the person may be affected adversely by the judgment (CPLR 1012(a)). Intervention should be granted where the intervenor has a real and substantial interest in the outcome of the proceedings (Berkoski v. Bd. of Trustees of Inc. Vil. of Southampton, 67 AD3d 840 [2d Dept 2009]). Here, defendants demonstrated that Owner LLC has a real and substantial interest in the outcome of this litigation as the owner of the Property. Accordingly, defendants’ motion to permit Owner LLC to intervene as a party is granted. As for plaintiff’s motion for judgment on its claim, the court may render a declaratory judgment as to the rights and other legal relations of the parties to a justiciable controversy (CPLR 3001). The fundamental, neutral precept of contract interpretation is that agreements are construed in accordance with the parties’ intent and the best evidence of what parties to a written agreement intend is what they say in their writing (Jacobs v. Cartalemi, 156 AD3d 635 [2d Dept 2017]). A written agreement that is complete, clear and unambiguous on its face must be enforced according to the plain meaning of its terms (id.). Here, the operating agreement is unambiguous on its face and the parties do not dispute the relevant terms under the operating agreement. Plaintiff demonstrated that it followed the procedure to exercise the right to purchase defendants’ membership interest. Specifically, plaintiff informed defendants in writing that it wished to purchase their membership interest and provided an estimated price after it voted not to approve the sale to Rosen. Additionally, the Notice was delivered to defendants within 15 business days after the occurrence of said vote. Accordingly, plaintiff established that it properly exercised its contractual right to purchase defendants’ membership interest. In opposition, defendants failed to raise an issue of fact as defendants’ contention that the Notice is defective is not supported by the operating agreement. Based on the foregoing, plaintiff’s motion for judgment on its declaratory judgment claim is granted to the extent that the Notice is hereby declared valid. Plaintiff’s time to close on the purchase is tolled and plaintiff shall have four months upon notice of entry of this order to complete closing pursuant to section 9.2(c) of the operating agreement. Regarding plaintiff’s motion for injunctive relief, such relief is denied as unnecessary in light of the Court granting plaintiff judgment on its declaratory judgment claim as indicated above. However, in the event defendants interfere with plaintiff’s efforts to complete closing, plaintiff may seek appropriate injunctive relief. Plaintiff also seeks an order classifying its payment of the April mortgage as a loan rather than equity. Based on the present record, the Court cannot determine whether the payment constitutes a capital contribution or loan. Therefore, plaintiff’s motion for such an order is denied at this time. Turning to defendants’ motion to cancel the notice of pendency, the court may direct any county clerk to cancel a notice of pendency, upon motion of any person aggrieved and upon such notice as it may require, if the plaintiff has not commenced or prosecuted the action in good faith (CPLR 6514(b)). As an initial matter, the filing of a notice of pendency is proper in any action in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property (CPLR 6501; Ewart v. Ewart, 78 AD3d 992 [2d Dept 2010]). To this end, the court is not to investigate the underlying transaction in determining whether a complaint comes within the scope of CPLR 6501, rather the court’s analysis is to be limited to the face of the pleadings and the likelihood of success on the merits is irrelevant to determining the validity of the notice of pendency (Delidimitropoulos v. Karantinidis, 142 AD3d 1038 [2d Dept 2016]). Here, the record fails to establish that plaintiff’s action herein was commenced or prosecuted in bad faith. Further, from a review of the complaint, plaintiff alleged claims to real property in which the outcome will affect title to the Property. Thus, the motion to cancel the notice of pendency is denied. Lastly, with respect to defendants’ counterclaims against plaintiff and expedited discovery request, a preliminary conference will be conducted on May 17, 2023 at 10am. In conclusion, the parties’ motions are granted to the extent granted herein. The motions are otherwise denied. Dated: April 27, 2023
