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FILED: NEW YORK COUNTY CLERK 10/01/2013 INDEX NO. 650159/2010
NYSCEF DOC. NO. 327 RECEIVED NYSCEF: 10/01/2013
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
HARVEY RUDMAN and HAROLD KUPLESKY, on
Behalf of Each of Them Individually And On Behalf Of
Starrett City Preservation LLC, Derivatively,
Index No. 650159/10
Plaintiffs,
- against - Assigned to Kornreich, J.
CAROL GRAM DEANE, THE ESTATE OF DISQUE
D. DEANE by CAROL G. DEANE,
as TEMPORARY EXECUTRIX, SALT KETTLE LLC,
ST. GERVAIS LLC, STARRETT CITY
PRESERVATION LLC, DD SPRING CREEK LLC,
SK SPRING CREEK LLC, SPRING CREEK PLAZA
LLC, DD SHOPPING CENTER LLC and SK
SHOPPING CENTER LLC,
Defendants.
DEFENDANTS’ REPLY MEMORANDUM OF LAW
IN SUPPORT OF MOTION FOR
PARTIAL SUMMARY JUDGMENT
NEWMAN & GREENBERG WARNER PARTNERS, P.C.
Attorneys for Defendant Carol Gram Deane Attorneys for All Defendants
Except Carol Gram Deane
950 Third Avenue and Spring Creek Plaza
New York, New York 10022
(212) 308-7900 950 Third Avenue
New York, New York 10022
(212) 593-8000
FOLEY & LARDNER LLP
Attorneys for Defendant Spring Creek Plaza
90 Park Avenue
New York, NY 10016
(212) 682-7474
TABLE OF CONTENTS
PAGE:
TABLE OF AUTHORITIES . ................................................... ii
PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
POINT I: THE LANGUAGE AND MEANING OF SECTION 3.3 ARE PLAIN,
MAKING INTERPRETATION A MATTER OF LAW FOR THE COURT AND
ENTITLING DEFENDANTS TO PARTIAL SUMMARY JUDGMENT.. . . . . . . . . . . . 1
A. The language of Section 3.3 is plain and its meaning unambiguous. . . . . . . . . 1
B. Plaintiffs’ interpretation of Section 3.3 is unreasonable. . ................3
POINT II: WHETHER THE PRESERVATION AGREEMENT AUTHORIZES
THE STAFF BONUS MONEY PAID AND RESERVED IS PURELY A
QUESTION OF LAW, WARRANTING SUMMARY JUDGMENT ON THIS
ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
A. Poll, Sutz and Curt Deane Were Proper Bonus Recipients. . ..............6
B. The Agreement Authorized Carol Deane to Establish the “Bonus Reserve.”. . 9
POINT III: THERE CAN BE NO LEGITIMATE FACTUAL DISPUTE THAT
“DISCUSSIONS . . . THAT RESULTED IN” THE REFINANCING OF
STARRETT CITY DID NOT BEGIN UNTIL AFTER KUPLESKY’S
EMPLOYMENT ENDED, REQUIRING THE AUTOMATIC REDUCTION OF
KUPLESKY’S SHARING RATIO UNDER THE AGREEMENT AND
ENTITLING DEFENDANTS TO SUMMARY JUDGMENT.. . . . . . . . . . . . . . . . . . . . 10
A. Kuplesky’s Sharing Ratio Was Property Reduced Under Section 5(a) . . . . . 10
B. Kuplesky’s Sharing Ratio Was Properly Reduced by 70%. . . . . . . . . . . . . . . 14
CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
TABLE OF AUTHORITIES
PAGE:
CASES:
Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc.,
65 A.D.3d 445 (1st Dept 2009)... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Greenfield v. Philles Records, 98 N.Y.2d 562 (2002).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Sengillo v. Valeo Electrical Systems, Inc., 536 F.Supp.2d 310 (W.D.N.Y. 2008). ............2
United States v. Hamdi, 432 F.3d 115 (2d Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3
ii
PRELIMINARY STATEMENT
Faced with unambiguous language in the relevant Preservation Agreement provisions,
plaintiffs proffer a series of interpretations that torture the text past the breaking point to fit their
pre-determined litigation positions. The failure of that effort leads them to claim “ambiguity”
where none exists; the text is simple, plain and clear. Ultimately plaintiffs resort to burying the
Court in a mountain of claims and documents contained in a 24-page attorney’s affidavit that
evades the Court’s page limits (plaintiffs’ request for more pages was turned down), and that
violates a basic principle of contract interpretation, i.e., “a court cannot consider extrinsic
evidence to construe an unambiguous contract provision.” Greenfield v. Philles Records, 98
N.Y.2d 562, 569 (2002). Ironically, plaintiffs’ inadmissible parol evidence actually supports
defendants’ position, not plaintiffs’, because the drafting history confirms the clear meaning in
the final text. But that history is irrelevant, because the text speaks loudly and clearly for itself.
POINT I: THE LANGUAGE AND MEANING OF SECTION
3.3 ARE PLAIN, MAKING INTERPRETATION A MATTER
OF LAW FOR THE COURT AND ENTITLING
DEFENDANTS TO PARTIAL SUMMARY JUDGMENT
A. The language of Section 3.3 is plain and its meaning unambiguous. Section 3.3’s
language defining the Managing Member’s reallocation power is straightforward, and its
meaning is “definite and precise,” satisfying the test for summary judgment in a contract dispute
like this one. Greenfield, 98 N.Y.2d at 569. The first sentence indisputably confers sole
discretion on the Managing Member to reallocate Sharing Ratios, in whatever amounts or
percentages she deems appropriate, at any time after a Funding Event. The second sentence
indisputably defines a Funding Event as the aggregate distribution to Preservation’s Members of
no less than $10 million (i.e., “at least $10 million”). The third sentence articulates nothing more
than the parties’ acknowledgment of a purpose for the Managing Member’s reallocation power
1
in the specific context of a refinancing, i.e., it is “intended to facilitate” the creation of a new
management incentive program after the “full distribution from the proceeds of a substantial
refinancing.” The third sentence is not an enforceable provision because it does not direct
action, confer rights or obligations, or limit the use of the reallocation power in any way.
Plaintiffs nonetheless attempt to convert the mere recital in the third sentence into a
command, and to use that contrivance to change the clear definition of a “Funding Event” in the
second sentence. To accomplish their alchemy, plaintiffs argue that whether contract language is
a recital or an enforceable operative term turns on where the language appears in the contract,
insisting that “courts typically use the term ‘precatory’ [a synonym for a recital] to refer to
‘Whereas’ clauses or opening recitals of contracts that precede the terms of agreement.”
Plaintiffs’ Memorandum of Law (“PMOL”) at10. But whatever courts may “typically” do,
whether contract language is a recital or an enforceable operative term is determined by its
substance, not by where it is located in the contract. Atwater & Co. v. Panama R.R. Co., 246
N.Y. 519, 524 (1927) (“Form should not prevail over substance and a sensible meaning of words
should be sought”); see also United States v. Hamdi, 432 F.3d 115, 123 (2d Cir. 2005) (recitals
need not be contained and are not always found in a section labeled as such); Sengillo v. Valeo
Electrical Systems, Inc., 536 F.Supp. 2d 310 (W.D.N.Y. 2008) (“that which is functionally a
recital does not, ‘by any other name,’ or even in [the] absence of a clarifying headline, comprise
an enforceable contractual term”).
Plaintiffs also misapply the third sentence’s introductory language (“[a]ll Members
acknowledge and agree . . .”) in order to argue that phrase “by its terms . . . contains the parties’
agreement . . . as to when the Managing Member’s reallocation power can be used.” But
“agreeing” to a recital of the parties’ intent does not change a recital into a command; the third
2
sentence remains a recital. See, e.g., Hamdi, 432 F.3d at 123-124 (upholding a plea agreement
because, inter alia, language such as “the defendant agrees . . .” does not convert the nature of
the provision from a recital to an enforceable term). Recital language may have its uses, e.g., to
help interpret ambiguous enforceable language, but a recital “cannot create any right beyond
those arising from the operative terms of the document.” Grand Manor Health Related Facility,
Inc. v. Hamilton Equities Inc., 65 A.D.3d 445, 447 (1st Dept 2009).
B. Plaintiffs’ interpretation of Section 3.3 is unreasonable. According to plaintiffs,
the term “Funding Event” does not mean what the plain language of the second sentence says it
means (i.e., an aggregate distribution to Members of “at least $10 million . . .”). Instead, in
plaintiffs’ view, the third sentence dramatically alters that meaning and precludes the exercise of
the Managing Member’s reallocation power until after a “full distribution” to Preservation’s
Members of the “proceeds” of the refinancing. PMOL9.
However, the meaning of a “Funding Event” in the second sentence is complete and
unambiguous, and the third sentence adds nothing to that meaning. The term “at least” in the
second sentence – on which plaintiffs heavily rely – simply means that an aggregate distribution
of less than $10 million will not suffice to constitute a “Funding Event.” Thus, Preservation’s
Members, including plaintiffs, could be assured that they would receive significant compensation
for their efforts to help achieve a sale or refinancing, i.e., they were guaranteed “at least” their
pro rata share of $10 million before their Sharing Ratios could be reduced. 1
1
According to plaintiffs, “[t]here is no reason for the [second] sentence to refer to ‘at least $10 million’
if, as defendants urge, the parties intended for the power to reallocate to automatically trigger upon the
distribution of $10 million.” PMOL 9. Plaintiff’s argument ignores the traditional role of emphasis in
contract drafting and common parlance. There is no substantive reason for the term “sole discretion” to
be repeated in the first sentence; it is repeated anyway to emphasize for the Managing Member her
unrestricted discretion once a Funding Event has occurred. Similarly, there is no substantive reason in
daily speech for “exactly” to modify “the same,” but “exactly the same” is frequently used for emphasis.
In the context of the Managing Member’s reallocation power, “at least” conveyed to the three
3
Even if the third sentence is read to modify the plain meaning of the second sentence – an
impossibility for the reasons explained – the third sentence does not have the meaning plaintiffs
attribute to it. For example, the term “full distribution” in the third sentence does not and cannot
refer to a distribution to the Members of Preservation, as plaintiffs insist; it can only refer to a
distribution from SCA to Preservation. 2 This reading is confirmed by the reference in the third
sentence to a distribution “pursuant to Section 3.02 or 3.03 of the SCA Partnership Agreement;”
Preservation does not make distributions pursuant to the SCA Partnership Agreement. And SCA
(per the assignments) made its distributions to Preservation, not to Preservation’s Members – a
further refutation of plaintiffs’ reading. Had the parties intended “full distribution” to refer to a
distribution by Preservation to its Members, the Agreement would have said so.
Plaintiffs also advance an unnatural interpretation of the term “proceeds” in the third
sentence (“full distribution from the proceeds of a substantial refinancing”) (emphasis added).
As the transaction in this case typifies, a refinancing is a cash loan to owners of property, with
the property used as collateral for the loan. A refinancing loan is secured by a mortgage in favor
of the lender, and the cash loaned is used to pay off the prior mortgage and to pay other
expenses. If the refinancing loan is large enough, and cash remains undisbursed, the property
owners may take out all or some of the remaining cash “proceeds” for themselves.
It is common parlance and indisputable that any such remaining cash constitutes the
management Members (plaintiffs and Fell), “don’t worry, reallocation (and reduction of your Sharing
Ratio) cannot even be considered unless you receive your share of at least a $10 million distribution.”
Moreover, plaintiffs ignore the fact that this is the meaning the term “at least” had in every prior draft of
the Agreement. Thus, plaintiffs acknowledge that under prior drafts the Managing Member’s reallocation
power was automatically triggered “once $10 million of such distribution has been made” (Opposition
Affirmation of Jacqueline Veit at ¶26); yet the term “at least” was still found in the second sentence. Id.
2
As noted in defendants’ moving papers, SCA in fact did make a “full distribution” of refinancing
proceeds to Preservation before the Managing Member’s reallocation of plaintiffs’ Sharing Ratios.
DMOL at 15.
4
distributable “proceeds” of a refinancing because the “proceeds” of a cash transaction are cash.
Plaintiffs, however, define refinancing “proceeds” in a way that amplifies that term out of all
proportion and beyond any reasonable meaning – i.e., according to plaintiffs, refinancing
“proceeds” are every dollar of value arising from the receipt and use of the refinancing loan,
including, inter alia in this case, a pro rata share for plaintiffs of all the equity in Starrett City
and all “current and future profits” and “distributions of cash flow” from the assets of Starrett
City. 3 This extravagant definition of “proceeds” is not simply at odds with common usage, as
well as the reality of refinancing itself; it also renders the third sentence, and its reference to
establishing a “new management incentive program” – after the “full distribution” of refinancing
“proceeds” – totally meaningless. In plaintiffs’ world, these “proceeds” keep coming each year,
generating profits and cash flow – so that their “full distribution” will never be complete until
Starrett City is sold or liquidated, at which point there will be nothing left to manage, and
therefore no purpose for a new management incentive program.
Equally important, plaintiffs’ proffered interpretation of the third sentence would nullify
the Managing Member’s reallocation power, the reason Section 3.3 (titled “Reallocation of
Sharing Ratios”) exists. That is because, according to plaintiffs, a Funding Event does not occur
until the “full distribution” of refinancing “proceeds,” that “full distribution” of “proceeds” (as
plaintiffs’ define them) is not complete as long as Starrett City has any assets, and until a
Funding Event occurs there can be no exercise of the Managing Members reallocation power.
Plaintiffs’ interpretation of what constitutes the “proceeds” of a refinancing is also
3
According to plaintiffs, a “full distribution” of refinancing “proceeds” would include plaintiffs’
respective shares of, inter alia, “the equity value of all assets (including the 5,881 residential units, 8
garages, sports complex, community center, power plant, etc.), including current and future profits,
distributions of cash flow, and sale/refinancing proceeds of SCA (estimated market value $800 million,
less approximately $530 million debt, for estimated net equity value of $270 million; Preservation share
estimated to be $54 million)[.]” Exhibit 48 at 27 (emphasis added.).
5
refuted by Sections 3.02 and 3.03 of SCA’s Partnership Agreement, incorporated by explicit
reference in the third sentence. Section 3.03 (“Distribution of Sale/Refinancing Proceeds”)
makes clear that distributable proceeds of a refinancing means the “net cash proceeds” from the
transaction, contrary to plaintiffs’ expansive interpretation. Section 3.03 also provides that
proceeds “shall be distributed and applied” in a particular order of priority, i.e., after repayment
of certain SCA liabilities, distributions of the “net cash proceeds” must be made to SCA’s
limited and general partners pursuant to a formula which requires consideration of the aggregate
amounts of “Cash Flow” (as defined in Section 3.02) already distributed to partners. 4 Thus, the
relevant sections of SCA’s Partnership Agreement leave no doubt that the refinancing
“proceeds” referred to in the third sentence of the Preservation Agreement are the “net cash
proceeds” of the refinancing transaction. Because Preservation distributed all of the “net cash
proceeds” less permitted deductions from the refinancing to its Members, including plaintiffs
prior to the Managing Member’s reduction of plaintiffs’ Sharing Ratios, summary judgment is
warranted on this basis alone.
Plaintiffs have already received far more than the amount they were guaranteed under the
Agreement. The arguments they advance to grasp even more money are unpersuasive and
contrived. They should be rejected, and the Court should enter summary judgment in favor of
defendants on plaintiffs’ Ninth Cause of Action.
POINT II: WHETHER THE PRESERVATION
AGREEMENT AUTHORIZES THE STAFF BONUS
MONEY PAID AND RESERVED IS PURELY A QUESTION
OF LAW, WARRANTING SUMMARY JUDGMENT ON
THIS ISSUE
A. Poll, Sutz and Curt Deane Were Proper Bonus Recipients. Section 4.2(iii) of the
4
Section 3.02 also explicitly excludes “Sale/Refinancing Proceeds” (as defined in Section 3.03) from the
definition of “Cash Flow.”
6
Preservation Agreement excludes from the bonus provision “office staff” who are “Members” of
Preservation. Plaintiffs seize on the exclusion of Members to argue that Iris Sutz and Curt Deane
are excluded from bonus eligibility because they were members of Saint Gervais, and any “fair
reading of this exclusion is that ‘Members’ includes indirect members like Sutz and Curt
Deane.” PMOL 17-18 (emphasis added). Plaintiffs’ strained and contrived concept of “indirect
membership” is nowhere in the Agreement, and is refuted by the Agreement’s plain language.
Section 2.6 of the Agreement specifically identifies and defines the “Members” of
Preservation as consisting of Saint Gervais, Carol Deane, Mary Clarke, Martin Fell, Harold
Kuplesky and Harvey Rudman. Sutz and Curt Deane are not included in this list, so neither of
them can even arguably be deemed “Members” of Preservation.
Plaintiffs also insist that the term “affiliated entities” is ambiguous as to whether it
includes Cork Management, the “co-managing agent for Starrett City, the Owner’s
Representative” and the entity through which Ms. Sutz and Mr. Poll (and for that matter
Kuplesky) were paid. SAC ¶31; PMOL 18. In so arguing, plaintiffs ignore their own contrary
position that the “intent of this [bonus] provision” – which was created for employees of
Preservation and “affiliated” entities – was to ensure that Caron Salinger and two other
administrative staff received bonuses in the event of a significant transaction with respect to
Starrett City. PMOL 19. But in 2006, when the Preservation Agreement was executed, Caron
Salinger was employed and paid by Cork. Exhibit 49. Thus, by invoking Ms. Salinger, plaintiffs
concede that Cork was an “affiliated entity” within the meaning of the Agreement. 5
5
Plaintiffs would render meaningless the term “affiliated entities” by arguing that Preservation actually
has no “affiliated” entities. PMOL 18 (“Preservation, moreover, was not an operating entity.”) But this
argument contradicts plaintiffs’ acknowledgment that Salinger, Dricot and Pesant were administrative
assistants entitled to bonus compensation under the Agreement, even though they were not employees of
Preservation. They could only be entitled to receive bonuses under the Agreement as employees of
“affiliated” entities.
7
Plaintiffs’ argument for nullifying Curt Deane’s bonus compensation is also
unpersuasive. According to plaintiffs, Curt Deane could not be part of the bonus-eligible “office
staff” because, in plaintiffs’ understanding, he was not paid a salary and merely “assisted
[Disque] on various personal matters” after Disque, Curt’s uncle, suffered a stroke in 2004. But
Curt was not one of Disque’s caregivers. On the contrary, Curt worked for Disque from the SCA
premises, was concededly “involved with SCA or Preservation,” and undeniably participated on
a sophisticated level in the efforts to sell Starrett City as well as refinance it. Exhibits 48 and 50.
Indeed, Curt’s deep involvement in the substantive business affairs of Starrett City and the
Deane Group explains why plaintiffs deposed him for two full days. Moreover, the Agreement
does not require the “office staff” to be paid a salary in order to be bonus-eligible. Indeed, a
non-salaried or uncompensated staff person like Curt Deane is more, not less, deserving of bonus
compensation for precisely that reason.
Plaintiffs argue that the term “office staff’ is ambiguous, and requires a trial to define. In
making that argument, they ignore the plain and obvious meaning of that term, i.e., people who
work in the office. The Agreement could have used a more narrow term to identify covered
staff, e.g., by modifying “staff” with such adjectives as “managerial,” “clerical,” “professional,”
“administrative,” or “secretarial.” Instead, the Agreement uses the most general and inclusive
term. Plaintiffs can point to nothing in the Agreement to support their contention that the broad
term “office staff” should be given a narrow meaning, limited to three members of the
administrative staff, not one of whom is named or even referenced in the Agreement.
Regardless of who was responsible for introducing the phrase “office staff” during Todd
Trehubenko’s deposition (see PMOL 19), the term’s usage during that deposition demonstrates
that the common understanding or usual meaning of the term includes professional staff, as the
8
dictionary definition confirms. Indeed, plaintiff Kuplesky described himself and his professional
colleagues in the SCA and Deane Group offices as “office staff.” 6
B. The Agreement Authorized Carol Deane to Establish the “Bonus Reserve.”
Plaintiffs concede that Section 4.2(iii) permits the establishment of a bonus reserve. PMOL 19.
Yet, they insist that such a reserve can only be used to make future payments to current staff.
But nothing in the language of the Agreement supports their unnatural interpretation, nor does
plaintiffs’ invocation of Iris Sutz’s calculations of anticipated distributions from a funding
transaction. PMOL 20. Plaintiffs concede that Section 4.2(iii) “gives the Managing Member the
choice of making a one-time payment to the office staff existing at the time of the sale or
refinancing, or establishing a reserve to pay that office staff those bonuses over time.”
PMOL19-20. Yet neither type of payment is reflected in Ms. Sutz’s spreadsheets, and for good
reason. Her spreadsheets were prepared for a different purpose, and their contents have nothing
to do with the meaning of Section 4.2(iii).
Plaintiffs contend that the Agreement’s bonus reserve provision is invalid because it
purportedly fixes no time limit for making payments from that reserve. PMOL 19. In fact, the
Agreement makes clear that Preservation cannot hold in perpetuity the funds used to establish the
6
When questioned regarding a meeting between Mel Bedrick, a limited partner, and Carol Deane about
the purpose of the Preservation Agreement, Kuplesky gave the following testimony:
Q. And what did you understand was the purpose of the meeting?
A. It was a follow up to information provided to him that we were setting
up an incentive plan for the office staff.
Q. What was said at that meeting, as best you recall, and, to the extent
you recall, by whom?
A. My recollection is that Carol Deane and myself described the
Preservation arrangement.
Q. And how did you describe it?
A. It was an arrangement to incentivize the professionals in the office to
create value, additional value, for Starrett City Associates.
(Exhibit 51 (emphasis added).
9
bonus reserve, because Preservation must dissolve no later than December 2025. Warner Aff.
Ex. 1 at §9.1(A). Moreover, the fact that the reserve fund has no term other than Preservation’s
own fixed term demonstrates that the bonus reserves were intended to pay both current and
future office staff. Contrary to plaintiffs’ baseless claim, there is nothing unreasonable about
holding the bonus payments “for 4 years” or even longer. Indeed, plaintiffs concede that when
the Agreement was entered into, it was understood that no sale or refinancing of Starrett City
would likely take place for eight to 10 years. Exhibit 51.
Plaintiffs lament that Poll, Sutz and Curt Deane received more money in bonus
compensation than the guaranteed minimum plaintiffs were entitled to receive under defendants’
interpretation of Section 3.3. But plaintiffs’ subjective beliefs concerning the fairness of the
bonus awards paid to others have no relevance to the meaning of the plain language of the
Agreement. Plaintiffs also ignore the fact that, unlike Poll, Sutz and Curt Deane, whose valuable
contributions to the success of the refinancing plaintiffs attempt to diminish, Kuplesky played no
role, and Rudman only a minor role, in the December 2009 refinancing from which both
plaintiffs profited so handsomely.
POINT III: THERE CAN BE NO LEGIMATE FACTUAL DISPUTE
THAT “DISCUSSIONS . . . THAT RESULTED IN” THE REFINANCING
OF STARRETT CITY DID NOT BEGIN UNTIL AFTER KUPLESKY’S
EMPLOYMENT ENDED, REQUIRING THE AUTOMATIC REDUCTION
OF KUPLESKY’S SHARING RATIO UNDER THE AGREEMENT AND
ENTITLING DEFENDANTS TO SUMMARY JUDGMENT
A. Kuplesky’s Sharing Ratio Was Properly Reduced Under Section 5(a)
Plaintiffs categorically assert that their position on this motion is that
the discussions that resulted in the refinancing began, at the latest, in May
2008, when the negotiations took place that led to the execution of the
MOU. The MOU was an extensively negotiated document that provided
the structure for the partners of SCA to realize the value of their
investment through a sale or a refinancing.
10
PMOL 21-22 (footnote omitted).
In making this claim, plaintiffs completely ignore the undisputed fact that the only stated
purpose of the MOU was “to establish a framework under which SCA may structure and
complete a sale of Starrett City.” Exhibit 17 (emphasis added). The MOU contains no reference
whatsoever to a refinancing transaction of any sort, let alone the one that ultimately occurred. Its
sole purpose was to ensure and facilitate a preservation sale of Starrett City. Thus, it is
linguistically and logically impossible to invoke the MOU as the point at which the MGP and the
regulators finally engaged in “discussions that resulted in” the December 2009 refinancing. The
MOU’s single-minded focus on a sale of Starrett City refutes any such argument.
The purpose of Section 5(b) – exempting a Member from the automatic Sharing Ratio
reduction imposed by Section 5(a) if the Member’s employment with the Deanes ended before a
sale or refinancing occurred – is obvious on its face: when discussions have taken place
sufficient to put a sale or refinancing transaction on the road toward fruition, a Member should
not be excluded from sharing in the benefits of that transaction, if it closes, simply because he
was not on board at the time of closing. This purpose – for the benefit of plaintiffs – is
confirmed by the fact that Kuplesky proposed it and was its sole author; plaintiffs obviously
wanted protection against having their Sharing Ratios automatically reduced by being fired
before a transaction closed but after discussions had already begun that were meaningful enough
to be causally connected to the eventual outcome. That purpose is manifest from the language of
the provision, and is a matter of common sense.
Thus, there is only one reasonable interpretation of the phrase “discussions . . . resulting
in a [refinancing]”: substantive communications, meetings and planning focused on bringing
about, and therefore causally connected to, the refinancing that occurred in December 2009.
11
Under that interpretation, there is simply no way to link the MOU with the eventual refinancing.
In fact, the sales process addressed in the MOU indisputably continued through 2008 and into
2009. Co-plaintiff Rudman conceded – “[a]t the time [of Kuplesky’s departure] . . . Starrett was
deep in its second effort to sell Starrett City [and] [t]hird round bids were anticipated from
potential purchasers.” Affidavit of Harvey Rudman (July 2, 2013) at ¶8. In fact, three days after
Kuplesky’s departure, a bid to buy Starrett City was submitted. Undisputed Facts ##12b and 37.
Fully aware of these facts, Kuplesky devises an interpretation whereby so long as any
“discussions” took place that somehow assist or facilitate subsequent discussions focused on a
refinancing, Kuplesky would qualify for the exemption from the automatic reduction in his
Sharing Ratio even if the prior discussions were totally unrelated to a refinancing at the time they
took place, which is the case here. Kuplesky refers to such earlier discussions as “building
blocks” to the ultimate transaction, but that usage is a misnomer. The “building blocks” he refers
to no more “resulted in” a refinancing than the building of a foundation of a private home
“resulted in” another home built on the same foundation after the first house collapsed. The
foundation, when originally built, was not created for the new home and was unrelated to it, just
as the MOU negotiations were completely unrelated to the refinancing, and remain so.
Concessions made by regulators in May 2008 in the context of an MOU designed to facilitate a
sale of Starrett City, without any thought of or reference to a refinancing, does not establish the
causal link contemplated by Section 5(b) even if those concessions were later invoked in the
course of negotiations leading to the refinancing. Kuplesky’s contrary argument is simply an
after-the-fact effort to hold onto his original Sharing Ratio, even though the refinancing was not
addressed, discussed or otherwise contemplated in any way when the MOU was executed in May
2008.
12
Kuplesky’s proffered interpretation is particularly deficient in view of the many hurdles
to a refinancing of Starrett City unaddressed by the May 2008 MOU, including the necessity of
legislative action to amend Mitchell-Lama to allow for an equity takeout, without which it is
undisputed a refinancing was not feasible, as it would give the Starrett City partners no benefit.
Here, there can be no legitimate dispute that the “discussions” contemplated by the
Agreement to exempt a Member of Preservation from an automatic reduction of his Sharing
Ratio did not commence until February 2009 at the earliest, two months after Kuplesky’s
departure. Only then did the MGP’s consistent, single-minded efforts to sell Starrett City
terminate. After that the MGP, his management team and the regulators turned their attention to
a refinancing transaction, resulting in intense and multi-tiered discussions and efforts, including
the required successful lobbying campaign to convince the Legislature to amend Mitchell-Lama
in the summer of 2009, paving the way for the December 2009 refinancing.
Kuplesky eventually retreats from his unreasonable and tortured interpretation to his
alternative argument that the term “discussions . . . that resulted in a Funding Event” is
ambiguous, requiring a trial to determine its meaning. PMOL 21. He strives to find ambiguity
by arguing that, as written, Section 5(b) means that any passing mention of a “refinancing”
before his departure, whether within the MGP’s office or outside the office and not under the
MGP’s control, could arguably exempt him from the Agreement’s automatic reduction of his
Sharing Ratio. PMOL 21. Under that view, however, his Sharing Ratio could never be
automatically reduced pursuant to Section 5.5(a) so long as a refinancing occurred at any point in
the future, no matter how long after Kuplesky’s departure, since a refinancing of Starrett City
was mentioned as a theoretical possibility as early as the creation of Starrett City in 1972.
By contrast, the record compels acceptance of defendants’ argument that the requisite
13
“discussions” contemplated by the Agreement did not begin until February 2009. Only from and
after February 2009 – when the second sale process ended – did substantive discussions take
place aimed at the refinancing that ultimately took place. Exhibit 52 (Recap closing
memorandum) (“‘Success’ was defined as a property sale. . . . The owner’s instruction was
‘Don’t look at other options.’ . . . So, from December 2007 to February 2009, we operated with
that goal in mind”).
Moreover, even after those refinancing discussions began, and even without regard to the
legislative hurdle, a successful refinancing was by no means guaranteed. For example, on
February 17, 2009, Priscilla Almodovar, the regulatory point person, responded to a question
from an aide to Senator Schumer, an active supporter of the refinancing project, that the MOU
“isn’t applicable” to a possible refinancing even if “the spirit is still the same.” Exhibit 53.
Similarly, Deborah Van Amerongen, another regulator, noted that, “depending on what they
need from us we may want to demand more” than was asked for during the sale process to
approve a preservation refinancing, which is exactly what happened. Id. In exchange for
government approval, including support for the necessary legislative amendment to Mitchell-
Lama, the regulators required SCA to make a 30-year commitment to remain under regulation as
an affordable housing project (rather than the 20-year commitment that would have been
required of a purchaser by the MOU).
B. Kuplesky’s Sharing Ratio Was Properly Reduced by 70%. Kuplesky
advances yet another fall back argument, albeit one more modest than his initial
overreaching claim. Kuplesky contends that if the Court determines he is not exempted
from Section 5.5(a)’s automatic reduction of his Sharing Ratio, the reduction should be
only 60%, not 70%, because the notice of his removal from the Board was not sent to him
14
Preview
FILED: NEW YORK COUNTY CLERK 10/01/2013 INDEX NO. 650159/2010 NYSCEF DOC. NO. 327 RECEIVED NYSCEF: 10/01/2013 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK HARVEY RUDMAN and HAROLD KUPLESKY, on Behalf of Each of Them Individually And On Behalf Of Starrett City Preservation LLC, Derivatively, Index No. 650159/10 Plaintiffs, - against - Assigned to Kornreich, J. CAROL GRAM DEANE, THE ESTATE OF DISQUE D. DEANE by CAROL G. DEANE, as TEMPORARY EXECUTRIX, SALT KETTLE LLC, ST. GERVAIS LLC, STARRETT CITY PRESERVATION LLC, DD SPRING CREEK LLC, SK SPRING CREEK LLC, SPRING CREEK PLAZA LLC, DD SHOPPING CENTER LLC and SK SHOPPING CENTER LLC, Defendants. DEFENDANTS’ REPLY MEMORANDUM OF LAW IN SUPPORT OF MOTION FOR PARTIAL SUMMARY JUDGMENT NEWMAN & GREENBERG WARNER PARTNERS, P.C. Attorneys for Defendant Carol Gram Deane Attorneys for All Defendants Except Carol Gram Deane 950 Third Avenue and Spring Creek Plaza New York, New York 10022 (212) 308-7900 950 Third Avenue New York, New York 10022 (212) 593-8000 FOLEY & LARDNER LLP Attorneys for Defendant Spring Creek Plaza 90 Park Avenue New York, NY 10016 (212) 682-7474 TABLE OF CONTENTS PAGE: TABLE OF AUTHORITIES . ................................................... ii PRELIMINARY STATEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 POINT I: THE LANGUAGE AND MEANING OF SECTION 3.3 ARE PLAIN, MAKING INTERPRETATION A MATTER OF LAW FOR THE COURT AND ENTITLING DEFENDANTS TO PARTIAL SUMMARY JUDGMENT.. . . . . . . . . . . . 1 A. The language of Section 3.3 is plain and its meaning unambiguous. . . . . . . . . 1 B. Plaintiffs’ interpretation of Section 3.3 is unreasonable. . ................3 POINT II: WHETHER THE PRESERVATION AGREEMENT AUTHORIZES THE STAFF BONUS MONEY PAID AND RESERVED IS PURELY A QUESTION OF LAW, WARRANTING SUMMARY JUDGMENT ON THIS ISSUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 A. Poll, Sutz and Curt Deane Were Proper Bonus Recipients. . ..............6 B. The Agreement Authorized Carol Deane to Establish the “Bonus Reserve.”. . 9 POINT III: THERE CAN BE NO LEGITIMATE FACTUAL DISPUTE THAT “DISCUSSIONS . . . THAT RESULTED IN” THE REFINANCING OF STARRETT CITY DID NOT BEGIN UNTIL AFTER KUPLESKY’S EMPLOYMENT ENDED, REQUIRING THE AUTOMATIC REDUCTION OF KUPLESKY’S SHARING RATIO UNDER THE AGREEMENT AND ENTITLING DEFENDANTS TO SUMMARY JUDGMENT.. . . . . . . . . . . . . . . . . . . . 10 A. Kuplesky’s Sharing Ratio Was Property Reduced Under Section 5(a) . . . . . 10 B. Kuplesky’s Sharing Ratio Was Properly Reduced by 70%. . . . . . . . . . . . . . . 14 CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 i TABLE OF AUTHORITIES PAGE: CASES: Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519 (1927) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc., 65 A.D.3d 445 (1st Dept 2009)... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Greenfield v. Philles Records, 98 N.Y.2d 562 (2002).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Sengillo v. Valeo Electrical Systems, Inc., 536 F.Supp.2d 310 (W.D.N.Y. 2008). ............2 United States v. Hamdi, 432 F.3d 115 (2d Cir. 2005) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 3 ii PRELIMINARY STATEMENT Faced with unambiguous language in the relevant Preservation Agreement provisions, plaintiffs proffer a series of interpretations that torture the text past the breaking point to fit their pre-determined litigation positions. The failure of that effort leads them to claim “ambiguity” where none exists; the text is simple, plain and clear. Ultimately plaintiffs resort to burying the Court in a mountain of claims and documents contained in a 24-page attorney’s affidavit that evades the Court’s page limits (plaintiffs’ request for more pages was turned down), and that violates a basic principle of contract interpretation, i.e., “a court cannot consider extrinsic evidence to construe an unambiguous contract provision.” Greenfield v. Philles Records, 98 N.Y.2d 562, 569 (2002). Ironically, plaintiffs’ inadmissible parol evidence actually supports defendants’ position, not plaintiffs’, because the drafting history confirms the clear meaning in the final text. But that history is irrelevant, because the text speaks loudly and clearly for itself. POINT I: THE LANGUAGE AND MEANING OF SECTION 3.3 ARE PLAIN, MAKING INTERPRETATION A MATTER OF LAW FOR THE COURT AND ENTITLING DEFENDANTS TO PARTIAL SUMMARY JUDGMENT A. The language of Section 3.3 is plain and its meaning unambiguous. Section 3.3’s language defining the Managing Member’s reallocation power is straightforward, and its meaning is “definite and precise,” satisfying the test for summary judgment in a contract dispute like this one. Greenfield, 98 N.Y.2d at 569. The first sentence indisputably confers sole discretion on the Managing Member to reallocate Sharing Ratios, in whatever amounts or percentages she deems appropriate, at any time after a Funding Event. The second sentence indisputably defines a Funding Event as the aggregate distribution to Preservation’s Members of no less than $10 million (i.e., “at least $10 million”). The third sentence articulates nothing more than the parties’ acknowledgment of a purpose for the Managing Member’s reallocation power 1 in the specific context of a refinancing, i.e., it is “intended to facilitate” the creation of a new management incentive program after the “full distribution from the proceeds of a substantial refinancing.” The third sentence is not an enforceable provision because it does not direct action, confer rights or obligations, or limit the use of the reallocation power in any way. Plaintiffs nonetheless attempt to convert the mere recital in the third sentence into a command, and to use that contrivance to change the clear definition of a “Funding Event” in the second sentence. To accomplish their alchemy, plaintiffs argue that whether contract language is a recital or an enforceable operative term turns on where the language appears in the contract, insisting that “courts typically use the term ‘precatory’ [a synonym for a recital] to refer to ‘Whereas’ clauses or opening recitals of contracts that precede the terms of agreement.” Plaintiffs’ Memorandum of Law (“PMOL”) at10. But whatever courts may “typically” do, whether contract language is a recital or an enforceable operative term is determined by its substance, not by where it is located in the contract. Atwater & Co. v. Panama R.R. Co., 246 N.Y. 519, 524 (1927) (“Form should not prevail over substance and a sensible meaning of words should be sought”); see also United States v. Hamdi, 432 F.3d 115, 123 (2d Cir. 2005) (recitals need not be contained and are not always found in a section labeled as such); Sengillo v. Valeo Electrical Systems, Inc., 536 F.Supp. 2d 310 (W.D.N.Y. 2008) (“that which is functionally a recital does not, ‘by any other name,’ or even in [the] absence of a clarifying headline, comprise an enforceable contractual term”). Plaintiffs also misapply the third sentence’s introductory language (“[a]ll Members acknowledge and agree . . .”) in order to argue that phrase “by its terms . . . contains the parties’ agreement . . . as to when the Managing Member’s reallocation power can be used.” But “agreeing” to a recital of the parties’ intent does not change a recital into a command; the third 2 sentence remains a recital. See, e.g., Hamdi, 432 F.3d at 123-124 (upholding a plea agreement because, inter alia, language such as “the defendant agrees . . .” does not convert the nature of the provision from a recital to an enforceable term). Recital language may have its uses, e.g., to help interpret ambiguous enforceable language, but a recital “cannot create any right beyond those arising from the operative terms of the document.” Grand Manor Health Related Facility, Inc. v. Hamilton Equities Inc., 65 A.D.3d 445, 447 (1st Dept 2009). B. Plaintiffs’ interpretation of Section 3.3 is unreasonable. According to plaintiffs, the term “Funding Event” does not mean what the plain language of the second sentence says it means (i.e., an aggregate distribution to Members of “at least $10 million . . .”). Instead, in plaintiffs’ view, the third sentence dramatically alters that meaning and precludes the exercise of the Managing Member’s reallocation power until after a “full distribution” to Preservation’s Members of the “proceeds” of the refinancing. PMOL9. However, the meaning of a “Funding Event” in the second sentence is complete and unambiguous, and the third sentence adds nothing to that meaning. The term “at least” in the second sentence – on which plaintiffs heavily rely – simply means that an aggregate distribution of less than $10 million will not suffice to constitute a “Funding Event.” Thus, Preservation’s Members, including plaintiffs, could be assured that they would receive significant compensation for their efforts to help achieve a sale or refinancing, i.e., they were guaranteed “at least” their pro rata share of $10 million before their Sharing Ratios could be reduced. 1 1 According to plaintiffs, “[t]here is no reason for the [second] sentence to refer to ‘at least $10 million’ if, as defendants urge, the parties intended for the power to reallocate to automatically trigger upon the distribution of $10 million.” PMOL 9. Plaintiff’s argument ignores the traditional role of emphasis in contract drafting and common parlance. There is no substantive reason for the term “sole discretion” to be repeated in the first sentence; it is repeated anyway to emphasize for the Managing Member her unrestricted discretion once a Funding Event has occurred. Similarly, there is no substantive reason in daily speech for “exactly” to modify “the same,” but “exactly the same” is frequently used for emphasis. In the context of the Managing Member’s reallocation power, “at least” conveyed to the three 3 Even if the third sentence is read to modify the plain meaning of the second sentence – an impossibility for the reasons explained – the third sentence does not have the meaning plaintiffs attribute to it. For example, the term “full distribution” in the third sentence does not and cannot refer to a distribution to the Members of Preservation, as plaintiffs insist; it can only refer to a distribution from SCA to Preservation. 2 This reading is confirmed by the reference in the third sentence to a distribution “pursuant to Section 3.02 or 3.03 of the SCA Partnership Agreement;” Preservation does not make distributions pursuant to the SCA Partnership Agreement. And SCA (per the assignments) made its distributions to Preservation, not to Preservation’s Members – a further refutation of plaintiffs’ reading. Had the parties intended “full distribution” to refer to a distribution by Preservation to its Members, the Agreement would have said so. Plaintiffs also advance an unnatural interpretation of the term “proceeds” in the third sentence (“full distribution from the proceeds of a substantial refinancing”) (emphasis added). As the transaction in this case typifies, a refinancing is a cash loan to owners of property, with the property used as collateral for the loan. A refinancing loan is secured by a mortgage in favor of the lender, and the cash loaned is used to pay off the prior mortgage and to pay other expenses. If the refinancing loan is large enough, and cash remains undisbursed, the property owners may take out all or some of the remaining cash “proceeds” for themselves. It is common parlance and indisputable that any such remaining cash constitutes the management Members (plaintiffs and Fell), “don’t worry, reallocation (and reduction of your Sharing Ratio) cannot even be considered unless you receive your share of at least a $10 million distribution.” Moreover, plaintiffs ignore the fact that this is the meaning the term “at least” had in every prior draft of the Agreement. Thus, plaintiffs acknowledge that under prior drafts the Managing Member’s reallocation power was automatically triggered “once $10 million of such distribution has been made” (Opposition Affirmation of Jacqueline Veit at ¶26); yet the term “at least” was still found in the second sentence. Id. 2 As noted in defendants’ moving papers, SCA in fact did make a “full distribution” of refinancing proceeds to Preservation before the Managing Member’s reallocation of plaintiffs’ Sharing Ratios. DMOL at 15. 4 distributable “proceeds” of a refinancing because the “proceeds” of a cash transaction are cash. Plaintiffs, however, define refinancing “proceeds” in a way that amplifies that term out of all proportion and beyond any reasonable meaning – i.e., according to plaintiffs, refinancing “proceeds” are every dollar of value arising from the receipt and use of the refinancing loan, including, inter alia in this case, a pro rata share for plaintiffs of all the equity in Starrett City and all “current and future profits” and “distributions of cash flow” from the assets of Starrett City. 3 This extravagant definition of “proceeds” is not simply at odds with common usage, as well as the reality of refinancing itself; it also renders the third sentence, and its reference to establishing a “new management incentive program” – after the “full distribution” of refinancing “proceeds” – totally meaningless. In plaintiffs’ world, these “proceeds” keep coming each year, generating profits and cash flow – so that their “full distribution” will never be complete until Starrett City is sold or liquidated, at which point there will be nothing left to manage, and therefore no purpose for a new management incentive program. Equally important, plaintiffs’ proffered interpretation of the third sentence would nullify the Managing Member’s reallocation power, the reason Section 3.3 (titled “Reallocation of Sharing Ratios”) exists. That is because, according to plaintiffs, a Funding Event does not occur until the “full distribution” of refinancing “proceeds,” that “full distribution” of “proceeds” (as plaintiffs’ define them) is not complete as long as Starrett City has any assets, and until a Funding Event occurs there can be no exercise of the Managing Members reallocation power. Plaintiffs’ interpretation of what constitutes the “proceeds” of a refinancing is also 3 According to plaintiffs, a “full distribution” of refinancing “proceeds” would include plaintiffs’ respective shares of, inter alia, “the equity value of all assets (including the 5,881 residential units, 8 garages, sports complex, community center, power plant, etc.), including current and future profits, distributions of cash flow, and sale/refinancing proceeds of SCA (estimated market value $800 million, less approximately $530 million debt, for estimated net equity value of $270 million; Preservation share estimated to be $54 million)[.]” Exhibit 48 at 27 (emphasis added.). 5 refuted by Sections 3.02 and 3.03 of SCA’s Partnership Agreement, incorporated by explicit reference in the third sentence. Section 3.03 (“Distribution of Sale/Refinancing Proceeds”) makes clear that distributable proceeds of a refinancing means the “net cash proceeds” from the transaction, contrary to plaintiffs’ expansive interpretation. Section 3.03 also provides that proceeds “shall be distributed and applied” in a particular order of priority, i.e., after repayment of certain SCA liabilities, distributions of the “net cash proceeds” must be made to SCA’s limited and general partners pursuant to a formula which requires consideration of the aggregate amounts of “Cash Flow” (as defined in Section 3.02) already distributed to partners. 4 Thus, the relevant sections of SCA’s Partnership Agreement leave no doubt that the refinancing “proceeds” referred to in the third sentence of the Preservation Agreement are the “net cash proceeds” of the refinancing transaction. Because Preservation distributed all of the “net cash proceeds” less permitted deductions from the refinancing to its Members, including plaintiffs prior to the Managing Member’s reduction of plaintiffs’ Sharing Ratios, summary judgment is warranted on this basis alone. Plaintiffs have already received far more than the amount they were guaranteed under the Agreement. The arguments they advance to grasp even more money are unpersuasive and contrived. They should be rejected, and the Court should enter summary judgment in favor of defendants on plaintiffs’ Ninth Cause of Action. POINT II: WHETHER THE PRESERVATION AGREEMENT AUTHORIZES THE STAFF BONUS MONEY PAID AND RESERVED IS PURELY A QUESTION OF LAW, WARRANTING SUMMARY JUDGMENT ON THIS ISSUE A. Poll, Sutz and Curt Deane Were Proper Bonus Recipients. Section 4.2(iii) of the 4 Section 3.02 also explicitly excludes “Sale/Refinancing Proceeds” (as defined in Section 3.03) from the definition of “Cash Flow.” 6 Preservation Agreement excludes from the bonus provision “office staff” who are “Members” of Preservation. Plaintiffs seize on the exclusion of Members to argue that Iris Sutz and Curt Deane are excluded from bonus eligibility because they were members of Saint Gervais, and any “fair reading of this exclusion is that ‘Members’ includes indirect members like Sutz and Curt Deane.” PMOL 17-18 (emphasis added). Plaintiffs’ strained and contrived concept of “indirect membership” is nowhere in the Agreement, and is refuted by the Agreement’s plain language. Section 2.6 of the Agreement specifically identifies and defines the “Members” of Preservation as consisting of Saint Gervais, Carol Deane, Mary Clarke, Martin Fell, Harold Kuplesky and Harvey Rudman. Sutz and Curt Deane are not included in this list, so neither of them can even arguably be deemed “Members” of Preservation. Plaintiffs also insist that the term “affiliated entities” is ambiguous as to whether it includes Cork Management, the “co-managing agent for Starrett City, the Owner’s Representative” and the entity through which Ms. Sutz and Mr. Poll (and for that matter Kuplesky) were paid. SAC ¶31; PMOL 18. In so arguing, plaintiffs ignore their own contrary position that the “intent of this [bonus] provision” – which was created for employees of Preservation and “affiliated” entities – was to ensure that Caron Salinger and two other administrative staff received bonuses in the event of a significant transaction with respect to Starrett City. PMOL 19. But in 2006, when the Preservation Agreement was executed, Caron Salinger was employed and paid by Cork. Exhibit 49. Thus, by invoking Ms. Salinger, plaintiffs concede that Cork was an “affiliated entity” within the meaning of the Agreement. 5 5 Plaintiffs would render meaningless the term “affiliated entities” by arguing that Preservation actually has no “affiliated” entities. PMOL 18 (“Preservation, moreover, was not an operating entity.”) But this argument contradicts plaintiffs’ acknowledgment that Salinger, Dricot and Pesant were administrative assistants entitled to bonus compensation under the Agreement, even though they were not employees of Preservation. They could only be entitled to receive bonuses under the Agreement as employees of “affiliated” entities. 7 Plaintiffs’ argument for nullifying Curt Deane’s bonus compensation is also unpersuasive. According to plaintiffs, Curt Deane could not be part of the bonus-eligible “office staff” because, in plaintiffs’ understanding, he was not paid a salary and merely “assisted [Disque] on various personal matters” after Disque, Curt’s uncle, suffered a stroke in 2004. But Curt was not one of Disque’s caregivers. On the contrary, Curt worked for Disque from the SCA premises, was concededly “involved with SCA or Preservation,” and undeniably participated on a sophisticated level in the efforts to sell Starrett City as well as refinance it. Exhibits 48 and 50. Indeed, Curt’s deep involvement in the substantive business affairs of Starrett City and the Deane Group explains why plaintiffs deposed him for two full days. Moreover, the Agreement does not require the “office staff” to be paid a salary in order to be bonus-eligible. Indeed, a non-salaried or uncompensated staff person like Curt Deane is more, not less, deserving of bonus compensation for precisely that reason. Plaintiffs argue that the term “office staff’ is ambiguous, and requires a trial to define. In making that argument, they ignore the plain and obvious meaning of that term, i.e., people who work in the office. The Agreement could have used a more narrow term to identify covered staff, e.g., by modifying “staff” with such adjectives as “managerial,” “clerical,” “professional,” “administrative,” or “secretarial.” Instead, the Agreement uses the most general and inclusive term. Plaintiffs can point to nothing in the Agreement to support their contention that the broad term “office staff” should be given a narrow meaning, limited to three members of the administrative staff, not one of whom is named or even referenced in the Agreement. Regardless of who was responsible for introducing the phrase “office staff” during Todd Trehubenko’s deposition (see PMOL 19), the term’s usage during that deposition demonstrates that the common understanding or usual meaning of the term includes professional staff, as the 8 dictionary definition confirms. Indeed, plaintiff Kuplesky described himself and his professional colleagues in the SCA and Deane Group offices as “office staff.” 6 B. The Agreement Authorized Carol Deane to Establish the “Bonus Reserve.” Plaintiffs concede that Section 4.2(iii) permits the establishment of a bonus reserve. PMOL 19. Yet, they insist that such a reserve can only be used to make future payments to current staff. But nothing in the language of the Agreement supports their unnatural interpretation, nor does plaintiffs’ invocation of Iris Sutz’s calculations of anticipated distributions from a funding transaction. PMOL 20. Plaintiffs concede that Section 4.2(iii) “gives the Managing Member the choice of making a one-time payment to the office staff existing at the time of the sale or refinancing, or establishing a reserve to pay that office staff those bonuses over time.” PMOL19-20. Yet neither type of payment is reflected in Ms. Sutz’s spreadsheets, and for good reason. Her spreadsheets were prepared for a different purpose, and their contents have nothing to do with the meaning of Section 4.2(iii). Plaintiffs contend that the Agreement’s bonus reserve provision is invalid because it purportedly fixes no time limit for making payments from that reserve. PMOL 19. In fact, the Agreement makes clear that Preservation cannot hold in perpetuity the funds used to establish the 6 When questioned regarding a meeting between Mel Bedrick, a limited partner, and Carol Deane about the purpose of the Preservation Agreement, Kuplesky gave the following testimony: Q. And what did you understand was the purpose of the meeting? A. It was a follow up to information provided to him that we were setting up an incentive plan for the office staff. Q. What was said at that meeting, as best you recall, and, to the extent you recall, by whom? A. My recollection is that Carol Deane and myself described the Preservation arrangement. Q. And how did you describe it? A. It was an arrangement to incentivize the professionals in the office to create value, additional value, for Starrett City Associates. (Exhibit 51 (emphasis added). 9 bonus reserve, because Preservation must dissolve no later than December 2025. Warner Aff. Ex. 1 at §9.1(A). Moreover, the fact that the reserve fund has no term other than Preservation’s own fixed term demonstrates that the bonus reserves were intended to pay both current and future office staff. Contrary to plaintiffs’ baseless claim, there is nothing unreasonable about holding the bonus payments “for 4 years” or even longer. Indeed, plaintiffs concede that when the Agreement was entered into, it was understood that no sale or refinancing of Starrett City would likely take place for eight to 10 years. Exhibit 51. Plaintiffs lament that Poll, Sutz and Curt Deane received more money in bonus compensation than the guaranteed minimum plaintiffs were entitled to receive under defendants’ interpretation of Section 3.3. But plaintiffs’ subjective beliefs concerning the fairness of the bonus awards paid to others have no relevance to the meaning of the plain language of the Agreement. Plaintiffs also ignore the fact that, unlike Poll, Sutz and Curt Deane, whose valuable contributions to the success of the refinancing plaintiffs attempt to diminish, Kuplesky played no role, and Rudman only a minor role, in the December 2009 refinancing from which both plaintiffs profited so handsomely. POINT III: THERE CAN BE NO LEGIMATE FACTUAL DISPUTE THAT “DISCUSSIONS . . . THAT RESULTED IN” THE REFINANCING OF STARRETT CITY DID NOT BEGIN UNTIL AFTER KUPLESKY’S EMPLOYMENT ENDED, REQUIRING THE AUTOMATIC REDUCTION OF KUPLESKY’S SHARING RATIO UNDER THE AGREEMENT AND ENTITLING DEFENDANTS TO SUMMARY JUDGMENT A. Kuplesky’s Sharing Ratio Was Properly Reduced Under Section 5(a) Plaintiffs categorically assert that their position on this motion is that the discussions that resulted in the refinancing began, at the latest, in May 2008, when the negotiations took place that led to the execution of the MOU. The MOU was an extensively negotiated document that provided the structure for the partners of SCA to realize the value of their investment through a sale or a refinancing. 10 PMOL 21-22 (footnote omitted). In making this claim, plaintiffs completely ignore the undisputed fact that the only stated purpose of the MOU was “to establish a framework under which SCA may structure and complete a sale of Starrett City.” Exhibit 17 (emphasis added). The MOU contains no reference whatsoever to a refinancing transaction of any sort, let alone the one that ultimately occurred. Its sole purpose was to ensure and facilitate a preservation sale of Starrett City. Thus, it is linguistically and logically impossible to invoke the MOU as the point at which the MGP and the regulators finally engaged in “discussions that resulted in” the December 2009 refinancing. The MOU’s single-minded focus on a sale of Starrett City refutes any such argument. The purpose of Section 5(b) – exempting a Member from the automatic Sharing Ratio reduction imposed by Section 5(a) if the Member’s employment with the Deanes ended before a sale or refinancing occurred – is obvious on its face: when discussions have taken place sufficient to put a sale or refinancing transaction on the road toward fruition, a Member should not be excluded from sharing in the benefits of that transaction, if it closes, simply because he was not on board at the time of closing. This purpose – for the benefit of plaintiffs – is confirmed by the fact that Kuplesky proposed it and was its sole author; plaintiffs obviously wanted protection against having their Sharing Ratios automatically reduced by being fired before a transaction closed but after discussions had already begun that were meaningful enough to be causally connected to the eventual outcome. That purpose is manifest from the language of the provision, and is a matter of common sense. Thus, there is only one reasonable interpretation of the phrase “discussions . . . resulting in a [refinancing]”: substantive communications, meetings and planning focused on bringing about, and therefore causally connected to, the refinancing that occurred in December 2009. 11 Under that interpretation, there is simply no way to link the MOU with the eventual refinancing. In fact, the sales process addressed in the MOU indisputably continued through 2008 and into 2009. Co-plaintiff Rudman conceded – “[a]t the time [of Kuplesky’s departure] . . . Starrett was deep in its second effort to sell Starrett City [and] [t]hird round bids were anticipated from potential purchasers.” Affidavit of Harvey Rudman (July 2, 2013) at ¶8. In fact, three days after Kuplesky’s departure, a bid to buy Starrett City was submitted. Undisputed Facts ##12b and 37. Fully aware of these facts, Kuplesky devises an interpretation whereby so long as any “discussions” took place that somehow assist or facilitate subsequent discussions focused on a refinancing, Kuplesky would qualify for the exemption from the automatic reduction in his Sharing Ratio even if the prior discussions were totally unrelated to a refinancing at the time they took place, which is the case here. Kuplesky refers to such earlier discussions as “building blocks” to the ultimate transaction, but that usage is a misnomer. The “building blocks” he refers to no more “resulted in” a refinancing than the building of a foundation of a private home “resulted in” another home built on the same foundation after the first house collapsed. The foundation, when originally built, was not created for the new home and was unrelated to it, just as the MOU negotiations were completely unrelated to the refinancing, and remain so. Concessions made by regulators in May 2008 in the context of an MOU designed to facilitate a sale of Starrett City, without any thought of or reference to a refinancing, does not establish the causal link contemplated by Section 5(b) even if those concessions were later invoked in the course of negotiations leading to the refinancing. Kuplesky’s contrary argument is simply an after-the-fact effort to hold onto his original Sharing Ratio, even though the refinancing was not addressed, discussed or otherwise contemplated in any way when the MOU was executed in May 2008. 12 Kuplesky’s proffered interpretation is particularly deficient in view of the many hurdles to a refinancing of Starrett City unaddressed by the May 2008 MOU, including the necessity of legislative action to amend Mitchell-Lama to allow for an equity takeout, without which it is undisputed a refinancing was not feasible, as it would give the Starrett City partners no benefit. Here, there can be no legitimate dispute that the “discussions” contemplated by the Agreement to exempt a Member of Preservation from an automatic reduction of his Sharing Ratio did not commence until February 2009 at the earliest, two months after Kuplesky’s departure. Only then did the MGP’s consistent, single-minded efforts to sell Starrett City terminate. After that the MGP, his management team and the regulators turned their attention to a refinancing transaction, resulting in intense and multi-tiered discussions and efforts, including the required successful lobbying campaign to convince the Legislature to amend Mitchell-Lama in the summer of 2009, paving the way for the December 2009 refinancing. Kuplesky eventually retreats from his unreasonable and tortured interpretation to his alternative argument that the term “discussions . . . that resulted in a Funding Event” is ambiguous, requiring a trial to determine its meaning. PMOL 21. He strives to find ambiguity by arguing that, as written, Section 5(b) means that any passing mention of a “refinancing” before his departure, whether within the MGP’s office or outside the office and not under the MGP’s control, could arguably exempt him from the Agreement’s automatic reduction of his Sharing Ratio. PMOL 21. Under that view, however, his Sharing Ratio could never be automatically reduced pursuant to Section 5.5(a) so long as a refinancing occurred at any point in the future, no matter how long after Kuplesky’s departure, since a refinancing of Starrett City was mentioned as a theoretical possibility as early as the creation of Starrett City in 1972. By contrast, the record compels acceptance of defendants’ argument that the requisite 13 “discussions” contemplated by the Agreement did not begin until February 2009. Only from and after February 2009 – when the second sale process ended – did substantive discussions take place aimed at the refinancing that ultimately took place. Exhibit 52 (Recap closing memorandum) (“‘Success’ was defined as a property sale. . . . The owner’s instruction was ‘Don’t look at other options.’ . . . So, from December 2007 to February 2009, we operated with that goal in mind”). Moreover, even after those refinancing discussions began, and even without regard to the legislative hurdle, a successful refinancing was by no means guaranteed. For example, on February 17, 2009, Priscilla Almodovar, the regulatory point person, responded to a question from an aide to Senator Schumer, an active supporter of the refinancing project, that the MOU “isn’t applicable” to a possible refinancing even if “the spirit is still the same.” Exhibit 53. Similarly, Deborah Van Amerongen, another regulator, noted that, “depending on what they need from us we may want to demand more” than was asked for during the sale process to approve a preservation refinancing, which is exactly what happened. Id. In exchange for government approval, including support for the necessary legislative amendment to Mitchell- Lama, the regulators required SCA to make a 30-year commitment to remain under regulation as an affordable housing project (rather than the 20-year commitment that would have been required of a purchaser by the MOU). B. Kuplesky’s Sharing Ratio Was Properly Reduced by 70%. Kuplesky advances yet another fall back argument, albeit one more modest than his initial overreaching claim. Kuplesky contends that if the Court determines he is not exempted from Section 5.5(a)’s automatic reduction of his Sharing Ratio, the reduction should be only 60%, not 70%, because the notice of his removal from the Board was not sent to him 14