620 B.R. 820
Bankr. S.D.N.Y.2020Background
- Buyer Condado Plaza Acquisition LLC and affiliates contracted to buy the Condado Plaza Hilton from seller Posadas for $31,000,000; buyer deposited $3.1M (later increased to $5.1M) into escrow.
- PSA (Nov 20, 2019) was governed by New York law, stated "time is of the essence," provided an "as is, where is" purchase, disclaimed warranties, and made certain asset transfers (including "goodwill") non-condition precedents to closing.
- Parties executed three amendments in early 2020; the Second Amendment (Mar 5, 2020) waived all conditions precedent to closing and made escrow payable to seller if buyer failed to close on the new scheduled date.
- Government Covid-19 orders closed the hotel; Posadas set May 11, 2020 as the closing under the Third Amendment; Condado did not close and Posadas sent a termination notice on May 11.
- Litigation followed in Puerto Rico and Monroe County, NY; Condado filed bankruptcy on Sept 9, 2020 and removed the Monroe County action; this Court held that the PSA terminated as of May 11, 2020 and terminated the temporary restraining order in the removed action.
Issues
| Issue | Plaintiff's Argument (Condado) | Defendant's Argument (Posadas) | Held |
|---|---|---|---|
| Whether seller had to deliver an "operating" hotel or a positive "goodwill" at closing | PSA required transfer of a viable going-concern with employees and goodwill; absence excused closing | PSA expressly sold assets "as is, where is"; seller not required to maintain operations and goodwill transfer was not a condition precedent | Court: PSA disclaims warranties and expressly allows non-operation; seller not required to deliver an operating hotel or a particular goodwill value |
| Whether buyer waived conditions and whether time-of-the-essence deadline could be extended | Covid-19 made performance impracticable/frustrated purpose and justified extension or relief | Buyer expressly waived conditions in Second Amendment; PSA contains "time is of the essence" provisions and negotiated closing formula; buyer cannot rewrite contract | Court: Buyer waived conditions; time-of-the-essence deadline enforceable; doctrines (frustration, impossibility, failure of consideration) do not justify extending the closing date |
| Availability and timeliness of specific performance | Buyer sought specific performance/remedy to enforce contract or extend closing | Seller: buyer was not ready, willing, and able; specific performance limited by PSA to 30-day window and buyer did not timely pursue | Court: Specific performance unavailable — buyer failed to timely seek it and was not demonstrably ready/willing; buyer's only remedy was termination and escrow remedies under PSA |
| Effect of bankruptcy and removal/jurisdictional issues | Bankruptcy extends statutory deadlines (section 108) and removal to SDNY proper | PSA terminated prepetition, so sections 108/362/365 do not apply to the asset; removal to SDNY was procedurally improper (should have been to WDNY) though defect was waived | Court: PSA terminated before petition date so bankruptcy provisions inapplicable to the Assets; removal defect was waived and Court has the removed action; TRO vacated and escrow funds remain held pending resolution |
Key Cases Cited
- Wallace v. 600 Partners Co., 658 N.E.2d 715 (N.Y. 1995) (contracts interpreted by plain meaning)
- W.W.W. Assocs., Inc. v. Giancontieri, 566 N.E.2d 639 (N.Y. 1990) (objective interpretation of parties' mutual intent)
- Bloomfield v. Bloomfield, 764 N.E.2d 950 (N.Y. 2001) (intention inferred from the written agreement)
- Skycom Corp. v. Telstar Corp., 813 F.2d 810 (7th Cir. 1987) (party intent derived from words and actions)
- Kel Kim Corp. v. Cent. Mkts., Inc., 70 N.Y.2d 900 (N.Y. 1987) (impossibility doctrine narrowly applied)
- Fallati v. Mackey, 31 A.D.3d 879 (N.Y. App. Div.) (specific performance requires seller able but unwilling to convey)
- Highbridge House Ogden LLC v. Highbridge Entities LLC, 145 A.D.3d 487 (N.Y. App. Div.) (contractual limits on remedies enforced)
- In re New Breed Realty Enters., 278 B.R. 314 (Bankr. E.D.N.Y.) (failure to close by time-of-the-essence date is a material breach)