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SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 46 (Justice Lucy Billings) _______________________________________ 511 SOUNDVIEW REALTY LLC, Plaintiff, -against-

ATHENIAN AND ATHENA BUILDING INC., THE HIRAM GRAND LODGE OF ANCIENT FREE AND ACCEPTED MASONS, LENOX AVENUE DEVELOPMENTS LLC, JOHN A. HENEGAN, ERIC CURTIS AND TONY CURTIS Defendants. _______________________________________

X | | | || | | | | | | | | | X

Index No. 650145/2013

______________________________________________________________________

MEMORANDUM OF LAW A&A AND LAD DEFENDANTS’ JOINT APPLICATION

FOR ORDER FOR INTERIM ACCOUNTING OF FIDICUARY FUNDS AND DELIVERY OF UNDERTAKINGS FOR NOTICE OF PENDENCY PER CPLR 6515(2)

__________________________________________________________________

Thomas S. Fleishell & Associates, P.C. Attorneys for Defendant Athenian and Athena Building Inc.

561 Seventh Avenue, 19th Floor New York, NY 10018

Phone: (212) 972-1355

Davis, Ndanusa, Ikhlas & Saleem LLP

Attorneys for Lenox Avenue Development Defendants 26 Court Street, Suite 603

Brooklyn, NY 11242 Phone: (718) 783-6819

Co-Counsel on Application:

Becker Meisel LLC 240 Madison Ave., 7th Fl. New York, NY 10016 Phone: (212) 390-8409 By: James M. McCarrick, Esq.

FILED: NEW YORK COUNTY CLERK 08/22/2014 05:42 PM INDEX NO. 650145/2013

NYSCEF DOC. NO. 142 RECEIVED NYSCEF: 08/22/2014

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TABLE OF CONTENTS

REQUEST FOR RELIEF ................................................................................................. 1

PRELIMINARY STATEMENT ......................................................................................... 1

PROCEEDINGS .............................................................................................................. 4

APPLICABLE LAW ........................................................................................................ 6

Notices of Pendency .................................................................................................... 6

Provisional Cancellation conditioned upon Dual-Undertakings ................................ 7

Parties’ Potential Losses ............................................................................................. 9

Damages for Breach of Contract to Convey Real Property ...................................... 9

Recovery for Improvements to Real Property ........................................................ 10

Delays Precluding Availability of Specific Performance ......................................... 11

Fiduciary Fund Status of Monies Received for Use and Occupancy ...................... 11

POINT I: PROVISIONAL CANCELLATION CONDITIONED UPON FAILURES TO DELIVER ADEQUATE UNDERTAKINGS IS WARRANTED ....................................... 13

511’s Potential Losses Are Between $26,072 to $251,072 ........................................ 14

Benefit of Bargain Damages .................................................................................. 15

Recovery Based upon Partial Performance ........................................................... 17

Money Damages for Detrimental Reliance ............................................................. 18

Limited Recoveries from LAD Defendants ................................................................. 19

Low Likelihood of Success Warrants Discounting 511’s “Losses” ............................. 20

POINT II 511 SOUNDVIEW SHOULD BE DIRECTED TO RENDER AN INTERIM ACCOUNTING AS TO FIDUCIARY FUNDS AND DISCLOSURE DEPOSITORY INSTITUTION, ACCOUNT INFORMATION .................................................................. 23

511 Soundview Security is Contingent upon Accounting ........................................... 23

Interim Accounting Is Necessary to Establish Status of Fiduciary Funds .................. 25

POINT III UNDERTAKINGS SHOULD BE FIXED AS (A) $700,000 CASH AND $5,883,300 SURETY BOND FROM 511, AND (B) $1,000 SURETY BOND AND SENIOR MORTGAGE NOTE UP TO $251,000 FROM A&A AND LAD ...................... 25

Sources of Losses to Defendants .............................................................................. 26

Security for LAD’s Damages ...................................................................................... 29

Defendants’ Proposed Undertaking to 511 Is Adequate ............................................ 30

Requested Relief ......................................................................................................... 31

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TABLE OF AUTHORITIES

Cases

5303 Realty Corp. v. O&Y Equity Corp., 64 N.Y.2d 313, 486 N.Y.S.2d 877, 476 N.E.2d 276, 280-81 (1984) .................................................................... 1, 6, 7, 14 Andesco, Inc. v. Page, 137 A.D.2d 349, 357, 530 N.Y.S.2d 111 (1st Dep't 1988) ..................................................................... 1, 7, 8 Astoria Caterers, Inc. v. J & P 1870 Realty Corp., 24 A.D.3d 478, 806 N.Y.S.2d 242 (2d Dep’t 2005) ..................................................................... 10, 18 CFJ Associates of New York Inc. v. Hanson Industries, 294 A.D.2d 772, 742 N.Y.S.2d 433 (3d Dep’t 2002) ..................................................................... 10, 18 Chernow v. Chernow, 39 A.D.3d 684, 662, 833 N.Y.S.2d 660 (2nd Dep’t 2007) .......... 11 Cole v. Macklowe, 64 A.D.3d 480, 882 N.Y.S.2d 417 (1st Dep’t 2009) ..................... 9, 16 DiBartolo v. Battery Place Associates, 84 A.D.3d 474, 922 N.Y.S.2d 357 (1st Dep’t 2011) ........................................................................... 11 Disanza v. Gaglione, 126 Misc.2d 232, 482 N.Y.S.2d 413 (N.Y. Sup., Nassau Cty 1984) ..................................................... 10 Esposito v. Fed. Deposit Ins. Corp., 644 F.Supp. 276, 277 (E.D.N.Y.1986) ................. 29 Gindi v. Intertrade Internationale Ltd., 50 A.D.3d 575, 575, 856 N.Y.S.2d 104 (2008) ............................................................................. 11, 15, 21 Hegeman v Bedford, 5 A.D.3d 632, 774 N.Y.S.2d 769 (2nd Dep’t 2004) ....................... 11 Israelson v. Bradley, 308 N.Y. 511, 516, 127 N.E.2d 313, 315, (NY 1955) ..................... 6 Keenan v. Artintype Inc., 145 Misc. 2d 90, 94, 546 N.Y.S.2d 741, 744 (Sup 1989) ...... 22 LeRoy v Sayers, 217 A.D.2d 63, 68, 635 N.Y.S.2d 217 (1st Dep’t 1995)............ 2, 23, 25 Levitan v. Levine, 224 A.D. 561, 231 N.Y.S. 522 (1st Dep’t 1928) .......................... 10, 18 Lurie v. New Amsterdam Casualty Co., 270 N.Y. 379, 1 N.E.2d 472 (1936) ................. 19 Matter of Perfection Tech. Servs. Press, 22 A.D.2d 352, 356, affd 18 NY2d 644 (1966) .................................................................................... 2, 23 Mokar Properties Corp. v. Hall, 6 A.D.2d 536, 179 N.Y.S.2d 814 (1st Dep’t 1958) ............................................................... 9, 10, 18

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Paramount Film Distrib. Corp. v. State of New York, 30 N.Y.2d 415, 421, 334 N.Y.S.2d 388 (1972) .......................................................................................... 10 Petrukevich v. Marksimovich, 1 A.D.2d 786, 147 N.Y.S.2d 869, 870 (2nd Dep’t 1956) ................................................................... 10 Pix Furniture, Inc. v. Loew's Theatres & Realty Corp., 131 Misc.2d 517, 520, 500 N.Y.S.2d 959 (Supreme Ct., NY County 1986) ............................................ 7, 14 Purchase Real Estate Group, Inc. v. Jones, 489 F.Supp.2d 345,348 (S.D.N.Y. 2007) ... 8 Ronga v. Alpern, 45 Misc.2d 1029, 1031, 258 N.Y.S.2d 731 (NY Sup.1964) .................. 8 Sater v. Wyckoff Heights Hosp., 228 A.D.2d 427, 427–28, 643 N.Y.S.2d 664, 665 (2d Dep't 1996)..................................................................... 22 Soho Center for Arts and Educ. v. Church of St. Anthony of Padua, 146 A.D.2d 407,

541 N.Y.S.2d 396 (1st Dep't 1989) ............................................................................ 10 Sparks Associates, LLC v. North Hills Holding Co. II, LLC, 74 A.D.3d 1183, 904 N.Y.S.2d 157 (2d Dep’t 2010) ............................................................................. 8 St. Lawrence Factory Stores v. Ogdensburg Bridge and Port Authority, 13 N.Y.3d 204, 889 N.Y.S.2d 534, 918 N.E.2d 124 (2009) .......................................................... 9, 15 Tappan Golf Drive Range, Inc. v. Tappan Property, Inc., 68 A.D.3d 440, 889 N.Y.S.2d 580 (1st Dep’t 2009)............................................................................ 2 Weiss v. Alard, LLC, 150 F.Supp.2d 577, 583 (S.D.N.Y. 2001) ...................................... 8

Rules

CPLR § 6501 ............................................................................................................... 5, 7 CPLR § 6515(2) ..................................................................................................... passim

Statutes

NY BCL §909 .......................................................................................................... 24, 26 NY GOL §7-103 (1) ........................................................................................... 15, 16, 28 NY GOL §7-103 (2) ....................................................................................................... 15 NY RPAPL § 601 .......................................................................................................... 13

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List of Supporting Exhibits

Exhibit Description

1 Valuation of 339 Lenox (as of 9/29/2009)

2 Valuation of 341 Lenox (as of 9/29/2009)

3 Valuation of 339 Lenox (as of 7/2014)

4 Valuation of 341 Lenox (as of 7/2014)

5 Notice of Pendency

6 2009 Ground Lease between A&A (lessor) and 511 Soundview (lessee)

7 Minutes of March 31, 2009 Joint Meeting of Board and Shareholders of A&A

8 Assigned Rents turnover demand upon 511 Soundview Realty from A&A, dated January 13, 2013

9 Tax foreclosure complaint with Summons (April 1, 2014)("NYCTL 2013-A Trust and The Bank of New York Mellon, v Athenian and Athena Building, Inc. et al, New York State Supreme Court, New York County, Index No. 153249/2014")

10 Complaint (June 14, 2012) with Summons: ("511 Soundview Realty LLC v Athenian and Athena Building, Inc., New York State Supreme Court, New York County, Index No. 153764/2012")

11 Complaint (Dec. 17, 2012) with Summons: ("511 Soundview Realty LLC v Athenian and Athena Building, Inc., New York State Supreme Court, New York County, Index No. 654400/2012")

12 Affidavit of William Radmin (Jan 29, 2013)

13 Affidavit of William Radmin (June 14, 2012)

14 Original Complaint (Jan. 15, 2013) with Summons: (Instant Action)

15 Escrow check ($100,000) payable to NYC Dept of Finance

16 Escrow check ($10,895) payable to Heiberger & Associates

17 Escrow check ($15,176) payable to A&A

18 Affidavit of Joel Radmin (March 11, 2011)

19 Answer with Counterclaims of 511 Soundview (A&A v 511 Soundview, NYC Civil Court, NY Cty, 76855/2012 (L-T Commercial))

20 Memorandum Decision and Order (date Nov 26, 2012)(NYC Civil Court)

21 Form of Proposed Senior and Junior Note

22 Form of Proposed Mortgage

23 Ross, Andrew, "The Reckoning – As Crisis Spiraled, Alarm Led to Action", The New York Times (October 1, 2008)

24 Alexander, Charanna, "Down the Rabbit Hole in A Rent War", The New York Times (March 8, 2013)

25 Monthly Lease Rents - Summary Tables for 339 & 341 Combined, individually

26 Sub-tenant Rents - Detail Reconstruction for 339 Lenox Ave

27 Office Lease between Curtis Development Group and 511 Soundview (4th Floor 339 Lenox)(Oct. 1, 2010)

28 Stipulation of Settlement, receipt of payment (Joel Radmin)(July 25, 2012)

29 Sub-tenant Rents - Detail Reconstruction for 341 Lenox Ave

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Exhibit Description

30 NYC Dept of Finance Property Tax Balances (summary table)(July 2009 to Jul 2014)

31 NYC Dept of Environmental Protection (Accrued Water Charges)

32 Amortization Tables (2 years, no interest, only interest)

33 339 Lenox Ave Tax Statements (NYC Dept of Finance)(July 2009 to July 2014)

34 341 Lenox Ave Tax Statements (NYC Dept of Finance)(July 2009 to Jul 2014)

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Defendants Athenian and Athena Building Inc. (“A&A”) and Lenox Avenue

Developments (“LAD”) submit this Memorandum of Law, with Affirmations of Thomas

Fleishell, Esq. (“Fleishell Aff.”) and Affidavits of Tony Curtis (“Tony Curtis Afdt.”) and

of Brian Silvestry (“Silvestry Afdt.”), including all exhibits annexed thereof, in support of

the instant motion of relief.

REQUEST FOR RELIEF

A&A and LAD jointly seek a (A) conditional order for cancellation of the Notice of

Pendency upon undertakings for delivery of security (i) from A&A and LAD in amounts

fixed between $26,072 and $251,000, and a corresponding and subsequent delivery (ii)

from Plaintiff 511 Soundview Realty LLC (“511 Soundview” or “511”) of security valued

at $6,683,300, as per CPLR §6515(2), and (B) a further order directing 511 Soundview

to comply with requests for an interim accounting and production of records as to all

monies received and/or held in connection with 101 West 127th Street and 341 Lenox

Avenue, New York, New York. Incorporated by referenced are A&A’s and LAD’s

pending motions to dismiss and 511’s opposition papers, including exhibits.

PRELIMINARY STATEMENT

The Court has the discretionary authority to cancel the notice of pendency under

§ 6515(2) upon the posting of appropriate undertakings. 5303 Realty Corp. v. O&Y

Equity Corp., 64 N.Y.2d 313, 320, 486 N.Y.S.2d 877, 476 N.E.2d 276, 280-81 (1984);

Andesco, Inc. v. Page, 137 A.D.2d 349, 357, 530 N.Y.S.2d 111 (1st Dep't 1988). As

511 Soundview’s Notice of Pendency creates disproportionate, unjustifiable burdens as

between the parties, the Court should direct delivery of mutual undertakings as the price

511 should pay for its ongoing exercise of this extraordinary preliminary remedy.

Plaintiff 511 Soundview is also under an immediate obligation to return to A&A

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over $694,351 held as fiduciary funds. LeRoy v Sayers, 217 A.D.2d 63, 68, 635

N.Y.S.2d 217 (1st Dep’t 1995) and has apparently commingled. Breach of duties

against the commingling of fiduciary funds results in forfeiture of all rights to such

monies. Id. citing Matter of Perfection Tech. Servs. Press, 22 A.D.2d 352, 356, affd 18

NY2d 644 (1966). 511, as trustee for such fiduciary funds, has been obligated to

surrender their possession. Tappan Golf Drive Range, Inc. v. Tappan Property, Inc., 68

A.D.3d 440, 889 N.Y.S.2d 580 (1st Dep’t 2009).

An order therefore should be issued per CPLR § 6515(2) upon mutual deliveries

of security sufficient to protect each relevant party from losses flowing from either

continuing or cancelling the notice of pendency.

511’s modest recoverable damages and remote likelihood of success warranted

security of between $26,072.50 and $126,072.50, but not in excess of $251,072.50. As

security, A&A should be required only to deliver a nominal bond of $1,000, while LAD

should be required to deliver security up to 50% of 511’s potential losses (for itself) and,

as necessary, such additional amount necessary for A&A’s undertaking. The security

can be fixed as part of the senior note’s nominal and final judgment value as described

further below.

LAD and its supporting lender1 proffer to secure such losses by means of

depositing with the Clerk of the Court a senior note, secured with a perfected first

mortgage on 339 Lenox. The terms of the mortgage and senior note shall incorporate

the Court’s final judgment as to money damages. The order should provide such

1 LAD’s coordinating lender is Superb Financing SPE LLC, which shall supply the funds to repay the tax

liens, but shall accept a Junior Mortgage Note providing priority to 511 Soundview. LAD is responsible for all interim interest payments. The mortgage and notes also protect A&A and Hiram Grand against any remedies, including foreclosure, unless and until their respective interests are either acquired, paid or otherwise satisfied.

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senior note to be released by the Clerk to 511 (or returned to A&A) as part of any future

order of final judgment. The loan proceeds will be applied to property tax liens.

The value and form of 511’s undertaking to A&A and LAD (together with Hiram

Grand) warrants consideration of the fact that such parties are collectively exposed to

losses exceeding $6,683,300, due to imminent foreclosure upon their respective

interests in the Properties and further consequential costs.

The Court may factor in 511’s refusal to return over $694,351 of rents and other

monies 511 received as fiduciary funds (“Rent Proceeds”),2 which records establish

were diverted by 551 (as trustee) from application to property taxes, NYC water

charges, as well as from A&A. See ¶¶ 12-25 Tony Curtis Afdt. (with Exhibits)

Other evidence indicates 511 is merely a front for an enterprise whose business

model involves predatory squeeze-out practices, which are transparently both illegal

and unlawful in character. As discussed below, one principal essential admits 511 has

converted funds applicable to real property taxes as a means of creating and increasing

financial stress on A&A. Other courts have taken a similar view of 511’s pattern of

conduct.

Under these circumstances, the Court should exercise its discretionary authority

to fix the minimum value of 511 Soundview’s undertaking as not less than $6,683,300,

of which the first $700,000 of which should be cash paid into Court and the balance a

surety bond sufficient to indemnify and secure A&A, LAD and, as appropriate, Hiram

Grand.3

2 511, under the 2009 Lease, obtained these monies from subtenants as advances from A&A upon 511’s

own commitments, such as for payment of property taxes. The Rent Proceeds, if returned, would substantially satisfy property tax liens.

3 Defendant Hiram Grand may have additional elements of loss for which it is entitled to request greater security. The minimal loss values are calculated based upon factors known to A&A and LAD.

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PROCEEDINGS

Plaintiff 511 Soundview’s Amended Complaint in the instant action asserts six

causes of action against A&A: (1) breach of contract, (2) tortious interference with actual

contract, (3) fraud, (4) injunctive relief, (5) unjust enrichment and (6) declaratory

judgment. Exhibit A to Fleishell Aff. (referenced with “AC¶_”). 511 Soundview seeks,

inter alia, specific performance of the 2009 Property Purchase Agreement.

Against the LAD Defendants, 511 Soundview asserts causes of claims for (1)

tortious interference with actual contract, (2) permanent injunction against “any actions”

interfering with its purported rights to acquire the Properties, (3) unjust enrichment, and

(4) a declaratory judgment deeming LAD's own recorded ground lease to be “null and

void.”

511 Soundview filed a Notice of Pendency with the County Clerk of New York

County on January 15, 2013, pursuant to CPLR § 6501, against the two properties of

A&A, located at 101 West 127th Street (a/k/a 339 Lenox Avenue) and 341 Lenox

Avenue, in New York, New York (the “Properties”). Exhibit 5.

The instant controversy is one in a series of prior action, including after A&A

terminated the parties’ 2009 Ground Lease and commenced summary holdover

proceedings. 511 Soundview responded with its own action in New York Supreme

Court, New York County under the caption 511 Soundview Realty LLC v Athenian and

Athena Building, Inc., Index No. 153764/2012. (L. York)(filed June 18. 20212). While

511’s June 2012 action referenced earlier contracts to purchase the Properties, the

complaint itself did not seek specific performance of the 2009 Property Purchase

Agreement. Exhibit 6.

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A&A prevailed in summary holdover proceeding in Athenian and Athena Building

Inc. v 511 Soundview Realty LLC, NYC Civil Court, County of New York, Index

76855/2012 (Hon. Arlene P. Bluth). In its November 26, 2012 Decision, the NYC Civil

Court held that the 2009 Lease had been terminated by A&A and inter alia dismissed

511’s counterclaims for fraudulent inducement and justifiable reliance. The issues

determined included that (1) 511 admitted actual knowledge of clouds on title, (2) 511’s

subsequent payment of $100,000 toward tax arrears and $125,000 of improvements

were made with such knowledge, and (3) such sums were not recoverable on the basis

of either A&A inducement or 511’s alleged reliance upon oral statements concerning the

present or future quality of A&A’s title. See pgs. 5-8 of Exhibit 20. In addition, the NYC

Civil Court preserved A&A’s right to bring a subsequent collection action against 511.

511 filed a new complaint on December 17, 2012, for the first time indicating its

demand that A&A consummate the 2009 PPA. Exhibit 11. The unserved summons,

complaint and notice of pendency were filed in New York Supreme Court, New York

County, sub nom 511 Soundview Realty LLC v Athenian and Athena Building, Inc.,

Index No. 654400/2012.

On January 13, 2013, A&A served 511 with formal demand for turnover of

monies and an accounting. Exhibit 8. The New York County Sheriff also proceeded to

execute the NYC Civil Court’s warrant for 511’s eviction.

Rather than complying A&A’s demand, 511 immediately commenced yet another

proceeding merely two days later on January 15, 2013. Again, the complaint was not

served. Rather, 511 filed an ex parte application for preliminary relief, seeking inter alia

to oust A&A and LAD from the Properties in favor of a third-party receiver.

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Upon an interim stipulation and denial of its receivership application, 511 served

its Amended Complaint, to which Defendants responded with motions to dismiss. Such

motions remain sub judice.

APPLICABLE LAW

The instant application seeks relief from the effects of the Notice of Pendency

filed by Plaintiff against the Properties. The CPLR authorizes relief from a notice of

pendency by a conditional order of cancellation unless a plaintiff delivers security for

defendants after defendant(s) deliver of substitute security. CPLR §6515(2).

Notices of Pendency

CPLR § 6501 provides: “A notice of pendency may be filed in any action in a

court of the state or of the United States in which the judgment demanded would affect

the title to, or the possession, use or enjoyment of, real property.” 4

It is long-settled law that the privilege of filing a notice of pendency may be used

only as a shield for the protection of the bona fide rights of a plaintiff in real property, but

that such privilege ceases when notice is used as a sword against the owner of the

realty. Israelson v. Bradley, 308 N.Y. 511, 516, 127 N.E.2d 313, 315, (NY

1955)(emphasis added). Similarly, a claim for specific performance of a stock sale will

not support a notice of pendency. 5303 Realty Corp. v. O & Y Equity Corp., 64 N.Y.2d

313, 486 N.Y.S.2d 877 (1984).

Once a plaintiff seeking specific performance of a contract for the sale of real

property is prevented from obtaining that remedy, its action against the property's title

4 Once properly indexed, such notice acts as constructive notice to all subsequent purchasers or incumbrancers: “A person whose conveyance or incumbrance is recorded after the filing of the notice is bound by all proceedings taken in the action after such filing to the same extent as if he were a party” C.P.L.R. § 6501.

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holders no longer affects the title to, or the possession, use, or enjoyment of, the

property, which is an essential requirement for a notice of pendency under CPLR 6501.

Provisional Cancellation conditioned upon Dual-Undertakings

A court may cancel a Notice of Pendency “upon motion of any person aggrieved

... if the moving party shall give an undertaking in an amount to be fixed by the court,

and if: (1) the court finds that adequate relief can be secured to the plaintiff by the giving

of such an undertaking; or (2) in such action, the plaintiff fails to give an undertaking, in

an amount to be fixed by the court, that the plaintiff will indemnify the moving party for

the damages that he or she may incur if the notice is not cancelled.” CPLR § 6515. It is

clear from the express language of the statute that relief under § 6515 is available to

defendants in suits where the plaintiff is seeking specific performance.

“[T]he preferred course in a claim for specific performance is the utilization of

subdivision 2 [of CPLR 6515] by cancelling the notice of pendency upon an undertaking

by the defendant unless plaintiff buyer posts an undertaking which will indemnify the

defendant.” Andesco, Inc. v. Page, 137 A.D.2d at 357.

The determination of whether to cancel a notice of pendency under § 6515 is a

matter entirely within the discretion of the court. See 5303 Realty Corp. v. O & Y Equity

Corp., 64 N.Y.2d 313, 486 N.Y.S.2d 877, 476 N.E.2d 276, 280-81 (1984). A court may

view likelihood of success on merits when considering motion to file undertaking for

cancellation of notice of pendency under CPLR 6515. Pix Furniture, Inc. v. Loew's

Theatres & Realty Corp., 131 Misc.2d 517, 520, 500 N.Y.S.2d 959 (Supreme Ct., NY

County 1986), (proper to consider merits, plaintiff’s good faith and possibility of his

being successful on the disputed facts) aff’d 129 A.D.2d 1018, 513 N.Y.S.2d 648.

Further, the amount of the respective undertakings is a matter of discretion to be

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informed by the pleadings, the acts of the parties and the circumstances set forth in

their affidavits. Ronga v. Alpern, 45 Misc.2d 1029, 1031, 258 N.Y.S.2d 731 (NY

Sup.1964).

Indeed, other Departments have deemed it an improvident exercise of discretion

to deny a defendant’s motion of pendency upon filing of an appropriate undertaking.

See Sparks Associates, LLC v. North Hills Holding Co. II, LLC, 74 A.D.3d 1183, 904

N.Y.S.2d 157 (2d Dep’t 2010).

Federal courts also adopt this view. See Purchase Real Estate Group, Inc. v.

Jones, 489 F.Supp.2d 345, 348 (S.D.N.Y. 2007), citing 5303 Realty Corp.; also see

Weiss v. Alard, LLC, 150 F.Supp.2d 577, 583 (S.D.N.Y. 2001).

In determining the amount of an undertaking to be posted by plaintiff for

defendant’s security, courts take into account the economic losses and expenses

defendants will incur as a result of the de facto inability to sell the property while the

Notice remains in place. Purchase Real Estate Group, Inc. 489 F.Supp.2d at 350

(requiring plaintiff’s undertaking to be sufficient to indemnify defendants for “all damages

flowing from the continuation of the Notice of Pendency”). Such economic losses and

expenses extend to increased taxes, lost interest and additional maintenance.

Andesco, Inc. v. Page, 137 A.D.2d at 358.

Thus, if the court determines that plaintiff can be guaranteed adequate relief by

defendant’s delivery of sufficient security, a court can cancel the notice of pendency

upon actual delivery of such undertaking unless plaintiff posts a matching undertaking

that will indemnify defendants for any damages flowing from the notice of pendency.

Purchase Real Estate Group, Inc., 489 F.Supp.2d at 348. This procedure is “preferable

even when plaintiff's likelihood of success is doubtful.” Id.

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Parties’ Potential Losses

Plaintiff 511 Soundview’s principal exposure to loss from cancelling the notice of

pendency derives from money damage claims for breach of contract, tortious

interference and possibly unjust enrichment.

Defendants are exposed to loss of their respective interests, in part due to 511’s

diversion of rents and failure to pay real estate taxes and additional liens.

Damages for Breach of Contract to Convey Real Property

The damages recoverable by a purchaser on the failure of a vendor to convey

real property as required by contract depend to some extent on the cause of the

vendor's failure to convey. Mokar Properties Corp. v. Hall, 6 A.D.2d 536, 179 N.Y.S.2d

814 (1st Dep’t 1958).

The proper measure of damages in an action to recover damages for the breach

of a contract for the purchase of real property is the difference between the contract

price and the market value at the time of the breach. Cole v. Macklowe, 64 A.D.3d 480,

882 N.Y.S.2d 417 (1st Dep’t 2009).

A prospective purchaser is not deprived of any benefit of its bargain from a

breach in a real estate sales contract from a failure to close if the market value of the

property at the time of the aborted closing does not exceed the contract price. St.

Lawrence Factory Stores v. Ogdensburg Bridge and Port Authority, 13 N.Y.3d 204, 889

N.Y.S.2d 534, 918 N.E.2d 124 (2009).

Where a title defect prevents consummation of such an executory contract but

the vendor nonetheless acted in good faith, he or she will be liable to the purchaser only

for the amount the purchaser has paid on the purchase price and the expense of

searching the title, and reasonable attorney fees and interest. Mokar Properties Corp.

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v. Hall, 6 A.D.2d at 539; Astoria Caterers, Inc. v. J & P 1870 Realty Corp., 24 A.D.3d

478, 806 N.Y.S.2d 242 (2d Dep’t 2005); Levitan v. Levine, 224 A.D. 561, 231 N.Y.S.

522 (1st Dep’t 1928). A purchaser, however, may be denied legal fees in its action

upon breach of contract and in seeking specific performance where the evidence

indicates the vendor did not contumaciously deprive the purchaser of a clear legal

entitlement and force upon it the additional expense of such legal action. CFJ

Associates of New York Inc. v. Hanson Industries, 294 A.D.2d 772, 742 N.Y.S.2d 433

(3d Dep’t 2002).

Recovery for Improvements to Real Property

Recovery for unjust enrichment may only be had where it is justified by “broad

considerations of equity and justice.” Paramount Film Distrib. Corp. v. State of New

York, 30 N.Y.2d 415, 421, 334 N.Y.S.2d 388 (1972).

A tenant may only recover the value of permanent improvements made in good

faith as a set-off under RPAPL § 601 (2014). Under such conditions, leasehold

improvements constitute only a setoff against claims for use and occupancy. Soho

Center for Arts and Educ. v. Church of St. Anthony of Padua, 146 A.D.2d 407, 541

N.Y.S.2d 396 (1st Dep't 1989).

In certain circumstances, it has been held that, where a person never held title,

but expended money on improvements, such person may be entitled to an equitable

lien for the expended amounts, but not to compel conveyance of the property. Disanza

v. Gaglione, 126 Misc.2d 232, 482 N.Y.S.2d 413 (N.Y. Sup., Nassau Cty 1984), citing

Petrukevich v. Marksimovich, 1 A.D.2d 786, 147 N.Y.S.2d 869, 870 (2nd Dep’t 1956).

However, inducement and reliance remain essential elements.

11

Delays Precluding Availability of Specific Performance

The merits of a claim for the preliminary remedy of specific performance

nonetheless burdens a purchaser with the threshold showing that they were “ready,

willing and able” to close within a reasonable time of the closing date. Gindi v.

Intertrade Internationale Ltd., 50 A.D.3d 575, 575, 856 N.Y.S.2d 104 (2008). A several

year delay in tendering performance may be deemed unreasonable, warranting

dismissal of a claim for specific performance. DiBartolo v. Battery Place Associates, 84

A.D.3d 474, 922 N.Y.S.2d 357 (1st Dep’t 2011); Hegeman v Bedford, 5 A.D.3d 632, 774

N.Y.S.2d 769 (2nd Dep’t 2004). Inordinate delay to add the demand for specific

performance with a valid excuse precludes re-introduction of the remedy in subsequent

pleadings. Chernow v. Chernow, 39 A.D.3d 684, 662, 833 N.Y.S.2d 660 (2nd Dep’t

2007),

Fiduciary Fund Status of Monies Received for Use and Occupancy

Monies received in connection with use and occupancy of the Properties are

regulated by New York law as well as the 2009 Ground Lease.

Statutory Fiduciary Status of Recipients of Monies New York General Obligations Law (“NY GOL”) §§7-103 and 7-105 (2014)

applies to monies received or held for use or rental of real property or as security for

performance. GOL §7-103 (1) provides in relevant part:

“Whenever money shall be deposited or advanced on a contract or license agreement for the use or rental of real property as security for performance of the contract or agreement or to be applied to payments upon such contract or agreement when due, such as money, with interest accruing thereon, if any, until repaid or so applied, shall continue to be the money of the person making such deposit or advance and shall be held in trust by the person with whom with such deposit or advanced to be made, and shall not be co-mingled with the personal monies or become an asset of the person

receiving the same, but may be disposed of as provided in section 7-105 of this chapter.”

12

(emphasis added)

GOL §7-103(2) further provides in relevant part:

“Whenever the person receiving money so deposited or advanced shall deposit such money in a banking organization, such person shall thereupon notify each of the persons making such security deposit or advance, giving the name and address of the banking organization in which the deposit … is made….”

GOL §7-105 (1) provides in relevant part:

“any person, firm or corporation and the employees, officers or agents thereof, whether the owner or licensee of the property leased, who or which has or hereafter shall have received from a tenant or licensee a sum of money or any other thing of value as a deposit or advance of rental as security for the full performance by such tenant or licensee of the terms of his lease or license agreement, or who or which has or shall have received the same from a former owner or lessee, shall, upon conveying such property or assigning his or its lease to another, …… deal with the security deposit as follows:

Turn over to his or its grantee or assignee … the sum so deposited, and notify the tenant or licensee by registered or certified mail of such turning over and the name and address of such grantee, assignee, purchaser or receiver.”

Sub-rents As Advances to 511

Additionally, Section 22 of the 2009 Ground Lease (Exhibit 6) provides:

Lessee [511] hereby irrevocably assigns to Lessor [A&A] all rents due or to become due from any assignee of Lessee’s interest hereunder and any sublessee or any tenant or occupant of the Demised Premises or any part thereof, together with the right to collect and receive such rents, provided that, so long as no Event of Default under this Lease, Lessee [511] shall have the right to collect such rents for Lessee’s own use and purposes. Upon any Event of Default by Lessee [511] under this Lease after due notice and opportunity to cure, Lessor [A&A] shall have absolute title to such rents and the absolute right to collect the same.

Section 22 further provides that:

Lessee [511] shall not demand or accept from any sublessee, tenant or occupant of the Demised Premises or any part thereof, any payment, prepayment or advance payment in respect to more than one rental period under the applicable sublease and in no event shall Lessee [511] demand or accept any payment, prepayment or advance payment for a period exceeding one month.

13

POINT I PROVISIONAL CANCELLATION CONDITIONED UPON FAILURES TO DELIVER

ADEQUATE UNDERTAKINGS IS WARRANTED

Defendants A&A and LAD seek an order under CPLR § 6515(2) to protect

themselves from the financial risks created by the presence of the Notice of Pendency.

The notice of pendency has already cause and poses additional substantial loss

to A&A, LAD and Hiram Grand, if not cancelled. Without sufficient financial resources,

the Properties face tax foreclosure. At least one tax foreclosure action has been

commenced. Exhibit 9.

It is submitted that 511’s losses require security of between $26,000 and

$251,000, while A&A, LAD and Hiram Grand are exposed to combined losses of

$6,583,300. Thus, a conditional order of cancellation is warranted upon delivery of a

joint undertaking by LAD and A&A to 511 of the required security, which may be

satisfied by a $1,000 bond and the Senior Note. The Court should order that, upon

delivery of LAD and A&A’s joint undertaking, the Clerk of the Court should cancel the

Notice of Pendency unless 511 (a) pays into court at least $700,000 as cash collateral,

and (b) posts a surety bond for $5,883,300 as indemnity for Defendants’ losses. Such

bond should indemnify A&A for at least $2,339,900 and LAD for at least $2,543,900. It

is also appropriate to direct additional security for Hiram Grand for $450,000 and such

additional amounts the Court deems appropriate.

Defendants A&A, LAD and Hiram Grand5 are each exposed to loss of their

interests by the Notice of Pendency. Each has interests which are subject to loss by

5 For purposes of this joint application of A&A and LAD, the above presumes Hiram Grand will, at a

minimum, request that the full value of its $450,000 settlement with A&A be part of 511 Soundview’s undertaking.

14

foreclosure on outstanding liens and bears costs and expenses while the Properties are

the subject of litigation. Accordingly, each is an “aggrieved” person within the

meaning of CPLR 6515, and has standing to demand their losses be bonded by

Plaintiff.

Whether a conditional order is warranted under § 6515 is a determination which

is entirely within the Court’s discretion of the court. 5303 Realty Corp., 64 N.Y.2d at

320. Such discretion is properly informed by the court evaluation of the likelihood of

success on merits. Pix Furniture, Inc. Such discretion also covers the amount and

form of the substitute security and is equally informed by the pleadings, the acts of the

parties and the circumstances set forth in their affidavits. Ronga, 45 Misc.2d at 1031.

As part of the “acts” and “circumstances” to consider is 511’s (a) diversion of

Rent Proceeds from property taxes and other current charges, coupled with (b) its

refusal to turn over such monies either to A&A or the NYC Department of Finance.

These and other factors are consistent with observations of prior courts concerning

511’s manifestly bad faith course of dealings with A&A.

As against the LAD Defendants, 511 Soundview has one legal and one equitable

claim for money damages: (1) tortious interference with actual contract, and (2) unjust

enrichment.

511’s Potential Losses Are Between $26,072 to $251,072

Plaintiff 511 Soundview first declared A&A in breach of the 2009 PPA on or about

July 9, 2009 and not later than September 30, 2009. Based upon this and other

support, 511’s maximum damages recoverable from A&A are as follows:

15

Elements of Loss Measure of Loss

Potential Loss

Bases Support

Breach of Contract Benefit of Bargain

$0 See calculation below

Partial Performance

$100,000 Payment of real estate taxes

Exhibit 15.6

Closing expenditures

$26,072.50 Reliance Interest in Closing

Exhibits 16, 17.7

Total Contract Damages $126,072.50

Unjust Enrichment Improvements to 511’s

terminated Leasehold

$125,000 511’s Expenditures on Improvements as

Ground Lessee

Exhibits 13, 18, 19.

Total Equitable Relief $125,000

Maximum Losses: $251,072.50

511 Soundview cannot reasonably dispute the above amounts. These are their

own numbers. See Fleishell Aff. Exhibit 19 (¶25-27 of 2012 Answer and Counterclaim

of 511 Soundview); Exhibit 18 (¶23 of Joel Radmin Afdvt) and Exhibit 13 (¶11 of William

Radmin Afdvt).

This is not to say A&A does not possess substantial defenses to elements of

511’s arguable damages. The $100,000 payment of real estate taxes and $125,000 of

improvements are not recoverable under a theory in which inducement or reliance are

elements, given these are precluded issues.

Benefit of Bargain Damages

Assuming arguendo it demonstrated its independent financial capacities to close

at this time8, New York law nonetheless precludes 511 from recovering any “benefit of

the bargain” claims, as 511 was not deprived of any value by the aborted closing. St.

Lawrence Factory Stores v. Ogdensburg Bridge and Port Authority, 13 N.Y.3d 204, 207,

889 N.Y.S.2d 534, 918 N.E.2d 124 (2009). 511 recovery of any reliance damages is

6 Escrow Check to NYC Department of Finance, 7/21/2009. 7 Escrow Check to Heiberger & Associates, P.C. on 4/30/2009 for $10,895.64 and to A&A on 7/22/2009 for $15,176.86. 8 As part of its breach of contract claim, 511 must demonstrate that it was “ready, willing and able” to perform its own closing commitments. Gindi v. Intertrade Internationale Ltd., 50 A.D.3d 575, 576, 856 N.Y.S.2d 104 (1st Dep’t 2008).

16

confined to expenditures made in preparation for performance or in performance, offset

by any losses avoided by non-consummation. Id.

The potential “benefit of bargain” losses to 511 is based upon the Properties’ fair

market values, as of the date 511 Soundview first declared that A&A was in breach

(July 2009). As supporting affidavits reflect, 511 Soundview suffered no such

hypothetical loss.

511’s Lost “Benefit of Bargain” as of July 2009

339 Lenox 341 Lenox Combine Row

Fair Market Value, as of July 2009

$1,200,000 $830,000 $2,030,000 (A) Silverstry Afdvt. ¶¶4-5 With Exhibits 1 and 2.

2009 PPA Purchase Price $2,100,000 (B)

Benefit of Bargain -$70,000 (C) Calculated: (C) = (A) – (B)

511’s benefit of bargain damages would merely amount by which the market

value ($2,030,000) exceeded the 2009 PPA purchase price ($2,100,000) as of the time

of the breach. Cole v. Macklowe, 64 A.D.3d 480, 882 N.Y.S.2d 417 (1st Dep’t 2009).

Silvestry Afdvt. ¶¶4-5; Exhibits 1 & 2.

511 is not entitled to factor increases in the value of the Properties, whether for

changes in market conditions or otherwise, subsequent to the date it asserted A&A was

in breach, an event which 511 attested occurred between the July 1, 2009 execution of

the 2009 PPA and its scheduled closing by October 1, 2009.

511 asserted the breach occurred by virtue of misrepresentation in July 2009,

positions reflected in 511’s Counterclaims and reiterated by 511’s Managing Member,

Joel Radmin. ¶7 (Exhibit 18). As did William Radmin when he stated the breach

occurred by virtue of a revelation (to 511) of the existence of a cloud on A&A’s title (from

A&A’s dispute with Hiram Grand) coupled with refusal of the title company to issue title

17

insurance. ¶¶5-7 (Exhibit 10). William Radmin explained that the subsequent 2009

Lease was extracted from A&A as “security” due to the breach insofar as A&A was

incapable of transferring good and marketable title. ¶¶5-6 (Ex. 10).

It is worth noting that execution and aborted closing of the 2009 PPA are dates

within the immediate wake of the 2008 Financial Crisis.9

Thus, 511 suffered no legally cognizable damages from being deprived of the

consummation of the 2009 PPA.

Recovery Based upon Partial Performance

The total extent of 511’s arguable partial performance includes the $100,000 to

the NYC Department of Finance, as paid from 511’s attorneys’ escrow representing

payment toward outstanding real estate taxes of the Properties. Fleishell Aff. Exhibit

15. However, this $100,000 payment was not delivered to A&A, but created a potential

credit toward the $200,000 due on closing under the 2009 PPA.

However, 511 did not demand to close on title during the brief period when this

potential closing credit was available to it. Instead, 511 waited until January 2013

before asserting that A&A was required to sell the Properties to 511. By that date,

511’s own defaults on its own obligations to pay ongoing current property tax, water and

other charges accrued to over $396,340 by February 2013. Tony Curtis Afdt. ¶ 31;

Exhibit 30.

9 Ross, Andrew, "The Reckoning – As Crisis Spiraled, Alarm Led to Action", The New York Times (October 1, 2008)(Exhibit 23). A summary of U.S. financial and credit markets conditions is contained in "Wall Street and the Financial Crisis: Anatomy of a Financial Collapse". Report of the United States Senate Permanent Subcommittee on Investigations (April 13, 2011)(p1) (http://www.hsgac.senate.gov//imo/media/doc/Financial_Crisis/FinancialCrisisReport.pdf)

18

Indeed, as of the date 511’s demanded that A&A close on title (January 15,

2013), 511 was required to deliver $694,351 of assigned rents to A&A in addition to the

requisite $200,000 down payment.

Money Damages for Detrimental Reliance

Reliance damages accruing from A&A’s inability to convey clear title (due to

Hiram Grand’s competing title claim) will be limited by the good faith in the matter by

which A&A acted to clear title by expensive litigation and settlement. These will also

be precluded by 511’s actual and constructive knowledge before executing the 2009

PPA.

A&A reliance damages (before any offsets) would be not more than the amount

511 expended for searching title and possibly for reasonable attorney fees for the

aborted closing10 ($26,072.50) as well as possibly interest. Mokar Properties Corp. v.

Hall, 6 A.D.2d at 539; Astoria Caterers, Inc. v. J & P 1870 Realty Corp., 24 A.D.3d at

479 ; Levitan v. Levine, 224 A.D. 561, 231 N.Y.S. 522 (1st Dep’t 1928).

As A&A motion papers indicate, 511 vested ownership of all “Improvement” with

A&A as part of the terms of the 2009 Lease. The presence of a controlling contract

provision allocating ownership of subsequent improvements operates to bar any

equitable recovery for the same improvements.

However, the value of such improvements may be limited to offsets, not as an

independent claim. A&A has not asserted any claim to recovery use and occupancy

10 A&A is unlikely to be liable to 511 for its legal fees for subsequent litigation, including this action,

insofar as there is no basis for concluding A&A “contumaciously deprive the purchaser of a clear legal entitlement” thereby forcing 511 (as purchaser) into the expense of rescuing itself through legal action.” CFJ Associates of New York Inc. v. Hanson Industries, 294 A.D.2d 772, 742 N.Y.S.2d 433 (3d Dep’t 2002).

19

from 511. Rather, A&A’s demand is merely for turnover of all monies collected based

upon the provisions of a lease agreement.

Limited Recoveries from LAD Defendants

LAD’s arguable exposure is not greater than A&A; 511 is entitled only to security

for potential losses from lifting the Notice of Pendency, but not beyond.

Damages recoverable from the LAD Defendants for asserted tortious

interference are duplicative of contract damages sought from A&A. Damages

recoverable for inducing a breach of contract are generally the same as the damages

for breach of contract. Lurie v. New Amsterdam Casualty Co., 270 N.Y. 379, 1 N.E.2d

472 (1936).

One fatal defect is absence of a prima facia causal nexus associating the LAD

Defendants with any events between July and October 2009 – years before any

dealings between LAD and A&A. The records reflecting A&A’s board actions

complying with BCL §909(a) are the minutes of the March 31, 2012 shareholders

meeting, in which the shareholder unanimously voided the 2009 PPA before taking up

any proposed business involving LAD. Exhibit 7. Even 511 Soundview concedes the

LAD Parties transacted no business, much less induced any actionable breach by A&A

during 2009, 2010 or 2011.

511’s sources of loss are also non-actionable as against LAD. The NYC Civil

Court took up 511’s counterclaim covering expenditures on real estate taxes and

improvements, but ruled 511 is not entitled to recover and dismissed such claims.

Even if this were not binding, most of these losses are non-actionable in whole or

part on other grounds as well. See Point IV of A&A Motion to Dismiss Memo (p. 35 et

seq.); Point II of LAD Motion to Dismiss Memo (p. 14 et seq.).

20

Low Likelihood of Success Warrants Discounting 511’s “Losses”

Suggestions that A&A is time-barred from invoking NY BCL §909(a) are

specious.11 Moreover, 511 Soundview’s purported interest in the Properties derives

solely from the dubious claim to specific performance of the 2009 Property Purchase

Agreement. Absent a viable specific performance claim, cancellation of a notice of

pendency is warranted. Coleman v. Coker, 66 A.D.3d 812, 888 N.Y.S.2d 535 (2nd

Dep’t 2009).

As reflected in A&A’s and LAD’s papers, 511 Soundview’s right to specific

performance is doubtful on several grounds. The Court may also factor both 511’s

actions and inaction in its analysis.

511’s inaction is reflected in the extraordinary delay in interposing a demand to

acquire the Properties and seeking a remedy to compel A&A’s performance. Since the

October 1, 2009 scheduled closing, 511 Soundview has simply sat on its rights. The

first instance when 511 even articulated any recourse to specific performance is

contained in its unserved December 17, 2012 complaint.12 Exhibit 11. The first

demand made to A&A was 511’s original Complaint in this action, dated January 15,

2013. Exhibit 14. The sheer passage of time defies a plausible excuse; 511

Soundview declined to pursue a purchase of the Properties either directly or through

judicial recourse until January 15, 2013. Nor does 511 proffer any reasonable valid

excuse, absence of which forecloses recourse to the remedy of specific performance.

11 At oral argument on July 11, 2014, 511’s co-counsel incorrectly asserted NY BCL §909(c) is a “time

limitation” barring A&A from challenging the validity and authorization for the 2009 PPA. Such time limitation is expressly applicable only to conveyance instruments, such as deeds, and is wholly inapplicable to executory agreements, such as the unrecorded 2009 PPA.

12 Filed under Index No. 654400/2012 (New York County Supreme Court).

21

DiBartolo v. Battery Place Associates, 84 A.D.3d 474, 922 N.Y.S.2d 357 (1st Dep’t

2011).

511’s affirmative actions during this same period are equally fatal, such as in

multiple visits to courts in which 511 sought solely protection of possessory interests

under the 2009 Lease. The clearest manifestation that 511 abandoned any attempt to

purchase the Properties is contained in a nearly identical action 511 filed six months

earlier on June 18, 2012. Exhibit 10.13 This earlier complaint is utterly barren of any

mention that 511 reserves any right to require conveyance of the Properties. 511

Soundview refers to the 2009 PPA simply as a basis for money damages claims for

prior alleged breaches.

The Court may further discount the viability of 511’s breach of contract claim,

given that 511 must demonstrate being “ready, willing and able” to close within a

reasonable period of time. Gindi v. Intertrade Internationale Ltd., 50 A.D.3d 575, 856

N.Y.S.2d 104 (2008). This is another insurmountable burden.

When finally reversing course on January 2013 and pursue a conveyance under

the 2009 PPA, 511 Soundview was no longer able to claim the July 2009 property tax

payment of $100,000 was preserved as an available credit toward the $200,000 down

payment. 511 wiped-out the $100,000 credit created in July 2009 by defaulting on its

own commitment to pay subsequent property tax and other charges, as such liabilities

accrued.

Absence an ability to demonstrate payments and credits equaling the $200,000

down payment, A&A’s subsequent written termination must be honored and 511 is

13 Filed under Index No. 153764/2012 (New York County Supreme Court).

22

confined to potential recoveries either of $26,072.50 (return of reimbursed closing costs)

or $126,072.50 - before considering the fiduciary funds returnable to A&A.

The same is the case as to the “merits” of 511 Soundview’s claims against the

LAD Defendants.

The claim for tortious interference is speculative, does not possess any legal or

factual nexus and is even more remote in its likelihood of success.

As reflected in the March 31, 2012 detailed minutes of the joint meeting of its

Board of Directors and Shareholders, Eric and Tony Curtis met with all of A&A’s

relevant authorities, all of whom confirmed the 2009 PPA was unauthorized and ultra

vires and voted to void such contract under BCL §909(a). Exhibit 7.

As these records demonstrate, A&A shareholders collectively voided the 2009

PPA before entertaining LAD’s alternative proposal from LAD. See Keenan v. Artintype

Inc., 145 Misc. 2d 90, 94, 546 N.Y.S.2d 741, 744 (Sup 1989) (“a contract that is

voidable by virtue of the statute of frauds may be the basis for an interference claim”

until actually declared void).14

The merits of 511’s tortious interference claim should be discounted, given the

absence of both proximate causality and intentionality. In order to succeed, 511 will be

required to show the intentional, wrongful nature of the LAD Defendants’ conduct. If

anything, A&A’s records illustrate LAD Defendants proceeded diligently and took care to

confirm the 2009 PPA was a legal nullity (which it is) before presenting their own

proposal for the necessary statutory approval.

14 Assuming arguendo that 511 is entitled to take discovery on this issue, A&A business records indicate

this is merely fishing. Sater v. Wyckoff Heights Hosp., 228 A.D.2d 427, 427–28, 643 N.Y.S.2d 664, 665 (2d Dep't 1996) (“because there is no valid and enforceable contract, the plaintiff has no cause of action to recover damages for tortious interference with contractual relations”).

23

POINT II 511 SOUNDVIEW SHOULD BE DIRECTED TO RENDER AN INTERIM

ACCOUNTING AS TO FIDUCIARY FUNDS AND DISCLOSURE DEPOSITORY INSTITUTION, ACCOUNTS AND OTHER INFORMATION

PER NY GOL §§7-103 and 7-105

The Court should direct compliance with A&A’s demands for an accounting and,

absent adequate compliance, deem 511 to concede to the forensic accounting provided

by LAD, its successor-in-possession. See Tony Curtis Afdt ¶¶5-48 with Exhibits 25-31.

A&A’s unconditioned right to immediate return of approximately $700,000 from

511 Soundview simply dwarfs any legitimate interest in further security from A&A.

All monies received by Plaintiff 511 Soundview on and after February 1, 2010

from any person in connection with the Properties constitute fiduciary funds, and, under

GOL §7-103(1) remain the property of A&A and/or subtenants, despite being in 511’s

possession. As a matter of law, A&A is entitled to immediate possession of its money.

511 Soundview Security is Contingent upon Accounting

511 Soundview is subject to GOL §7-103(1) and holds fiduciary funds both for A&A

and for subtenants. The relationship of (a) 511 to (b) A&A and subtenants with respect

to such funds is “trustee - cestui que trust.” LeRoy v Sayers, 217 A.D.2d 63, 68, 635

N.Y.S.2d 217 (1st Dep’t 1995). 511 owed a duty not to commingle these fiduciary funds

with its own funds and, upon a breach of that duty, has forfeited any and all right to such

funds. Id.

Nor can 511 maintain any right to sequester the fiduciary funds it holds in its trustee

capacity for the benefit of A&A until 511’s claims in the instant matter are resolved. Id.

citing Matter of Perfection Tech. Servs. Press, 22 A.D.2d 352, 356, affd 18 NY2d 644

(1966) (a party who sues in one capacity is not subject to setoffs or counterclaims

asserted against him in a different capacity)

24

511 prospectively assigned all subrents to A&A as security for its own performance.

Under this assignment, 511 (as A&A’s trustee) only became conditionally entitled to

subrents so longs as 511 complied with rent obligation to A&A. 2009 Lease §22. All

subrents received by 511 constitute deposits and advances, held conditionally by 511

for A&A’s benefit as security toward 511’s performance obligations under the 2009

Lease. These advances included paying “Impositions” (as Additional Rent”) as well as

Base Rent.

Under the developed record and giving a plain reading to §22 as well as (1) of §7-

103, a critical set of key conclusions are inescapable.

All monies that 511 received on and after February 2010 were and remain “property”

of A&A. The exceptions are subtenant deposits or advance rent, which are the

“property” of each subtenant. In no event are any of these monies property belonging

to 511.

As the forensic accounting reveals, subtenants were contractually committed to pay

over $674,400 to 511 as rent during this period. Tony Curtis Afdt ¶13, Exhibits 25.

Such monies, when paid, involved the use or rental of real property. As §22 provides,

such monies constituted both (1) security to A&A for 511’s promise to perform various

obligations covered by the 2009 Lease, and/or (2) advances to be applied toward

Additional Rent, such as property taxes, water charges and other “Impositions”.

511 also cannot alter the facts resolved by prior adjudication. 511 ceased paying

ground rent, A&A terminated the 2009 Lease. As determined by the NYC Civil Court,

the 2009 Lease was validly terminated in accordance with its provisions.

More, A&A is entitled to immediate compliance with its demand for a return of these

fiduciary funds, given evidence of commingling. LeRoy, 217 A.D.2d at 68.

25

The same analysis and conclusions hold as to subtenant advances and deposits.

511 also hold approximately $18,500 of subtenant deposits as well as advanced on

rents. Ex. 25 to Tony Curtis Afdt.

Interim Accounting Is Necessary to Establish Status of Fiduciary Funds

The amounts demanded or accepted from subtenants from February 2010 forward

equals at least $694,351. A&A retains absolute title to these monies.

As disturbing is 511 Soundview apparent comingling and/or conversion of subtenant

deposits. LAD, as successive manager, is able to reconstruct the rental history,

including copies of leases and payments involving 511 Soundview.

511 Soundview not only refuses to account for $694,351 of monies it holds as

trustee for A&A, but also for subtenant deposits. Collected subrents, sub-tenant

security deposits and other monies beyond periodic rent is protected by statute against

conversion and comingling. NY GOL §7-103 (1)(monies deposited or advanced as

security for use or rental of real property remains money of depositor or advancer, held

in trust and subject to statutory duty against co-mingling by recipient).

POINT III UNDERTAKINGS SHOULD BE FIXED AS (A) $700,000 CASH AND $5,883,300

SURETY BOND FROM 511, AND (B) $1,000 SURETY BOND AND SENIOR MORTGAGE NOTE BETWEEN $26,000 and $251,000 FROM A&A AND LAD

The undertakings either to cancel or maintain the notice of pendency must be

sufficient to create security for all damages flowing from the continuation or cancellation

of the Notice of Pendency. Purchase Real Estate Group, Inc., 489 F.Supp.2d at 350.

26

A&A and LAD should be secured by (a) deposit into Court of cash or cash-

equivalents of not less than $700,000, and (b) surety bonds indemnifying A&A for up to

$2,339,900 and LAD for up to $3,543,900 for additional, individual damages.

Hiram Grand, as an additional “Aggrieved Person” appears to have equivalent

grounds for security of its interests via its $450,000 settlement, and additional costs.15

As part of refinancing of outstanding tax liens, LAD and its lender proffer a note

secured by a first position mortgage (the “Secured Note”) as security for 511’s potential

losses (as determined by the Court), The executed Secured Note shall be deposited

with the Clerk of the Court pending a final adjudication on 511’s actual losses, if any.

The terms of this proposed note and mortgage provide that 511’s secured value will be

immediately due and payable in full upon final judgment, is to be payable up to the

value of any required undertaking in the amount of the actual value of the final judgment

for money damages.16

The forms of proposed Refinancing Mortgage and Secured Notes and related

agreements are also attached. See Exhibits 21, 22 to Fleishell Aff.

Sources of Losses to Defendants

The Notice of Pendency, as a restraint against refinancing and/or transfer,

imposes imminent and prospective risks and ongoing costs and foreseeable costs and

losses to A&A and LAD, as well as Hiram Grand.

The fair market value of the Properties is not less than $5,600,000. Silvestry

Afdvt. ¶¶6-7; Exhibits 3 & 4.

15 Alternatively, A&A can be deemed the relevant “aggrieved person” holding such security for the benefit of Hiram Grand, as a third-party beneficiary. 16 As described below, the replacement financing is designed to be subject to a mortgage against the Properties of equal priority as the tax liens, but no principal shall be due until a final adjudication of the merits. Such financing shall also contain protections for the interests of A&A and Hiram Grand.

27

Each aggrieved defendant is threatened with a forfeiture of all direct and indirect

interests in 339 Lenox and 341 Lenox by ongoing and prospective foreclosure

precipitated by 511 Soundview’s failure to pay real property taxes and other charges.

Each warrants an undertaking from 511 Soundview to the extent of the value of their

respective interests and added costs and potential losses traceable to the Notice of

Pendency.

A&A’s minimal losses from foreclosure will include the purchase price from LAD,

as well as ground rent. A&A assumed obligations toward LAD as part of the parties

overall agreement to recover possession and financially stabilize the Properties. Its

minimum financial commitment to LAD if LAD is deprived of the benefits of its bargain

may include $950,000 for reimbursement, which includes LAD’s legal fees. Fleishell Aff.

¶10; Ex. 7.

The damages to Defendants is more than forfeiture of their interests. The Notice

also blocked access to refinancing of property tax and other arrears, which accrue at a

rate of 18% per annum. 511 has not turned assigned rents nor applied these toward

these accruals. In respond to the January 13, 2013 turnover demand, 511 instead filed

the relevant Notice of Pendency and continues to allow default interest to accrue.17

Since such date, $85,983.86 of interest has accrued; approximately $110,000 of interest

accrues per annum. ¶¶ 42, 46 of Tony Curtis Afdt.

A&A and LAD also share increased costs due to the delay in consummation of

the settlement reached with Hiram Grand to clear title. Interest due to Hiram Grand

(above the $450,000 base consideration) under the settlement agreement is payable by

17 A&A and LAD will continue to be obligated for the rate of 18% interest per annum under the Junior

Note to be issued to Superb Financing, unless additional cash collateral is deposited into Court equal to the outstanding value of the loan. If such cash collateral is provided, the interest charged under the Junior Note is lowered to 5% per annum.

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A&A and LAD. Further interest charges start to accrue at an increased interest rate of

18% per annum. If litigation continues for 24 months, then total interest payable to

Hiram Grand will equal or exceed $202,800.

The below table contains a summary of the elements of loss for each of Hiram

Grand, A&A and LAD:

339 Lenox 341 Lenox Combine

Fair Market Value A $3,200,000 $2,200,000 $5,400,000

Benefit to Hiram Grand of Settlement

B $450,000

Additional Costs to Hiram Grand

C N/A

Accruing Interest on Unpaid Property Taxes & Water (at 18%)

D $110,000 per annum; $165,000 to date;

$220,000 next 24 months

$385,000

Purchase Price from LAD to A&A

E $550,000 $550,000 $1,100,000

Interest on Delayed Receipt of Purchase Price (at 9%)

F $99,000 per annum; $148,000 to date;

$198,000 next 24 months

$346,000

Increased Interest Costs from Delay of Hiram Grand Settlement

G 9% and 18% contract interest; $40,800 to date;

$162,000 next 24 months

$202,800

A&A’s Contingent Obligations to LAD

H $950,000

LAD Interest I $3,200,000

LAD Leasehold Improvements

J $515,000

Security for A&A’s Losses

A&A has $2,689,900 of potential damages traceable to the Notice of Pendency,

which warrant undertakings of cash collateral and surety indemnities of sufficient value

to cover the following:

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the $1.1 million buyout price from LAD (Item E);

$192,500 for 50% of accruing interest on unpaid property taxes & water (Item D);

$950,000 for contingent reimbursement obligation to LAD (Item H);

$346,000 for interest for delay of receipt of $1.1 million (Item F), and

$101,400 representing its 50% share of interest due to Hiram Grand for delay of settlement (Item G).

These amounts represent damages to A&A flowing from the continuation of the

Notice of Pendency. At a minimum, A&A will be harmed by loss of the Properties to

foreclosure and by protraction of receipt of purchase price proceeds from LAD. These

and other costs traceable to the transfer restriction of the notice of pendency are

damages which a plaintiff may be required to secure. See Esposito v. Fed. Deposit Ins.

Corp., 644 F.Supp. 276, 277 (E.D.N.Y.1986).

Security for LAD’s Damages

Similarly, LAD has $3,993,900 of potential loss, inclusive of its property interests

and improvements, as well as heightened costs, including financing. 511’s undertaking

to LAD should consist of security against the following damages:

$3,200,000 representing the gross value of LAD’s interest (Item I);

$192,500 for its 50% responsibility for accruing interest on unpaid property taxes & water(Item D);

$101,400 representing 50% share of additional interest due to delay of the Hiram Grand settlement (Item G), and

$515,000 for leasehold improvement to the Properties (Item J).

LAD’s interest is calculated as (A) current fair market value of the Properties,

minus (E) the purchase price to A&A, (B) Hiram Grand settlement payment (D) accrued

tax, water and utility liabilities and other financing.18

18 Such value does not include costs of professional services or other payments forming elements of LAD’s consideration to A&A.

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LAD also shares with A&A the additional interest due to Hiram Grand for delay of its

settlement, recoveries from 511 Soundview. LAD also made improvements ($515,000)

and incurred professional fees in excess of $450,000.

Requisite Value and Form of Security from 511 Soundview

Given the above values, 511 Soundview undertaking should be fixed at

$6,683,300, of which at least $700,000 should consist of cash or cash-equivalents

under the Court’s control. 511 is clearly unfit to serve or supervise any escrows or

trust funds. To the extent assigned rents are placed under the Court’s control and

supervision, the interest rate charges to A&A and LAD as part of the refinancing will be

reduced from an unsecured interest rate (18%) to a secured interest rate of 5%.

511 is not entitled to current control of A&A’s Rent Proceeds and is otherwise

refusing to account for the whereabouts of such monies. While LAD has secured such

refinancing, in part upon the strength of performance guarantees, equity requires that

511 disgorge sufficient cash-collateral to eliminate higher interest costs resulting from its

own conduct.

It is appropriate to fix the cash-collateral component of the undertakings as the

entire value of A&A’s Rent Proceeds, until 511 responds to LAD’s forensic accounting

with records rebutting the inference of comingling and conversion.

Defendants’ Proposed Undertaking to 511 Is Adequate

The value of undertaking due to 511 from A&A and LAD should be set in light of the

Plaintiff’s low remote likelihood of success.

511 Soundview is wildly over-secured with the Notice of Pendency, abusing this

preliminary remedy to place at risk of foreclosure the interests of A&A, LAD and Hiram

Grand. Worse, the present risk of foreclosure is directly due to 511’s own past bad

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acts (diverting assigned rents from property taxes) as well as present illegal and

unlawful misconduct (such as refusing to turn over fiduciary funds).

Under the instant circumstances, Defendants A&A and LAD should be required

to provide substitute security with a total value between $26,000 but not more than

$261,000. As good and sufficient security, A&A should be required only to deliver a

nominal bond of $1,000 and the Senior Note payable to the extent of remaining secured

value.

Requested Relief

Defendants A&A and LAD should be given 10 days to complete delivery of their

above-described undertakings, which should be deemed complete upon delivery of a

$1,000 surety bond on behalf of A&A and deposit into Court of the senior note and

recorded mortgage, each duly authorized and delivered and validly recorded, as the

case may be, and service on the Court and 511 of an affirmation of compliance from

counsel for A&A and LAD with supporting evidence of tender of consideration, including

payment of the tax lien.

If Defendants A&A and LAD timely post their undertaking, Plaintiff should be

required to post its undertakings within 20 days in order to maintain the Notice of

Pendency by payment into Court of cash or cash-equivalents of $700,000 and one or

more surety bonds indemnifying A&A for $2,339,900 and LAD for $3,643,900.

Such order should direct that Plaintiff must post its bond after Defendants have

posted their undertaking, but in no event later than 20 days from the date of the Court’s

order. An attorney affirmation by counsel of record for Plaintiff certifying compliance

and attaching evidence of delivery must also filed with the Clerk of the Court.