Centech LLC v. Yippie Holdings LLC, Index No. 107802/2009, 12/23/14 (Oing, J.).

By: Moshe Boroosan | Contributor

Contracts; Requisites and Validity; Parties, Proposals and Acceptance; Options; Right of first refusal.

Defendant 9 Bleeker Street LLC (“Bleeker”) sold a building to Yippie Holdings, LLC and National Aids Brigade, Inc. (“Yippee/NAB defendants”) for $1.2 million.  Under the contract of sale, the Yippie/NAB defendants gave Bleeker a right of first refusal if they listed the property for sale.  Specifically, the contract provided that Bleeker would have the right to purchase the property if the Yippie/NAB defendants offered the property for sale within fifteen years of the closing date for the same price set forth in a third party contract or $1.8 million.

To purchase the building, the Yippie/NAB defendants obtained a $1,400,000 loan from Centech LLC (“Centech”) secured by a mortgage on the property.  The Yippie/NAB defendants defaulted on the mortgage.  They then also defaulted on a subsequent loan modification agreement in which they acknowledged their default and agreed to pay the full sum due with interest.  After the second default, Centech commenced a legal action to foreclose on the building.

The Yippie/Nab defendants did not deny that they had defaulted. Instead, they alleged that Centech and Bleeker had colluded “to foreclose on the property in order for Bleeker to exercise its right of first refusal,” and asserted affirmative defenses of unclean hands, conversion, breach of the covenant of good faith and fair dealing, and fraud. Additionally, Defendant Bleeker argued that its right of first refusal had priority over the mortgage, and that the judicial foreclosure sale triggered its right of first refusal.

Centech moved for summary judgment of foreclosure, and moved to strike defendants’ affirmative defenses and counterclaims.  The Court granted summary judgment of foreclosure, holding that Centech has established a prima facie right for foreclosure by producing mortgage documents and proof of nonpayment. The Court also dismissed the affirmative defenses because the Yippie/NAB defendants failed to raise any issues of fact, and only offered “vague, unsubstantiated and conclusory allegations of collusion” between Centech and Bleeker to foreclose on the property.

Lastly, the Court held that a judicial foreclosure sale of real property did not trigger Bleeker’s right of first refusal. Because the First Department has not yet considered this issue, the Court looked to Third Department authority for guidance.  Following the Third Department’s approach, the Court examined the language of the indenture and determined that the right of first refusal was only triggered when the property is sold by the Yippie/NAB defendants or it successors or assignees.  A judicial foreclosure sale, the Court ruled, does not activate a right of first refusal unless specifically provided for in the parties’ agreement. Therefore, the court granted summary judgment of foreclosure and granted plaintiff’s motion to strike and dismiss all affirmative defenses and counterclaims.

Centech LLC v. Yippie Holdings LLC, Index No. 107802/2009, 12/23/14 (Oing, J.).

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