41-45 Property Owner, LLC v. CDM1, LLC

Background

41-45 Property Owner, LLC, the sponsor of a new luxury condominium project, sued CDM1, LLC. The complaint’s only surviving claim alleged that CDM1 breached the parties’ contract by failing to close on the purchase of Unit PH-58. CDM1 asserted a counterclaim alleging that 41-45 Property Owner breached the contract by failing to perform its own obligations.

The parties signed an Option Agreement on October 6, 2017. The agreement set the purchase price at $34 million and required an $8.5 million deposit. The unit was next to an automatic fire pump that formed part of the condominium’s fire-suppression system.

Section 17.3 required the sponsor, before closing, to take “all reasonable measures to test, verify and specifically ensure” that the mechanical operation of the fire tank and pump would not create noise impairing the purchaser’s quiet enjoyment and use of the unit, except during an emergency or routine maintenance.

Before closing, CDM1 repeatedly raised concerns about the fire-suppression tank room and asked what the sponsor had done to meet Section 17.3. The sponsor reported that it had consulted a sound consultant and later provided a sound-testing report. CDM1 responded that the report had shortcomings. After repeated postponements of the closing, the sponsor sent a notice requiring CDM1 to close on March 15, 2019, or face cancellation of the agreement and possible retention of the deposit. CDM1 did not close. In 2022, the sponsor sold the unit to another purchaser.

Legal standard

Summary judgment is appropriate when the evidence shows that no genuine dispute exists about any fact that could affect the result and the moving party is entitled to judgment under the law. On cross-motions, the court evaluates each motion separately and draws reasonable inferences against the party whose motion is being considered.

The agreement selected New York law, and both parties relied on New York law. To prove breach of contract, a party must show that a contract existed, it performed its own obligations, the other party breached, and the breach caused damages.

Analysis

The court identified the dispositive issue for both motions as whether 41-45 Property Owner performed under Section 17.3. The court denied both motions because genuine disputes of material fact remained.

CDM1’s motion

The court denied CDM1’s motion. Viewing the evidence in the sponsor’s favor, a fact finder could determine that the sponsor complied with Section 17.3. The sponsor had obtained a January 2019 sound consultant’s report stating that measured sound levels in the bedroom and living room were quieter than applicable guidelines and that no noise from the tank and pump was detected next to the bedroom. Other evidence described the involvement of a construction manager, an acoustical engineer, and people who inspected the building.

The sponsor also told CDM1 that its sound consultant had confirmed that the system was not expected to create noise impairing the purchaser’s quiet enjoyment and use of the unit, except potentially during an emergency or routine maintenance. The sponsor then sent CDM1 the consultant’s report.

The court held that the phrase “all reasonable measures” was ambiguous in this context. Reasonable fact finders could disagree about whether the sponsor’s conduct satisfied that requirement. Evidence also supported the sponsor’s position that the pump operated only during emergencies, testing, or routine servicing.

41-45 Property Owner’s motion

The court denied the sponsor’s motion as well. Viewing the evidence in CDM1’s favor, a fact finder could conclude that the sponsor materially breached Section 17.3. Evidence indicated that sound testing did not occur until after the original closing date and that the testing did not occur while the pump was operating. Other testimony indicated that the operating pump produced noise inside the unit exceeding the New York City Noise Code.

The evidence could also support a finding that the sponsor did not specifically ensure CDM1 about the noise. The sponsor allegedly failed to provide requested sound-level information, did not allow CDM1 to visit the tank room or measure the system while it was running, and received written concerns from CDM1 about the sound report. Evidence further indicated that the pump could run when pressure dropped below a preset level, including during some sprinkler work that CDM1 argued was outside Section 17.3’s exceptions.

The court rejected the sponsor’s argument that Section 17.3 could not support CDM1’s position because it was not a condition that had to occur before CDM1’s duty to close. The court explained that a failure to perform a contractual promise can constitute a breach even when the promise is not a condition precedent.

The court also declined to grant judgment to the sponsor based on its argument that CDM1 had anticipatorily repudiated the agreement. Anticipatory repudiation means clearly stating, before performance is due, an intention not to perform. CDM1’s December 2018 email expressed a preference not to live in the building and proposed ending the agreement, but it also said the email should not be understood as a repudiation or as meaning CDM1 would not be ready and willing to close. CDM1 later continued communicating about the unit, including to arrange a walkthrough. The court found the writing ambiguous at best.

Finally, the court held that the sponsor had not shown as a matter of law that the pump noise did not impair CDM1’s contractual right to the unit’s “quiet enjoyment and use.” Even if the sponsor’s interpretation of “quiet enjoyment” were accepted, the evidence still left unresolved whether the noise affected CDM1’s use of the unit.

Disposition

The court denied the parties’ cross-motions for summary judgment and directed the Clerk of Court to close the motions at Docket Nos. 71 and 77. The opinion did not resolve the parties’ underlying breach-of-contract claims.