Flora Gillespie v. St Regis Residence Club, New York Inc.

Background

Plaintiffs purchased fractional interests in the Fifth and Fifty-Fifth Residence Club, a timeshare-like collection of luxury suites within the St. Regis New York Hotel. Each interest entitled its owner to use a specified amount of time in a Club unit. The purchase agreements incorporated the Club’s offering plan.

After the Great Recession began, the sponsor stopped marketing unsold Club Interests and rented some unsold units to the public. Plaintiffs alleged that this conduct deprived them of the benefits and value they expected from their interests. Their third amended complaint asserted two remaining claims: breach of New York’s implied covenant of good faith and fair dealing and rescission of the purchase agreements under the offering plan’s Rescission Clause.

The parties filed competing motions for summary judgment. Defendants also moved to exclude testimony from two of plaintiffs’ proposed experts, but the court did not address that motion because it resolved both substantive claims through summary judgment.

Implied Covenant Claim

The court granted defendants summary judgment on the claim that they breached the implied covenant of good faith and fair dealing. Under New York law, that covenant is read into contracts and requires parties to avoid conduct that defeats the contract’s basic purpose. The court explained, however, that the covenant cannot create a duty inconsistent with the contract’s express terms.

The court found that the Club was viable. The sponsor had sold 301 of the 372 available interests, Club members controlled the Club Association’s board, and the sponsor had continued paying maintenance fees and taxes on unsold interests. Taken together, the court held that no reasonable jury could find that the Club was not viable.

The court also held that plaintiffs’ focus on rental and resale value could not support their claim. The offering plan warned that there was no established rental or resale market, that rental and resale values were uncertain, and that Club members would compete with the sponsor. The purchase agreements and Buyers’ Certifications similarly stated that the interests should be purchased for personal use rather than for rental income, profit, liquidity, or resale value. Because plaintiffs’ proposed implied duties conflicted with these provisions, the court rejected the claim.

Rescission Claim

The court also granted defendants summary judgment on the rescission claim. The Rescission Clause gave purchasers a 15-day rescission period after presentation of a substantial amendment that materially and adversely affected them. The court held that, under New York’s merger doctrine, contract terms concerning a real-property sale generally merge into the deed at closing unless the parties clearly intend a particular term to survive. The court concluded that the Plan did not clearly state that the Rescission Clause survived closing.

The court rejected plaintiffs’ reliance on provisions stating that certain sponsor obligations survived delivery of the deeds. In context, those provisions referred to the obligations listed in the Plan’s section on the sponsor’s rights and obligations, which did not include the Rescission Clause. The court also rejected plaintiffs’ argument that the clause was a continuing or collateral obligation.

The court further held that, even if the Plan were ambiguous, extrinsic evidence supported defendants’ interpretation. A separate rewards document referred to closing as occurring after contractual rescission periods had passed. The court also considered the fact that plaintiffs did not ask about the sponsor’s alleged rescission obligation until 2016, although they alleged that amendments from 2008 had materially and adversely affected them. The court concluded that both the contract language and the extrinsic evidence showed that the rescission right did not survive closing.

Disposition

The court granted defendants’ motion for summary judgment. It directed the Clerk of Court to enter judgment for defendants, terminate all pending motions, and close the case. The opinion does not separately state a disposition of plaintiffs’ motion for partial summary judgment beyond entering judgment for defendants and closing the case.