Maplewood At Upper East Side, LLC v. Sendyk

Background

The dispute concerns a Tax Contribution Agreement (TCA) and an accompanying Escrow Agreement connected with the sale and purchase of property at 1808 Second Avenue in Manhattan. The Estate of Benjamin Sendyk was the seller, and Maplewood At Upper East Side, LLC was the buyer after 1808 2nd Realty LLC assigned its buyer rights to Maplewood.

The TCA allocated possible tax payments among the parties. The Estate was responsible for the first $2.5 million, 1808 Realty for the next $1.5 million, and Maplewood for the next $4 million. Maplewood also agreed to contribute another $1 million if necessary, with additional taxes payable by the Estate. The Estate and Maplewood placed their contributions in escrow.

Clause 3(a) required the Estate to give Maplewood 15 days’ notice before filing the Estate’s tax returns. Clause 7 stated that failure to comply would terminate the TCA and that the breach would be considered material. The TCA otherwise was scheduled to terminate on October 15, 2022.

The Estate filed its tax report on the last day allowed after earlier extensions and gave Maplewood notice shortly before filing. Maplewood did not object to the substance of the return, but it notified the Estate that the late notice terminated the TCA and demanded return of its $4 million escrow deposit.

Motions and Earlier Rulings

Maplewood sought summary judgment, which is a decision without a trial when the material facts are not genuinely disputed. Sharon Sendyk, as administrator of the Estate, opposed Maplewood’s motion and sought partial summary judgment declaring that Maplewood was not entitled to terminate the TCA early or recover its escrow. Sendyk also sought summary judgment against third-party defendants Leonard Rodney and Larry Gallus.

The court originally denied both Maplewood’s and Sendyk’s motions concerning the TCA, finding factual disputes about whether the late notice was a material breach, whether Maplewood suffered damages or adverse tax consequences, and whether the circumstances otherwise supported summary judgment. The court also denied Sendyk’s motion against Rodney and dismissed the third-party claim against Gallus. The court determined that the claims could be maintained only against Sharon Sendyk in her capacity as administrator of the Benjamin Sendyk Estate, not against Mala Sendyk or Sharon Sendyk personally.

The court later vacated those rulings and the clerk’s judgment, then reconsidered the same motion papers after Sendyk sought reargument. This order addresses that reconsideration.

Ruling on the TCA

The court reinstated its earlier orders and held again that factual disputes prevented summary judgment for either Maplewood or the Estate. The court noted that Maplewood had not shown prejudice from receiving late notice, had not shown that it would have sought changes to the Estate’s tax filing if it had received 15 days’ notice, and had not identified a continuing grievance concerning the filing.

The court explained that the notice requirement may have been important when the parties included it in the TCA because it was intended to prevent tax obligations from being shifted to Maplewood. But the court stated that the agreement had to be read as a whole. If the Estate’s late notice remained material, its materiality had to be evaluated in relation to actual events. The court found too many unanswered questions to decide the parties’ rights and responsibilities under the TCA without a trial.

Third-Party Claims

The court reinstated its ruling concerning Rodney. It found factual issues about whether Rodney could be liable because of his alleged continuing involvement on behalf of the Estate, including his role as the Estate’s representative in relation to Gallus and his signing and negotiation of the TCA. The court therefore denied summary judgment concerning Rodney.

The court again found that Sendyk had failed to show liability by Gallus. It relied on an indemnity agreement by which Mala Sendyk, acting for the Estate, agreed to protect Gallus from liability, and on evidence that Gallus followed Rodney’s instructions to calculate taxes so that Maplewood would not assume obligations belonging to the Estate. The court stated that Gallus did not commit accountant’s malpractice and had no independent obligations under the TCA. It dismissed the third-party action against Gallus.

Disposition

The court reinstated ECF Nos. 150 and 151 and the clerk’s judgment, ECF No. 154. It denied both summary-judgment motions concerning the TCA, denied Sendyk’s motion concerning Rodney, and dismissed the third-party complaint against Gallus. The court directed the parties to meet with Judge Hellerstein to plan a trial date.