EXHIBIT A
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK OSCAR ENGELBERT, - against - JIDE ZEITLIN and ANDREW F. BLUMENTHAL, ESQ., Plaintiff, Defendants. Index No. 653189/2016 DEFENDANT JIDE ZEITLIN S SECOND AMENDED VERIFIED ANSWER AND COUNTERCLAIMS Assigned to Justice Marcy S. Friedman Commercial Division Part 60 Defendant Jide Zeitlin ( Zeitlin or Seller ), by and through his undersigned counsel, as and for his Second Amended Verified Answer to the Verified Complaint, dated June 16, 2016 ( Complaint or Compl. ), filed by Plaintiff Oscar Engelbert ( Engelbert, Plaintiff or Buyer ), and Counterclaims, states upon knowledge as to himself and his own actions and upon information and belief as to all other matters as follows: RESPONSE TO NATURE OF THIS ACTION 1. States that Paragraph 1 purports to describe the nature of the claims Plaintiff asserts in this action and therefore requires no response. To the extent Paragraph 1 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. 2. Admits the allegations in the first two sentences of Paragraph 2 and denies the allegations in the third sentence of Paragraph 2, except admits that Plaintiff purports to selectively describe certain terms of the contract dated October 24, 2014 between Plaintiff and Zeitlin for the sale of certain shares of the apartment corporation known as 121 Greene Street Owners Corp. (the Contract ), and respectfully refers the Court to the Contract, a complete and accurate copy of which is annexed as Exhibit A to the Complaint, for its complete and accurate contents.
3. Denies the allegations in Paragraph 3, except admits that the first sentence of Paragraph 3 purports to selectively describe certain terms of the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 4. Denies the allegations in Paragraph 4, except admits that Plaintiff purports to selectively describe certain terms of the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 5. Denies the allegations in Paragraph 5, except admits that Plaintiff sent Zeitlin a letter, dated March 9, 2016, purportedly electing to cancel the Contract, and respectfully refers the Court to the referenced document, which is annexed as Exhibit B to the Complaint, for its complete and accurate contents. 6. Denies the allegations in Paragraph 6, except admits that Andrew Blumenthal, in his capacity as Zeitlin s attorney in connection with the transaction, sent Plaintiff s attorney, Sandra Jacobus, a time of the essence notice dated March 21, 2016 setting a closing date of April 25, 2016, and respectfully refers the Court to the referenced document, which is annexed as Exhibit C to the Complaint, for its complete and accurate contents. 7. Denies the allegations in Paragraph 7, except admits that Blumenthal sent a letter to Jacobus dated April 26, 2016, notifying Plaintiff that Zeitlin had requested that Blumenthal release to Zeitlin the contract deposit of $825,000.00 (the Contract Deposit ) as liquidated damages, and respectfully refers the Court to the referenced document, which is annexed as Exhibit E to the Complaint, for its complete and accurate contents. 8. States that Paragraph 8 purports to describe the nature of the claims Plaintiff asserts in this action and therefore requires no response. To the extent Paragraph 8 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. 2
9. States that Paragraph 9 purports to describe the nature of the claims Plaintiff asserts in this action and the relief Plaintiff seeks and therefore requires no response. To the extent Paragraph 9 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. RESPONSE TO THE PARTIES 10. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 10. 11. Admits the allegations in Paragraph 11. 12. Admits the allegations in Paragraph 12, except avers that, at some point during the events that are the subject of the Complaint, Blumenthal moved his office to 250 West 57th Street, Suite 1619, New York, New York 10107. RESPONSE TO JURISDICTION AND VENUE 13. States that Paragraph 13 purports to assert a legal conclusion, and therefore requires no response. 14. States that Paragraph 14 purports to assert a legal conclusion, and therefore requires no response. RESPONSE TO ALLEGED FACTS Response to Plaintiff s Allegations Regarding A. Provisions of the Contract Relevant to the Closing and Release of the Contract Deposit 15. Admits the allegations of Paragraph 15. 16. Admits the allegations of Paragraph 16. 17. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 17, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the 3
Contract for its complete and accurate contents. 18. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 18, except admits that Plaintiff purports to selectively describe certain terms of the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 19. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 19, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 20. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 20, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 21. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 21, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 22. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 22, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 23. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 23, except admits that Plaintiff purports to selectively 4
describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. 24. Denies knowledge or information sufficient to form a belief as to the truth or falsity of the allegations in Paragraph 24, except admits that Plaintiff purports to selectively describe certain terms of and quote from the Contract and respectfully refers the Court to the Contract for its complete and accurate contents. Response to Plaintiff s Allegations That B. Seller Breaches the Contract By Failing to Close, and Purchaser Validly Cancels the Contract 25. Denies the allegations in the first sentence of Paragraph 25, except admits that Plaintiff purports to selectively describe certain terms of the Contract, and respectfully refers the Court to the Contract for its complete and accurate contents, and denies the allegations in the second and third sentences of Paragraph 25. 26. Denies the allegations in Paragraph 26, except admits that Plaintiff permitted the original closing date referenced in the Contract to be adjourned indefinitely while Zeitlin and his attorney worked diligently to satisfy the conditions precedent to closing. 27. Denies the allegations in Paragraph 27, except admits that Plaintiff purports to selectively quote from an email from Blumenthal to Plaintiff s counsel, Jacobus, dated May 11, 2015, and respectfully refers the Court to the referenced document, which is annexed hereto as Exhibit 1, for its complete and accurate contents. 28. Denies the allegations in Paragraph 28, except admits that Plaintiff purports to selectively quote from an email from Blumenthal to Plaintiff s counsel, Jacobus, dated July 11, 2015, and respectfully refers the Court to the referenced document, which is annexed hereto as Exhibit 2, for its complete and accurate contents. 29. Denies the allegations in Paragraph 29, except admits that Plaintiff purports to 5
selectively quote from an email from Blumenthal to Plaintiff s counsel, Jacobus, dated November 9, 2015, and respectfully refers the Court to the referenced document, which is annexed hereto as Exhibit 3, for its complete and accurate contents. 30. Denies the allegations in Paragraph 30, except admits that Plaintiff purports to selectively quote from emails between Blumenthal and Jacobus dated January 25, 2016, and respectfully refers the Court to the referenced documents, which are annexed hereto as Exhibits 4 and 5, for their complete and accurate contents. 31. Denies the allegations in Paragraph 31. 32. Denies the allegations in Paragraph 32, except admits that Plaintiff purports to selectively quote from the contents of the March 9, 2016 letter (attached as Exhibit B to the Complaint), and respectfully refers the Court to the referenced document for its complete and accurate contents. Response to Plaintiff s Allegations That C. A Justiciable Controversy Exists As to Whether Plaintiff is Entitled to Return of the Contract Deposit 33. Denies the allegations in Paragraph 33, except admits that Plaintiff purports to selectively describe certain contents of an email from Blumenthal to Jacobus dated March 15, 2016, and respectfully refers the Court to the referenced document, a complete and accurate copy of which is annexed hereto as Exhibit 6, for its complete and accurate contents. 34. Denies the allegations in Paragraph 34, except admits that Plaintiff purports to selectively describe certain contents of and quote from a time of the essence notice from Blumenthal to Jacobus dated March 21, 2016, setting a closing date of April 25, 2016, and respectfully refers the Court to the referenced document, which is annexed as Exhibit C to the Complaint, for its complete and accurate contents. 35. Denies the allegations in paragraph 35. 6
36. Denies the allegations in Paragraph 36. 37. Denies the allegations in Paragraph 37, except admits that Plaintiff purports to selectively quote from a letter from Plaintiff s counsel, dated March 22, 2016, and respectfully refers the Court to the referenced document, which is annexed as Exhibit D to the Complaint, for its complete and accurate contents. 38. Denies the allegations in Paragraph 38. 39. Denies the allegations in Paragraph 39, except admits that Plaintiff purports to selectively describe certain contents of and quote from a letter from Blumenthal to Jacobus, dated April 26, 2016, and respectfully refers the Court to the referenced document, which is annexed as Exhibit E to the Complaint, for its complete and accurate contents. 40. Denies the allegations in Paragraph 40, except admits that Plaintiff purports to selectively quote from a letter from Jacobus to Blumenthal, dated April 29, 2016, and respectfully refers the Court to the referenced document, which is annexed as Exhibit F to the Complaint, for its complete and accurate contents. 41. States that Paragraph 41 purports to describe the nature of the relief Plaintiff seeks in this action and therefore requires no response. To the extent Paragraph 41 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. RESPONSE TO FIRST CAUSE OF ACTION (For Declaratory Relief) 42. Repeats and realleges the responses to all of the foregoing paragraphs. 43. States that Paragraph 43 purports to describe the nature of the claims Plaintiff asserts in this action and therefore requires no response. To the extent Paragraph 43 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. 44. Denies the allegations of Paragraph 44, except admits that an actual and 7
justiciable controversy exists between the parties. 45. States that Paragraph 45 purports to describe the nature of the relief Plaintiff seeks in this action and therefore requires no response. To the extent Paragraph 45 may be deemed to assert factual allegations, Zeitlin denies them in their entirety. 46. Denies the allegations of Paragraph 46. RESPONSE TO SECOND CAUSE OF ACTION (For Injunctive Relief) 47. Repeats and realleges the responses to all of the foregoing paragraphs. 48. Denies the allegations in Paragraph 48. 49. Denies the allegations in Paragraph 49. RESPONSE TO THIRD CAUSE OF ACTION (For Breach of Contract) 50. Repeats and realleges the responses to all of the foregoing paragraphs. 51. Denies the allegations in Paragraph 51. 52. Denies the allegations in Paragraph 52. 53. Denies the allegations in Paragraph 53. 54. Denies the allegations in Paragraph 54. 55. Denies the allegations in Paragraph 55. GENERAL DENIAL 56. Except as otherwise specifically admitted herein, Zeitlin denies each and every one of the allegations of the Complaint, including but not limited to the headings and prayers for relief. FIRST AFFIRMATIVE DEFENSE 8
57. The Complaint fails to state a cause of action upon which relief can be granted. SECOND AFFIRMATIVE DEFENSE 58. Plaintiff s claims are barred, in whole or in part, by the doctrine of laches. THIRD AFFIRMATIVE DEFENSE 59. Plaintiff s claims are barred, in whole or in part, by the doctrines of waiver, estoppel, and ratification. FOURTH AFFIRMATIVE DEFENSE 60. Plaintiff s claims are barred, in whole or in part, by the terms of the Contact. FIFTH AFFIRMATIVE DEFENSE 61. Zeitlin did not violate any provisions of the Contract. SIXTH AFFIRMATIVE DEFENSE 62. Zeitlin acted at all times in good faith and dealt fairly with Plaintiff. SEVENTH AFFIRMATIVE DEFENSE 63. Plaintiff s claims are barred, in whole or in part, by Plaintiff s bad faith conduct. EIGHTH AFFIRMATIVE DEFENSE 64. Plaintiff has sustained no damages as a result of any actions or conduct by Zeitlin. NINTH AFFIRMATIVE DEFENSE 65. All or part of Plaintiff s claims are barred by Plaintiff s prior material breaches of express and implied contractual and legal duties. TENTH AFFIRMATIVE DEFENSE 66. If Plaintiff sustained any damages, Plaintiff failed to mitigate any such damages. ELEVENTH AFFIRMATIVE DEFENSE 9
67. Zeitlin specifically reserves and does not waive any and all additional, separate, or other affirmative defenses that he may have, or that may be revealed through discovery or further investigation in this matter. COUNTERCLAIMS FACTS COMMON TO ALL COUNTERCLAIMS I. Introduction 68. These counterclaims asserted by and on behalf of Defendant/Counterclaim- Plaintiff Jide Zeitlin arise from Plaintiff/Counterclaim-Defendant Oscar Engelbert s bad faith conduct and breaches of the contract, dated October 24, 2014 (as previously defined, the Contract ), between Zeitlin, as Seller, and Engelbert, as Buyer, of the shares of two residential co-operative apartment units (the Units ) in the co-operative apartment building at 121 Greene Street in Manhattan, together with proprietary leases associated with those shares, for a purchase price of $8,250,000.00. 69. The Contract required Engelbert to pay a 10% down payment of $825,000.00 (as previously defined, the Contract Deposit ) into an escrow account held by Zeitlin s attorney in connection with the transaction, Andrew Blumenthal, who acted as escrow agent upon the execution of the Contract. Pursuant to the Contract, in the event of a default or misrepresentation by Engelbert, Zeitlin is entitled to retain the Contract Deposit as liquidated damages. See Compl. Ex. A, 13.1. The Contract provided for a closing date of January 15, 2015 to allow time for the parties to satisfy various conditions precedent to closing, which date could be extended another 30 days (to February 14, 2015) pursuant to Paragraph 16.1 of the Contract and Section 40 of a rider to the Contract (the Rider ). The Contract did not, however, contain a time is of the essence provision requiring that the closing take place by either date. 70. The closing of the sale was contingent on Engelbert s designated title insurance 10
company, First American Title Insurance Company ( First American ), providing an Eagle 9 policy, a type of title insurance policy often used in connection with the sale of co-operative residential apartments (the Eagle 9 Policy ). The closing was also contingent on Zeitlin removing a Partial Stop Work Order related to plumbing renovation work performed by a previous owner of the Units before Zeitlin acquired them. It was initially not expected to take more than the time contemplated by the selected possible closing dates in the Contract to obtain the Eagle 9 Policy and clear the Partial Stop Work Order. 71. After the parties executed the Contract, Zeitlin, through his attorney, Blumenthal, diligently set out to provide First American with any documents and information it required in order to issue the Eagle 9 Policy. First American identified a number of liens and judgments on prior owners of the Units that either had nothing to do with the Units at all or that had already expired by operation of law. Nonetheless, First American insisted that termination statements be provided for these liens and judgments before it would issue the Eagle 9 Policy. Blumenthal devoted significant time and effort over many months to obtain this unnecessary information, at Zeitlin s expense. 72. Engelbert, through his attorney, Sandra Jacobus, was made aware through her regular communication with Blumenthal of the difficulties posed by the demands of First American in its review of the Eagle 9 Policy and the fact that Zeitlin was having to exert far more effort at significantly greater expense than originally contemplated or expected for such a policy to issue. While Engelbert and Jacobus would regularly demand updates, they did little to cooperate with Blumenthal in his effort to obtain the Eagle 9 Policy from First American in order to facilitate a timely closing. 73. Engelbert and Jacobus were also made aware of a number of obstacles that were 11
encountered by Zeitlin in attempting to get the Partial Stop Work Order removed. They understood and acknowledged that the closing dates contemplated in the Contract would need to be adjourned in order for the Eagle 9 Policy to be issued and the Partial Stop Work Order lifted. Not once did either of them ever notify Zeitlin or Blumenthal that time was of the essence or request that the Eagle 9 Policy be obtained or the Partial Stop Work Order lifted by a certain date so that the parties could close on that date. 74. Despite receiving little cooperation from Engelbert or Jacobus, after over a year of significant effort and at great expense, by February 2016, Blumenthal believed in good faith that he had provided to First American all of the documents and information that it required in order to issue the Eagle 9 Policy. 75. On March 9, 2016, however, Jacobus sent Blumenthal without any prior notice a purported termination notice stating that Engelbert was suddenly electing to cancel the Contract, despite knowing the great lengths to which Blumenthal and Zeitlin had gone to resolve these unanticipated and unexpectedly complicated issues occasioned by Engelbert s title company. Indeed, at the time Engelbert sent the termination notice, Zeitlin and Blumenthal were on the verge of clearing the remaining issues and scheduling a closing date in the very near future. On the same date Jacobus sent the termination notice, Blumenthal notified Jacobus that the Partial Stop Work Order would be imminently lifted and Zeitlin was ready to schedule a closing date. 76. This is perhaps why, following Engelbert s purported termination of the Contract, he then sought to extract a half million dollar reduction in the purchase price and a half-year delay of the closing date. Zeitlin rejected this attempt to obtain negotiating leverage knowing that Blumenthal and Zeitlin had worked tirelessly and under difficult circumstances to try to 12
resolve the issues with First American and the Partial Stop Work Order. During this time, Zeitlin had taken the Units off the market and kept them off the market despite interest in them, and incurred significant carrying costs for the Units, including co-op maintenance fees and mortgage obligations, in the mistaken belief and expectation that Engelbert would act in good faith and honor the parties agreement. Thus, any further delay in the closing would result in additional losses to Zeitlin. 77. Zeitlin also rejected the purported termination notice as ineffective and wholly inconsistent with Engelbert s request for an adjournment of the closing date of another six months. As Blumenthal explained to Jacobus, before seeking to terminate the Contract, Engelbert was required, at the very least, to give notice that time was of the essence and specify a date certain by which Zeitlin would be required to close. 78. On March 21, 2016, after Blumenthal provided First American with the information it needed to issue the Eagle 9 Policy, and after removing the Partial Stop Work Order, Blumenthal sent Jacobus a time is of the essence letter, noticing a closing date of April 25, 2016 and explaining that Engelbert s failure to appear would constitute a breach of the Contract, entitling Zeitlin to retain the Contract Deposit. 79. Engelbert refused to appear at the April 25, 2016 closing, claiming that the Contract had been terminated even though Engelbert s broker was demanding at the very same time a closing date in September or October 2016 and a reduction in the purchase price by $500,000.00. 80. After Engelbert defaulted by refusing in bad faith to appear at the April 25 closing or any other date shortly thereafter, Zeitlin requested that Blumenthal release the Contract Deposit to him as liquidated damages. When Engelbert objected to the release of the Contract 13
Deposit to Zeitlin, Blumenthal continued to hold it in escrow. Engelbert then commenced this action seeking the return of the Contract Deposit to him and not less than Two Million Dollars in other wholly unspecified damages. See Compl. 55. 81. As set forth more fully below, Engelbert breached the Contract and failed to act in good faith and deal fairly with Zeitlin by (i) improperly and in bad faith declaring the Contract to be terminated; (ii) failing to cooperate with Zeitlin or Blumenthal in order to obtain the Eagle 9 Policy; and (iii) refusing to appear at the April 25 closing. Zeitlin seeks a declaration that he is entitled to retain the Contract Deposit as liquidated damages, and damages in an amount to be determined at trial for Engelbert s breaches. II. Summary of Transaction and the Contract of Sale 82. On October 24, 2014, Engelbert and Zeitlin entered into the Contract for the sale to Engelbert of Zeitlin s shares of two cooperative apartment units, Units 6A and 6B of the cooperative corporation known as 121 Greene Street Owners Corporation, located at 121 Greene Street in the SoHo neighborhood of Manhattan, together with proprietary leases associated with the Units. Pursuant to the Contract, Engelbert agreed to pay $8,250,000.00 and Zeitlin agreed to assign to Engelbert the propriety leases associated with the Units. 1 Upon signing, Engelbert delivered the Contract Deposit of $825,000.00 to Zeitlin s attorney and escrow agent, Blumenthal. 83. The Contract referenced a closing date of January 15, 2015, and also expressly provided that the closing date could be adjourned by the Seller for an additional 60 calendar days if the Seller needed additional time, which was reduced to 30 calendar days in the Rider to the Contract. See Compl. Ex. A, 1.15, 16.1, Rider 34. Thus, an outside closing date of 1 The Contract is attached as Exhibit A to the Verified Complaint. 14
February 14, 2015 was originally contemplated by the parties, although the Contract nowhere stated that time was of the essence whereby the closing needed to take place on that or any other particular date. 84. Pursuant to Section 15.2 of the Contract and Paragraph 46 of the Rider, Zeitlin was required to secure the release of any liens and judgments on the Units and cooperate with Engelbert s designated title insurance company, First American, to obtain the Eagle 9 Policy, a type of title insurance policy that is commonly required by purchasers of shares of residential cooperative apartments in New York City. 85. The Contract also required Zeitlin to remove a Partial Stop Work Order and any other violations on the Units. See Compl. Ex. A, Rider 46. The Partial Stop Work Order referenced in the Contract was issued by the New York City Department of Buildings ( DOB ) in connection with plumbing work that was performed on the Units by a previous owner prior to Zeitlin s acquisition of the Units, but not identified by the DOB until after Zeitlin commenced construction of the Units. 86. The Contract provides that, in the event of a default or misrepresentation by Engelbert, Zeitlin is entitled to retain the Contract Deposit as liquidated damages. Compl. Ex. A, 13.1. 87. The Contract also contains a provision allowing either party to cancel the Contract if, on the adjourned closing date of February 14, 2015, Seller is still unable to perform the obligations required to be performed by closing, unless Purchaser elects to proceed with the Closing without abatement of the Purchase Price. Compl. Ex. A, 16.2. As explained below, although Engelbert sought to terminate the Contract under this provision by reason of the Partial Stop Work Order, Engelbert waived the right to terminate the Contract and 15
is estopped from being able to do so because Engelbert elect[ed] to proceed with the Closing on the terms originally agreed to following the February 14, 2015 adjourned closing date, and because Zeitlin relied to his detriment on Engelbert s agreement to extend the closing date by undertaking substantial efforts to remove the Partial Stop Work Order at significant expense, while also keeping the Units off the market despite interest in them and paying significant carrying costs for the Units pending the closing of the sale of the Units to Engelbert. III. Blumenthal Undertakes Substantial Efforts to Clear All Liens and Judgments Identified by First American 88. After the Contract was executed, Blumenthal undertook substantial efforts to discharge all liens and judgments identified by First American with respect to the Units so that First American could issue the Eagle 9 Policy. 89. Blumenthal asked First American to identify any liens on the property that it would require to be paid or discharged before it would agree to clear the title for the Units. First American identified four categories of liens and judgments: (i) one lien on Zeitlin personally; (ii) one judgment against Zeitlin personally; (iii) liens on prior owners of the Units; and (iv) judgments on prior owners of the Units. With respect to the personal lien on Zeitlin, Zeitlin, Engelbert, and First American all agreed that the lien would be satisfied at closing. With respect to the personal judgment against Zeitlin, First American agreed to accept funds in escrow at the closing in anticipation of a settlement of the judgment. Thus, there were no liens on or judgments against Zeitlin personally that affected Zeitlin s ability to close. 90. With respect to the liens and judgments against prior owners, however, First American identified a number of liens against prior owners of the Units. Several of the liens on prior owners identified by First American had been filed prior to July 1, 2001. Blumenthal explained to First American that due to a change to UCC Article 9 in 2001, previously-filed liens 16
terminated automatically unless they were renewed, and thus these liens all terminated by operation of law. However, First American nonetheless insisted that Blumenthal deliver UCC-3 termination statements for all the pre-2001 liens on prior owners of the Units, which required a great deal of unnecessary effort and expense. Although Blumenthal disagreed with First American s conclusion that termination statements were required for the pre-2001 liens, he nevertheless in good faith set out to obtain the requested termination statements for those liens so that the Eagle 9 Policy could be issued and the transaction could close. 91. In addition to the liens against prior owners, First American also identified several judgments on prior owners of the Units. First American first identified these judgments in May 2015, seven months after the Contract was executed and after substantial efforts had been undertaken to address First American s prior requests. The judgments First American identified included certain tax judgments against two prior owners of the Units, James and Diana Armenakis. Those judgments were entered beginning in 1998, four years after those former owners had sold the first of the two Units to Zeitlin in 1994 and two years after selling the second unit to another owner in 1996, who in turn sold it to Zeitlin. These tax judgments could not conceivably have had anything to do with the Units, given that they were not entered until several years after the former owners had already sold the Units. Nonetheless, First American insisted that these tax judgments be cleared before it would issue the Eagle 9 Policy. 92. Although Zeitlin and Blumenthal disagreed with First American s position that these tax judgments had anything to do with title to the Units, Zeitlin and Blumenthal nevertheless undertook significant efforts in good faith to resolve these tax judgments against the former owners. As with the process to obtain termination statements for the pre-2001 liens, the process to resolve these tax judgments against the Units former owners required enormous 17
effort and expense, and was made difficult by the fact that Mr. Armenakis was a disbarred lawyer serving a prison sentence. However, by February 2016, Blumenthal provided First American with all of the information it had requested to resolve the issues that it had identified with respect to liens and judgments against prior owners. 93. Engelbert and Jacobus made little effort to cooperate with Zeitlin and Blumenthal in their effort to understand and address First American s concerns. While Jacobus would from time to time inform Blumenthal that she intended to place a call to First American to discuss the delay, there is no evidence that she took any meaningful steps to help resolve the issues that First American had identified. Nor would Engelbert or Jacobus consider switching title companies, even though Blumenthal advised Jacobus that another reputable title company was willing to issue a policy without the wholly unnecessary and burdensome work that First American was demanding. IV. Zeitlin Works to Remove the Partial Stop Work Order 94. In addition to working to resolve the lien and judgment issues raised by First American (described above), Zeitlin also worked to remove the Partial Stop Work Order on the Units. Removing the Partial Stop Work Order proved to be a more difficult, expensive, and time-consuming process than anticipated. 95. Shortly after the Contract was signed, Zeitlin retained and worked with Evan Bray, an expeditor at Brookbridge Consulting Services Inc. with experience in resolving permit issues, to help resolve the Partial Stop Work Order, including working with officials at the DOB. 96. Although it was initially understood that the Partial Stop Work Order could be removed by paying a $5,000 fine issued by the DOB, the process ultimately required several additional steps, due to unforeseen events and requirements, which took substantial time and expense to resolve. 18
97. Zeitlin engaged and relied upon professionals who were experienced in resolving partial stop work orders. For example, in addition to Mr. Bray, Zeitlin also hired an engineer to prepare and file an application with the DOB to close the permits associated with the Partial Stop Work Order. However, because that engineer was slow to respond to inquiries, Zeitlin had to hire another engineer to expedite the process of closing the permits. It was also determined that a renewal permit from the DOB needed to be obtained, inspections of the Units by the DOB s Construction Division had to be scheduled, and certificates of inspection needed to be filed with the City. 98. While Zeitlin engaged and relied upon professionals to help him with these tasks, he also spent significant time personally trying to ensure that the Partial Stop Work Order was being resolved. For example, Zeitlin coordinated with Mr. Bray closely on resolving the Partial Stop Work Order, met personally with the contractors who performed the plumbing work at the Units that led to the Partial Stop Work Order being issued to determine whether they could assist in closing out the permit, and discussed permitting issues with architects who performed demolition work at the Units after Zeitlin acquired them. 99. Throughout this process, Zeitlin and Blumenthal provided updates to Jacobus and Engelbert s broker regarding the status of efforts to remove the Partial Stop Work Order. While Engelbert from time to time expressed frustration that the Partial Stop Work Order had not yet been lifted, he never informed Zeitlin that he intended to seek to terminate the Contract unless the closing occurred by a certain date. V. On the Verge of Scheduling a Closing Date, Engelbert Sends a Purported Termination Notice 100. The parties understood that and operated as though the closing dates contemplated by the Contract (January 15 and February 14, 2015) would be extended until First American was 19
ready to issue the Eagle 9 Policy and the Partial Stop Work Order was removed. 101. This is reflected in emails that Jacobus sent to Blumenthal and through the conduct of the parties throughout the time period in which efforts were made to resolve these issues. For example, in an email dated November 10, 2015 (over one year after the Contract was signed), in response to an update from Blumenthal on the status of resolving the Partial Stop Work Order and lien issues identified by First American, Jacobus stated: Thank you for the update. However, based on the history of the stop work order, I don t believe that we will be closing in the end of November or early December. Once that issue has been resolved we can discuss a closing date. Ex. 7 (emphasis added). 102. This email and other oral and written communications from Jacobus and Engelbert following the closing dates contemplated by the Contract (January 15 and February 14, 2015), reflect Engelbert s agreement, conveyed directly and through his attorney, to extend the closing date until the lien issues identified by First American were resolved and the Partial Stop Work Order was removed, and further evidence that Zeitlin justifiably relied on these representations. 103. By February 24, 2016, Blumenthal had provided to First American all information requested by First American to terminate the liens and judgments it had identified with respect to the Units. In a February 29, 2016 email to First American and Jacobus, Blumenthal explained that the Partial Stop Work Order issue was nearly resolved, with only a final construction inspection required. Blumenthal stated that after that final step was completed, the SWO will be lifted and Ms. Jacobus and I can schedule a closing. See Ex. 8. 104. On March 9, 2016, however, Jacobus suddenly and without warning sent Blumenthal a letter in which Engelbert purported to terminate the Contract. Jacobus stated in 20
that letter that Engelbert was electing to cancel the Contract pursuant to Paragraph 16 of the Contract on the basis that the Partial Stop Work Order had not yet been removed and the original closing date set forth in the Contract, January 15, 2015, had passed. 105. Engelbert s purported termination notice came as a complete surprise to Zeitlin and Blumenthal. Prior to sending the purported termination notice, neither Engelbert nor Jacobus ever informed Zeitlin or Blumenthal that Plaintiff would seek to terminate the Contract based on the Partial Stop Work Order or otherwise, despite having been posted on the progress by Zeitlin and Blumenthal. Nor did Engelbert or Jacobus ever send a notice that time was of the essence or otherwise request that the closing take place within a certain period of time or else Engelbert would seek to terminate the Contract. 106. In fact, on March 9, 2016, Blumenthal sent an email to Jacobus stating that the Partial Stop Work Order would be lifted imminently as soon as a scheduled inspection was completed and requesting that she contact him to discuss scheduling a closing date. Blumenthal also informed Jacobus that he had provided all of the information requested by First American to resolve the liens and judgments that it had identified, and that he was merely awaiting confirmation from First American that they were now satisfied. Ex. 9. Jacobus did not respond to Blumenthal s email requesting that they discuss the scheduling of a closing date. 107. Engelbert s bad faith attempt to terminate the Contract is evidenced not only by the suspect timing of when the notice was received Blumenthal was on the verge of resolving the Partial Stop Work Order and had already provided First American with all information it had requested to issue the Eagle 9 Policy but also by the fact that Engelbert tried to extract a significant reduction in the purchase price and an extended closing date from Zeitlin after purporting to terminate. 21
108. For example, on March 18, 2016, nine days after Engelbert sent his purported termination notice, Jacobus told Blumenthal that Engelbert was prepared to close on amended terms more favorable to Engelbert: Engelbert wanted to postpone the closing for an additional six months to October 2016 and sought a reduction of the purchase price by $500,000.00. This effort to secure better deal terms from Zeitlin continued throughout April and May 2016, even as Engelbert continued to insist that the Contract had been terminated. 109. Engelbert s post- termination request for amended contract terms is inconsistent with Engelbert s position that the Contract was terminated as of March 9, 2016. If Engelbert really wanted to terminate the Contract for the delay in resolving the Partial Stop Work Order, it would make no sense for Engelbert to request, shortly after issuing the termination notice, a closing date in September or October 2016, approximately half a year later. 110. In sending the termination notice, Engelbert presumably believed that Zeitlin would be incentivized to accept Engelbert s new terms because Zeitlin and Blumenthal had invested considerable time and expense in clearing the conditions to closing. VI. Zeitlin Rejects Engelbert s Termination Notice and Schedules a Closing Date 111. Engelbert acted in bad faith by abruptly seeking to terminate the Contract more than a year after the original closing date of January 15, 2015 recited in the Contract, after Zeitlin and Blumenthal had already undertaken substantial efforts at great expense to provide First American with information it requested to issue the Eagle 9 Policy and to lift the Partial Stop Work Order, while also simultaneously seeking major concessions from Zeitlin on core terms of the deal. Therefore, on March 14, 2016, on behalf of Zeitlin, Blumenthal rejected Engelbert s purported termination notice as ineffective because, among other things, Engelbert never gave notice that time was of the essence or scheduled a date certain by which the parties had to close. See Ex. 10. 22
112. The following day, on March 15, 2016, the Partial Stop Work Order was lifted and Blumenthal notified Jacobus of that fact by email. See Ex. 6. 113. On March 21, 2016, Blumenthal sent Jacobus a time of the essence notice, which scheduled the closing date for April 25, 2016. The letter stated clearly that it constituted a time of the essence notice and that Engelbert s failure to appear at the closing would constitute a breach of the contract of sale between our clients, entitling Mr. Zeitlin to retain the contract down payment of $825,000. Compl. Ex. C. Jacobus acknowledged receipt of Blumenthal s letter. 114. In his cover email to Jacobus attaching the time of the essence notice, Blumenthal also rejected Engelbert s bad faith demands for a reduced purchase price and halfyear delay in the closing date, writing: Ex. 11. Dear Sandra: I presented your proposal to grant Mr. Engelbert a $500,000 concession in the purchase price of the referenced unit and to adjourn that closing to October 31, 2016. Jide was surprised to learn Mr. Engelbert s position and, after review, Jide advised me that we must reject his proposal and proceed to close pursuant to the terms of the contact. To that end, I am attaching a time of the essence letter, setting the closing for noon on April 25 at your offices. Andy VII. Engelbert Claims the Contract Is Terminated and Refuses to Appear at the Scheduled Closing, But Continues to Attempt to Amend the Contract 115. On March 22, 2016, Jacobus responded to Blumenthal s March 21 time of the essence notice scheduling an April 25 closing date. Jacobus stated in her email that [s]ince the Contract has already been terminated, there no longer exists a contractual relationship between the parties. Compl. Ex. D. 23
116. Even though Engelbert refused to appear at the scheduled closing date, he continued to seek to amend the Contract and extract major concessions from Zeitlin. For example, on April 13, 2016, Zeitlin s broker, Tom Doyle of Sotheby s International Realty, sent an email to Engelbert summarizing a conversation they had in which Engelbert stated he would only move forward with a sizable discount off our current deal as well as not close on the property before Sept 1st 2016. Ex. 12 (emphasis added). 117. On Thursday, April 21, 2016, four days prior to the scheduled closing date on April 25, 2016, Jacobus stated clearly in an email to Blumenthal that Engelbert will not be present on Monday (the closing date) and that [n]o closing will take place at that time. Jacobus also stated in that email that Engelbert takes the position that the contract is cancelled and that he is entitled to the refund of his $825,000 deposit even though just one day prior to declaring the contract cancelled, Engelbert s broker was discussing, with Zeitlin s broker, Engelbert s demands for a half-million dollar reduction from the sale price and a half-year delay in the closing date. Ex. 13. 118. On April 24, 2016, Blumenthal sent Jacobus an email informing Jacobus that Zeitlin was disappointed by Engelbert s refusal to appear at the closing and stating: As you ve told me (and as confirmed by your client s broker) that Mr. Engelbert will not close tomorrow, neither my client nor I will attend at your office tomorrow. If Mr. Engelbert is, in fact, prepared to close tomorrow, please confirm that to me so that I can finalize the necessary arrangements. Ex. 14. Jacobus did not respond to Blumenthal s email. Zeitlin s own appearance at the scheduled April 25 closing was thus unnecessary given that Jacobus had clearly indicated Engelbert would not appear at the closing himself and Jacobus was adamant that [n]o closing will take place at that time. Accordingly, Blumenthal did not take any further steps towards 24
closing, such as finalizing replacement certificates and proprietary leases with the co-op s management. 119. Nonetheless, by the April 25, 2016 closing date, Zeitlin had cleared all outstanding conditions to closing and was ready, willing, and able to close. The Partial Stop Work Order had been lifted over a month prior to the scheduled closing date, and Blumenthal had provided First American with all the information it requested in order to issue the Eagle 9 Policy. Indeed, First American confirmed in an email to Blumenthal, dated April 25, 2016, sent prior to the scheduled closing time, that First American was cleared to close this file. Ex. 15. Engelbert s failure to appear at the April 25, 2016 closing constituted a default under the Contract and entitled Zeitlin to the Contract Deposit as liquidated damages. 120. On April 26, 2016, Blumenthal sent a letter to Jacobus stating that Engelbert had breached the Contract and that in light of Engelbert s position that he was not prepared to close on April 25, 2016, Zeitlin had requested the release of the Contract Deposit from escrow, pursuant to the terms of the Contract. Compl. Ex. E. 121. On April 29, 2016, Jacobus responded by letter in which she disputed that Engelbert was in default for failure to appear at the April 25 closing and requested the return of the Contract Deposit. Compl. Ex. F. 122. Yet even after the April 25 closing date passed and even after defaulting by failing to appear at the closing, Engelbert continued to request that Zeitlin agree to an October 2016 closing for the Contract and a significant purchase price reduction. Zeitlin had been willing to delay the closing until shortly after April 25, 2016, if requested by either Engelbert or First American. Engelbert, however, continued to insist on a substantial reduction in the purchase price and refused to consider scheduling the closing for any earlier than October 2016, due to 25
what was later revealed to Blumenthal as liquidity issues. set forth here. FIRST COUNTERCLAIM: BREACH OF CONTRACT 123. Zeitlin repeats and realleges the foregoing allegations as though they were fully 124. The Contract constitutes a legally binding and enforceable contract. 125. Zeitlin complied with each of his obligations under the Contract. 126. Zeitlin has satisfied and fulfilled all conditions precedent to the assertion of this cause of action. 127. By reason of the conduct alleged above, Engelbert breached the Contract in several respects. 128. First, as detailed above, Engelbert breached the Contract by refusing to appear at the closing on April 25, 2016. 129. Zeitlin scheduled the April 25, 2016 closing date by letter, dated March 21, 2016, in which Blumenthal stated that the letter constituted a time of the essence notice and that Zeitlin would consider Engelbert s failure to appear at the closing to be a breach of the contract of sale between our clients, entitling Mr. Zeitlin to retain the contract down payment of $825,000. Compl. Ex. C. 130. Zeitlin was ready, willing, and able to close on April 25, 2016. Among other things, Zeitlin had satisfied all conditions precedent that were required to be satisfied by the closing date, including obtaining the removal of the Partial Stop Work Order, providing all documents and information sought by First American, and securing First American s agreement to issue the Eagle 9 Policy. 131. Engelbert, by contrast, expressly refused to appear at the closing date. 26
132. By reason of Engelbert s express refusal to appear at the closing date, Engelbert breached the Contract and Zeitlin is entitled to the Contract Deposit. 133. Second, Engelbert breached the Contract by improperly declaring the Contract to be terminated. 134. Engelbert sent his purported termination notice on March 9, 2016, in bad faith and to gain negotiating leverage so as to extract more favorable deal terms from Zeitlin, including a substantial reduction off the purchase price and a further postponement of the closing date by many months. 135. Although Engelbert s March 9, 2016 letter purported to terminate the Contract pursuant to the termination provision set forth in Section 16 of the Contract by reason of the Partial Stop Work Order, Engelbert waived the right to terminate the Contract on this basis, and is estopped from being able to do so, because Engelbert agreed to delay the closing until Blumenthal removed the Partial Stop Work Order, and because Engelbert sent the termination notice with knowledge that Zeitlin and Blumenthal were working at significant expense to resolve the Partial Stop Work Order and were on the verge of doing so before Engelbert declared the Contract terminated. 136. Zeitlin and Blumenthal reasonably relied to their detriment on Engelbert s agreement to extend the closing date until the Partial Stop Work Order was lifted by continuing with their substantial efforts to remove the Partial Stop Work Order, while also keeping the Units off the market despite interest in them and paying significant carrying costs for the Units pending the closing of the sale of the Units to Engelbert. 137. At a minimum, Engelbert was required, before being able to declare the Contract terminated, to declare first that time is of the essence and schedule a date certain for the 27
closing. 138. Third, Engelbert breached the Contract by failing to cooperate with Zeitlin and Blumenthal to consummate the sale of the Units to Engelbert. 139. The Contract expressly requires each party to cooperate with the other, the [cooperative] Corporation and title company, if any, and obtain, execute and deliver such documents as are reasonably necessary to consummate this sale. Compl. Ex. A 24.1. 140. In breach of this contractual obligation, Engelbert failed, despite repeated requests from Blumenthal, to take any meaningful steps to help resolve the issues that First American had identified in its title reports for the Units. 141. As a direct and proximate result of Engelbert s breaches, Zeitlin has been damaged in an amount to be determined at trial and, at a minimum, is entitled to retain the Contract Deposit as liquidated damages. SECOND COUNTERCLAIM: BREACH OF THE IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING set forth here. 142. Zeitlin repeats and realleges the foregoing allegations as though they were fully 143. Engelbert was, and remains, under a duty of good faith and fair dealing with respect to Zeitlin, the Contract, and all matters relating thereto. 144. It is inherent in the Contract that Engelbert should act in good faith and deal fairly with Zeitlin and not take any actions that contravene the terms of the Contract. 145. By reason of the conduct alleged above, Engelbert breached his duty to act in good faith and deal fairly with Zeitlin in several respects. 146. First, Engelbert breached his duty to act in good faith and deal fairly with Zeitlin by refusing to appear at the closing scheduled for April 25, 2016. Zeitlin was ready, willing, and 28