UZAN V. 845 UN LIMITED PARTNERSHIP 778 N.Y.S.2d 171 (2004) CASE BRIEF

UZAN V. 845 UN LIMITED PARTNERSHIP

778 N.Y.S.2d 171 (2004)

NATURE OF THE CASE: Uzan (P), Turkish billionaire brothers filed an action seeking a declaratory judgment that 845 UN Limited Partnership's (D) retention of their 25 percent down payment, after default, for four luxury penthouse condominiums was an unconscionable, illegal, and unenforceable penalty. The Supreme Court, New York County denied D's motion for summary judgment. D appealed.

FACTS: In October 1998, D began to sell apartments at The Trump World Tower (Trump World), a luxury condominium building to be constructed at 845 United Nations Plaza. Donald Trump is the managing general partner of the sponsor. Cem Uzan and Hakan Uzan (Ps), two brothers, are Turkish billionaires who sought to purchase multiple units in the building. In April 1999, Ps and an associate executed seven purchase agreements for apartments in Trump World. Four of those units (the penthouse units) are the subject of this lawsuit and appeal. Cem Uzan defaulted on contracts to buy two penthouse units on the 90th floor of the building, and Hakan defaulted on contracts to purchase two other penthouse units on the 89th floor. The building had not been constructed when Ps executed their purchase agreements. The offering plan included a section titled 'Special Risks to be Considered by Purchasers,' which stated: Purchasers will be required to make a down payment upon execution of a Purchase Agreement in an amount equal to 10% of the purchase price, and within 180 days after receipt of the executed Purchase Agreement from Sponsor or 15 days after Purchaser receives a written notice or amendment to the Plan declaring the Plan effective, whichever is earlier, an additional down payment equal to 15% of the purchase price. Once construction was completed, the building's offering plan was amended to require a 15% down payment. Both the original and the amended offering plans prominently disclosed the sponsor's right to retain the entire down payment should there be an uncured default. Ps were represented by experienced local counsel during the two-month-long negotiation for the purchase of the apartments. In consideration for Ps' purchase of multiple units, D reduced the aggregate purchase price of the penthouse units by more than $7 million from the list price in the offering plan for a total cost of approximately $32 million. Each purchase agreement obligated plaintiffs to make a 25% down payment: 10% at contract, an additional 7 1/2 % down payment twelve months later, and a final 7 1/2 % down payment 18 months after the execution of the contract. Ps did not object to the total amount required as a non-refundable down payment. Ps also got rights to terminate the contracts if the closing had not occurred by December 31, 2003, rights to advertise the units for resale prior to closing, conditional rights to assign the purchase agreements to a third party, and the right of each brother to terminate his contracts if the sponsor terminated the purchase agreements for the other brother's units. It is noted that according to counsel for the sponsor, the right to assign the purchase contracts prior to closing had not been granted to any other purchaser of a unit at Trump World. D also agreed not to install machinery on the roof that would cause noise or vibration in the apartments. It was clear that D had the right to retain, as liquidated damages, the Down payment and any interest earned on the Down payment in event of cancellation. Ps paid the total 25% down payment of approximately $8 million was placed in an escrow account. On September 11, 2001, terrorists attacked New York City by flying two planes into the World Trade Center, the city's two tallest buildings, murdering thousands of people. Ps, asserting concerns of future terrorist attacks, failed to appear at the October 19, 2001 closing, resulting in their default. D sent Ps default letters, notifying them that they had 30 days to cure. D terminated the four purchase agreements. Ps brought this action. They alleged that Donald Trump had prior special knowledge that certain tall buildings, such as Trump World, were potential targets for terrorists. Ps also alleged that Trump World did not have adequate protection for the residents of the upper floors of the building. They alleged common-law fraud and deceptive sales practices for not disclosing the terrorist issues. Ps also sought a declaratory judgment that the down payment was an 'unconscionable, illegal and unenforceable penalty.' The court dismissed plaintiffs' first two claims in a March 2000. Ps moved for summary judgment on their third cause of action, arguing that forfeiture of the down payments was an unenforceable penalty. D cross-moved for summary judgment, asserting that defaulting vendees on real estate contracts may not recover their down payments. The court granted D partial summary judgment, finding that plaintiffs forfeited the portion of their down payment amounting to 10% of the purchase price. The court held that the remainder of the down payment was subject to a liquidated damages analysis to determine whether it bore a reasonable relation to the sponsor's actual or probable loss. D appealed.

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LEGAL ANALYSIS:

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