Five Star Development Resort Communities, LLC v. iStar RC Paradise Valley LLC

Filing 137

MEMORANDUM OPINION AND ORDER. For the foregoing reasons, Five Star's motion to preclude or strike defenses in the Answer and to dismiss the Counterclaims is denied in its entirety, and iStar's motion for summary judgment is denied in its en tirety. iStar's Amended Counterclaims (docket entry no. 82) are deemed to amend iStar's Answer (docket entry no. 66) and together with that answer to constitute iStar's Amended Answer and Amended Counterclaims to the Amended Complaint. The parties are directed to meet promptly with Magistrate Judge Peck to discuss settlement. This Memorandum Order resolves docket entry numbers 85 and 89. Re: 85 MOTION to Preclude filed by Five Star Development Resort Communities, LLC, 89 MOTION for Summary Judgment filed by iStar RC Paradise Valley LLC. (Signed by Judge Laura Taylor Swain on 3/26/2012) (rjm)

UNITED STATES DISTRICT COCRT
SOUTHERN DISTRICT OF NEW YORK

-------------------------------------------------------x
FIVE STAR DEVELOPMENT RESORT
COMMUNITIES LLC,
Plaintiff,
No. 09 Civ. 2085 (LTS)

-v-

iSTAR RC PARADISE VALLEY LLC,
Defendant.

-------------------------------------------------------x
MEMORANDUM OPINION AND ORDER

In this action arising out of a $112,025,000 Development Loan and Security
Agreement, dated May 18,2007 (the "Loan Agreement" or "Agreement"), entered into by
borrower Five Star Development Resort Conununities, LLC ("Plaintiff' or "Five Star"), and lender
iStar RC Paradise Valley LLC ("Defendant" or "iStar"), Five Star asserts a claim for breach of
contract under New York state law. iStar counterclaims for breach of contract and fraud, and seeks
a judgment declaring that Five Star is in default of the Loan Agreement, dissolution of a
preliminary injunction imposed by the Court and a declaration that iStar is entitled to exercise its
default remedies. The Court has subject matter jurisdiction of the controversy pursuant to 28

US.c. § 1332.
Currently before the Court are two motions. Five Star has moved for an order
precluding or striking defenses raised in the Answer and an order dismissing iStar's Amended
Counterclaims. iStar has moved for summary judgment dismissing the Amended Complaint and
granting judgment in iStar's favor on its First Amended Counterclaim. The Court has reviewed

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thoroughly the parties' submissions and considered carefully the arguments raised therein. For
the following reasons, both motions will be denied in their entirety.
BACKGROUND

The background facts of this case are recounted in the Court's Memorandum
Opinion and Order dated July 6, 201 0, familiarity with which is assumed.
Under the Loan Agreement, iStar agreed to lend the principal amount of
$112,025,000 to Five Star for the purchase and initial development of a parcel of land in the
towns of Paradise Valley and Scottsdale, Arizona, for a multi-use project including a Ritz­
Carlton hotel.
iStar disbursed approximately $50 million of the loan on the Agreement's closing
date. Five Star then submitted 18 requests for additional partial disbursements of the loan,
referred to in the Agreement as "development advances," and iStar approved each of the 18
requests. Five Star submitted its nineteenth disbursement request on December 12, 2008. After
indicating initially that the nineteenth request had been approved, iStar refused to disburse any
further development advances. Five Star made two more disbursement requests, and iStar
continued to refuse to disburse any further funds.
The maturity date established by the Loan Agreement was May 18, 201 O. Five
Star did not repay the loan by the maturity date and the loan remains outstanding.
Five Star initiated this action by the tiling of a complaint on March 6, 2009,
followed by an Amended Complaint on May 14,2009, asserting claims for, inter alia, negligent
misrepresentation, breach of contract and tortious interference with prospective economic
relations. The Court granted in part and denied in part iStar's motion to dismiss the Amended
Complaint in its July 6,2010, Memorandum Opinion and Order, and Five Star's only remaining
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claim is for breach of contract.
The parties submitted a stipulation, which the Court endorsed, extending the time
for iStar to file and serve its Answer until July 23, 2010. As contemplated by the stipulation, the
Answer was filed, along with counterclaims, on July 23, 2010. iStar filed its Amended
Counterclaims on October 14, 2010.
iStar's Second and Third Counterclaims assert causes of action for breach of
contract and fraud in connection with a right of way referred to as Indian Bend. According to
iStar, Five Star's principal Jerry Ayoub falsely claimed, during a telephone call to iStar, that
Five Star was scheduled to appear before the Town of Paradise Valley Planning Commission on
January 5,2009, and that Five Star needed to complete its purchase of the Indian Bend right of
way immediately in order to obtain approval of a plat. However, Five Star did not appear before
the planning commission on January 5,2009, and did not intend to appear before the
commission on that day. Rather, Ayoub made these misrepresentations to extract more funding
from iStar after iStar had refused to disburse more development advances. iStar disbursed
$370,000 to Five Star for the purchase of the right of way and then, unbeknownst to iStar, Five
Star assigned the $370,000 advance and Five Star's rights under the right of way purchase
agreement to a newly created affiliate, which then used the advance to purchase the right of way.
DISCUSSION

1.

Five Star's Motion to Strike or Preclude Material from the Answer and Counterclaims
A.

Pleading with Particularity that Conditions Precedent Were Not Met
In its Amended Complaint, Five Star alJeges that it took certain actions prior to

making draw requests. For instance, in paragraph 170, Five Star alleges that it "satisfied the
requirements for funding of Development Advances to Draws [sic] Requests 19,20 and 21." In
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its approximately 6-page response to paragraph 170, iStar denies that allegation and identifies
numerous provisions of the Loan Agreement that, according to iStar, constituted conditions
precedent that Five Star failed to meet. In its motion papers, Five Star asserts that iStar's denials
should be deemed admissions and the contentions of failure to meet conditions precedent should
be stricken from the Answer, pursuant to Rules 9(c) and 12(f) of the Federal Rules of Civil
Procedure, because iStar did not plead these matters with sufficient particularity.
Rule 9(c) of the Federal Rules of Civil Procedure provides that, "when denying
that a condition precedent has occurred or been performed, a party must do so with
particularity." Fed. R. Civ. P. 9(c). Rule 12(f) of the Federal Rules of Civil Procedure provides
that the court may "strike from a pleading an insufficient defense or any redundant, immaterial,
impertinent, or scandalous material." Fed. R. Civ. P. 12(f). "A motion to strike an affirmative
defense under Rule 12(f) ... for legal insufficiency is not favored and will not be granted 'unless
it appears to a certainty that plaintiffs would succeed despite any state of the facts which could
be proved in support of the defense.'" William Z. Salcer, Panfeld, Edelman v. Envicon Equities
Corp., 744 F.2d 935, 939 (2d Cir. 1984), overruled on other grounds by Salcer v. Envicon
Equities Corp., 478 U.S. 1015 (1986).
iStar's responses are sufficiently particularized. In its responses to Five Star's
allegations that Five Star took particular actions, iStar denies that the identified actions were
taken. In paragraph 170 of its Answer, which responds to Five Star's general allegation that it
has satisfied the funding requirements in connection with three draw requests, iStar specifically
identifies multiple conditions precedent that iStar contends were not satisfied. For example,
iStar has alleged that "Five Star failed to satisfy the conditions precedent in Section 3.2(B)" of
the Loan Agreement because Five Star failed to provide "true, correct and complete certified
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copies of certain Material Contracts," copies of "executed estoppel certificates from all Parties to
the Material Contracts," "a copy of each Architect's Agreement," "a copy of each Civil
Engineer's Agreement" and other documents. Paragraph 170 spans seven pages of the Answer,
listing multiple conditions precedent that iStar alleges were unmet. iStar's allegations are
sufficiently particular, as they indicate each of the conditions precedent that iStar alleges were
not met, and sufficiently detailed, as they are supported by allegations indicating how the
conditions were not met. Accordingly, this aspect of Five Star's motion will be denied.
B.

Timeliness of istar's Answer
Five Star asserts that iStar's denials of conditions precedent are untimely,

constitute "trial by ambush" and should not be permitted because Five Star received no notice of
the denials until iStar filed its Answer.
The filing of a responsive pleading is governed in part by Rule 12 of the Federal
Rules of Civil Procedure. Rule 12(a)(4) provides that, when a party serves a motion pursuant to
Rule 12, responsive pleadings "must be served within 14 days after notice of the court's action"
on the motion. Fed. R. Civ. P. 12(a)(4). Here, iStar filed a motion pursuant to Rule 12(b)(6) to
dismiss the Amended Complaint, which the Court denied in part and granted in part on July 6,
2010. The parties then filed a stipulation, which the Court endorsed, extending iStar's time to
file an Answer until july 23, 20 10. iStar filed its Answer on July 23, 2010, as contemplated by
the stipulation. The Answer was, therefore, timely. I

In its Reply Memorandum, Five Star argues that the Answer should be deemed
untimely because iStar failed to file the Answer when directed to do so by
Magistrate Judge Peck in a March 22,2010, Order. (Docket entry no. 61.)
Although Five Star refers to the March 22 Order in its Opening Memorandum
(Pl.'s Mem. p. 5-6), Five Star does not assert in its Opening Memorandum that
the March 22 Order provides an adequate basis for finding the Answer untimely
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Notwithstanding the timeliness of the Answer, Five Star asserts that iStar should
be precluded from denying that certain conditions precedent were satisfied. Five Star argues that
preclusion is warranted because (i) iStar failed to provide notice of an of its denials prior to
filing the Answer; (ii) iStar's witnesses did not indicate during their depositions all of the
conditions precedent that iStar would deny; (iii) iStar did not produce documents during
discovery indicating all of the conditions it would deny; and (iv) iStar's preliminary pretrial
statement did not indicate all of the conditions it would deny.
Five Star's arguments are unavailing. iStar was not required, prior to the filing of
its Answer, to allege with particularity each of the conditions precedent that were not met.
Furthermore, iStar's individual witnesses were not required to have comprehensive knowledge
of every defense or factual contention that iStar would assert, and Five Star has not cited to any
particular witness who improperly withheld information. Five Star has not cited to any
document that iStar had in its possession but failed to produce during discovery. Finally, iStar
was not required, when filing a preliminary pretrial statement pursuant to the Individual Rules of
Practice of the undersigned, to list with particularity each of its defenses at the risk of forfeiture
of those defenses. Because the Answer was timely and because Five Star has not asserted an
adequate basis for precluding any part of the Answer, this aspect of Five Star's motion will be
denied.
II.

Five Star's Motion to Dismiss the Amended Counterclaims
A.

The Filing of the Amended Counterclaims Without the Answer
iStar filed a timely Answer with Counterclaims. Approximately three months

(See Pl.'s Mem. p. 12-16). Instead, the argument was raised for the first time in
Five Star's Reply Memorandum and therefore will not be considered here.
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later, iStar filed Amended Counterclaims. When filing its Amended Counterclaims, iStar did not
amend its Answer and it did not re-file the original Answer with the Amended Counterclaims.
Five Star argues that the Court should preclude iStar's Amended Counterclaims because they
were not filed as part of the Answer.
Rule 13 of the Federal Rules of Civil Procedure provides that certain
counterclaims are "compulsory" so they must be raised when filing responsive pleadings and
other types of counterclaims are "permissive" so they may be raised in responsive pleadings.
Fed R. Civ. P. 13. Rule 12(a) provides that a party must serve an answer to a counterclaim
within 21 days after being served with the pleading that states the counterclaim. Extrapolating
from these rules, Five Star argues that counterclaims cannot be asserted except as part of an
answer-an assertion that iStar does not dispute-and further that, when a party files amended
counterclaims, the amended counterclaims must be precluded unless the answer is re-filed
simultaneously. Five Star's assertions are unsupported by case law, and the Court sees no reason
to impose an unnecessary level of formalism in the absence of prejUdice to either party and at the
expense ofjudicial economy. This aspect of Five Star's motion is denied. In the interests of
clarity, the Amended Counterclaims (docket entry no. 82) will be deemed to amend iStar's
Amended Answer (docket entry no. 66) and together to constitute iStar's Amended Answer and
Amended Counterclaims to the Amended Complaint.
B.

The First Counterclaim is Not a "Mirror Image" of Count I
Five Star asserts that iStar's First Counterclaim should be dismissed, pursuant to

Rule 12(f) of the Federal Rules of Civil Procedure, because the First Counterclaim is merely a
"mirror image" of Count I of the Amended Complaint.
Ruke 12(f) provides that "the court may strike from a pleading ... any redundant
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· .. matter." Fed. R. Civ. P. 2(t). When a counterclaim is merely the "mirror image" of an
opposing party's claim and the counterclaim serves no independent purpose, the counterclaim
may be dismissed. Arista Records LLC v. Usenet.com, Inc., 07 Civ. 8822,2008 WL 4974823,
*3 (S.D.N.Y. Nov. 24,2008). In determining whether a counterclaim is merely a mirror image
of a claim, the court must consider whether a case or controversy would still exist in connection
with the counterclaim if the court entered a judgment dismissing the opponent's claim. Id.
(citing Larson v. General Motors Com., 134 F.2d 450, 452 (2d Cir. 1943)).
iStar's first counterclaim seeks a declaratory judgment that declares, in part, that:
(i) Events of Default exist under the Loan Agreement and Five
Star is in default of the Loan Agreement, and (ii) iStar is entitled to
exercise its default remedies under the Loan Documents, including
without limitation the Deed of Trust, the Letter of Credit and the
Loan Agreement.
Count I of Five Star's Amended Complaint seeks a declaratory judgment that declares, in part,
that:
(i) Plaintiff is not in default of the Loan Agreement and iStar shall
not exercise any default remedies; (ii) Defendant is barred from
holding Plaintiff in default under the doctrines of waiver, estoppel,
modification and acquiesence; [and] (iii) Defendant is barred from
holding Plaintiff in default due to impossibility of performance.
In support of its claim that these provisions are mirror images of one another, Five Star cites to

iStar's September 24, 2010, letter to the Court wherein iStar opined that "[t]he First
Counterclaim is merely a request for declaratory relief that is the mirror-image of Count I of the
amended complaint" (Def.'s Sept. 24, 2010, letter p.3, docket entry no. 76.)
iStar's letter notwithstanding, the Court finds that Claim I and the First
Counterclaim are not simply mirror images of one another, as the Counterclaim also seeks a
declaration that iStar is entitled to exercise default remedies under specified documents. In other
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words, even if the Court denies Five Star's prayer for a declaration that iStar shall not exercise
any default remedies, and thereby declines to preclude iStar from exercising default remedies, a
case or controversy will still exist as to whether and to what extent default remedies can be
exercised. iStar's Counterclaim, by contrast, seeks a determination of this issue. Thus, the claim
and counterclaim are not mirror images of one another and this aspect of Five Star's motion will
be denied.
C.

Timeliness of the Second and Third Counterclaims
Five Star argues that iStar's Second and Third Counterclaims, based upon the

purchase of the Indian Bend right of way, constitute "trial by ambush" because iStar did not
provide notice of this claim prior to filing its Answer and that, therefore, Five Star should be
precluded from asserting these counterclaims pursuant to Rule 37(c)(1) of the Federal Rules of
Civil Procedure.
Rule 37(c)(1) provides that "[iJfa party fails to provide information ... as
required by Rule 26(a) or (e), the party is not allowed to use that information ... at a trial." Fed.
R. Civ. P. 37(c)(1). Rule 26(a)(l) provides that each party must provide to the other parties at
the outset of an action certain evidentiary material, information related to potential witnesses,
information in connection with potential expert testimony, and a computation of each category
of damages claimed by the disclosing party. Fed. R. Civ. P. 26(a)(l). Rule 26(e) provides that
each party must, in a timely manner, supplement disclosures made under Rule 26(a) and
supplement any response to interrogatories, requests for production and request for admission "if
the party learns that in some material respect the disclosure or response is incomplete or
incorrect." Fed. R. Civ. P. 26(e).
Five Star has not cited to any information or material that iStar failed to produce
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in violation of Rule 26(a). Nor has Five Star cited to any interrogatory, request for production or
request for admission that iStar failed to supplement or any category of disclosures required
under Ruler 26(a) that iStar failed to supplement in violation of Rule 26(e). As Five Star has
failed to allege any acts that would violate Rule 26(a) or (e), preclusion under 37(c)(1) is not
warranted.
Five Star cites to American Stock Exchange LLC v. Mopex, Inc., 215 F.R.D. 87
(S.D.N.Y. 2002), to support its assertion that the Second and Third Counterclaims should be
dismissed. In American Stock Exchange, the court granted a motion to preclude assertions that
the plaintiff had infringed defendant's patent. Id. at 88-89. In American Stock Exchange, the
plaintiff had "aggressively sought to obtain full disclosure" ofthe defendant's case, including its
patent claims and, in its motion papers, the plaintiff cited specific responses to interrogatories
and responses to requests for admission that were not supplemented in a timely manner. Here,
by contrast, Five Star has failed to identify any responses to interrogatories, responses to
requests for admission, or other discovery material that is covered by Rule 37(c)(1)'s preclusion
remedy and which has been withheld or not timely produced. Therefore, this aspect of Five
Star's motion will be denied.
D.

Adequacy of iStar's Third Counterclaim
Five Star argues that iStar's Third Counterclaim, for fraud, must be dismissed on

the grounds that it is duplicative of the counterclaim for breach of contract, does not allege
scienter or injury, and is not pleaded with particularity as required by Rule 9(b) of the Federal
Rules of Civil Procedure. Five Star asserts the Third Counterclaim must also be dismissed
because the alleged misrepresentations cited therein concern promises of future conduct.
"To satisfy the pleading standards of Rule 9(b), the complaint must: (1) specify
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the statements that the plaintiff alleges were fraudulent; (2) identify the speaker; (3) indicate
when and where the statements were made, and (4) explain why the statements were fraudulent."
Cornwall v. Credit Suisse Group, 689 F. Supp. 2d 629, 635-36 (S.D.N.Y. 2010). Statements are
specified sufficiently when the pleading alleges when the misstatement was made, by whom, and
why it was fraudulent. Id. at 636. Malice, knowledge, and other levels of intent to defraud may
be pleaded generally, but the plaintiff must allege facts "[giving] rise to a strong inference of
fraudulent intent." Eternity Global Master Fund. Ltd. v. Morgan Guar. Trust Co. of New York,
375 F.3d 168, 187 (2d Cir. 2004). The requisite scienter for all alleged acts of fraud is intent to
defraud, knowledge of the falsity of the representation, or reckless disregard for the truth.
Connecticut Nat'] Bank v. Fluor Corp., 808 F.2d 957 (2d Cir. 1987).
To state a fraud claim made in connection with a breach of contract claim, New
York law requires the claimant to: (1) demonstrate a legaJ duty separate from the duty to perform
under the contract; (2) demonstrate a fraudulent misrepresentation collateral or extraneous to the
contract; or (3) seek special damages that are caused by the misrepresentation and unrecoverable
as contract damages. Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13,
20 (2d Cir. 1996). "Under New York law, a failure to perform promises of future acts is not
fraud unless there exists an intent not to comply with the promise at the time it was made."
Murray v. Xerox Corp., 811 F.2d 118, 121 (2d Cir. 1987) (citing Chase Manhattan Bank N.A. v.
Perla, 65 A.D.2d 207 (4th Dept. 1978)).
In its Third Counterclaim, iStar alleges that Five Star's principal Jerry Ayoub,
during a telephone call to iStar, falsely claimed that Five Star was scheduled to appear before the
Town of Paradise Valley Planning Commission on January 5,2009, and that Five Star needed to
complete the right of way purchase immediately in order to obtain approval of a plat. However,
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Five Star did not appear before the planning commission on January 5,2009, and Five Star
assigned its rights under the right of way purchase agreement to a newly created affiliate and
used loan proceeds to fund the affiliate's purchase of the right of way. These allegations
adequately state the who, what, when and where of the facts underlying iStar's counterclaim, as
required by Rule 9(b). iStar has also alleged facts giving rise to a strong inference of fraudulent
intent, specifically, that Five Star made the alleged misrepresentations after a dispute arose
between the parties regarding draw request 19 and when the maturity date on the loan was only
five months away, at which time Five Star would have been obligated to repay the loan or iStar
could exercise default options. Thus, because of its alleged misrepresentation, Five Star was
able to extract one last, large disbursement of funds before the loan's maturity date.
Furthermore, the allegation that this disbursement was made satisfies the injury element of the
fraud claim, as iStar asserts that it was not obligated to disburse the funds and would not have
disbursed them but for the misrepresentations.
iStar's fraud counterclaim alleges misrepresentations as to whether Five Star had
secured an appointment before the planning commission and whether exigent circumstances
existed that necessitated an immediate purchase of the right of way. These are questions of
present existing fact. Moreover, these misrepresentations are collateral to Five Star's contractual
promises. According to iStar's interpretation of the Loan Agreement, iStar was obligated to
disburse funds pursuant to section 3.2 of the Agreement only after all conditions precedent were
satisfied but, by making allegedly false representations, Five Star was able to procure from iStar
a sum of money that iStar was not yet contractually obligated to disburse. For these reasons, this

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aspect of Five Star's motion will be denied?
III.

iStar's Motion for Summary Judgment
Summary judgment is to be granted in favor of a moving party if"the movant

shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter oflaw." Fed. R. Civ. P. 56(a); see also Anderson v. Liberty Lobby, Inc.,
477 U.S. 242,256 (1986) (the moving party bears the burden of establishing that there is no
genuine issue of material fact). The moving party can satisfy its burden by pointing out that
there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett,
477 U.S. 317, 323-25 (1986). A fact is considered material "ifit might affect the outcome of the
suit under the governing law," and an issue of fact is a genuine one where "the evidence is such
that a reasonable jury could return a verdict for the nonmoving party." Holtz v. Rockefeller &
Co., Inc., 258 F.3d 62, 69 (2d Cir. 2001) (quoting Anderson, 477 U.S. at 248).
A.

Section 3.2 of the Loan Agreement and the Conditions Precedent
Five Star asserts that iStar's motion for summary judgment must be denied

because section 3.2 of the Loan Agreement, containing various conditions precedent, is
ambiguous as to when those conditions must be met and whether all of the conditions must be
met before iStar is obligated to disburse any development advances pursuant to section 3.2. For

2

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In footnote 11 of its memorandum oflaw, Five Star asserts that, even ifiStar
properly asserted counterclaims for breach of contract and fraud, neither claim
can go forward because the third party to whom Five Star assigned its rights
under the right-of-way purchase agreement is an indispensable party. As iStar's
prayer for relief is primarily for damages and does not include a prayer for any
interest in the Indian Bend right of way, Five Star has not demonstrated a basis
for finding that the third party to whom it assigned certain rights is an
indispensable party.
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the following reasons, the Court agrees.
Under New York law, "the initial interpretation of a contract is a matter of law for
the court to decide." K. Bell & Assoc. v. Lloyd's Underwriters, 97 F.3d 632,637 (2d Cif. 1996).
"Included in this initial interpretation is the threshold question of whether the terms of the
contract are ambiguous." Alexander & Alexander Serv., Inc. v. Certain Underwriters at Lloyd's,
London, 136 F.3d 82,86 (2d Cir. 1998). Contract terms are ambiguous if they suggest
more than one meaning when viewed objectively by a reasonably
intelligent person who has examined the context of the entire
integrated agreement and who is cognizant of the customs,
practices, usages and terminology as generally understood in the
particular trade or business.
Lightfoot v. Union Carbide Corp., 110 F.3d 898, 906 (2d Cir. 1997). When a contract is not
ambiguous, the court "should assign the plain and ordinary meaning to each term and interpret
the contract without the aid of extrinsic evidence." Alexander, 136 F.3d at 86. On the other
hand, when a contract is ambiguous, the court should consider extrinsic evidence, in which case
disputed issues of fact will usually preclude deciding the case on summary judgment. See
Seiden Assocs. v. ANC Holdings, Inc., 959 F.2d 425,428-29 (2d Cir. 1992).
iStar argues that the Loan Agreement imposes an unambiguous requirement that
all of the conditions precedent listed in section 3.2 must be fulfilled before iStar is obligated to
disburse development advances. However, some aspects of the Agreement suggest that Five
Star became entitled to development advances on a rolling basis as different conditions were
satisfied in connection with different phases of construction. For instance, section 3.2 refers
repeatedly to "development advances" in the plural, suggesting that multiple advances would be
paid on an ongoing basis, rather than one single development advance to be paid after all
conditions precedent were satisfied. Furthermore, the introductory sentence of section 3.2 states
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that
[t]he obligation of Lender to disburse proceeds of the Loan for
Hard Costs and Soft Costs related to the Completion of
Construction is subject to satisfaction of the conditions precedent
to such subsequent advances set forth below in this Section 3.2.
(Loan Agreement § 3.2 (emphasis added).) Here, the phrase "to such subsequent advances"
modifies "conditions precedent," suggesting that some conditions precedent apply to some
development advances and not to others. To interpret the sentence otherwise-that is, to find
that all of the conditions must be fulfilled before iStar is obligated to disburse any development
advance pursuant to section 3.2-would render the modifying phrase meaningless, which would
be contrary to the canon of construction, applicable under New York law, that every clause and
word of a contract should be given meaning. See Patrolmen's Benev. Assoc. ofthe City of New
York v. City of New York, 46 AD.3d 378,380 (N.Y. App. Div. 2007) (citing Travelers Cas. &
Sur. Co. v. Certain Underwriters at Lloyd's of London, 96 N.Y.2d 583 (2001)) (applying the
canon of construction that every word and clause of a contract should be given meaning). Even
the phrase "development advances" suggests that the disbursements are made in advance of the
particular phase of construction that they are intended to support.
On the other hand, other parts of section 3.2 support iStar's interpretation. For
instance, section 3.2 does not reference a timetable designating when each condition becomes
due or connecting each condition to a specific phase of construction, and the very idea of a
condition precedent is that the condition will be fulfilled before some conditional event. In
short, the Loan Agreement is ambiguous as to whether Five Star was required to fulfill all of
section 3,2's conditions before being entitled to development advances under that section and,
therefore, this aspect of the motion for summary judgment will be denied.

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B.

Section 9 ofthe Loan Agreement and Events of Default
iStar asserts that summary judgment should be granted in its favor because certain

Events of Default occurred under sections 9.1(W) and 9.1(B) of the Loan Agreement. Five Star
responds that the Loan Agreement requires iStar to provide Five Star with notice before
declaring an Event of Default and that iStar failed to provide such notice.
Section 9.1(D) of the Loan Agreement provides that an Event of Default occurs
when:
A default by Borrower shall occur in the performance of or compliance with any
term contained in this Agreement or the other Loan Documents and such default
is not remedied or waived within thirty (30) days after receipt by Borrower of
notice from Lender of such default (other than occurrences described in other
provisions of this Section 9.1 for which a different grace period or cure period is
specified or which constitute immediate Events of Default) ....
(Loan Agreement § 9.1 (D).) Section 9.1 (D) also provides that, under special circumstances, the
borrower is entitled to 90 days to cure the default. (Id.)
Five Star alleges that it did not receive notice as required by section 9.1(D), and
argues that the sections of the Loan Agreement that iStar has cited as providing the basis for Five
Star's alleged Events of Default, sections 9.l(W) and 9.1(B), do not specify that they constitute
"immediate Events of Default." Five Star contends that, therefore, iStar was not permitted to
rely on these alleged Events of Default as grounds for withholding the development advances
sought in disbursement requests 19, 20 and 21, and that iStar is not now permitted to invoke
these Events of Default as bases for declaring Five Star in default of the Loan Agreement.
In its Reply memorandum, iStar responds that the cited Events of Default arise
under subsections of section 9.1 that do not require notice. iStar does not, however, explain the
basis for this assertion. The language used in section 9.1(D) suggests that the notice requirement

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contained therein is not limited to Events of Default arising under section 9.1 (D) and that it may
apply to other provisions of section 9.1. Section 9.1 (D) expressly excludes "provisions of this
Section 9.1 for which a different grace period or cure period is specified or which constitute
immediate Events of Default." The exclusion of such provisions suggests that other provisions
of section 9.1 are included within the scope of the notice requirement. At the very least, the
contract language is ambiguous. As iStar has failed to satisfY its burden of demonstrating that no
rational jury could return a verdict in Five Star's favor, the motion for summary judgment will
be denied.
CONCLUSION

For the foregoing reasons, Five Star's motion to preclude or strike defenses in the
Answer and to dismiss the Counterclaims is denied in its entirety, and iStar's motion for
summary judgment is denied in its entirety. iStar's Amended Counterclaims (docket entry no.
82) are deemed to amend iStar's Answer (docket entry no. 66) and together with that answer to
constitute iStar's Amended Answer and Amended Counterclaims to the Amended Complaint.
The parties are directed to meet promptly with Magistrate Judge Peck to discuss
settlement.
This Memorandum Order resolves docket entry numbers 85 and 89.
SO ORDERED.
Dated: New York, New York
March 26, 2012

~RSWAIN

United States District Judge

FiVE STAR. WPD

VERSIOK

3/26/12

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