P.A. Properties, Inc. v. B.S. Moss' Criterion Center Corp.

Facts

UA entered into a joint venture with D. D, and UA agreed to operate the joint venture under the working name “Moss/United Artists Joint Venture,” (JV). This JV Agreement was governed by New York partnership law and provided that the members of the Joint Venture were “liable for all debts, liabilities, and obligations of the Joint Venture in proportion to their Allocable Shares.” JV was to “manage, operate, lease, deal with and dispose of, the [movie] Theatres” operated by the joint venturers, which included Movieland Yonkers, Movieland 8th Street and the theatre pertinent to the instant controversy, Movieworld Douglaston. UA was designated Managing Venturer and by the express terms of that agreement had the “complete authority and responsibility to manage JV, to operate the Theatres and to make all decisions regarding the day-to-day business of the Joint Venture.” This included without limitation the maintenance of the Theatres, compliance with the terms of the leases for the Theatres, [and] payment of real property taxes.” The JV Agreement provides for dissolution of the Joint Venture by decision of the parties, expiration of the term of the agreement, or a “sale of all or substantially all of the Joint Venture's assets and the collection and distribution of the proceeds therefrom.” Upon dissolution, UA was to ensure that an accounting is done and thereafter pay debts and distribute any remaining capital. The agreement further provides that it is only upon compliance with the distribution and liquidation plan contained in Article VIII of the JV Agreement that the joint venture is terminated. Further, no dissolution or termination of the Joint Venture shall relieve, release or discharge any Joint Venturer from any previous breach or default of, or any obligation theretofore incurred or accrued under, any provision of this Agreement, and any and all such liabilities, claims, demands or causes of action arising from any such breaches, defaults and obligations shall survive such dissolution and termination. D and UA executed an Assignment Agreement, which D claims terminated the Joint Venture. D assigned 98% of its 48% interest in JV and the Joint Venture's assets (including theatre leases) to “Assignee” UA, in consideration for $10,099,014.00, plus certain additional consideration. (Assignment Agreement, Nolan Aff. Ex. 5 at 1.) D had a 1% interest in JV. D would relinquish its outstanding 1% interest either when (1) UA and Moss “obtained the written consent of the landlord for the Movieland 8th Street lease held by the [Joint Venture], for the Assignment and/or the consent of such landlord to the assignment of such lease to [UA],” or (2) “upon the written request of Assignee,” and that the Joint Venture Agreement would remain in effect pending such events, with certain modifications, including elimination of the limitations imposed by Section 5.2 of that Agreement on UA's powers to act for JV. On September 15, 1992, UA and P entered into a written agreement whereby P would provide consulting and lease recovery services to discover possible overcharges on the Movieworld Douglaston lease. Yale University (“Yale”) was the landlord of the Douglaston premises. The only entities named as parties to the Consulting Agreement were P and UA; the JV was not mentioned in the Agreement. On November 21, 1994, JV filed a petition in New York State Supreme Court against Yale for the appointment of an arbitrator to resolve the dispute over the Movieland Douglaston rent overcharges. The petition was granted in April 1995. On December 28, 1998, P filed suit against UA in an Illinois state court, for breach of contract, seeking compensation due for its lease recovery services; UA's alleged inaction in pursuit of its litigation against Yale triggered P's right to a fee based on failure to pursue “Bona Fide Recovery Opportunities” and that UA was in breach of the Consulting Agreement with P for refusal to pay such compensation. On September 5, 2000, UA filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the District of Delaware. The Bankruptcy Court issued a “Bar Order” setting a Bar Date for filing proofs of claim and interest and approving the form and manner in which the Bar Date Notice was to be served. P filed a proof of claim on November 9, 2000 in the approximate amount of $1,059,716.40 and, in February of 2002, entered into an agreement with UA pursuant to which its claim was allowed in the amount of $600,000.00. P has received approximately $35,000.00 through the UA bankruptcy in respect of its allowed $600,000.00 claim. UA and Yale ultimately discontinued their litigation, executing a Release & Settlement Agreement for UA was to pay Yale approximately $161,728.59 for withheld rents. It also provided for a mutual release between the parties from all liability in connection with prior litigation between them arising from the lease, as well as an agreement that “any and all litigation and lawsuits, including ••• the [claims arising from P's findings resulting from the lease audit] will promptly be discontinued with prejudice.” The Settlement Agreement was approved by Order of the Bankruptcy Court on February 13, 2004. P seeks to hold D liable for the unpaid amount of its claim for compensation under the Consulting Agreement. In the Third-Party Action, D seeks indemnification and the payment of its defense costs by UA. P filed a motion for summary judgment. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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