Real estate mogul Harry Macklowe has received a resounding defeat by the New York Appellate Division regarding his litigation with Warren Cole, his former business right-hand man.
Supreme Court Justice Cynthia Kern’s grant of summary judgment on Mr. Cole’s breach of contract claims were affirmed by a unanimous panel.
A $30 million judgment against Macklowe personally was also affirmed by the appeals court.
This is the sixth time in nine years that the respective parties have appeared in front of the appellate court. This legal dispute came from a limited partnership agreement between Macklowe and Cole, in which Cole would be justly compensated with percentage interests in real estate properties in which Macklowe’s firm were shareholders.
The major issue of the appeal was “the interpretation of the plain language of a limited partnership agreement whereby plaintiff was obligated to sell his partnership interest upon the termination of his employment with defendant.”
Justice Rolando Acosta’s written opinion stated that even though Cole had agreed to a limited partnership agreement in 1994, and a requirement that Macklowe purchase Cole’s 9% interest had been triggered by Cole’s departure in 1999, Cole technically continued to retain his interest as no official sale had ever been consummated.
The property owned by the partnership was sold in 2008 for $231 million, 9% of which was due to Cole under the agreement, according to his claims.
Cole’s argument was that his obligation to was dependent on Macklowe’s setting the purchase price, “which he did not do,” Acosta stated in the written opinion.
Construing a standard limited partnership agreement “buy-sell” clause that requires a buyout of the departing partner’s interest by the partnership at an “‘arms’ length sales value,” the panel said the record was clear that Macklowe had failed in 1999 to make a “proper offer.”
“While the [partnership agreement] does not clearly spell out all the mechanics of executing the buy-sell provision, it is implicit that the initial step was Macklowe’s valuation of the partnership interest,” Acosta said.
The opinion asserted that a 1999 offer by Macklowe to purchase all of Cole’s interests in more than 30 properties for $2.5 million did not constitute an “offer” under the buy-sell provision of the agreement at issue.
That Macklowe failed to prepare and tender to Cole a proper valuation statement for the 1994 agreement was not under dispute. Therefore no further discovery was needed to evaluate whether the offer in 1999 could satisfy the agreement, as ruled by the judicial panel.
The panel rejected claims by Mr. Macklowe that Cole’s claims were barred by waiver doctrines.
In fact, Acosta wrote that “Cole’s inaction does not raise any issues of fact with respect to defendants’ affirmative defenses because the [partnership agreement] imposed no affirmative duty on Cole, even after his employment terminated, to take action to maintain his partnership interest.”
The opinion noted that a previous dismissal case had been reversed by the First Department. Other rulings had given rewards of more than $12 million in damages to Mr. Cole based on claims regarding other properties.