Real Estate Law Blog

The famous Bulova development site in Sag Harbor is in the legal news due to a recent New York County Supreme Court decision Alf Naman Real Estate Advisors, LLC v. Capsag Harbor Mgmt., LLC.  Cape Advisors purchased the site before the 2008 crash.  Cape eliminated Naman, its original partner, via a merger as part of a restructuring after the crash.  A few interesting details (at least for lawyers!):

1. The LLC agreement between Cape and Naman gave Cape management responsibilities and authority but promised Naman various development fees.  The agreement included a reference to New York's Business Corporation Law Section 623 to fill in some details with respect to New York's appraisal rights.  You don't normally see BCL provisions incorporated into New York LLC agreements.

2. Naman inexplicably did not timely file the required Court action to protest the fair market value assigned to Naman's interest by Cape in the notice of merger ($465.00).

3. While all details are not available in the published decision, the LLC agreement permitted a merger if there was "common ownership or control" of the new entity.  Since Cape said they were in control of the new entity, they argued that provision was satisfied.  Since Naman was frozen out in the merger, Naman argued it was not.  The Court gave complete victory to Cape:

"[Cape] repl[ies] that there is no ambiguity in the phrase "common ownership or control" — whose plain meaning denotes "parties which have common owners" — and argue that that plain meaning supports their interpretation herein, because both [the LLC before and after the merger] were under the "common ownership or control" of one managing member — i.e., [Cape]. … [Cape] also note[s] that [Naman] failed to put forth any possible alternate reasonable interpretations of the phrase "common ownership or control" to support its contention that the phrase is ambiguous. Id. The court agrees that the phrase "common ownership or control" is not ambiguous, and finds for [Cape] on this issue."

This one doesn't feel quite right (Did they really intend to permit a merger where the controlling partner cashes out the other partner with only statutory appraisal rights?) although Naman's failure to timely protest the low valuation may wind up foreclosing relief.