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WPCNR WHITE PLAINS LAW JOURNAL By John F. Bailey. June 22, 2005: Target Corporation of Minneapolis, Minnesota, the parent of the Target Store in the City Center sued LC White Plains LLC and LC White Plains Retail, LLC, owners and sellers (Developers) of the City Center in White Plains, in Federal Court May 20 in the United States District Court Southern District of New York. The suit is for one count of Breach of Contract in those organizations’ conduct constructing the Target portion of the City Center in 2003. It asks for $675,000 in damages, “in an amount to be proven at trial, plus pre-judgment and post-judgment interest accrued thereon, and for Target’s costs, disbursements, attorneys’ fees, and witness fees herein, and for such other and further relief as the Court seems just and equitable.”
Presently, DelBello Donnellan Weingarten Tartaglia Wise & Wiederkehr of White Plains, counsel for LC White Plains LLC and LC White Plains Retail, LLC filed a Memorandum of Law June 7 in a Motion to Stay Pending Arbitration.
Judge Colleen McMahon of U.S. District Court awaits the response of Faegre & Benson LLP of Minneapolis, counsel for Target, to that motion to stay.
According to Michael Krauss of Faegre & Benson, (Target counsel), Judge McMahon, will evaluate as to whether the matter is one for binding arbitration or whether it will go to jury trial as requested by the suit. Asked whether if Judge McMahon ruled the matter is one that should be decided by arbitration, would Target agree if the arbitration involved a Westchester County arbitrator, Krauss said “we’ll cross that bridge when we come to it.”
When LC White Plains LLC and LC White Plains Retail LLC attempted to bring the dispute to arbitration, Target refused to agree and filed the lawsuit, according to the Memorandum of Law filed by Patrick Reilly of the DelBello firm, on June 7.
The suit filed by Faegre & Benson filed May 20, 2005, charges that “The Developers breached the Agreement (between Target and LC White Plains LLC and White Plains Retail LLC) by failing to perform the Seller’s Work in a good and workmanlike manner.”
According to the suit, “Under the Agreement, the Developers were obligated to perform substantially all of the work necessary to construct a building “shell” for Target. This work included structural framing, roof, floors, demising walls, exterior walls, and HVAC systems…to perform at Seller’s expense, Seller’s Work with reasonable diligence in a good and workmanlike manner, in compliance with Legal Requirements and Insurance Requirements and using new materials.”
Target’s suit states that “As of April 24, 2002, when the Agreement was signed, the Developers knew that Target intended to open the new Target Store in Target’s October 2003 opening cycle. According to the Construction Schedule…the core of the Target Store was to be completed by June 3, 2003, and the Target Store was to be finished by October 15, 2003.”
Target’s court papers say “Although the original Construction Schedule gave the Developers ample time to properly stage and perform all construction work on the project, the Developers almost immediately fell behind schedule due to extreme lack of diligence.
Key Meeting.
Target became concerned, the suit states: “By March 2003, Target was sufficiently concerned about the Developers’ performance to call for an “all hands” meeting with the Developers in White Plains in order to discuss the situation.”
“At that meeting, held on March 17, 2003,” the Target brief asserts, “and at many subsequent meetings, representatives of the Developers repeatedly assured Target that the Developers could and would perform the Seller’s Work in time for Target to begin store operations on September 1, 2003, and open its new Target Store by October 15, 2003. The parties agreed upon a further Construction Schedule that provided for the phasing and completion of the Seller’s Work sufficient to permit an October 15, 2003 store opening. Based upon the assurances that Target received at the meeting, Target proceeded with its plans to open the Target Store in October 2003.”
The Scenario Unfolds
Target’s suit relates what happened next in their account: “Following the March 17, 2003 meeting, the Developers again failed to perform with reasonable diligence. Seller’s work was not done in the order planned, but was done out of order, resulting in extra work and unnecessary delay. Some of the Developers’ work was defective, causing yet more delay and expense. Target had to employ its own contractor to perform work, at additional expense to Target, when the Developers failed to perform all of the Seller’s Work and/or failed to perform that work in a good and workmanlike manner and with reasonable diligence.”
Target Takes Over.
Target claims in its court papers that “Target was able to open its new Target Store in October 2003 due to Herculean efforts by Target’s contractor and by Target’s store opening team. However, in the initial months of operations, Target incurred increased expenses, and suffered lost sales, because the Developers kept setting off the fire alarms and interfering with ingress and egress from the Target Store.
Alleges $590,000 in out-of-pocket costs plus $85,000 in additional costs.
The suit alleges that “Target has incurred in excess of $590,000 in out-of-pocket costs due to the Developers’ failure to perform certain of the Seller’s Work, and due to the Developers’ failure to perform other Seller’s Work in a good and workmanlike manner and with reasonable diligence.”
Further, the papers state, “Target has incurred in excess of $85,000 in additional out-of-pocket costs, plus lost sales, due to the Developers’ disruption of the Target Store operations post-opening.”
Target’s brief charges one Count of Breach of Contract, stating, “The Developers breached the Agreement by failing to perform all of the Seller’s Work. The Developers breached the Agreement by failing to perform the Seller’s Work using reasonable diligence. The Developers breached the Agreement by failing to perform the Seller’s Work in a good and workmanlike manner.”
The Target Store opened October 8, 2003.
City Center Strikes Back.
The attorneys for LC White Plains LLC and LC White Plains Retail LLC responded with a Memorandum of Law on June7, “for a stay of this action pending arbitration of plaintiff’s claims as provided by the terms of an agreement between the parties.”
The Memorandum filed by Patrick M. Reilly of DelBello, Donnellan Weingarten Tartaglia Wise & Wiederkehr, says, “Plaintiff Target Corporation (“Target”) claims in this action that defendants breached a certain retail condominium space Purchase Agreement by failing to perform portions of Seller’s Work, as defined therein, and by allegedly performing untimely or defective work. All such claims are arbitrable under the terms of the Purchase Agreement and, accordingly, the relief sought by this motion should be granted.”
$26,463,000 Deal.
Reilly’s memorandum reflects: “In or about April 24, 2002, defendants, as “Sellers”, entered into a Purchase Agreement with Target, as Purchaser, whereby Target agreed to purchase retail condominium space in the White Plains City Center…Target intended to construct and open a Target retail store in the White Plains City Center. The purchase price for the Target retail condominium space was $26,463,000.00, subject to certain adjustments set forth in the Purchase Agreement.”
The Memorandum further states, “The Purchase Agreement provided that Sellers would perform certain work regarding the Target condominium space (“the Seller’s Work”). Section 6.01 of the Purchase Agreement, and the schedules, drawings and specifications to the Purchase Agreement, defined the scope of the Seller’s Work, the essence of which was to provide the structural shell within which Target would build out its store. All work, other than the Seller’s Work, to build out the interior of the Target Store was the responsibility of Target and in fact Target hired its own contractor to build out the interior of the Target Store.”
Reilly’s Memorandum of Law notes, “The Purchase Agreement contained arbitration provisions as follows:
Section 6.05. Expedited Arbitration. (a) In any case which this Agreement provides that a dispute is to be resolved pursuant to Expedited Arbitration, and only in such cases, the dispute shall be resolved by arbitration conducted in the City of White Plains, County of Westchester in accordance with the provisions of this Section 6.05, and judgment upon the award rendered may be entered in any court having jurisdiction thereof.”
Reilly writes, “the Purchase Agreement provided that any disputes over whether the Seller’s Work was complete were to be resolved by Expedited Arbitration in accordance with the procedures agreed upon.” The procedure is outlined:
“Section 6.02. Seller’s Work. (a) Performance of the Seller’s Work. (i) Seller shall perform, at Seller’s expense, Seller’s Work with reasonable diligence in a good and workmanlike manner, in compliance with Legal Requirements and Insurance Requirements and using new materials… If Purchaser believes portions of Seller’s Work are not Substantially Complete, then either (x) Seller shall complete or repair such work and Puchaser shall be entitled to re-inspect such completed or repaired work upon Seller’s notice that the work has been completed, or (y) Seller can contest Purchaser’s determination, in which case such dispute shall be resolved by Expedited Arbitration.”
Punch List Procedure Provided.
Reilly’s brief continues, “the Purchase Agreement provided for a Punch List procedure to address any portion of Seller’s Work claimed to be uncompleted or any portion of Seller’s Work claimed to be defective. The Purchase Agreement provided all disputes regarding the inclusion of items on the Punch List were to be resolved by Expedited Arbitration.” He cites this clause in the Purchase Agreement:
“(d) Performance of Punch List Items: Responsibility for Defects. If Purchaser believes any Punch List items are not complete, then either (x) Seller shall complete or repair such items and Purchaser shall be entitled to re-inspect such completed or repaired items upon Seller’s notice that such items have been completed, or (y) Seller can contest Purchaser’s determination, in which case such dispute shall be resolved by Expedited Arbitration.”
Target’s Suit Develops. No Closing on Target Condominium Space as of June 7.
Reilly’s Memorandum of Law details the development of the Target law suit in these terms:
“The Target Store opened for business in October 2003. A Closing has not yet been held to convey title as provided by the terms of the Purchase Agreement. During and after construction, Sellers requested Target’s payment for extra work that had been performed by Seller’s at Target’s direction beyond the scope of Seller’s Work as defined in the Purchase Agreement. Target refused to pay for the extra work and claimed that portions of the Seller’s Work was defectively and untimely performed, thus offsetting Sellers’ claims regarding extra work. Subsequent efforts to resolve the disputed issues were unsuccessful.”
LC White Plains LLC, LC White Plains Retail LLC
Move for Arbitration Rebuffed.
Reilly’s Memorandum reports, that “On or about April 27, 2005, Sellers initiated an arbitration proceeding under the rules of the American Arbitration Association with respect to Seller’s claims against Target for the extra work performed. Target has responded that the Sellers’ claims asserted in the arbitration proceeding are not within the scope of the arbitration provisions in the Purchase Agreement. Target then filed this action in the Southern District of New York initiating Target’s own claims against Sellers.”
Reilly’s Memorandum notes, “The Second Circuit has held that where the court is satisfied that the dispute before it is arbitrable, the court must stay the proceedings and order arbitration.”
Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela is cited (“any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself, or an allegation of waiver, delay, or a like defense to arbitrability”). Roby v. Corporation of Lloyd’s is cited as basis for the Motion for a Stay (“Indeed, an order to arbitrate should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.”)
Citing the Purchase Agreement terms regarding completion or repair of Seller’s Work and the Punch List procedure, Reilly wraps up his Memorandum of Law with:
“Target’s claims, by their very nature, are exactly the kind of claims covered by the arbitration provisions of the Purchase Agreement and intended to be resolved by Expedited Arbitration. The Purchase Agreement provides that the parties will arbitrate any dispute regarding the Sellers substantial completion of the Seller’s Work. The claims asserted by Target undeniably are claims covered by these provisions.”
In his Conclusion, Reilly asks the court, “defendants respectfully request that this action be stayed pending arbitration of Target’s claims against Sellers as provided by the terms of the Purchase Agreement between the parties, and that the Court grant each other and further relief as the Court deems appropriate in the circumstances.”
The public relations firm for the developers of the City Center, asked for comment from the developers on this matter, has not responded.
