`NYSCEF DOC. NO. 44
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`INDEX NO. 451648/2017
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`RECEIVED NYSCEF: 10/25/2017
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
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`THE CITY OF NEW YORK,
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`Plaintiff,
`
`against
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`FC 42~ STREET ASSOCIATES, L.P.,
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`Defendant.
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`x
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`:
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`Index No. 451648/2017
`(Hon. Charles E. Ramos)
`Mot. Seq. 002
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`:
`
`AFFIRMATION IN
`: OPPOSITION TO
`DEFENDANT’S APPLICA
`TION FOR A STAY OF ITS
`TIME TO SERVE PAPERS IN
`: OPPOSITION TO THE CITY’S
`CROSS-MOTION
`
`x
`
`MARK R. ZANCOLLI, an attorney duly admitted to practice law before the courts of the
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`State of New York, affirms the following to be true under the penalties of perjury:
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`1.
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`I am a partner of the law firm of Carter Ledyard & Milburn LLP, counsel for
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`plaintiff, the City of New York (the “City”), in this action.
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`I submit this affirmation in
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`opposition to the application by defendant, FC 42nd Street Associates, L.P. (“FC”), for a stay of
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`its time to serve papers opposing the City’s cross-motion (the “Stay”).
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`2.
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`The Stay should be denied because (a) neither the CPLR nor case law authorizes a
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`party to prevent or delay another party from making a cross-motion; (b) FC already signed a
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`stipulation agreeing to a briefing schedule for the City’s cross-motion, and so waived any right it
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`might have to delay such briefing; and (c) the City’s cross-motion asking this Court to decide the
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`issues presented as a matter of law is based on a long line of Court of Appeals and Appellate
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`Division cases interpreting similar long term ground leases under similar conditions and could
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`lead to judicial economy by requiring the Court to consider the relevant issues only once.
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`3.
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`This declaratory judgment action seeks judicial construction of the term “Fair
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`Market Value” as that term is used in a certain ground lease dated December 13, 1996 (as
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`amended to date, the “Ground Lease”). Judicial resolution of this threshold matter of legal
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`interpretation of the Ground Lease is necessary so that the parties’ appraisers can properly
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`prepare appraisals — and the arbitrator can properly render a decision’ — regarding Fair Market
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`Value of the land for the purpose of determining the amount of base rent under the Ground Lease
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`for the next rental period in accordance with the Ground Lease’s definition of Fair Market Value.
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`4.
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`FC has advised the New York City Economic Development Corporation (“EDC”)
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`that, in determining the value of the land, on which the “Base Rent” for the upcoming ~~2nd
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`Rental Period”2 of the Ground Lease will be based, FC would have the appraisers take into
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`consideration the existing subleases and actual rents being paid by some or all of FC’s
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`sublessees. The City’s position is that the Ground Lease contains no such direction and that any
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`valuation must value the Land and the New 42 Land without consideration of existing subleases,
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`and that in arriving at a Fair Market Value for the Land and the New 42 Land, the appraisers
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`must consider current market conditions, including market rents. This, and other disagreements
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`between the parties, produce ground rent calculations by each party that differ by as much as a
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`factor often. Accordingly, a justiciable controversy exists between the parties necessitating a
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`judicial declaration of the correct meaning of the relevant terms of the Ground Lease.
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`5.
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`The City filed its Summons and Complaint in this action on May 31, 2017
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`(NYSCEF Doc. No. 1), and FC filed its Answer on September 20, 2017 (NYSCEF Doc. No. 19).
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`The arbitration procedure for determining Fair Market Value is set forth in Section 3.01(c) of the Ground Lease.
`Ground Lease, § 3.0 1(c), at 39-43. The Ground Lease (sans exhibits) is attached as Exhibit A to the Complaint.
`2 Capitalized terms not otherwise defined herein have the meaning set forth in the Ground Lease.
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`6.
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`On August 14, 2017, FC filed a motion to compel arbitration and stay this action
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`(the “Motion to Compel Arbitration”; NYSCEF Doc. Nos. 4-17).
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`7.
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`On September 18, 2017, the parties entered into a stipulation agreeing to a
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`briefing schedule with regard to FC’s Motion to Compel Arbitration and the City’s planned
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`cross-motion for summary judgment (the “Cross-Motion for Summary Judgment”). See Exhibit
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`A hereto, 9/18/17 Stipulation (NYSCEF Doc. No. 20).
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`In that stipulation, FC agreed to serve its
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`reply papers in support of its Motion to Compel Arbitration and its opposition papers to the
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`City’s Cross-Motion for Summary Judgment by October 18, 2017. Ex. A, at ¶ 4. FC did not
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`object to the cross-motion in any way, so its application now to put off the briefing and
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`submission of the cross-motion should be denied as any opposition to current briefing and
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`submission has been waived.
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`8.
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`FC’s contention that requiring it to serve its opposition to the Cross- Motion for
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`Summary Judgment would cause it to waive its right to compel arbitration and stay the
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`proceedings (10/24/17 Mac Avoy Aff. of Emergency, ¶ 4) lacks merit, as the parties expressly
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`agreed, in paragraph 6 of the 9/18/17 Stipulation, that FC’s opposition to the Cross-Motion for
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`Summary Judgment would not constitute such a waiver by stating as follows:
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`The City shall not assert, and FC 42nd’s service of an answer, its opposition to the
`City’s cross-motion for summary judgment or, if it chooses to do so, FC 42nd’s
`own application for summary judgment, shall not be deemed to constitute a
`waiver of FC 42nd’s arbitration rights under the Ground Lease or a waiver of its
`Motion to Compel Arbitration, and shall not be deemed to be participation by FC
`42nd in this litigation so as to constitute such a waiver.
`
`Ex. A, at
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`6.
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`9.
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`On October 4, 2017, the City filed its opposition to the Motion to Compel
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`Arbitration and its Cross-Motion for Summary Judgment (NYSCEF Doc. Nos. 21-38), in
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`accordance with the briefing schedule in the 9/18/17 Stipulation. The Cross-Motion was filed
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`pursuant to CPLR 2215, which authorizes a cross-motion anytime a motion is made, and
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`provides that the cross-motion need not be responsive to the motion made by the movant. There
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`is no statutory basis for preventing a party from making a cross-motion. After the Cross-Motion
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`for Summary Judgment was filed, the parties entered into a stipulation on October 19, 2017
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`which further adjourned to October 25, 2017 the time for FC to serve its reply papers in support
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`of its Motion to Compel Arbitration, and the time for FC to serve its opposition papers to the
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`City’s Cross-Motion for Summary Judgment, unless the Court directs otherwise (NYSCEF Doe.
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`No. 39, at~2 and 3).
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`10.
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`FC’s claim that the City’s Cross-Motion is too early and violates this Court’s
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`Practice Rule 5(f)(ii), because no note of issue has yet been filed (10/24/17 FC Memo of Law, at
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`5), results from a misreading of the Rule. CPLR R. 32 12(a) provides that a party may move for
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`summary judgment after issue has been joined by stating as follows:
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`Time: kind of action. Any party may move for summary judgment in any action,
`after issue has been joined; provided however, that the court may set a date after
`which no such motion may be made, such date being no earlier than thirty days
`after the filing of the note of issue. If no such date is set by the court, such motion
`shall be made no later than one hundred twenty days after the filing of the note of
`issue, except with leave of court on good cause shown.
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`Here, issue was joined when FC filed its Answer on September 20, 2017 (NYSCEF Doe. No.
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`19), and therefore the filing of the City’s Cross-Motion for Summary Judgment on October 4,
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`2017 complied with CPLR R. 32 12(a).
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`It is respectfully submitted that, when read together with
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`CPLR R. 32 12(a), this Court’s Practice Rule 5(f)(ii) — which states that “Summary judgment
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`motions should be initiated within 30 days after the filing the Note of Issue, unless otherwise
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`directed” — does not set a 30-day window after a note of issue has been filed within which
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`summary judgment motions are required to be filed as FC contends, but instead sets a date of 30
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`days after the filing of a note of issue after which summary judgment motions should not be filed
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`consistent with the first sentence of CPLR R. 3212(a). Accordingly, FC’ s contention that the
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`Cross-Motion for Summary Judgment violates this Court’s Practice Rule 5(f)(ii) because a note
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`of issue has not been filed lacks merit.
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`11.
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`The City’s burden on the Cross-Motion for Summary Judgment is to show that
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`there is no triable issue of fact concerning the meaning of the term “Fair Market Value” in the
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`Ground Lease, and that the Court should decide the issue as matter of law. With respect to the
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`upcoming 2’~ Rental Period at issue, Section 3.01(c)(vi) of the Ground Lease defines “Fair
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`Market Value” as follows:
`
`“Fair Market Value” means (A) with respect to the 2~’ Rental Period and the 3’~’
`Rental Period, the most probable price in terms of money which a conveyance of
`the fee simple interest in the Land and the New 42 Land would bring in a
`competitive and open market under all conditions requisite to a fair sale
`considering that the Land and the New 42 Land enjoys the benefits and the
`rights accorded by, and is subject to the restrictions and limitations on the
`development and use of the Land and the New 42 Land contained in, this
`Lease, including DUO; (emphasis added).
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`As demonstrated in the City’s memorandum of law in support of its Cross-Motion for Summary
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`Judgment (the “City’s S/J Memo of Law”), because the Ground Lease requires that “Fair Market
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`Value” be determined by considering “the fee simple interest in the Land and the New 42 Land,”
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`subleases are not to be considered as a matter of law. See Exhibit B hereto, the City’s S/J Memo
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`of Law, at Point II, pages 2 1-24 (NYSCEF Doe. No. 38). Accordingly, FC’s request for a Stay
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`should be denied because there is no triable issue of fact as to the interpretation of the term “Fair
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`Market Value” in the Ground Lease, and its interpretation can and should be determined by this
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`Court on summary judgment.
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`12.
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`In addition, as explained in the City’s S/J Memo of Law, there is a long line of
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`cases where courts have resolved disputes between parties to a long-term ground lease, in
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`advance of arbitration or appraisal, interpreting the terms of the ground lease so the appraisers
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`could value the land in accordance with that interpretation for the purpose of determining re-set
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`or renewal rent. Ex. B, the City’s S/J Memo of Law, at Point I.C., pages 15-21. Those cases —
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`which FC’s Motion to Compel Arbitration completely fails to address — are a further reason why
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`FC’s request for a Stay should be denied and the City’s cross-motion should be allowed to
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`proceed.
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`13.
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`Among those cases is New York Overnight Partners, L.P. v. Gordon, 88 NY2d
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`716, 649 NYS2d 928 (1996) (a copy of which is attached hereto as Exhibit C), a case involving a
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`dispute between parties to a long-term ground lease regarding the interpretation of the lease term
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`“appraised value of the land” for the purpose of establishing the rental amount for a 15-year
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`renewal term, in which the Court of Appeals stated in relevant part:
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`Although there is no question that it is the appraiser who must determine which of
`the myriad factors are relevant to a particular valuation and how such factors
`impact the valuation of the parcel of land, without interference or direction from
`the court, this case required a threshold legal interpretation of the scope of
`the very subject of the appraisal. Thus, the Appellate Division determined that
`the drafters of the lease intended the term ‘land’ to mean only the vacant and
`unimproved land, subject to contractual limitations and current zoning
`regulations, which presently would permit construction of a smaller building.
`This determination properly discharged the court’s legal function, rendering
`the matter ripe for appraisal.
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`The precedents firmly establish that in addition to construing disputed terms
`of a lease in advance of an appraisal proceeding, it is also within the province
`of the court to identify those factors the lease expressly designates or excludes
`in the valuation process.
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`88 NY2d at 721 (citation omitted) (emphasis supplied).
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`14.
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`More recently the Court of Appeals did the same thing in 936 SecondAve. L.P. v.
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`Second Corporate Dev. Co., Inc., 10 NY3d 628, 861 NYS2d 256 (2008) (a copy of which is
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`attached hereto as Exhibit D).
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`It was asked to decide what factors go into a determination of the
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`“value of the demised premises” that was to be determined by appraisers under a long-term
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`ground lease. Once the appraisers established that value, it would establish the rent to be paid
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`for the next 10-year renewal period under the lease. (The annual rent would be 7% of the value
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`of the demised premises.) In a declaratory judgment action, the Court granted summary
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`judgment interpreting the lease to require the appraisers, when valuing the premises, to take into
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`account the restrictions on use and other provisions of the ground lease itself. The Court found
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`this to be consistent with a long line of cases. After interpreting the lease and concluding that,
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`absent an agreement to the contrary, the effect of the ground lease must be considered by the
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`appraisers when valuing property, the Court noted that doing so “comports with precedent,
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`appraisal practices and common sense.” 10 NY3d at 633.
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`15.
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`Amon~ the cases cited in 936 SecondAve. L.P. was Ruth v. S.ZB. Corp., 2
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`Misc2d 631, 153 NYS2d 163 (Sup. Ct. N.Y.Co. 1956), aff’d, 2 AD2d 970 (1st Dep’t) (a copy of
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`which is attached hereto as Exhibit E), where the court interpreted whether, under a long-term
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`ground lease’s formula for determining the rent for a renewal term, in valuing demised property,
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`the arbitrators should eliminate from consideration the impact the ground lease itself had on the
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`value of the land.
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`In doing so, the court stated, in pertinent part:
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`Had a dispute arisen as to the correct meaning or application of a formula
`prescribed by the lease for the ascertainment of the renewal rent without
`arbitration, the propriety of resort to an action for a declaratory judgment would
`hardly be open to question. The use of arbitration as the instrumentality by which
`the rent is to be fixed in accordance with a stated formula should not lead to a
`different result. It is desirable that the true meaning of the formula be
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`declared before the making of an award possibly grounded on something
`later held to be beyond the powers of the arbitrators. Thus, we guard against
`an infirmity which may render an award abortive. There being an existing
`controversy of serious moment, the case is deemed an appropriate one for a
`declaratory judgment.
`
`2 Misc2d at 635 (citation omitted) (emphasis supplied).
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`16..
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`Finally, FC’s request for a Stay should also be denied because the City’s claim in
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`this action, which involves a dispute as to contract interpretation, is not expressly and
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`unequivocally encompassed by the narrow and limited arbitration agreement in Section 3.01(c)
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`of the Ground Lease, as explained in the City’s S/J Memo of Law, Ex. B hereto, at Point I.B.,
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`pages 8-15.
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`17.
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`The City reserves its right to serve further papers opposing FC 42nd,5 motion for a
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`temporary restraining order and to stay and hold in abeyance the briefing and submission of the
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`City’s cross-motion.
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`18.
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`For these reasons, FC’s request for a Stay should be denied, and FC should honor
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`the agreement that it made in paragraph 4 of the 9/18/17 Stipulation to submit its opposition to
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`the Cross-Motion for Summary Judgment when it submits its reply in support of its Motion to
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`Compel Arbitration.
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`Dated: New York, New York
`October 25, 2017
`
`R. ~ ~
`TER LEDYARD & MILBURN LLP
`2 Wall Street
`New York, New York 10005
`Zancolli@clm.com
`(212) 732-3200
`(212) 732-3232 (facsimile)
`Attorneys for Plaint~ff The City ofNew York
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`IND
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`EXHIBIT A
`EXHIBIT A
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`[~ILED: NEW YORK COUNTY CLERK 09/28/2017 12:05 PM1
`NYSCEF DOC. NO. 20
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`INDEX NO. 451648/2017
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
`
`—
`
`—
`
`THE CITY OF NEW YORK,
`
`Plaintiff,
`
`against
`
`FC 42ND STREET ASSOCIATES, L.P.,
`
`Defendant,
`
`—
`
`K
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`Index No. 451648/2017
`E-Filed Case
`
`STIPULATION
`
`WHEREAS, on August 14, 2017, Defendant, PC 42~ Street Associates, L.P. (“FC 42’~”),
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`filed a motion to compel arbitration under a certain ground lease dated December 13, 1996
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`between Plaintiff the City of New York (the “City”) and FC 42”~ (the “Ground Lease”) and stay
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`this declaratory judgment action (the “Motion to Compel Arbitration”); and
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`WHEREAS, Plaintiff, the City of New York, intends to oppose the motion and, in the
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`interest ofjudicial economy, cross-move for summary judgment, and
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`WHEREAS, the City has asserted that FC 42”~ is in default of answering the complaint
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`and has requested that, in lieu of moving for additional time to serve an answer, PC 42nd serve
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`an answer to the complaint; and
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`WHEREAS, FC 42~ has requested that the City stipulate that FC 42”s fiLing of an
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`answer, and its opposing the City’s cross-motion for summary judgment, which cross-motion PC
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`42~ contends lacks merit and inappropriately seeks determination by the Court of issues that are
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`required to be arbitrated, would not constitute a waiver of FC 42~’s arbitration rights under the
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`Ground Lease or a waiver of its Motion to Compel Arbitration;
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`NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED, by and between
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`the undersigned counsel for the parties, as follows:
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`1.
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`The return date of the Motion to Compel Arbitration is adjourned from October 4,
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`2017 to November 2, 2017.
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`2.
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`Defendant’s answer to the complaint shall be served so as to be received by the
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`City’s counsel on or before September 20, 2017 and Defendant reserves the right to amend to
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`assert counterclaims in the event that the Court does not compel arbitration.
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`3.
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`The City’s opposition papers to the Motion to Compel Arbitration, and any cross-
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`motion for summary judgment, shall be served so as to be received by Defendant’s counsel on or
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`before October 4,2017.
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`4.
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`Any reply papers of Defendant in response to the City’s papers in opposition to
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`the Motion to Compel Arbitration, and any opposition papers of Defendant in response to any
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`cross-motion by the City for summary judgment, shall be served so as to be received by the City’s
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`undersigned counsel on or before October 18, 2017.
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`5.
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`Any reply papers of the City in response to Defendant’s papers in opposition to
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`the City’s cross-motion for summary judgment shall be served so as to be received by
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`Defendant’s counsel on or before November 1,2017.
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`6.
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`The City shall not assert, and PC 42nd’s service of an answer, its opposition to the
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`City’s cross-motion for summary judgment or, if it chooses to do so, FC 42”~’s own application
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`for summary judgment, shall not be deemed to constitute a waiver of PC 42nd’s arbitration n~ghts
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`under the Ground Lease or a waiver of its Motion to Compel Arbitration, and shall not be deemed
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`to be participation by FC 42” in this litigation so as to constitute such a waiver.
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`7.
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`This Stipulation may be executed in counterparts, and a facsimile, photocopy or
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`pdf of this Stipulation and the signatures hereon shall be deemed to be originals.
`
`Dated: New York, New York
`September 18,2017
`
`CARTER LEDYARD & MILBUR2’J LLP
`
`By:
`
`Lee A. Ohilger, ~
`Two Wall Street
`New York, New York 10005
`(212) 732-3200
`Attorneys for Plaintiff,
`The City ofNew York
`
`FRIED, FRANK, HARRIS, SHRIVEl?.
`& JACOBSON LLP
`
`By: __________________
`
`oric Plaza
`One N
`k,New York 10004
`New
`(212) 859-8000
`Attorneys for Defendant,
`FC 42nd Street Associates, L.P.
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
`
`—
`
`THE CITY OF NEW YORK,
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`Index No. 451648/2017
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`Plaintiff
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`:
`
`STIPULATION
`
`a≤~ainst
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`FC 42ND STREET ASSOCIATES, L.P.,
`
`Defendant.
`
`—
`
`—
`
`—
`
`x
`
`CARTER LEDYARD S MILSURN LLP
`COUNSELORS AT LAW
`2 WALL STREET
`
`8106962.1
`
`NEW YORK, N.Y. 10005
`
`(212) 732- 3200
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`EXHIBIT B
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`1159069.1
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`FILED: NEW YORK COUNTY CLERK 10/25/2017 01:56 PM
`NYSCEF DOC. NO. 44
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`INDEX NO. 451648/2017
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`RECEIVED NYSCEF: 10/25/2017
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`LFILED: NEW YORK COUNTY CLERK 10/04/2017 06:40 ~
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`SUPREME COURT OF THE STATE OF NEW YORK
`COUNTY OF NEW YORK
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`x
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`THE CITY OF NEW YORK,
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`Plaintiff;
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`against
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`FC 42ND STREET ASSOCIATES, L.P.,
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`Defendant.
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`Index No. 451648/2017
`B-Filed Case
`(Hon. Charles B. Ramos, J.S.C.)
`Mot, Seq. 001
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`Oral Argument Requested
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`x
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`MEMORANDUM OF LAW OF THE CITY OF NEW YORK
`IN OPPOSITION TO DEFENDANT’S MOTION TO COMPEL
`ARBITRATION AN]) FOR A STAY, AND IN SUPPORT OF THE
`CITY OF NEW YORK’S CROSS-MOTION FOR SUMMARY JUDGMENT
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`8)G9340.7
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`CARTER LEDYA~D 8~ MIL~URN LLP
`COUNS~LOR$ AT LAW
`2 WALL 5TR~T
`N~W YORK, N.Y. 10005
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`(212) 732-3200
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`TABLE OF CONTENTS
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`Page(s)
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`TABLE OF AUTHORITIES
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`PRELIMINARY STATEMENT
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`FACTUAL BACKGROUND
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`ARGUMENT
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`I.
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`FC’S MOTION TO COMPEL ARBITRATION AND FOR A STAY SHOULD BE
`DENIED
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`A.
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`B.
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`C.
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`THE QUESTION OF ARBITRABILITY IS FOR THIS COURT TO
`DECIDE
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`THE CITY’S CLAIM IN THIS ACTION IS OUTSIDE THE PARTIES’
`ARBITRATION AGREEMENT
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`THE INTERPRETATION OF LEASE SOUGHT BY THE CITY IN THIS
`ACTION IS WITHIN THE PROVINCE OF THIS COURT AND IS
`PROPERLY ADDRESSED IN A DECLARATORY JUDGMENT ACTION
`PRIOR TO THE ARBITRATION TO DETERMINE THE RE-SET RENT
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`IL
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`THE CITY’S CROSS-MOTION FOR SUMMARY JUDGMENT SHOULD BE
`GRANTED
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`CONCLUSION
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`TABLE 01? AUTHORiTIES
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`CASES
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`185 Lexington Holding Corp. v. Holinan,
`19 Miso2d 521, 189 NYS2d 269 (Sup, Ct. N.Y.Co. 1959), aff’d, 10 AD2d 569, aff’d,
`8 NY2d 965 (1960)
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`853 Seventh Ave. Owners, LLC v. W&HMRealty Co.,
`18 AD3d 241, 794 NYS2d 373 (1~~ Dep’t 2005)
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`936 SeconclAve. L.P. v. Second Corporate Dev. Co., inc.,
`10 NY3d 628, 861 NYS2d 256 (2008)
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`American Centennial Ins. Co. v. Williams,
`233 AD2d 320, 649 NYS2I 190 (2d Dep’t 1996)
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`Credit Suisse First Boston Corp. v. Cooke,
`284 AD2d 365, 725 NYS2d 395 (2d Dep’t 2001)
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`Excelsior 57111 Corp. v, Kern,
`290 AD2d 329 (lst Dep’t 2002)
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`Exercycle v. Maratta,
`9NY2d329,214NYS2d353 (1961)
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`Goldstein v. 12 Broadway,
`89 AD3d 590, 933 NYS2d 247 (1” Dep’t 2011)
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`Human Care Servicesfor Families and Children, Inc. v. Lustig,
`2015 WL 12683278 (Sup. Ct. Kings Co. 20~5)
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`Int’l Woodfuels LLC v. Herz,
`2015 WL 2457696 (Sup. Ct. N.Y. Co. 2015)
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`177’ Sheraton Corp. v. 801 Seventh Ave., Inc.,
`184 AD2d 329 (Vt Dep’t 1992)
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`L~7è Receivables Tr. v. Goshawk Syndicate 102 at Lloyds’s,
`66 AD3d 495, 888 NYS2d 458 (VtDep’t 2009), aff’d, 14 NY3d 850 (2010)
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`Nationwide Gen, Ins. Co. v. Investors Ins. Co. ofAni.,
`37 NY2cI 91, 371 NYS2d 463 (1975)
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`New York Overnight Partners, L.P. v. Gordon,
`88 NY2d 716, 649 NYS2d 928 (1996)
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`S109340.7
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`II
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`Page(s)
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`17
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`18
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`16
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`8
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`8
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`4
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`2,1
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`18
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`7
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`7
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`4
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`7
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`21
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`15
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`R.H. iviacy & Co. v. Nat’l Sleep Prods., Inc.,
`39NY2d268,383NYS2d562(1976)
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`Rio Algarn Inc. v. Sammi Steel Co.,
`168 AD2d 250, 562 NYS2d 486 (Vt Dep’t 1990)
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`Ruth v. S,ZB. Corp.,
`2 M~se2d 631, 153 NYS2d 163 (Sup. Ct, N.Y.Co. 1956), aff’d, 2 AD2d 970
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`Sisters ofSt. John the Baptist, Providence Rest Convent v, Phillips R. Geraghty Constr.,
`Inc., 67NY2d 997 (1986)
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`Smith Barney Shecirson Inc., et a?. v. Sacharow,
`91 NY2d 39, 666 NYS2d 990 (1997)
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`State v. Philip Morris Inc.,
`30 AD3d 26, 813 NYS2d 71 (ISt Dep’t 2006), aff’d, 8 NY3d 574 (2007)
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`Teplitslçy v. Douglaston GolfPractice Range, Inc.,
`64 AD2cI 578, 407 NYS2d 46 (1~ Dep’t 1978)
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`Trump v. Refco Properties, Inc.,
`194 AD2d 70, 605 NYS2CI 248 (151 Dep’t 1993)
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`TTL Distribution, Inc. v. Local 99, Office and Distribution Employees Union,
`551 F.Supp. 649 (S.D,N.Y. 1982), aff’d, 729 F’.2d 1444 (2d Cir. 1983)
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`United Equities, Inc. v. Mardordic Realty Co.,
`8 AD2cI 398, 187 NYS2d 714 (1st Dep’t 1959), aff’d, 7 NY2d 911(1960)
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`W. W W~ Assocs., Inc. v. Gicmcontieri,
`77 NY2d 157, 565 NYS2d 440 (1990)
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`Wallace v. 600 Partners,
`205 AD2d 202, 618 NYS2d 298 (15t Dep’t 1994), aff’d, 86NY2d 543 (1995)
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`21
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`21
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`17
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`21
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`6
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`11
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`15
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`8
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`9
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`17
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`22
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`22
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`[~LED: NEW YORK COUNTY CLERK 10/04/2017 06:40 p~
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`PRELIMINARy STATEMENT
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`The City of New York (the “City”) respectfully submits this memorandum of law, the
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`Affidavit of Matthew Kwatinetz, dated October 4, 2017 (the “ICwatinetz Aff.”), the Affirmation
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`of John R. Casolaro, dated October 3, 2017 (the “10/3/17 Casolaro Aff.”), the Second
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`Affirmation of John R. Casolaro, dated October 4, 2017 (the “10/4/17 Casolaro Aff.”), and
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`Plaintiff’s Statement of Undisputed Material Facts, dated October 4, 2017, in opposition to the
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`motion by defendant, FC 42~ Street Associates, L.P. (“FC” or “Defendant”) to compel
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`arbitration and for a stay, and in support of the City’s cross~motion for summary judgment.
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`Simply put, there are two issues about which the parties disagree. One is whether it is the Fair
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`Maricet Value of “apples” that is to be determined or the Fair Market Value of “oranges.” The
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`other is whether this Court or an arbitrator decides whether that which is to be valued is “apples”
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`or “oranges.” Because the arbitration clause at issue is a narrow one, and the Arbitrator has very
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`limited authority, the question of what to value is appropriately resolved by this Court.
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`The City commenced this declaratory judgment action because the first issue is a
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`question requiring judicial interpretation of the terni “Fair Market Value of the Land and the
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`New 42 Land” (hereafter “FMV”~ as that term is used in a certain ground lease dated December
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`13, 1996 (as amended to date, the “Ground Lease”). Judicial resolution of this threshold matter
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`of legal interpretation of the Ground Lease is necessary so that tile parties’ appraisers can
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`properly prepare appraisals — and the arbitrator can properly render a decision2 — regarding FMV
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`for the purpose of determining the amount of Base Rent under the Ground Lease for the next
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`rental period in accordance with the Ground Lease’s definition of FMV. As the City shows,
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`Capitalized terms not otherwise defined herein have the meaning set forth in the Ground Lease,
`2 The arbitration procedure for deteirnining Pair Market Value of the Land and the New 42 Land is set forth in
`Section 3.0 1(c) of the Ground Lease. 10/3/17 Casolaro Aft, Ex. A, Complaint, Ex. A, Ground Lease, at 39-43.
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`there is a long line of eases supporting judicial interpretation of long-term ground leases before
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`appraisers are asked to determine the value of [eased land.
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`In determining the value of the Land and the New 42 Land, on which the Base Rent for
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`the upcoming 2~~d Rental Period3 of the Ground Lease will be based, the City’s position is that
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`what is to be valued by the parties’ appraisers is “apples,” that is, the fee simple interest in the
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`land under current market conditions, subject only to certain very specific restrictions on
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`development and use set forth in the ground lease. PC’s position is that what is to be valued is
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`“oranges,” that is, the land encumbered by some or all of FC’s subleases, with rents that do not
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`reflect current market conditions. FC would have the appraisers talce into consideration the
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`existing subleases and actual rents being paid by some or all of FC’s sublessees.4 The City
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`demonstrates herein that the Ground Lease specifically requires valuation on a fee simple basis,
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`not subject to the lease or any subleases, except that certain development and use restrictions
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`must be considered in arriving at FMV. This, and other disagreements between the parties,
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`produce ground rent calculations by each party that differ by as much as a factor of ten.5
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`Accordingly, aj usticiable controversy exists between the parties necessitating aj udicial
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`declaration of the correct meaning of FMV.
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`rn its motion, FC erroneously contends that the parties agreed to delegate to the
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`Arbitrator the question of arbitrability of the City’s claim in this action by incorporating into
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`The Base Rent under the Ground Lease is equal to 10% of the “Allocable Share of the Fair Market Value of the
`Land and the New 42 Land, determined as of the end of the let Rental Period ..“, The parties have previously
`determined that the Allocable Share of the Land is 78.95% and the Allocable Share of the New 42 Land is 21.05%,
`Kwatinetz Aff., ¶ 14. What is in dispute is the meaning of Fair Market Value.
`On the same day that PC entered into the Ground Lease and the New 42 Lease, it also entered into a sublease (the
`“Tussauds Lease”) with The Tussauds Group Limited (“Tussauds”). FC had, several months previously, entered
`into a sublease (the “AMC Lease”) with American Multi-Cinema, Inc. (“AMC”), that sublease to become effective
`after the Ground Lease was entered into. Kwatinetz Aff, ¶11.
`New York City Economic Development Corporation (“EDC”), as Lease Administrator for the City, has had the
`Land and the New 42 Land appraised in accordance with the straightforward definition of Fair Market Value
`contained in the Ground Lease, and the value conclusion was in excess of $342 million. By oontrast, FC has
`communicated to EDC its belief that the land value is only abo