The New Jersey Appellate Division has ruled on behalf of Lowenstein client First Real Estate Investment Trust of New Jersey (FREIT), a publicly-traded real estate investment trust, in a lawsuit arising from a $186 million real estate transaction with a Kushner Companies subsidiary named Sinatra Properties LLC.
According to the recent decision, the appeal involves disputes among sophisticated parties concerning a contract to sell six residential apartment complexes for $186 million. FREIT agreed to sell the properties to Sinatra Properties, LLC, an affiliate of Kushner Companies, by entering into a purchase agreement expressly stating that if the buyers defaulted, the sellers could terminate the agreement, and that buyers Sinatra/Kushner "shall forfeit the Deposit to Sellers and [the] Escrow Agent shall deliver the Deposit to Sellers as liquidated damages."
When Sinatra Properties failed to close on the transaction, FREIT gave Sinatra notice of a "purchaser default" and ultimately terminated the purchase agreement.
Sinatra Properties initially sued FREIT, claiming breach of the purchase and sale agreement. FREIT asserted counterclaims, claiming that Sinatra Properties had breached the purchase agreement by failing to close in accordance with the agreement's express terms and thus was liable for $15 million in liquidated damages plus attorneys' fees as specified in that agreement.
In 2022, the trial court granted summary judgment in favor of FREIT, finding that Sinatra had breached the agreement; however, it ruled that the provision of the agreement entitling FREIT to retain the $15 million deposit as liquidated damages was unenforceable, ordering the deposit be returned to Sinatra. FREIT then brought this appeal.
Today Judges Gilson, DeAlmeida, and Bishop- Thompson of the Appellate Division dismissed Sinatra's claims, affirmed the award to FRIET, and instructed the trail court to enforce the liquidated damages provision of the contract against the Kushner company. They also affirmed Sinatra must reimburse FREIT $3.4 million in legal fees.
The appellate decision states: "Sinatra is a special purpose limited liability company, formed by Kushner Companies, LLC (Kushner) for the purpose of buying the properties from defendants. Kushner describes itself as a 'large, experienced, and sophisticated real estate company,'.... Before entering into the Purchase Agreement, Sinatra conducted due diligence on the sale. Indeed, Sinatra's chief operating officer later testified that all due diligence at the properties had been completed before the execution of the Purchase Agreement."
The Court rejected Sinatra properties' argument "because Buyer, a sophisticated company represented by experienced and knowledgeable lawyers and consultants, is effectively asking us to rewrite the Purchase Agreement... Buyer clearly knew the risk it had undertaken, and there is no equitable ground for rewriting the Purchase Agreement."
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