Plaintiffs brought this lawsuit seeking a declaratory judgment that they are third-party beneficiaries of a letter agreement, dated August 11, 2004 (the "August 11 letter), between Defendant Anthony E. Westreich ("Westreich") and Third-Party Defendant Adam Hochfelder ("Adam"), and declaring that a letter from Adam to Westreich, dated November 22, 2004, properly designated Plaintiffs as the intended third-party beneficiaries of the August 11 letter.

Before me are two motions for summary judgment: one by Defendant (Motion Seq. No. 14) and another by Plaintiffs (Mot. Seq. No. 15), as well as a motion to compel by Plaintiffs and a cross-motion to compel by Defendant (Mot Seq. No. 13). For the reasons set forth below, Defendant's motion for summary judgment is granted, Plaintiffs' motion for summary judgment is denied, and the motion and cross-motion to compel are denied as moot.^[FN1]

[*2]Where not otherwise indicated, the facts that follow are based on documentary evidence or not in dispute.

When this dispute began, Westreich and Adam were partners in a number of real estate investments. One of them was Max Capital Management Corporation ("Max Capital"), a real estate management company, of which Adam owned 51% and Westreich owned 49%. An affiliate of Max Capital owns an interest in a property known as 260 Park Avenue South ("260 Park" or the "property").

Four members of Westreich's family also invested in 260 Park through an entity called DTT Park Avenue South ("DTT").

Plaintiffs are investors in three investments known as Purchase Partners II, LLC ("Purchase Partners," also a Plaintiff), Max Harlem LLC ("Max Harlem"), and MNY 260 Park Avenue South LLC ("MNY 260")^[FN2] (collectively, Plaintiffs' "investments"). These investments are the subject of a related action, Purchase Partners II, LLC v. Max Capital Management Corp., Index No. 604218/2004 (the "related action"), which was filed on the same day as the instant lawsuit.

The facts relevant to this action began in January 2004, when Westreich and Adam began to negotiate an end to their business relationship, or a "business separation." As Westreich and Adam began to negotiate their business separation, they considered various plans for how it would be carried out. An early draft separation agreement, dated March 12, 2004, anticipated that Westreich would buy out Adam's share of Max Capital in exchange for Max Capital's forgiveness of a $4.85 million debt, Adam's payment of $1.8 million, and the transfer of Westreich's and DTT's interests in 260 Park to Adam.

This early draft was abandoned, at least in part due to Westreich's discovery, around March 2004, that several banks (the "bank creditors") had asserted claims against Adam or Max Capital. In April 2004, Bank of America served Adam with an arbitration demand seeking $4.9 million. The same month, North Fork Bank filed suit against Adam, based on a promissory note. In early May, JPMorgan Chase Bank filed suit against Adam to collect on a loan.^[FN3]

Around March 2004, Peter Hochfelder ("Peter") Adam's uncle, and one of the Plaintiffs here began to discuss with Westreich his allegation that Adam and Max Capital owed him, and the [*3]other Plaintiffs, money in connection with their investments. (Plaintiffs had not yet brought any lawsuit against Westreich in connection with these investments.) Soon afterward, Plaintiffs hired Morgan Lewis & Bockius, their current law firm, to represent them in these discussions, which continued through the spring and summer of 2004. On June 17, 2004, Plaintiffs gave Westreich's then-counsel, Theodore Altman, Esq. ("Altman"), a draft of the complaint Plaintiffs threatened to file against Westreich, Adam, Max Capital and related entities. This draft complaint, in 13 causes of action, appears to have been the basis for the Complaint filed in the related action.

While the parties were discussing a possible resolution to Plaintiffs' threatened claims, Westreich was also negotiating a business separation from Adam. Any business separation depended on satisfying Adam's bank creditors, which had acquired liens on Adam's interests in Max Capital and related companies. During the summer of 2004, the parties began to discuss a new idea about how to raise money to effectuate the business separation: selling the Max Capital affiliate interests in 260 Park to the project's developer, Yitzchak Tessler, for at least $8 million. Plaintiffs contend that, at this time, the parties began to discuss a "global settlement" that would both separate Westreich and Max Capital from Adam and resolve Plaintiffs' threatened claims, based on the proceeds from a sale of the Max interests in 260 Park to Tessler. On July 22, 2004, Plaintiffs sent Westreich a settlement proposal, which involved a sale of the Max interests in the property to Tessler.

Around the same time, Westreich wanted Max Capital to refinance or sell various properties, including 350 Madison Avenue and 1440 Broadway. These actions required Adam's consent, which Adam initially refused to give. Plaintiffs contend that, as part of their settlement negotiations with Westreich, they offered to use their family connection to "prevail upon Adam" to consent to the sale or refinance of certain properties on behalf of Max Capital and to cooperate in the business separation. (Bernstein Aff. Plf. S.J. Mot. ¶ 11.) Plaintiffs contend that Westreich also, at this time, told Plaintiffs that he was willing to "take zero from the proceeds of his and his family's interests in 260 Park Avenue South" in order to achieve a separation from Adam and satisfy Plaintiffs claims. (Bernstein Aff. Plf. S.J. Mot. ¶ 12.)

On August 10, 2004, Plaintiffs' representatives met with Westreich and Altman to continue their settlement discussions.^[FN4] On the same day, Altman sent a draft of the August 11 letter to Plaintiffs' lawyer. It is undisputed that Plaintiffs were involved in drafting the August 11 letter. (Altman Aff. ¶ 25 (Oct. 25, 2006).)

The final version of the August 11 letter is a one-paragraph letter from Westreich to Adam. It was dated August 11, 2004, though it was not signed until August 24 or 25, 2004. In pertinent part, it provides:

[U]pon the sale of 260 Park Avenue South or the Max interests therein... the net proceeds to which DTT and I would have been entitled from such sale... shall be paid to [Adam's] creditors (as [Adam] direct[s]), provided that, as a condition precedent to such payment, [Adam] and I and any applicable affiliates have executed, delivered, and effectuated a Separation Agreement carrying out the separation of our affairs on mutually acceptable terms.

In an August 12, 2004 email, Plaintiffs' counsel, Mitchell Baron, Esq., sent Altman a copy of a draft letter agreement from Peter to Adam (the "Hochfelder letter"). The draft Hochfelder letter "confirm[ed]" Peter's and Adam's agreement that "to the extent any net proceeds from the sale [described in the August 11 letter] are payable to you or your creditors," the first $3.4 million would be paid to Bank of America and NorthFork Bank, and afterward up to about $9 million would be divided between Max Harlem, MNY, and Purchase Partners II, LLC ("Purchase Partners"), listed in order of payment priority.^[FN5]

In the accompanying email, Baron asked Altman to "let [him] know if [he] ha[d] any problems with it [i.e., the Hochfelder letter]." The email then states that "Richard [Bernstein] will speak to Adam... and send them the letters, and we should arrange to speak with Bob Leinwand [Adam's counsel] and send him the letters." By "letters," Baron evidently meant the Hochfelder letter and the August 11 letter, which had not yet been signed.

In early- to mid-August 2004, Westreich repeatedly asked Bernstein to "step in" to try to persuade Adam to sign the consents to the August 11 letter before a separation agreement was executed. Adam eventually did. Adam signed all three consents, and the August 11 letter was signed on about August 25, 2004, the same time that Adam signed the Hochfelder letter.

In early- to mid-September, all parties (Westreich, Plaintiffs, and Adam) were discussing how they would come up with enough funds to pay the bank creditors, Plaintiffs, and Adam's lawyers, based largely on the $8 million or so in anticipated proceeds from the Tessler sale. Throughout September and October 2004, Plaintiffs continued to be actively involved in negotiating the separation agreement and finalizing an agreement with Tessler. The drafts of the separation agreement exchanged between early September through mid-October 2004 indicate that the parties anticipated a sale of the Max interests in 260 Park to Tessler and paying Adam's designated creditors about $3.4 million of the proceeds accruing from that sale to Westreich and DTT.

On October 19, 2004, Westreich met with Peter and told him he no longer wanted to sell to Tessler, because he expected that the Max interests in the 260 Park property were worth more than the price Tessler was willing to pay. Westreich made Peter an alternative offer to settle Plaintiffs' threatened claims, which Peter rejected. By the end of October, the draft separation agreement was revised to reflect that the funds for the business separation would no longer come from a sale of Max interests in 260 Park to Tessler. [*5]

On November 2, 2004, Adam's lawyer forwarded the latest draft to Plaintiffs' counsel for review. Peter and Bernstein (whom Plaintiffs assert were their representatives) reviewed it and discussed it with their attorneys. (Peter Hochfelder Dep. at 155-56; Bernstein Dep. at 447-49.) They understood that Plaintiffs were not among the creditors listed in the Separation Agreement. (Peter Dep. at 156-57; Bernstein Dep. at 450-51.) According to Bernstein: "[I]t didn't bother me one iota." (Bernstein Dep. at 449.) After reviewing the draft, Peter told Adam: "By all means, go ahead and sign it." (Peter Dep. at 417-19.)

On November 12, 2004, Westreich and Adam executed the final Separation Agreement ("Separation Agreement"). The document is 19 pages long, including signatures, with a one-page list of additional appendices, charts, exhibits, and attachments. Defendant asserts and it is undisputed that the substance of relevant portions of the final Separation Agreement was the same as the version provided to Plaintiffs on November 2, 2004. On the second page, the Separation Agreement contains a statement of the parties' intentions: It states that, in that agreement, the "parties intend" for Max Capital to redeem Adam's shares in Max Capital; for Adam to transfer some of his and his wife's interests in related Max entities to Westreich; for Adam to receive a distribution from Max 260 PAS; and for certain releases and guaranties. (Sep. Agt. ¶ I on 2.) It says nothing about the August 11 letter or Plaintiffs' claims.

The Separation Agreement does, however, provide for payment to the bank creditors. It states: "In connection with the transactions contemplated hereby, the sum of $3,838,500.00 shall be paid to creditors of AC Hochfelder as set forth on Exhibit 6, subject to Section 6(A)." (Sep. Agt. § 6.) Exhibit 6 lists five creditors: Bank of America, North Fork Bank,^[FN6] JP Morgan Chase Bank, BSG, and Robinson Brog, to be paid a total of $3,838,5000. Westreich also contends and it is undisputed that, as partial consideration for the execution of the Separation Agreement, he also executed a $500,000 note in favor of North Fork Bank, forgave, on behalf of Max Capital, a $4.85 million note executed by Adam in favor of Max Capital, and paid $200,000 to Adam's lawyers. (Westreich Aff. Def. S.J. Mot. ¶ 2, ¶ 4 n.1.)

In the Separation Agreement, Adam, in turn, provided Westreich with a general release providing that Adam, his wife and his father,

on their own behalf and on behalf of their respective successors, assigns, heirs and beneficiaries (the Hochfelder Releasing Parties') hereby fully and finally release, acquit and forever discharge [Westreich and affiliates] from any and all Claims which any of the Hochfelder Releasing Parties had, has, or may have had from the beginning of the world to the date hereof against [Westreich and affiliates]."

The Separation Agreement also contains a merger clause, which states: "This Separation Agreement and the instruments delivered herewith or hereunder contain the entire agreement between the parties respecting all matters contemplated by this Separation Agreement, and any other [*6]agreements respecting the rights or the duties of the parties in relation thereto not expressly set forth in this Separation Agreement." (Sep. Agt. § 24.)

No one contends that the draft reviewed by Plaintiffs in early November differed from the executed version with respect to the releases, merger clause, statement of the parties' intent, or list of creditors to be paid.

Ten days after the execution of the Separation Agreement, at Bernstein's direction, Adam sent Westreich a letter dated November 22, 2004 (the "November 22 letter"), in which he "hereby direct[ed] that" the net proceeds to DTT or Westreich from "the sale of 260 Park Avenue South or the Max interests (as stated in the August 11, 2004 agreement) therein" be paid to Max Harlem, MNY, Purchase Partners, and Peter whom Adam designated as his "creditors." With the exception of Peter, these "creditors" were the entities, in addition to the bank creditors, which had been named in the Hochfelder letter. However, the sums demanded in the November 22 letter were different from the amounts stated in the Hochfelder letter.

In a letter dated November 24, 2004, Westreich responded that the August 11 letter had been abandoned and superceded by the Separation Agreement.

On December 15, 2004, Plaintiffs filed a Complaint in this action. On the same day, Plaintiffs filed their complaint in the related action, Purchase Partners II, LLC v. Max Capital Management Corp., Index No. 604218/2004. On April 7, 2006, with permission, Defendant filed an Answer with Counter-claims, as well as a Third Party Complaint against Adam, alleging breach of the Separation Agreement as well as fraud and fraudulent inducement.

A summary judgment motion shall be granted "if, upon all the papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party." C.P.L.R. § 3212(b). Ordinarily, summary judgment is not warranted when there is a genuine issue of material fact, viewing the evidence in the light most favorable to the non-moving party. Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Management, L.P., 7 NY3d 96, 105-06 (2006).

Turning first to Defendant's motion, it raises two major issues: (1) whether the merger clause and Adam's release in the Separation Agreement, on their face, bar Plaintiffs' reliance on the August 11 letter; and (2) whether Plaintiffs can enforce the August 11 letter as third-party beneficiaries.

For the reasons that follow, I conclude that the August 11 letter is within the scope of the merger clause.^[FN7] Although there is a factual dispute as to whether Plaintiffs are third-party beneficiaries of the August 11 letter, even assuming that they were, I conclude that the merger clause bars any third-party enforcement claims, because Plaintiffs consented to the execution of the Separation Agreement, which merged out the August 11 letter.^[FN8]

[*7]Whether the August 11 letter is within the scope of the merger clause

A merger clause "establish[es] the parties' intent that the Agreement is to be considered a completely integrated writing. A completely integrated contract precludes extrinsic proof to add to or vary its terms." Primex Int'l Corp. v. Wal-Mart Stores, Inc., 89 NY2d 594, 599-600 (1997) (citations omitted).

As noted above, the merger clause provides broadly that the Separation Agreement contains "the entire agreement between the parties respecting all matters contemplated by this Separation Agreement, and any other agreements respecting the rights or the duties of the parties in relation thereto not expressly set forth in this Separation Agreement." (Sep. Agt. § 24.)

The Separation Agreement, whether in its statement of the parties' intentions or in any other portion, does not refer to the August 11 letter, to a sale of Max interests in 260 Park to Tessler, to Plaintiffs, or to Plaintiffs' claims. Plaintiffs are not included in the list of Adam's creditors which are to be paid $3.8 million.

Regardless of whether the sale referred to in the August 11 letter refers to the sale of the Max interests to Tessler or to the condominium sales or to both, neither of these potential sales was one of the "matters contemplated by this Separation Agreement." It seems clear, however, that the August 11 letter is one of the "other agreements respecting the rights or the duties of the parties in relation thereto not expressly set forth in this Separation Agreement." By "in relation thereto," the merger clause evidently refers "to" the "matters contemplated by this Separation Agreement." Since the August 11 letter explicitly is conditioned on the execution of the Separation Agreement and the consummation of the business separation between Westreich and Adam, I conclude that the August 11 letter is one of the agreements that is subsumed under the merger provision.

Whether Plaintiffs were intended to be third-party beneficiaries of the August 11 letter

In order to determine whether the merger clause bars Plaintiffs' claims, however, I must consider whether the merger clause is valid as to Plaintiffs' claims as third-party beneficiaries of the August 11 letter.

"The law is settled that an intended beneficiary of a contract may maintain an action as a third party but an incidental beneficiary may not." Alicea v. City of New York, 145 AD2d 315, 317 (1st Dept. 1988) (citations omitted). A party who wants to enforce a contract as a third-party beneficiary must establish the following elements: "(1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for his benefit and (3) that the benefit to him is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate him if the benefit is lost." Alicea, 145 AD2d at 317 (quoting Burns Jackson Miller Summit & Spitzer v. Lindner, 59 NY2d 314, 336 (1983)) (citations omitted).

Whether the contracting parties intended a benefit to accrue to a third party can be ascertained [*8]from (1) the words of the contract itself, or (2) when " no one other than the third party can recover if the promisor breaches the contract ... or ...[(3) when] the language of the contract otherwise clearly evidences an intent to permit enforcement by the third party.'" Alicea, 145 AD2d at 318 (quoting Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., 66 NY2d 38, 45 (1985)). An "intended beneficiary" can be understood as "one whose right to performance is appropriate to effectuate the intention of the parties to the contract and either the performance will satisfy a money debt obligation of the promisee to the beneficiary or the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.'" Id. at 317-18 (quoting Lake Placid Club Attached Lodges v. Elizabethtown Builders, Inc., 131 AD2d 159, 161 (3d Dept. 1987)). "[I]t is the expressed intent of the promisee which determines whether the beneficiary is entitled to the benefits" of the agreement to which he is a third party. Barnum v. Millbrook Care Ltd. Partnership, 850 F. Supp. 1227, 1234 (S.D.NY 1994), aff'd, 43 F.3d 1458 (2d Cir. 1994). "While it is not necessary that a third-party beneficiary be identified or even identifiable at the time that the contract is made, he has no right to enforce the contract himself until such time as he is identified." Strauss v. Belle Realty Co., 98 AD2d 424, 426-27 (2d Dept. 1983), aff'd, 65 NY2d 399 (1985).

Here, the text of the August 11 letter indicates that Adam's "creditors (as [Adam] direct[s]" were intended beneficiaries of it, but the words of the August 11 letter itself does not identify Plaintiffs as these creditor beneficiaries. There is a factual dispute between the parties as to whether or not Adam intended Plaintiffs to be among them.^[FN9] Westreich testified that Plaintiffs were not intended third-party beneficiaries of the August 11 letter, but Plaintiffs' involvement in negotiating the August 11 letter and the contemporaneously executed Hochfelder letter suggest that the parties may have intended that Plaintiffs be included among them. These circumstances create a factual dispute as to whether the August 11 letter was executed only in anticipation of, or as part of, Westreich and Adam's business separation, which was contingent on resolving the bank creditors' claims, or also in satisfaction and settlement of Plaintiffs' threatened claims against Westreich. There is also a factual dispute as to whether Adam and Westreich intended the phrase, "the sale of 260 Park Avenue South or the Max interests therein," in the August 11 letter, to refer to the potential future condominium sales at 260 Park, as well as a sale of Max Capital's investment interests to Tessler, as was described in the consent attached to the August 11 letter. These disputes cannot be resolved on summary judgment.

Consequently, I conclude that the evidence submitted by the parties raises a factual dispute as to whether Plaintiffs were intended to be third-party beneficiaries of the August 11 letter. In order to determine whether this issue precludes a grant of summary judgment to Defendant, I must now decide whether this issue is material, i.e., dispositive of Plaintiffs' claims.

Whether the merger clause bars Plaintiffs' third-party claims

Plaintiffs contend that they have standing to enforce the August 11 letter as third-party beneficiaries. Consequently, for the purpose of Defendant's motion, I must assume that Plaintiffs were third-party beneficiaries of the August 11 letter and decide whether the merger clause would then bar their claims. I conclude that it would, because the undisputed facts indicate that Plaintiffs [*9]consented to the execution of the Separation Agreement, which extinguished their claims.

Under New York law, where a party has consented to the modification of a contract to which he is a third-party beneficiary, the subsequent modification supercedes the prior agreement. Barnum v. Millbrook Care Ltd. Partnership, 850 F. Supp. 1227, 1231, 1236 (S.D.NY 1994), aff'd, 43 F.3d 1458 (2d Cir. 1994) (plaintiff who signed form consent agreeing to modification of promissory note had consented to modification of her third-party rights under original agreement, under New York law). The New York decisions cited by Plaintiffs to the contrary merely restate the general rule that after third party beneficiary adopts contract entered into for his benefit, "the parties thereto cannot rescind the same without his consent." Stein v. Severino, 41 Misc 2d 209, 211 (Sup. Ct. 1963) (emphasis added).

Here, however, Plaintiffs consented. Peter, Bernstein, and their attorneys reviewed a late draft of the Separation Agreement, which included Adam's releases and a merger clause. They understood that the schedule of creditors did not include them. Neither Bernstein nor Peter objected to anything in the Separation Agreement. Not only did Plaintiffs not object to Adam's signing it, but Peter affirmatively encouraged Adam to sign it. The Separation Agreement is not light reading, but Plaintiffs are sophisticated businessmen and investors who were represented throughout these negotiations by able legal counsel. The major provisions upon which this decision relies are contained within 20 pages. On these facts, I conclude that, by consenting to and even encouraging Adam's execution of the Separation Agreement after having a chance to review it and in fact reviewing it, Plaintiffs must be considered to have consented to its terms, including the modification of any third-party rights they may have had under the August 11 letter. Whatever enforcement rights may have belonged to Plaintiff under the August 11 letter were extinguished when Plaintiffs consented to the Separation Agreement, which merged those rights out of existence.

Because I have concluded that Plaintiffs consented to the modification of their rights in the Separation Agreement, I do not have to reach the question of whether Plaintiffs accepted, adopted or relied upon the August 11 letter: Even if they had done so, their claims would be barred because of their consent to the Separation Agreement.

Because I grant Defendant's motion for summary judgment for the reasons explained above, Plaintiffs' motion for summary judgment is accordingly denied, and I do not need to reach Defendant's other arguments in support of its motion. Furthermore, because Defendant's motion for summary judgment is granted, Plaintiff's motion to compel and consequently Defendant's cross-motion to compel (Mot Seq. No. 13) are now moot.

Accordingly, for the foregoing reasons, it is

ORDERED that Defendant's motion for summary judgment (Motion Seq. No. 14) is GRANTED; and it is further

ORDERED that Plaintiffs' motion for summary judgment (Mot. Seq. No. 15) is accordingly DENIED; and it is further

ORDERED that Plaintiff's Complaint and Defendant's counter-claims are dismissed with prejudice; and it is further

ORDERED that Plaintiffs' motion to compel Adam's testimony (Mot. Seq. No. 13) is DENIED as moot, and the cross-motion to compel (Mot. Seq. No. 13) is consequently DENIED as moot as well; and it is further

ORDERED that judgment is entered for Defendant on Plaintiffs' Complaint. The third-party [*10]action will continue.

DATED:____________________________

J.S.C.