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Deep Woods Holdings, L.L.C. v. Sav. Deposit Ins. Fund

United States Court of Appeals, Second Circuit

March 14, 2014

DEEP WOODS HOLDINGS, L.L.C., Plaintiff-Counter-Defendant-Appellee,
v.
SAVINGS DEPOSIT INSURANCE FUND OF THE REPUBLIC OF TURKEY, TASARRUF MEVDUATI SIGORTA FUND, Defendant-Counter-Claimant-Appellant, EROL AKSOY, Intervenor-Defendant

Argued: May 23, 2012.

In this breach of contract action Defendant-Counter-Claimant-Appellant Savings Deposit Insurance Fund of the Republic of Turkey (" SDIF" ) appeals from the judgment of the United States District Court for the Southern District of New York (Alvin K. Hellerstein, J.) granting summary judgment in favor of Plaintiff-Counter-Defendant-Appellee Deep Woods Holdings, L.L.C. (" Deep Woods" ) against SDIF on the issue of liability and, following a bench trial, awarding Deep Woods $25.3 million in damages. The main issue on appeal is whether Deep Woods, through its predecessor-in-interest David Lichtenstein (" Lichtenstein" ), timely exercised a call option within 45 days of the delivery by SDIF of the shares subject to the call option in accordance with a Stipulation entered into by the parties. SDIF argues that Deep Woods's breach of contract and constructive trust claims are barred because Deep Woods's exercise of the call option was untimely. We agree. In so doing we reject Deep Woods's argument that SDIF failed properly to preserve this issue below. We REVERSE the judgment of the district court and REMAND with instructions to grant summary judgment in favor of SDIF.

GRANT HANESSIAN (John Albert Basinger, on the brief), Baker & McKenzie LLP, New York, NY, for Defendant-Counter-Claimant-Appellant Savings Deposit Insurance Fund of the Republic of Turkey.

JAMES S. O'BRIEN, JR. (Ross M. Bagley and Benjamin S. Akley, on the brief), Pryor Cashman LLP, New York, NY, for Plaintiff-Counter-Defendant-Appellee Deep Woods Holdings, L.L.C.

Before: PARKER, HALL, and CARNEY, Circuit Judges.

OPINION

Page 620

HALL, Circuit Judge :

In this breach of contract action Defendant-Counter-Claimant-Appellant Savings Deposit Insurance Fund of the Republic of Turkey (" SDIF" ) appeals from the judgment of the United States District Court for the Southern District of New York (Alvin K. Hellerstein, J.) granting summary judgment in favor of Plaintiff-Counter-Defendant- Appellee Deep Woods Holdings, L.L.C. (" Deep Woods" ) against SDIF on the issue of liability and, following a bench trial, awarding Deep Woods $25.3 million in damages. The main issue on appeal is whether Deep Woods, through its predecessor-in-interest David Lichtenstein (" Lichtenstein" ), timely exercised a call option within 45 days of the date by which SDIF was able to deliver the shares subject to the call option in accordance with a Stipulation entered into by the parties. SDIF argues that Deep Woods's breach of contract and constructive trust claims are barred because Deep Woods's exercise of the call option was untimely. We agree. In so doing we reject Deep Woods's argument that SDIF failed properly to preserve this issue below. For the reasons that follow, we REVERSE the judgment of the district court and REMAND with instructions to grant summary judgment in favor of SDIF.

BACKGROUND

In 2003, banking regulators in the United States began investigating suspicious banking activities at Park Avenue Bank, N.A. (" Park Avenue Bank" or the " Bank" ), a New York City-based bank controlled by Defendant-Intervenor Erol Aksoy (" Aksoy" ). Aksoy, a Turkish national, has been the subject of numerous criminal investigations and prosecutions for fraudulent conduct related to banking in Turkey. In November 2003, regulators demanded that Park Avenue Bank remove Aksoy as its majority shareholder or risk liquidation. Park Avenue Bank found its white knight in Lichtenstein,[1] who desired to take a controlling interest in the Bank. That same month, Park Avenue Bank, Aksoy, and Lichtenstein entered into a Stock Purchase Agreement whereby Lichtenstein agreed to purchase $10 million worth of newly issued voting common stock from the Bank thereby acquiring a controlling interest in the Bank. The Stock Purchase Agreement, as amended, required Aksoy to exchange all voting common shares owned by him in excess of 9.9% of the total outstanding shares for an equal amount of non-voting preferred stock. Aksoy would thus retain an ownership interest in the Bank while Lichtenstein took over the voting control.

To place additional limits on Aksoy's involvement in the Bank's management, the November 2003 Stock Purchase Agreement

Page 621

also required the Bank, its Directors, Aksoy, and Lichtenstein to enter into a separate Bank Control Agreement with the New York State Banking Department. This Agreement, entered into on January 23, 2004, obligated Aksoy to resign from the Bank's Board of Directors and deposit all of his common stock in a voting trust administered by an independent voting trustee approved by the state Banking Department. Additionally, the Bank Control Agreement contemplated a phase-out of Aksoy's relationship with Park Avenue Bank by requiring him to dispose of his entire equity interest in the Bank by January 23, 2009--five years after the execution of the Bank Control Agreement. If the control transfer from Aksoy to Lichtenstein, excepting Aksoy's disposal of his entire equity interest, did not occur by June 30, 2004, the scheduled closing date of the Stock Purchase Agreement, the Banking Department would liquidate the Bank's assets.

Approximately three weeks prior to the scheduled closing date, on June 7, 2004, SDIF, an agency of the Republic of Turkey with responsibilities similar to those of the U.S. Federal Deposit Insurance Corporation, brought an action in the New York Supreme Court for the County of New York seeking revocation and enforcement of a money judgment of approximately $9.8 million obtained against Aksoy in Turkey and seeking to prevent the Stock Purchase Agreement from closing. SDIF succeeded in securing a temporary restraining order (" TRO" ) preventing Aksoy from making any sale, assignment, or transfer of any property in his possession. This TRO in turn restricted Aksoy from fulfilling his obligations under the Stock Purchase and ...


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