The New York Law Journal reported recently that Fundamental Long Term Care Holdings, L.L.C. and its owner/members Murray Forman and Leonard Grunstein lost the appeal of the Court Order upholding the option giving Rubin Schron 1/3 ownership interest in Fundamental and all the nursing homes they operate. The Order stated:
This lawsuit is one of several between business entities controlled by plaintiffs Leonard Grunstein and Murray Forman and defendant Rubin Schron (see also Schron v. Troutman Sanders LLP __NY3d __  [decided today]). Cammeby’s Funding LLC (Cam Funding) is a limited liability company managed by Schron, a real estate investor; Fundamental Long Term Care Holdings LLC (Fundamental) is a limited liability company whose sole members are Grunstein — formerly Schron’s attorney — and Forman — formerly Schron’s investment banker.
In 2003, SWC Property Holdings LLC (SWC), another company controlled by Schron, acquired the facilities and real estate occupied by a string of 26 nursing homes and, through subsidiaries, leased these properties to an independent operating company [THI Holdings, LLC]. In 2006, Grunstein and Forman purchased [THI of Baltimore, Inc. from THI Holdings] all of the issued and outstanding capital stock of these nursing homes, having formed Fundamental in December 2005 for the purpose of owning companies that manage healthcare facilities. Grunstein and Forman each contributed $50 in equity for a half interest in Fundamental; they paid $10 million for the stock, financed by debt. Additionally, Schron executed a covenant not to sue on any claims that SWC, the landlord, might have against the nursing homes.
On July 1, 2006, Fundamental and Cam Funding entered into an option agreement entitling Cam Funding (or its designee) to acquire one-third of Fundamental’s membership units for a strike price of $1,000, provided the option was exercised on or before June 9, 2011. This agreement was signed by Forman, as manager of Fundamental, and was accepted and agreed to by Schron, as manager of Cam Funding, and Grunstein and Forman, the sole members of Fundamental.
Sections 5 and 6 obligate Fundamental, Grunstein and Forman to facilitate, and prohibit their interference with, Cam Funding’s exercise of the option. Specifically, in section 5, Fundamental agreed not to
“cause, suffer or permit any of its subsidiaries to, enter into any agreement or commitment with any unitholder, subscriber, officer, director or employee or other person that would conflict with or interfere with any of the rights of [Cam Funding] under this Agreement, including (without limitation) the exercise of the Option, and any such conflicting agreement or commitment shall be deemed void and of no force or effect.”
On December 20, 2010, Cam Funding notified Fundamental in writing that it was exercising the option, designating Quality Health Services LLC to acquire the ownership interest, specifying January 20, 2011 at its lawyers’ offices as the date and place of closing, and enclosing a certified check for $1,000. On January 18, 2011, Fundamental responded that, pursuant to its operating agreement, “no membership units in Fundamental can be issued to [Cam Funding] until… [Cam Funding] provides the required capital contribution of ‘at least the fair market value’ of its proposed interest, which is 33.33 percent.”
At the time Cam Funding exercised the option, the market value of a one-third interest in Fundamental was estimated to be more than $33 million.
Consistent with Supreme Court’s decision, Cam Funding proposed an order directing the clerk to enter judgment declaring that Fundamental was required to “close on the Option promptly following the completion of all required regulatory filings and approvals, if any.” The judge signed this order, which was entered on October 6, 2011. Fundamental then appealed; on December 13, 2011, the Appellate Division issued a stay of Supreme Court’s orders pending hearing and determination of the appeal.
In a decision issued February 7, 2012, the Appellate Division affirmed (92 AD3d 449 [1st Dept 2012]). The court concluded that “[r]egardless of which document was executed first,” the option agreement unambiguously entitled Cam Funding to acquire one-third of Fundamental’s membership units for $1,000 “without the need for any capital contribution” (id.).
On May 22, 2012, the same panel denied Fundamental’s motion for leave to appeal, and granted Cam Funding’s cross motion to vacate the stay. Fundamental then asked us for permission to appeal, and on June 5, 2012, a Judge of this Court granted an interim stay pending the motion’s resolution. On September 11, 2012, we granted Fundamental’s motions for leave to appeal and a stay (19 NY3d 1012 ). We now affirm.