Those of us who follow the Delaware Chancery Court’s output are regularly treated to lengthy, detailed, finely crafted opinions sometimes in excess of 100 pages. Opinions of that length from our New York state court judges are almost as rare as hen’s teeth, which is understandable given the massive volume of cases and the tsunami of motions assigned to our state court judges.

There are, however, the occasional exceptions, a fine example of which was handed down a week ago by Manhattan Commercial Division Justice Andrea Masley. Her detailed and closely reasoned 132-page opinion in Ashkenazy v Gindi addresses motions to dismiss a bevy of claims and counterclaims in a battle royal between two prominent real estate investors with high-priced lawyers involving co-ownership interests in properties located in New York, Los Angeles, Chicago, San Francisco, Montreal, and other locations.


The dispute pits plaintiffs Ben Ashkenazy and various entities he controls against defendants Raymond, Eddie, and Isaac Gindi and various entities they control. Simplified somewhat, Ashkenazy and the Gindis are 50/50 partners in a series of realty holding joint ventures in each of which Ashkenazy has 100% management control and the Gindis are passive investors.

Ashkenazy’s complaint primarily alleges claims based on the Gindis’ alleged failure to fund their share of around $9 million in capital calls collectively for seven joint ventures. Ashkenazy made the capital calls in the early days of the COVID-19 pandemic allegedly due to the adverse impact on tenants’ rent-paying ability and, in turn, the ventures’ ability to meet lender demands. Gindis’ answer asserts forty (!) counterclaims essentially accusing Ashkenazy of stonewalling their requests for information going back to 2018, allegedly to prevent them from uncovering financial wrongdoing by Ashkenazy.

Lawsuits in New York courts between real estate co-owners merely involving claims of financial misconduct are a dime a dozen, and aren’t normally prime fodder for this blog. What intrigues me about the Ashkenazy decision is the court’s discussion of the capital call claims involving seven joint ventures organized as three LLCs, three TICs, and one limited partnership with owner agreements featuring four, materially different capital call provisions. Under Justice Masley’s microscope, those drafting differences led her to deny dismissal of Ashkenazy’s capital call claims against the Gindis as to some of the ventures, and to grant dismissal as to others.

Let’s take a closer look.

  • Ashkenazy’s Implied Covenant Claim Survives Under Version #1 (Decision pp. 45-50)

Three of the joint venture entities — two LLCs and one limited partnership — share an essentially identical, fairly simple provision in the operating and partnership agreements authorizing Ashkenazy as managing member and general partner to make mandatory capital calls subject to unanimous owner consent, as follows:

Each Member shall be obligated to make additional capital contributions (each an ‘Additional Capital Contribution’) as are called for by the Managing Member with the unanimous approval of the Members pursuant to a notice (each, an ‘Additional Capital Notice’) in order to meet expenses and commitments of the Company. Additional Capital Contributions shall be made by each Member in accordance with their respective Membership Interests and shall be made within ten (10) days following the date of the Additional Capital Notice.

Ashkenazy’s complaint alleges that the Gindis’ failure to fund capital calls for these entities breached their implied duty of good faith and fair dealing. The Gindis primarily argued that the provision requiring unanimous owner approval gave them unlimited discretion to withhold their consent. Justice Masley disagreed with the Gindis, writing:

These provisions do not contain any language that expressly limits the members’/partners’ discretion (e.g., “consent must not be unreasonably withheld”.) However, and more importantly, they also lack language that confers unlimited discretion (e.g. “sole and absolute discretion”.) Therefore, requiring the members to exercise their consent right in good faith does not negate express provisions of the agreements. As such, defendants were bound to exercise their discretion in good faith so as not to deprive the plaintiffs of the fruits of their bargain.

Justice Masley found that Ashkenazy’s complaint sufficiently alleges that the Gindis exercised their discretion in bad faith by withholding their consent despite knowledge of the financial distress experienced by the properties due to the pandemic and by seeking to take advantage of the properties’ financial distress to force “a buy-out at a premium, to which they have no entitlement.”

The Gindis also argued that the provision’s phrase, “in order to meet expenses and commitments of the Company,” requires the managing member or general partner to demonstrate the existence of a “present need” for capital or to make any other showing before seeking approval for a capital call. Justice Masley disagreed, writing that the provision is silent as to the content of the capital call notice and that the Gindis’ interpretation would require the court to rewrite the agreement.

  • Ashkenazy’s Implied Covenant Claim Fails Under Version #2 (Decision pp. 50-51)

One of the TIC joint ventures contains the following provisions for capital calls in the TIC agreement:

5.1  Additional Contribution. In the event undistributed Available Cash, if any, is inadequate to meet the Property’s current operating expenses, Necessary Expenses, Emergency Expenses, or expenditures for tenant improvements and allowances under approved Leases, then upon written notice by any Owner to the other Owners stating the reason for the need for the Additional Contribution and the proposed use of such funds, each Owner shall make additional contributions (‘Additional Contributions’) in proportion to his, her or its Ownership Interest to fund such shortfall; provided, however, that such call for Additional Contributions shall be a Unanimous Consent Event. No Owner shall be required to make an Additional Contribution unless the unanimous consent of the Owners shall have been obtained for such Additional Contributions. Such Additional Contributions shall be made in cash within fifteen (15) days following notice of the demand for Additional Contributions.

6.4  Approval Process. The Owners hereby acknowledge and agree that, in order to provide for the orderly management and administration of the Property and for prompt and unified decisions with respect to Unanimous Consent Events, the Owners will be bound by the decision of all of the Owners, as determined pursuant to this Agreement. . . . Whenever any approval or consent with respect to any Unanimous Consent Event is required to not be unreasonably withheld, conditioned or delayed pursuant to the terms of any Lease, any Loan Documents, the Mezzanine Loan Documents, the Property Management Agreement or any other agreement to which the Owners are parties or to which the Property is subject, each Owner agrees that it will not unreasonably withhold, condition or delay its consent or approval to such Unanimous Consent Event. Whenever an action is required to be taken pursuant to the terms of any Loan Documents (such as, for example, the purchase of insurance in amounts specified in such Loan Documents), no Owner may withhold, condition or delay consent or approval to such action. . . .

Justice Masley’s analysis focuses on the language in Section 6.4 providing that member consent may not be unreasonably withheld when “the terms of any other agreement to which the Owners are parties or to which the Property is subject” require that consent “not be unreasonably withheld, conditioned or delayed.”  Finding no allegation in Ashkenazy’s complaint “that any such contractual requirements were implicated in this capital call,”  Justice Masley concludes that the Gindis “were free to withhold their consent for any reason or no reason at all and the complaint fails to state a claim for breach of the implied covenant of good faith and fair dealing.”

  • Ashkenazy’s Breach of Contract Claim Survives Under Version #3 (Decision pp. 53-56)

Two other TIC joint ventures include yet another variety of capital call provision in their TIC agreements giving the contributing owner the option to advance the non-contributing owner’s share, as follows:

5.2  Additional Contribution. In the event undistributed Available Cash, if any, in excess of Cash Reserves are inadequate to meet the Property’s current operating expenses, Necessary Expenses, Emergency Expenses, or tenant improvements and allowances under approved Leases, upon written notice by the Administrative Owner to the other Owners, each Owner shall make additional contributions (‘Additional Contributions’) in proportion to his, her or its Ownership Interest to fund such shortfall; provided, however, that no Owner shall be required to make an Additional Contribution with respect to any item for which the unanimous consent of the Owners shall be required hereunder and shall not have been obtained. Such Additional Contributions shall be made in cash within fifteen (15) days following notice of the demand for Additional Contributions. Such notice by the Administrative Owner shall state the reason for the need for the Additional Contribution and the proposed use of such funds.

5.3  Failure to Make Additional Contribution.

(a) If any Owner (the ‘Delinquent Owner’) fails to make Additional Contributions when due, any other Owner (a ‘Lending Owner’) shall have the right, at its option, to lend to the Delinquent Owner (for the account of the Owner whose failure to fund its share of an Additional Contribution gave rise to the delinquency) all or any portion of the delinquent funding, provided, that such loan (a) shall bear interest at the Default Rate, (b) shall be recourse to the Delinquent Owner and (c) shall be repayable in full, with interest, no later than thirty-one (31) days following the date of the advance . . ..
* * *
(c) If the Delinquent Owner shall not pay any such loan described above in full by the thirty-first (31st) day following the funding of such loan, then the Lending Owner shall be entitled to exercise any and all available remedies, at law or in equity, in connection therewith.

Justice Masley denied the Gindis’ motion to dismiss Ashkenazy’s claims for breach of contract as to these two TICs.

First, she rejected their argument that the provision’s written notice requirement was not satisfied, writing that “[t]here are no requirements for the contents of the written notice and the court will not read any into the agreements.”

Second, she rejected the Gindis’ argument that the “Failure to Make Additional Contribution” provision — giving the non-delinquent owner the option to loan the delinquent owner its share of the capital call and entitling the lending owner to exercise any and all remedies at law or in equity upon non-payment of the loan — are a condition precedent to the action or a limitation on Ashkenazy’s available remedies. Here’s what she wrote:

The 1991 Broadway and 2067 Broadway Agreements’ plain language is unambiguous and places no requirement on plaintiffs to first lend the delinquent funds. That plaintiffs have the option to lend the delinquent funds, without more, does not preclude them from pursuing a different remedy. Had the parties intended to create an exclusive remedy provision, they could have done so. They did not.

  • Ashkenazy’s Breach of Contract Claim Fails Under Version #4 (Decision pp. 56-57)

The operating agreement of the last of the seven joint ventures involving capital call claims, organized as a Delaware LLC, provides that, if “the Managing Member determines that the Company requires additional funds,” then he may elect to issue a capital call, requiring all members to “make an additional Capital Contribution to the Company . . ., pro rata based on the Members’ respective Percentage Interests.” This requires the managing member to provide a written notice to each member, specifying the total amount sought, each member’s percentage interest, the due date for making the additional capital contribution and, “in reasonable detail, the intended use by the Company of the Additional Capital Contribution.”

The operating agreement also contains a provision, similar to the one in Version #3 above, allowing the contributing member to advance to the LLC the non-contributing member’s shortfall, to be treated as a high-interest loan to the non-contributing member. But it then departs from Version #3 by giving the lending member, in the event the non-contributing member fails to repay the loan within 180 days, the option to treat the loan balance as an additional capital contribution thereby increasing its percentage ownership interest and diluting the defaulting “borrower.”

The capital call provision further departs from Version #3 in regard to available remedies, providing in Section 4.3 (d) as follows:

the rights, powers or remedies conferred upon the Contributing Member in Sections 4.3 (b) and (c) and Section 7.5  shall be the exclusive remedy available to the Contributing Member and the Company with respect to any failure by the Non-Contributing Member to fund its Percentage Interest of any Additional Capital Contribution.

Applying Delaware rules of contract construction, Justice Masley held that the “plain language” of the agreement requires dismissal of Ashkenazy’s claim. Ashkenazy’s exclusive contractual remedy per the agreement is to advance the Gindis’ share of the capital call and, if they do not repay the loan, convert the loan to additional equity. As Justice Masley further explained:

While a contributing member “may” choose not to provide a loan to fill a shortfall and, in the event it does make the loan and that loan is not repaid, it “may” choose not to exercise its Conversion Election, the agreement makes clear that these options “shall be the exclusive remedy available” to both the “Contributing Member and the Company” with respect to “any” failure to fund a capital call. . ..  No ambiguity exists. Any other reading would impermissibly render section 4.3 (d) meaningless.

Closing Thoughts

Additional capital calls are among the most important and potentially controversial subjects to be addressed in constitutive agreements among co-owners of closely held firms. On the one hand, the ability to raise or even compel additional capital funding from the owners can be an essential tool to ensure company health or even its survival. On the other hand, mandatory capital calls can be misused as an oppressive, abusive squeeze-out mechanism in the employ of an overreaching controller.

Over the years this blog has featured many court decisions involving disputes over capital calls. The Ashkenazy case stands apart from the flock for the sophistication of the parties, the sophistication of the parties’ custom agreements, and the surprising variations among the capital call provisions in their agreements. It’s as if each set of agreements was drafted by a different set of lawyers who either didn’t review the prior agreements or, perhaps, believed they were improving on the prior agreements.

Either way, it’s highly unusual to see such material differences in capital call provisions between the same pair of repeat business partners, one of whom holds the management reins including the power to make capital calls, and the other a passive investor. You would think both would desire uniform rules for making and getting approval for mandatory capital calls and uniform consequences for failing to fund an authorized capital call.

As always, the travails of litigating business partners in disputes requiring judges to interpret and apply owner agreements serve a salutary, educational purpose to the benefit of the greater community of transactional lawyers and their clients. For that Justice Masley deserves special thanks for the extraordinary diligence and thoroughness of her opinion in the Ashkenazy case.