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Donald Trump does not have to refund a dime of an $8 million deposit for one of his luxury apartments, an appeals court ruled Tuesday in a case that was watched closely by the real estate industry. A unanimous panel of the New York Appellate Division, 1st Department ruled that two Turkish brothers who put down $8 million for four units at one of Trump’s luxury buildings and then backed out of the deal were not entitled to a refund from Trump. Last year Supreme Court Justice Alice Schlesinger had ruled that the brothers should lose 10 percent of their deposit on the canceled $32 million transaction. But the judge said they were entitled to a trial on the remaining 15 percent, which she said would be subject to a liquidated damages analysis. Tuesday the 1st Department reversed in Uzan v. 845 UN Limited Partnership, saying the brothers had negotiated an agreement that required a 25 percent deposit and had to live by it. “If plaintiffs were dissatisfied with the 25 [percent] non-refundable down payment provision in the purchase agreements, the time to have voiced objection was at the bargaining table,” Justice Angela M. Mazzarelli wrote for the court. “Because they chose to accept it, they are committed to its terms.” Trump said Tuesday that he was “honored” by what he described as a very important decision for the real estate industry. “It’s a decision that confirms the sanctity of a contract,” Trump said. “The original decision came out of total left field.” Scott E. Mollen of Herrick, Feinstein, who represented the Real Estate Board of New York in an amicus curiae brief to the court, said that if the lower court ruling had been affirmed, it would have opened the door to constant litigation over deposits, especially in high-stakes real estate where deposits often top 10 percent. “People would have little to lose by filing an action to recover the portion of their deposit that exceeded 10 percent,” Mollen said. David Rosenberg of Marcus Rosenberg & Diamond, who represented the brothers, said: “This was judicial legislating. We have recognized in this state that there is a doctrine of penalty.” He said he would consult with his clients on whether to seek leave to appeal to the Court of Appeals. The two Turkish brothers, Cem and Hakan Uzan, are members of one of the world’s wealthiest families. Until recently they faced arrest if they entered the United States because of a federal court finding that they defrauded Motorola Inc. out of $1 billion in a deal to develop a cellular telephone network in Turkey (see Motorola Credit Corp. v. Uzan, 274 F Supp 2d 481). Rosenberg said that ruling had been stayed by the 2nd U.S. Circuit Court of Appeals. In 1999, the brothers agreed to buy four units on the top two floors of Trump World Tower, which overlooks the United Nations, before the buildings were completed. After the terrorist attacks of Sept. 11, 2001, though, they failed to appear at their closing and backed out of the deal. They claimed they no longer wanted to live atop the towering complex after the attacks. The brothers then sued to recover their deposit, saying it constituted an unconscionable and unenforceable penalty. Justice Schlesinger relied on the Court of Appeals ruling in Maxton Builders Inc. v. LoGalbo in deciding that the amount of the deposit beyond 10 percent of the purchase price should be subject to a liquidated damages analysis. In Maxton, the court affirmed the award of a 10 percent down payment to a seller and rejected a defaulting buyer’s argument that the penalty should be limited to actual damages. But the court noted in a footnote that it declined to express a view on down payments beyond 10 percent. Justice Schlesinger said the footnote gave her leeway to assess cases involving payments larger than 10 percent differently from others. The judge said that in only one case, Vitolo v. O’Connor, (Third Department, 1996), had a court enforced the forfeiture of a down payment greater than 10 percent. Vitolo, she said, was “quantitatively different” because it only involved a $20,000 down payment. The 1st Department, however, ruled Tuesday that the Maxton ruling simply affirmed the Court of Appeals 1881 ruling in Lawrence v. Miller, which mandated full forfeiture of down payments in cases of default. It noted that in Vitolo, the 3rd Department was not concerned with the amount of the payment, but the principle of Lawrence. Justices Eugene Nardelli, Alfred D. Lerner and David Friedman concurred on the ruling. Charlotte Moses Fischman and Dan A. Rosenbaum represented Trump.

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