Opinion
5955/05.
Decided March 31, 2009.
Plaintiff 1523 Real Estate, Inc. was represented by Philip C. Chronakis, Esq. and Caroline P. Wallit, Esq. of Garfunkel, Wild Travis, P.C., and Eli Feit, Esq. of Heller, Horowitz Feit, P.C.
Defendant East Atlantic Properties, LLC was represented by Roman Popik, Esq. of the Law Office of Roman Popik, P.C.
At the conclusion of a non-jury trial conducted over 13 trial days, and after introduction into evidence of more than 70 exhibits, plaintiff 1523 Real Estate, Inc. and defendant East Atlantic Properties, LLC each moved, pursuant to CPLR 3025 (c), to conform their respective pleadings to the proof at trial. For reasons that will appear, the Court grants the Plaintiff's motion only in part, and grants the motion of defendant East Atlantic Properties.
Plaintiff 1523 Real Estate is the tenant under a Lease dated October 3, 2002 for the occupancy of a commercial building at 1523 Vorhies Avenue, Brooklyn, owned by East Atlantic Properties. Plaintiff's Complaint alleges eight causes of action, sounding essentially in breach of lease and fraud. In addition to the landlord, East Atlantic Properties, the named defendants are the members of the limited liability company and spouses, i.e., Miron Fayngersh, Ramis Gimadeyev, Frida Popilevsky, Nelly Vayner, Alex Popilevsky, Anatoly Vayner (the "Individual Defendants"), and Aramis Construction, Inc., the corporate vehicle of defendant Gimadeyev.
Defendants' Verified Answer alleges three counterclaims on behalf of only East Atlantic Properties. One counterclaim is based upon the filing of a notice of pendency against the property located at 1523 Vorhies Avenue; the other two counterclaims allege unlawful occupancy of the property by Plaintiff.
"Tenant" 1523 Real Estate leased from "Landlord" East Atlantic Properties "the property described on Exhibit A attached [to the Lease] and made a part [of the Lease], and located at 1523 Vorhies Avenue . . . , together with the buildings ( sic) and other improvements situated thereon" (Lease, Section I.1.) A "Definitions" provision defines "Premises" as "the land and the entire building known as: 1523 Vorhies Avenue . . . substantially as shown on Exhibit A". Although there is no "Exhibit A" except for a blank page with that heading and "(Description of the Premises)", the parties agree that the Lease extends to the entire building at 1523 Vorhies.
There is dispute, however, about "Exhibit B" to the Lease. In Section II. 3, "Landlord agrees to complete construction of the Building (the Landlord's Work'), at its sole expense, in accordance with the plans and specifications attached [to the Lease] as Exhibit B (the Plans'). There is no "Exhibit B" except for a blank page with that heading and "(Landlord's Work/Plans)." Indeed, the heart of the Plaintiff's claims and East Atlantic's counterclaims is their dispute about the intended content of "Exhibit B."
Essentially, Plaintiff contends, and East Atlantic disputes, that East Atlantic was required to construct the first floor of the building, and obtain a certificate of occupancy, so that it could be used for diagnostic testing as part of Plaintiff's center for a range of medical and other health care services. The parties do not dispute, however, that zoning regulations do not permit the first floor to be used for that purpose. Related to the dispute about the use of the first floor, Plaintiff contends, and East Atlantic disputes, that Plaintiff was and is not required to pay East Atlantic for possession of the major part of the building, because a certificate of occupancy was not issued until September 26, 2006, which does not allow use according to the Lease.
The Complaint dated February 25, 2005 alleges in the First Cause of Action that East Atlantic breached the Lease; in the Second through Fifth and the Eighth Causes of Action that the Individual Defendants are liable for fraud and for breach of the Lease; in the Sixth and Seventh Causes of Action that Aramis Construction is liable for fraud and breach of the Lease; and in the Eighth Cause of Action that East Atlantic and the Individual Defendants conspired to defraud Plaintiff. The Complaint alleges damages of various sorts; to the extent material here, the alleged damages include "lost profits and revenues" (¶ 46.)
With this motion, Plaintiff seeks to amend the Complaint in two respects: first, to allege a cause of action for fraud directly against East Atlantic; and second, to allege a cause of action for breach of the Lease and damages for lost profits sustained by Meisenberg Medical, P.C. On the ninth trial day, Plaintiff introduced into evidence a Lease Occupancy Agreement dated January 3, 2003 between Plaintiff and Meisenberg Medical, P.C., permitting Meisenberg Medical to occupy the building at 1523 Vorhies Avenue and provide medical services. Plaintiff had previously admitted into evidence an Assignment dated January 8, 2009, in which Elliot Meisenberg, M.D., who is the sole shareholder of Plaintiff and Meisenberg Medical, assigns to Plaintiff "all of his right, title and interest in and to all of his claims" against East Atlantic. Dr. Meisenberg testified that he owns any claim that Meisenberg Medical might have against East Atlantic; the basis of ownership being a transfer of those claims to him by Meisenberg Medical with a Transfer Agreement dated February 14, 2008, when the corporation was sold to an unrelated third party.
The First Counterclaim in Defendants' Verified Answer dated April 12, 2005 alleges that Plaintiff's filing of a notice of pendency against 1523 Vorhies Avenue was "wrongful, frivolous, and intentionally malicious," and that the filing "encumbered the title to said property and made it unmarketable" (¶¶ 5, 6.) The Second Counterclaim alleges that Plaintiff "unlawfully and without authority took possession of the premises" and "unlawfully occupies the premises," causing unspecified damages to East Atlantic (¶¶ 9-11.) The Third Counterclaim alleges that Plaintiff "unlawfully and without authority . . . is in possession of the premises" and "has not paid any use and occupancy for the premises since taking possession" (¶¶ 13, 14.)
With this motion, East Atlantic seeks essentially to replace the Second and Third Counterclaims, based upon "unlawful" occupancy/possession of the premises and seeking use and occupancy and other unspecified damages, with a counterclaim for breach of the Lease seeking unpaid rent. No damages other than unpaid rent were proved at trial.
On the first day of trial, Plaintiff and Defendants stipulated that the Lease was enforceable at its inception, and has continued and remained enforceable through the trial, notwithstanding the absence of "Exhibit B" or the inability to construct and use the first floor of the building for diagnostic testing services. Indeed, the parties have acted toward each other since execution of the Lease in October 2002 to and through trial as if they have an enforceable Lease.
"The court may permit pleadings to be amended before or after judgment to conform them to the evidence, upon such terms as may be just including the granting of costs and continuances." (CPLR 3025 [c].) "Leave to conform a pleading to the proof pursuant to CPLR 3025 (c) should be freely granted absent prejudice or surprise resulting from the delay." ( Bryant v Broadcast Music, Inc., — AD3d — , 2007 NY Slip Op 1938, * 2 [2d Dept, March 17, 2009] [ quoting Alomia v New York City Tr. Auth., 292 AD2d 403, 406 (2002)]; see also Loomis v Civetta Corinno Constr. Corp., 54 NY2d 18, 23; Dinizio and Cook, Inc. v Duck Creek Marina at Three Mile Harbor, Ltd. , 32 AD3d 989 , 990 [2d Dept 2006].)
A party "cannot legitimately claim surprise or prejudice, where the proposed amendments [are] premised upon the same facts, transactions or occurrences alleged" in the original pleading. ( See Janssen v Incorporated Vill. of Rockville Ctr., — AD3d — , 2008 NY Slip Op 9962, * 8 [2d Dept, December 16, 2008]; see also RCLA, LLC v 50-09 Realty, LLC , 48 AD3d 538 , 539 [2d Dept 2008]; Maloney Carpentry, Inc. v Budnik , 37 AD3d 558 , 558-59 [2d Dept 2007]; Rothstein v City Univ. of New York, 194 AD2d 533, 534 [2d Dept 1993] ["No new facts were pleaded and, in any event, new facts were not needed"].)
"Prejudice requires that the [other party] has been hindered in the preparation of his case or has been prevented from taking some measure in support of his position'." ( RCLA, Inc. v 50-09 Realty, LLC, 48 AD3d at 539 [ quoting Loomis v Civetta Corinno Constr. Corp., 54 NY2d at 23]; see also Whelan v Kawasaki Motor Corp., 92 NY2d 288, 293; Pansini Stone Setting, Inc. v Crow Sutton Assocs ., 46 AD3d 784 , 786 [2d Dept 2007].) "Exposure to additional liability does not, in itself, constitute prejudice." ( RCLA, Inc. v 50-09 Realty, LLC, 48 AD3d at 539; see also Loomis v Civetta Corinno Contr. Corp., 54 NY2d at 23; Pansini Stone Setting, Inc. v Crow Sutton Assocs., 46 AD3d at 786.)
Prejudice exists where an amendment seeks "to add [a] new theor[y] of liability that [was] not readily discernible from the allegations in" the original pleading. ( See Morris v Queens-Long Is. Med. Group, P.C. , 49 AD3d 827 , 828-29 [2d Dept 2008]; see also Leonardi v City of New York, 294 AD2d 408, 409 [2d Dept 2002]; Danza v Danza, 285 AD2d 440, 441 [2d Dept 2001]; Lewis v New York City Hous. Auth., 237 AD2d 414, 414 [2d Dept 1997]; Lopez v Mackenzie Elec. Contr., Inc., 203 AD2d 262, 263 [2d Dept 1994].) "[P]leading amendments alleging new facts should not be freely granted after the close of disclosure as scheduled in a preliminary conference order, and should be subject to even closer scrutiny after the filing of a facially correct note of issue." ( Sheets v Liberty Alliances, LLC , 37 AD3d 170 , 171 [1st Dept 2007].)
To the extent that Plaintiff's motion to conform seeks to add a claim for fraud directly against East Atlantic, it cannot cause Defendants surprise or prejudice. As limited by its brief, Plaintiff's alleged claim against East Atlantic is based solely upon misrepresentations made to Dr. Elliot Meisenberg by two of East Atlantic's members, Miron Fayngersh and Ramis Gimadeyev, against whom Plaintiff asserted fraud claims in his Complaint. ( See Plaintiff's Brief on Motion to Conform Pleadings to Proof, at 15-18.) A claim for vicariously liability is merely added to the claim against East Atlantic already in the Complaint, alleging a conspiracy with its members to defraud Plaintiff. No "new facts" are pleaded, and no "new theory of liability" that was not "readily discernible from the allegations of the original pleading." ( See Morris v Queens-Long Is. Med. Group, P.C., 49 AD3d at 828-29.)
Nor does East Atlantic assert surprise or prejudice. It argues only that "[t]he action for fraud against Defendant must fail since Plaintiff did not demonstrate justifiable reliance," and that "[t]he fraud claim cannot be sustained against corporate Defendant since it is duplicative of a breach of contract claim and it has no basis against individual Defendants." ( See Brief of Defendant East Atlantic Properties, LLC's ( sic) in Opposition to Plaintiff's Motion to Conform the Pleading to the Proof, at 10-13.) The opposition is solely on the merits.
Where leave is sought before trial to amend a pleading ( see CPLR 3025 [b]), the motion may be denied if "the proposed amendment is palpably insufficient or patently devoid of merit." ( See Lucido v Mancuso , 49 AD3d 220 , 222 [2d Dept 2008].) Where, however, the motion is to conform the pleadings to the proof, examination and assessment of the merits of the pleading as amended should await a determination on the merits. The issue now is only prejudice.
Prejudice will result to East Atlantic if Plaintiff's motion is granted to allow a claim for lost profits sustained by Meisenberg Medical, P.C., a claim allegedly owned by Plaintiff after two successive transfers. Assuming a valid and effective assignment of the P.C.'s claim to Dr. Meisenberg in 2008, and a valid and effective assignment from Dr. Meisenberg to Plaintiff in 2009, the amendment cannot be allowed at this late date.
In addition to the assignments (which have not gone unchallenged by East Atlantic), Plaintiff argues that Dr. Meisenberg was the sole shareholder of both Plaintiff and Meisenberg Medical, P.C.; that Dr. Meisenberg, Plaintiff, and the P.C. "were always active participants in this transaction" (Plaintiff's Brief on Motion to Conform Pleadings to Proof, at 2); that "Defendants understood that the P.C. would operate the business at the Premises, and not [Plaintiff]," and that the P.C. was "expected to profit from operating a business" there ( id., at 12); and as the legal basis for the P.C.'s claim against East Atlantic for lost profits that "[t]he P.C. is an intended third-party beneficiary to the Lease" ( id., at 7-10.)
Most surprisingly, Plaintiff argues that "Defendants' own actions in litigation show that they were aware that the P.C. was a third-party beneficiary when they sought discovery regarding the P.C. and even made a motion to include the P.C. as a party"; and that "[w]ith such ample notice of the P.C.'s third-party beneficiary status, any argument concerning prejudice posed by Defendants would certainly be far-fetched." ( Id., at 14.) Defendants, of course, do assert prejudice, and as will appear the Court concludes that prejudice would result if the motion were granted.
Plaintiff relies on the Third Department's decision in Agri Finance, Inc. v Senter ( 105 AD2d 560 [3d Dept 1984].) The plaintiff there was the assignee of a grain farmer, and was given the right to collect moneys due for grain and feed delivered by the grain farmer to the defendant, a dairy farmer. The plaintiff sued originally for an account stated, but, during the trial, the plaintiff was allowed to add a claim for goods sold and delivered, and the court on its own added the assignor grain farmer as a party plaintiff. The appellate court affirmed on both scores.
As to the added causes of action for goods sold and delivered, the court held that the "defendant was not prejudiced by the amendment in that the cause of action was based upon the same facts as those stated in the original complaint"; "[o]nly an additional theory of recovery was asserted." ( Id., at 560-61.) As to the addition of the assignor grain farmer as a party plaintiff, "defendant understood the nature of the litigation from the outset, i.e. that [the original plaintiff] was acting in a representative capacity for [the grain farmer] and was suing defendant based on the assignment" from the grain farmer. ( Id., at 561.)
Even putting aside the disclosure history of this case, it is materially different from Agri Finance. It can hardly be said that East Atlantic understood "from the outset" that Plaintiff was acting in a "representative capacity . . . based on the assignment" ( see id.), because the assignment was not executed until three days before trial. The third-party beneficiary theory, despite several discussions about the lost profits claim during the trial, was not mentioned until Plaintiff's brief on this motion. Meisenberg Medical, P.C. appears nowhere in the Complaint.
It can also hardly be said that the additional theory of recovery is based upon the same facts alleged in the Complaint. "A party asserting rights as a third-party beneficiary must establish (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'." ( State of California Pub. Employees' Retirement Sys. v Shearman Sterling, 95 NY2d 427, 434-35 [ quoting Burns Jackson Miller Summit Spitzer v Lindner, 59 NY2d 314, 336 (1983)].) "In determining whether a third party was an intended beneficiary to a contract, the actual intent of the parties is critical." ( Edge Mgmt. Consulting, Inc. v Blank , 25 AD3d 364 , 368-69 [1st Dept 2006].) Contractual intent is generally a fact, and here the allegation that Meisenberg Medical P.C. was an intended beneficiary of the Lease is a "new fact" that cannot be found in the Complaint nor, apparently, in prior proceedings.
Plaintiff contends that East Atlantic "can hardly claim prejudice" in light of the allegation in the Complaint that "on account of East Atlantic's breaches . . . [Plaintiff] has been deprived of its right to use the entire Premises and has suffered damages consisting, at minimum of lost revenues, lost profits, and lost business opportunities." (Plaintiff's Brief on Motion to Conform Pleadings to Proof, at 13.) But it is almost self-evident that the profits or losses of a provider of medical services, like Meisenberg Medical, P.C., will not be the same as the profits or losses of the lessor of the place at which the services are rendered.
The appropriate and controlling authority is the Fourth Department's decision in Amherst Magnetic Imaging Associates, P.C. v Community Blue, The HMO of Blue Cross of Western NY, Inc., ( 286 AD2d 896 [4th Dept 2001].) Pursuant to contract, the plaintiff billed the defendant for MRI technical services and related professional services provided by companies that were not parties to the contract. The plaintiff's complaint for breach of contract "[did] not allege that plaintiff [was] seeking damages on behalf of the companies that provided the technical and professional services." ( See id. at 896-97.) The Appellate Division upheld the denial of the plaintiff's "motion to conform the pleadings to the proof by adding a cause of action based on assignments from the companies providing the services." ( See id. at 897.) "[P]laintiff did not move to amend the . . . complaint until trial, and plaintiff did not otherwise provide [the defendant] with notice that it would seek damages sustained by others." ( Id.) The defendant, therefore, "was not afforded an opportunity to investigate those claims and would have been prejudiced by the proposed amendment." ( Id.)
Here, the prejudice would be even more glaring, because, at Dr. Meisenberg's deposition on January 29, 2007, Plaintiff's counsel instructed him not to answer any questions about income received by Meisenberg Medical, P.C. from its operations at 1523 Vorhies Avenue in 2003, 2004, 2005, or 2006. Plaintiff argues, first, that by seeking discovery from the P.C., and by later seeking to add the P.C. as a plaintiff (also presumably opposed by Plaintiff), East Atlantic demonstrated its awareness "of the P.C.'s role in this relationship far in advance of trial and knew that the P.C. would suffer damages" (Plaintiff's Brief on Motion to Conform Pleadings to Proof, at 6); and, second, that because East Atlantic did not move to compel disclosure from the P.C., "any prejudice suffered by East Atlantic was of its own doing" (Brief in Further Support of 1523 Real Estate's Motion to Conform Pleadings to Proof, at 5.)
Putting aside that Plaintiff's counsel's instructions to Dr. Meisenberg may have been improper in any event ( see Ceitlin v City of New York 16 Misc 3d 887 , 891 [Sup Ct, Kings County 2007]), Plaintiff's arguments are specious. If the interchange at Dr. Meisenberg's deposition demonstrates anything, it is that Plaintiff did not believe that discovery about the profits of Meisenberg Medical, P.C. was relevant to any of the allegations of its Complaint. And if East Atlantic did not move to compel, it may well have been because East Atlantic came to agree. In any event, the prejudice that would result from granting Plaintiff's motion would be due to Plaintiff's litigation choices prior to trial, not East Atlantic's.
Turning to East Atlantic's motion, there are undoubtedly differences between a claim for unpaid rent and a claim for use and occupancy. "Rent" is consideration for permitted possession of real property pursuant to a lease ( see Fifth Ave. Bldg. Co. v Kernochan, 221 NY 370, 372-73), whereas "use and occupancy" is awarded as damages for the withholding of possession after the expiration or termination of permitted possession ( see South St. Ltd. Partnership v Jade Sea Restaurant, Inc., 187 AD2d 387, 397 [1st Dept 1992].) Rent is determined by the lease; use and occupancy by the market ( see New York City Econ. Dev. Corp. v Harborside Mini Stor. Inc., 13 Misc 3d 1218 [A], 2006 NY Slip Op 51901 [U], * 2-* 3 [Civ Ct, Kings County]; but the rent paid pursuant to an expired or terminated lease is at least "some evidence" of market value ( see Goelet v National Surety Co., 240 NY 287, 295.)
As a general matter, a claim for rent and a claim for use and occupancy present both different theories of liability and different factual bases, so that the amendment of a pleading from one to the other could occasion prejudice. Here, however, the history of the underlying transaction and this litigation belies any claim of prejudice to Plaintiff.
East Atlantic explains the alleged counterclaims for use and occupancy. At the time Defendants' Verified Answer was served on April 12, 2005, East Atlantic had served a Notice of Termination of Tenancy/Occupancy on Plaintiff. The Notice was dated March 7, 2005, effective April 15, 2005. Plaintiff moved for a "Yellowstone injunction" ( see Post v 120 E. End Ave. Corp., 62 NY2d 19, 24-25); and an order dated June 22, 2005 of the Hon. Ira B. Harkavy "tolled and stayed [the Notice] pending resolution of this case or further order of the Court." Notwithstanding, Justice Harkavy ordered the payment of "use and occupancy" and the posting of an undertaking. In an order dated October 25, 2006, Justice Harkavy ordered Plaintiff to "commence rent payments under the parties' lease" and to increase the amount of the undertaking.
Most importantly, as previously noted, on the first day of trial the parties stipulated that the Lease dated October 3, 2002 was and continued to be valid and effective, and neither party made any reference to the March 7, 2005 Notice of Termination of Tenancy/Occupancy. At the trial, in support of its claim of overpayment of rent, Plaintiff introduced evidence of the rent payments made and the alleged amounts of abatement due it under the Lease and by reason of East Atlantic's breach. East Atlantic introduced evidence of the alleged amount of unpaid rent due under the Lease, without any objection by Plaintiff that East Atlantic had not pleaded a cause of action for rent.
Given this history, Plaintiff's assertion of prejudice cannot be credited. ( See Matter of Cohn , 46 AD3d 680 , 681 [2d Dept 2007] [pretrial statement of issues].) By reason of the stipulation, Plaintiff's claim for overpayment of rent and East Atlantic's claim for unpaid rent are mirror images, and will be resolved by the same facts. In light of the rent evidence introduced at trial by both parties, the Court does not understand Plaintiff's contention that it was "deprived of its right to cross-examine proponents of East Atlantic's purported rent claim, or present rebuttal evidence" (Brief in Opposition to Defendant East Atlantic Properties, LLC's Motion to Conform Pleadings to Proof, at 4.) Plaintiff's additional assertion that it would be "prejudiced by the likely higher damages on a rent claim" ( id.) is, as previously demonstrated, simply unavailing.
By the beginning of trial, East Atlantic conceded the validity and continued effectiveness of the parties' Lease, which is at heart of Plaintiff's Complaint. Where's the prejudice in that?
Plaintiff's motion is granted only to the extent that a cause of action for fraud is deemed asserted against defendant East Atlantic Properties, LLC, and is otherwise denied.
Defendant East Atlantic Properties, LLC's motion is granted, in effect substituting a cause of action for unpaid rent for its Second and Third Counterclaims.
As previously agreed, post-trial briefs are due in chambers no later than May 15.