Opinion
12037-02.
Decided June 23, 2008.
Tuan Cho, LLP, New York, NY, Counsel for Plaintiff.
Richman Levine, PC, Garden City, NY, Counsel for Defendant (Commander Oil Corporation).
(Estate of Harold D. Shapiro and Mark Shapiro and Karen Schwartz, as Executors of the Estate of Harold D. Shapiro), Dollinger Gonski Grossman, Carle Place, NY, Counsel for Defendant.
Plaintiffs move for partial summary judgment against Defendants Commander Oil Corporation ("Commander Oil"), the Estate of Harold Shapiro and Mark Shapiro and Karen Schwartz as Executors of the Estate (collectively the "Estate Defendants") on the first through sixth, ninth through thirteenth and sixteenth causes of action of the second amended complaint.
The Estate Defendants cross-move, in which Defendant Commander Oil joins, for partial summary judgment dismissing the eleventh through sixteenth causes of action of the second amended complaint.
Commander Oil also cross-moves for summary judgment against Plaintiffs on the counterclaims asserted in its answer.
BACKGROUND
Prior to March 1, 2001, Commander Oil was the owner/operator of four oil terminals located in Kings Park, Great Neck, Garden City and Oyster Bay, New York. Commander Oil was in the business of buying and selling oil, gasoline and diesel fuel and performing "thru-put services" to customers such as Petro Oil and Rad Oil who basically used Commander Oil's terminals as a liquid warehouse.
This action arises from the sale of three parcels of real property by Commander Oil to Island Properties, LLC; to wit: one in Oyster Bay, including the oil terminal thru-put facility located thereon (including tanks, storage facilities, equipment, office facilities, etc.), and two properties located in Garden City.
In January, 2001, Island Properties assigned its rights under the contract of sale to Plaintiff, Commander Terminals Holdings, LLC, ("Holdings"). The sale closed on or about March 1, 2001. Simultaneous with the closing, Holdings assigned all of its interest in the thru-put agreements to Plaintiff, Commander Terminals, LLC ("Terminals") which entered into an employment agreement with the then president of Commander Oil, Harold D. Shapiro. Pursuant to the employment agreement, Mr. Shapiro was to serve as vice president of Terminals. A second agreement, titled Proprietary Information and Inventions, Non-Solicitation and Non-Competition Agreement was executed at the same time. The conveyance of the Oyster Bay property and facility did not involve Commander Oil's Great Neck and Kings Park facilities and did not affect Commander Oil's continuing right to do business at those locations.
The term of Mr. Shapiro's employment, set forth in § A(2) of the employment agreement commenced on the employment date and, unless terminated earlier, was to continue up to and including the day immediately preceding the third anniversary of the employment date.
Approximately one year after the closing, issues arose regarding outstanding monies allegedly due and owing to Terminals from Commander Oil which were memorialized in a memorandum dated March 21, 2002 from Lori E. Horowitz, then vice president of Terminals, to Harold Shapiro. The issues included:
remediation of leaching at Oyster Bay; reimbursement for the use of telephone number 516-922-7600; rent for the use of office facilities at One Commander Square; and a purported conflict of interest on the part of Mr. Shapiro vis-a-vis his relationship with Terminals and his interest in Commander Oil.
Relations between the parties deteriorated to the point that Mr. Shapiro was notified by letter dated June 19, 2002 that his employment with Terminals was terminated.
This lawsuit, predicated on breach of the employment contact/non-solicitation/non-competition agreements; breach of fiduciary duty, fraud and conversion, ensued. Commander Oil has counterclaimed for monies owed as and for thru-put services based on the theories of services rendered, account stated and unjust enrichment. In their counterclaim, the Estate defendants seek to recover damages stemming from Terminals' wrongful termination of Harold Shapiro's employment.
Three motions are now before the Court as follows:
Plaintiffs seek partial summary judgment against Commander Oil and the Estate defendants on the first through sixth; ninth through thirteenth and sixteenth causes of action;
The Estate Defendants seek partial summary judgment against the Plaintiffs dismissing the eleventh through sixteenth causes of action; and Commander Oil seeks summary judgment against Plaintiffs on its counterclaim to recover thru-put revenues allegedly due and owing.
The gravamen of the complaint requires that the Court focus initially on the issue of whether the Defendant/seller [Commander Oil] was required to disclose to Plaintiff/ purchasers the leaching of oil from the grounds of the Oyster Bay terminal into the adjoining public waters of Oyster Bay.
With respect to this issue, the sixteenth cause of action alleges that Commander Oil and its then president, Harold Shapiro, despite prior actual and constructive notice, fraudulently failed to disclose the existence of serious environmental problems at the Oyster Bay facility, including leaching of oil from the terminal grounds into the adjoining public waters of Oyster Bay and White's Creek in violation of applicable environmental rules and regulations thereby triggering demands for remediation by the New York State Department of Environmental Conservation. According to Plaintiffs, the failure of Commander Oil and Harold Shapiro to disclose the leaching condition and false representations that (1) they did not know of any fact "which materially adversely affect[ed] the value, utility or condition of the Assets," and that (2) "the Assets are in good operating condition" and "are sufficient in order to properly operate and maintain the Premises and the operations of the terminal business and complies with all applicable rules, regulations and other requirements of any governmental authority for seller's operation of the Assets," constitute violations of the representations and warranties set forth in ¶¶ 5(f) and 5(g) of the rider to contract of sale and trigger Commander Oil's indemnification obligations pursuant to ¶ 14 of the rider. Plaintiffs contend that the undisclosed oil leaching, and governmental demand for remediation, materially adversely affected the value, utility or condition of the Assets being purchased by Plaintiffs and did not comply with the applicable rules, regulations and other relevant governmental authority.
Defendants counter that their obligations vis-a-vis environmental issues are limited to ¶ 9 of the contract rider, which they maintain contains the only representations they made pertaining to environmental conditions at the premises and describes the only duties undertaken by the parties with respect to any environmental conditions. The relevant part of the provision reads as follows:
"Purchaser acknowledges that Seller has caused a Phase II environmental audit (the "Envirotrac Audit") to be prepared for the property located at One Commander Square, Oyster Bay, New York (the "Oyster Bay Premises") by Envirotrac and has delivered a copy to Purchaser. Purchaser, at Purchaser's expense, shall cause a peer review to be commenced as to the Envirotrac Audit within five (5) days after the execution and delivery of this Contract. Purchaser shall provide Seller with a copy of the peer review within five (5) days after receipt of such peer review. If the peer review determines or recommends that a further environmental audit be conducted, Purchaser, at Purchaser's expense, may commence such further environmental audit within five (5) days from the date of the peer review. If the peer review or the supplementary environmental audit states that either (i) the Oyster Bay Premises require remediation in addition to those set forth in the Envirotrac Audit, or (ii) the costs for the remediation * * * materially exceeds $2.5 million, Seller shall within thirty (30) days of receipt of the peer review or such supplementary audit, if any (a) elect to undertake such additional remediation at Seller's expense or reduce the purchase price by the difference between $2.5 million and the costs set forth in the peer review or supplementary audit, as the case may be, or (b) elect to cancel this Contract, in which event Seller shall refund the down payment and fifty percent (50%) of the costs for all environmental audits and peer reviews conducted by the Purchaser as to the Premises (not to exceed $10,000.00 for Seller's share), and neither party shall have any further liability to the other."
DISCUSSION
A. Duty to Disclose-Caveat Emptor
New York adheres to the doctrine of caveat emptor and imposes no duty on a vendor to disclose any information concerning the property in an arm's length real estate transaction ( Boyle v McGlynn , 28 AD3d 994 , 995 [3rd Dept. 2006]), unless some conduct, more than mere silence, on the part of the seller, rises to the level of active concealment, in which event a seller may have a duty to disclose information concerning the property. Matos v Crimmins , 40 AD3d 1053 (2nd Dept. 2007). A buyer has the duty to satisfy itself as to the quality of the bargain.
In business transactions, a party is ordinarily under no duty to disclose material facts unless (1) there is a fiduciary relationship between the parties or (2) one party has superior knowledge that is not readily available/accessible to the other party and that party knows the other party is acting on the basis of mistaken knowledge. Stevenson Equip., Inc. v Chemig Constr. Corp., 170 AD2d 769, 771 (3rd Dept.), aff'd., 79 NY2d 989 (1992). Where there is no fiduciary relationship that would impose a duty to disclose, a party's mere silence without some act which deceived the other party cannot constitute a concealment that is actionable as fraud. Mobil Oil Corp. v Joshi, 202 AD2d 318 (1st Dept. 1994).
There is nothing in the record before the Court to indicate that the dealings between the parties were anything other than an arm's length negotiation making applicable the customary rules of commercial transactions. Defendants did not owe Plaintiffs a fiduciary duty with regard to the transaction at issue as the seller of real property is under no duty to speak when parties deal at arm's length. Simone v Homecheck Real Estate Services, Inc., 42 AD2d 518, 520 (2nd Dept. 2007); and London v Courduff, 141 AD2d 803, 804 (2nd Dept. 1988).
Thus, the doctrine of caveat emptor is applicable, imposing a duty on the purchaser to satisfy itself as to the quality of the bargain. Under the doctrine, it is only when the defect in the property is peculiarly within the knowledge of the seller, and is not likely to be discovered by a reasonably prudent purchaser, that a duty to disclose will be imposed. Stambovsky v Ackley, 169 AD2d 254, 261 (1st Dept. 1996). The mere silence of the seller, without some act or conduct which deceived the buyer, does not amount to a concealment that is actionable as fraud. Slavin v Hamm, 210 AD2d 831, 832 (3rd Dept. 1993).
To sustain a claim of active concealment in the context of a fraudulent non-disclosure, the buyer must show, in effect, that the seller thwarted the buyer's efforts to fulfill its duty to conduct its due diligence. See, Jablonski v Rapalje , 14 AD3d 484 , 485 (2nd Dept. 2005). To state a prima facie claim of fraudulent concealment, a complaint must allege: (1) concealment of a material fact which defendant was duty bound to disclose due to a confidential or fiduciary relationship between the parties ( Spencer v. Green , 42 AD3d 521 [2nd Dept. 2007]); (2) defendant intended to defraud the plaintiff thereby ( Glazer v. LoPreste, 278 AD2d 198 [2nd Dept. 2000]); (3) the plaintiff reasonably relied on the representation ( Spencer v. Green, supra); and (4) resulting injury ( Jablonski v. Rapalje, supra at 487). See also, Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413 (1996).
Here, the parties reasonably anticipated the need for an environmental investigation and addressed the procedure to be followed, the allocation of the cost and their respective rights. Under the circumstances, neither party established a prima facie right to summary judgment by the tender of evidence sufficient to demonstrate the absence of any material issue of fact ( Giuffrida v Citibank Corp., 100 NY2d 72, 81), on the fraudulent concealment claim.
Caveat emptor does not apply to conditions which a purchaser would not have been able to discover with due inquiry and/or inspection. Richardson v United Funding, Inc. , 16 AD3d 570 , 571 (2nd Dept. 2005). Thus, triable issues exist as to whether the disparity in the level of information (regarding the oil leaching issue) available to Plaintiffs, as opposed to Defendants, places the case within the ambit of the special facts doctrine and whether the information at issue was peculiarly within the knowledge of Commander Oil and was of such a nature that it could not have been discovered through the exercise of ordinary intelligence. Under the special facts doctrine, a duty to disclose arises where one party's superior knowledge of essential facts renders a transaction without disclosure of those facts inherently unfair. Jana L. v 129th Street Realty Corp. , 22 AD3d 274 , 278 (1st Dept. 2005).
While the contract references the Envirotrac Audit prepared for the premises in ¶ 9 of the rider, and specifically acknowledges the reduction in purchase price to $8,200,000.00 because of environmental conditions described in the Audit, it appears that the oil leaching issue was neither disclosed nor described in the Envirotrac Audit. Similarly, the language of the Environmental Agreement executed by the parties at closing on March 1, 2001 relates specifically to "all adverse environmental conditions existing at the premises as disclosed in the Phase II Envirotrac Audit or as may be existing at the Premises." No mention is made of the fact that oil had leached into the public waters of Oyster Bay and White's Creek.
Accepting the evidence offered by Plaintiffs as true, (see, Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414), a question exists as to whether this information could have been discovered (or was) discovered through the exercise of reasonable diligence. Black v Chittenden, 69 NY2d 665, 669 (1986); and Gizzi v Hall, 300 AD2d 879, 882 (3rd Dept. 2002). Thus, summary judgment must be denied.
B. Breach of Employment Agreement
Turning next to the breach of employment claims (first through tenth causes of action), factual issues exist as to whether and the extent to which, decedent Harold Shapiro breached the employment non-solicitation/non-competition agreements which require resolution by the trier of fact. It is impossible to determine from the conflicting versions of the facts whether Mr. Shapiro's continued employment by Commander Oil, and the management of its operations at Kings Park and Great Neck was in any way adverse to Plaintiffs' interest and/or violative of his obligations and fiduciary duty under the relevant agreements. As such, Plaintiffs have failed to demonstrate entitlement to summary judgment as a matter of law either with respect to the first through sixth or ninth through eleventh causes of action.
C. Fraud
The twelfth cause of action for fraud predicated on Harold Shapiro's failure to lease a car in accordance with ¶ 6(b) of the Employment Agreement for which purpose he allegedly received the sum of $1,000 per month must be dismissed. A fraud cause of action does not arise where the only fraud charged relates to a breach of contract. Biancone v. Bossi , 24 AD3d 582 (2nd Dept. 2005) To plead a viable cause of action for fraud arising out of a contractual relationship, the plaintiff must allege a breach of duty which is collateral or extraneous to the contract. Marshel v Farley , 21 AD3d 935 , 936 (2nd Dept. 2005). A breach of contract may not be converted into a fraud claim by the mere additional allegation that the contracting party did not intend to meet his contractual obligation. Hadari v Leshchinsky, 242 AD2d 557, 558 (2nd Dept. 1997). As to this cause of action, summary judgment should be granted.
D. Conversion
The thirteenth, fourteenth and fifteenth causes of action, wherein Plaintiffs allege that Harold Shapiro and Commander Oil converted to their own use terminal facilities, office equipment and supplies and telephone services owned by Terminals, are unsustainable and must be dismissed.
Conversion is an unauthorized assumption and exercise of the right of ownership over goods belonging to another to the exclusion of the owner's rights. Soviero v Carroll Group Int'l., Inc. , 27 AD3d 276 (1st Dept. 2006). As a required element of conversion, Plaintiffs must establish "[s]ome affirmative act asportation by the defendant or another person, denial of access to the rightful owner or assertion to the owner of a claim on the goods, sale or other commercial exploitation of the goods by the defendant." State of New York v Seventh Regiment Fund, 98 NY2d 249, 260 (2002). No such act has been alleged. Moreover, an action for conversion cannot be validly maintained where, as here, damages are being sought under a breach of contract theory. Peters Griffin Woodward, Inc. v WCSC, Inc., 88 AD2d 883, 884 (1st Dept. 1982). These causes of action must be dismissed.
E. Breach of Fiduciary Duty
Since the eleventh cause of action for breach of fiduciary duty by Harold Shapiro is based on the same allegations as set forth in the breach of employment contract causes of action, the claim is duplicative and must be dismissed. Bullmore v Ernst Young Cayman Islands ,45 AD3d 461, 463 (1st Dept. 2007).
F. Counterclaim for Account Stated
With respect to Commander Oil's counterclaim, it is well settled that an account stated (second counterclaim) is an agreement between the parties to an account based on prior transactions between them with respect to the correctness of the account items and balance due. The agreement necessary for an account stated may be express or implied from the retention of an account rendered for an unreasonable period of time without objection and from the surrounding circumstances. An essential element of an account stated is an agreement as to the balance due. Where either no account has been presented, or there is any dispute regarding the correctness of the account, the cause of action fails. M A Constr. Corp. v McTague , 21 AD3d 610 , 611-612 (3rd Dept. 2005).
Because there is no evidence that the invoices were, in fact, previously presented to Plaintiffs, they cannot constitute a statement retained by them for a sufficient period of time such that their agreement to the amount can be implied. An account stated requires agreement, either express or implied to the amount due. Thus, partial summary judgment on an account stated cannot be granted. Whether and the extent to which Plaintiffs owe Commander Oil monies as and for thru-put services rendered and have been unjustly enriched by failing to render the amount allegedly due and owing requires resolution by the trier of fact.
Accordingly, it is,
ORDERED that Plaintiffs' motion for partial summary judgment on the first through sixth, ninth through thirteenth and sixteenth causes of action is denied; and it is further,
ORDERED that the cross-motion of the Estates Defendants for partial summary judgment dismissing the eleventh through sixteenth causes of action is granted to extent of discussing the eleventh through fifteenth causes of action and is denied as to the sixteenth cause of action; and it is further,
ORDERED that the cross-motion of Commander Oil for summary judgment on its counterclaims is denied; and it is further,
ORDERED that counsel for the parties shall appear for a status conference on July 15, 2008 at 9:30 AM.
This constitutes the decision and order of the Court.