Opinion
16348/08.
Decided November 3, 2008.
MANIATIS DIMOPOULOUS LOMBARDI LLP, By: Leonard E. Lombardi, Esq., Attorneys for Petitioners, Scarsdale, New York.
WELBY, BRADY GREENBLATT, LLP, By: Mark Cermele, Esq., Attorneys for Respondent/Cross Petitioner, White Plains, New York.
Petitioners D B Construction of Westchester, Inc. ("D B Westchester") d/b/a D B Construction ("D B"), Dominic Brescia ("Brescia") and Davenport Landing, LLC ("Davenport") (collectively "Petitioners") petition pursuant to CPLR 7503(b) to stay the arbitration of claims that have been asserted against them by Respondent Joseph Mitrione ("Respondent", "Cross Petitioner" or "Mitrione") (Seq. No 1). Respondent opposes the petition and cross petitions pursuant to CPLR 7502(a) to compel arbitration (Seq No. 2).
Although D B Westchester is named as a petitioner, it is clear from Petitioners' papers that Petitioners are not seeking a stay of the arbitration as to D B Westchester d/b/a D B. They seek to stay the arbitration only as to Brescia and Davenport. Further, Petitioners do not contest so much of the cross petition as seeks to compel D B Westchester to arbitrate.
RELEVANT BACKGROUND AND FACTS
Both the petition and the cross petition allege that "at all times hereinafter mentioned": (1) D B Westchester was a corporation organized and existing under and by virtue of the laws of the State of New York with a principal place of business located at 1000 Main Street, New Rochelle New York; (2) Davenport was a limited liability company organized and existing under and by virtue of the laws of the State of New York with a place of business located at 1000 Main Street, New Rochelle, New York; and (3) Brescia was the President of D B Westchester and the managing member of Davenport.
On or about October 1, 2006, Mitrione and his wife entered into a land purchase contract to purchase 14 Brittany Lane, New Rochelle, New York (the "subject property") from Davenport for $1,600,000 (the "Land Contract"). Simultaneously and as a condition precedent to the closing of the Land Contract, the Mitriones executed a construction contract with D B for the erection of a 5,800 square-foot, one-family home (the "Construction Contract") in an amount of $1,550,000.
The Construction Contract contains a provision in which the Contractor (D B) excludes all warranties, except as provided in a limited warranty annexed to the Construction Contract. The annexed Limited Warranty, signed only by Mitrione, states that it is to constitute the Seller's warranty, that is Davenport's warranty, to the extent of a $1,000,000 limit of total liability (the "Limited Warranty").
Section 8 of the Construction Contract provides that "[a]ll claims, disputes and other matters in question arising out of or relating to the this agreement or the breach of it . . . shall be decided by arbitration in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association" (Construction Contract § 8, Petition Ex. 2).
On July 10, 2008, the Mitriones served a notice of intent to arbitrate upon Brescia, D B Westchester d/b/a D B and Davenport. In the notice, the Mitriones allege:
Respondents [are in] material breach of the Contract by failure to complete the construction on time, failure to supply sufficiently skilled workers and material to progress the work, neglectful and incomplete work under the contract, diversion of trust funds, and breach of explicit and implicit warranties (Notice of Intent to Arbitrate, Petition, Ex. 3).
Petitioners commenced this proceeding on July 25, 2008, seeking to stay the arbitration as to Brescia and Davenport. Petitioners do not dispute that Mitrione's claims, to the extent they are asserted against D B Westchester d/b/a D B, along with the claims D B Westchester has against Respondent, are properly subject to arbitration. Petitioners assert that, because neither Brescia nor Davenport were parties to the Construction Contract, Mitrione's claims against them are not subject to arbitration.
While Mitrione's wife, Angela, signed both the Land Contract and the Construction Contract and was named on the notice of intention to arbitrate, Petitioners did not join her in this proceeding. The Cross Petition to compel arbitration is likewise brought only on behalf of Mitrione. Since neither Petitioners nor Mitrione have raised any issue as to the absence of Ms. Mitrione from this proceeding, the Court will not either.
D B Westchester has claims against Respondent for, inter alia, failure and refusal to sign off on extra work, additional work, change orders, upgrades in materials, departure from the original plans and specifications, refusal to honor allowances as agreed to in the contract, and failure to make payment pursuant to the contract (Petition at ¶ 8).
According to Petitioners, Brescia signed the Construction Contract in his representative capacity as President of D B Westchester, not as an individual. Petitioners further contend that the Land Contract is entirely separate from the Construction Contract and neither incorporates the other by reference. Further, Petitioners state that, while the Limited Warrant found within the Construction Contract
named Davenport . . . as Seller erroneously, when in truth and fact the warranty [was] coming from D B at the end of the job. Had Mitrione not defaulted on their financial commitments to D B in failing to pay for all of the changes, alterations, upgrades, additional work and extra work, etc. the job would have finished and the appropriate warranty would have issued by D B. The fact that the warranty was signed in advance of completion in no way effects [ sic] the intention of the contract. The contract clearly intended the warranty to come from D B and further intended it to come at the conclusion of the job (Petition at ¶ 11).
In opposition to the Petition and in support of his Cross Petition to Compel Arbitration with regard to the breach of the Construction Contract claims, Mitrione states that, based on a search of the New York State Department of State, Division of Corporate Records, "there [was] no active corporation having the name D B Construction, Inc.' at the time the Construction Contract was executed, nor has it come into existence within the State of New York thereafter" (Verified Cross Petition at ¶ 6). Mitrione reasons, therefore, that, because "Brescia purported to act on behalf of a corporation which had neither a de jure nor a de facto existence . . . [he] became individually obligated under the Construction Contract" ( id. at ¶ 9; see also ¶ 10).
The allegations of the Cross Petition are amplified in the affirmation of Mitrione's counsel wherein he affirms that he ran searches on a website maintained by the New York State Department of State, Division of Corporation ("DOS") for "D B Construction Inc." and found two entities, one in Dutchess County and one in Kings County (Affirmation of Mark Cermele, Esq. dated August 11, 2008 ["Cermele Aff."] at
¶¶ 2-8). He discovered, both through the website search and through a conversation with a DOS research assistant, that the Dutchess County entity had been incorporated on March 13, 1986, was voluntarily dissolved in 1989, and listed as inactive (Cermele Aff. at ¶¶ 5,7). He found out that the Kings County entity had been incorporated on March 20, 1995, had been dissolved by proclamation on December 29, 1999 by the New York State Department of Taxation Finance, and was also on inactive status. (Cermele Aff. at ¶¶ 6,8).
Counsel affirms that "Brescia filed for the corporate name D B Construction of Westchester Inc.' in 1997 because D B Construction, Inc.' was still registered as an active corporation with the DOS in 1997" (Cermele Aff. at ¶ 9). His DOS search confirms that D B Westchester is still an active corporation ( id. at ¶ 13). While counsel was advised by the research assistant that D B Westchester did not have any assumed names on file with DOS ( id. at ¶ 10), he also checked with the Westchester County Clerk and "learned that no entity or individual had filed for the assumed name D B Construction Inc." ( id. at ¶ 11). On the other hand, counsel discovered that on January 29, 1997, Brescia, individually filed with the Westchester County Clerk's office a certificate to conduct business individually under the assumed name of "D B Construction" ( see Cermele Aff., Ex. F).
While counsel's affirmation refers to the date of filing of this document as being January 29, 2007 (Cermele Aff. at ¶ 12), the signature on the annexed exhibit that counsel refers to as the source of his information is dated January 29, 1997, as is the acknowledgement taken by the notary. Further, the exhibit includes a copy of the legal back on which is affixed a County Clerk's "filed" stamp indicating a date of filing of January 29, 1997 ( see Cermele Aff., Ex. F). Therefore, the Court will view the date reference in counsel's affirmation as being a clerical error and conclude that the date of the document and its filing is January 29, 1997.
Mitrione has asserted a diversion of trust funds claim and he alleges that, "[p]ursuant to § 77 of the Lien Law, a person who receives property knowing it to be subject of a trust and to have been transferred on violation [ sic] of trustee's duty or power takes it subject right of trustee, and also of the cestui que trust, to reclaim possession thereof or to recover for its conversion" (Cross Petition at ¶ 23). He contends that "a corporate officer or agent [ i.e., Brescia] is personally liable for acts which constitute conversion of property of a third person regardless of the fact that such officer or agent was acting for the corporation" ( id. at ¶ 24).
With regard to the breach of warranty claims asserted in the notice to arbitrate against Davenport, Mitrione urges that they are subject to arbitration because Brescia is the managing member of Davenport, the Land Contract made it a condition precedent to the closing of title that Mitrione enter into the Construction Contract with D B, and that since Mitrione fulfilled that condition precedent, Davenport knowingly received a direct benefit from the Construction Contract. According to Mitrione, "a party is estopped from denying its obligation to arbitrate when it receives a direct benefit' from a contract containing an arbitration clause, even it is not a signatory to the contract containing the arbitration clause" ( id. at ¶ 33). Mitrione also contends that Davenport is subject to arbitration since a Seller's Warranty in the amount of $1,000,000 was a part of the Construction Contract which named Davenport as "Seller" and which contained a signature line designating that the Warranty would be signed by "Dominic Brescia, Managing Member Seller" ( id. at ¶ 34). Alternatively, Mitrione claims that the Limited Warranty was assigned by D B Westchester to Davenport since "[p]ursuant to the Construction Contract, the obligation to warranty the newly constructed single-family home from certain defects was assigned to Davenport" and "[a]n assignee to a claim by a party to a contract containing an arbitration clause is bound by such clause, even if the assignee is not a signatory to the contract" ( id. at ¶¶ 40-41).
In addition to seeking in his Cross Petition that Brescia and Davenport be compelled to submit to the arbitration of Mitrione's claims, Mitrione has also answered the Petition by denying its material allegations and asserting that to the extent the Petitioners will be seeking affirmative relief against Mitrione, those claims must necessarily fail since "[a] contractor is precluded from seeking affirmative relief against a homeowner for claims premised in contract or common law when that contractor is not licensed as a home improvement contractor" (Answer at ¶ 13).
Petitioners answered the Cross Petition by denying its material allegations and asserting various affirmative defenses including that Mitrione, by making the final payment under the Construction Contract, waived the claims it has submitted to Arbitration pursuant to Section 5 of the Construction Contract. Petitioners also submit the Affidavit of Brescia in Reply and in Opposition to the Cross Petition, sworn to September 3, 2008 ("Brescia Reply Aff."). In it, Petitioners argue that the cases cited by Mitrione which involved dissolved and non-existent entities are inapplicable since D B Westchester is "a dejure corporation and active, adopted the assumed name of D B Construction, Inc. and was known in its business transactions as such" (Brescia Reply Aff. at ¶ 2). Petitioners assert that Mitrone "knew that all the entities he did business with involving Dominic Brescia had their place of business at 1000 Main Street, New Rochelle, New York. [Mitrione] does not allege any confusion in respect of who he was doing business with or that he was misled or prejudiced by the use of the adopted name" ( id. at ¶ 2). Accordingly, Petitioners argue that under the law, use of an assumed name other than the granted corporate title "is wholly immaterial to the validity of a contract between the corporation using the symbol and the other party in any suit upon that contract'" ( id. at ¶ 3, quoting Mail Express Co. v Parker Axles, Inc., 204 App Div 327 [1st Dept 1923]).
With regard to the arbitability of Mitrione's claim that Brescia diverted trust funds in violation of the lien law, Petitioners concede that the claim vis a vis D B Westchester d/b/a D B (the trustee of the trust) is subject to arbitration, but argue that the claim against Brescia is not because even if he could be held individually liable as the principal of the trustee, he was not a signatory to the Construction Contract and cannot be bound by the arbitration clause contained therein. Petitioners refute, one by one, the applicability of the five theories for holding the non-signatories in this case Brescia and Davenport subject to arbitration. Thus, Petitioners argue that the arbitration clause was not incorporated by reference into the Land Contract and Brescia never signed it in his individual capacity. Furthermore, there was no assumption of the Construction Contract by either Brescia or Davenport and Petitioners contend that the reference to Davenport in the warranty section of the Construction Contract was a mistake. They argue that the mistake is evidenced by the fact that Davenport did not execute the signature line following the warranty at the time of the closing because it never intended to become the warrantor of the work performed under the Construction Contract. Petitioners contend that the agency theory has no applicability because (1) there was no agency relationship between Davenport and D B Westchester d/b/a D B and neither signed the other's agreement or in any way agreed to be bound by the other's agreement. Further, Petitioners contend that the law provides that an agent for a disclosed principal may only be bound by an arbitration clause contained in the Principal's contract if the agent acts on behalf of the principal and also on behalf of itself by acquiring a direct and independent benefit from the principal's contract ( e.g., by fulfilling a specific obligation the agent has on behalf of its principal citing Amercian Bureau of Shipping v Tencara Shipyard S.P.A., 170 F3d 349 [2d Cir 1999]). With regard to veil piercing, Petitioners contend that this theory is also inapplicable since Davenport and D B Westchester operate independently, each has its own books and records and separate identities. With regard to estoppel, Petitioners contend that "[t]he benefit Davenport . . . acquired came exclusively from its contract and not from the construction contract in the premises and therefore . . . Davenport . . . cannot be forced to arbitration without a signed agreement to arbitrate" (Brescia Reply Aff. at 7). Petitioners further contend that the five theories are inapplicable as those cases "involve the Federal Law applicable to Federal Arbitrations . . . and Article 75 of the NY CPLR seems to indicate that arbitration in New York is pursuant to a written agreement to arbitrate only" ( id. at 8).
The Court notes that while Petitioners addressed veil piercing, nowhere in Mitrione's papers does he rely on such a theory for holding Brescia and Davenport to the arbitration provision in the Construction Contract entered into with D B.
Petitioners seek this Court's striking of Cross Petitioner's affirmative defense that D B "is an unlicensed home improvement contractor and as such is precluded from seeking affirmative relief against the cross petitioner, Mitrione" because new home construction is specifically exempted from Westchester County's Licensing Law § 863.324 ( id.)
In Reply to Petitioners' opposition, Mitrione argues that Petitioners' Fifth Affirmative Defense that "if the court determines that [Mitrione] paid the full contract price, then the claims asserted by [Mitrione], if any exist, have been waived" pursuant to Construction Contract § 5.01.01 is inapplicable since pursuant to Section 5's terms, final payment does not waive claims based on defective work appearing after final payment as well as the Contractor's failure to comply with the requirements of the contract documents or the limited warranty.
With regard to Petitioners' contention that Brescia cannot be held personally liable since at all times Mitrione knew that he was contracting with D B Westchester, Mitrione avers that Brescia never made reference to, nor did Mitrione ever have any knowledge of, a company named D B Westchester and nowhere in the Construction Contract or the Land Contract is there a reference to D B Westchester. Mitrione claims that he first learned of D B Westchester's existence from his attorney who found the corporation when researching the legal status of D B for the purposes of filing the intent to arbitrate. Nevertheless, Mitrione states that while he accepts D B Westchester's adoption of D B's contract, such adoption does not absolve Brescia of his personal liability.
Finally, with regard to Petitioners' arguments that Davenport was referenced in the warranty by mistake and Davenport's failure to sign the warranty renders it non-binding, Mitrione counters by arguing (1) the fact that the reference to Davenport is consistent in several places and D B is nowhere mentioned in the Warranty show that the reference was intentional and not a scrivener's error, and (2) in order for an assignment to be valid, it need not be signed by Davenport.
LEGAL DISCUSSION
Pursuant to CPLR 7503(a), "[w]here there is no substantial question whether a valid agreement was made or complied with . . . the court shall direct the parties to arbitrate" (CPLR 7503[a]). While arbitration is favored by New York public policy as a method of resolving disputes, "equally important is the policy that seeks to avoid the unintentional waiver of the benefits and safeguards which a court of law may provide in resolving disputes. Indeed, unless the parties have subscribed to an arbitration agreement it would be unfair to infer such a significant waiver on the basis of anything less than a clear indication of intent'" ( TNS Holdings, Inc. v MKI Sec. Corp., 92 NY2d 335, 339, quoting Matter of Marlene Indus. Corp. v Carnac Textiles, Inc., 45 NY2d 327, 333-334). Because "[a]rbitration is strictly a matter of contract; if the parties have not agreed to arbitrate, the courts have no authority to mandate that they do so" ( Thomson-CSF, S.A. v American Arbitration Assoc., 64 F3d 773, 779 [2d Cir 1995]). A party should not be compelled to arbitrate absent evidence that affirmatively establishes an express agreement to arbitrate ( Mionis v Bank Julius Baer Co., Ltd., 301 AD2d 104 [1st Dept 2002]). "The agreement must be clear, explicit and unequivocal . . . and must not depend upon implication or subtlety" ( Matter of Waldron v Goddess, 61 NY2d 181, 183-184, quoting Schubtex, Inc. v Allen Synder, Inc., 49 NY2d 1, 6; see also God's Battalion of Prayer Pentecostal Church, Inc. v Miele Assoc., LLP , 6 NY3d 371 , 374; Matter of Estate of Arthur Miller, 40 AD3d 862, 861-862 [2d Dept 2007]). While an agreement to arbitrate must be in writing (CPLR 7501), that a written agreement, containing an arbitration clause, is not signed by the party to be charged is not fatal to requiring the parties to proceed to arbitration, where the evidence shows that the party to be charged intended to be bound by it ( God's Battalion of Prayer Pentecostal Church, Inc., supra, 6 NY3d at 374; Liberty Management Constr., Ltd. v Fifth Avenue Sixty-Sixth Street Corp., 208 AD2d 73 [1st Dept 1995]).
In TNS Holdings, Inc. v MKI Sec. Corp ( 92 NY2d 335 [1998]), the New York Court of Appeals was faced with the issue of whether an entity related to the party signing the arbitration agreement was also bound to submit to arbitration and held that, absent a showing of abuse of the corporate form, the signatory could not be compelled to arbitrate ( id. at 339-340; see also Application of Parrish, 246 AD2d 449 [1st Dept 1998], lv denied 92 NY2d 806 [1998] [corporation that signed an agreement containing an arbitration clause and petitioner limited partnership were alter egos with interlocking structures and indistinguishable operations and, because there was no basis to maintain a separate legal distinction between the signatory corporation and petitioner limited partnership, the partnership was compelled to arbitration as the alter ego]).
It is the burden of the party seeking to compel arbitration to establish the parties' express agreement to arbitrate their disputes or a legal basis from which to infer such intent ( Gerling Global Reins. Corp. v The Home Ins. Co., 302 AD2d 118, 123 [1st Dept 2002], lv denied 99 NY2d 511; see also Allstate Ins. Co. v Roseboro, 247 AD2d 379 [2d Dept 1998]).
Non-signatories may be bound by arbitration agreements entered into by others pursuant to one of five theories (1) incorporation by reference, (2) assumption, (3) agency, (4) veil piercing/alter ego, and (5) estoppel ( American Bureau of Shipping v Tencara Shipyard S.P.A., 170 F3d 349 [2d Cir 1999]). The question of whether a non-signatory is a party to an arbitration agreement is one for the court in the first instance ( Matter of Metamorphosis Constr. Corp v Glekel, 247 AD2d 231 [1st Dept 1998]). Accordingly, on a motion to compel arbitration, unless the parties have agreed otherwise, the court must determine whether the parties made a valid agreement to arbitrate ( Matter of Smith Barney Shearson Inc. v Sacharow, 91 NY2d 39, 45 ; Brown v Bussey, 245 AD2d 255, 255 [2d Dept 1997]) and if so, whether the issue sought to be submitted to arbitration falls within the scope of that agreement ( Matter of County of Rockland [Primiano Constr. Co., Inc.], 51 NY2d 1, 7).
Mitrione's principal argument for compelling arbitration against Brescia is the theory that, by signing the Construction Contract as president of a non-existent corporation, Brescia personally assumed the obligations of the Construction Contract, including its agreement to arbitrate. Mitrione's other argument is that he "has asserted claims for the diversion of trust funds, which in New York is an established premise for piercing the corporate veil, even if Brescia contracted as the principal of a legitimate corporation" (Respondent's Memo. of Law at 1).
A non-signatory may be compelled to arbitrate based on a theory of agency, since under New York law a person entering into a contract on behalf of a non-existent corporation may be held personally liable on the contract ( Matter of Corporacion Selee De Venzuela S.A. v Selee Corp., 7 Misc 3d 1013 [Sup Ct NY County 2005]). However, it also well settled that an agent who signs on behalf of a known principal cannot be held to have made a commitment in his or her individual capacity ( Mionis v Bank Julius Baer Co., Ltd., 301 AD2d 104 [1st Dept 2002]). Thus, courts have stayed arbitrations instituted against corporate presidents or other corporate officials since they did not contract with the party instituting the arbitration or agree to arbitrate in their individual capacities ( see Matter of Metamorphosis Constr. Corp. v Glekel, 247 AD2d 231 [1st Dept 1998]; Matter of Kummerfeld [Sakai], 186 AD2d 90 [1st Dept 1992], lv dismissed in part, denied in part, 82 NY2d 682; Johnston v Silverman, 167 AD2d 284 [1st Dept 1990]).
Here, it is evident that Brescia was signing in his official capacity as President of D B Westchester d/b/a D B. Thus, the only real issue is whether, by misnaming D B Westchester as D B, the intent to arbitrate may be imputed to Brescia on the ground that the corporation on whose behalf Brescia was signing ( i.e., D B) was non-existent at the time of signing of the Construction Contract.
Mitrione relies on the line of cases holding corporate officers who have signed on behalf of dissolved corporations or non-existent corporations personally liable and obligated to arbitrate the dispute arising from the contract. These cases all involve the well settled principle that an officer of a dissolved corporation may be held personally liable for the obligations incurred by the continuation of the business of the dissolved corporation regardless of the corporation's subsequent reinstatement ( Matter of Corporacion Selee De Venezuela S.A., supra). But here, D B Westchester was neither dissolved nor non-existent. Rather, the Construction Contract used the name D B, though the corporation was really named D B Westchester, because the name D B was already taken. The Court cannot impute an intent to arbitrate on behalf of Brescia, individually, in such circumstances ( JMT Bros. Realty, LLC v First Realty Builders, Inc. , 51 AD3d 453 [1st Dept 2008]).
In JMT Bros. Realty, LLC, the Appellate Division, First Department, reversed a lower court's denial of a petition to stay arbitration of claims that had been asserted against a Joseph Foster who had signed the contract containing the arbitration clause in his representative capacity as President. The court stated that "a party will not be compelled to arbitrate absent evidence that affirmatively establishes an express agreement to do so" ( JMT Bros. Realty, LLC, 51 AD3d at 455). In so doing, the Appellate Division expressly rejected "petitioner's claim that Foster may be held personally liable because the entity named in the parties' contract, JRF Construction Management,' [was] a nonexistent entity" ( id.).
Likewise, in, Harmon v Ivy Walk Inc ., 48 AD3d 344 [1st Dept 2008], lv denied 11 NY3d 702), the court refused to stay arbitration where the corporate party to the contract, who desired arbitration, was originally named "Ivy Walk Construction Company, Inc.", changed its name to "Ivy Walk, Inc", signed the contract in that name, but failed to renew its city home improvement license with the changed name. The court pointed out that the address, telephone number, and tax identification number continued to be the same.
Here, while the proper name of the corporation was D B Westchester, not plain "D B", the Construction Contract was in the name of, and executed on behalf of a corporate entity having the address of D B Westchester. Mitrione knew that he was dealing with a corporation, not with Brescia as an individual, and there is no proper reason to hold Brescia to having bound himself personally simply because he styled his entity as plain "D B".
While the business certificate filed with the Westchester County Clerk indicates that Brescia personally had assumed the name of "D B Construction", the designation of "D B Construction" in that document does not contain the words "Corporation", "Incorporated", or "Limited, or any abbreviation thereof, thus belying any indication of an intention to personally assume a corporate business ( see Business Corporation Law, § 301). Moreover, the filing of the business certificate in Westchester in January 1997 was followed by the March 1997 incorporation of D B Westchester.
Thus, the corporate history relied upon by Mitrione indicates that, as of March 1997, Brescia was conducting business as a corporation and it was a corporation that Mitrione dealt with.
That Brescia or D B Westchester did not file a formal certificate indicating the use of an alternative corporate name is of no consequence. "[I]t has been long held that a corporation may be known by several names in the transaction of its business, and it may enforce and be bound by contracts entered into in an adopted name other than the regular name under which it was incorporated'" ( Harmon, supra, 48 AD3d at 347, quoting Mail Express Co. v Parker Axles, 204 App Div 327, 329 [1st Dept 1923)]. In short, "[a] contract entered into by a corporation under an assumed name may be enforced by either of the parties. If the entity of the corporation can be ascertained from the instrument itself, the misnomer is held unimportant; but, if not, evidence may be introduced . . . to establish what particular corporate entity was intended" ( Mail Express Co., supra, 204 App Div at 329).
In Mail Express Co., the plaintiff, formally known as "Mail Express Co." was permitted to enforce a contract made in the name of the "Evening Mail", the newspaper that the corporation published. The contract had been accepted by "The Evening Mail, by D. Nicoll, Business Manager."
Here, there is no doubt as to what corporate entity was intended. Mitrione knew that he was dealing with the D B entity that was located at 1000 Main Street, New Rochelle, New York. Since the Construction Contract is the valid contract of D B Westchester, it follows that it is not the individual contract of Brescia.
In Matter of Darlington Fabrics Corp. v Aqua Free Corp. ( 77 Misc 2d 948 [Sup Ct NY County]), Darlington Fabrics Corp. (Darlington) sold allegedly defective fabric to Aqua Free Corp., which was the name appearing on Darlington's invoices, shipping documents and confirmations, when in actuality, the proper name of the corporation was Aqua Free Products Corp. Because Darlington's invoices contained an arbitration clause, Aqua Free Products Corp. served a notice of intent to arbitrate and for a period of a year, the parties prepared for the arbitration before the American Arbitration Association. However, when Darlington discovered that the true corporate name was Acqua Free Products Corp., Darlington moved for a stay of arbitration on the grounds that Aqua Free had no existence and, therefore, no standing to arbitrate. The court denied Darlington's petition finding both that Darlington had waived recourse to the courts by participating in the preparation for the arbitration and also that Products could properly institute the arbitration proceeding stating:
it is palpable that respondent's true identity was never hidden. Darlington had a customer to whom it sold and shipped goods under Darlington's contract containing an arbitration clause. The customer asserted a claim in arbitration. Darlington asserted a counterclaim. More than a year later, while the arbitration was pending, Darlington discovered the misnomer and made a credit check and the Secretary of State which disclosed no corporate existence in the name of Aqua Free Corporation'. All of this took place more than a year after goods were ordered, shipped, received, and manufactured into swimsuits by Aqua Free Products, Inc.'. . . . Darlington is asking the court to ignore the facts and the equities' ( Matter of Darlington Fabrics Corp., 77 Misc 2d at 950).
The court further found Darlington's reliance on Lenny Bruce Enter., Inc. v Fantasy Records. Inc. ( 40 Misc 2d 715 [Sup Ct NY County 1963]) misplaced since in that case, the corporation did not exist at all, under any name or for any purpose, whereas in Darlington Fabrics, Acqua Free Products Corp. "existed, held patents, made goods and alleges sustained damages, albeit that its name is slightly different from the one Petitioner used on its bills, and the name in the arbitration" ( id.).
Similarly, here, Mitrione cannot claim that he was confused as to the company with which he contracted since he was fully aware of the company's address and D B Westchester's use of an assumed name cannot vitiate the enforceability of Construction Contract's provisions or subject Brescia to personal liability.
Nor can Mitrione compel Brescia to arbitrate Mitrione's conversion of trust funds claim. While it is true that Brescia, a principal of D B, may be held personally liable if D B is found to have diverted trust funds in violation of the Lien Law, that does not mean that the Brescia must submit to the arbitration of this claim based on the Construction Contract's arbitration clause because he signed the contract in his representative capacity, not individually.
Mitrione is also not entitled to compel arbitration as against Davenport.
Section 11.01 of the Construction Contract provides that "the contractor herein makes no housing merchant implied warranty or any other warranties express or implied . . . and all such warranties are excluded except as provided in the limited warranty annexed hereto as Exhibit 4" the terms of which were incorporated by reference (Petition, Ex. 2 at § 11.01). Page 1 of the Limited Warranty delineates that it is being made between Mr. and Mrs. Mitrione as Purchasers and Davenport as Seller in the amount of $1,000,000. Page 1 also contains signature lines for Mr. and Mrs. Mitrione as purchaser and Davenport, as seller, by Dominic Brescia, Managing Member. The only signature appearing on page 1 is Mr. Mitrione's. Page 2 provides that the Limited Warranty "is made exclusively by the Seller whose name and address appear on page 1 of this Limited Warranty" and is intended to supercede all prior warranties involving the construction and sale of the home the purpose of the limited warranty being "to identify seller's responsibilities for construction defects of a latent or hidden nature that could not have been found or disclosed on final inspection of the home" (Limited Warranty, Petition, Ex. 2, at 2).
The Limited Warranty has a specific step-by-step claims procedure that must be followed and the Limited Warranty has a separate section entitled "Legal Actions" which expressly provides "[n]o claim under this Limited Warranty may be commenced or asserted against the Seller in any lawsuit unless a properly completed Notice of Warranty Claim Form has been received by the Seller" and either thirty days have elapsed since the Seller's notice of rejection of the Purchaser's claim or thirty days have elapsed since the Builder has substantially completed corrective action for a defect . . ." ( id. at § 9) (emphasis added).
The use of the term "Builder" separate from the term "Seller" in the Limited Warranty is evidence to the Court that Davenport intentionally entered into the Warranty as Seller, with D B referenced in the Warranty as the Builder.
That the Limited Warranty is unsigned by Davenport does not alter the result.
First, it is clear that Davenport was not to sign the Limited Warranty until the construction was completed. This event from the terms of the Limited Warranty itself. The "Warranty Date" on the first page is blank, with that date, to set the start of the warranty period, to be filled in upon completion of construction ( see Limited Warranty at ¶ 4). The signature lines of all three parties were prepared with a typed date of "2007". It is manifest that the Limited Warranty was annexed to the Construction Contract to show the form of the warranty that would be issued at completion and who would issue it.
"The Warranty Period for all of the following coverage begins on the Effective Date of this Limited Warranty shown on Page 1 of this Limited Warranty".
Second, by signing the Construction Contract on behalf of D B, Brescia (who was also the managing member of Davenport) was well aware that the Mitriones were relying on the warranties contained in the Limited Warranty, especially since the Construction Contract expressly excluded all other warranties and incorporated the Limited Warranty by reference. The Limited Warranty plainly states on Page 1 that it is the "Seller's warranty" and states on Page 2 that "[t]his Limited Warranty is made exclusively by the Seller whose name and address appear on page 1 of this Limited Warranty", that is by Davenport.
Thus, there is no doubt that Brescia intended, on behalf of Davenport, to provide a limited warranty to the purchasers and that the Mitriones were accepting a warranty from Davenport only. And in any event, given the foregoing facts, Davenport would be estopped from disclaiming its obligations under the Limited Warranty. Nevertheless, even though the Court finds that Davenport was bound by the terms of the Limited Warranty, the Court cannot conclude that by entering into the Limited Warranty, Davenport waived its right to seek redress in a court of law and agreed to submit all claims arising under the Limited Warranty to arbitration. Indeed, the language of the Limited Warranty directly contradicts such a position since it sets forth a claims procedure which must be followed prior to resort to legal action and a lawsuit. Accordingly, while the Court finds that Davenport agreed to provide a Limited Warranty for the subject premises, it does not find that Davenport agreed to arbitrate all claims arising from the Limited Warranty.
This construction is eminently reasonable. It is readily apparent that the Mitriones and D B, the contractor, agreed to arbitrate all Construction Contract issues before an arbitral body following Construction Industry arbitration rules. However, there was no agreement to arbitrate post-construction warranty issues between the Mitriones and Davenport.
The Court does not believe that the cases involving estoppel may be properly invoked to force Davenport to arbitrate. While "[a] party is estopped from denying its obligation to arbitrate when it receives a direct benefit' from a contract containing an arbitration clause" ( American Bureau of Shipping, 170 F3d at 353), here there is no evidence that Davenport received any of the consideration underlying the Construction Contract or that it received any other direct benefit ( i.e., relieving it of an obligation it would otherwise have). At most, Davenport only indirectly benefitted from the Construction Contract because by entering into the Construction Contract, Mitrione satisfied a waivable condition precedent which set the stage for the closing on the Land Contract. Mitrione has not alleged that some or all of the consideration paid for the Land Contract was actually consideration for the Construction Contract. The cases involving estoppel have no application to the facts of this proceeding. Accordingly, as Davenport did not receive a direct benefit from the Construction Contract, nor was it acting as an agent for a disclosed Principal, there is no basis for finding that Davenport is estopped from denying its obligation to arbitrate. Significantly, Davenport was not a party to the Construction Contract and, therefore, like Brescia, it is not bound by its substantive provisions, much less its arbitration clause.
In all of the cases involving estoppel, the party seeking to avoid arbitration was receiving direct benefits from the contract containing the arbitration clause ( see American Bureau, supra; SSL Intl., PLC v Zook , 44 AD3d 429 [1st Dept 2007] [non-signatories that had marketed products using technology covered by the license agreement were estopped from seeking to avoid the arbitration agreement]; HRH Constr., LLC v Metropolitan Transp. Auth ., 33 AD3d 568 [1st Dept 2006] [successor-in-interest corporation that undertook the obligations of the contract and derived the benefits from it was estopped from avoiding arbitration]).
Based on the foregoing, the Court shall grant Petitioners' application to stay the arbitration as to the claims asserted against Brescia and Davenport and shall deny Respondent's Cross Petition to compel arbitration against Brescia and Davenport. However, the Court will compel arbitration of claims by and against D B Westchester.
Finally, while both Petitioners and Mitrione have raised affirmative defenses ( i.e., that Mitrione waived its right to arbitrate based on final payment and that D B is precluded from recovery because it is an unlicensed home improvement contractor), because it is undisputed that the claims by and against D B Westchester d/b/a D B are to be arbitrated, the Court finds that both affirmative defenses are substantive in nature, the merits of which are for the arbitrator.
CONCLUSION
The Court has considered the following papers in connection with this motion:
1)Notice of Petition dated July 22, 2008, Verified Petition dated July 22, 2008, Affidavit of Dominic Brescia, sworn to July 22, 2008, together with the exhibits annexed thereto, submitted with proof of service;
2)Notice of Verified Cross Petition dated August 11, 2008, Verified Cross Petition dated August 11, 2008, Affidavit of Joseph Mitrione in Opposition to Petition and in Support of Cross Petition, sworn to August 11, 2008, together with the exhibits annexed thereto, Affirmation of Mark Cermele, Esq. dated August 11, 2008, together with the exhibits annexed thereto, submitted with proof of service;
3)Verified Answer to the Petition dated August 11, 2008;
4)Respondent's Memorandum of Law in Opposition to Petition and in Support of Cross Petition;
5)Affidavit of Dominic Brescia, Esq. in Reply and in Opposition to Cross Petitioner's Petition, sworn to September 3, 2008, submitted with proof of service;
6)Answer to Cross Petition, sworn to September 2, 2008; and
7)Affidavit of Joseph Mitrione, sworn to September 11, 2008, in Response to Petitioner's Opposition to Cross Petition and in Further Support of Cross Petition, submitted with proof of service;
Based on the foregoing papers and the reasons set forth above, it is hereby
ORDERED, that the Petition of D B Construction of Westchester, Inc. d/b/a D B Construction, Inc., Dominic Brescia and Davenport Landing, LLC to stay the arbitration of claims asserted against Dominic Brescia and Davenport Landing, LLC is granted; and it is further
ORDERED that arbitration of claims demanded by Joseph and Angela Mitrione, pursuant to Notice of Intention to Arbitrate dated July 10, 2008, insofar as asserted against Dominic Brescia and Davenport Landing, LLC is permanently stayed; and it is further
ORDERED, that the Cross Petition of Joseph Mitrione to compel arbitration of claims, pursuant to Notice of Intention to Arbitrate dated July 10, 2008, insofar as asserted against Dominic Brescia and Davenport Landing, LLC is denied; and it is further
ORDERED the Cross Petition of Joseph Mitrione to compel the arbitration of claims, pursuant to Notice of Intention to Arbitrate dated July 10, 2008, insofar as asserted as against D B Construction of Westchester, Inc. d/b/a D B Construction is granted; and it is further
ORDERED that Joseph Mitrione and D B Construction of Westchester, Inc. d/b/a D B Construction, Inc. shall arbitrate any and all claims asserted by either of them pursuant to the Construction Contract dated October 1, 2006; and it is further
ORDERED that any and all other relief requested by any party is denied.