Opinion
Index No. E2022-321
08-11-2022
LOST LAKE HOLDINGS, LLC and MISHCONOS MAZAH, LLC, Petitioners, v. TOWN OF FORESTBURGH; TOWN BOARD OF THE TOWN OF FORESTBURGH; DANIEL S. HOGUE. JR., in his official capacity as TOWN SUPERVISOR and as an individual; and RICHARD ROBBINS, in his official capacity as PLANNING BOARD CHAIR and as an individual, Respondents.
Unpublished Opinion
Present: David M. Gandin, J.S.C.
DECISION AND ORDER
DAVID M. GANDIN, J.S.C.
The following papers were read and considered on respondents' motion to dismiss and petitioners' cross motion for summan judgment:
1. Notice of Motion, Attorney Affirmation and Supporting Affidavits with Exhibits 1-32;
2. Memorandum of Law;
3. Attorney Affirmation in Opposition;
4. Notice of Cross Motion;
5. Affirmation in Opposition and in Support of Cross Motion;
6. Memorandum of Law in Opposition;
7. Memorandum of Law in Support.
8. Memorandum of Law in Reply;
9. Memorandum of Law in Reply.
Petitioners commenced this hybrid proceeding with the filing of a verified petition seeking writs of mandamus, prohibition, declaratory judgment and an accounting. Respondents move to dismiss pursuant to CPLR 7804(f), CPLR 3211 (a)(1), (5), (7) and CPLR 3211 (c). Petitioners oppose the motion and cross-move for summary judgment.
In September 2008 Double Diamond Companies ("Double Diamond") purchased approximately 2,100 acres of land in the Town of Forestburgh. Double Diamond acquired the property with the intention of developing a luxury resort complex with over 2,600 residences, a golf course, hotel, restaurants and other amenities. The Town of Forestburgh ("the Town") approved the Lost Lake Resort project ("the Project") after a multi-year review process in June of 2013. Pursuant to the Town Code, Double Diamond established an operating account for the Town's use. The purpose of the account was to reimburse any Project related expenses to assist the Town in application review, the hiring of consultants, site inspection and any other work concerning the Project. Between the fund's creation in 2008 through 2019, Double Diamond replenished the account 43 times with its own funds. During this same period the Town charged approximately $243,618.92 in Project-related costs against the account.
In July 2020 Double Diamond sold the approved Project to petitioners Lost Lake Holdings LLC and Mishconos Mazah LLC ("petitioners"). At the time of the sale the balance in the Project escrow account was $20,723.59. To date petitioners have not replenished the account with any additional funds. In November 2020 petitioners sought permits from the Town to construct residential dwellings on two lots located on the Project's grounds. The town initially approved both applications but subsequently revoked the permit for one lot. In June 2021 petitioners again applied for a building permit to construct a residential property on a third lot. In response, the Town Building Inspector hired an outside consulting engineering firm to aid in reviewing the application. The consultant's fee was paid out of the Project reimbursement account. In February 2021 the Town retained the law firm of Harris Beach as special consultants to provide counsel regarding all Project matters. Upon review of petitioner's June 2021 building permit application, consultants for the Town identified issues requiring remediation as a precondition to the issuance of a building permit.
In October 2021 petitioners sent written correspondence to the Town alleging that the delay in issuance of the permits was a deliberate attempt to frustrate petitioner's intention of developing the Project to provide "reasonably priced housing to the Hasidic Jewish Community." In November 2021 petitioners sent written correspondence to the Town objecting to the use of funds from the reimbursement account to pay for legal and consulting engineering expenses. Specifically, petitioners contended that the Town Code did not contain any limiting provisions to guard against the unilateral imposition of costs which may be deemed unnecessary' or unreasonable. In response to petitioners' concerns, the Town passed a resolution introducing a three month moratorium ("Moratorium Law") on all land use applications involving the posting of reimbursement funds. The stated purpose of the Moratorium Law wras to temporarily stay any such applications to provide the Town with adequate time to establish a procedure for the use and disbursement of such funds which comports with applicable law. The Town adopted the Moratorium Law on February 3, 2022 which expired on May 3, 2022. On the same day, the Town introduced a resolution to amend the Town Code requirements related to reimbursement accounts. The proposed changes w'ould amend the substantive and procedural requirements for the reimbursement of expenses which are reasonable and necessary to aid the Town in reviewing land use projects. In anticipation that the amended law' would pass, the Town's Supervisor conducted an audit of the consulting invoices to identify expenses which were reasonable and necessary' to the review of building permit applications. As of July 1,2020 there was a balance of $20,723.59 in the Project reimbursement account. Between July 1, 2020 and March 4. 2022 a total of $17,655.50 was withdrawn from the account, $7,643.00 of which attributed to outside engineering services and the remaining $10,012.50 was for attorney fees. Of the withdrawals for legal expenses, the Supervisor identified six charges totaling $2,137.50 which he concedes were not necessary and should not have been charged against the Project reimbursement account. On April 7, 2022 the Town Board authorized $2,137.50 to be credited to the Project reimbursement account for the select charges. This proceeding ensued.
To prevail on a motion to dismiss based on a defense founded upon documentary evidence, the defendant's proof must be unambiguous, authentic, undeniable and establish a defense to the claims as a matter of law. Goshen v. Mut. Life Ins. Co. of New York, 98 N.Y.2d 314 (2002). On a motion to dismiss a complaint for failure to state a cause of action, the court must afford the pleading a liberal construction, accept all facts as alleged in the pleading to be true, accord the plaintiff the benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory. Leon v Martinez, 84 N.Y.2d 83, 87-88 (1994). Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss. EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11,19 (2005).
Respondents contend that petitioners' first, second and fourth causes of action are defective as a matter of law for failure to serve upon the Town a valid notice of claim. Petitioners contend that notice of claim is not required as the remedies that they seek are primarily equitable in nature. Section 50-e of the General Municipal Law requires that a notice of claim be served as a condition precedent "in any case founded upon tort" against a public corporation within ninety days after such claim arises. GML § 50-e(1)(a). Compliance with the notice of claim requirement is not necessary in actions where the primary' relief sought is equitable in nature and any demand for monetary damages is merely incidental to the requested injunctive relief. See Fontana v. Town of Hempstead, 18 A.D.2d 1084 (2d Dept 1963). To determine whether petitioners' claims are grounded in law or equity the court must consider the petition/complaint "in the light of all its allegations and its full scope and purport.'' Watts v. Town of Gardiner, 90 A.D.2d 615. 615 (3d Dept 1982).
The first cause of action seeks a positive injunction compelling respondents to refund funds expended from the Project reimbursement account and an to enjoin them from any alleged prospective illegal conduct. They allege that since any charges made to the account for consulting services were illegal for lack of proper procedure, the Town has a nondiscretionary duty to refund the account. The second cause of action seeks a declaratory' judgment and a determination that the funds in the account are petitioners' property and were held in trust by respondents. The fifth cause of action, a GML § 51 taxpayer suit, seeks to prevent future waste of public funds. Assuming that the reimbursement account must be replenished, this claim is also declaratory and equitable in nature. Given the aforementioned, the nature of the instant action/proceeding is essentially equitable in nature. Any demand for monetary damages is ancillary to the equitable relief sought. Accordingly, petitioners' first, second and fourth causes of action are not procedurally barred for failure to serve a notice of claim.
Respondents also contend that petitioners' second cause of action must be dismissed as a matter of law because no fiduciary relationship existed between petitioners and the Town. They maintain that petitioners' claim that the funds in the reimbursement account are being held in escrow is misplaced and that the funds in question were originally deposited by Double Diamond, the previous Project owner. They further allege that the funds deposited with the intent of benefitting the TOWTI constitute a bailment and not an escrow from which a fiduciary relationship may be construed.
"To prove the existence of an escrow agreement, it must be shown that there is (a) an agreement regarding the subject matter and delivery of the [funds], (b) a third-party depositary, (c) delivery of the [funds] to a third party' conditioned upon the performance of some act or the occurrence of some event, and (d) relinquishment by [the grantor or depositor]." Mtge. Elec. Registration Sys., Inc. v. Maniscalco, 46 A.D.3d 1279,1281 (3d Dept 2007) (internal quotation marks omitted). Respondents have demonstrated that the act of depositing funds to the Project reimbursement account did not establish an escrow' relationship between Double Diamond and the Town. Pursuant to Section 85-19 of the Town Law, zoning applicants are required to deposit funds sufficient to reimburse the Town for consultants w ho may assist the Town in reviewing applications. Per the unambiguous provisions of the statute, the funds are for the express benefit and use of the Town and not a third-party entity. Accordingly, the second and third elements of an escrow agreement are not present. Given that an escrow agreement did not exist between the Town and Double Diamond, the depositor of the funds, it follows that petitioners as successors in interest to Double Diamond do not have an escrow relationship as well. Despite petitioners' contention that Town Code 85-17 categorizes the deposited funds as being held "in escrow," such label is not dispositive of the issue. See Lennar Northeast Partners Ltd. Partnership v. Gifaldi, 258 A.D.2d 240, 243 (4th Dept 1999) ("Merely "[c]alling an act an escrow does not necessarily make it such.... The word is often used for a holding which has none of the effects which the law' attributes to it."). For the same reasons as stated above, the funds in the reimbursement account were also not held "in trust" as no fiduciary' relationship existed between petitioners and the Town.
This Court may order an accounting when four factors exist. They arc: (1) a fiduciary relationship, (2) entrustment of money or property, (3) no other remedy, and (4) a demand and refusal of an accounting. See Matter of In re Mary XX., 33 A.D.3d 1066 (3d Dept 2006). For the same reasons set forth above petitioners have not alleged in their pleadings that a fiduciary relationship existed between the Town and themselves. Furthermore, as a municipal corporation the Town is obligated to comply with the requirements of the Freedom of Information Law (FOIL). To the extent that petitioner seeks access to the Town's accounting records regarding the disbursement of Project funds, it has a remedy in law' and may obtain the relief sought through FOIL.
Respondents further maintain that petitioners' fourth cause of action, a GML § 51 taxpayer claim, must also be dismissed as a matter of law'. They contend that as the Project reimbursement account is comprised of funds deposited by Double Diamond and not the public in general, petitioners have not sufficiently pleaded a misuse of public funds. Petitioners also allege that, assuming that the Town misapplied its own law and disbursed Project funds for an improper purpose, petitioners have not pleaded the requisite illegal, fraudulent or unlawful conduct required to maintain a GML § 51 taxpayer suit and that the aforementioned acts amount only to an allegation of negligence.
An action under GML §51 is equitable in nature and not available if there is an adequate remedy in law. See Cohn v. Bd. of Sup'rs of Warren County, 34 Misc.2d 928 (Sup Ct 1962). mod. 17 A.D.2d 104 (3d Dept 1962), affd sub nom. Cohn v. Bd. of Suprs. of Warren County, 13 N.Y.2d 695 (1963). Petitioners' first cause of action seeks an order requiring replenishment of the funds and prohibition proscribing any further alleged illegal use of Project funds. Both aspects of the claim are legal in nature and will afford petitioners the full relief that they seek if they ultimately prevail on the merits. Id. As petitioners have an adequate remedy at law, they may not seek equitable relief under GML §51.
Respondents also move to dismiss petitioners's fifth cause of action which seeks a declaration that Town Code 68-16(b) is unlawful on grounds that the challenge is barred by the six year statute of limitations applicable to declaratory judgment actions. They contend that as the law was enacted in December 2006. any challenge to the law would be untimely after December 2012. Respondents' conclusion that petitioners' cause of action accrued as of December 2012 when the law went into effect is erroneous. A cause of action does not accrue until an injury is sustained. Vigilant Ins. Co. of Am. v. Hous. Auth. of City of El Paso, Tex., 87 N.Y.2d 36, 43 (1995). A defendant's interest in defending a claim must be balanced with a plaintiffs interest in not being deprived of a claim before a reasonable chance to assert it arises. Id. In the instant case petitioners purchased the Project from Double Diamond in July 2020. Thereafter, the Town incurred the outside consultant and legal fee charges which are the subject of this litigation. Without making any findings of fact with respect to petitioners' claim to the funds in the reimbursement account vis-a-vis any ownership interest of the original depositor Double Diamond, the foregoing nonetheless renders petitioners' fifth cause of action for declaratory judgment timely and not subject to dismissal on statute of limitation grounds.
Lastly, respondents move to dismiss petitioners' sixth cause of action seeking to nullify the Town's three month-long Moratorium Law passed February 3, 2022 prohibiting acceptance and review of building and land use permits. The Moratorium Law by its own terms expired in May 2022 and is no longer in effect. Accordingly, the cause of action is moot. Petitioners have already obtained the relief sought and a determination rendering the law null and void would no longer affect the rights of the parties. See Sportsmen's Tavern LLC v. New York State Liq. Auth., 195 A.D.3d 1557 (4th Dept 2021). Wherefore, it is
ORDERED that respondents' motion to dismiss petitioners' second, third, fourth and sixth causes of action is granted. It is further
ORDERED that the motion is otherwise denied.
The Court declines to accept respondents' invitation to treat its motion to dismiss as also one for judgment as a matter of law pursuant to CPLR 3211 (c). Respondents have not filed their answer and what limited discovery may be appropriate in this action has yet to be exchanged. 1 he Court and the parties would benefit from a more developed record and additional briefing on the now narrow ed issues before the Court. Accordingly, it is
ORDERED that respondents' and petitioners' motions for summary judgment are denied without prejudice with leave to renew at a future date.
The foregoing constitutes the decision and order of the Court. In accordance with CPLR § 3211(f) and CPLR § 7804(1) respondents shall file an Answer within ten days of the date of service of this order with notice of entry. A preliminary conference of this action will be held, in person, on September 21, 2022 at 11:00am at the Sullivan County Courthouse.
Pursuant to CPLR §5513, an appeal as of right must be taken within thirty (30) days after service by a party upon the appellant of a copy of the judgment or order appealed from and written notice of its entry, except that when the appellant has served a copy of the judgment or order and written notice of its entry, the appeal must be taken within thirty (30) days thereof.