Opinion
Index Number: 701402/2017
09-21-2017
Daler Singh, DBA Gilzian Enterprise LLC, Danielle Eve Taxi LLC, EAC Taxi LLC, DEC Taxi LLC, EC Taxi LLC, Chips Ahoy Taxi LLC, ECDC Taxi LLC and Dyre Taxi LLC, individually and on behalf of all others similarly situated, Plaintiffs, v. The City of New York and The New York City Taxi and Limousine Commission, Defendants.
NYSCEF DOC. NO. 67 Present: HONORABLE Hon. Kevin J. Kerrigan Justice Motion Date: July 11, 2017 Motion Cal. Number: 57 Motion Seq. No.: 1 The following papers numbered 1 to 5 read on this motion by defendant City of New York and defendant New York City Taxi and Limousine Commission for an order pursuant to CPLR 3211(a)(1) and (7) dismissing the complaint against them
| PapersNumbered | |
|---|---|
| Notice of Motion - Affidavits - Exhibits | 1 |
| Answering Affidavits - Exhibits | 2 |
| Reply Affidavits | |
| Memoranda of Law | 3-5 |
Upon the foregoing papers it is ordered that: Those branches of the motion which are for an order dismissing the first, second, and fourth causes of action and that part of the fifth cause of action which is based on fraud, on the ground of a failure to comply with the notice of claim provisions of New York City Administrative Code §7-201 and General Municipal Law §50-e are granted. Those branches of the motion which are for an order dismissing the first cause of action on other grounds are also granted. The remaining branches of the motion are denied.
I. Introduction
Plaintiff Danielle Eve Taxi LLC, plaintiff EAC Taxi LLC, plaintiff DEC Taxi LLC, plaintiff EC Taxi LLC, plaintiff Chips Ahoy Taxi LLC, plaintiff ECDC Taxi LLC, and plaintiff Dyre Taxi LLC successfully bid for New York City corporate wheelchair accessible taxi medallions at a public auction held on November 13, 2013. In February, 2014, plaintiff Daler Singh d/b/a Gilzian Enterprise LLC successfully bid for an independent wheelchair accessible taxi medallion at a public auction. Before the auctions, defendant City of New York and defendant New York City Taxi and Limousine Commission (TLC) (collectively the city defendants) made public statements and issued promotional materials concerning medallions, medallion prices, and price trends. In the months prior to auctions held over several years, TLC published reports on the average sale price of both individual and corporate medallions. The plaintiffs allege that the reports issued by TLC contained false, inaccurate, and misleading statements. TLC allegedly exaggerated the price of medallions in public reports while concealing the true prices and made false statements concerning the directional trend in medallion prices.
Plaintiff Singh formed Gilzian Enterprise LLC for the purpose of owning the taxi medallion, which cost the company $821,215. Richard Chipman organized Danielle Eve Taxi LLC, EAC Taxi LLC, DEC Taxi LLC, EC Taxi LLC, Chips Ahoy Taxi LLC, ECDC Taxi LLC, and Dyre Taxi LLC (the Chipman companies) for the purpose of owning two yellow taxi medallions each (a company with two medallions is called a minifleet). The purchase price for the mini-fleets ranged from $2,118,000 to $2,518,000 and totaled $16,426, 000..
After the plaintiffs made their purchases, the value of their medallions allegedly fell, and the plaintiffs attribute their losses not only to alleged fraud committed by the TLC, but also to the TLC's failure to restrict the activity of companies like Uber Technologies, Inc. The plaintiffs allege that a medallion gives them the exclusive right to pick up passengers via "street hail" in certain areas of the city and that Uber infringes on this right by picking up passengers who arrange for transportation through the use of an application on their smart phones.
The relevant regulatory background and distinctions concerning yellow cabs, black cars (which Uber vehicles supposedly are), and other types of vehicles for hire are given in three decisions issued by the Honorable Allan Weiss, a Justice of the New York State Supreme Court, County of Queens, in three cases : (1) Glyca Trans LLC v. City of New York, Index No. 8962/15 ( September 8, 2015), (2) XYZ Two Way Radio Service, Inc. v. The City of New York, Index No. 5693/15 ( September 8, 2015), and (3) Melrose Credit Union v. The City of New York, Index No. 6443/15 (September 8, 22015).
The cases decided by Justice Weiss were largely Article 78 in nature, the petitioners, who were parties with interests in medallions, essentially seeking to compel TLC to enforce laws and regulations protecting the exclusive rights of medallion holders. (Justice Weiss granted the respondents' CPLR 3211 dismissal motions.) The instant action, which purports to be a class action, is very different from those decided by Judge Weiss, but it is very similar in structure to another case previously decided by this court.
On September 30, 2015, plaintiff Jaspreet Singh, plaintiff CGS Taxi LLC, plaintiff D&P Baidwan, LLC, plaintiff C&R Bhogal, LLC, and plaintiff PEG Taxi, NYC, LLC who had also successfully bid for New York City taxi medallions at public auction and who had thereafter experienced a fall in their value allegedly due to Uber and other technological transportation companies, began an action in the New York State Supreme Court, County of Queens which was very similar to the case at bar ( CGS Taxi LLC v. The City of New York, Index No. 713014/15). The case was assigned to this part. The law firm of Wolf Haldenstein Adler Freeman & Herz LLP represented the plaintiffs in CGS Taxi, and the same law firm represents the plaintiffs in the instant action.
On March 16, 2016, the defendants in CGS Taxi submitted a motion for an order pursuant to CPLR 3211(a)(1), (5), and (7) dismissing the complaint against them. Pursuant to a decision and order dated April 18, 2016 (one paper), this court converted the motion into one for summary judgment pursuant to CPLR 3211(c). (CGS Taxi LLC v. The City of New York , 2016 WL 2939774,) The case proceeded to discovery, On March 8, 2017, defendant City of New York and defendant TLC submitted a motion for summary judgment dismissing the complaint against them and the plaintiffs submitted a cross motion for, inter alia, partial summary judgment and an order certifying this action as a class action. Pursuant to a decision and order dated May 2, 2017 (one paper) and entered May 9, 2017, this court granted the motion by the city defendants for summary judgment and denied the cross motion by the plaintiffs. (CGS Taxi LLC v. The City of New York , 2017 WL 2734862.) The court found that the plaintiffs had not complied with notice of claim requirements. On June 2, 2017, the plaintiffs in CGS Taxi filed a notice of appeal.
II. The Complaint
The first cause of action is for violation of General Business Law §349 which prohibits "deceptive acts or practices in the conduct of any business, trade, or commerce or in the furnishing of any service." The second cause of action is for fraud. The third cause of action is for breach of the implied covenant of good faith and fair dealing. The fourth cause of action is for negligent misrepresentation. The fifth cause of action is for rescission of the auction sale transactions.
The court notes that the complaint in this case differs from the complaint filed in CGS Taxi which contained a sixth cause of action labeled "violation of licensing statutes and regulations" and which apparently sought damages and/or rescission and a seventh cause of action labeled "failure to enforce codes and rules pertaining to black car operations,"also apparently for damages and/or rescission. The plaintiffs in CGS Taxi demanded consequential damages, punitive damages, rescission of the auction sale transactions, costs and attorney's fees, as the plaintiffs in this case do, but the complaints in both cases are without a demand for Article 78 relief.
II. CPLR 3211(a)(7)
A. Notice of Claim
The failure to comply with statutory notice of claim requirements can result in the dismissal of the complaint pursuant to CPLR 3211(a)(7). (See, e.g., Mosheyev v. New York City Dept. of Educ., 144 AD3d 645; Bertolotti v. Town of Islip, 140 AD3d 907.)
The complaint in the instant action alleges the following: " 14. Mr. Singh filed a notice of claim with the New York City Comptroller on December 16, 2016. Apart from acknowledging receipt of the notice, neither the Comptroller nor any other City official has responded to that notice. ***17. The Chipman affiliated plaintiffs filed a joint notice of claim with the New York City Comptroller on February 9, 2017. Neither the Comptroller nor any other City official has offered to adjust those claims or otherwise responded to that notice."
The city defendants argue that causes of action for tort or in the nature of tort must be dismissed because the plaintiffs did not file timely notices of claim.
The Chipman companies successfully bid for New York City corporate wheelchair accessible taxi medallions at a public auction held on November 13, 2013. The Chipman companies filed a notice of claim with the New York City Comptroller on on February 9, 2017. In February, 2014, plaintiff Daler Singh d/b/a Gilzian Enterprise LLC successfully bid for an independent wheelchair accessible taxi medallion at a public auction. Plaintiff Singh filed a notice of claim with the New York City Comptroller on December 16, 2016.
General Municipal Law §50-e, "Notice of claim," provides in relevant part: "1. When service required; time for service; upon whom service required.(a) In any case founded upon tort where a notice of claim is required by law as a condition precedent to the commencement of an action or special proceeding against a public corporation, as defined in the general construction law, or any officer, appointee or employee thereof, the notice of claim shall comply with and be served in accordance with the provisions of this section within ninety days after the claim arises ****." (Emphasis added.) ( See, Williams ex rel. Fowler v Nassau County Medical Center , t6 NY3d 531; Boring v. Town of Babylon, 147 AD3d 892.)
New York City Administrative Code §7-201, "Actions against the city," provides in relevant part: " a. In every action or special proceeding prosecuted or maintained against the city, the complaint or necessary moving papers shall contain an allegation that at least thirty days have elapsed since the demand, claim or claims, upon which such action or special proceeding is founded, were presented to the comptroller for adjustment, and that the comptroller has neglected or refused to make an adjustment or payment thereof for thirty days after such presentment ***." ( See, Raven Elevator Corp. v. City of N.Y., 291 AD2d 355; Katzman v. City of N.Y., 183 Misc2d 501,[AT 1st].)
New York City Administrative Code §7-201 imposes a duty to not only make the required allegation, but also, at least implicitly, to serve a notice of claim upon the comptroller. In Raven Elevator Corp. v. City of New York ( supra, 356), The Appellate Division, First Department stated: "With regard to those claims relating to projects for which Raven was the general contractor, Raven's communication to the City, identifying only the amount claimed, was so wanting in detail as to fail to constitute a notice of claim within the meaning of New York City Administrative Code §7-201(a), and since such notice is a condition of maintaining an action against the City, the subject claims were properly dismissed ***."
There is, of course, an interplay between Section 7-201 and section 50-e. (See, e.g.,Silicato v. Skanska USA Civil Ne. Inc., 112 AD3d 464.) New York City Administrative Code §7-201 and General Municipal Law §50-e together required the plaintiffs to serve timely notices of claim before asserting their causes of action for tort or for wrongful conduct in the nature of tort. (See, CGS Taxi LLC v. The City of New York , 2017 WL 2734862.) Read together, the plaintiffs were required to ( 1) serve a notice of claim within ninety days after their claims arose and (2) allege in their complaint that thirty days passed after they presented their notice of claim to the comptroller without action on his part. The plaintiffs complied with only the second requirement, which is insufficient. The court notes that General Municipal Law §50-i, " Presentation of tort claims; commencement of actions," though not applicable to the case at bar (see, CGS Taxi LLC v. The City of New York , supra.), similarly imposes two requirements upon a plaintiff: "(a) a notice of claim [must] have been made and served upon the city ***in compliance with section fifty-e of this article" and (2) there must be an "allegation in the complaint or moving papers that at least thirty days have elapsed since the service of such notice ***, and that adjustment or payment thereof has been neglected or refused ***." (See, Fernandez v. City of N.Y., 148 AD3d 995.)
The plaintiffs' second cause of action asserting fraud and fourth cause of action asserting negligent misrepresentation are in tort and must be dismissed for failure to comply with New York City Administrative Code §7-201 and General Municipal Law §50-e. (See, Serkil L.L.C. v. City of Troy, 259 AD2d 920.) The plaintiff's first cause of action for violation of General Business Law §349, which prohibits "deceptive acts or practices in the conduct of any business, trade, or commerce or in the furnishing of any service, " must also be dismissed for failure to comply with New York City Administrative Code §7-201 and General Municipal Law §50-e. General Municipal Law §50-e applies to a cause of action "sounding in tort."(See, Brunache v. MV Transp., Inc., 151 AD3d 1011; Inc. Vill. of Westbury v. IACO Realty, Inc., 131 AD3d 1060, 1061 The violation of a statute resulting in injury can give rise to a tort action, (see, Lauer v. City of New York, 95 NY2d 95), and a cause of action for the alleged failure to properly discharge a statutory duty can be deemed a cause of action sounding in tort for which the service of a notice of claim is a prerequisite to a lawsuit. (See, e.g., Mutuel Ticket Agents, Local 23293 v. Roosevelt Raceway Assocs., 172 AD2d 595.) Considering the purposes of GBL §349 and the statute's similarity with the traditional tort of fraud, a violation of the statute should be categorized as a tort for the purposes of New York City Administrative Code §7-201 and General Municipal Law §50-e.
That part of the fifth cause of action which is for rescission of the auction sale of the medallions because of fraud in the inducement (see, Shomron v. Griffin, 70 AD3d 406) must also be dismissed because of the failure to timely file a notice of claim. The court notes that the plaintiffs have taken the position that they are seeking rescission based on two causes of action: (1) a cause of action for breach of contract and (2) a cause of action for fraudulent inducement. " Here, though the remedy of rescission would be justified by either breach of contract or fraudulent inducement, Plaintiffs have alleged both causes of action." (Memorandum of Law, pp 36-37.) (See, Shugrue v. Stahl, 117 AD3d 527, 528 ["fraudulent inducement claim was not duplicative of their claim for breach of contract'].)
B. The First Cause of Action (General Business Law §349)
The first cause of action alleges a violation of General Business Law § 349, "Deceptive acts and practices unlawful," which provides in relevant part: "(a) Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful." (See, Meachum v Outdoor World Corp., 235 AD2d 462.) General Business Law § 349 contemplates actionable conduct that does not necessarily rise to the level of fraud (see, Gaidon v Guardian Life Ins. Co. of Am., 94 NY2d 330, 343; New York Univ. v Continental Ins. Co., 87 NY2d 308, 319). "Intent to defraud and justifiable reliance by the plaintiff are not elements of the statutory claim ***." (Small v. Lorillard Tobacco Co., Inc.,94 NY2d 43, 55; see,(Stutman v Chemical Bank, 95 NY2d 24.) "The statute was intended to empower consumers; to even the playing field in their disputes with better funded and superiorly situated fraudulent businesses. It was not intended to supplant an action to recover damages for breach of contract between parties to an arm's length contract." (Teller v. Bill Hayes, Ltd., 213 AD2d 141, 148.)
The first issue arising under GBL §349 pertains to whether the statute has any application against municipal defendants since it forbids "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state ***." It has been held that " section 349 authorizes a claim for deceptive business practices only against a 'person, firm, corporation or association' and does not apply to a state administrative agency performing governmental functions, such as DOCS here (General Business Law § 349[b] )." (Walton v. New York State Dep't of Corr. Servs., 25 AD3d 999, 1002, aff'd as modified, 8 NY3d 186.) The plaintiffs argue that the municipal defendants were engaged in a commercial function when they sold the medallions, thereby generating substantial revenues for the city, and that there is no case that suggests that a municipality that engages in commerce is not bound by the same commercial law that applies to other buyers and sellers. The plaintiffs rely on the "the general principle that, '[w]hen the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.' " (United States v. Winstar Corp., 518 US 839, 895, quoting Lynch v. United States, 292 US, 571, 579.)
But "[t]he regulation of an occupation by means of licensing is a valid exercise of the police power ***." ( 2 NY Jur2d, "Administrative Law," §69; see, e.g.,Melron Amusement Corp. v. Town of Mamaroneck in Westchester Cty., 104 AD2d 858, 859 ["For these reasons, we find that Local Law No. 2/1981 constitutes a proper exercise of the town board's police power as it is rationally related to the protection and preservation of the public welfare and safety. "].) "Municipalities may regulate and control traffic. There is a strong public interest in regulating taxicabs, which include preventing congestion on the streets, insuring traffic safety, providing its citizens with safe and reasonably priced service, preventing unsafe driving, and insuring that competent people are servicing its citizens." ( G & C Transp., Inc. v. McGrane, 32 Misc3d 872, 877, aff'd, 97 AD3d 817.)
The court does not find it necessary to determine whether the municipal defendants were engaged in ordinary commercial activity, or in the exercise of the police power, or engaged in a hybrid function when they auctioned off the medallions. Instead, the court finds, as did the Appellate Division, Third Department in Walton v. New York State Dep't of Corr. Servs. (supra 1002), that GBL §349 applies only against a "person, firm, corporation or association"; the statute does not expressly or by implication apply to municipal defendants. Further support for an interpretation of GBL §349 which excludes municipal defendants from the scope of the statute may be found in GBL §349(h) which provides for an award of treble damages. "Among the remedies available to private plaintiffs are compensatory damages, limited punitive damages and attorneys' fees (General Business Law § 349[h] )." (Karlin v. IVF Am., Inc., 93 NY2d 282, 291.) Punitive damages are not recoverable against municipal defendants. ( Corvetti v. Town of Lake Pleasant, 146 AD3d 1118; Dorian v. City of New York, 129 AD3d 445,446 [" punitive damages are not recoverable against a state or its political subdivisions, which includes a municipality"].)
"A plaintiff under section 349 must prove three elements: first, that the challenged act or practice was consumer-oriented; second, that it was misleading in a material way; and third, that the plaintiff suffered injury as a result of the deceptive act ***." (Stutman v. Chem. Bank, 95 NY2d 24, 29; Valentine v. Quincy Mut. Fire Ins. Co., 123 AD3d 1011, 1015; Zurakov v. Register.Com, Inc., 304 AD2d 176.) While the statute is broad in scope, "[s]ection 349 does not grant a private remedy for every improper or illegal business practice, but only for conduct that tends to deceive consumers ***." (Schlessinger v. Valspar Corp., 21 NY3d 166, 172.) The statute is directed at practices which affect the public at large, and it has no application where there is merely a private contractual dispute between parties. (See, Yellow Book Sales and Distribution Co., Inc. v. Hillside Van Lines, Inc., 98 AD3d 663; Canario v. Gunn, 300 AD2d 332.) The plaintiff must allege that the the claimed violations have "a broad impact on consumers at large." (Plaza PH2001 LLC v. Plaza Residential Owner LP, 98 AD3d 89, 104,)
Proof of a prima facie case under General Business Law § 349 requires "a showing that defendant is engaging in an act or practice that is deceptive or misleading in a material way and that plaintiff has been injured by reason thereof * * *." (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, 85 NY2d 20, 25.) "[A] claim for deceptive business practices under General Business Law § 349 or for false advertising under General Business Law § 350 requires proof of a causal connection between some injury to plaintiffs and some misrepresentation made by defendants * * *." (Small v Lorillard Tobacco Co., 252 AD2d 1, 15, affd 94 NY2d 43.) The test for deceptive acts and practices is an objective one, i.e., whether the defendant made representations or omissions which were "likely to mislead a reasonable consumer acting reasonably under the circumstances." (Oswego Laborers' Local 214 Pension Fund v Marine Midland Bank, supra, 26.)
"Courts evaluating whether a conduct is 'consumer-oriented' have generally focused on several factors, namely, "(i) the amounts at stake, (ii) the nature of the contracts at issue, and (iii) the sophistication of the parties ***." (4 K & D Corp. v. Concierge Auctions, LLC, 2 Fsupp 3d 525, 548.) "To determine whether deceptive practices are consumer oriented, courts examine whether the transaction is more like '[t]he typical violation contemplated by the statute,' which 'involves an individual consumer who falls victim to misrepresentations made by a seller of consumer goods usually by way of false and misleading advertising,' than 'large, private, single-shot contractual transactions,' which involve 'complex arrangements, knowledgeable and experienced parties and large sums of money' ***." (904 Tower Apartment LLC v. Mark Hotel LLC, 853 Fsupp2d 2d 386, 399, quoting Teller v. Bill Hayes, Ltd., 213 AD2d 141, 146-48.) Cases where plaintiffs have recovered pursuant to GBL § 349 usually, if not uniformly, "involve transactions where the amount in controversy is small." (Teller v. Bill Hayes, Ltd., 213 AD2d 141, 146.) " Courts in New York have held repeatedly that a single shot transaction involving complex arrangements, knowledgeable and experienced parties and large sums of money is not a consumer-oriented transaction for purposes of GBL claims ***." ( 4 K & D Corp. v. Concierge Auctions, LLC, supra, 548 [internal quotation marks and citations omitted].)
The case at bar does not involve a consumer-oriented transaction. (See, Gray v. Seaboard Sec., Inc., 14 AD3d 852 [investors in securities].) This is not a case where the amounts in controversy are small, and the sale of the medallions was a complex process, starting with the solicitation of bids for the auction. Taxi medallions, like securities, are not purchased in the traditional manner that consumer goods are purchased, and taxi medallions, like securities, are not purchased as goods to be consumed or used. (See, Gray v. Seaboard Sec., Inc., supra.) The plaintiffs are investors who had access to large amounts of capital to put at risk, and they were, or should have been, sophisticated enough to risk the large sums of money paid for the medallions. Plaintiff Singh paid $821,215 for his medallion. Richard Chipman paid a total of $16,426, 000 for his medallions. These individuals are obviously not the small consumers intended to be protected by GBL§349, but rather investors with substantial personal assets or access to substantial financing. The sale of medallions often involves financing by banks and credit unions, who should be knowledgeable about the risks undertaken, if taxi drivers purchasing medallions are not. Moreover, the acts of the city defendants did not have a broad impact on the public at large, but merely upon a relative handful of entities interested in investing in taxi medallions. (See, Brooks v. Key Tr. Co. Nat. Ass'n, 26 AD3d 628 [investment advice and management of investment accounts].)
The plaintiffs did not state a claim under GBL §349.
C. The Other Causes of Action
A party moving for judgment dismissing one or more causes of action asserted against him pursuant to CPLR 3211(a)(1) on the ground that a defense is founded on documentary evidence must show that the documentary evidence submitted is " such that it resolves all the factual issues as a matter of law and conclusively and definitively disposes of the plaintiff's claim***." ( Fernandez v. Cigna Property and Casualty Insurance Company, 188 AD2d 700,702; see, Galvan v. 9519 Third Avenue Restaurant Corp, supra; Fontanetta v. Doe, 73 AD3d 78; Vanderminden v.Vanderminden, 226 AD2d 1037; Bronxville Knolls, Inc. v. Webster Town Center Partnership, 221 AD2d 248.
"Where, as here, evidentiary material is submitted and considered on a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), and the motion is not converted into one for summary judgment, the question becomes whether the plaintiff has a cause of action, not whether the plaintiff has stated one ***." ( Hallwood v. Incorporated Village of Old Westbury, 130 AD3d 571, 572; Agai v. Liberty Mut. Agency Corp., 118 AD3d 830; Fishberger v. Voss, 51 AD3d 627.) However, " unless it has been shown that a material fact as claimed by the plaintiff to be one is not a fact at all, and unless it can be said that no significant dispute exists regarding it, dismissal should not eventuate ***." ( Hallwood v. Incorporated Village of Old Westbury, supra,572; Agai v. Liberty Mut. Agency Corp., supra; Fishberger v. Voss, supra.) Consideration of evidentiary materials will almost never warrant dismissal of a cause of action pursuant to CPLR 3211(a)(7) unless they conclusively establish that the plaintiff has no cause of action. ( Hendrickson v. Philbor Motors, Inc., 102 AD3d 251.)
In regard to the plaintiffs' second cause of action, which is for fraudulent inducement, fourth cause of action, which is for negligent misrepresentation, and that part of the fifth cause of action which is for rescission because of fraud, the court has dismissed them on notice of claim grounds, but the city defendants did not on this mere CPLR 3211(a) (1)and (7) motion otherwise eliminate factual issues arising under these causes of action.
In regard to the third cause of action, which is in contract for breach of the implied covenant of good faith and fair dealing, and that part of the fifth cause of action which is for rescission for material breach of contract, the court again finds that the city defendants did not on this mere CPLR 3211(a) (1)and (7) motion otherwise eliminate factual issues arising under these causes of action. This case should proceed to discovery, and the city defendants may, if they are so advised, bring a motion for summary judgment based upon a better record. (See, CGS Taxi LLC v. The City of New York, supra.) Dated: September 21, 2017
/s/_________
Kevin J. Kerrigan, J.S.C.