Opinion
05 Civ. 1958 (RMB).
July 20, 2006
DECISION AND ORDER
I. Introduction
On or about December 28, 2005, Plaintiff St. Paul Fire and Marine Insurance Company ("St. Paul" or "Plaintiff"), "as subrogee of ICG Telecom Group, Inc." ("ICG"), filed a First Amended Complaint ("Complaint") seeking recovery in excess of $650,000 from Defendants JEMB Realty Corp. ("JEMB"), 75 Broad Street LLC ("75 Broad"), and Intira Corporation ("Intira") (collectively, "Defendants") for flood damages sustained by ICG after a water pipe burst in the unoccupied office space on the floor above ICG's offices. The Complaint alleges causes of action for negligence, breach of contract, and "reliance." (Complaint at 5, 7.)
Defendant 75 Broad was ICG's landlord and Defendant JEMB was the landlord's property manager. Defendant Intira, who has not has not submitted an answer to the Complaint and does not join in the instant motion for summary judgment, is the successor company to the tenant of record of the office space where the flood originated. (Complaint ¶ 4-9.)
On or about January 24, 2006, Defendants 75 Broad and JEMB moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure ("Fed.R.Civ.P."). (See Notice of Motion for Summary Judgment ("Def. Mot.").) On the same day, Defendants filed a Memorandum of Law in Support of Motion for Summary Judgment ("Def. Mem.") arguing, among other things, that (1) St Paul is barred from maintaining the subrogation action because of a waiver of subrogation provision contained in ICG's lease; and (2) Plaintiff's action is barred "by virtue of the lease termination agreement," dated July 13, 2004 ("Lease Termination Agreement") between ICG and 75 Broad. (Def. Mem. at 4, 19.) On or about February 13, 2006, Plaintiff filed a Memorandum of Law in Opposition to Defendants' motion ("Opposition") arguing, among other things, that (1) the waiver of subrogation clause does not absolve Defendants of the obligation properly to maintain the heating and air conditioning system in the vacant office space above ICG; and (2) even if the waiver of subrogation were to apply, Plaintiff would still be entitled to recovery "up to the limits of the $750,000 security deposit provided to [JEMB and 75 Broad by Intira and its predecessor company]," and the lease termination agreement "should be afforded no weight." (Opposition at 2, 17.) On or about February 28, 2006, Defendants filed a reply memorandum of law ("Reply") arguing that Plaintiff's security deposit claim is non-cognizable. (Reply at 9.) The parties have waived oral argument.
For the following reasons, Defendants' motion for summary judgment is granted.
II. Background
Although St. Paul disputes certain conclusions of law contained in Defendants' Statement Pursuant to Local Rule 56.1 ("Def. Stmt."), none of the material facts of this case appear to be in dispute. (See Plaintiff's Statement Pursuant to Local Rule 56.1 ("Pl. Stmt.") at 1; Def. Stmt.)
ICG Telecom occupied a portion of the fourth floor of a building located at 75 Broad Street in Manhattan (the "Premises") pursuant to a lease, dated June 25, 1999 (the "Lease"). (See Affidavit of Michelle Motta ("Motta Aff.") Exhibit ("Ex.") A.) Paragraph 9(e) of the Lease contains the following provision:
Nothing contained hereinabove shall relieve Tenant from liability that may exist as a result of damage from fire or other casualty. Notwithstanding the foregoing, each party shall look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law, Landlord and Tenant each hereby releases and waives all right of recovery against the other or any one claiming through or under each of them by way of subrogration or otherwise. The foregoing release and waiver shall be in force only if both releasors' insurance policies contain a clause providing that such a release or waiver shall not invalidate the insurance.
(Motta Aff. Ex. A.) The insurance policy obtained by JEMB and 75 Broad from Greater New York Mutual Insurance Company, and the policy obtained by ICG from St. Paul, each contain language consistent with the waiver of subrogation. (See Def. Stmt. ¶ 9, 10 (Defendants' policy states, in relevant part, "You may waive your right to recover from others in writing before the a [sic] loss occurs." The policy between Plaintiff and ICG states, in relevant part, "Any release from liability entered into by the Insured in writing prior to loss hereunder shall not affect this policy or the right of the Insured to recover hereunder.").)
On January 12, 2004, a flood "caused by the freezing and rupture of a pipe and/or sprinkler system" on the sixth floor of 75 Broad Street resulted in damage to ICG's office space. (Def. Stmt. ¶ 3.) ICG submitted a property damage claim to St. Paul which "anticipates paying [ICG] in excess of $650,000." (Complaint ¶ 2.) At the time of the flood, the tenant of record on the sixth floor was Digital Broadcast Network Corpoation ("DBN") (pursuant to a lease dated March 24, 1999 (the "DBN Lease")), although the space had, in fact, been vacated approximately one year prior to January 12, 2004. (See Motta Aff. Ex. C; Def. Stmt. ¶ 4.) Paragraph 54 of the DBN Lease states: "Landlord shall have no responsibility regarding repair, maintenance or replacement of Tenant's internal HVAC unit, all such repairs, maintenance and service being Tenant's sole responsibility." (Motta Aff. Ex. C.)
Although Plaintiff seeks recovery "in excess of $650,000," Plaintiff acknowledges in its memorandum of law that it has (only) paid $622,116.62 to ICG. (Opposition at 15.) Defendant Intira Corporation purchased DBN on an unspecified date after January 12, 2004 and became a "successor company in interest to DBN." (Def. Stmt. ¶ 4; Plaintiff's Statement Pursuant to Local Rule 56.1 ("Pl. Stmt.") ¶ 4.)
On or about April 16, 2004, Robert C. Shepps, an attorney for St. Paul, sent a letter to the Defendants ("Shepps Ltr."), stating "[o]ur investigation has revealed that the freeze-up was caused by your negligence. . . . I recommend that you immediately turn this letter over to your attorney or liability insurance carrier with a recommendation that they promptly contact me upon receipt of same." (Opposition Ex. E.)
Shortly thereafter, on or about July 13, 2004, 75 Broad and ICG signed the Lease Termination Agreement, effective October 31, 2004. (Motta Aff. Ex. D.) The Agreement contains the following provision:
Subject to . . . Tenant's performance of this respective obligations under this Agreement and, to the extent herein contemplated, under the Lease, and except for those obligations stated in this Agreement, effective as of the Effective Date, each party hereto, for itself and each of its respective past, present and future predecessors, successors, shareholders, members, employees, administrators, trustees and attorneys hereby fully and forever remises, releases, relinquishes, waives and discharges the other party hereto, and all of its past, present and future predecessors, successors, subsidiaries, parents, assigns, agents, representatives, partners, officers, managers, directors, shareholders, members, employees, administrators, trustees and attorneys of and from any and all actions, causes of action, rights, liabilities, suits, debts, dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, contracts, leases, controversies, agreements, promises, variances, trespasses, damages, judgments, executions, and claims of whatever kind or nature in law or equity, whether known or unknown, vested or contingent, suspected or unsuspected, which said party may now have, ever had or will have against the other party in connection with the Lease or the Premises which it may have under any provision of applicable law.
(Motta Aff. Ex. D.)
Steven Pietropaolo ("Pietropaolo"), a mechanical engineer retained by the Plaintiff to investigate the cause of the flood, "observed several sprinkler piping and fitting failures throughout the mechanical room" located on the sixth floor of 75 Broad Street. (Affidavit of Steven Pietropaolo ("Pietropaolo Aff.") ¶ 3.) Pietropaolo concluded that the failure of the pipes "occurred due to a freeze up of the sprinkler system," which was the result of "the louvers for the air-cooled cooling towers [being] left in the open position, permitting the infiltration of cold exterior air." (Pietropaolo Aff. ¶ 4-5.) Pietropaolo further concluded that "had the mimimum amount of maintenance service been performed, including the winterization of the HVAC system to close the louvers and insulate the system, than this loss would not have occurred." (Pietropaolo Aff. ¶ 6.) Winterization of the HVAC system would have cost approximately $3,000. (Pietropaolo Aff. ¶ 6.)
Plaintiffs assert that Defendants JEMB and 75 Broad received a $750,000 security deposit from DBN. (Pl. Stmt. ¶ 5.) Alec Hicks, Jr. ("Hicks"), a "property management expert" retained by the Plaintiffs, concluded that "[i]n the case of a tenant who fails to complete the lease term and payments for rent, the security deposit is intended . . . to cover landlord's costs to repair or restore the demised premises and to otherwise fulfill the responsibilities of the tenant within the demised premises, in accordance with the terms of the lease." (Affidavit of Alec Hicks, Jr. ("Hicks Aff.") ¶ 2, 6.)
III. Legal Standard
Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); BBS Norwalk One, Inc. v. Raccolta, Inc., 117 F.3d 674, 676 (2d Cir. 1997). The Court must "construe the record in the light most favorable to the non-moving party and draw all inferences in that party's favor." Boguslavsky v. Kaplan, 159 F.3d 715, 719 (2d Cir. 1998). A genuine issue of material fact exists if "a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
Where the issue on summary judgment concerns the interpretation of a contract, a court shall determine, as a matter of law, whether the contract is clear on its face, or whether its terms are so ambiguous as to require additional proof demonstrating the subjective intent of the parties. Tokio Marine Fire Ins. Co., Ltd. v. McDonnell Douglas Corp., 617 F.2d 936, 940 (2d Cir. 1980); see also Seiden Assocs., Inc. v. ANC Holdings, Inc., 959 F.2d 425, 428 (2d Cir. 1992) ("When the question is a contract's proper construction, summary judgment may be granted when its words convey a definite and precise meaning absent any ambiguity."). "Where the language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, and where there is relevant extrinsic evidence of the parties' actual intent, the meaning of the words become an issue of fact and summary judgment is inappropriate."Seiden, 959 F.2d at 428.
IV. Analysis
(1) Waiver of Subrogation
Defendants argue that "both parties mutually agreed to waive all rights of subrogation as long as both the landlord (75 Broad) and tenant (ICG Telecom) maintained insurance policies which would not be invalidated should the insured waive, in writing and prior to a loss, any and all right of recovery against any party for loss occurring in the building." (Def. Mem. at 7.) Plaintiff counters that "Defendants should not be permitted to read the waiver beyond its scope, to now protect those in control of the sixth floor tenancy who bore the maintenance responsibility of the HVAC system, when it was JEMB/75Broad who had essentially taken over such space." (Opposition at 13.)
Defendants' argument is persuasive. "Subrogation is an `equitable doctrine [that] allows an insurer to stand in the shoes of its insured and seek indemnification from third parties whose wrongdoing has caused a loss for which the insurer is bound to reimburse.'" St. Paul Fire Marine Ins. Co. v. Universal Builders Supply, 409 F.3d 73, 84 (2d Cir. 2005) (quotingKaf-Kaf Inc. v. Rodless Decorations, Inc., 90 N.Y.2d 654, 665 N.Y.S.2d 47, 687 N.E.2d 1330, 1332 (1997)). Contracting parties "may freely waive their respective insurers' right to subrogation" and will "often choose to include such a waiver in a contract because they prefer to look to their respective insurers for the recovery of certain losses, and release any right of recovery either party — or its subrogated insurer — might have against the other party." Indian Harbor Ins. Co. v. Dorit Baxter Skin Care, Inc., 430 F. Supp. 2d 183, 189 (S.D.N.Y. 2006).
"Courts applying New York law must discern the meaning of the terms of a lease by looking to the plain meaning of its terms."Id. at 190 (citing Broad Props., Inc. v. Wheels, Inc., 43 A.D.2d 276, 351 N.Y.S.2d 15, 19 (App.Div. 1974)). The waiver of subrogation contained in ICG's lease clearly reflects the intention of ICG and 75 Broad to "look first to any insurance in its favor before making any claim against the other party for recovery for loss or damage resulting from fire or other casualty, and to the extent that such insurance is in force and collectible and to the extent permitted by law . . . release and waive all right of recovery against the other or any one claiming through or under each of them by way of subrogration or otherwise." (Motta Aff. Ex. A.) The waiver of subrogation applies to "any claim" for loss from fire or "other casualty" for which "insurance is in force and collectible." The "class of claims for which the parties' rights of subrogation are waived is clear: The claim need only arise from a hazard compensated by insurance." Indian Harbor, 430 F. Supp. 2d at 190.
The parties do not dispute that the flood on January 12, 2004 was a "fire or other casualty" for which insurance was in force and collectible.
Plaintiff's argument that the flood here falls outside the scope of the subrogation waiver because the Defendants "became in essence a defacto [sic] tenant, standing in the shoes of the sixth floor tenant's contractual duties" is unpersuasive. (See Opposition at 12.) Plaintiff relies primarily on Interested Underwriters at Lloyds v. Ducor's, Inc., 103 A.D.2d 76, 478 N.Y.S.2d 285 (App.Div. 1984), in which the tenant's insurer brought a subrogation action after the tenant sustained damages from a fire in an adjacent building which also happened to be owned by the tenant/subrogor's landlord. The waiver of subrogation clause in that case was identical to the one at bar,see Interested Underwriters, 103 A.D.2d at 76, but the court held that the waiver of subrogation did not bar the plaintiff/insurer's claim because "the dereliction of duty with which the defendant is charged is completely extraneous to any duty or obligation encompassed by the parties' agreement and the relationship created thereunder," and "the loss claimed arises out of an act wholly outside the scope of the landlord tenant relationship." Id. Here, on the other hand, the alleged failure to ensure that the sixth floor sprinkler pipes (in space leased by DBN) would not rupture is covered by the waiver of subrogation, i.e. is not "an act wholly outside the scope of the landlord tenant relationship." (See DBN Lease ¶ 4 ("Landlord shall maintain and repair . . . all building systems servicing the demised premises.").); Reade v. SL Green Operating P'Ship, 2006 WL 1549741, *2 (N.Y.App.Div. June 8, 2006) (holding landlord liable for negligence after sprinkler pipes froze and burst because, among other things, "the requirements to protect water supply pipes from freezing temperatures . . . are part of a comprehensive scheme of regulations designed to promote fire safety and to ensure the integrity of building sprinkler systems for the protection of the general public.").
Plaintiff does not cite any authority supporting the purported theory of de facto tenancy.
Plaintiff also relies on cases in which waivers of subrogation were invalidated because the losses alleged were not covered by the parties' insurance policies. See Liberty Mutual Insurance v. Perfect Knowledge Inc., 299 A.D.2d 524, 526, 752 N.Y.S.2d 677 (App.Div. 2002) ("[Waiver of subrogation] is necessarily premised on the procurement of insurance by the parties. Here, however, Perfect Knowledge breached certain provisions of the lease with respect to the procurement of insurance."); Gap, Inc. v. Red Apple Companies, Inc., 282 A.D.2d 119, 124, 725 N.Y.S.2d 312 (App.Div. 2001) ("While the parties to a commercial transaction are free to allocate the risk of liability to third parties through insurance and deployment of a waiver of subrogation clause . . . there is no legal impediment to the tenants' seeking recourse for their uninsured loss from the landlord, assuming they can show liability therefor.") (citation omitted). The parties to the instant case do not dispute that water damage was covered by insurance, and Plaintiff's reliance on Liberty Mutual and Red Apple is, therefore, misplaced. (See Complaint ¶ 2 ("St. Paul anticipated paying to the insured in excess of $650,000 in connection with a loss sustained on January 12, 2004 . . .").)
(2) Security Deposit
Plaintiff argues that even if the Court enforces the waiver of subrogation, the $750,000 security deposit received by the Defendants from DBN "is essentially an uninsured segment of the loss, falling outside the `risk insured against' for purposes of inclusion in the waiver of subrogation clause. . . . As such, the waiver of subrogation clause does not apply for the purposes of Plaintiff's efforts to recover from the . . . deposit." (Opposition at 14.) Defendants argue (persuasively) that Plaintiff "cites no authority to support this rough analogy, or to explain why it is relevant to the subrogation issue here." (Def. Mem. at 10.)
Plaintiff seems to rely upon cases in which courts have held, in some circumstances, that insurance deductibles "fall outside the ambit of `risk insured against' for purposes of inclusion in the waiver of subrogation clause." Red Apple, 282 A.D.2d at 122; see also Federal Ins. Co. v. Honeywell, Inc., 243 A.D.2d 605, 606, 663 N.Y.S.2d 247 (App.Div. 1997) ("[T]he waiver of subrogation clause . . . does not bar the plaintiff from seeking . . . return of the $55,000 deductible not covered by the insurance policy.") Here, St. Paul is not seeking return of a deductible — and it has not offered any legal authority that the security deposit should be treated like an insurance deductible.
(3) Lease Termination Agreement
Because the Court grants Defendants' motion for summary judgment based upon waiver of subrogation (see (1), above), it need not reach Defendants' alternative argument that "[e]ven without a waiver of subrogation claims [sic], [the] lease Termination Agreement would provide more than sufficient contractual basis to dismiss the remaining claims." (Def. Mem. at 19.)
V. Negligence/Breach of Contract/Reliance
Because the waiver of subrogation clause applies, summary judgment is granted to Defendants with respect to Plaintiff's cause of action for (simple or gross) negligence. (The Complaint states that the damage was caused "by the negligence, negligent [sic] per se, [and] gross negligence" of the Defendants.)See St. Paul, 409 F.3d at 86-87; Indian Harbor, 430 F. Supp. 2d at 190-191 (holding that waiver of subrogation applies to claim of simple and gross negligence). Plaintiff's breach of contract claim also cannot survive summary judgment, because it "appears to be an effort to dress its unavailing negligence claim in breach of contract clothing and, thereby, avoid dismissal." Farmington Cas. Co. v. 23rd St. Props. Corp., 250 F. Supp. 2d 293, 298 (S.D.N.Y. 1999); see also Am. Motorist Ins. Co. v. Morris Goldman Real Estate Corp., 277 F. Supp. 2d 304, 309 (S.D.N.Y. 2003) ("The breach of contract claim, which is based completely on Goldman's alleged negligence, is clearly within the scope of the waiver of subrogation clause . . .").
Summary judgment is also granted to Defendants with respect to Plaintiff's cause of action for "reliance," as Defendants are correct in arguing that no "reliance" cause of action exists in New York. See Anscombe Broadcasting Group, Ltd. v. RJM Commc'n, Inc., No. 03 Civ. 0306A, 2004 WL 2491641, at *6 (W.D.N.Y. Nov. 3, 2004) ("Anscombe's Third Cause of Action, alleging detrimental reliance, does not state a claim for which relief can be granted given that detrimental reliance is an element of a fraud claim, rather than a separate theory for recovery."); Adams v. Washington Group, LLC, No. 40621/2004, 11 Misc. 3d 1083(a) (N.Y.Sup.Ct. April 19, 2006) ("There is no independent cause of action for detrimental reliance.").
VI. Decision Order
For the reasons set forth above, Defendants' motion for summary judgment is granted.