Opinion
652225/14
01-05-2016
Board of Managers of the Gateway Condominium on its own behalf and on behalf of individual unit owners, Plaintiff, v. Gateway II, LLC, STEVEN C. GAETANO, MATTHEW GAETANO, MICHAEL GAETANO, GAETANO AND ASSOCIATES, INC., THE GAETANO DEVELOPMENT CORP., STEVEN C. GAETANO ARCHITECTS, P.C., and MANHATTAN PROPERTY MANAGERS, INC., Defendant.
For plaintiff: Herrick Feinstein LLP 2 Park Avenue New York, NY 10016 By: Arthur G. Jakoby, Esq. For defendant: Bartels & Fuereisen, LLP 1025 Westchester Avenue, Ste 402 White Plains, NY 10604 By: David Fuereisen, Esq., Ryan P Kaupelis, Esq.
For plaintiff: Herrick Feinstein LLP 2 Park Avenue New York, NY 10016 By: Arthur G. Jakoby, Esq. For defendant: Bartels & Fuereisen, LLP 1025 Westchester Avenue, Ste 402 White Plains, NY 10604 By: David Fuereisen, Esq., Ryan P Kaupelis, Esq. Robert R. Reed, J.
Plaintiff Board of Managers of the Gateway Condominium, on its own behalf and on behalf of those who own condominium units at the Gateway condominium complex (the Board), seeks compensation for alleged construction problems and faulty management of the condominium. Defendants seek to dismiss the complaint pursuant to CPLR 3211 (1) and (7). Background
The electronic records of the County Clerk reveal that no answer has been filed. Plaintiff filed a stipulation discontinuing this action as to Gaetano and Associates, Inc. and The Gaetano Development Corp., pursuant to CPLR 3217 (a) (1). As the case was discontinued against these parties, they are no longer in this action and, as noted by defendants, no order is required.
Defendants include the condominium real estate developer/sponsor, Gateway II, LLC (Gateway II), and its principals, Steven Gaetano (Steven), Matthew Gaetano and Michael Gaetano (together, the individual defendants). The individual defendants certified the offering plan (the Plan) for Gateway II. Steven is an architect, and the architectural firm that bears his name, Steven C. Gaetano Architects, P.C. (Architects), is also a defendant. Architects signed an architect's certification for Gateway II. Steven signed that certificate on behalf of Architects and reviewed a report addressed in the certification. Defendant Manhattan Property Managers, Inc. (MPM) was the property manager for Gateway II until June 2012.
In the complaint, plaintiff seeks millions of dollars in damages due to alleged defects in the structural components of the building and the building's systems that it claims are the result of defendants' negligence and mismanagement of the building. Plaintiff alleges that some of the construction defects pose a threat to their safety, including faulty fireproofing and structural integrity of a section of the building. Plaintiff states that there were misrepresentations in the Plan, which was incorporated into the unit owners' purchase agreements (PAs), in that it provides that the condominium would be renovated and constructed substantially in accordance with the plans and specifications described therein and in accordance with applicable law, regulations and building codes, and with only quality materials. Plaintiff states that these documents also provided that Gateway II would obtain a permanent certificate of occupancy (PCO) before the temporary one expired and anticipated receipt of it more than three years after the first unit closing, which occurred in 2005.
In the first cause of action, plaintiff alleges that Gateway II breached the Plan and the PAs by: (1) failing to construct the building in a manner and quality in accordance with the New York City Building Code (the Code), and the Plan and specifications; (2) failing to pay common charges for unsold units; and (3) failing to release financial books and records, and that plaintiff was damaged by these breaches. Plaintiff seeks to hold the individual defendants liable, as principals of Gateway II, for the breaches based on the fact that they certified the Plan. The second cause of action asserts that MPM was contractually obligated to, but did not, perform management duties involving the premises's maintenance and finances, which resulted in damages to plaintiff. The third cause of action is against Gateway II for indemnification.
Discussion
On a motion addressed to the pleadings, the court may dismiss the complaint if no legally cognizable cause of action has been stated within the four corners of the complaint (Scott v Bell Atl. Corp., 282 AD2d 180, 183 [1st Dept 2001], affd as mod sub nom. Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314 [2002]; see CPLR 3211 [a] [7]). Factual allegations must be accepted as true, the complaint must be construed in the light most favorable to plaintiff, and plaintiff given the benefit of reasonable inferences (Allianz Underwriters Ins. Co. v Landmark Ins. Co., 13 AD3d 172, 174 [1st Dept 2004]). However, "allegations consisting of bare legal conclusions, as well as factual claims either inherently incredible or contradicted by documentary evidence, are not entitled to such consideration" (Quatrochi v Citibank, 210 AD2d 53, 53 [1st Dept 1994]). A motion to dismiss based upon documentary evidence may be granted "where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" ( Goshen, 98 NY2d at 326; see CPLR 3211 [a] [1]).
All of the complaint's causes of action are for breach of contract. The elements of such a contract claim "include the existence of a contract, the plaintiff's performance thereunder, the defendant's breach thereof, and resulting damages" (Harris v Seward Park Hous. Corp., 79 AD3d 425, 426 [1st Dept 2010]).
Defendants, in moving, provide Steven's affidavit in which he avers that Gateway II is an 11-story, 90-unit condominium building that was constructed from 2004 through 2012, with the first unit sold in 2005 and the last in 2012. Steven states that unit owners took control of the Board in 2009 and that Gateway II and the unit owners are the only parties to the PAs.
Steven avers that, prior to their respective purchases of Gateway II condominium units, potential purchasers were afforded an opportunity to inspect the entire building, and many did so on multiple occasions, with professional engineers. Steven further avers that, prior to purchasing units, buyers executed inspection reports, noting defects or issues with the unit and agreed, through express language in the PAs and inspection reports, to relieve Gateway II of obligations with respect to their units and the building that were not noted in the inspection reports. Steven states that the complaint allegations were not noted in the inspection reports.
Defendants provide only a sample copy of the report, but plaintiff does not contradict defendants' assertion that what is complained of here is not included in those reports. Steven's affidavit includes additional facts and argument that are addressed later in this decision.
In opposition, Kevin Krieger, president of the Board, avers that the condominium was built and marketed as a luxury residential building, and that Gateway II made representations in the Plan and Gateway II's principals and Architects certified the Plan. Krieger states that the condominium is plagued by substantial, egregious construction defects that make it an ongoing hazard. Kreiger provides details about the alleged defects and a report from an engineering firm that the Board retained, which, he states, outlines defects and code violations requiring millions of dollars in investigation and building restoration costs. Kreiger further states that no PCO has been issued, no "as built" plans have been provided, and Steven's emails demonstrate animosity.
Defendants argue that claims against the individual defendants must be dismissed as there are no facts asserted that would indicate that veil piercing is appropriate and the Board cannot cite to any language in any agreement that creates privity with any non-sponsor defendant. In opposition, plaintiff states that it seeks to hold the individual defendants liable for breaches of the Plan and PAs because they signed the Plan certification.
The First Department has held that a sponsor's principal is not personally liable for breaches of an offering plan based on the execution of a sponsor certification, as the sponsor's principal, as required by the Martin Act (Board of Mgrs. of 184 Thompson St. Condominium v 184 Thompson St., 106 AD3d 542, 544 [1st Dept 2013]). Plaintiff cites to Second Department cases, and a trial court case that was decided in 2012, but 184 Thompson Street (106 AD3d 542), decided in 2013, is binding precedent in the First Department (D'Alessandro v Carro, 123 AD3d 1, 6 [1st Dept 2014] ["Supreme Court is bound to apply the law as promulgated by the Appellate Division within its particular Judicial Department (McKinney's Cons Laws of NY, Book 1, Statutes § 72 [b])"]). Plaintiff does not point to allegations in the complaint that would support liability of the individual defendants under an alter-ego or other veil-piercing theory and the claim against them must be dismissed.
Defendants seek dismissal of the complaint against Architects, and Steven as an architect. Most of the allegations of the complaint are directed at Gateway II, and the three separately enumerated causes of action do not address Architects by name. Reviewing the complaint reveals allegations: (1) that Architects' certification was incorporated into the Plan; (2) that Steven was the architect for the development and construction of the building; (3) that Steven, on behalf of Architects, made representations in the architect's certificate that were made a part of the Plan ; (4) that there are significant construction and design defects; (5) that Architects was responsible for ensuring that the condominium was constructed and renovated in accordance with the Code; (6) that Gateway II failed to complete the construction and renovation of the building in accordance with the plans and specifications described in the Plan and the Code; and (7) that "defendants" had notice of the construction and design defects, and failed to correct them and to repair the building in accordance with representations in the Plan and its contractual obligations (complaint, ¶ & 31-37, 57, 59, 64).
The complaint reprints the text of the architect's certificate.
The complaint specifically addresses, with supporting facts and clarity, what plaintiff alleges are the many deviations from the Plan in constructing the premises. However, when the complaint states that there are "design defects," this label is not definitively linked or attached to any factual description of defects.
In support of their motion, defendants submit the Plan, which states that Architects was the architect for the project and contains a certificate, dated March 29, 2004, required pursuant to 13 NYCRR Part 20, that is signed by Steven on behalf of Architects. The record also contains two standard architectural agreements between Steven and Gateway II. The first, dated June 10, 2002, states that it is for rehabilitation/renovation to the buildings that existed and were built upon. The second agreement, dated April 20, 2006, is for the "New 55 Unit 11 Story Expansion to existing residential condominium" (Gaetano aff, exhibit G).
Regarding the March 29, 2004 architect certification, Steven avers that it: (1) was made before construction commenced; (2) is limited to the review of the Plan and a report and states that those documents were sufficient as written; (3) makes no representations as to renovations or construction; and (4) is expressly conditioned on the condominium being renovated in accordance with the Plan and specifications reviewed by the architect.
Defendants argue that the complaint must be dismissed because there is no agreement between plaintiff and Steven or Architects, and no privity or privity-like relationship. In support, defendants argue that Steven and Architects were not parties to the Plan or PAs, and that plaintiff was not a party to, or a third-party beneficiary of, the two architectural agreements.
As a separate basis for dismissal, defendants argue that no claim is stated based on the Plan's architect's certification. The architect certification states that an engineering report (the Report) described the renovation and construction of the property and stated that the Plan and the Report are sufficient if "renovation and construction is in accordance with the plans and specifications that were examined" (Gaetano aff, exhibit D, at K-5). Defendants contend: (1) that the scope of Steven's work was limited to reviewing the Plan and the Report and certifying the Report, prior to construction; (2) that the Report's language does not confer liability on Architects for alleged deviations from the Plan; (3) that plaintiff does not claim that the Plan was insufficient, but that there were deviations from it that occurred after Steven worked as the architect; and (4) that plaintiff's claims are outside of the architect's duties and responsibilities pursuant to the Plan. Defendants argue that an architect whose work is limited to preparing and reviewing a report is not liable for damages that flow from construction of the condominium.
In opposition, plaintiff provides citation to two New York trial court cases holding that the certification's language was a sufficient link to permit a breach of contract claim against the certifying architect (see Board of Mgrs. of Marke Gardens Condominium v 240/242 Franklin Ave. LLC, 20 Misc 3d 1138[A], 2008 NY Slip Op 51789[U] [Sup Ct, Kings County 2008]; Bridge St. Homeowners Assn. v Brick Condominium Developers, LLC, 18 Misc 3d 1128[A], 2008 NY Slip Op 50221(U) [Sup Ct, Kings County 2008]). In those cases, the courts pointed to the specific language in the architect's certification, which language is also in the Plan in the present case, including that the certificate was made for the benefit of persons to whom the offer to purchase was being made, and afforded those persons "an adequate basis upon which to found their judgment concerning the description and/or physical condition of the property as it will exist upon completion of renovation and construction" (Gaetano aff, exhibit D, at K-5). Plaintiff also notes that the same defendants worked in many capacities on the project, with Steven acting in multiple roles that gave him access to more information than the average architect who merely prepares a report and reviews an offering plan.
In reply, defendants argue that Architects was not the sponsor, and that it is undisputed that the Board never entered into any contracts with Architects that could have been breached.
There is no dispute that plaintiff is not a signatory to the two architectural contracts. Generally, a plaintiff who purchases a condominium unit is a mere incidental third-party beneficiary to a contract between the sponsor and non-sponsor participants in the condominium project (see Leonard v Gateway II, LLC, 68 AD3d 408, 408-409 [1st Dept 2009] [individual unit owner plaintiff had no contractual relationship with the architect and may not recover for breach of contract]; Kerusa Co., LLC v W10Z/515 Real Estate Ltd. Partnership, 50 AD3d 503, 504 [1st Dept 2008] [same]; Residential Bd. of Mgrs. of Zeckendorf Towers v Union Sq.-14th St. Assoc., 190 AD2d 636, 637 [1st Dept 1993]). One who seeks to maintain an action for breach of contract as a third-party beneficiary must establish that there is a enforceable contract that was intended for the third party's benefit (Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 [2011]. "The best evidence . . . of whether the contracting parties intended a benefit to accrue to a third party can be ascertained from the words of the contract itself" (Alicea v City of New York, 145 AD2d 315, 318 [1st Dept 1988]). An intent to benefit a third party may be found where: (1) "no one other than the third party can recover if the promisor breaches the contract"; or (2) "the language of the contract otherwise clearly evidences an intent to permit enforcement by the third party" (id. [internal quotation marks and citation omitted]).
Plaintiff seeks recovery based on the certification. However,
"[t]he architectural . . . certification annexed to the [Plan] [is] not a contract of any kind. Although the certification includes language that it was being made for the benefit of prospective purchasers - language that is mandatory under the Attorney General's regulations (13 NYCRR Part 20) - it cannot be said that by having its principal sign the certification, [the architect] agreed to assume all of Sponsor's obligations under the Purchase Agreements and Offering Plan. Rather, it explicitly says that "This statement is not intended as a guarantee or warranty of the physical condition of the property"(Board of Mgrs. of 129 St. Condominium v 129 Lafayette St., LLC, 2012 NY Slip Op 33349[U], *16 [Sup Ct, NY County 2012]), quoting Leonard, 68 AD3d at 409 [internal quotation marks and citation omitted]. In Board of Managers of 141 Fifth Avenue Condominium v 141 Acquisition Assocs. LLC (2015 Wl 6126959 [Sup Ct, NY County, July 16, 2015, Scarpulla, J., index No. 651426/13]), the court found that the plaintiff was merely an incidental beneficiary of an architectural contract where the architect's certification contained a disclaimer of warranty/guaranty.
In this case, the architect's certificate also states that it is not intended as a guarantee or warranty of the property's physical condition. The certificate, which is not a contract in itself, is about the Report and Plan, and plaintiff does not allege that the documents reviewed and certified in the Report or Plan are deficient. Plaintiff does not dispute defendants' contention that the complaint does not concern deviations from the Plan. Both of the architectural contracts state that "[n]othing contained in this Agreement shall create a contractual relationship with or a cause of action in favor of a third party against either the Owner or the Architect" (Gaetano aff, exhibit G [both agreements], ¶ 1.3.7.5). This is not language that demonstrates an intention to benefit plaintiff. For these reasons, the complaint is dismissed as against Architects.
Defendants argue that the claims against MPM should be dismissed because MPM was not a party to the Plan or PAs and that documentary evidence demonstrates that MPM did not breach the Condominium Management Agreement as the condominium's books and records were transferred (Gaetano aff, exhibits H, I). Defendants argue that the Board is lying about the claim that records were not received, did not complain that the records were not received, and has not cited an instance in which records were not provided.
In opposition, plaintiff submits the affidavit of Jay Cohen, who is from the management company that took over after MPM. Cohen states that he received some boxes of documents from MPM, but that they did not contain the documents required to perform an audit of MPM's handling of the condominium's money, and that the accounting firm that handled the condominium's 2012 audit issued only a compilation for the year. To Cohen's understanding, a compilation is the least comprehensive level of financial reporting. Cohen provides the letter of an accounting firm that states that a certified audit is required under the Plan, which requires significant substantive evidence in support, and that only a compilation was done because MPM did not provide supportive financial documentation for the first half of 2012. Cohen provides details of his efforts to obtain records from MPM after his company took over.
Plaintiff also submits the affidavit of certified public accountant Donalee Berard, who states that the firm of Berard & Donahue conducted the audit of Gateway II in 2012. Berard states that the firm was required to issue an adverse opinion because it was unable to verify QuickBooks records, as MPM did not turn over all banking records. Berard also states that the firm was unable to determine what the correct common charge assessments were supposed to be, and, therefore, to verify income reflected in the records, and that there were no records of collections and usages of the capital fund. Berard states that, in January 2013, she tried to get in touch with MPM, but her letter was returned, and that an email to Steven in April 2013 received no response. These submissions raise a fact issue that precludes dismissal of the breach of contract claim against MPM.
Defendants also argue that the mismanagement claims should be dismissed as they lack particularity and are speculative and conclusory. Defendants contend that the Board performed a reconciliation of records upon receipt and attempts to justify speculative claims by falsely denying the receipt of books and records. The complaint and plaintiff's submissions are sufficiently specific to put MPM on notice of the claims against it (CPLR 3013).
Defendants seek dismissal of the complaint against Gateway II. A defective construction case may be brought against a sponsor (see e.g. Plaza PH2001 LLC v Plaza Residential Owner LP, 98 AD3d 89, 100 [1st Dept 2012] [breach of contract claim based on offering plan requirements]; Gruber v Gencorelli, 187 AD2d 560 [2d Dept 1992]). Gateway II argues that the complaint should be dismissed based on the language of the Plan that states:
"Sponsor will not be liable for, and a purchaser may not make a claim for, incidental, consequential, special, or indirect damages. The Sponsor will not be responsible for correcting any latent defects of construction or renovation or defects in the installation or operation of any appliances, equipment or fixtures with respect to which assignable warranties or other undertaking (however denoted) from contractors, materialmen, or others, have been assigned to the Condominium or individual Unit Owners. Also, in no event shall the Sponsor be responsible for any condition resulting from normal wear and tear or natural deterioration or from the normal settling or shifting of the Building or normal spalling of concrete, or for other minor defects, such as, without limitation, nail pops, ridging on sheet rock walls, lumber shrinkage, door sticking due to weather, door warpage"(Gaetano aff, exhibit D at 76). Defendants argue that this is Gateway II's express disclaimer of responsibility for latent defects. The Plan was drafted by Gateway II and is a form contract in nature. The language upon which defendants rely, about latent defects, cannot be divorced from the immediately following language concerning assignable warranties from contractors that have been assigned to the condominium or unit owners, and this language, read as a whole, does not bar the complaint.
Gateway II also points to a provision in the PAs titled "Inspection, Condition of Units" which provides that the purchaser and a Gateway II representative would inspect the unit at least one day before closing and that at the inspection's conclusion, the purchaser would complete and sign an inspection statement. The inspection statement is the buyer's confirmation that the unit's interior, equipment, fixtures and appliances were in good and satisfactory condition unless a problem was listed on the statement. The statement has a list of items such as: walls, floors, windows, kitchen sink, hardware, "other," and spaces for comments about exceptions to the purchaser's agreement that the unit was in good condition. Gateway II and the purchaser agreed that Gateway II did not have to make repairs within the unit unless noted on the statement. Regarding inspection, the Plan states that the purchaser's signing of the purchase agreement
"shall constitute its acceptance of the Unit and the Building in the condition in which it shall be at the time of Closing, subject solely to the "Exceptions" noted on the inspection statement (including the existing kitchen, bathroom and other appliances, fixtures, equipment, air conditioning units and installations, if any, which are owned by the Sponsor) and in accordance with the Sponsor's rights and obligations under the [Plan]. By closing title, purchaser waives any claim regarding the condition of the Unit except as set forth in the inspection statement. . . . Except as expressly provided in this Agreement or the [Plan], Sponsor shall have no obligation to repair or improve the Unit, any portion of Property, or the appliances, equipment or fixtures attached to or used in connection
with the Unit or Property"(Gaetano aff, exhibit D at A-9, A-10).
Defendants argue that this provision and the inspection statement effect a waiver of plaintiff's right to bring a breach of contract claim against Gateway II for defects in the units or building. It is well known "that waiver is an intentional relinquishment of a known right and should not be lightly presumed" (EchoStar Satellite L.L.C. v ESPN, Inc., 79 AD3d 614, 617 [1st Dept 2010] [internal quotations marks and citation omitted]). Such intention "must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act" (id. [internal quotation marks and citations omitted]).
While the completion of the inspection form prevents a unit owner from asserting claims for certain types of defects, the language of it, and the clause cited above, may not be read to constitute the unmistakable waiver or relinquishment of the right to bring any contract claim based on Gateway II's alleged failure to meet the Plan's requirements. That a unit purchaser accepted the condition of the unit and building at the time of closing would not be a blanket waiver of claims about building construction that had not yet to be performed. Moreover, the use of the word "waiver" concerning those items that were in and attached to or connected with the Unit or Property, indicates that the word "accept" was not synonymous with or intended as a waiver. The language predicating waiver on closing title concerns only the Unit, not the building, and the language "[e]xcept as expressly provided in this Agreement or the [Plan]" qualifies the clause. It cannot be determined that, as a matter of law, a reasonable person reading the inspection statement would conclude that it was a blanket relinquishment of any claim for latent structural building construction problems or Gateway II's failure to adhere to the Plan.
At least some buyers were permitted to purchase units while construction was being performed.
In any event, the breach of contract cause of action against Gateway II cannot be dismissed because Gateway II has not disposed of all of the complaint's allegations. For example, concerning the PCO, defendants state that the Plan allows for the extension/renewal of the temporary certificate of occupancy. However, the Plan also requires Gateway II to obtain a PCO. While there is no deadline for this obligation, in such instances, the law imputes a reasonable time which "depends upon the facts and circumstances of the particular case" (Teramo & Co. v O'Brien-Sheipe Funeral Home, 283 AD2d 635, 636 [2d Dept 2001]). What would constitute a reasonable time concerning construction of this nature has not been resolved on this record.
Defendants seek dismissal of plaintiff's third cause of action for indemnification. In determining whether contract indemnification provisions are intended to indemnify for disputes between the parties to a contract, the Court of Appeals has stated that a court should examine whether the provision is susceptible to third-party claims, and "exclusively or unequivocally referable to claims between the parties themselves" (Hooper Assoc. v AGS Computers, 74 NY2d 487, 492 [1989]). "The bottom line is that a contract provision employing the language of third-party claim indemnification may not be read broadly to encompass an award of attorney's fees to the prevailing party based on the other party's breach of the contract; the provision must explicitly so state" (Gotham Partners, L.P. v High Riv. Ltd. Partnership, 76 AD3d 203, 209 [1st Dept 2010]). The provision's language, "Sponsor shall be obligated to defend any suits or proceedings arising out of its acts or omissions and to indemnify the Board of Managers or the Unit Owners against any such suits or proceedings" (Gaetano aff, exhibit D, at 72-73), is not an explicit statement that Gateway II agrees to indemnify the Board/unit owners for their own claims against Gateway II, but is a relatively standard indemnification clause that could encompass a third party's claim. Thus, plaintiff's indemnification claim must be dismissed.
Conclusion
Therefore, it is
ORDERED that the motion to dismiss the complaint is granted to the extent that the complaint is dismissed against defendants Steven C. Gaetano, Matthew Gaetano, Michael Gaetano, and Steven C. Gaetano Architects, P.C. and the third cause of action of the complaint is dismissed, and the motion is otherwise denied. Dated: January 5, 2016 ENTER: _____________________________ J.S.C.