Opinion
04-03618.
Decided December 8, 2004.
Ronald R. Levine, Esq., Levine, Hofstetter Frangk, Poughkeepsie, New York, Attorneys for Plaintiffs.
James Marisco, Esq., Rye, New York, Attorney for Defendants.
This is an action by plaintiffs to recover monies expended to remedy the allegedly defective conditions which existed in a newly-constructed home located at 18 Whittier Hills Road, North Salem, New York (the "premises"). In the complaint, it is alleged that plaintiffs purchased the premises from defendant Bartolomeo and/or defendant Whittier in March, 2002. In particular, it is claimed that the parties entered into the Residential Contract of Sale on March 5, 2002 (hereinafter the "contract"), and that the transfer of title to the premises to the plaintiffs occurred at the closing on March 22, 2002.
In their complaint, plaintiffs claim that defendant Bartomoleo was the contractor and owner of the premises in question and have annexed various documents suggesting that plaintiffs are correct in their assertions. For example, the application for the building permit dated 12/8/00 lists defendant Bartolomeo as the owner and contractor of the premises, and there is also an Affidavit from Mr. Bartolomeo annexed to the application wherein defendant Bartolomeo avers that he is the owner of the premises. (Complaint, Exhibit C). Another permit dated 2/1/01 entitles defendant Bartolomeo, as a licensed electrician, to install the electric wiring in the premises. (Complaint, Exhibit 1A). Moreover, the Guaranty of Separate Sewage System dated November 15, 2001, provides the following statement from defendant Bartolomeo:
As set forth herein, given the fact that there is a question as to whom plaintiffs contracted with on March 5, 2002, plaintiffs have also alleged in the complaint that defendant Whittier was the contractor of the premises.
This statement was signed and notarized by defendant Bartolomeo.
"I represent that I am wholly and completely responsible for the location, workmanship, material, construction and drainage of the sewage treatment system serving the above described property, and that it has been constructed as shown on the approved plan or approved amendment thereto, and in accordance with the standards, rules and regulations of the Westchester County Department of Health, and hereby guaranty to the owner, his successors heirs or assigns, to place in good operating condition any part of the system constructed by me which fails to operate for a period of two (2) years immediately following the date of the sewage treatment system was first placed into operation or any repairs made by me to such system, except where the failure to operate properly is caused by the willful or negligent act of the occupant of the building utilizing the system."
(Complaint, Exhibit G).
Furthermore, the Certificate of Occupancy was issued to Frank Bartolomeo as owner of the premises on March 12, 2002. (Complaint, Exhibit J). Indeed, it was not until March 22, 2002, 17 days after the parties entered into the contract and on the same day that the closing occurred with plaintiffs, that defendant Bartolomeo transferred ownership of the premises to defendant Whittier. It is likely that Bartolomeo's transfer of the deed to Whittier occurred within minutes of Whittier's transfer of the deed to plaintiffs. Thus, at the time plaintiffs entered into the contract on March 5, 2002, which is the subject of this action for breach of warranties based on the allegedly faulty construction of the premises, the corporate defendant, Whittier, did not hold title to the premises and, therefore, it would appear Whittier did not have the legal capacity to enter into the contract. Indeed, while the contract lists Whittier as the seller, the contract was signed by defendant Bartolomeo and there is no indication that he signed the contract in a representative capacity ( i.e., as an officer of Whittier). Instead, the contract appears to be signed by Bartolomeo in his individual capacity (as the legal owner of the premises, and the only one who appears to have had the legal capacity on March 5, 2002 to enter into the contract with plaintiffs). Thus, even though the contract lists the seller as Whittier, there is ample evidence suggesting that plaintiffs understood that they were entering into the contract with defendant Bartolomeo both as owner of the premises and as the builder of the premises.
Indeed, it would appear that defendant Whittier falsely represented in the contract that it "is the sole owner of the Premises and has the full right, power and authority to sell, convey and transfer the same in accordance with the terms of this contract." (See Residential Contract of Sale, Complaint, Exhibit B at ¶ 11).
Plaintiff Larry Lupien has submitted an affidavit wherein he avers that even after the transfer of title of the premises to plaintiffs, defendant Bartolomeo responded to plaintiffs' complaints regarding the alleged defects in the premises by coming to the premises and attempting to fix some of the problems, and also promising to fix other problems. However, Mr. Lupien avers that those promises were never fulfilled and, as a result, plaintiffs retained the services of other contractors to remedy the alleged latent defects found in the premises.
Standard of Review
In deciding a motion to dismiss a complaint for failure to state a claim under CPLR Rule 3211, the allegations of the complaint, and all reasonable inferences that may be drawn from those allegations, must be accepted as true and the complaint must be liberally construed in favor of the petitioner. (See Anguita v. Koch, 179 AD2d 454). While plaintiff may be required to supply evidentiary support for his claims in response to a motion for summary judgment under CPLR Rule 3212, he is not obligated to do so in response to a pre-answer motion to dismiss under CPLR Rule 3211. The central question on motions to dismiss is whether the complaint's allegations state a legally cognizable cause of action. (See Held v. Kaufman, 91 NY2d 425). The court's role is simply to determine whether the facts, as alleged, fit into any valid legal theory. (See Sokoloff v. Harriman Estates Dev. Corp, 96 NY2d 409). In deciding a pre-answer motion, the court is not authorized to assess the relative merits of the complaint's allegations against the defendant's contrary assertions or to determine whether or not the plaintiff has produced evidence to support his claims. (See Salles v. Chase Manhattan Bank, 300 AD2d 226). As noted by one court:
"Our scope of review applicable to defendant's CPLR 3211 motion to dismiss is constrained to a determination whether the facts alleged by plaintiffs fit within any cognizable legal theory. . . . In making that determination, the allegations of fact set forth in plaintiffs' complaint and their submissions in opposition to defendant's motion are accepted as true, liberally construed and given every favorable inference. Dismissal under CPLR 3211(a)(1) 'is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law. . . .'"
( Hopkinson v. Redwing Constr. Co., 301 AD2d 837, 837-838; quoting Leon v. Martinez, 84 NY2d 83). Thus, to succeed on a motion to dismiss based on a defense founded upon documentary evidence, the documentary evidence must be such that it resolves all factual issues as a matter of law, and conclusively disposes of plaintiff's claim. ( Teitler v. Max J. Pollack Sons, 288 AD2d 302; see also Arnav Indus., Inc. Retirement Trust v. Brown, Raysman, Millstein, Fleder Steiner, LLP, 96 NY2d 300; Wiener v. Lazard Freres Co., 241 AD2d 114).
Defendant Bartolomeo's Motion to Dismiss the Third Cause of Action
Plaintiff's Third Cause of Action asserts a breach of guaranty claim against defendant Bartolomeo. The complaint alleges that defendant Bartolomeo constructed the sewage system and that he issued a personal written guaranty of separate sewage system on November 15, 2001. However, it is asserted that defendant Bartolomeo failed to construct the septic system in accordance with the design specifications and in a good and workmanlike manner. Plaintiffs claim that as a result of defendant's breach of the guaranty, plaintiffs have been damaged in the amount of $35,000.
Defendant Bartolomeo moves to dismiss this cause of action on the grounds that he entered into the guaranty with the Westchester County Department of Health and by its terms, the guaranty runs in favor of Westchester County Department of Health not plaintiffs.
In opposition, plaintiffs argue that by its terms, plaintiffs are entitled to enforce the guaranty's provisions since it specifically provides that defendant Bartolomeo was guaranteeing to place the system in good working condition for a period of two years, and that the guaranty runs to the benefit of the owner of the property or to the benefit of the owner's successors, heirs or assigns which includes plaintiffs as the subsequent purchasers or assignees of the property.
Alternatively, plaintiffs claim that they are the intended third party beneficiaries of the guaranty defendant made to the Westchester County Department of Health by arguing "[i]t is not the Department of Health who seeks to protect itself in the event the treatment system fails to operate properly. The Department of Health insists on a Guaranty to protect the eventual owner and resident of the property in the event that the system was installed improperly and failed to operate. Thus, it is the owner of subject property who is the intended beneficiary of the Guaranty, not the Department of Health." (Plaintiffs' Memorandum of Law at 2). Accordingly, even if it is found that plaintiffs were not specifically named in the guaranty ( i.e., that they should not be considered owner's successors or assigns), plaintiffs argue the Court may find that they are in privity of contract with regard to the guaranty by virtue of their status as the intended third party beneficiaries of that guaranty.
The Court finds defendant Bartolomeo's motion to dismiss this cause of action to be without merit and agrees with both arguments put forth by plaintiffs. First, under the guaranty's terms, plaintiffs fall within the meaning of the property owner's successors or assigns. Second, even if plaintiffs were not the owner's successors or assigns, they should nevertheless be entitled to sue for defendant Bartolomeo's alleged breach of that guaranty as the intended third party beneficiaries of the guaranty defendant Bartolomeo entered into with the Westchester County Department of Health. (See Town of Ogden v. Earl R. Howarth Sons, Inc., 58 Misc2d 213 [owners of houses in subdivision had breach of contract cause of action based on contractors' agreement with Town to properly develop the subdivision in accordance with the Town's regulations, and which entitled the contractor to the permits needed for development of the subdivision]).
Defendant Bartolomeo's Motion to Dismiss the Fourth and Fifth Causes of Action
Plaintiffs' Fourth and Fifth Causes of Action assert breaches of the contract based upon, inter alia, the defendant's failure to construct the premises in a good and workmanlike manner, in accordance with plans and specifications, and in accordance with State and local code provisions. Defendant Bartolomeo moves to dismiss these claims on the grounds that "[p]laintiffs and I never entered into any agreement, either written or oral, regarding the construction of the subject home. The agreement was between Plaintiffs and Defendant WHITTIER HILLS CORP." (See Affidavit of Frank Bartolomeo, sworn to May 31, 2004, and Exhibit B annexed thereto). The Court finds that plaintiffs have adequately stated claims in these causes of action and, therefore, defendant's motion to dismiss these claims is also denied.
Plaintiffs have sufficiently alleged that defendant Bartolomeo held himself out to both plaintiffs and the public (in terms of his filings for permits, etc.) as both the owner of the premises and the builder of the premises. Furthermore, at the time plaintiffs signed the contract on March 5, 2002, which is the basis for these breach of contract causes of action, defendant Bartolomeo still held title to the property, so he was the only one with the legal authority to enter into the contract with plaintiffs. The fact that Whittier is listed in the contract as the seller is of no consequence since Whittier did not hold title to the property on March 5, 2002 and, therefore, could not legally enter into an agreement regarding its transfer. Furthermore, it appears that defendant Bartolomeo signed the contract in his individual capacity, without any indication that he was acting in a representative capacity as an officer of the defendant Whittier.
The complaint alleges "that simultaneous with the closing of title and delivery of the deed, defendant Frank Bartolomeo conveyed the property to defendant contractor. . . . That in all other respects, the defendant Frank Bartolomeo was the builder of the house at 18 Whittier Hills Road and that the transfer of the premises to the contractor was solely for the purpose of avoiding liability to the plaintiffs for the wrongful construction of the dwelling house and the separate sewage system and site work at 18 Whittier Hills Road." (Complaint at ¶¶ 66-67).
The Court also finds compelling the many documents showing that defendant Bartolomeo held himself out as the builder of the premises. These documents support plaintiffs' claims that defendant Bartolomeo never advised plaintiffs that he was acting on behalf of a corporate builder defendant Whittier, and that the first time they realized it was at the closing on March 22, 2002, 17 days after they entered into the contract at issue in this litigation. Indeed all of the following factual statements appear to be supported by the record, to wit, "all of the efforts made in the construction of the home were made by the Defendant, Frank Bartolomeo. The Building Permit was issued in his name. The septic system was installed by him. The Application to the Department of Health to install a septic system was made by him. The guaranty regarding the septic system was signed by him. The application for the Certificate of Occupancy was signed by him. At no time in the construction of the home did the Defendant Bartolomeo ever exercise his signature as an officer of a corporation." (Affirmation of Ronald R. Levine, Esq. dated July 12, 2004 at ¶ 12). Thus, the evidence suggests that defendant Bartolomeo was the contractor of the premises not defendant Whittier — and it is he who should be held responsible for the alleged defective construction of the premises. Defendant Whittier may well have been formed solely for the purpose of momentarily holding title to the premises on March 22, 2002, which it then immediately transferred to plaintiffs that same day, simply (as plaintiffs allege) in an effort to shield defendant Bartolomeo from liability for the alleged defective construction at issue in this case.
To successfully pierce the corporate veil, which would in effect ignore the corporate form of defendant Whittier and hold defendant Bartolomeo liable as the alter ego of defendant Whittier, plaintiffs must show that "'(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff's injury. . . .'" ( Old Republic Nat. Title Ins. Co. v. Moskowitz, 297 AD2d 724, 725; quoting Matter of Morris v. New York State Dept. of Taxation Finance, 82 NY2d 135, 141). Alternatively, plaintiffs would be able to pierce the corporate veil when "'there has been, inter-alia, a failure to adhere to corporate formalities, inadequate capitalization, [and] use of corporate funds for personal purpose. . . ." ( Monchinski v. Caserta, 2004 WL 2376485 at 2; quoting Forum Ins. Co. v. Texarkoma Transp. Co., 229 AD2d 341). Accordingly, in the context of this motion to dismiss, there are allegations sufficient to state a cause of action against defendant Bartolomeo since it appears that he consistently failed to adhere to corporate formalities when it came to applying for construction permits and when it came to entering into the contract with plaintiffs. (See, e.g., McMullin v. Pelham Bay Riding, Inc., 190 AD2d 529). After discovery, plaintiffs may have further information concerning other possible failures to follow corporate formalities and may move to amend their complaint to add any additional allegations of fact that may be uncovered. In this regard, defendant Bartolomeo is warned that any destruction of corporate documents concerning defendant Whittier and its financial transactions could work to his detriment in the form of an order precluding him from contesting plaintiffs' claim that the corporate veil should be pierced in this case. (See Monchinski v. Caserta, 2004 WL 2376845).
The alter ego theory permits an individual, who is not a party to a corporation's contract, to be held personally liable for its breach, if that individual, by disregarding the corporate form, exercised such dominion and control over the corporation's operations that the corporation became his alter ego, and a vehicle for his personal rather that corporate ends. (See Port Chester Electrical Constr. Corp. v. Atlas, 40 NY2d 652, 656-657).
Defendants' Motion to Dismiss the Sixth Cause of Action
Defendants assert that the Sixth Cause of Action, which alleges a breach of implied warranties, must also be dismissed based upon the language found in the contract. Thus, defendants contend that the disclaimer provision found in the limited warranty annexed to the contract expressly excludes all warranties except for those set forth in the limited warranty.
To begin with, as applied to defendant Bartolomeo, this argument directly contradicts Bartolomeo's previous argument that he is not a party to the contract. Defendant cannot have it both ways. Thus, defendant cannot be heard to argue that he has no responsibility for the alleged defects found in the premises since he was not the contractor and/or seller/owner of the premises (which defendant contends is conclusively established by the fact that he is not a party to the contract), while he simultaneously argues that even though he was not a party to the contract, he should nevertheless be given the benefit he perceives in the disclaimer language found in that contract.
Because defendant Bartolomeo claims he was not a party to that contract, there is necessarily a question of fact as to how a contract to which he claims he is not a party, can somehow absolve him from liability on the sewer system guaranty. If it is determined that defendant Bartolomeo was not a party to the contract, there is arguably a viable claim against him based on that guaranty and the limited warranty could not absolve him from liability.
To the extent it is determined that defendant Bartolomeo was the builder and/or owner/seller of the premises at the time the parties entered into the contract (or that he should be found to be liable based upon a piercing of the corporate veil theory), there are statutory implied warranties applicable to the sale of the premises which are delineated in General Business Law Article 36-B. Whether plaintiffs' implied warranty claims should be dismissed would be governed by General Business Law § 777-a and § 777-b. That statute permits the builder of a new home, which is the subject of a residential contract of sale, to exclude the housing merchant implied warranty by providing a limited warranty. However, there are very specific requirements that must be followed to disclaim this warranty. (See General Business Law § 777-b(3) and (4)). For example, the statute requires that the limited warranty provide at least as much warranty protection as the housing merchant implied warranty set forth in General Business Law § 777-a.
It is important to note that there are no longer implied warranties based on the common law. Thus, the New York Court of Appeals has held that the statutory housing merchant implied warranty set forth in General Business Law article 36-B "is a full substitute for the antecedent common-law housing merchant implied warranty, recognized in Caceci v. Di Canio Constr. Corp., 72 NY2d 52, 56, 530 N.Y.S.2d 771, 527 N.E.2d 266." ( Fumarelli v. Marsam Dev., Inc., 92 NY2d 298, 300-301). Thus, to the extent that this cause of action merely alleged breach of common law implied warranties, the cause of action would have to be dismissed. ( Latiuk v. Faber Construction Co., 269 AD2d 820). However, it appears that plaintiffs' claim is that defendants' performance failed to meet the standards of performance as outlined and mandated by the applicable statutes of the State of New York, which necessarily includes General Business Law article 36-B.
Because the limited warranty in this case must provide, at a minimum, protection equal to that provided in the statute's housing merchant implied warranty, whether this claim survives is really a matter of semantics, since arguably, the plaintiffs' claim based on defendants' alleged breach of the limited warranty (plaintiffs' Seventh Cause of Action) should cover plaintiffs' claims set forth in this cause of action.
The Court has reviewed the language found in the limited warranty annexed to the contract and finds that it cannot discern (especially given the dearth of argument provided by defendants) if the language found therein meets the requirements set forth in General Business Law § 777-b(3) and (4). For example, the limited warranty's language varies from the language found in the housing merchant implied warranty provisions codified in General Business Law § 777-a. Thus, the Court is unable to determine if the limited warranty affords as much protection as the housing merchant implied warranty found in General Business Law § 777-a. Furthermore, even if the limited warranty followed all of the requirements set forth in General Business Law § 777-b(3) and (4), such that it can be found to exclude the housing merchant implied warranty in this case, the limited warranty cannot exclude implied warranty claims, which assert that the premises failed to meet building codes or that the premises were unhabitable or unsafe, since the legislature has found such exclusions to violate public policy. (See General Business Law 777-b(4)(e)). Here, plaintiffs' claim concerning defendants' alleged breach of an implied warranty involves allegations that defendants' performance failed to meet the standards for performance as outlined in and mandated by the applicable statutes of the State of New York.
Courts are not fond of disclaimers and do not hesitate to apply warranties of skillful work free from material latent defects. (See Board of Managers v. Carol Management, 214 AD2d 308; Meritt v. Hooshang Const., Inc., 216 AD2d 542). In this case, because defendants have failed to establish that the limited warranty found in the contract, which attempts to exclude all other warranties with regard to this transaction, satisfied all of the requirements found in General Business Law 777-b (3) and (4), there is no basis for this Court to dismiss this cause of action at the present time. (See Hopkinson v. Redwing Construction Co., 301 AD2d 837; Latiuk v. Faber Const. Co., 269 AD2d 820). Accordingly, the Court denies this branch of defendants' motion without prejudice, for defendants to renew at a later date as a motion for summary judgment.
Defendants' Motion to Dismiss the Seventh Cause of Action
Defendants' motion to dismiss the Seventh Cause of Action is similarly denied. Defendants assert that plaintiffs' claims based on the defendants' alleged breach of the limited warranty must be dismissed because plaintiffs failed to comply with the notice requirements set forth in the contract.
Again, defendant Bartolomeo cannot have it both ways, using the contract as both a sword and a shield. Thus, since it is Bartolomeo's position that he was not a party to the contract, he cannot use the notice provisions as a shield for the purposes of his motion to dismiss. Furthermore, even if defendant Bartolomeo may properly rely on the notice provisions as a basis for dismissing this action, this Court declines to dismiss the cause of action against defendants since there are factual issues that are not properly resolved in the context of a motion to dismiss.
The notice provision found in the contract is similar to the statutory notice provision found in General Business Law § 777-a(4)(a). Pursuant to that statute, prior to bringing a lawsuit for breach of the housing merchant implied warranty, plaintiff must have provided the defendant with a written notice of warranty claim within a certain timeframe. This notice provision has been interpreted as a pleading requirement such that plaintiff's "failure to allege compliance with this statutory condition precedent . . . is fatal to a cause of action to recover damages for breach of implied warranty. . . ." ( Rosen v. Watermill Dev. Corp., 1 AD3d 424, 425).
The statutory provision requires "that before the commencement of the action, and within 30 days of the expiration period of the warranty, written notice of the claims was provided to [the defendants]." ( Rosen v. Watermill Dev. Corp., 1 AD3d 424, 425).
In the complaint, plaintiffs allege that "at the time plaintiff's [sic] began their occupancy of the premises, it was still not complete, and many items contracted for had not been completed. . . . Furthermore, shortly after the plaintiff's began living in the premises, the separate sewer system malfunctioned. . . . Said defects were immediately reported to the Contractor and/or Frank Bartolomeo, who failed to take any remedial action thereupon." (Complaint at ¶¶ 21-23). Plaintiffs further allege that due to defendants' failure to take remedial action, plaintiffs were required to have the sewer system repaired (Complaint at ¶ 53), and that "when the plaintiffs undertook to repair the separate sewage system which the defendants contractor [sic] and/or Frank Bartolomeo refused and failed to repair, plaintiffs discovered other defective construction at the premises, all of which had to be repaired. . . . Said defects were immediately reported to the Contractor and/or Frank Bartolomeo, who failed to take any remedial action thereupon." (Complaint at ¶¶ 70-71). And with regard to the notice provided to defendants, plaintiffs specifically allege "[t]hat notice of the defects alleged herein have [sic] been timely provided to the defendants Contractor and/or Frank Bartolomeo, and said defendant Contractor and/or Frank Bartolomeo failed to investigate, inspect, or cause the inspection or investigation of the defects complained of as required in the Contract." (Complaint at ¶ 84). Thus, it would appear that plaintiffs have alleged compliance with the notice requirements. ( Rosen v. Watermill Dev. Corp., 1 AD3d 424).
Finally, even if the complaint failed to sufficiently allege compliance with the notice requirement, plaintiff Lupien has averred facts in his affidavit submitted in opposition to this motion, which further justifies the denial of the motion to dismiss this claim. Thus, plaintiff Lupien has averred that defendant Bartolomeo responded to various complaints by actually coming to the house to fix some of the problems, and that defendant Bartolomeo also promised to remedy other defects, but that he never fulfilled these promises. (See Affidavit of Larry Lupien, sworn to July 12, 2004, at ¶¶ M-W). Accordingly, there appear to be factual questions concerning whether defendants waived the notice requirements through defendant Bartolomeo's representations and actions, since an Article 36-B breach of warranty suit will not be dismissed for failure to give the required notice where the facts show that the seller has effectively waived the notice requirement based on his conduct. (See, e.g., Randazzo v. Zylberberg, 4 Misc 2d 109; Board of Managers of Alfred Condominium v. Carol Management, 214 AD2d 380).
Based upon the foregoing; it is
ORDERED, that defendants' motion to dismiss is denied in all respects.
The foregoing constitutes the Opinion, Decision and Order of the Court.