Penny Props. v. Old Republic Nat'l Title Ins. Co.

Full title: PENNY PROPERTIES LLC, PLAINTIFF, v. OLD REPUBLIC NATIONAL TITLE INSURANCE…

Court: Supreme Court, Orange County

Date published: Jan 5, 2022

2022 N.Y. Slip Op. 33460 (N.Y. Sup. Ct. 2022)

Opinion

Index Nos. EF000985/2021 1 2

01-05-2022

PENNY PROPERTIES LLC, PLAINTIFF, v. OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, DEFENDANT. OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY, THIRD-PARTY PLAINTIFF, v. DAVID KATZENSTEIN, ESQ. and HERBST & WEISS, P.C., THIRD-PARTY DEFENDANTS.

VAZQUEZ-DOLES, J.S.C.

Unpublished Opinion

Motion date: 8/18/2021

DECISION AND ORDER

VAZQUEZ-DOLES, J.S.C.

The following papers numbered 1-10 were read on Third-Party Defendants' motion to dismiss Defendant/Third-Party Plaintiff s Complaint pursuant to CPLR 3211(a)(1) and 3211(a)(7) and Defendant/Third-Party Plaintiff s cross-motion to amend the Third-Party Complaint pursuant to CPLR §3025(b):

Notice of Motion/ Aghassi Affidavit/Exhibits A-B/Memorandum of Law...........1-4 Notice of Cross-Motion/Patel Affirmation/Exhibits A-E/ Affidavit of Stephen Chaitt, Esq. With Exhibit A/Memorandum of Law......5-9

Reply Memorandum of Law...............................................10

Pursuant to the Complaint, this is an action seeking declaratory relief and breach of contract to recoup defense costs and other expenses incurred or to be incurred by plaintiff in connection with an underlying real property action, Accent Development Corp. v Abraham Hoffman, et al, et al, Supreme Court, Orange County Index No. EF006977/2020 (the "Underlying Action"). Third-Party Defendants, Herbst & Weiss, P.C. and David Katzenstein, Esq. (collectively, the "Herbst Attorneys") represented Chesky Hoffman and first-party plaintiff, Penny Properties LLC (collectively "Penny") for their purchase of a property at 11 Penny Lane, Monroe, New York (the "Property") from Accent Development Corp. ("Accent"). Accent was represented by law firm Fabricant Lipman Frishberg PLLC ("FLF"). Land Track Title Agency ("Land Track") allegedly an agent of Defendant/Third-Party Plaintiff, Old Republic National Title Insurance ("ORNTIC") held the deed to the property and was to record and convey the ownership of the property after confirmation that the balance of the purchase price was received by Accent. Land Track also issued a title insurance policy (the "Policy") for ORNTIC. As a result of an apparent cyber security breach at FLF, incorrect wiring instructions were sent from a hacker posing as FLF on an email chain discussing the finalization of the closing for the Property. Accent never received the Balance Due but Land Track recorded and conveyed the Deed. Accent then initiated the Underlying Action against Penny and Land Track, among others, seeking sole possession of the Property. ORNTIC denied Penny's tender for defense and indemnity, whereupon Penny initiated the instant action against ORNTIC for declaratory relief and breach of contract under the Policy, and negligence for Land Track's failure to confirm receipt of the Balance Due. ORNTIC then initiated the instant Third-Party Action against the Herbst Attorneys for contribution and implied indemnity.

On a motion to dismiss pursuant to CPLR 3211, the complaint is to be afforded a liberal construction (see CPLR 3026). The court must accept the facts as alleged in the complaint as true, accord the plaintiffs the benefit of every possible favorable inference and determine only whether the facts as alleged fit within a cognizable legal theory (see Leon v Matiniez 84 N.Y.2d 83, 87-88 [1994]). "[P]urely economic loss resulting from a breach of contract does not constitute 'injury to property' within the meaning of New York's contribution statute" (Board of Educ. Of Hudson city School Dist. v. Sargent, Webster, Crenshaw & Folley, 71NY"2d 21 [1987] quoting CPLR 1401). CPLR 1401 does not apply to a breach of contract cause of action where the only potential liability to the plaintiff is for the contractual benefit of the bargain (see Sommer v Gederal Signal Corp., 79 N.Y.2d 540 [1992]; Board of Educ. Of Hudson city School Dist. VSargent, Webster, Crenshaw & Folley, supra, at 28; Sound Refrig, &A.D., Inc. v All City Testing & Balancing Corp., 84 A.D.3d 1349 [2d Dept 2011]). The plaintiffs potential recovery against ORNTIC is limited to the purely economic loss, if any, resulting from ORNTIC's breach of contract (487 Elmwood v Hassett, 161 A.D.2d 1171 [4^th Dept 1990]; Nuzzo v Thornwood Acres B , 18 A.D.2d 1000 [2d Dept 1963]).

"[P]urely economic loss resulting from a breach of contract does not constitute 'injury to property' within the meaning of New York's contribution statute [CPLR 1401]" (Board of Educ. of Hudson City School Dist. v Sargent, Webster, Crenshaw & Folley,11 N.Y.2d at 26). Accordingly, under the so-called "economic loss doctrine," "contribution under CPLR 1401 is not available where the damages sought... are exclusively for breach of contract" (Tower Bldg. Restoration v 20 E. 9th St. Apt. Corp., 295 A.D.2d 229,229 [1^st Dept 2002]; see Sommer v Federal Signal Corp. supra, at 557; Structure-Tone, Inc. v Ignelzi Interiors, Inc., 40 A.D.3d 234, 234-235 [1^st Dept 2007]; Ruby Land Dev. v Toussie, 4 A.D.3d 518, 519 [2d Dept 2004]). "[T]he existence of some form of tort liability is a prerequisite to application of CPLR 1401 (Board of Educ. of Hudson City School Dist. v Sargent, Webster, Crenshaw & Folley supra, at 28). Even if plaintiffs complaint sets forth causes of action for negligent performance and professional malpractice, "the determining factor as to the availability of contribution is not the theory behind the underlying claim but the measure of damages sought" (Rockefeller Univ v Tishman Constr. Corp. of N. Y., 240 A.D.2d 341,343 [ 1^st Dept 1997]). Stated another way, "a defendant may not seek contribution from other defendants where the alleged 'tort' is essentially a breach of contract claim" (Tempforce Inc. v Municipal Hous. Auth. Of city of Schenectady, 222 A.D.2d 778 [3d Dept 1995]). To that end, a review of plaintiff s complaint reveals that they are seeking to recover for a purely economic loss-namely all amounts expended or to be expended in their defense and indemnification in the Underlying Action (see Bellevue S. Assocs. v HRH Constr. Corp. 78 N.Y.2d 282,294-295 [1991]). In short, plaintiff is seeking the benefit of the bargain contained in the Policy with ORNTIC and, as such, no claim for contribution lies (Wecker v Quaderer, 237 A.D.2d 512 [2d Dept 1997]; Tempforce Inc. v Municipal Hous. Auth. Of City of Schenectady, supra). Moreover, "[i]t is well settled that a claim arising out of an alleged breach of contract may not be converted into a tort action 'absent the violation of a legal duty independent of that created by the contract'" (Roklina v Skidmore Coll., 268 A.D.2d 765,766-767 [3d Dept 2000], quoting Scott v KeyCorp., 247 A.D.2d 722 [3d Dept 1998]; see Board of Educ. of Hudson city School Dist. v Sargent, Webster, Crenshaw & Folley, supra, at 29]; Clark-Fitzpatrick Inc. VLong Is. R.R. Co. 70 N.Y.2d 382 [1987]; Feinman v Parker, 252 A.D.2d 869 [3d Dept 1998]). "This legal duty must spring from circumstances extraneous to and not constituting elements of, the contract, although it may be connected with and dependent upon the contract (Clark-Fitzpatrick Inc. v Long Is. R.R. Co., supra, at 389). Consequently, ORNTIC cannot maintain a cause of action against the Herbst Attorneys for contribution.

Concerning ORNTIC's claim for common-law indemnification in the third-party complaint, the key element is "not a duty running from the indemnitor to the injured party, but rather is 'a separate duty owed the indemnitee by the indemnitor'" (Raquet v. Braun, 90 N.Y.2d 177,183 [1997], quoting Mas v. Two Bridges Assoc, 15 N.Y.2d 680, 690 [990]; see Lovino, Inc. v. LavalleeLaw Offs., 96 A.D.3d 909, 909-910 [2d Dept 2012]). The duty that forms the basis for the liability arises from the principle that "every one is responsible for the consequences of his own negligence, and if another person has been compelled... to pay the damages which ought to have been paid by the wrongdoer, they may be recovered from him" (see McDermott v. City of New York, 50 N.Y.2d 211,216-217 [1980]). '"Since the predicate of common-law indemnity is vicarious liability without actual fault on the part of the proposed indemnitee, it follows that a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine'" (Henderson v. Waldbaums, 149 A.D.2d 461,462 [2d Dept 1989], quoting Trustees of Columbia Univ. v. Mitchell/Giurgola Assoc, 109 A.D.2d449,453 [1^st Dept 1985]). In the instant case, ORNTIC is being charged with liability for negligence in failing to ensure that the Title Policy will protect plaintiff from claims against the Property and in failing to confirm that the Seller received the Balance Due and not merely vicariously. Thus, liability against ORNTIC is based upon its own participation in the acts giving rise to the loss, that is, as an actual wrongdoer and precluded from recovery against the Herbst Attorneys on the basis of common-law indemnity.

ORNTIC's opposition does not dispute that plaintiffs claims for breach of contract and declaratory judgment are barred from a third-party contribution claim and that implied indemnity is only available when the party which makes the allegation is not guilty of any negligence. ORNTIC's contention that they are subject to liability only vicariously is without merit as against the Herbst Attorneys. A party's right to indemnification may arise from a contract or may be implied "based upon the law's notion of what is fair and proper as between the parties" (Mas v. Two Bridges Assoc, 15 N.Y.2d 680, 690 [1990]). "Implied [or common-law] indemnity is a restitution concept which permits shifting the loss because to fail to do so would result in the unjust enrichment of one party at the expense of the other" (Id. at 690, citing McDermott v. City of New York, 50 N.Y.2d 211,216-217 [1980]; see Rosado v. Proctor & Schwartz, 66 N.Y.2d 21, 24 [1985]). Common-law indemnification is generally available "in favor of one who is held responsible solely by operation of law because of his relation to the actual wrongdoer" (Mas v. Two Bridges Assoc, 15 N.Y.2d at 690; see DAmbrosio v. City of New York, 55 NY.2d 454,460 [1982]; see also, Calstillo v Port Authority of New York, 159 A.D.3d 792 [2d Dept 2018]). Here, there is no relationship between ORNTIC and the Herbst Attorneys. ORNTIC's claim for indemnification would be proper as against Land Track.

ORNTIC cross-moves to amend the Third-Party Complaint to add a cause of action of legal malpractice based upon principals of equitable subrogation. Leave to amend a pleading shall be freely given absent prejudice or surprise to the opposing party, unless the proposed amendment is palpably insufficient or patently devoid of merit (see CPLR 3025[b]; Finkelstein v. Lincoln Natl. Corp., 107 AD.3d 759, 761 [2d Dept 2013]; Lucido v. Mancuso, 49 AD.3d 220, 222 [2d Dept 2008]). Here, the cause of action sounding in principles of equitable subrogation are palpably insufficient and patently devoid of merit (see Ciminello v. Sullivan, 120 A.D.3d 1176 [2d Dept 2014]). "[A]bsent fraud, collusion, malicious acts or other special circumstances, [a party] is not liable for professional negligence to third parties not in privity" (Block v Brecher, Fishman, Feit, Heller, Rubin & Tannenbaum, 301 A.D.2d 400,401 [1^st Dept 2003] Iv denied 100 N.Y.2d 509 [2003]). However, where the relationship is so close as to touch the bounds of privity, an action maybe maintained (see State of Cat Pub. Employees' Retirement Sys. v Shearman & Sterling, 95 N.Y.2d 427,434 [2000]; Prudential Ins. Co. of Am. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382 [1992]).

In order for a relationship to approach "near" privity's borders, for the purpose of maintaining a professional negligence claim, the professional must be aware that its services will be used for a specific purpose, the plaintiff must rely upon those services, and the professional must engage in some conduct evincing some understanding of the plaintiffs reliance (see State of Cal. Pub. Employees' Retirement Sys., supra). Here, ORNTIC has failed to sufficiently plead that they relied on the Herbst Attorneys' representation of Penny. The amended complaint alleges only that the Herbst Attorneys breached a duty to Penny. ORNTIC is entirely lacking in privity. ORNTIC cannot claim to have been advised by the Herbst Attorneys, nor to have relied on them in any way.

Upon view of the foregoing, it is hereby

ORDERED that Third-Party Defendants' motion to dismiss the Third-Party Action is GRANTED in its entirety; and it is further

ORDERED that Third-Party Plaintiffs cross-motion to amend the Third-Party Complaint is DENIED.

The foregoing constitutes the Decision and Order of this Court.