Opinion
Index No. 653996/2018
06-17-2020
PIZZAROTTI, LLC, Plaintiff, v. PHIPPS & CO., BDC Consultants LLC, Phipps Construction Inc., Jerome Johnson Phipps, Maya Phipps, SG Blocks Inc., and Mahesh Shetty, Defendants.
Pizzarotti LLC, New York, NY, (Gila Mandelcorn of counsel), for plaintiff. Phipps & Co., New York, NY (Gabriel Fishbarg of counsel), for defendant Phipps & Co. Ruta Soulios & Stratis LLP, New York, NY (Steven A. Soulios of counsel), for defendant SG Blocks.
Pizzarotti LLC, New York, NY, (Gila Mandelcorn of counsel), for plaintiff.
Phipps & Co., New York, NY (Gabriel Fishbarg of counsel), for defendant Phipps & Co.
Ruta Soulios & Stratis LLP, New York, NY (Steven A. Soulios of counsel), for defendant SG Blocks.
Gerald Lebovits, J.
This case arises out of a dispute relating to an April 2018 construction contract between plaintiff, Pizzarotti LLC, as construction manager and defendant Phipps & Co., as contractor. Phipps later assigned to defendant SG Blocks, Inc., the contract's materials-supply obligation. In August 2018, plaintiff sued Phipps and SG Blocks for failing to perform under the contract. Phipps later cross-claimed against SG Blocks. SG Blocks now moves to dismiss both plaintiff's amended complaint and Phipps's cross-claims.
BACKGROUND
Plaintiff contracted with Phipps to perform stone and tile work for the One Seaport Project at 161 Maiden Lane in Manhattan. The total contract price was $2,142,417.54. Under the contract, plaintiff agreed to provide Phipps with an advance payment to cover the costs of purchasing materials, as long as Phipps provided a letter of credit to assure plaintiff that Phipps had the assets to repay the advance. Phipps could not provide that assurance, and requested that plaintiff accept a letter of credit from SG Blocks. Plaintiff agreed. At the contract signing, Phipps further requested that the material-supply portion of the contract be assigned to SG Blocks. Plaintiff again agreed, but requested that the assignment be put in writing.
On May 30, 2018, the three parties executed the assignment agreement. SG Blocks agreed supply the materials needed for the project and to provide a letter of credit to secure an advance payment from plaintiff. Phipps agreed to remain jointly and severally liable with SG Blocks for the performance of the contract's supply obligations. Those obligations comprised $1,385,000—nearly two-thirds of the contract's total value. Plaintiff agreed to make payments through two-party checks made out to both Phipps and SG Blocks.
Plaintiff alleges that on June 5, it received assurances that SG Blocks's bank would release a letter of credit, and therefore transferred an advance payment of $500,000 to SG Blocks and Phipps. In the weeks that followed, however, plaintiff repeatedly, but unsuccessfully, attempted to contact SG Blocks and Phipps to obtain the promised letter of credit and urge the parties to begin working on the project (or obtain proof that they had done so).
On June 22, Phipps informed plaintiff's general counsel that "[a]s far as SG Blocks, it is unlikely we will be able to execute this contract together." SG Blocks agreed and requested to be removed from future communications between the parties. (See NYSCEF No. 4.) In response, plaintiff continued to request that Phipps and SG Blocks fulfill the contract. On July 6, however, Phipps sent an email arguing that the contract was never in effect. (See NYSCEF No. 5.) On July 24, plaintiff sent Phipps and SG Blocks a notice to cure, giving them three business days to begin work and provide a letter of credit. (See NYSCEF No. 7.) Phipps and SG Blocks declined to do so. Plaintiff ultimately terminated the contract and assignment for cause on August 23, 2018. (See NYSCEF No. 7.)
Plaintiff sued Phipps and SG Blocks. As to SG Blocks, plaintiff asserted a claim for breach of contract (for failing to perform its obligations under the assignment agreement) and a claim for trust diversion (for using the $500,000 advance payment for purposes other than performing work under the contract). (See NYSCEF No. 101 [second amended complaint].) Phipps counter-claimed against plaintiff. Phipps also cross-claimed against SG Blocks for (i) indemnity; (ii) common law contribution; (iii) fraud; (iv) negligence; (v) negligent misrepresentation, and (vi) breach of contract. (See NYSCEF No. 52.)
SG Blocks now moves to dismiss both plaintiff's amended complaint and Phipps's cross-claims under CPLR 3211 (a) (1) and CPLR 3211 (a) (7). The branch of SG Blocks's motion seeking dismissal of plaintiff's complaint is denied. The branch of the motion seeking dismissal of the cross-claims is granted in part and denied in part.
DISCUSSION
I. The Branch of SG Blocks's Motion Seeking Dismissal of Plaintiff's Complaint
This court may grant a motion to dismiss under CPLR 3211 (a) (1) only when the documentary evidence utterly refutes the plaintiff's factual allegations, conclusively establishing a defense as a matter of law. ( Goshen v. Mut. Life Ins. Co. of New York , 98 NY2d 314, 326 [2002].) On a motion to dismiss under CPLR 3211 (a) (7) in which the parties have submitted affidavits and other documents, the question is whether plaintiff has a cause of action, accepting the allegations in the complaint as true and construing them in the light most favorable to the plaintiff. ( Chanko v. Am. Broadcasting Cos. , 27 NY3d 46, 52 [2016].)
A. SG Blocks's Argument for Dismissal under CPLR 3211 (a) (1)
SG Blocks argues that the assignment agreement utterly refutes plaintiff's claims. SG Blocks asserts that the agreement does not identify consideration for SG Blocks's alleged obligations under the agreement to provide materials for the project using the $500,000 payment—thereby assertedly rendering the contract a nullity. In particular, SG Blocks argues that plaintiff and Phipps did not promise to pay SG Blocks for its obligation to provide supplies for the project, and therefore that the assignment agreement lacked a mutuality of obligation. This court disagrees.
The assignment agreement provides that all payments for the supply portion shall be made by two-party checks payable both to Phipps and SG Blocks. (See NYSCEF No. 3 [Assignment Agreement], Recital [b] and Clause [2] [b].) And plaintiff issued a check for $500,000 that, consistent with the agreement, named both Phipps and SG Blocks as joint payees. (See NYSCEF No. 4.) This exchange of something of value supports the existence of adequate consideration. (See Apfel v. Prudential-Bache Sec., Inc. , 81 NY2d 470, 476 [1993] [reasoning that the exchange of something of value supports the existence of valid consideration].)
SG Blocks contends that for consideration to exist, plaintiff would have had to take additional steps to "ensure[ ] that a certain portion of the monies due under the Pizzarotti-Phipps Contract would be owed and payable to SG Blocks." (NYSCEF No. 103 at 7.) But SG Blocks provides no authority supporting this proposition. And to the contrary, even absent additional action by plaintiff, SG Blocks would have enforceable legal rights in checks issued by plaintiff under the contract to both Phipps and SG Blocks as joint payees—such as, for example, the $500,000 advance payment. Most pertinently, since a check is a negotiable instrument, SG Blocks's endorsement would be required before a check from plaintiff to Phipps and SG Blocks jointly could be deposited with a bank. (See Kryten Iron Works, Inc. v. Ultra-Tech Fabricators, Inc. , 228 AD2d 416, 416 [2d Dept 1996].) Phipps would have no legal right to make off with the check and take the full amount for itself.
Moreover, SG Blocks's conduct before the execution of the assignment agreement indicates that SG Blocks understood that plaintiff would have an obligation to pay for the work that SG Blocks undertook—including preparing financial documents premised on SG Blocks making a profit on the supply portion of the contract. (See Cash Flow spreadsheet prepared by Mahesh Shetty, NYSCEF No. 139.) At a minimum, the assignment agreement standing alone does not definitively refute plaintiff's claims against SG Blocks, as required for dismissal under CPLR 3211 (a) (1).
B. SG Blocks's Argument for Dismissal under CPLR 3211 (a) (7)
SG Blocks also argues that plaintiff's amended complaint is subject to dismissal under CPLR 3211 (a) (7) for lack of a cause of action. This court disagrees.
First , the allegations of the amended complaint, taken as true, make out a cause of action for breach of contract. The elements of breach of contract are (1) the existence of a valid contract, (2) plaintiff's performance of its obligations under the contract, (3) defendant's breach, and (4) resulting damages ( Stonehill Capital Mgt., LLC v. Bank of the West , 28 NY3d 439, 448 [2016] ; Morris v. 702 E. Fifth St. HDFC , 46 AD3d 478, 479 [1st Dept 2007].)
SG Blocks argues that the facts plaintiff alleges show that the assignment agreement lacks consideration and that SG Blocks therefore was not subject to any contractual obligation. For the reasons explained above, however, this court is not persuaded.
Second , the allegations of the amended complaint make out a cause of action to recover damages for trust diversion. Article 10.1 (l) of the contract provides that any and all funds paid to Phipps constitute trust funds to be used for purposes outlined in the contract. The assignment agreement, in turn, incorporates these contractual provisions. (See NYCEF No. 3, Assignment Agreement, Clause 3.) SG Blocks was thus bound to use the advance payment of $500,000 for contractual purposes. Plaintiff alleges that the $500,000 was not used for this intended purpose. That suffices at this stage of the action to make out a trust-diversion claim.
II. The Branch of SG Blocks's Motion Seeking Dismissal of Phipps's Cross-Claims
SG Blocks moves to dismiss Phipps's cross-claims under both CPLR 3211 (a) (1) and (a) (7). But SG Blocks did not file a pre-answer motion to dismiss the cross-claims or raise a CPLR 3211 (a) (1) defense in its answer. (See NYSCEF No. 75.) The request for dismissal under CPLR 3211 (a) (1) therefore is waived. (See CPLR 3211 [e].) This court considers only the branch of the motion seeking dismissal of the cross-claims under CPLR 3211 (a) (7).
SG Blocks asserts that the failure to include the CPLR 3211 (a) (1) defense in SG Blocks's answer to the cross-claims was the result of an oversight by previous counsel. But SG Blocks cites no authority for the proposition that the court therefore may disregard that omission, whether under CPLR 2001 or otherwise.
Phipps's first cross-claim for common-law indemnification does not state a cause of action. Phipps argues that by executing the assignment agreement SG Blocks agreed to indemnify them for "the full amount of culpability of any judgment that might be rendered against Phipps in the original action." (NYSCEF No. 52, at 7.) However, "[s]ince 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." ( Trustees of Columbia Univ. v. Mitchell/Giurgola Assoc. , 109 AD2d 449, 453 [1st Dept 1985].) Here, Phipps's liability in the main action, if any, would not be vicarious or secondary. It would flow instead from Phipps's alleged failure to perform its own contractual obligations under the contract and the assignment agreement. Phipps therefore may not receive the benefit of common-law indemnity.
Phipps's second cross-claim for common-law contribution also fails. Contribution is not available where the liability upon which the contribution claim is based derives solely from breach of contract. ( Bd. of Educ. of Hudson City Sch. Dist. v. Sargent, Webster, Crenshaw & Folley, 71 NY2d 21, 28 [1987].) Here, the potential liability of both Phipps and SG Blocks to plaintiff is for economic loss resulting from an alleged breach of contract. Common-law contribution is not available.
Phipps's sixth cross-claim, for breach of contract, states a cause of action. Phipps sufficiently alleges that SG Blocks failed to perform the obligations it assumed under the assignment agreement, including SG Blocks's alleged failure to provide a letter of credit. SG Blocks contends that this claim fails because the assignment agreement is void on its face for lack of consideration. This court rejects this contention for the reasons set forth above.
Phipps' third, fourth, and fifth cross-claims alleging tortious liability for fraud, negligence, and negligent misrepresentation, are subject to dismissal because they duplicate Phipps's contract claim. A cause of action sounding in tort will be dismissed as duplicative if it "arises from the same facts as an accompanying contract claim, seeks identical damages, and does not allege a breach of any duty collateral to or independent of the parties' agreements." ( Cronos Group Ltd. v. XComIP, LLC , 156 AD3d 54, 62 [1st Dept 2017].) A tort claim cannot survive "unless a legal duty independent of the contract itself has been violated." ( Clark-Fitzpatrick, Inc. v. Long Island R. Co. , 70 NY2d 382, 389 [1987] [citations omitted].)
Here, Phipps asserts that a special relationship existed here between the parties that gave rise to a legal duty independent of the contract or assignment agreement. But this assertion is not borne out by the documentary evidence that Phipps provides to support this assertion (a consulting agreement, mutual non-disclosure agreement, and a letter of intent between SG Blocks and Phipps). (See NYSCEF Nos. 126-28.) A special relationship may exist where the alleged tortfeasor "possess[es] unique or specialized expertise," or is "in a special position of confidence and trust with the injured party." ( Kimmell v. Schaefer , 89 NY2d 257, 263 [1996].) The documents provided by Phipps show only a potential arms-length business relationship that never fully materialized. (Cf. Scott v. KeyCorp , 247 AD2d 722, 725 [3d Dept 1998] [finding no special relationship between a bank and business owner despite the bank having made prior loans and provided business advice]; Apple Records v. Capitol Records, Inc. , 137 AD2d 50, 51 [1st Dept 1988] [sustaining a fraud claim based on a 20-year contractual relationship].) That arms-length relationship did not give rise to a tort duty independent of SG Blocks's contractual obligations.
Accordingly, it is hereby
ORDERED that SG Blocks's CPLR 3211 motion to dismiss plaintiff's amended complaint is denied; and it is further
ORDERED that the branch of SG Blocks's motion seeking dismissal of Phipps's cross-claims under CPLR 3211 (a) (1) is denied; and it is further
ORDERED that the branch of SG Blocks's motion seeking dismissal of Phipps's cross-claims under CPLR 3211 (a) (7) is granted with respect to cross-claims one, two, three, four, and five, and denied with respect to cross-claim six.
Date: 6/17/2020