Opinion
500403/10.
Decided July 1, 2011.
Marc Wohlgemuth, Esq., Spring Valley, NY, Attorney for Plaintiffs.
Gerard Schiano-Strain, Esq., New York, NY, Attorney for Defendants.
The following papers numbered 1 to 4 read on this motion:
Papers Numbered Notice of Motion/Order to Show Cause/Petition/ Cross Motion and Affidavits (Affirmations) Annexed 1 Opposing Affidavits (Affirmations) 2 Reply Affidavits (Affirmations) 4 Other Papers (Memoranda of Law) 3Defendants Metropolitan Avenue Development, LLC ("MAD") and Alan Messner, MAD's managing member, move to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7).
BACKGROUND
This action arises out of an agreement between plaintiffs Michael Sternstein and Marie A. Mascari and defendant MAD, dated October 26, 2009 (the "Purchase Agreement"), for the purchase of two condominium units designated as 1B and S (the "Apartment") in a residential apartment building located at 868 Metro Avenue, Brooklyn, New York (the "Premises").
According to the complaint, defendant MAD, a New York limited liability company, is the owner, developer and/or sponsor of the Premises and was responsible for the construction of the Apartment. MAD is alleged to have submitted an offering plan on or about December 4, 2009 (the "Offering Plan") to the office of the Attorney General of the State of New York setting forth certain details of the condominium units to be offered and the obligations of the developer, sponsor and management company. The complaint alleges that the "Offering Plan required Defendants to construct the [Apartment] and the [Premises] in accordance with the Building Code of the City of New York and other applicable codes, regulations, and laws" and specifically obligated and required MAD "to correct, repair, or replace any and all defects relating to construction of the Building, Common Elements or the Residential Units" (Complaint ¶¶ 11-12). Section 1 of the Purchase Agreement incorporated the Offering Plan into the Purchase Agreement "with the same force and effect as if set forth at length" (Ex. A to the Motion).Prior to the submission of the Offering Plan, Messner executed a document in May of 2006 entitled "Certification By Sponsor and Sponsor's Principal" (the "Sponsor Certification") in what appears to be both his individual capacity and in his capacity as an agent of MAD. In the Sponsor Certification, Messner and MAD promised in part:
The Offering Plan was filed in accordance with New York's blue sky law, The Martin Act (General Business Law art 23-A), which, along with the Attorney General's implementing regulations ( 13 NYCRR part 20) require that any person or entity making or taking part in a public offering of securities of real estate interest must file an offering statement with the Attorney General (General Business Law § 352-e).
We jointly and severally certify that the offering plan does, and that documents submitted hereinafter by use which amend or supplement the offering plan will:
(i) Set forth the detailed terms of the transaction and be complete, current and accurate;
(ii) Afford potential investors purchasers and participants an adequate basis upon which to found their judgment
(iii) Not omit any material fact;
(iv) Not contain any untrue statement of material fact;
(v) Not contain any fraud, deception, concealment, suppressions, false pretense or fictitious or pretended purchase or sale;
(vi) Not contain any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances;
(vii) Not contain any representation or statement which is false, where I/we:
(a) knew the truth;
(b) with reasonable effort could have known the truth
(c) made no reasonable effort to ascertain the truth; or
(d) did not have knowledge concerning the representation or statement made.
This certification is made under penalty of perjury for the benefit of all persons to whom this offer is made. We understand that violations are subject to the civil and criminal penalties of the General Business Law and Penal Law. (Ex. 1 to Plaintiffs' Mem. of Law).
13 NYCRR 20.4 [b] requires that this certification be sworn to by the sponsor and the sponsor's principals in the offering plan.
In his affidavit, submitted in opposition to the motion, Sternstein claims that after entering into the Purchase Agreement, defendants deliberately prevented plaintiffs and their engineer from inspecting the Unit until March 22, 2010, the day of the scheduled closing. On that date, Sternstein claims that Messner arrived more than an hour late for the appointment, thus severely limiting the time plaintiff's engineer had to inspect the Apartment. According to the complaint, the parties conducted a final walk-through of the Apartment, which revealed water damage in the basement and the need for numerous repairs to be made. The complaint further alleges that defendant Messner promised to make all necessary repairs and executed a separate agreement (the "Messner Agreement") wherein he agreed to perform certain remedial work by April 1, 2010. Plaintiffs claim that, in reliance on the Messner Agreement, they subsequently closed on the Apartment. One deed was executed by both MAD and plaintiffs reflecting the transfer to the plaintiffs of both Unit 1B and Unit S. Later that evening, it began to rain and plaintiff Sternstein claims that he found water flooding the basement and damaging the kitchen. On March 29, 2010, plaintiffs sent an email to Messner informing him of the damage and claiming that the Premises were constructed poorly. Plaintiffs allege that they sent numerous communications to Messner over the following months, requesting that MAD correct all construction and design defects, but that, to date, defendants have failed to remedy the material defects in the Apartment.
Plaintiffs commenced this action on November 1, 2010 by filing a summons and complaint. The complaint alleges thirteen causes of action, including breach of contract claims relating to the Offering Plan, the Purchase Agreement and the Messner agreement and an "alter ego" claim requiring piercing of the corporate veil. The remaining claims allege fraud, breach of the duty of good faith and fair dealing, violation of the Consumer Protection Act, breach of fiduciary duty, negligence, unjust enrichment, a demand for compensation for loss of use and occupancy, and breach of housing merchant warranty claims.
ANALYSIS
As a threshold matter, plaintiffs contend that defendants' motion is defective as a matter of law for failure to annex the complaint to the motion. In response, defendants' counsel has annexed the complaint to his reply affirmation "in order to humor Plaintiffs' inordinate concern for procedural correctness" (Reply at 6), even though he claims that defendants are not required to do so as the action was electronically filed and thus available to the court. Plaintiffs are correct that failure to annex the complaint is a procedural defect ( see Alizio v Perpignano, 225 AD2d 723 [2d Dept 1996]), but defendants have sufficiently cured the defect by supplying the complaint in the reply ( see Powell Communications, LLC v Ideacast, Inc., 2010 WL 3414912 [New York County 2010] (permitting a defendant, who failed to provide the complaint with its motion, to submit the amended complaint with its reply)). Had defendants failed to annex the complaint, however, the motion should have been denied as defective. This court was not otherwise in possession of the complaint until defendants provided it in their reply. Defendants are not excused from annexing the complaint to their motion to dismiss merely because the action has been electronically filed and an electronic version of the complaint may have been accessible to this court ( see NYCRR 202.70, Rule 21 (requiring hard courtesy copies of all motions filed electronically)).
Defendants move to dismiss the complaint pursuant to CPLR 3211 (a) (1) and (7). CPLR 3211 (a) (1) provides for dismissal where "a defense is founded upon documentary evidence" if the documentary evidence "conclusively establishes a defense to the asserted claims as a matter of law" ( see Leon v Martinez, 84 NY2d 83, 87) and "resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim" ( Fortis Fin. Serv., LLC v Fimat Futures USA, Inc., 290 AD2d 383, 383 [1st Dept 2002]). CPLR 3211 (a) (7), provides for dismissal if the pleading fails to state a cause of action. When determining the motion, the court must accept the facts alleged by the plaintiff as true and must liberally construe the complaint, according it the benefit of every possible favorable inference ( Campaign for Fiscal Equity, Inc. v State of New York, 86 NY2d 307, 318; see also Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409, 414). Ultimately, the role of the court is to "determine only whether the facts as alleged fit within any cognizable legal theory" ( Leon, 84 NY2d 83 at 87).
Although defendants have not specifically moved to dismiss pursuant to CPLR 3211 (a) (3), which provides for dismissal if the party asserting the cause of action lacks the legal capacity to sue, they contend that the documentary evidence annexed to their motion conclusively demonstrates that the complaint should be dismissed for lack of standing. In particular, defendants reference paragraph 12 (e) of the Offering Plan, which states, in part:
"The construction obligations of the Sponsor under this section shall survive the transfer of the Units to the Unit Owners until the expiration of the periods heretofore set forth. All construction and other obligations of the Sponsor shall be enforceable only by the Condominium Board and not by individual Unit owners unless the alleged construction defect relates to one (1) Unit only and is not a common defect affecting two (2) or more Units" (Ex. D to Motion).
Defendants contend that, because plaintiffs purchased both Unit 1B and Unit S, their claim involves two units and can only be brought by the Condominium Board instead of individually by plaintiffs.
Plaintiffs, however, have standing under the Offering Plan, because they allege that only one unit, Unit 1B, has been designed and constructed defectively. Moreover, the incomplete excerpt of the Offering Plan provided by defendants is inconclusive and thus insufficient to dismiss the complaint for lack of standing. "Unit" is a defined term in the Offering Plan, yet its definition is never provided by defendants. However, in both the Purchase Agreement (Ex. A to Motion) and the recorded deed (Ex. B), "Unit" is defined to include both Unit 1B and Unit S collectively. In fact, only one deed was executed for both of the units. Thus, even if plaintiffs' allegations included both Unit 1B and Unit S, as "Unit" has been defined to include both units, plaintiffs have standing as they allege the construction defects relate to only one "Unit" as contractually conveyed. Accordingly, defendants' motion to dismiss for lack of standing is denied.
Defendants also move to dismiss Messner from the action, claiming that he was never acting in his individual capacity, but rather, as an agent of MAD, even with regard to the Messner Agreement, which he signed individually without mention of MAD, because he was a disclosed agent of MAD.
In a related argument, defendants move to dismiss the "alter ego" claim because plaintiffs have failed to allege the requisite facts to justify piercing the corporate veil. Viewing the allegations in the light most favorable to the plaintiff, the fifth cause of action for "alter ego" must be dismissed as no independent cause of action exists for piercing the corporate veil ( see Morris v New York State Dept. of Taxation and Fin., 82 NY2d 135, 141). Moreover, "[t]he doctrine of piercing the corporate veil is typically employed by a third party seeking to go behind the corporate existence in order to circumvent the limited liability of the owners and to hold them liable for some underlying corporate obligation" ( id.). Determining whether the corporate veil should be pierced requires a fact-specific inquiry and "may not be reduced to definitive rules governing the varying circumstances when the power may be exercised. Generally, however, piercing the corporate veil requires a showing 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" ( id. (internal quotations and citations omitted)). Although plaintiffs have made conclusory allegations in their fifth cause of action which purport to meet this standard, as there is no separate cause of action to piece the corporate veil, defendants' motion to dismiss the fifth cause of action is granted. It is noted, in any event, that the individual defendant's liability has been alleged under claims arising from a contract signed by Messner personally and by his execution of the Sponsor Certification.
The first and second causes of action, for breach of the Offering Plan, and the third cause of action for breach of the Purchase Agreement, were brought against both Messner and MAD. Plaintiffs claim that Messner can be held personally liable because he executed the Sponsor Certification in his individual capacity. Defendants contend that the Sponsor Certification is not applicable to events that transpired after its execution, in May of 2006, well before the Offering Plan was filed and the Purchase Agreement was executed. Defendants' argument is refuted by the language of the Sponsor Certification, which expressly states that the Sponsor Certification relates to the Offering Plan and certain "documents submitted hereinafter . . . which amend or supplement the offering plan" (Plaintiffs' Memo, Ex. 1). Thus, even without piercing the corporate veil, plaintiffs have properly interposed breach of contract claims against Messner, as the principal of MAD, based upon his individual certification of the offering plan ( see Birnbaum v Yonkers Contracting Co., 272 AD2d 355 [2d Dept 2000] citing Zanani v Savad, 228 AD2d 584, 585 [2d Dept 1996]; Kikirov v 355 Realty Assoc., LLC, 31 Misc 3d 1212(a), 2011 WL 1440365 at *6 [Sup Ct, Kings County 2011; Bd. of Mgrs. of Marke Gardens Condominium v 240/242 Franklin Ave. LLC, 20 Misc 3d 1138(A)(U) [Sup Ct, Kings County 2008]), aff'd 71 AD3d 935 [2d Dept 2010]). Defendants' motion to dismiss Messner from the first, second and third causes of action for breach of contract is denied.
Defendants move to dismiss the fourth cause of the action for breach of the Messner Agreement, claiming that Messner can not be held personally liable even though he executed the agreement individually without reference to MAD. Defendants contend that, because plaintiffs were well aware that Messner was MAD's agent and had never acted in his individual capacity in prior meetings, Messner can not be held personally liable for breaching the Messner Agreement. In his affidavit, Messner also contends that he maintained his own bank accounts separately from MAD and that all of the agreements he made in the context of this transaction were on behalf of MAD. Although defendants correctly state that "[a]n agent who acts on behalf of a disclosed principal will generally not be liable for a breach of contract" ( see Savoy Record Co., v Cardinal Export Corp., 15 NY2d 1, 4; Leonard Holzer Assoc., Inc. v Orta, 250 AD2d 737 [2d Dept 1998]), whether Messner was acting in his individual capacity or as an agent raises an issue of fact that can not be determined at this stage in the litigation.
Defendants also claim that no consideration was provided for the Messner Agreement. In response, plaintiffs claim that Messner executed the separate agreement "in consideration of [plaintiffs'] willingness to close on the Unit" (Plaintiff's Aff. at 3) and they would not have consummated the transaction but for the Messner's execution of the Messner Agreement. Defendants, however, claim that such consideration is invalid as plaintiffs had already executed the Purchase Agreement and were legally obligated to close on the apartment and that the four corners of the Messner Agreement makes no mention of the purported consideration. Defendants' contention is unavailing. Defendants have failed to annex the entire Offering Plan, which was incorporated by reference into the Purchase Agreement, rendering it improper and premature for this court to determine the parties' legal rights and obligations under the Purchase Agreement at this time. Plaintiffs allege that defendants have breached the Purchase Agreement by depriving plaintiffs of the opportunity to inspect the premises and by failing to repair the defects, including the water leaks which were discovered at the time of the closing. Thus, plaintiffs have adequately alleged that their consummation of the Purchase Agreement, in light of the known defects in the premises, provided adequate consideration for the Messner Agreement. Moreover, at this early stage in the litigation, plaintiffs need only adequately allege that a valid and enforceable contract existed between Messner and themselves. Whether consideration existed presents a question of fact that need not be resolved now ( Halliwell v Gordon , 61 AD3d 932 , 933-34 [2d Dept 2009]). Defendants' motion to dismiss the fourth cause of action is denied.
Defendants move to dismiss the sixth cause of action for fraud. Plaintiffs appear to base their fraud claim upon the Messner Agreement, alleging that "Defendant Messner knowingly made false representations and assurances that the water leaks and related water issues would be repaired and corrected, all with the express intent to induce Plaintiffs to consummate the transaction and to proceed with the closing for the purchase of the Unit" (Complaint ¶ 64). Plaintiffs further allege that "Defendant Messner knew that there were water issues endemic throughout the Building and the Unit . . . yet Defendant Messner made misrepresentations to Plaintiffs that the water leaks and related issues could be, and would be, repaired and corrected" ( id. at ¶ 65) and that "Plaintiffs would not have proceeded with the closing" ( id. at ¶ 67) but for Messner's allegedly false representations. Plaintiffs further allege that "[b]ecause Defendant Messner exercised complete dominion and control over the transaction that was used to commit fraud upon Plaintiffs, Defendant Messner is personally liable to Plaintiffs" ( id. at ¶ 69). Plaintiffs also claim that the Sponsor Certification, signed by Messner as both an agent of MAD and in his individual capacity on May 16, 2006, renders Messner personally liable for any fraud committed.
In support of their motion, defendants claim that plaintiffs have inadequately pleaded scienter. The defendants also claim that certain provisions in the Purchase Agreement preempt plaintiffs' fraud claims, in particular paragraph 21, which expressly disclaims reliance upon any warranties and representations, and paragraph 25, which acts as a merger clause, stating that the Purchase Agreement, together with the Offering Plan, "constitutes the entire agreement between the parties as to the subject matter hereof and supersedes all prior understandings and agreements."
"To plead a prima facie case of fraud the plaintiff must allege representation of a material existing fact, falsity, scienter, deception and injury. In addition, each of these essential elements must be supported by factual allegations sufficient to satisfy the requirement of CPLR 3016 (subd. (b)) that the circumstances constituting the wrong shall be stated in detail' when a cause of action based upon fraud or breach of trust is alleged" ( Lanzi v Brooks, 54 AD2d 1057, 1058 [3d Dept 1976], affd 43 NY2d 778 (internal citations omitted)). Here, plaintiffs have alleged that Messner knowingly misled them by making false representations that he would make certain repairs and that, but for those representations, plaintiffs would not have purchased the Apartment and have been subsequently injured. Plaintiffs have also adequately alleged that Messner was acting in his individual capacity. However, the intent not to perform the conditions of a contract cannot survive as a separate cause of action for fraud where the breach of the contract has also been alleged ( see Mendelovitz v Cohen , 37 AD3d 670 , 671 [2d Dept 2007]); Venables v Sagona, 2011 NY Slip Op. 05261 [2d Dept 2011]). Plaintiffs have interposed claims of breach of both the Purchase Agreement and the Messner Agreement and the sixth cause of action for fraud based upon such breaches must be dismissed.
Defendants move to dismiss the tenth cause of action for negligence as duplicative of plaintiff's breach of contract claims. Plaintiffs, however, contend that their negligence claim is not duplicative as it seeks non-economic damages from hazardous conditions within the Unit, such as the growth of mold, which have arisen due to defendants' unwillingness to repair the Unit. Although plaintiffs may seek relief from negligent construction that is not duplicative of the economic relief sought from plaintiff's breach of contract claims, defendants are correct that plaintiffs have not adequately pled a cause of action for negligence. "It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." ( Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389). Here, plaintiffs have not alleged that defendants have breached any independent duty owed to plaintiffs aside from defendants' obligation to comply with the terms of the contract. Accordingly, defendants' motion to dismiss the tenth cause of action is granted.
In their motion to dismiss the complaint in its entirety, defendants do not specifically address the seventh cause of action for breach of the duty of good faith and fair dealing, the eighth cause of action for violation of the Consumer Protection Act, the ninth cause of action for breach of fiduciary duty, the eleventh cause of action for unjust enrichment, the twelfth cause of action for use and occupancy and the thirteenth cause of action for breach of the housing merchant warranty. Thus, defendants' motion to dismiss is denied with respect to those causes of action ( see Fritz v Bd. of Educ. of Union Free School Dist. No. 22, 70 AD2d 594 [2d Dept 1979] ("when an application to dismiss for insufficiency is addressed to the complaint as a whole and not to the individual causes of action therein, the sufficiency of any such cause of action requires that the application be denied in its entirety"); see also Savino v Bd. of Educ., 123 AD2d 314, 315, (on motion to dismiss, court should consider only arguments specifically raised]), Griefer v Newman, 22 AD2d 696 [2d Dept 1964]), except as to the seventh cause of action for breach of the duty of good faith and fair dealing, as such cause of action is subsumed within plaintiffs' breach of contract claims ( New York Univ. v Cont. Ins. Co., 87 NY2d 308, 319-320).
Defendants' reply affirmation, at 27 pages, exceeds the 15-page limit, and improperly raises a new argument that plaintiffs fail to state a claim under the Consumer Protection Act, thus depriving plaintiffs of the opportunity to answer ( see 22 NYCRR 202.70 (g), Rule 17 (ii) requiring "reply memoranda shall be no more than 15 pages and shall not contain any arguments that do not respond or relate to those made in the memoranda in chief"). Rule 19 of the Kings County Commercial Division Rules require that this rule be strictly construed. However, even if defendants' reply affirmation were not rejected as defective, the arguments raised therein are unpersuasive. The eighth cause of action alleges that "[d]efendants have violated New York General Business Law § 349 (the "Consumer Protection Act") by engaging in deceptive acts and practices that are unlawful within the State of New York" (¶ 78). The Consumer Protection act prohibits "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service." The complaint adequately alleges that the Offering Plan targets the public at large and makes deceptive and material misrepresentations.
CONCLUSION
Defendants' motion to dismiss the fifth cause of action entitled "alter ego," the sixth cause of action for fraud, the seventh cause of action for breach of the covenant of good faith and fair dealing and the tenth cause of action for negligence is granted with prejudice. Defendants' motion to dismiss the remaining causes of action is denied.
This constitutes the decision, order, and judgment of the court.