Opinion
2850/2013
05-19-2015
Pat Torpey and STEVE DELCORSO, Plaintiff-, Respondents, v. TJ Realty of Orange County Inc., and THOMAS LEISMAN, Defendants.
LEVINSON, REINEKE & ORNSTEIN, P.C. Attorneys for Defendants P.O. Box 244 Central Valley, New York 10917 OSTRER & ASSOCIATES, P.C. Attorneys for Plaintiffs 111 Main Street P.O. Box 509 Chester, New York 10918
LEVINSON, REINEKE & ORNSTEIN, P.C.
Attorneys for Defendants
P.O. Box 244
Central Valley, New York 10917
OSTRER & ASSOCIATES, P.C.
Attorneys for Plaintiffs
111 Main Street
P.O. Box 509
Chester, New York 10918
John P. Colangelo, J.
The following papers were read on the Defendants' motion for summary judgment and Plaintiffs' cross-motion to strike Defendants' answer or alternatively, for an order of preclusion or conditional preclusion subject to Defendants' compliance with court-ordered discovery:
Notice of Motion, Affidavit, Affirmation-Exhibits A-F . . . . . . . . . . . . . . . . . . . . .1-18
Notice of Cross-Motion, Affirmation, Affidavit, Exhibits A-H,
Memorandum of Law in Support of Cross-Motion . . . . . . . . . . . . . . . . . . . . . . . 19-46
Affidavit, Affirmation in Support of Motion for Summary Judgment . . . . . . . . . . . 47-56
Plaintiffs' Reply Memorandum of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57-61 Factual and Procedural Background
The above-captioned action was commenced by plaintiffs/tenants Pat Torpey and Steve Delcorso ("Plaintiffs" or "Tenants") against Defendants TJ Realty of Orange County, Inc. ("TJ Realty") and its President, defendant Thomas Leisman ( "Leishman", as used by Defendant) (collectively "Defendants" or the "Landlord") by summons and complaint filed on April 4, 2013. The complaint sets forth five causes of action: Fraudulent Inducement, Unjust Enrichment, Reformation, Rescission, and Violation of General Business Law §349.
The action arises from a lease entered into between Plaintiffs and Defendants in March 2012 (the "Lease") for a restaurant and bar located in Highland Mills, New York that had been operated by Defendants for several years as the Savory Grill Restaurant. (The "Premises") (See Lease, Exhibit D to Defts. Motion). The effective date of the Lease was April 1, 2012; the Lease is for a five year term, with two five-year renewal options as well as a purchase option. According to the terms of the Lease, Plaintiffs are obligated to pay an annual minimum rent of $60,000.00 (Lease ¶ 2), and are permitted to make reasonable alterations of and additions to the Premises as long as such alterations or additions did not change the general character or reduce the fair market value of the Premises. Plaintiffs are required to obtain the written consent of the Defendants as well as meet other conditions if the estimated cost of such alterations or additions exceeds $10,000.00.(Lease ¶ 7). Plaintiffs' intended use of the Premises was expressly stated as follows: "Lessee covenants that the Demised Premises shall be used solely for A RESTAURANT WITH ON PREMISE LIQUOR LICENSE and for no other purpose, unless approved in writing by Lessor." (Id. ¶ 4; emphasis in original).
The fulcum of this action is Plaintiffs' claim that they were fraudulently induced to enter into the Lease by virtue of Defendants alleged knowing and deliberate concealment of certain claimed New York State Liquor Authority ("SLA") violations that had been issued against Defendants during Defendants' operation of the Premises (See Complaint, ¶ ¶ 34-38). The SLA mailed a written notice dated August 10, 2012 to Leishman concerning pending cancellation/revocation proceedings based upon violations that allegedly occurred on or before November 3, 2011. (See Exh. H. To Pls. Cross-Motion). Plaintiffs maintain that Leishman knew of such charges prior to the execution of the Lease. As a result of such SLA proceedings, a final order of cancellation of Defendants' liquor license for the Premises was eventually issued, effective March 13, 2013. (see Defts. Exhibit F). It is undisputed that the pendency of such revocation proceedings against Defendants was the reason behind the denial by the SLA licensing board of Plaintiffs' application for a Temporary Retail Liquor Permit on January 17, 2013. (See Deft. Exhibit E).
While the instant action was pending, Defendants filed a notice of petition and petition dated May 17, 2013 in the Town of Woodbury Justice Court (the "May 2013 Woodbury Proceeding") seeking possession of the Premises, a judgment in the amount of $16,500.00 and a final judgment of eviction. Defendants agreed to withdraw the May 2013 Woodbury Proceeding and consolidate the claims therein with the instant, previously commenced Supreme Court action. Defendants then filed an answer to the summons and complaint herein, and interposed a counterclaim for unpaid rent, to which Plaintiffs filed a reply. (Plaintiffs' Exhibit A).
Thereafter, on February 27, 2014 and notwithstanding the previous discontinuance of the May 2013 Woodbury Proceeding, Defendants again served Plaintiffs with a notice of petition and petition in the Town of Woodbury Justice Court for non-payment of rent, termination of the lease and eviction of Plaintiffs from the premises. (The "2014 Woodbury Proceeding"; see Exhibit J to Plaintiffs' Exhibit A). Plaintiffs promptly moved in this Court by Order to Show Cause to remove the 2014 Woodbury Proceeding to this Court and to consolidate it with this action. The Court granted Plaintiffs' motion by Order dated May 12, 2014 (the "Order," annexed as Exh. B to Plaintiffs Cross-Motion). The Order further directed Plaintiffs to pay Defendants $7,500.00 on or before April 8, 2014 to be credited against any arrears alleged to be owed, and to thereafter make monthly payments of $3,000.00 to Defendants during the pendency of this action. Plaintiffs were also directed to provide proof of insurance for the Premises on or before May 1, 2014.
By the instant Motion, Defendants seek summary judgment dismissing the Complaint and an order directing a trial on Defendants' counterclaims. Plaintiffs opposed Defendants' motion and interposed a Cross-Motion pursuant to CPLR 3126 to strike Defendants' Answer, preclusion, or in the alternative, to compel Defendants to comply with Plaintiffs' discovery requests.
In opposing Defendants' motion, Plaintiffs rely in large part upon the affidavit of Plaintiff Steve Delcorso submitted in March 2014 in the context of the 2014 Woodbury Proceeding and support of Plaintiffs' Order to Show Cause to remove and consolidate (the "Delcorso Affid."), and the Affidavit of Plaintiff Pat Torpey, submitted in January 2015 in connection with Plaintiffs' instant Opposition and Cross-Motion. (the "Torpey Affid."). According to the Delcorso Affidavit, Plaintiffs received a letter from the SLA dated January 17, 2013 denying their application for a liquor license. (Delcorso Affid. ¶¶ 8-9). Plaintiffs claim that they then learned - - for the first time - - about the Defendants' alleged SLA violations and the possibility that Defendants' liquor license could be revoked which carried with it the potential inability of Plaintiffs to obtain their own license for at least two years. Plaintiffs fears were realized, but only in part; although Leishman pleaded "no contest" to the SLA charges on January 21, 2013, his liquor license for the Premises was cancelled and not revoked (see Exhibit F to Defts. motion); Plaintiffs were thereafter issued their own liquor license but not until June 10, 2013 - - over one year after the Lease was signed.
Plaintiffs contend, in essence, that Defendants wrongfully failed to advise Plaintiffs before they signed the Lease of the pending charged SLA violations from November 2011. Plaintiffs also claim that Defendants concealed or misrepresented material facts relating to the condition of the Premises. The Instant Complaint.
Plaintiffs first cause of action is for fraudulent inducement. Plaintiffs allege that Defendants, by their conduct and by omission, intentionally concealed from Plaintiffs the issuance of potential SLA violations and the pending revocation/cancellation proceeding against Defendants, thereby inducing Plaintiffs to enter into the Lease - - a Lease, which by its terms, contemplated the operation of a "Restaurant With on Premises Liquor License" privileges. Plaintiffs also allege that Defendants' failure to disclose the true, tawdry condition of the Premises also wrongfully induced them to enter into the Lease and ultimately required them to make unanticipated and extensive improvements. By their second cause of action, Plaintiffs allege that Defendants have been unjustly enriched by Defendants' fraudulent conduct. The third and fourth causes of action seek relief in the form of reformation and rescission of the Lease in the event that Plaintiffs were to prove unable to obtain a liquor license for the Premises. Finally, for a fifth cause of action, Plaintiffs assert that Defendants engaged in deceptive acts or practices in violation of § 349 of the General Business Law. The relief demanded in the Complaint includes a money judgment for rent paid, lost profits, payment for costs of repairs and improvements, abatement of rent, reformation of the lease, recision of the lease and/or restoration of the status quo which existed prior to execution of the lease.
Defendants' Motion
By their motion, Defendants seek to dismiss the Complaint and demand a trial on their counterclaims for unpaid rent and eviction of Plaintiffs from the Premises. In support of their motion, Defendants submit the affidavit of Thomas Leishman, a named co-Defendant and President and 50% stockholder of TJ Realty. (Affid. of Thomas Leishman In Support of Defendants' Summary Motion to Dismiss the Complaint, sworn to on November 25, 2014 (the "Leishman Affid.").
In his Affidavit, Leishman denies that Plaintiffs were expressly told that no SLA violations were pending, and correctly points out that the Lease is silent as to whether any SLA violations were extant. Leishman disdainfully added that P]laintiffs' "failure to look into my violation history, which I even told them about, or to determine a reasonable time frame for obtaining the license was just another example of their incompetence." (See Leishman Affid. ¶ 10; emphasis added). Leishman contends that he was contacted by the SLA and issued the initial violation - - his "first violation in approximately fifteen years in business" - - "[j]ust prior to signing the Lease," and further states that he contested the violations and "immediately advised Plaintiffs of the circumstances" (Id. ¶6). It should be noted, however, that whether Leishman advised Plaintiff of the cited SLA violations before or after the Lease was signed remains unclear. Leishman goes on to maintain that as soon as he "became aware of the problem the alleged violations on the license caused," he pled "no contest" to the violations and accepted the lesser penalty of license cancellation. Plaintiffs "were then able to obtain a license a few months later." (Leishman Affid. ¶ 12). Leishman essentially concedes that had the license been revoked instead of cancelled, the consequences to Plaintiffs would likely have been more dire. (Id.).
While Leishman claims that he told Plaintiffs of the charged violations, he further contends that even if he had remained silent or had lied, Plaintiffs cannot establish the essential element of reliance since "my liquor license violation history was readily available to the public". (Id. ¶ 14). Put simply, Leishman contends that Plaintiffs failed to do their homework. Defendants argue that Plaintiffs relied upon Defendants' silence or, at worst, misstatements at their own peril, since they could have and should have, at minimum, conducted a "basic internet search" or placed "a simple telephone call to the [SLA]," either of which would have revealed the Premises' violation history." (Id. ¶ 14).
Similarly, Leishman maintains that Plaintiffs were free to and did fully inspect the Premises prior to the execution of the Lease and therefore had no right to rely on any alleged misrepresentation regarding its condition (Leishman Reply Affid., sworn to Feb. 3, 2015, ¶¶ 10-11). With respect to the improvements to the Premises made by Plaintiffs, Defendants also maintain that since the cost of such improvements exceeded $10,000.00 and were not approved by Defendants, they were made in violation of the Lease and therefore no reimbursement to Plaintiffs is due. According to the Leishman Affidavit, "TJ Realty never received a request for consent to due [sic] any improvements on the property, as is required by the terms of the lease. All of the alleged improvements were done without my knowledge and consent." (Leishman Affid. ¶ 15).
In short, Defendants' contend that the terms of the Lease effectively eliminate all material issues of fact and mandate judgment in their favor as matter of law. Defendants claim that Plaintiffs should have exercised due diligence and researched the Premises' SLA violation history, particularly in light of the disclaimer in paragraph 5 of the Lease, Condition of Demised Premises which states that "Lessor makes no representation or warranty, express or implied in fact or by law, as to the nature or condition of the Demised Premises, or its fitness or availability for any particular use, or the income from or expenses of operation of the Demised Premises." Similarly, Defendants maintain that despite the fact that the Lease clearly requires Plaintiffs to make all of the repairs on the Premises and Plaintiffs visited the property on at least four occasions, they never hired an engineer or other professionals to inspect the property and made no effort to ascertain what repairs were necessary at any time before the Lease was signed. (Leishman Reply Affid. ¶ 11).
In opposing Defendants' motion for summary judgment, Plaintiffs contend that Leishman never disclosed the SLA violations pending against him and the possible impact of such violations on the sole use of the Premises - - a restaurant with an on-premise liquor license - - as clearly stated in the Lease. Contrary to Leishman's assertion that he was contacted by the SLA shortly before signing the lease in March 2012, Plaintiffs refer to the SLA Notice of Pleading against him entitled "In the Matter of Proceedings to Cancel or Revoke" [Defendants' License] (Pls. Exh. H) which reflects that the Premises were cited by the SLA several months earlier for violations that occured on or before November 3, 2011. (Torpey Affid. ¶ 6-7). Thus, Plaintiffs contend that Leishman was notified that such violations were pending four months prior to Plaintiffs execution of the lease and during ongoing lease negotiations.
According to the Torpey Affidavit and contrary to Leishman's assertion, while Leishman did explicitly tell Plaintiffs that he had a valid liquor license for the Premises and showed the license to Plaintiffs, he did not mention the pending violation proceeding at any time before the Lease was executed. (See Torpey Affid. ¶ 4). To the contrary, before the signing of the Lease, Plaintiffs claim that Leishman represented to them that the restaurant was "turn key", that everything was "perfect" and ready to go, and he hoped [Plaintiffs] could "live up to [his] reputation." (Id. ¶ 10). However, according to Torpey, the Premises were hardly in move-in condition. Aside from the liquor license issue, when Plaintiffs took possession, they learned that telephone and cable bills were delinquent which required Plaintiffs to change carriers in order to have any telephone and television service; the electric bill was delinquent, requiring Plaintiffs to tender a deposit on the amount of $25,000.00 to obtain electricity; there were delinquent bills with various suppliers; (id. ¶ 11); and, the septic tank was inoperable, requiring excavation of the sewer main to remove and replace the sewer line. (Id. ¶12). Plaintiffs annexed to their papers a "List of Improvements to Restaurant", which itemizes the work done which, they claim, further demonstrate that the restaurant could not have been opened and operated on a full time basis at the time the Lease was signed. (Id. ¶ 15). Legal Analysis.
CPLR §3212(b) states in pertinent part that a motion for summary judgment "shall be granted if, upon all of papers and proof submitted, the cause of action or defense shall be established sufficiently to warrant the court as a matter of law in directing judgment in favor of any party."
In Andre v Pomeroy, 35 NY2d 361, 364 (1974), the Court of Appeals held that:
"Summary judgment is designed to expedite all civil cases by eliminating from the Trial Calendar claims which can properly be resolved as a matter of law . . . [W]hen there is no genuine issue to be resolved at trial, the case should be summarily decided, and an unfounded reluctance to employ the remedy will only serve to swell the Trial Calendar and thus deny to other litigants the right to have their claims promptly adjudicated."The law is clear that "[t]he proponent of a summary judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case." Winegrad v New York University Medical Center, 64 NY2d 851, 853 (1985); Ayotte v Gervasio, 81 NY2d 1062, 1063 (1993); S.J. Capelin Associates, Inc. v. Globe Manufacturing Corp., 34 NY2d 338, 341 (1974). Finkelstein v. Cornell University Medical College, 269 AD2d 114, 117 (1st Dept. 2000). Once the moving party has sustained his burden of making a prima facie showing of entitlement to summary judgment, the burden shifts to the opposing party to "produce evidentiary proof in admissible form" sufficient to establish the existence of material issues of fact which require a trial of the action. Zuckerman v. City of New York, 49 NY2d 557, 562 (1980). Failure of the proponent of a motion for summary judgment to make a prima facie showing of entitlement requires denial of the motion, regardless of the sufficiency of the opposing papers. Winegrad v New York University Medical Center, 64 NY2d 851, 853 (1985).
In this case, Defendants have made a prima facie showing of entitlement to summary judgment on the first and second causes of action set forth in the complaint. However, Plaintiffs have produced evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial on those causes of action. The Affidavits of Torpey and Delcorso raise material issues of fact as to whether and to what extent Defendants misrepresented or concealed essential and material facts regarding SLA cancellation/proceedings that potentially placed in jeopardy Plaintiffs' ability to obtain a liquor license, as well as delinquency of bills and code violations which necessitated extensive expenditures, all of which were allegedly relied upon by Plaintiffs to their detriment. Where a complaint states a case of action for fraud, the parole evidence rule is not a bar to showing the fraud, either in the inducement or execution, despite a statement in the writing that no representations have been made. O'Keefe v. Hicks, 74 AD2d 919 (2d Dept. 1980). By the same token, the affidavits of Plaintiffs raise material issues of fact as to whether Defendants have been unjustly enriched as a result of their misrepresentations or concealment of essential facts, and whether Plaintiffs are entitled to damages.
Accordingly, Defendants' motion for summary judgment is denied with respect to the causes of action for fraudulent inducement and unjust enrichment. However, Plaintiffs remaining causes of action - - for rescission, reformation and violations of GBL § 349 - - cannot pass muster.As far as Plaintiffs' reformation and rescission claims are concerned, since Plaintiffs have now obtained a liquor license, the causes of action for reformation and rescission - - which are predicated upon a potential failure to do so because of Defendants' conduct (Complaint, ¶ ¶ 45-54) - - now appear to be moot. In addition, by remaining in the Premises, Plaintiff essentially affirmed the Lease and thereby undermined any potential rescission or reformation claim. Where, as here, a tenant claims that it was fraudulently induced to enter into a lease, the law is clear that such tenant then has a decision to make: the tenant may elect to affirm the lease, remain in the premises while adhering to its terms and seek damages caused by the alleged fraud; or the tenant may elect to vacate the premises and seek rescission of the lease and damages. As a leading treatise, Rasch's Landlord and Tenant, Vol. 1 (4th Ed. 1998), pp. 115-116 states:
"A tenant who has been induced to enter into a lease by fraudulent misrepresentations has a choice of remedies. He may disaffirm or rescind the lease. Upon rescission, he ceases to be obligated to pay any rent accruing after the rescission. He also may recover such moneys as he may have paid under the lease, such as deposit monies, rents, and the like, as a consequence of the fraudulent acts of the landlord, as moneys had and received. But a tenant cannot rescind the lease upon the ground of fraud, where he fails to promptly surrender possession of the property upon the discovery of the fraud, If he continues the use and occupancy of the premises received under the lease, he will be deemed to have elected to affirm the lease. His remedy thereafter, if, any, is to recover damages suffered as a result of the fraud." (Emphasis added). See, e.g., Stayton Realty Corp. v. Rhodes, 200 A.D.108 (1st Dept.); aff'd, 234 NY 515 (1922); Cochran v. Scherer, 117 Misc. 765, 771 (Mun. Ct., NYC 1922). (The Court granted summary judgment to plaintiff landlord and dismissed tenant's defense of fraud since "defendant is still in possession of the premises. If he desired to claim fraud and for that reason repudiate or rescind the lease, he should have promptly on the discovery of the fraud surrendered possession of the property. This, however, the defendant failed to do but continued in physical possession of the premises long after the alleged fraud was discovered."); McKeever v. Aronow, 194 N.Y.S. 475 (Appel. Term, 1st Dept. 1922) ("A party, while he may retain possession and obtain his damages for fraud, cannot rescind while retaining the fruits of the contract."); Gould v. Cayuga County National Burke, 86 NY 75, 82 (1881).
Put simply, Plaintiffs Tenants herein cannot have it both ways. In the instant case, as in Cochran, and as stated in Rasch, since Plaintiffs remain in possession, they have elected to affirm the lease and seek damages. Since they are enjoying the benefit of remaining in the Premises - - deficient as they may allegedly be - - and operating their restaurant, they must bear the burden of complying with the Lease while suing for compensatory damages. Accordingly, during the pendency of this action, Plaintiffs are required to abide by the Lease's terms, including their obligation to pay to Defendants the monthly rent due under the Lease - - here, $5,000.00 per month. Payment in that amount is to be made by Plaintiffs to Defendants on a monthly basis beginning on June 15, 2015 and continuing thereafter until further order of the Court. Such payments are in lieu of the $3,000 per month payment which the Court directed Plaintiffs to pay in its March 2014 Order, and such Order is revised accordingly.
Finally, Plaintiffs' fifth cause of action based upon § 349 of the General Business Law is also meritless. General Law Business Law Section 349 - - essentially a consumer protection statute - - is inapposite in situations, such as the instant case, which involve an isolated commercial transaction between two parties operating at arms length. As the Federal District Court held in denying a commercial defendant's attempt to invoke BGL § 349 in Wells Fargo Bank Northwest, N.A. v. Taca International Airlines, S.A., 247 F. Supp.2d 352, 371 (S.D.NY 2002):
"Defendants final counterclaim maintains that Wells Fargo and C-S Aviation violated New York's consumer protection law, NY Gen. Bus. Law § 349 (a), which prohibits "deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state," and which does not require reasonable reliance. ****
To establish a claim under NY Gen. Bus. Law § 349 (a), a plaintiff must, at a minimum plead and prove that the conduct at issue is consumer-oriented. Oswego Laborers' Local 214 v. Marine Midland Bank, 85 NY2d, 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995) . . . In other words, the typical violation contemplated by the statute involves an individual consumer who is misled by a seller of consumer goods, usually by way of false and misleading advertising. The statute s concern with individual consumers is further evidenced by the remedies the statute provides, the derivation of the statute, and the case law, which demonstrates that successful plaintiffs are uniformerly those that bring claims involving recurring transactions where the amount in controversy is small and holds that business competitors have standing to rely on the statute only if they can prove that there has been harm to the public at large. Securitron Magnalock v. Schnablock, 65 F.3d 256, 264 (2d Cir. 1995).
Defendants' claims cannot meet this standard. The transaction described in the instant claims is between two business, for a limited number of specifically-negotiated transactions for substantial amounts of money." (Emphasis added). See also, e.g., Oswego Laborers' Local 214 v. Marine Midland Bank, 85 NY2d 20, 25 (1995).
As in Wells Fargo, the instant case involves an isolated business transaction, not repetitive consumer sales. Accordingly, GBL § 349 does not apply as a matter of law and Plaintiff fifth cause of action must be dismissed.
Plaintiffs' Cross-Motion
As far as Plaintiffs' cross-motion is concerned, this Court issued a disclosure order at the compliance conference held on January 12, 2015. (see Exhibit E). According to the Moving Affirmation submitted by the attorney for Plaintiffs, David L. Darwin, "discovery demands were served upon Defendants on July 17, 2014 in compliance with the discovery order, together with a cover letter containing [P]laintiffs' disclosure of statements, witnesses and photographs." (Id. ¶ 7). Defendants have neither requested an extension of time to respond to Plaintiffs demands nor objected to any of the demands. (Id. ¶ 10). Accordingly, Plaintiffs' cross-motion is granted to the extent that Defendants are ordered to respond to Plaintiff's disclosure requests within 45 days of the date of this decision. Should Defendants fail to do so, the Court will impose the appropriate relief under CPLR 3126 which may include striking Defendants' Answer or precluding Defendants from presenting evidence on any matter to which they fail to respond. For the same reasons, Defendants Motion for an immediate trial with respect to its counterclaims is denied without prejudice, and may be renewed by Defendants following completion of discovery.
Any issue not specifically addressed herein is denied. The parties are directed to appear on June 23, 2015 at 9:30 A.M. for a scheduling conference.
The foregoing constitutes the decision and order of this Court.
Goshen, New York
_______________________________
HON. JOHN P. COLANGELO, J.S.C.