Hamlet On Olde Oyster Bay Home Owners Assn., Inc. v Holiday Org., Inc.
2006 NY Slip Op 51378(U)
Decided on July 7, 2006
Supreme Court, Nassau County
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
As corrected in part through August 1, 2006; it will not be published in the printed Official Reports.
Hamlet On Olde Oyster Bay Home Owners Assn., Inc. v Holiday Org., Inc.
Decided on July 7, 2006
Supreme Court, Nassau County
THE HAMLET ON OLDE OYSTER BAY HOME OWNERS ASSOCIATION, INC., THE HAMLET ON OLDE OYSTER BAY VILLA CONDOMINIUM, THE HAMLET ON OLDE OYSTER BAY CARRIAGE HOME CONDOMINIUM, and HARVEY SHERMAN, LOUIS LUFT and RITA LITVACK, on behalf of themselves and all other persons similarly situated, Plaintiffs,
THE HOLIDAY ORGANIZATION, INC., THE HAMLET ON OLDE OYSTER BAY DEVELOPMENT CORP., THE HAMLET ON OLDE OYSTER BAY, LLC, THE HAMLET ON OLDE OYSTER BAY DEVELOPMENT CO., LLC, O.B. VENTURES CORP., GERALD MONTER, ELLIOT MONTER, MARILYN MONTER, RICHARD SPIRIO, JOSEPH MANCINO, JOHN BRANSFIELD, JR., JEFFREY WALL, R.PATRICK QUINN, MICHAEL PUORRO, RON BLOOMFIELD, HOLIDAY MANAGEMENT ASSOCIATES, INC., THE HAMLET OF OLDE OYSTER BAY FOOD AND BEVERAGE CORP., HOLCOM INCORPORATED, SCHIFFER MANAGEMENT GROUP, JOSEPH GILL SCHIFFER, SIDNEY B. BOWNE & SONS, LLP, DANE C. KENNY, ROBERT M. SWEDROE ARCHITECTS & PLANNERS, ROBERT M. SWEDROE, CHARLES A. DIGIOVANNA ARCHITECT and CHARLES A. DIGIOVANNA, Defendants.
COUNSEL FOR PLAINTIFF
Wolf, Haldenstein, Adler, Freeman & Herz, LLP
270 Madison Avenue
New York, New York 10016
COUNSEL FOR DEFENDANT
(for moving Defendants)
Rosenberg, Calica & Birney, Esqs.
100 Garden City Plaza - Suite 408
Garden City, New York 11530
(for Charles A. DiGiovanna Architects and Charles A. DiGiovanna)
Milber, Makis, Plousadis & Seiden, LLP
990 Stewart Avenue - Suite 600
Garden City, New York 11530
(for Sidney B. Bowne & Sons, LLP and Dane C. Kenny)
Kreig Associates, P.C.
5 Heather Court
Dix Hills, New York 11746
(for Robert M. Swedroe Architects & Planners, Robert M. Swedroe)
Mc Manus, Collura & Richter, P.C.
48 Wall Street - 25th Floor
New York, New York 10009
Leonard B. Austin, J.
Defendants, except Charles A. DiGiovanna Architect and Charles A. DiGiovanna, Sidney B. Bowne & Sons, L.L.P. and Dane C. Kenny and Robert M. Swedroe Architects and Planners and Robert M. Swedroe, move pursuant to CPLR 3211(a)(1),(3),(5) and (7) and 3016(b) to dismiss the causes of action denominated the first, third, fifth, seventh, ninth, thirteenth and fifteenth causes of action ("Breach of Contract Causes of Action"), the second, fourth, sixth, eighth, tenth, twelfth, fourteenth and sixteenth causes of action ("Unjust Enrichment Causes of Action"); the thirty-third, thirty-fourth, thirty-fifth, thirty-sixth, thirty-seventh, thirty-eighth and thirty-ninth causes of action ("Fraudulent Inducement Causes of Action"); the forty-eighth, forty-ninth, fiftieth, fifty-first, fifty-second, fifty-third and fifty-fourth causes of action ("Negligent Misrepresentation Causes of Actions"); the sixty-third cause of action ("False Advertising Cause of Action") the sixty-fourth, sixty-fifth, sixty-sixth and sixty-seventh causes of action ("Fraudulent Concealment Causes of Action"); the sixty-eighth, sixty-ninth, seventieth and seventy-first causes of action ("Negligence Causes of Action"); the seventy-ninth, eightieth, eighty-first, eighty-second, eighty-third and eighty-fourth causes of action ("Breach of Fiduciary Duty Causes of Actions"); the eighty-fifth cause of action ("Pierce the Corporate Veil Cause of Action"); the eighty-sixth cause of action ("Joint Venture Liability Cause of Action"); and the eighty-seventh, eighty-eighth, and eighty-ninth causes of action ("Donnelly Act Causes of Action").
The same Defendants move to dismiss all breach of contract claims to the extent [*2]that they allege violation of the Martin Act; dismiss all breach of contract claims to the extent that they are covered by or excluded under the limited warranties; dismiss all construction claims for which construction was substantially in accordance with the plans; dismiss the ninth cause of action against the sponsor-manager; dismiss the eleventh, thirteenth and fifteenth causes of action against Schiffer Management and Joseph Gill Schiffer; dismiss all breach of contract claims premised upon inaccurate projections; dismissing all breach of contract claims concerning the failure to deed certain property to the Home Owners Association; and dismiss all claims concerning internet/intranet services and payment of commissions regarding such services. These Defendants also seek sanctions pursuant to 22 NYCRR 130-1.1.
The Hamlet at Olde Oyster Day ("Hamlet") is a planned, up-scale, gated community in Plainview, New York. Hamlet consists of three types of housing, 130 "Sagamore" homes owned in fee, Hamlet Villa ("Villa") which consists of 72 townhouse condominiums and Hamlet Carriage Homes ("Carriage") which consist of 160 Carriage Home condominiums. The owners of each type of unit are automatically members of The Hamlet on Olde Oyster Bay Home Owners Association, Inc. ("HOA"). Owners of the Villas are automatically members of the Hamlet on Olde Oyster Bay Villa Condominium Homeowners Association. Owners of the Carriage Homes are automatically members of the Hamlet on Olde Oyster Bay Carriage Homes Condominium Homeowners Association.
Plaintiff, Harvey Sherman is the owner of a Sagamore home. Plaintiff, Louis Luft, is the owner of a Carriage Home condominium. Rita Litvack, is the owner of a Villa condominium. They purport to represent the interests of the other members of each class of owner.
The units in each of the sections were sold pursuant to the provisions of an offering plan filed with the Office of the New York State Attorney General. The sponsor filed separate offering plans for the Carriage House Condominium and Villa Condominium. Each purchaser executed a Purchase Agreement for the individual unit being purchased.
Disputes have arisen between the HOA and Hamlet. HOA asserts that the services and amenities provided are not in conformity with the offering plan and the promotional information. HOA alleges that the structures in the common areas such as the gatehouse and clubhouse were not properly constructed and that the common areas were not constructed and landscaped to proper standards or in accordance with the plans.
Owners of the Sagamore, Villa and Carriage House units allege that their units all have significant construction defects. The Sagamore units are claimed to have improperly installed HVAC systems, improperly installed plumbing and heating equipment, improperly installed siding, windows and doors and numerous other problems. The Villa and Carriage House units are alleged to have similar problems. The construction defects are alleged to have caused the water in the units to contain a high sediment content, water infiltration and pooling on the roofs, ice damming on the
roofs in winter, insufficient heat and air-conditioning, burst pipes, peeling paint and a [*3]litany of other problems.
HOA further alleges that the financial projections in the offering plans for revenue from outside sources were unreasonably inaccurate. The offering plan contained a revenue estimate for the first full year of operation of $395,400. The actual revenues received from these sources during the first year was $58,355.00.
HOA alleges that the projected expenses contained in the offering plan for the first year for gas and electric, repairs and maintenance, insurance and snow removal were significantly understated. The actual costs for these items was twice what had been estimated in the offering plans.
HOA further claims that, during the period of time that the sponsor related managing agent acted as managing agent for HOA, the managing agent failed to perform its functions properly. The complaint further alleges that Elliot Monter, Richard Spirio and Ron Bloomfield, who served as directors of HOA and members of the board of managers of the condominium association during the time that the sponsor controlled those entities improperly performed their functions and breached their duties to the HOA and as managers of the condominium associations.
Defendant, The Hamlet at Olde Oyster Bay LLC ("Hamlet LLC" or "the Sponsor"), is the sponsor/developer/promoter of the HOA Offering Plan, the Carriage House Offering Plan and the Villa Condominium Offering Plan.
Defendant, Hamlet on Olde Oyster Bay Development, Co. LLC, also sued as Hamlet on Olde Oyster Bay Development Corp. is a member of Hamlet LLC.
Defendant, O.B. Ventures Corp., is the other member of Hamlet LLC. Defendants, Joseph Mancino, John Bransfield, Jr., Jeffrey Wall, R. Patrick Quinn and Michael Puorro, are principals, officers and/or directors of O.B. Ventures. Corp.
Defendant, Holiday Management Associates Inc., was the managing agent for the HOA until September 2003.
Defendant, Hamlet on Olde Oyster Bay Food and Beverage Corp. d/b/a Areca Dining, was the operator of the restaurant and provided food service in the club house.
Defendant, Holcom Incorporated, operates and provides internet services for the development. The action against Holcom has been voluntarily discontinued.
Defendant, The Holiday Organization, Inc. ("Holiday"), is engaged in real estate development business. The complaint alleges that Holiday controls, is the parent company of or is affiliated with Hamlet, the members of Hamlet LLC, Holiday Management, Areca and Holcom.
Defendants, Elliot Monter, Marilyn Monter and Richard Spirio, are principals, officers and/or directors of some or all of the Sponsor related entities.
Defendants, Elliot Monter, Richard Spirio and Ron Bloomfield, were the sponsor designated members of the HOA board and the Condominium Boards during the period that the sponsor controlled those boards.
Defendant, Schiffer Management Group, is a real estate management firm. Defendant, Joseph Gill Schiffer, is the principal of Schiffer Management. Schiffer Management certified the budget projects contained in the Offering Plans. Joseph Gill Schiffer signed the certifications on behalf of Schiffer Management.
Based upon these general allegations, HOA has served a complaint which runs 221 pages, contains 892 separate paragraphs and alleges 89 separate causes of [*4]action.
The moving Defendants, pursuant to CPLR 3211(a)(1),(3),(5) and (7) and CPLR 3016(b) seek to dismiss the aforementioned causes of action.
A. Legal Standard
CPLR 3211(a)(1) permits the court to dismiss an action based upon documentary evidence. A cause of action will be dismissed when the documentary evidence submitted in support of the motion conclusively resolves all factual issues and establishes a defense as a matter of law. Leon v. Martinez, 84 NY2d 83 (1994); Montes Corp. v. Charles Friehofer Baking Co., Inc., 17 AD3d 330 (2nd Dept. 2005); 730 J & J LLC v. Fillmore Agency, Inc., 303 AD2d 486 (2nd Dept., 2003); and Berger v. Temple Beth-el of Great Neck, 303 AD2d 346 (2nd Dept. 2003).
CPLR 3211(a)(3) permits the court to dismiss an action when the party bringing the action lacks legal capacity to bring the action; only the Attorney General can bring an action for violation of the Martin Act. Vermeer Owners, Inc. v. Guterman, 78 NY2d 1114 (1991); and General Business Law §352-e(1)(b).
3. CPLR 3221(a)(5)
CPLR 3211(a)(5) permits the court to dismiss an action which is barred by arbitration and award, collateral estoppel, discharge in bankruptcy, infancy or disability of the moving party, payment, release, res judicata, statute of limitations or statute of frauds.
CPLR 3211(a)(7) permits the Court to dismiss a complaint that fails to state a cause of action.
When deciding such a motion, the court must determine whether the plaintiff has a legally cognizable cause of action and not whether the action has been properly plead. Guggenheimer v. Ginzburg, 43 NY2d 268 (1977); Rovello v. Orofino Realty Co., 40 NY2d 633 (1976); and Well v. Yeshiva Rambam, 300 AD2d 580 (2nd Dept. 2002); and Frank v. DaimlerChrysler Corp., 292 AD2d 118 (1st Dept. 2002). The complaint must be liberally construed, and plaintiff must be given the benefit of every favorable inference. Leon v. Martinez, supra; and Paterno v. CYC, LLC, 8 AD2d 544 (2nd Dept. 2002). The court must also accept as true all of the facts alleged in the complaint and any factual submissions made in opposition to the motion. 511 West 232rd Street Owners Corp. v. Jennifer Realty Co., 98 NY2d 144 (2002); and Sokoloff v. Harriman Estates Development Corp., 96 NY2d 409 (2001); and Alsol Enterprises, Ltd. v. Premier Lincoln-Mercury, Inc., 11 AD3d 493 (2nd Dept. 2004).
If, from the facts alleged in the complaint and the inferences which can be drawn from the submissions in opposition, the court determines that the pleader has a cognizable cause of action, the motion must be denied. Sokoloff v. Harriman Estates Development Corp., supra; and Stucklen v. Kabro Assocs., 18 AD3d 461 (2nd Dept. 2005).
While factual allegations contained in the complaint are deemed true, legal conclusions and facts contradicted on the record are not entitled to a presumption of [*5]truth. In re Loukoumi, Inc., 285 AD2d 595 (2nd Dept. 2001); and Doria v. Masucci, 230 AD2d 764 (2nd Dept. 1996).
Defendants move to dismiss all or part of the Breach of Contract Causes of Actions, the Fraudulent Inducement Causes of Action, the Negligence Causes of Action and the Negligent Misrepresentation Causes of Action on the grounds that Plaintiffs are not the proper party to bring these claims.
Plaintiffs premise these causes of action in part, upon information contained in the Offering Plans. Plaintiffs allege that this information is inaccurate and misleading.
More specifically, these causes of action are premised upon allegations that movants failed "...to provide complete and detailed information regarding the materials, standards and/or equipment to be used" (Complaint ¶71), to "represent in the HOA Plan, and certified in writing therein, that they investigated the HOA Plan's accuracy, completeness and reasonableness" (Complaint ¶91) and the failure of the plan to disclose the specific areas of the Clubhouse that would be leased to the operator of the restaurant and the terms of the lease for the restaurant (Complaint ¶¶ 237, 238). Further to their claim, Plaintiffs allege in ¶ 293 of the complaint that:
"...in failing to provide a fair summary of all facts material to prospective purchasers' consideration of whether or not to purchase homes in the Development and become members of the Home Owners Association;
omitting material facts; failing to present complete or accurate details regarding the Development; and failing to afford prospective purchasers an adequate basis upon which to decide to purchase homes in the Development and become members of the Home Owners Association."
This portion of the motion brings into clear focus one of the major problems with the complaint. That is, the complaint regularly merges permissible causes of action with causes of action which cannot properly be maintained under the Martin Act.
The purpose of the Martin Act, General Business Law § 352 et. seq. is "...to ameliorate the burden imposed on purchasers and prospective subscribers to shares in a corporation by requiring offerors to make full disclosure of all information which might affect the buyer's decision." Phoenix Tenants Assoc. v. 6465 Realty Co., 119 AD2d 427, 429 (1st Dept. 1986). The Attorney General has sole and exclusive jurisdiction to prosecute sponsors who make false statements in offering plans. Vermeer Owners, Inc. v. Guterman, supra; Thompson v. Parkchester Apartments Co., 271 AD2d 311 (1st Dept. 2000); 167 Housing Corp. v. 167 Partnership, 252 AD2d 397 (1st Dept. 1998); and General Business Law § 353(1).
While the Martin Act does not preclude an action for common law fraud, a private Plaintiff may not through careful or artful drafting of a complaint assert a cause of action to redress the wrongs "...given over to the Attorney General under the Martin Act." Whitehall Tenants Corp. v. Estate of Olnick, 213 AD2d 200 (1st Dept.), lv. app. den., 86 NY2d 704 (1995). See also, Hsin Shen v. Astoria Federal Savings & Loan, 295 AD2d 319 (2nd Dept. 2002); and 167 Housing Corp. v. 167 Partnership, supra. [*6]
While portions of the causes of action which movants seek to dismiss almost certainly allege claims that are solely within the jurisdiction of the Attorney General under the Martin Act, the court may not dismiss portions of a cause of action. Lacks v. Lacks, 12 NY2d 268 (1963). If any portion of the cause of action states a claim upon which relief can be granted, then the cause of action may not be dismissed. Id. See also, Werfel v. Fitzgerald, 23 AD2d 306 (2nd Dept. 1965).
The court may strike allegations in a complaint if the allegations are "...scandalous or prejudicial matter unnecessarily inserted in a pleading." CPLR 3024(b). See, Koos v. Ludwig, 22 AD2d 666 (1st Dept. 1964); and Mid-Point Apartments v. Town of Poughkeepsie, 59 Misc 2d 845 (Sup.Ct. Dutchess Co. 1969). Movants did not move to strike the aforementioned allegations on the grounds that they are scandalous or prejudicial matter unnecessarily alleged.
By moving to dismiss a portion of the causes of action, the movants are conceding that the cause of action to the extent that it does not allege violations of the Martin Act plead a sustainable cause of action. Accordingly, to the extent that Defendants' motion seeks to dismiss the breach of contract actions on the grounds that they allege violations of the Martin Act, such relief must be denied.
C. Unjust Enrichment Causes of Action
The Unjust Enrichment Causes of Action dovetail with the Breach of Contract Causes of Action. The first sixteen causes of action alternate between causes of action for breach of contract and causes of action for unjust enrichment with each odd numbered cause of action alleging a cause of action for breach of contract and the following even number causes of action alleging a cause of action for unjust enrichment or restitution based upon the same facts.
While denominated causes of action for unjust enrichment, Plaintiffs actually seek restitution. To establish a claim for unjust enrichment, a plaintiff must establish that he/she performed services for the defendant which resulted in the defendant being unjustly enriched. Clark v. Daby, 300 AD2d 732 (3rd Dept. 2002); and Kagan v. K-Tel Entertainment, Inc., 172 AD2d 375 (1st Dept. 1991). Plaintiff must establish that the services were performed at the request or behest of the defendant. Clark v. Daby, supra; Prestige Caterers v. Kaufman, 290 AD2d 295 (1st Dept. 2002); and Lakeville Pace Mechanical , Inc. v. Elmar Realty Corp., 276 AD2d 673 (2nd Dept. 2000). The complaint herein does not allege that the Plaintiffs performed any services for the Defendants at their request for which the Plaintiffs anticipated being compensated.
To establish a cause of action for restitution, Plaintiff must establish defendants received money from the plaintiff that in good conscience and equity defendant should not be permitted to retain. Wiener v. Lazard Freres & Co., 241 AD2d 114 (2nd Dept. 1998); and Bello v. New England Financial, 3 Misc 3d 1109(A) (Sup. Ct. Nassau Co. 2004).
Where there are bona fide disputes regarding the existence of a contract or where the contract does not cover the dispute, a party may plead both a cause of action in quasi contract and contract. Fisher v. A. W. Miller Technical Sales, Inc., 306 AD2d 829 (4th Dept. 2003); Sforza v. Health Insurance Plan of Greater New York, Inc., 210 AD2d 214 (2nd Dept. 1984); and Joseph Sternberg, Inc. v. Walber 36th Street Assocs., 187 AD2d 225 (1st Dept. 1993). [*7]
However, "...where the suing party has fully performed on a valid written agreement, the existence of which is undisputed, and the scope of which covers the dispute between the parties", a party may not maintain an action in both quasi contract and breach of contract. Clark-Fitzpatrick v. Long Island Rail Road Co., 70 NY2d 382, 389 (1987). See also, Battery Park Realty, Inc. v. RKO Delaware, Inc., 18 AD3d 690 (2nd Dept. 2005); and Cooper, Bamundo, Hecht, & Longworth, LLP v. Kuczinski, 14 AD3d 644 (2nd Dept. 2005).
In this case, the relationship between Plaintiffs and the moving Defendants is exclusively governed by written agreements. The Breach of Contract Causes of Action are all premised upon the Sponsor's failure to comply with obligations imposed upon or undertaken under the terms of the Offering Plans. The eleventh, thirteenth and fifteenth causes of action allege that the Plaintiffs were the third-party beneficiaries of the contracts entered into between the Sponsor and Shiffer Management.
An offering plan is a contract. See, 511 West 232nd Owners Corp. v. Jennifer Realty Co., supra); and Green Harbour Homeowners' Assoc., Inc. v. G. H. Development & Construction, Inc., 14 AD2d 963 (3rd Dept. 2005). See also, Tompkins v. Hale, 172 Misc. 1071 (Sup. Ct. NY Co. 1939), aff'd., 259 App.Div. 860 (1st Dept.), aff'd., 284 NY 674 (1940).
Since the Unjust Enrichment Causes of Action are all premised upon alleged breaches of the terms of written agreements, Plaintiffs may not maintain causes of action for both breach of contract and unjust enrichment. Therefore, the Unjust Enrichment Causes of Action fail to state a cause of action and must be dismissed.
D. Fraud in the Inducement Causes of Action
The issue in regard to these causes of action is not whether Plaintiffs may maintain common law fraud action. They may. CPC International, Inc. v. McKesson Corp., 70 NY2d 268 (1987); and Thompson v. Parkchester Apartments Co., 249 AD2d 68 (1st Dept.) lv. dism., 92 NY2d 946 (1998). The issue is whether Plaintiffs are, "through artful pleading", asserting a claim which may only be asserted by the Attorney General under the Martin Act. Whitehall Tenants Corp. v. Estate of Olnick, supra at 200. See also, Hsin Shen v. Astoria Federal Savings & Loan, supra. This, they may not do. See, e.g., White Hall Tenants Corp. v. Estate of Olnick, supra.
In order to avoid dismissal of a common law fraud action, plaintiff must plead "...a unique set of circumstances whose remedy is not already available to the Attorney General." Thompson v. Parkchester Apartments, Co., supra. See also, Thompson v. Parkchester Apartments Co., 271 AD2d 311 (1st Dept. 2000); and 15 East 11th Apartment Corp. v. Elghanayan, 220 AD2d 295 (1st Dept. 1995), lv. dism. in part, den. in part, 87 NY2d 1050 (1996).
The Fraud in the Inducement Causes of Action are premised upon the advertising material disseminated by the Sponsor, material contained on Holiday's web site and upon allegations that the offering plan contained false or misleading information.
The "...elements of common-law fraud are a representation of a material fact, falsity, scienter, reliance and injury. (Citation omitted)". Kline v. Taukpoint Realty Corp., [*8]302 AD2d 433 (2nd Dept. 2003). See, Channel Master, Corp. v. Aluminum Limited Sales, Inc., 4 NY2d 403 (1958).
The promotional material which is allegedly fraudulent involves representations contained in the Sponsor's promotional material which described the development as "resort living" and indicated that the premises would have "a landscape of flowers and greenery and waterfalls," an "elegant Conservatory clubhouse," "three swimming pools, and "first class service." The Sponsor is further alleged to have represented that structures would be built with "the finest materials" and that purchasers would be "getting incomparable value and enduring quality." The Sponsor's web site is alleged to have described the complex as the "Northeast's first 5 Star Resort community" and the development as "one of only three in the United States."
To the extent that theses causes of action are premised upon the material contained in the offering plans, they must be dismissed. The Martin Act, General Business Law § 352-e(1)(b), requires the sponsor to disclose certain material in the offering plan. Omission, concealment or suppression of information is actionable under the Martin Act. State of New York v. Rachmani Corp., 71 NY2d 718 (1988). To the extent that the offering plan contains material which is allegedly false or misleading, the complaint alleges a violation of the Martin Act. Prosecutions for violations of the Martin Act rest exclusively with the Attorney General. Rego Park Garden Owners, Inc. v. Rego Park Gardens Assocs., 191 AD2d 621 (2nd Dept. 1993).
To the extent that the advertising or promotional material relates to the amenities, services and/or facilities that would be available at the Hamlet, those representations are not actionable. The Sponsor's obligations and responsibilities in connection with the amenities, services and/or facilities to be provides at the development are established by and contained in the Offering Plan. To the extent that the offering plan contains false or misleading information, the claim is one under the Martin Act.
Statements relating to the nature of the development, such as it being an "incomparable value," or having an "enduring quality" or it being the "Northeast's first 5 star resort community" are statements which are incapable of proof and constitute statements of opinion. See, Sirohi v. Lee, 222 AD2d 222 (1st Dept. 1995); and Paladino v. Adelphi Univer., 89 AD2d 85 (2nd Dept. 1982). Opinions expressed or contained in promotional material or advertisements are not actionable as statements of opinion or commercial puffery. See, Siegel v. Bader, 238 AD2d 272 (1st Dept. 1997); Sutton v. LexisNexis, 196 Misc 2d 30 (Sup. Ct. Nassau Co. 2003); and Lacoff v. Buena Vista Publishing, Inc., 183 Misc 2d 600 (Sup. Ct. NY Co. 2000). See gen'lly, 60A NY Jur2d Fraud and Deceit §33.
To survive a motion to dismiss, the complaint must make factual allegations sufficient to support each element of a cause of action for fraud. Kaufman v. Cohen, 307 AD2d 113 (1st Dept. 2003); and Monaco v. New York Univ. Med. Ctr., 213 AD2d 167 (1st Dept. 1995). Thus, to defeat a motion a motion to dismiss, plaintiff must allege that it reasonably and justifiably relied upon the alleged fraudulent misrepresentations. 802 F Realty Corp. v. American International Specialty Lines Ins. Co., 295 AD2d 398 (2nd Dept. 2002). See also, Lama Holding Co. v. Smith Barney Inc., 88 NY2d 413 (1996); and 164 Mulberry Street Corp. v. Columbia Univ., 4 AD3d 49 (1st Dept. 2004). [*9]The complaint generally alleges that those who bought property in the Hamlet relied upon the offering plan. To the extent that the Fraud Causes of Action are premised upon misrepresentations contained in the offering plans, these actions allege violations of the Martin Act. To the extent that these actions rely upon the representations contained in the promotional material, the statements constitute commercial puffery or statements of opinion which are not actionable.
For the foregoing reasons, the Fraud in the Inducement Causes of Action fail to state a cause of action and must be dismissed.
E. Negligent Misrepresentation Causes of Action
"A cause of action based upon negligent misrepresentation requires proof that a defendant had a duty to use reasonable care to impart correct information due to a special relationship existing between the parties, that the information was false, and that a plaintiff reasonably relied on the information. (Citations omitted)." Fresh Direct, LLC v. Blue Martini Software, Inc., 7 AD2d 487, 489 (2nd Dept. 2004). Recovery for negligent misrepresentation may be had for "... pecuniary loss arising from negligent representations where there is actual privity of contract between the parties or a relationship so close as to approach that of privity." Ossining Union Free School District v. Anderson, LaRocca Anderson, 73 NY2d 417, 424 (1989). See also, Parrott v. Coopers & Lybrand, L.L.P., 95 NY2d 479 (2000).
The Negligent Misrepresentation Causes of Action are all premised upon information contained in the offering plans. The forty-ninth cause of action alleges that the sponsor and the sponsor's principals were negligent in investigating the accuracy, completeness and reasonableness of the representations contained in the offering plan. The fiftieth, fifty-first and fifty-second causes of action make similar, if not identical, allegations regarding the offering plans for the Sagamore, Villa and Carriage House homes.
Ordinarily, these allegations would be sufficient to withstand a motion to dismiss.
The relationship between the sponsor and HOA and the purchasers was contractual. Thus, a relationship of privity or near privity exists. The sponsor had a duty to provide accurate information. The sponsor also knew that those purchasing or considering the purchase of a unit in the Hamlet would be relying upon the information contained in the offering plan regarding the nature of the development, the services to be provided and the costs to be incurred.
However, as with the Fraud in the Inducement Causes of Action, the Martin Act applies to all information contained and representations made in an offering plan and obligates the sponsor to provide full and accurate information in the offering plan. See, General Business Law § 352-e. Only the Attorney General has the authority to bring an action for violation of the Martin Act. A private party may not bring an action for violation of the Martin Act. Since the causes of action for negligent misrepresentation are premised upon allegedly false and misleading materials contained in the offering plans, these claims allege violations of the Martin Act. Therefore, they cannot be maintained by the Plaintiffs and must be dismissed.
The fifty-second, fifth-third and fifty-fourth causes of action allege claims for negligent misrepresentation against Schiffer Management and Schiffer. Schiffer Management provided the certification of the first year income and expenses that was [*10]contained in the Offering Plan. Joseph Gill Schiffer of Schiffer Management avers that he had reviewed the Income and Expense Schedules contained in the Offering Plan. Based upon his review and investigation of the facts contained in the schedules and the facts underlying the figures contained in the Schedules and his experience in management of residential real estate, the Schedules appeared reasonable and accurate and that the projected income was sufficient to meet the anticipated first year operating expenses of the HOA and the condominium associations.
Schiffer certified that the information contained in the schedules was complete and accurate, provided potential purchasers with adequate information about the first year operation of the HOA, did not omit any material facts, did not contain any untrue statements of material fact, did not contain conceal, deceive or suppress any material facts and did not contain any promises or representation that were beyond reasonable expectations or were unwarranted based upon the facts. Schiffer further certified that the schedules did not contain any representations or statements which were false where he knew the truth, could have ascertained the truth through reasonable effort, made no effort to ascertain the truth or did not have knowledge of the representations or statements being made.
Plaintiffs claim that the schedules of income contained in the offering plan significantly overstated the income that would be received from sources other than HOA assessments.
These claims must also be dismissed. The Plaintiffs and Schiffer are not in privity or in a relationship so close as to resemble privity.
The actions against Schiffer and Schiffer Management are premised upon a violation of the Martin Act. The certification provided by Schiffer is required to be in the home owners association and condominium offering plans pursuant to the regulation promulgated by the Attorney General under the Martin Act. General Business Law §352-e(6), 13 NYCRR 20.1, et seq. Newly Constructed, Vacant or Non-Residential Condominiums; and13 NYCRR 22.1, et seq. Newly Constructed, Vacant Homeowners Associations or Non-Residential Property Owners Associations. See, 13 NYCRR 20.2(c)(5)(i)(A-3); 13 NYCRR 20.3(2)(h)(3); 13 NYCRR 20.4(d)(4); 13 NYCRR 22.2(c)(6)(i)(c), 13 NYCRR 22.3(g)(6)(7); and 22 NYCRR 22.(4)(d). Thus, to the extent that these causes of action are premised upon the inaccuracies in the budget estimates contained in the offering plans, they are claims for violation of the Martin Act which can be prosecuted only by the Attorney General and must be dismissed. Board of Managers of Bayberry Greens Condominium v. Bayberry Greens Assocs., 174 AD2d 595 (2nd Dept. 1991).
F. False Advertising Cause of Action
The sixty-third cause of action allege violation of General Business Law §§ 349, 350.
General Business Law §349 prohibits deceptive business practices. The statute makes actionable conduct which does not rise to the level of common law fraud. Gaidon v. Guardian Life Ins. Co. Of America, 94 NY2d 330 (1999). The statute provides a remedy to those who have been subject to deceptive or misleading acts or [*11]business practices that are consumer oriented. Oswego Laborers Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 NY2d 20 (1995). A deceptive act or practice for the purposes of the statute is one which is likely to mislead a reasonably prudent consumer. Karlin v. IVF, America, Inc., 93 NY2d 282 (1999)
Business Corporation Law § 349 permits the maintenance of a private cause of action for deceptive practices in the advertising and sale of condominium units. Board of Managers of Bayberry Greens Condominium v. Bayberry Greens Condominium, supra. See also, Breakwaters Townhomes Assoc. of Buffalo, Inc. v. Breakwaters of Buffalo, Inc., 207 AD2d 963 (4th Dept. 1994).
The Martin Act does not bar a claim under General Business Law §349. Board of Managers of Bayberry Greens Condominium v. Bayberry Greens Condominium, supra.
This Court is bound to follow the controlling decisions of the Appellate Division, Second Department. 28 NY Jur2d Courts and Judges §221. To the extent that the holding in Green Harbour Homeowners' Assoc, Inc. v. G.H. Development & Construction, Inc., 307 AD2d 465 (3rd Dept. 2003) is contrary to Board of Managers of Bayberry Greens Condominium, this Court must follow Board of Managers of Bayberry Greens Condominium which is the controlling precedent in the Second Department.
When deciding a motion to dismiss, the court must determine whether plaintiff has a cognizable cause of action; not whether plaintiff will ultimately succeed. Jacobs v. Macy's East, Inc., 262 AD2d 607 (2nd Dept. 1999).
Since the sixty-third cause of action sets forth a cognizable claim, Defendants' motion to dismiss this cause of action must be denied.
G. Fraudulent Concealment Causes of Actions
The Fraudulent Concealment Causes of Action allege that the construction defects as set forth in paragraphs 156-206 and 212-216 of the complaint were apparent to the Defendants who concealed these defects from the HOA and the purchasers of the Sagamore, Villa and Carriage House units.
A party asserting a claim for fraudulent concealment must establish all of the elements of fraud and must further prove the existence of an affirmative duty to disclose. P.T. Bank Central Asia, New York Branch v. ABN AMRO Bank, N.V., 301 AD2d 373 (1st Dept. 2003); Swersky v. Dreyer & Traub, 219 AD2d 321 (1st Dept. 1996); and George Cohen Agency Inc. v. Donald S. Perlman Agency, Inc., 114 AD2d 930 (1st Dept., 1985). See, E.B. v. Liberation Publications, Inc., 7 AD3d 566 (2nd Dept. 2004). In the absence of a fiduciary relationship, an affirmative duty to disclose arises where one party's knowledge of the facts renders the transaction inherently unfair unless those facts are disclosed. Swersky v. Dreyer & Traub, supra. The question of whether a duty exists is a question of law to be determined by the court. Industrial Risk Insurers v. Ernst, 224 AD2d 389 (2nd Dept. 1996).
"New York adheres to the doctrine of caveat emptor and imposes no duty on the seller or the seller's agent to disclose any information concerning the premises when the parties deal at arms length, unless there is some conduct on the part of the seller or the seller's agent which constitutes active concealment." Jablonski v. Rapalje, 14 AD3d 484 (2nd Dept. 2005). Seller's conduct must consist of active concealment and not [*12]mere silence. Id.; Gizzi v. Hall, 300 AD2d 879 (3rd Dept. 2002); Bethka v. Jensen, 250 AD2d 887 (3rd Dept. 1998); Slavin v. Hamm, 210 AD2d 831 (3rd Dept. 1994): and Stambovsky v. Ackley, 169 AD2d 254 (1st Dept. 1991).
Caveat emptor does not, however, apply if the purchaser could not have discovered the condition upon due inquiry or inspection. Richardson v. United Funding, Inc., 16 AD3d 570 (2nd Dept. 2005).
The complaint alleges, although in somewhat generic terms, numerous defects in the common area which the HOA and the members could not have discovered upon reasonable inspection; to wit: the gas fired furnace in the guardhouse lacks a combustion air intake system; improper duct work in the club house roof; improper HVAC system in the ballroom taking into account the size and occupancy limits of the room; and lack of fire dampers in the ducts installed through the fire-rated walls in the convenience store and administration building. The complaint also makes allegations regarding specific, latent or hidden defects in the Sagamore, Villa and Carriage House units.
Fraud must be plead with sufficient particularity to inform the defendant as to the alleged wrong. Marshall v. Vilar, 303 AD2d 466 (2nd Dept. 2003); and CPLR 3016(b).
Plaintiff has plead facts sufficient to establish the possible existence of defects of which the Defendants might have been aware and which the Plaintiffs might not have been able to ascertain through the exercise of reasonable inspection and due diligence. Since the Court must, in deciding a motion to dismiss, consider the facts as plead in the complaint as true and must give the pleader the benefit of every favorable inference which can be drawn from the facts plead in the complaint, the court finds that the complaint alleges facts with sufficient specificity to withstand a motion to dismiss.
H. Negligence Causes of Action
These causes of action allege that the developer/sponsor negligently constructed the common areas and the Sagamore, Villa and Carriage House units.
A breach of contract claim does not give rise to a separate cause of action in tort unless the Defendant breached a legal duty that is separate and apart from the Defendants contractual obligations. Clark-Fitzpatrick v. Long Island Rail Road Co., supra; and Old Republic National Title Ins. Co. v. Cardinal Abstract Corp., 14 AD3d
678 (2nd Dept. 2005); and Muldoon v. Blue Water Pool Services, Inc., 7 AD3d 496 (2nd Dept. 2004).
The relationship and the legal obligations between the HOA and the owners of the Sagamore, Villa and Carriage House units is contractual. The obligations of the developer/sponsor to the HOA is established by the offering plan. The obligation of the sponsor/developer to the purchasers of the individual units is established by the offering plan and the purchase agreements.
Plaintiffs have not plead nor have they in any other way established the existence, and a breach, of the legal duties imposed upon the sponsor/developer other than those imposed by the offering plan and the purchase agreements.
Therefore, the Negligence Causes of Action fail to state a cause of action and must be dismissed.
I. Breach of Fiduciary Duty Causes of Action [*13]
The Breach of Fiduciary Duty Causes of Action against the Sponsor and the sponsor related entities with a claim for aiding and abetting the breach of fiduciary duty against Gerald Monter, Elliot Monter, Marilyn Monter and Richard Spirio.
The parties concede that the Board of Managers, including the Board of Managers appointed by the sponsor, have a fiduciary duty to the unit owners. Board of Managers of Acorn Ponds at North Hills I v. Long Pond Investors, Inc., 233 AD2d 472
(2nd Dept. 1996); and Board of Manager of the Fairways at North Hills Condominium v. Fairway at North Hills, 193 AD2d 322 (2nd Dept. 1993).
While this cause of action may not have been artfully plead, it does set forth a cognizable cause of action. Since the court must determine whether Plaintiffs have a cognizable cause of action and not whether it has been properly plead, the motion must be denied. See, Ginzburg v. Guggenheimer, supra; and Kenneth R. v. Roman Catholic Diocese of Brooklyn, 229 AD2d 159 (2nd Dept. 1997).
Movants further assert that the action taken and the authority granted to the initial Board of Managers was limited by the HOA and Condominium Associations By-Laws and that actions taken by the initial board were, as a matter of law, within the constraints and parameters established by the HOA and Condominium Associations By-Laws. When deciding a motion to dismiss, the court may not evaluate the merits of the claim. Carbillano v. Ross, 108 AD2d 776 (2nd Dept. 1985).
Defendants assert that the breach of fiduciary duty claims should be dismissed because they are duplicative of the breach of contract claims.
Parties may plead alternative and contradictory theories of liability. Raglan Realty Corp. v. Tudor Hotel Corp., 149 AD2d 373 (1st Dept. 1989); and CPLR 3014.
The same conduct may constitute both a breach of contract and a breach of a fiduciary duty. See, Bender Ins. Agency, Inc. v. Treiber Ins. Agency, Inc., 283 AD2d 448 (2nd Dept. 2001); and Davis v. Dime Savings Bank of New York, 158 AD2d 50 (3rd Dept. 1990). Since this is a motion to dismiss, the Court must decide whether Plaintiffs have plead a cognizable cause of action; not whether they will ultimately succeed. Since the breach of fiduciary duty claims state cognizable causes of action, they are not subject to dismissal as being duplicative of the breach of contract causes of action.
The cases cited by Defendants do not hold to the contrary. In those cases, the only relationship between the parties was contractual. These causes of action are brought against the members of the HOA and the condominium association's Board of Managers who owe a fiduciary duty to the members of the HOA and condominium associations.
Finally, Defendants assert that some of the breach of fiduciary duty claims are barred by the statute of limitations. The statute of limitations depends upon the type of relief requested. If the plaintiff seeks money damages, the statute of limitation is three years. Dignelli v. Berman, 293 AD2d 565 (2nd Dept. 2002); and Yatter v. William Morris Agency, Inc., 256 AD2d 260; and CPLR 214(4). If, however, plaintiff seeks equitable relief, the statute of limitations is six years. Loengard v. Santa Fe Industries, Inc., 70 NY2d 262 (1987); and Langford v. Roman Catholic Diocese of Brooklyn, 271 AD2d 494 (2nd Dept., 2000); and CPLR 213(1).
These simple rules are complicated by the fact that breach of fiduciary duty claims based upon allegations of actual fraud are subject to a six year statute of [*14]limitations. Kaufman v. Cohen, 307 AD2d 113 (1st Dept. 2003).
The allegations relating to the breach of fiduciary duty relate to leases and agreements entered into by the Sponsor-designated Board of Managers including the restaurant lease, the managing agent agreement and the internet service agreement.
One cannot claim to have been mislead or defrauded when the misrepresentations consist of material which could have been discovered through the exercise of due diligence. Danann Realty Corp. v. Harris, 5 NY2d 317 (1959); Barrett v. Huff, 6 AD3d 1164 (4th Dept. 2004); Reale v. Sotheby's, Inc., 278 AD2d 119 (1st Dept. 2000); and Cohen v. Cerier, 243 AD2d 670 (2nd Dept. 1997). The management agreement and the internet service agreement were entered into in 2001. The name of the entities that would be providing those services and the essential terms of these agreements are set forth in the offering plans. Therefore, the members of the HOA and the condominium associations cannot claim that they were unaware of these agreements or could not have learned of the terms of these agreements through the exercise of due diligence. These agreements cannot form the basis of any claim for breach of fiduciary duty based upon fraud.
Since the breach of fiduciary duty claims seek money damages and since Plaintiffs have not plead or otherwise established the members of the Board of Managers breached their fiduciary duty through fraud, the statute of limitations is three years.
This action was commenced on August 24, 2004. Therefore, any conduct by the Board of Managers of either the HOA of the condominium associations that took place more than three years prior to that date is barred by the statute of limitations.
In order to establish a claim for aiding and abetting a breach of fiduciary duty, Plaintiff must prove that the primary fiduciary committed a violation of its duty, that the aider and abettor had knowledge of the violation and that the aider and abettor substantially assisted in the violations. Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57 (2nd Cir. 1985); and Briarpatch Limited L.P. v. Geisler Roberdeau, Inc., 2002 WL 31426207 (S.D.NY 2002). See also, Snyder v. Puente De Brooklyn Realty Corp., 297 AD2d 432 (3rd Dept. 2002).
Since the complaint alleges a cognizable cause of action, this portion of these causes of action must be sustained at this time to the same extent that the causes of action breach of fiduciary duty have been sustained.
J. Piercing the Corporate Veil Causes of Action
This, like many of the causes of action, is plead in the "throw it against the wall, maybe it will stick" basis. After incorporating by reference the prior 813 paragraphs in the complaint, this cause of action is based upon the allegations that the Sponsor related entities should be treated as a single entity. This is premised upon unsupported and conclusory allegations that they "... indiscriminately interchanged letterhead, respond to inquiries, attending meetings and intermingling funds," and " they "shared an overlap of ownership, officers , functions, office addresses and telephone numbers." (Complaint ¶815.) Stated simply, Plaintiffs seek to hold Holiday and Hamlet Development Corp. liable for any judgments obtained against any of the other Sponsor related entities as their alter egos.
In order to pierce the corporate veil, the plaintiff must prove the owners of the [*15]corporation completely dominated the corporation in regard to the transaction involved and that the domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff being damaged. Matter of Morris v. New York State Dept. of Taxation and Finance, 82 NY2d 135 (1993); and Old Republic National Title Ins. Co. v. Moskowitz 297 AD2d 724 (2nd Dept. 2002). In making the determination as to whether to pierce the corporate veil, the court must determine whether a corporate officer or principal to be held liable "(1) exerted domination and control over corporation which is so complete that the corporation has no separate mind, will or existence of its own; (2) used this domination and control to commit fraud or wrong or any other dishonest or unjust act; and (3) whether injury or unjust loss resulted to plaintiff from said control and wrong. (Citations omitted)." Bowles v. Errico, 163 AD2d 771, 773 (3rd Dept. 1990). See also, Maggio v. Becca Construction Co., Inc. 229 AD2d 426 (2nd Dept. 1996).
The corporate veil will not be pierced simply because the same person or persons controlled multiple entities. Treeline Mineola, LLC v. Berg, 21 AD3d 1028 (2nd Dept. 2005). There are no factual allegations to support the claim that Holiday and Hamlet Development Corp. are doing business through the Sponsor related entities in disregard of the corporate form to suit their convenience. Walkovszky v. Carlton, 18 NY2d 414 (1966).
Therefore, the eighty-fifth cause of action must be dismissed.
K. Joint and Several Liability
The Sponsor, The Hamlet on Olde Oyster Bay, LLC, is a limited liability company whose members are The Hamlet on Olde Oyster Bay Development Co., LLC and O.B.
Ventures Corp. Plaintiffs seek to have this Court treat the Sponsor as a joint venture and not a limited liability company.
The difference between a joint venture and a limited liability company is significant.
A joint venture is combination of two or more persons or business entities for a specific business venture. See, Natuzzi v. Radady, 177 AD2d 620 (2nd Dept. 1991); and 16 NY Jur2d Business Relationships §1935.
Since joint ventures are very similar to partnerships, they are governed by partnership law. R.C. Gluck & Co. v. Tankel, 12 AD2d 339 (1st Dept. 1961); and 16 NY Jur2d Business Relationships §1937. Similar to partnerships, the individual members of a joint venture are personally liable for the obligations of the joint venture.
Members of a limited liability company are statutorily exempted from individual liability for the obligations or liabilities of the limited liability company. Limited Liability Company Law §609. See, Retropolis, Inc. v. 14th Street Development, LLC, 17 AD3d 209 (1st Dept. 2005); and Collins v. E-Magine, LLC, 291 AD2d 350 (1st Dept. 2002).
There are simply no allegations in the complaint to support such a cause of action. There are no allegations that the Sponsor was improperly organized or failed to comply with the statutory requirements relating to the formation of a limited liability company. The complaint does not allege a single factual allegation from which the Court could even infer that the Sponsor was anything other than a limited liability company.
Therefore, the eighty-sixth cause of action must be dismissed. [*16]
L. Actions Against Joseph Mancino. John Bransfield, Jr., Jeffrey Wall, R. Patrick Quinn and Michael Puorro
Paragraphs 35 to 39 of the complaint allege that Joseph Maneino, John Bransfield, Jr., Jeffrey Wall, R. Patrick Quinn and Michael Puorro are the principals and officers of O.B. Ventures Corp. These people are twice removed from the Plaintiffs. O.B. Ventures Corp. is one of the members of the Sponsor. Plaintiffs place these individuals as members of a group designated as "Sponsor's Principals."
The complaint alleges that these individuals engaged in the acts which gave rise to the Fraudulent Inducement, Negligent Misrepresentation and Fraudulent Concealment Causes of Actions. To establish liability, Plaintiffs would have to show that these individuals committed or actively participated in the commissions of the fraud or the misrepresentation for the benefit of The Hamlet and O.B. Ventures. Rothstein v. Equity Ventures, LLC, 299 AD2d 472 (2nd Dept. 2002); and W. Joseph McPhillips, Inc. v. Ellis, 278 AD2d 682 (3rd Dept. 2000). Plaintiffs do not make any such allegation in the complaint or the papers submitted in opposition to the motion to dismiss that Maneino, Bransfield, Puorro, Quinn and/or Wall ever made any representation to the Plaintiffs regarding the Hamlet.
Therefore, they are not proper parties to this action. The claims against them must be dismissed.
M. Donnelly Act Causes of Actions
Defendants move to dismiss the Donnelly Act Causes of Action on the grounds that they are barred by the statute of limitations, may not be maintained as a class action and that the complaint fails to state a cause of action.
The Donnelly Act, General Business Law § 340 et. seq. is New York State's anti-trust law.
General Business Law §340 states that "...every contract, agreement, arrangement or combination" restricting competition or the free exercise of trade, business or commerce in the state is illegal and void as against public policy.
The Donnelly Act prohibits unreasonable restraints on trade. Anheuser-Busch, Inc. v. Abrams, 71 NY2d 327 (1988). The purpose of the act is to promote competition in the marketplace. Columbia Gas of New York, Inc. v. New York State Electric & Gas Corp., 28 NY2d 117 (1970); and International Services Agencies v. United Way of New York State, 108 Misc 2d 305 (Sup.Ct. Albany Co. 1981).
The Donnelly Act requires a conspiracy or relationship between two or more entities acting in concert to unreasonably restrain trade or competition. Bello v. Cablevision Systems Corp., 185 AD2d 262 (2nd Dept.), lv. app. den., 80 NY2d 781 (1992). See also, State of New York v. Mobil Oil Corp., 38 NY2d 460 (1976); and Creative Trading Co., Inc. v. Larkin-Pluznick-Larkin, Inc., 136 AD2d 461 (1st Dept. 1988).
To establish a claim under the Donnelly Act, the plaintiff must "(1) identify the relevant product market; (2) describe the nature and effects of the purported conspiracy; (3) allege how the economic impact of that conspiracy is to restrain trade in the market [*17]in question; and (4) show a conspiracy or reciprocal relationship between two or more entities (citation omitted)." Newsday, Inc. v. The Fantastic Mind, Inc., 237 AD2d 497 (2nd Dept. 1997). See also, Home Town Muffler, Inc. v. Cole Muffler, Inc., 202 AD2d 764 (3rd Dept. 1994).
Failure to allege any of the elements renders the cause of action defective and requires that the complaint be dismissed. Watts v. Clark Assocs. Funeral Homes, Inc., supra; and Constant v. Hallmark Cards, Inc., 172 AD2d 641 (2nd Dept., 1991). Conclusory allegations of the existence of a conspiracy are legally insufficient to state a claim under the Donnelly Act. Creative Trading Co, Inc. v. Larkin-Pluznick-Larkin, Inc., 75 NY2d 830, (1990), revg for reasons stated in the dissenting mem. of Sullivan, J., 148 AD2d 352, 354-357 (1st Dept. 1989); Sands v. Ticketmaster-New York, Inc., 207 AD2d 687 (1st Dept. 1994); and Yankee Entertainment and Sports Network, LLC v. Cablevision Systems Corp., 224 F.Supp.2d 657 (S.D.NY 2002).
To recover under the Donnelly Act, plaintiff must establish that the actions of the defendants had an actual adverse effect on competition in the market and not simply harmed one competitor. Capital Imaging Assocs, P.C. v. Mohawk Valley Medical Assocs, Inc., 996 F.2d 537 (2nd Cir. 1993); Lopresti v. Massachusetts Mutual Life Ins.
Co., supra; and Rubin v. Nine West Group, Inc., 1999 WL 1425364 (Sup. Ct. NY Co.1999).
The complaint fails to state a cause of action because it fails to allege that the Defendants engaged in "a contract, agreement, arrangement or combination" with another entity in restraint of trade.
Plaintiffs' argument is based upon the fact that Hamlet is the only development or condominium complex of its kind on Long Island and one of a very few of this type of development in the country. Common sense dictates that uniqueness alone does not create a monopoly or result in a violation of the Donnelly Act. Plaintiffs do not plead any facts which prove directly or give rise to an inference that the movants have engaged in a conspiracy, agreement pursuant to which they have agreed to restrict or prevent the construction of similar developments.
To survive a motion to dismiss, Plaintiffs were required to plead the names of the other entities whom the movants conspired or agreed to restrain trade or dominate the market. They have failed to do this.
To the extent that the Donnelly Act causes of action are plead as causes of action on behalf of the purported class, they must be dismissed since private individuals may not prosecute a class action under the Donnelly Act. Cunningham v. Bayer, AG, 24 AD3d 216 (1st Dept. 2005); Asher v. Abbot Laboratories, 290 AD2d 208 (1st Dept.) lv. dism., 98 NY2d 728 (2002) ; and Cox v. Microsoft Corp., 290 AD2d 206 (1st Dept.), lv. dism., 98 NY2d 728 (2002).
Since the complaint fails to allege a violation of the Donnelly Act and such a claim may not be maintained by Plaintiffs as a class action, the Court need not address the issue of whether the claim is barred by the statute of limitations. For the forgoing reasons, the eighty-seventh, eighty-eighth and eighty-ninth causes of action fail to state a cause of action and must be dismissed.
N. Class Certification [*18]
Defendants move to deny class certification to Plaintiffs.
CPLR 902 provides that the plaintiff shall, within sixty (60) days after the time for all defendants to answer has expired, move for class certification.
In this case, the time for the moving Defendants to answer has not expired. The moving Defendants responded to the complaint by filing a motion to dismiss the complaint pursuant to CPLR 3211(a). The service of a dismissal motion extends the time for the Defendant to file a responsive pleading until ten (10) days after service of the order with notice of entry. CPLR 3211(f). A motion made for class certification prior to the joinder of issue is premature and must be denied. See, David B. Lee & Co., Inc. v. Ryan, 266 AD2d 811 (3rd Dept. 1999).
Further, the CPLR does not permit the defendant to move to deny class certification.
A purported class does not become a class until the court certifies its status as a class. See, Siegel, New York Practice 4th §142; and CPLR 902, 903. CPLR 902 requires the plaintiff who commences a class action suit to move for class certification. The plaintiffs must establish that the action should be maintained as a class action. Feder v. Staten Island Hosp., 304 AD2d 470 (1st Dept. 2003). The penalty for failing to timely move for class certification is denial of class certification. See, Kensington Gate Owners, Inc. v. Kalikow, 99 AD2d 506 (2nd Dept. 1984).
Since a defendant cannot move to deny an action class certification, the defendants' motion, to the extent that it seeks this relief, must be denied.
O. Partial Dismissal - Breach of Contract Actions
Defendants seek to dismiss all of the breach of contract actions to the extent that those claims allege breaches of the Martin Act. The Court may not partially dismiss causes of action. Lacks v. Lacks, supra; and Werfel v. Fitzgerald, supra.
Additionally, the relationship between the HOA and the individual purchasers is contractual. The Martin Act does not bar common law breach of contract claims. 885 W.E. Residents Corp. v. Coronet Properties Co., 220 AD2d 305 (1st Dept. 1995).
Movants also seek to partially dismiss the breach of contract actions to the extent that they assert breach of warranty claims. General Business Law Article 36-B creates certain statutory warranties for new construction (General Business Law §777-a) and permits the builder to exclude or modify certain warranties. (General Business Law 777-b). See, Fumarelli v. Marsam Development, Inc., 92 NY2d 298 (1998).
Before commencing an action alleging breach of the implied warranties contained in General Business Law Article 36-B, the homeowner must provide the builder with written notice of the breach no later than 30 days after the expiration of the warranty. General Business Law §777-a(4)(a). The homeowner or occupant must give the builder a reasonable opportunity to inspect, test and repair the portion of the home out of which the breach of warranty claims arises. Id. Failure to provide the builder with written notice of the defect and the reasonable opportunity to repair requires dismissal of the action. Rosen v. Watermill Development Corp., 1 AD3d 424 (2nd Dept. 2003); and Taggart v. Martano, 282 AD2d 521 (2nd Dept. 2001).
A builder may exclude any common law warranties and modify the statutory implied warranties provided that the builder complies with General Business Law
§777-b. See, Repecki v. Parex Inc., 300 AD2d 292 (2nd Dept. 2002); and Pinkus v. V.F. [*19]Builders, Inc., 270 AD2d 470 (2nd Dept. 2000).
Plaintiffs' reliance upon Gorsky v. Triou's Custom Homes, Inc., 194 Misc 2d 736 (Sup.Ct. Wayne Co. 2002) and Watt v. Irish, 184 Misc 2d 413 (Sup.Ct. Columbia Co. 2000) to the extent that they hold that a homeowner has both statutory and common law warranty rights is misplaced. In Gorsky and Watt, the respective courts found that the new home warranties of General Business Law Article 36-B applied to transactions involving new construction and a passing of title to real property. See, General Business Law § 777-a(1). In Gorsky and Watt, title to the property did not pass. In both cases, the new home was built on property the homeowner already owned. The courts found that, since title to the property did not pass as part of the transaction and since General Business Law §777-a(1) requires a passing of title, General Business Law Article 36-B
was not applicable. Therefore, the common law warranties applied. See, Caceci v. Di Canio Construction Corp., 72 NY2d 52 (1988).
However, that circumstance does not exist in this case. The transactions involved regarding the Sagamore homes and the Villa and Carriage House condominiums involve both new construction and a transfer of fee title. Thus, the only warranties are those created by statute (See, Fumarelli v. Marsam Development, Inc., supra) or those substituted for the statutory warranties pursuant to General Business Law §777-b. Since the Sponsor complied with General Business Law §777-b, the only warranties in this case are those created by the purchase agreement.
Plaintiffs' Breach of Contract Causes of Action include claims which should ordinarily be plead as separate breach of warranty actions. Plaintiff alleged various claims regarding construction defects in the common area structures owned by the HOA and the Sagamore, Villa and Carriage House units. This presents the Court with a conundrum. The Court may not dismiss portions of properly plead causes of action. Yet, the Court should not permit a party to proceed on a dismissible claim where the dismissible claim is incorporated into a cognizable cause of action.
The offering plans and the purchase agreements for the Sagamore homes and the Carriage Home and Villa Condominiums all contain language specifically excluding
the warranties created by General Business Law Article 36-B and substituting therefor the warranties contained in the Purchase Agreement.
Defendants assert that the breach of warranty claims should be dismissed because the Plaintiffs failed to comply with or allege compliance with Paragraphs 7 and 8 of the limited warranty which requires a home owner to provide the Sponsor with written notice of alleged defect no later that ten days after the expiration of the warranty period. These provisions give the Sponsor a reasonable time after receipt of the notice of defect to inspect the property and determine whether to accept or reject the claim. If the Sponsor rejects the claim, it must provide written notice of rejection to the homeowner. If the claim is accepted, the Sponsor must take action to correct the defect within a reasonable time allowing for the availability of parts or materials, weather and other events beyond the Sponsor's control.
These provisions further bar a homeowner from bringing an action unless the [*20]homeowner has complied with the aforementioned claim procedure. Additionally, Paragraph 8 bars a claim unless the claim is brought within 30 days of expiration of the warranty, 30 days after the Sponsor has given written notice to the homeowner that the claim has been rejected or 30 days after the Sponsor has substantially completed the corrective actions taken in regard to a claim.
To the extent that the Breach of Contract Causes of Action allege that construction was not in conformance with the Town of Oyster Bay Building Code, the claims should sustained. A builder may not exclude applicable building codes or in the absence of such codes, locally accepted building practices from a warranty. See, General Business Law §777-b(4)(e)(i).
It is undisputed that Plaintiffs have not alleged that they are in compliance with the contractually prescribed warranty procedures. Accordingly, to the extent that the breach of contract actions incorporate claims of breach of warranty, the motion to dismiss must be granted. However, these claims appear to potentially have merit. Therefore, Plaintiffs are granted leave to replead the breach of warranty claims as separate causes of action. CPLR 3211(e).
Movants also seek to dismiss all construction related claims on the grounds that the buildings and structures were built "substantially in accordance" with the filed plans. Although this is asserted in the Notice of Motion as a basis for dismissal of some of the causes of action, this basis for dismissal is not discussed in Defendants' Memorandum of Law. It would appear that this is very similar to the claims for breach of warranty. The issue in this case does not appear to be whether the units or the structures in the common areas were built "substantially in accordance" with the filed plans. They may very well have been. However, such construction would not bar claims that the construction failed to comply with contractually created warranties or that the such construction did not conform to the building code.
P. Ninth Cause of Action
Movants seek to partially dismiss this cause of action to the extent that it asserts a claim against the Sponsor-Manager with regard to construction, maintenance and repair. In this regard, Paragraph 317 of the complaint alleges, inter alia, a failure of the
Sponsor-Manager to provide oversight over the construction and in failing to arrange for performance of necessary repair or maintenance work.
This cause of action merges dismissible allegations in a cognizable cause of action. It is not quite clear why the Sponsor-Manager would have any obligation to oversee construction. However, as managing agent for the HOA and condominium associations, they would have obligations regarding general maintenance and repairs.
Plaintiff does not explain precisely what obligations the Sponsor-Manager had in connection with the construction, maintenance and repair. Movants do not explain why they did not have these obligations or why they fulfilled these obligations. Accordingly, the motion to partially dismiss the ninth cause of action must be denied.
Q. Contract Claims - Inaccurate Projections
Movants seek to dismiss the breach of contract actions to the extent that the Offering Plan contains inaccurate revenue and expense projections. The general allegations relating to the financial projections contained in the offering plan are [*21]incorporated into properly plead causes of action for breach of contract.
An offering plan such as the ones involved in this action must contain projections of the first year income and expenses and a certification that they are appropriate. 13 NYCRR 22.3(g).
However, the offering plans also contain specific disclaimers indicating that in the event that the estimates of the clubhouse income are inaccurate, assessments will have to be increased. Furthermore, the remedy provided to prospective purchasers by the Offering Plan, if the estimates prove to be more than twenty-five (25%) percent off, is to cancel the Purchase Agreement.
Movant's reliance upon Brockman v. Friedberg, 194 AD2d 393 (1st Dept. 1993) is misplaced. In Brockman, the fraud claim was dismissed because the disclaimers negated reliance. Further, Brockman does not address causes of action for breach of contract.
The Court may not partially dismiss cause of actions. Locks v. Locks, supra. Thus, to the extent that movants seek partial dismissal of the breach of contract actions based upon the revenue estimates, the motion must be denied.
R. Breach of Contract - Shiffer and Shiffer Management
The eleventh, thirteenth and fifteenth causes of action allege breach of contract claims against Shiffer and Shiffer Management.
One may not maintain a cause of action for breach of contract in the absence of privity. LaBarte v. Seneca Resources Corp., 285 AD2d 974 (4th Dept. 2001); and M. Paladino, Inc. v. J. Luchese & Sons Contracting Corp., 247 AD2d 515 (2nd Dept. 1998).
Plaintiffs concede that they are not in privity with either Schiffer Management of Schiffer. However, Plaintiffs allege that they are the third-party beneficiaries of the contract between the Sponsor and Shiffer.
A third-party may sue to enforce a contract made for its benefit. Port Chester Electric Construction Corp v. Atlas, 40 NY2d 652 (1976); and Lawrence v. Fox, 20 NY 268 (1859). In order to be able to maintain an action to recover as the third-party beneficiary of a contract, the third-party must establish that it was the specific intent of the contracting parties to benefit the third-party. Port Chester Electric Construction Corp. v. Atlas, supra; Crown Wisteria, Inc. v. F.G.F. Enterprises, Corp., 168 AD2d 568 (1st Dept. 1990). A third-party who is only an incidental beneficiary to the contract may not sue to enforce the contract. Amin Realty, LLC v. K & R Construction Corp., 306 AD2d 230 (2nd Dept. 2003); and Board of Managers of the Riverview at College Point Condominium III v. Schorr Brothers Development Corp., 182 AD2d 664 (2nd Dept. 1992).
In this case, there is no intent to make the purchasers the direct beneficiaries of the budget projections. The budget projections are placed in the offering plan because of regulatory requirements (see, 13 NYCRR 22.3[g]) to provide all prospective purchasers, those who purchase and those who do not, with financial information regarding the expected income, expenses and costs involved in the ownership and operation of the HOA or condominium. Those purchasing the units are not the intended beneficiaries of the contract between the sponsor and the party preparing the estimates. See, The Residential Board of Managers of Zeckendorf Towers v. Union Square-14th Street Assocs., 190 AD2d 636 (1st Dept. 1993); and Board of Managers of [*22]the Riverview at College Point Condominium III v. Schorr Bros. Development Corp., supra., both of which hold that a condominium association is not an intended beneficiary of a contract between the owner/developer and a construction contractor. The same
rationale holds true for the non-sponsor related entities that are retained to prepare the financial statements.
Since the Plaintiffs are not the intended beneficiaries of the contract between the Sponsor and Shiffer Management and Shiffer, the ninth, eleventh and thirteenth causes of action must be dismissed.
S. Failure to Deed Common Areas to the HOA
The third amendment to the Offering Plan dated March 20, 2002 indicates that the common areas of the complex were transferred to the HOA by deed recorded in the office of the Nassau County Clerk. While this is stated in the amendment to the offering plan, movants fail to provide the Court with a copy of the deed.
The statement in the third amendment that the common areas have been conveyed to the HOA is not documentary evidence of the transfer of property. The recorded deed is. See, Igarashi v. Higashi, 289 AD2d 128 (1st Dept. 2001); LaSala v. Terstiege, 276 AD2d 529 (2nd Dept. 2000); and CPLR 4540(a).
Since Defendants have not provided the Court with a copy of the deed conveying the property, the motion must be denied.
T. Claims Regarding Internet/Intranet Services
While the notice of motion seeks to dismiss all claims relating the provision of internet/intranet services and the failure to pay commissions regarding the provisions of this service, the action against the internet/intranet provider, Holcom, Inc. has been discontinued. Neither movant or respondent address this issue in their motion papers. Accordingly, this portion of the motion must be denied as academic.
Movants seek sanctions pursuant to 22 NYCRR 130-1.1, which permits the court to impose sanctions upon a party who engages in frivolous conduct. Under, 22 NYCRR 130-1.1(c), conduct is frivolous if
(1) it is completely without merit in law and cannot be supported by a reasonable
argument for an extension, modification or reversal of existing law;
(2) it is undertaken primarily to delay ro prolong the resolution of the litigation, or to harass or maliciously injure another; or
(3) it asserts material factual statements that are false.
An application for sanction is one addressed to the discretion of the court. Wagner v. Goldberg, 293 AD2d 527 (2nd Dept. 2002). Movants do not indicate which section of 130-1.1(c) they rely upon for the imposition of sanctions or precisely what conduct of the Plaintiffs is frivolous. While the Court did dismiss some of Plaintiffs' causes of action, several survived dismissal. As to those causes of action which were dismissed, Plaintiffs made cogent arguments based upon either existing law or based upon reasonable argument for the extension, modification or reversal of existing law [*23]why those causes of action should be sustained.
Additionally, the movants also made arguments which are not supported by existing law or sought relief which the Court could not grant. If the movants' rationale for imposing sanctions upon the Plaintiffs is accepted by the Court, then the movants are also guilty of engaging in frivolous conduct for which sanctions should be imposed.
It would be an abuse of discretion to grant sanctions against Plaintiffs or their attorneys for alleging actions which, at least, were arguably meritorious. If taken to its logical conclusion, the position taken by movants would require the imposition of sanctions every time the court granted a motion to dismiss pursuant to CPLR 3211(a) or granted summary judgment. That is not the intent or purpose of 22 NYCRR 130-1.1. Nor should it be.
Therefore, movants' motion for sanctions is denied.
Accordingly, it is,
ORDERED, that movants' motion is granted to the extent of
1. dismissing the second, fourth, sixth, eighth, tenth, twelfth, fourteenth, sixteenth, thirty-third, thirty-fourth, thirty-fifth, thirty-sixth, thirty-seventh, thirty-eighth, thirty-ninth, forty-eighth, forty-ninth, fiftieth, fifty-first, fifty-second, fifty-third, fifty-fourth, sixty-eighth, sixty-ninth, seventieth, seventy-first, eighty-fifth, eighty-sixth, eighty-seventh, eighty-eighth and eighty-ninth causes of action in their entirety;
2. dismissing all causes of action alleged against Defendants Joseph Mancino, John Branfield, Jr., Jeffrey Wall, R. Patrick Quinn and Michael Puorro;
3. dismissing the eleventh, thirteenth and fifteenth causes of action against Defendants Schiffer Management Group and Joseph Gill Schiffer; and it is further,
ORDERED, that Plaintiffs are granted leave to serve an amended complaint as to their breach of warranty claims provided that said amended complaint is served within thirty (30) days of the date of this order; and it is further,
ORDERED, that movants' motion is, in all other respects, denied; and it is further,
ORDERED, that counsel for the parties shall appear for a preliminary conference on September 20, 2006 at 9:30 a.m.
This constitutes the decision and order of this Court.
Dated: Mineola, NY _____________________________
July 7, 2006 Hon. LEONARD B. AUSTIN, J.S.C.