McMullen v Propester
Annotate this CaseDecided on October 30, 2006
Supreme Court, Yates County
Timothy McMullen and Diane McMullen, Plaintiffs,
against
Robert Propester and Gail Propester, Defendants.
2006-0149
Frank T. Gaglione, Esq.
Attorney for Plaintiffs
Lacy Katzen LLP
(Peter Rodgers, Esq. of Counsel)
Attorney for Defendants
W. Patrick Falvey, J.
Defendants move for dismissal of the complaint, on the grounds of 1) a defense is founded upon documentary evidence [CPLR §3211(a)(1)] and 2) the pleadings fail to state a cause of action [CPLR §3211(a)(7)].
Plaintiffs commenced the action on March 31, 2006, seeking $750,000 in damages alleging fraudulent misrepresentation, breach of contract, and breach of warranty.
The plaintiffs were the buyers and defendants were the sellers of real property located in the Town of Middlesex. The closing was May 26, 2005. Essentially, the plaintiffs allege that the defendants knew that the septic system was faulty and concealed this fact from the plaintiffs from the time they contracted for the purchase of the property, through and after deed transfer as the defendants maintained possession of the premises for one month, "post closing", pursuant to a hold over lease agreement.
The plaintiffs oppose defendants' motion, and cross move for an order granting the plaintiffs leave to amend their complaint to add a fourth cause of action alleging a violation of Real Property Law (RPL) §465.
For the reasons stated below the defendants' motion to dismiss is denied and the [*2]plaintiffs' motion to amend their complaint is granted.
The plaintiffs allege that in the purchase contract, the defendants represented that the plumbing would be in working order at the time of the closing (see, section 2 of the contract, Exh. A to the complaint); and, although section 13 of the contract states property items included in the contract are sold "AS IS", those mentioned in section 2 were exempted from the "AS IS" provision.
Plaintiffs also allege that the defendants signed a Property Condition Disclosure Statement, which was not part of the contract, but was required by the Property Condition Disclosure Act. Plaintiffs allege that defendants checked off section 28 of the Disclosure statement stating there were no "known material defects" in the septic system.
Plaintiffs allege that at the time defendants completed and signed the contract and Property Condition Disclosure Statement, the defendants had actual knowledge that the septic system was not in working order, due in part to a noxious odor emanating therefrom, caused by the defects in the septic system. The plaintiffs allege that the defendants concealed the defects and the odor on the occasions that plaintiffs were present at the property; and the defects could not have been discovered upon a visual inspection of the septic and water systems.
In support of their position, the plaintiffs claim that on September 12, 2000, the defendants received a notice of violation from the Canandaigua Lake Watershed Commission (hereinafter referred to as "Commission") stating that the septic system was malfunctioning, causing sewage to surface in the front yard. In response, defendants repaired the septic system, but not in accordance with approved plans, but the repairs were ineffective to remedy the defect. The commission sent the defendants another notice on December 4, 2000 stating that the system construction was unsatisfactory.
Defendants argue that under the contract, plaintiffs agreed to have an inspection of the septic system at their expense (see, Addendum for Well and Septic System, Exh. F). Plaintiffs were to inform defendants if the inspection yielded any specific deficiencies within three days after the inspection. Plaintiffs never provided defendants with any written notice of deficiencies, not did they provide a copy of the report of the inspection. It is noted that the inspection was done by the same individual who had inspected the property in 2000 and had issued the notices of a failed system.
Defendants also argue that the plaintiffs' fraudulent misrepresentation claim should be dismissed, because it is based upon fraud in the alleged breach of a contract, and therefore cannot be made separate from the breach of contract claim. Nor have the plaintiffs demonstrated any fraudulent misrepresentation and that they justifiably relied on the misrepresentation. See Gizzi v Hall, 300 AD2d 879 (3rd Dept, 2002); Egan v NY Care Plus, 277 AD2d 652 (3rd Dept. 2000); Rothberg v Recihelt, 270 AD2d 760 (3rd Dept. 2000).
Defendants assert that the only fraud alleged by the plaintiffs relates directly to the breach of contract, and therefore cannot stand as a separate claim. Also, plaintiffs failed to establish a claim for fraudulent misrepresentation. In order to do so the plaintiffs must demonstrate: (a) misrepresentation or omission of material fact which was false and known to be false by the defendants; (b), the misrepresentation was made for the purpose of inducing plaintiffs to rely on it; (c) justifiable reliance on the misrepresentation; and (d) injury. See Renkas v Sweers, 10 M3d 1076, 814 NYS2d 892 (Table), 2005 WL 3711215 (NY Sup), (Monroe County Supreme Court, 2005). [*3]
Here, defendants say that plaintiffs failed to state any misrepresentation by defendants other than citing provisions of the contract. Representations made in the contract cannot form the basis of a claim against defendants as the representations in the contract did not survive the contract, and were merged with the deed at closing. Plaintiffs do not allege defendant made any other misrepresentations. The defendants' silence as to the condition of the septic system does not constitute misrepresentation. Bethka v Jensen, 250 AD2d 887 (3rd Dept, 1998). In fact, according to the Commission's April 8, 2005 report, made at the plaintiffs' request, the septic system was in good working condition (Exh. E. of defendants' Notice of Motion).
Defendants further argue plaintiffs' claims for breach of contract and breach of warranty are barred by the caveat emptor and merger doctrines. Renkas v. Sweers, supra ; Rector v Calamus, 17 AD3d 960 (3rd Dept, 2005); London v Courduff, 141 AD2d 803 (3rd Dept, 1988).
Defendants assert that in order to prevail on a fraudulent non-disclosure claim, plaintiffs must show defendants breached an affirmative duty to disclose which arose as a result of seller's having taken steps to actively conceal a condition. Jablonski v Rapalje, 14 AD3d 484 (2nd Dept, 2005). This plaintiffs cannot do, since plaintiffs undertook the septic inspection on their own.
In addition, defendants state that RPL §465, which requires the Property Condition Disclosure Statement, provides no specific right of action to a purchaser for a breach of the disclosure form. Malach v Chuang, 194 M 2d 651 (NY City Civil Court, 2002). In any event, defendants state that they did not conceal information regarding the septic system. And, once there was a closing, any rights plaintiffs had under the contract were merged into the deed. Rothstein v Equity Ventures, 299 AD2d 472 (2nd Dept, 2002).
Plaintiffs oppose and move to amend their complaint. Plaintiffs' attorney's affidavit in response notes that the defendants received a Notice of Violation on September 12, 2000, and defendants submitted a plan to install a new system and obtained approval of the plan on October 4, 2000. An Unsatisfactory Construction Notice was issued on December 4, 2000. When the plaintiffs entered into the purchase contract with the defendants in March, 2005, the defendants represented to the plaintiffs that the septic system was included in the sale, and section 13 of the contract stated property items included in the contract were sold "as is" except those listed in section 2. Defendants also executed a Property Condition Disclosure Statement. The statement says, "A knowingly false or incomplete statement by the seller on this form may subject the seller to claims by the buyer prior to or after the transfer of title." Defendants checked off section 28 which states that there were no known material defects in the septic system. At this time, defendants knew the defects had not been properly repaired. And, the defects are of a nature that they could not have been discovered upon a visual inspection of the septic system.
The plaintiffs' attorney's affirmation asserts that the defendants actively concealed the defective septic system by covering up noxious odors with strong smelling cleaning products and air fresheners. The fresheners were concealed behind wood paneling and not capable of discovery prior to taking possession. Plaintiffs did not know the true facts, nor could they, with reasonable diligence, discover them prior to December 19, 2005.
Plaintiffs note that the Court must liberally construe the pleadings; accept the allegations of the complaint as true, and provide the plaintiffs with the benefit of a favorable inference when reviewing a motion pursuant to CPLR 3211(a). AG Capital Funding v State St Bank, 5 NY3d 582; and the Court may also consider affidavits of a plaintiff to remedy any defects in the complaint. Rovello v Orofino Realty, 40 NY2d 633. [*4]
The plaintiffs argue that in order to prevail on a defense founded on documentary evidence the document relied upon must definitively dispose of plaintiffs' claim. Largo Real Estate v Tzetzo, 28 AD3d 1238 (4th Dept 2006). Here, defendants rely on the theory of merger and that a claim for fraudulent misrepresentation cannot rest solely upon a claim for breach of contract. However, these theories fail to provide the documentary defense which definitively disposes of plaintiffs' complaint. Wright v Evanston, 14 AD3d 505 (2nd Dept, 2005).
Plaintiffs state that they do not rely solely on breach of contract in support of their claim for fraudulent misrepresentation. They also allege causes of action for fraudulent misrepresentation based on knowingly false statements in the disclosure statement and active concealment of a defective condition. (see, Complaint, paragraphs 10-18). So, the contract cannot constitute documentary evidence which is dispositive of the fraudulent misrepresentation claim. It fails to resolve all factual issues in the complaint, as a matter of law. Weiss v Cuddy , 200 AD2d 665.
Plaintiffs state that the disclosure statement is not a part of the contract so breach of contract is not the sole cause of action alleged. Plaintiffs argue that representations in the disclosure statement do not fall within the doctrine of merger, when not incorporated into the contract. Calvente v Levy, 12 M 3d 38 (2006). Therefore, the plaintiffs' claims based on the disclosure statement and active concealment of known defects are exceptions to theories of merger and caveat emptor.
RPL §465 creates an affirmative duty for seller to disclose known defects and effectively replaces the doctrine of caveat emptor. It provides a remedy for willful misrepresentations making the seller liable for the actual damages suffered by a buyer in addition to any other existing equitable or statutory remedy. Fleisher v. Morreale, 11 M3d 1004. Further, even under the caveat emptor doctrine, active concealment by seller would be actionable. Jablonski v Rapalje, 14 AD3d 484.
Therefore, the plaintiffs assert that questions of fact have been raised concerning defendants knowledge of the defective system and whether they made material misrepresentations and or concealed defects to deceive plaintiffs and induce them to purchase the property. Boyle v McGlynn, 28 AD3d 994 (3rd Dept, 2006); Jablonski v Rapalje, supra . Whether plaintiffs could have discovered the defect with reasonable diligence is a factual question. Berthka v Jensen, 250 AD2d 887.
As for the motion to amend, plaintiffs argue that leave to amend should be freely given. [CPLR §3025(b)] and denied only when defendant shows surprise, prejudice, or the amendment is patently lacking in merit. ARG Trucking v Amerimart, 302 AD2d 876 (4th Dept, 2003). None of these apply here as the proposed amendment would allege reasonable reliance upon representations of defendants, add details of defendants' concealment and add a cause of action under RPL §465(2).
Defendants argue that plaintiffs' argument that they have a separate cause of action for fraudulent misrepresentation based on the Disclosure Statement is in error, because the terms of the contract expressly contradict this argument. The statement was incorporated and made a part of the Contract.
While RPL §462 requires only that a copy of the Disclosure Statement be attached to the contract, here the parties agreed, in addition, to incorporate the Disclosure Statement into the contract, making it a part of the contract. Since the contract states: "Seller's representations in [*5]this contract shall not survive after closing" (see, Contract, paragraph 19), plaintiffs have no basis for a separate claim for fraudulent misrepresentation based solely on the Disclosure statement.
Defendants further argue that the doctrines of merge and caveat emptor apply to the disclosure statement. The obligations and provisions of the contract and the disclosure statement were merged in the deed and extinguished upon closing of title. And, even if the doctrine of caveat emptor has been replaced by RPL §465, the plaintiffs have not alleged defendants' "willful" failure, which is required under the statute. In addition, the plaintiffs' allegations about strong cleaning products and concealed air fresheners are nothing more than speculation and conclusory allegations, insufficient to defeat defendants' motion. Krouner v Travis, 290 AD2d 917 (3rd Dept, 2002).
As for amendment of the complaint, defendants argue that this should be denied since the proposed amendment lacks merit. [Water Club Homeowner v Town of Hempstead, 16 AD3d 678 (2nd Dept, 2005); Hodgson Russ v Isolatek, 300 AD2d 1047 (4th Dept, 2002)] since, again, the plaintiffs have not alleged a willful failure as required by RPL §465.
The defendants assert that the addition of the proposed language concerning the strong cleaning products, etc., would not amount to reasonable or justifiable reliance that the septic system was in good working condition, when there were multiple inspection reports, including a positive inspection, indicating the system was in good working order, and plaintiffs had access to the system to do any other inspections they wanted. Plaintiffs' reliance on the smell of cleaning products, etc., is unreasonable and unjustifiable. And, in fact, plaintiffs did not rely on the smell of the home to determine the septic system was working. Indeed, plaintiffs had inspections done, and relied on the reports.
CONCLUSIONS OF LAW
The issue is whether the documentary evidence submitted by the defendants, as a matter of law, establishes a defense to all of the plaintiffs' causes of action (Largo Real Estate v Tzetzo, 28 AD3d 1238), and/or, whether, plaintiffs' complaint fails to state a cause of action for which relief can be granted. A CPLR §3211(a)(1) motion may only be granted if the documentary evidence resolves all the factual issues as a matter of law and definitively disposes of the plaintiff's claim. Dicker v The Housemaster, 11 M 3d 1051(A) (Nassau Supreme Court, 2006), citing Topel v Reliastar Live Ins. Co., 6 AD3d 608. The documentary evidence submitted must establish by clear and unmistakable language capable of no other reasonable interpretation that plaintiffs' causes of action must fail. Wright v Evanston Insurance, 14 AD3d 505 (2nd Dept, 2005).
Similarly, a CPLR §3211(a)(7) motion may be granted only if the court determines the plaintiff does not have a legally cognizable cause of action. Guggenheimer v Ginzburg, 43 NY2d 268. In doing so, the court must liberally construe the complaint, and give the plaintiff every favorable inference. Leon v Martinez, 84 NY2d 83. And, the court must accept all facts alleged in the complaint and factual submissions of the plaintiff in opposition to the motion, as true. 511 West 232nd Street Owners Corp v Jennifer Realty Co., 98 NY2d 144.
Defendants point out in the case of Egan v New York Care Plus, 277 AD2d 652 (3rd Dept, 2000): "It is axiomatic that a cause of action for fraud does not arise where, as here, the fraud alleged relates to a breach of contract. (Cites omitted). Thus, absent a legal duty owed to plaintiff by defendants, independent of that encompassed by the contract, plaintiff's causes of [*6]action grounded on fraud are not cognizable. (Cites omitted)." Id., 653.
"It is well settled that a claim arising out of an alleged breach of contract may not be converted into a tort action absent the violation of a legal duty independent of that created by the contact'" Roklina v Skidmore Coll, 268 AD2d 765, 766-767 (3rd Dept, 2000), quoting Scott v Key Corp, 247 AD2d 722 (3rd Dept, 1998).
In Rector v Calamus Group, 17 AD3d 960 (3rd Dept, 2005), the court dismissed the complaint against the seller, noting that at the time of the transaction, New York followed the caveat emptor doctrine in relation to real estate transactions, and so the seller had no duty to disclose any information concerning the property in an arm's length transaction unless the seller participated in some active concealment of a defect. Id., 961, citing Gizzi v Hall, 300 AD2d 879, 881. If "some conduct (i.e. more than mere silence) on the part of the seller rises to the level of active concealment', a seller may have a duty to disclose information concerning the property.' (Gizzi v Hall, supra , at 881, quoting Bethka v Jensen, supra at 888).
Here, plaintiffs point to two acts by the defendants as instances of fraud. First, plaintiffs assert defendants falsely stated on the disclosure statement that there were no known material defects in the septic system, despite the history of problems with the system, as documented by the Commission. While defendants argue that the plaintiffs' own inspections meant that they were not relying on the Disclosure Statement concerning the septic system, plaintiffs allege in their complaint that the defects could not have been discovered upon a visual inspection.
While it may be true that a buyer of real estate has no independent cause of action under RPL Article 14, when the seller makes a false representation in the disclosure statement, such a representation may be proof of active concealment, and: "Whether a party could have ascertained the facts with reasonable diligence is a factual question for resolution by the jury." Gizzi v Hall, 300 AD2d 879, quoting Bethka v Jensen, 250 AD2d 887, at 888, quoting Rudolph v Turecek, 240 AD2d 935, 938, lv denied 90 NY2d 811 (3rd Dept, 1997).
Second, the plaintiffs allege the defendants masked the bad smell of the improper septic system whenever plaintiffs inspected the premises. These alleged acts of active concealment occurred outside the parties written contract. Whether such actions induced plaintiffs to purchase the property and whether a reasonable inquiry by plaintiffs would have revealed the problems with the septic system are likewise questions of fact. Gizzi v Hall, Id., at 882.
The Court concludes that the defendants' CPLR §3211(a)(1) and (7) motion must be denied. The documentary evidence relied upon by the defendants does not definitively dispose of the plaintiffs' claims, and the complaint does state at least one cause of action.
The plaintiffs' motion to amend the complaint is granted, there being no showing of prejudice to the defendant. Plaintiffs shall have twenty (20) days from the date of filing and service of this decision and order to serve and file the amended complaint.
The foregoing constitutes the Opinion, Decision and Judgment of this Court.
SO ORDERED.
DATED: October ____, 2006.______________________________
W. Patrick Falvey
Acting Justice Supreme Court
Yates County
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