Farrell v Lane Residential, Inc.

[*1] Farrell v Lane Residential, Inc. 2006 NY Slip Op 52173(U) [13 Misc 3d 1239(A)] Decided on November 14, 2006 Supreme Court, Broome County Lebous, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on November 14, 2006
Supreme Court, Broome County

F. Thomas Farrell and Marlene Francis, Plaintiffs,

against

Lane Residential, Inc.; Lane Residential, LLC; 765 Associates, LLC; and William H. Lane, Inc., Defendants.



2002-0072



Counsel for Plaintiffs:

Cahill & Beehm

By: James N. Cahill, Esq., of Counsel

Office & Post Office Address

145 Washington Avenue

Endicott, NY 13760

Counsel for Defendants:

Hinman, Howard & Kattell, LLP

By: Philip J. Kramer, Esq., of Counsel

Office & Post Office Address

700 Security Mutual Building

Binghamton, NY 13901

Ferris D. Lebous, J.

Plaintiffs F. Thomas Farrell and Marlene Francis commenced this action against defendants regarding the construction of a single family residence at 929 Gillen Drive, Binghamton, New York.

The Summons with Notice was filed with the Broome County Clerk's Office on January 10, 2002. The Complaint contains three causes of action against the defendants, namely: (1) breach of contract; (2) breach of implied warranty that the premises would be free of defects as required by General Business Law (hereinafter "GBL") § 777-a; and (3) breach of a September 19, 2000 "Limited Warranty."

A non-jury trial was held over seven days over the course of two months, namely on

December 13, 14, 15, 16 & 17, 2004 and February 7 and 8, 2005. Thereafter, the parties requested and were granted additional time to submit post-trial memorandums with the final submission received on December 14, 2005.

FINDINGS OF FACTS

The Residence

The property at issue here is a two-story single family residence located at 929 Gillen Drive, Binghamton, New York (hereinafter "the Residence"). The purchase price was $220,000.

The Defendants

Before progressing any further it will be helpful to identify the various named defendants and their various roles in relation to this matter as follows:

—Lane Residential, Inc.:Nonexistent corporation, but named on Sales Contract as seller. —Lane Residential, LLC:[FN1]Formed on March 17, 2000; became builder of the Residence in March 2000.

—765 Associates, LLC:[FN2]Owner of the land upon which the Residence was constructed.

—William H. Lane, Inc.:[FN3]Purported builder; hired by 765 Associates, LLC as contractor.

Construction

765 Associates, LLC was formed for the purpose of constructing and selling a spec house on Lot 5 of Gillen Drive in Binghamton, NY (Plaintiffs' Exhibit 513). The members of 765 [*2]Associates, LLC borrowed $190,000 from Binghamton Savings Bank (hereinafter "BSB") to buy Lot 5 (Pl Ex 208). 765 Associates, LLC originally planned for the actual construction work to be performed by an LLC to be formed by Mark Lane (Lane Residential, LLC). However, that LLC was not formed at the time work was scheduled to begin, so 765 Associates, LLC entered into a verbal contract with William H. Lane Inc. to begin construction until such time as Lane Residential, LLC could be formed.

William H. Lane, Inc. received a building permit for the Residence from the City of Binghamton on August 23, 1999 (Pl Ex 591). William H. Lane, Inc. began construction in October 1999 on the Residence and entered into various subcontracts (Pl Exs 201, 204, 222- 224 & 517). William H. Lane, Inc. received plaintiffs' direct deposit of $125,000 from the BSB construction loan on June 30, 2000 (Pl Ex 195). William H. Lane, Inc.'s construction on the house included framing, siding, doors, and basic electrical which was completed by March 2000 when Lane Residential LLC was formed.

Sales Contract

On July 14, 2000, plaintiffs signed a standard Purchase and Sale Contract For Residential Property (hereinafter "Sales Contract") for the Residence (Pl Ex 2). The Sales Contract lists Lane Residential, Inc. as the Seller, even though no such corporate entity ever existed. The Sales Contract was signed by Mark Mushalla on July 17, 2000 on behalf of the non-existent seller, Lane Residential, Inc. However, Mr. Mushalla was a full-time employee and controller of William H. Lane, Inc. It is undisputed that Lane Residential, Inc. did not exist at that time, although Lane Residential, LLC did exist having been formed in March 2000.

Sales Contract Limited Warranty

Attached to the Sales Contract was a "LIMITED WARRANTY" [hereinafter "Sales Contract Limited Warranty"] (Pl Ex 2, pp 6-14). The Sales Contract Limited Warranty, however, was blank in several key sections including the name and address of builder, warranty date, and builder's limit of total liability (Pl Ex 2, p 6).

The Deed

Closing took place on September 19, 2000. The Warranty Deed is dated September 19, 2000 and was recorded on that same date in the Broome County Clerk's Office. The Deed identifies 765 Associates, LLC as the grantor which was the first time plaintiffs claim they had ever heard of such an entity (Pl Ex 501).[FN4] It is undisputed that an additional $46,532.86 from the proceeds of the sale at closing went to William H. Lane, Inc., as well as $2,818 for extras (Pl Ex 507). A Certificate of Occupancy and Compliance dated September 19, 2000 was issued to William H. Lane, Inc. (Pl Ex 508). At the time of closing, plaintiffs presented a 6-page hand written list of work to be completed, but Francine Cook, a William H. Lane, Inc. employee and special employee of Lane [*3]Residential, LLC and 765 Associates, LLC., urged plaintiffs not to hold any money back because William H. Lane, Inc. was reliable to complete the work in a good and workmanlike manner.

765's Limited Warranty

At closing a second limited warranty was delivered to plaintiffs identifying 765 Associates, LLC as the builder (hereinafter "765's Limited Warranty") (Pl Ex 520). Plaintiffs' contend that 765's Limited Warranty does not equate to a "clear and conspicuous" exclusion by William H. Lane, Inc. of the Housing Merchant Implied Warranty pursuant to GBL § 777-b (1), (2), & (4) (b).

Representations regarding William H. Lane, Inc. as builder

Based upon the credible testimony and evidence presented at trial, the court finds that there were numerous verbal and written representations made to plaintiffs that William H. Lane, Inc. was the builder of the Residence. On or about July 12, 2000, John Burns, Jr. d/b/a Re-Max Residence Realty, real estate broker hired by 765 Associates, LLC. to sell the Residence, showed plaintiffs the Residence under construction and provided a 3-page information sheet to plaintiffs which stated at the top of the first page, in part, as follows:

Welcome to SOUTH MOUNTAIN

Lot 5, Gillen Drive - $229,000

Quality Constructed by William H. Lane, Inc

(Pl Ex 518, p 1).

The second and third page of the information sheet contained sketches of the front and rear elevations and the first and second floor plans with the following at the bottom of each page

"Lot 5 Gillen Drive, Binghamton, New York - Quality Constructed by William H. Lane, Incorporated" (Pl Ex 518, pp 2-3; emphasis added). Furthermore, Mr. Burns stated to plaintiffs while visiting the Residence during construction that William H. Lane, Inc. was the best builder in Broome County, while an informational sign at the Residence stated "William H. Lane, Inc., Commercial, Residential, Constructional, Architectural and Engineering."

Furthermore, the testimony established that Mark Lane, president of William H. Lane, Inc. met with plaintiffs prior to the closing and failed to disclose the existence of another distinct entity (Lane Residential, LLC). In fact, defendants concede that "Mark Mushalla and Mark Lane, as members of 765 Associates, LLC were taking advantage of William H. Lane Incorporated's system to keep track of project costs and for running the money received through William H. Lane Incorporated for that purpose..." (Defendants' Reply Memo, p 2).

The parties positions

The parties respective legal arguments are tied to the plaintiffs concerns that 765 Associates, LLC and Lane Residential, LLC have no assets and are judgment proof. Thus, plaintiffs are in the practical situation of having to establish that William H. Lane, Inc. was the builder of the Residence and can be held in damages for breaches of the Housing Merchant Implied Warranty under General Business Law § 777-a (GBL § 777 [1] & [6]). Further, plaintiffs argue that William H. Lane, Inc. should be equitably estopped from denying that it was the builder due to the various representations made to them throughout this matter. Plaintiffs' contend that there was no clear and conspicuous [*4]exclusion by William H. Lane, Inc. of its Housing Merchant Implied Warranty pursuant to GBL § § 777-b (1) & (2) and 777-b (4) (b).

Not surprisingly, William H. Lane, Inc. argues that it never had any contractual relationship with the plaintiffs and that there is no privity or any other legal basis on which to maintain a claim against William H. Lane, Inc.

DISCUSSIONThe Court of Appeals held in 1988 that contracts for the sale of new homes must contain an implied warranty that the construction was performed in a skillful manner and that the building contained no material defects (Caceci v Di Canio Constr. Corp., 72 NY2d 52 [1988]). Thereafter, the Legislature codified Caceci by enacting the Housing Merchant Implied Warranty statute in GBL art 36-B). The statutory Housing Merchant Implied Warranty may be excluded or modified by the builder of a new home if the buyer is offered a limited warranty that meets or exceeds statutory standards (GBL § 777-b [4] & [5]; Latiuk v Faber Const. Co., Inc. 269 AD2d 820 [2000]).

The term "builder" is defined in GBL § 777 (1) as "[a]ny person, corporation, partnership or other entity contracting with an owner for the construction or sale of a new home." Quite simply, the court finds William H. Lane, Inc.'s argument that it was not the builder of this Residence to be disingenuous and unsupported by the credible evidence presented at trial. The fact that the Deed and 765's Limited Warranty list 765 Associates, LLC as the owner/builder is meaningless in the context of the facts and circumstances such as William H. Lane, Inc. admitting to having a verbal contract with 765 Associates, LLC to build the Residence; William H. Lane, Inc. receiving the building permit from the City of Binghamton on August 23, 1999 (Pl Ex 591); William H. Lane, Inc. entering into subcontracts for construction (Pl Exs 201, 204, 222- 224 & 517); William H. Lane, Inc. receiving plaintiffs' direct deposit of $125,000 from the BSB construction loan on June 30, 2000 (Pl Ex 195); William H. Lane, Inc. receiving additional funds at closing; as well as William H. Lane, Inc. being the recipient of the Certificate of Occupancy.

In view of the foregoing, the court further finds that Lane Residential, Inc., Lane Residential, LLC, and 765 Associates, LLC were nothing more than corporate entities acting on behalf of William H. Lane, Inc. These corporations either did not exist or did not act in accordance with corporate principals so as to entitle them to the legal status available to corporate and limited liability corporations and the legal protection afforded therein. As such, the court finds that William H. Lane, Inc. was the builder of this Residence and thus is bound by GBL art 36-B.

Parenthetically, the court notes that even if it had found that William H. Lane, Inc. was not the "builder" as that term is denied in GBL, the court would have found that William H. Lane, Inc. is equitably estopped from denying its responsibilities. As outlined hereinabove, plaintiffs justifiably relied on the various representations that William H. Lane, Inc. constructed this Residence including the signage present at the location, statements made by various representatives, as well as all the other acts noted above.

DAMAGES[*5]

The court heard considerable testimony during the course of the trial, not only from the plaintiffs themselves, but also from their construction experts regarding various deficiencies at the Residence. The court finds the bulk of plaintiffs testimony credible and finds that the construction of the Residence was deficient in a number of ways so as to trigger the protection of GBL § 777-a.[FN5]

The court finds that plaintiffs' home contains defects which do, in fact, rise to the level of triggering GBL § 777-a protection, including defects with regard to the heating plant; plumbing; improper construction placement and installation of the fireplace; master bathroom; carpentry defects specifically in the kitchen area; problems with the air conditioning unit; exterior defects and problems with the basement such that the home was not reasonably tight from water and seepage. All of these defects, based on the proof presented at trial, constitute a breach of GBL § 777-a and, as such, entitle plaintiffs to damages equal to the cost to cure said defects.

Plaintiffs and their experts outlined at trial the cost to cure the damages as set forth in plaintiffs' Bill of Particulars. Defendants offered testimony from an expert in the field of housing construction and seriously questioned in many regards, if not all, the amounts necessary to cure the defects as outlined by the plaintiffs and their experts. The court has balanced the credible testimony of the plaintiffs and their expert with those portions of the testimony of the defendants' expert found credible by the court and concludes that plaintiffs are entitled to, as fair and reasonable damages, the cost to cure the following defects: [*6]

(1)Heating:The court finds an amount of $6,000 to be fair and appropriate for those defects outlined in plaintiffs' Bill of Particulars (items 1 through 7).

(2)Plumbing:The court finds the amount of $1,500 to be fair and reasonable for the repairs to the numerous plumbing defects as testified to by plaintiffs and their experts, and contained in plaintiffs' Bill of Particulars (items 9 through 13).

(3)Fireplace:The defects established in the fireplace located between the living room and the kitchen is the most threatening defect of all contained within the Residence. The court finds that the same was clearly inappropriately installed and did, in fact, create a fire hazard. As such, the court believes that the estimate submitted by the plaintiffs in the amount of $5,452 to repair and replace this situation as well as bringing the fireplace up to code, to be fair and appropriate (Bill of Particulars, item 15).

(4)Master bathroom:The court finds that damages in the amount of $1,000 to cure the defects in the master bathroom including scratched fixtures and improper tile is fair and reasonable (Bill of Particulars, items 16 & 17).

(5)Carpentry:The court finds that damages in the amount of $2,000 is sufficient and reasonable to cure the various carpentry defects testified to at trial (Bill of Particulars, items 18 through 23).

(6)Roofing shingles:The court finds that the roofing shingles on the north side of the garage were improperly installed and awards plaintiffs $1,000 to cure the same (Bill of Particulars, item 24).

(7)Air conditioning:The court finds that damages of $4,000 are sufficient to cure the defects with the home air conditioning unit (Bill of Particulars, items 36 and 37).

(8)Exterior/Water seepage:Plaintiffs and their expert testified to numerous deficiencies with regard to the exterior of the Residence, as well as problems with water seepage through the basement walls and basement flooding (Bill of Particulars, items 36 and 37). The court finds that some of the exterior problems with regard to the Residence and the water in the basement, leaking foundation, etc., are tied together. However, the court finds that plaintiffs' estimates with regard to foundation repair and exterior adjustments are excessive (Bill of Particulars, items 54). The court finds that damages in the amount of $15,000 are sufficient to correct all exterior and basement defects which result in basement flooding and water seepage.

In sum, the damages awarded to plaintiff are as follows:

$ 6,000.Heating

$ 1,500.Plumbing

$ 5,452.Fireplace

$ 1,000.Master bathroom

$ 2,000.Carpentry [*7]

$ 1,000.Roofing shingles on garage

$ 4,000.Air conditioning

$15,000.Exterior/water seepage

$35,952.Total

Any other defects alleged by the plaintiffs, but not addressed herein, have been considered by the court and deemed either unreasonable, outside the ambit of any warranty or simply without merit.

STIGMA

Plaintiffs also allege as an element of damage that the value of the Residence, even after cleanup, has been affected by the defects and that a stigma has attached to the property. Defendants contend that plaintiffs' proof regarding stigma was speculative and should be rejected by the court.

The principal of "market stigma" is typically discussed within the context of environmental contamination, but recognizes generally that damages may be proper for the diminution in the fair market value of real property caused by fear of past contamination - or as here past construction defects - even after said defects are corrected. However, market stigma is a recoverable element of damages only if the plaintiff can demonstrate that repairing the damage will not restore the property to its original market value (Putnam v State of New York, 223 AD2d 872 [1996]).

Here, plaintiffs' expert, Mr. Congdon, determined that the stigma here equated to a 25% loss in value (Pl Ex 537). According to Mr. Congdon, if a reasonably prudent potential buyer were offered two identical properties except one had the history of construction defects as here, the buyer would logically buy the latter despite a satisfactory remediation or, at a minimum, use said history to their favor in negotiations. Thus, according to plaintiffs, to equate the two properties the price of the formerly defect-riddled property would have to be decreased (Criscuola v Power Auth., 81 NY2d 649, 654 [1993]).

The court finds plaintiffs' proof on the issue of stigma inadequate. In the first instance, plaintiffs have failed to establish that the stigma here, if any, is permanent. Stated another way, there is no evidence save for Mr. Congdon's opinion which the court found unpersuasive, that after remediation, a stigma would continue to diminish the value of this Residence. Moreover, Mr. Congdon's comparables were not comparable. For instance, the first comparable included a home in which a suicide had taken place and the second comparable included a home that tilted to the right and which could not be remedied. Neither of those comparables come close to the fact pattern presented to the court. Here, the testimony and proof submitted by plaintiffs indicated that all alleged defects can be completely remediated and cured with no residual deficit.

As such, in this court's view, the unsubstantiated assertion that defects will continue into the future and that the stigma associated therewith will serve to decrease the value of the property, without being supported by any comparable market data, is insufficient to support an award of market stigma damages (Heinemeyer v State Power Auth., 229 AD2d 841, 844 [1996], lv denied 89 [*8]NY2d 801 [1996]).

CONCLUSION

By reason of the foregoing, the court awards plaintiffs the amount of $35,952 against defendant William H. Lane, Inc. for breach of the Home Merchant Implied Warranty pursuant to GBL § 777-b, together with appropriate interest, costs and disbursements.

This constitutes the decision of the court. Plaintiffs' counsel to submit a judgment on notice in conformity with this decision. The mailing of a copy of this decision by the court does not constitute notice of entry.

DATED:November 14, 2006

Binghamton, NY

s/ Ferris D. Lebous

HON. FERRIS D. LEBOUS

Justice, Supreme Court Footnotes

Footnote 1:The corporate owners of Lane Residential LLC are: Mark Lane 51 %; Bill Lane 24%; Tom Willerton 25% (Pl Ex 578).

Footnote 2:The corporate owners of 765 Associates LLC are: Diran Kradjian 25%; Harry Kradjian 25%; Mark Lane 25%; Mark Mushalla 25% (Pl Ex 579).

Footnote 3:Mark Lane is the president and 3% owner and Mark Mushalla is the controller and 3% owner of William H. Lane, Inc.

Footnote 4:However, a letter dated September 13, 2000 advises Bruce Smyk that "The Purchase and Sale Contract will be assigned by Lane Residential, LLC to 765 Associates, LLC prior to closing, and the deed will be delivered by 765 Associates, LLC" (Pl Ex 543).

Footnote 5:GBL § 777-a states, in pertinent part, as follows:



1.Notwithstanding the provisions of section two hundred fifty-one of the real property law, a housing merchant implied warranty is implied in the contract or agreement for the sale of a new home and shall survive the passing of title. A housing merchant implied warranty shall mean that:



a. one year from and after the warranty date the home will be free from defects due to a failure to have been constructed in a skillful manner;

b. two years from and after the warranty date the plumbing, electrical, heating, cooling and ventilation systems of the home will be free from defects due to a failure by the builder to have installed such systems in a skillful manner; and



c. six years from and after the warranty date the home will be free from material defects.

***

3.In the case of goods sold incidentally with or included in the sale of the new home, such as stoves, refrigerators, freezers, room air conditioners, dishwashers, clothes washers and dryers, a housing merchant implied warranty shall mean that such goods shall be free from defects due to failure by the builder or any agent, employee or subcontractor of the builder to have installed such systems in a skillful manner.