American Express Travel Related Servs. Co., Inc. v SM Zako, Inc.

[*1] American Express Travel Related Servs. Co., Inc. v SM Zako, Inc. 2009 NY Slip Op 50301(U) [22 Misc 3d 1126(A)] Decided on February 23, 2009 Supreme Court, Kings County Demarest, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 February 23, 2009
Supreme Court, Kings County

American Express Travel Related Services Co., Inc., Plaintiff,

against

SM Zako, Inc., Defendant.



21535/06



Attorney for Plaintiff:

Meyers, Saxon & Cole

3620 Quentin Road

Brooklyn, NY 11234

Attorney for Defendant/Third Party Plaintiff:

Tinamarie Franzoni, Esq.

Meier Franzino & Scher, LLP

570 Lexington Avenue, 26th Floor

New York, NY 10022

Attorney for Third Party Defendant:

Karen S. Jore, Esq.

Braverman & Associates, PC

331 Madison Avenue, 3rd Floor

New York, NY 10017

Carolyn E. Demarest, J.

In this action by plaintiff American Express Travel Related Services Co. Inc. (American Express) against defendant/third-party plaintiff SM Zako, Inc. (Zako), third-party defendants Avivith Oppenheim and William Oppenheim (collectively, the Oppenheims) move for summary judgment dismissing Zako's third-party complaint as against them. Although duly served, plaintiff American Express has filed no opposing papers and taken no position on the motion. The only issue before the court is the viability of the third party action which is premised upon defendant Zako's contract with the Oppenheims.

Avivith Oppenheim is the proprietary lessee and the owner of the shares appurtenant to apartment 11K, a cooperative apartment located at 860 Fifth Avenue in Manhattan. William Oppenheim is Avivith Oppenheim's husband. Zako is a home improvement general contractor, and Spiros Zakopolous is Zako's president and principal.

On May 26, 2005, Avivith Oppenheim, as Owner, entered into an Agreement for Renovation and Completion of Apartment 11K (the Construction Agreement) with Zako, as Contractor, for the contract sum of $535,000. Article 3 of the Construction Agreement required an initial payment, comprised of those sums which Zako had to advance for materials to be purchased in connection with the renovations. This initial payment was for the sum of approximately $200,000 ($199,999.98). Since the Oppenheims wanted to use their American Express credit card for the down payment, Zako arranged to become a merchant with American Express by opening a merchant account. Under its arrangement with American Express, Zako elected to have payments automatically deposited into its bank account by American Express and to authorize and submit its charges electronically. Zako received a letter dated July 26, 2005 from American Express enclosing the Terms and Conditions of its agreement with American Express. This July 26, 2005 letter provided that "[b]y accepting the American Express card for the purchase of goods and/or services, you agree to be bound by this letter and the terms and conditions (Rev. 05/03) for American Express card acceptance (the Terms and Conditions') enclosed with this letter."

On July 29, 2005, payment of the initial deposit to Zako was made by the Oppenheims by two charges of $99,999.99 each to William Oppenheim's American Express credit card. On July 30, 2005, Avivith Oppenheim sent a check to American Express for $200,000 as payment toward the balance on the American Express charge account.

While Zako claims that it commenced work on or about May of 2005, according to the Oppenheims, work on the renovation project commenced on or about August 9, 2005. However, the Oppenheims claim that by mid-September 2005, little, if any, work was performed on the renovation project by Zako or its subcontractors. The Oppenheims assert that Zako continuously failed and refused to keep to the project schedule set forth in the Construction Agreement, and failed and refused to provide the project documentation required relating to requisitions, purchase orders, a schedule of values, and completed portions of the work. Zako, however, disputes that little or no work was performed at the Oppenheims' residence. Zako also claims that the Oppenheims were present during meetings with it, the architect, and subcontractors, with regard to the Oppenheims' apartment, which [*2]were held on August 1 and 22 and September 6 and 16, 2005, and that the Oppenheims were made aware of the status of the renovation project and kept informed as to the progress of the work.

Article 13 of the Construction Agreement, entitled "Termination by the Owner" provided that "[i]f Contractor fail[ed] to carry out the work in accordance with the Contract Documents, or fail[ed] to perform any provision of the Contract Documents, then Owner may, on at least five (5) days' written notice to Contractor, and without prejudice to any other remedy it may have . . . at its option, . . . terminate the Agreement." Alternatively, Article 13 provided that the Owner could "make good such deficiencies and may deduct the cost thereof from the payment then or thereafter due Contractor." Article 13 also stated that, upon termination, in the event "the unpaid balance of the Contract Sum exceed[ed] the expense of finishing the Work, such expense [would] be paid to Contractor, but if such expense exceed[ed] such unpaid balance, Contractor [was required to] pay the difference to Owner upon demand." Article 13 of the Construction Agreement also permitted termination by the Owner "without cause upon at least five (5) days' prior written notice to Contractor." In that event, the Contractor was to be "entitled to payment for all Work completed in accordance with the Contract Documents prior to the termination of this Agreement, and for all materials delivered and stored at the Apartment."

Avivith Oppenheim claims that she orally terminated Zako "for cause" on or about September 16, 2005. Avivith Oppenheim further claims that at that time, she demanded that Zako account for all of the expenditures that Zako claimed it incurred and to return the unused portion of the initial payment of $200,000. On September 17, 2005, Zako tendered an expense summary listing $124,384 in expenses. According to Avivith Oppenheim, this expense summary was unreasonable since the only evident work performed by Zako was certain fireproofing and a deposit to the stone supplier, Ann Sacks.

By letter dated September 29, 2005, the Oppenheims' attorney informed Zako that it had been discharged by the Oppenheims due to "the passage of more than four months since the execution of the [Construction A]greement [with] little, if anything ha[ving] been done within the apartment." In this September 29, 2005 letter, the Oppenheims' attorney also formally demanded the return of all funds from the $200,000 not used for fireproofing and the Ann Sacks advance. A letter dated October 10, 2005 from the Oppenheims' attorney to Zako further stated that although Zako had been advised of its termination personally and orally, this letter was Zako's official notice of termination pursuant to the Construction Agreement. Despite this formal notice, Zako claims that its termination was "without cause."

On September 23, 2005, due to the Oppenheims' dissatisfaction with Zako's services, the Oppenheims initiated a dispute of the $199,999.98 charges to William Oppenheim's American Express credit card. Paragraph 5 of the Terms and Conditions for American Express Card Acceptance between Zako and American Express, entitled "Full Recourse," provided that American Express had "Full Recourse . . . whenever Cardmembers br[ought] Disputed Charges, as described in Schedule A, paragraph 5." Paragraph 5 of Schedule A, [*3]entitled "Disputed Charges" provided that "[w]ith respect to a Disputed Charge . . . [American Express] ha[d] Full Recourse prior to contacting [the merchant] if [American Express] determine[d] that [it] ha[d] sufficient information to resolve the Disputed Charge in favor of the Cardmember." "Full Recourse," which is also called a "chargeback," is defined in the Terms and Conditions for American Express Card Acceptance as American Express' "right to reimbursement from [the merchant] for the full amount of a charge subject to such right, e.g., a Disputed Charge." "Immediate Full Recourse" is defined as giving American Express the "right to exercise Full Recourse immediately without first contacting [the merchant] or sending [it] an inquiry or for which [it] cannot present any written response." When Zako's merchant bank account was set up, Zako became an immediate chargeback merchant, whereby a disputed charge would result in an immediate chargeback to its account.

On September 23, 2005, as a result of the disputed charge brought by William Oppenheim, there was an immediate chargeback by American Express for the $199,999.98 billing to Zako's American Express merchant bank account. American Express then attempted to collect the approximately $200,000 from the bank account that was set up at the time of Zako's entry into its agreement with American Express, which gave it the right to go into the bank directly to get any owed funds from Zako, as a participating merchant. However, Zako stopped this payment by instructing its bank not to pay American Express from its bank account, and American Express, thus, did not receive, and Zako has retained the approximately $200,000 at issue. Zako contested the dispute and chargeback with American Express, informing it that the Oppenheims' credit card charge was pursuant to the Construction Agreement, and that the monies had been used for labor, supplies, and work that had already been expended by it on the Oppenheims' behalf.

American Express issued a credit balance refund check to the Oppenheims for the $200,000 paid by them on November 21, 2005. The Agreement between William Oppenheim, as the Cardmember, and American Express, in the section entitled "Assignment of Claims," in pertinent part, provides:

"In the event you dispute a Charge and we credit your Card Accountfor all or part of such disputed Charge, we automatically succeed to, and you are automatically deemed to assign and transfer to us, any rights and claims . . . that you have, had or may have against any third party for an amount equal to the amount we credited in your Card Account . . ."

Pursuant to this section, the Oppenheims have assigned to American Express their rights and claims with respect to the $200,000 payment to Zako.

On July 19, 2006, American Express brought an action against Zako, alleging that Zako is liable to it for its failure to perform under "an agreement for work, labor and services." American Express alleges that this agreement was entered into by Zako on December 3, 2005 (whereas the Construction Agreement was executed on May 26, 2005) and was for the sum of $204,119.98 (presumably the $199,999.98 plus fees owed to American [*4]Express). It also alleges a claim based upon an account stated for this sum. On or about November 29, 2007, Zako served its Amended Third-Party Complaint against the Oppenheims. Zako's Amended Third-Party Complaint alleges that the Oppenheims will be liable to it in the event that American Express obtains a recovery in the main action.

In support of their motion for summary judgment, the Oppenheims contend that Zako's third-party complaint is entirely based upon a claim of contractual indemnification. They point out that there is no indemnification provision in the Construction Agreement running in favor of Zako as indemnitee. Rather, article 5 of the Construction Agreement, which is the only indemnification provision in the Construction Agreement, provides that Zako shall indemnify and hold harmless Avivith Oppenheim from all losses arising out of a default by Zako in its obligations thereunder.

Zako, in opposition to the Oppenheims' motion, asserts that its third-party complaint is not a claim for indemnification against the Oppenheims, but a claim for the contractual right to payment for the work, labor, and services rendered to the Oppenheims. Zako argues that significant work was performed at the Oppenheims' residence and has submitted the sworn affidavit of Spiros Zakopoulos, attesting that $75,125.13 was expended by Zako for materials, supplies, disposal of rubbish, and payment to subcontractors for the benefit of the Oppenheims in connection with its work under the Construction Agreement. Spiros Zakopoulos further attests that in addition, Zako's employees worked at the Oppenheims' residence five days a week for three months. Zako contends that it earned the monies paid by the Oppenheims through their use of the American Express card, and it has submitted copies of receipts and cancelled checks relating to its work. Zako has also annexed the minutes of meetings dated August 1 and 22 and September 6 and 13, 2005 with regard to its work at the Oppenheims' apartment.

Zako argues that a triable issue of fact exists as to what amount, if any, it is entitled to retain for the work it performed. Zako asserts that the Oppenheims acted in a manner to deprive it of its rights to receive payment as agreed to under the Construction Agreement by disputing the charges with American Express in spite of their knowledge that substantial services had been rendered to them. Zako claims that in so doing, the Oppenheims breached the implied covenant of good faith and fair dealing contained in every contract (see Rowe v Great Atl. & Pac. Tea Co., 46 NY2d 62, 68 [1978]). Zako contends that since the Oppenheims unilaterally elected to have this $199,999.98 payment withdrawn by American Express, they are obligated for these monies if American Express is found entitled to the return of the monies. Zako further argues that summary judgment will result in the unjust enrichment of the Oppenheims and that it needs to take the depositions of the Oppenheims to establish its right to the payments made (see CPLR 3212 [f]).[FN1] [*5]

Resolution of this action implicates the interplay of three spearate contracts, the Construction Agreement between Zako and Oppenheim, the Cardmember Agreement between Oppenheim and American Express, and the Merchant Agreement between Zako and American Express, which was initiated for the benefit of Oppenheim. American Express has taken an assignment of the claims and defenses that the Oppenheims have against Zako pursuant to the Oppenheims' Cardmember Agreement with American Express. While Zako contends that this assignment of rights and claims as set forth in their agreement with American Express is not binding on it, this contention is without merit since Zako, under the terms of its Merchant Agreement with American Express, effectively agreed to accept such assignment. Although Zako argues that this assignment is contrary to the Construction Agreement, this argument is refuted by Article 16 of the Construction Agreement, which only prohibited the Contractor from assigning any amounts due or to become due under the Construction Agreement without the Owner's prior consent, but did not prohibit the Owner from assigning any of its rights under the Construction Agreement.

It is well established that an assignment of a claim or demand is enforceable in an action by the assignee (see General Obligations Law § 13-105). The assignee may pursue the same remedies as would have been available to the assignor (see National Commercial Bank & Trust Co. v Malik, 72 Misc 2d 865, 867 [1973]). Conversely, however, the assignee of a claim or cause of action takes it "subject to all the infirmities, equities, and defenses that could have been asserted [by the obligor] against the assignor at the time of the assignment" (Trans-Resources, Inc. v Nausch Hogan & Murray, 298 AD2d 27, 30 [2002]; see also Condren, Walker & Co., Inc. v Portnoy, 48 AD3d 331, 331 [2008]; TPZ Corp. v Dobbs, 25 AD3d 787, 789 [2006]; Crispino v Greenpoint Mtge. Corp., 304 AD2d 608, 609 [2003]; Amedeo Hotels Ltd. Partnership v Zwicker Elec. Co., 291 AD2d 322, 323 [2002]; Robischon v Genesee Val. Med. Care, 92 Misc 2d 854, 856 [1977], affd 65 AD2d 681 [1978]). Since "[a]n assignee stands in the shoes' of an assignor" (Long Is. Radiology v Allstate Ins. Co., 36 AD3d 763, 765 [2007], quoting Arena Constr. Co. v Sackaris & Sons, 282 AD2d 489, 489 [2001]; see also Wald v Marine Midland Bus. Loans, 270 AD2d 73, 74 [2000]), American Express, as an assignee, "stands in the shoes" of the Oppenheims by reason of the assignment of the Oppenheims' claim to American Express. Therefore, American Express can assert all of the claims and defenses against Zako that the Oppenheims have under the Construction Agreement, but is subject to any claims or defenses available to Zako against the Oppenheims.

While the Terms and Conditions for American Express Card Acceptance refer to an immediate chargeback, whether chargebacks by a credit card issuer are sustainable on the merits of the claim generally presents an issue of fact (see First Data Merchant Servs. Corp. v Olympia York Bldrs. & Devs., Inc., 14 Misc 3d 1228 [A], 2007 NY Slip Op 50203 [U], *4 [2007]; Nova Information Systems, Inc. v Labatto, NYLJ, Aug. 20, 2004, at 18, col 3 [Sup Ct, Kings County, Prus, J.]). American Express has not participated in the litigation of this motion and there is no showing at this juncture that American Express, as the Oppenheims' [*6]assignee, has any greater rights to recovery against Zako than would the Oppenheims or that American Express would take free of any defenses which Zako could assert as against the Oppenheims.

At this juncture, the court finds that summary judgment dismissing Zako's third-party complaint as against the Oppenheims, which is premised upon the Oppenheims' breach of the Construction Agreement, should not be granted. Movants' argument that the absence of a contractual indemnification provision in the Construction Agreement precludes recovery in the third party action is without merit in the circumstances.

Accordingly, the Oppenheims' motion for summary judgment dismissing Zako's third-party complaint is denied. Counsel shall appear for conference in Commercial Division I on April 1, 2009 at 9:30 A.M.

This constitutes the decision and order of the court.

E N T E R,

J. S. C. Footnotes

Footnote 1:There was an order, filed on June 4, 2008, directing the deposition of Avivith Oppenheim, but American Express filed its note of issue on September 4, 2008, apparently without compliance with the discovery order.