MCC Dev. Corp. v Perla

[*1] MCC Dev. Corp. v Perla 2009 NY Slip Op 50945(U) [23 Misc 3d 1126(A)] Decided on May 8, 2009 Supreme Court, New York County Schweitzer, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 May 8, 2009
Supreme Court, New York County

MCC Development Corporation, Plaintiff,

against

Daniel Perla, Faleh Hamdan, Faldan Realty Co. and 71-75 Avenue D, LLC, Defendants.



101141/06



William A. Thomas, Esq.

Attorney for Plaintiff

89 Fifth Avenue, Suite 900

New York, NY 10003

Thomas P. Higgins, Esq.

Attorney for Defendants

36 West 44th Street, Suite 911

New York, NY 10036

Melvin L. Schweitzer, J.

This action arises out of a construction contract dated March 30, 1999 between nonparty MNM Construction Corp. (MNM) as contractor, and defendant Faldan Realty Co. (Faldan Realty) as owner, for the construction of a six-story residential and commercial condominium building on Avenue D in Manhattan. Plaintiff MCC Development Corp. (MCC) is the purported assignee under the contract.

Defendants seek dismissal of all causes of action in the complaint or, in the alternative, summary judgment, and also a consequent order discharging and cancelling a mechanic's lien on the property. For the reasons set forth below, defendants' motion for dismissal of the complaint is granted.

Background

Defendants Faleh Hamdan (Hamdan) and Daniel Perla (Perla) are partners of Faldan Realty, a real estate development partnership (Complaint, ¶¶ 5-6). Mr. Hamdan is the sole owner of the property located at 71-75 Avenue D, New York, NY (the Avenue D Property) (id., ¶ 8). Defendant 71-75 Avenue D, LLC (71-75 Avenue D) is the owner of the street level retail unit located at the Avenue D Property (the Supermarket Premises) (id., ¶ 16). [*2]

MCC alleges it is "assignee to all rights, title and interest to any all claims belonging to" MMM Construction Corp. (MMM), another non-party entity, by an assignment dated December 1, 2005 pertaining to the construction work performed at the Avenue D Property, including the right to foreclose on all mechanic's liens filed against such property by MMM (id., ¶ 2; see Aff. of William Thomas, Exh B [attaching copy of assignment from MMM to MCC, assigning rights to all claims MMM has with respect to the construction work performed on the Avenue D Property]).

MCC further alleges that in April 1999 MMM entered into a construction contract with Faldan Realty (the Construction Contract), whereby MMM agreed to provide the labor and materials for the construction of a six-story residential and commercial condominium building on the Avenue D property, known as "Perla's Pueblo Condominium," at the agreed price of $4,000,000 (id., ¶ 27). According to MCC, MMM also agreed to furnish and provide the labor and materials for the Supermarket Premises at the agreed price of $1,816,000, which is encompassed within the $4,000,000 total contract price (id., ¶ 11).

All the claims in the complaint, including the mechanic's lien, are predicated upon Faldan Realty's alleged breach of contract by failing to pay MMM (id., ¶¶ 11, 27, 38). Specifically, MCC alleges that throughout the course of construction, Messrs. Perla and Hamdan, and Faldan Realty agreed to change orders for MMM to perform additional work, labor and services and to provide additional materials in the amount of $1,411,894, for a total contract price of $5,411,894 (id., ¶¶ 29-31). According to MCC, $953,067 of the total contract price remains unpaid, and defendants Faldan Realty, and Messrs. Perla and Hamdan are in breach of their obligation to pay that amount to MMM (id., ¶¶ 34-36).

With respect to the Supermarket Premises, MCC also alleges that Faldan Realty failed to pay $750,000 of the $1.8 million owed to MMM (id., ¶ 15). On October 4, 2005, MMM filed a mechanic's lien against the Supermarket Premises owned by defendant 71-75 Avenue D (id., ¶ 20).

The complaint contains three causes of action. The first seeks foreclosure of the $750,000 mechanic's lien filed by MMM against the Supermarket Premises owned by defendant 71-75 Avenue D. The second is for breach of the construction contract and seeks damages in the amount of $953,067.89 from Faldan Realty, and from Messrs. Perla and Hamdan individually, the two general partners of Faldan Realty. The third cause of action is for unjust enrichment and seeks the same amount against the same defendants as in the breach of contract cause of action.[FN1]

[*3]DiscussionStanding

Defendants seek dismissal of the breach of contract cause on the ground that MCC has no standing to assert this claim. Their various contentions in this regard lack merit.

Defendants argue, first, that although MCC alleges it is the assignee of MMM's rights under the Construction Contract, MMM actually was not a party to that contract because it was entered into between Faldan Realty and non-party MNM (see Construction Contract at 1, defining "Owner" as Faldan Realty, and "Contractor" as "MNM Construction Corp."). MCC counters with the affidavit of Mark Nagawiecki, president of MCC, as well as of its purported assignor, MMM. Mr. Nagawiecki asserts that MMM, of which he was the controlling principal, assumed the Construction Contract which initially had been entered into by MNM, and that "MMM's assumption of all rights and responsibilities under the contract was undertaken with the consent of ... Faldan [Realty] ... who at times thereafter treated MMM as the general contractor" (id.). MCC also presents evidence that Faldan Realty consistently issued payments to MMM over the course of the construction period (see Aff. of William A. Thomas, Exh H [attaching copies of checks paid from Faldan Realty to MMM]). It adds evidence that Faldan Realty sent repeated correspondence to MMM pertaining to the construction project and received correspondence and other communications from MMM on the latter's letterhead (see id. [correspondence related to, inter alia, change orders and requests for payment]). Even though MNM was the actual signatory to the Construction Contract, MCC has presented sufficient evidence that MMM was treated by defendants as the contractor in connection with the construction project at issue such that it could assign whatever rights it had under the contract.

Defendants next challenge MCC's standing on the ground that MMM could not assign the Construction Contract to MCC in December 2005 because MMM had been dissolved two years earlier by proclamation of the New York Secretary of State. Records from the Department of State show that a corporation called "M.M.M. Construction Corp.", which had been created on April 23, 1999 around the time the Construction Contract was executed, subsequently was dissolved by proclamation on June 25, 2003 (see Aff. of Thomas Higgins, Exh K). Defendants argue that MMM consequently lacked standing to file and/or assign its liens after it was so dissolved. MCC counters that as of February 19, 2009, the New York Secretary of State reinstated MMM as a corporation and this reinstatement restore MMM's rights nunc pro tunc. According to Mr. Nagawiecki, MMM's dissolution resulted from an administrative failure to pay franchise taxes of which MMM was unaware when it filed the mechanic's lien at issue, and thereafter assigned it to MCC (Nagawiecki Aff., ¶ 5). MCC submits a February 19, 2009 certificate of payment from the New York State Department of Taxation and Finance, duly filed, stating that MMM "has paid all franchise taxes, penalties and interest charges accrued against it" (see Thomas Reply Aff., Exh C). MCC also submits a March 5, 2009 printout from the New York Secretary of State's website reflecting MMM's reinstatement, i.e., that as of that date, MMM was an active corporation once again. (see id.).

Reinstatement automatically arising from payment of outstanding franchise taxes is [*4]retroactive for all purposes. Tax Law § 203-a (7) provides:

[t]he filing of such certificate of consent shall have the effect of annulling all of the proceedings theretofore taken for the dissolution of such corporation under the provisions of this section and it shall thereupon have such corporate powers, rights, duties and obligations as it had on the date of the publication of the proclamation, with the same force and effect as if such proclamation had not been made or published

(see Landau, P.C. v LaRossa, Mitchell & Ross, 11 NY3d 8, 13 [2008] ["Although (appellant) initially lacked capacity to initiate the subject litigation in that it had been dissolved by proclamation of the Secretary of State pursuant to Tax Law § 203-a for failure to pay franchise taxes, this deficiency was cured when (appellant) paid the required fees (see Tax Law § 203-a [7]). Thus (appellant) was restored to the status it had when it was dissolved by proclamation on March 26, 1997"]).

Also, it appears MMM continued to work at the construction site following the dissolution date (see Nagawiecki Aff., ¶ 5), and that Faldan Realty's correspondence to MMM establishes that it continued to do business with MMM after the dissolution date. "Where . . . a corporation carries on its affairs and exercises corporate powers as before, it is a defacto corporation . . . and ordinarily no one but the state may question its corporate existence." (Garzo v Maid of the Mist Steamboat Co., 303 NY 516, 524 parallel citation omitted] 1952 (internal quotation marks omitted)). "It is well established in New York that a company lacking formal corporate status but nonetheless operating as a corporation may be considered a de facto corporation and those who treat the entity as a corporation in regular business dealings may not later deny its corporate status" (L-Tec Electronics Corp. v Cougar Electronic Org., Inc., 198 F3d 85, 87 [2d Cir 1999]). That MMM was dissolved by proclamation for a time, but then was reinstated nunc pro tunc, does not preclude its standing to file or assign its lien in these circumstances.

Defendants argue, finally, that MMM lacks standing because Faldan Realty never provided its written consent to the assignment from MMM to MCC and the Construction Contract required it. The contract provides:

[N]either party to the Contract shall assign the Contract as a whole without written consent of the other. If either party attempts to make such an assignment without such consent, that party shall nevertheless remain legally responsible for all obligations under the Contract.

(Construction Contract, ¶ 13.2.1). Even if a purported assignment of the duty to perform work under the contract required Faldan Realty's written consent, the assignment of MMM's rights to payment in this case is not rendered void or unenforceable by the anti-assignment clause (Sullivan v International Fidelity Ins. Co., 96 AD2d 555, 556 [2d Dept 1983] [an anti-assignment clause does not render the assignment void absent words specifically stating such an assignment would be void, but only permits the obligor to have a claim against the assignor]; accord Almeida Oil Co., Inc. v Singer Holding Corp. [2d Dept 2008]). The anti-assignment provision quoted above specifically contemplates that if an assignment were made in violation of the provision, the assignor would remain legally responsible, but it does not provide that the assignment itself would be void. Further, even if Faldan Realty, as obligor to the assignment of payment, did not [*5]receive specific notice of the assignment of MMM's rights to payment, that is not of consequence. "[N]otice to the obligor is not required for an effective assignment, except to defeat a subsequent bona fide payment by the obligor" ( Sillman v Twentieth Century-Fox Film Corp., 3 NY2d 395, 402 [1957]; accord Sony Corp. of America v Nathanson, 193 AD2d 513 [1st Dept 1993]).

Conditions Precedent; Dismissal

Notwithstanding MCC's standing to bring suit here, the action must be dismissed because MCC failed to comply with two separate conditions precedent of the Construction Contract prior to asserting its claims.

The Construction Contract is based on the standard form of contract promulgated by the American Institute of Architects, the 1997 Edition A101/202 (see Perla Aff., ¶ 4; Exh A). The contract sets forth two express conditions precedent to any claims under the contract. First,

Claims ... shall be referred initially to the Architect for decision. An initial decision by the Architect shall be required as a condition precedent to mediation, arbitration or litigation of all Claims between the Contractor and Owner.

(Construction Contract, ¶ 4.4.1). Second, the contract provides that any claims "arising out of or relating to the Contract" shall be subject to mediation as a "condition precedent to arbitration or the institution of legal or equitable proceedings by either party" (Construction Contract, ¶ 4.5.1). Claims under the Construction Contract that are not resolved by mediation then must be brought before the American Arbitration Association in accordance with the AAA's Construction Industry Arbitration Rules (id., ¶ 4.6.1) (cf. Insurance Corp. of New York v Kenning Mgt. of CT, LLC, 60 AD3d 420 [1st Dept. 2009] [individual defendants could not compel arbitration as third-party beneficiaries of management agreement between corporate parent and consulting and management company, since plaintiff's claim for unjust enrichment against defendants did not arise under that agreement]). In this case, in contrast, the unjust enrichment claim directly arises out the contract, and hence, must be referred for mediation and then arbitration prior to filing suit.[FN2] [*6]

All of MCC's claims arise out of or relate to the Construction Contract. MCC's first cause of action is to foreclose the mechanic's lien for work done on the Supermarket Premises in connection with the Construction Contract (see Complaint, ¶¶ 11, 15). An action to foreclose a mechanic's lien essentially is one for breach of contract (see Stokes v Johnston, 138 AD2d 481 [2d Dept 1988]; see also Edward Joy Co., Inc. v McGuire & Bennett, Inc., 199 AD2d 1015 [4th Dept 1993] [the same facts and law underlie claims for breach of contract and foreclosure of a mechanic's lien]). The first cause of action on the mechanic's lien thus clearly arises out of the Construction Contract. The second cause of action is for breach of the Construction Contract itself. The third cause of action for unjust enrichment seeks payment for construction services allegedly performed under the Construction Contract (see Complaint, ¶¶ 38-40), and is brought against the same defendants and seeks the same amount in damages ($953,067.89) as does the breach of contract cause.

Each of MCC's claims thus emanates from the Construction Contract and is subject to its express conditions precedent, yet nothing in the complaint alleges MMM, as MCC's assignor, ever referred any of its claims to the Architect. Mr. Perla asserts in his affidavit, "[n]o one — not MMM ... MNM ... [or] MCC ... ever did, in fact, refer any claim at all under the Construction Contract to the Architect, Susan Melamud, much less the claims upon which the Complaint is based" (Perla Aff., ¶ 8). No issue is taken with this statement. Likewise, nothing is alleged to dispute Mr. Perla's assertion "[n]o one on the construction side has ever sought mediation or arbitration under the Construction Contract." (Id., ¶ 9).

An express condition precedent must be "literally performed" before a claimant may seek to recover on a contract (Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, 690 [1995]; Preferred Mortgage Brokers, Inc. v Byfield, 282 AD2d 589, 590 [2d Dept 2001]). If the plaintiff has failed to perform an express condition precedent, then the complaint must be dismissed (id.; see e.g. National Fuel Gas Distrib. Corp. v Hartford Fire Ins. Co., 28 AD3d 1169, 1170 [4th Dept 2006] [court dismissed causes of action relating to surety bond on the ground that notice requirement contained in bond "is an express condition that must be literally performed' or satisfied before defendant is obliged to perform' its obligations under the bond (citation omitted)"]).

Although MCC has conceded on this motion that it failed to comply with the two express conditions precedent under the Construction Contract (see Pl Mem., at 7-10), it claims that three discrete lawsuits somehow constitute defendants' waiver of these conditions. This argument fails.

The first litigation MCC asserts as a "waiver" is the Brooklyn Action (n 1 supra). But no defendant here was a party to, or participated in, the Brooklyn Action. DPA, the plaintiff in the Brooklyn Action, is an entirely separate limited partnership with no connection to this action. Indeed, DPA's lack of connection to the Brooklyn Action was the factor that led to the unanimous reversal of the consolidation order by the Appellate Division, Second Department (see Higgins Aff., Exh G).

MCC also claims an earlier summary proceeding to discharge the mechanic's lien (the Lien Proceeding) filed by only one of the defendants herein, 71-75 Avenue D, constitutes a [*7]waiver. The Lien Proceeding, however, was dismissed on purely procedural grounds, and it was narrowly brought under a specific provision of the Lien Law (Lien Law § 19) and did not purport to address the Construction Contract or any of the factual or legal issues surrounding the contract (see Thomas Aff., Exh P).

Finally, MCC claims that because it has sued the defendants here, defendants' "participation" in this lawsuit constitutes a waiver of the condition precedents by Faldan Realty, and Messrs. Perla and Hamdan, particularly the arbitration condition. Defendants, however, expressly raised MCC's failure to fulfill the contractual conditions precedent in their answer as the Twelfth Affirmative Defense (Answer, ¶ 17). With respect to the mediation and arbitration condition precedent, defendants expressly asserted as their Tenth Affirmative Defense: "The Complaint should be dismissed because there is a valid and binding arbitration agreement which bars this lawsuit" (id., ¶ 15). In Stark v Molod Spitz DeSantis & Stark, P.C. (9 NY3d 59, 67 [2007]), the Court of Appeals stated that " not every foray into the courthouse effects a waiver' (citation omitted)." Rather, a party's participation in the lawsuit must manifest an "affirmative acceptance'" of the judicial forum and must be " inconsistent with a later claim that only the arbitral forum was satisfactory' (citation omitted)" (id. at 67). Here, defendants have done nothing inconsistent with the conditions precedent in the Construction Contract generally, or the duty of MCC to arbitrate any disputes in particular. They raised the conditions precedent as affirmative defenses in their answer and, at an early stage of the litigation, in April 2008, only months after the file was sent back to New York County by the clerk of the Brooklyn Supreme Court, they sought the permission of Justice Ira Gammerman to move either for dismissal or for summary judgment. They did so again in September 2008, after this case was reassigned to Justice Herman Cahn (see Higgins Reply Aff., ¶¶ 13-15 and Exhs E [letter to Justice Gammerman] and F [letter to Justice Cahn]). It clearly is permissible for defendants to "have the sufficiency of a complaint tested" by moving to dismiss without such motion constituting a waiver of arbitration (Flynn v Labor Ready, Inc., 6 AD3d 492, 493 [2d Dept 2004] [holding that defendant did not waive its right to compel arbitration by serving a motion to dismiss]). There is no support for MCC's argument that defendants waived the contractual conditions precedent, nor is there any evidence that defendants manifested an intention to participate solely in this court. MCC's failure to comply with the express conditions precedent to the Construction Contract thus mandates dismissal of this action (see Oppenheimer & Co. v Oppenheim, Appel, Dixon & Co., 86 NY2d 685, supra; Preferred Mortgage Brokers, Inc. v Byfield, 282 AD2d 589, supra).

The court has considered the remaining arguments and finds them to be without merit.

Accordingly, it is hereby

ORDERED that the motion to dismiss is granted and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk of the Court; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: May , 2009

ENTER:

___________________________________

J.S.C Footnotes

Footnote 1: There is a related lawsuit pending in Supreme Court, Kings County between nonparties to this action. In August 2005, Daniel Perla Associates (DPA) filed a commercial foreclosure suit (the Brooklyn Action) against 101 Kent Associates, Inc. (101 Kent), based on 101 Kent's failure to make payments due under a note and mortgage for $350,000 secured by property located at 101 Kent Avenue in Brooklyn. 101 Kent is wholly-owned by nonparty Mark Nagawiecki, who is the sole shareholder of MCC, the plaintiff here. In January 2006, DPA moved for summary judgment seeking dismissal of 101 Kent's affirmative defenses and counterclaims, and for a judgment of foreclosure and sale.

MCC filed this action after DPA moved for summary judgment in the Brooklyn Action, but prior to a decision on the motion there. 101 Kent then cross- moved for consolidation of the Brooklyn Action with the action here. In a decision dated May 11, 2006, the Brooklyn court denied DPA's motion for summary judgment of foreclosure and granted the cross-motion for consolidation. In June 2006, DPA appealed to the Appellate Division, Second Department. By decision and order dated May 8, 2007, the appellate court reversed the Brooklyn court. It unconsolidated the two actions, dismissed all of 101 Kent's affirmative defenses and counterclaims, and directed summary judgment of foreclosure in favor of DPA.

Footnote 2:In any event, the unjust enrichment claim would have to be dismissed because it is a quasi contractual claim that is barred when there is an express contract at issue that governs the subject matter of the unjust enrichment claim (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987] ["The existence of a valid and enforceable written contract governing a particular subject matter ordinarily precludes recovery in quasi contract for events arising out of the same subject matter"]; see also Goldstein v CIBC World Markets Corp., 6 AD3d 295, 296 [1st Dept 2004] ["A claim for unjust enrichment, or quasi contract, may not be maintained where a contract exists between the parties covering the same subject matter"]). Because MCC's third cause of action for unjust enrichment is based solely upon the Construction Contract and the construction services allegedly performed thereunder, it would have to be dismissed if the dispute were not dismissed due to the failure to comply with the condition precedents referred to above (see e.g. Commercial Tenant Servs. v First Union Natl. Bank, 305 AD2d 210, 211 [1st Dept 2003] ["The claim for unjust enrichment was properly dismissed since a valid contract exists governing the subject matter in dispute"]; Scavenger, Inc. v GT Interactive Software Corp., 289 AD2d 58, 59 [1st Dept 2001] ["since the matters here in dispute are governed by an express contract, defendant's counterclaim for unjust enrichment was properly found untenable"]).