ORE Intl. LLC v 822 McDonald Ave. LLC
Annotate this CaseDecided on July 2, 2009
Supreme Court, Kings County
ORE International LLC, Plaintiff,
against
822 McDonald Avenue LLC, Defendant.
31287/08
Attorney for Plaintiff
Jeffrey M. Schwartz, Esq.
16 East 34th Street, 16th Floor
New York, NY 10016
Attorney for Defendant
Marc Wohlgemoth, Esq.
235 North Main Street
Spring Valley, New York 10977
Carolyn E. Demarest, J.
In this action by plaintiff Ore International LLC (plaintiff) against 822 McDonald Avenue LLC (defendant) for specific performance of a contract for the sale of real property, defendant moves for an order, pursuant to CPLR 3211 (a) (1) and (7), dismissing plaintiff's complaint and striking the notice of pendency filed against the subject real property, as well as for a declaratory judgment finding plaintiff to be in default under the terms of the real property contract and that plaintiff has forfeited the down payment tendered by it in connection therewith. Plaintiff cross-moves, pursuant to CPLR 3025 (b), for leave to serve its proposed amended complaint.
On June 16, 2008, plaintiff and defendant entered into a contract, whereby plaintiff agreed to purchase and defendant agreed to sell commercial real property located at 1199 Atlantic Avenue, in Brooklyn, New York. The purchase price for the property was $3,300,000. On the execution of the contract, plaintiff tendered a down payment in the amount of $165,000, which was deposited into defendant's attorney's escrow account. Paragraph 5.2 of the contract provided that plaintiff was to [*2]order and deliver to defendant a title report containing any and all exceptions to the marketability of the title to the property.
Paragraph 9 of the contract, entitled "Condition of the Property," provided, in paragraph 9.1, as follows:
"9.1 AS IS. Buyer represents that Buyer (a) has inspected
all aspects of the Property, including the environmental
condition, to Buyer's satisfaction . . . (c) shall accept the
Property AS IS' and in [its] present condition, subject to
reasonable use, wear, tear and natural deterioration
between the date of this Agreement and the Closing Date
and (d) except as set forth in this Agreement, neither
Seller nor any agent or representative of Seller has made,
and Seller is not liable for or bound by, any express or
implied warranties, guarantees, promises, statements,
inducements, representations or information pertaining
to . . . the Property, including the environmental condition,
or any other matter."
Paragraph 9.4 of the contract, in pertinent part, provided:
"9.4 Environmental Claims. Seller shall have no
obligation or liability to Buyer in connection with any
environmental matter affecting the Property, and
Buyer hereby releases Seller . . . from any claim relating
thereto . . ."
Paragraph 16.2 of the contract provided:
"Merger; No Representations. All agreements
between the parties hereto with respect to the transaction
contemplated by this Agreement are merged in this
Agreement, which alone fully and completely expresses
their agreement. This Agreement is entered into after full
investigation, no party relying upon any statement or
representation, not set forth in this Agreement,
made by any other party."
Paragraph 5 of the rider annexed to the contract, also dated and executed on June 16, 2008, provided that the closing of title was to occur on or about 90 days from June 16, 2008. This paragraph further provided that in the event plaintiff was unable or unwilling to close within 90 days, it would be entitled to a 30-day extension at a pro-rata cost of $10,000 per month, which was required to be paid to defendant no later than 95 days from June 16, 2008. This paragraph additionally provided that if plaintiff did not close within 120 days from June 16, 2008, then it would be required to pay defendant a pro-rata extension fee in the amount of $14,000 per month. This [*3]paragraph expressly stated: "TIME IS OF THE ESSENCE as to all parties to close within 150 days from [June 16, 2008]," i.e., November 13, 2008.
Paragraph 11.1 of the contract and paragraph 3 of the rider to the contract both provided that if plaintiff defaulted under the contract, defendant's sole remedy would be to retain plaintiff's down payment as liquidated damages. Paragraph 11.2 of the contract and paragraph 3 of the rider to the contract provided that in the event of defendant's default, plaintiff's remedy would be to seek specific performance of defendant's obligations under the agreement or to terminate the agreement and have the escrow agent return its deposit, and all available remedies at law and in equity.
By letter dated November 10, 2008, defendant's attorney advised plaintiff's attorney that based on the contract provision that time shall be of the essence as to all parties 150 days after the contract date, plaintiff was being placed on notice that November 15, 2008 was 150 days from the contract date and that time is of the essence as to plaintiff's requirement to close, as per the express terms of the contract. Defendant's attorney, in that letter, further stated that defendant has been and presently was ready, willing, and able to close on that date. Defendant's attorney, in that letter, specifically advised plaintiff's attorney that "[f]ailure to comply with this notice shall be considered a material default."
In a follow-up letter dated November 12, 2008, defendant's attorney noted that the November 15, 2008 time is of the essence date stated in his earlier November 10, 2008 letter was erroneous since it was on a Saturday and more than 150 days from the contract date. Defendant's attorney, in this letter, further noted that 150 days from the contract date was actually November 13, 2008, but because of the confusion, he restated the time is of the essence closing date as Monday, November 17, 2008.
By letter dated November 13, 2008 to defendant's attorney, plaintiff's attorney acknowledged receipt of the November 12, 2008 "time is of the essence" letter. Plaintiff's attorney stated, in this letter, that he was rejecting this time is of the essence declaration "for a multitude of reasons, most notably for [defendant's] inability to convey title in accordance with the contract and/or certain representations made by [defendant] in respect thereto." Plaintiff's attorney, however, did not refer to any objections to title contained in the title report. Plaintiff's attorney also did not state what the particular representations were, which had been made by defendant, that defendant was unable to convey title in accordance with. Plaintiff's attorney also complained, in this letter, that in light of plaintiff's recent and ongoing negotiations to convert the current contract into a joint venture agreement as well as defendant's attorney's counteroffer as recently as the prior week, defendant's attorney's attempt to declare time of the essence on such short notice "may fall nothing short of bad faith and unfair dealings."
Defendant's attorney, in a letter dated November 14, 2008, in response to plaintiff's attorney's November 13, 2008 letter, stated that plaintiff had failed to close by the date called for in the contract and had further failed to communicate any request for an extension over the course of the last five months. Defendant's attorney, in this letter, noted that plaintiff's attorney, in his November 13, 2008 letter, had failed to specify the "nature of [defendant's] inability to convey title or the representations that [he] alleged that it [wa]s unable to live up to." Defendant's attorney stated that, therefore, the reasons set forth in plaintiff's attorney's November 13, 2008 letter "w[ould] not be entertained as defenses made in good faith." Defendant's attorney further noted that plaintiff's attorney's attempt to state that the contract was in the process of being renegotiated and, as such, not enforceable, was [*4]"ludicrous" because the proposed joint venture agreement was never signed by plaintiff or defendant, and any change to the original contract was required to be in a writing signed by both parties. Defendant's attorney pointed out that any proposed unsigned draft agreement forwarded to plaintiff was never signed or returned by plaintiff. Defendant's attorney stated that, therefore, unless plaintiff proposed a viable settlement, defendant would proceed with a lawsuit.
By a letter dated November 26, 2008, defendant's attorney formally declared plaintiff to be in default under the contract due to plaintiff's failure to appear at a closing on the declared time is of the essence date of November 17, 2008. Defendant asserts that it later learned that plaintiff had filed this action against it on November 14, 2008 (the same date as defendant's attorney's November 14, 2008 letter). Plaintiff also has filed a notice of pendency against the property.
Plaintiff's complaint in this action alleges that "[p]laintiff is ready, willing, and able to perform its obligations under the contract and tender the balance of the purchase price pursuant to the contract," and that "[d]efendant is unwilling and/or unable to convey the property in accordance with the contract and/or representations made by [d]efendant to induce [p]laintiff to execute the contract and purchase the property, by the purported closing date." Plaintiff's complaint seeks specific performance of the contract by defendant.
Defendant, consequently, brought this motion to dismiss and plaintiff, in response, has brought a cross motion for leave to amend its complaint. Plaintiff's proposed amended complaint alleges a first cause of action for specific performance, a second cause of action for a return of its down payment, a third cause of action for breach of contract, and a fourth cause of action for fraud.
Plaintiff, in its proposed amended complaint, now alleges that in connection with the contract, defendant had provided it with a Phase I environmental report, which contained fraudulent misrepresentations with respect to the true condition of the property, namely, with respect to the quantity of asbestos at the property. Plaintiff relies upon this allegation to support all of its proposed causes of action. Specifically, plaintiff's first cause of action for specific performance alleges that defendant is unwilling and/or unable to convey the property in accordance with the representations made by it to induce it to execute the contract. Plaintiff's second cause of action for return of its down payment asserts that defendant was unable to convey the property in accordance with the contract of sale between the parties. Plaintiff's third cause of action alleges that defendant breached the contract due to its misrepresentations in the Phase I environmental report, and plaintiff's fourth cause of action for fraud alleges that the Phase I environmental report was fraudulent.
The actual report, which is referred to by plaintiff as the "Phase I environmental report," upon which plaintiff relies and which it has submitted to the court, was prepared by Singer Environmental Group, Ltd. (Singer), an Environmental Assessment Association certified environmental inspector, for Intevest National Bank (who is a third party unrelated to this action) (the Singer report). The Singer report is dated June 2006 and entitled "visual inspection." The Singer report stated that on May 30, 2006, a walk-thru visual inspection was conducted in the cellar areas and first through fourth floors of the property to determine to the extent possible, among other things, the presence of asbestos containing material. The Singer report stated with respect to the first floor front room, "[s]uspect a[sbestos] c[ontaining] m[aterial] non friable 9" x 9" floor tile." The Singer report further stated that "[c]eiling and floor tile which may contain asbestos are not required to be removed due to their non-friable' state."
The Singer report expressly provided: [*5]
"PLEASE NOTE: No core samples were taken of any walls,
ceilings, drop ceilings, structural beams, floorings, etc.,
unless so noted. Any unexposed [asbestos containing
material] contained within these structures, per
E.P.A. guidelines, pose no health hazards in its present
encapsulated state."
The Singer report also stated that Singer "has conducted this visual inspection as an aid in determining the presence of asbestos containing materials," but that "[c]onclusions drawn are not to be considered as a warranty or guarantee, and are based solely upon those areas directly visible and observable."
Plaintiff alleges that in or about November 2008, it discovered that contrary to the representations contained in the Singer report with respect to the quantity of asbestos at the property, the property is saturated with asbestos. Plaintiff bases this allegation on a letter dated November 17, 2008 by Carl Lashley, a certified asbestos investigator, which enclosed a copy of the bulk sample results taken on November 13, 2008 from the property (the Lashley letter). Carl Lashley states in the Lashley letter, that he conducted an asbestos inspection and collected bulk samples of all suspected asbestos containing material in the four-story building, and that the bulk samples were analyzed by Ameri Sci New York ELAP No. 11480. The Lashley letter sets forth that the results indicated that all material tested contains asbestos in the range of 1.6% to 22.3%. A table summarizing the analysis results states that there was 20.5% and 19.9% asbestos in two samples from the roof-bulkhead/flashing material, 1.6% asbestos in the sample from the fourth floor chimney, and 22.3% and 19.9% asbestos in two samples from the floor tiles on the first floor.
Plaintiff contends, based upon the additional asbestos found in the samples taken on November 13, 2008, that the Singer report contained fraudulent misrepresentations with respect to the quantity and extent of asbestos on the property. Specifically, plaintiff characterizes the Lashley letter as showing that the property was "riddled with friable asbestos containing materials," whereas the Singer report had only revealed suspected asbestos in non-friable floor tiles in the first floor front room and had concluded that any tiles containing asbestos would not need to be removed due to their "non-friable" state. Plaintiff alleges that it relied upon defendant's representations in the Singer report with respect to the environmental condition of the property as it related to the presence of asbestos at the property in entering into the contract. Plaintiff asserts that the true condition of the property, as well as its resulting value, significantly undermined the nature of the agreement between the parties and has caused it to sustain damages, i.e., the loss of $165,000 (the amount of its down payment).
Defendant asserts, and plaintiff does not deny, that plaintiff never stated at any time prior to the onset of defendant's motion, that the reason for its unwillingness to close was due to asbestos. In fact, the letters between the parties regarding the failure to close, which have been submitted to the court, do not contain any mention of asbestos. Moreover, the Lashley letter which revealed the presence of asbestos at the property was dated November 17, 2008, three days after defendant's November 14, 2008 letter had already declared that plaintiff had failed to close by the time is of the essence closing date, four days after the November 13, 2008 time is of the essence closing date stated in the contract had passed, and four days after plaintiff's own November 13, 2008 letter had already [*6]stated its refusal to close. Plaintiff offers no explanation as to how it could have refused to close on the basis of the Lashley letter on November 13, 2008 when it had not yet been written on that date.
Additionally, an indispensable element of a fraud claim is scienter (see Crafton Bldg. Corp. v St. James Constr. Corp., 221 AD2d 407, 408 [1995]; P. Chimento Co. v Banco Popular de Puerto Rico, 208 AD2d 385, 385 [1994]; Hausler v Spectra Realty, 188 AD2d 722, 723 [1992]). Defendant claims that it had no way of knowing of the inaccuracy of the Singer report and had no intent to misrepresent the asbestos condition. While plaintiff's proposed amended complaint conclusorily alleges that defendant knew that the Singer report was untrue, plaintiff does not explain how defendant would have possessed such knowledge. In this regard, the fact that the Singer report was not prepared by or on behalf of defendant, but, instead, had been prepared for a third party more than two years before the contract was executed, does not support plaintiff's claim that the Singer report was given to it by defendant with the intent to defraud it.
Furthermore, in order to state a cause of action for fraud, a plaintiff must show a false representation of a material fact and that its reliance upon that false misrepresentation was reasonable (see Crafton Bldg. Corp., 221 AD2d at 408; P. Chimento Co., 208 AD2d at 385; Hausler, 188 AD2d at 723). In this case, the Singer report itself did not state that core samples were taken from the roof-bulkhead or chimney areas of the property where the Lashley letter found asbestos and (as set forth above) expressly stated that the conclusions drawn were "not to be considered as a warranty" and were "based solely upon those areas directly visible and observable." Thus, plaintiff cannot show that the Singer report contained a material false representation or that its reliance on the Singer report was reasonable (see Masters v Visual Bldg. Inspections, 227 AD2d 597, 598 [1996]).
Moreover, New York adheres to the doctrine of caveat emptor which, in essence, requires that a purchaser of real property conduct its own due diligence with respect to the condition of the property it is seeking to purchase (see Matos v Crimmins, 40 AD3d 1053, 1054-1055[2007]). Therefore, in order to maintain an action for fraudulent misrepresentation, a buyer must demonstrate that the seller thwarted its efforts to conduct its own due diligence (see id.; Jablonski v Rapalje, 14 AD3d 484, 485 [2005]). Here, plaintiff does not allege that its efforts to conduct its own investigation of the property were thwarted by defendant.
In any event, where the contract specifically disclaims the existence of warranties or representations, a cause of action alleging breach of contract or fraud in the inducement based on such a warranty or representation cannot be maintained (see Danann Realty Corp. v Harris, 5 NY2d 317, 320-321 [1959]; Simone v Homecheck Real Estate Servs., Inc., 42 AD3d 518, 521 [2007]; Fabozzi v Coppa, 5 AD3d 722, 723-724 [2004]; Bedowitz v Farrell Dev. Co., 289 AD2d 432, 432-433 [2001]; Busch v Mastropierro , 258 AD2d 492, 493 [1999]; Masters, 227 AD2d at 597-598; Rudnick v Glendale Sys., 222 AD2d 572, 573 [1995]; Weiss v Shapolsky, 161 AD2d 707, 707-708 [1990]. This is because the presence of this specific disclaimer clause "is inconsistent with the contention that [the] plaintiff relied upon the misrepresentation, and was led thereby to make the contract" (Danann Realty Corp., 5 NY2d at 322 [internal quotation marks and citation omitted]).
Here, paragraph 16.2 of the contract expressly provided that no party was relying upon any statement or representation, not set forth in the contract, made by any other party, and the contract made no reference to the Singer report. Moreover, in paragraph 9.1 of the contract, plaintiff specifically represented that it had inspected the environmental condition of the property to its satisfaction and accepted it "as is." In addition, paragraph 9.1 of the contract expressly stated that [*7]defendant did not make any "express or implied warranties, guarantees, promises, statements, inducements, representations or information pertaining to . . . the . . . environmental condition [of the property]." Paragraph 9.4 of the contract also released defendant from any claim by plaintiff relating to the environmental condition of the property.
Thus, the contract, by its express terms, specifically disclaimed the existence of any warranty or representation as to the environmental condition of the property. These contractual provisions were sufficiently specific to bar plaintiff's claim for breach of contract and its claim that it was fraudulently induced into entering into the contract because of defendant's written representations outside of the contract (see Kagan v Freedman, 55 AD3d 558, 599 [2008]; Rigney v McCabe, 43 AD3d 896, 896 [2007]; Fabozzi, 5 AD3d at 724; Rudnick, 222 AD2d at 573).
While leave to amend a complaint is generally freely granted pursuant to CPLR 3025 (b), such leave must be denied where the allegations contained in the proposed amended complaint are palpably insufficient to defeat a pending motion to dismiss and the causes of action contained therein are patently devoid of merit (see Lucido v Mancuso, 49 AD3d 220, 229 [2008]; Buckholz v Maple Garden Apts., LLC, 38 AD3d 584, 585 [2007]). Here, inasmuch as plaintiff's claims in its proposed amended complaint, which are all predicated on the allegation that the Singer report was fraudulent, are patently without merit, plaintiff's cross motion for leave to amend its complaint must be denied.
Plaintiff, in opposition to defendant's motion, also argues that defendant failed to give proper and reasonable time is of the essence notice to it. Plaintiff asserts that it was unreasonable for defendant to declare time is of the essence on a mere five days' notice.
It is well established that "[w]hat constitutes a reasonable time for performance depends upon the facts and circumstances of the particular case" (Malley v Malley, 52 AD3d 988, 990 [2008] [internal quotation marks and citations omitted]). Here, as noted above, the contract expressly made time of the essence for the closing date of November 13, 2008. Defendant's attorney's November 10, 2008 letter and November 12, 2008 letter simply reiterated the time is of the essence date, as had been agreed upon in the contract, and extended it to November 17, 2008. Thus, the time set by defendant for performance was reasonable (see Ben Zev v Merman, 73 NY2d 781, 783 [1988]).
"When there is a declaration that time is of the essence, . . . each party must tender performance on law day unless the time for performance is extended by mutual agreement" (Grace v Nappa, 46 NY2d 560, 565 [1979]; see also Mosdos Oraysa, Inc. v Sausto, 13 AD3d 838, 840 [2004]; Kaplan v Scheiner, 1 AD2d 329, 330 [1956]). When a party fails to close on the time is of the essence closing date, that party is in default under the terms of the contract (see Bowery Boy Realty, Inc. v H.S.N. Realty Corp., 55 AD3d 766, 768 [2008]; New Colony Homes, Inc. v Long Is. Prop. Group, LLC, 21 AD3d 1072, 1073 [2005]; Mosdos Oraysa, Inc., 13 AD3d at 840).
Here, plaintiff failed to close on the time is of the essence closing date, and was, therefore, in default under the contract. Consequently, pursuant to paragraph 11.1 of the contract and paragraph 3 of the rider to the contract, defendant was entitled to retain plaintiff's down payment as liquidated damages (see Bowery Boy Realty, Inc., 55 AD3d at 768-769; Matos, 40 AD3d at 1055; Long Is. Prop. Group, LLC, 21 AD3d at 1073; Orea v D'Auria, 160 AD2d 694, 694 [1990]). Thus plaintiff's complaint seeking specific performance of the contract must be dismissed (see CPLR 3211 [a] [1], [7]).
Accordingly, defendant's motion for an order, pursuant to CPLR 3211 (a) (1) and (7), dismissing plaintiff's complaint, vacating the notice of pendency against the property, and declaring [*8]that plaintiff is in default under the terms of the contract and that defendant is entitled to retain the down payment tendered by plaintiff as liquidated damages, is granted. Plaintiff's cross motion, pursuant to CPLR 3025 (b), for leave to serve its proposed amended complaint, is denied.
This constitutes the decision, order, and judgment of the court.
E N T E R,
J. S. C.
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