Brady v VIL Realty LLC

[*1] Brady v VIL Realty LLC 2010 NY Slip Op 51863(U) [29 Misc 3d 1217(A)] Decided on October 29, 2010 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 October 29, 2010
Supreme Court, Kings County

Daniel Brady, Plaintiff,

against

VIL Realty LLC, and Prudential Abstract Corp., Defendants.



14180/10



Attorney for Plaintiff:

Lawrence A. Omansky, Esq.

51 Warren Street, #1W

New York, NY 10007

Attorney for Defendant:

YevgenyTsyngauz, Esq.

Tsyngauz & Associates, PC

18 West 21st Street, 3rd Floor

New York, NY 10010

Carolyn E. Demarest, J.

Plaintiff commenced this action against VIL Realty LLC and Prudential Abstract Corp. alleging causes of action sounding in breach of contract, unjust enrichment, breach of the implied covenant of good faith and fair dealing and cruel and unusual punishment. Plaintiff brought an Order to Show Cause seeking "specific performance" of an escrow agreement and for sanctions for failure to act in good faith. Defendants opposed the motion and cross-moved to dismiss the complaint pursuant to CPLR 3211(a)(7). Defendants' cross-motion must be granted.

Background

Plaintiff Daniel Brady entered into a contract to sell property located at 346 54th Street, Brooklyn, NY to VIL Realty LLC ("VIL"). An escrow agreement ("Agreement") was created at the closing on March 11, 2010 to ensure the payment and removal of numerous Department of Housing Preservation and Development ("HPD") judgments, lis pendenses "other than those which require construction or other work to correct," Environmental Control Board ("ECB") and Department of Buildings ("DOB") charges, and emergency repair charges filed against the property and the plaintiff prior to March 11, 2010. The escrow agent, defendant title company, Prudential Abstract Corp., was authorized to use the escrow funds to pay the encumbrances on the property upon plaintiff seller's direction (Agreement Paragraph 1). Pursuant to Paragraph 2 of the Agreement, if all encumbrances were not removed within 60 days of the Agreement, then the escrow agent is "authorized and directed, upon ten (10) days prior notice to seller,[sic] of [*2]notice or demand by Purchaser[,] to pay and disburse to Purchaser so much of the Deposit as may be necessary to pay, satisfy and discharge Encumbrances in full. Once all Encumbrances are paid in full, Escrow Agent may refund any surplus or balance to Seller, without interest" (Agreement Paragraph 2). According to plaintiff's attorney, Lawrence Omansky, he has resolved all of the HPD judgments and lis pendenses filed against the property as well as several emergency repair, ECB, and DOB charges and approximately 90% of all encumbrances have been resolved. According to plaintiff's other attorney, Dana Gallo, the outstanding charges arising from the remaining encumbrances are approximately $6,746.18. According to Mr. Omansky, "the remaining ECB violations are still being litigated" and plaintiff is "actively pursuing the removal" of the remaining fines and penalties.

In the verified complaint, plaintiff seeks a money judgement for $117,422.23, less the amount of any remaining encumbrances estimated to be $6700. Plaintiff is retired and currently lives in a homeless shelter. Plaintiff argues that VIL has no reason to retain the entire amount in escrow as only $6,746.18 in encumbrances remain to be resolved and plaintiff has "consented to either the payment to Defendant of the outstanding encumbrances totaling a maximum of approximately $6,700.00 and/or the holding of even double that amount in escrow pending clearance of same, as long as defendant releases the balance of said $117,422.23 dollars to [plaintiff] and the Broker." Plaintiff also argues that since 60 days have passed from the date of the Agreement, VIL has the right to demand that the escrow agent disburse escrow funds so that VIL can satisfy the remaining encumbrances themselves, which would free the balance of the funds in escrow for the plaintiff. Plaintiff argues that since VIL refuses to exercise this right and continues to hold the funds when 90% of the encumbrances have been satisfied, VIL breached their contract and the implied covenant of good faith and fair dealing. In his Order to Show Cause and Verified Complaint, plaintiff also requests sanctions of $5,000 and attorney's fees of $3,500 for having to initiate this action due to VIL's failure to act in good faith.

VIL argues in its cross-motion that plaintiff could direct the escrow agent to pay off the remaining encumbrances with the escrow funds himself, pursuant to Paragraph 1 of the Agreement, thereby allowing the escrow agent to release any surplus funds to the plaintiff. However, the plaintiff has chosen not to do so. VIL also argues that pursuant to Paragraph 2 of the Agreement, plaintiff is to be refunded any remaining balance in the escrow account "[o]nce all encumbrances are paid in full" and the plaintiff has admitted that the encumbrances have not been paid in full. Therefore, VIL argues that plaintiff is not entitled to relief under a breach of contract theory since he has only satisfied approximately 90% of the encumbrances.[FN1] Furthermore, VIL, citing Sheth v New York Life Ins. Co., (273 AD2d 72 [1st Dept 2000]), argues that plaintiff cannot obtain relief under a breach of implied covenant of good faith and fair dealing cause of action because that claim "may not be used as a substitute for a nonviable claim for breach of contract" (Sheth at 73).

Discussion

In an unsigned affirmation, Mr. Omansky contends that defendants' cross-motion must be [*3]denied because defendant failed to timely serve the notice of motion pursuant to CPLR 2214(b). Defendants' notice of cross-motion and supporting papers were filed and mailed to plaintiff's counsel by first class mail on July 8, 2010 and made returnable on July 14, 2010. Plaintiff claims that pursuant to CPLR 2214(b), the notice of motion must be served "at least eight days before the time at which the motion is noticed to be heard." VIL argues that the service of cross-motions is governed by CPLR 2215 and since plaintiff did not demand that defendants serve any notice of a cross-motion at least seven days before the date on which the underlying motion was to be heard in their order to show cause, defendants were permitted to serve their cross-motion by mail six days prior to the return date.

Service of cross-motions is governed by CPLR 2215 and plaintiff's order to show cause did not demand that defendants serve any notice of a cross-motion at least seven days before the return date pursuant to CPLR 2215. Accordingly, pursuant to CPLR 2215, defendant was required to serve notice of a cross-motion upon plaintiff at least three days prior to the return date. Where such notice was served by mail, service must be completed at least six days before the return date (CPLR 2215[a]). As defendant mailed the notice of cross-motion on July 8, 2010, six days before the July 14, 2010 return date, the cross-motion was timely served pursuant to CPLR 2215(a). In any event, the argument was adjourned for two weeks so as to afford plaintiff a full opportunity to oppose.

"When a motion to dismiss is made pursuant to CPLR 3211(a)(7), . . . we assume the truthfulness of the factual allegations of the pleading and determine simply whether the allegations make out any cognizable cause of action. However, when such motion is supported by evidence extrinsic to the petition/complaint, the inquiry becomes whether the petitioner indeed has a cause of action, not simply whether he or she has stated one in the petition/complaint, and the petitioner no longer can rely only on the unsupported factual allegations of the pleading, but must submit evidence demonstrating the existence of a cause of action" (Matter of La Barbera v Town of Woodstock, 29 AD3d 1054, 1055 [3rd Dept 2006](citations omitted)).

This is a simple case of contract interpretation. Paragraph 2 of the Agreement expressly provides that if all encumbrances are not removed by seller within 60 days of the date of the Agreement, the escrow agent "is authorized and directed [upon notice to seller] to pay and disburse" to buyer sufficient funds to pay, satisfy and discharge all encumbrances in full. Only after all encumbrances are paid in full, may the surplus or balance be paid to plaintiff. Under paragraph 1 of the Agreement, plaintiff "may direct escrow agent to use the deposit funds to pay the Encumbrances described." Accordingly, the plaintiff is empowered to direct the escrow agent to pay off the remaining encumbrances and thereby become entitled to receive any surplus funds pursuant to paragraph 2 of the Agreement. However, the plaintiff has chosen not to pursue this option and has instead challenged some of the remaining encumbrances in what appears to be an attempt to maximize his proceeds from the sale. As the plaintiff is still capable of receiving the surplus funds by his own independent actions, as contemplated under the clear terms of the Agreement, VIL has not deprived the plaintiff of the right to receive this benefit.

Paragraph 2 of the Agreement unequivocally provides that "[o]nce all Encumbrances are paid in full, Escrow Agent may refund any surplus or balance to Seller, without interest." Plaintiff has admitted that the encumbrances have not been paid in full to date. Therefore, [*4]plaintiff has not performed the condition precedent to his right to the funds in escrow and is not entitled to the release of the funds under the express language of paragraph 2 of the Agreement. As plaintiff has not therefore alleged that the defendants have breached the contract, the complaint must be dismissed pursuant to CPLR 3211(a)(7) (see JP Morgan Chase v J.H. Elec. of NY, Inc., 69 AD3d 802, 803 [2d Dept 2010]). To the extent that plaintiff seeks the release of escrow funds under a claim for a breach of an implied covenant of good faith and fair dealing, an obligation cannot be implied "which would be inconsistent with other terms of the contractual relationship" (Sheth at 73; see also D & L Holdings, LLC v RCG Goldman Co. LLC, 287 AD2d 65, 73 [1st Dept 2001] holding that "[t]he covenant of good faith and fair dealing cannot be used to add a new term to a contract, especially to a commercial contract between two sophisticated commercial parties represented by counsel"). Granting relief to plaintiff at this time would be inconsistent with the terms of paragraph 1 and 2 of the Agreement which specifically requires the satisfaction of all encumbrances before release of the escrow funds to the plaintiff. Granting the partial distribution of escrow funds would be inconsistent with the terms of the Agreement (see D & L at 73).[FN2]

As to plaintiff's remaining contentions, as there is a valid contract and escrow agreement that govern the issue in dispute, a claim of unjust enrichment is precluded (see EBC I, Inc. v Goldman Sachs & Co., 5 NY3d 11, 23 [2005], citing Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382 [1987], holding "the existence of a valid contract governing the subject matter generally precludes recovery in quasi contract for events arising out of the same subject matter"). Plaintiff's inartfully pled second cause of action, sounding in breach of contract, failure to act in good faith, and cruel and unusual punishment, which seeks sanctions and attorneys fees, is partially duplicative of the first cause of action. The allegation of cruel and unusual punishment is inapplicable to this breach of contract claim. Accordingly, the defendants' cross-motion is granted and the complaint is dismissed.

Plaintiff's meritless motion for sanctions and attorney's fees is denied.

Conclusion

Plaintiff's motion for the distribution of escrow funds, sanctions and attorney's fees is denied. Defendants' cross-motion to dismiss the complaint is granted.

ENTER:

J.S.C. Footnotes

Footnote 1: Annexed to the complaint is correspondence from VIL's law firm suggesting that VIL intends to refinance the property and the escrow account is necessary to demonstrate to the bank that someone else is undertaking to remove the encumbrances and they are not VIL's responsibility.

Footnote 2: It is noted that, upon argument, defendant agreed to the immediate release of $10,000 of the escrow fund to plaintiff, which has been done.