New York City Educ. Constr. Fund v Verizon NY Inc.

[*1] New York City Educ. Constr. Fund v Verizon NY Inc. 2012 NY Slip Op 51142(U) Decided on June 11, 2012 Supreme Court, New York County Kapnick, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 June 11, 2012
Supreme Court, New York County

New York City Educational Construction Fund, Plaintiff,

against

Verizon New York Inc. f/k/a NEW YORK TELEPHONE CO., TACONIC INVESTMENT PARTNERS LCC, TIP ACQUISITIONS LLP, SQUARE MILE CAPITAL, 375 PEARL ASSOCIATES LLC, MANUFACTURERS AND TRADERS TRUST COMPANY, AREFIN US INVESTMENT LENDERS 1 LLC, PAUL PARISER, as Manager of BOARD OF MANAGERS OF 375 PEARL STREET CONDOMINIUM, and DOES 1-100, Defendants.



650193/09



Plaintiff was represented by Jeffrey E. Glen, Dennis J. Nolan and Lawrence J. Bartelemucci, Esqs.,

ANDERSON KILL & OLICK, P.C., 1251 Avenue of the Americas, New York, New York 10020; Tel. 212-278-1000.

Defendant was represented by Randy M. Mastro, Jennifer H. Rearden and Gabriel Hermann, Esqs.,

GIBSON, DUNN & CRUTCHER LLP, 200 Park Avenue, New York, New York 10166; Tel. 212-351-4000.

Barbara R. Kapnick, J.

This action arises out of plaintiff's sale, almost 40 years ago, to New York Telephone Company ("Telco"), the predecessor of defendant Verizon New York Inc. f/k/a New York Telephone Co. ("Verizon"), of a plot of land designated as Block 113, Lot 150 on the Tax Map of New York County, together with certain specified development rights. Plaintiff ("ECF" or the "Fund") is a New York public benefit corporation that was created in 1966 "to facilitate the timely construction of [elementary and secondary] school buildings in combination with other compatible and lawful uses ... of available land." Education Law 451. The Fund develops combined-occupancy structures on land that is conveyed to it by the City of New York (the "City") (see Education Law 452), and finances the construction of schools with the revenue of bonds that, in turn, are financed by its sale of land and development rights to commercial entities.

Directly adjacent to Lot 150 is Lot 100 which ECF owns; this is the site of the Murry Bergtraum High School for Business Careers (the "School Building"). Together, the lots comprise a single zoning lot (the "Combined Zoning Lot"). Under New York City zoning laws, the Combined Zoning Lot is considered a single zoning lot "for zoning calculation and limits", such as the amount of zoning floor area available for development in a particular lot.

[*2]Background

By Agreement made as of July 22, 1971 (the "City-Fund Agreement"), the City agreed to transfer to the Fund the Combined Zoning Lot consisting of real property located at 375 Pearl Street and 411 Pearl Street, for the purpose of building the School Building, and a Telco "multi-story office building and wire equipment center." Prior to this transfer, the City Planning Commission ("CPC") had approved certain zoning variances needed because the proposed Telco building would exceed height and setback limitations set forth in the New York City Zoning Resolution ("Zoning Resolution"), and had issued a Special Permit providing that the building was to be "a million square foot telephone equipment and office building." CPC Approval, at 2863. The Board of Estimate had approved the transfer of this City-owned property, on condition that the Telco building not exceed a height of 544 feet above grade.

By contract of sale dated July 13, 1972 (the "1972 Contract") the Fund agreed to convey to Telco real property located at 375 Pearl Street, certain development rights above that land, and certain development rights above the School Building that would be built at 411 Pearl Street. AC, ¶ 28. In return, Telco was required to pay the Fund $4,278,000 plus 8.25% interest per year on the unpaid balance, payable in quarterly installments over 35 years, to build the telephone building as described in the 1972 Contract and to build the school. AC, ¶ 35. The Contract also provided that after 35 years, the Fund would transfer to Telco title to the land and the appurtenant rights for which Telco had paid (the "Closing").

By Development Agreement, also made as of July 13, 1972, the Fund, Telco, the Chancellor of the City School District, and Pearl Street Development Corporation agreed that the latter would oversee the construction of both the Telco building and the School Building. That agreement provided, among other things, that all parties would have the right to enter upon the construction site at any time to "examine the same for the purpose of inspection to determine whether or not Developer [was] complying with the terms and conditions of this Agreement." Development Agreement, Sec 215.

Construction of the Telco building was completed in 1976. On September 14, 1976, December 7, 1976, and March 8, 1977, the New York City Department of Buildings (the "DOB") issued temporary certificates of occupancy for the building. DOB issued a final Certificate of Occupancy on May 12, 1977, certifying that the building "conforms substantially to the approved plans and specifications and to the requirements of all applicable laws, rules and regulations for the uses and occupancies specified herein." The Certificate of Occupancy specifically notes that at least eight floors of the building were to be used for "Mechanical equipment", "Telephone equipment", or "Office telephone equipment".

In 2007, shortly before the contemplated Closing, Verizon notified the Fund that an architect's survey, which Verizon had commissioned, showed that the building actually occupied 759,200 square feet of Floor Area, rather than the 744,000 square feet which the Contract set as the limit on the Telco building. At that time, Verizon provided the Fund with, at least, the title sheet of a document entitled "Floor Area at Verizon 375 Pearl St. New York, NY," prepared by William Collins, AIA Architects, LLP, and dated November 2005.[FN1] AC, ¶ 68. The title sheet states that the Verizon building occupies a total of 759,200 square feet of Floor Area, "BASED ON NEW YORK ZONING RESOLUTION ARTICLE 1, CHAPTER 2, SECTION 12-10," and that "TELEPHONE EQUIPMENT AREAS HAVE BEEN ASSUMED AS ALLOWABLE EXCLUSIONS TO FLOOR AREA.'". The title sheet also noted that the "FLOOR PLANS SHOULD NOT BE RELIED UPON AS ACCURATE OR REFLECTING CURRENT [*3]CONDITIONS."

On or about July 31, 2007, the Fund and Verizon entered into a third amendment to the 1972 Contract (the "Third Amendment"), which described the real property sold as "including 771,003 square feet of Floor Area, as defined in the Zoning Resolution." Third Amendment, Recital B.2. (which replaced Sec. 101 of the 1972 Contract).[FN2] At the same time, the parties also entered into a Zoning Lot and Easement Agreement (the "ZLDA") and a Bargain and Sale Deed, which transferred to Verizon title to the real property described in the 1972 Contract, as modified by the Third Amendment, and which provided for reciprocal easements. The ZLDA recites that the Verizon building and the school contain, respectively, 759,200 and 219,403 square feet of Floor Area and that there remain 38,807 square feet of unused Floor Area. The ZLDA further recites that

the Parties desire to allocate the Excess Development Rights as follows: 27,004 square feet to the Fund Premises and 11,803 square feet to the [Verizon] Building Premises, so that the Fund Premises shall have a total of 246,407 square feet Floor Area (the "Fund Development Rights"), and the [Verizon] Building Premises shall have a total of 771,003 square feet of Floor Area (the "Office Building Development Rights"), for use and enjoyment by the Fund and the [Verizon] Building Owner, respectively.

In November 2007, Verizon converted its property to condominium ownership, and then sold a condominium unit comprising most of the building to defendant TIP Acquisitions LLP, one of the "Taconic" defendants.[FN3]

After apparently examining "more closely" the floor-area calculations for the building as set forth in the Collins Drawings, ECF "inquired of the Department of Buildings as to whether telephone switching equipment was properly deductible" from the calculation of zoning floor area. It submitted a letter to DOB on March 10, 2008, more than six months after closing and delivering the Deed to Verizon.

A responsive letter dated March 27, 2008 was sent to the Executive Director of ECF from Manher Shah, P.E., Executive Engineer at DOB, which provided in relevant part as follows:

Please be advised that floor space occupied by equipment which supports the building's mechanical system is considered a mechanical space and can be excluded from zoning floor area. As you mentioned in your letter that the referenced telephone building is occupying floor space for housing telephone switching equipment for business operation and not for the building's mechanical system, such space will not qualify for mechanical space and therefore should not be exempt from zoning floor area.

ECF then initiated this action by Summons and Complaint filed on April 9, 2009, and filed its First Amended Complaint ("Amended Complaint" or "AC") on July 1, 2009.

The Amended Complaint alleges the following causes of action against Verizon: (1) fraud [*4]in relation to the 1972 Contract; (2) fraud in relation to the Third Amendment; (3) fraud in relation to the ZLDA; (4) negligent misrepresentation; (5) unjust enrichment for use of the overbuilt space; (6) unjust enrichment for the compensation that it received for the overbuilt space; (8) breach of the 1972 Contract; (9) breach of the ZLDA; (11) a request for a declaratory judgment; (12) a request for injunctive relief; (13) determination of interests under RPAPL Article 15 and (14) fraudulent concealment.[FN4]

Verizon now moves to dismiss the Amended Complaint, pursuant to CPLR 203 (g), 213 (1), (2), and (8), 214 (4), 3016 (b), and 3211 (a) (1) (5), and (7).

Discussion

On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction . . . We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory.

Leon v Martinez, 84 NY2d 83, 87-88 (1994) (internal citations omitted). Allegations consisting of bare legal conclusions, with no factual specificity, however, "are insufficient to survive a motion to dismiss." Godfrey v Spano, 13 NY3d 358, 373 (2009); see also Caniglia v Chicago Tribune-N.Y. News Syndicate, 204 AD2d 233, 233-34 (1st Dep't 1994).

Verizon argues that the central premise of this case is that Verizon misrepresented the total amount of "zoning floor area" utilized in the Verizon Building by misstating the amount of "gross floor area" it deducted, pursuant to a "mechanical space" exemption, from the calculation of "zoning floor area". Specifically, ECF alleges that Telco obtained a reduced price by offering to reduce the size of the building that it would construct, but that instead of doing so, it simply "misclassif[ied] certain space . . . as mechanical space' under the Zoning Resolution in order to exclude such space from the calculation of Floor Area utilized by the Verizon Building." AC, ¶ 52.

According to Verizon, the Zoning Resolution controls and limits the amount of "zoning floor area" that may be developed on any given zoning lot. Section 12-10 of the Resolution defines "floor area" to include "the sum of the gross areas of the several floors of a building or buildings," but it also excludes several categories of floor space from the scope of floor area; of significance here, section 12-10 states that "the floor area of a building shall not include . . . floor space used for mechanical equipment." This "mechanical equipment" exemption has been part of the Zoning Resolution at all times relevant to this action.

ECF's claim that Verizon improperly excluded its telephone switching equipment under the "mechanical equipment" exemption relies on the informal opinion letter ECF obtained from Mr. Shah in March 2008.

Verizon argues that the opinion in the DOB letter runs afoul of squarely applicable precedent, which precludes DOB or ECF from imposing such non-textual, purpose-based limitations on the Zoning Resolutions's floor-area provisions, and that the Court of Appeals decision in Matter of Raritan Dev. Corp v Silva, 91 NY2d 98, 102-103 (1997), requires that the entire Complaint be dismissed. [*5]

In Matter of Raritan, the issue was whether cellar space in a building, that was used as dwelling space, should be included in the floor space used to calculate the Floor Area Ratio ("FAR") for zoning purposes. The Zoning Resolution provides that floor area includes the total amount of "floor space used for dwelling purposes, no matter where located within a building, when not specifically excluded; ... However, the floor area of a building shall not include ... cellar space." Id. at 100, quoting Zoning Resolution 12-10. "Cellar space" is defined in terms of its physical location in a building ("a space wholly or partly below the base plane with more than one-half of its height ... below the base plane"). Zoning Resolution 12-10. The Court of Appeals held that because the Zoning Resolution defines cellar space, "FAR calculations should not include cellars regardless of the intended use of the space." 91 NY2d at 103.

Verizon argues that the Court of Appeals' reasoning in Matter of Raritan compels the same conclusion here, because Section 12-10's "mechanical equipment" exemption unequivocally provides that zoning floor area "shall not include . . . floor space used for mechanical equipment."

However, ECF claims that there is a distinction here because unlike the phrase "cellar space", which is unambiguously defined in the Zoning Resolution, the phrase "mechanical equipment" is not defined therein.

Relying on the DOB opinion letter, ECF argues that the only "mechanical equipment" that is exempt from the zoning floor area is the equipment which services the building itself, not the telephone switching equipment that routes communications throughout lower Manhattan. Otherwise, plaintiff argues, a building housing only such equipment would occupy no zoning floor area at all, and could be built to an infinite size. Therefore, according to ECF, the only reasonable definition of "mechanical equipment" as used in the Zoning Resolution is the interpretation offered by Mr. Shah, on behalf of the DOB, i.e., equipment which supports the building's mechanical system. As the Court held in Matter of Raritan, "when applying its special expertise in a particular field rational construction is entitled to deference." 91 NY2d at 102.

Defendant, however, argues that no deference is owed to mere informal opinions expressed by agency personnel, as opposed to a definitive final agency determination. See State Farm Mut. Auto. Ins. Co. v Mallela, 372 F3d 500, 506 (2d Cir 2004); Marigliano v New York Cent. Mut. Fire Ins. Co., 15 Misc 3d 766, 774 (Civ Ct, NY Co 2007) aff'd 22 Misc 3d 131(A) (App. Term, 1st Dep't 2009); Matter of Park Radiology v Allstate Ins. Co., 2 Misc 3d 621, 625 n.2 (Civ. Ct., Richmond Co., 2003).

Where the question is one of "pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency" (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980]), and no deference is required. However where the statutory language suffers from some "fundamental ambiguity" (Matter of Golf v New York State Dep't. of Social Servs., 91 NY2d 656, 667 [1998]; Matter of Beekman Hill Assn. v Chin, 274 AD2d 161, 167 [2000]; lv denied 95 NY2d 767 [2000]), or "the interpretation of a statute or its application involves knowledge and understanding of underlying operational practices" (Kurcsics v Merchants Mut. Ins. Co., 49 NY2d 451, 459 [1980], courts routinely defer to the agency's construction of a statute it administers.

New York City Council v City of New York, 4 AD3d 85, 97 (1st Dep't 2004), lv den 4 NY3d 701 (2004).

It that case, which was an Article 78 proceeding, referred to by both counsel during oral [*6]argument as the Highline case, the petitioner City Council sought to compel the respondent City to submit a pending agreement to demolish the Highline on Manhattan's West Side to the Uniform Land Use Review Procedure ("ULURP") set forth in the New York City Charter, because it was part of the "City Map". The City and the adjoining landowners contended that despite the appearance of the Highline on various engineering maps maintained by the City over the years, the Highline was privately owned, and the private easements which were to be abandoned to the adjacent landowners were not part of the "City Map".

The respondents relied heavily on the affidavit of their expert, Robert Gochfeld, a supervisor in the Technical Review Division of the New York City Department of City Planning, whose responsibilities for 15 years had included "supervising the review and processing of applications for modifications of the City Map" submitted to the City Planning Department. Highline, 4 AD3d at 95. The Court found that Mr. Gochfeld's experiences, "his intimate knowledge of the operational practices of that Department and the nature of his duties" made him "uniquely qualified to render an opinion on the proper subjects of the City Map" (id. at 96), and found that his opinion was deserving of some degree of judicial deference because the language of the mapping provision was fundamentally ambiguous and susceptible to conflicting interpretations. Id. at 97.

ECF argues that since, as in the Highline case, there has been no formal adjudication by the relevant agency (i.e., DOB) of the issue before the Court - namely, what constitutes "floor area used for mechanical equipment" - the agency's view is binding, unless it is inherently arbitrary and capricious.

In reply, Verizon asserts that there is no valid basis for disregarding the plain language of the Zoning Resolution. Verizon argues that the arbitrary distinction between supposedly qualifying and non-qualifying "floor space used for mechanical equipment" which ECF urges the Court to adopt, is not supported in the statutory text, nor does it serve to address any legitimate textual ambiguity.

Since there is no specific definition of "mechanical equipment" in the Zoning Resolution or any definitive finding by DOB on this issue, it demands administrative determination in the first instance, and this Court declines to dismiss the action on this preliminary basis.

Fraud and Negligent Misrepresentation Claims

The Court turns now to the specific causes of action alleged in the Complaint. The first to fourth, and the fourteenth causes of action alleging fraud, negligent misrepresentation, and fraudulent concealment, respectively, are all predicated on the large discrepancy between Telco's, and later Verizon's, representations of the amount of floor space that the telephone building would contain, and the actual amount of floor space that the building ultimately did contain.

Verizon argues that even if there were any legal basis for ECF's claim that Verizon improperly excluded its telephone switching space from the calculation of floor area used in the Verizon Building, all of ECF's fraud and misrepresentation claims would, nonetheless, fail as a matter of law, for lack of justifiable reliance, as well as being time-barred to the extent that fraud is claimed in connection with the original 1972 Contract. For inherent in the principle of justifiable reliance, Verizon contends, is the requirement that a party to a commercial contract must conduct reasonable, independent due diligence before purporting to rely on the representations of its counterparty. See UST Private Equity Invs Fund v Salomon Smith Barney, 288 AD2d 87, 88 (1st Dep't 2001) ("a sophisticated plaintiff cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff [*7]failed to make use of the means of verification that were available to it"). Further, where the circumstances call into question the reliability of the representations at issue, or direct the plaintiff's attention to the source of information that would reveal the truth, the plaintiff bears a heightened burden of investigation. Global Minerals & Metals Corp. v Holme, 35 AD3d 93, 100 (1st Dep't 2006) lv den 8 NY3d 804 (2007); UST Private Equity Invs Fund, supra.

Verizon argues that ECF cannot possibly meet its burden of establishing justifiable reliance on any alleged misrepresentation here, because its own pleading, as well as the governing transactional documents and relevant public records, demonstrate that ECF failed to make any independent efforts to investigate the relevant facts and discover the alleged fraud.

Moreover, Verizon asserts that ECF is a sophisticated party, well-versed in matters of real estate development, was represented by counsel and was certainly capable of conducting its own diligence. Thus, according to Verizon, ECF bore a heightened duty to exercise reasonable diligence, which it failed to uphold.

It is Verizon's position that ECF knew all along that Verizon planned to construct a "telephone equipment and office building" which was to be built "in size and arrangement as proposed and as indicated on the plans" filed publicly with the CPC and Board of Estimate in connection with their review of the proposed project. Journal of Proceedings of the Board of Estimate of the City of New York, from May 28, 1971 to July 28, 1971, at 2755, 2757 and 2930-3.

In fact, ECF's own agreement with the City acknowledged that the proposed Verizon Building would contain a "wire equipment center," and required that the building be constructed "in accordance with plans and specifications" that had been prepared by Verizon's architects and "approved" by ECF. City Fund Agreement, Sec. 201. The Development Agreement also provided that the building would be "constructed in accordance with" plans made available to ECF, and it afforded ECF an express right to inspect the building at any time during construction, "day or night." Development Agreement, Sections 215, 301.2. Likewise, the 1972 Contract acknowledged that Verizon was purchasing the property for the purpose of constructing an "office/telephone facilities building" that was to contain a "telephone plant and equipment." Sections 201.2, 202.2. Despite all of these provisions, ECF does not allege that it took any steps to confirm Verizon's zoning floor-area analysis - including its calculation of "mechanical equipment" exemptions - at any time before or during the construction of the building.

Even after the building was completed, Verizon submits that ECF failed to take any steps to confirm whether Verizon correctly assessed the amount of the floor-are exemptions it claimed for "mechanical equipment" in the building. ECF failed to do so even though public documents, including the Certificate of Occupancy, clearly revealed that Verizon had characterized substantial portions of the building as dedicated to mechanical equipment.

Verizon further contends that ECF failed to conduct any independent diligence to confirm the amount of zoning floor area contained in the Verizon Building prior to the 2007 transactions culminating in the transfer of title to Verizon under the 1972 Contract. ECF's duty to close under the 1972 Contract was expressly conditioned on Verizon having "substantially performed" all of its obligations under the 1972 Contract. See, Sec. 1002. Yet, according to Verizon, ECF failed to perform any diligence even after Verizon put it on notice that its initial floor-area calculations might not have been accurate. How, Verizon asks, with all this, could a sophisticated party justifiably rely on its counterparty's representation, without conducting any independent analysis? Yet, ECF proceeded to negotiate the Third Amendment to address the discrepancy identified by Verizon, and then proceeded to close the deal. [*8]

ECF admits it undertook no independent analysis here, but nonetheless claims it was wronged because it relied on the floor-area calculations contained in the Collins Title Sheet which Verizon provided prior to the Closing, notwithstanding the express disclaimers contained therein, as discussed, supra.

Verizon argues that ECF cannot now be heard to claim that it justifiably relied on a document that expressly disclaims reliance, and that expressly put ECF on notice that it should seek DOB's input to "provide interpretation" regarding Verizon's claimed floor-area exclusion.

Moreover, ECF's allegations demonstrate not only that it "failed to make use of the means of verification that were available to it," UST Private Equity Invs. Fund, 288 AD2d at 88, but also that ECF clearly could have discovered the alleged fraud had it undertaken any such efforts at the time the alleged misrepresentations were made. When it finally took the time to examine the facts "more closely," ECF apparently discovered that Verizon had claimed a higher-than-average amount of "mechanical deductions" in calculating the zoning floor area contained in the building. Specifically, ECF's counsel complained in a letter dated April 23, 2008, that Verizon had deducted about 30% of the gross floor area in the building, even though, according to ECF, "mechanical deductions for this type of building are typically under five percent." That "discovery" by ECF ultimately led to the commencement of this action. But ECF certainly knew, or should have known from the outset, that the gross floor space in the building would be approximately one million square feet. The Development Agreement, Sec. 30.12 makes reference to the plans and specifications and indicates that Telco agreed to provide the plaintiff with a conformed copy of them. The Fund also knew from the 1972 Contract that the building was supposed to contain only 744,000 square feet of zoning floor area. See, Sec. 201.2. The difference between those two figures alone should have alerted ECF to the possibility that "the amount of zoning floor area which Verizon[] . . . contracted to purchase" differed from "what was actually built in the Building." See, April 17, 2008 letter from plaintiff's counsel to Verizon in connection with the Closing.

Thus, Verizon argues that ECF's failures are fatal to its fraud and misrepresentation claims and that they must be dismissed. See, e.g. Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352 (1st Dep't 2005); UST Private Equity Invs. Fund, supra.

ECF attempts to distinguish the holding in UST, arguing that it is not applicable to the facts here. Moreover, ECF argues that the facts misrepresented here - namely, the size of the actual building space in the Verizon Building - were previously within Verizon's own knowledge. ECF asserts that Verizon was obligated to build to specific specifications and thus asks "[w]hy on earth would ECF even think it needed [to] check" or to "independently measure each of the internal spaces Verizon built to be sure that Verizon was not committing fraud" since "[t]here was simply no reason for ECF to think that fraud was afoot."

ECF also refers to the 2010 Court of Appeals decision in DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d 147, 155 where the Court of Appeals declined to dismiss a fraud claim on a CPLR 3211 motion, based on justifiable reliance, recognizing that "[t]he question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive" (quoting Schlaifer Nance & Co. v Estate of Warhol, 119 F3d 91, 98 [2d Cir 1997]).

The DDJ Court further stated that where a plaintiff has taken reasonable steps to protect itself against deception, it should not be denied recovery merely because hindsight suggests that it might have been possible to detect the fraud when it occurred. In particular, where a plaintiff has [*9]gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry.

15 NY3d at 154.

ECF asserts that as in DDJ, it sought and received from Verizon representations about the building's space dimensions that were offered as truthful, namely the Collins Architectural Drawings, and thus the Court should deny defendant's motion to dismiss the fraud claims based on plaintiff's failure to demonstrate reasonable or justifiable reliance on any alleged misrepresentation by Verizon as to the zoning floor area of the Verizon Building.

Of course, on March 27, 2012, after this motion was briefed and argued, the Appellate Division, First Department issued its decision in HSH Nordbank AG v UBS AG, __AD3d__, 941 NYS2d 59, in which it dismissed plaintiff's fraud claim as legally insufficient pursuant to CPLR 3211(a)(1) and (7), finding that plaintiff, - "a sophisticated commercial entity" (i.e., a German commercial bank)- could not satisfy the element of justifiable reliance. While the facts in that case were based on a complex financial transaction between the parties, and not a real estate transaction, the Appellate Division made clear that despite the Court of Appeals holding in DDJ, which it distinguished, the Appellate Division continues to adhere to its previous holdings that " [a]s a matter of law, a sophisticated plaintiff cannot establish that it entered into an arm's length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it'"(Ventur Group, LLC v Finnerty, 68 AD3d 638, 639 [2009], quoting UST Private Equity Invs. Fund v Salomon Smith Barney. 288 AD2d 87,88 [2001]; see also Global Mins & Metals Corp. v Holme, 35 AD3d 93, 100 [2006], lv denied 8 NY3d 804 [2007] ["New York law imposes an affirmative duty on sophisticated investors to protect themselves from misrepresentations . . . by investigating the details of the transactions"]; Stuart Silver Assoc. v Baco Dev. Corp., 245 AD2d 96, 98-99 [1997] [justifiable reliance cannot be shown "(w)here a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means"]; Lampert v Mahoney, Cohen & Co., 218 AD2d 580, 582-583 [1995] [dismissing fraud claim where "plaintiff failed to undertake an independent appraisal of the risk he was assuming," and thereby "assumed the risk of loss that a proper investigation would have been likely to disclose"]).The principle that sophisticated parties have "a duty to exercise ordinary diligence and conduct an independent appraisal of the risk they [are] assuming" (Abrahami v UPC Constr. Co., 224 AD2d 231, 234 [1996]; see also Granite Partners, L.P. v Bear, Stearns & Co., 58 FSupp2d 228, 259 [SDNY 1999]) has particular application where, as here, the true nature of the risk being assumed could have been ascertained from reviewing market data or other publicly available information (see Havell Capital Enhanced Mun. Income Fund, L.P. v Citibank, N.A., 84 AD3d 588, 589 [2011].

HSH Nordbank AG v UBS AG, 941 NYS2d at 66.

Verizon has made reference to the contracts between the parties, the Certificate of Occupancy and the Collins Architectural Drawings which all should have put a sophisticated [*10]commercial entity such as ECF on notice of the discrepancy with the zoning floor area in the building. The applicable rule, as stated by the Court of Appeals and referenced by the Appellate Division in HSH, is as follows: "If the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentation" (Centro Empresarial Cempresa S.A. v América Móvil, S.A.B. de C.V., 17 NY3d 269, 278-279, [2011] [internal quotations marks and brackets omitted]; see also Danaan Realty Corp. v Harris, 5 NY2d 317, 322 [1959] [same]; Schumaker v Mather, 133 NY 590, 596 [1892] [same].

HSH, 941 NYS2d at 65-66.

The Appellate Division distinguished its holding from the DDJ case, at least in part "on the ground that the matters misrepresented therein . . . were matters of existing fact peculiarly within the knowledge of the defendants,"[FN5] and also because the plaintiffs there made a significant effort to protect themselves against the possibility of false statements by obtaining written representations and warranties to the effect that nothing in the statements was materially misleading. HSH, 94 NYS2d at 68, FN 9 (citing DDJ, supra).

Based on the transactional documents and the relevant public records, and the fact that ECF failed to make any independent efforts to investigate the relevant facts and discover the alleged fraud, or at least the discrepancy in the zoning floor-area analysis, this Court finds that as a matter of law, plaintiff cannot establish the element of justifiable reliance necessary to sustain its causes of action based on fraud, and thus the first, second, third, fourth and fourteenth causes of action are dismissed.

Contract Claims

The eighth and ninth causes of action, alleging breach of the 1972 Contract and the ZLDA, respectively, must also be dismissed because the provisions of those contracts were merged into the deed upon closing of title. See Stollsteimer v Kohler, 77 AD3d 1259 (3d Dep't 2010); Marcantonio v Picozzi, 70 AD3d 655 (2d Dep't 2010). Plaintiff argues, however, that this rule does not apply "where there is a clear intent evidenced by the parties that a particular provision will survive delivery of the deed or where there is a collateral undertaking." Goldsmith v Knapp, 223 AD2d 671, 673 (2d Dep't 1996). Still, ECF has failed to identify any contract provision or other "surrounding circumstances" which reflect any intent on the part of the parties to have the relevant contract provision survive the issuance of the deed.

Further, while ECF argues that the 1972 Contract required construction of the telephone building, and that such a "collateral undertaking" may show an intent that it not be merged in the deed, collateral matters are those that "cannot be performed until after conveyance." See White v [*11]Long, 204 AD2d 892 (3d Dep't 1994), mod on other grnds 85 NY2d 564 (1995). The Verizon Building herein was completed decades before the Fund conveyed title to Verizon.

Unjust Enrichment Claims

The Court will also dismiss the fifth and sixth causes of action alleging unjust enrichment, because quasi contract claims generally do not lie where, as here, there is a valid and enforceable written contract which covers the scope of the dispute between the parties. IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 142 (2009); Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388-389 (1987).

Claims for Declaratory and Injunctive Relief

The eleventh and twelfth causes of action allege that Verizon (and Taconic) are planning certain unspecified alterations to the Verizon Building that would violate both the ZLDA and unspecified provisions of the Zoning Resolution. Similarly, the thirteenth cause of action seeks a determination of interests pursuant to Article 15 of the Real Property Actions and Proceedings Law, and alleges that Verizon claims "or might claim" (AC, ¶ 257) an ownership interest adverse to that of the Fund. The Court questions plaintiff's standing to bring these claims since it no longer owns the Building, nor does Verizon or Taconic for that matter. In any event, counsel for ECF stated on the record during oral argument on June 2, 2011 that they "have withdrawn that aspect of the case. We are no longer claiming that what's inside [the Verizon Building] didn't belong to Verizon and doesn't now belong to whoever bought it from Taconic." Tr. June 2, 2011, 28:19-22.

Thus, the eleventh to thirteenth causes of action are dismissed.

Accordingly, Verizon's motion is granted in its entirety and the action is dismissed with prejudice and without costs or disbursements.

The Clerk shall enter judgment accordingly.

This constitutes the decision and order of this Court.

Dated: June 11, 2012

BARBARA R. KAPNICK

J.S.C.

Footnotes

Footnote 1:Verizon contends that it provided the Fund with the entire survey.

Footnote 2:The first two amendments to the Contract have no bearing on the claims in this action.

Footnote 3: By Stipulation dated April 25, 2011, plaintiff discontinued this action as to the non-Verizon defendants.

Footnote 4:The causes of action which related solely to the non-Verizon defendants who settled are not included in this list.

Footnote 5:This is also the reason, in part, that this Court recently denied a motion to dismiss a fraud claim for failing to satisfy the element of justifiable reliance, notwithstanding that the plaintiff was a sophisticated entity. See ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 35 Misc 3d 1217(A) (Sup Ct, NY Co April 23, 2012).