Marsh v Labella

[*1] Marsh v Labella 2008 NY Slip Op 50724(U) [19 Misc 3d 1115(A)] Decided on April 3, 2008 Supreme Court, Westchester County Smith, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 April 3, 2008
Supreme Court, Westchester County

Stephen Marsh, Plaintiff,

against

Leonard Labella, Loraine Labella, Frederick Labella, Jack Labella, Robert E. Labella and The City of New Rochelle, Defendants.



11039/07



Kathleen E. Gill

Deputy Corporation Counsel for City of New Rochelle

515 North Avenue

New Rochelle, New York 10801

Bertine, Hufnagel, Headley, Zeltner, Drummond & Dohn, LLP

Attys. For Pltf.

700 White Plains Road

Scarsdale, New York 10583

Gerald Brown, Esq.

Atty. For Defts. Labella

175 Main Street

White Plains, New York 10601

Mary H. Smith, J.

Pursuant to a contract dated May 11, 2006, plaintiff agreed to purchase property from defendants LaBella for the sum of $1.9 million. There is no dispute that at the time the contract to purchase the subject property was executed, the property was classified by defendant City of New Rochelle ("City") as being in a RMF-1.3 zone, which would allow the development of approximately 42,900 square feet of gross floor area and was suitable for plaintiff's plan to develop the property into 36 residential condominiums. Plaintiff alleges that before he had executed the sale contract, he had discussed his development plans with building officials employed by the City who had stated that the proposed development could be built on the subject land as of right and that plaintiff need not be concerned with zoning changes affecting the subject land because the Map recently had been amended and would not be amended again in the near future. Plaintiff asserts that in executing the contract for buying the property he had relied upon the representations that the property was located in a RMF-1.3 zone and that he could develop the land as he proposed as a matter of [*2]right.

Plaintiff submitted his building permit application on September 5, 2006, and, four months after he had executed the contract, plaintiff met with City building officials on September 21, 2006, to discuss his development plans; he was told he could submit an application for site plan review and approval to the City's Planning Department. He did so and then, on October 4, 2006, plaintiff claims that the City had advised him for the first time that it mistakenly had classified the property as being in a RMF-1.3 zone at the time the City amended the Map in November, 2001, and that this error was repeated in 2005 when the Map was again amended. Plaintiff then was advised that the Map was being amended to change the property's zoning to a RMF 0.4 zone, which meant that plaintiff only could develop 13,200 square feet of gross floor area, and not 42,900 square feet as originally planned.

This action ensued, with plaintiff pleading causes of action against defendants LaBella for unilateral mistake and mutual mistake requiring the return of his down payment and rescission of the contract, and against the City for "negligent words" for which plaintiff seeks compensatory damages.

Presently, defendant City, which does not dispute plaintiff's allegations as to what transpired and what had been said to him by City officials, is moving for summary judgment dismissing the complaint, arguing that the City officials had not acted negligently but rather had relied in good faith on the zoning Map, which later was discovered to be erroneous, and that not only can the City not be held liable for an alleged administrative error, but that the City had an absolute obligation to correct the erroneous property designation, irrespective of the ensuing financial hardship to plaintiff.

Plaintiff opposes the City's motion and is cross-moving for summary judgment as to liability against the City on his claim for negligent misrepresentation and he seeks an assessment as to damages. Plaintiff maintains that the record supports the finding that he had exercised extensive due diligence in connection with his purchasing the property, that he had executed the contract to purchase the property only after speaking with the City's building department personnel who had reviewed plaintiff's development plans and had represented to him that the property was zoned in an RMF-1.3 zone and thus could be developed in accordance with plaintiff's proposed plans as of right and that the Map, which just had been amended in 2005, would likely not be amended any time soon. Plaintiff maintains that at no time had he been warned by the City that he could not accept their imparted information as being accurate and/or that he independently should verify the information given him.

Plaintiff rejects the City's arguments that it cannot be liable to plaintiff for negligent misrepresentations and that [*3]plaintiff has failed to assert such a viable cause of action. Plaintiff notes that, contrary to the City's arguments, plaintiff is not challenging the City's zoning of the property, nor its decision to correct the Map to reflect the property's proper designation. Nor is the City correct, according to plaintiff, in arguing that a mere ministerial act is in issue for which the City cannot be found negligent. Rather than involving the exercise of discretion or interpretation, plaintiff contends that the creation of the Map "was nothing more than the act of drafting, and the information imparted by City officials did not require any use of reasoned judgment, just a parroting of what was shown on the Map and City records." Thus, plaintiff maintains that the City's negligent performance of the ministerial task of preparing the Map that was suppose to accurately reflect the zoning scheme in place and the imparting of incorrect information by its employees to plaintiff removes this matter outside the realm of governmental immunity and subjects the City to tort liability.

Further, plaintiff argues that the City owed plaintiff the duty to exercise reasonable care in giving him information regarding the zoning of the subject property, that the City knew that plaintiff was relying on that information and that his reliance on what was told to him, although ultimately determined to have been incorrect, had been reasonable.

Plaintiff argues that to date he has suffered a financial loss of approximately $300,000, inclusive of the $190,000 down payment, for which the City is liable.

For the reasons which follow, defendant City's motion for summary judgment dismissing the complaint is granted and plaintiff's cross-motion for partial summary judgment against defendant City on the issue of liability is denied.

In order to impose liability upon defendant City, plaintiff was required to establish the existence of a duty and a breach flowing from the municipality to him. See Motyka v. City of Amsterdam, 15 NY2d 134, 139 (1965). However, "the duty breached must be more than a duty owing to the general public. There must exist a special relationship between the municipality and the plaintiff, resulting in the creation of "a duty to use due care for the benefit of particular persons or classes of persons (citations omitted)" Florence v. Goldenberg, 44 NY2d 189, 195 (1978), and liability will not be imposed upon a municipality for its merely performing a public function. See Lauer v. City of New York, 95 NY2d 95, 101 (2000). A plaintiff has a heavy burden to prove the existence of a "special relationship," which may be formed when the municipality violates a statutory duty enacted for the benefit of a particular class of persons; or when the municipality voluntarily assumes a duty that generates justifiable reliance by the person who benefits from the duty; or when the municipality assumes positive direction and control in the face of a known, blatant and [*4]dangerous safety violation. See Pelaez v. Seide, 2 NY3d 186, 199-200 (2004).

At bar, plaintiff attempts to find that a special relationship exists with respect to the second of the foregoing, i.e., that the City municipality had assumed an affirmative duty that had generated justifiable reliance by the plaintiff. However, this type of "special relationship" requires a further showing by plaintiff that there had been

an assumption by the municipality, through promises

or actions, of an affirmative duty to act on behalf

of the party who was injured; (2) knowledge on the

part of the municipality's agents that inaction could

lead to harm; (3) some form of direct contact

between the municipality's agents and the injured

party; and (4) that party's justifiable reliance

on the municipality's affirmative undertaking.

Cuffy v. City of New York, 69 NY2d 255, 260 (1987); see, also Pelaez v. Seide, supra, 2 NY3d at 202.

On the undisputed facts at bar, this Court finds as a matter of law that plaintiff has failed to establish the first requisite element of a special relationship, to wit, that the City, through its employees, had assumed any affirmative duty to act on behalf of plaintiff. While the City indisputably had an obligation to keep accurate records and zoning maps, and that it knew or should reasonably have known that people, like plaintiff, rely upon the accuracy of such records for important matters and, further, that the City's failure to exercise reasonable care in doing so may constitute negligence, nevertheless, the inescapable fact at bar is that this duty of accurate record keeping solely was for the benefit of the public at large and not to plaintiff individually, and it matters not that there had been direct communication between plaintiff and City employees regarding the contents of the public records and specifically the subject property's zoning, which later was learned to have been incorrect. This Court thus must conclude that there is no basis to impose tort liability upon the City, see Lauer v. City of New York, supra, 95 NY2d at 100, and the specific cause of action pleading negligent misrepresentation, which requires as an element thereof the existence of a duty, see Heard v. City of New York, 82 NY2d 66, 74 (1993), must be and is hereby dismissed.

In light of this finding, the Court declines to address any other theories supporting dismissal argued by the City.

The Court shall next address plaintiff's motion for partial summary judgment on his claims against defendants LaBella for [*5]unilateral and mutual mistake.[FN1] Plaintiff argues that at the time he had contracted to purchase the property, the only improvements thereon were "an aged five-family house, in poor condition, and a small parking lot." Plaintiff submits a copy of a facsimile transmission he had received from the real estate broker working for defendants LaBella regarding the subject property wherein it is stated that the property was in a RMF-1.3 zone and, according to plaintiff, the property was priced at $2.1 million "based on the ability of a purchaser to extensively develop the Property as a matter of right and in keeping with the Map." After plaintiff had made inquiries and investigated the property and its location in an RMF-1.3 zone, plaintiff offered and defendants LaBella had accepted in May, 2006, $1.9 million for the property. Plaintiff states that this offer was based entirely on the property's ability to sustain his proposed development thereof and that defendants were aware that it was plaintiff's intention to develop the property. Upon his executing the contract of sale, plaintiff had paid defendant $190,000 as a down payment.

As herein above noted, the City subsequently had corrected the zoning of the property to reflect its properly being in a RMF-0.4 zone, which, according to plaintiff, results in more than a 66 percent reduction in the amount of the property which now can be developed. Based upon the parties mistakenly having believed that the property was in an RMF-1.3 zone which would have supported plaintiff's proposed development thereof, which mistake plaintiff submits is so material and relates to the substance of the contract's consideration so as to constitute no "meeting of the minds," plaintiff argues that he is entitled as a matter of law to the return of his down payment and the rescission of the contract. Alternatively, plaintiff argues that, based upon his unilateral mistake with respect to the property's zoning classification and so as to prevent unjust enrichment to defendants LaBella at his expense, the Court should exercise its equitable jurisdiction and restore the parties to their pre-contract status without prejudice.Defendants LaBella argue in opposition to plaintiff's motion that the contract does not provide any contingency or condition with respect to the zoning of the property, and indeed that the contract states that there are "none" such contingencies or conditions. Moreover, said defendants argue that plaintiff successfully had negotiated modifications to the contract, as well as riders, and that at no time was there any reference to zoning or to the use for which the premises were being acquired. Critically, defendants rely on one of the negotiated new paragraphs which they [*6]contend had clarified the obligations of the parties with respect to the acquisition of the property and which specifically states that there were four consecutive 30-day option periods within which to cancel the contract and which set forth the cost to plaintiff as purchaser for his failure to exercise each successive option. This provision clearly provides that at the expiration of the 120 days, the contract "shall be in full force and effect and this option to cancel the contract shall terminate." Defendants contend that plaintiff has failed to comply with the terms of this provision, his attorney's letter not having been furnished to defendants' counsel until more than four months after the 120-day period had expired and more than three months after plaintiff had received information from the City apprizing him that the zoning of the property had not been as had been represented to him. According to each defendant LaBella, they did not enter into this contract based upon the alleged zoning of the premises and they have submitted evidence which they contend establishes that multiple-family residences, such as condominiums, could be built on the premises.Additionally, defendants argue that plaintiff, upon learning of the change in zoning, first had attempted to renegotiate the purchase price rather than immediately seek rescission.[FN2] Defendants LaBella also urge that examinations before trial have not been conducted and that there presently are issues of fact with respect to plaintiff's actions herein, including his good faith efforts with respect to obtaining building permits and whether rescission is appropriate.

Finally, defendants note that they have sustained substantial financial damages as a result of the canceled closing in May, 2007, since two of the five units in the existing building were not rented out to prospective tenants, several of the defendants "had to make tentative arrangements for substitute housing" and the market value of real estate in New Rochelle has declined since 2006 and the sellers' lost opportunity is not made up for by the liquidated damages of the down payment.

In reply thereto, plaintiff's counsel avers that he had telephoned defendants' counsel on October 4, 2006, regarding the change in zoning and that he had told defense counsel at that time that he would investigate the City's position with respect to the property being in an RMF-.4 zone but that if the property actually were zoned in an RMF-.4, his client's position would be that the contract was void due to mistake of material fact and that he would insist on the return of the down payment. Plaintiff's counsel [*7]avers that he subsequently had repeated this position to defense counsel.

Plaintiff argues that while he did act with reasonable promptness in seeking to rescind the contract, defendants' argument that the right to rescind must be exercised with reasonable promptness only applies to those situations, not presented at bar, where there is a claim of fraud or breach and the plaintiff has to return something to the defendant in the event of rescission.

Plaintiff argues that the record supports the finding that their contract is void ab initio because there never was a meeting of the minds as to what was being purchased and that if plaintiff had known from the outset that the property was located in an RMF.4 zone there never would have been a contract.

Furthermore, plaintiff argues that defendants' claim that the motion is premature because discovery has not been completed is without merit since defendants have not even served any demand for discovery and inspection and they never had asked to depose plaintiff during the ample time this motion was pending. In any event, plaintiff maintains that there is no evidence exclusively within plaintiff's possession which, if discovered, would create triable issues of fact.

"It is the general rule that where a mistake in contracting is both mutual and substantial, there is an absence of the requisite meeting of the minds' to the contract, and the relief will be provided in the form of rescission." Brauer v. Central Trust Co., 77 AD2d 239, 243 (4th Dept. 1980), lv. den. 52 NY2d 703 (1981). "To reform a written instrument based upon mutual mistake or fraud, the proponent of reformation must show, by clear and convincing evidence, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties.'(Citation omitted)." Lacoparra v. Bellino, 296 AD2d 480 (2nd Dept. 2002). The mistake must have existed at the time the contract was entered into and must be substantial. See Schultz v. Hourihan, 238 AD2d 818 (3rd Dept. 1997).

Applying the foregoing principles of law to the facts at bar, the Court finds that plaintiff has demonstrated by clear and convincing proof that both he and defendants LaBella, through a meeting of the minds, understood at the time they had entered into the contract that plaintiff was purchasing the property zoned as an RMF-1.3, which would permit the development of 42,900 gross square feet of area, and that the subsequently discovered zoning mistake, corrected to permit only 13,200 gross square foot of development, is a substantial change which goes to the essence of the contract. While all defendants LaBella other than defendant Leonard LaBella have submitted affidavits wherein they claim that they did not know at the time the contract was executed how the property was zoned, a careful reading of Leonard LaBella's affidavit, which the Court [*8]notes includes his admission that he was the person who managed the property, reveals that he does not deny nor indeed make any representations regarding his knowledge of the property's zoning. He notably never denies ever having discussed or having knowledge of plaintiff's specific development plans with respect to the property. Moreover, plaintiff has submitted proof that the property was marketed by defendants through their broker as an RMF 1-3 property. While it would seem that the correct zoning specifically should have been incorporated as a "condition" into the contract of sale, particularly given its obvious great importance and this plaintiff's business experience, nevertheless, in the circumstances prevailing, the Court finds that the record supports the conclusion that both plaintiff and Leonard LaBella mutually had believed at the time the contract had been executed that the property was zoned as an RMF-1.3, that such zoning designation was essential for plaintiff to proceed with his proposed development of the property, which was his sole reason for purchasing same at $1.9 million, and that this erroneous zoning designation was a material fact precluding a meeting of the minds, rendering the contract voidable. See County of Orange v. Grier, 30 AD3d 556 (2nd Dept. 2006).

The rule of promptness relied upon by defendants is not applicable to the case at bar. See Barefoot v. West Point-Pepperell, Inc., 222 AD2d 281 (1st Dept. 1995); see, also Allen v. West Point-Pepperell, Inc., 908 F. Supp. 1209 (S.D.NY 1995). This Court also is not persuaded that any subsequent attempt by plaintiff to renegotiate the contract alters this result, as argued by defendants, or that the fact that depositions have not proceeded warrants a finding that the motion is premature where defendants LaBella have not identified anything substantive which in plaintiff's exclusive possession and which disadvantages them in defending this motion. See Canarick v. Cicarelli, 46 AD3d 587 (2nd Dept. 2007); Arpi v. New York City Transit, 42 AD3d 478 (2nd Dept. 2007).

Accordingly, plaintiff's motion for summary judgment on his claim for rescission is granted. Plaintiff shall submit proposed Judgment on notice within twenty (20) days after the date hereof, to which a copy of this Decision and Order shall be annexed.

Dated: April 3, 2008

White Plains, New York [*9]

_________________________________

MARY H. SMITH

J.S.C. Footnotes

Footnote 1:While defendants LaBella are not formally cross-moving for summary judgment, nevertheless, they seek summary judgment dismissing the complaint pursuant to CPLR 3212, subdivision (b).

Footnote 2:Defendants claim that plaintiff had attempted in January through April, 2007 to make new offers and that he had attempted to negotiate a price reduction for the property. Because the attorney letter exchange indicates that it is for "Settlement Purposes Only," same has not been submitted as part of the record.