Lana & Edward's Realty Corp. v Katz/Weinstein Partnership
Annotate this CaseDecided on March 17, 2010
Supreme Court, Kings County
Lana & Edward's Realty Corp., Plaintiff,
against
Katz/Weinstein Partnership, Harvey B. Katz & Sheldon H.Weinstein, Defendants.
27958/08
Attorneys for Plaintiff:
Kristina Giyaur, Esq.
Khenkin & Sauchik
9712 Third Avenue
Brooklyn, New York 11209
Attorney for Defendant:
Justin C. Brasch, Esq.
30 Vesey Street, Suite 1400
New York, New York 10007
Carolyn E. Demarest, J.
Upon the foregoing papers, in this action by plaintiff Lana and Edward's Realty Corp. (plaintiff) alleging breach of contract and common-law fraud, defendants Katz/Weinstein Partnership, Harvey B. Katz (Katz), and Sheldon H. Weinstein (Weinstein) (collectively, defendants) move for summary judgment dismissing plaintiff's complaint as against them.
On June 28, 2002, plaintiff and defendants executed a contract of sale in which plaintiff, as the buyer, agreed to purchase from Katz/Weinstein Partnership (a partnership consisting of Katz and Weinstein), as the seller, a building located at 2039 86th Street, in Brooklyn, New York, for a purchase price of $600,000. The building consisted of a commercial unit on the ground floor and two apartments on the second floor. The second floor front apartment was occupied by Darren Lipari (Lipari), as the tenant. Lipari was the grandson of Louis Velicevich and Mary Velicevich, who had both resided in the second floor front apartment since 1958. Lipari allegedly resided with Louis Velicevich and Mary Velicevich beginning in approximately 1979 when he was four years old, [*2]and he had continued to live there following the deaths of Louis Velicevich and Mary Velicevich on March 21, 1997 and January 15, 1999, respectively.
Subsection (b) of paragraph 11 of the contract, entitled "Seller's Representations," provided that "[s]eller covenants and warrants that all of the representations and warranties set forth in this contract shall be true and correct at [c]losing." Subsection (a) of paragraph16 of the contract, entitled "Conditions to Closing," provided that "[t]his contract and [p]urchaser's obligation to purchase the [p]remises are . . . subject to and conditioned upon the fulfillment of the . . . condition precedent [of] . . . [t]he accuracy, as of the date of [c]losing, of the representations and warranties of [s]eller made in this contract." Paragraph 48 of the rider to the contract set forth that "[p]urchaser shall take title subject to the following tenancies, which shall be adjusted as of [the] date of closing," and lists, as one of these tenancies, "Second Floor Front Apartment-no lease; month to month tenant-monthly rental $200.00; no security; Tenant- . . . Lipari." The tenant for the second floor rear apartment was listed as having a significantly higher monthly rental of $450 and a copy of the lease for that apartment was attached to the contract.
Paragraph 36 of the rider to the contract provided:
"Delivery of Deed -The acceptance of the deed by the [p]urchaser shall be deemed full performance and discharge of every agreement, representation and obligation on the part of the [s]eller except those, if any, which are herein specifically stated to survive the delivery of the deed."
Paragraph 11 (c) of the contract explicitly stated that "[e]xcept as otherwise expressly set forth in this contract, none of [s]eller's covenants, representations, warranties or other obligations contained in this contract shall survive [c]losing." Paragraph 28 (a) of the contract set forth as follows:
"All prior understandings, agreements, representations and warranties, oral or written, between [s]eller and [p]urchaser are merged in this contract; it completely expresses their full agreement and has been entered into after full investigation, neither party relying upon any statement made by anyone else that is not set forth in this contract."
Paragraph 29 of the rider to the contract provided:
"Warranties, Representations-This [a]greement constitutes the entire contract between the parties hereto, and the [s]eller is not liable or bound in any manner by . . . representations, or information pertaining to the premises . . . [or] any rental income therefrom . . . unless such representations . . . are expressly and specifically set forth in this [agreement."
The closing of title to the property took place on October 15, 2002, at which time plaintiff accepted the deed to the property, which was recorded on November 8, 2002. Plaintiff's president, Edward Glazarov (Glazarov), claims that before and during the closing, defendants represented to him that Lipari was a month-to-month tenant who was not subject to any limitations on eviction or rent increases. According to Glazarov, Katz and Weinstein represented to him that the reason why Lipari's rent was so significantly below the market rate was because Lipari was maintaining the property and other properties and businesses of Katz and Weinstein. Glazarov also claims that defendants had, unbeknownst to plaintiff, informed Lipari that his rent would not be increased by plaintiff when plaintiff became the new owner.
[*3]
Shortly after taking possession of the property, plaintiff raised Lipari's monthly rent to $600, which Lipari paid for over four years until January 2007. In January 2007, plaintiff raised Lipari's monthly rent to $900, which Lipari paid until in or around October 2007, when he defaulted in the payment of rent. As a result, on March 3, 2008, plaintiff filed a non-payment proceeding in the Housing Part of the Civil Court, Kings County, against Lipari (the Civil Court proceeding), seeking the payment of the rent due from October 2007 and to evict Lipari from the second floor front apartment. Lipari interposed an answer, which asserted that he was a rent controlled tenant, and he asserted a counterclaim, seeking damages for rent overcharge, treble damages, and legal fees.
On October 9, 2008, plaintiff filed this action against defendants, alleging a first cause of action for breach of contract and a second cause of action for common-law fraud. Plaintiff's complaint alleges, upon information and belief, that prior to the closing, Katz and Weinstein repeatedly represented to Glazarov that Lipari had been a month-to-month tenant who could be evicted at any time, and that his monthly rent could be increased at any time without any restriction. Plaintiff's complaint further alleges that, upon information and belief, Katz and Weinstein knew that Lipari was a rent controlled tenant who was protected from eviction by laws and regulations, and whose rent could not be raised without authorization from the New York Division of Housing and Community Renewal (DHCR). Plaintiff's complaint also asserts that Katz and Weinstein never registered the second floor front apartment with the DHCR.
Plaintiff's first cause of action for breach of contract alleges that defendants breached their contract with it in that the warranties and representations contained therein were not true as of the date of the closing. Specifically, plaintiff asserts that the representation contained in paragraph 48 of the rider to the contract, which stated that Lipari was a month-to-month tenant, was materially false, and that defendants knew Lipari was a statutory tenant protected against eviction and rent increases by rent control laws and regulations. Plaintiff alleges that due to this alleged breach of contract, it has sustained damages.
Plaintiff's second cause of action for common-law fraud alleges that defendants misrepresented to it that Lipari was a month-to-month tenant who was not subject to any limitations on eviction, that Lipari's $200 monthly rent could be raised at any time for any reason, that Lipari was not a rent controlled tenant, and that the reason for Lipari's below market value rent was that he had been maintaining defendants' properties. Plaintiff also asserts that defendants omitted the fact that they had informed Lipari that his rent would not be increased by plaintiff, as the new owner of the property. Plaintiff alleges that it detrimentally relied on defendants' alleged material misrepresentations and omissions by purchasing the property, causing it to sustain damages.
Defendants have interposed an answer to plaintiff's complaint. Defendants' answer contains denials and defenses, including the affirmative defense that this action is barred by the applicable Statute of Limitations.
Subsequent to the commencement of this action, Judge Cheryl J. Gonzales, by decision and order dated April 21, 2009 in the Civil Court proceeding (Lana & Edward's Realty v Lipari, 24 Misc 3d 818, 820 [Civ Ct, Kings County 2009]), rejected plaintiff's argument that the second floor front apartment was not subject to rent control regulation, and found that Lipari was not a month-to-month tenant. Judge Gonzales dismissed plaintiff's summary proceeding to evict Lipari, and severed Lipari's counterclaim for rent overcharge, finding that no maximum base rent had ever been [*4]established for the second floor front apartment and that this function would be best performed by DHCR. Plaintiff has not filed an appeal from that decision and order.
Defendants, by their instant motion, now seek summary judgment dismissing plaintiff's complaint. Defendants contend that plaintiff's first cause of action for breach of contract is time-barred by the applicable Statute of Limitations, and is also barred by the doctrine of merger. Defendants further contend that plaintiff's second cause of action for common-law fraud is time-barred by the applicable Statute of Limitations, is barred as being duplicative of plaintiff's breach of contract cause of action, and cannot be maintained due to plaintiff's inability to establish the requisite element of reasonable reliance.
The Statute of Limitations for a breach of contract cause of action is six years (CPLR 213 [2]). A cause of action for breach of contract accrues and the Statute of Limitations begins to run from the time of the breach itself (see Ely-Cruikshank Co. v Bank of Montreal, 81 NY2d 399, 402 [1993]; John J. Kassner & Co. v City of New York, 46 NY2d 544, 550 [1979]) irrespective of when the breach is actually discovered (see Ely-Cruikshank Co., 81 NY2d at 403-404; Matter of Schwarzler v Garage Empls. Union Local No. 272, I.B.T., 52 AD2d 545, 546 [1976]). Defendants contend that the breach occurred at the time of the execution of the contract, i.e., on June 28, 2002, the date on which defendants made the allegedly false representation regarding Lipari's tenancy status. Since this action was commenced on October 9, 2008, more than six years from June 28, 2002, using this date as the accrual date, plaintiff's breach of contract cause of action is time-barred.
Plaintiff, in opposition to defendants' motion, however, contends that the Statute of Limitations started to run from the date of the closing on October 15, 2002, not from the date of the execution of the contract on June 28, 2002. In support of this contention, plaintiff relies upon paragraph 11 (b) of the contract, in which defendants "covenant[ed] and warrant[ed] that all of the representations and warranties set forth in th[e] contract [would] be true and correct at [c]losing." Plaintiff also relies upon paragraph 16 (a) of the contract, which stated that its obligation to purchase the property was conditioned upon defendants' fulfilling the condition precedent of "[t]he accuracy, as of the date of [c]losing of the representations and warranties of [s]eller made in this [c]ontract." Plaintiff argues that since the representation made in paragraph 48 of the rider to the contract, stating that Lipari was a month-to-month tenant, was inaccurate, false, and incorrect at the time of the October 15, 2002 closing, the breach occurred at the time of that October 15, 2002 closing.
Plaintiff's contention is without merit and its reliance upon paragraphs 11 (b) and 16 (a) is misplaced. The representation as to the terms of Lipari's tenancy status was false when made. Although plaintiff relies on the fact that paragraphs 11 (b) and 16 (a) stated that the representations were accurate, true, and correct at the time of the closing, no further act was contemplated to take place by defendants which would impact on this representation from the date of the contract until the date of the closing. While plaintiff could not have sought damages until it took title on October 15, 2002, it could have sued for rescission on June 28, 2002. Thus, inasmuch as plaintiff had a remedy at the time of the execution of the contract, this is when plaintiff's breach of contract claim accrued (see West 90th Owners Corp. v Schlechter, 137 AD2d 456, 458 [1988]). Therefore, since the alleged breach of contract occurred at the time of the execution of the contract on June 28, 2002, the six-year Statute of Limitations period expired on June 28, 2008, and plaintiff's breach of contract [*5]cause of action must be dismissed as time-barred (see CPLR 3211 [a] [5]; 3212 [b]; West 90th Owners Corp., 137 AD2d at 458).
Moreover, plaintiff's breach of contract cause of action is barred by the merger doctrine (see Gold Coast Homes at Evert St., Inc. v Cannuscio, 62 AD3d 748, 748-749 [2009]; Arnold v Wilkins, 61 AD3d 1236, 1236 [2009]; Novelty Crystal Corp. v PSA Institutional Partners L.P., 49 AD3d 113, 119 [2008]; Hunt v Kojac, 245 AD2d 858, 858-859 [1997]). Neither paragraph 16 of the contract, entitled "Conditions to Closing," nor paragraph 11 of the contract, entitled "Seller's Representations," provided that the seller's representations or warranties as to Lipari's tenancy would survive closing, and there is no other provision in the contract which would carry this tenancy representation beyond the closing and the delivery of the deed. As stated above, paragraph 36 of the rider to the contract specifically provided that the delivery of the deed would be deemed the discharge of every representation unless specifically stated to survive the delivery of the deed, and paragraph 11 (c) expressly provided that unless otherwise expressly set forth in the contract, none of defendants' representations contained in the contract would survive closing. Thus, the representation as to Lipari's tenancy was merged into the deed (see Gold Coast Homes at Evert St., Inc., 62 AD3d at 748-749; Arnold, 61 AD3d at 1236; Novelty Crystal Corp., 49 AD3d at 118-119; Hunt, 245 AD2d at 858-859).
With respect to plaintiff's second cause of action for common-law fraud, it is noted that a fraud claim is a recognized exception to the merger doctrine (see West 90th Owners Corp., 137 AD2d at 459). However, pursuant to CPLR 213 (8), the Statute of Limitations for a fraud cause of action is six years from accrual or two years from when the plaintiff discovered the fraud "or could with reasonable diligence have discovered it." Plaintiff's action was filed more than six years from the date of the alleged fraud on June 28, 2002, when defendants allegedly misrepresented Lipari's tenancy status.
Plaintiff, in opposing dismissal of its fraud cause of action, contends that its fraud claim is not time-barred because its allegations of fraud are based on statements, allegedly made by defendants at the time of closing on October 15, 2002, that the reason for the below market rent for Lipari's apartment was that Lipari was maintaining defendants' property. Plaintiff argues that since these allegedly fraudulent statements were different from those made in the contract, the Statute of Limitations for its fraud claim did not start to run until October 15, 2002, the date of the closing.
This argument must be rejected since, as noted above, paragraph 28 (a) of the rider to the contract expressly provided that neither party was relying upon any statement made by anyone else that was not set forth in the contract. Furthermore, paragraph 29 of the rider to the contract contains a specific disclaimer that the contract constituted the entire contract between the parties and that the seller was not bound by any representations or information pertaining to the premises or any rental income therefrom unless specifically set forth in the contract. Thus, plaintiff cannot rely upon any alleged oral misrepresentations outside of the contract (see Fabozzi v Coppa , 5 AD3d 722, 724 [2004]; Bedowitz v Farrell Dev. Co., 289 AD2d 432, 433 [2001]).
With respect to the time of discovery of the fraud, plaintiff argues that it first discovered defendants' fraud when Lipari filed his answer in the Civil Court proceeding in March 2008, and that it had no independent means of verifying the accuracy of defendants' representations before that time. This argument is unavailing as plaintiff had the actual means of discovering the alleged fraud if it used reasonable diligence. Specifically, plaintiff could have verified Lipari's tenancy status by [*6]simply asking Lipari why his rent was below market or how he had become a tenant without a lease. Consequently, plaintiff's second cause of action is time-barred by CPLR 213 (8).
Plaintiff argues, though, that it should be afforded the opportunity to conduct discovery on the issue of whether it had practicable means to uncover whether Lipari's apartment was subject to rent control. Such argument is rejected. The issue of whether plaintiff had the means of discovering Lipari's rent control status is not peculiarly within defendants' knowledge, but is within plaintiff's own knowledge. Furthermore, there is no evidentiary showing whatsoever that discovery would disclose any facts which could somehow sufficiently support plaintiff's claim so as to enable it to resist defendants' motion (see Leonard v Gateway II, LLC, 68 AD3d 408, 410 [2009]; Landes v Sullivan, 235 AD2d 657, 658 [1997]; Kennerly v Campbell Chain Co., Campbell Chain Div. McGraw-Edison Co., 133 AD2d 669, 670 [1987]).
In any event, a fraud claim will be dismissed when the only fraud charged relates to a breach of contract (see Lee v Matarrese, 17 AD3d 539, 540 [2005]; Non-Linear Trading Co. v Braddis Assoc., 243 AD2d 107, 118 [1998]; Alamo Contract Bldrs. v CTF Hotel Co., 242 AD2d 643, 644 [1997]). " [A] cause of action will be found to sound in tort rather than in contract only when the legal relations binding the parties are created by the utterance of a falsehood, with fraudulent intent and reliance thereon, and the cause of action is entirely independent of contractual relations between the parties'" (Lee, 17 AD3d at 540, quoting Hoydal v City of New York, 154 AD2d 345, 346 [1989]). Here, plaintiff's fraud claim is duplicative of, and wholly mirrors plaintiff's breach of contract claim and does not allege the breach of any duty extraneous to or distinct from the parties' obligations under the contract (see Lee, 17 AD3d at 540; Spodek v Neiss, 291 AD2d 551, 552 [2002]).
Additionally, in order to state a viable cause of action for fraud, a plaintiff must reasonably rely upon an alleged fraudulent misrepresentation (see Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996];Vasquez v Soto, 61 AD3d 968, 969 [2009]). "An affirmative misrepresentation does not give rise to liability if the true facts could have been ascertained by the plaintiff[] by means available to [it] through the exercise of ordinary intelligence'" (Vasquez, 61 AD3d at 969, quoting Esposito v Saxon Home Realty, 254 AD2d 451, 451 [1998]; see also Rudnick v Glendale Sys., 222 AD2d 572, 573 [1995]).
Glazarov conclusorily states that plaintiff relied upon defendants' oral representations to him that the reason that Lipari's rent was below market value was that Lipari was maintaining the property. However, plaintiff has not alleged any details of any such agreement between defendants and Lipari, nor does plaintiff claim that defendants showed Glazarov any such agreement. Thus, plaintiff may not now complain that it was defrauded by defendants in view of the fact that, as discussed above, a simple reasonable inquiry would have disclosed the facts concerning Lipari's tenancy status. Therefore, inasmuch as the requisite element of reasonable reliance is lacking, no viable fraud claim can be asserted by plaintiff.
Plaintiff, in opposition to defendants' motion, also relies upon the case of West 90th Owners Corp. (137 AD2d at 459), in which the Appellate Division, First Department, while dismissing the plaintiff's causes of action for breach of contract and fraud which were based upon the contract of a sale of real property, found that a bargain and sale deed with covenant against grantor's acts constituted a reaffirmation of an earlier contractual representation and a new and different commitment, i.e., an agreement of indemnification pursuant to Real Property Law § 253 (6) of a type not contained in the contract of sale. The Appellate Division, First Department, upon that basis, [*7]denied dismissal of those portions of the plaintiff's breach of contract and fraud causes of action which were based upon the covenant in the deed (id.).
The case of West 90th Owners Corp. (137 AD2d at 459), however, is distinguishable form the case at bar since, in West 90th Owners Corp. (137 AD2d at 458), the plaintiff pleaded the theory that the delivery of the deed with covenant against grantor's acts constituted a further breach of contract and perpetration of fraud. Here, plaintiff has failed to plead that theory and has not annexed a copy of the deed.
Moreover, the contract of sale in West 90th Owners Corp. (137 AD2d at 457), in providing that the defendant would give the plaintiff a bargain and sale deed with covenant against grantor's acts conveying title free from all encumbrances except as therein stated, referred to an exhibit containing the list of outstanding leases. That list of leases falsely stated that one of the leases was to expire in 1987 and stated a false amount of monthly rent, and omitted the terms of an actual modification of the lease which extended the term of the lease to 1995 and raised the rent from the amount stated (id.). Here, in contrast, paragraph 48 of the rider to the contract did not misrepresent the existence of a modification to a lease, but accurately disclosed that Lipari was occupying the apartment without a lease, and paying rent on a month-to-month basis. It also accurately disclosed the below market monthly rent of $200 that Lipari was paying, which should have alerted plaintiff that further inquiry was necessary.
Significantly, paragraph 48 of the rider to the contract did not contain a statement that Lipari was not a rent controlled tenant. The fact that Lipari was paying rent on a month-to-month basis did not exclude this possibility (see e.g. Matter of Clason Mgt. Co. v Altman, 34 NY2d 643, 645 [1974]; Kahana v Gaeta, 8 Misc 3d 138[A], 2005 NY Slip Op 51313[U],*1 [App Term 2005]; Wertentiel v Coe, 132 Misc 2d 216, 217 [Civil Ct, NY County 1986]; Fisher v Velasquez, 126 Misc 2d 24, 26 [Civil Ct, NY County 1984]). Furthermore, Lipari paid plaintiff increased rent for five years after the closing of title to the property, and Lipari's status as a rent controlled tenant was only legally established and determined following litigation in the Civil Court proceeding (see Lana & Edward's Realty, 24 Misc 3d at 820). Thus, although not pleaded in plaintiff's complaint, it cannot, in any event, be said that defendants breached any covenant in the deed not to encumber the property in any way other than as stated in the contract (compare West 90th Owners Corp., 137 AD2d at 459).
Accordingly, defendants' motion for summary judgment dismissing plaintiff's complaint as against them is granted.
This constitutes the decision, order, and judgment of the court.
ENTER,
J. S. C.
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