Novogratz v MIA Contr., Inc.

[*1] Novogratz v MIA Contr., Inc. 2010 NY Slip Op 51672(U) [29 Misc 3d 1202(A)] Decided on August 4, 2010 Supreme Court, New York County Yates, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 August 4, 2010
Supreme Court, New York County

Robert Novogratz and COURTNEY NOVOGRATZ, Petitioners,

against

MIA Contracting, Inc. and PETER SALVESEN, Respondents.



600556/2010



Carter Ledyard & Milburn LLP, New York City (Joshua E. Abraham of counsel), for petitioners.

Peter Marc Stern, New York City (Peter Marc Stern of counsel), for respondents.

James A. Yates, J.

This is a special proceeding brought by petitioners Robert Novogratz and Cortney Novogratz ("petitioners"), pursuant to CPLR 7503, seeking a permanent stay of an arbitration demand filed by respondents MIA Contracting, Inc. ("MIA") and Peter Salvesen ("Salvesen") (collectively, "respondents") with the American Arbitration Association ("AAA"). Petitioners claim that agreements that they and MIA entered into for the renovation of three properties were "home improvement contracts," as defined by the New York City Administrative Code (the "CODE") and are unenforceable as a matter of law by virtue of respondents' status as unlicensed home improvement contractors. Petitioners also assert that Salvesen has no standing, in his personal capacity, to enforce the agreements in arbitration. For the following reasons, petitioners' application for a permanent stay of arbitration is granted in part and denied in part.

Background

The dispute arises out of three contracts entered into between petitioners and MIA in 2004 and 2005 (the "Contracts").Under the Contracts, MIA agreed to perform substantial renovations to three existing structures located respectively at One, Two and Five Centre Market Place in lower Manhattan, and [*2]transform them into residential townhouses. The contract for Five Centre Market Place (the "5 Centre Contract") is dated October 18, 2004 (see Ex. C to the Verified Petition, dated March 3, 2010 ["Petition"]). The contract for One Centre Market Place (the "1 Centre Contract") is dated October 12, 2005 (see Ex. D to the Petition). The contract for Two Centre Market Place (the "2 Centre Contract") is dated April 1, 2005 (see Ex. E to the Petition).

The Contracts are substantially similar in most material terms, including Section III(J) of the Contracts which provides for arbitration before the AAA for disputes arising out of the Contracts involving more than $5,000. The Contracts were signed by petitioners and by Salvesen on behalf of MIA (see Exs. C, D and E to the Petition).

Respondents, claiming $950,000 in damages, seek to enforce in arbitration, Section III(D)of the Contracts that provides that MIA is entitled to 25% of the cost of labor and materials performed and supplied by other subcontractors while MIA is working on the projects (id.).

Petitioners owned Five Centre Market Place at the time they entered into the 5 Centre Contract with MIA. After renovations were complete, petitioners and their children moved in to Five Centre Market Place and lived there for approximately 20 months (see respondents' memorandum of law, dated April 21, 2010 ["respondents' memo"], at 6; Answering Affidavit of Respondent Peter Salvesen, dated Apr. 21, 2010 ["Salvesen Aff"], ¶ 26 [incorporating and adopting all of the allegations . . . set forth . . . in the Memorandum of Law"]).

However, petitioners were no longer the owners of One and Two Centre Market Place at the time they entered into the 1 and 2 Centre Contracts with MIA. Petitioners had sold One Centre Market Place eight months before they entered into the 1 Centre Contract (see Ex. F to the Petition). Likewise, petitioners had sold Two Centre Market Place six months before they entered into the 2 Centre Contract (see Ex. G to the Petition). Concurrent with the sale of One and Two Centre Market Place, petitioners entered into consulting agreements with the new owners of these properties under which petitioners agreed to, among other things, "[a]dvise and assist [the] Owners in working with MIA Construction, Inc." during the renovation period (see Exs. H and I to the Petition [the "Consulting Agreements"], ¶ 2.4.3). Despite the sale of these properties, petitioners are listed as the owners in the 1 and 2 Centre Contracts and in filings with the Department of Buildings (see Petition ¶ 20). [*3]

Respondents were not licensed as home improvement contractors by the New York City Department of Consumer Affairs or the New York City Department of Buildings at the time they entered the Contracts, or any time thereafter (see Petition ¶ 2; Verified Answer, dated Apr. 16, 2010 [the "Answer"], ¶ 3). MIA ceased doing business about September 2006 (Answer¶ 3) and has since been dissolved by proclamation (see Ex. A to the Answer).

Discussion

Public policy prohibits a home improvement contractor not licensed by the Department of Consumer Affairs ("DCA") from enforcing the terms of a home improvement contract either in New York State court (seeVanguard Const. & Dev. v Polsky, 24 Misc 3d 854 [Sup Ct, NY County 2009] or in an arbitration(see Al-Sullami v Broskie, 40 AD3d 1021, 1022 [2d Dept 2007]).

The source of this rule is § 20-387 of the Code which provides that "[n]o person shall solicit, canvass, sell, perform or obtain a home improvement contract as a contractor or salesperson from an owner without license therefore."

The term "owner" as used in § 20-387 is defined by § 20-386(4) as "any homeowner, cooperative shareholder, condominium unit owner, tenant or any other person who orders . . . home improvement services . . . pursuant to a home improvement contract." The term "home improvement contract" is defined by § 20-386(6) as an "agreement . . . between a contractor and an owner . . . regardless of the number of residences or dwelling units contained in the building in which the tenant resides, provided said work is to be performed in, to or upon the residence or dwelling unit of such tenant ...."

Accordingly, only a person who resides or intends to reside in the dwelling upon which a contractor is working is entitled to the protections of the licensing statute:

"The term owners' as defined in the Statute applies to individuals who reside in the subject premises and those who intend to reside in the subject premises after the home improvements are completed. It does not apply to speculators and real estate investors who have no interest of residing in the subject premises. These latter classes of individuals are business people who have other remedies available to them and who may not rely on consumer-type statutes for protection."

Routier v Waldeck, 184 Misc 2d 487, 490 (Dist Ct Nassau County 2000). [*4]

In the instant case, petitioners contend that the Contracts are "home improvement contracts," and are unenforceable by virtue of respondents' status as unlicensed contractors. Respondents, in turn, argue that petitioners entered into the Contracts in their capacity as real estate developers and therefore are not entitled to the protections provided by the licensing statute.

Analysis

Five Centre Market Place

A person who resides or intends to reside in the dwelling upon which a contractor is working is entitled to the protections of the licensing statute (Routier,184 Misc 2d at 490). Here, there is no claim that petitioners were residing in Five Centre Market Place at the time they contracted with MIA for its renovation. Instead, the question before this Court, is whether petitioners intended to reside at Five Centre Market Place at the time they entered the 5 Centre Contract.

Petitioners claim that such intent is evidenced by the fact that petitioners did ultimately move into and occupy all of Five Centre Market Place once respondents' renovation work was complete (Supplemental Affidavit of Robert Novogratz, dated July 7, 2010 ["Novogratz Supp Aff"], ¶ 4). Petitioners also assert that respondents could never have believed otherwise. In particular, petitioners point to renovation plans and design elements for Five Centre Market Place, carried out by respondents, that were unique to the specific needs of petitioners' unusually large family (id., ¶¶ 5-10). Robert Novogratz also alleges that he had conversations with Salvesen in which he made clear that Five Centre Market Place was to be for his family (id., ¶ 14). Given this demonstration, petitioners argue that, irrespective of whether or not they are real estate developers, the 5 Centre Contract constitutes a "home improvement contract," and therefore, respondents - unlicensed contractors - are barred from proceeding against petitioners to enforce this agreement.

For their part, respondents insist that petitioners never intended to reside at Five Centre Market Place, and instead, were developing the subject property for profit (Salvesen Aff ¶ 6). According to respondents, petitioners were only forced to move in because they couldn't find a buyer (Answer ¶ 10), and therefore, no indicia of intent should be inferred from petitioners actual residence at that location. In support, respondents rely on, among other things, alleged conversations Salvesen had with petitioners and a building plan for Five Centre Market Place [*5]containing an entry that says "Cortney's Friend" (id., ¶ 1; respondents' memo at 4). Instead, according to Salvesen, petitioners intended to move into another property at Four Centre Market Place that was the subject of a separate agreement between petitioners and respondents that is not at issue in the present dispute (Answer ¶ 5; Salvesen Aff ¶ 7).[FN1] Respondents also point to various publications about petitioners' business activities in which the petitioners claim to have moved 12 times in 10 years (Answer ¶ 11; respondents' supplemental memorandum, dated July 13, 2010 ["respondents supp memo"], at 21).

Respondents' acknowledgment that petitioners moved into 5 Centre Market Place after the issuance of the certificate of occupancy, and lived there for close to two years (see respondents' memo at 6) is dispositive, in the Court's opinion, on the question of petitioners' intent (see B & G Mechanical Corp. v Vista of New York, Inc., 2008 WL 638413, *6 [Sup Ct, NY County Feb. 14, 2008] [finding that question of homeowner's intent to reside in the property was resolved by actual residence after renovation].

Because petitioners intended to reside at Five Centre Market Place at the time they entered the agreement with respondents, the 5 Centre Contract is a "home improvement contract" and may not be enforced by respondents as a matter of law. Accordingly, petitioners' application for a permanent stay of arbitration with respect to the 5 Centre Contract, is granted.

One and Two Centre Market Place

Petitioners, relying on Lorenzo Marble & Tile Inc. v Meves, 236 AD2d 448, 448 (2d Dept 1998), claim that they, as duly appointed representatives and agents for the respective owners of One and Two Centre Market Place, "fall within the ambit of the statute's consumer protections, having contracted directly for the owner's benefit (see petitioners' memorandum of law in support of the verified petition, dated Mar. 3, 2010 ["petitioners' memo"], at 6-7). Petitioners claim to find further support for this position in the language of § 20-386(4) which defines an "owner" as "any homeowner . . . or any other person who orders . . . home improvement services (emphasis added)" (id.). [*6]

Contrary to petitioners contentions, the Code does not protect agents acting on behalf of an "owner." First, petitioners' reliance on Lorenzo is misplaced. In Lorenzo, the court ruled that an unlicensed sub-contractor could not maintain an action against a contractor hired by the homeowner because, inter alia, the provisions of the East Hampton Town Code included within its definition of a home improvement contract, an agreement between a contractor and "an owner or his agent" (see Lorenzo at 448). However, the quoted language from the East Hampton Town Code has no parallel in the relevant provisions of the Code, and consequently, the law in New York City is that an unlicensed sub-contractor may sue a contractor (see Parker v Vista Const. Concepts, Inc., 134 Misc 2d 1, 2 [Sup Ct App Term, 2nd Dept 1986]). Second, the term "or any other person" in § 20-386(4) has consistently been defined and limited by New York City courts, as referring to homeowners and not non-resident agents like petitioners:

"As the specific words appearing in [§ 20-386] subdivision 4 refer to persons who possess a proprietary or rental interest in the affected residential premises, it is proper to so limit ["any other person[s]"] meaning and exclude from the protective scope of the ordinance an entity such as the defendant which itself was hired as a contractor to perform a home improvement . . . It is clear from the definitional language employed that the person seeking to invoke the license requirements of the ordinance must actually reside in the dwelling unit in which the work is to be performed, and that an agreement between two (non-resident) contractors is not among the species of contracts whose enforcement the ordinance is designed to proscribe (internal citations omitted)."

Jack A. Corcoran Marble Co., Inc. v Clark Const. Corp., 155 Misc 2d 49, 50-51 (Sup Ct App Term, 1st Dept 1993) (holding that the Code does not bar an unlicensed subcontractor from bringing an action against a contractor).[FN2]

Consequently, the 1 and 2 Centre Contracts are not home improvement contracts and may be enforced by respondents as a matter of law. Accordingly, petitioners' application for a permanent stay of arbitration with regard to the 1 and 2 Centre Contracts is denied.

[*7]Salvesen's Standing

Finally, petitioners claim that Salvesen, named as a claimant in the demand for arbitration (see Ex. A to the Petition), is not a party to the Contracts, and therefore may not enforce the Contracts in his individual capacity in an arbitration against petitioners.

Although respondents argue that "the issue should be determined by the American Arbitration Association," (respondents' memo at 11), the role of the Courts under Article 75 of the CPLR, is to adjudicate threshold issues relating to the validity of an agreement to arbitrate (see Kennelly v Mobius Realty Holdings LLC, 33 AD3d 380, 382 [1st Dept 2006] [citing M.I.F. Sec. Co. v Stamm & Co., 94 AD2d 211, 213 [1st Dept 1983], affd in part 60 NY2d 936 [1983] ["it is a judicial responsibility, and not the arbitrator's, to decide the threshold question of whether the parties are bound by a valid agreement to arbitrate"]). This requirement extends to determining the threshold issue of whether a party seeking to arbitrate is a valid assignee of an arbitration agreement (see Application of Marcus, 255 AD 275, 276 [1st Dept 1938]).

Here, there is no dispute that Salvesen, in his individual capacity, is not a party to the Contracts (Answer ¶ 18). Instead, respondents rely on a admittedly "inartistic" handwritten assignment, dated October 25, 2008 between MIA and Salvesen (see Exhibit "AA" of the Answer) that was intended to effect the closing of a bank account (Answer ¶ 18).

Respondents concede that they "cannot represent to this Court whether or not said agreement is valid and enforceable" (see respondents' memo at 20). What is certain, though, is that this assignment cannot effect a transfer of MIA's rights to maintain an arbitration against petitioners:

"an assignment of rights generally requires language manifesting an intention by the owner of the right to make the transfer. There must be sufficient language to establish a completed transfer of title to a present right. Although an assignment need not utilize any particular phraseology or form there must be evident words which show an intention of transferring the chose in action to the assignee, when the assignor is divested of all control and right to [the] cause of action and the assignee is entitled to control it and receive its fruits."

In re Pearl-Wick Corp., 26 BR 604, 608 (SD NY 1982) (invalidating [*8]purported assignment under New York law)(internal citations omitted).

In the instant case, the assignment presented by respondents does not meet the specificity requirement. The assignment does not refer to the Contracts, nor does it reference a right to sue on liabilities allegedly owed by petitioners to MIA. Instead, the purported assignment merely transfers "all of [MIA's] assets and money to Peter Salvesen who is the only owner of this corporation including the Valley National Bank Account which is being closed (see Ex. AA to the Answer)." The assignment then states that prospectively "this [assignment] shall apply to anyone having business with the Corporation and Peter Salvesen, and Peter Salvesen will be responsible for all the bills and invoices from now on" (id.). Consequently, Salvesen may not compel arbitration on his behalf in his personal capacity, but may represent MIA's interests as sole shareholder at the arbitration proceeding. Salvesen acknowledges that he would not be prejudiced by such a determination as MIA is entitled to maintain an arbitration proceeding as part of its winding up process, pursuant to New York Business Corporation Law §§ 1005(a)(1) and 1117(a) (see respondents' memo at 21).

Accordingly, the purported assignment does not provide respondent Salvesen with standing to maintain an arbitration in his personal capacity against respondents to recover on the Contracts.

Conclusion

For the foregoing reasons, it is:

ADJUDGED that the petition for permanent stay of the arbitration, bearing File No. 13 110 03280 09, is granted, in part, and denied, in part; and it is further

ADJUDGED that the arbitration proceedings with respect to the 5 Centre Contract are hereby permanently stayed; and it is further

ADJUDGED that the MIA and petitioners shall proceed to arbitration forthwith regarding their dispute over the 1 and 2 Centre Contracts and petitioners' counsel shall serve a copy of this judgment upon the arbitral tribunal within 20 days; and it is further

ADJUDGED and DECLARED that the assignment by MIA to Salvesen, dated October 25, 2008, does not confer standing upon Salvesen to arbitrate in his individual capacity. [*9]

This constitutes the Decision and Judgment of the Court.

Dated: August 4, 2010

ENTER:

James A. Yates, J.S.C. Footnotes

Footnote 1: Of course, respondents do nothing to strengthen their argument by acknowledging that they were unlicensed contractors at the time they entered into a contract to provide home improvement services to petitioners.

Footnote 2: Accordingly, we need not consider respondents' argument that petitioners status as agents of the actual owners was never disclosed to Respondents.