Yiwen Zhang v Pacific Park 550 Vanderbilt LLC

[*1] Yiwen Zhang v Pacific Park 550 Vanderbilt LLC 2018 NY Slip Op 51227(U) Decided on July 19, 2018 Supreme Court, Kings County Wooten, 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 This opinion is uncorrected and will not be published in the printed Official Reports.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 July 19, 2018
Supreme Court, Kings County

Yiwen Zhang and ZHIPENG PAN, Plaintiffs,

against

Pacific Park 550 Vanderbilt LLC and KRAMER LEVINNAFTALIS & FRANKEL LLP as Escrowee, Defendants.



508124/2017



Attorneys for plaintiffs

Firm Name: Geng & Associates, P.C.

Address: 3907 Prince Street, Suite 3E, Flushing, NY 11354

Phone: 646-766-1647

Attorneys for defendants Pacific Park 550 Vanderbilt LLC & Kramer Levin

Firm Name: KRAMER LEVIN NAFTALIS & FRANKEL LLP

Address: 1177 Avenue of The Americas, New York, NY 10036

Phone: 212-715-9198
Paul Wooten, J.

The following papers were read on this motion by defendants to dismiss, and plaintiffs to amend.

PAPERS/NUMBERED

Notice of Motion/ Order to Show Cause — Affidavits — Exhibits 1-2, 3-4

Answering Affidavits — Exhibits (Memo) 5

Replying Affidavits (Reply Memo)

Motions sequence numbers 1 and 2 are consolidated for disposition.

Plaintiffs Yiwen Zhang (Zhang) and Zhipeng Pan (Pan) commenced this action against [*2]Pacific Park 550 Vanderbilt LLC (Pacific Park or Sponsor) and Kramer Levin Naftalis & Frankel LLP, as Escrowee (Kramer Levin) by filing a Summons and a Verified Complaint on April 26, 2017. The Complaint asserts the following three causes of action against Sponsor: (1) fraud based on Sponsor's Chinese agent, Liang Liu's (Liu) alleged representations regarding property tax benefits and mortgage rates in connection with a purchase of a condominium unit in a housing development at 550 Vanderbilt Avenue in Brooklyn (Condominium); (2) violation of General Business Law (GBL) § 349 based on the allegation that Sponsor engaged in fraudulent and deceptive business practices where it made wrongful representation and delayed furnishing of the condominium offering plan; and, (3) breach of the implied covenant of good faith and fair dealing based on Sponsor's alleged failure to disclose to plaintiffs the essential terms and conditions of the purchase agreement for the condominium and plaintiffs' right to review the offering plan. Plaintiffs seek the return of their $148,500.00 down payment under their first and third causes of action and treble damages under their second cause of action.

Before the Court is a motion by defendants, Pacific Park and Kramer Levin, pursuant to CPLR 3016(b) and 3211 (a)(1) and (a)(7) for an Order: (1) dismissing the three causes of action in the Verified Complaint, and (2) declaring that Pacific Park is entitled to reasonable attorneys' fees and costs, pursuant to section 35 of the Purchase Agreement. Also before the Court is a motion by plaintiffs for an Order, pursuant to CPLR 3025, for leave to amend their Verified Complaint.

BACKGROUND

Pacific Park is Sponsor of the condominium offering plan (Offering Plan) for the sale of the Condominium units (see Complaint ¶ 5). On June 28, 2015, Zhang and Pan allegedly executed an agreement to purchase unit 1203 at the Condominium for $1,485,000.00 (Purchase Agreement), pursuant to which Zhang and Pan paid Kramer Levin, as escrow agent for Sponsor, a down payment of $148,500.00 (id. ¶¶ 7-10). Sponsor allegedly counter-signed the Purchase Agreement on July 16, 2015 (id. ¶ 9).

Regarding the Offering Plan, section 11 of the Purchase Agreement provides:

"11.2. The Plan is incorporated herein by reference and made a part hereof with the same force and effect as if set forth herein at length. . . ."11.3. Purchaser hereby adopts, accepts and approves the Plan (including, without limitation, the Declaration, By-Laws and Rules and Regulations contained therein) and agrees to abide and be bound by the terms and conditions thereof . . . ."

Importantly, section 20 of the Purchase Agreement, entitled "No Representations," provides, in pertinent part:

"20. No Representations. Purchaser acknowledges that Purchaser has not relied upon any architect's plans, sales plans, selling brochures, advertisements, websites, representations, warranties, statements or estimates of any nature whatsoever, whether written or oral, made by Sponsor, Selling Agent or otherwise, including, but not limited to, any relating to the description or physical condition of the Property, the Building or the Unit, or the size or the dimensions of the Unit or the rooms therein contained or any other physical characteristics thereof, the services to be provided to Unit Owners, the estimated Common Charges allocable to the Unit, the estimated real estate taxes of the [*3]Unit, the ability to rent the Unit and/or the rental income therefor, the right to any income tax reduction for any real estate taxes or mortgage interest paid by Purchaser, or any other data, except as herein or in the Plan specifically represented; Purchaser has relied solely on his or her own judgment and investigation in deciding to enter into this Agreement and purchase the Unit. No person has been authorized to make any representations on behalf of Sponsor. No oral representations or statements shall be considered a part of this Agreement. . . ." (emphasis added).

Section 12(c) of the Purchase Agreement, entitled "Default by Purchaser," provides that Sponsor is entitled to retain the down payment as liquidated damages for breach of the Purchase Agreement:

"Sponsor and Purchaser each hereby agree and acknowledge that it would be impractical and/or extremely difficult to fix or establish the actual damage sustained by Sponsor as a result of a default by Purchaser hereunder, and that the Deposit (including all interest) shall constitute and be deemed to be the reasonable and agreed upon liquidated damages of Sponsor in respect of the possible loss of a timely closing, the possible fluctuation of values, additional carrying costs of the Unit and other expenses that may be incurred, including, without limitation, attorneys' fees, and shall be paid by Purchaser to Sponsor as Sponsor's sole and exclusive remedy."

In addition, section 35 of the Purchase Agreement provides that Sponsor is entitled to reimbursement of its legal fees and disbursements for defending its rights under the Purchase Agreement:

"35. Costs of Enforcing and Defending Agreement. Purchaser shall be obligated to reimburse Sponsor for any legal fees and disbursements incurred by Sponsor in defending Sponsor's rights under this Agreement or, in the event Purchaser defaults under this Agreement beyond any applicable grace period, in cancelling this Agreement or otherwise enforcing Purchaser's obligations hereunder. . . ."

Section 38 of the Purchase Agreement contains a standard merger clause, which provides that:

"38. Entire Agreement. This Agreement, together with the Plan, supercedes any and all understandings and agreements between the parties and constitutes the entire agreement between them with respect to the subject matter hereof."

Allegedly, Sponsor's agents or employees had shown Zhang and Pan, who reside in China, the Condominium project in Hangzhou, China (see id. ¶ 6). Specifically, the Complaint alleges that Liu, a/k/a Brilliant Liu, presented himself as the Marketing Director Southern China Area for Sponsor to plaintiffs. Plaintiffs allege further that Liu was aware that they both have limited English skills and legal knowledge but he nonetheless showed them the details about the Condominium project and purchase information, specifically featuring the fifteen (15) years real property tax benefits, 3-4% mortgage interest rate, among others, to entice plaintiffs to purchase a Condominium unit.

In addition to the Purchase Agreement, Zhang and Pan were allegedly required to sign several other documents, which they did not comprehend, including the Offering Plan receipt, Escrow Rider, and Plan/Purchase Agreement Receipt, and they signed them without assistance of counsel (id. ¶ 8). The Complaint further alleges that plaintiffs did not receive the Offering Plan until Liu emailed to them an electronic copy of it on April 18, 2016—more than nine months after they signed the Purchase Agreement (id. ¶ 11).

Allegedly, after realizing "numerous fallacy" in the representations made by Liu, plaintiffs retained counsel and, by a February 15, 2017 letter from plaintiffs' counsel, they sought to rescind the Purchase Agreement and retrieve their down payment (id. ¶ 13). Thereafter, defense counsel sent a March 22, 2017 response letter unequivocally rejecting plaintiffs' attempt to terminate the Purchase Agreement and receive a refund of the down payment.

DISCUSSION

1. Defendants' Motion to Dismiss the Complaint (MS 1)

A motion to dismiss under CPLR 3211(a)(1) on the grounds that a claim is barred by documentary evidence may be granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense to such claim as a matter of law (see Goseh v Mutual Life Ins. Co. of NY, 98 NY2d 314, 326 [2002]). To be considered "documentary," evidence must be unambiguous and of undisputed authenticity. Mortgages, deeds, contracts, and any other papers, the contents of which are essentially undeniable, qualify as documentary evidence" (see Sands Point Partners Private Client Group v Fidelity Natl. Title Ins. Co., 99 AD3d 982, 984 [2012]).

A dismissal of motion under CPLR 3211(a)(7) requires determining whether the plaintiff has stated a cause of action, but "[i]f the court considers evidentiary material, the criterion then becomes 'whether the proponent of the pleading has a cause of action'" (Sokol v Leader, 74 AD3d 1180, 1181-1182 [2d Dept 2010] [emphasis added], quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). Dismissal results only if the movant demonstrates conclusively that the plaintiff has no cause of action, or that "a material fact as claimed by the pleader to be one is not a fact at all" (Sokol, 74 AD3d at 1182, quoting Guggenheimer, 43 NY2d at 275; see also Lawrence v Graubard Miller, 11 NY3d 588, 595 [2008]). A court considering a dismissal motion on the basis of failing to state a cause of action generally must accept the facts alleged in the complaint as true and make any possible favorable inferences for the plaintiff (Sokol, 74 AD3d at 1181), even when such allegations are "upon information and belief" (Roldan v Allstate Ins. Co., 149 AD2d 20, 40 [2d Dept 1989]). However, legal conclusions and factual claims flatly contradicted by the evidence will not be presumed true (Sweeney v Sweeney, 71 AD3d 989, 991 [2d Dept 2010]; Parsippany Constr. Co., Inc. v Clark Patterson Assoc., P.C., 41 AD3d 805, 806 [2d Dept 2007]).

Defendants contend that plaintiffs' Complaint, which is based on representations allegedly made to them by a marketing representative prior to the execution of the Purchase Agreement, should be dismissed because the Purchase Agreement contained a specific disclaimer provision and a clear merger clause in sections 20 and 38, respectively. Defendants contend further that dismissal is warranted based upon the long-settled Court of Appeals decision in Danann Realty Corp. v Harris, in which the Court of Appeals held that "where a purchase agreement contains a specific disclaimer that a purchaser is not relying on extra-contractual representations by the [*4]seller, 'such a specific disclaimer destroys the allegations in plaintiff's complaint that the agreement was executed in reliance upon these contrary oral representations'" (5 NY2d 317, 320-321 [1959]).

Moreover, defendants assert that Dannan has been consistently applied to deny recovery to purchasers of condominium units who allege pre-contractual misrepresentations regarding their purchases, citing to at least seven decisions from New York appellate courts, including the Second Department. Defendants also maintain that the disclaimer in section 20 of the Purchase Agreement must be read in tandem with the merger clause in section 38 of the Purchase Agreement.

As for the first cause of action, defendants argue that it is fatally deficient because the fraud is not alleged with particularity, as required by CPLR 3016(b). While the Complaint alleges that Liu represented that the project "featured" fifteen (15) years real property tax benefits, defendants argue that the Complaint does not allege what was actually said, or why the statements were false. Similarly, defendants assert that the allegations that Liu represented that the project "featured" 3-4% mortgage interest rate is unclear and cannot constitute a misrepresentation since the range of prevailing mortgage interest rates is publicly available and can be readily confirmed by looking on any lending institution's website.

In opposition, plaintiffs argue that they do not dispute contract performance or contract terms, but misrepresentation collateral to the contract. In other words, plaintiffs are challenging the enforceability and effectiveness of the contract, and thus should not be barred by contract terms. Plaintiffs maintain that they signed the Purchase Agreement in China, are unfamiliar with real property transactions in the United States, and they were unrepresented by counsel. Plaintiffs also claim that the Complaint sufficiently pleads fraud and that such fraudulent conduct should not be barred by the merger clause in the Purchase Agreement. They maintain further that since they did not understand the disclaimer of representation clause in the Purchase Agreement, they should not be bound by it. In addition, plaintiffs argue that the Complaint sufficiently alleges Sponsor's failure to provide them the Offering Plan, which is an essential part of the Purchase Agreement and that under New York law, prospective purchasers of newly-constructed condominium must be afforded at least three business days to review an offering plan and all filed amendments prior to executing a purchase agreement. Defendants reiterate that plaintiffs' fraud claim based on alleged misrepresentations by Liu about real property tax benefits and mortgage interest rates is subject to dismissal, pursuant to CPLR 3016(b), because it lacks the requisite specificity. Defendants contend that aside from failing to adequately specify what was said, plaintiffs also do not allege what was false about what was supposedly said.

As for the second cause of action, Plaintiffs argue that the second cause of action for violation of GBL § 349 is not subject to dismissal because the Appellate Division, Second Department has held that "the advertisement and sale of residential apartments is a consumer-oriented transaction within the meaning of the statute. Plaintiffs assert that given the number of units offered for sale, the marketing campaign for the Condominium was obviously directed to the public at large. Notably, plaintiffs do not address the fact that the marketing campaign admittedly occurred in China.

Defendants contend that plaintiffs' second cause of action for violation of GBL § 349, the New York Consumer Protection Act, is also subject to dismissal because the herein action is [*5]about a "purely private" commercial transaction between Sponsor and plaintiffs. In addition, defendants argue that it is clear that the alleged wrongdoing occurred in China, not New York, thus New York consumers are in no way harmed as a class. Defendants contend that plaintiffs have merely repackaged their legally deficient fraud claim as a statutory one.

Defendants further contend that plaintiffs' second cause of action for violation of the Consumer Protection Act is not based on an "advertising campaign," like the cases relied upon by plaintiffs, but rather, plaintiffs rely exclusively on private statements allegedly made to them alone in China by Liu. Defendants argue that there is no credible allegation made here, let alone evidence presented in opposition to their motion, that these statements were part of a concerted advertising or media marketing campaign by Sponsor to the public at large. Defendants note that plaintiffs completely ignore the fact that GBL § 349 is inapplicable to misconduct that allegedly took place outside of New York.

As for the third cause of action for breach of the implied covenant of good faith, plaintiffs argue that the Complaint sufficiently states a claim because the misconduct includes Sponsor's reckless, if not willful, conduct to cause plaintiffs to sign the receipt of the Offering Plan, while the Plan was not provided until nine months later. Plaintiffs assert that the implied covenant of good faith is applicable to such issues not covered by the Purchase Agreement.

Furthermore, plaintiffs advise that they are willing to discontinue this action as against Kramer Levin, which was only sued herein as escrowee, if Kramer Levin stipulates in writing to continue to hold the down payment in escrow until the conclusion of this action.[FN1]

Defendants argue further that plaintiffs' third cause of action for breach of the implied covenant of good faith and fair dealing is also subject to dismissal because the actual provisions of the Purchase Agreement mandate a certain result and plaintiffs cannot escape that outcome merely by repackaging their claim as breach of the implied covenant of good faith.

In reply, defendants reiterate that New York law is clear that a party who signs a contract is bound by its terms, and parties claiming lack of understanding or lack of fluency in English were obligated to have the contract explained or translated before signing. Regarding plaintiffs' contention that they have a claim against Sponsor because they belatedly received the Offering Plan months after signing the Purchase Agreement, defendants clarify that the governing Martin Act regulation [FN2] provides that sponsors have the option of providing the offering plan to prospective purchasers three days prior to execution of the purchase agreement, or, if they choose not to, purchasers are given at least seven days from the execution to rescind the contract. Defendants contend that the Martin Act regulation is inapplicable here because plaintiffs did not seek to rescind their agreement until many months after the regulatory 7-day rescission period ended. In any event, defendants note that the Court of Appeals has ruled that violations of Martin Act regulations do not give rise to a private cause of action, and that dismissal is warranted where plaintiffs seek to assert claims reserved for the Attorney General.

Upon review of the foregoing papers, the Court finds that plaintiffs' entire Complaint is [*6]subject to dismissal because all three causes of action asserted therein are premised on pre-contractual oral and written representations allegedly made by Sponsor's agent in China, and are thus precluded by the "no representations" disclaimer provision in section 20 of the Purchase Agreement (Danann, 5 NY2d at 323). The Appellate Division, Second Department has upheld the dismissal of claims by prospective purchasers of condominium units based on pre-contractual representations because they are precluded by similar contractual disclaimer provisions (see e.g., Kay v Pollack, 305 AD2d 637, 638 [2d Dept 2003]; Salerno v D'Alessandro, 213 AD2d 391 [2d Dept 1995]; Risbano v 3rd & 60th Assocs., 200 AD2d 658 [2d Dept 1994]).

In particular, the Court finds that plaintiffs' first cause of action for fraud is subject to dismissal because it fails to plead the alleged fraud with the requisite specificity, as required by CPLR 3016(b). While the Complaint alleges that Sponsor's agent, Liu, represented to plaintiffs that there would be fifteen (15) years real property tax benefits and a 3-4% mortgage interest rate, plaintiffs have failed to provide sufficient details regarding the circumstances surrounding these alleged representations. Rather than clarify these allegations, plaintiffs contend that they are unable to provide further specificity about defendant's alleged fraud.

The Court also finds that dismissal of the second cause of action for violation of GBL § 349 is also warranted because the New York Consumer Protection Act is inapplicable to misconduct that allegedly took place outside of New York (see Goshen v Mutual Life Ins. Co. of NY, 98 NY2d 314, 324 [2002] [holding that under GBL § 349 "the transaction in which the consumer is deceived must occur in New York"]).

Finally, while defendants' notice of motion seeks an award of attorneys' fees and costs, pursuant to section 35 of the Purchase Agreement, defendants are not entitled to such an award because they failed to include an affirmation describing the legal services rendered. "[A]n award of attorney's fees pursuant to such a contractual provision may only be enforced to the extent that the amount is reasonable and warranted for the services actually rendered" (People's United Bank v Patio Gardens III, LLC, 143 AD3d 689, 691 [2d Dept 2016]).

Therefore, the branch of defendants motion seeking to dismiss the Complaint is granted and the branch of defendants' motion seeking an award of legal fees and costs pursuant to section 35 of the Purchase Agreement is denied without prejudice.

2. Plaintiffs' Motion for Leave to Amend the Complaint (MS 3)

Pursuant to CPLR 3025, plaintiffs also moved for leave to amend their Complaint to further specify the existence of published marketing materials that were allegedly disseminated to plaintiffs in China by Liu, Sponsor's agent. Plaintiffs thus submit a proposed amended complaint, which is identical to the original Complaint with the exception of the following additional allegation in paragraph 6:

"Upon information and belief, the Sponsor created, prepared and disseminated certain promotional materials, selling brochures and advertisements concerning the Condominium to consumers (the 'Marketing Materials') and the representations and contents contained therein, including fifteen year tax exemption, the 3-4% mortgage interest rate, among others, were false and misleading. A copy of the Marketing Materials is attached hereto as Exhibit B. The Sponsor knew that the Marketing Materials were false and misleading when they were disseminated and that other representations had become false in the process. The Sponsor's dissemination of said [*7]Marketing Materials was material inasmuch as Sponsor knew and intended that prospective buyers would rely upon the truth and accuracy of the information set forth therein. The falsehood and misrepresentation in the Marketing Materials were willful and knowing and constitutes deceptive acts, upon which Plaintiffs did not know the truth but justifiably and foreseeably relied without knowing the truth"

(see proposed amended complaint at ¶ 6). The proposed amended complaint annexes, as Exhibit B, a brochure that is entirely in Chinese without an English translation. Plaintiffs contend that the amendment would not substantially prejudice defendants since the marketing materials were already included in Exhibit B to the original Verified Complaint.

Defendants, in opposition, argue that plaintiffs' motion for leave to amend the Complaint should be denied since the proposed amendment does nothing to save the Complaint from dismissal on the multiple legal grounds described in Sponsor's pending Motion to Dismiss. Defendants contend that New York law requires denial of leave to amend when the proposed amendment would serve no purpose, lacks merit or can be shown to be futile which, they allege, is the case here. Defendants further argue that the proposed amendment only strengthens Sponsor's argument for dismissal because section 20 of the Purchase Agreement specifically disclaims reliance on representations in selling brochures.

Plaintiffs, in reply, argue that it is well-settled that § 3016 directive to plead with specificity should not defeat claims because the details thereof are peculiarly within the knowledge of the wrongdoers. Plaintiffs contend that they have pled with specificity the details of the wrongdoing, insofar as they are aware of them and the full extent of the actions undertaken by defendants in furtherance of their fraudulent marketing practice is not completely known to plaintiffs.

Here, the Court finds that plaintiffs' motion for leave to amend their Complaint does not render academic defendants' pending dismissal motion, which was addressed to plaintiffs' original Complaint (see Livadiotakis v Tzitzikalakis, 302 AD2d 369, 370 [2d Dept 2003] ["It has long been the rule in this Judicial Department that a motion to dismiss which is addressed to the merits may not be defeated by an amended pleading"]). The Court notes further that although defendants' dismissal motion is directed to the original Complaint, defendants have addressed the merits of the proposed amended complaint, arguing that it too fails to state a cause of action. Nonetheless, the Court finds that plaintiffs' proposed amended complaint does not cure the inherent defects in the original Complaint because the disclaimer in section 20 of the Purchase Agreement precludes any claim that plaintiffs reasonably relied on the marketing brochures allegedly disseminated to plaintiffs in China. Therefore, plaintiffs' motion for leave to amend the Complaint is denied.

CONCLUSION

For these reasons and upon the foregoing papers, it is hereby,

ORDERED that the branch of defendants Pacific Park 550 Vanderbilt LLC and Kramer Levin Naftalis & Frankel LLP's motion seeking to dismiss the Complaint, pursuant to CPLR 3016, 3211(a)(1) and (a)(7), is granted and the Complaint is hereby dismissed with prejudice; and it is further

ORDERED that the branch of defendants Pacific Park 550 Vanderbilt LLC and Kramer Levin Naftalis & Frankel LLP's motion seeking an award of legal fees and costs pursuant to [*8]section 35 of the Purchase Agreement is denied without prejudice and with leave to renew upon the submission of an affirmation of legal services rendered; and it is further

ORDERED that plaintiffs Yiwen Zhang and Zhipeng Pan's motion for leave to amend the Complaint, pursuant to CPLR 3025, is denied.

This constitutes the Decision and Order of the Court.

Dated: July 19, 2018

PAUL WOOTENJ.S.C.

Footnotes

Footnote 1:Subsequently, by stipulation filed on August 2, 2017, plaintiffs voluntarily discontinued the herein action against Kramer Levin. Thus, the caption is hereby amended to exclude Kramer Levin.

Footnote 2:13 NYCRR § 20.3(o)(15).