CREF 546 W. 44th St., LLC v Hudson Meridian Constr. Group, LLC

[*1] CREF 546 W. 44th St., LLC v Hudson Meridian Constr. Group, LLC 2020 NY Slip Op 20172 Decided on July 17, 2020 Supreme Court, New York County Lebovits, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and subject to revision before publication in the printed Official Reports.

Decided on July 17, 2020
Supreme Court, New York County

CREF 546 West 44th Street, LLC, and PATRINELY GROUP, LLC, Plaintiffs,

against

Hudson Meridian Construction Group, LLC and CODE CONSULTANTS PROFESSIONAL ENGINEERS, PC, Defendants.



655672/2019



Clifton Budd & DeMaria, LLP, New York, NY (Arthur J. Robb and Stephen P. Pischl of counsel), for plaintiffs.

Rich, Intelisano & Katz, LLP, New York, NY (Daniel E. Katz of counsel), for defendant Hudson Meridian Construction Group, LLC.

Rawle & Henderson, LLP, New York, NY (Robert A. Fitch of counsel), for defendant Code Consultants Professional Engineers, PC.
Gerald Lebovits, J.

The following e-filed documents, listed by NYSCEF document number (Motion 001) 6, 7, 8, 9, 10, 11, 12, 22, 24, 25, 26, 27 were read on this motion to DISMISS

The following e-filed documents, listed by NYSCEF document number (Motion 002) 13, 14, 15, 16, 17, 18, 19, 20, 21, 23, 28, 29, 30, 31, 32 were read on this motion to DISMISS

Plaintiff Patrinely Group is a developer. Patrinely Group owns plaintiff CREF 546 West 44th Street, LLC (CREF 546). CREF 546 in turn owns property on the far West Side of Manhattan that it intended to develop into two residential apartment buildings. CREF 546 hired defendants, Hudson Meridian Construction Group, LLC, and Code Consultants Professional Engineers, PC, to build the two apartment buildings and to ensure that the buildings complied with the governing building codes and other federal, state, and local laws.

After the project was completed, a wheelchair-using resident of one of the new apartment buildings sued CREF 546, Patrinely Group, and other defendants in federal court. The resident alleged that his building violated federal and state law by being not properly accessible for him given his disabilities. He sought injunctive relief and compensatory and punitive damages.

CREF 546 and Patrinely Group then brought this action, alleging that in light of the federal lawsuit (and discovery developed in that lawsuit), Hudson Meridian and Code Consultants had each (i) breached contractual obligations to ensure that the buildings complied with state and federal accessibility requirements; (ii) in so doing also committed professional negligence; and (iii) breached further contractual obligations to indemnify CREF 546 for expenses (and potential damages recovery) from the federal lawsuit.

Hudson Meridian and Code Consultants move separately under CPLR 3211 to dismiss all claims brought by plaintiffs (motion sequences 001 and 002, respectively). These motions—which raise issues of first impression under New York law—are consolidated here for disposition.

The motions are granted as to plaintiff Patrinely Group's claims for breach of contract and negligence against both defendants; granted as to Patrinely Group's claim for contractual indemnification against Code Consultants; and granted in part and denied in part as to Patrinely Group's claim for contractual indemnification against Hudson Meridian. The motions are granted in part and denied in part as to plaintiff CREF 546's claims for breach of contract; granted as to CREF 546's claims for professional negligence; and granted in part and denied in part as to CREF 546's claims for contractual indemnification.

BACKGROUND

I. CREF 546's Contracts with Hudson Meridian and Code Consultants

According to the allegations of the complaint, CREF 546 owns property located at 546 West 44th Street in Manhattan. This property was to be developed into residential apartment buildings. Patrinely Group, which owns CREF 546, was to serve as the project's development manager. As part of the development process, CREF 546 entered into separate contracts with Code Consultants and Hudson Meridian. (See NYSCEF Nos. 31 [Code Consultants contract], 26 [Hudson Meridian contract].)

Code Consultants is an engineering consulting firm. CREF 546 hired Code Consultants to review its design and construction documents and as-built drawings to ensure that the project would comply with applicable legal requirements, including the Fair Housing Act and local law. (See Compl., NYSCEF No. 1, at 7.[FN1] ) The contract provided that absent written authorization from CREF 546, Code Consultants' compensation on the contract would not exceed $14,000 plus reimbursable expenses. (NYSCEF No. 31 at 2.)

Code Consultants represented that it would perform its contractual obligations "in accordance with the professional standards and degree of care exercised by other consultants providing similar accessibility consulting services in the construction industry in New York City." (NYSCEF No. 31 at 1.) And Code Consultants agreed, "to the fullest extent permitted by law," to "indemnify and hold harmless owner and its officers, directors, employees and affiliates from and against all liabilities, damages, costs and expenses" to the "extent arising out of or resulting from any errors or omissions, whether negligent or willful, relating to the performance [*2]of the services" under the contract." (NYSCEF No. 31 at 3-4 [capitalization omitted].)

Hudson Meridian was the project's general contractor. In its contract with CREF 546, Hudson Meridian represented that it had "sufficient knowledge and expertise to construct the Work in accordance with the Drawings and Specifications" and with "all applicable laws, codes, regulations, and professional standards customarily adhered to by contractors working on comparable projects in the New York City metropolitan area." (NYSCEF No. 26 at 14, Construction Contract § 10.4.3.) Hudson Meridian represented that it had "reviewed, analyzed, and found generally sufficient for completion of the Work the Contract Documents" identified in the agreement, including the architectural plans for the two apartment buildings. (Id.) And Hudson Meridian expressly "acknowledge[d] . . . that the Drawings, the Specifications and all Addenda are sufficient to enable the Contractor to construct the Work as outlined therein in accordance with applicable laws." (Id. at 114, General Conditions § 3.2.4.)

Additionally, Hudson Meridian agreed, to the "fullest extent permitted by law," to "defend, indemnify and hold harmless the Owner . . . [and] the Development Manager . . . from and against claims, damages, losses, suits, judgments, and expenses, including but not limited to attorneys' fees and expert witness fees, arising out of or resulting from performance of the Work." (Id. at 125, General Conditions § 3.18.1.) Hudson Meridian's "indemnity, defense and hold harmless obligations" under § 3.18.1 "also specifically include[d], to the extent not prohibited by law, without limitation, all fines, claims penalties, damages, liability, costs, expenses, settlements . . . and punitive damages (if any) arising out of, or in connection with," any "violation of or failure to comply with any requirement of a governmental authority that is consistent with the Contract Documents and which bears upon the performance of the Work." (Id. at 126, General Conditions § 3.18.3.)

II. The Federal Lawsuit Against CREF 546 and Patrinely Group

The buildings opened for leasing to residents in 2016. In 2018, a resident in one of the buildings brought an action in the U.S. District Court for the Southern District of New York against CREF 546, Patrinely Group, and other defendants. The resident, who has disabilities and uses a wheelchair, alleged that the building is not fully accessible to people with disabilities, in violation of the federal Fair Housing Act, the New York State Human Rights Law, and the New York City Human Rights Law. His complaint sought declaratory relief, injunctive relief requiring defendants to cure the lack of accessibility in the buildings, and compensatory and punitive damages.[FN2] (See generally NYSCEF No. 9 [federal complaint].)

III. This Action

CREF 546 and Patrinely Group then brought this action against Hudson Meridian and Code Consultants, asserting three claims against each defendant.

The first claim (the complaint's first and second causes of action) sounds in breach of contract. It alleges that defendants breached contractual representations that they would (a) construct the buildings in accordance with the contract documents and plans and take care to ensure the buildings comply with applicable accessibility requirements; and (b) indemnify plaintiffs for losses and damages arising from defendants' performance of contractual services.

The second claim (the complaint's third and fourth causes of action) sounds in professional negligence, alleging that defendants did not perform their contractual services with due care and in accordance with applicable professional standards.

The third claim (the complaint's fifth and sixth causes of action) sounds in contractual indemnification under the contracts' indemnity provisions.

On the complaint's first through fourth causes of action, plaintiffs seek damages from each defendant, in an amount they estimate to exceed $500,000. (See NYSCEF No. 2 at 17-18.) On the fifth and sixth causes of action, plaintiffs seek a judgment finding that each defendant is obligated under their respective contracts "to indemnify Plaintiffs for the amount of any recovery obtained by the Accessibility Litigants and/or such third parties against Plaintiffs, including attorneys' fees, costs, and expenses incurred in connection with such defense." (Id. at 18.)

Defendants now move separately to dismiss under CPLR 3211 (a) (7) to dismiss the claims against them.

DISCUSSION

When ruling on a CPLR 3211 (a) (7) motion to dismiss, this court must accept as true the facts as alleged in the pleadings and submissions in opposition to the motion, accord the non-moving party the benefit of every possible favorable inference and determine only whether the facts as alleged fit within any cognizable legal theory. (See Whitebox Concentrated Convertible Arbitrage Partners, L.P. v. Superior Well Servs., Inc., 20 NY3d 59, 63 [2012].)

I. Hudson Meridian's Motion to Dismiss (Motion Sequence 001)

Hudson Meridian moves to dismiss all claims against it brought by both plaintiffs (the complaint's first, third, and fifth causes of action). As to each plaintiff, Hudson Meridian's motion is granted in part and denied in part.

A. The Branch of the Motion Seeking Dismissal of CREF 546's Claims

1.The breach-of-contract claim

Hudson Meridian's motion to dismiss CREF 546's claim for breach of contract is granted in part and denied in part.

As discussed above, this claim relies on two distinct allegations: (i) that Hudson Meridian breached the contract by "failing to faithfully execute construction of the Project as required by the Contract Documents" so as to conform to governing law (NYSCEF No. 1 at 37); and (ii) that Hudson Meridian "further materially breached" the contract by refusing to defend or indemnify plaintiffs as to "claimed damages arising out of, or in connection with" allegations that the project failed to conform to governing law (id. at 40).

With respect to the latter of these two allegations, the contract does explicitly require Hudson Meridian to indemnify CREF 546. But the refusal-to-indemnify branch of CREF 546's contract claim merely duplicates the freestanding contractual-indemnification cause of action, and is subject to dismissal on that basis.[FN3]

Hudson Meridian argues that the failure-to-faithfully-execute branch of CREF 546's contract claim should also be dismissed as coextensive with CREF 546's contractual-indemnification claim. But the Appellate Division has cautioned in this precise context against conflating claims for breach of contract with claims for indemnification. In particular, the mere [*3]"fact that the complaint cites the defendants' alleged failure to take into account the New York Human Rights Law" and the FHA "as particular instances of conduct that deviated from the applicable standard of care, or constituted a breach of the alleged agreements, does not render those causes of action improper claims for indemnity or contribution." (Regency Club at Wallkill, LLC v Appel Design Grp., P.A., 112 AD3d 603, 608 [2d Dept 2013].)

Hudson Meridian argues that the only damages that CREF 546 identifies are grounded in the federal action, and thus are merely requests for indemnification in different guise. (See NYSCEF No. 24 at 4-6.) This court reads plaintiffs' complaint differently. The complaint alleges that Hudson Meridian failed to build the buildings properly as set forth in the contract, and that as a result CREF 546 has been exposed to costs and expenses. (See NYSCEF No. 2 at 9-10.) Such monetary harms could exist entirely independently of defense costs and damages from the federal action—for example, costs incurred by CREF 546 to remedy accessibility problems in the buildings. This court is not persuaded by Hudson Meridian's argument that in the absence of affidavits or other evidence to substantiate such monetary harms, the court should regard the failure-to-properly-build branch of CREF 546's contract claim as sounding merely in indemnity.

2. The professional-negligence claim

Hudson Meridian's motion to dismiss CREF 546's professional-negligence claim is granted.

A "simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated." (Dormitory Auth. of the State of NY v Samson Constr. Co., 30 NY3d 704, 711 [2018] [internal quotation marks omitted].) CREF 546's "negligence allegations in the complaint in the complaint" are "merely a restatement, albeit in slightly different language" of the "contractual obligations asserted in the cause of action for breach of contract." (Id.; see NYSCEF No. 2 at 9-10 [breach of contract], 12 [negligence].) That CREF 546 frames some of the allegations supporting the negligence claim in terms of a failure to comply with professional standards does not, without more, transform a contract claim into a tort claim. (See Samson Construction, 30 NY3d at 711-712.) And this case does not involve harms resulting from "an 'abrupt, cataclysmic occurrence' not contemplated by the contracting parties"; instead, CREF 546 is "essentially seeking enforcement of contract rights."[FN4] (Id. at 713, quoting Sommer v Federal Signal Corp., 79 NY2d 540, 552 [1992].)

CREF 546 argues that its negligence claim should not be dismissed because plaintiffs are permitted under CPLR 3014 to plead causes of action in the alternative. (See NYSCEF No. 22 at 25.) But CREF 546 has not asserted alternative and inconsistent theories of recovery—as is the case, for example, when a plaintiff pleads two causes of action for the same wrong that sound in contract and in unjust enrichment. Instead, CREF 546's position is that Hudson Meridian's alleged breach of its contractual obligations gave rise simultaneously to separate, parallel claims in contract and tort. On the facts as CREF 546 has alleged them, that position is without merit.

3. The contractual-indemnification claim

Hudson Meridian's motion to dismiss CREF 546's contractual-indemnification claim is [*4]granted in part and denied in part.

As discussed above, this claim arises out of § 3.18.3 of the General Conditions of the contract between Hudson Meridian and CREF 546. In that provision Hudson Meridian agreed, to the extent not prohibited by law, to defend, indemnify, and hold harmless CREF 546 for all claims, liability, damages, costs, expenses, settlements, and punitive damages arising out of any failure to comply with any requirement of a governmental authority that was consistent with the contract and that bore upon Hudson Meridian's construction of the buildings. (See NYSCEF No. 26 at 126.)

Here, CREF 546 alleges that Hudson Meridian deviated from the building plans and specifications in ways that violated federal, state, and local law. CREF 546 seeks indemnification under § 3.18.3 for defense costs and potential damages arising from the federal action seeking redress for those alleged violations.

As pleaded, these allegations ordinarily would state a cause of action in indemnification. The question is thus whether the contractual-indemnification claim is otherwise barred. This court concludes that at this stage of the action, the claim is barred only to the extent that it seeks indemnification for (i) alleged violations of federal law; and (ii) punitive damages awarded for alleged violations of state and local law. The contractual-indemnification claim otherwise may proceed.

a. Indemnification for claims under federal law

Hudson Meridian argues that CREF 546's contractual-indemnification claim with respect to alleged violations of the federal Fair Housing Act is preempted by that statute, and therefore must be dismissed. This court agrees.

As an initial matter, the parties do not cite, and this court has not found, any New York appellate precedent on this issue. In fact, the only New York case on point of which this court is aware is the decision of Supreme Court, Orange County (Onofry, J.), in Regency Club at Wallkill, LLC v Appel Design Grp., P.A. (Index No. 13477/2010, 2011 WL 12564186, at *4-*6 [Sup Ct, Orange County, Nov. 21, 2011], affd on other grounds 112 AD3d 603 [2d Dept 2013).[FN5] There, Supreme Court held that the plaintiff could not assert contractual-indemnification claims for alleged violations of federal law. This court concludes that the ruling in that case, though not binding here, is persuasive.

Federal courts considering whether a private party defending itself against an FHA disability-discrimination claim is permitted to seek indemnification from third parties have consistently held that these statutes do not create a federal right to indemnity. (See e.g. Mathis v United Homes, LLC, 607 F Supp 2d 411, 421-423 [EDNY 2009]; Access 4 All Inc. v Trump Intl. Hotel & Tower Condominium, 2007 WL 633951, at *6-*7 [SDNY Feb. 26, 2007]; accord Equal Rts. Ctr. v Archstone Smith Trust, 603 F Supp 2d 814, 821-823 [D Md 2009], affd sub nom. Equal Rts Ctr. v Niles Bolton Assocs., 602 F3d 597 [4th Cir 2010]; Miami Valley Fair Hous. Ctr., Inc. v Campus Village Wright St., LLC, 2012 WL 4473236, at *3-*6 [SD Ohio Sept. 26, 2012]; United States v Murphy Dev., LLC, 2009 WL 3614829, at *1-*2 [MD Tenn Oct. 27, 2009]; United States v Quality Built Constr., Inc., 309 F Supp 2d 767, 778-779 [EDNC 2003].)

To the contrary, the federal courts, taking into account the language, structure, and purposes of these statutes, have concluded that Congress "deliberately intended that each co-defendant" in a disability-discrimination suit have a "non-indemnifiable, non-delegable duty to comply with the FHA" and to compensate others for its own conduct." (United States v Gambone Bros. Dev. Co., 2008 WL 4410093, at *8 [ED Pa Sept. 25, 2008]; accord Mathis, 607 F Supp 2d at 423 [same]; United States v Shanrie Co., 610 F Supp 2d 958, 961 [SD Ill 2009] [same].)

To be sure, CREF 546's claim does not rest on a right to indemnity implied under the FHA, but rather on a state-law contractual right to indemnity. That distinction, however, makes no difference here. (See Regency Club at Wallkill, 2011 WL 12564186, at *5.) Federal courts have made clear that a federal defendant like CREF 546 cannot circumvent the absence of a federal right to indemnity through bringing a state-law contractual-indemnification action. "Allowing an owner to completely insulate itself from liability for an ADA or FHA violation through contract"—notwithstanding that owner's "non-delegable duty to comply with the ADA and FHA"—would "diminish[] [the owner's] incentive to ensure compliance with discrimination laws." Niles Bolton., 602 F3d at 602; accord Miami Valley Fair Hous. Ctr., 2012 WL 4473236, at *4 [same]; Murphy Development, 2009 WL 3614829, at *2 [same].) Such a state-law contract claim is therefore preempted as an obstacle to the purposes of federal law. (See Niles Bolton, 602 F3d at 602.)

Notably, CREF 546's opposition to the motion to dismiss does not identify any contrary authority. (See generally NYSCEF No. 22 at 14-20.) Nor does CREF 546 explain why this court should reject the consistent conclusion of the federal precedents discussed above.

Indeed, CREF 546 acknowledges that "to the extent the ADA explicitly imposes liability on property owners," permitting "common-law indemnification to shift liability to . . . the actual architect who designed or the contractor who built the building" would "entirely frustrate the statute's designated remedial scheme" and enable owners to "evade responsibility." (NYSCEF No. 22 at 17.) CREF 546 does not provide a reason why permitting contractual indemnification would lead to a different result. If anything, common-law indemnification under New York law is narrower than the contractual indemnification at issue here: common-law indemnity principles provide that a "party who has itself actually participated in the wrongdoing cannot receive the benefit of this doctrine," whereas §§ 3.18.1 and 3.18.3 do not contain that limitation. (See Trustees of Columbia Univ. v Mitchell/Giurgola Assocs., 109 AD2d 449, 453 [1st Dept 1985]; NYSCEF No. 26 at 125, 126.)

This court sees no basis to depart from the decision of Supreme Court, Orange County, in Regency Club at Wallkill and the consistent body of federal precedent on this issue. CREF 546's claim for contractual indemnification is dismissed to the extent it is based on alleged violations of federal law.

b. Indemnification for claims under state and local law

CREF 546 also asserts claims for contractual indemnification based on alleged violations of the New York State and New York City Human Rights Laws. Hudson Meridian's motion to dismiss these claims is granted only in limited part.

Since these contractual claims are based on state and local statutes rather than federal law, preemption principles are not relevant here. Rather, the question is whether it is contrary to New York public policy for a contractual term to require indemnity under these circumstances.

As an initial matter, § 3.18.3 would on its face require indemnification even of punitive [*5]damages awarded for violations of state and local law. (See NYSCEF No. 26 at 126.) Longstanding authority bars this requirement of § 3.18.3 on public-policy grounds. (See Hartford Acc. & Indem. Co. v Village of Hempstead, 48 NY2d 218, 226 [1979]; Biondi v Beekman Hill House Apt. Corp., 257 AD2d 76, 81-82 [1st Dept 1999].) Hudson Meridian's motion to dismiss CREF 546's state-law-based indemnity claims is granted to that extent.

Section 3.18.3 also requires indemnification of compensatory damages awards and other losses, expenses, and costs flowing from violations of the State and City Human Rights Laws. This court is not aware of any New York precedent examining whether those particular indemnity claims are barred as contrary to public policy. (Cf. Regency Club at Wallkill, 2011 WL 12564186, at *6 [after noting the absence of precedent on this issue, declining to dismiss because defendant failed to specifically address plaintiff's state-law and local-law indemnity claims].[FN6] ) Examining this question as a matter of first impression, this court concludes that the indemnity claims are not barred at the pleading stage.

In the abstract, there is some force to the idea that, as in the federal context, permitting a property owner to obtain contractual indemnity for violations of state and local statutes barring disability discrimination would impermissibly offload the owner's responsibility for complying with those statutes. This court, though, does not write on a clean slate. Although the question of contractual indemnity for this particular type of loss (and alleged wrongdoing) is new, a well-developed body of precedent provides more general guidance about when a New York court should decline to give effect to a contract's indemnification clause. That body of precedent indicates that the indemnity provision at issue here is permissible.

Under New York law, indemnification agreements pertaining to compensatory damages "are unenforceable as violative of public policy only to the extent that they purport to indemnify a party for damages flowing from the intentional causation of injury." (Austro v Niagara Mohawk Power Corp., 66 NY2d 674, 676 [1985]; accord Bank of NY v Neumann, 216 AD2d 189, 190-191 [1st Dept 1995].) To find "intentional causation of injury" for these purposes "it must be established not only that the insured acted intentionally but, further, that it acted with the intent to harm or injure others." (J.P. Morgan Secs. Inc. v Vigilant Ins. Co., 21 NY3d 324, 335 [2013].) Thus, indemnity for wrongdoing is barred only where the wrongdoer is alleged (or found) "to have intended the consequences of such conduct." (Viacom Inc. v Philips Elecs. N. Am. Corp., 16 AD3d 215, 216 [1st Dept 2005] [emphasis added].) Conversely, "one whose [*6]intentional act causes an unintended injury may be . . . indemnified."[FN7] (Public Serv. Mut. Ins. Co. v Goldfarb, 53 NY2d 392, 399 [1981].)

This body of precedent admittedly did not arise in the specific context of a public-policy challenge to a contractual-indemnification claim arising from alleged violations of the State and City Human Rights Laws. But nothing in the caselaw suggests that allegations under these statutes might involve unique considerations that would further limit the enforceability of contractual-indemnification provisions. To the contrary, New York appellate courts have applied existing contractual-indemnification doctrine in closely analogous circumstances to those presented here. (See e.g. Biondi, 257 AD2d at 81-82 [applying this doctrine to a request for indemnification of punitive damages, in a case where the alleged wrongdoing included racial discrimination in violation of the State Human Rights Law]; accord Graphic Arts Mut Ins Co v. Pine Bush Cent Sch Dist, 159 AD3d 769, 772-773 [2d Dept 2018] [using doctrine's intention-to-injure framework to interpret term of insurance contract, in case where alleged wrongdoing included religious discrimination in violation of State Civil Rights Law][FN8] ; Mary & Alice Ford Nursing Home Co. v Fireman's Ins. Co. of Newark, N.J., 86 AD2d 736, 737-738 [3d Dept 1982] [using doctrine's intention-to-injure framework to interpret term of insurance contract, in case where alleged wrongdoing included disability discrimination in violation of the State Human Rights Law].)

This court therefore applies here the extant body of precedent on enforceability of contractual indemnification provisions. Because Hudson Meridian's motion is brought under CPLR 3211, the question before the court is whether the wrongdoing alleged in the federal lawsuit necessarily constitutes the intentional infliction of injury, so as to categorically bar CREF 546's indemnity claim at the pleading stage. This court concludes that it does not.

As described in the federal lawsuit, CREF 546's alleged design- and construction-related violations of state and local law were not necessarily committed with an intent to injure, rather than being merely wanton or reckless. (See NYSCEF No. 9 at121, 125, 140, 144.) And contractual indemnity may be required for compensatory damages and litigation costs that stem from wanton or reckless conduct. (See Goldfarb, 53 NY2d at 400.) Thus, at least at this stage of the litigation, CREF 546's contractual-indemnification claim against Hudson Meridian may proceed.

Hudson Meridian argues that this claim should be dismissed as premature, because CREF 546 asserted the claim prior to adjudication of the federal lawsuit.[FN9] This court disagrees. To be [*7]sure, as defendants point out, indemnification claims generally do not accrue until "payment has been made by the party seeking indemnification." (State v Syracuse Rigging Co., 249 AD2d 758, 760 [3d Dept 1998].) But the terms of the indemnity provisions in Hudson Meridian's contract expressly include defense costs. (See NYSCEF No. 26 at 125, 126.) Whether or not CREF 546 must ultimately pay damages (or settlement costs) to the federal plaintiffs, CREF 546 has already been required to pay its attorneys to defend the federal lawsuit. CREF 546's indemnity claim seeks recovery of those costs. (See NYSCEF No. 2 at 15-16, 18). Although the full scope of Hudson Meridian's indemnity obligation to CREF 546 (if any) cannot yet be ascertained, the indemnification claim itself is not premature.

Hudson Meridian's motion to dismiss CREF 546's indemnification claim related to alleged violations of state and local law is thus granted only as to indemnity for punitive damages awarded in the federal lawsuit, and otherwise denied.

B. The Branch of the Motion Seeking Dismissal of Patrinely Group's Claims

(1) Hudson Meridian's motion to dismiss Patrinely Group's claim for breach of contract is granted.

As discussed above, this claim relies on allegations that Hudson Meridian breached the contract both by failing to build the two apartment buildings properly and by failing to defend or indemnify plaintiffs following the filing of the federal lawsuit.

The first of these allegations does not support a claim for breach of contract by Patrinely Group. The only party to the contract with Hudson Meridian was CREF 546; the contract describes Patrinely Group merely as CREF 546's development manager on the project. (See NYSCEF 26 at 3.) And the complaint does not include any allegations indicating that Patrinely Group was an intended third-party beneficiary of Hudson Meridian's contractual promise to build the apartment buildings as required by the contract's terms and specifications. This aspect of Patrinely Group's contract claim is thus subject to dismissal for lack of supporting allegations stating a cause of action.

The complaint's refusal-to-indemnify allegation is a somewhat different story. The indemnification provision in the contract expressly obligates Hudson Meridian to indemnify the development manager of the project (i.e., Patrinely Group), in addition to CREF 546. (See NYSCEF No. 126 at 125, General Conditions § 3.18.1.) This provision clearly demonstrates an intent to benefit Patrinely Group, as well as the contractual parties.[FN10] (See Commissioner of the Dept. of Social Servs. of the City of NY v New York-Presbyt. Hosp., 164 AD3d 93, 98-99 [1st Dept 2018]; National Union Fire Ins. Co. of Pittsburgh, P.A. v Red Apple Group, 309 AD2d 657, 657 [1st Dept 2003].)

That said, this aspect of Patrinely Group's breach-of-contract claim against Hudson Meridian merely repeats Patrinely Group's freestanding contractual-indemnification claim (the fifth cause of action), discussed below. The indemnification-based branch of the contract claim [*8]is thus subject to dismissal as duplicative.

(2) Hudson Meridian's motion to dismiss Patrinely Group's claim for professional negligence is granted. The complaint does not contain any allegations supporting a claim that Hudson Meridian owed Patrinely Group, in particular, a tort duty to act with the degree of care and skill expected of professionals in the relevant field. In opposing defendants' motions to dismiss, Patrinely Group argues, at most, that "Plaintiffs contracted with Hudson Meridian to provide the construction services necessary to build the Project," and that the construction agreement "explicitly set forth the duties of care that Hudson Meridian . . . owed to Plaintiffs." (NYSCEF No. 22 at 23, 24.) This argument is not supported by the cited portions of the complaint. The construction agreement reflects on its face that CREF 546 alone contracted with Hudson Meridian. (See NYSCEF No. 26 at 3 [identifying contracting parties].) And Patrinely Group does not identify any other basis for finding that Hudson Meridian owed it a duty in tort.

(3) Hudson Meridian's motion to dismiss Patrinely Group's claim for contractual indemnification is granted in part and denied in part. As noted above, Patrinely Group, like CREF 546, is expressly identified in the contract as a beneficiary of the contract's indemnification provisions. Patrinely Group may pursue contractual-indemnification claims to the same extent as CREF 546. Hudson Meridian's motion to dismiss those claims is thus granted to the extent that Patrinely Group seeks indemnity for any losses stemming from an alleged "violation of or failure to comply with any requirement of" federal law (NYSCEF No. 26 at 126, General Conditions § 3.18.3); and to the extent that Patrinely Group seeks indemnity for punitive damages awarded in the federal lawsuit. The motion to dismiss is otherwise denied.

II. Code Consultants' Motion to Dismiss (Motion Sequence 002)

Code Consultants moves to dismiss all claims against it brought by both plaintiffs (the complaint's second, fourth, and sixth causes of action). Code Consultants' motion is granted in part and denied in part as to CREF 546, and granted in full as to Patrinely Group.

A. The Branch of the Motion Seeking Dismissal of CREF 546's Claims

(1) Code Consultants' motion to dismiss CREF 546's breach-of-contract claim is granted in part and denied in part. For the same reasons as discussed above with respect to Hudson Meridian (see paragraph I.A.1, supra), CREF 546 has stated a cause of action for alleged breaches by Code Consultants of its contractual obligations to review and document whether the project's "design documents complied with certain codes, standards and regulations concerning accessibility" and to "review construction documents and as-builts at substantial completion" of the project "to ensure continued compliance" with accessibility requirements. (See NYSCEF No. 2 at 45-47, 49.)

CREF 546 may not, however, maintain a breach-of-contract claim for Code Consultants' alleged breach of its contractual obligations to indemnify CREF 546. (See id. at 48.) That claim is duplicative of CREF 546's separate contractual-indemnification claim against Code Consultants, discussed below.

(2) Code Consultants' motion to dismiss CREF 546's professional-negligence claim is granted for the reasons set forth above about CREF 546's negligence claim against Hudson Meridian. (See paragraph I.A.2, supra.)

(3) Code Consultants' motion to dismiss CREF 546's contractual-indemnification claim is [*9]granted in part and denied in part.[FN11] CREF 546's claim for indemnification from Code Consultants relating to alleged violations of federal law is preempted, and thus subject to dismissal, for the same reasons as CREF 546's parallel indemnification claim against Hudson Meridian.[FN12]

CREF 546's claim for indemnification from Code Consultants relating to alleged violations of state and local law, on the other hand, is not preempted. As with the indemnification claim against Hudson Meridian, CREF 546 may maintain this claim to the extent that it does not seek indemnification for punitive damages.[FN13] To the extent that Code Consultants is suggesting not only that federal law preempts a state-law contractual-indemnification claim based on alleged violations of federal statutes, but also that federal law preempts a state-law contractual-indemnification claim based on alleged violations of state and local statutes (see NYSCEF No. 30 at 5-6), this court does not agree. The court sees no basis either in precedent or logic to recognize such sweeping preemption.

B. The Branch of the Motion Seeking Dismissal of Patrinely Group's Claims

(1) Code Consultants' motion to dismiss Patrinely Group's claim for breach of contract is granted. Patrinely Group was not a party to the contract with Code Consultants, and plaintiffs' complaint does not include any allegations that Patrinely Group was an intended third-party [*10]beneficiary with respect to Code Consultants' contractual promise to review the project's plans and as-built drawings. The indemnification-related allegations in support of the contract claim (the second cause of action) merely duplicate the contractual-indemnification claim (the sixth cause of action), discussed further below.

(2) Code Consultants' motion to dismiss Patrinely Group's claim for professional negligence is granted. The complaint does not contain any allegations supporting a claim that Code Consultants owed Patrinely Group a tort duty.

(3) Code Consultants' motion to dismiss Patrinely Group's contractual-indemnification claim is granted. Unlike the contract with Hudson Meridian, the consulting agreement with Code Consultants does not expressly identify Patrinely Group as a beneficiary of the indemnification provision. At most, the contract says that Code Consultants must indemnify "Owner and its officers, directors, employees and affiliates." (NYSCEF No. 31 at 3 [capitalization omitted].) That is not sufficient to make Patrinely Group an intended beneficiary of this indemnity provision.

When, as here, "a party is under no legal duty to indemnify, a contract assuming that obligation must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed." (Hooper Assoc. v AGS Computers, 74 NY2d 487, 491 [2004].) Unless the contract's language and purpose are "clear and unambiguous" and "evince an unmistakable intent to indemnify," a claim for contractual indemnification will be dismissed at the pleading stage. (Suazo v Maple Ridge Assocs., L.L.C., 85 AD3d 459, 460, 461 [1st Dept 2011].)

This court concludes that the language of the indemnification provision in the Code Consultants contract is at best ambiguous about whether Patrinely Group should be understood as an "affiliate" of CREF 546 entitled to indemnity—particularly since Patrinely Group was named explicitly in the indemnification provision in the related Hudson Meridian contract. That the indemnity language of the Code Consultants contract is ambiguous as to Patrinely Group "in and of itself[] compels dismissal" of Patrinely Group's contractual-indemnification claim against Code Consultants. (Suazo, 85 AD3d at 461.)

Accordingly, for the foregoing reasons it is hereby

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's first cause of action is granted only to the extent that this cause of action is based on an allegation that Hudson Meridian wrongly refused to indemnify CREF 546, and is otherwise denied; and it is further

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's third cause of action is granted; and it is further

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's fifth cause of action is granted only to the extent that this cause of action seeks indemnity that arises out of (i) alleged violations of federal law or (ii) punitive damages awarded in the federal lawsuit for alleged violations of state and local law, and is otherwise denied; and it is further

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's first cause of action is granted; and it is further

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's third cause of action is granted; and it is further

ORDERED that the branch of Hudson Meridian's motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's fifth cause of action is granted only to the extent that this [*11]cause of action seeks indemnity that arises out of (i) alleged violations of federal law or (ii) punitive damages awarded in the federal lawsuit for alleged violations of state and local law, and is otherwise denied; and it is further

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's second cause of action is granted only to the extent that this cause of action is based on an allegation that Code Consultants wrongly refused to indemnify CREF 546, and is otherwise denied; and it is further

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's fourth cause of action is granted; and it is further

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of CREF 546's sixth cause of action is granted only to the extent that this cause of action seeks indemnity that arises out of (i) alleged violations of federal law or (ii) punitive damages awarded in the federal lawsuit for alleged violations of state and local law, and is otherwise denied; and it is further;

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's second cause of action is granted; and it is further

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's fourth cause of action is granted; and it is further

ORDERED that the branch of Code Consultants' motion under CPLR 3211 (a) (7) seeking dismissal of Patrinely Group's sixth cause of action is granted; and it is further

ORDERED that the parties shall confer and prepare a joint request for a preliminary conference with this court, as set forth in the Remote Conference Protocol available on this court's website, http://ww2.nycourts.gov/courts/1jd/supctmanh/index.shtml.

DATE 7/17/2020 Footnotes

Footnote 1:This aspect of the contract between CREF 546 and Code Consultants is quoted from what is alleged to be Exhibit A to their Consulting Agreement. (See NYSCEF No. 1 at25-27.) The Consulting Agreement states that Code Consultants' services under the contract "are more particularly described on Exhibit A attached hereto and made a part hereof." (NYSCEF No. 31 at 1.) Exhibit A does not itself appear in the record.

Footnote 2:See generally Amended Complaint, Sutton v CREF 546 W. 44th St., LLC (Dkt. No. 18-cv-02146 [SDNY May 25, 2018]). The action remains pending; the parties are currently conducting discovery.

Footnote 3:The contractual-indemnification cause of action itself is discussed further at paragraph I.A.3, infra.

Footnote 4:This court is not persuaded by CREF 546's argument that Samson Construction's discusson of when a plaintiff may proceed in both contract and tort is somehow inapposite here because that case was decided at summary judgment rather than on a motion to dismiss. (See NYSCEF No. 22 at 24-25.)

Footnote 5:The Second Department decision on appeal in this action, discussed at Paragraph I.A.1, supra, did not have before it the issue of the viability of contractual indemnification for alleged violations of federal law. (See 112 AD3d at 603 [describing scope of appeal].)

Footnote 6:See also Regency Club at Wallkill, LLC v Appel Design Grp., P.A. (2012 WL 11963134, at *4 [Sup Ct, Orange County Aug. 1, 2012] [denying defendant's motion to reargue the court's ruling that defendant had failed to raise a challenge to plaintiff's indemnity claim that was based on alleged violations of state law]). As noted above, see paragraph I.A.1 supra, on appeal the Second Department affirmed the trial court's denial of the motion to dismiss these claims, concluding that they sounded in contract or negligence, not indemnity or contribution. (See 112 AD3d at 608.) The Second Department also suggested in passing that claims "for indemnity or contribution" might be "improper." It did not, however, discuss that issue in any depth. (Id.) This court does not understand the Second Department's passing statement in Regency Club at Wallkill to have settled the issue.

Footnote 7:A narrow exception to this bar exists "where the harm to the victims was inherent in the nature of the acts alleged." (Pistolesi v Nationwide Mut. Fire Ins. Co., 223 AD2d 94, 97 [3d Dept 1996] [exception applied and claim for indemnity dismissed where party seeking indemnity was alleged to have committed sexual assault], quoting Monter v CNA Ins. Cos., 202 AD2d 405, 405-406 [2d Dept 1994] [exception applied and claim for indemnity dismissed where party seeking indemnity was alleged to have instructed a third party to assault a fourth party and break his legs].) That is not the case here.

Footnote 8:See T.E. v Pine Bush Cent Sch Dist (58 F Supp 3d 332 [SDNY 2014] [ruling on summary-judgment motions in underlying action]).

Footnote 9:More precisely, Code Consultants' initial motion papers raised this argument; and CREF 546 responded to it in opposing the motion to dismiss. On reply, Hudson Meridian asks this court also to consider Code Consultants' prematurity argument as it would pertain to CREF 546's claims against Hudson Meridian. (See NYSCEF No. 24 at 13 n 4.) This court concludes that it is appropriate to do so because CREF 546's joint opposition to the motions to dismiss fully responded to this argument.

Footnote 10:Hudson Meridian's suggestion that it had no contractual relationship at all with Patrinely Group is thus incorrect. (See NYSCEF No. 24 at 6-7.)

Footnote 11:Code Consultants' argument that the contractual-indemnification claim is premature is rejected for the reasons given above with respect to the indemnification claim against Hudson Meridian. (See subparagraph I.A.3.b, supra.)

Footnote 12:One might read the terms of the indemnification provision in CREF 546's contract with Code Consultants as requiring only contribution as to those losses for which Code Consultants (rather than CREF 546) is responsible, rather than indemnification of all or nearly all losses. (See NYSCEF No. 31 at 3-4 [Article 8].) It is possible, therefore, that a contractual-contribution claim by CREF 546 relating to alleged violations of federal law would escape preemption. That is, in that circumstance CREF 546 could obtain recovery in contribution only for the portion of the wrongdoing for which Code Consultants was responsible, without shedding CREF 546's own nondelegable responsibility to comply with federal law. But CREF 546's complaint does not rely on a contribution theory. Nor does CREF 546 argue in opposing Code Consultants' motion to dismiss that the allegations of the complaint could support a contribution claim. On this record the court declines to reach the question whether contribution claims would also be preempted.

Footnote 13:As pleaded, the indemnification provision in the Code Consultants contract might not apply to claims for indemnity related to alleged violations of state law. That provision calls for limitation of "all liabilities, damages, costs and expenses . . . to the extent arising out of or resulting from any errors or omissions . . . relating to the performance of the services." (NYSCEF No. 31 at 3-4 [capitalization omitted].) The services to be performed "are more particularly described on Exhibit A" to the contract. (Id. at 1 [Article 1].) Exhibit A has not been provided to this court. And the portion of Exhibit A quoted in the complaint states only that Code Consultants will review the project's design documents (and report its findings) about whether the documents comply with applicable federal statutes and with local statutes, regulations, and codes. It does not mention state law. (See NYSCEF No. 2 at 725-27.) But Code Consultants does not argue that CREF 546's state-law-violations indemnity claim fails on this ground. This court therefore does not reach the question.