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Articles Posted in Commercial Litigation

The First Department has reversed a trial court ruling dismissing a third-party action where an architect claimed that a contractual indemnification clause in its agreement with the sponsor of a condominium development was of no consequence.

In Board of Managers of Hester Gardens v. Well-Come Holdings, LLC, 128 A.D.3d 601, 10 N.Y.S.3d 72 (1st Dep’t 2015), the First Department considered a lower court dismissal of a third-party complaint brought by the sponsor of a condominium development (the “Sponsor”) against, among others, the architect retained by the Sponsor to design the development and inspect the on-going construction (the “Architect”). The Sponsor had already been sued by the Board of Managers of the development (the “Board”) for numerous alleged defects in the design and construction of the development. As is typically the case, many of the claims of the Board sounded in negligence and fraud due to the alleged failure of the development to conform to the statements and plans published in the offering documents and other advertising materials. The Architect was also sued by the Board, but successfully obtained dismissal of the claims against it because there was no contract between itself and the Board (or any of the individual unit owners).

After the Architect was dismissed from the main action for lack of privity, the Sponsor brought a third-party action against the Architect (and others) alleging that, under the relevant contract, the Architect was liable to indemnify the Sponsor for the Architect’s own “intentional acts, errors and omissions” and breaches of the contract. The Architect moved, pre-answer, to dismiss the third-party complaint, alleging, among other things that, due to the nature of the primary claims against the Sponsor, i.e, negligence and fraud, the third-party action actually sought indemnification from the Architect for the Sponsor’s own bad acts.

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Earlier, we reported on a Commercial Division case, Minelli Construction Corp. v. WDF Inc., et al., N.Y. Co. Index No. 105989/2011, in which a trial court upheld the commonly found clause in construction contracts which allows a party who terminates a contractor or sub-contractor for cause to automatically convert the termination into one for convenience if proper cause for the termination is not later found by a Court. (“Contractual Termination Conversion Clause Upheld,” 4/22/15.) We noted that the plaintiff had appealed from the ruling, which struck its lost profits claim from the case, and stated that we would update the post after the appeal was heard and decided. That day has come.

On December 15, 2015, a First Department panel unanimously upheld the lower court’s grant of summary judgment dismissing the lost profits cause of action. 2015 WL 8687654, 2015 N.Y. Slip Op. 09205. The First Department held that both clauses relied upon by the defendant, the termination for convenience clause and the termination conversion clause, were enforceable. Moreover, the First Department noted that termination for convenience clause, when exercised, was enforceable “without regard to [plaintiff’s] good faith, or lack thereof”. Thus, whether or not the defendant engaged in bad faith in terminating the plaintiff from the project for cause, the existence of the conversion clause in the contract meant that plaintiff could not recover lost profits for a wrongful termination of the contract. Rather, pursuant to the clear and unambiguous terms agreed to by the parties, if a termination for cause was found not to be valid, the termination would automatically convert to a termination for convenience and the terminated party would be limited solely to seeking payment for work already performed.

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When can an architect or engineer be held responsible for damage to a neighboring building caused by excavation for a project they designed?  That question was addressed by two recent appellate division decisions, in which the courts considered the level of the design professional’s involvement, and the theory under which they are being sued.

The two most common claims asserted by adjacent owners against design professionals in this situation are for negligence and breach of Administrative Code §28-3309.4, which imposes absolute liability upon a person who causes an excavation to be made. (While courts generally treat violation of a municipal ordinance, such as the Administrative Code, as only some evidence of negligence, Administrative Code §28-3309.4 in particular is treated differently because it was originally a State statute. The New York Court of Appeals has held that its violation can be the basis for absolute liability. See Yenem Corp. v. 281 Broadway Holdings, 18 N.Y.S.3d 481, 941 N.Y.S.2d 20 (2012).)

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The Kings County Supreme Court has once again dismissed, on statute of limitations grounds, an action commenced by Save the View Now (“STVN”) against the Pierhouse hotel/condo complex currently being built in Brooklyn Bridge Park.   STVN previously sought a temporary restraining order and a preliminary injunction halting construction of the two buildings that comprise the Pierhouse, on the ground that the structures violated the building height limitations set forth in the 2006 Modified General Project Plan (“MGPP”), which governs the development of Brooklyn Bridge Park.  The request for injunctive relief was denied as untimely, but STVN returned to court in August 2015 with what is argued to be newly discovered evidence.

Pier 1 Development

The Pierhouse development located in Pier 1 of the park includes two buildings.  Throughout the approval and construction of the Pierhouse there has been much discussion about the negative impact the development would have on the views of the Brooklyn Bridge and Manhattan skyline as seen from the Brooklyn Heights Promenade.  As recognized by Judge Knipel in his first decision, the panorama is “an iconic, world-class view worthy of the maximum protection the law can afford.”  STVN argues that these views are being compromised because the Pierhouse has exceeded the maximum height permitted under the MGPP, which was designed to protect the views of from the promenade.

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Given the steadily rising costs of attorneys’ fees, it is not surprising that the awarding of fees has recently been the focus of numerous judicial opinions.  In fact, earlier this year, the New York Court of Appeals handed down two decisions on the same day regarding prevailing parties and awards for attorneys’ fees: one which awarded attorneys’ fees, the other which denied them.

In Graham Court Owner’s Corp v. v. Taylor, 24 N.Y.3d 742, 5 N.Y.S.2d 348 (2015), the Court held that a tenant was entitled to recover attorneys’ fees after prevailing in his defense of the landlord’s holdover proceeding under Real Property Law Section 234.  Under this statute, where a residential lease allows a landlord to recover attorneys’ fees resulting from the tenant’s breach of the lease, the tenant is given a reciprocal right to seek fees incurred as a result of the landlord’s breach of the lease or the tenant’s successful defense of a proceeding commenced by the landlord.  Specifically, Section 234 provides, in pertinent part, as follows:

Whenever a lease of residential property shall provide that in any action or summary proceeding the landlord may recover attorneys’ fees and/or expenses incurred as the result of the failure of the tenant to perform an covenant or agreement contained in such lease … there shall be implied in such lease a covenant by the landlord to pay to the tenant the reasonable attorneys’ fees and/or expenses incurred by the tenant as the result of the failure of the landlord to perform any covenant or agreement on its part to be performed under the lease or in the successful defense of any action or summary proceeding commenced by the landlord against the tenant arising out of the lease.

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Summary dismissal of a mechanic’s lien is a tricky business.  It is fundamental that a mechanic’s lien may be summarily discharged only for defects appearing on its face.  Di-Com Corp. v. Active Fire Sprinkler Corp., 36 A.D.2d 20, 21, 318 N.Y.S.2d 249, 250 (1st Dept. 1971).  In fact, Section 19(6) of the Lien Law specifically states, in pertinent part, as follows: 

Where it appears from the face of the notice of lien that the claimant has not valid lien … the owner or any other party in interest, may apply to the supreme court of this state, or to any justice thereof, or to the county judge of the county in which the notice of lien is filed, for an order summarily discharging of record the alleged lien.

(Emphasis added.)

Thus, there can be no summary discharge if there are disputed issues of fact: “It has been consistently held that objections to a notice of lien which do not involve matters appearing on the face of the lien, raise issues of fact for disposition upon trial rather than upon a motion to vacate the lien.”  In re Miller, 133 N.Y.S.2d 421, 422 (Sup. Ct. Suffolk Co. 1954).  This is so “[d]espite the existence of a multiplicity of reasons which render [the lien] invalid ….”  Country Village Heights Condominium (Group I) v. Mario Bonito, Inc., 79 Misc.2d 1088, 1091, 363 N.Y.S.2d 501, 505 (Sup. Ct. Rockland Co. 1975).  As long as the notice is valid on its face, it cannot be discharged based on factual grounds.

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In 1979, the Court of Appeals issued its ruling in Immediate v. St. John Queens Hospital, 48 N.Y.2d 671 (1979), wherein the Court held that a bare assertion of a statute of limitations defense in an answer would be sufficient to withstand the pleading particularity requirements of CPLR 3013. 48 N.Y.2d at 673. Recently, the First Department suggested that it was time for the high court to revisit the issue.

In Scholastic Inc. v. Pace Plumbing Corp., 8 N.Y.3d 143 (1st Dep’t 2015), the First Department considered a lower court order granting summary judgment dismissing a property damage case. In the case, the defendant had filed an answer containing a single, catch-all paragraph containing 15 affirmative defenses, including a statute of limitations defense. While the lower court dismissed the statute of limitations defense as improperly pleaded, it still dismissed the action on the merits.

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Contractors accustomed to filing mechanic’s liens to secure their claims for payment may be surprised when they find themselves working on a project where they have no lien rights, despite the broad scope and intent of the Lien Law. In a recent decision, Justice Charles Ramos of the Commercial Division, New York County, was presented with a plaintiff trying desperately to avoid a gap in Lien Law protection. In Metro Woodworking Inc. v Hunter Roberts Construction Group, LLC, NYLJ 1202718867273 (Sup. Ct. N.Y. Co., Feb. 9, 2015), the court determined that the contractor’s private mechanic’s lien was improper, but suggested that if the lien had been filed as a public lien it would have been valid. The facts and Lien Law suggest, however, that even if the contractor had filed a public lien, it would not have been valid.

The New York Lien Law provides contractors with an easy method to secure their claims. Simply by filing a form with the county clerk and serving it on the owner, a contractor working on a privately owned project is able to establish a private mechanic’s lien, pursuant to Lien Law § 10, which attaches to the property. If a project is owned by the state or a public corporation, whose land is not susceptible to liens, the contractor can file a public lien under Lien Law § 12 with the public entity controlling the project, which will attach to the public funds for the project.

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Apparently, there is no fury greater than that of a person who just spent close to $100 to watch a long-awaited boxing match on Pay-Per-View (“PPV”) that did not live up to the hype.

PPV viewers in at least six states have filed putative class action lawsuits arising out of the recent “Fight of the Century” between Floyd Mayweather, Jr. and Manny Pacquiao. In the complaints, the plaintiffs all seek to recover millions of dollars in damages against various combinations of Pacquiao, his promoters/advisers, and Mayweather, as well as HBO and Showtime, the media companies televising the fight. The basis of the lawsuits are that the parties fraudulently failed to disclose to the public a significant injury to Pacquiao before the fight, and that they, and other similarly situated people, would not have ordered the fight, attended the fight, or bet on the fight if they had known about Pacquiao’s injury.

While the facts are still emerging, it is known that immediately after the largely disappointing fight concluded, the Pacquiao camp used the post-fight press conference to note that their fighter had fought with a significant injury to his right shoulder. In the days that followed, stories emerged in the press that detailed (1) that Pacquiao had apparently suffered a significant shoulder injury about a month before the fight, (2) that Pacquiao’s camp had considered postponing the fight, but declined to do so, (3) that, nonetheless, Pacquiao’s promoters had filed an official Nevada State Athletic Commission (“NSAC”) document the day before the fight stating, under penalty of perjury, that Pacquiao was not injured, (4) that the NSAC had denied a Pacquiao request, made just before the fight, to take an anti-inflammatory injection, on the grounds that it was untimely, and (5) that Pacquiao’s camp claimed that the denial of the injection by the NSAC materially affected the outcome of the fight because Pacquiao was hindered by the injury throughout the contest. Pacquiao has since reportedly had surgery to repair a torn rotator cuff in the right shoulder.

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The New York Court of Appeals has recently addressed the often vexing issue of whether there is insurance coverage for water damage to a residential property. In Platek v Town of Hamburg, 2015 NY Slip Op 01483 (Feb. 19, 2015), the plaintiffs’ home was damaged after a subsurface water main pipe abutting their property ruptured, causing water to flood into their finished basement. Plaintiffs immediately made a claim under their homeowners’ insurance policy issued by Defendant, Allstate Indemnity Company (“Allstate”). The policy excluded damage caused by water, listed as items 1 through 4 in the policy, but contained an exclusion which stated,

We do cover sudden and accidental direct physical loss caused by fire, explosion or theft resulting through items 1 through 4… (emphasis added in the original opinion).

Allstate denied coverage to Plaintiffs’ property damage claim based on item 4 of the policy’s water loss exclusion.

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