Cooperatives & Condominiums

Condominium Purchaser's Claim Against Engineering Firm Fails For Lack of Privity

Sykes v. RFD Third Ave. 1 Associates

NYLJ 9/9/09, p. 37, col. 1

AppDiv, First Dept.

(3-2 decision; majority opinion by Moskowitz, J.; dissenting opinion by Andrias, J.)

In an action by condominium purchaser against an engineering firm for negligent misrepresentations about the heating and air conditioning systems in the building, the engineering firm appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division reversed and dismissed the complaint citing lack of privity between the condominium purchaser and the engineering firm.

Condominium sponsor retained the engineering firm to prepare designs for the condominium project. Although the engineering firm never installed HVAC units, and never prepared the offering plan or the documents provided in the offering plan, the engineering firm did provide the sponsor with information used in the offering plan. Unit owner bought the penthouse, allegedly in reliance on engineering firm's reputation and its representations about the heating system, and were never able to maintain a comfortable temperature in the apartment. Unit owner then brought a number of actions, including this action against the engineering firm for negligent misrepresentations. The engineering firm moved to dismiss, contending that it was not in privity with the unit owner, but Supreme Court denied the motion to dismiss. The engineering firm appealed.

In reversing, the Appellate Division majority emphasized the absence of conduct linking the engineering firm to the unit purchaser. The court noted that unit owner never alleged that anything in the agreement with the sponsor obligated the firm to provide information to the unit owner. The majority also noted that the unit owner was not known to the firm, and that the firm would only have been aware “in the most general way that some buyer would rely” on the information provided by the firm. As a result, the majority concluded that unit owner was not in privity with the engineering firm.

Justice Andrias, dissenting for himself and Justice Tom, concluded that the case was indistinguishable from the court's prior decision in Board of Managers of Astor Terrace Condominium v. Schuman, Lichtenstein, Claman, & Efron, 183 AD2d 488, in which the court found sufficient privity to support a negligent misrepresentation claim.

COMMENT

The majority and the dissent in Sykes disagree over whether a plaintiff in a misrepresentation case can establish privity with the defendant when the defendant did not know the plaintiff's identity. Where the defendant knows plaintiff's identity, and knows that plaintiff might rely on defendant's misrepresentation, privity is clear. Thus, in Ossining Union Free School Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 419-20, the Court of Appeals found privity between a school district and engineering consultants hired by the district's architectural firm, and concluded that the district's negligent misrepresentation claim could stand. The court based its privity finding on the fact that the consultants knew their engineering reports were intended for the school district's use, combined with the school district's reliance on those reports to close a building. The court also cited communications between the consultants and the architectural firm as evidence of the consultants' understanding that the school board might rely on the reports Id. at 425.

In Bd. of Mgrs. of Astor Terrace Condo. v. Schuman, Lichtenstein, Claman & Efron, 183 A.D.2d 488, 489-90, the First Department relied on Ossining to hold that Supreme Court had improperly dismissed a misrepresentation claim even though the defendant did not know the plaintiff's identity. Condominium purchaser had brought the action against engineering and design professionals hired by the sponsor. The court emphasized the purchaser's allegations that these reputable professionals knew or should have known that the substance of their reports would be made available to prospective purchasers and that purchaser had actually relied on the substance of those reports. Unlike Ossining, the consultants did not know of the identity of the plaintiff. The Astor court did not, however, treat that fact as a bar to a finding of privity.

Although the dissenters in Sykes concluded that Astor was controlling, the majority questioned whether Astor remains good law after Parrott v. Coopers & Lybrand, L.L.P., 95 N.Y.2d 479, 484. In Parrott, the Court of Appeals held that the absence of privity entitled an accounting firm to summary judgment in a negligent misrepresentation action by an employee of the accounting firm's client. The accounting firm had provided biennial evaluations to the client for use with respect to employee stock ownership plans generally. Unbeknownst to the accounting firm, the client had entered into an agreement under the terms of which it was entitled, upon the employee's termination, to buy back the employee's stock at a value fixed by the accounting firm. Because the accounting firm had no indication that its reports would be used in purchasing back a terminated employee's stock, and because the employee did not receive or rely upon these reports, the case would have been dismissed even under the standards articulated in Ossining and Astor. But in its Parrott opinion, the Court of Appeals also suggested that privity required that there be reliance by a party known to the defendant ' a standard not met in Astor or Sykes. If that language is controlling, as the Sykes majority suggests it is, Astor would appear to be effectively overruled.

Son Not Entitled to Constructive Trust on Apartment Owned By His Father

Carnivale v. Carnivale

NYLJ 9/9/09, p. 27, col. 1

Supreme Ct. Queens Cty

(Markey, J.)

In an action by son against father to enjoin the father from evicting him from a co-op apartment, the son contended that a constructive trust should be imposed in his favor. The court denied the son a preliminary injunction, concluding that the son had failed to establish the existence of a gift or a constructive trust.

Father purchased the subject co-op apartment, and the son and his partner moved into the apartment in 1991. Shortly before the son moved in, father gave the keys to the son, telling him that they were the keys to his new home. Son never paid for the apartment, and father kept the shares and proprietary lease in his own name and in his own possession. The son made the monthly maintenance payments. The relationship between father and son deteriorated, and in 2007, father announced to son that he would be selling the co-op, but that he would give the son a right to purchaser it first. The son then stopped making maintenance payments, which led the co-op board to demand payment from the father. At that point, father brought an eviction action in Housing Court, and son responded by bringing the instant action seeking injunctive relief against any eviction.

In denying relief to the son, the court noted that unjust enrichment is at the heart of a constructive trust claim, and he court could not find any unjust enrichment. The son's payment of monthly maintenance did not unjustly enrich the father, because in this case, the father gave up income from buying and selling the apartment in order to provide his son with an affordable place to live. The court also questioned the evidence that father had promised the apartment to the son, noting that the statement that the keys were to his new home was entirely consistent with giving the son an affordable place to live rather than giving him title to the apartment.

Condo Entitled to Attorneys' Fees Against Unit Owner

The Residential Board of Managers v. Goldberg

NYLJ 9/8/09, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Bransten, J.)

In an action by the condominium against unit owner to enforce its right of access to a terrace adjacent to unit owner's apartment in order to perform necessary repair work, the condominium board sought partial summary judgment on its claim for attorneys' fees incurred in prosecuting the action. The court granted the motion, holding that the condominium bylaws authorized collection of attorneys' fees.

Unit owner resisted the condominium association's attempt to obtain access to a terrace adjacent to the unit when the association needed access to repair an unsafe condition. Unit owner acknowledged that it had an obligation to pay for the repairs and to permit them to be completed, but after failing to complete the repairs, unit owner refused to let the association complete them. As a result, the association sought judicial relief, which resulted in a court order requiring unit owner to provide access and to bear the cost of the repairs, including the cost of a flagman to insure pedestrian safety if a scaffolding had to dropped from the roof to reach the terrace. The work was performed without the scaffolding, but a flagman nevertheless proved necessary. The condominium association then sought attorneys' fees, and the unit owner sought dismissal of that claim, together with a declaration that it was not liable for the cost of the flagman. The association cross-moved for summary judgment on the unit owner's liability for attorneys' fees.

In awarding summary judgment to the condominium association, the court rejected the unit owner's argument that because the condominium declaration and the bylaws did not explicitly mention attorneys fees, the American rule should apply and each side should bear its own attorneys fees. The court noted that the bylaws required the unit owner to incur costs and expenses “incurred in connection with the making of ' [the] repair.” That language, the court held, was sufficient to include attorneys fees incurred to gain access to the terrace. The court then turned to unit owner's argument that the prior court order requiring unit owner to pay for the flagman if scaffolding were needed implied that unit owner would not have to pay for a flagman if no scaffolding were needed. The court again relied on the bylaws, which required unit owner to bear all costs and expenses. The prior court order did not relieve unit owner of that obligation.

Co-Op May Not Deny Unit Owner Tax Exemption Benefits

Village in the Woods Owners Corp. v. Powles

NYLJ 7/22/09, p. 37, col. 6

AppTerm, 9th & 10th Districts

(memorandum opinion)

In a summary nonpayment proceeding brought by co-operative corporation against an individual shareholder, both parties appealed from a District Court order dismissing the petition but denying attorneys fees to shareholder. The Appellate Term modified to award attorneys' fees, holding that the co-op corporation lacked authority to deny unit owner the benefit of a STAR tax exemption.

Unit owner purchased the shares associated with her unit from an owner who qualified for the STAR tax exemption. That exemption does not expire upon transfer, but continues until the end of the tax year. The co-op corporation pays real estate taxes on all of the units, and then collects taxes through the monthly maintenance fee. The co-op credits against that fee any exemption to which a unit owner is entitled through the STAR program. The co-op board, however, enacted a resolution providing that all rebates to a unit owner would cease upon transfer of the unit. As a result, the co-op corporation billed unit owner for maintenance, without providing for any STAR exemption. Unit owner subtracted the amount of the STAR exemption, and paid the rest. The co-op corporation then brought this nonpayment proceeding. District Court dismissed the proceeding.

In affirming, the Appellate Term relied upon Real Property Tax Law section 425, which creates the exemption, and which provides that “the reduction in real property taxes attributable to each eligible tenant-shareholder shall be credited by the cooperative apartment corporation against the amount of such taxes otherwise payable by or chargeable to such tenant-shareholder.” RPTL 425(2)(k)(ii) [emphasis in court's opinion]. The court relied on the mandatory language to conclude that the board had exceeded its authority in enacting the resolution terminating rebates upon transfer. The court also concluded that because the proprietary lease gives landlord a right to recover attorney's fees against tenant, the determination in tenant's favor triggers the statutory reciprocal right of tenant to recover attorneys' fees against landlord (Real Property Law sec. 234). As a result, the Appellate Term modified District Court's order to award attorneys' fees.

Condominium Purchaser's Claim Against Engineering Firm Fails For Lack of Privity

Sykes v. RFD Third Ave. 1 Associates

NYLJ 9/9/09, p. 37, col. 1

AppDiv, First Dept.

(3-2 decision; majority opinion by Moskowitz, J.; dissenting opinion by Andrias, J.)

In an action by condominium purchaser against an engineering firm for negligent misrepresentations about the heating and air conditioning systems in the building, the engineering firm appealed from Supreme Court's denial of its motion to dismiss the complaint. The Appellate Division reversed and dismissed the complaint citing lack of privity between the condominium purchaser and the engineering firm.

Condominium sponsor retained the engineering firm to prepare designs for the condominium project. Although the engineering firm never installed HVAC units, and never prepared the offering plan or the documents provided in the offering plan, the engineering firm did provide the sponsor with information used in the offering plan. Unit owner bought the penthouse, allegedly in reliance on engineering firm's reputation and its representations about the heating system, and were never able to maintain a comfortable temperature in the apartment. Unit owner then brought a number of actions, including this action against the engineering firm for negligent misrepresentations. The engineering firm moved to dismiss, contending that it was not in privity with the unit owner, but Supreme Court denied the motion to dismiss. The engineering firm appealed.

In reversing, the Appellate Division majority emphasized the absence of conduct linking the engineering firm to the unit purchaser. The court noted that unit owner never alleged that anything in the agreement with the sponsor obligated the firm to provide information to the unit owner. The majority also noted that the unit owner was not known to the firm, and that the firm would only have been aware “in the most general way that some buyer would rely” on the information provided by the firm. As a result, the majority concluded that unit owner was not in privity with the engineering firm.

Justice Andrias, dissenting for himself and Justice Tom, concluded that the case was indistinguishable from the court's prior decision in Board of Managers of Astor Terrace Condominium v. Schuman, Lichtenstein , Claman, & Efron , 183 AD2d 488, in which the court found sufficient privity to support a negligent misrepresentation claim.

COMMENT

The majority and the dissent in Sykes disagree over whether a plaintiff in a misrepresentation case can establish privity with the defendant when the defendant did not know the plaintiff's identity. Where the defendant knows plaintiff's identity, and knows that plaintiff might rely on defendant's misrepresentation, privity is clear. Thus, in Ossining Union Free School Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417, 419-20, the Court of Appeals found privity between a school district and engineering consultants hired by the district's architectural firm, and concluded that the district's negligent misrepresentation claim could stand. The court based its privity finding on the fact that the consultants knew their engineering reports were intended for the school district's use, combined with the school district's reliance on those reports to close a building. The court also cited communications between the consultants and the architectural firm as evidence of the consultants' understanding that the school board might rely on the reports Id. at 425.

In Bd. of Mgrs. of Astor Terrace Condo. v. Schuman, Lichtenstein, Claman & Efron, 183 A.D.2d 488, 489-90, the First Department relied on Ossining to hold that Supreme Court had improperly dismissed a misrepresentation claim even though the defendant did not know the plaintiff's identity. Condominium purchaser had brought the action against engineering and design professionals hired by the sponsor. The court emphasized the purchaser's allegations that these reputable professionals knew or should have known that the substance of their reports would be made available to prospective purchasers and that purchaser had actually relied on the substance of those reports. Unlike Ossining, the consultants did not know of the identity of the plaintiff. The Astor court did not, however, treat that fact as a bar to a finding of privity.

Although the dissenters in S ykes concluded that Astor w as controlling, the majority questioned whether Astor remains good law after Parrott v. Coopers & Lybrand, L.L.P., 95 N.Y.2d 479, 484. In Parrott, the Court of Appeals held that the absence of privity entitled an accounting firm to summary judgment in a negligent misrepresentation action by an employee of the accounting firm's client. The accounting firm had provided biennial evaluations to the client for use with respect to employee stock ownership plans generally. Unbeknownst to the accounting firm, the client had entered into an agreement under the terms of which it was entitled, upon the employee's termination, to buy back the employee's stock at a value fixed by the accounting firm. Because the accounting firm had no indication that its reports would be used in purchasing back a terminated employee's stock, and because the employee did not receive or rely upon these reports, the case would have been dismissed even under the standards articulated in Ossining and Astor. But in its Parrott opinion, the Court of Appeals also suggested that privity required that there be reliance by a party known to the defendant ' a standard not met in Astor or Sykes. If that language is controlling, as the Sykes majority suggests it is, Astor would appear to be effectively overruled.

Son Not Entitled to Constructive Trust on Apartment Owned By His Father

Carnivale v. Carnivale

NYLJ 9/9/09, p. 27, col. 1

Supreme Ct. Queens Cty

(Markey, J.)

In an action by son against father to enjoin the father from evicting him from a co-op apartment, the son contended that a constructive trust should be imposed in his favor. The court denied the son a preliminary injunction, concluding that the son had failed to establish the existence of a gift or a constructive trust.

Father purchased the subject co-op apartment, and the son and his partner moved into the apartment in 1991. Shortly before the son moved in, father gave the keys to the son, telling him that they were the keys to his new home. Son never paid for the apartment, and father kept the shares and proprietary lease in his own name and in his own possession. The son made the monthly maintenance payments. The relationship between father and son deteriorated, and in 2007, father announced to son that he would be selling the co-op, but that he would give the son a right to purchaser it first. The son then stopped making maintenance payments, which led the co-op board to demand payment from the father. At that point, father brought an eviction action in Housing Court, and son responded by bringing the instant action seeking injunctive relief against any eviction.

In denying relief to the son, the court noted that unjust enrichment is at the heart of a constructive trust claim, and he court could not find any unjust enrichment. The son's payment of monthly maintenance did not unjustly enrich the father, because in this case, the father gave up income from buying and selling the apartment in order to provide his son with an affordable place to live. The court also questioned the evidence that father had promised the apartment to the son, noting that the statement that the keys were to his new home was entirely consistent with giving the son an affordable place to live rather than giving him title to the apartment.

Condo Entitled to Attorneys' Fees Against Unit Owner

The Residential Board of Managers v. Goldberg

NYLJ 9/8/09, p. 18, col. 1

Supreme Ct., N.Y. Cty

(Bransten, J.)

In an action by the condominium against unit owner to enforce its right of access to a terrace adjacent to unit owner's apartment in order to perform necessary repair work, the condominium board sought partial summary judgment on its claim for attorneys' fees incurred in prosecuting the action. The court granted the motion, holding that the condominium bylaws authorized collection of attorneys' fees.

Unit owner resisted the condominium association's attempt to obtain access to a terrace adjacent to the unit when the association needed access to repair an unsafe condition. Unit owner acknowledged that it had an obligation to pay for the repairs and to permit them to be completed, but after failing to complete the repairs, unit owner refused to let the association complete them. As a result, the association sought judicial relief, which resulted in a court order requiring unit owner to provide access and to bear the cost of the repairs, including the cost of a flagman to insure pedestrian safety if a scaffolding had to dropped from the roof to reach the terrace. The work was performed without the scaffolding, but a flagman nevertheless proved necessary. The condominium association then sought attorneys' fees, and the unit owner sought dismissal of that claim, together with a declaration that it was not liable for the cost of the flagman. The association cross-moved for summary judgment on the unit owner's liability for attorneys' fees.

In awarding summary judgment to the condominium association, the court rejected the unit owner's argument that because the condominium declaration and the bylaws did not explicitly mention attorneys fees, the American rule should apply and each side should bear its own attorneys fees. The court noted that the bylaws required the unit owner to incur costs and expenses “incurred in connection with the making of ' [the] repair.” That language, the court held, was sufficient to include attorneys fees incurred to gain access to the terrace. The court then turned to unit owner's argument that the prior court order requiring unit owner to pay for the flagman if scaffolding were needed implied that unit owner would not have to pay for a flagman if no scaffolding were needed. The court again relied on the bylaws, which required unit owner to bear all costs and expenses. The prior court order did not relieve unit owner of that obligation.

Co-Op May Not Deny Unit Owner Tax Exemption Benefits

Village in the Woods Owners Corp. v. Powles

NYLJ 7/22/09, p. 37, col. 6

AppTerm, 9th & 10th Districts

(memorandum opinion)

In a summary nonpayment proceeding brought by co-operative corporation against an individual shareholder, both parties appealed from a District Court order dismissing the petition but denying attorneys fees to shareholder. The Appellate Term modified to award attorneys' fees, holding that the co-op corporation lacked authority to deny unit owner the benefit of a STAR tax exemption.

Unit owner purchased the shares associated with her unit from an owner who qualified for the STAR tax exemption. That exemption does not expire upon transfer, but continues until the end of the tax year. The co-op corporation pays real estate taxes on all of the units, and then collects taxes through the monthly maintenance fee. The co-op credits against that fee any exemption to which a unit owner is entitled through the STAR program. The co-op board, however, enacted a resolution providing that all rebates to a unit owner would cease upon transfer of the unit. As a result, the co-op corporation billed unit owner for maintenance, without providing for any STAR exemption. Unit owner subtracted the amount of the STAR exemption, and paid the rest. The co-op corporation then brought this nonpayment proceeding. District Court dismissed the proceeding.

In affirming, the Appellate Term relied upon Real Property Tax Law section 425, which creates the exemption, and which provides that “the reduction in real property taxes attributable to each eligible tenant-shareholder shall be credited by the cooperative apartment corporation against the amount of such taxes otherwise payable by or chargeable to such tenant-shareholder.” RPTL 425(2)(k)(ii) [emphasis in court's opinion]. The court relied on the mandatory language to conclude that the board had exceeded its authority in enacting the resolution terminating rebates upon transfer. The court also concluded that because the proprietary lease gives landlord a right to recover attorney's fees against tenant, the determination in tenant's favor triggers the statutory reciprocal right of tenant to recover attorneys' fees against landlord (Real Property Law sec. 234). As a result, the Appellate Term modified District Court's order to award attorneys' fees.