Cooperatives & Condominiums

AppDiv, First Dept.

(Catterson, J.)

In an action by condominium unit owner against the sponsor and members of the condominium board, the various defendants appealed from a Supreme Court order denying their summary judgment motion except with respect to dismissal of unit owner's punitive damages claim. The Appellate Division modified to dismiss unit owner's fraud and misrepresentation claims, and to dismiss all claims against the board members, but held that unit owner's trespass and nuisance claims were not precluded by the language of the offering plan.

The condominium offering plan states that the sponsor will correct defects relating to building construction, but that nothing in the plan should be construed “to render sponsor liable for money damages (whether based on negligence, breach of contract, breach of warranty, or otherwise).” The offering plan did not depict the cooling tower in architectural drawings or the floor plan for the penthouse unit. When the penthouse unit owner purchased the apartment, however, she saw the cooling tower on the roof. Beginning on March 13, 2008, within three months or moving in, penthouse owner began to e-mail complaints about the noise from the cooling tower. By June, 2008, her lawyer sent a letter to the condominium board president demanding immediate correction. Another letter, sent on July 3, 2008, alleged noise levels of 85 dB. Moreover, from Sept. 12 to Dec. 3, 2008, penthouse unit owner e-mailed complaints about foul smells, which appear to have been caused by leakage of glycol from the cooling tower. On July 29, 2009, penthouse owner brought this action.

Within the next 30 days, the state Department of Environmental Preservation (DEP) had issued a report indicating that the cooling tower was leaking glycol, and the New York City Environmental Control Board had issued a notice of noise violation. Defendants nevertheless moved for summary judgment, and Supreme Court denied the motion, except with regard to punitive damages.

The Appellate Division modified, holding that the business judgment rule precluded actions against the condominium board members, and that because the fraud and misrepresentation claims were based solely on representations made in the offering plan, the Martin Act precluded private recovery on those claims. But the court held that triable questions of fact remained with respect to penthouse owner's trespass and nuisance claims. The trespass claim was based on glycol leakage, and required proof that the sponsor had reason to expect that the glycol would leak again when penthouse owner made its first complaint in September 2008. Here, because the DEP report referred to “past incidents” of glycol spillage, penthouse owner had raised triable questions of fact about sponsor's knowledge. The noise issue raised a nuisance claim, and here, issuance of a noise violation raised questions of fact about whether the noise was excessive and recurring, and therefore substantial and unreasonable. The nuisance claim also requires proof that the sponsor's interference was intentional, and here, there was evidence that an engineering firm had warned the sponsor, in 2005 and 2006, that the cooling towers would generate excessive noise if steps were not taken to mitigate that noise. As a result, the sponsor was not entitled to summary judgment.

COMMENT

In the case of claims for trespass due to leakage or spillage of substances onto another's property, New York courts agree that a plaintiff property owner need not show that the alleged trespasser intended the actual harm done, but diverge as to whether actual knowledge of harm, or only foreseeability of harm, is required for liability. Although the Third Department appears to hold that a claim of trespass requires proof that defendant had actual knowledge or notice that his actions caused the trespass, the Second Department, the First Department in Berenger, and the Second Circuit have held that mere foreseeability of trespass is sufficient for liability. In Kulpa v. Stewart's Ice Cream, 144 A.D.2d 205, the Third Department dismissed plaintiff's trespass claim where defendant knew neither that his underground oil tanks were leaking gasoline onto plaintiff's property nor that the tanks allegedly continued to leak after replacement. On similar facts, however, the Second Department in Hilltop Nyack Corp. v. TRMI Holdings, 264 A.D.2d 503, found that restaurant owners had raised a triable issue of fact as to whether it was foreseeable that oil would continue to leach onto plaintiff's neighboring property after removal by defendant environmental contractors of the leaking gasoline tanks. The Second Circuit also held foreseeability as opposed to actual knowledge of trespass sufficient in Scribner v. Summers, 84 F.3d 554. In Scribner, a metal treatment business had been demolishing old furnaces containing barium chloride (a hazardous substance) and then washing the pieces with water uphill from plaintiffs' adjoining property. Based on these facts, the court found that leakage onto plaintiffs' property was foreseeable and so defendant was liable in trespass.

All these courts discuss the Court of Appeals case, Phillips v. Sun Oil Co., 307 N.Y. 328, but rely on different language to support their divergent interpretations. The Third Department refers to language in Phillips that a trespass must be “willful,” whereas the First and Second Departments and the Second Circuit cite the language that a defendant must have “good reason to know or expect” that his actions will cause a trespass. The reason for this “split” may be that in Phillips, defendant landowner was found not liable in trespass because he met neither standard: he did not have actual knowledge or notice that his gasoline tank was leaking gasoline onto plaintiff's land, and the lay of the land did not make the trespass foreseeable according to the court. In practice, however, defendants do not escape liability in the Third Department: In Kulpa, the court sustained a private nuisance claim despite dismissing the trespass claim, holding that negligence would be sufficient to support a negligence claim

Wrongful Return of Deposit Triggers Claim

Greenapple v. Capital One N.A.

NYLJ 2/23/12, p. 22, col. 6

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium purchaser against a law firm acting as an escrow agent for the purchase, purchaser appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed and reinstated the complaint, holding that purchaser's allegation that escrow agent paid the deposit to the seller instead of the purchaser based on a forged instrument stated a claim for breach of fiduciary duty.

Purchaser paid a deposit of $104,000 when it executed a purchase agreement for an apartment. The money was held in escrow by seller's law firm, pursuant to an agreement which required the escrow agent to maintain the funds in escrow unless otherwise directed by a writing signed by both purchaser and seller (who was also the condominium's sponsor). When purchaser later sought to rescind the sale contract and obtain return of the deposit, the law firm rejected her attempt, contending that it had paid the deposit over to the seller years earlier based on a copy of a termination agreement allegedly signed both by purchaser and seller. The law firm produced a copy of the refund check, made payable to purchaser and double endorsed, allegedly by both the purchaser and the seller. Contending that the termination agreement was a forgery, purchaser brought this action alleging that the law firm breached its fiduciary duty as escrow agent by drafting the termination agreement to require payment of the deposit to the seller-sponsor rather than directly to her, and by failing to exercise reasonable care to make sure purchaser received the deposit. Supreme Court awarded summary judgment to the law firm.

In reversing, the Appellate Division held that purchaser's complaint sufficiently stated that the firm failed to comply with the conditions imposed by the escrow agreement, which required a document signed by purchaser. Because the complaint alleged that the firm intentionally participated in a scheme to convert purchaser's deposit, the complaint adequately alleged gross negligence, which would trigger liability by the escrow agent. As a result, the complaint adequately stated a claim for breach of fiduciary duty.

Trespass and Nuisance Claims Not Barred By Offering Plan

Berenger v. 261 West LLC

NYLJ 2/14/12, p. 17. col. 1

AppDiv, First Dept.

(Catterson, J.)

In an action by condominium unit owner against the sponsor and members of the condominium board, the various defendants appealed from a Supreme Court order denying their summary judgment motion except with respect to dismissal of unit owner's punitive damages claim. The Appellate Division modified to dismiss unit owner's fraud and misrepresentation claims, and to dismiss all claims against the board members, but held that unit owner's trespass and nuisance claims were not precluded by the language of the offering plan.

The condominium offering plan states that the sponsor will correct defects relating to building construction, but that nothing in the plan should be construed “to render sponsor liable for money damages (whether based on negligence, breach of contract, breach of warranty, or otherwise).” The offering plan did not depict the cooling tower in architectural drawings or the floor plan for the penthouse unit. When the penthouse unit owner purchased the apartment, however, she saw the cooling tower on the roof. Beginning on March 13, 2008, within three months or moving in, penthouse owner began to e-mail complaints about the noise from the cooling tower. By June, 2008, her lawyer sent a letter to the condominium board president demanding immediate correction. Another letter, sent on July 3, 2008, alleged noise levels of 85 dB. Moreover, from Sept. 12 to Dec. 3, 2008, penthouse unit owner e-mailed complaints about foul smells, which appear to have been caused by leakage of glycol from the cooling tower. On July 29, 2009, penthouse owner brought this action.

Within the next 30 days, the state Department of Environmental Preservation (DEP) had issued a report indicating that the cooling tower was leaking glycol, and the New York City Environmental Control Board had issued a notice of noise violation. Defendants nevertheless moved for summary judgment, and Supreme Court denied the motion, except with regard to punitive damages.

The Appellate Division modified, holding that the business judgment rule precluded actions against the condominium board members, and that because the fraud and misrepresentation claims were based solely on representations made in the offering plan, the Martin Act precluded private recovery on those claims. But the court held that triable questions of fact remained with respect to penthouse owner's trespass and nuisance claims. The trespass claim was based on glycol leakage, and required proof that the sponsor had reason to expect that the glycol would leak again when penthouse owner made its first complaint in September 2008. Here, because the DEP report referred to “past incidents” of glycol spillage, penthouse owner had raised triable questions of fact about sponsor's knowledge. The noise issue raised a nuisance claim, and here, issuance of a noise violation raised questions of fact about whether the noise was excessive and recurring, and therefore substantial and unreasonable. The nuisance claim also requires proof that the sponsor's interference was intentional, and here, there was evidence that an engineering firm had warned the sponsor, in 2005 and 2006, that the cooling towers would generate excessive noise if steps were not taken to mitigate that noise. As a result, the sponsor was not entitled to summary judgment.

COMMENT

In the case of claims for trespass due to leakage or spillage of substances onto another's property, New York courts agree that a plaintiff property owner need not show that the alleged trespasser intended the actual harm done, but diverge as to whether actual knowledge of harm, or only foreseeability of harm, is required for liability. Although the Third Department appears to hold that a claim of trespass requires proof that defendant had actual knowledge or notice that his actions caused the trespass, the Second Department, the First Department in Berenger, and the Second Circuit have held that mere foreseeability of trespass is sufficient for liability. In Kulpa v. Stewart's Ice Cream, 144 A.D.2d 205, the Third Department dismissed plaintiff's trespass claim where defendant knew neither that his underground oil tanks were leaking gasoline onto plaintiff's property nor that the tanks allegedly continued to leak after replacement. On similar facts, however, the Second Department in Hilltop Nyack Corp. v. TRMI Holdings, 264 A.D.2d 503, found that restaurant owners had raised a triable issue of fact as to whether it was foreseeable that oil would continue to leach onto plaintiff's neighboring property after removal by defendant environmental contractors of the leaking gasoline tanks. The Second Circuit also held foreseeability as opposed to actual knowledge of trespass sufficient in Scribner v. Summers, 84 F.3d 554. In Scribner, a metal treatment business had been demolishing old furnaces containing barium chloride (a hazardous substance) and then washing the pieces with water uphill from plaintiffs' adjoining property. Based on these facts, the court found that leakage onto plaintiffs' property was foreseeable and so defendant was liable in trespass.

All these courts discuss the Court of Appeals case, Phillips v. Sun Oil Co., 307 N.Y. 328, but rely on different language to support their divergent interpretations. The Third Department refers to language in Phillips that a trespass must be “willful,” whereas the First and Second Departments and the Second Circuit cite the language that a defendant must have “good reason to know or expect” that his actions will cause a trespass. The reason for this “split” may be that in Phillips, defendant landowner was found not liable in trespass because he met neither standard: he did not have actual knowledge or notice that his gasoline tank was leaking gasoline onto plaintiff's land, and the lay of the land did not make the trespass foreseeable according to the court. In practice, however, defendants do not escape liability in the Third Department: In Kulpa, the court sustained a private nuisance claim despite dismissing the trespass claim, holding that negligence would be sufficient to support a negligence claim

Wrongful Return of Deposit Triggers Claim

Greenapple v. Capital One N.A.

NYLJ 2/23/12, p. 22, col. 6

AppDiv, First Dept.

(memorandum opinion)

In an action by condominium purchaser against a law firm acting as an escrow agent for the purchase, purchaser appealed from Supreme Court's dismissal of the complaint. The Appellate Division reversed and reinstated the complaint, holding that purchaser's allegation that escrow agent paid the deposit to the seller instead of the purchaser based on a forged instrument stated a claim for breach of fiduciary duty.

Purchaser paid a deposit of $104,000 when it executed a purchase agreement for an apartment. The money was held in escrow by seller's law firm, pursuant to an agreement which required the escrow agent to maintain the funds in escrow unless otherwise directed by a writing signed by both purchaser and seller (who was also the condominium's sponsor). When purchaser later sought to rescind the sale contract and obtain return of the deposit, the law firm rejected her attempt, contending that it had paid the deposit over to the seller years earlier based on a copy of a termination agreement allegedly signed both by purchaser and seller. The law firm produced a copy of the refund check, made payable to purchaser and double endorsed, allegedly by both the purchaser and the seller. Contending that the termination agreement was a forgery, purchaser brought this action alleging that the law firm breached its fiduciary duty as escrow agent by drafting the termination agreement to require payment of the deposit to the seller-sponsor rather than directly to her, and by failing to exercise reasonable care to make sure purchaser received the deposit. Supreme Court awarded summary judgment to the law firm.

In reversing, the Appellate Division held that purchaser's complaint sufficiently stated that the firm failed to comply with the conditions imposed by the escrow agreement, which required a document signed by purchaser. Because the complaint alleged that the firm intentionally participated in a scheme to convert purchaser's deposit, the complaint adequately alleged gross negligence, which would trigger liability by the escrow agent. As a result, the complaint adequately stated a claim for breach of fiduciary duty.