Opinion
No. 2007–2338.
2010-06-25
DEFFINBAUGH CORP., Plaintiff, v. Baldev KUMAR, Defendant. Baldev Kumar, Cross–Claimant, v. Brian Basmajian, Charlie Deffinbaugh, Glg, Llc, and Guy Pasquale, Cross–Claim Defendant.
Coughlin & Gerhart, L.L.P., by Paul J. Sweeney, Esq., Binghamton, for Plaintiff Deffinbaugh Corp. and Cross–Claim Defendants Charlie Deffinbaugh and Brian Basmajian. Cobb & Cobb, by Verna W. Cobb, Esq., Newburgh, for Defendant Baldev Kumar.
Coughlin & Gerhart, L.L.P., by Paul J. Sweeney, Esq., Binghamton, for Plaintiff Deffinbaugh Corp. and Cross–Claim Defendants Charlie Deffinbaugh and Brian Basmajian. Cobb & Cobb, by Verna W. Cobb, Esq., Newburgh, for Defendant Baldev Kumar.
Hinman, Howard & Kattell, LLP, by Thomas W. Cusimano, Esq., Binghamton, for Cross–Claim Defendants GLG, LLC and Guy Pasquale.
PHILLIP R. RUMSEY, J.
By written agreement dated November 7, 2006 (the contract), plaintiff and Brian Basmajian (sellers) agreed to sell, and defendant agreed to purchase, certain assets used in operation of a gas station and convenience store operated under the name of Titan Express Mart at 400 Court Street, Binghamton, New York. The contract also required that sellers arrange for the conveyance to defendant of the real property and improvements at 400 Court Street, which sellers possessed under a written lease agreement, and which they had the option to purchase. The transaction closed, approximately five weeks later, on December 13, 2006, when the assets were conveyed by sellers to defendant and the real property was separately conveyed to defendant by GLG, LLC. Defendant paid the purchase price to sellers, in part, by executing and delivering to plaintiff a promissory note for $100,000, secured by a second mortgage on the real property.
Upon defendant's default in payment of the monthly installments due thereunder, plaintiff commenced this action to recover the balance due on the note.
The mortgage to GLG, LLC, also securing $100,000, has priority over the mortgage to plaintiff, inasmuch as it is a purchase money mortgage of which plaintiff was aware (Affidavit of Paul J. Sweeney, Esq., sworn to May 16, 2008 [Sweeney Affidavit], Exhibit I). The mortgage held by GLG, LLC has priority also because it was recorded prior to the mortgage held by plaintiff, a fact of which the court takes judicial notice ( see Harbor Hills Landowners v. Manelski, 65 Misc.2d 682, 683 [1970];see also Chateau Rive Corp. v. Enclave Dev. Assoc., 22 AD3d 445, 447 [2005] ).
Plaintiff's notice of motion does not specifically seek summary judgment on the note; however, both parties have treated its motion as including that request ( see, e.g. Sweeney Affidavit, ¶ 35; Affidavit of Paul J. Sweeney, Esq., sworn to January 16, 2009, ¶¶ 12–16; Affirmation in Response of Verna W. Cobb, Esq., dated January 19, 2009, ¶ 6).
In his answer, defendant asserted the affirmative defense of fraudulent inducement and asserted a counterclaim against plaintiff for breach of contract. He also asserted third-party claims for fraudulent inducement against Basmajian, Charlie Deffinbaugh (president of plaintiff), and Guy Pasquale (allegedly a principal of GLG, LLC), and third-party claims for breach of contract against Basmajian and GLG, LLC. Plaintiff moves to dismiss the counterclaim and for summary judgment on the note, and Basmajian and Deffinbaugh move to dismiss the third-party claims asserted against them. The motions are opposed by defendant.
Plaintiff has established prima facie entitlement to summary judgment on the note by showing its execution and default in payment thereunder, which “can be defeated only by proof demonstrating the existence of a triable issue of fact with respect to a bona fide defense” (Friends Lbr. v. Cornell Dev. Corp., 243 A.D.2d 886, 887 [1997] [citations omitted]; accord Cape Vincent Milk Producers Coop., Inc. v. St. Lawrence Food Corp., 43 AD3d 606 [2007] ). Here, defendant asserts the defense of fraudulent inducement and interposes a counterclaim for breach of contract. The basis of defendant's claims of fraudulent inducement against the movants are oral statements allegedly made by Deffinbaugh and Basmajian, at closing, “that business was good, that all equipment was in good working order, and that there were no problems with either the property or the equipment” (Affidavit of Baldev Kumar, sworn to October 27, 2008 [Kumar Affidavit], ¶ 5; see also id., ¶ 6; complaint, ¶ 5).
Defendant alleges that he learned only after the closing that the alleged representations were untrue, when his first customers informed him that the store had been open only intermittently prior to his purchase, that it was in poor shape, and that it had been partially submerged under water during a major flood in June 2006 ( id., ¶ 7). In addition, defendant alleges that he discovered only after closing the existence of many problems with the condition of the property—namely, leaking underground storage tanks containing contaminated gasoline, nonfunctional pumps and monitoring system, and bent and frozen gas lines ( id., ¶ 8)—which ultimately led the Department of Environmental Conservation to order removal of the underground storage tanks, thereby effectively closing the store ( id., Exhibit Q). He further asserts that a large number of overdue bills left unpaid by sellers—also a basis for his counterclaim for breach of contract—are evidence that the business was not in sound financial condition, as allegedly represented ( id., ¶ 10).
Defendant's claims of fraudulent inducement fail for several reasons. First, claims that the sellers misrepresented the financial condition of the business are barred by the parole evidence rule because the contract contains a disclaimer which specifically contradicts the alleged oral misrepresentations by providing that “the parties agree and understand that the Seller is making no representation or warranties [sic] as to the financial records or any other matters pertaining to the fiscal or financial condition of this Business” (contract, § 5.01[g]; see CFJ Assoc. of N.Y. v. Hanson Indus., 274 A.D.2d 892, 894 [2000];DH Cattle Holdings Co. v. Reno, 196 A.D.2d 670, 673 [1993];Rodas v. Manitaras, 159 A.D.2d 341, 342 [1990] ).
Defendant's claims that movants misrepresented the condition of the property fail because the defects he has identified were problems with the condition of the real property which he purchased from GLG, LLC—not with assets he acquired from plaintiff and Basmajian—and because he failed to adequately inspect the property prior to purchase. Defendant complains that the gas storage and dispensing system—consisting of underground storage tanks, lines, pumps, and monitor—was in a serious state of disrepair at the time of closing (Kumar Affidavit, ¶ 8). Incorporated in the contract was an Exhibit A which listed the property to be conveyed by sellers to defendant. None of the relevant assets are on that list.
With the exception of two “Titan” signs, the items listed on Exhibit A, entitled, “Fixtures, Equipment and Other Tangible Assets of the Business,” are exclusively for in-store use—no mention is made of the gasoline storage tanks or dispensing and monitoring equipment. While acknowledging that the storage tanks were not among the items that sellers sold to defendant, defendant's counsel now argues that the remainder of the gasoline dispensing and monitoring systems were among the items conveyed by sellers, based on the identification on Exhibit A of a “G–Site Monitor System” (Memorandum of Law in Opposition to Plaintiff's Motion to Dismiss,” dated October 27, 2008, at pp. 3, 5 [emphasis supplied] ). This assertion—made only by counsel in an unsworn memorandum of law—is not supported by the evidence. Exhibit A lists a “G–Site Register System” (emphasis supplied), which is a cash register system comprised of a number of individual components, including a “monitor” for viewing of transactions. Exhibit A may not be fairly viewed as describing the components of a leak detection monitoring system ( see also Kumar Affidavit, Exhibit I [estimate to replace leak detection system which more specifically identifies its components]; Affidavit of Charlie Deffinbaugh, sworn to April 29, 2008, ¶¶ 4, 5, 9).
Defendant's failure to undertake a routine investigation which would have identified the defects of which he now complains also precludes his claim that he was induced to enter into the contract by misrepresentations regarding the condition of the property (Nigro v. Lee, 63 AD3d 1490 [2009];McPherson v. Husbands, 54 AD3d 735 [2008];Dyke v. Peck, 279 A.D.2d 841 [2001];Cohen v.. Colistra, 233 A.D.2d 542 [1996];Vandervort v. Higginsbotham, 222 A.D.2d 831 [1995] ). Notably absent from defendant's proof is a single allegation that he conducted any inspection of the business—either the personal property which he contracted to buy from sellers or the real property—prior to closing, or that sellers deprived him of the opportunity to do so. With respect to the only visit to the property which defendant mentions—made approximately two months prior to signing the contract—he explains that: “At that time, I did not know who the owner was, or who I should speak to, so I just looked at the gas station in action[;][i]t was open and seemed operational” (Kumar Affidavit, ¶ 3). Nor can there be any doubt that defendant would have ascertained the true facts with reasonable diligence (Nigro, 63 AD3d at 1492–1493), in light of his admissions that the poor condition of the station was readily apparent even to his first customers (Kumar Affidavit, ¶ 7), and that he identified numerous problems soon after closing, including contaminated gasoline and leaking underground storage tanks ( id., ¶ 8).
Next, defendant's reliance on the alleged misrepresentations was patently unreasonable under the present circumstances—where he was represented by counsel in negotiation of the contract and at closing ( see Sweeney Affidavit, Exhibit G, at § 14.08, and Exhibits I—L), and where the alleged misrepresentations were made at a closing five weeks after defendant agreed to purchase the business and moments before he chose to close that purchase ( see Permasteelisa, S.p.A. v. Lincolnshire Mgt., Inc., 16 AD3d 352 [2005] [reliance unreasonable where purchaser failed to insist upon examination of the books and records of the company that it was purchasing, and where purchaser failed to negotiate a remedy to guard against misrepresentation]; Stuart Silver Assoc. v. Baco Dev. Corp., 245 A.D.2d 96 [1997] [reliance solely on seller's oral promises unreasonable]; Shepard v. Whispering Pines, 188 A.D.2d 786 [1992] [reliance on seller's oral representation of income of business being acquired unreasonable]; Rodas, 159 A.D.2d at 342 [purchasers which closed, even though their request for examination of the records of the business being acquired was refused, assumed the risk that the documentation might not support seller's representations] ).
Accordingly, defendant's affirmative defense, and his third-party claims against Basmajian and Deffinbaugh for fraudulent inducement, must be, and hereby are, dismissed.
With respect to defendant's breach of contract claims against sellers, an issue of fact remains with respect to whether sellers have paid all accounts payable that were due and owing as of closing (contract, § 5.01[c] ), or whether they have indemnified defendant for all expenses or damages that he incurred based on pre-closing transactions and events ( id., § 5.01[e]; see Kumar Affidavit, ¶¶ 9, 10, Exhibits G, H; Affidavit of Paul J. Sweeney, Esq., sworn to January 16, 2009, ¶¶ 3–11). However, defendant has failed to provide any evidence which substantiates his claim that sellers breached any contractual obligation with respect to the physical condition of the assets sold or the financial condition of the business. As noted above, defendant has not alleged that any assets conveyed by sellers were in other than good working order at the time of closing ( see contract, § 5.01[f] ). In addition, sellers specifically disclaimed any representation regarding the financial condition of the business ( id. § 5.01[g] ). Plaintiff's claims for breach of contract against sellers are limited accordingly, and are severed from plaintiff's claim for summary judgment for the balance due on the note (Cape Vincent Milk Producers Coop., Inc., 43 AD3d at 608;Newcourt Small Bus. Lending Corp. v. Grillers Casual Dining Corp., 284 A.D.2d 681, 684 [2001];Gelmin v. Sequa Capital Corp., 269 A.D.2d 492, 493 [2000];Friends Lbr., 243 A.D.2d at 888–889).
Based on the foregoing, plaintiff is hereby granted judgment against defendant for the principal sum of $100,837.82, plus interest from August 1, 2007 to the date of entry of judgment at the rate of 7.0% per annum, and at the legal rate thereafter, and for attorney's fees for the cost of collection, in an amount to be determined by the court upon application by plaintiff on notice to defendant.
Defendant previously moved, pursuant to order to show cause signed by Justice Fitzgerald on July 24, 2008, for an order compelling plaintiff to produce interrogatory responses and documents, and for amendment of the caption to properly identify the third-party action. At a conference with attorneys for plaintiff and defendant held prior to argument of this motion, the court was advised that plaintiff and defendant have resolved the previously outstanding disclosure issues, and, further, that there is no objection to defendant's request for amendment of the caption. Accordingly, defendant's motion is granted, to the extent that it is ordered that the caption be amended as follows:
State of New York
Supreme CourtCounty of Broome
________________________________________
DEFFINBAUGH CORP.,
Plaintiff, Index No.2007–2338
-v
RJI No.2008–0714–M
BALDEV KUMAR,
Defendant.
________________________________________
BALDEV KUMAR,
Third–Party Plaintiff,
-v
BRIAN BASMAJIAN, CHARLIE
DEFFINBAUGH, GLG, LLC, and
GUY PASQUALE,
Third–Party Defendants.
(40)6D
Defendant's prior motion is otherwise deemed withdrawn.
This decision constitutes the order of the court. The transmittal of copies of this decision and order by the court shall not constitute notice of entry.