Opinion
Index No. 616276/2019
12-31-2023
PREFERRED GOLD COAST PROPERTIES, LLC, Plaintiff and Counterclaim, Defendant, v. Anna CARUSO and Christopher Caruso, Defendants and Counterclaim Plaintiffs. Anna Caruso and Christopher Caruso, Third-Party Plaintiffs, v. Eric Schwartz and Preferred Gold Coast Holdings LLC, Third-Party Defendants.
Papers Considered:
Plaintiff/Third-Party Defendant's Post-Trial Memorandum and Exhibits 1
Defendant/Third-Party Plaintiff's Post-Trial Memorandum and Exhibits 2
Trial Exhibits 3
This is a breach of contract action by plaintiff Preferred Gold Coast Properties LLC ("Preferred") to recover damages from defendants Anna Caruso and Christopher Caruso ("the Carusos") pursuant to the construction of the Carusos waterfront home in Seaford, New York. The Carusos have counterclaimed against Preferred and the third-party defendants Eric Schwartz ("Schwartz") and Preferred Gold Coast Holdings LLC ("PGCH"), alleging that Preferred, Schwartz, and PGCH failed to properly perform their obligations under the construction contract. Eric Schwartz is the sole member of Preferred and PBGH. The Court conducted a twelve-day non-jury trial on the issues raised in the complaint and counterclaims.
PROCEDURAL HISTORY
Eric Schwartz is a real estate developer with an extensive career in construction and technology (testimony of Eric Schwartz, March 6, 2023, at 31-33). After selling his prior company in 1999 he started a real estate development practice and has since built numerous homes in various sizes all over Long Island (id. at 33-35). The instant proceeding arises from the Ocean Cove residential housing development in Seaford, NY (Plaintiff's Exhibit 1). Ocean Cove was envisioned as a luxury boating community on the water (id. at 42-44).
On March 2, 2017, Preferred and the Carusos entered into a construction contract to build a home in the Ocean Cove development (Plaintiff's Exhibit 5). On June 5, 2017, the Carusos closed on the land where the construction was to commence (testimony of Eric Schwartz, March 6, 2023, at 89). Throughout the construction there were numerous change orders which were issued by PGCH, a separate company operated by Schwartz (Plaintiff's Exhibits 40-58).
On November 21, 2019, Preferred commenced the instant proceeding. On July 21, 2020, the Carusos filed a verified answer containing affirmative defenses and counterclaims. The Carusos also commenced a third-party complaint alleging fifteen causes of action ranging from breach of contract, willful exaggeration of a mechanics lien, fraudulent inducement, intentional infliction of emotion distress, fraud, spoliation and seeking counsel fees, punitive damages, and a declaratory judgment against Preferred, Schwartz, and PGCH. By order dated December 8, 2020 (motion sequence ## 1,2,3), Justice James McCormack, dismissed plaintiff Preferred's fraud causes of action by Preferred, dismissed defendants Carusos’ counterclaims against Preferred to recover the damages sounding in fraudulent inducement, fraud, intentional infliction of emotional distress, and punitive damages, and dismissed all but two claims by third-party plaintiffs Carusos against third-party defendants Schwartz and PGCH. Thus the remaining causes of action are: plaintiff Preferred's causes of actions against defendants Carusos for breach of contract and counsel fees, defendants Carusos first, second, third, fourth, fifth, sixth, eight, ninth, tenth, thirteen, and fourteenth counterclaims against Preferred, and the six and tenth causes of action by third-party plaintiffs Carusos against third-party defendants Schwartz and PGCH.
The issues to be determined by this Court will be discussed in seriatim.
GENERAL BUSINESS LAW § 771The first issue this Court will determine is one of first impression based upon the particular facts in this case: whether the home built by the plaintiff is simply a model home, as argued by the plaintiff, or a custom home, as contended by the defendants Carusos.
General Business Law § 770 (7) defines a "custom home" as
"a new single family residence to be constructed on premises owned of record by the purchaser at the time of contract, provided that such residence is intended for residential occupancy by such purchaser and the contract of sale is entered into on or after the first day of March, nineteen hundred ninety."
When a contract is for a custom home, it is governed by General Business Law § 36-A ( Garan v. Don & Walk Sutton Builders , 5 AD3d 349 [2nd Dep't 2004] ; see also Bread Over Bread Corp. v. Tardieu , 70 Misc 3d 1203 (A), 135 N.Y.S.3d 808, 2020 NY Slip O51537(U) [S. Ct. Suffolk Co., Dec. 22, 2020, Berland, J.]). The Court notes that General Business Law 770 also includes custom homes within the parameters of "home improvement" construction ( General Business Law § 770[3] ).
A contract for a custom home must conform to General Business Law § 771, which requires inter alia the approximate dates when work will begin and substantially completed, a description of the work along with the materials to be provided by the owner, enforceability provisions based upon nonpayment, and other payment provisions (see General Business Law § 771[1] ).
A contract which does not conform to General Business Law § 771 is unenforceable by the contractor. However, the contractor may seek recovery based upon quantum meruit (see Home Constr. Corp. v. Beaury , 149 AD2d 699, 702 [2nd Dep't 2017] ; see Johnston v. Robertson , 131 AD3d 370, 672 [2015]; Evans-Freke v. Showcase Contr. Corp. , 85 AD3d 961, 962 [2011] ; Frank v. Feiss , 266 AD2d 825, 826 [1999] ; Mindich Devs. v. Milstein , 227 AD2d 526, 537 [1996]). To succeed on a quantum meruit claim, a party must show: (1) the performance of services in good faith; (2) acceptance of services by the person to whom they are rendered; (3) expectation for compensation; and (4) reasonable value of the services rendered (Home Constr. Corp. v. Beaury , supra at 702; Evans-Freke v. Showcase Constr. Corp., supra at 962; Johnson v. Robertson , supra at 672).
The contract in question provides that "[a]ll extras, upgrades or modifications from the construction drawings must be in writing and signed by both CONTRATOR and OWNER" (Plaintiff's Ex. 5). Eighteen change orders were admitted into evidence, and many were unsigned by Preferred or the Carusos and were issued by PGCH (Plaintiff's Ex. 40-58).
It is undisputed that Preferred intended to design a luxury community on the water. Preferred advertised and marketed Ocean Cove as a luxury custom community and included model plans that buyers could choose from. The construction contract allowed for modifications and contained various representations by the Carusos which they could not make without first owning the land (testimony of Eric Schwartz, May 1, 2023, at 573-574, 576-577).
Over the course of the trial the evidence revealed that voluminous changes were elicited by the Carusos; additions included inter alia radiant heat floors, heightened garage doors, tiled floors, mosaic tiles, bay windows, higher ceilings, and extending the house's footprint (see Plaintiff's Exhibits 11-20, 22-28, 32-633, 38, 59-61; Defendant's Exhibits S-W, Z-At, Ax, Ay). This home became so unique in design that it was not in conformity with the initial idea offered by Preferred nor was it like any of the other homes constructed in Ocean Cove. Thus, the residence was a custom home which was required to comply with General Business Law § 771.
Although General Business Law § 770 is vague relative to the date the construction contract is executed, this Court finds that the construction contract and the construction plans at bar created a de facto a "custom home" as defined in GBL § 770. The number of changes and variations which occurred during the course of this contract were so numerous that, although Preferred originally intended to construct the Carusos residence based upon a design for one of the model Ocean Cove homes, the Carusos, with Schwartz’ acquiescence, created a de facto custom home. Furthermore, it would have been impossible for the Carusos to make the representations in the construction contract without being the landowners at the time the construction contract was entered. The preponderance of evidence clearly demonstrates that the Carusos agreed to purchase the land and then engage Preferred to construct the home. Furthermore, the contract does not limit the type of home or prevent modifications or changes outside pre-approved designs. Moreover, the preponderance of evidence adduced at trial sufficiently demonstrate that the subject contract and subsequent change orders do not conform to General Business Law § 771, and consequently the breach of contract claim by Preferred against the Carusos is dismissed.
Nevertheless, this Court further finds, in the interests of justice and based upon the principles of law below, that the plaintiff will not barred from an equitable recovery within this action. The record is clear that (1) the construction of the Carusos’ home, based on the initial contract and the subsequent change orders, were performed in good faith; (2) the Carusos accepted the construction; and (3) Preferred expected to be compensated for such work (see Plaintiff's Exhibits 11-20, 22-28, 32-633, 38, 59-61; Defendant's Exhibits S-W, Z-At, Ax, Ay).
A "judgment may be awarded on an unpleaded cause of action if the proof supports such cause and if the opposing party has not been misled to its prejudice" ( FPG CH 94 Amity, LLC v. Pizzarotti, LLC , 218 AD3d 654, 655 [2nd Dept. 2023]quoting Rubenstein v Rosenthal , 140 AD2d 156, 158 ; see also E. Tetz & Sons, Inc. v Polo Elec. Corp. , 129 AD3d 1014, 1015 ; Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR C3212:10, C3212:11; Rogoff v San Juan Racing Assn. , 77 AD2d 831 ). The key is whether or not the opposing party was taken by surprise and suffered prejudice thereby (see, Jandous Electric Constr. Corp. v. New York, 88 AD2d 821, 822 ). Here, the Carusos have not demonstrated that they would be prejudiced by consideration of the unpleaded theory of quantum meruit (FPG CH 94 Amity, LLC v. Pizzarotti, LLC, supra).
Accordingly, despite the failure of Preferred to include a claim for quantum meruit as a cause of action, this Court sua sponte conforms the pleadings to the proof adduced at trial (see, Murray v City of New York, 43 NY2d 400 [1977] ) ; CPLR 3025 [c], and finds that Preferred is entitled to an award of damages based on quantum meruit (see , Kushner Studios Architecture v. Sendowski , 23 Misc 3d 127(A) [App. Term 1st Dept. 2009] [reversing trial court award based on quantum meruit on the basis that a valid enforceable contract existed]; see also Grey's Woodworks, Inc. v Witte, 173 AD3d 1322, 1323 [3 rd Dept. 2019] ; Allstate Ins. Co. v. Levy , 206 AD2d 527 [2nd Dept. 1994] ).
Preferred claims that based on the work completed, the unpaid material, the D&T lien, and change orders, the total amount owed to it is $250,755.76 (Memorandum , NY St Cts Elec Filing [NYSCEF] Doc No. 277 at 1-3). However, Schwartz testified that the total outstanding amount owed to the plaintiff is $190,424.76 (testimony of Eric Schwartz, May 31, 2023 at 118-119). In his testimony, Schwartz testified to the damages as follows: (1) the balance under the base contract is $83,602.50; (2) the balance under the change orders is $41,641.65; and (3) the amount owed for work completed but not paid is $120,543.50, for a total balance $245,778.65 prior to any credits (id. ). The evidence adduced at trial shows that the correct amount owed under the change orders is $4,086.32 (see Defendant's Exhibit G). The Court notes that the contract, which was drafted by Preferred, does not discuss management fees, and the $120,543.50 figure is based upon change orders which were not admitted into evidence since these change orders were created after the litigation commenced (see Defendant's Exhibit P; Plaintiff's Exhibit 65; testimony of Eric Schwartz, May 31, 2023, at 120-121). Thus, the amount owed by the Carusos to Preferred, prior to credits to Preferred, is $87,688.62.
This amount excludes attorneys’ fees and interest but includes the D&T lien acquired by Preferred.
BREACH OF CONTRACT CLAIMS
The Carusos claim their construction damages are: (1) $117,156.24 owed in credits; (2) $32,850.00 for damages due to delay; (3) $47,673.00 for costs incurred to complete the punchlist items; and (4) $70,022.00 for costs to address the warranty issues (Post-Trial Memorandum , NYSCEF Doc No. 279 at 2).
This does not include the damage claims for attorneys’ fees, the duplicative Article 3-A damages, and the damages claimed against Eric Schwartz and PGCH.
A. Construction Delay
The permits obtained in February 2018 were not timely done and delayed the construction. While Preferred "... misrepresented the situation [to the Town of Hempstead] for the benefit of the Carusos ...", the Town of Hempstead required new plans to be executed in order commence construction (see Defendant's Exhibit D, P; testimony of Eric Schwartz, May 1, 2023, at 608-609). The original plans were submitted on July 26, 2017, and were rejected on August 31, 2017 (Plaintiff's Exhibit 6). New plans which complied with the Town of Hempstead Code were not submitted until October 7, 2017 (Defendant's Exhibit S). Thereafter, in December, 2017, the Town of Hempstead required $4,375.00 to issue the permit and Preferred petitioned to reduce the fee, which was then ultimately reduced to 2,425.00, and a permit issued on February 16, 2018 (Plaintiff's Exhibit 7). There was no legitimate reason offered for the delay between the August 2017 rejection and the October 2017 resubmission.
The Carusos argue that the delay to complete the project was due solely to the fault of Preferred. However, the evidence adduced at trial does not completely support that position. The hundreds of pages of Slack messages, multiple change orders and requests made by the Carusos demonstrate again that this home changed from the planned build of a model home to a custom home. These changes were not minor, but were in fact substantial, requiring completely different materials than what was planned. Some of these changes were: (1) the introduction of radiant heat floors requiring piping and planning to construct; (2) tile flooring instead of wood; and (3) changes resulting in the relocation of the air conditioning unit and duct work (see Plaintiffs's Exhibit 19, 22, 23). These were not minor changes and impacted the speed in which the project could be completed (testimony of Eric Schwartz, May 31, 2023, page 36-39). The Slack channel communications reveal that the Carusos were very particular clients and wanted the home built exactly to their specifications (see Plaintiff's Exhibits 8, 11-15, 17, 19, 23-24, 26, 30, 33, 59, 60-61; Defendant's Exhibits W, Aa, Ab, Ac, Ad, Ag, Al).
Accordingly, the preponderance of the evidence adduced demonstrates that Preferred is responsible for the delay caused in not timely obtaining the proper permits, but not for the delays which were a result of subsequent change orders and modifications requested by the Carusos. Accordingly, the Carusos are awarded the sum of $16.425.00 from Preferred.
B. Credits
Plaintiff conceded at trial that the Carusos are owed $61,131.00 in credits (Memorandum , NYSCEF Doc No. 277 at 2-3). However, the preponderance of the evidence adduced at trial demonstrates that the Carusos are entitled to the full amount of $117,157.24 in credits (see Plaintiff's Exhibits 5, 24, 41,42, 44, 52, 56, 65; Defendant's Exhibit J, P, X, Ax, Ay; testimony of Christopher Caruso, May 17, 2023, at 62-64).
C. Warranty/Punchlist Items
The Carusos presented sufficient credible evidence that the construction was incomplete and/or not performed in a good and workmanlike manner as required by the contract.
The Carusos proffered an expert witness (Gary Trias) who testified credibly as to the punchlist items and warranty issues. Preferred claims that many of these punchlist items would have been corrected at no cost to the Carusos (testimony of Eric Schwartz, May 8, 2023, at 407-409; id. , May 31, 2023 at 54-109). However, there was no evidence adduced to support this contention and the punchlist should have been completed during the initial construction, for a cost of $47,673.00 (see Defendant's P, Q, Ay, At).
The warranty claims are also speculative. There was no clear evidence to determine when these issues arose. The Trias report was created on August 31, 2022, four years after the construction was commenced and almost three years after the lawsuit was filed (see Defendant's Exhibit P). There was a significant amount of time where there the premises was never inspected, and consequently it is impossible to determine based on this record when these problems became prevalent. It could have been the construction was not done properly, it could have been damage done by the Carusos which caused the claimed issues, or it could have been usual wear and tear (testimony of Gary Trias, May 16, 2023, at 55-57; see testimony of Jeffrey Stern, May 3, 2023; testimony of Christopher Caruso, May 17, 2023; testimony of Christopher Caruso, May 19, 2023). There was insufficient evidence presented to make a determination as to these items (see Plaintiff's Exhibit 29. 28; Defendant's Exhibit P, Q, Au, Av, Aw, Ba).
WILLFUL EXAGGERATION OF THE MECHANIC'S LIEN
The standard for determining willful exaggeration of a mechanic's lien is "whether there was deliberate and intentional exaggeration of the lien amount ... rather than merely a genuine mistake or a disagreement concerning the terms of the contract" ( Pelc v. Berg , 68 AD3d 1672, 1673 [4th Dep't 2009] [citations omitted]). Lien § 12-a states "[w]ithin sixty days after the original filing a lienor may amend his lien upon twenty days notice to existing lienors ... where the purpose of the amendment is to reduce the amount of the lien, except the question of willful exaggeration shall survive such amendment." Lien § 39-a states:
The damages [for willful exaggeration of a mechanic's lien] which said owner or contractor shall be entitled to recover, shall include the amount of any premium for a bond given to obtain the discharge of the lien or the interest on any money deposited for the purpose of discharging the lien, reasonable attorney's fees for services in securing the discharge of the lien, and an amount equal to the difference by which the amount claimed to be due or to become due as stated in the notice of lien exceeded the amount actually due or to become due thereon.
Preferred claims that discharging the lien and/or amending the complaint to remove the lien foreclosure claim prevents a willful exaggeration claim that is incorrect as Lien Law § 12-a carves out the specific exception for willful exaggeration claims.
Here, the amount of the lien was exaggerated. As stated above, Preferred was entitled to be paid for the work completed in the change orders which were admitted into evidence. The exaggeration occurred with the D&T Cabinets amount and from change order 19 which was not admitted into evidence as it was made in anticipation of litigation. Therefore, the Carusos are entitled to $26,920.00 for the D&T amount, $2,100.00 for change order 19, $308.00 recording charge, $879.40 in interest and 953.95 for the amount withheld by Nassau County for a total award from Preferred in the sum of $31,161.35 (see Defendant's Exhibit H; Plaintiff's Exhibits 52, 57, 58).
Although Preferred ultimately obtained the D&T Lien, Preferred had not acquired the lien prior to filing of the mechanic's lien.
CLAIMS AGAINST ERIC SCHWARTZ AND PREFERRED GOLD COAST HOLDINGS LLC
Despite the willful exaggeration of the mechanic's lien, the Carusos have failed to meet their burden of proving a basis upon which to pierce the corporate veil and prevail on their counterclaim against Eric Schwartz personally. There has not been a sufficient showing that plaintiff Preferred was a mere device to further Mr. Schwartz personally and that there were wrongful or unjust acts towards the Carusos sufficient to pierce the veil (see Morris v. State Dep't of Taxation & Fin. , 82 NY2d 135 [1993] ). Nor was there evidence proffered which was sufficient to support the claims against PGCH. Accordingly, the third-party action is dismissed.
REMAINING COUNTERCLAIMS AGAINST PREFERRED
The Carusos eighth, ninth, tenth, and thirteen counterclaims against Preferred are dismissed as there was insufficient evidence proffered to support these claims.
No bank records were introduced to show transfers of trust funds, no forensic accounting evidence was introduced, no accountants testified; the Carusos point only to two exhibits introduced by Preferred, one of which is attorney billing records. The testimony elicited and evidence introduce are insufficient to support the claim that a fraud was being perpetrated (Plaintiff's Exhibits 77, 80; see NY CLS Lien § 77). Furthermore, there was no evidence presented to support the spoilation claim (see Pegagsus Aviation I, Inc. , 26 NY3d 543, 547 [2015] ).
ATTORNEYS’ FEES
The construction contract between the parties clearly states that "[i]n the event either party institutes any unsuccessful judicial proceeding in connection with this contract following the closing, the unsuccessful party shall be liable for the costs, disbursements and reasonable attorney's fees incurred by the prevailing party as a result of such unsuccessful judicial proceeding" (Plaintiff's Exhibit 5). Preferred and the Carusos have both initiated proceeds against one another as plaintiff and third-party plaintiff. Furthermore, since each party has prevailed against the other to different degrees, which, under the plain meaning of the contract, means that each party is not responsible for the others attorneys’ fees. Thus, all parties are responsible for their own attorneys’ fees.
CONCLUSIONS
ACCORDINGLY, BASED UPON THE FOREGOING, IT IS ORDERED THAT
(1) Plaintiff Preferred's cause of action for breach of contract is dismissed;
(2) The Court sua sponte awards plaintiff Preferred the sum of $87,688.62, based on quantum meruit;
(3) Defendants/Counterclaim-Plaintiffs Carusos are awarded the sum of $162,415.59 in damages on their first, third, and sixth causes of action against Counterclaim-Defendant Preferred;
(4) Defendants/Counterclaim-Plaintiffs Carusos’ second, fourth, fifth, eighth, ninth, tenth and thirteenth causes of action are dismissed;
(5) Third-Party-Defendants Carusos’ third-party complaint is dismissed;
(6) Plaintiff Preferred's cause of action for an award of reasonable counsel fees, and Defendants/ Counterclaim Plaintiffs Carusos counterclaim for an award of reasonable counsel fees, are dismissed, and each party is responsible for the payment of the attorneys’ fees they have incurred;
(7) After the amounts awarded are offset, the Carusos are granted the prevailing award on their counterclaims in the sum of $74,726.97 in damages from Preferred (see, Grey's Woodworks, Inc. v Witte, 173 AD3d 1322, 1323 [3rd Dept. 2019] ); and
(8) In view of this Court's finding that each party prevailed on their claims to a certain extent, interest shall accrue from the date of entry of this order.
Submit judgment .