Opinion
Index No. 652498/2020 Motion seq. No. 001
02-10-2023
EVAN SHERMAN, JESSICA SHERMAN Plaintiff, v. NYC 15TH STREET LLC, KAPLAN FOX & KILSHEIMER LLP, Defendant.
Unpublished Opinion
PRESENT: HON. DAKOTA D. RAMSEUR JUSTICE
DECISION + ORDER ON MOTION
Dakota D. Ramseur, Judge
The following e-filed documents, listed by NYSCEF document number (Motion 001) 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 53 were read on this motion to/for JUDGMENT - SUMMARY.
In June 2020, plaintiffs Evan and Jessica Sherman commenced this action to recover the $497,250 deposit they placed in escrow as part of their purchase of condominium unit 9C at 35 West 15th Steet from defendant NYC 15th Street LLC. In Motion Sequence 001, plaintiffs move for summary judgement pursuant to CPLR 3212 for a declaration that defendant breached several representations made in the contract of sale, that plaintiffs justifiably refused to close after discovering these breaches, and that they are entitled to a return of its deposit. Defendant opposes the motion, and cross-moves for summary judgment, arguing that documentary evidence demonstrates that it did not breach the contract of sale, plaintiffs unjustifiably refused to close on the condominium, and the deposit should be released to it as liquidated damages for such breach of the contract. For the following reasons, plaintiffs' motion is denied while defendant's cross motion for summary judgment is granted.
BACKGROUND
On March 9, 2020, Evan and Jessica Sherman and NYC 15th Street entered into the contract of sale to purchase unit 9C for $4,957,500. (NYSCEF doc. no. 8, contract.) They placed the disputed amount in an escrow account with defendant Kaplan Fox & Kilsheimer LLP. According to the Purchaser's Rider to Contract of Sale, both parties agreed that this price represented a $15,000 reduction in the purchase price to cover issues raised by plaintiffs in their inspection. (Id. at RI 5.) In return for the price reduction, plaintiffs agreed that "said reduction also covers repairs and restoration of certain areas damaged by leaks or water infiltration including the existing damages in the two bedrooms near the front door" and that they agreed to "take the Unit in its 'AS IS' condition." (Id.) The Court lists the remaining relevant representations, warranties, and covenants below:
Kaplan Fox & Kilsheimer is the law firm that represented defendant during negotiations for the contract of sale. It is a named defendants solely for its role as escrowee. Plaintiffs have not asserted any wrongdoing against it.
Paragraph 2.9: "To the best of Seller's knowledge, there have been no leaks into or emanating from the Unit during the twenty-four (24) months prior to the date of this Contract."
Paragraph R3 (from Purchaser's Rider to Contract of Sale): "Seller represents to the best of Seller's knowledge that as of the date of this Contract, Seller has received no written notice and has no actual knowledge of pending litigation or claim against or concerning the Unit, and or the property included in this sale."
Paragraph R4: "Seller represents to the best of Seller's knowledge that the Building and Unit respectively have valid and subsisting certificates of occupancy authorizing use a condominium building and residential unit, covering the improvements thereon, including certificates of compliance and final closed permits for all alterations to the Unit, if and to the extent applicable." (Emphasis added.)
Paragraph 15.4: "If Seller shall be unable to convey the Unit in accordance with this Contract and if Purchaser elects not to complete this transaction without abatement of the Purchase Price, the sole obligation and liability of Seller shall be to refund the Contract Deposit to Purchaser [U]pon the making of such refund and payment, this Contract shall be deemed cancelled." (Id.)
On April 28, 2020, during the COVID-19 pandemic, defendant's counsel sent a "Time is of the essence" notice that set May 28, 2020, as the closing date. Three days later, plaintiffs sent a communication to defendant "rejecting" the notice and its closing date because the building and unit were only covered by a temporary certificate of occupancy ("TCO") (its 25th successive one)-not a final certificate of occupancy ("FCO"), which they asserted was required to be in compliance with the "valid and subsisting" language of paragraph R4 of the purchaser's rider. (NYSCEF doc. no. 10, letter dated May 1,2020.)
There is no dispute that the TCO was in effect when defendants sent their time-is-of-the-essence notice. Nor is there a dispute that the Department of Buildings had issued a valid TCO when plaintiffs entered the contract of sale. (See NYSCEF doc. no 40, certificate of occupancy.)
On May 19,2020, the condominium's superintendent emailed plaintiffs stating that there was some water damage to the unit they were purchasing and to the unit below at 8C. On May 22, 2020, plaintiffs sent defendants a Notice of Termination of Contract. (NYSCEF doc. no. 16, notice of rejection.) By way of explanation, plaintiffs reiterated the issue of the temporary -versus-final certificate of occupancy and further informed defendants that they believed paragraph 2.9 of the contract, specifically as to leaks emanating from the unit, had been breached. (Id.)
Thereafter, plaintiffs commenced the instant action against both NYC 15th Street and the law firm of Kaplan Fox &Kilsheimer as escrowee. In the instant motion, both parties have moved for summary judgment. Each argues that the contract is unambiguous: it either required or did not require, depending on the perspective, a FCO, which the condominium indisputably did not have. Further, in response to the alleged breach of the representation that no leaks emanated from the unit, defendant contends that paragraph 15 specifically acknowledges the leak and the leak was included in "As Is" provision as consideration for the $15,000 price reduction.
DISCUSSION
On a motion for summary judgment, the moving party bears the initial burden of showing a prima facie entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate material issues of fact. (Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324 [1986].) If the moving party fails this initial burden, the Court must deny the motion. In their respective moving papers, both parties acknowledge there are no material issues of fact outstanding and that summary judgment is appropriate. (NYSCEF doc. no. 23 at 13, plaintiffs' memo of law [It is further undisputed that Seller breached several specific representations [paragraphs 2.9, R3, R4, and R15]; id. at 18 ["the existence of a valid contract is not in dispute The Seller's defaults are established, with specificity, and are supported by documentary and testimonial evidence"]; NYSCEF doc. no 48 at 13-14, defendant's memo of law ["the undisputed facts demonstrate that Seller is entitled to summary judgment"].)
To plead a breach of contract, the moving party must demonstrate: (1) the existence of a valid contract; (2) their own performance; (3) the opposing party's breach; and (4) damages. (See Morris v 702 East Fifth Street HDFC, A.D.3d 478 [1st Dept 2007]; Stonehill Capital Management LLC v Bank of the West, 28 N.Y.3d 439 [2016].) Here, parties do not dispute the existence of a valid contract. This leaves open for determination the meaning of the four provisions described supra, which party breached, and the appropriate measure of damages.
When interpreting contracts that are clear and complete, courts should enforce their writings according to its terms. (Vermont Teddy Bear Co. v 538 Madison Realty Co., 1 N.Y.3d 470, 475 [2004]; Riverside S. Planning Corp, v CRP/Extell Riverside L.P., 13 N.Y.3d 398, 403404 [2009].) Contracts for the sale of real property will be interpreted according to the plain meaning of the language employed. Courts should exercise special caution to avoid interpreting the agreement to imply something which the parties have neglected to specifically include. (Rowe v Great Atl. & Pac Tea Co., 46 N.Y.2d 62, 72 [1978]; Centro v Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V, 17 N.Y.3d 269, 277 [2011].) A corollary of this is that courts "may not by construction add or excise terms, nor distort the meaning of those used and thereby make a new contract for the parties under the guise of interpreting the writing. (Rowe, 46 N.Y.2d at 72; 213874 Ontario Inc. v Samsung C&T Corp., 31 N.Y.3d 372, 381 [2018].)
Paragraph R4:" Valid and Subsisting "
Since neither plaintiffs nor defendant has cited to case authority that directly answers whether a valid TCOA satisfies a contractual requirement that a seller have a "valid and subsisting certificate of occupancy," the court must apply the well-known principles of contract construction described above. After doing so, the Court finds that the contract did not require defendant to obtain a final certificate of occupancy before closing.
Plaintiffs do not raise the issue of what the "to the best of Seller's knowledge" language of paragraph R4 requires of defendant. Defendant likewise does not address this phrase. As such, the court deems this phrase a non-issue.
Contrary to plaintiffs' argument, a "valid and subsisting" certificate of occupancy cannot be construed to be one and the same as a final certificate of occupancy. The definition of subsisting is "to remain in being, force, or effect," which quite simply also applies to the successive TCOs that the Department of Buildings issued to the condominium. To hold otherwise-that "valid and subsisting" only applies to final certificates-would require the court to insert into the contract the term "final" where it has otherwise been excluded, distort the meaning of the provision, and imply an obligation where none existed. As defendant argues, the contract of sale requires the building and unit "have," in the present tense and at the time of entering the contract, a certificate of occupancy. The phraseology does not contemplate future-oriented obligations on the part of defendant, such as obtaining a final certificate of occupancy at closing.
Moreover, the contract of sale was negotiated between two sophisticated and experienced parties with advice from their attorneys. Indeed, Jessica Sherman describes herself, in her affidavit, as a real estate professional with knowledge of condominium transactions. It therefore strains credulity to believe, as plaintiffs would have it, that the language of "valid and subsisting," to quote their memorandum of law, "is a clear manifestation of Purchaser's intent that closing on the Unit with only a Temporary Certificate of Occupancy presented an unacceptable risk for plaintiffs." (NYSCEF doc. no. 23 at 14.) If a TCO had been of such unacceptable risk that they would not have closed without a FCO, plaintiffs and their attorneys knew how to include, and could have chosen, the precise language to require a final certificate at closing. That they did not indicates the absence of such an intent. Given the sophistication of both parties, "there is basis to interpret [the provision] as impliedly stating something which the parties have neglected to specifically include." (425 Fifth Ave. Realty Assocs. V Yeshiva Univ., 228 A.D.2d 178, 178 [1st Dept 1996], quoting Rowe, 46 N.Y.2d at 72.)
Plaintiffs' remaining contentions are unpersuasive. The standard residential contract form used by the New York Bar Association, with identically worded language to the disputed provision here, does not indicate whatsoever that a final certificate of occupancy is required by "valid and subsisting." Neither does the Department of Buildings' guidelines on certificates of occupancy. The idea that "valid and subsisting" would not have meaning within the contract if it did not mean a final certificate ignores the importance of including a provision in the contract of sale that the building and unit are currently covered by a TCO.
Paragraphs 2.9 and RI5: Allegations and Claims of Water Leaks
Plaintiffs' Summary Judgment Motion
Plaintiffs allege that defendants materially misrepresented their knowledge of water leaks in the apartment and therefore breached paragraph 2.9 of the contract. (NYSCEF doc. no. 23 at 13-14, plaintiffs' memo of law; NYSCEF doc. no 49 at 8-9, plaintiffs' reply memo of law). To reiterate, this paragraph provides that "to the best of Seller knowledge, there have been no leaks into or emanating from the Unit during the twenty-four (24) months prior to the date of this
Contract [March 9, 2020]." Though plaintiffs assert that it has established defendant's breach of this provision "with specificity" and that summary judgment is warranted, this is simply not the case.
To show defendant made misrepresentations as to the apartment's history of water leaks, plaintiffs must show that, among other things, defendants made statements of material fact it knew to be false when made. (See Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d 173, 178 [2011].) Furthermore, given that plaintiffs have moved for summary judgment, this evidence must be of such quality and character to be incontrovertible, thereby removing any outstanding material issues of fact. (See Alvarez v Prospect Hosp., 68 N.Y.2d at 324.) Yet plaintiffs' evidence falls far short of this threshold. The sole piece of evidence submitted in support of their motion- the email from the condominium's superintendent-is dated after defendants entered into the contract, so it provides no evidence of plaintiffs' knowledge at the time the parties entered into the contract. Moreover, it critically lacks any particulars as to when the leak and damage might have occurred. (NYSCEF doc. no. 15.) Rather than say anything about the particulars of the damage, the email appears to be written primarily to address some confusion as to which parties would ultimately be responsible for the cost of such repairs. (Id.) Such a dearth of information as to the origin and nature of the damage makes it impossible to determine the state of defendant's knowledge when entering into the contract, let alone that a breach occurred. Accordingly, plaintiffs' motion for summary judgment must be denied.
Though plaintiffs' do not explicitly assert a cause of action for fraudulent misrepresentation, using the analytical framework developed to address such causes of action is useful in analyzing plaintiffs' claims under paragraphs 2.9 and R3. This is because paragraphs 2.9 and R3, instead of obligating defendant to perform some specific duties, relate only to the truthfulness of defendant's representations when entering the contract.
Defendant's Summary Judgment Motion
For its own summary judgment motion, defendant contends that paragraph RI 5 (and not paragraph 2.9) of the Purchaser's Rider-which contemplated a reduced price in return for accepting the premise in "As Is" condition-controls on this issue. From defendant's perspective, the language is clear and unequivocal: plaintiffs agreed to accept the unit "As Is' in return for a $15,000 price reduction after plaintiffs' inspection of the unit and "said reduction also covers repairs and restoration of certain areas damaged by leaks or water infiltration including the existing damages in the two bedrooms near the front door." In opposition, plaintiffs draw a distinction between certain leaks "within the Unit" and leaks "emanating from the Unit." (See NYSCEF doc. no. 24 at 2, affidavit of Jessica Sherman ["While we were aware of certain leaks within the Unit, we were comforted by Seller's representation in Paragraph 2.9 of the printed form" (emphasis original); NYSCEF doc. no 49 at 8-9 ["RI 5 makes no reference to damages caused by a leak 'emanating from the unit' as represented in paragraph 2.9 nor damages caused to the below unit"].) Apparently, to plaintiffs, the former type of leak was intended to be included under paragraph RI 5 whereas the latter type was not.
This distinction, however, is untenable. First, to the extent there is an inconsistency between paragraph 2.9 and RI 5, RI 5 governs. Paragraph RI of the Purchaser's Rider states that "in the event of any inconsistency between the terms of this purchaser's rider and those contained in the printed form Contract the terms of this Rider shall govern and be binding " (NYSCEF doc. no 37.) This is to be expected when the inclusion of paragraph RI 5 represents the parties' dual awareness of the apartment's history of water leaks when negotiating the contract of sale and the desire to come to some sort of resolution. (See NYSCEF doc. no. 33 at 4-5, affidavit of Andrew Lessman.) Further, not only does paragraph R 15 govern, the plain language indicates that the covered damage includes but is not limited to certain areas within the apartment. Thus, even if there was a distinction to be had between "within" and "emanating," it is immaterial-the parties agreed that plaintiffs' acceptance of the reduced price would be in consideration for both types of water damage. Second, there is an evidentiary problem: plaintiffs have not provided documentary or testimonial evidence, they simply assume, that the damage that the superintendent informed them of "emanated" from the unit or was separate from damage "within the unit." Again, the Court only has the superintendent email as evidence. Lastly, as described supra, plaintiffs have not raised issues of fact as to defendant's knowledge at the time of the contract. Accordingly, defendants have demonstrated as a matter of law that it did not misrepresent any facts as to water leaks in the apartment.
Andrew Lessman is a principal of defendant.
The Court is compelled to reiterate that both plaintiffs and defendant posit that summary judgment is appropriate at this juncture. Such a position encompasses the assertion that there are no material issues of fact remaining. As such, it would be improvident for the Court to "sus out" an issue of fact where the parties have not expressly asked this court to do so.
Defendant contends that is it entitled to summary judgment: plaintiffs admit to (1) the existence and validity of the contract of sale; (ii) that seller set a time-is-of-the-essence closing date; (iii) defendant was able and willing to close on said date; and (iv) they refused to close on the unit in June 2020. (NYSCEF doc. no. 48.) Further, it contends that plaintiffs' refusal to close was unjustifiable as a matter of law since defendant did not breach any of the terms of the contract for sale. The Court agrees.
"It is well-settled that absent a breach on the part of the seller, a purchaser who defaults on a real estate contract without lawful excuse cannot recover its down payment." (Donerail Corp. N. V. v 405 Park LLC, 100 A.D.3d 131,137 [1st Dept 2012], citing Uzan v 845 UN Ltd. Partnership, 10 A.D.3d 230, 236 [1st Dept 2004].) When a party to a real estate contract declares time to be of the essence in setting a closing date, each party must tender performance on that date, and a failure to perform without a lawful excuse constitutes default. (Grace v Nappa, 46 N.Y.2d 560, 565 [1979]; 115-117 Nassau St. LLC v Nassau Beekman, LLC, 74 A.D.3d 537, 537 [1st Dept 2010].) Here, there is no question that defendant declared time to be of the essence, set a closing date, plaintiffs failed to tender performance on closing date, and did so, as the forgoing reasons establish, without lawful excuse.
Paragraph 10 of the contract of sale provides:
"If Purchaser defaults hereunder, Seller's sole remedy shall be to retain the Contract Deposit as liquidated damages, it being agreed that Seller's damages in case of Purchaser's default might be impossible to ascertain and that the Contract Deposit constitutes a fair and reasonable amount of damages under the circumstances and is not a penalty."
Because defendant has established plaintiffs' breach of contract, and plaintiffs have not advanced a position as to why defendant is not entitled to the $497,250 that defendant's counsel is keeping in escrow as liquidated damages, defendants are entitled to orders awarding it summary judgment and the disputed funds.
Lastly, paragraph 29 provides for the prevailing party to recover attorneys' fees from the opposing party. Specifically, it states:
"In the event either of the parties seeks to enforce the provisions of this Contract or to obtain redress for the breach or violation of any of its provisions, whether by litigation or other proceedings, the prevailing Party shall be entitled to recover from the other Party all costs and expenses associated with such proceedings, including legal fees."
As such, Defendant has also demonstrated that plaintiffs are liable to it for its attorneys' fees, which will be determined at an inquest hearing.
Accordingly, it is hereby
ORDERED that plaintiffs Evan and Jessica Sherman motion for summary judgment pursuant to CPLR 3212 is denied; and it is further
ORDERED that defendant NYC 15th Street LLC's motion for summary judgment pursuant to CPLR 3212 on its first counter claim for breach of contract is granted; and it is further
ORDERED that defendant Kaplan Fox & Kilsheimer LLP is directed to disperse the contract deposit sum of $497,250.00 to defendant NYC 15th Street LLC within thirty (30) days from entry of this judgment; and it is further
ORDERED that the parties shall appear at 60 Centre Street, Courtroom 341, New York, New York, 10007 for an inquest hearing for an award of attorneys' fees on April 4, 2023; defendant NYC 15th Street shall efile a letter or affidavit containing the amount requested in attorneys' fees and the basis thereof by March 21, 2023; and plaintiffs Evan and Jessica Sherman shall efile a reply letter or affidavit detailing its opposition by March 28, 2023; and it is further
ORDERED that the Clerk of the Court shall enter judgment accordingly; and it is further
ORDERED that counsel for defendants shall serve a copy of this order, along with a notice of entry, on all parties within ten (10) days of this order.