Opinion
No. 500728/11.
2012-06-11
MAZEH CONSTRUCTION CORP., Plaintiff, v. VNB NEW YORK CORP., East West Bank, and 102 Mews LLC, Defendants.
Scott M. Yaffe, New York, Attorney for Plaintiff. James M. Andriola, Reed Smith, New York, Attorney for Defendants.
Scott M. Yaffe, New York, Attorney for Plaintiff. James M. Andriola, Reed Smith, New York, Attorney for Defendants.
CAROLYN E. DEMAREST, J.
Defendants VNB New York Corp. and East West Bank move to dismiss the complaint pursuant to CPLR 3211(a)(7).
BACKGROUND
This case arises out of the construction loan provided to defendant 102 Mews LLC by defendants' predecessor banks, Liberty Pointe Bank and United Commercial Bank for a ten story residential building located at 991–995 Willoughby Avenue, Brooklyn (“Property”). The motion is addressed exclusively to the sufficiency of the complaint as no supporting documents or affidavit by a person with knowledge was submitted by any party. According to the verified complaint, Liberty Pointe Bank and United Commercial Bank (collectively, “Lenders”), halted the financing of the construction project and required defendant 102 Mews LLC (“102 Mews”), the owner of the Property, to fire the original contractor due to questions concerning its competency. Pursuant to contract dated April 20, 2009, 102 Mews then employed plaintiff as the general contractor to complete the construction of the building (“Completion Contract”). Plaintiff alleges that it would agree to work on the project, it required assurances from the lenders that funding of the project would be resumed if the plaintiff became the general contractor, plaintiff would be paid for its work upon submission of requisitions, and the loan maturity date would be extended if needed to complete the project. The complaint alleges (at paragraph 28):
It was agreed among [plaintiff], 102 Mews, and the lenders through an officer of Liberty Pointe Bank, that the assurance [plaintiff] demanded from the lenders would be provided if 102 Mews placed into escrow funds sufficient to pay all outstanding subcontractor lien claims, and the lenders' formally approved [plaintiff] as the completion contractor.
Plaintiff further alleges, upon information and belief, that 102 Mews gave funds sufficient to pay the lien claims to a title company to hold in escrow and plaintiff was approved as the general contractor by the lenders on July 9, 2009.
It is alleged, on information and belief, that on September 17, 2009, the lenders requested an estimate for the construction completion date from the plaintiff and the plaintiff estimated a completion date of early July 2010. Plaintiff alleges that its work on the project was “directed and supervised by the lenders' engineer” (Paragraph 37 of the Complaint). Plaintiff submitted a requisition for $381,106 to 102 Mews which was forwarded to Liberty Pointe's account vice president and inspecting engineer on April 8 and April 12, respectively. However, plaintiff alleges that in “mid-to-late April 2010”, defendant VNB New York Corp. (“VNB”) took over the “administration” of the building Loan from Liberty Pointe Bank and defendant East West Bank (“East West”) became the successor to United Commercial Bank
(collectively, East West and VNB are referred to as “Successor Lenders”). In late April 2010, 102 Mews informed plaintiff that if it provided an updated “commitment, construction cost breakdown and schedule”, the Successor Lenders would advance funds for the plaintiff's work. In response to VNB's request, on or about April 30, 2010, plaintiff forwarded an updated construction schedule with an estimated completion date of mid-October 2010. Thereafter, plaintiff allegedly performed an additional $350,000 of work after submitting its initial payment requisition but claims that the Successor Lenders did not advance funds to pay for plaintiff's work, in breach of the loan agreement with 102 Mews.
It appears that East West is the assignee of the loan from the FDIC as Receiver for United Commercial Bank based upon the caption of the related foreclosure action.
On June 15, 2010, VNB declared 102 Mews in default for not paying an interest payment in December 2009 as demanded and for not paying the balance of the loan on the original maturity date of May 1, 2010. Plaintiff claims that the Lenders waived the original maturity date for the loan, 102 Mews had the right to extend the maturity date of the loan to November 1, 2010, and that 102 Mews exercised that right on February 3, 2010. The plaintiff commenced the present action on September 6, 2011. The complaint seeks damages of $731,106 and alleges four causes of action against the moving defendants
for breach of contract, fraud, unjust enrichment, and for recovery pursuant to a statutory trust under Lien Law article 3–A. At oral argument on the present motion, counsel agreed there was no written contract between plaintiff and Lenders.
As explained in plaintiff's opposition, the fifth cause of action for breach of contract is alleged only against 102 Mews.
On September 10, 2010, Successor Lenders commenced a foreclosure action on the Property ( VNB New York Corp. and East West Bank as Assignee of the FDIC as Receiver for United Commercial Bank v. 102 Mews LLC, Sup Ct, Kings County, index No. 22492/10 (“Foreclosure Action”)). Although 102 Mews is a defendant in the Foreclosure Action, the plaintiff is not a party to that action.
Following oral argument on the instant motion, on December 8, 2011, Justice Gerald Rosenberg, to whom that case was assigned, granted the Lenders' motion for summary judgment and a referee was appointed to compute the amount due under the subject mortgages and to determine whether the Property may be sold in parcels.
At oral argument, counsel indicated that the plaintiff did not file a mechanic's lien against the Property. Accordingly, plaintiff was not a necessary party to the foreclosure action, although it appears to have been aware of the pending foreclosure and failed to seek intervention.
In opposition to the foreclosure summary judgment motion, 102 Mews argued, as plaintiff alleges in its complaint, that 102 Mews received an extension of the maturity date from the Lenders, the project was delayed because the Lenders refused to advance funds, and that the Lenders did not have a right to foreclose on the Property pursuant to the loan documents. Further, 102 Mews sought additional discovery that it claimed was necessary to raise a triable issue of fact in opposition to the motion. Justice Rosenberg held that 102 Mews “has not offered any evidence to show that it provided the proper written notice within the time specified in the note that it was opting to extend the maturity date” and “[n]othing in the copies of the [correspondence with the Lenders] suggests a promise or affirmative statement by the lenders that an extension would be granted” ( id.). Further, Justice Rosenberg held that “[w]hile the defendants allege in their answer that the project was delayed by the refusal of [Lenders] or their predecessors to advance funds, defendants do not submit any evidence to demonstrate that such refusals were in breach of the written terms of the loan documents or otherwise unjustified” ( id.). Justice Rosenberg denied 102 Mews' request for further discovery as it had not shown that discovery from the Lenders would lead to evidence sufficient to raise a factual issue and further noted:
There is nothing presented by defendants to demonstrate that [the Lenders'] decision to accelerate the loan and foreclose on the property rather than grant additional requisitions, maturity extensions or other concessions is arbitrary, irrational or anything other than a reasoned business decision. The record is devoid of any evidence to demonstrate that the project was near completion at the time of default or that defendants ultimately would have been able to meet their payment obligations had the maturity date been extended ( id.).
Plaintiff argues, in a letter submitted to the court in response to Lenders' submission of Justice Rosenberg's decision, that the ruling on the foreclosure summary judgment motion “has no bearing on whether within the four corners of the complaint a cause of action is pled” and “there can be no collateral estoppel against a nonparty to the prior suit”.
DISCUSSION
On a motion to dismiss pursuant to CPLR 3211, the court must accept the facts alleged by the plaintiff as true and liberally construe the complaint, according it the benefit of every possible favorable inference (Campaign for Fiscal Equity, Inc. v. State of New York, 86 N.Y.2d 307, 318 [1995];see also Sokoloff v. Harriman Estates Dev. Corp., 96 N.Y.2d 409, 414 [2001] ). The role of the court is to “determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v. Martinez, 84 N.Y.2d 83, 87 [1994] ). Therefore, the complaint must be declared legally sufficient if the court determines that plaintiffs may be entitled to relief on any reasonable view of the facts stated (Campaign for Fiscal Equity, Inc., 86 N.Y.2d at 318).
The Successor Lenders move to dismiss the first cause of action for breach of contract as they claim that the complaint does not allege the existence of a contract between plaintiff and the Successor Lenders. To establish the essential elements of a cause of action for breach of contract, the complaint must allege the existence of a contract, the plaintiff's performance under the contract, the defendant's breach of that contract, and the resulting damages ( see JP Morgan Chase v. J.H. Elec. of NY, Inc., 69 AD3d 802, 803 [2d Dept 2010] ). The Successor Lenders argue that the first cause of action, which merely alleges, “[t]he lenders breached their agreement with [plaintiff] by not advancing the funds to pay [plaintiff's] requisition” and are “liable to [plaintiff] for approximately $731,106” does not actually allege the existence of a contract between the plaintiff and Lenders. Plaintiff argues that the complaint also makes allegations incorporated into the first cause of action, that the Lenders assured plaintiff that the plaintiff “would be paid for its work upon submission of requisitions, and that the loan maturity date would be extended if needed to allow time for [plaintiff] to complete the project.” Further, plaintiff argues that “there is no requirement under the law that an agreement be in a formal writing, or for that matter be at all in writing, to be enforceable.”
The first cause of action must be dismissed as the plaintiff has not alleged the existence of a contract with the Lenders. The complaint clearly alleges that the plaintiff entered into a written contract with102 Mews on April 20, 2009 for plaintiff to complete the construction as a general contractor. Plaintiff alleges that a condition which induced plaintiff to enter into such contract was the Lenders' agreement to certain terms as a necessary prerequisite for the plaintiff to become the completion general contractor. However, the complaint alleges that the Lenders did not approve of plaintiff as the general contractor until July 9, 2009, more than two months after plaintiff entered into the contract with 102. Thus the Lenders' purported agreement to pay the plaintiff's requisitions could not have induced plaintiff's agreement with 102 Mews. To the extent that the plaintiff attempted to allege an agreement between the plaintiff and the Lenders, independent of its contract with 102 Mews, there is no allegation of a direct unconditional promise by Lenders to plaintiff to compensate plaintiff for its labor ( see Leon, 84 N.Y.2d at 87;JP Morgan Chase, 69 AD3d at 803). Further, to the extent that plaintiff claims that the Successor Lenders promised to answer for the debt of 102 Mews, there is no allegation of a written agreement between plaintiff and any of the lenders as is required pursuant to General Obligations Law 5–701(a)(2). Accordingly the first cause of action must be dismissed.
The Successor Lenders move to dismiss the second cause of action for fraud as they claim the complaint is devoid of details sufficient to allege a fraud cause of action pursuant to CPLR 3016(b). “The essential elements of a cause of action for fraud are representation of a material existing fact, falsity, scienter, deception and injury' “ (New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 [1995];see Daly v. Kochanowicz, 67 AD3d 78, 89 [2d Dept 2009] ). Pursuant to CPLR 3016(b), “[w]here a cause of action or defense is based upon misrepresentation, fraud, mistake, wilful default, breach of trust or undue influence, the circumstances constituting the wrong shall be stated in detail.” “[T]he statute should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud' “ (Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553, 559 [2009], citing Pludeman v. Norther Leasing Sys., Inc ., 10 NY3d 486, 491 [2008] ). “CPLR 3016(b) is satisfied when the facts suffice to permit a reasonable inference' of the alleged misconduct” (Eurycleia, 12 NY3d at 559, citing Pludeman, 10 NY3d at 492).
The complaint alleges that “on September 17, 2009, the lenders requested that [plaintiff] estimate the completion date for the project” and “[i]n late April 2010, [VNB] requested that [plaintiff] provide an update commitment to complete its work under the completion contract, and an updated construction cost breakdown schedule.” Further, the complaint alleges that plaintiff “was informed by 102 Mews that, by agreement between 102 Mews and the lenders, if [plaintiff] provided an updated commitment, construction cost breakdown and schedule the lenders would advance funds covering [plaintiff's] work.” The second cause of action alleges that the “lenders” gave assurances that they would pay for plaintiff's work upon plaintiff's submission of an updated commitment to complete its work and an updated construction cost breakdown, these assurances were false, and they were given to induce the plaintiff to improve the Property “prior to the lenders instituting foreclosure proceedings.” Plaintiff argues that it relied on these assurances and completed the work and, as a result of its reliance, it was damaged in an amount of $731,106. Defendants argue that the second cause of action does not meet the pleading standard for a fraud cause of action pursuant to CPLR 3016(b) as the allegations are devoid of any specificity as to who made the assurances, to whom the assurances were made, and when and where the assurances were made. In opposition to the motion, the plaintiff contends that “[t]he facts concerning the giving of the assurances are pled in great detail”, plaintiff is not required to indicate which individuals made the assurances, and the dates of the assurances by Lenders “can generally be deduced from the numerous dates pleaded throughout the complaint.”
The second cause of action must be dismissed as the facts alleged in the complaint are insufficient to reasonably infer what alleged misconduct constituted the purported fraud. The complaint uses the term “lenders” when describing the parties that purportedly made the false “assurances” upon which the plaintiff relied. However, there were multiple lenders involved with the funding of this construction project and the lenders changed during the course of the construction. Further, while it appears to be uncontested that the defendants are the successors in interest to Liberty Pointe and United Commercial and, accordingly, are bound by their acts, the purported assurances alleged in the complaint took place both before and after VNB succeeded Liberty Pointe. The complaint does not allege with any specificity which lenders made which assurances. Further to the extent that the complaint describes any “assurances” that the plaintiff relied upon, the complaint states that plaintiff was informed, not by defendant lenders, but by 102 Mews, that lenders would advance funds based upon an agreement to which the plaintiff was not a party. This allegation of fraud is therefore insufficient to state a claim of fraud against the defendants. While a party alleging a fraud cause of action often may not be able to describe in detail the circumstances that constitute the fraud in a complaint where those circumstances are peculiarly within the knowledge of the party against whom the fraud is being asserted, based on the allegations in this action, details of the purported “assurances” on which plaintiff relied were not solely within the knowledge of the Lenders, but are known only to plaintiff ( see CPC Int'l Inc. v. McKesson Corp., 70 N.Y.2d 268, 284–285 [1987];Eurycleia, 12 NY3d at 559, citing Pludeman, 10 NY3d at 493). Accordingly, the second cause of action for fraud is dismissed for failure to allege a cause of action for fraud pursuant to CPLR 3016(b).
The Lenders seek to dismiss the third cause of action for unjust enrichment because plaintiff “failed to allege any contractual obligation on the part of the Lenders (as opposed to the Borrower) to make any payment to [plaintiff].” In opposition, plaintiff argues that unjust enrichment is an equitable cause of action and, in fact, if plaintiff were to have alleged a contractual obligation, equitable relief would be precluded. “To prevail on a claim of unjust enrichment, a party must show that (1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered' “ ( Robertson v. Wells, 2012 N.Y. Slip Op 3432, 2 [2d Dept 2012], quoting Anesthesia Assoc. of Mount Kisco, LLP v. Northern Westchester Hosp. Ctr., 59 AD3d 473, 481 [2d Dept 2009] ). The third cause of action alleges that the Property was improved by plaintiff's work, and, “[s]hould the lenders prevail in their foreclosure action and the property is sold, the lenders will be unjustly enriched by receiving from the proceeds the amount by which [plaintiff's] work, labor, services and materials have improved the property.”
The third cause of action for unjust enrichment must be dismissed pursuant to CPLR 3211(a)(7) for failure to state a cause of action. Although the Lenders' assertion, that the unjust enrichment cause of action must be dismissed due to the lack of a contractual obligation between plaintiff and Lenders, is unavailing, as contractual privity would actually preclude an unjust enrichment cause of action ( see Clark–Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388 [1987] ), the third cause of action does not allege that the Successor Lenders have actually been enriched. The complaint merely alleges that the Lenders “will be unjustly enriched” in the event that they “prevail in their foreclosure action and the property is sold....” Upon foreclosure, the Successor Lenders can only recover the loan funds they advanced to 102 Mews and any additional associated out of pocket expenses. Any surplus recovered upon the sale of the Property would be available only to 102 Mews, as the owner of the equity, and any lienors or others having a claim against the Property, which could include plaintiff. Accordingly, the third cause of action for unjust enrichment must be dismissed against the Lenders as the only unjust enrichment allegations as to the Lenders are purely speculative and plaintiff failed to allege that the Lenders were actually enriched ( see Robertson, 2012 N.Y. Slip Op 3432, 2; Anesthesia Assoc., 59 AD3d at 481).
In the fourth cause of action, plaintiff seeks to enforce 102 Mews' right of action against the Lenders pursuant to Lien Law § 77(3)(a)(i) and (ii) for purported sums due to 102 Mews from the Lenders. The complaint alleges that the “lenders' [ sic ] have retained advances due to 102 Mews in breach of the loan documents.” The complaint further alleges that, “[p]ursuant to Lien Law sec. 70(5), 102 Mews' right of action for payment under the loan documents constitutes an asset of the trust established by the Lien Law sec. 71”, “[plaintiff] is holder of a trust claim for the amount due to it from 102 Mews”, and “[a]s a holder of a trust claim, [plaintiff] seeks enforcement of 102 Mew's right of action against the lenders and recovery of the trust assets pursuant to Lien Law sec. 77(3)(a)(i) and (ii).” In support of its motion, the Successor Lenders argue that a lender is not a statutory trustee within article 3–A of the Lien Law and thus, the fourth cause of action may not be asserted against the Successor Lenders. Further, Justice Rosenberg's decision in the Foreclosure Action held that, since “102 Mews LLC was in default of the building loan note and mortgage at the time of the [alleged April 2010] requisition, [the Lenders] were under no obligation to advance any further funds. While [102 Mews] allege in their answer that the project was delayed by the refusal of [the Lenders] or their predecessors to advance funds, defendants do not submit any evidence to demonstrate that such refusals were in breach of the written terms of the loan documents or otherwise unjustified.” In opposition to the present motion, the plaintiff argues that the fourth cause of action is a “derivative action authorized by Lien Law 77(3)(a)(i) and (ii)” and that “[plaintiff] stands in the shoes of 102 Mews and seeks to enforce its right of action under the loan documents to be advanced the funds to pay [plaintiff].” Thus, by its own allegations, with respect to any claim under Article 3A of the Lien Law, plaintiff has a unity of interest with 102 Mews and would be collaterally estopped from relitigating those issues expressly decided against 102 Mews by Judge Rosenberg ( see Davidson v. Am. Bio Medica Corp., 299 A.D.2d 390 [2d Dept 2002], citing Buechel v. Bain, 97 N.Y.2d 295, 303–304 [2001] ).
The fourth cause of action must be dismissed as the Successor Lenders are not statutory trustees within article 3–A of the Lien Law. “Generally, a lender is not a statutory trustee under Lien Law article 3–A” ( Arbor Realty Funding, LLC v. East 51st St. Dev. Co., 26 Misc.3d 1209A, *7 [Sup Ct, New York County 2009], citing Caledonia Lumber & Coal Co. v. Chili Heights Apartments, 70 A.D.2d 766 [4th Dept 1979] ). “This is because [n]o one other than an owner, contractor, or subcontractor is designated as a prospective trustee in article 3–A [of the Lien Law]' “ ( Arbor Realty, 26 Misc.3d at 1209A at *7 (internal citations omitted); seeLien Law § 70[1] ). Although, “where a lender receives proceeds pursuant to an assignment it held as security for a building loan, and applies those proceeds to repayment of the loan, the lender may be held liable as a statutory trustee under article 3–A” ( Arbor Realty, 26 Misc.3d at 1209A at *7, citing Aspro Mech. Contr. v. Fleet Bank, 293 A.D.2d 97, 99 [2d Dept 2002], affd 1 NY3d 324, rearg. denied 2 NY3d 760 [2004];see also Garrison Commercial Funding IV Reo LLC v. NMP–Group LLC, 30 Misc.3d 1227A [Sup Ct, New York County 2011] ), in this action, there is no indication that the Successor Lenders received an assignment from 102 Mews for the proceeds of the project. Therefore, this limited exception to the general rule under Lien Law article 3–A is inapplicable.
Plaintiff sites to this court's prior decision in Mike Bldg. & Contr., Inc. v. Just Homes, LLC, 27 Misc.3d 833 [Sup Ct, Kings County 2010], in support of its argument that “[b]y wrongfully retaining funds that were required to be advanced to 102 Mews under the loan documents, these funds became trust assets for which the contractors who are beneficiaries of the trust may recover under the Lien Law.” Plaintiff's argument, that this court's decision in Mike Bldg. supports its claim that the Successor Lenders are statutory trustees within article 3–A of the Lien Law, is unavailing. In Mike Bldg., the lender was not a party to the action, but it had credited a portion of the loan proceeds to the owner's obligation to contribute its own funds to the development. In the particular circumstances of that case, the court determined that the loan proceeds withheld by the lender constituted borrower's equity, and were therefore trust assets, because, as the decision specifically noted, the defendant building developer “was actually in constructive possession of the funds” (Mike Bldg., 27 Misc.3d at 854). In Mike Bldg., the only loan proceeds that were deemed to be trust assets were those funds credited to the borrower prior to the plaintiff general contractor's termination. That is not the case at bar. Accordingly, Mike Bldg. does not support the plaintiff's contention that the Successor Lenders are statutory trustees of loan funds that plaintiff claims were wrongfully withheld from 102 Mews. The fourth cause of action is dismissed as the Successor Lenders are not statutory trustees pursuant to article 3–A of the Lien Law ( see Arbor Realty, 26 Misc.3d 1209A at *7; Caledonia, 70 A.D.2d at 766).
It is further noted that Justice Rosenberg's decision appears to preclude plaintiff from raising any claim that the Successor Lenders wrongfully retained funds from 102 Mews. Although plaintiff argues that it cannot be collaterally estopped from bringing this claim, plaintiff makes multiple references to the fourth cause of action being “derivative” and the plaintiff “stand[ing] in the shoes of 102 Mews and seek[ing] to enforce its right of action”, thus acknowledging that plaintiff is in privity with 102 Mews which previously made this identical argument in the Foreclosure Action. Therefore, plaintiff is collaterally estopped from pursuing 102 Mews' claim ( see Davidson, 299 A.D.2d at 390;Buechel, 97 N.Y.2d at 303–304).
The Successor Lenders seek to dismiss the fifth cause of action as they allege there was no contract between the plaintiff and the lenders, however, in its opposition to the motion, plaintiff asserted that the fifth cause of action was not interposed against the Successor Lenders, but against 102 Mews. However, the complaint does not specify which party the fifth cause of action is directed against. In light of plaintiff's statement, the fifth cause of action is dismissed as to the moving Successor Lenders.
CONCLUSION
Accordingly, the motion by VNB New York Corp. and East West Bank to dismiss this complaint is granted as to those parties. Plaintiff did not seek leave to replead.