Opinion
16594/09.
Decided January 5, 2010.
Vivek Suri, Esq., New York, NY, Attorney for Plaintiff.
Yevgeny Tsyngauz, Esq., New York, NY, Attorney for Defendants.
Defendants 3 Red G, LLC ("Red"), Jane Vlodov and Bob Levitt move, pursuant to CPLR 3211(a)(1) and (a)(7), to dismiss the entire complaint of plaintiff Rakus Inc.("Rakus") as against the individual defendants. Defendant Red moves to dismiss the second cause of action, in part, and the third, fourth, and fifth causes of action. For the reasons set forth below the motion is granted in its entirety.
On January 29, 2008, defendant Red, as owner, entered into a written agreement with defendant Rakus, as contractor, to renovate of the second floor of a commercial condominium located at 6501 Bay Parkway, Brooklyn, New York to be used as a medical office for defendants (the "Agreement"). Defendant Bob Levitt signed for Red and Vladimir Rakonic signed as president of Rakus. Pursuant to the terms of the contract Red was to pay Rakus the sum of $357,000 for the work specified in the Agreement. Plaintiff also claims that defendants modified the scope of the agreement causing plaintiff to perform an additional $799,454 in work. On October 6, 2008 all work was completed. However, according to plaintiff, defendants paid only $611,454 towards the amount plaintiff claims it is owed, leaving a balance of $188,000, plus interest, outstanding. Thus, on December 29, 2008, plaintiff filed a mechanic's lien against the subject premises naming Red as the owner. The amount claimed in the lien is $185,879.
Plaintiff commenced this action on July 2, 2009. The Complaint contains five causes of action. The first is to foreclose on the mechanic's lien. Plaintiff alleges breach of contract and breach of fiduciary duty against the defendants in its second cause of action. The third cause of action, titled "LOSS OF BUSINESS," alleges that "as the defendants did not pay the monies owed to the plaintiff, the plaintiff has been unable to bid on other projects and perform other contracting work" (Complaint ¶ 34) and that "[d]ue to defendants [ sic] actions plaintiff has lost and will continue to lose business in its daily operations" (Complaint ¶ 36). The fourth cause of action is for loss of profits "due to the actions of the defendants" (Complaint ¶ 40). Plaintiff pleads unjust enrichment in the fifth cause of action.
Discussion
Defendants move to dismiss pursuant to CPLR 3211(a)(1) and (7). CPLR 3211 (a) (1) provides, in pertinent part, that "[a] party may move for judgment dismissing one or more causes of action asserted against him on the ground that . . . a defense is founded upon documentary evidence. . ." "Under CPLR 3211 (a) (1), a dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law" ( Leon v Martinez, 84 NY2d 83, 88; Douglas v Dashevsky , 62 AD3d 937, 938 [2d Dept 2009]). Thus, in order for defendants to prevail on their motion, the documentary evidence relied upon must be authenticated and conclusively establish a complete defense to the plaintiff's causes of action ( Weiss v TD Waterhouse , 45 AD3d 763 , 764 [2d Dept 2007]).
On a motion to dismiss pursuant to CPLR 3211 (a) (7), for failure to state a cause of action, the complaint must be liberally construed in the light most favorable to the plaintiff and all allegations must be accepted as true ( see Leon, 84 NY2d at 87; Aberbach v Biomedical Tissue Services, Ltd. , 48 AD3d 716, 717 [2d Dept 2008]). "Initially, the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law a motion for dismissal will fail" ( Guggenheimer v Ginzburg, 43 NY2d 268, 275). Thus, "[w]hether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" ( EBC I, Inc. v Goldman, Sachs Co. , 5 NY3d 11, 19).
As a threshold issue, plaintiff argues that defendants' motion should be dismissed because the motion does not contain an affidavit by someone with actual knowledge of the facts. However, as defendants correctly assert "[t]he affidavit or affirmation of an attorney, even if he has no personal knowledge of the facts, may, of course, serve as the vehicle for the submission of acceptable attachments which do provide evidentiary proof in admissible form', e. g., documents, transcripts." ( Zuckerman v. City of New York, 49 NY2d 557, 563, [1980]; cf Kempf v Magida , 37 AD3d 763, 765 [2d Dept 2007]). To the extent the attorney's affirmation introduces only legal arguments and documentary evidence such as the Agreement, the mechanic's lien and Red's deed to the premises, it is sufficient for the purposes of this motion and the lack of an affidavit by someone with knowledge of the facts will not serve as a basis for denial.
Plaintiff's first cause of action is to foreclose on its mechanic's lien. Lien Law § 44 requires "All persons appearing by the records in the office of the county clerk or register to be owners of such real property or any part thereof" be joined as necessary parties to an action to foreclose on a lien. ( Bryant Equipment Corp. v A-1 Moore Contracting Corp., 51 AD2d 792, 792 [2d Dept 1976]). Defendant submits documentary evidence, namely a copy of the deed to the subject premises, recorded on April 6, 2006, and the mechanics lien, which indicate that Red is the deed holder to the subject premises and the only party named in the mechanics lien. The individual defendants Vlodov and Levitt are not named in either. Since Vlodov and Levitt are not named in the deed as owners of the property, they are not necessary parties to this action and, thus, plaintiff has no basis to assert its lien foreclosure claim against them (Lien Law § 44). In fact, where, as here, Red is the recorded owner of the property, naming the individual defendants (Vlodov and Levitt) in the lien would render it jurisdictionally defective and unenforceable ( Tri Quality Mechanical Corp. v Chappastream Corp., 138 AD2d 610, 611-612 [2d Dept 1988]; see also Tri-State Sol-Aire Corp. v Lakeville Pace Mechanical, Inc., 221 AD2d 519,521-522 [2d Dept 1995]; see also DiPaolo v H.B.M. Enterprises, Inc., 95 AD2d 794, 795 [2d Dept 1983]). Therefore, the first cause of action against the individual defendants is dismissed. The corporate defendant, Red, does not move to dismiss this cause of action.
Plaintiff alleges breach of contract and fiduciary duty in the second cause of action. An "arms-length contractual relationship" between parties to a contract generally does not give rise to a fiduciary relationship ( Cuomo v Mahpac National Bank, 5 AD3d 621, 622 [2d Dept 2004]; see also AHA Sales, Inc. v Creative Bath Products, Inc. , 58 AD3d 6, 21 [2d Dept 2008]). As stated by the Court of Appeals:
A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation. Such a relationship, necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions. Generally, where parties have entered into a contract, courts look to that agreement to discover . . . the nexus of [the parties'] relationship and the particular contractual expression establishing the parties' interdependency. If the parties . . . do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them. However, it is fundamental that fiduciary liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation.
( EBC I, Inc., 5 NY3d at 19-20 [internal citations and quotation marks omitted]).
However, in EBC I, the Court found that plaintiff adequately alleged a breach of fiduciary duty because plaintiff and defendants' relationship went beyond an ordinary business relationship to one of higher trust and confidence since plaintiff relied on defendant Goldman Sachs' expert advice in negotiating plaintiff's public offering of securities ( EBC I, Inc., 5 NY3d at 20-21). Similarly, in AHA Sales the Court found that, despite the appearance of a conventional business relationship, plaintiff sales representative established a breach of fiduciary duty claim because it alleged a long established and dependant relationship with defendant manufacturer ( see AHA Sales, 58 AD3d at 10-12, 22; see also Sentlowitz v Cardinal Development, LLC , 63 AD3d 1137, 1139 [2d Dept 2009]). Here, plaintiff's complaint merely recites that "Defendants' actions in not paying the monies due to the plaintiff have caused them to breach their fiduciary duty" (Complaint ¶ 30). Furthermore, the Agreement sets forth the details of the relationship between plaintiff and defendants, specifically, that it was a simple contractor-owner relationship whereby Rakus was to perform renovation work on plaintiff's property. Thus, unlike EBC I and AHA Sales, plaintiff here does not plead a preexisting or special relationship or that the contract for renovation work was anything more than a one-time arms-length transaction ( see Cuomo, 5 AD3d at 622). Therefore, the Court finds that plaintiff has not pled its breach of fiduciary duty claim with sufficient detail and dismisses that part of the second cause of action alleging breach of fiduciary duty as to all defendants (CPLR 3016[b]; Black Car and Livery Ins. Inc. v H W Brokerage, Inc. , 28 AD3d 595, 596 [2d Dept 2006]; Lanzi v Brooks, 43 NY2d 778, 779).
The second cause of action also alleges breach of contract against Red and the individual defendants. Red has not moved to dismiss the breach of contract cause of action. However, the individual defendants move to dismiss that cause of action as alleged against them. Plaintiff does not dispute that a valid enforceable written agreement governs the transaction at issue. Thus, Vlodov and Levitt argue the second cause of action for breach of contract should be dismissed as alleged against them because "corporate officers may not be held liable on contracts of their corporations, provided they did not purport to bind themselves individually under such contracts." ( Westminster Construction Co. v Sherman, 160 AD2d 867, [2d Dept 1990]; Panasuk v Viola Park Realty, LLC ,41 AD3d 804, 805 [2d Dept 2007][applying the same principle to members of a limited liability corporation]; Limited Liability Company Law § 609[a]) .
There are no allegations in the complaint that Levitt intended to be personally bound under the contract. In Weinreb v Stinchfield , 19 AD3d 482, 483 (2d Dept 2005), the Court found that although the principal of a corporation signed a construction contract without indicating that he was signing only on behalf of the corporation, the pre-contractual correspondence between the parties was sufficient to establish that plaintiff was aware that the individual defendant was acting on behalf of the corporation. Thus, the Court found that the defendant was not liable in his individual capacity. ( Id.).
Here, defendants rely on the Agreement itself as documentary evidence that Levitt cannot be individually liable thereunder. The cover page of the Agreement indicates that the contract is between Red and Rakus. Furthermore, Red is defined and referred to as "Owner" throughout the Agreement and Levitt affixed his signature above the line designated for "Owner." Moreover, plaintiff does not dispute that Levitt is a member of Red and Red is actually, as evidenced by the recorded deed submitted by defendants, the recorded owner of the property at issue. Thus, since it is clear from the pleading, and the face of the contract itself, that Levitt was acting on behalf of a disclosed principal, namely Red, the Court finds that Levitt did not sign in his individual capacity and, thus, as a member of Red, cannot be held personally liable under the agreement ( Id.; Panasuk,, 41 AD3d at 805; Sellinger Enterprises, Inc. v Cassuto, 50 AD3d 766, 767 [2d Dept 2008]; Westminster Construction Co. v Sherman, 160 AD2d 867 at 869; Wiernik v Kurth , 59 AD3d 535, 537 [2d Dept 2009]).
Moreover, Defendant Jane Vlodov did not sign the agreement and it is not alleged in the complaint that she intended to be individually liable on the contract. Therefore, the breach of contract claim against her must be dismissed ( Wiernik v Kurth, 59 AD3d at 536; Gordan v Teramo Company, Inc., 308 AD2d 432, 433 [2d Dept 2003]; see Sellinger Enterprises, 50 AD3D at 767).
Plaintiff argues, however, that the corporate veil should be pierced to hold Levitt and Vlodov individually liable. "The general rule, of course, is that a corporation exists independently of its owners, who are not personally liable for its obligations, and that individuals may incorporate for the express purpose of limiting their liability" ( East Hampton Union Free School Dist. v Sandpebble Builders, Inc. , 66 AD3d 122, 126 [2d Dept 2009]). "Generally, piercing the corporate veil requires a showing that the individual defendants (1) exercised complete dominion and control over the corporation, and (2) used such dominion and control to commit a fraud or wrong against the plaintiff which resulted in injury." ( Damianos Realty Group, LLC v Fracchia , 35 AD3d 344, 344 [2d Dept 2006]).
The complaint is completely devoid of any allegations supporting plaintiff's veil piercing argument. It does not allege lack of corporate formalities, commingling of funds, or self-dealing ( see 107 Realty Corp. v National Petroleum U.S.A., Ltd., 181 AD2d 817, 818 [2d Dept 1992][finding that where plaintiff alleged that defendants were "actually doing business of the corporate defendants in their individual capacities, shuttling their personal funds in and out of the corporations without regard to formality and to suit their convenience . . . so as to completely dominate and control the corporate defendants," allegations for piercing the corporate veil were sufficiently alleged to survive a motion to dismiss]). Moreover, plaintiff does not specifically plead that the individual defendants exercised complete domination of Red, and does not allege that such domination was used to commit a fraud or wrong against the plaintiff. ( see Damianos Realty Group, 35 AD3d at 344-345).
Instead, plaintiff argues, for the first time in opposition to the motion, that the corporate veil should be pierced because defendants "committed fraud upon the plaintiff by guaranteeing payment of monies to the plaintiff under the contract" (Vladmir Rakonic Affidavit in Opposition ¶ 14). To support this allegation plaintiff relies solely on Vlodov and Levitt's marital relationship, their complete ownership of Red and Vlodov's medical practice which is conducted out of the subject premises. Vlodov and Levitt's mere ownership and use of the corporate entity to insulate themselves from personal liability does not constitute evidence that the corporate form was abused, as such purpose is permissible ( see East Hampton Union Free School Dist., 66 AD3d at 126 [corporate form may be used to limit liability]). Thus, plaintiff's unsupported conclusory statements that the corporate veil should be pierced, coupled with plaintiff's failure to plead any of the elements necessary to pierce the corporate veil, warrants dismissal of the second cause of action against the individual plaintiffs. ( see Damianos Realty Group, 35 AD3d at 344 ; Neurological Services of Queens, PC v Farmingville Family Medical Care, PLLC , 63 AD3d 703, 704 [2d Dept 2009]; see also AHA Sales, 58 AD3d at 24; see also Itamari v Giordan Development Corp,. 298 AD2d 559, 560 [2d Dept 2002]; see Millennium Constr., LLC v Loupolover , 44 AD3d 1016, 1017 [2d Dept 2007]).
Defendants also argue that the second cause of action should be dismissed to the extent that it seeks damages for breach of the implied covenant of good faith and fair dealing. However, the second cause of action contains only a general reference to defendants' failure "to perform their [contractual] obligations in good faith." Since "all contracts imply a covenant of good faith and fair dealing in the course of performance" ( 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 153), this claim is not distinct from plaintiff's breach of contract claim and, as a separate cause of action, would be dismissible as redundant and duplicative of the breach of contract claim ( see R.I. Island House, LLC v North Town Phase II Houses, Inc. , 51 AD3d 890, 896 [2d Dept 2008]).
The fifth cause of action for unjust enrichment must also be dismissed. It is well-settled that "[t]he existence of a valid and enforceable written contract governing a particular subject matter precludes recovery under a quasi-contract theory for events arising out of the same subject matter" ( Shah v. Micro Connections, Inc., 286 AD2d 433, 433-434 [2d Dept 2001], citing Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382). Plaintiff does not dispute that a fully executed agreement governs the transaction at issue. Thus, the plaintiff is precluded from proceeding on a quasi-contract theory of unjust enrichment because the Agreement explicitly covers the same subject matter for which the plaintiff seeks relief in it's breach of contract cause of action ( see Hamlet at Willow Creek Development Co., LLC v Northeast Land Development Corp. 64 AD3d 85 , 102 [2d Dept 2009]; Clark-Fitzpatrick, 70 NY2d at 382). Accordingly, defendants' motion to dismiss the fifth cause of action for unjust enrichment is granted.
Finally, plaintiff alleges "loss of business" and "loss of profits" in the third and fourth causes of action, respectively. In the third cause of action plaintiff alleges "[a]s defendants did not pay the monies owed to the plaintiff, the plaintiff has been unable to bid on other projects and perform other contracting work." (Complaint ¶ 34). In the fourth cause of action plaintiff pleads "[d]ue to the actions of the defendants, plaintiff has lost and will continue to lose profit from its businesses [ sic] operations" (Complaint § 40). Defendants argue that section 9.11 of the contract expressly precludes recovery of lost business and profits, while plaintiff argues that section 19.1 of the contract allows for such recovery.
Section 9.11 provides:
The Contractor and Owner waive claims against each other for consequential damages arising out of or relating to this Contract. This mutual waiver includes:
.1 damages incurred by the Owner for rental expenses, for losses of use, income, profit, financing, business and reputation, and for loss of management or employee productivity or of the services of such persons; and
.2 damages incurred by the Contractor for principal office expenses including the compensation of personnel stationed there, for losses of financing, business and reputation, and for loss of profit except anticipated profit arising directly from the Work.
This mutual waiver is applicable, without limitation, to all consequential damages due to either party's termination in accordance with Article 19.
Section 19.1, titled "Termination by the Contractor," on which plaintiff relies, provides:
If the Architect fails to recommend payment for a period of 30 days through no fault of the Contractor, or if the Owner fails to make payment thereon for a period of 30 days, the Contractor may, upon seven additional days' written notice to the Owner and the Architect, terminate the Contract and recover from the Owner payment for Work executed and for proven loss with respect to materials, equipment, tools, and construction equipment and machinery, including reasonable overhead, profit and damages applicable to the Project.
It is the Court's duty to interpret a written contract as a matter of law where it is unambiguous and the intent of the parties is discernible from the four corners of the agreement ( see Matter of Wallace v 600 Partners Co., 86 NY2d 543, 548; R/S Assoc. v New York Job Dev. Auth., 98 NY2d 29, 32). When the language of an agreement is clear, the writing should be "enforced according to its terms" ( W.W.W. Assoc. v Giancontieri, 77 NY2d 157, 162; South Road Associates, LLC v International Business Machines Corp., 4 NY2d 272, 277). Whether an agreement is ambiguous is a question of law to be resolved by the court ( W.W.W. Assoc., 4 NY2d at 162).
Generally, "[a] party may not recover damages for lost profits unless they were within the contemplation of the parties at the time the contract was entered into and are capable of measurement with reasonable certainty" ( Ashland Management v Janien, 82 NY2d 395, 403; see also Rose Lee Mfg. v Chem. Bank, 186 AD2d 548, 551 [2d Dept 1992] [holding that plaintiff's claim for "lost profits" was a claim for consequential damages and "such unusual or extraordinary damages must have been brought within the contemplation of the parties as the probable result of a breach at the time of or prior to contracting"]). Thus, "[a] clear contractual provision limiting damages is enforceable absent a special relationship between the parties, a statutory prohibition, or an overriding public policy" ( Smith-Hoy v AMC Prop. Evaluations, Inc. , 52 AD3d 809 , 810 [2d Dept 2008]).
The language of the Agreement at issue is unambiguous. Section 9.11 of the agreement precludes "Contractor" (plaintiff) from recovering damages relating to "losses of financing, business and reputation, and for loss of profit" except as subsumed within the price of the work ("anticipated profit arising directly from the Work") which would be recoverable through plaintiff's breach of contract claim. In contrast, section 19.1 applies only in the event of termination by the contractor, essentially for non-payment of sums due, and allows plaintiff to recover damages relating to "proven loss with respect to materials, equipment, tools, and construction equipment and machinery, including reasonable overhead, profit and damages applicable to the Project." Section 19.1 is inapplicable to the instant action because plaintiff never terminated the Agreement. Rather, plaintiff completed the contract and is suing for outstanding sums owed including its profit, which are recoverable pursuant to its breach of contract claim. As reflected in section 9.11, the claims set forth in the third and fourth causes of action for consequential losses of business and profits were expressly waived.
Moreover, section 9.11 expressly extends its applicability to consequential damages for termination under Article 19. Thus, even if section 19.1 were applicable here, in addition to the limitation of losses to those "applicable to the Project" contained in section 19.1, section 9.11 operates as a waiver of claims for loss of business or profits outside of those "arising directly from the Work." The language of the contract is clear and unambiguous. The parties expressly chose to exclude consequential loss of business and profits from recoverable damages. As there is no indication that section 9.11 should not be enforced ( see Peluso v Tauscher Cronacher Prof'l Eng'rs, PC, 270 AD2d 325 [2d Dept 2000]), the Court finds that the contract expressly precludes recovery for loss of business and profits outside the sums owed for work performed. Thus, the third and fourth causes of action are dismissed.
Conclusion
Defendants' motion is granted. The Complaint is dismissed as against the individual defendants. That portion of the second cause of action which, in addition to breach of contract, pleads a breach of fiduciary duty is dismissed. The breach of contract claim survives as to the corporate defendant Red only, as does the first cause of action to foreclose on the mechanic's lien. The third, fourth and fifth causes of action are dismissed as to all defendants.
The forgoing constitutes the decision and order of the Court.