007 008 009 010 011 012
Rivkin Radler LLP (Evan R. Schieber, Jeremy Honig, and David Richman of counsel) and Stroock & Stroock & Lavan LLP (Melvin A. Brosterman and Kayley R. McGrath of counsel), for plaintiff. Meltzer, Lippe, Goldstein & Breitstone, LLP (Jason K. Blasberg of counsel) and Braunstein Turkish, LLP (William J. Turkish of counsel), for defendants.
Rivkin Radler LLP (Evan R. Schieber, Jeremy Honig, and David Richman of counsel) and Stroock & Stroock & Lavan LLP (Melvin A. Brosterman and Kayley R. McGrath of counsel), for plaintiff. Meltzer, Lippe, Goldstein & Breitstone, LLP (Jason K. Blasberg of counsel) and Braunstein Turkish, LLP (William J. Turkish of counsel), for defendants. Gerald Lebovits, J.
The following e-filed documents, listed by NYSCEF document number (Motion 007) 206, 207, 208, 209, 210, 211, 212, 213, 214, 215, 216, 217, 218, 219, 220 were read on this motion toQUASH SUBPOENA.
The following e-filed documents, listed by NYSCEF document number (Motion 008) 233, 234, 235, 236, 237, 238, 239, 240, 241, 242, 243, 285, 288, 293, 294, 295, 296, 297, 298, 299, 300, 301, 302, 303, 304, 337, 338, 348, 349 were read on this motion toQUASH SUBPOENA. The following e-filed documents, listed by NYSCEF document number (Motion 009) 244, 245, 246, 247, 248, 249, 250, 251, 252, 253, 286, 291, 317, 318, 319, 320, 332, 333, 334, 335, 336, 350, 351 were read on this motion toSTRIKE AFFIRMATIVE DEFENSES. The following e-filed documents, listed by NYSCEF document number (Motion 010) 254, 255, 256, 257, 258, 259, 260, 261, 262, 263, 264, 265, 266, 267, 268, 269, 287, 292, 321, 322, 323, 324, 325, 326, 327, 328, 329, 330, 331, 352, 353 were read on this motion toAMEND PLEADINGS. The following e-filed documents, listed by NYSCEF document number (Motion 011) 270, 271, 272, 273, 274, 275, 276, 277, 278, 279, 280, 289, 312, 313, 314, 315, 316, 339, 354, 355 were read on this motion toPRECLUDE. The following e-filed documents, listed by NYSCEF document number (Motion 012) 281, 282, 283, 284, 290, 305, 306, 307, 308, 309, 310, 311, 340, 356, 357 were read on this motion toPRECLUDE. Rivkin Radler LLP (Evan R. Schieber, Jeremy Honig, and David Richman of counsel) and Stroock & Stroock & Lavan LLP (Melvin A. Brosterman and Kayley R. McGrath of counsel), for plaintiff. Meltzer, Lippe, Goldstein & Breitstone, LLP (Jason K. Blasberg of counsel) and Braunstein Turkish, LLP (William J. Turkish of counsel), for defendants. Gerald Lebovits, J.:
This decision addresses a number of motions in an action brought by the board of managers of a condominium apartment building against the condominium sponsor (and principals and affiliates of the sponsor). Plaintiff asserts various claims against the defendants arising out of the construction of the building, which sound in breach of contract, breach of fiduciary duty, and fraudulent conveyance. The action was previously tried before a jury in Supreme Court, New York County (Nervo, J.) That trial ended in a mistrial. The case was later transferred to the undersigned and is scheduled to be retried in October 2019. In preparation for retrial, the parties have filed a number of motions relating to what evidence may be presented at trial. These motions, sequences 007, 008, 009, 010, 011, and 012, are consolidated here for disposition.
Motion Sequences 007 and 008
These two motions seek to quash trial subpoenas issued to the Sponsor and the other defendants for bank statements and a variety of other financial information.
As an initial matter, the two sets of subpoenas overlap one another. The subpoena at issue in motion sequence 007, served before the first trial, requests Sponsor's bank statements and other information from 2016 to present. (See NYSCEF No. 208). The subpoenas in motion sequence 008, served after the mistrial in the first trial and in preparation for the second trial, seek, among other things, Sponsor's bank statements and other documents from 2006 to present. (See NYSCEF Nos. 235, 236, 237, and 238.) Given the overlap between the subpoenas, defendants' motion to quash the subpoena at issue in motion sequence 007 is granted because the subpoena is duplicative. The remainder of this discussion considers only the subpoenas at issue in motion sequence 008. This court concludes that those subpoenas should be quashed.
Trial subpoenas may be properly used only "to compel the production of specific documents that are relevant and material to facts at issue in a pending judicial proceeding — not "for the purpose of discovery or to ascertain the existence of evidence." (Matter of Terry D., 81 NY2d 1042, 1044  [quotation marks omitted].) Here, plaintiff's own submissions in opposition to the motion to quash make clear that "[r]ather than seeking to obtain documents that were themselves evidence, the subpoena[s]" at issue were intended instead for the improper purpose of establishing whether certain evidence existed at all. (See People v Wallace, 239 AD2d 272, 273 [1st Dept 1997].)
Relying on the First Department's decision in State ex rel. Hickox v Hickox, plaintiff argues that its subpoenas here are not barred by this rule, because a trial subpoena merely "directs the subpoenaed party to have the documents in court so that the court may make appropriate direction with respect to" their use, rather than directing the subpoenaed party to disclose the documents to its adversary. (64 AD2d 412, 413-414 [1st Dept 1978].) This argument is without merit. That the trial court retains the authority to determine the appropriate disposition of subpoenaed documents once brought into court does not obviate the antecedent inquiry of whether it is proper to require the subpoenaed party to bring the documents into court at all.
Plaintiff also asserts that it sought unsuccessfully to obtain the financial information at issue during the discovery process. This court disagrees. Plaintiff seeks these documents to support its claims that the Sponsor improperly transferred ownership certain units in the building to an affiliate for no consideration and that the Sponsor also dissipated the proceeds of sales of other units in the building to put those sales proceeds outside the reach of creditors. But during discovery, plaintiff chose to demand production only of documents relating to the reasons for the transfer of units from Sponsor to its affiliate (and the consideration for such transfers). Thus, during the ordinary discovery period plaintiff did not seek the wide-ranging financial information to which it now claims entitlement. And plaintiff chose to file a note of issue and certificate of readiness, and to proceed with trial on the record it had developed.
Moreover, much of the financial information that plaintiff now seeks from defendants is dubiously relevant at best: the subpoenas apply not only to financial documents relating to a period years before the transfers and sales at issue, but also to financial information from after the filing of the complaint. Plaintiffs may not employ overbroad trial subpoenas to belatedly secure discovery material. (See Genevit Creations, Inc. v Gueits Adams & Co., 306 AD2d 142, 142 [1st Dept 2003]; Mestel & Co. v Smythe Masterson & Judd, Inc., 215 AD2d 329, 329-330 [1st Dept 1995].) The motion to quash is granted.
Given the age and advanced stage of the litigation when plaintiff filed the trial subpoenas at issue, this court is also not persuaded that it would have served any purpose for defendants to seek to meet and confer regarding the subpoenas before moving to quash — let alone that defendants' failure to meet and confer is grounds to deny the motion, as plaintiffs contend.
Motion Sequence 009
In motion sequence 009, plaintiff moves to strike certain affirmative defenses in defendants' answer These affirmative defenses assert statute-of-limitations and limitation-of-remedies defenses. The motion is denied.
A. Plaintiff's Request to Strike Defendants' Ninth and Tenth Affirmative Defenses
Plaintiff moves first to strike the ninth and tenth affirmative defenses, which relate to allegations in the complaint about patent and latent defects in the common elements of the condominium building (as distinct from defects in individual units within the building).
The condominium offering plan here provides that the Sponsor is obligated to correct patent defects in the common elements of the building only if, among other things, the Board of Managers gives the Sponsor written notice of the defects "within two months after the first meeting of Unit Owners." The plan provides that the Sponsor would be obligated to correct latent defects only if the Board gives written notice "within six months after the first meeting of Unit Owners." (Offering Plan, NYSCEF No. 351, at 49.) The plan also provides that "Sponsor shall be deemed to have discharged any obligation it may have with respect to patent or latent defects" if the Board fails to notify the Sponsor "within the time periods specified above." (Id.)
Defendant's ninth and tenth affirmative defenses assert that any claim premised on patent or latent defects is time-barred, because the Board failed to provide the required written notice within the offering plan's two- or six-month limitations period. (See Answer, NYSCEF No. 5, at 7-8.) Plaintiff's motion to strike raises a number of arguments why these affirmative defenses should be stricken. Each lacks merit. (1) Plaintiff argues that the court should strike these defenses as contrary to public policy because the limitation periods in the plan are "impossibly short" and "effectively nullify any construction defect claim." (NYSCEF No. 253, at 26.) But the First Department has previously enforced comparably short notice-of-defect provisions in a condominium offering plan. (See Talbi v. ZWCK Assocs., 179 AD2d 475, 476 [1st Dept 1992].) Additionally, plaintiff Board, and the purchasers of individual units within the building, are also well-resourced, sophisticated parties who chose to submit themselves to the terms of the offering plan, including the notice-of-defect requirements.
Plaintiff asserts also that it should not be held to the limitations periods at issue because the Sponsor "effectively controlled the Board" during the "entire notification period." (NYSCEF No. 253, at 26.) But the plan specifically provides that "[d]uring the period that the Sponsor controls the Board . . . any decision to enforce the Sponsor's construction or other obligations in the name of the Condominium shall be made by majority vote of the non-Sponsor controlled Managers" on the Board. (NYSCEF No. 351, at 52-53 [emphasis added].) Plaintiff also asserts that the notice requirement was futile, or redundant, because "one of the Sponsor's principals, Brad Thurman, was on the Board" through the entire notification period. (NYSCEF No. 253, at 27.) But the plan specifically contemplates that Thurman would be on the Board during the relevant period. (See NYSCEF No. 351, at 58.) His presence on the Board cannot alone be sufficient to satisfy the notice-of-defects requirement found elsewhere in the plan. (2) Plaintiff contends that the ninth and tenth affirmative defenses fail because the offering plan provides that (i) the "Sponsor's obligation, regardless of any limitations in the warranty cannot go below the duty to construct the Premises in accordance with all applicable codes and filed plans and specifications"; and (ii) "[a]ny conflict between the disclaimers" and this obligation of the Sponsor "shall be resolved in favor of the latter." (NYSCEF No. 351, at 52.) Plaintiff asserts that the plan's notice-of-defect requirements conflict with the Sponsor's obligations in constructing the premises, and that the notice-of-defect requirements are therefore overridden. (See NYSCEF No. 253, at 16-18.)
That interpretation, however, would all but read these requirements out of the plan, contrary to basic principles of contract interpretation. The better reading is instead that the "Sponsor's obligation" language from page 52 of the plan on which plaintiff relies is intended to define the substantive nature and scope of the Sponsor's duties — not the terms under which a purchaser or the Board may enforce performance of those duties. The Board (or individual purchasers) must therefore provide timely notice of a defect to bring a money-damages claim later; but the Sponsor cannot defeat a timely claim that the premises contain material defects by pointing to disclaimers in the plan
Here, therefore, the Sponsor is entitled at least to assert the affirmative defense that the Board failed timely to notify the Sponsor regarding patent and latent defects in the premises, such that the Board's claims in this action regarding those defects are time-barred. (3) Plaintiff also argues that it has distinct claims for breach of contract that assertedly arise out of defendants' (alleged) failure to obtain a permanent certificate of occupancy and construct the premises according to building codes and the filed plans and specifications. Plaintiff contends that these contractual claims are not barred by the plan's notice-of-defect requirements. (See NYSCEF No. 253, at 20-22, citing Tiffany at Westbury Condominium v Marelli Dev. Corp., 40 AD3d 1073 [2d Dept 2007].) But even if plaintiff may also assert breach-of-contract claims in addition to the claims about construction defects, the existence of these contractual claims would not be a basis to strike defendants' ninth and tenth affirmative defenses.
This issue is discussed in more detail in resolving motion sequence 011, infra.
To the extent that any breach-of-contract claims rest ultimately on the existence of patent or latent construction defects, those claims merely duplicate claims based directly on those construction defects — and therefore are potentially also subject to the ninth and tenth affirmative defenses. (See 266 W. 115th St. Condominium v 266 W. 115th St., LLC, 2014 NY Slip Op 33047(U), at *2-*3 (Sup Ct, NY County Dec. 2, 2014). And to the extent that any contractual claims rest on grounds other than patent or latent defects, the ninth and tenth affirmative defenses simply would not be addressed to those claims. (4) This court does not agree with plaintiff's claim that these affirmative defenses should be dismissed because imposition of the notice-of-defect requirements in the offering plan's warranty contravenes the housing-warranty provisions of General Business Law § 777-b. (See NYSCEF No. 253, at 22-25.) Section 777-b simply does not apply here.
GBL § 777-b (1) and (2) permit the "builder or seller of a new home" to modify or exclude warranties if, among other things, the warranties that the seller does provide will satisfy the requirements of the "housing merchant implied warranty" established by § 777-a. And § 777-b (3) and (4) permit "the builder or seller of a new home" to "exclude[e] or modif[y]" the "housing merchant implied warranty" only if the buyer is offered a limited warranty that satisfies the substantive and procedural requirements of § 777-b.
The statute, however, defines "new home" to include a "for-sale unit in a multi-unit residential structure" under a condominium regime only where that structure is "five stories or less." (GBL § 777 (5).) The "housing merchant implied warranty" itself exists only in a "contract or agreement for sale of a new home." (GBL § 777-a (1).) It thus does not apply to contracts for the sale of condominium apartments in a building of more than five stories. The building in this case is ten stories tall. (See Complaint at 9, NYSCEF No. 9.)
Plaintiff relies on language in the First Department's decision in Pine Street Homeowners Ass'n v 20 Pine Street LLC, which affirmed the dismissal of a breach-of-warranty damages claim because the offering plan in that case included a valid limited warranty "in accordance with the provisions of General Business Law § 777-b." (109 AD3d 733, 735 [1st Dept 2013].) That the First Department held a warranty's compliance with § 777-b sufficient to defeat a breach-of-warranty claim, though, does not mean the Court held that compliance with that section is necessary to defeat a breach-of-warranty claim. Nor would it make sense to view 20 Pine Street as implying such a holding, particularly because the decision itself notes that the "statutory housing merchant warranty scheme codified under [GBL] Article 36-B applies only to buildings less than five stories." (Id.) (5) Finally, plaintiff argues, citing the First Department's decision in 430 West 23rd Tenants Corp. v 23rd Associates (155 AD2d 237 [1st Dept 1989]), that the notice-of-defect requirement should be disregarded because defendant has assertedly still failed to make necessary repairs and comply with its construction obligations. But 430 West 23rd Tenants Corp. does not reach so far. In that case, the sponsor was aware of the alleged defects and had repeatedly, but unsuccessfully, attempted to repair those defects.
This court declines to consider plaintiff's argument that the Sponsor also failed to comply with GBL article 36-B's implementing regulations (see NYSCEF No. 336, at 18), because that argument was made for the first time on reply. (See Matter of Bethelite Community Church v Department of Envtl. Protection of the City of NY, 172 AD3d 587, 588 [1st Dept 2017].)
The First Department thus held only that in those circumstances, the purchasers of units in the building were not bound by an offering plan provision limiting their remedy to obtaining repair or replacement of defects by the sponsor, but were instead entitled "to compensation for the reasonable cost of making the repairs or replacements themselves and nothing more." (155 AD2d at 238.) The First Department did not have occasion in 430 West 23rd Tenants Corp. to address the present issue about notice of defects. And it did not suggest that a condominium board could fail to comply with a notice-of-defects requirement and thereby deny the sponsor an opportunity to attempt to make repairs in the first instance.
Plaintiff's request to strike the ninth and tenth affirmative defenses is denied.
B. Plaintiff's Request to Strike Defendants' Eleventh Affirmative Defense
Plaintiff also asks this court to strike the eleventh affirmative defense. That defense asserts that "to the extent that the Plaintiff seeks consequential damages in the Complaint from the Defendants based upon the provisions of the Plan, such consequential damages are barred." (NYSCEF No. 5, at 79.) This motion, too, is denied: The offering plan provides that "nothing contained" in the plan's warranty provisions "or elsewhere in the Plan shall be construed to render Sponsor liable for consequential damages (whether based on negligence, breach of contract, warranty, or otherwise)." (NYSCEF No. 351, at 51.)
Plaintiff claims that the affirmative defense should be struck because plaintiff is assertedly seeking only direct, rather than consequential, damages. But the eleventh affirmative defense is carefully worded to apply only to any claims for consequential damages. (See Answer, NYSCEF No. 5, at 79.) The possibility that an affirmative defense may not ultimately apply to plaintiff's claims as presented at trial is not, standing alone, a basis on which to dismiss that defense in advance of trial.
Plaintiff also contends that the plan's "preclusion on consequential damages makes no sense," because that provision "authorizes consequential damages that are provided by law, and the only consequential damages that would ever be permitted are those provided for by law." (NYSCEF No. 253, at 30.) But one can readily reconcile the plan's provisions governing consequential damages: (i) plaintiff may not bring a claim for consequential damages under the plan; instead, (ii) plaintiff may bring a consequential-damages claim only pursuant to express statutory authorization. Plaintiff does not explain why reading the offering plan in this way would be infeasible. (Nor does plaintiff rely on a statutory authorization to assert a consequential-damages claim.)
To be sure, defendants do argue that the eleventh affirmative defense instead applies more broadly to any claim for monetary damages, whether direct or consequential. (See NYSCEF No. 320, at 24-25.) But this court concludes that the eleventh affirmative defense, as pleaded, is more narrow than defendants would now have it. As discussed above, the operative language of this affirmative defense clearly applies only to consequential-damages claims, rather than to all money-damages claims.
Plaintiff's motion to strike the eleventh affirmative defense is therefore denied. The issue whether plaintiffs may assert a claim for direct damages (and if so, the limits of any such claim) is discussed in more detail in resolving motion sequence 011, infra.
Motion Sequence 010
In motion sequence 010, plaintiff moves under CPLR 3025 (c) to amend their pleadings to the proof — presumably evidence presented at the first trial. The motion is denied.
Plaintiff filed its complaint in this action in 2013; the parties tried the action in 2017 on the original complaint. Only now, after that first trial ended in a mistrial, does plaintiff seek for the first time to amend its complaint. Plaintiff does not sufficiently explain or justify this extensive delay. (See Panasia Estate, Inc. v Broche, 84 AD3d 498, 498 [1st Dept 2011]; Heller v Louis Provenzano, Inc., 303 AD2d 20, 24-25 [1st Dept 2003].) Although plaintiff suggests that its motion for leave to amend is based on new evidence presented at the first trial, plaintiff's own papers reflect that much of the evidence that it proffers as a basis for amendment was (or should have been) known to it prior to that trial.
Plaintiff also suggests that it should be able to amend its complaint to reflect trial testimony that (plaintiff asserts) shows that the Sponsor deliberately deceived inspectors from the New York City Department of Buildings about whether certain features of the building were built properly. But it is not clear from the record (i) when plaintiff first knew (or should have known) about this alleged deception; or (ii) when plaintiff's counsel first spoke with the witness who provided the trial testimony on which plaintiff now relies. Additionally, it would be plainly prejudicial to allow plaintiff to amend its complaint shortly before retrial based on the testimony of a witness from whom defendants never had the opportunity to take discovery.
The potential prejudice to defendants from granting plaintiff's motion is only exacerbated by the sheer scope of the amendment sought at this late date: plaintiff's proposed amended complaint is more than double the length of the original complaint, includes new causes of action, adds a punitive-damages claim, and more than quadruples the amount sought in the ad damnum clause. This court does not agree with plaintiff's position that changes of this magnitude — at this advanced stage of the action — would be merely nonprejudicial "amplification" of the original complaint permitted under CPLR 3025 (c).
Motion Sequence 011
In motion sequence 011, defendants move to preclude plaintiff from offering several categories of evidence at trial. This motion is granted in part and denied in part.
A. Defendants' Request to Preclude Evidence of Patent or Latent Defects
Defendants seek to preclude plaintiff from offering evidence of patent or latent defects about which the Board failed to provide timely notice to the Sponsor. This request is granted for the reasons given above with respect to motion sequence 009.
B. Defendants' Request to Preclude Evidence of Plaintiff's Damages
Defendants also seek to preclude evidence, including testimony of expert witnesses, about monetary damages suffered by plaintiff. This request is granted, but only in part.
As an initial matter, to the extent that plaintiffs would seek to introduce damages evidence (whether in the form of expert testimony or otherwise) based on the costs to plaintiff to remediate patent or latent defects, this court concludes that such evidence is barred for the reasons given above with respect to motion sequence 009.
That conclusion does not, however, necessarily resolve this request to preclude. Plaintiff could conceivably introduce evidence that defendants harmed plaintiff by breaching requirements in the offering plan outside its warranty provision — such as, for example, defendants' obligations to construct the building in accordance with the filed plans and specifications, to obtain a permanent certificate of occupancy, and to supply a copy of the as-built building plans to the Board. (See Plaza PH2001 LLC v Plaza Residential Owner LP, 98 AD3d 89, 99-101 [1st Dept 2012]; Tiffany at Westbury Condominium, 40 AD3d at 1075-1076.) Such breach-of-contract claims, at least to the extent that they are not based on the presence of patent or latent defects, may be maintained at trial, and plaintiff introduce evidence of the damages they suffered due to defendants' asserted breaches of contract.
There is no merit to defendants' assertion that such evidence categorically bars the limitation-of-remedies provision in the offering plan. (See NYSCEF No. 271, at 4-8.) As discussed above, the plain terms of that provision bar claims for consequential damages, not all money-damages claims.
Defendants contend that plaintiffs may not obtain even direct damages, because defendants' obligation is solely "to cause to be repaired or replaced (at Sponsor's option) any defective item or construction" (see NYSCEF No. 351, at 51). But the First Department has made clear that for limitation-of-remedies purposes, there is no material difference between the Sponsor itself being obliged to incur the costs to repair or replace an item and the Sponsor being obliged to pay damages to cover repair costs incurred by another party (such as a condominium board or tenant's association). (See 430 W. 23rd St. Tenants Corp., 155 AD3d at 238; Masiach v 420 W. Investors, LLC, 103 AD3d 466, 466 [1st Dept 2013].)
Similarly, with respect to contractual obligations not amenable to fulfillment through repairing or replacing damaged elements of the building, this court concludes that plaintiff may introduce evidence of the reasonable, direct costs incurred by the Board to remedy the Sponsor's failure to fulfill that obligation. Thus, plaintiff may introduce evidence such as the construction costs required to make the building conform to the filed plans and specifications (assuming those costs were not incurred to remedy patent or latent defects), the cost incurred to commission a set of as-built plans, or the costs of non-defect related measures to obtain a permanent certificate of occupancy.
Defendants' contrary position would appear to bar all compensatory claims by the Board for contractual breaches that may not be resolved through repair or replacement of defective items—though the plan does not expressly bar such claims, and purports to foreclose only consequential damages liability. If the Sponsor wished to categorically bar all monetary liability for breach of contract or breach of warranty claims, the Sponsor could easily have drafted the plan to say so. But it did not.
Cf. Berenger v 261 West LLC, 93 AD3d 175, 178 (1st Dept 2012) (discussing a condominium offering plan providing that "nothing contained in this section will be construed so as to render sponsor liable for money damages" under various legal theories) (emphasis added and alteration omitted).
That said, given the plan's bar on consequential damages, plaintiff may introduce evidence only of damages that (assertedly) flowed directly and naturally from contractual breaches by defendants—not of further, more indirect damages that would not have been reasonably foreseen at the time the offering plan was issued. (See Kenford Co. v County of Erie, 73 NY3d 312, 319-320 .) Thus, for example, plaintiff could introduce evidence of costs incurred by the Board to alter aspects of the building's construction that, while not defective, materially varied from the filed plans and specifications—but plaintiff could not introduce evidence of costs incurred to relocate residents during such alterations.
See e.g. Weiss v Karch (62 NY2d 849, 850  [in suit alleging repudiation of contract to sell cooperative apartment, holding that plaintiffs could obtain appreciation in value of apartment between contract date and repudiation date as direct damages under the UCC, but could not obtain consequential damages consisting of the cost of maintenance fees paid on a replacement apartment]; Masiach, 103 AD3d at 466-467 [holding that plaintiff could obtain damages for the costs of making repairs that were the contractual responsibility of the sponsor, but could not obtain damages for loss of rental income]; Kerusa Co. LLC v. W10Z/515 Real Estate Ltd. P'ship, 50 AD3d 503, 504 [1st Dep't 2008] [holding that the "repair or replace defective items" provision in a condominium offering plan "exclude[d] from recoverable damages any diminution in the value of the unit" due to defective construction].)
In sum, plaintiff may provide at trial evidence of direct monetary harms — including expert witness testimony — but only to the extent that the harms are direct, rather than consequential, and only to the extent that these direct damages are not based on the cost to correct patent or latent defects in the building's construction.
C. Defendant's Request to Preclude Evidence of EIFS Defects
Finally, defendants seek to preclude plaintiff from introducing evidence of purported defects in the building's "Exterior Insulation and Finish System" (or EIFS). This request to preclude is denied.
Defendants argue that the evidence should be precluded because plaintiff may not maintain a claim based on alleged EIFS defects; according to defendants, any duty they owed with respect to the EIFS was deemed discharged under the offering plan because plaintiff (through counsel) denied defendants' request to inspect the EIFS for defects. (See NYSCEF No. 271, at 10-11, quoting NYSCEF No. 351, at 49.) But it is undisputed that defendants did not make the inspection request in question until after plaintiff had not only brought its action but also filed the note of issue. (See NYSCEF Nos. 279 [letter from defendants' counsel requesting access], and 280 [letter from plaintiff's counsel refusing to grant access].)
This court concludes that in these circumstances, plaintiff's refusal of defendants' belated request to inspect the EIFS did not implicate the "deemed discharged" warranty language in the offering plan on which defendants based their request to preclude.
To be clear, this court is not holding here that evidence relating to the EIFS necessarily may be offered at trial. Such evidence might still be precluded on other grounds, such as any failure by the Board to timely provide Sponsor notice of defects in the EIFS. The court holds merely that EIFS evidence is not independently precluded by plaintiff's post-note-of-issue denial of defendants' inspection request.
Motion Sequence 012
In motion sequence 012, defendants move to preclude plaintiff from raising the allegations in paragraph six of the complaint relating to People v Apple Health & Sports Clubs, Inc., Thurcon Props. & Harold Thurman, 80 NY2d 803, 807 (1992), or from making any reference to the Apple Health case more broadly. Defendant's motion is granted.
Paragraph six of the complaint alleges as follows:
Harold, the father of Brad, has previously been found liable for engaging in a fraudulent and deceptive scheme that victimized members of the public. In People v. Apple Health & Sports Clubs, Inc., Thurcon Props. & Harold Thurman, 80 NY2d 803, 807 (1992), the New York Court of Appeals affirmed a lower court finding that Harold had unlawfully operated four health clubs, and there was "abundant evidence that Apple Health was guilty of fraud and persistent illegality in the way it conducted business," and that Harold had actual knowledge of, and participated in, Apple Health's fraudulent and illegal business dealings. (NYSCEF No. 2, at 3.)
Plaintiff argues that the facts of the Apple Health case are relevant here because they support plaintiff's argument that Harold Thurman acted with a fraudulent intent toward prospective purchasers of units in the condominium building at issue in this case. (See NYSCEF No. 311, at 7-10.) But plaintiff's argument is based primarily on the additional fraud claims that they sought leave to add to their complaint under motion sequence 010. In light of this court's denial on motion sequence 010 of leave to amend, the only fraud-related claims at issue in this case pertain to alleged fraudulent conveyances — claims that do not rest on Harold Thurman's intent in interacting with members of the public.
Additionally, the facts underlying the Apple Health case are remote in time. The conduct at issue in Apple Health occurred before March 1991, more than fifteen years before defendants here submitted the offering plan in March 2006. The probative value of Apple Health is greatly diminished by the passage of time. Yet the obvious potential for prejudice remains. Defendant's motion to preclude is granted.
Indeed, the regulations governing condominium construction require the sponsor of an offering plan and its principals) to disclose a prior conviction or judgment that may be material to the offering plan only if that conviction or judgment occurred within fifteen years of the submission date. (See 13 NYCRR § 20.3 [ab]  [ii].) That was not the case here. --------
Accordingly, for the foregoing reasons, it is
ORDERED in motion sequence 007 that plaintiff's trial subpoena dated August 28, 2017, is quashed; and it is further
ORDERED in motion sequence 008 that plaintiff's trial subpoenas dated April 2, 2018, are quashed; and it is further
ORDERED in motion sequence 009 that plaintiff's motion to strike the ninth, tenth, and eleventh affirmative defenses in defendants' answer is denied; and it is further
ORDERED in motion sequence 010 that plaintiff's motion under CPLR 3025 (c) to conform the pleadings to the proof is denied; and it is further
ORDERED in motion sequence 011 that defendants' motion to preclude plaintiff from introducing evidence at trial of patent or latent defects as to which notice was not timely provided is granted; and it is further
ORDERED in motion sequence 011 that defendants' motion to preclude plaintiff from introducing damages evidence or expert testimony at trial is granted only to the extent that plaintiffs are precluded from introducing evidence at trial of (i) direct damages resulting from patent or latent defects as to which notice was not timely provided; and (ii) consequential damages; and the motion is otherwise denied. And it is further
ORDERED in motion sequence 011 that defendants' motion to preclude plaintiff from introducing evidence at trial about defects in the building's EIFS is denied to the extent that the basis for preclusion is plaintiff's refusal to permit defendants' counsel to inspect the EIFS; and it is further
ORDERED in motion sequence 012 that defendants' motion to preclude plaintiff from (i) introducing evidence at trial relating to the People v Apple Health & Sports Clubs, Inc. case; (ii) otherwise referring to that case; or from referring to the allegations in paragraph six of the complaint is granted.
GERALD LEBOVITS, J.S.C.