Introduction

The plaintiffs in these companion actions are low to moderate income tenants of a building which withdrew from the Mitchell-Lama Program. They have been denied the benefit of the settlement agreement reached in a prior lawsuit and face eviction. [*2]

Background

The following facts are undisputed and common to both actions.

The 249 unit apartment house in which plaintiff-tenants live was constructed in 1974 to provide publicly assisted housing to low and middle income individuals and families under Article II of the Private Housing Finance Law, popularly known as the "Mitchell-Lama Law." The Mitchell-Lama Law was designed to encourage private development of affordable housing and offered developers economic benefits, including low interest financing and tax abatements, in exchange for limitations on profits and management control. The law provided that a company could repay its loans and withdraw from the program after 20 years, at which time it would lose its tax abatements and be free from all rent restrictions.

Defendant Court Plaza, Inc., the developer and manager of the building in which the plaintiffs are tenants, leases the land on which the building was constructed pursuant to a ground lease with the New York City Educational Construction Fund. The ground lease runs for 75 years, commencing in 1972, and provides, in relevant part:

The Demised Premises shall be used for residential purposes for persons and families of low or moderate income only. (Section 102)

In 2006, Court Plaza announced its intent to withdraw from the Mitchell-Lama Program. A tenants' association was formed, defendant Court Plaza Tenants (sic) Association, which raised money to retain counsel, defendant law firm Himmelstein, Mcconnell, Gribben, Donoghue & Joseph, Esqs., to oppose withdrawal.^[FN1] The Tenants' Association was an unincorporated, volunteer, not-for-profit group with no paid members. An action was initiated in which 104 tenants were named as plaintiffs, including several of the plaintiffs in Action 2. That action was resolved by a Settlement Agreement, dated May 24, 2007, in which the parties agreed that Court Plaza would withdraw from the Mitchell-Lama Program and rent increases for current tenants would be capped at between 7% and 8% for nine years.

The Agreement imposed three conditions for eligibility for the increase cap: (1) being a tenant as of May 24, 2007; (2) being a member of the Tenants' Association; and (3) executing the Agreement.^[FN2] The Agreement, signed by 164 tenants, was filed in Court on or about June 2, 2007 and "So Ordered" by this Court on June 21, 2007. Court Plaza withdrew from the Mitchell-Lama Program on August 16, 2007.

In April 2008, it came to the law firm's attention that 30 of the plaintiffs of the prior litigation had not signed the Agreement. The law firm withdrew and, represented by other counsel, the instant actions were commenced by tenants, including 11 of the plaintiffs in the prior action, who failed to meet one or more of the Agreement conditions and were offered renewal leases with increases of 40% or more. [*3]

The plaintiffs in these actions fall into three categories. Action 2 plaintiffs Alma Bellgrave, Sara Kuraeva, Jaffa Haimoff, Naovi Naffees and Manoucher Namdar, (1) were tenants on May 24, 2007; (2) believed they were members of the Tenants' Association; but (3) did not sign the Agreement. They each made the first payment to the legal fund ^[FN3] but assert they were never asked for additional funds and were never notified about the Agreement. All but one (Jaffa Haimoff) were named plaintiffs in the prior litigation and executed affidavits in that litigation.

Action 2 plaintiffs Tatyana Plastunenko, Linda Santiago, Teresa Pawlowska, Inesa Dzivinsky, Ilyaev Moshe, Imran U. Chaudhary and Gjenc & Vahide Hysenbegasi (1) were tenants on May 24, 2007; (2) made no contribution to the Tenants' Association; and (3) did not sign the Agreement. They were named plaintiffs in the prior litigation and assert they were never asked for a contribution.

Both groups assert that they were never informed that they were not fully represented and protected by the Tenants' Association; never shown the Agreement; and never given the opportunity to sign it. They assert claims against the Tenants' Association and the law firm for their failure to (1) effectively disseminate information and documentation; and (2) properly advise the named plaintiffs in the prior litigation. Their claims against Court Plaza are based upon their assertion of rights as third-party beneficiaries of the ground lease provision that limits Court Plaza's use of the land to "residential purposes for persons and families of low or moderate income only."

Action 1 plaintiffs, Myra Kofin and Jennifer Kofin, and Action 2 plaintiffs, Jacqueline Hincapie Camacho and Matt Enayatian, fail to meet any of the conditions for entitlement under the Agreement since they entered into leases after the Agreement was signed. These tenants allege that, at the time they signed their leases, it was fraudulently represented to them, by an employee of Court Plaza's managing agency, that they were tenants under the Mitchell-Lama Law and their rent increases would be capped at between 7% and 8% for 9 years. ^[FN4] They also assert rights as third-party beneficiaries of the ground lease.

Plaintiffs in both actions move, by Order to Show Cause, for various injunctive relief which would enjoin Court Plaza from increasing their rents beyond the rental increase cap.

Court Plaza cross moves to dismiss the complaints on the grounds that (1) plaintiffs are not third-party beneficiaries under the ground lease and therefore lack standing to bring these actions; (2) the named plaintiffs in the prior action are barred by the Settlement Agreement from maintaining an action against it; ^[FN5] and (3) the fraudulent misrepresentation claims are barred by [*4]documentary evidence. In the alternative, Court Plaza requests that, if the Court were to grant injunctive relief, plaintiffs be required to post a bond.

The Tenants' Association cross-moves, in Action 2, to include plaintiffs who were tenants on May 24 in the Agreement by permitting "relevant plaintiffs' papers" to be executed nunc pro tunc. It additionally moves to dismiss the claims against it.

Discussion

The lynchpin of the plaintiffs' action against Court Plaza is their claim to be third-party beneficiaries of the ground lease. While this Court is neither unmindful of the loss of affordable housing in New York City nor unsympathetic to its consequences, we find this assertion to be wholly without merit.

A plaintiff who claims to be a third-party beneficiary entitled to enforce a contract to which it is not a party must show that the contracting parties intended to bestow on the plaintiff the right to enforce their agreement. (HR Moch Co v Rensselaer Water Co, 247 NY2d 160 [1928]) As Chief Justice Cordozo clearly formulated 90 years ago, a member of the public cannot enforce a contract between a city and another

unless an intention appears that the promisor is to be answerable to individual members of the public as well as to the city ... to such a degree as to bespeak the assumption of a duty to make reparation directly to the individual members of the public if the benefit [of the contract] is lost. ... In a broad sense it is true that every [municipal] contract is for the benefit of the public. More than this, however, must be shown to give a right of action to a member of the public not formally a party [to the contract] ... The field of obligation would be expanded beyond reasonable limits if less than this were to be demanded as a condition of liability.

It is evident that the ground lease contains nothing more than a restrictive covenant incapable of creating any affirmative duty. Nothing in the clause distinguishes the plaintiffs from every other person in the world eligible, under an undefined standard, for low or moderate income rent. Nor is there a standard for determining the point at which rent becomes other than low or moderate income rent.

Attempts by tenants of other Mitchell-Lama buildings to establish third-party beneficiary rights pursuant to underlying land contracts have been consistently rejected. (Mendel v Henry Phipps West, Inc, 6 NY3d 783 [2006]["As both the Supreme Court and the Appellate Division correctly determined, plaintiffs failed to establish that the LDA [land disposition agreement] was intended for their benefit."]; Concerned Cooper Gramercy Tenants Assn v New York City Educational Construction Fund, 13 AD3d 61 [1st Dept 2004]["Justice Davis and the Appellate Division, First Department, have already held that plaintiffs, who are not parties to either the 1973 Ground Lease or to the Third Amendment of that Lease, lack standing to challenge the legality of that amendment."])

The LDA sued upon in Mendel contained explicit language negating an intent to permit enforcement by third parties, which language is not present here. (Mendel, supra ) However, to argue that a right of enforcement by third-parties may be read into a contract in the absence of an explicit prohibition against such a right ignores logic and 90 years of New York jurisprudence. (See, Fourth Ocean Putnam Corp v Interstate Wrecking Co, 66 NY2d 38 [1985]["The Court must look to the language of the contract to determine whether it evidences an intent to permit enforcement by the third party."]; Burns Jackson Miller Summit & Spitzer v Lindner, 59 NYS2d [*5]314[1983]); Strauss v. Belle Realty Company and Consolidated Edison Company of New York, 65 NY2d 399 [1985] ["While the absence of privity does not foreclose recognition of a duty, it is still the responsibility of courts, in fixing the orbit of duty, to limit the legal consequences of wrongs to a controllable degree and to protect against crushing exposure to liability."]

In light of the above, Court Plaza's cross-motion to dismiss the claims of plaintiffs relying upon third-party beneficiary status is granted and plaintiffs' requests for injunctive relief are denied as moot.

The Tenants' Association's cross-motion to dismiss is likewise granted. Both Not-for-Profit Corporation Law §720-a and CPLR § 3211 (a)(11) provide qualified immunity to members of volunteer, not-for-profit organizations from liability absent a showing of gross negligence. Plaintiffs have asserted a cause of action against the Tenants' Association for "Negligence, Breach of Contract, Misrepresentation, Etc." They have failed to plead a cause of action for "gross negligence." Nor is there a reasonable probability, based upon this record, that plaintiffs could prove gross negligence or intentional harm. (Well v Rambam, 300 AD2d 580 [2d Dept 2002])

Gross negligence is the commission or omission of an act or duty owing by one person to a second party which discloses a failure to exercise slight diligence. In other words, the act or omission must be of an aggravated character as distinguished from the failure to exercise ordinary care. (Weld v Postal Tel Cable Co, 210 NY 59 [1913]

We turn now to the remaining claims. It is undisputed, and Court Plaza has readily admitted, that every incumbent tenant in good standing on May 24, 2007 was entitled to participate in the benefits of the Agreement:

As far as the Housing Company [Court Plaza] was concerned, all an incumbent tenant need do was sign the Settlement Stipulation. (Affirmation in Opposition, submitted by Court Plaza, 11/20/08)

It is further undisputed that plaintiffs Alma Bellgrave, Sara Kuraeva, Jaffa Haimoff, Naovi Naffees, Manoucher Namdar, Tatyana Plastunenko, Linda Santiago, Teresa Pawlowska, Inesa Dzivinsky, Ilyaev Moshe, Imran U. Chaudhary and Gjenc & Vahide Hysenbegasi were incumbent tenants in good standing on May 24, 2007. While they failed, for whatever reasons, to sign the Agreement within the set time period, their entitlement to do so is undisputed. This Court finds Court Plaza's refusal to acknowledge the entitlement of qualified tenants based upon a ministerial omission is an unwarranted exaltation of form over substance.

CPLR § 2001 permits the Court to correct or to disregard any "mistake, omission, defect or irregularity ... upon such terms as may be just." David Siegel comments that this section

should be treated as part of the liberal construction edict. It puts procedure into perspective by reminding bench and bar that procedure is a means, not an end. ... As long as the mistake does not affect jurisdiction, it qualifies as an irregularity, at worse. [Siegel, New York Practice, 4th Ed, § 6] [*6]

This Court finds that its order dated June 21, 2007, omitting the signatures of certain qualified tenants, contains a mistake and, in the interest of justice, that mistake should be corrected. Those plaintiffs who were tenants on May 24, 2007 and eligible to sign the Agreement should be given the opportunity to sign it. Court Plaza will suffer no prejudice from this correction, since it had notice of these tenants at the time the Agreement was entered. On the contrary, the omission of these otherwise qualified tenants created an unexpected windfall for Court Plaza.

Nor can these tenants be deemed to have ratified the Agreement by making no formal objection for several months. (Clark v Bristol Myers Squibb and Co, 306 AD2d 82 [1st Dept 2003]) It appears the tenants had no notice of their non-inclusion until they received lease renewals with substantial rent increases. In the event that Court Plaza believes the absence of notice to these tenants resulted from negligence by the Tenants' Association and/or the law firm, and Court Plaza changed its position to its detriment in reliance upon the tenants' non-inclusion, it may pursue its remedies against the Tenants' Association and/or the law firm.

This relief is not, of course, available to the four tenants who executed leases after May 24, 2007. These tenants have made a separate claim for fraudulent misrepresentation which Court Plaza moves to dismiss.

On a motion to dismiss for failure to state a cause of action, the factual allegations of the complaint are deemed true and the affidavits submitted on the motion are considered only for the limited purpose of determining whether the plaintiff has stated a claim, not whether plaintiff has one. (Wall Street Associates v Brodsky, 257 AD2d 526 [1st Dept 1999]). It is well-settled that a pleading shall be liberally construed and will not be dismissed for insufficiency merely because it is inartistically drawn. (Foley v D'Agostino, 21 AD2d 60 [1st Dept 1964]) The relevant inquiry is whether the requisite allegations of any valid cause of action cognizable by the state courts can be fairly gathered from the four corners of the complaint. (Id) "Defects shall be ignored if a substantial right of a party is not prejudiced." (Foley at 65)

The complaint alleges, and plaintiffs, Myra Kofin, Jennifer Kofin, and Jacqueline Hincapie Camacho, submit affidavits in support, that, although the Agreement had already been executed, they were not advised that Court Plaza was withdrawing from the Mitchell-Lama Program. Although the Agreement specified the exact opposite, they were advised, by a Court Plaza employee, that they were "Mitchell-Lama Tenants" whose rental increases would be limited.

A cause of action for fraud may be maintained where a plaintiff pleads the breach of a duty separate from, or in addition to, a breach of contract. (First Bank of Ams v Motor Car Funding, 257 AD2d 287 [1st Dept 1999]) A misrepresentation of present facts is collateral to the contract and therefore involves a separate breach of duty. It is neither duplicative of a breach of contract claim nor barred by the general merger clause contained in the contract. (Deerfield Communications Corp v Chesebrough-Ponds, Inc, 68 NY2d 954 [1986]

This Court finds that plaintiffs have pled an action for fraudulent misrepresentation sufficient to defeat dismissal of their claims as a matter of law. Questions exist as to the circumstances under which these plaintiffs entered into their leases, including, of course, the [*7]reasonableness of their reliance on the representations of Court Plaza's employee , the availability of accurate information regarding Court Plaza's status and the representations made, if any, to Matt Enayatian.

We have considered the other arguments raised by the parties and find them to be without merit.Accordingly, it is

ORDERED, that plaintiffs' motion for injunctive relief in Action 1, is denied; and it is further

ORDERED, that plaintiffs' motion for injunctive relief in Action 2, is denied; and it is further

ORDERED, that Court Plaza's cross-motion to dismiss, in Action 1, is granted in part and denied in part; and it is further

ORDERED, that Court Plaza's cross-motion to dismiss, in Action 2, is granted in part and denied in part; and it is further

ORDERED, that the Tenants' Association's cross-motion to dismiss, in Action 2, is granted.

Settle Order.

This reflects the decision and order of this Court.