Pat Torpey
and STEVE DELCORSO, Plaintiff-, Respondents,
against
TJ Realty of Orange County Inc., and THOMAS
LEISMAN, Defendants.
|
2850/2013
LEVINSON, REINEKE & ORNSTEIN, P.C.
Attorneys for
Defendants
P.O. Box 244
Central Valley, New York 10917
OSTRER & ASSOCIATES, P.C.
Attorneys for Plaintiffs
111 Main Street
P.O. Box 509
Chester, New York 10918
John P. Colangelo, J.
The following papers were read on the Defendants' motion for summary judgment
and Plaintiffs' cross-motion to strike Defendants' answer or alternatively, for an order of
preclusion or conditional preclusion subject to Defendants' compliance with
court-ordered discovery:
Notice of Motion, Affidavit, Affirmation-Exhibits A-F . . . . . . . . . . . . . . . . . . . .
.1-18
Notice of Cross-Motion, Affirmation, Affidavit, Exhibits A-H,
Memorandum of Law in Support of Cross-Motion . . . . . . . . . . . . . . . . . . . . . . .
19-46
Affidavit, Affirmation in Support of Motion for Summary Judgment . . . . . . . . . . .
47-56
Plaintiffs' Reply Memorandum of Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57-61
[*2]Factual and Procedural
Background
The above-captioned action was commenced by plaintiffs/tenants Pat Torpey and
Steve Delcorso ("Plaintiffs" or "Tenants") against Defendants TJ Realty of Orange
County, Inc. ("TJ Realty") and its President, defendant Thomas Leisman ( "Leishman", as
used by Defendant) (collectively "Defendants" or the "Landlord") by summons and
complaint filed on April 4, 2013. The complaint sets forth five causes of action:
Fraudulent Inducement, Unjust Enrichment, Reformation, Rescission, and Violation of
General Business Law §349.
The action arises from a lease entered into between Plaintiffs and Defendants in
March 2012 (the "Lease") for a restaurant and bar located in Highland Mills, New York
that had been operated by Defendants for several years as the Savory Grill Restaurant.
(The "Premises") (See Lease, Exhibit D to Defts. Motion). The effective date of the
Lease was April 1, 2012; the Lease is for a five year term, with two five-year renewal
options as well as a purchase option. According to the terms of the Lease, Plaintiffs are
obligated to pay an annual minimum rent of $60,000.00 (Lease ¶ 2), and are
permitted to make reasonable alterations of and additions to the Premises as long as such
alterations or additions did not change the general character or reduce the fair market
value of the Premises. Plaintiffs are required to obtain the written consent of the
Defendants as well as meet other conditions if the estimated cost of such alterations or
additions exceeds $10,000.00.(Lease ¶ 7). Plaintiffs' intended use of the Premises
was expressly stated as follows: "Lessee covenants that the Demised Premises shall be
used solely for A RESTAURANT WITH ON PREMISE LIQUOR LICENSE
and for no other purpose, unless approved in writing by Lessor." (Id. ¶ 4;
emphasis in original).
The fulcum of this action is Plaintiffs' claim that they were fraudulently induced to
enter into the Lease by virtue of Defendants alleged knowing and deliberate concealment
of certain claimed New York State Liquor Authority ("SLA") violations that had been
issued against Defendants during Defendants' operation of the Premises (See Complaint,
� � 34-38). The SLA mailed a written notice dated August 10, 2012 to Leishman
concerning pending cancellation/revocation proceedings based upon violations that
allegedly occurred on or before November 3, 2011. (See Exh. H. To Pls. Cross-Motion).
Plaintiffs maintain that Leishman knew of such charges prior to the execution of the
Lease. As a result of such SLA proceedings, a final order of cancellation of Defendants'
liquor license for the Premises was eventually issued, effective March 13, 2013. (see
Defts. Exhibit F). It is undisputed that the pendency of such revocation proceedings
against Defendants was the reason behind the denial by the SLA licensing board of
Plaintiffs' application for a Temporary Retail Liquor Permit on January 17, 2013. (See
Deft. Exhibit E).
While the instant action was pending, Defendants filed a notice of petition and
petition dated May 17, 2013 in the Town of Woodbury Justice Court (the "May 2013
Woodbury Proceeding") seeking possession of the Premises, a judgment in the
amount of $16,500.00 and a final judgment of eviction. Defendants agreed to withdraw
the May 2013 Woodbury Proceeding and consolidate the claims therein with the
instant, previously commenced Supreme Court action. Defendants then filed an answer
to the summons and complaint herein, and interposed a counterclaim for unpaid rent, to
which Plaintiffs filed a reply. (Plaintiffs' Exhibit A).
Thereafter, on February 27, 2014 and notwithstanding the previous discontinuance
[*3]of the May 2013 Woodbury Proceeding,
Defendants again served Plaintiffs with a notice of petition and petition in the Town of
Woodbury Justice Court for non-payment of rent, termination of the lease and eviction of
Plaintiffs from the premises. (The "2014 Woodbury Proceeding"; see Exhibit J to
Plaintiffs' Exhibit A). Plaintiffs promptly moved in this Court by Order to Show Cause to
remove the 2014 Woodbury Proceeding to this Court and to consolidate it with
this action. The Court granted Plaintiffs' motion by Order dated May 12, 2014 (the
"Order," annexed as Exh. B to Plaintiffs Cross-Motion). The Order further directed
Plaintiffs to pay Defendants $7,500.00 on or before April 8, 2014 to be credited against
any arrears alleged to be owed, and to thereafter make monthly payments of $3,000.00 to
Defendants during the pendency of this action. Plaintiffs were also directed to provide
proof of insurance for the Premises on or before May 1, 2014.
By the instant Motion, Defendants seek summary judgment dismissing the
Complaint and an order directing a trial on Defendants' counterclaims. Plaintiffs opposed
Defendants' motion and interposed a Cross-Motion pursuant to CPLR 3126 to strike
Defendants' Answer, preclusion, or in the alternative, to compel Defendants to comply
with Plaintiffs' discovery requests.
In opposing Defendants' motion, Plaintiffs rely in large part upon the affidavit of
Plaintiff Steve Delcorso submitted in March 2014 in the context of the 2014
Woodbury Proceeding and support of Plaintiffs' Order to Show Cause to remove
and consolidate (the "Delcorso Affid."), and the Affidavit of Plaintiff Pat Torpey,
submitted in January 2015 in connection with Plaintiffs' instant Opposition and
Cross-Motion. (the "Torpey Affid."). According to the Delcorso Affidavit, Plaintiffs
received a letter from the SLA dated January 17, 2013 denying their application for a
liquor license. (Delcorso Affid. �� 8-9). Plaintiffs claim that they then learned - - for the
first time - - about the Defendants' alleged SLA violations and the possibility that
Defendants' liquor license could be revoked which carried with it the potential inability
of Plaintiffs to obtain their own license for at least two years. Plaintiffs fears were
realized, but only in part; although Leishman pleaded "no contest" to the SLA charges on
January 21, 2013, his liquor license for the Premises was cancelled and not revoked (see
Exhibit F to Defts. motion); Plaintiffs were thereafter issued their own liquor license but
not until June 10, 2013 - - over one year after the Lease was signed.
Plaintiffs contend, in essence, that Defendants wrongfully failed to advise
Plaintiffs before they signed the Lease of the pending charged SLA violations from
November 2011. Plaintiffs also claim that Defendants concealed or misrepresented
material facts relating to the condition of the Premises.
The Instant Complaint.
Plaintiffs first cause of action is for fraudulent inducement. Plaintiffs allege that
Defendants, by their conduct and by omission, intentionally concealed from Plaintiffs the
issuance of potential SLA violations and the pending revocation/cancellation proceeding
against Defendants, thereby inducing Plaintiffs to enter into the Lease - - a Lease, which
by its terms, contemplated the operation of a "Restaurant With on Premises Liquor
License" privileges. Plaintiffs also allege that Defendants' failure to disclose the true,
tawdry condition of the Premises also wrongfully induced them to enter into the Lease
and ultimately required them to make unanticipated and extensive improvements. By
their second cause of action, Plaintiffs [*4]allege that
Defendants have been unjustly enriched by Defendants' fraudulent conduct. The third
and fourth causes of action seek relief in the form of reformation and rescission of the
Lease in the event that Plaintiffs were to prove unable to obtain a liquor license for the
Premises. Finally, for a fifth cause of action, Plaintiffs assert that Defendants engaged in
deceptive acts or practices in violation of § 349 of the General Business Law. The
relief demanded in the Complaint includes a money judgment for rent paid, lost profits,
payment for costs of repairs and improvements, abatement of rent, reformation of the
lease, recision of the lease and/or restoration of the status quo which existed prior
to execution of the lease.
Defendants' Motion
By their motion, Defendants seek to dismiss the Complaint and demand a trial on
their counterclaims for unpaid rent and eviction of Plaintiffs from the Premises. In
support of their motion, Defendants submit the affidavit of Thomas Leishman, a named
co-Defendant and President and 50% stockholder of TJ Realty. (Affid. of Thomas
Leishman In Support of Defendants' Summary Motion to Dismiss the Complaint, sworn
to on November 25, 2014 (the "Leishman Affid.").
In his Affidavit, Leishman denies that Plaintiffs were expressly told that no SLA
violations were pending, and correctly points out that the Lease is silent as to whether
any SLA violations were extant. Leishman disdainfully added that P]laintiffs' "failure to
look into my violation history, which I even told them about, or to determine a
reasonable time frame for obtaining the license was just another example of their
incompetence." (See Leishman Affid. � 10; emphasis added). Leishman contends that he
was contacted by the SLA and issued the initial violation - - his "first violation in
approximately fifteen years in business" - - "[j]ust prior to signing the Lease," and further
states that he contested the violations and "immediately advised Plaintiffs of the
circumstances" (Id. ¶6). It should be noted, however, that whether
Leishman advised Plaintiff of the cited SLA violations before or after the Lease was
signed remains unclear. Leishman goes on to maintain that as soon as he "became aware
of the problem the alleged violations on the license caused," he pled "no contest" to the
violations and accepted the lesser penalty of license cancellation. Plaintiffs "were then
able to obtain a license a few months later." (Leishman Affid. � 12). Leishman essentially
concedes that had the license been revoked instead of cancelled, the consequences to
Plaintiffs would likely have been more dire. (Id.).
While Leishman claims that he told Plaintiffs of the charged violations, he further
contends that even if he had remained silent or had lied, Plaintiffs cannot establish the
essential element of reliance since "my liquor license violation history was readily
available to the public". (Id. � 14). Put simply, Leishman contends that Plaintiffs failed to
do their homework. Defendants argue that Plaintiffs relied upon Defendants' silence or,
at worst, misstatements at their own peril, since they could have and should have, at
minimum, conducted a "basic internet search" or placed "a simple telephone call to the
[SLA]," either of which would have revealed the Premises' violation history." (Id.
� 14).
Similarly, Leishman maintains that Plaintiffs were free to and did fully inspect the
Premises prior to the execution of the Lease and therefore had no right to rely on any
alleged misrepresentation regarding its condition (Leishman Reply Affid., sworn to Feb.
3, 2015, �� 10-11). With respect to the improvements to the Premises made by Plaintiffs,
Defendants also maintain that since the cost of such improvements exceeded $10,000.00
and were not approved [*5]by Defendants, they were
made in violation of the Lease and therefore no reimbursement to Plaintiffs is due.
According to the Leishman Affidavit, "TJ Realty never received a request for consent to
due [sic] any improvements on the property, as is required by the terms of the lease. All
of the alleged improvements were done without my knowledge and consent." (Leishman
Affid. ¶ 15).
In short, Defendants' contend that the terms of the Lease effectively eliminate all
material issues of fact and mandate judgment in their favor as matter of law. Defendants
claim that Plaintiffs should have exercised due diligence and researched the Premises'
SLA violation history, particularly in light of the disclaimer in paragraph 5 of the Lease,
Condition of Demised Premises which states that "Lessor makes no
representation or warranty, express or implied in fact or by law, as to the nature or
condition of the Demised Premises, or its fitness or availability for any particular use, or
the income from or expenses of operation of the Demised Premises." Similarly,
Defendants maintain that despite the fact that the Lease clearly requires Plaintiffs to
make all of the repairs on the Premises and Plaintiffs visited the property on at least four
occasions, they never hired an engineer or other professionals to inspect the property and
made no effort to ascertain what repairs were necessary at any time before the Lease was
signed. (Leishman Reply Affid. � 11).
In opposing Defendants' motion for summary judgment, Plaintiffs contend that
Leishman never disclosed the SLA violations pending against him and the possible
impact of such violations on the sole use of the Premises - - a restaurant with an
on-premise liquor license - - as clearly stated in the Lease. Contrary to Leishman's
assertion that he was contacted by the SLA shortly before signing the lease in March
2012, Plaintiffs refer to the SLA Notice of Pleading against him entitled "In the Matter of
Proceedings to Cancel or Revoke" [Defendants' License] (Pls. Exh. H) which reflects
that the Premises were cited by the SLA several months earlier for violations that
occured on or before November 3, 2011. (Torpey Affid. � 6-7). Thus, Plaintiffs contend
that Leishman was notified that such violations were pending four months prior to
Plaintiffs execution of the lease and during ongoing lease negotiations.
According to the Torpey Affidavit and contrary to Leishman's assertion, while
Leishman did explicitly tell Plaintiffs that he had a valid liquor license for the Premises
and showed the license to Plaintiffs, he did not mention the pending violation proceeding
at any time before the Lease was executed. (See Torpey Affid. � 4). To the contrary,
before the signing of the Lease, Plaintiffs claim that Leishman represented to them that
the restaurant was "turn key", that everything was "perfect" and ready to go, and he
hoped [Plaintiffs] could "live up to [his] reputation." (Id. � 10). However,
according to Torpey, the Premises were hardly in move-in condition. Aside from the
liquor license issue, when Plaintiffs took possession, they learned that telephone and
cable bills were delinquent which required Plaintiffs to change carriers in order to have
any telephone and television service; the electric bill was delinquent, requiring Plaintiffs
to tender a deposit on the amount of $25,000.00 to obtain electricity; there were
delinquent bills with various suppliers; (id. ¶ 11); and, the septic tank was
inoperable, requiring excavation of the sewer main to remove and replace the sewer line.
(Id. ¶12). Plaintiffs annexed to their papers a "List of Improvements to
Restaurant", which itemizes the work done which, they claim, further demonstrate that
the restaurant could not have been opened and operated on a full time basis at the time
the Lease was signed. (Id. � 15).
[*6]Legal Analysis.
CPLR §3212(b) states in pertinent part that a motion for summary judgment
"shall be granted if, upon all of papers and proof submitted, the cause of action or
defense shall be established sufficiently to warrant the court as a matter of law in
directing judgment in favor of any party."
In Andre v Pomeroy, 35 NY2d 361, 364 (1974), the Court of Appeals held
that:
"Summary judgment is designed to expedite all civil cases by eliminating from the
Trial Calendar claims which can properly be resolved as a matter of law . . . [W]hen there
is no genuine issue to be resolved at trial, the case should be summarily decided, and an
unfounded reluctance to employ the remedy will only serve to swell the Trial Calendar
and thus deny to other litigants the right to have their claims promptly adjudicated."
The law is clear that "[t]he proponent of a summary judgment motion must make a
prima facie showing of entitlement to judgment as a matter of law, tendering
sufficient evidence to eliminate any material issues of fact from the case." Winegrad v
New York University Medical Center, 64 NY2d 851, 853 (1985); Ayotte v
Gervasio, 81 NY2d 1062, 1063 (1993); S.J. Capelin Associates, Inc. v. Globe
Manufacturing Corp., 34 NY2d 338, 341 (1974). Finkelstein v. Cornell
University Medical College, 269 AD2d 114, 117 (1st Dept. 2000). Once the moving
party has sustained his burden of making a prima facie showing of entitlement to
summary judgment, the burden shifts to the opposing party to "produce evidentiary proof
in admissible form" sufficient to establish the existence of material issues of fact which
require a trial of the action. Zuckerman v. City of New York, 49 NY2d 557, 562
(1980). Failure of the proponent of a motion for summary judgment to make a prima
facie showing of entitlement requires denial of the motion, regardless of the
sufficiency of the opposing papers. Winegrad v New York University Medical
Center, 64 NY2d 851, 853 (1985).
In this case, Defendants have made a prima facie showing of entitlement to
summary judgment on the first and second causes of action set forth in the complaint.
However, Plaintiffs have produced evidentiary proof in admissible form sufficient to
establish the existence of material issues of fact which require a trial on those causes of
action. The Affidavits of Torpey and Delcorso raise material issues of fact as to whether
and to what extent Defendants misrepresented or concealed essential and material facts
regarding SLA cancellation/proceedings that potentially placed in jeopardy Plaintiffs'
ability to obtain a liquor license, as well as delinquency of bills and code violations
which necessitated extensive expenditures, all of which were allegedly relied upon by
Plaintiffs to their detriment. Where a complaint states a case of action for fraud, the
parole evidence rule is not a bar to showing the fraud, either in the inducement or
execution, despite a statement in the writing that no representations have been made.
O'Keefe v. Hicks, 74 AD2d 919 (2d Dept. 1980). By the same token, the
affidavits of Plaintiffs raise material issues of fact as to whether Defendants have been
unjustly enriched as a result of their misrepresentations or concealment of essential facts,
and whether Plaintiffs are entitled to damages.
Accordingly, Defendants' motion for summary judgment is denied with respect to
the causes of action for fraudulent inducement and unjust enrichment. However,
Plaintiffs [*7]remaining causes of action - - for
rescission, reformation and violations of GBL § 349 - - cannot pass muster.As far as
Plaintiffs' reformation and rescission claims are concerned, since Plaintiffs have now
obtained a liquor license, the causes of action for reformation and rescission - - which are
predicated upon a potential failure to do so because of Defendants' conduct (Complaint, �
� 45-54) - - now appear to be moot. In addition, by remaining in the Premises, Plaintiff
essentially affirmed the Lease and thereby undermined any potential rescission or
reformation claim. Where, as here, a tenant claims that it was fraudulently induced to
enter into a lease, the law is clear that such tenant then has a decision to make: the tenant
may elect to affirm the lease, remain in the premises while adhering to its terms and seek
damages caused by the alleged fraud; or the tenant may elect to vacate the premises and
seek rescission of the lease and damages. As a leading treatise, Rasch's Landlord and
Tenant, Vol. 1 (4th Ed. 1998), pp. 115-116 states:
"A tenant who has been induced to enter into a lease by fraudulent
misrepresentations has a choice of remedies. He may disaffirm or rescind the lease. Upon
rescission, he ceases to be obligated to pay any rent accruing after the rescission. He also
may recover such moneys as he may have paid under the lease, such as deposit monies,
rents, and the like, as a consequence of the fraudulent acts of the landlord, as moneys had
and received. But a tenant cannot rescind the lease upon the ground of fraud, where
he fails to promptly surrender possession of the property upon the discovery of the fraud,
If he continues the use and occupancy of the premises received under the lease, he will
be deemed to have elected to affirm the lease. His remedy thereafter, if, any, is to recover
damages suffered as a result of the fraud." (Emphasis added). See, e.g.,
Stayton Realty Corp. v. Rhodes, 200 A.D.108 (1st Dept.); aff'd, 234 NY
515 (1922); Cochran v. Scherer, 117 Misc. 765, 771 (Mun. Ct., NYC 1922). (The
Court granted summary judgment to plaintiff landlord and dismissed tenant's defense of
fraud since "defendant is still in possession of the premises. If he desired to claim fraud
and for that reason repudiate or rescind the lease, he should have promptly on the
discovery of the fraud surrendered possession of the property. This, however, the
defendant failed to do but continued in physical possession of the premises long after the
alleged fraud was discovered."); McKeever v. Aronow, 194 N.Y.S. 475 (Appel.
Term, 1st Dept. 1922) ("A party, while he may retain possession and obtain his damages
for fraud, cannot rescind while retaining the fruits of the contract."); Gould v. Cayuga
County National Burke, 86 NY 75, 82 (1881).
Put simply, Plaintiffs Tenants herein cannot have it both ways. In the instant case,
as in Cochran, and as stated in Rasch, since Plaintiffs remain in
possession, they have elected to affirm the lease and seek damages. Since they are
enjoying the benefit of remaining in the Premises - - deficient as they may allegedly be - -
and operating their restaurant, they must bear the burden of complying with the Lease
while suing for compensatory damages. Accordingly, during the pendency of this action,
Plaintiffs are required to abide by the Lease's terms, including their obligation to pay to
Defendants the monthly rent due under the Lease - - here, $5,000.00 per month. Payment
in that amount is to be made by Plaintiffs to Defendants on a monthly basis beginning on
June 15, 2015 and continuing thereafter until further order of the Court. Such payments
are in lieu of the $3,000 per month payment which the Court directed Plaintiffs to pay in
its March 2014 Order, and such Order is revised accordingly.
Finally, Plaintiffs' fifth cause of action based upon § 349 of the General
Business Law is [*8]also meritless. General Law
Business Law Section 349 - - essentially a consumer protection statute - - is inapposite in
situations, such as the instant case, which involve an isolated commercial transaction
between two parties operating at arms length. As the Federal District Court held in
denying a commercial defendant's attempt to invoke BGL § 349 in Wells Fargo
Bank Northwest, N.A. v. Taca International Airlines, S.A., 247 F. Supp.2d 352, 371
(S.D.NY 2002):
"Defendants final counterclaim maintains that Wells Fargo and C-S Aviation
violated New York's consumer protection law, NY Gen. Bus. Law § 349
(a), which prohibits "deceptive acts or practices in the conduct of any business, trade
or commerce or in the furnishing of any service in this state," and which does not require
reasonable reliance.
****
To establish a claim under NY Gen. Bus. Law § 349 (a), a plaintiff must,
at a minimum plead and prove that the conduct at issue is consumer-oriented.
Oswego Laborers' Local 214 v. Marine Midland Bank, 85 NY2d, 20, 25, 623
N.Y.S.2d 529, 647 N.E.2d 741 (1995) . . . In other words, the typical violation
contemplated by the statute involves an individual consumer who is misled by a seller of
consumer goods, usually by way of false and misleading advertising. The statute s
concern with individual consumers is further evidenced by the remedies the statute
provides, the derivation of the statute, and the case law, which demonstrates that
successful plaintiffs are uniformerly those that bring claims involving recurring
transactions where the amount in controversy is small and holds that business
competitors have standing to rely on the statute only if they can prove that there has been
harm to the public at large. Securitron Magnalock v. Schnablock, 65 F.3d 256, 264
(2d Cir. 1995).
Defendants' claims cannot meet this standard. The transaction described in the instant
claims is between two business, for a limited number of specifically-negotiated
transactions for substantial amounts of money." (Emphasis added). See also, e.g.,
Oswego Laborers' Local 214 v. Marine Midland Bank, 85 NY2d 20, 25
(1995).
As in Wells Fargo, the instant case involves an isolated business transaction, not
repetitive consumer sales. Accordingly, GBL § 349 does not apply as a matter of
law and Plaintiff fifth cause of action must be dismissed.
Plaintiffs' Cross-Motion
As far as Plaintiffs' cross-motion is concerned, this Court issued a disclosure order at the
compliance conference held on January 12, 2015. (see Exhibit E). According to the
Moving Affirmation submitted by the attorney for Plaintiffs, David L. Darwin,
"discovery demands were served upon Defendants on July 17, 2014 in compliance with
the discovery order, together with a cover letter containing [P]laintiffs' disclosure of
statements, witnesses and photographs." (Id. ¶ 7). Defendants have neither
requested an extension of time to respond to Plaintiffs demands nor objected to any of
the demands. (Id. ¶ 10). Accordingly, Plaintiffs' cross-motion is granted to
the extent that Defendants are ordered to respond to Plaintiff's disclosure requests within
45 days of [*9]the date of this decision. Should
Defendants fail to do so, the Court will impose the appropriate relief under CPLR 3126
which may include striking Defendants' Answer or precluding Defendants from
presenting evidence on any matter to which they fail to respond. For the same reasons,
Defendants Motion for an immediate trial with respect to its counterclaims is denied
without prejudice, and may be renewed by Defendants following completion of
discovery.
Any issue not specifically addressed herein is denied. The parties are directed to appear
on June 23, 2015 at 9:30 A.M. for a scheduling conference.
The foregoing constitutes the decision and order of this Court.
Goshen, New York
______________________________
HON. JOHN P.
COLANGELO, J.S.C.