17 Vista Fee Associates v. Teachers Ins. and Annuity Ass'n of America
| Decision Date | 15 July 1999 |
| Citation | 693 N.Y.S.2d 554,259 A.D.2d 75 |
| Parties | 17 VISTA FEE ASSOCIATES, et al., Plaintiffs, v. TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA, Defendant. 17 Vista Fee Associates, et al., Third-Party Plaintiffs-Appellants-Respondents, v. Jaros Baum & Bolles, Third-Party Defendant-Respondent-Appellant. |
| Court | New York Supreme Court — Appellate Division |
Constance M. Boland, of counsel (Frank H. Penski and Elizabeth E. DiMichele, on the brief, Nixon, Hargrave, Devans & Doyle LLP, attorneys) for third-party plaintiffs-appellants-respondents.
Stephen A. Postelnek, of counsel (Hilary K. Dobies, on the brief, Wilson, Elser, Moskowitz, Edelman & Dicker LLP, attorneys) for third-party defendant-respondent-appellant.
PETER TOM, J.P., ANGELA M. MAZZARELLI, RICHARD T. ANDRIAS and DAVID B. SAXE, JJ.
The issue to be decided on this appeal is whether the seller of a building may seek indemnification from a mechanical engineer because the engineer's negligent design of a smoke purge system resulted in the seller having to pay the building's new owner for those defects. We conclude that the seller is entitled to indemnification from the engineer because the seller itself was compelled to discharge a duty that it had delegated fully to, and that should have been discharged by, the engineer, whose negligence was the actual cause of the loss. We also find that the seller has viable causes of action against the engineer for professional malpractice and breach of contract.
In the mid-1980's, plaintiffs/third-party plaintiffs 17 Vista Fee Associates and 17 Vista Associates ("17 Vista") entered into a sale agreement with defendant Teachers Insurance and Annuity Association of America ("TIAA") for 17 Vista to construct an office building at 17 State Street in Manhattan, and to sell it to TIAA after its completion. Third-party defendant Jaros Baum & Bolles ("JB&B"), a mechanical engineer, was retained by 17 Vista to design certain engineering systems for the building, including a smoke purge system.
The sale agreement required 17 Vista to make various improvements at a local subway station ("subway obligation"), to construct an exhibit space at the building ("exhibit obligation") and to design systems in the building itself, including the smoke purge system ("building obligation"), before a certificate of occupancy for the building could be obtained. Although not fully completed, the building was sold to TIAA in 1990 and it received a temporary certificate of occupancy. By 1992, construction was completed and the subway and exhibit obligations had been fulfilled, but a permanent certificate of occupancy had not been received by TIAA because the smoke purge system had not passed Fire Department inspection. Although no longer the building's owner, 17 Vista continued to work with JB&B into 1992 to repair the smoke purge system. Eventually, it ceased these efforts. It was not until 1995, when a second fan was installed, that the smoke purge system passed inspection and a permanent certificate of occupancy was issued.
After TIAA refused to pay certain funds allegedly due under the sale agreement, 17 Vista commenced the main action against TIAA for monies owed, and for a declaration that it had discharged all of its obligations under the sale agreement. TIAA answered, and asserted counterclaims against 17 Vista for breaches of its obligations under the sale agreement and a related indemnity agreement. TIAA sought damages of approximately $452,000 for breaches relating to the smoke purge system, and a $17,500 claim for attorneys' fees allegedly owed by 17 Vista.
Subsequently, 17 Vista commenced this third-party action against JB&B, asserting causes of action in contribution, indemnification and negligence. Under these separate theories of recovery, 17 Vista sought reimbursement for any amount it would be required to pay TIAA as a result of JB&B's failure to properly design the smoke purge system, plus attorneys' fees. The third-party action was severed, and the main action scheduled for trial. However, on the eve of trial, 17 Vista and TIAA entered into a settlement which required 17 Vista to pay an undisclosed sum to TIAA.
In September 1997, JB&B moved for summary judgment to dismiss the third-party complaint. 17 Vista withdrew its contribution cause of action, and cross-moved for leave to amend the third-party complaint to add causes of action for breach of contract and implied contractual indemnity. The IAS court granted JB&B's motion for summary judgment, finding that no viable claim for indemnity existed because 1) JB&B did not contribute to 17 Vista's failure to meet its own obligations to TIAA under the various agreements; 2) there was no assertion of a legal duty independent of the contractual obligation so as to implicate an indemnity claim; 3) there was no basis for a contractual indemnity claim; and 4) 17 Vista was itself a "wrongdoer" who could not benefit from the doctrine of indemnity. Regarding the negligence claim, the court found it time-barred because 17 Vista had failed to bring suit within 3 years of the sale of the building in 1990, and further determined that "[e]conomic loss in a breach of contract does not constitute 'injury to property' within CPLR 1401." The court denied the cross motion to amend the third-party complaint summarily.
17 Vista moved for reargument, asserting that JB&B breached a duty directly owed to TIAA, and that, therefore, 17 Vista's liability was only vicarious. The IAS court adhered to its earlier determination dismissing the indemnity claim. It ruled that since 17 Vista was seeking indemnity for sums paid in settlement to TIAA, and some of that settlement money related to obligations other than the smoke purge system (i.e., the subway obligation, etc.), 17 Vista was improperly seeking partial indemnification. Additionally, while the court did not alter its dismissal of the negligence cause of action, it did modify its holding to the extent of permitting an amendment to add a breach of contract cause of action.
17 Vista appeals the dismissal of their indemnity and negligence claims, and the denial in the December 18, 1997 order of their motion to amend the third-party complaint. JB&B cross-appeals from that portion of the July 15, 1998 order which granted leave to amend to include a breach of contract claim. As we conclude that the IAS courts' holdings relating to the indemnity and negligence causes of action were in error, we reinstate those causes of action. We affirm the grant of leave to amend to add a breach of contract cause of action.
The principle of common-law, or implied indemnification, permits one who has been compelled to pay for the wrong of another to recover from the wrongdoer the damages it paid to the injured party (D'Ambrosio v. City of New York, 55 N.Y.2d 454, 460, 450 N.Y.S.2d 149, 435 N.E.2d 366; McDermott v. City of New York, 50 N.Y.2d 211, 217, 428 N.Y.S.2d 643, 406 N.E.2d 460["[a] person who, in whole or in part, has discharged a duty which is owed by him but which as between himself and another should have been discharged by the other is entitled to indemnity", quoting Restatement, Restitution, § 76] ). In the classic case, implied indemnity permits one held vicariously liable solely on account of the negligence of another to shift the entire burden of the loss to the actual wrongdoer (Mas v. Two Bridges Assocs., 75 N.Y.2d 680, 690, 555 N.Y.S.2d 669, 554 N.E.2d 1257; Guzman v. Haven Plaza Hous. Dev. Fund Co., 69 N.Y.2d 559, 567-568, 516 N.Y.S.2d 451, 509 N.E.2d 51; Trustees of Columbia Univ. v. Mitchell/Giurgola Assocs., 109 A.D.2d 449, 492 N.Y.S.2d 371).
Implied indemnification has permitted a vicariously liable building owner and contractor to shift all liability to a subcontractor whose negligence actually caused the loss (see, Rogers v. Dorchester Assocs., 32 N.Y.2d 553, 566, 347 N.Y.S.2d 22, 300 N.E.2d 403). However, "a party who has itself actually participated to some degree in the wrongdoing cannot receive the benefit of the doctrine [of indemnification]" (see, Trustees of Columbia Univ. v. Mitchell/Giurgola Assocs., supra, at 453, 492 N.Y.S.2d 371). Thus, to be entitled to indemnification, the owner or contractor seeking indemnity must have delegated exclusive responsibility for the duties giving rise to the loss to the party from whom indemnification is sought (see, Rogers v. Dorchester Assocs., supra; cf., Guzman v. Haven Plaza Hous. Dev. Fund Co., supra ).
Here, the IAS court improperly dismissed the indemnity claim. Although 17 Vista was required to fulfill all of the certificate of occupancy obligations as part of its agreement with TIAA, it is undisputed that 17 Vista delegated full responsibility for the design of the smoke purge system to JB&B. Indeed, the record shows that JB&B had exclusive responsibility for the smoke purge system, and 17 Vista was liable to TIAA for breach of this particular obligation solely due to JB&B's negligent performance of its duty (see, City of New York v. Kalikow Realty Co., 71 N.Y.2d 957, 959, 529 N.Y.S.2d 62, 524 N.E.2d 416; Rogers v. Dorchester Assocs., supra; Menorah Nursing Home v. Zukov, 153 A.D.2d 13, 548 N.Y.S.2d 702; cf., Board of Educ. v. Sargent, Webster, Crenshaw & Folley, 71 N.Y.2d 21, 523 N.Y.S.2d 475, 517 N.E.2d 1360, appeal after remand 146 A.D.2d 190, 539 N.Y.S.2d 814, lv. denied 75 N.Y.2d 702, 551 N.Y.S.2d 906, 551 N.E.2d 107; Dormitory Auth. v. Scott, 160 A.D.2d 179, 181, 553 N.Y.S.2d 149, lv. denied 76 N.Y.2d 706, 560 N.Y.S.2d 988, 561 N.E.2d 888). Thus, since 17 Vista's liability relating to the smoke purge system was, in essence, derivative, 17 Vista's indemnity claim is viable (Rogers v. Dorchester Assocs., supra ).
That TIAA's underlying counterclaims sounded in breach of contract, rather than tort, does not defeat the indemnity claim. The result would be different if 17 Vista were seeking contribution rather than indemnification. In Board of...
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17 VISTA FEE v. Teachers Ins.
...259 A.D.2d 75693 N.Y.S.2d 55417 VISTA FEE ASSOCIATES et al., Plaintiffs,v.TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF ... with defendant Teachers Insurance and Annuity Association of America (TIAA) for 17 Vista to construct an office building at 17 State Street in ... ...