Barnett v. Schwartz

• Decision Date: 11 December 2007
• Docket Number: No. 2005-05152,2005-05152
• Citation: 848 N.Y.S.2d 663,47 A.D.3d 197,2007 NY Slip Op 9711
• Parties: TED BARNETT et al., Respondents-Appellants, v. JEFFREY L. SCHWARTZ et al., Appellants-Respondents.
• Court: New York Supreme Court — Appellate Division

47 A.D.3d 197

848 N.Y.S.2d 663

2007 NY Slip Op 9711

TED BARNETT et al., Respondents-Appellants, v. JEFFREY L. SCHWARTZ et al., Appellants-Respondents.

No. 2005-05152

Appellate Division of the Supreme Court of the State of New York, Second Department.

December 11, 2007.

Kaufman Borgeest & Ryan LLP, New York City (A. Michael Furman and Jeffrey W. Kleiner of counsel), for respondents.

Finder and Cuomo, LLP, New York City (Sherri A. Jayson of counsel), for respondents-appellants.

OPINION OF THE COURT

RITTER, J.

The issue to be decided on this appeal is whether the defendants-attorneys committed legal malpractice in their representation of the plaintiffs in the negotiation and closing of a lease and purchase option agreement concerning certain commercial property. The plaintiffs sought the property for the purpose of manufacturing barbecue sauce. Approximately two years prior to the signing of the agreement, the subject property was classified as an inactive hazardous waste disposal site. The defendants knew that there were environmental violations concerning the property that had to be dealt with and wrote to the relevant enforcement agencies asking for details. Despite the fact that those letters were never responded to, the defendants advised the plaintiffs to enter into the agreement at issue on an "as is" basis. The defendants never informed the plaintiffs of the environmental violations or the consequence of the "as is" clause of the agreement until two years later. We find the jury's determination that the plaintiffs were entitled to such information before entering into the agreement, and that the defendants committed malpractice by failing to advise the plaintiffs about the violations and the effect of the "as is" clause, was reached on a fair interpretation of the evidence.

The relevant evidence adduced at trial may be summarized as follows: in November 1992 the plaintiffs retained the defendant Jeffrey Schwartz and the defendant law firm to provide legal services in connection with a lease and purchase option agreement concerning certain commercial property in Freeport for the disclosed purpose of manufacturing barbecue sauce. In December 1992, upon the advice and counsel of the defendants, the plaintiffs entered into an "as is" lease for the property with an option to buy (hereinafter the agreement). Approximately two years earlier, in 1990, the New York State Department of Environmental Conservation (hereinafter the DEC) had classified the property a level 2A inactive hazardous waste disposal site due to the activities of a prior tenant, Ranco Wiping Cloth, Inc. (hereinafter Ranco). Ranco had collected rags from the printing industry soaked with solvent, ink, and oil, and leakage from storage barrels had collected in a storm drain on the property. The plaintiff Ted Barnett (hereinafter Barnett) testified that the plaintiffs were never advised and were otherwise unaware of the environmental condition of the property when they signed the agreement in 1992, and would not have signed the agreement had they known. Indeed, he asserted, the plaintiffs did not learn of the status of the property as a hazardous waste site until February 1994, when informed of such by passersby. By that time, he noted, they had already invested money in the property, inter alia, for renovations. Further, he testified that, angered by the discovery, the plaintiffs sought legal advice from Schwartz, who advised them that they had no recourse as against the landlord/owner because they had signed an "as is" lease. However, Barnett asserted, Schwartz opined that the cleanup would probably take approximately six months, and advised the plaintiffs to continue paying rent and to exercise the option to purchase the property. Pursuant to the agreement, the option to purchase the property could be exercised on or before December 1, 1994. The plaintiffs stopped paying rent in late 1995. In 1996, the landlord/owner agreed to clean up the property. However, the cleanup took nearly three years and the property was not removed from the inactive hazardous waste site registry until on or about November 15, 2000. Barnett testified that the plaintiffs thereafter decided to vacate the property after Schwartz informed them that the DEC would be conducting additional periodic testing of the air quality at the property, which Barnett concluded meant that the environmental problems with the property might not have been remediated, and that the health of his workers and the future of his business might be put in jeopardy. In the period prior to vacating, the plaintiffs had additional discussions with Schwartz concerning legal action against the landlord/owner. However, Barnett asserted, Schwartz advised them that the statutes of limitation had run on various potential causes of action, and that a fraud cause of action was untenable because New York applied the doctrine of caveat emptor to real estate purchases and there had been no affirmative misrepresentations by the landlord/ owner. The plaintiffs also entered into evidence two letters written by Schwartz, both dated November 30, 1992, sent to the Nassau County Department of Health and the "Underground Ejection Control Section, US Environmental Protection Agency," respectively, seeking any information on file concerning the property. The letters noted that former occupants of the property included, among others, the "Renco Wiping Clothe Company [sic]," and that the "Building Department in Freeport advised the purchasers that there may have been a problem with a well on the premises." The letters never got a response. Barnett denied that the plaintiffs had seen the letters or been made aware of their contents until they commenced this action in 2002. The plaintiffs also presented the testimony of a legal expert who opined, inter alia, that the defendants' failure to have followed through on their own inquiries, which would have revealed the environmental condition of the property, was not in accord with good and accepted legal practice. The plaintiffs also presented the testimony of their daughter, Joell Barnett, an attorney. The plaintiffs' daughter testified that she attended a meeting between Schwartz and her parents in 1996, at which Schwartz admitted that he had not undertaken adequate environmental inquiries and that he had made "a mistake."

Schwartz testified that the landlord/owner's attorney had informed him in 1992 that a previous tenant of the property was a rag cleaning business, and that he had informed the plaintiffs of that fact. Further, he asserted, he had discussed with the plaintiffs the letters and the option of having an environmental analysis of the property performed, and the plaintiffs had decided against an environmental analysis due to the cost. Indeed, he testified, the plaintiffs signed the agreement prior to receiving responses to the letters because both they and the landlord/owner were anxious to complete the transaction. Schwartz asserted that he discussed every term of the agreement with the plaintiffs, including the "as is" clause. Further, he testified, he tried to insert an indemnification clause in the agreement regarding prior uses of the property, but the attorney for the landlord/owner refused. Consequently, he asserted, he explained to the plaintiffs that there was no way of knowing whether there were environmental problems with the property, and that the landlord/owner would not indemnify them if there were. Schwartz testified that the plaintiffs remained interested in purchasing the property even after learning of its environmental status and, consequently, he continued to seek information on the property, to discuss options with the plaintiffs, and to negotiate with the landlord/owner. Concerning his comments to the plaintiffs' daughter, Schwartz asserted that no matter how many times he explained the lack of legal options against the landlord/owner, the plaintiffs and their daughter continued to question why they couldn't sue. Schwartz admitted that he stated, "What do you want me to say? That a mistake was made? ... Okay, we made a mistake." However, he asserted, what he meant was that, in retrospect, the plaintiffs made a mistake signing the agreement with an "as is" clause. The defendants also presented the testimony of an expert in environmental geology who opined, inter alia, that before 1993 there were no specific standards in place to conduct environmental investigations of property, and the ability to do so was hindered by the lack of computer databases to search for records. Further, the defendants presented the testimony of a legal expert who opined, among other things, that Schwartz did not breach a duty of care to the plaintiffs by allowing them to enter into the "as is" agreement for the property without performing a so-called "phase one" environmental assessment because the agreement, in the main, was a lease, not a purchase, and because such assessments were not performed in 1992.

The jury found in favor of the plaintiffs and awarded damages. We modify only to award the plaintiffs prejudgment interest.

On appeal, the defendants argue, inter alia, that the verdict should be set aside as against the weight of the evidence. The defendants assert, among other things, that they were not negligent in advising the plaintiffs concerning the agreement because there were no definitive standards for environmental assessments in 1992. Indeed, they argue, the plaintiffs found the property and negotiated the terms of the agreement prior to retaining them, and signed the agreement with the "as is" clause. In any event, the defendants assert, even if they were negligent, there was no causal nexus to the plaintiffs' damages because the plaintiffs made the "independent business decision to await the environmental clean-up of the [property] and to renegotiate and extend the agreement". Indeed, the defendants argue, after the cleanup was...