Bd. of Managers of 150 E. 72ND St. Condo. v. Vitruvius Estates LLC
| Citation | 2018 NY Slip Op 31213 (U) |
| Decision Date | 15 June 2018 |
| Docket Number | Index No. 160831/2016 |
| Parties | THE BOARD OF MANAGERS OF 150 EAST 72ND STREET CONDOMINIUM, Plaintiffs v. VITRUVIUS ESTATES LLC and HARRY MACKLOWE, Defendants. |
| Court | New York Supreme Court |
Plaintiff Board of Managers of 150 East 72nd Street Condominium commenced this action to recover damages against defendants arising out of, among other things, purported construction defects in its condominium building and units, and defendants' alleged failure to provide required minimum reserve fluids in accordance with the Administrative Code of the City of New (Administrative Code). Defendant Vitruvius Estates LLC is the sponsor of the condominium development (the sponsor). Defendant Harry Macklowe is the principal of the sponsor (the principal).
In Motion Sequence No. 001, the sponsor moves to dismiss the complaint insofar as asserted against it pursuant to CPLR 3211(a)(1), (a)(3), and (a)(7). In Motion Sequence No. 002, the principal moves for the same relief.
The sponsor was formed to convert a 12-story apartment building, located on 150 East 72nd Street in Manhattan, into condominium ownership. On August 27, 2012, an offering plan providing for the establishment of condominium ownership of the property was accepted for filing with the New York State Attorney General. The sponsor thereafter issued several revisions to the offering plan. On September 11, 2013, the fifth amendment to the offering plan declared the plan effective.
Plaintiff commenced this action against the sponsor and the principal asserting the following causes of action against both defendants: (1) failure to fund the condominium's reserve fund in accordance with the Administrative Code; (2) breach of contract for inadequately funding the reserve; (3) breach of contract for various construction defects; (4) negligence; (5) violation of 15 USC § 1703(a)(2); and (5) fraud and/or negligent misrepresentation. Defendants move separately to dismiss the complaint insofar as asserted against them. For the reasons that follow, the sponsor's motion (Motion Sequence No. 001) is granted in part and denied in part, and the principal's motion (Motion Sequence No. 002) is granted in its entirety.
As an initial matter, in seeking to dismiss the complaint pursuant to CPLR 3211(a)(3), both defendants contend that the complaint fails allege that plaintiff has the legal capacity to maintain this action because it does not set forth whether and/or how it was authorized to file the complaint in accordance with its governing by-laws. In response, plaintiff contends that on a motion pursuant to CPLR 3211(a)(3), the moving party has the burden of establishing that a plaintiff lacks the capacity to maintain an action.
Plaintiff further asserts that, in any event, it has the capacity to prosecute this action on behalf of the individual condominium unit owners under Real Property Law § 339-dd, pursuant to which the board of managers of a condominium may institute an action on behalf of two ormore condominium unit owners "with respect to any cause of action relating to the common elements or more than one unit." Plaintiff also annexes a copy of a certificate, dated January 3, 2017, adopting a resolution passed by it at a meeting held on November 30, 2016, at which a quorum was present, authorizing the commencement of this action (Exhibit 3 to Affirmation [of Courtney J. Lerias] in Opposition to Motion to Dismiss).
In response to plaintiff's opposition, defendants withdrew this prong of their respective motions, without prejudice to their right "to question" the January 3, 2017 "document and the underlying facts as to the purported authorization process in the course of discovery" (Reply Memorandum for Vitruvius Estates LLC, at 1, n 3; Reply Memorandum for Harry Macklowe, at 3, n3). Therefore, the issue of whether defendants are entitled to dismissal of this action pursuant to CPLR 3211(a)(3) is not before the Court on these motions.
On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction and the court must "accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83, 87-88 [1994]).
Dismissal is warranted pursuant to CPLR 3211(a)(1) "only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 [2002]; see Leon v Martinez, 84 NY2d at 88). "If the documentary proof disproves an essential allegation of the complaint, dismissal pursuant to CPLR 3211 (a) (1) is warranted even if the allegations, standing alone, could withstand a motion to dismiss for failure to state a cause of action" (Kolchins vEvolution Mkts., Inc., 128 AD3d 47, 58 [1st Dept 2015]).
"In assessing a motion under CPLR 3211 (a) (7) . . . a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint and the criterion is whether the proponent of the pleading has a cause of action, not whether he has stated one" (Leon v Martinez, 84 NY2d at 88 [internal quotations marks and citations omitted]). "[U]nless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it , . . . dismissal should not eventuate" (Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]). (Mamoon v Dot Net Inc., 135 AD3d 656, 658 [1st Dept 2016][internal quotations marks and citation omitted]).
First Cause of Action: Failure to Establish a Reserve Fund in the amount required by the Administrative Code
Section 26-703(a) of the Administrative Code states:
"Within thirty days after the closing of a conversion pursuant to an offering plan the offeror shall establish and transfer to the . . . condominium board of managers, a reserve fund to be used exclusively for making capital repairs, replacements and improvements necessary for the health and safety of the residents of such buildings."
Section 26-703(b) of the Administrative Code sets forth two options for calculating the amount of the reserve fund. One of those options is to establish a fund in an amount equal to "three per cent of the total price" (Administrative Code § 26-703[b][i] [emphasis added]). This option, referred to as "the Total Price Method" (Board of Mgrs. of 184 Thompson St. Condominium v184 Thompson St. Owner LLC, 106 AD3d 542, 542 [1st Dept 2013]), was used by the sponsor in the instant case to establish the reserve fund.
Section 26-702 (b)(2) of the Administrative Code defines the term "total price" in the context of a condominium conversion as follows:
"the sum of the cost of all units in the offering at the last price which was offered to tenants in occupancy prior to the effective date of the plan regardless of number of sales made"
(Administrative Code § 26-702[b][2] [emphasis added]). Under section 26-703 (c) of the Administrative Code, the offeror may take a credit against the mandatory initial contribution to the reserve fund for the actual cost of certain capital replacements, up to a cap equal to the lesser of the actual cost of the capital replacement work or 1% of the total price of the units offered for sale (Administrative Code § 26-703[c]).
A condominium association, on behalf of the unit owners, may seek damages against a sponsor for underfunding the condominium's reserve fund (see Vincent Di Lorenzo, New York Condominium and Cooperative Law § 4:7 [f] [2d ed]; Turtle Bay Towers Corp. v Welco Assocs., 228 AD2d 189 [1st Dept 1996]). Here, the first cause of action seeks damages for defendants' alleged failure to adequately fund the condominium's reserve in accordance with the requirements of the Administrative Code. Specifically, it alleges that that the sponsor failed to fund the reserve fund in an amount equal to 3% of the sum of the cost of all units in the offering at the last price which was offered to tenants in occupancy prior to the effective date of the plan. It also alleges that the sponsor underfunded the reserve by taking a credit for alleged capital replacements to which it was not entitled.
The complaint states in this regard that the sponsor funded the reserve fund in the amountof only $1,566,192.00, whereas section 26-703 of the Administrative Code required it to establish a fund in the amount of $6,700,546.50. As such, the sponsor underfunded the reserve fund by $5,134,354.50. Plaintiff seeks damages in the amount of this shortfall, plus civil penalties in the amount of $1,000 "per day for each day that the Reserve Fund remains underfunded from November 22, 2013 to the date it is fully funded" (Complaint, at 17, ¶ 94).
Defendants assert that this cause of action should be dismissed pursuant to CPLR 3211(a)(1) because the documentary evidence (i.e. the original offering plan and amendments to the original offering plan) refute plaintiff's allegation that the sponsor underfunded the reserve fund. However, contrary to defendants' contention, the documentary evidence does not utterly refute plaintiff's claim that the sponsor failed to fund the reserve fund in the amount required by section 26-703 of the Administrative Code. The relevant chronology and...
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