Joseph v. Schwarz/Architectural Services, P.C., 92 Civ. 2043 (CSH).

• Decision Date: 20 February 1997
• Docket Number: No. 92 Civ. 2043 (CSH).,92 Civ. 2043 (CSH).
• Citation: 957 F.Supp. 1334
• Parties: Peter T. JOSEPH, Plaintiff-Counterclaimant-Defendant, v. DAVID M. SCHWARZ/ARCHITECTURAL SERVICES, P.C. and David M. Schwarz, Defendants-Counterclaimants.
• Court: U.S. District Court — Southern District of New York

957 F.Supp. 1334

Peter T. JOSEPH, Plaintiff-Counterclaimant-Defendant, v. DAVID M. SCHWARZ/ARCHITECTURAL SERVICES, P.C. and David M. Schwarz, Defendants-Counterclaimants.

No. 92 Civ. 2043 (CSH).

United States District Court, S.D. New York.

February 20, 1997.

COPYRIGHT MATERIAL OMITTED

Gandolfo V. DiBlasi, Sullivan & Cromwell, James E. Frankel, Shea & Gould, and Kenneth H. Lazaruk, Baer Marks & Upham, New York City, for Peter T. Joseph.

Jonathan Geldzahler, Wright, Robinson, McCammon, Osthimer & Tatum, Washington, DC and Paul R. Grand, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York City, for Architectural Services, P.C. and David M. Schwarz.

MEMORANDUM OPINION AND ORDER

HAIGHT, Senior District Judge:

This case is before the court on cross-motions for partial summary judgment. For reasons stated below, defendants' motion for summary judgment is granted as to plaintiff Peter Joseph's claims for negligence against both defendants, and for breach of contract against defendant David Schwarz. The cross-motions for summary judgment on the counterclaim brought by defendant David M. Schwarz/Architectural Services, P.C. ("ASPC") are both denied.

BACKGROUND

This diversity action follows in the wake of an agreement between Joseph, a New York resident, and ASPC, a professional corporation licensed to practice architecture in the District of Columbia and Texas, for design and construction of a duplex apartment. Defendant Schwarz is ASPC's sole shareholder.

The parties do not dispute the following facts:

In the Spring of 1989, Joseph purchased an undeveloped space on the thirty-ninth and fortieth floors of 500 Park Avenue ("3940"), which he sought to prepare for use as a family residence. Joseph hired ASPC to work on the project, and by letter dated February 2, 1989, ASPC set forth the terms of its employment. Schwarz Aff. ex. 3 ("the Letter Agreement"). ASPC signed the letter "by: David M. Schwarz," and Joseph signed the document under the heading "accepted." Id.

In the Letter Agreement, ASPC stated that it would provide Joseph with "design services" for the 3940 project, including development of schematic plans. Under the agreement, after the plans were approved by Joseph, ASPC would "work with" Joseph's mechanical and structural engineers to complete construction drawings. Id. ¶ 2. The corporation was to be paid on a "time and materials basis," and was to submit invoices every month detailing the costs of its work. Id. ¶ 3.

The Letter Agreement confirmed the parties' understanding that ASPC was not licensed in New York, and stated that Joseph would furnish "[a]ny requisite of New York law for licensed professional services." Id. ¶ 4. Joseph also agreed to retain various licensed engineers with responsibility for producing structural and other drawings and "any other consultants required by either law or the requirements of the project." Id. ¶ 6. ASPC, for its part, stated that it would assist Joseph in locating the requisite "consultants," help coordinate their work, and "produce construction drawings" as Joseph deemed necessary. Id.

ASPC commenced work on the project, but differences surfaced between the parties about the manner in which that work was performed. In the Summer or Fall of 1990, Joseph informed Schwarz that he would no longer make payments to ASPC until certain problems with the project were remedied.¹ ASPC continued to work on 3940 without payment until it was terminated by Joseph on February 8, 1991.

Joseph then commenced the instant action, and subsequently amended his pleadings. In the amended complaint, he asserted causes of action for breach of contract, negligence and unjust enrichment. The contract claim was based on a number of purported deficiencies in ASPC's performance of its contractual obligations, including failure to timely develop the construction documents, to supervise and manage employees, and to administer the project in a professional manner. Amended Complaint ¶ 39. The tort claim alleged that ASPC had breached its duty to use reasonable professional skill, as evidenced by many of the same failings cited in the contract claim.

ASPC responded by filing a counterclaim for breach of contract and quantum meruit.² Specifically, ASPC alleged that it was owed an outstanding balance of over $500,000 for services rendered and expenses incurred on the 3940 project. ASPC now moves for summary judgment on the counterclaim, asserting that there is no dispute about the following: Joseph contracted with ASPC to work on 3940; ASPC performed the work for which it now seeks payment; and Joseph did not provide ASPC with the requisite compensation. See Defendants' Mem. in Further Support at 2. Joseph also seeks summary judgment on the counterclaim, arguing that ASPC's unlicensed status prohibits it from gaining any such recovery. Joseph maintains, in the alternative, that there are numerous factual disputes regarding ASPC's performance.

Additionally, defendants seek summary judgment on Joseph's negligence claim on the ground that a tort action of this nature may not be brought solely for economic damages. Finally, defendants challenge Joseph's breach of contract claim against Schwarz, contending that he was not a party to the Letter Agreement.

DISCUSSION

Under Fed.R.Civ.P. 56, the moving party is entitled to summary judgment if the papers "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." On such a motion, "a district court must view the evidence in the light most favorable to the non-moving party and must draw all inferences in favor of that party." Wernick v. Federal Reserve Bank of New York, 91 F.3d 379, 382 (2d Cir.1996).

The responding party "must set forth specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). "The non-movant cannot `escape summary judgment merely by vaguely asserting the existence of some unspecified disputed material facts,' ... or defeat the motion through `mere speculation or conjecture.'" Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir.1990) (citations omitted). The parties in this case appear to agree that the law of New York, where the events at issue took place, governs the substantive legal disputes presented by these motions.

I. Breach of Contract Claim Against Schwarz

Defendants seek dismissal of the breach of contract claim brought against Schwarz personally. They argue that Schwarz cannot be held liable for an agreement entered into by ASPC.

It is a longstanding principle of New York law that an agent acting on behalf of a disclosed principal does not personally bind himself unless there is "clear and explicit" evidence of his intent to do so. See Lerner v. Amalgamated Clothing and Textile Workers Union, 938 F.2d 2, 5 (2d Cir.1991); Salzman Sign Co. v. Beck, 10 N.Y.2d 63, 217 N.Y.S.2d 55, 57, 176 N.E.2d 74, 76 (1961). Thus, a corporate shareholder or officer who signs an agreement on the corporation's behalf is not bound thereby absent manifest intent to create individual liability, Salzman, 217 N.Y.S.2d at 57, 176 N.E.2d at 76, or an applicable statutory exception to this rule, We're Assocs. Co. v. Cohen, Stracher & Bloom, P.C., 103 A.D.2d 130, 478 N.Y.S.2d 670, 673 (2d Dep't 1984), aff'd, 65 N.Y.2d 148, 490 N.Y.S.2d 743, 480 N.E.2d 357 (1985).

In Salzman, no individual liability was found to attach, although the contract at issue contained a clause in which the signatory officers personally guaranteed payment. See 217 N.Y.S.2d at 56, 176 N.E.2d at 75-76. The New York Court of Appeals found the provision to lack the requisite clarity. Id. at 57-58, 176 N.E.2d at 76. The instant case presents an even weaker basis for individual liability than that rejected Salzman. Nothing in the Letter Agreement hints at any intent on Schwarz's part to take on this burden. Furthermore, the contract was signed by ASPC "[b]y: David M. Schwarz." In using the term "by," Schwarz indicated that he was merely serving as the corporation's agent. See Lerner, 938 F.2d at 6 (by using word "by," the signatory "signed an agreement on behalf of [the corporation] ... and not on behalf of himself as an individual").

Joseph contends that New York Business Law § 1527 has expanded shareholder liability, in the professional services context, beyond that set forth in the caselaw cited above. Section 1527 provides, in pertinent part:

Each shareholder, employee or agent of a foreign professional service corporation who performs professional services in this state on behalf of the corporation shall be personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by him or by any person under his direct supervision and control while rendering such professional services, and shall bear professional responsibility for compliance by such corporation with all laws, rules and regulations governing the practice of the profession in this state.

The defendants argue that this statute applies only to tort, and not to breach of contract claims. On the face of the statute, the defendants are correct. An individual shareholder has not committed or directly supervised a "wrongful act or misconduct" when the corporation in which he owns stock breaches an agreement. The party responsible for carrying out that agreement was the corporation itself, regardless of which individual was the signatory on its behalf.

The primary New York decision which addresses this issue, We're Associates, is fully in accord with this position. In that case, the plaintiffs sought to impose personal liability on individual shareholders for a corporation's failure to meet its obligations under a lease agreement. The plaintiffs relied for this proposition on Business Corporation Law § 1505, the analogue to § 1527 for domestic professional corporations. The substance of the two statutes is identical in all material respects.

The ...