Waverly Props., LLC v. KMG Waverly, LLC

• Decision Date: 27 September 2011
• Docket Number: No. 09 Civ. 3940(VM).,09 Civ. 3940(VM).
• Citation: 824 F.Supp.2d 547
• Parties: WAVERLY PROPERTIES, LLC, Plaintiff, v. KMG WAVERLY, LLC et al., Defendants.
• Court: U.S. District Court — Southern District of New York

824 F.Supp.2d 547

WAVERLY PROPERTIES, LLC, Plaintiff,

v.KMG WAVERLY, LLC et al., Defendants.

No. 09 Civ. 3940(VM).

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

Sept. 27, 2011.

Peter A. Sullivan, Steven Sheppard Dicesare, Hughes Hubbard & Reed LLP, Evan R. Schieber, Starr & Starr, PLLC, New York, NY, for Plaintiff.

Andrea L. Roschelle, Starr Associates, L.L.P., Evan R. Schieber, Starr & Starr, PLLC, Susan Patricia Mahon, Gartner & Bloom, P.C., New York, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

I. BACKGROUND

Plaintiff Waverly Properties, LLC (“Waverly”) brought this action alleging various claims under New York law for breach of contract, negligence, misrepresentation and consumer fraud. Waverly's complaint arises from defects in the construction of certain residential apartments it had contracted to purchase in a condominium building of which defendant KMG Waverly, LLC (“KMG”) was the sponsor. Following extensive discovery, defendants—individuals and entities involved as principals and/or other capacities in the transaction related to the units (collectively, “Defendants”)—moved for summary judgment.

By Order dated August 15, 2011, Magistrate Judge Frank Maas, to whom this matter had been referred for supervision of pretrial proceedings, issued a thorough and well-reasoned Report and Recommendation (the “Report”), a copy of which is attached and incorporated herein, recommending that Defendants' motion be denied with respect to Waverly's eight common law claims and granted as to the ninth cause of action, which alleges violation of Section 349 of the New York General Business Law. Defendants filed timely objections to the Report challenging its findings and conclusions. For the reasons stated below, the Court adopts and incorporates herein the findings, analysis and recommendation of the Report in their entirety as the Court's ruling on Defendants' motion.

II. STANDARD OF REVIEW

A district court evaluating a Magistrate Judge's report may adopt those portions of the report to which no “specific, written objection” is made, as long as the factual and legal bases supporting the findings and conclusions set forth in those sections are not clearly erroneous or contrary to law. Fed.R.Civ.P. 72(b); see also Thomas v. Arn, 474 U.S. 140, 149, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); Greene v. WCI Holdings Corp., 956 F.Supp. 509, 513 (S.D.N.Y.1997). “Where a party makes a ‘specific written objection ... after being served with a copy of the [magistrate judge's] recommended disposition,’ however, the district court is required to make a de novo determination regarding those parts of the report.” Cespedes v. Coughlin, 956 F.Supp. 454, 463 (S.D.N.Y.1997) ( citing United States v. Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980)); Fed.R.Civ.P. 72(b). The Court is not required to review any portion of a Magistrate Judge's report that is not the subject of an objection. See Thomas, 474 U.S. at 149, 106 S.Ct. 466. A district judge may accept, set aside, or modify, in whole or in part, the findings and recommendations of the Magistrate Judge as to such matters. See Fed.R.Civ.P. 72(b); DeLuca v. Lord, 858 F.Supp. 1330, 1345 (S.D.N.Y.1994).

III. DISCUSSION

Having conducted a de novo review of the full factual record in this litigation, including the pleadings, the parties' respective papers submitted in connection with Defendants' underlying motion for summary judgment, and Defendants' objections to the Report in this proceeding, as well as the Report and applicable legal authorities, the Court concludes that Defendants' motion for summary judgment as to Waverly's first eight causes of action should be denied, and granted as to the ninth. Accordingly, for substantially the reasons set forth in the Report, the Court adopts and incorporates herein the factual findings and legal analysis set forth in the Report in their entirety as the Court's ruling on Defendants' underlying motion for summary judgment.

IV. ORDER

For the reasons discussed above, it is hereby

ORDERED that the Report and Recommendation (the “Report”) of Magistrate Judge Frank Maas dated August 15, 2011 (Docket No. 132) is adopted and incorporated in its entirety as the Court's ruling on the motion for summary judgment (Docket No. 116) filed by defendants (the “Defendants”) in this action, and the objections (Docket No. 139) of Defendants are DENIED; and it is hereby

ORDERED that substantially for the reasons set forth in the Report the motion of Defendants herein is DENIED with regard to the first eight causes of action set forth in the complaint of plaintiff Waverly Properties, LLC herein and GRANTED with regard to the ninth cause of action; and it is finally;

ORDERED that the parties are directed to appear at the final pretrial conference on this matter on October 7, 2011 at 9:15 a.m.

SO ORDERED.

REPORT AND RECOMMENDATION TO THE HONORABLE VICTOR MARRERO

FRANK MAAS, United States Magistrate Judge.

This diversity action arises out of the purchase of three luxury residential condominium units by Plaintiff Waverly Properties, LLC (“Waverly”) from Defendant KMG Waverly, LLC (“KMG” or “Sponsor”), in April 2006. In its 38–page complaint, Waverly pleads nine causes of action against KMG and several other entities and individuals involved in the development, promotion, and construction of the condominium units (collectively, the “Defendants”). In those causes of action, Waverly pleads the following claims: (i) breach of contract (three counts), (ii) negligence, (iii) fraudulent and/or negligent misrepresentation (three counts), (iv) gross negligence, and (v) violation of Section 349 (“Section 349”) of the New York General Business Law (“GBL”), New York State's consumer fraud statute. Waverly seeks unspecified money damages, rescission of the three contracts pursuant to which it purchased the units (“Purchase Agreements”), and return of the deposit or purchase price paid for each unit.

Certain of the Defendants, in turn, have asserted a counterclaim against Waverly for breach of contract, pursuant to which they seek to recover $2 million (plus interest) as liquidated damages, and the fees, costs, and expenses incurred in litigating this case. (ECF No. 43).

Following the close of discovery, the Defendants have moved for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. (ECF No. 116). They seek the dismissal of all of Waverly's claims and an award of judgment in their favor on their counterclaim. ( Id.). For the reasons set forth below, the Defendants' motion should be granted in part and denied in part.

I. Background

Unless otherwise noted, the following facts are either undisputed or set forth in the light most favorable to Waverly.¹

A. Parties

Waverly is a Nevada limited liability company. (Pl.'s Resp. to Defs.' Stmt. of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 (ECF No. 125) (“Pl.'s 56.1 Counter–Stmt.”) ¶ 8). James Clark (“Clark”), Waverly's principal, formed Waverly for the purpose of acquiring title to three units in the 147 Waverly Place Condominium (“Building”), located at 147 Waverly Place in Greenwich Village. ( Id. ¶¶ 2, 6; Decl. of Peter A. Sullivan, Esq., dated Apr. 11, 2011 (ECF No. 126) (“Sullivan Decl.”), Ex. 29 (“Clark Dep.”) at 48–49). The Defendants describe Clark as a “titan of business.” (Defs.' Stmt. of Undisputed Material Facts Pursuant to Local Civil Rule 56.1 (ECF No. 119) (“Defs.' 56.1 Stmt.”) ¶ 9). Indeed, Clark is the founder of several successful companies, including Netscape, WebMD, Shutterfly, and MyCFO. (Clark Dep. 4–7).

KMG is a New York limited liability company with its principal place of business in New York City. (Pl.'s 56.1 Counter–Stmt. ¶ 1). KMG was the sponsor of a public offering for the sale of units in the Building. ( Id. ¶ 2).

B. Plan

The public offering of the Building's units was made pursuant to an offering plan (“Plan”). ( Id.). The Plan “set[s] forth in detail all material facts relating to the [public] offering by Sponsor” and “contains all of the detailed terms of the transaction.” (Sullivan Decl. Ex. 1 (Plan) at 7). The Plan was filed with the New York State Attorney General's Office on February 21, 2006. (Pl.'s 56.1 Counter–Stmt. ¶ 3). At that time, construction on the Building had not yet begun. ( See id. ¶ 7).

1. KMG's Obligations

KMG's duties under the Plan are generally described in the section of the Plan entitled “Rights and Obligations of Sponsor.” ( See Plan at 80–87). Pursuant to that section, KMG is required to “complete the construction of the Building with a quality of construction comparable to the currently prevailing local standards and substantially in accordance with the Plans and Specifications for the construction work filed with the Buildings Department and other appropriate government authorities.” ² ( Id. at 80). The Plan further provides that the Building “will conform to all applicable regulations of the Building Code of the City of New York (‘Building Code’).” ( Id. at 127).

The Plan also contains a limited warranty clause (“Limited Warranty”), which precludes a purchaser's reliance on “Article 36–B of the [GBL] (‘Housing Merchant Implied Warranty’).” ( Id. at 82). Instead, after expressly disclaiming any “other warranties express or implied,” KMG agreed that it would “correct, repair, or replace any and all defects relating to construction of the Building, ... or the Units,” subject to a number of restrictions, including a requirement that KMG be given notice of any alleged patent defect within three months and of any alleged latent defect within six months of the date the purchaser acquired title to the unit.³ ( Id.).

In addition to the Limited Warranty, the Plan includes a limitation-on-remedies provision, which narrows the relief available to a purchaser seeking to remedy a construction defect. That provision, which precludes an award of money damages, states that:

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