| 84 Lbr. Co., L.P. v Barringer |
| 2013 NY Slip Op 06767 [110 AD3d 1224] |
| October 17, 2013 |
| Appellate Division, Third Department |
| 84 Lumber Company, L.P., Plaintiff, v Roy E. Barringer etal., Defendants and Third-Party Plaintiffs-Appellants. More House! et al., Third-PartyDefendants-Respondents. |
—[*1] Little & O'Connor, Glens Falls (Elizabeth E. Little of counsel), for third-partydefendants-respondents.
Rose, J.P. Appeals (1) from an order of the Supreme Court (Lynch, J.), entered June27, 2012 in Albany County, which denied defendants' motion to preclude evidence of acertain contractual provision, and (2) from an order of said court, entered November 16,2012 in Albany County, which, among other things, upon reargument, dismissed certaincauses of action.
Defendants met the third-party defendants at a home show and thereafter entered intoa contract to hire third-party defendant More House! to manage the construction ofdefendants' new home. When plaintiff, a building materials supplier, commenced thisaction to recover the cost of goods sold and delivered to the construction site, defendantscommenced the third-party action alleging causes of action for, among other things,breach of contract, fraudulent [*2]inducement andviolations of General Business Law §§ 349 and 771. After third-partydefendants failed to comply with orders directing them to respond to defendants'discovery demands, Supreme Court granted defendants' motion for a default judgmentagainst them subject to an inquest on damages.
Prior to the inquest, defendants moved in limine to preclude third-party defendantsfrom relying on the provision in the contract limiting their liability for damages to theamount of fees paid pursuant to the contract. Supreme Court denied the motion anddefendants moved to reargue. Supreme Court then granted reargument, held that thelimitation of liability provision did not apply to the cause of action for breach of afiduciary duty, but also concluded that defendants were not entitled to a default on thethird cause of action for fraud in the inducement or the sixth and seventh causes of actionalleging violations of the General Business Law. Defendants appeal from bothorders.[FN*]
We begin by agreeing with Supreme Court that third-party defendants may offerevidence of the contractual provision limiting damages at the inquest. Although thestriking of the answer resulted in third-party defendants' admission to the traversableallegations in the complaint, the damages claimed are not traversable allegations and, atthe inquest, the defaulting third-party defendants may offer proof in mitigation if it"involv[es] circumstances intrinsic to the transactions" put in issue by the complaint(Rokina Opt. Co. v Camera King, 63 NY2d 728, 731 [1984]; accordAmusement Bus. Underwriters v American Intl. Group, 66 NY2d 878, 880 [1985];see Kocsis v McLean, 32AD3d 589, 590 [2006]; Eden Park Health Servs. v Estes, 2 AD3d 1186, 1187-1188[2003]). An agreement to limit the amount of damages due in the event of a breach ofcontract constitutes such proof.
Supreme Court also correctly held that the limitation of liability provision in thecontract does not violate General Obligations Law §§ 5-322.1 and 5-323.Those statutes prohibit contractors from avoiding liability for personal injuries orproperty damage caused by their own negligence as being against public policy.Inasmuch as defendants are seeking only economic damages in connection with theperformance of the contract, however, we agree that the provision limiting liability foreconomic loss is enforceable (see Rector v Calamus Group, Inc., 17 AD3d 960, 961[2005]; Sear-Brown Group v Jay Bldrs., 244 AD2d 966, 966-967 [1997]).
We further agree that, on the motion to reargue, Supreme Court had the authority todetermine sua sponte whether defendants stated valid causes of action despite the default(see Walley v LeatherstockingHealthcare, LLC, 79 AD3d 1236, 1238 [2010]; Gagen v Kipany Prods.,289 AD2d 844, 845-846 [2001]; Matter of Dyno v Rose, 260 AD2d 694,697-698 [1999], appeal dismissed 93 NY2d 998 [1999], lv denied 94NY2d 753 [1999]). Nevertheless, we are persuaded that defendants have stated validcauses of action for fraudulent inducement and violation of General Business Law§ 349. Accordingly, we conclude that the default judgment originally granted onthe third and seventh causes of action was proper and should not have been set aside.[*3]
In order to recover on the third cause of actionfor fraud, the defrauded party must allege a misrepresentation or omission of a materialfact known to be false and made with the intent to deceive, as well as justifiable relianceand damages (see MandarinTrading Ltd. v Wildenstein, 16 NY3d 173, 178 [2011]; Lama Holding Co. vSmith Barney, 88 NY2d 413, 421 [1996]; State of New York v Industrial Site Servs., Inc., 52 AD3d1153, 1157 [2008]). While it is the general rule that "[a] separate cause of actionseeking damages for fraud cannot stand when the only fraud alleged relates to a breach ofcontract" (Gizzi v Hall, 300 AD2d 879, 880 [2002]; see Egan v New YorkCare Plus Ins. Co., 277 AD2d 652, 653 [2000]), defendants' allegations of fraud donot concern any express terms of the contract or third-party defendants' failure to performthose terms (compare Green v Dolphy Constr. Co., 187 AD2d 635, 636 [1992];C.B. W. Fin. Corp. v Computer Consoles, 122 AD2d 10, 12 [1986]). Rather,defendants allege that third-party defendants fraudulently induced them into entering thecontract by falsely representing that they were skilled, competent and experienced inproviding construction management services. Those allegations are not redundant of thebreach of contract cause of action, which claims that third-party defendants failed toperform the terms of the contract (see ARB Upstate Communications LLC v R.J. Reuter, L.L.C.,93 AD3d 929, 932-933 [2012]; Gizzi v Hall, 300 AD2d at 880; RKBEnters. v Ernst & Young, 182 AD2d 971, 972-973 [1992]). Defendants also allegedthat they relied on the representations (see e.g. Kosowsky v Willard Mtn., Inc., 90 AD3d 1127,1129-1130 [2011]), and the allegations permit us to infer that the reliance was justified.Nor is there anything in the complaint or contract that would suggest that their reliancewas unjustified (compareDeAngelis v Timberpeg E., Inc., 51 AD3d 1175, 1178 [2008] [contractcontained limiting language preventing any justifiable reliance]).
The seventh cause of action alleging that third-party defendants engaged in deceptivepractices is also sufficiently stated. Consumers have a private cause of action against"[d]eceptive acts or practices in the conduct of any business, trade or commerce or in thefurnishing of any service" (General Business Law § 349 [a], [h]; see Elacqua v Physicians'Reciprocal Insurers, 52 AD3d 886, 888 [2008]). Such a claim must bepredicated on a consumer-oriented practice that was "likely to mislead a reasonableconsumer acting reasonably under the circumstances" (Gaidon v Guardian Life Ins.Co. of Am., 94 NY2d 330, 344 [1999] [internal quotation marks and citationsomitted]; see Elacqua v Physicians' Reciprocal Insurers, 52 AD3d at 889). Here,defendants allege that third-party defendants held themselves out to the general public tobe knowledgeable and skilled in project management. While the parties entered into aprivate transaction, which is the subject of the fraud claim, the standard form contractused by third-party defendants is not unique and the allegations of deceptive practicesaimed at the general public are sufficient to sustain a cause of action based on GeneralBusiness Law § 349 (see Gaidon v Guardian Life Ins. Co. of Am., 94NY2d at 344-345; Weinstein vNatalie Weinstein Design Assoc., Inc., 86 AD3d 641, 643-644 [2011];DeAngelis v Timberpeg E., Inc., 51 AD3d at 1178; compare U.W. Marx, Inc. vBonded Concrete, Inc., 7 AD3d 856, 858 [2004]).
We are unpersuaded, however, by defendants' claim that they stated a valid cause ofaction for violations of General Business Law § 771. That statute applies to homeimprovement contractors engaged in construction (see General Business Law§ 770 [3]). Inasmuch as the complaint and contract make clear that third-partydefendants were engaged in construction project management services, and not in theconstruction itself, we agree with Supreme Court that General Business Law § 771is inapplicable.
Stein, McCarthy and Garry, JJ., concur. Ordered that the order entered June 27, 2012is affirmed, without costs. Ordered that the order entered November 16, 2012 ismodified, on the law, without costs, by reversing so much thereof as determined thatdefendants were not entitled to a default judgment on the third and seventh causes ofaction of the third-party complaint, and, as so modified, affirmed.
Footnote *: Although defendantsdesignated their motion as in limine, inasmuch as the initial order affected the merits ofthe controversy, it is appealable (see Vaughan v Saint Francis Hosp., 29 AD3d 1133, 1135[2006]).