| Zeer v Azulay |
| 2008 NY Slip Op 03202 [50 AD3d 781] |
| April 8, 2008 |
| Appellate Division, Second Department |
| Nir Zeer et al., Respondents-Appellants, v Ziv Azulay etal., Appellants-Respondents, et al., Defendants. |
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Michael E. Zapin, Staten Island, N.Y., for respondents-appellants.
Motion by the plaintiffs and separate motion by the defendants Ziv Azulay and Wagner ZivPlumbing and Heating Corporation, inter alia, for leave to reargue a decision and order of thisCourt dated July 24, 2007, which determined an appeal from an order of the Supreme Court,Kings County, dated February 3, 2006, and an appeal and cross appeal from an amendedjudgment of the same court dated February 6, 2006.
Upon the papers filed in support of the motions and the paper filed in relation thereto, it is,
Ordered that those branches of the motions which seek leave to reargue the decision andorder of this Court dated July 24, 2007 are granted, and the motions are otherwise denied; and itis further,
Ordered that, upon reargument, the decision and order of this Court dated July 24, 2007, inthe above-entitled action (see Zeer vAzulay, 42 AD3d 532 [2007]) is recalled and vacated, and the following decision andorder is substituted therefor:
In an action, inter alia, to recover damages for breach of contract, the defendants Ziv Azulayand Wagner Ziv Plumbing & Heating Corporation appeal (1), as limited by their brief, from somuch of an order of the Supreme Court, Kings County (Lewis, J.), dated February 3, 2006, asgranted the plaintiffs' motion to amend a judgment of the same court entered September 16,2005, in favor of the plaintiffs and against them in the sum of $138,220, to the extent ofproviding for an [*2]additional award of liquidated damages infavor of the plaintiffs and against them in the sum of $175,684.77, and denied their cross motionto vacate a stipulation of the parties dated December 2, 2004, and to vacate the judgment enteredSeptember 16, 2005, and (2) from an amended judgment of the same court dated February 6,2006, which, upon the order, is in favor of the plaintiffs and against them in the original sum of$138,220 and the additional sum of $175,684.77, and the plaintiffs cross-appeal, on the groundof inadequacy, from so much of the same amended judgment as provided for the additionalaward of $175,684.77.
Ordered that the appeal from the order is dismissed, without costs or disbursements, and it isfurther,
Ordered that the amended judgment is reversed, on the law, without costs or disbursements,the plaintiffs' motion to amend the judgment is denied, the cross motion to vacate the stipulationdated December 2, 2004, and judgment entered September 16, 2005, is denied, without prejudiceto the commencement of a plenary action seeking that relief, the judgment entered September 16,2005, is reinstated, and the order is modified accordingly.
The plaintiffs Nir Zeer (hereinafter Zeer) and ZNN Development, Inc. (hereinafter ZNN),commenced this action to recover damages, inter alia, for breach of contract, against, amongothers, the defendants Ziv Azulay and Wagner Ziv Plumbing & Heating Corporation (hereinafterWagner Ziv and collectively with Azulay, the defendants). In pertinent part, the plaintiffs allegedthat pursuant to a September 2003 contract between ZNN and Wagner Ziv, the latter agreed toconstruct a three-family home on real property owned by ZNN at a site in Brooklyn. All workwas to be completed within 160 days of the contract's execution (Feb. 29, 2004), including theobtaining of a certificate of occupancy for the newly-constructed premises. The contract providedthat if Wagner Ziv failed to timely complete the work, it was liable to ZNN for liquidateddamages in the sum of $250 per day from February 29, 2004, until such work was completed.
The parties entered into a stipulation of settlement on December 2, 2004 (hereinafter thestipulation) which provided, in pertinent part, as follows: (1) Wagner Ziv would obtain a finalcertificate of occupancy for the property by December 27, 2004, or it would be subject to the$250 per day liquidated damages provision set forth in the September 2003 contract, and (2) ifany parties filed liens or encumbrances on property owned by one or more of the parties, theparty filing such lien would be liable for liquidated damages equal to double the amount of thelien or encumbrance. In July 2005 after Wagner Ziv failed to obtain a final certificate ofoccupancy for the premises, the plaintiffs moved, inter alia, for a judgment in their favor andagainst Wagner Ziv in the amount of $250 per day from February 29, 2004 pursuant to article Vof the stipulation.
One month later, on August 10, 2005 ZNN sold the premises to a third party for the sum of$580,000. That same day, the defendants moved for a preliminary injunction, inter alia, torestrain the plaintiffs from encumbering, selling, or transferring any of ZNN's assets upon thesale of the premises. The court granted a temporary restraining order (hereinafter the TRO)pending the return date of the motion. According to the defendants, the TRO and stay werenecessary to insure that they received the proper return on their considerable monetaryinvestment in the premises.
Thereafter, in a judgment entered September 16, 2005, the court imposed upon Wagner Zivliquidated damages in the sum of $250 per day from February 29, 2004 through September 2,2005, a period of 551 days, totaling $137,750, plus $470 in costs and disbursements. September2, 2005 had been the date a final certificate of occupancy had been obtained for the premises.
The plaintiffs thereafter moved to amend the judgment, seeking an additional award in theirfavor and against the defendants in the amount of $702,739.08, contending that theyinadvertently failed to include such damages in the original judgment. According to the plaintiffs,by obtaining the TRO on August 10, 2005 the defendants prevented them from accessing ZNN'scorporate bank [*3]account, which then contained the sum of$351,369.54, thereby violating article VII of the stipulation and rendering the defendants liablefor double the lien amount.
The defendants cross-moved to vacate the stipulation dated December 2, 2004 and to vacatethe judgment entered September 16, 2005. In an order dated February 3, 2006 the court, interalia, granted the plaintiffs' motion to amend the judgment to the extent of awarding them anadditional $175,684.77 in liquidated damages against the defendants, which the court explainedis "equal to one half the amount of monies improperly restrained by said defendants." The courtdenied all relief sought by the defendants.
The court thereafter issued an amended judgment that awarded the plaintiffs the sum of$138,220 (representing $250 per day for 551 days plus $470 in costs and disbursements) and$175,684.77 for the defendants' violation of articles V and VII of the stipulation, respectively.The defendants appeal, inter alia, from the entire amended judgment and the plaintiffscross-appeal to the extent that the amended judgment awarded them only an additional$175,684.77, instead of $702,739.08.
The Supreme Court properly denied that branch of the defendants' cross motion which was tovacate the September 16, 2005, judgment which enforced the $250 per day liquidated damagesprovision of the stipulation, as the plaintiffs showed that at the time that the contract containingthis liquidated damages provision originally had been entered into, the actual damages that theplaintiffs would sustain due to the defendants' failure to obtain a certificate of occupancy werenot ascertainable (see J. R. Stevenson Corp. v County of Westchester, 113 AD2d 918[1985]). Notably, the stipulation expressly provided for the entry of a judgment for, inter alia, thecontractual penalty, in the event that the certificate of occupancy was not obtained on time. Theentry of the September 16, 2005 judgment, in accordance with the terms of the stipulation,terminated the action (see Teitelbaum Holdings v Gold, 48 NY2d 51, 55-56 [1979]).
The Supreme Court properly denied that branch of the defendants' cross motion which was ineffect, to rescind the stipulation settling the action, as the defendants' challenge to the stipulationrequires a plenary action (see Teitelbaum Holdings v Gold, 48 NY2d 51, 55-56 [1979];Yonkers Fur Dressing Co. v Royal Ins. Co., 247 NY 435, 445-446 [1928]; Round vMonk, 100 AD2d 542 [1984]; cf. Pegalis v Gibson, 237 AD2d 420, 421 [1997]).Similarly, to the extent that the plaintiffs seek summary enforcement of so much of thestipulation as purports to entitle them to liquidated damages in the event any liens orencumbrances are filed against their property, as they envisioned, such relief could onlyhave been considered within the context of a plenary action for breach of the stipulation (seeTeitelbaum Holdings v Gold, 48 NY2d 51 [1979]). Whether there is a lien or encumbrancein violation of the stipulation dated December 2, 2004 can only be considered in the context ofsuch a subsequent action. Additionally, to the extent that the Supreme Court implicitly found thatthe liquidated damages provision concerning the filing of liens or encumbrances was violated,such conclusion was premature. Whether in the context of summary enforcement of thestipulation or a plenary action to enforce the stipulation, the invocation of such aliquidated damages provision is subject to the potential defense that actual damages wereascertainable at the time that the stipulation was entered into and that the liquidated damagesprovision was grossly disproportionate to the actual damages (see Quaker Oats Co. v Reilly,274 AD2d 565, 566 [2000]; Zervakis v Kyreakedes, 257 AD2d 619 [1999];Pyramid Ctrs. & Co. v Kinney Shoe Corp., 244 AD2d 625, 626-627 [1997]; cf. Bates Adv. USA, Inc. v 498 Seventh,LLC, 7 NY3d 115 [2006]).
A party requesting that a court strike down a liquidated damages provision as anunenforceable penalty must demonstrate that the damages are not a reasonable measure of theactual loss resulting from the breach, and the actual loss is readily ascertainable (see Bates Adv. USA, Inc. v 498 Seventh,LLC, 7 NY3d 115 [2006]; JMDHolding Corp. v Congress Fin. Corp., 4 NY3d 373, [*4]379-380 [2005]; Truck Rent-A-Ctr. v Puritan Farms 2nd, 41NY2d 420 [1977]; Irving Tire Co. v Stage II Apparel Corp., 230 AD2d 772, 773 [1996];Vernitron Corp. v CF 48 Assoc., 104 AD2d 409 [1984]). Where a liquidated damagesprovision is deemed enforceable, "the measure of damages for a breach will be the sum in theclause, no more, no less. If the clause is rejected as being a penalty, the recovery is limited toactual damages proven" (JMD Holding Corp. v Congress Fin. Corp., 4 NY3d at 380,quoting Brecher v Laikin, 430 F Supp 103, 106 [1977]).
Based on the present record, it cannot be determined whether the liquidated damagesprovision set forth in the stipulation was properly triggered, and if so, whether the actualdamages were capable of ascertainment and the liquidated damages provision sought to beinvoked would be grossly disproportionate to the plaintiffs' actual losses (cf. Bates Adv. USA, Inc. v 498 Seventh,LLC, 7 NY3d 115 [2006]; see Quaker Oats Co. v Reilly, 274 AD2d 565 [2000];Zervakis v Kyreakedes, 257 AD2d at 620; Pyramid Ctrs. & Co. v Kinney Shoe Corp.,244 AD2d at 626-627). Accordingly, the amended judgment must be reversed, inter alia,without prejudice to the plaintiffs' right to commence a plenary action to determine if thestipulation was breached by the defendants when they obtained the TRO, which actioncan be determined subject to the defendants' potential defense that the provision is unenforceable(see Pyramid Ctrs. & Co. v Kinney Shoe Corp., 244 AD2d at 627; NationalTelecanvass Assoc. v Smith, 98 AD2d 796, 798 [1983]; see also JMD Holding vCongress Fin. Corp., 4 NY3d at 380). Spolzino, J.P., Lifson, Ritter and Miller, JJ., concur.