| Lunal Realty, LLC v DiSanto Realty, LLC |
| 2011 NY Slip Op 07010 [88 AD3d 661] |
| October 4, 2011 |
| Appellate Division, Second Department |
| Lunal Realty, LLC, et al., Appellants, v DiSanto Realty,LLC, et al., Respondents. |
—[*1] Schillinger & Finsterwald, LLP, White Plains, N.Y. (Peter Schillinger and Lori Finsterwaldof counsel), for respondents.
In an action to recover damages for breach of contract, fraud, and negligentmisrepresentation, the plaintiffs appeal from an order of the Supreme Court, Westchester County(O. Bellantoni, J.), dated May 11, 2010, which denied their motion for summary judgment on thecomplaint and granted the defendants' cross motion for summary judgment dismissing thecomplaint.
Ordered that the order is modified, on the law, by deleting the provision thereof granting thatbranch of the defendants' cross motion which was for summary judgment dismissing the secondcause of action and substituting therefor a provision denying that branch of the defendants' crossmotion; as so modified, the order is affirmed, with costs to the plaintiffs.
On August 9, 2004, the plaintiff Zef Balaj entered into a contract to purchase a buildinglocated in Scarsdale (hereinafter the property), containing both residential apartments andcommercial space, owned by the defendant DiSanto Realty, LLC (hereinafter DRL). Thedefendant Michael A. DiSanto (hereinafter Michael A.), the son of the principal of DRL, MichaelDiSanto, acted as the attorney for DRL during this transaction.
Paragraph 29 of the rider to the contract of sale stated "[s]eller represents that the rent rollattached hereto is the current rent roll on the premises." In a second rider to the contract of sale,paragraph two provided, in part, that the seller was to provide a list of the residential rentscurrently being collected and represented that these rents were "not in excess of the rentsauthorized to be [*2]collected by Rent Stabilization or subject toRent Control, and [we]re the maximum legal rents permitted to be collected for said apartments."Paragraph three, subsection (a), of the second rider, stated that the seller represented to thepurchaser, inter alia, that "[t]he information concerning residential leases and tenancies. . . set forth in Exhibit A of the contract attached hereto is accurate as of the datehereof." In addition, the second rider, at paragraph five, specified that, "[u]pon request, sellershall furnish purchaser with authorization necessary to . . . verify rent rolls."
Prior to the closing of title, Balaj assigned his interest in the contract to the plaintiff LunalRealty, LLC (hereinafter Lunal), of which Balaj was "a managing member." Title to the propertypassed from DRL to Lunal on August 20, 2004.
Subsequent to the closing of title, two residential tenant complaints asserting rentovercharges dating back to 2003, before Lunal acquired title to the property, were filed with theState Division of Housing and Community Renewal (hereinafter DHCR) against Lunal. DHCRissued orders directing Lunal to repay those tenants for rent overcharges totaling $57,525.99.DHCR further ordered that the maximum legal monthly rents going forward for those apartmentswould be significantly less than that which DRL and Lunal thereafter had been charging.
The plaintiffs commenced this action against DRL and Michael A. to recover damages forbreach of contract, fraud, and negligent misrepresentation. The plaintiffs alleged that during thediscussions and negotiations concerning the purchase of the property, Balaj and Lunal's realestate attorney repeatedly requested and received affirmative representations and assurances fromMichael A. that the rents charged to the property's residential tenants were set at the legalmaximum amount, which he knew to be false. They further asserted that these misrepresentationswere made to deceive Lunal's predecessor-in-interest, which reasonably relied on them, intoentering into the contract to purchase the property.
The plaintiffs moved for summary judgment on the complaint, and the defendantscross-moved for summary judgment dismissing the complaint. The Supreme Court denied theplaintiffs' motion and granted the defendants' cross motion. The plaintiffs appeal.
The Supreme Court properly concluded that the defendants demonstrated their prima facieentitlement to judgment as a matter of law dismissing the first cause of action to recover damagesfor breach of contract. Since title to the property had closed and the deed was delivered, "anyclaims the plaintiff[s] might have had arising from the contract of sale were extinguished by thedoctrine of merger" since there was no "clear intent evidenced by the parties that a particularprovision of the contract of sale [would] survive the delivery of the deed" (Ka Foon Lo v Curis, 29 AD3d525, 526 [2006] [internal quotation marks omitted]; see Crowley Mar. Assoc. v NyconnAssoc., 292 AD2d 334, 335 [2002]; Noufrios v Murat, 193 AD2d 791, 792 [1993];Davis v Weg, 104 AD2d 617, 619 [1984]). The contract representation at issue wasintegral to the sale of the property and was not an undertaking collateral to the main purpose ofthe transaction (see Novelty CrystalCorp. v PSA Institutional Partners, L.P., 49 AD3d 113, 116 [2008]; Noufrios vMurat, 193 AD2d at 792). The plaintiffs failed to raise a triable issue of fact to the contrary.
The Supreme Court also properly determined that the defendants established theirentitlement to judgment as a matter of law dismissing the third cause of action to recoverdamages for negligent misrepresentation. "A claim for negligent misrepresentation requires theplaintiff[s] to demonstrate (1) the existence of a special or privity-like relationship imposing aduty on the defendant[s] to impart correct information to the plaintiff[s]; (2) that the informationwas incorrect; and (3) reasonable reliance on the information" (J.A.O. Acquisition Corp. v Stavitsky, 8NY3d 144, [*3]148 [2007]). Here, the defendantsdemonstrated that there was no fiduciary or special relationship between Michael A. and theplaintiffs in this arm's length transaction (see Hayes v Baker, 232 AD2d 371, 372 [1996];Chambers v Executive Mtge. Corp., 229 AD2d 416, 417 [1996]; Pappas v HarrowStores, 140 AD2d 501 [1988]; seealso Gardianos v Calpine Corp., 16 AD3d 456 [2005]; Atkins Nutritionals v Ernst &Young, 301 AD2d 547, 548 [2003]; WIT Holding Corp. v Klein, 282 AD2d 527,529 [2001]; compare Smith vAmeriquest Mtge. Co., 60 AD3d 1037, 1040 [2009]). Moreover, the defendantsestablished that any misrepresentation by Michael A. was not extraneous or collateral to thecontract (see Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389-390 [1987];Heffez v L & G Gen. Constr., Inc.,56 AD3d 526 [2008]; Jorbel vKopko, 31 AD3d 611, 612 [2006]). In opposition, the plaintiffs failed to raise a triableissue of fact.
The Supreme Court improperly granted that branch of the defendants' cross motion whichwas for summary judgment dismissing the second cause of action. While the Supreme Courtproperly determined that the defendants established their entitlement to judgment as a matter oflaw dismissing the fraud cause of action, it incorrectly concluded that the plaintiffs failed to raisea triable issue of fact.
The elements of a cause of action seeking to recover damages for fraud are " 'a representationof material fact, the falsity of that representation, knowledge by the party who made therepresentation that it was false when made, justifiable reliance by the plaintiff, and resultinginjury' " (Centro Empresarial CempresaS.A. v AmÉrica MÓvil, S.A.B. de C.V., 17 NY3d 269, 276 [2011], quotingGlobal Mins. & Metals Corp. vHolme, 35 AD3d 93, 98 [2006]; see also Leno v DePasquale, 18 AD3d 514 [2005]). Traditionally,the term "justifiable reliance" has been held to apply to facts represented which are "matters [not]peculiarly within the party's knowledge, and the other party has the means available to [it] ofknowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of therepresentation, [it] must make use of those means, or [it] will not be heard to complain that [it]was induced to enter into the transaction by misrepresentation[ ]" (Schumaker v Mather,133 NY 590, 596 [1892]; see also Danann Realty Corp. v Harris, 5 NY2d 317, 322[1959]). However, where: "a plaintiff has taken reasonable steps to protect itself againstdeception, it should not be denied recovery merely because hindsight suggests that it might havebeen possible to detect the fraud when it occurred. In particular, where a plaintiff has gone to thetrouble to insist on a written representation that certain facts are true, it will often be justified inaccepting that representation rather than making its own inquiry" (DDJ Mgt., LLC v Rhone Group L.L.C.,15 NY3d 147, 154 [2010]).
Here, in the two riders to the contract of sale, the plaintiffs received negotiated assurances asto the accuracy of the rent roll at the time of the contract. The plaintiffs submitted proof thatthese figures were determined by DHCR to be in excess of the maximum legal rate contrary tothe representations made in the contract.
While the contract of sale did permit the plaintiffs to obtain authorization to conduct adepartmental search to verify rent rolls, the affidavits of Balaj, Lina Balaj, an employee of Lunal,and the attorney who handled the closing for Lunal asserted that Michael A. repeatedly madefalse representations assuring Lunal as to the accuracy of the rents and delivered copies of therent roll to the plaintiffs prior to the parties' execution of the contract of sale. The plaintiffscontended that the determination to buy the property was based upon "its analysis of the value ofthe building in relation to the income that the residential rents that [Michael A.] representedcould be collected as [*4]purportedly confirmed by the rent rolldelivered by [Michael A.]." The representations about the legality of the rents and the rent rollwere then incorporated into the riders to the contract of sale providing the basis for the secondcause of action. Moreover, the plaintiffs raised a triable issue of fact with respect to whetherMichael A. held himself out to the plaintiffs as a principal of DRL during negotiations.
In addition, Michael A., in his own affirmation in support of the defendants' cross motion,while acknowledging that he represented DRL in the sale of the property, simply stated that he"made no such written representations to the plaintiffs concerning the rents" (emphasisadded). Furthermore, DRL's principal and owner, the father of Michael A., acknowledged in hisaffidavit in support of the cross motion that he made such assertions as to the rents being chargedat the time that the contract was signed and that this information "may have ultimately beenincorrect." However, the affidavit of DRL's principal and owner did not state that he alone madestatements to the plaintiffs with respect to the rent roll or that Michael A. did not also make suchfalse statements with respect to the maximum allowable rent.
The determination of whether a party's reliance is reasonable is "always nettlesome because itis so fact-intensive" (DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d at 155, quotingSchlaifer Nance & Co. v Estate of Warhol, 119 F3d 91, 98 [1997]). Therefore, "[i]fplaintiffs can prove the allegations in the complaint, whether they were justified in relying on thewarranties they received is a question to be resolved by the trier of fact" (DDJ Mgt., LLC vRhone Group L.L.C., 15 NY3d at 156). Accordingly, the Supreme Court erred in grantingthat branch of the cross motion which was for summary judgment dismissing the second cause ofaction.
The plaintiffs' remaining contentions either are without merit or have been renderedacademic in light of our determination. Mastro, J.P., Chambers, Austin and Cohen, JJ., concur.