Bd. of Managers of Loft Space Condo. v. SDS Leonard, LLC

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Attorney(S)

 Schwartz Sladkus Reich Greenberg Atlas LLP, New York (Stephen H. Orel of counsel), for appellant. Cohen & Marderosian, New York (Mark D. Marderosian of counsel), for respondent.

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Smart Summary

Factual and Procedural Background

The plaintiff, Board of Managers of Loft Space Condominium, brought suit against defendant SDS Leonard, LLC, the sponsor of the condominium, alleging various claims related to the sale and management of residential and commercial units within the condominium. Each purchaser of a residential unit entered into a contract with SDS that incorporated the condominium offering plan, which included an "as is" clause subject to the sponsor's obligation to maintain the property according to law and cure hazardous conditions. The defendant moved to dismiss the complaint, and the Supreme Court, New York County, granted the motion in part. This appeal followed, challenging the dismissal of certain claims.

Legal Issues Presented

Whether the "as is" clause in the offering plan bars breach of contract claims based on hazardous, dangerous, or illegal conditions at the condominium.
Whether SDS's failure to obtain a permanent certificate of occupancy constitutes a breach of contract despite the "as is" clause.
Whether the fraudulent inducement claim is duplicative of the breach of contract claim and subject to dismissal.
Whether equity distributions made by SDS violated Debtor and Creditor Law §§ 273, 274, and 276.
Whether SDS's conveyance of commercial units to LW Retail Associates LLC for $0 violated Debtor and Creditor Law §§ 274 and 276.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
TIAA Global Invs., LLC v. One Astoria Sq. LLC, 127 A.D.3d 75, 7 N.Y.S.3d 1 (1st Dept. 2015)	“As is” clause does not bar claims based on hazardous or illegal conditions.	Supported the court's conclusion that hazardous and dangerous conditions could form the basis of a breach of contract claim notwithstanding the “as is” clause.
Board of Mgrs. of Olive Park Condominium v. Maspeth Props. LLC, 2014 N.Y. Slip Op. 33012 [U], 2014 WL 6669702 (Sup. Ct., Kings County 2014)	Temporary certificate of occupancy creates only a rebuttable presumption of compliance with law.	Used to reject the defendant's reliance on TCOs as conclusive proof negating hazardous conditions.
Solomons v. Greens at Half Hollow, LLC, 26 Misc.3d 83, 896 N.Y.S.2d 567 (App. Term, 2d Dept. 2010)	Temporary certificates of occupancy are rebuttable evidence of compliance.	Supported the court's view that TCOs do not conclusively bar claims of hazardous conditions.
Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 746 N.Y.S.2d 858, 774 N.E.2d 1190 (2002)	Standards for granting a CPLR 3211(a)(1) motion to dismiss based on documentary evidence.	Held that the TCOs were not sufficient documentary evidence to warrant dismissal on the pleadings.
Board of Mgrs. of the Chelsea 19 Condominium v. Chelsea 19 Assoc., 73 A.D.3d 581, 905 N.Y.S.2d 8 (1st Dept. 2010)	Fraudulent inducement claims duplicative of breach of contract claims are subject to dismissal.	Supported dismissal of the fraudulent inducement claim as duplicative.
NTL Capital, LLC v. Right Track Rec., LLC, 73 A.D.3d 410, 901 N.Y.S.2d 4 (1st Dept. 2010)	Legal conclusions without specific factual allegations are insufficient to withstand dismissal.	Applied to dismiss claims under Debtor and Creditor Law § 273 and part of § 274 for lack of factual specificity.
Wall St. Assoc. v. Brodsky, 257 A.D.2d 526, 684 N.Y.S.2d 244 (1st Dept. 1999)	“Badges of fraud” supporting claims under Debtor and Creditor Law § 276.	Supported denial of dismissal as to claims based on conveyance of commercial units for inadequate consideration and related fraudulent transfer indicators.

Court's Reasoning and Analysis

The court analyzed the contractual obligations and applicable statutory provisions in light of the facts and offering plan terms. It held that the “as is” clause does not shield SDS from breach of contract claims relating to hazardous, dangerous, or illegal conditions because the sponsor remains obligated to cure such conditions under law. The existence of temporary certificates of occupancy was found to be rebuttable evidence and insufficient to negate hazardous condition claims at the motion to dismiss stage.

The court also determined that SDS's failure to obtain a permanent certificate of occupancy violated the offering plan's expressed expectations, thus barring dismissal of that claim. The fraudulent inducement claim was dismissed as duplicative of the breach of contract claim, consistent with precedent.

Regarding the equity distributions and conveyance of commercial units, the court found that conclusory allegations without factual support were insufficient to sustain claims under Debtor and Creditor Law §§ 273 and 274. However, the court declined to dismiss claims alleging fraudulent conveyance under §§ 274 and 276 based on the $0 conveyance of commercial units to an entity related to SDS, inadequate consideration, and the timing of the transfer after plaintiff's commencement of litigation. The presence of multiple “badges of fraud” supported the plausibility of these claims.

Holding and Implications

The court modified the order of the Supreme Court, New York County, to deny the defendant's motion to dismiss as to:

The breach of contract claim based on hazardous, dangerous, and/or illegal items and failure to obtain a permanent certificate of occupancy.
The eighth and ninth causes of action to the extent they are based on SDS's conveyance of commercial units to LW Retail Associates LLC.

In all other respects, the motion to dismiss was affirmed without costs.

The decision directly affects the parties by allowing certain claims to proceed while dismissing others, but it does not establish new legal precedent beyond application of existing law to the facts of this case.

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BOARD OF MANAGERS OF LOFT SPACE CONDOMINIUM, Plaintiff–Appellant, v. SDS LEONARD, LLC, Defendant–Respondent, G46, LLC, et al., Defendants.

Schwartz Sladkus Reich Greenberg Atlas LLP, New York (Stephen H. Orel of counsel), for appellant.

Cohen & Marderosian, New York (Mark D. Marderosian of counsel), for respondent.

SWEENY, J.P., MANZANET–DANIELS, FEINMAN, KAPNICK, WEBBER, JJ.

Order, Supreme Court, New York County (Anil C. Singh, J.), entered April 15, 2015, which granted defendant SDS Leonard, LLC's motion to dismiss the complaint as against it, unanimously modified, on the law, to deny the motion as to (1) so much of the breach of contract claim as is based on (a) items that are hazardous, dangerous, and/or in violation of law and (b) SDS's failure to obtain a permanent certificate of occupancy and (2) so much of the eighth and ninth causes of action as are based on SDS's conveyance of the commercial units at the Loft Space Condominium (the condominium) to LW Retail Associates LLC, and otherwise affirmed, without costs.

Each purchaser of a residential unit at the condominium entered into a contract with SDS, the sponsor of the condominium. The contract incorporated the condominium offering plan by reference. The offering plan states that the “[t]he Common Elements are offered in ‘as is' condition as of the date of the First Unit Closing, subject to ... the Sponsor's [i.e.,

SDS's] obligation to maintain the Property in accordance with the requirements of law and to cause any hazardous or dangerous conditions to be cured.”

To the extent the first cause of action, alleging breach of contract against SDS, is based on items that are hazardous, dangerous, and/or violate the law (that is, exceptions to the “as is” clause), the “as is” clause does not bar the claim (see TIAA Global Invs., LLC v. One Astoria Sq. LLC, 127 A.D.3d 75, 85–86, 7 N.Y.S.3d 1 [1st Dept.2015] ). The temporary certificates of occupancy (TCOs) for the buildings comprising the condominium do not refute plaintiff's claim that hazardous and dangerous conditions existed when SDS sold the residential units. A TCO merely creates a rebuttable presumption that a building complies with New York City law (see Board of Mgrs. of Olive Park Condominium v. Maspeth Props. LLC, 2014 N.Y. Slip Op. 33012 [U], *9–10, 2014 WL 6669702 [Sup.Ct., Kings County 2014] ; see also Solomons v. Greens at Half Hollow, LLC, 26 Misc.3d 83, 86, 896 N.Y.S.2d 567 [App.Term, 2d Dept.2010] ). Therefore, it is not the kind of documentary evidence that warrants granting a CPLR 3211(a)(1) motion (see e.g. Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326, 746 N.Y.S.2d 858, 774 N.E.2d 1190 [2002] ).

The motion court should not have dismissed the breach of contract claim to the extent it alleges that SDS failed to obtain a permanent certificate of occupancy. The offering plan states that the “Sponsor expects to obtain a permanent Certificate of Occupancy ... within 180 days of the First Unit Closing of a Residential Unit,” and the “as is” clause in the plan does not negate this obligation.

The motion court correctly dismissed the fraudulent inducement claim (i.e., the second cause of action) as duplicative of the breach of contract claim (see e.g. Board of Mgrs. of the Chelsea 19 Condominium v. Chelsea 19 Assoc., 73 A.D.3d 581, 581, 905 N.Y.S.2d 8 [1st Dept.2010] ).

The seventh cause of action, alleging that certain equity distributions made by SDS violated Debtor and Creditor Law § 273, was correctly dismissed. Plaintiff

merely alleged the “legal conclusion[ ]”—not “specific factual allegations” (NTL Capital, LLC v. Right Track Rec., LLC, 73 A.D.3d 410, 412, 901 N.Y.S.2d 4 [1st Dept.2010] )—that the equity distributions were made without fair consideration. For the same reason, the motion court correctly dismissed the eighth cause of action to the extent it alleges that the equity distributions violated Debtor and Creditor Law § 274.

The motion court should not have dismissed the eighth cause of action to the extent it alleges that SDS's conveyance of four

commercial units at the condominium to LW for $0 violated Debtor and Creditor Law § 274. On its face, $0 for four commercial condominium units does not appear to be “fair consideration” (Debtor and Creditor Law § 274 ). Moreover, even if SDS established a reserve fund of $623,000, this does not “ utterly refute[ ]” (Goshen, 98 N.Y.2d at 326, 746 N.Y.S.2d 858, 774 N.E.2d 1190 ) plaintiff's allegation that SDS was left with “unreasonably small capital” (Debtor and Creditor Law § 274 ). The condominium offering plan, which SDS relied on before the motion court, states that Local Law 70 of 1982 “ requires that ... the Sponsor shall establish and transfer to the Board of Managers of the Condominium [i.e., plaintiff], a Reserve Fund” (emphasis added). Thus, this evidence does not show that SDS retained the reserve fund; rather, it shows that the fund was transferred to plaintiff.

The motion court correctly dismissed the ninth cause of action to the extent it alleges that SDS's equity distributions violated Debtor and Creditor Law § 276. However, the court should not have dismissed the cause of action to the extent it alleges that SDS's conveyance of the commercial units violated Debtor and Creditor Law § 276. Plaintiff alleged sufficient “badges of fraud” to support the latter claim, including “a close relationship between the parties to the alleged fraudulent transaction; a questionable transfer not in the usual course of business; inadequacy of the consideration; [and] the transferor's knowledge of the creditor's claim and the inability to pay it” (Wall St. Assoc. v. Brodsky, 257 A.D.2d 526, 529, 684 N.Y.S.2d 244 [1st Dept.1999] [internal quotation marks omitted] ). In particular, plaintiff alleges that LW is owned and controlled by a defendant related to SDS. Further, as previously noted, $0 for four commercial condominium units appears to be inadequate consideration. As for SDS's knowledge of plaintiff's claim, it is notable that SDS conveyed the units to LW in July 2013, after plaintiff filed its August 2012 summons with notice in the instant case.