R. Vig Props. v. Rahimzada

Factual and Procedural Background

On June 21, 2006, the parties entered into a contract of sale whereby the defendants agreed to sell three improved commercial properties to the plaintiffs for $20,400,000. The sale closed on December 20, 2006. The plaintiffs commenced this action on December 18, 2012, alleging fraud and deceit, misrepresentation, and breach of contract. They claimed the defendants misrepresented the status of one property in Valatie, specifically that it was primarily occupied by a master tenant under a self-sustaining triple-net master lease. The plaintiffs contended the defendants withheld material facts including the master tenant’s financial difficulties, a prior bankruptcy court ruling relieving prior assignees of liability under the lease, and that the master tenant was a single asset entity with no assets beyond the lease. The defendants moved for summary judgment dismissing the complaint, which the Supreme Court granted. The plaintiffs appealed.

Legal Issues Presented

Whether the plaintiffs stated viable causes of action for fraud and deceit, misrepresentation, and fraudulent concealment based on alleged omissions and misrepresentations related to the Valatie property.

Whether the doctrine of caveat emptor applies to bar the plaintiffs’ claims in a real estate transaction involving alleged nondisclosure.

Whether the defendants were entitled to summary judgment dismissing the breach of contract claim based on the merger doctrine and the contract terms.

Whether the plaintiffs raised a triable issue of fact to oppose the defendants’ motion for summary judgment.

Arguments of the Parties

Appellants' Arguments

The defendants fraudulently misrepresented that the Valatie property was occupied by a financially stable master tenant under a triple-net lease.

The defendants concealed material facts about the master tenant’s financial difficulties, the bankruptcy court ruling, and the tenant’s limited assets.

The plaintiffs relied on these misrepresentations and omissions to their detriment.

The breach of contract claim was supported by the defendants’ alleged failure to disclose these facts and breaches of implied covenants.

The defendants’ summary judgment motion was premature as the plaintiffs lacked access to certain facts exclusively within the defendants' control.

Respondents' Arguments

The causes of action sounding in fraud were barred by the specific terms of the contract of sale and the doctrine of caveat emptor.

The facts alleged to be concealed were not peculiarly within the defendants’ knowledge and could have been discovered by the plaintiffs through reasonable diligence.

The merger doctrine extinguished any breach of contract claims after delivery of the deed, as the parties did not intend any contract provisions to survive closing.

The plaintiffs failed to raise a triable issue of fact to oppose summary judgment, including failing to identify facts exclusively within defendants’ knowledge.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d 173	Elements of fraudulent misrepresentation and fraudulent concealment claims.	Used to define the required elements plaintiffs must prove for fraud and fraudulent concealment claims.
Lama Holding Co. v Smith Barney, 88 N.Y.2d 413	Supporting principles for fraudulent misrepresentation.	Reinforced the elements of fraudulent misrepresentation claims.
P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301 A.D.2d 373	Requirement of duty to disclose for fraudulent concealment.	Clarified that a duty to disclose is necessary for fraudulent concealment claims.
ISS Action, Inc. v Tutor Perini Corp., 170 A.D.3d 686	Reasonableness of plaintiff’s reliance in fraud claims.	Applied to assess whether plaintiffs’ reliance was justifiable.
Epifani v Johnson, 65 A.D.3d 224	Reasonableness of reliance in fraud context.	Supported the court’s determination on plaintiffs’ reliance.
ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 N.Y.3d 1043	Requirement that plaintiffs use available means to discover truth.	Applied to conclude plaintiffs could have discovered facts with ordinary diligence.
Danann Realty Corp. v Harris, 5 N.Y.2d 317	Doctrine that plaintiffs must exercise ordinary intelligence to discover facts.	Supported dismissal of fraud claims where facts were discoverable.
Hecker v Paschke, 133 A.D.3d 713	Application of caveat emptor in real estate fraud claims.	Used to affirm that no liability arises absent active concealment.
Razdolskaya v Lyubarsky, 160 A.D.3d 994	Definition of active concealment and duty to disclose under caveat emptor.	Applied to determine no active concealment occurred here.
Jablonski v Rapalje, 14 A.D.3d 484	Requirement that seller thwarting buyer’s efforts is necessary for active concealment.	Supported court’s conclusion that no such thwarting occurred.
Comora v Franklin, 171 A.D.3d 851	Contract terms can bar fraud claims.	Applied to bar plaintiffs’ fraud claims based on contract language.
114 W. 14 Realty LLC v Brandman, 147 A.D.3d 703	Contractual terms affecting fraud claims.	Used to support dismissal of fraud claims.
Kim v Il Yeon Kwon, 144 A.D.3d 754	Effect of contract terms on fraud claims.	Reinforced dismissal based on contract terms.
1810 E & J Rest. Corp. v Red & Blue Parrot, Inc., 150 A.D.3d 648	Discoverability of facts and caveat emptor doctrine.	Applied to find plaintiffs could have discovered facts.
Schottland v Brown Harris Stevens Brooklyn, LLC, 107 A.D.3d 684	Buyer’s duty to investigate under caveat emptor.	Supported dismissal where buyer failed to investigate.
Perez-Faringer v Heilman, 95 A.D.3d 853	Merger doctrine extinguishing contract claims post-closing.	Applied to bar breach of contract claims after deed delivery.
Davydov v Youssefi, 205 A.D.3d 879	Elements of breach of contract claim.	Used to analyze plaintiffs’ breach of contract claim.
East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 199 A.D.3d 881	Essential elements of breach of contract.	Supported court’s evaluation of breach claim.
TIAA Global Invs., LLC v One Astoria Sq. LLC, 127 A.D.3d 75	Merger doctrine in real estate transactions.	Applied to dismiss contract claims post-closing.
Ka Foon Lo v Curis, 29 A.D.3d 525	Exception to merger doctrine where contract provisions survive closing.	Found no surviving provisions here; merger doctrine applied.
New York Univ. v Continental Ins. Co., 87 N.Y.2d 308	Implied covenant of good faith and fair dealing.	Applied to assess breach claim based on implied covenant.
Elmhurst Dairy, Inc. v Bartlett Dairy, Inc., 97 A.D.3d 781	Implied covenant of good faith and fair dealing.	Found claim failed as it was based on same alleged omissions as fraud claims.
Mogul v Baptiste, 161 A.D.3d 847	Requirement to identify facts within opposing party’s exclusive knowledge to avoid premature summary judgment.	Applied to reject plaintiffs’ claim that summary judgment was premature.
Haidhaqi v Metropolitan Transp. Auth., 153 A.D.3d 1328	Same as above.	Supported court’s conclusion on premature summary judgment issue.
Miller v Icon Group LLC, 77 A.D.3d 586	Same as above.	Reinforced dismissal of premature summary judgment argument.
Alvarez v Prospect Hosp., 68 N.Y.2d 320	Standard for opposing summary judgment.	Applied to find plaintiffs failed to raise triable issues of fact.

Precedent

Rule or Principle Cited For

Application by the Court

Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d 173

Elements of fraudulent misrepresentation and fraudulent concealment claims.

Used to define the required elements plaintiffs must prove for fraud and fraudulent concealment claims.

Lama Holding Co. v Smith Barney, 88 N.Y.2d 413

Supporting principles for fraudulent misrepresentation.

Reinforced the elements of fraudulent misrepresentation claims.

P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301 A.D.2d 373

Requirement of duty to disclose for fraudulent concealment.

Clarified that a duty to disclose is necessary for fraudulent concealment claims.

ISS Action, Inc. v Tutor Perini Corp., 170 A.D.3d 686

Reasonableness of plaintiff’s reliance in fraud claims.

Applied to assess whether plaintiffs’ reliance was justifiable.

Epifani v Johnson, 65 A.D.3d 224

Reasonableness of reliance in fraud context.

Supported the court’s determination on plaintiffs’ reliance.

ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 N.Y.3d 1043

Requirement that plaintiffs use available means to discover truth.

Applied to conclude plaintiffs could have discovered facts with ordinary diligence.

Danann Realty Corp. v Harris, 5 N.Y.2d 317

Doctrine that plaintiffs must exercise ordinary intelligence to discover facts.

Supported dismissal of fraud claims where facts were discoverable.

Hecker v Paschke, 133 A.D.3d 713

Application of caveat emptor in real estate fraud claims.

Used to affirm that no liability arises absent active concealment.

Razdolskaya v Lyubarsky, 160 A.D.3d 994

Definition of active concealment and duty to disclose under caveat emptor.

Applied to determine no active concealment occurred here.

Jablonski v Rapalje, 14 A.D.3d 484

Requirement that seller thwarting buyer’s efforts is necessary for active concealment.

Supported court’s conclusion that no such thwarting occurred.

Comora v Franklin, 171 A.D.3d 851

Contract terms can bar fraud claims.

Applied to bar plaintiffs’ fraud claims based on contract language.

114 W. 14 Realty LLC v Brandman, 147 A.D.3d 703

Contractual terms affecting fraud claims.

Used to support dismissal of fraud claims.

Kim v Il Yeon Kwon, 144 A.D.3d 754

Effect of contract terms on fraud claims.

Reinforced dismissal based on contract terms.

1810 E & J Rest. Corp. v Red & Blue Parrot, Inc., 150 A.D.3d 648

Discoverability of facts and caveat emptor doctrine.

Applied to find plaintiffs could have discovered facts.

Schottland v Brown Harris Stevens Brooklyn, LLC, 107 A.D.3d 684

Buyer’s duty to investigate under caveat emptor.

Supported dismissal where buyer failed to investigate.

Perez-Faringer v Heilman, 95 A.D.3d 853

Merger doctrine extinguishing contract claims post-closing.

Applied to bar breach of contract claims after deed delivery.

Davydov v Youssefi, 205 A.D.3d 879

Elements of breach of contract claim.

Used to analyze plaintiffs’ breach of contract claim.

East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 199 A.D.3d 881

Essential elements of breach of contract.

Supported court’s evaluation of breach claim.

TIAA Global Invs., LLC v One Astoria Sq. LLC, 127 A.D.3d 75

Merger doctrine in real estate transactions.

Applied to dismiss contract claims post-closing.

Ka Foon Lo v Curis, 29 A.D.3d 525

Exception to merger doctrine where contract provisions survive closing.

Found no surviving provisions here; merger doctrine applied.

New York Univ. v Continental Ins. Co., 87 N.Y.2d 308

Implied covenant of good faith and fair dealing.

Applied to assess breach claim based on implied covenant.

Elmhurst Dairy, Inc. v Bartlett Dairy, Inc., 97 A.D.3d 781

Implied covenant of good faith and fair dealing.

Found claim failed as it was based on same alleged omissions as fraud claims.

Mogul v Baptiste, 161 A.D.3d 847

Requirement to identify facts within opposing party’s exclusive knowledge to avoid premature summary judgment.

Applied to reject plaintiffs’ claim that summary judgment was premature.

Haidhaqi v Metropolitan Transp. Auth., 153 A.D.3d 1328

Same as above.

Supported court’s conclusion on premature summary judgment issue.

Miller v Icon Group LLC, 77 A.D.3d 586

Same as above.

Reinforced dismissal of premature summary judgment argument.

Alvarez v Prospect Hosp., 68 N.Y.2d 320

Standard for opposing summary judgment.

Applied to find plaintiffs failed to raise triable issues of fact.

Court's Reasoning and Analysis

The court first analyzed the fraud and deceit claims under established New York law requiring a false misrepresentation or material omission known to be false, made to induce reliance, justifiable reliance by the plaintiff, and resulting injury. The court emphasized that in real estate transactions, the doctrine of caveat emptor applies, meaning sellers have no duty to disclose absent active concealment. The court found the alleged facts were not peculiarly within the defendants’ knowledge and could have been discovered by the plaintiffs through ordinary diligence. There was no evidence that the defendants actively concealed information or thwarted plaintiffs’ efforts to investigate. Consequently, the fraud claims were barred by the contract terms and the caveat emptor doctrine.

Regarding the breach of contract claim, the court applied the merger doctrine, which extinguishes contract claims once the deed is delivered unless the parties clearly intended certain provisions to survive closing. Here, the contract showed no such intent, so the breach claims were dismissed. The claim based on the implied covenant of good faith and fair dealing also failed because it rested on the same alleged omissions as the fraud claims.

Finally, the court rejected the plaintiffs’ argument that summary judgment was premature, noting the plaintiffs did not identify any facts essential to their opposition that were exclusively within the defendants’ knowledge or control. Thus, the defendants met their burden to establish entitlement to summary judgment, and the plaintiffs failed to raise triable issues of fact.

Holding and Implications

The Supreme Court's order granting summary judgment dismissing the complaint is AFFIRMED, with costs.

This decision directly results in dismissal of the plaintiffs’ claims for fraud, deceit, misrepresentation, and breach of contract. The court’s ruling reinforces the application of the caveat emptor doctrine in arm’s length real estate transactions and the merger doctrine’s effect on contract claims post-closing. No new legal precedent was established beyond the reaffirmation and application of existing doctrines and case law.

R. Vig Properties, LLC, et al., appellants, v. Yama Rahimzada, et al., respondents.

MARK C. DILLON, J.P. LINDA CHRISTOPHER LARA J. GENOVESI HELEN VOUTSINAS, JJ.

Law Firm of Ravi Batra, P.C., New York, NY (Todd B. Sherman of counsel), for appellants.

Dilworth Paxson, LLP, New York, NY (Ira N. Glauber of counsel), for respondents.

DECISION & ORDER

In an action to recover damages for fraud and deceit, misrepresentation, and breach of contract, the plaintiffs appeal from an order of the Supreme Court, Queens County (Leonard Livote, J.), dated June 14, 2019. The order granted the defendants' motion for summary judgment dismissing the complaint.

ORDERED that the order is affirmed, with costs.

On June 21, 2006, the parties entered into a contract of sale wherein the defendants agreed to sell to the plaintiffs three improved commercial properties for the sum of $20,400,000. The sale closed on December 20, 2006. On December 18, 2012, the plaintiffs commenced this action to recover damages for fraud and deceit, misrepresentation, and breach of contract. The plaintiffs alleged that the defendants represented to them that one of the properties, located in Valatie (hereinafter the Valatie property), was primarily occupied by a master tenant pursuant to a self-sustaining triple-net master lease. The plaintiffs contended that the defendants withheld from them certain facts relating to the Valatie property, including the fact that the master tenant at that property had informed the defendants that it was experiencing financial difficulties and absent rent concessions would breach the master lease and vacate the property; the fact that a prior determination of the United States Bankruptcy Court for the District of New Jersey relieved all prior assignees of the master lease for that property from liability notwithstanding that the terms of the master lease, annexed as an exhibit to the contract of sale, provided that such assignees were liable; and the fact that the master tenant at that property was a single asset entity with no assets other than the lease. The defendants moved for summary judgment dismissing the complaint, and the Supreme Court granted the motion. The plaintiffs appeal.

A cause of action to recover damages for fraudulent misrepresentation requires "a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" (Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d 173, 178 [internal quotation marks omitted]; see Lama Holding Co. v Smith Barney, 88 N.Y.2d 413, 421). A cause of action to recover damages for fraudulent concealment requires, in addition to the elements of a cause of action to recover damages for fraudulent misrepresentation, "'an allegation that the defendant had a duty to disclose material information and that it failed to do so'" (Mandarin Trading Ltd. v Wildenstein, 16 N.Y.3d at 179, quoting P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301 A.D.2d 373, 376).

A plaintiff's reliance must be reasonable (see ISS Action, Inc. v Tutor Perini Corp., 170 A.D.3d 686, 688; Epifani v Johnson, 65 A.D.3d 224, 230). If the facts represented are not matters peculiarly within the defendant's knowledge, and the plaintiff has the means available to it of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, the plaintiff must make use of those means, or it will not be heard to complain that it was induced to enter into the transaction by misrepresentations (see ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 N.Y.3d 1043, 1044; Danann Realty Corp. v Harris, 5 N.Y.2d 317, 322; ISS Action, Inc. v Tutor Perini Corp., 170 A.D.3d at 688).

In the context of real estate transactions, a claim of fraudulent misrepresentation must be analyzed within the doctrine of caveat emptor (see Hecker v Paschke, 133 A.D.3d 713, 716). "'New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm's length, unless there is some conduct on the part of the seller which constitutes active concealment'" (Razdolskaya v Lyubarsky, 160 A.D.3d 994, 996, quoting Simone v Homecheck Real Estate Servs., Inc., 42 A.D.3d 518, 520). "'If however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property'" (Razdolskaya v Lyubarsky, 160 A.D.3d at 996, quoting Hecker v Paschke, 133 A.D.3d at 716). "'To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller's agents thwarted the plaintiff's efforts to fulfill his responsibilities fixed by the doctrine of caveat emptor'" (Razdolskaya v Lyubarsky, 160 A.D.3d at 996, quoting Jablonski v Rapalje, 14 A.D.3d 484, 485).

Here, the Supreme Court correctly determined that the causes of action sounding in fraud were barred, inter alia, by the specific terms of the parties' contract of sale (see Danann Realty Corp. v Harris, 5 N.Y.2d at 320-321; Comora v Franklin, 171 A.D.3d 851, 853; 114 W. 14 Realty LLC v Brandman, 147 A.D.3d 703, 703-704; Kim v Il Yeon Kwon, 144 A.D.3d 754, 756). Moreover, contrary to the plaintiffs' contention, the facts alleged to have been misrepresented and/or improperly concealed were not matters peculiarly within the defendants' knowledge which could not have discovered by the plaintiffs by the exercise of ordinary intelligence and/or which thwarted the plaintiffs in their efforts to fulfill their responsibilities imposed by the doctrine of caveat emptor (see 1810 E & J Rest. Corp. v Red & Blue Parrot, Inc., 150 A.D.3d 648, 649; Schottland v Brown Harris Stevens Brooklyn, LLC, 107 A.D.3d 684, 686; Perez-Faringer v Heilman, 95 A.D.3d 853, 854).

In light of the language of the contract and the plaintiffs' lack of justifiable reliance, the defendants established their prima facie entitlement to judgment as a matter of law dismissing the causes of action sounding in fraud (see Hecker v Paschke, 133 A.D.3d at 717). In opposition thereto, the plaintiffs failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 N.Y.2d 320, 324).

The defendants also established their entitlement to judgment as a matter of law dismissing the cause of action to recover damages for breach of contract. "The essential elements of a cause of action to recover damages for breach of contract are the existence of a contract, the plaintiff's performance pursuant to the contract, the defendant's breach of its contractual obligations, and damages resulting from the breach" (Davydov v Youssefi, 205 A.D.3d 879, 880 [internal quotation marks omitted]; see East Ramapo Cent. Sch. Dist. v New York Schs. Ins. Reciprocal, 199 A.D.3d 881, 886). "The merger doctrine in a real estate transaction provides that once the deed is delivered, its terms are all that survive and the purchaser is barred from prosecuting any claims arising out of the contract" (TIAA Global Invs., LLC v One Astoria Sq. LLC, 127 A.D.3d 75, 85; see Ka Foon Lo v Curis, 29 A.D.3d 525, 526). "The only exception to this rule is where the parties clearly intended that the particular provision of the contract supporting the claim would survive the delivery of the deed" (TIAA Global Invs., LLC v One Astoria Sq. LLC, 127 A.D.3d at 85; see Ka Foon Lo v Curis, 29 A.D.3d at 526).

Here, since the sale of the Valatie property closed, the deed was delivered, and the contract demonstrated that the parties did not intend that any provision of the contract would survive delivery of the deed, the doctrine of merger extinguished any claim the plaintiffs may have had regarding the contract of sale (see Perez-Faringer v Heilman, 95 A.D.3d at 854; Ka Foon Lo v Curis, 29 A.D.3d at 526). Moreover, to the extent that the cause of action alleging breach of contract was premised on the defendants' alleged breach of the implied covenant of good faith and fair dealing (see generally New York Univ. v Continental Ins. Co., 87 N.Y.2d 308, 318; Elmhurst Dairy, Inc. v Bartlett Dairy, Inc., 97 A.D.3d 781, 784), the Supreme Court properly determined, in effect, that such cause of action failed since it was based upon the same omissions that were alleged in connection with the causes of action sounding in fraud.

Finally, the plaintiffs failed to meet their burden of demonstrating that the defendants' summary judgment motion should have been denied as premature since the plaintiffs did not identify facts essential to justify opposition to the motion that were exclusively within the defendants' knowledge and control (see Mogul v Baptiste, 161 A.D.3d 847, 848; Haidhaqi v Metropolitan Transp. Auth., 153 A.D.3d 1328, 1329; Miller v Icon Group LLC, 77 A.D.3d 586, 588).

Accordingly, the Supreme Court properly granted the defendants' motion for summary judgment dismissing the complaint.

DILLON, J.P., CHRISTOPHER, GENOVESI and VOUTSINAS, JJ., concur.