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New York Has Not Adopted the “First Clause” Doctrine for Interpretation Contracts with Conflicting Provisions

The First Department noted that New York has not adopted the “first clause” doctrine of contract interpretation with respect to conflicting provisions, i.e., the clause appearing first in the agreement does not necessarily control:

The motion court correctly reconciled apparently conflicting provisions of the partnership agreement, giving meaning to both … . Contrary to plaintiff’s contention, the provision that appears first does not automatically govern, as New York has not adopted the “first clause” doctrine of contract interpretation … . Further, as plaintiff concedes, her interpretation of the contract renders section 6.8(b) superfluous, depriving it of all effect. Section 6.8(a) provides that “[a]; voluntary dissolution (including any dissolution by law resulting from only one Partner remaining . . . following the death . . . of the other Partner(s)) and termination of the Partnership shall override any of the provisions of this Article VI . . . .” Section 6.8(b) of the agreement provides that the partnership will survive the death of a partner if a new partner is admitted no more than 90 days after the death. When read together, these sections provide for dissolution upon the death of a partner unless a new partner is admitted within 90 days … . Le Bel v Donovan, 2014 NY Slip Op 03608, 1st Dept 5-20-14

 

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Court Has Inherent Authority to Reinstate Indictment After Dismissal for Legal Insufficiency

The First Department determined the motion court properly exercised its discretion in reinstating the indictment when presented with a portion of the grand jury minutes which had inadvertently been omitted from the original submission.  The court had dismissed the indictment finding the grand jury evidence legally insufficient:

The court had inherent authority to reinstate the indictment …, and defendant’s claim that the indictment was unlawfully amended is without merit, because the text of the indictment remained unchanged. People v Godbold, 2014 NY Slip Op 03624, 1st Dept 5-20-14

 

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No Liability for Out-of-Possession Landlord—No “Significant Structural Defect” and No Code Violation

The First Department determined the out-of-possession landlord could not be held liable for an accident which occurred on a spiral staircase in a restaurant which connected a basement prep kitchen to the main-floor kitchen.  The staircase was not a “significant structural defect” and did not violation any provision of the NYC Administrative Code:

Liability does not lie against defendant out-of-possession landlord because the claimed riser, tread and handrail violations were not significant structural defects … . The staircase was not an “interior stair” as defined in § 27-132 of the NYC Administrative Code …. . Nor were the claimed violations of former §§ 27-127 and 27-128 specific statutory safety provisions that may serve as predicates for defendant landlord’s liability … . It is therefore immaterial whether landlord had notice of the allegedly dangerous condition or retained a right to reenter … . Podel v Glimmer Five LLC, 2014 NY Slip Op 03635, 1st Dept 5-20-14

 

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Broker’s Complaint Stated Causes of Action for Breach of Implied Contract and Unjust Enrichment—Complaint Alleged Broker Was Entitled to a Commission Where Defendant Buyers Abandoned the Potential Purchase in which Broker Was Involved and 18 Months Later Purchased Nearly Identical Property from the Same Seller

The First Department, in a full-fledged opinion by Justice Acosta, determined a real estate broker (SPRE) had sufficiently stated causes of action for breach of implied contract and unjust enrichment.  The complaint alleged that the broker introduced the defendants to the developer of condominium units (397 West) and found an architect.  The defendants subsequently informed the broker they were no longer looking to buy.  18 months later the defendants purchased different but nearly identical condominium units from the same developer:

In this appeal, we must determine whether plaintiff broker has alleged facts sufficient to establish its entitlement to a commission on the sale of real estate, where it expended significant effort locating an apartment for buyers who abandoned the transaction and purchased another apartment in the same building 18 months later. In addition, we take this opportunity to clarify the standard by which a broker may be found to have been the “procuring cause” of a real estate transaction. We find that the complaint sufficiently alleges that plaintiff was a direct and proximate link between the introduction of defendant buyers and the seller and the consummation of the transaction to withstand defendants’ motion to dismiss. * * *

“[I];n the absence of an agreement to the contrary, a real estate broker will be deemed to have earned his commission when he [or she]; produces a buyer who is ready, willing and able to purchase at the terms set by the seller” … . A broker does not earn a commission merely by calling the property to the attention of the buyer … . But this does not mean that the broker “must have been the dominant force in the conduct of the ensuing negotiations or in the completion of the sale” (id. at 206). Rather, the broker must be the “procuring cause” of the transaction, meaning that “there must be a direct and proximate link, as distinguished from one that is indirect and remote,” between the introduction by the broker and the consummation of the transaction … . * * *

In the present case, … under the … “direct and proximate link” standard, we find that the allegations in the complaint sufficiently state that SPRE was the procuring cause of defendants’ purchase of the second duplex at 397 West. SPRE brought defendants to the building on several occasions; introduced defendants to the developer and attended several meetings between the developer and defendants; reviewed floor plans with defendants; negotiated favorable terms for defendants on the original units; prepared a deal sheet with defendants’ preliminary offer terms on the first duplex for the developer’s consideration; drafted a contract of sale; and connected defendants with a reputable architect whom SPRE specially selected to implement defendants’ design plans. Affording these allegations a liberal construction, we find that they establish that SPRE’s actions and efforts may have been a direct and proximate link between the introduction of defendants to the developer and defendants’ purchase of the second duplex at 397 West. Whether SPRE was the procuring cause “is a question of fact to be decided on the evidence” … . SPRE Realty Ltd v Dienst, 2014 NY Slip Op 03642, 1st Dept 5-20-14

 

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Party Who Was Both a Plaintiff and a Defendant in a Joint Trial of Two Actions Was Properly Allowed to Have Two Attorneys

The First Department determined a party who was a plaintiff in one case and a defendant in another was properly allowed to have two attorneys in the joint trial.  Pimentel was involved in an automobile accident with Wong.  Wong’s car jumped the curb and crashed into a store, injuring plaintiff Newark. Newark sued Wong and Pimentel and Pimentel sued Wong.  Pimentel was represented in each action by separate attorneys:

The trial court did not abuse its discretion in allowing Pimentel’s interests as a plaintiff in his own action and as a defendant in this action to be represented by separate attorneys (see CPLR 4011…). The court promised to and did exert control over the nature of the dual representation, as necessary, and Pimentel’s defense counsel, whose opening statement, summation, and questioning of witnesses were brief, played a limited role. In any event, in the absence of any evidence of an unfair advantage or prejudice, any error would be harmless. Newark v Hector R. Pimentel, 2014 NY Slip Op 03636, 1st Dept 5-20-14

 

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EPTL 2-1.13, Which Required that Certain Formula Clauses in Trusts and Wills Be Calculated as if Federal Estate Taxes Were Paid in 2010 (When the Tax Had Expired) , Did Not Apply to the Grantor Retained Annuity Trusts at Issue Here

The First Department determined Surrogate’s Court properly determined how to distribute two grantor retained annuity trusts (GRATs).  The grantor died in 2010. Because the federal estate had expired in 2010, executors were permitted to pay no estate tax that year and the executors so elected in this case. A clause in the GRATs provided that whatever fraction of the assets in the GRATs is “includable in the Grantor’s gross estate for Federal estate tax purposes” passes into the estate, and any remainder is distributed equally to the three children.   The court held that EPTL 2-1.13, which required that, in 2010, certain formula clauses in trusts and wills be calculated as if the federal estate tax had been paid, did not apply.  Therefore, all of the assets in the GRATs were to be distributed equally:

A review of the legislative history of EPTL 2-1.13(a)(1) reveals that its purposes were quite narrow and that it was primarily a legislative fix enacted to prevent the thwarting of the well-intentioned estate plans of those who, in good faith reliance on the existence of an estate tax in 2010, bequeathed significant portions of their estates to persons other than their spouses, so they could take full advantage of the spousal estate tax exemption. For people who died in 2010, the expiration of the estate tax not only nullified oft-utilized tax planning strategies, but threatened to leave their spouses with less money than they otherwise would have received, and with no concurrent benefit. The Legislature, by enacting EPTL 2-1.13(a)(1), saved these estate plans by permitting their creators to adopt the fiction that they paid an estate tax, even if they did not.

There is no evidence here that the GRATs at issue were created with the specific goal of taking advantage of spousal exemptions based on the federal estate tax, or were structured for similar purposes. Further, the Legislature did not contemplate that the repeal of the tax law would implicate the formula clause at issue here. The clause here references federal estate tax laws not to minimize tax liability, but to account for an uncertain value to include in the taxable estate upon death of the grantor, to be distributed in proportion to each of the beneficiaries’ taxable share of the estate … . Thus, contrary to petitioner’s assertions, the GRATs’ reference to the amount of trust property “includible in the Grantor’s gross estate for Federal estate tax purposes” is not analogous to the “amount that can pass free of federal estate taxes, or that is otherwise based on a similar provision of federal estate tax,” as EPTL 2-1.13(a)(1) recites.  Matter of Kirschner v Fisher, 2014 NY Slip Op 03626, 1st Dept 5-20-14

 

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Purchaser of a Hazardous Waste Treatment, Storage or Disposal Facility Was Not Required to Provide Financial Assurance for the Ongoing Performance of Corrective Action Imposed Upon the Prior Owner

The Third Department, reversing the Department of Environmental Conservation Commissioners ruling below on an issue of first impression, determined the subsequent owner of property formerly used as a permitted hazardous waste treatment, storage or disposal (TSD) facility was not required to provide financial assurance for the ongoing performance of corrective action imposed upon the prior owner.  The decision includes an exhaustive analysis of all the relevant statutes and regulations:

In essence, respondents seek to impose strict liability to provide financial assurance, in perpetuity, on all subsequent owners of property on which a former TSD facility was operated. Had this been the Legislature’s intent, rather than relegate us to a strained analysis of multiple regulations in order to reach that conclusion, it would have done so expressly. Indeed, the Legislature did exactly that in the context of New York’s “Superfund Law,” which requires the owner of an inactive hazardous waste disposal site, and/or any person responsible for the disposal of hazardous wastes at such site, to take remedial action … . Other examples of New York statutes imposing “strict liability” on property owners are the Oil Spill Act (see Navigation Law § 181 [1]) and the Scaffold Law (see Labor Law § 240 [1]). Thus, there can be no doubt that, if the Legislature had intended to impose liability on landowners for providing financial assurance under New York’s version of RCRA —[Resource Conservation and Recovery Act] without regard to whether they had ever operated a TSD facility on the property in question — clear language to that effect could easily have found its place in the statute and regulations. While such a result would not be inconsistent with the laudatory environmental purposes of this regulatory scheme, absent such language, we discern no legal basis for the Commissioner to create such a requirement. To the extent that the Commissioner interpreted the regulations otherwise, such interpretation was arbitrary and capricious and affected by an error of law and we, therefore, annul his determination, as well as the penalties imposed on petitioners.  Matter of Thompson Corners LLC v New York State Dept of Envtl Conservation, 2014 NY Slip Op 03556, 3rd Dept 5-15-14

 

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Derivative Neglect Finding Reversed—Operative Principles Explained

The Third Department reversed Family Court, finding the evidence insufficient to support an allegation of derivative neglect. The theory below was that the alleged abuse of one child, Dominick, was serious enough to warrant a finding of derivative neglect with respect to a child (Brad) who had not been born at the time of the alleged neglect of Dominick.  In the course of the decision, the court explained the operative principles:

Pursuant to Family Ct Act § 1046 (a) (i), “proof of the abuse or neglect of one child shall be admissible evidence on the issue of the abuse or neglect of any other child of . . . the respondent.” However, “[e]vidence of neglect of one child typically may not serve as the sole basis for a finding of neglect [of another child, unless] the nature of the direct [neglect], notably its duration [and] the circumstances surrounding its commission[,] . . . evidence[s] fundamental flaws in the respondent’s understanding of the duties of parenthood” … . — flaws that are “so profound as to place any child in his or her care at substantial risk of harm” … . Contrary to the father’s assertion, petitioner’s failure to commence a direct neglect proceeding against him with respect to Dominick does not bar petitioner from maintaining this derivative neglect proceeding against him with respect to Brad. Similarly, the fact that Brad had yet to even be conceived — much less born — at the time of the home invasion or the search of the father’s residence is not dispositive, as the relevant inquiry is whether the evidence of the direct neglect of one child, i.e., Dominick, “is so proximate in time to the derivative proceeding that it can reasonably be concluded that the condition still exists” … . Matter of Brad I (Tiana K), 2014 NY Slip Op 03555, 3rd Dept 5-15-14

 

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Ambiguous Terms Interpreted to Give Meaning to All Terms—Here Water Damage Caused By Plumbing Backup Originating in Building Was Covered—Water Damage Caused By Plumbing Backup Originating Outside the Building Was Not Covered

The Third Department determined ambiguous terms in an insurance policy concerning whether water backing up through plumbing to cause damage was excluded were properly interpreted by Supreme Court. The ambiguous terms were interpreted to mean that damage from water backing up caused by a problem within the buildings own plumbing is covered, but similar damage caused by a backup originating outside the building (a municipal sewer system, for example) was not covered:

Where an insurer relies on an exclusion to avoid coverage, it has the burden of demonstrating “that the exclusion is stated in clear and unmistakable language, is subject to no other reasonable interpretation, and applies in the particular case” … . Moreover, we are “obligat[ed] to interpret the exclusion in a manner that gives full force and effect to the policy language and does not render a portion of the provision meaningless” … . “While [u]nambiguous provisions of a policy are given their plain and ordinary meaning, where policy language is unclear or subject to multiple reasonable interpretations, such ambiguities are resolved against the insurer” … .

In our view, when the exclusion and coverage provisions at issue here are read together, an ambiguity exists in the insurance policy as to losses resulting from a backup and/or overflow from sewers, drains and/or plumbing systems. Although the resolution of this ambiguity appears to be an issue of first impression in this state, Supreme Court’s analysis — that a plumbing system, as referenced in the coverage provision, includes drains that are on the insured’s property — is consistent with decisions in other jurisdictions that have interpreted the interplay of competing provisions similar to those in question here … . Pichel v Dryden Mut Ins Co 2014 NY Slip Op 03575, 3rd Dept 5-15-14

 

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Damage to Building Caused by Faulty Workmanship Not Caused by an “Occurrence” Within the Meaning of a Commercial General Liability Policy

The First Department, in a full-fledged opinion by Justice Saxe, determined that the term “occurrence” in a policy covering building construction work did not encompass damage to the building caused by faulty workmanship.  Here, a portion of an exterior wall fell to the street.  It was determined that the cause was flaws in the way the wall was constructed:

There is no “occurrence” under a commercial general liability policy where faulty construction only damages the insured’s own work …, and faulty workmanship by subcontractors hired by the insured does not constitute covered property damage caused by an “occurrence” for purposes of coverage under commercial liability insurance policies issued to the general contractor, since the entire project is the general contractor’s work … . In Baker Residential v Travelers Ins. Co. (10 AD3d 586, 587 [1st Dept 2004]), where a developer delivered and installed defective structural beams that deteriorated from water penetration due to improper installation, flashing and waterproofing, this Court held that the damages sought by the developer did not arise from an “occurrence” resulting in damage to third-party property distinct from the developers’ own “work product.” And in Direct Travel v Aetna Cas. & Sur. Co., 214 AD2d 484, 485 [1st Dept 1995]), this Court explained that “[s]ince the claims asserted in the underlying action were for economic loss resulting from the plaintiff’s purported breach of contract, coverage was also properly disclaimed under the umbrella policy which covered only damages because of bodily injury’ [or] property damage’ . . . [c]aused by an occurrence'” … . * * *

“[T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an accident’ or occurrence'” … . As the motion court recognized, the addition of “event” or “happening” to the definition of “occurrence” did not alter the legal requirement that the “occurrence” triggering the coverage must be fortuitous. “[T]he requirement of a fortuitous loss is a necessary element of insurance policies based on either an accident’ or occurrence'” … . “[A] claim for faulty workmanship, in and of itself, is not an occurrence under a commercial general liability policy because a failure of workmanship does not involve the fortuity required to constitute an accident” … . National Union Fire Ins Co of Pittsburgh PA v Turner Constr Co, 2014 NY Slip Op 03671, 1st Dept 5-15-14

 

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