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Electricity-Supplier (Con Edison) Did Not Owe a Duty of Care to a Shareholder in an Apartment Cooperative Who Fell in a Common Area During a Power Outage/Plaintiff’s Lack of Knowledge of the Cause of His Fall Was Fatal to the Lawsuit

The Second Department determined the electricity-supplier, Con Edison, did not owe a duty of care to plaintiff, a shareholder in an apartment cooperative, who fell in a common area of the building during a power outage. In addition, the plaintiff’s lack of knowledge re: the cause of his fall was fatal to the lawsuit:

The Court of Appeals has held that an electricity-supplying utility “is not answerable to the tenant of an apartment building injured in a common area as a result of [the utility’s] negligent failure to provide electric service as required by its agreement with the building owner” (Strauss v Belle Realty Co., 65 NY2d 399, 405; see Milliken & Co. v Consolidated Edison Co. of N.Y., 84 NY2d 469). Contrary to the plaintiffs’ contention, the injured plaintiff’s status as a shareholder in the cooperative corporation that owned the building did not make him a party to the contract with Con Edison, such that Con Edison owed him a duty of care… . * * *

“[A] plaintiff’s inability to identify the cause of the fall is fatal to the cause of action, because a finding that the defendant’s negligence, if any, proximately caused the plaintiff’s injuries would be based on speculation” … . Here, the injured plaintiff testified at his deposition that he did not know why he fell, did not know whether he tripped or slipped, and had no memory of the fall. When he was asked if he knew why he fell, the injured plaintiff testified: “That’s speculation. I don’t know.” In addition, the building defendants submitted the deposition testimony of two witnesses who stated that the injured plaintiff appeared to be intoxicated at the time of the accident. Thus, the building defendants demonstrated that it was just as likely that the accident was caused by some factor other than poor lighting conditions in the stairwell, such as a misstep, a loss of balance, or intoxication, and thus “any determination by the trier of fact as to causation would be based upon sheer conjecture” … . O’Connor v Metro Mgt. Dev., Inc., 2015 NY Slip Op 05921, 2nd Dept 7-8-15

 

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A Misrepresentation Which Is the Subject of a Provision in a Contract May Be the Basis for a Distinct Fraud Cause of Action Which Is Not Duplicative of the Breach of Contract Cause of Action

The First Department, over a dissent, determined that misrepresentations supported both a claim for breach of contract and a claim for fraud in the inducement. The facts of the case are laid out in the dissent and are not summarized here. The misrepresentations involved the alleged failure to disclose an audit prior to the sale of a company which, plaintiff alleged, induced plaintiff to pay more than the company was worth. The majority offered a clear explanation of the legal requirements for a distinct fraud (tort) cause of action which is not duplicative of the related breach of contract cause of action:

It is axiomatic that in order to state a claim for fraudulent inducement, “there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury” … . In the context of a contract case, the pleadings must allege misrepresentations of present fact, not merely misrepresentations of future intent to perform under the contract, in order to present a viable claim that is not duplicative of a breach of contract claim … . Moreover, these misrepresentations of present fact must be “collateral to the contract and [must have] induced the allegedly defrauded party to enter into the contract … . Therefore, “[a]s a general rule, to recover damages for tort in a contract matter, it is necessary that the plaintiff plead and prove a breach of duty distinct from, or in addition to, the breach of contract” … . * * *

… [The] representations were … warranted to be accurate at the time the contract was entered into and made for the purposes of inducing the plaintiffs to purchase those loans. They were designed to be relied on to arrive at an accurate value of the loans, and the value of the company being purchased here. These misrepresentations did not merely evince “an insincere promise of future performance [but were] instead . . . misrepresentation[s] of then present facts that were collateral to the contract, and thus plaintiff sufficiently alleged a cause of action sounding in fraud” … .Wyle Inc. v ITT Corp., 2015 NY Slip Op 05877, 1st Dept 7-7-15

 

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Questions of Fact About Defendant’s Actual or Constructive Notice of Liquid on Floor—Question of Fact Whether Contract Food Service Launched and Instrument of Harm Such that the Food Service Contract Gave Rise to Tort Liability to Plaintiff

The First Department determined summary judgment should not have been granted to the defendants in a slip and fall case. The complaint alleged that there was liquid on the floor of a women’s homeless shelter operated by defendant Camba.  The complaint further alleged that plaintiff frequently observed liquid on the floor after defendant food service, Whitson’s, delivered prepared food. Plaintiff also alleged she had complained about the condition to Camba’s maintenance staff. The First Department found the affidavit of Camba’s employee did not demonstrate the absence of actual or constructive notice (no evidence of the cleaning schedule was presented).  The First Department also found there was a question of fact whether Whitson’s launched an instrument of harm, which would support tort liability for plaintiff’s fall arising from Whitson’s food service contract with Camba:

Camba failed to make a prima facie showing that it lacked constructive notice of the liquid on the floor. Although Camba’s employee testified that she completed her inspection of the building about an hour before the accident, and that it was her usual custom and practice to pass by the area where plaintiff claims she fell, she could not recall whether she inspected the accident location itself that afternoon when she made her rounds … . Her affidavit stating that she did not observe a slippery substance or liquid on the hallway floor during her daily rounds did not satisfy Camba’s burden of showing it had no actual or constructive notice of the dangerous condition alleged and that it did not exist for a sufficient length of time prior to the accident to permit Camba employees to discover and remedy it … . Camba also failed to present evidence regarding the shelter’s cleaning schedule, and Camba’s employee lacked personal knowledge regarding the shelter’s maintenance … .

Even if Camba had met its initial burden, the record shows that there exists a question of fact as to whether it had notice of a recurring condition. Plaintiff’s testimony that she frequently would see liquid leaking from Whitson’s Food’s delivery crates at the accident location, and that she complained to Camba’s maintenance staff about the liquid, is sufficient to raise a triable issue of fact as to a recurring condition … .

Whitson’s Food, which had a contract with Camba to provide cooked meals for the shelter, failed to make a prima facie showing that it did not launch a force or instrument of harm by dropping liquid on the floor when it delivered food to the shelter on the day of the accident … . The deposition testimony from an employee of Whitson’s Food was insufficient to show that Whitson’s Food did not cause or create the liquid condition, since he lacked personal knowledge as to whether the floor was clean after Whitson’s Food delivered the food … . Jackson v Whitson’s Food Corp., 2015 NY Slip Op 05889, 1st Dept 7-7-15

 

In the Context of a Pre-Answer Motion to Dismiss, the Statute of Frauds Barred Actions Stemming from Advising Defendants in the Actual Negotiation of a Business Opportunity, But Did Not Bar Actions Stemming from Advising Defendants Whether to Negotiate a Business Opportunity

The Court of Appeals, in a full-fledged opinion by Judge Fahey, determined, in the context of a pre-answer motion to dismiss, the statute of frauds did not bar the causes of action which stemmed from plaintiff’s advising defendants whether to negotiate a business opportunity, as opposed to the causes of action stemming from plaintiff’s advising defendants in the actual negotiation of a business opportunity (which were barred by the statute of frauds).

Here we are specifically concerned with General Obligations Law § 5-701 (a) (10), which “appl[ies] to a contract implied in fact or in law to pay reasonable compensation” and which provides that “[e]very agreement, promise or undertaking is void, unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent, if such agreement, promise or undertaking . . . [i]s a contract to pay compensation for services rendered in . . . negotiating the purchase . . . of any real estate or interest therein, or of a business opportunity, business, its good will, inventory, fixtures or an interest therein . . . .” … . * * *

… [T]he allegations with respect [some of the projects] could be construed as seeking recovery for work performed so as to inform defendants whether to partake in certain business opportunities, that is, whether to negotiate. (emphasis added) To the extent the causes of action are based on such allegations, they are not barred by the statute of frauds.  JF Capital Advisors, LLC v Lightstone Group, LLC, 2015 NY Slip Op 05622, CtApp 7-1-15

 

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Company Which Contracted with County to Maintain Traffic Signals Did Not Owe a Duty to Plaintiff—Plaintiff Alleged a Malfunctioning Traffic Signal Caused an Accident in Which She Was Injured

Plaintiff alleged a traffic accident was the result of a malfunctioning traffic signal.  The defendant county had entered a traffic-signal maintenance contract with defendant Welsbach.  The Second Department determined that the contract between the county and Welsbach did not give rise to tort liability re: defendant Welsbach in favor of the plaintiff because the contract was not such that it displaced the county’s duty to maintain the traffic signal. The court explained the analytical criteria:

“[A] contractual obligation, standing alone, will generally not give rise to tort liability in favor of a third party” … . Exceptions to this general rule exist “(1) where the contracting party, in failing to exercise reasonable care in the performance of [its] duties, launche[s] a force or instrument of harm; (2) where the plaintiff detrimentally relies on the continued performance of the contracting party’s duties[;] and (3) where the contracting party has entirely displaced the other party’s duty to maintain the premises safely” … . Welsbach established, prima facie, that it did not owe the plaintiff a duty of care, since its limited maintenance contract with the County did not displace the County’s duty to maintain the traffic signal at the subject intersection in a reasonably safe condition and it did not launch an instrument of harm … . Watt v County of Nassau, 2015 NY Slip Op 05668, 2nd Dept 7-1-15

 

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An Assignment of a Note, Which Was Silent About Whether the Assignment of the Right to Bring a Tort Action Was Included, Did Not, Under New York Law, Include the Right to Bring a Tort Action

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined the assignment of a note, which was silent about whether the assignment included the right to bring a tort action, did not include such a right. Therefore the Second Circuit’s certified question whether the assignee of the note had standing to sue Morgan Stanley for fraud was answered in the negative. The case arose out of the collapse in value of sub-prime residential mortgage-backed securities. The court explained the relevant New York law:

To be sure, fraud claims are freely assignable in New York … . It has long been held, however, that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note … . Thus, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language — although no specific words are required — that evinces that intent and effectuates the transfer of such rights … . Without a valid assignment, “only the . . . assignor may rescind or sue for damages for fraud and deceit” because “the representations were made to it and it alone had the right to rely upon them” … . Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. v Morgan Stanley & Co., Inc., 2015 NY Slip Op 05591, CtApp 6-30-15

 

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Unambiguous Language in Rider Covered Loss Caused by Hackers Gaining Unauthorized Access to the Insured’s Computers, Not Loss Caused by Fraudulent Billing Entries by Authorized Users

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined the rider in a financial institution bond covered loss caused by hackers gaining access to the insured’s computer system, not loss caused by the entry of fraudulent billing information into the computer system by authorized users.  Here fraudulent medical claims made by authorized users of the computer system cost the insured (Universal) $18 million. The language of the relevant rider was deemed unambiguous:

… [W]e conclude that it unambiguously applies to losses incurred from unauthorized access to Universal’s computer system, and not to losses resulting from fraudulent content submitted to the computer system by authorized users. The term “fraudulent” is not defined in the Rider, but it refers to deceit and dishonesty (see Merriam Webster’s Collegiate Dictionary [10th ed 1993]). While the Rider also does not define the terms “entry” and “change,” the common definition of the former includes “the act of entering” or “the right or privilege of entering, access,” and the latter means “to make different, alter” (id.). In the Rider, “fraudulent” modifies “entry” or “change” of electronic data or computer program, meaning it qualifies the act of entering or changing data or a computer program. Thus, the Rider covers losses resulting from a dishonest entry or change of electronic data or computer program, constituting what the parties agree would be “hacking” of the computer system. The Rider’s reference to “fraudulent” does not also qualify what is actually acted upon, namely the “electronic data” or “computer program” itself. The intentional word placement of “fraudulent” before “entry” and “change” manifests the parties’ intent to provide coverage for a violation of the integrity of the computer system through deceitful and dishonest access.

Other language in the Rider confirms that the Rider seeks to address unauthorized access. First, the Rider is captioned “Computer Systems,” and the specific language at issue is found under the subtitle “Computer Systems Fraud.” These headings clarify that the Rider’s focus is on the computer system qua computer system. Second, under “EXCLUSIONS,” the Rider exempts from coverage losses resulting directly or indirectly from fraudulent instruments “which are used as source documentation in the preparation of Electronic Data, or manually keyed into a data terminal.” If the parties intended to cover fraudulent content, such as the billing fraud involved here, then there would be no reason to exclude fraudulent content contained in documents used to prepare electronic data, or manually keyed into a data terminal. Universal Am. Corp. v National Union Fire Ins. Co. of Pittsburgh, PA., 2015 NY Slip Op 05516, CtApp 6-25-15

 

Lost Profits Sufficiently Proven in Breach of Contract Action—Criteria Explained

In affirming the judgment, the Second Department explained the criteria for the award of lost profits as damages in a breach of contract action:

To prevail on a cause of action alleging breach of contract, the plaintiff must demonstrate that it sustained “actual damages as a natural and probable consequence” of the defendant’s breach … . Where the plaintiff seeks to recover damages for lost profits, such profits must also be “within the contemplation of the parties at the time the contract was entered into” and, even though required to be proven with reasonable certainty, damages “resulting from the loss of future profits are often an approximation” … . Here, contrary to the defendant’s contentions, the evidence and credible testimony adduced at trial demonstrated that the plaintiff incurred actual damages due to the defendant’s breach of the agreement … . The plaintiff’s witness testified that he determined the lost profits for the plaintiff by subtracting the expenses from the revenue, which would have been generated [if the contract had not been breached]. The evidence produced by the plaintiff provided a reasonably reliable foundation upon which to calculate the plaintiff’s damages … . Family Operating Corp. v Young Cab Corp., 2015 NY Slip Op 05437, 2nd Dept 6-24-15

 

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Elements of Negligence, General Business Law 349 and Tortious Interference with Contract Causes of Action Succinctly Described

The Second Department determined that Supreme Court properly dismissed (for failure to state a cause of action) the negligence cause of action, should not have dismissed the General Business Law 349 cause of action, and properly denied the motion to dismiss the tortious interference with contract cause of action. The court succinctly described the elements of the three causes of action (facts not described in the decision):

To prevail on a negligence cause of action, a plaintiff must establish the existence of a legal duty, a breach of that duty, proximate causation, and damages. “Absent a duty of care, there is no breach, and without breach there can be no liability” … . * * *

To state a cause of action under General Business Law § 349, the complaint must allege that ” a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice'” … . * * *

The elements of a cause of action to recover damages for tortious interference with contract are the existence of a valid contract between it and a third party, the defendant’s knowledge of that contract, the defendant’s intentional procurement of the third party’s breach of that contract without justification, and damages … . MVB Collision, Inc. v Allstate Ins. Co., 2015 NY Slip Op 05453, 2nd Dept 6-24-15

 

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Purchasers Entitled to Return of Downpayment Under Terms of the Purchase Contract and Pursuant to General Obligations Law 5-1311—Home Damaged by Hurricane Sandy Before Appraisal by Lender

The Second Department determined Supreme Court should have granted the purchasers’ motion for summary judgment on the complaint seeking return of the downpayment.  The contract for sale of real property was contingent upon purchasers receiving a commitment for a loan.  The commitments received by the purchasers were contingent upon a property appraisal.  The house was damaged in Hurricane Sandy and the lender, based upon the post-Sandy appraisal, would not issue the loan. The Second Department determined the purchasers were entitled to a return of their downpayment under the terms of the contract and pursuant to General Obligations Law 5-1311:

“For more than a century it has been well settled in this State that a vendee who defaults on a real estate contract without lawful excuse, cannot recover the down payment” … . Where, however, the obligations of a purchaser under a contract of sale are contingent upon the issuance of a firm financing commitment by a lender, a purchaser may be entitled to recover the down payment if he or she was unable to secure a firm commitment in accordance with the terms of the contract … .

Here, the contract of sale was conditioned upon the issuance of a written commitment from an institutional lender. The contract of sale expressly provided that “a commitment conditioned on the Institutional Lender’s approval of an appraisal shall not be deemed a Commitment’ hereunder until an appraisal is approved.” Accordingly, the plaintiffs established their prima facie entitlement to judgment as a matter of law by demonstrating that they were unable to secure a firm commitment in accordance with the contract of sale, and that they were entitled to the return of their down payment pursuant to the terms of the contract … . In addition, the plaintiffs demonstrated, prima facie, that they were entitled to a return of their down payment by virtue of General Obligations Law § 5-1311, since a “material part” of the property was destroyed by Hurricane Sandy before legal title or possession of the property could be transferred (General Obligations Law § 5-1311[1][a][1]). Walsh v Catalano, 2015 NY Slip Op 05468, 2nd Dept 6-24-15

 

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