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ALTHOUGH REFORMATION OF THE CONTRACT MAY HAVE CONSTITUTED REVERSIBLE ERROR HAD A COURT DONE IT, THE REFORMATION WAS APPROPRIATE IN THE CONTEXT OF AN ARBITRATION OF THIS COMPLEX COMMERCIAL DISPUTE; THE ARBITRATION AWARD WAS PROPERLY CONFIRMED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Oing, determined that, under the highly deferential standard of court-review of arbitration awards, the award here was properly confirmed, despite an error which might have required reversal if committed by a court. The underlying facts (the provisions of the contract) are too complex to fairly summarize here:

The arbitrator’s reason for inserting a $10 million deduction * * * [was] not in reliance on any of the provisions set forth in the [contract]. Among other arguments made to the arbitrator, petitioner requested that the relevant portion of the … agreement be reformed … . Although the arbitrator did not expressly so characterize his determination, reformation was, in substance, the permissible relief he granted (see Matter of SCM Corp. [Fisher Park Lane Co.], 40 NY2d 788, 792-793 [1976] [arbitrators have the power to fashion remedies, such as reformation, appropriate to the resolution of the dispute]). While a court’s grant of reformation based on this record might constitute reversible error, the arbitrator’s determination here passes muster, given the extremely limited scope of our review of an arbitration award (see American Intl Specialty Lines Ins. Co. v Allied Capital Corp., __ NY3d [*4]__, 2020 NY Slip Op 02529 [2020] [arbitrators routinely use their expertise to orchestrate expeditious resolutions to complex commercial legal disputes and courts are discouraged from becoming unnecessarily entangled in arbitrations]). … The result the arbitrator reached … is supportable as a reformation of the parties’ agreement, given the highly deferential standard of review accorded arbitration awards under CPLR article 75 … . Matter of Rose Castle Redevelopment II, LLC v Franklin Realty Corp., 2020 NY Slip Op 03293, First Dept 6-11-20

 

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ALTHOUGH THE REAL ESTATE PURCHASE AGREEMENT ALLOWED THE SELLER TO CANCEL THE CONTRACT IF SELLER COULD NOT CONVEY TITLE, THAT PROVISION REQUIRES THE SELLER TO ACT IN GOOD FAITH; THE COMPLAINT ALLEGED THE SELLER FALSELY CLAIMED TO BE THE SOLE OWNER OF THE PROPERTY WHEN IN FACT SHE OWNED 50%; THE SELLER’S MOTION TO DISMISS THE COMPLAINT SEEKING SPECIFIC PERFORMANCE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT). ​

The Second Department, reversing Surrogate’s Court, determined the motion to dismiss the complaint seeking specific performance of a real estate purchase agreement should not have been granted. Although the contract allowed the seller to refund the down payment and cancel the contract if the seller is unable to convey title, the seller must do so only in good faith and only if the buyers reject the defective title. Here the complaint alleged the seller fraudulently claimed she was the sole owner of the property, when in fact she owned only 50%:

“Where, as here, a contract for the sale of real property provides that in the event the seller is unable to convey title in accordance with the terms of the contract, the seller may refund the buyer’s down payment and cancel the contract without incurring further liability, that limitation contemplates the existence of a situation beyond the parties’ control and implicitly requires the seller to act in good faith'” … . Contrary to the Surrogate’s Court’s determination, the … complaint set forth cognizable causes of action sounding in breach of contract, fraud, and unjust enrichment, among other things, upon allegations that the seller wilfully failed to supply good and marketable title and rescinded the contract of sale even though the buyer and the appellants did not reject the defective title … . Matter of Valderrama, 2020 NY Slip Op 03236, Second Dept 6-10-20

 

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THE ARBITRATION AGREEMENT CALLED FOR NOTIFICATION OF AN ARBITRATION BY CERTIFIED MAIL; ALTHOUGH THE APPELLANT APPARENTLY NEVER PICKED UP THE MAILED NOTICE AND DID NOT APPEAR AT THE ARBITRATION, HER DUE PROCESS RIGHTS WERE NOT VIOLATED; THE PARTIES’ AGREEMENT ON THE METHOD OF SERVICE CONTROLS (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Miller, determined the appellant, a registered broker with the Financial Industry Regulatory Authority (FINRA), was bound by the notice requirements in the arbitration agreement. The agreement called for notification of an arbitration by certified mail. The appellant did not appear and her former client was awarded over $3 million. The appellant sought to vacate the award arguing that notification by mail deprived her of due process because she was often away from her residence and the client was aware she could be contacted by email. The certified mail notification was never picked up by the appellant:

… [I]n the context of binding arbitration, it is the parties’ consent which vests the authority in the arbitrator to decide a particular dispute. Accordingly, although the CPLR provides that a demand for arbitration, or a notice of intention to arbitrate, must be served “in the same manner as a summons or by registered or certified mail, return receipt requested” (CPLR 7503[c]), New York courts have long recognized that “parties to an arbitration agreement may prescribe a method of service different from that set forth in the CPLR” … . Indeed, “the parties may agree to other methods for service, either by stipulating the manner in the arbitration clause or, more generally, by adopting the arbitration rules of an arbitration agency” … . “Where . . . parties agree to the manner in which a demand for arbitration can be served, they do not have to comply with the service requirements established by CPLR 7503(c)” … . * * *

Where parties to an arbitration agreement have consented to an alternative method of service, “[t]he method of service by which parties have agreed to be bound must be complied with according to the exact terms thereof in order that the requirements of due process be satisfied” … . Matter of New Brunswick Theol. Seminary v Van Dyke, 2020 NY Slip Op 03114, Second Dept 6-3-20

 

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THE TOWN’S SEQRA NEGATIVE DECLARATION REGARDING THE EXPANSION OF A CAMPGROUND WAS ARBITRARY AND CAPRICIOUS; THE DEVELOPMENT AGREEMENT BETWEEN THE TOWN AND THE CAMPGROUND CONSTITUTED ILLEGAL CONTRACT ZONING (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the town planning board’s adoption of negative declaration pursuant to the State Environmental Quality Review Act (SEQRA) with respect to the expansion of a campground (BBFC) was arbitrary and capricious. The Second Department further found that the development contract between the town and BBFC constituted illegal contract zoning:

The Planning Board failed to adequately assess and consider the potential environmental impacts of the construction and expansion of the campground from 74 campsites to 154 campsites, and adopted the negative declaration based largely upon its finding that the campground had been operating 154 campsites—albeit illegally—for many years. Under the circumstances, the Planning Board’s adoption of the negative declaration was arbitrary and capricious.

… [T]he development agreement entered into between the Town Board and BBFC constituted illegal contract zoning. “[N]o municipal government has the power to make contracts that control or limit it in the exercise of its legislative powers and duties” … . The test is whether the development agreement committed the Town to a specific course of action with respect to a zoning amendment … . The Town Board agreed to amend the zoning code to permit 210-day occupancy limit, a change from the current 120-day occupancy limit, in exchange for BBFC’s agreement that the 210-day occupancy limit would apply to all of the campsites, including the original 74 approved campsites. This was an agreement binding on BBFC to give a form of consideration in exchange for legislative action and to limit the Town Board’s authority to change the bulk requirements in the zoning code until such time as BBFC would not be negatively affected by such change … . Matter of Neeman v Town of Warwick, 2020 NY Slip Op 03112, Second Dept 6-3-20

In the same matter, the Second Department determined the granting of an area variance for the campground, based upon the nonconforming campsites which had already been constructed, was arbitrary and capricious. Matter of Neeman v Town of Warwick, 2020 NY Slip Op 03113, Second Dept 6-3-20

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THE MERE DISCONTINUANCE OF THE PRIOR FORECLOSURE ACTION DID NOT DE-ACCELERATE THE MORTGAGE DEBT; EXPLICIT NOTICE OF DE-ACCELERATION IS REQUIRED EITHER IN THE MOTION TO DISCONTINUE ITSELF OR IN A SEPARATE NOTICE; THEREFORE THE INSTANT FORECLOSURE ACTION IS TIME-BARRED (SECOND DEPT).

The Second Department, reversing Supreme Court, in a full-fledged opinion by Justice Dillon, over an extensive partial dissent, determined the discontinuance of a prior foreclosure action did not, standing alone, de-accelerate the debt. Therefore the instant foreclosure action was time-barred. The Second Department noted that the plaintiff did not submit the motion papers for the discontinuance and therefore did not submit any evidence that the debt was explicitly de-accelerated in those papers, or in any other notice to the defendant. Such explicit notice is required:

A de-acceleration of the full debt revives the borrower’s right to make the monthly payments that became due between the time the loan was accelerated and the time the acceleration was revoked, together with the right to make future monthly installment payments. Since the borrower may continue to assume that its lender or servicer will not accept post-acceleration monthly payments, the lender, in order to effectively rescind the acceleration, should be required to notify the borrower that the right to make monthly payments is restored and that the lender will accept the tender of such payments … . * * *

A bare discontinuance of litigation does not nullify the fact that a contractual right to accelerate has been unilaterally exercised pursuant to the terms of a note. An acceleration of loan debt by the transmittal of a letter or by the commencement of an action in a court of law has legal implications, such as the financial penalties authorized under the note, the potential negative effect upon the borrower’s credit rating, and reliance by the borrower that monthly payments will no longer be expected or accepted and thereby prevent any pay-down of the balance owed. To occur, none of these or other consequences of an acceleration require any permission, ruling, stipulation, decision, or order of a court, as they are independent of the litigation … . Trust v Barua, 2020 NY Slip Op 03095, Second Dept 6-3-20

 

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THE OPTION TO RENEW THE LEASE WAS NOT ENFORCEABLE; IT WAS MERELY AN AGREEMENT TO AGREE (SECOND DEPT).

The Second Department, applying the “doctrine of definiteness” determined the option to renew the lease was not enforceable and the lease had therefore expired:

“The doctrine of definiteness or certainty is well established in contract law. In short, it means that a court cannot enforce a contract unless it is able to determine what in fact the parties have agreed to” … . Among the terms of a lease that must be known is the amount of rent that is to be paid … . The doctrine of definiteness, however, is not applied rigidly, and “where it is clear from the language of an agreement that the parties intended to be bound and there exists an objective method for supplying a missing term, the court should endeavor to hold the parties to their bargain” … . In the absence of an explicit contract term, the requirement of definiteness may be satisfied where: (1) the agreement itself sets forth an agreed methodology for determining the missing term within its four corners or (2) the agreement invites recourse to an objective extrinsic event, condition, or standard to ascertain the term … .

Here, the parties’ failure to set forth either the amount of rent to be paid during the renewal period, or an agreed formula, methodology, or objective extrinsic event by which that rent could be determined, rendered the option to renew an unenforceable agreement to agree … . Vizel v Vitale, 2020 NY Slip Op 03140, Second Dept 6-3-20

 

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LEASE WAS AMBIGUOUS ABOUT TENANT’S RESPONSIBILITY FOR INSTALLATION OF A STORMWATER DETENTION SYSTEM AND THE LANDLORD’S EXTRINSIC EVIDENCE DID NOT ELIMINATE QUESTIONS OF FACT; SUPREME COURT SHOULD NOT HAVE GRANTED THE LANDLORD’S MOTION FOR SUMMARY JUDGMENT (THIRD DEPT).

The Third Department, reversing Supreme Court, determined the terms of the lease were ambiguous and the extrinsic evidence submitted by the plaintiff landlord did not entitle the landlord to summary judgment. The landlord argued the defendant tenant was responsible under the lease for the installation of a stormwater detention system:

… [W]e cannot agree with Supreme Court’s conclusion that the lease unambiguously imposed a contractual responsibility on defendant, as tenant, to contract and pay for a new stormwater detention system, or that defendant was in default of the lease for failing to submit plans to that end … .

Given the ambiguity in the lease, resort to parol or extrinsic evidence is proper to discern the parties’ intent … . …

… [P]laintiff’s extrinsic evidence failed to resolve the lease ambiguity regarding responsibility for the new underground stormwater detention system, and did not “demonstrate the absence of any material issues of fact” in that regard … . Greene v Fast Eats Clifton Park, LLC, 2020 NY Slip Op 03055, Third Dept 5-27-20

 

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THERE WAS A QUESTION OF FACT WHETHER WATER ON THE FLOOR RESULTED FROM A RECURRING LEAK WHICH SHOULD HAVE BEEN NOTICED BY THE NYC HOUSING AUTHORITY; THERE WAS NO EVIDENCE THE ROOF-REPAIR CONTRACTORS HIRED BY THE HOUSING AUTHORITY LAUNCHED AN INSTRUMENT OF HARM; SUMMARY JUDGMENT SHOULD NOT HAVE BEEN AWARDED TO THE HOUSING AUTHORITY IN THIS SLIP AND FALL CASE BUT WAS PROPERLY AWARDED TO THE CONTRACTORS (FIRST DEPT).

The First Department, reversing Supreme Court, determined summary judgment should not have been granted to defendant NYC Housing Authority (NYCHA) in this slip and fall case. However, summary judgment was properly granted to the roof-repair contractors hired by the NYCHA to ensure the roof was watertight. There was no evidence the contractors launched an instrument of harm causing the accumulation of water on the floor which allegedly caused plaintiff’s fall. But there was evidence the water on the floor was caused by a recurring leak which should have been noticed by the NYCHA:

… [T]he Ruiz [eyewitness] affidavit established that leaks had existed in the ceiling for a long period of time before the accident, and that water from the ceiling had caused the accident. The photographs of the ceiling show discoloration and peeling paint that could be suggestive of a longstanding, “visible and apparent” condition — dripping water – that NYCHA’s practices and procedures unreasonably failed to observe … . May’s testimony that had he seen a leak he would have placed a bucket underneath it and notified his supervisor fails to account for why he or anybody at NYCHA did not notice the obvious condition of the ceiling, nor does the evidence that there were no complaints regarding leaks on the 20th floor explain why NYCHA’s maintenance staff did not notice it.

… [T]he fact that NYCHA completed the roof replacement before the accident does not absolve it of liability as a landowner. NYCHA failed to establish, through an expert affidavit or otherwise, that any condition that may have caused the leaks discussed in the Ruiz affidavit was actually addressed by the project. However, because [defendants] Liro and Corbex are not landowners but rather mere contractors hired by NYCHA to replace the roofs, they owed no direct duty to plaintiff, but could only be liable to the extent that they launched an instrument of harm, that plaintiff detrimentally relied on their performance of their respective contracts with NYCHA, or that they entirely replaced NYCHA’s obligation to maintain the premises in a safe condition (see Espinal v Melville Snow Contrs., 98 NY2d 136, 140 [2002]). There is no evidence to suggest that either of those three conditions existed here. Williams v New York City Hous. Auth., 2020 NY Slip Op 03063, First Dept 5-28-20

 

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DEFENDANT SNOW-REMOVAL CONTRACTOR DID NOT NEED TO DEMONSTRATE THE ESPINAL EXCEPTIONS DID NOT APPLY IN THIS SLIP AND FALL CASE BECAUSE PLAINTIFF DID NOT ALLEGE ANY OF THE EXCEPTIONS APPLIED; THEREFORE DEFENDANT WAS ENTITLED TO SUMMARY JUDGMENT ON THE GROUND PLAINTIFF WAS NOT A PARTY TO THE CONTRACT (SECOND DEPT).

The Second Department, in this slip and fall case, determined defendant snow-removal contractor, Con-Kel, did not need to demonstrate the inapplicability of any Espinal exceptions in its motion for summary judgment because plaintiff did not allege any of the exceptions applied:

“[A] contractual obligation, standing alone, will generally not give rise to tort liability in favor of a third party” (Espinal v Melville Snow Contrs., 98 NY2d 136, 138). However, there are “three situations in which a party who enters into a contract to render services may be said to have assumed a duty of care—and thus be potentially liable in tort—to third persons: (1) where the contracting party, in failing to exercise reasonable care in the performance of his 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” … .

Where the pleadings do not allege facts which would establish the applicability of any of the Espinal exceptions, a defendant is not required to affirmatively demonstrate that the exceptions do not apply in order to establish its prima facie entitlement to judgment as a matter of law … .

Here, Con-Kel demonstrated its prima facie entitlement to judgment as a matter of law by coming forward with evidence that the plaintiff was not a party to its snow removal contract … . Arnone v Morton’s of Chicago/Great Neck, LLC, 2020 NY Slip Op 02997, Second Dept 5-27-20

 

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A LEASE GUARANTY WHICH ALLOWS AMENDMENTS TO THE LEASE WITHOUT NOTICE TO THE GUARANTORS IS VALID AND ENFORCEABLE (SECOND DEPT).

The Second Department determined the guarantors of a lease, Cipolla and Mucci, were liable under the guaranty, even though amendments to the lease could be made without notice to the guarantors:

The plaintiff … submitted a guaranty signed by … Cipolla and Mucci … which provided that the undersigned would become guarantors of the prompt and faithful payment and performance of Corbel under the lease, and that no modifications or amendments to the lease would relieve the guarantors’ obligations … . …

The guaranty provided … that notice to or consent by the guarantors was not required for amendments respecting the lease. … “A guarantor is not relieved of his [or her] obligations where, as here, the written guarant[y] allows for changes in the terms of the guarant[y] and expressly waives notice to the guarantor of these changes” … . 2402 E. 69th St., LLC v Corbel Installations, Inc., 2020 NY Slip Op 02996, Second Dept 5-27-20

 

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