Scott E. Mollen

Land Use—Neighbor's Petition Seeking Pre-Action Disclosure of Documents and Depositions Denied—Petitioner Opposes 120-Unit Condominium Development—Court Refused To Permit "End Run" Around Limits on Discovery in Article 78 Proceedings

A petitioner neighbor commenced a special proceeding pursuant to CPLR 3102(c) seeking an order for production of documents and directing that three respondents to appear for a deposition.

One respondent owned a 20-acre parcel of land (owner). The petitioner owns a home that borders the property. The subject town had granted that respondent a certificate of occupancy (CO) granting permission for the owner to use the property as follows: "[p]re-existing non-conforming use for the receipt of natural organic wastes (trees, brush, stumps, leaves and other clearing debris)." The petitioner asserted that the respondents "signed false affidavits to procure this change to this (CO) so that 'the zoned use of the property ultimately can be changed to a 120-unit condominium development, thereby enabling (owner) to sell the land to a developer and make millions of dollars in profit.'"

The petitioner argued that pre-action discovery is "necessary to demonstrate the alleged falsity of respondents' affidavits and that the anticipated action would seek a declaratory judgment, pursuant to Article 78, and likely would assert claims including but not limited to 'fraud, constructive fraud, tortious interference with economic relations, and tortious interference with prospective economic advantage.'" The petitioner claimed that he needed the requested discovery before the town's Zoning Board of Appeals (ZBA) considers the appeal of the aforementioned (CO), and both the (ZBA) and Planning Board "consider an application to permit construction of 120 condominium units at the property."

CPLR §3102(c) provides that "before an action is commenced, disclosure to aid in bringing an action, to preserve information or to aid in arbitration, may be obtained, but only by court order." The court noted that "[p]re-action disclosure can be used 'to enable the plaintiff to frame a complaint,' 'to preserve evidence for a forthcoming lawsuit,' and to 'ascertain the identities of prospective defendants….'" It further explained that "[p]re-action disclosure may not be used to ascertain whether a prospective plaintiff has a cause of action worth pursuin…a petition for pre-action discovery should only be granted when petitioner demonstrates that he has a meritorious cause of action and that the information sought is material and necessary to the actionable wrong…." The petitioner had the burden of alleging "facts fairly indicating that he has some cause of action…." Moreover, "[d]ocuments submitted to demonstrate the existence of a prima facie cause of action must be based on first-hand knowledge…."

The court found that the petitioner failed to demonstrate that he has a meritorious cause of action. Instead of submitting an affidavit by someone with "firsthand knowledge of facts establishing a cause of action," the petitioner relied on the "verified petition and affirmation of counsel which consists of unsubstantiated conclusory allegations in support of petitioner's theory that respondents submitted reportedly fraudulent affidavits to enable (owner) to obtain the…(CO) establishing the pre-existing conforming use of the property." The court emphasized that pre-action discovery "is not permissible as a fishing expedition to ascertain whether a cause of action exists…." Here, the petitioner failed to offer facts that "fairly indicate that he has some cause of action against the respondents which warrants pre-action disclosure…."

The petitioner's counsel had indicated that he may commence an Art. 78 proceeding, which the court presumed would involve a challenge to the (CO). It stated that "[e]xcept for notices to admit, disclosure in special proceedings is only by leave of court (CPLR 408), and because special proceedings are summary in nature, the court has broad discretion in granting or denying disclosure, although it must balance the needs of the party seeking discovery against such opposing interest as expediency and confidentiality…." The court stated that it declined "to participate in an end run around the limits to disclosure in special proceedings to grant petitioner pre-action disclosure to which he would not necessarily be entitled if his application had been made to the court during the pendency of an Article 78 against the municipality."

Accordingly, the court denied the application and dismissed the petition.

Matter of Dreyer v Stachecki, Supreme Court, Suffolk Co., Case No. 623015/2019, decided Feb. 4, 2020, Quinlan, J.

Joint Ventures—Agreement Lacked Key Elements of a Joint Venture—Claims for Aiding and Abetting a Breach of Fiduciary Duty and Tortious Interference With Contract Dismissed

In October 2012, the plaintiff executed a "purported joint venture agreement" with "A," pursuant to which the plaintiff advanced $220,000 to "secure a 50% interest in the joint venture to purchase, renovate and sell" the subject apartment. The plaintiff alleged that "A" breached his fiduciary duty, with the assistance of the defendant, by "perpetrating a scheme to deny" the plaintiff the profits of the joint venture by using a "straw man" purchaser. The plaintiff sued "A" in a separate lawsuit.

The agreement provided inter alia, that the plaintiff would "advance all principal," that "A" and the plaintiff "would split the profits evenly," that renovations "would cost less than $5,000, that "A" would "transfer his share of the profits to (plaintiff), if necessary, to ensure that (plaintiff) would receive an minimum annual return of 10%, and "A" would "personally guarantee the return of (plaintiff's) advances and principal in the event the apartment was sold at a loss…." The plaintiff alleged that the defendant was aware of the agreement.

"Unbeknownst" to the plaintiff, the apartment was purchased in May 2012 by "non-party "B," the father of the defendant and not by "A" or the joint venture, in alleged breach of the agreement. The plaintiff alleged that the defendant "assisted ("A's") breach of the agreement by representing ("B)" during the closing for the purchase of the apartment, "communicating with the managing agent and the cooperative corporation during the purchase" and "paying the closing costs, purchase price, and maintenance payments with loan funds…."

In September 2013, "B" died. The plaintiff alleged, upon information and belief, that "A," with the assistance of the defendant arranged for "B" to purchase the apartment "to gain advantageous tax treatment upon the death of ("B")." The plaintiff further alleged that notwithstanding "A's" "representations that the Apartment would be sold immediately after the renovation, and the profits promptly distributed, the apartment did not sell until October 2015." "B's" estate was the seller. The plaintiff alleged that the sale price yielded at a profit of $152,000.

The plaintiff then commenced the subject action against the defendant for "aiding and abetting ("A's") breach of fiduciary duty under the agreement and for tortuously interfering with the agreement." The defendant moved to dismiss pursuant to CPLR 3211, asserting that the joint venture had never been formed since the agreement "fails to provide for the sharing of losses and thus there is no fiduciary duty owed to (plaintiff)" and the plaintiff failed to allege the "but for" element of a tortious interference claim.

The court explained that "[a]n indispensable element of a contract of partnership or joint venture, both under common law and statutory law, is a mutual promise or undertaking of the parties to share in the profits of the business and submit to the burden of making good the losses." Here, the "plain language" of the agreement provides:

"12- All profits will be split 50-50% between the two partners, subject to the following exception-

If [plaintiff] has not realized a return equal to a minimum 10% annual return, the profits shall be transferred to [plaintiff] from the profit share of ["A"] until that minimum return is realized by [plaintiff].

If for whatever reason the sale of [the apartment] does not return the full principal and advances made by [plaintiff] in the JV, then ["A"] will personally guarantee any deficiency."

The court noted that the plaintiff "was guaranteed a 10% annual return even if ("A's") profit share would have to be diminished and any losses (plaintiff) incurred, ("A") would personally guarantee."

The plaintiff argued that the agreement's "failure to provide for a sharing of losses is not fatal to the formation of the joint venture with ("A") because the parties had no expectation of losses."

However, the court found that "unambiguous language of the agreement contradicts this position." It noted that the agreement "clearly contemplates the possibility of losses and is explicit that ("A") would be liable for any losses (plaintiff) suffered." The plaintiff also failed to allege "that he had any control or management of the joint venture, another key factor in the formation of a joint venture." Thus, the court held that "there was no joint venture between the parties."

The court dismissed the plaintiff's claim for aiding and abetting a breach of fiduciary duty, since the alleged fiduciary duty "arose from the purported joint venture that never formed."

The court then explained that "[t]ortious interference with contract requires the existence of a valid contract between the plaintiff and third party, defendant's knowledge of that contract, defendant's intentional procurement of the third-party's breach of the contract without justification, actual breach of the contract, and damages resulting therefrom." The court dismissed the tortious interference claim since the plaintiff failed to allege that the defendant "procured or caused ("A") to breach the agreement or that the agreement would not have been breached 'but for' (defendant's) conduct." Accordingly, the court granted the defendant's motion to dismiss the complaint.

Comment: With respect to joint ventures, courts sometimes see claims based on alleged breaches of oral joint ventures to purchase real estate. There is decisional precedent that holds that an oral joint venture agreement to purchase real estate from a third party may be enforceable if the alleged terms embody the necessary elements of a joint venture agreement and it could be performed within one year. It is the purchase agreement with the seller that must be in writing. Thus, "A" and "B" can have a valid oral agreement to purchase real property from "C" but the actual purchase agreement with "C" must be in writing to be enforceable against "C." The problem with most oral joint venture agreements is the same as with other alleged oral agreements, i.e., the difficulty of proving the existence and terms of an agreement that was never put in a writing that was executed by the parties to the alleged agreement. Absent a written agreement, these cases are usually determined based on the legal sufficiency of the claims and the credibility of the witnesses.

Michael Eisenberg v. Miriam Weisbecker, Supreme Court, New York Co., Index No. 159690/2018, decided March 24, 2020, Crane, J.

Landlord-Tenant—Standing—Landlord Moved To Dismiss Based On the Tenant's Lack of Standing and Failure To State a Cause of Action—Motion Denied—Issue of Fact as to Whether Tenant Remained in Occupancy and Even if the Tenant Had Vacated the Apartment, Tenant Retained Standing To Assert a Claim for Harrassment

A tenant petitioner had commenced a Housing Part (HP) proceeding against her landlord, seeking an order to correct alleged violations in her apartment, civil penalties if the violations were not timely corrected and a finding, pursuant to NYC Admin. Code (AC) §27-2005(d), that alleged acts and/or omissions by (the landlord) constitute harassment as well as additional forms of relief. The NYC Dep't of Housing Preservation and Development (HPD) was also a respondent.

The petition alleged that numerous conditions within the apartment needed repair and that she had been "harassed." The petitioner alleged that the landlord "repeatedly failed to make repairs…in a timely manner and that violations of record had been issued."

The petitioner's claim for an order to correct had been resolved by a consent order which bifurcated the harassment claim from the other relief sought in the petition. In the subject motion, the landlord moved to dismiss the harassment claim, pursuant to CPLR 3211(a)(3), that petitioner lacked standing to sue and pursuant to CPLR 3211(a)(7), that the petitioner failed to state a cause of action.

The landlord's motion was based on an email that the petitioner had sent, which stated that the tenant and her daughter "no longer live the apartment." The landlord contended that if the petitioner did not reside in the apartment, she lacked standing to maintain the proceeding and failed to state a cause of action.

The tenant argued that notwithstanding what was stated in the email, she had not surrendered the apartment or removed her possessions and "maintains the apartment as her home." However, neither the tenant nor anyone with personal knowledge of the facts had submitted an affidavit on the subject motion. Rather, the tenant submitted a copy of a stipulation of settlement in a non-payment proceeding between the parties which had been executed by the tenant, "as evidence that she is still defending her right to the apartment."

The court rejected the landlord's argument that the tenant's claim is "no longer justifiable if she has vacated the premises" and found that the tenant had stated a cause of action.

The landlord relied on an unreported decision in Robyn v. Acona, New York County, L&T Index No. 1566/19, wherein a court, citing an Appellate Term precedent, dismissed an HP proceeding that included a claim of harassment, "because there is no dispute the petitioner had vacated the premises." The subject court noted that such unreported decision was embodied in a "short form order" and did not state "any other facts related to the case."

The court further explained that in subject case, there is a "dispute as to whether petitioner has relinquished possession of the premises." Although the tenant had not submitted an affidavit from anyone with personal knowledge to contradict what she said in her email, the landlord had not "disputed that she's actively litigating a non-payment proceeding in Housing Court" and had "signed a stipulation of settlement on February 5, 2020, approximately 2 months after the email."

The court also distinguished the prior Appellate Term precedent by noting that such prior decision held that a tenant "who has been lawfully evicted lacks standing to maintain an HP proceeding seeking an order to correct violations in the apartment from which the Tenant was evicted." Here, the tenants' current physical possession of the apartment alone, is not determinative of whether she has standing to maintain this proceeding to obtain the relief she is seeking on her claim that she has been harassed."

The court explained that Local Law 7 of 2008, "which included the cause of action for harassment codified in (AC) §27-2005(d), was enacted as a remedial statute to bar acts and omissions by a landlord intended to cause a person lawfully entitled to occupy a dwelling to vacate the dwelling or surrender or waive any rights in relation to occupancy." Further, (AC) §27-2004(a)(48), "plainly states that a harassment claim may be maintained even if a tenant, such as petitioner, has vacated the apartment that is the subject of the proceeding."

Additionally, the court noted that the subject statute stated that harassment may include, "repeated failures to correct hazardous or immediately hazardous violations" …, "relating to the dwelling unit or common areas of the building containing such dwelling unit, within the time required for such corrections." That statute also provides that there shall be a "rebuttable presumption that the type of acts or omissions enumerated within the statutory section were intended to cause such person to vacate such dwelling unit or surrender or waive any rights in relation to such occupancy."

The court explained that "considering that the repeated failure by an owner to correct hazardous or immediately hazardous violations of the Housing Maintenance Code, as has been pleaded by petitioner, is included in the definition of harassment and if this alleged failure can be established by petitioner at trial there is a rebuttable presumption that it was intended to cause her to vacate the apartment, there's no basis to conclude that petitioner has not stated a claim pursuant to (AC) §27-2005(d).

Moreover, under these circumstances, even if Respondents' assertion that petitioner is not currently residing in the premises is true, it can hardly be said she no longer has a sufficiently cognizable stake in the outcome of her harassment claim to have the right to come to court to ask for a judicial resolution of the matter … when the legislature enacted Local Law 7 to specifically address claims by a lawful occupant of an apartment that acts or omissions by an owner caused them to vacate the apartment and authorized lawful occupants to 'apply to the housing part for an order directing the owner to appear before the court' for an adjudication of such harassment claims in the context of this type of HP proceeding."

Thus, even if the tenant had vacated the apartment while the proceeding was pending, the court found that the tenant satisfied "the two-part test for determining standing in this proceeding in that she has alleged an 'injury in fact' within her petition and the injury for which she is seeking remedy plainly falls within the zone of interests or concerns sought to be promoted or protected by the statutory provision under which this proceeding was commenced." Accordingly, the court denied the landlord's motion to dismiss the proceeding on the ground that the tenant lacked standing and failed to state a cause of action.

Francis v. Stein, Civil Court, Bronx Co., Case No. 30042/19, decided March 23, 2020, Baum, J.

Scott E. Mollen is a partner at Herrick, Feinstein.