A recent decision from the Supreme Court, Queens County has upheld breach of contract and fraud claims against a condominium’s architect for construction defects by the condominium’s board of managers. The architect and its principals moved to dismiss on the grounds that the board failed to plead a cause of action for breach of contract based on third party beneficiary theory and that the board’s claims for fraud and/or negligent misrepresentation were barred by the Martin Act.
Adam Leitman Bailey, P.C. vigorously defended against the motion. First, Adam Leitman Bailey, P.C. argued that based on the certification made by the architect in the condominium’s offering plan, the condominium unit owners were intended third party beneficiaries of the contract between the condominium’s sponsor and the architect.
Second, Adam Leitman Bailey, P.C. argued that while the New York Attorney General undoubtedly has the exclusive right to litigate claims arising from the Martin Act, it is only a violation of the Martin Act if an offering plan either (a) fails to disclose material information required by the Attorney General’s regulations or (b) makes untrue representations regarding any material fact. However, a false or negligent certification included in an offering plan is neither an omission nor a disclosure. Therefore, an offering plan that includes the required architect’s or engineer’s certification (whether true or false) is facially compliant with the Martin Act regulations and does not provide a basis for an Attorney General enforcement action. In this case, the board did not claim that the architect omitted to disclose information required by the Martin Act. Rather, the board alleged that the architect made false representations in the certification. As such, there was no Martin Act preemption because the complaint properly alleged common law causes of action that are not based exclusively on the Martin Act.
The decision is notable in that the Court agreed with the board’s argument that the architect’s certification, which specifically stated: that the “certification is made for the benefit of all persons of whom this offer is made,” and that it “in our professional opinion, affords potential investors, purchasers and participants an adequate basis upon which to found their judgment concerning the description and physical condition of the property as it will exist upon completion of the renovation and construction,” was sufficient to establish that the condominium unit owners were intended third party beneficiaries to the architect’s contract with the condominium’s sponsor. Therefore, the Court declined to dismiss the board’s breach of contract claims against the architect.
The Court also correctly determined that the board had sufficiently alleged facts to support a claim for fraud and/or negligent misrepresentation, and as such, the architect was not entitled to dismissal of those claims.
Courtney J. Lerias, Rachel M. Sigmund, and John M. Desiderio represented Adam Leitman Bailey P.C. on the motion.