Principal Of A Sponsor May Be Held Separately Liable Where It Executes The Certification
By Scott E. Mollen
Condominiums—Alleged Construction Defects -Since Sponsor Made Repeated Repairs, There Was A Triable Issue of Fact As to Whether and to What Extent Sponsor Waived the Offering Plan’s Written Notice Requirement
A CONDOMINIUM Board of Managers (board) commenced an action against a sponsor-developer (sponsor) of a residential building and other defendants (“A”), whom the board alleged were “alter egos of the sponsor.” The defendants had moved to dismiss the complaint, pursuant to CPLR 3211(a) (7).
The complaint alleged that
each of the unit owners began experiencing conditions indicating that the design and construction of their individual units and the building was defective, and not constructed in a skillful manner, in that the workmanship and materials used in the construction did not confirm [sic] with (i) the [offering] plan; (ii) applicable code and laws; (iii) the plans and specifications filed with the [NYC] Department of Buildings; and (iv) industry standards…. Plaintiff engaged [an engineering and architectural firm (engineer)]…to survey the defects…. [engineer] issued two reports recommending ‘proposed courses of action for many defects’ and estimating the cost of remediation…
The complaint asserted, inter alia, claims for “breach of contract based on the construction defects and the failure to remediate them” and for “breach of the express warranty contained in the offering plan [plan], also based on the failure to remediate the defects….” The defendants moved to dismiss on the ground that the plaintiff failed to provide timely written notice of the defects, as required by the plan.
The plaintiff acknowledged that it did not give written notice to the defendants within 30 days of the sales of the units or within 30 days of the first annual meeting, as required by the plan. However, the plaintiff argued that the “written notice requirement was waived by the sponsor by virtue of its repeated repairs of various defects at the premises over the years.” The sponsor had made numerous repairs to the building after the notice period had expired.
The court found that there was “a triable issue of fact as to whether, and to what extent, the sponsor waived the written notice requirement in the [plan]” and denied the motion to dismiss the breach of contract claim.
The court dismissed General Business Law §349 claims, on the grounds that the allegations did “not involve a fraud aimed at consumers at large….” and such claim may not be based on “alleged frauds by [‘A’] in connection with other, unrelated projects.” Additionally, the court dismissed an Interstate Land Sales Act claim, on the grounds that the statute “exempts ‘the sale or lease of lots in a subdivision containing less than twenty-five lots.'” The court dismissed a punitive damages claim, since punitive damages are “not recoverable for an ordinary breach of contract as their purpose is not to remedy private wrongs but to vindicate public rights.” The court acknowledged that “if the breach of contract involves a fraud ‘evincing a high degree of moral turpitude’ and ‘wanton dishonesty,’ then punitive damages may be recovered if the conduct was ‘aimed at the public generally.'” The court denied the motion to dismiss the specific performance claim which seeks to compel the defendants to comply with its contractual allegations to remediate the building defects.
Although the court held that the “alter ego claims” would survive at this stage of the proceeding, the court explained that in order to pierce the corporate veil, a plaintiff must plead “not only that an individual ‘exercised complete dominion and control over the corporation’ but also that the individual ‘abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice.'” The court opined that since there was evidence that the plan was certified by the “sponsor and principals of the sponsor,” the alter ego claim should not be dismissed. The court stated that “[a] principal of a sponsor may be held separately liable where it executes the certification to the offering plan in its ‘separate capacity’ and ‘thereby knowingly and intentionally advanced the alleged misrepresentations of the…plan.”