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Adam Leitman Bailey, P.C. Prevails at Making New Law as Appellate Division Finds Second Sponsor Not Liable For Condominium Building Defects


Developer wins argument that shoddy workmanship is board’s problem now.

In a dispute between the Board of a condominium and the Sponsor of a condominium who acquired several condo units following a Chapter 11 Bankruptcy of the original sponsor, the Board brought suit alleging breach of contract for damages and defects within the condominium existing prior to the original sponsor declaring bankruptcy. The alleged defects included flooding, poor wiring, HVAC issues, and cracks in the facade of the building. The firm was retained to represent the acquiring Sponsor who disclaimed responsibility for repairing the defects of the condominium.

In October 2011, the Sponsor acquired thirty-seven condominium units along with forty parking spaces in the Bayard Views Condominium, a high-rise luxury condominium overlooking Brooklyn’s McCarren Park. The purchase occurred after a Chapter 11 Bankruptcy of the original sponsor. About three months later, the Sponsor amended the condominium offering plan listing itself as the new sponsor and stating that it would be making repairs on “Punch List” items in connection with the construction of the building’s common areas.

In a July 2015 Bankruptcy Court order, the Court concluded the Sponsor could not be subject to liability for the original sponsor’s conduct occurring prior to the bankruptcy reorganization plan. Specifically, the Sponsor could not be liable for the condominium’s faulty construction as a successor sponsor. Additionally, the Court noted the Sponsor could not be protected from claims stemming from the Sponsor’s conduct post-bankruptcy.

Subsequently, the Sponsor moved to dismiss the breach of contract claim asserting that the Sponsor was liable for conditions and defects existing at the condominium prior to the effective date of the bankruptcy reorganization plan. Further, a motion was filed to dismiss liability for such conditions and defects against the Sponsor’s principals. The Supreme Court granted the former, but denied the latter. This led to an appeal by the Board and a cross-appeal by the Sponsor’s principals.

On appeal, Adam Leitman Bailey, P.C. was victorious. First, the Appellate Division agreed and affirmed the decision granting the Sponsor’s motion to dismiss the breach of contract allegation. Adam Leitman Bailey, P.C. established that the cause of action was seeking damages for conditions and defects in existence at the condominium preceding the bankruptcy of the original sponsor. Our client, the Sponsor, even acknowledged that the bankruptcy did not prevent the Board from holding the Sponsor liable for breach of any commitment to repair the “Punch List” items listed in the amendment to the offering plan. However, no such breach by the Sponsor occurred in this case.

Secondly, the Appellate Division disagreed with and reversed the denial of the motion to dismiss against the principals of the Sponsor. The Board’s claim against the Sponsor’s principals was solely predicated on their signatures on the certification of the Sponsor’s amendment to the offering plan pursuant to the Martin Act. Moreover, the Board failed to present sufficient facts to establish liability of the sponsor’s principals to pierce the corporate veil to hold each individually liable for the conditions and defects.

Ultimately, the decision left the Sponsor liable for what it expressly agreed to repair in the amendment to the offering plan. This decision was a win for our client as well as other developers across New York as this will encourage them to purchase and invest in condominiums under a bankruptcy knowing they cannot be held responsible for repairing defects existing prior to the bankruptcy.

Jeffrey R. Metz represented the Sponsor before the Supreme Court and the Appellate Division. Adam Leitman Bailey and John Desiderio represented the Sponsor at the trial court.

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