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Sykes v. RFD Third Avenue 1 Associates

September 8, 2009

JAMES SYKES, ET AL., PLAINTIFFS-RESPONDENTS,
v.
RFD THIRD AVENUE 1 ASSOCIATES, LLC, ET AL., DEFENDANTS, COSENTINI ASSOCIATES, LLP, DEFENDANT-APPELLANT.



Defendant Cosentini Associates, LLP, appeals from an order of the Supreme Court, New York County (Richard F. Braun, J.), entered October 9, 2007, which, insofar as appealed from as limited by the brief, denied its motion to dismiss the negligent misrepresentation claim.

The opinion of the court was delivered by: Moskowitz, J.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Peter Tom, J.P., Richard T. Andrias, James M. Catterson, Karla Moskowitz, Dianne T. Renwick, JJ.

113486/04

The only issue on this appeal is whether plaintiffs have stated a claim for negligent misrepresentation. We hold they have not, because they have failed to allege a relationship between themselves and this defendant, the mechanical engineer for the building where plaintiffs purchased an apartment, that is close enough to approach privity. In particular, plaintiffs have failed to allege that they were known to defendant at the time of the alleged misrepresentation and have failed to allege some conduct on the part of defendant linking it to plaintiffs. Therefore, we reverse the order of the motion court.

RFD Third Avenue 1 Associates, LLC (sponsor) retained defendant Cosentini Associates LLP (Cosentini or defendant) in an Engineering Services Agreement, dated October 6, 1997, to prepare certain designs for the construction phase of The Empire Condominium in Manhattan. Under the agreement, Cosentini's responsibilities included the mechanical design of the heating, ventilation and air conditioning (HVAC) systems. In addition, the agreement provided that Cosentini would sign off on the work performed and issue certifications that regulatory authorities required. However, defendant did not install or oversee the installation of the HVAC units. Nor did defendant prepare the condominium offering plan or the documents the offering plan contained. However, defendant admits that it provided the sponsor with information regarding the mechanical systems for the building for use in the offering plan. The offering plan appears to be dated April 27, 1999. Presumably, sometime before that point, defendant supplied the information for use in the offering plan. Cosentini claims it completed all its work on or about May 21, 2001 and did not perform additional work after that.

In July 2000, plaintiffs James and Ellen Sykes entered into a contract to purchase a penthouse apartment from the sponsor. The closing took place on March 13, 2001. Plaintiffs moved into the apartment in April 2001.

According to the complaint before the court, problems with the apartment became evident shortly after plaintiffs took occupancy. This included problems with the HVAC system. Plaintiffs were unable to maintain a comfortable temperature in the apartment in winter or summer regardless of the thermostat setting.

After their situation went unresolved, plaintiffs filed a seven-count complaint in September 2004 against Cosentini and other defendants, including the sponsor. The only claim plaintiffs asserted against Cosentini was for "common Law Fraud and misrepresentation."

In December 2004, Cosentini moved to dismiss that complaint for failure to state a cause of action for fraud or negligent misrepresentation. The court granted Cosentini's motion, dismissing the complaint as to Cosentini without prejudice because plaintiffs' allegations were conclusory and failed to allege that Cosentini was in privity of contract with them or in "a relationship so close as to approach that of privity."

In March 2006, plaintiffs filed a separate action against Cosentini, alleging breach of contract (based on the theory that plaintiffs were intended beneficiaries under the Engineering Services Agreement), professional malpractice and "Common Law Fraud and/or Negligent Misrepresentation." Their cause of action for negligent misrepresentation, although combined with their fraud claim, relied only upon the offering plan and related marketing materials. Plaintiffs alleged that the offering plan and marketing documents promised "[f]unctioning heating, ventilation and air conditioning systems meeting applicable governmental requirements for comfort and efficiency." Plaintiffs claim that, contrary to the representations in the offering plan, the HVAC system did not meet applicable governmental requirements and that they were unable to maintain a comfortable temperature in the apartment. Plaintiffs also point out that the offering plan identified defendant as the mechanical engineer for the construction phase of the building and touted defendant's services to other buildings in Manhattan. Plaintiffs claim that "prospective purchasers (including [plaintiffs]) were expected to and would rely upon Cosentini's reputation and expertise, as summarized in the Offering Plan." Defendant has admitted that "[a]s the mechanical engineer for the project, Cosentini provided a description of the mechanical systems to the architect and RFD for use in the offering plan." Cosentini had no involvement in the preparation or distribution of the offering plan, certifications or marketing materials. It is undisputed that Cosentini never communicated or interacted with plaintiffs prior to their purchase of the apartment.

Defendant moved to dismiss the entire complaint as against it. The motion court deemed plaintiffs' cause of action for breach of contract to be a claim for professional malpractice and then dismissed professional malpractice as time-barred. The court dismissed the fraud claim as conclusory. However, the court did not dismiss that part of plaintiffs' third cause of action for negligent misrepresentation. Only defendant appealed. Plaintiffs did not appeal the dismissal of their breach of contract and professional malpractice claims.

Plaintiffs' negligent misrepresentation claim fails to allege a "special relationship," i.e., "a relationship so close as to approach that of privity" (Parrott v Coopers & Lybrand, 95 NY2d 479, 484 [2000]). The New York Court of Appeals takes a rather cautious approach to determining whether a relationship necessary to support a claim for negligent misrepresentation exists (see Ossining Union Free School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 424 [1989] ["[w]e have defined this duty narrowly, more narrowly than other jurisdictions"]). This narrow approach developed out of concern for the "limitless liability" that could result that otherwise would stop with the contracting parties (Parrott at 483 citing Prudential Ins. Co., v Dewey Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 382 [1992]; see also Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 553 [1985] [explicitly rejecting a rule "permitting recovery by any foreseeable plaintiff"]; Ossining, 73 NY2d at 421 ["[i]n negligent misrepresentation cases especially, what is objectively foreseeable injury may be vast and unbounded, wholly disproportionate to a defendant's undertaking or wrongdoing"]).

Therefore, before a stranger to a contract can claim harm from negligent misrepresentation, there must be: "(1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance" (Parrott, 95 NY2d at 484 [citations omitted]; see also Securities Investor Protection Corp. v BDO Seidman, 95 NY2d 702, 712 [2001] [no privity between SIPC and accountants where accountants had not prepared audit reports for the specific benefit of SIPC, did not send them to SIPC and SIPC never read these reports]).

Accordingly, we have been circumspect when assessing privity (see e.g. Houbigant, Inc. v Deloitte & Touche, 303 AD2d 92, 94-95 [2003] [accountant's audit "was a task performed pursuant to professional standards applicable in the context of any audit, and was not undertaken pursuant to any duty owed toward [plaintiff]"); LaSalle Natl. Bank v Ernst & Young, 285 AD2d 101, 107-108 [2001] no privity between lender and borrower's accountants where only ...


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