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Carter v. 36 Hudson Associates

June 17, 2010

MICHAEL A. CARTER AND MEREDITH CARTER, PLAINTIFFS,
v.
36 HUDSON ASSOCIATES, LLC, JOSEPH PELL LOMBARDI & ASSOCIATES, ARCHITECTS, JOSEPH PELL LOMBARDI, TRIBECA 22 INVESTMENT LTD., SERVET HARUNOGLU, ONURHAN HOMRIS, AND ADG ARCHITECTURE & DESIGN, P.C., DEFENDANTS.
36 HUDSON ASSOCIATES, LLC, THIRD-PARTY PLAINTIFF,
v.
FBR CONSTRUCTION GROUP LLC AND JAY FURMAN, THIRD-PARTY DEFENDANTS.



The opinion of the court was delivered by: Denise Cote, District Judge

OPINION AND ORDER

In this construction dispute, the third-party defendants have requested that this Court abstain from exercising jurisdiction over the third-party action, or, in the alternative, decline to exercise supplemental jurisdiction over the third-party complaint. They contend that related state court litigation arising from the construction of the Mohawk Atelier Condominium ("the Mohawk"), located in lower Manhattan, presents the exceptional circumstances justifying abstention. Their motion is denied.

BACKGROUND

The following facts are drawn from the complaint, the third-party complaint, documents integral to the complaints, information in the public record, and undisputed facts presented by the parties in connection with this motion practice. 36 Hudson Associates, LLC ("Hudson") is the sponsor/developer of the Mohawk, a commercial and residential building. On August 26, 2004, Hudson retained FBR Construction Group LLC ("FBR Construction") as the construction manager for the Mohawk. These parties executed the Standard Form of Agreement Between Owner and Construction Manager (the "Construction Agreement"), which included a provision in which FBR Construction indemnified Hudson for, inter alia, any "act, omission, fault or neglect of Construction Manager." The Construction Agreement incorporates by reference a document called General Conditions of the Contract for Construction, as modified in writing by the parties ("General Conditions"), which includes additional indemnification commitments to Hudson. Additionally, the General Conditions define the requirements for "substantial completion" of the project, one of which is possession of a temporary certificate of occupancy ("TCO").

As a condition to Hudson's entering into the Construction Agreement with FBR Construction, Jay Furman ("Furman"), FBR Construction's sole member, delivered to Hudson an "absolute, irrevocable, and unconditional" personal guaranty of completion and performance ("Completion Guaranty") in exchange for a payment of $275,000. Under the Completion Guaranty, Furman indemnified Hudson for certain delay damages or damages it might "suffer by reason of having to complete the Project or having to correct defective work . . . ." 2007 State Court Actions

FBR Construction obtained a TCO on April 10, 2007. Generally, a TCO may only be renewed for two years. Without a TCO or permanent certificate of occupancy ("PCO"), tenants may not occupy a building.

A serious mold condition developed at the Mohawk in 2007 that required remedial work. In the fall of 2007, several lawsuits were filed in state court concerning the construction of the Mohawk. In September, the Board of Managers of the Mohawk sued Hudson, alleging construction defects. On May 6, 2008, all of the residents of the Mohawk (except the plaintiffs in this federal action) entered into a settlement with Hudson regarding the remediation of construction problems at the Mohawk. On or about June 25, 2008, Hudson and FBR Construction entered into a letter agreement ("Letter Agreement") in which FBR Construction agreed, among other things, to perform the work needed to remediate those problems and to take all steps reasonably necessary to obtain a PCO.

Three more lawsuits were filed in the Fall of 2007. In October, FBR Construction filed two suits in state court: one against Hudson and others to enforce a lien against the Mohawk, and a second against the Mohawk's architect. In November 2007, a third lawsuit was filed regarding the repayment of advances on a loan related to the construction of the Mohawk. Collectively, these three pending actions are referred to as the "2007 State Court Actions." 2009 State Court Action

On or about May 6, 2009, Hudson filed suit in state court against FBR Construction, Furman and another entity seeking indemnification (the "2009 State Court Action"). The 2009 State Court Action alleges that FBR Construction's defective work at the Mohawk was to blame for the mold that developed in the building, which required relocation of tenants and remediation work, caused delay in completing the project, caused Hudson to incur substantial costs in relation to the mold remediation and other construction defects, required Hudson to pay a costly settlement with the residential tenants of the Mohawk, and caused other damages, including some arising under certain financing agreements. The 2009 State Court Action does not mention the TCO or PCO. On or about October 15, 2009, FBR Construction and its co-defendants filed a third-party complaint against eighteen parties, mostly subcontractors, for indemnification and contribution.*fn1

The Federal Action

Michael and Meredith Carter ("the Carters") entered an agreement to purchase a residential unit at the Mohawk on December 23, 2004 ("the Unit"). The Carters closed on the purchase on May 4, 2007. Despite their ownership of a unit in the Mohawk, the Carters did not participate in the 2007 or 2009 state court litigation or the settlement with Hudson over the construction problems. They eventually agreed, however, to allow limited remedial work to be done in the Unit to address the mold issue.

In or around January 2009, the TCO for the Mohawk expired. On May 4, 2009, the Carters filed the original complaint in this action against Hudson and others alleging common law fraud, unjust enrichment, professional negligence, negligence, and breach of contract, and seeking rescission, in connection with their purchase of the Unit (the "Federal Action"). The complaint alleged, among other things, that the construction of the Unit did not comply with applicable building codes, which made it dangerous and uninhabitable; and that the defendants breached the Carters' purchase agreement by, among other things, failing to supervise adequately the contractors and subcontractors, allowing the building to be built in a substandard manner and with improper materials, and failing to take all necessary steps to obtain a PCO.

On May 20, 2009, the Carters voluntarily dismissed FBR Construction from the Federal Action because the law firm representing the Carters was also representing FBR Construction in the 2007 and 2009 State Court Actions. The Carters filed an amended complaint on June 18, 2009, and a second amended complaint ("SAC") on November 23, 2009, against Hudson, the Mohawk's architects, and others.*fn2 The SAC maintains its allegations of building code violations, and adds allegations regarding the damages the Carters suffered from January to September 2009 due to the absence of a TCO or PCO.*fn3 Although the SAC makes allegations regarding the presence of mold, the Carters have explicitly waived all claims against any party relating to the mold conditions in the Mohawk. The SAC makes no mention of FBR Construction.

On December 23, Hudson filed its third-party complaint in the Federal Action against FBR Construction and Furman. It alleges that the damages that the Carters seek to recover in the SAC are due to the defective workmanship of FBR Construction and its subcontractors and to FBR Construction's breaches of its obligations under the Construction Agreement and Letter Agreement, including its failure to obtain in a timely manner the "boiler sign-off" needed before a TCO could be issued. Hudson alleges that Furman is liable for FBR Construction's breaches by virtue of the obligations he undertook under the Completion Guaranty. The third-party defendants moved ...


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