Ting Lin v. Mountain Val. Indem. Co.

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Ting Lin v Mountain Val. Indem. Co. 2024 NY Slip Op 33309(U) September 20, 2024 Supreme Court, Kings County Docket Number: Index No. 518077/20 Judge: Kerry J. Ward Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various New York State and local government sources, including the New York State Unified Court System's eCourts Service. This opinion is uncorrected and not selected for official publication.

FILED: KINGS COUNTY CLERK 09/20/2024 02:28 PM INDEX NO. 518077/2020 NYSCEF DOC. NO. 251 RECEIVED NYSCEF: 09/20/2024

At an IAS Term, Part 9 of the Supreme Court ofthe State of New York., held in and for the County of Kings, at the Couiihouse, at Civic Center, Brooklyn, New York, on the20111 day of September; 2024. PRESENT:

HON. KERRY J. WARD, Justice. -~---~---------------------~---------X TlNGLIN and SHI QlANG LIN,

Plaintiffs,

- against - Index No. 518077/20

MOUNTA!N V ALL.EY INDEMNITY COMPANY, CLERtvtoNT INSURANCE COMPANY, ONE SUNSET PARK CONDorvlJNJUM, J. w ASS ER & COMPANY, 4401 PARK LLCand CENTURY MAX..·•· INC,.

Defendants, - - -·- - - - ~ - - - - - -·-·- - - - - - - - - - - - - - - - - - - - - -X

The following e-filed papers read herein: NYSCEF Doc Nos.

Notice of Motion/Order to Show Cause/ Petition/Cross Motion and Affidavits (Affirmations) _ _ _ _ _ _ __ 188-'- l 92. 194-213 Opposing Affidavits (Affirmations)· _ _ _ __ 214 Reply Affidavits (Affirmations) _ _ _ __ 218 .

Upon the foregoing papers in this action for negligence and breach of contract,

defendants One Sunset Park Condominium (Condominium) and J. Wasser & Company

(Wasser), the Cortdmrtinium' s matiaging agent(collectively, Defendants), move(inmotion

.sequence [trtot seq.] l 0) tor an order, pursutmtto CPLR 3212, granting summary judgment

dismissing the claims asserted against them (the fo¹.,1rth and J1fth causes of action) in the.

·amended complaint (NY"SCEF Doc No. 188).·

FILED: KINGS COUNTY CLERK 09/20/2024 02:28 PM INDEX NO. 518077/2020 NYSCEF DOC. NO. 251 RECEIVED NYSCEF: 09/20/2024

Section SA (C) provides that "the coverage shall be in an amount equal to not less tha11

eighty (80%) percent of the full replacement cost ofthe Building ... " (id.). Section 5.4 (E)

provides that "Unit Owners shall be required to carry liability insurance in such afriounts

as the Condominiurn Board shall reasonably requite" and ''may ca:ny other insurance for

their own benefit ..." (id.). Section 5.5 (B) provides that in the event of a casuaJty the

Condominium is only responsib 1e to restore:

''the pmtion(s) of the Building {including all Units and the bathroom a11d kitchen fixtures installed therein on the date of recording the Declaration [in 2009]and all service machinery contained therein, but not including appliances or- any furniture, furnishingsi decorations, belongings, ot other personal property supplied or installed by either Unit Owners or the tenants of Unit Owners) affected by such Casualty Loss ... " (id. at § 5.5 [B] [emphasis added]).

Thus, according to the express terms of the Condominium's by-laws, in 2018, the

Condominium's board was required to procure insurance coverage equal to 80% of the

"Jul l replacement cost of the Building" (id.).

While Defendants demonstrated that the Condominium initially obtained $8.2

million in fire insurance coverage for the Building after consulting with its attorney and

insurance broker in Decembe;· 2013, there is no evidence in the record reflecting that the

Condominium's board consulted with anyone regarding the adequacy of such insurance

coverage when the Condominium renewed its insurance: annually thereafter. Indeed, other

than the December 2013 email chain; the Condominium fails to submit any evidence

demonstrating how th~ Condominium 's,board '"periodically determined' 1 that its in~urance

coverage was sufficient, espedczlly in.2018, thetelevartt polic:y period.in effect at the time 12

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FILED: KINGS COUNTY CLERK 09/20/2024 02:28 PM INDEX NO. 518077/2020 NYSCEF DOC. NO. 251 RECEIVED NYSCEF: 09/20/2024

of the April 2019 fire. Thus, on this insufficient record, it is impossible to determine the

threshold issue of whether the board acted within the scope ofits authority under the bylaws

in 2018. Without any evidence of the Condorniniurn board's2018 determination, there is

no prima facie showing that the board renewed its policy in 2018 in good faith and to

further a legitimate interest of.the Condominiuni. Consequently, there are issues offacuis

to whether the Condominium board's 2018 determination regarding the sufficiency of its

fire insurance coverage is beyond judicial scrutiny under the business judgntent rule. These

factual issues preclude summafy judgment regarding Plaintiffs' claims for breach of the

Condon1iniu1.n's by-laws.

Howevcr,.Section².20 (A)·ofthe Condominium's by-laws, entitled "'Liability of the

Condominium Board," specifically provides, in relevant part, that:

"[t]he members of the Condominium Board shall have no liability to the Unit Owners for errors a/judgment, negligence; or otherwise, except that each member of the Condominium Board shall be liable thereto for his own bad faith or Willful misconduct .•. /; (NYSCEF Doc No. 198 at § 2.20 [A] [emphasis added]);

According to the. express terms of the Condominium by-laws, Plaintiffs' negligence claim

is subjectto dismissal.

Finally, there is no basis to impose any liability against Wasser since it is

uncontested that Wasser is merely a management company that serves as at1 agent for the

Condominium, a disclosed principal. Plaintiffs' negligence.and breach of contract claims

assertedagail)st Wasser are ;;ubject to dismissaJbecaµse Wasser assumed no contractµal or

other duty regarding the CoridomirtiuJ'.Il's ptocuremeri.t of fire insurance coverage for the 13

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FILED: KINGS COUNTY CLERK 09/20/2024 02:28 PM INDEX NO. 518077/2020 NYSCEF DOC. NO. 251 RECEIVED NYSCEF: 09/20/2024

Bttilding. The Second Department has held that a ''[inanaging] agent who acts on behalf of

a disclosed principal will not be liable for a breach of [acondominiuin's byc,laws] unless

there is clear and explicit evidence of the agent's intention to be personally bound"

(Pascual v Rustic Woods Homeowners Ass '17, Inc., l 34 AD3d 1003, 1005[2015]). Here, it

is undisputed thatWasserwasacting as managing agent for the.Condominium, a disclosed

principal; and Plaintiffs fail to allege or provide evidence that Wasser acted outside the

scope of its duties as managing agent regarding the Condominium's insurance.

Consequently, the fourth and fifth causes of action are dismissed as against Wassec

Accordingly 1 it is hereby

ORDERED that Defendants' summary judgment motion (mot. seq. 10) is only

granted to the extent that: (1) the fourth and fifth causes ofaction in the amended complaint

asserted against Wasser are dismissed,. and• (2) the negligence claims asserted against the

Cotidomihium in the fourth and fifth causes ofaction are dismissed; the motion is otherwise

denied with respect to the breach of contract claim asse,ied against the Condominium.

This constitutes the decfaion and order of the cotui.

ENTER,

A. J. S. C.

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Footnotes

[1] of 14 [* 1] Background In 2011; plaintiffs Ting Lin and Shi Qiang Lin (collectively, Plaintiffs), brother and sister, purchased their condominium apartment, Unit 3A, in the condominium building located at 702 44th Street in Brooklyn (Building). At that time, they also purchased a condominium unit ow11ets' policy of insurance with coverage of $100;000, which tpey renewed annually. On April 3, 2019, there was a substantial fire in the Building which caused the removal of all occupants from their apartments. 1 There were fifty-four (54) apartments in the Building and the entire structure was declared unsafe fat habitation by the City of New York. On June 19, 2019, the Condominium's insurer determined that the Building was a total loss due to the extensive fire and water damage and elected to exercise its option to pay the total policy limits for the loss in the amount of $8,200;000 rather than rebuild (NYSCEF Doc No. 208). The Condominium retained an architect to assess the fire ~nd water damage at the Building and to provide an expe1i opinion as to whether more than 75% of the Bui1ding was damaged. The architect concluded that more than 75% of the Building was damaged (NYSCEF boc No. 209). Section 5.5 (D) of the Condominium's By-Laws provides, in relevant part: "[i]f either 75% or more of the Building is destroyed or substantially damaged by fire or other casualty . . . the [restoratibn] Work shall not he perform~d unless Unit Owners owning 75% in co1rtmon interest of the Uriits. shall pass a 1 The Fire Incident Report indicated that the fire wa:s caused by a tenant occupying unit ciB who left a lit candle too close to a window curtain (NYSCEF Doc No. 202). 2.

[2] of 14 [* 2] resolution to proceed with the same ... .'' (NYSCEF Doc No. 203). Thereafter, on January 14, 2020, the Condominium unit :owners held a meeting to determine whether or not the Building should he restored. At the 111eeting, 72.45% ofthe unit owners voted not to restore the Building and, instead; to sell the burnt-out shell and distribute the sale proceeds and the Condominium's insurance proceeds among the unit owners, pursuant to a partition action, as required by RPL 339-cc. Thatpartition action, ,vhich was commenced by the unit o,vners, including Plaintiffs, on May 20, 2020, is currently pending before this court (Shepherd v Wong, et al, Kings County index No. 508641/20). No distributions have been made as yet, and there is no indication that Plaintiffswill not be made whole once those funds are distributed. On September 24, 2020, Plaintiffs, in their individual capacities, commenced this action against the Condmniniµtn, Wasser and others by filing a summons and a verified complaint seeking monetary damages of $600,000, the alleged val tie of Plaintiffs' unit (NYSCEF Doc No. 1). On August 16~ 2021; after the court (Silber, J.)dismissed certain claims in the original complaint, Plaintiffs amended the complaint. Essentially; the amended complaint alleges that the Condominium and Wasser ''purchased a fire insurance policy fot the entire subject building .. , with a woefully inadequate limit of $8,200,000 fora building of5(4) Apartinents" (NYSCEF Doc No. 58at111). Theatnended complaint asserts a fourth cause o'f action fi1t breach of contract and negligence against the Condominium and Wasser based on their alleged failure to acquire adequate fire insurance coverage for the entire Building. The fifth cause of action alleges that the Condominium 3

[3] of 14 [* 3] and Wasser \Vere negligent in failing to purchase fire and water damage insurance for the Building and that "[t]he Defendants ... are not protected by the 'Bu_siness Judginent Rule' under the aforesaid circllinstahces ... " (id at ,i 30). On September 14, 2021, the Condominiurrt and Wasser collectively answered the amended complaint, denied the material allegations therein and asserted affirmative defenses, including that: (l} ''Wasser was not employed to obtain insurance for the Building"; (2) '"Wasser is art agent for a disclosed principal and cannot be held liable for the acts of the Condominium"; (3) plaintiffs' claims are barred by Sections 2.20 and 3.10 of the Condominium's By-Laws; (4) ''plaintiffs lack standing to bring an action individually against the Board"; and (5) ''[t]he answering defendants acted in good faith, in compliance with the Condominium Act, the By Laws and in reliance upon its professionals in obtaining the tequisite fire insurance coverage for the Building"- and thus ''[tJhe complaint is barred by the Business Judgment Rule''{NYSCEF Doc No. 71 at , , ,-i, 37, 39, 41, 43_, 45 and 50-51). Defendants' Summary Judgment 11/otion On March 25, 2023, the Condominium and Wasser collectively moved for s11mmary jµdgmcnt dismissing the negligence and breach of contract claims asserted against them. Defense couns'el argues that dismissal of the amended complaint is warranted since .Plaintiffs sued in their individual capacities and lack standing to assert derivative claims (NYSCEF Doc No. 189 at ~]21). Defense counsel also contends that Plaintiffs' negligence claim against the Condomh1ium fails because the parties only have a. contractual 4

[4] of 14 [* 4] relationship governed by the Condominium's By-Laws (id. at 1 22). Defense counsel further asserts that Plaintiffs have no cognizable legal claim against the Condominium under the Business Judgment Rulc,since the Condominitim'sBoard relied in good faith on the advice ofits insurance broker and its attorney when it purchased insurance coverage Jar the Building in December 2013 (id.). Finally, defense counsel argues that Plaintiffs lack privity to assert a negligence claim against Wasser, the Condominium's managing agent, which owed no duty to them (id. at ~ 24). In support of their motion, Defendants submit an affidavit from Leroy Shepherd (Shepherd), the current president of the Condominium's board of managers and the Condominium's custodian of records, who attests that the Building was converted to condominium ownership pursuant to an April 6, 2009 declaration and annexes a copy of the Condominiurri's by~laws (NYSCEF Doc No. 190 at 14). Shepherd submits "documents that establish that the Board, together with its insurance broker and an attorney . , . conducted due diligence [in 2013] prior to obtaining insurance coverage for fire and casualty loss" (id. at ~,i 6~ 11). Specifically, Shepherd submits a December 2013 "email chain that establishes that Klausner [the former president of the Board] sought guidance in determining the amount 9f Property Insurance: coverage necessary to i11sure the Building and whether and to whatextent [the Cqndominhnn] was tequ ired to provide coverage for the individual ll11its" (id. at , 7). The December 2013 email chai11 reflects that the Condorrtinium 's insurance broker opined that \'[t]he best answer to interior valuations can be ascerta~ned in the condo documents and, generally speaking, 5

[5] of 14 [* 5] condos have extremely limited restoration responsibilities within units'; (NYSCEF Doc No. 2J l).The Condominium's attorney also advised that: '''[a]ccording to Article 5,5 of the bylaws should there be a casualty the condo will rebuild the units and bathroom and kitchen fixtures that are installed on the date the declaration was recorded [in April 2009]. Article 5.4 states what the condo's insurance covers. Nothing else is covered. I think you should provide your agent with a c,opy of the bylaws so he can review it himself'' (id.). Shepherd avers that, based on the due diligence conducted, ''in 2013, [the Condominium] purchased Property Insurance for the Building in the amount of $8;200,000.00 and periodically determined that the same amount was sufficient coverage through 2018'; ' ' (NYSCEF Doc No. 190 at ,r 12 [emphasis added]). Defendants also s,ubmit an affirmation from Theresa Racht (Racht), the Condominium's general counsel who was retained at the time of the fire and "was appointed inspector to conductthe vote of the u11it owners on January 14i2020, whether to restore the Building .. _;, (NYSCEF Doc No. 192 at ,r,i 3 and 4). Racht affirms that ''plaintiffs herein voted by proxy to restore .. , . which vote was duly recorded by me as inspector of election and included in the 27.55% of owners voting to restore" (id. at·~ 7). When Racht received inquiries from unit owners about the cost of restoring the Building, she sent out a letter explaining that: '' [w] frile ·the Condominium has broad authority· undet Artie! e 5 of the By~Laws to oversee any t'estoratiort wotk required after a casualty loss, the language does not sliift the financial obligationforthe interior ofthe unit from the unit owner to the Co11dominiurn, and in fact; the special assessment provisions relating to casualty loss reaffirms the obligations .of the unit 6

[6] of 14 [* 6] owners to pay for the work" (id. ati[ 8 [emphasis added]; see also NYSCEF Doc No. 213 [letterto unit O\vners]). In this regard, Defendants also submit an expert affidavit from Matthew J. Guzowski (Guzowski), a real estate appraiser, who opines that the replacement value of the Building, exclusive of the re!Jidential units, the foundation and the land, was $7.5 million as of the date of the April 2019 fire, and is currently valued at $10 million (NYSCEF Doc No. 191ati]11). Defendants submit a memorandum of law argumg, as a threshold issue, that "plaintiffs lack standing to assert the claims contained in their complaint, since the allegations primarily address an injury to the common area and elements" of the Building (NYSCEF Doc No. 193 at 14). Defendants also argue that summary judgment is warranted because ''plaintiffs cannot demonstratethat the amount of Property Insurance coverage for the Building was inadequate" (id at 15). Defendants assert that "the undisputed facts demonstrate that [the Condominium] obtained maximum coverage Prope11y Insurance for the Building as required by law and pursuant to the condominium By~Laws" (id.). Defendants further assert that "the documentary evidence demonstrates [that the Condominium] acted in good faith in canying out its contractual obligations to the unit owners when it purchased Prope11y Insurance in 2013 and annuafZv thereafter" (id at l 7 [empha,sis added]). Defendants note that Section 5 .5 (C) of the Condominium's By-Laws "provide that the Building must be insured in an ambunt of not less than 80% of its rep lacemert t cost. ... " (id..at 18). 7

[7] of 14 [* 7] Defendants argue that the evidence, including duzowski's expert appraisal ofthe Building, proves that "the value of the Building prior to the fire on April 3, 2019, was $7,500,000, Iess than the coverage amount of $8,200 ,OOQ purchased by [the Condominium] and more than 80% of the Cu1Tent value for the Building, which, accordingto [Guzowski' s] appraisal is, $10,000,000'' (id. at 19). Defendants assert that they owed no duty to the plaintiffs to purchase Property Insurance for their benefit; since the By-Laws provide that unit owners should cmTy their own insurance (id. at 20). Finally, Defendants assert that: "[w]bile we 111aintain that resolution of this summary judg,nent motion is essentially one of contract interpretation, the 'business judgment rule' precludes this Comt from looking behind [the Condominium's] decision in purchasing and renewing Property Insurance for the Building, unless the plaintiffs can make a showing that.it acted in bad faith) engaged in self-dealing or other misconduct at the time" (id.). Defendants argue that the record establishes a rational basis for the Condominium's purchase of insurance coverage of $8.2 million at the time of the 2019 fire in consultation . . . with the Condominium's attorney arid insurance broker in 2013 (id. at 23 ). Plaintiffs' Opposition Plaintiffs, in opposition, submit a memorandum of law arguing that ''the Blisiness Judg111ent Rule does not apply when the Board exercises such poor judgment especially when same is in violation of a statute directing them to 'annually update their insurance'" (NYSCEF Doc No. 215 at 2). Plaintiffs assert that "there is no possible way that the Board can demonstrate that its actions were 'reasonable and/orfair' when their actions ... violated the applicable $tatutc ... Real Property Law Section 339-bb'' (id. at 3), 8

[8] of 14 [* 8] Plaintiffs also submit an attorney affirmation asserting that Shepherd's at1idavit "admits that the woefully inadequate insuranc_e policy herein for $ 8 .2 Million for a54-unit condmninium apartment house was purchased in 2013 with no increase in the insured arhount upto and including the date of the fire, April 3, 2019'' (NYSCEF Doc No, 214 at il 7). Plaintiffa; counsel argues that Shepherd admits that the Condominium violated RPL 339-bb because the Condominium's insurance was not updated annually (id. at il 9). Regarding defendant Wasser, Plaintiffs' counsel argues that " [c] erta inly, it was iric [mnbant] on the inanagi ng agent to warn the Board of Managers ... that they absolutely were violating their duty in failing to increase the amount of property insurance at all between the years 2013 and the date of the fire that destroyed the building on April 3, 2019, a period of six years where the rising property values were ignored'' (id at i] 11). Defendants' Reply Defendants, in reply, submit an attorney afiirmation arguing that plaintiffs' counsers assertion that the Building was undet-:insuted cannot be inferred by the mere fact that the-Condominium did not increase its fire insurance: coverage between 2013 and 2018 (NYSCEF Da,c No. 218 at iii! 4--5). Defense counsel argues that"plaintiffs fail to establish a violation of the business judgment rule ... " and "plaintiffs did not contest that in 2013 the Board putchased insurance coverage [with] a policy limit qf $8,200,000.00 in good faith and in ·consu1tation with its professionals" (id. at ,i,i 5 and 7 [einphasis .added]). Defense counselfurther notes that."plaintiffs also did notcontestthe adequacy of the policy in light of the expert opinion ... that the appraised value for the. Building atthe time of the 9

[9] of 14 [* 9] fire was $7,500,000:00"·(id. at, 7). Defe11se counsel asserts that ''the Board complied with the By-Laws and the Martin Act and purchased the required insurance every year" and ''[w]hether those decisions were right or wrong is not part of the business judgment rule calculus" because "[t]he test is whether the decisions were made in good faith" (id. at,i 9). Discussion Summary judgment is a drastic remedy that deprives a litigant of his or her day in court and should, thus, only be employed when there is no doubt as tq the absence oftriable issues of material fact (Kolivas v Kirchoff, 14 AD3d 493 [2d Dept. 2005]; see also Andre v Pomeroy, 35 NY2d 361, 364 [1974]), "The proponent of a motion for summary judgment must make a prima facie showihgof' entitlement to judgment, as a matter oflaw,tendering sufficientevidence to demonstrate the absenc.e of any material issues of fa.cf' (Manicone v Ci(yofNew York, 75AD3d 535,537 [2d Dept. 2010], quotingAlvarez v Pi•ospect Hosp.,

[68] NY2d 320, 324 [1986]; see also Zuckerman v City ofNew Yo;·k, 49 NY2d 557, 562 [ l 980 J; Wine grad v New York Uhiv. Med Ctr,, 64 NY2d 851, 853 [ 198 5]). If it is determined that the movant has made a ptima facie showing of -entitlement to summary judgment, "the burden shifts to the opposing party to prodµce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact Which require a trial oftheaction"(Garnham & HanRea!Estate Brokersv Oppenheimer, 148 AD2d 493 [2d Dept. 1989]). Where, as here, ownets of a coi1dominium unit challenge an action by the condomiriimn 's board of directors, the court must apply the business judgment rule .. The 10 10 of 14 [* 10] Second Department has held that "[t]he business judgment rule ... prohibits judicial inquiry into the actions of the board as long as the board acts for the purpose of the condominiutn, within its authority and in good faith" (Acevedo v Town 'N Country Condon1iniuni, Section I, Bd. of Mgrs., 51 AD3d 603, 603 [2d Dept. 2008] [holding that condominium board "met its prima fade burden by establishing that it acted in good faith, within its authority, and for the benefit of the condmniniuJn, when it retained an insurance brokerto procure insurance sufficient to cover full replacement of the buildings ... "]). The Second Department has further held that "the court's inquiry is limited to whether the board acted within the scope of its authority under the bylaws (a necessary threshold inquiry) and whether the action was taken in good faith to further a legitimate interest of the condominium. Absent a showing of fraud, self"'dealing or unconscionability, the court's inquiry is so limited and it will not inquire as to the wisdom or soundness of the business decision" (1812 Quentin Road, LLCv 1812 Qiientin RoadCondominiutnltd, 94 AD3d I 070, 1072 [2012] [internal quotation marks omitted]). Here, Section 5 A (A) of the Condominium's by-laws entitled "Insurance" provides, in relevant part, that: ''[t]he Condominium Board shall obtain, artd shall maintain in full force and effect, fire insllrance policies with all tisk extended coverage ... insuring the Building (including a/l Units, bathroom and kitchen fixtures, but not including appliances or any furniture; furnishings, decorations, belongings, or othe1· personal propertysitpplled orinstalled by Unit Owners or the tenants of Unit Owners) and covering the interests of the Condominium 1 the Condominium Board1 ali of the Unit Owners and all Permitted Mortgagees, as thefr interests may appear .... '' (NYSCEF Doc No. 198), 11 11 of 14 [* 11]