Sykes v. RFD Third Avenue 1 Associates, LLC

OPINION OF THE COURT Moskowitz, J. 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. RED 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. — 164 — 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 “[functioning 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 — 165 — systems to the architect and RED 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 (2007 NY Slip Op 34431[U]). 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, 483 [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 “hmitless liability” that could result that otherwise would stop with the contracting parties (Parrott at 483, citing Prudential Ins. Co. of Am. 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 omit — 166 — ted]; see also Securities Inv. Protection Corp. v BDO Seidman, 95 NY2d 702, 712 [2001] [no privity between Securities Investor Protection Corporation (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, 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 contact was single phone call]; see also Israel Discount Bank of N.Y. v Miller, Ellin & Co., 277 AD2d 58, 59 [2000]). “Although this rule first developed in the context of accountant liability, it has applied equally in cases involving other professions” (Parrott, 95 NY2d at 483; see also Ossining at 424 [“(n)or does the rule apply only to accountants”]). This Court too has extended the privity requirements of Parrott beyond the accountant arena (see e.g. Bri-Den Constr. Co., Inc. v Kapell & Kostow Architects, PC., 56 AD3d 355 [2008], lv denied 12 NY3d 703 [2009] [no privity between architect and bidder]; Point O’Woods Assn. v Those Underwriters at Lloyd’s, London Subscribing to Certificate No. 6771, 288 AD2d 78, 79 [2001], lv denied 98 NY2d 611 [2002] [no privity between insurance carrier and broker]). Notably, plaintiffs do not argue on this appeal that the Engineering Services Agreement between defendant and RED demonstrates defendant knew potential tenants would rely on the information defendant provided. Rather, to support their argument that privity exists, plaintiffs point to allegations that rely solely on the offering plan. Plaintiffs’ entire argument rests on the theory that: (1) because defendant supplied information about certain mechanics of the building, including the HVAC system, to the sponsor and the architect for use in the offering plan; and (2) because the offering plan mentions defendant as the mechanical engineering firm retained to prepare mechanical designs for the building, this somehow leaves defendant open to liability for negligent misrepresentation. The alleged relationship between plaintiffs and this defendant is too attenuated to support a relationship approaching privity. — 167 — As we explained earlier, a relationship approaching privity requires that: (1) defendant have an awareness that his or her statement is for a particular purpose; (2) a known party relies on the statement in furtherance of that purpose; and (3) there is some conduct linking defendant to the relying party and evincing its understanding of that reliance. While arguably the allegations in the complaint satisfy the first prong, plaintiffs have not made allegations sufficient to satisfy the other requirements. The second prong requires reliance by a “known party.” Plaintiffs completely failed to allege plaintiffs were “known” to defendant at the time of the alleged misrepresentation. Indeed, at the time it submitted information to the sponsor about the HVAC systems for use in the offering plan (sometime prior to April 27, 1999), defendant would only have been aware in the most general way that some buyer would rely on that information to purchase a particular unit. This is clearly insufficient (see Bri-Den Constr. Co., 56 AD3d at 355 [“prequalified bidders were simply not ‘known’ at the time of the complained-of conduct”]; Ford v Sivilli, 2 AD3d 773, 774-775 [2d Dept 2003] [in case alleging negligent misrepresentation for submitting incorrect plans to town, plaintiff real estate purchasers could not sue architect and expediter, that sellers had hired, because “(a)t best, the plaintiffs were part of an ‘indeterminate class of persons who, presently, or in the future’ may rely upon (the architect’s and expediter’s) alleged misrepresentations, which are not the equivalent of known parties”]; see also Credit Alliance Corp., 65 NY2d at 553 n 11 [rejecting rule that defendant, without more, could be liable to class of foreseeable plaintiffs]; Westpac Banking Corp. v Deschamps, 66 NY2d 16, 19 [1985] [although defendant may have known that the financial statements it prepared were for the particular purpose of obtaining a bridge loan, the complaint failed to state a relationship approaching privity where it did not claim that defendant knew that client was showing its reports to plaintiff, rather than a class of “potential bridge lenders”]). Even if plaintiffs were a “known party,” the complaint remains insufficient because plaintiffs have failed to allege linking conduct. Plaintiffs have not alleged, or even argued, that anything in the Engineering Services Agreement provides the necessary link to defendant. Plaintiffs do not allege that defendant had agreed to provide plaintiffs directly with information or point to any direct contact between the parties whatsoever — 168 — (see Westpac, 66 NY2d at 19 [no privity where there were no allegations that defendant had any dealings with plaintiff, had specifically agreed to prepare report for plaintiffs use or had even agreed to provide plaintiff with a copy]; compare Ossining, 73 NY2d at 425-426 [finding privity where “defendants allegedly undertook their work in the knowledge that it was for (plaintiff) alone” and had “various types of contact directly with (plaintiff)”]). The dissent claims that the complaint is sufficient because: (1) Cosentini conceded that it provided a description of the HVAC system for use in the offering plan; and (2) the offering plan, “based upon representations clearly made by Cosentini to the sponsor,” states particulars about the HVAC system, including that the system “will be designed to maintain a temperature of 72 [degrees] F.” This argument would be more persuasive if the complaint actually said what the dissent has written. It doesn’t. We must judge the complaint as plaintiffs have drafted it, not as the dissent would draft it for them. Nor does the complaint delineate what conduct links defendant to plaintiffs. As stated earlier, it is not enough that future purchasers were expected to rely on the offering plan (see Bri-Den Constr. Co., 56 AD3d at 355). The cases plaintiffs cite, Board of Mgrs. of Alfred Condominium v Carol Mgt. (214 AD2d 380 [1995], lv dismissed 87 NY2d 942 [1996]) and Board of Mgrs. of Astor Terrace Condominium v Schuman, Lichtenstein, Claman & Efron (183 AD2d 488 [1992]), both of which predate Parrott, are inapposite because in those cases the plaintiff unit owners were intended third-party beneficiaries of the contract between the sponsor and the engineers or design professionals. On this appeal, plaintiffs point to no language indicating that the sponsor and defendant agreed to confer third-party beneficiary status on plaintiffs or that the sponsor intended that result. The dissent argues that this is an irrelevant distinction because plaintiffs are not asserting breach of contract. This position overlooks negligent misrepresentation’s “known party” requirement that third-party beneficiary status might satisfy. However, plaintiffs have not argued that third-party beneficiary status makes them a known party to defendant and we decline to make that argument for them. We reject the dissent’s admonishment that we must follow Astor’s holding on negligent misrepresentation just because it is the law of this Court. Astor is in direct conflict with Court of — 169 — Appeals precedent from Credit Alliance through Parrott. Indeed, the Court of Appeals has indirectly rejected Astor’s holding, at least concerning privity as it relates to negligent misrepresentation. The Court of Appeals in Parrott affirmed a majority decision of this Court (see 263 AD2d 316 [2000]). The majority granted summary judgment to defendant accounting firm primarily because there was no evidence of conduct linking the plaintiff to the accountants. This dismissal occurred in the face of a lengthy dissent that relied heavily upon Astor. Thus, it is questionable whether Astor is good law on this issue. Moreover, to follow Astor in the face of Court of Appeals precedent like Parrott creates special protection for accountants when the Court of Appeals has dictated that the rule applies equally to other professions (see Ossining, 73 NY2d at 424). The dissent assumes that because this Court cited Astor in Castle Vil. Owners Corp. v Greater N.Y. Mut. Ins. Co. (58 AD3d 178 [2008]), Astor remains good law to support plaintiffs’ claim for negligent misrepresentation. This assumption is misplaced. Castle Village cited Astor only for its discussion of third-party beneficiary status, a completely different point. Again, plaintiffs here do not argue on appeal that they are intended beneficiaries under defendant’s contract with the sponsor.* Moreover, Castle Village is so different from this case that its reliance on Astor says very little. The claim in Castle Village was for professional malpractice, rather than negligent misrepresentation, and involved the issue of whether the defendant could recover in contribution from another defendant in a third-party action. In that case, the engineer knew its work was critical to approval of a conversion plan, the engineer’s report was included in the offering plan, the engineer continued to inspect the site after Castle Village became the owner and Castle Village was an intended beneficiary of the contract between the engineer and the sponsor. In contrast, here, none of these circumstances are present. Plaintiffs’ claim is for negligent misrepresentation and relies solely on defendant’s supplying information to the sponsor or — 170 — architect for use in the offering plan. Plaintiffs do not even argue on appeal that they are intended beneficiaries under defendant’s contract with the sponsor. The offering plan did not include a report from defendant. Defendants supplied information for use in the offering plan, dated April 27, 1999, well before plaintiffs signed a contract in July 2000 and became owners on March 13, 2001. In addition, the dissent’s heavy reliance on Ossining is misplaced. In Ossining, as the dissent notes, there was direct contact between the plaintiff and the defendants. The Court of Appeals emphasized this factor to hold that plaintiff had stated a claim for negligent misrepresentation. Here, there are no allegations of direct contact. Therefore it is difficult to discern how Ossining supports the dissent’s position. The dissent appears to endorse the approach set forth in section 552 of the Restatement (Second) of Torts. That section extends the liability of professionals who supply information for the guidance of others to loss a class of generally intended recipients might suffer where the professional is aware there is a possibility those recipients might rely on his or her work. However, the Court of Appeals has expressly rejected this approach (see Credit Alliance Corp., 65 NY2d at 553 n 11; Westpac Banking Corp., 66 NY2d at 19). The law the Court of Appeals has articulated for the State of New York is far more circumscribed. That is the law we must follow and thus, plaintiffs’ claim for negligent misrepresentation against defendant Cosentini does not survive. Accordingly, the order of the Supreme Court, New York County (Richard F. Braun, J.), entered October 9, 2007, that, insofar as appealed from as limited by the brief, denied defendant Cosentini Associates, LLP’s motion to dismiss the negligent misrepresentation claim, should be reversed, on the law, with costs, the motion granted and the cause of action for negligent misrepresentation dismissed. Footnotes [*] Indeed, the dissent fails to distinguish Bri-Den Constr. Co., a far more recent case than Astor, in which this Court upheld the dismissal of a complaint against a construction project’s architect because plaintiff was not a known party at the time of the misconduct, and otherwise fails to explain how plaintiffs were “known parties” rather than a class of potential parties within the parameters of New York law as the Court of Appeals has articulated it for us.