22 GRAMERCY PARK LLC v. MICHAEL HAVERLAND ARCHITECT LLP (2018)

Plaintiffs 22 Gramercy Park, LLC (Gramercy) and Eric Ellenbogen (Ellenbogen) move to discontinue their claim without prejudice against defendants pursuant to CPLR 3217 (b), and to dismiss with prejudice the counterclaims of defendant Michael Haverland Architect, P.C. (Haverland). Defendant Lehr Associates Consulting Engineers LLP (Lehr) cross-moves for dismissal of Haverland's cross claims.

This is an indemnification action brought by plaintiffs. Gramercy is the sponsor of a condominium located at 22 Gramercy Park South, New York, New York. Ellenbogen is the sole member of Gramercy. Haverland is the architect for the condominium project, consisting of renovation and construction of the condominium, including the design of its mechanical and other building systems, its facades, building-wide schematic design and interior design. Haverland executed a letter agreement with plaintiffs, dated March 30, 2002, amended by a letter agreement, dated February 11, 2003, and further amended by an agreement, dated March 12, 2008. Haverland served as the architect of record for the entire construction period from 2004 to 2012. Lehr provided mechanical design engineers for the project.

As alleged in the complaint, Haverland, during the course of its work, was responsible for negligent designs in the condominium's heating, ventilation and air conditioning systems, resulting in the impairment of the building units' habitability. Those defects required the condominium's board of managers and the owner of a certain unit to undertake remedial measures to cure the defects at their own expense. Subsequently, upon the completion of the remedial measures, the board and the unit owner threatened to sue plaintiffs to recover the remedial costs. Plaintiffs thereafter reached a settlement in the amount of $250,000, avoiding a lawsuit. Plaintiffs commenced this action against defendants after failing to recover money from them as part of the settlement.

In this action, plaintiffs allege that Haverland was liable for its negligent design of the aforesaid systems, and that indemnification is based on the amount of money plaintiff paid to the board and the unit owner to reimburse them for the costs they incurred, plus attorney's fees and expenses. In its answer, Haverland denied the allegations and asserted cross-claims against Lehr. Haverland also asserted two counterclaims allegedly derived from the 2008 amended agreement: one brought against Ellenbogen for breach of contract, and one brought against Gramercy and Ellenbogen for unjust enrichment.

Plaintiffs move for an order discontinuing their action without prejudice. They also move for the dismissal of Haverland's counterclaims with prejudice. If this court decides not to dismiss the counterclaims, plaintiffs seek a discontinuance with respect to Lehr.

Plaintiffs seek dismissal of Haverland's counterclaim for breach of contract, arguing that the requisite contractual basis for the counterclaim is extinguished upon the discontinuance of the indemnification claim. Plaintiffs also seek dismissal because there is no authorization for the damages sought by Haverland in the amended agreement or the original agreement. Finally, plaintiffs seeks dismissal because Ellenbogen is not a party to the amended agreement and, thus, not liable.

Plaintiffs seek dismissal of the second counterclaim because, independent of its lack of a contractual predicate, the counterclaim for unjust enrichment fails as a matter of law, with the existence of express agreements which cover the claims's same subject matter.

In opposition to the motion, Haverland contends that plaintiffs have acted in bad faith in making this motion. Haverland argues that plaintiffs want to discontinue the suit without prejudice, enabling them to renew the suit, but seek dismissal of its counterclaims with prejudice, thus permanently preventing Haverland from further litigation of its counterclaims. Haverland contends that it is seeking valid relief. Moreover, Haverland argues that it has been and would be prejudiced by plaintiffs, stating that plaintiffs commenced a prior action against it, based on negligence and breach of contract, but withdrew the action upon considering statute of limitations issues. According to Haverland, the present suit is identical to the former suit.

Haverland claims that it has a contractual right to bring its counterclaims. Section 1(b) (ii) of the 2008 amended agreement provides, in part, as follows: “Owner agrees that in the event Owner commences a claim against Architect, Architect may assert, and recover as the evidence supports, by way of counterclaim, offset or affirmative defense the amount of fees that otherwise would be due Architect․” (see Amended Agreement, dated March 12, 2008).

Haverland argues that its first counterclaim, a breach of contract claim against Ellenbogen, is valid because the amended letter agreement of February 11, 2003 expressly provides that Haverland would be entitled to a fee equal to 15% of construction costs for the fourth and fifth floors of the condominium. This amount is sought by Haverland, which claims not to have received this amount to date. Haverland argues that the reason it is suing Ellenbogen individually for breach of contract is because the original and first amended agreements were between Haverland and Ellenbogen, and Gramercy was not a party to the agreements. The second amended agreement designates Ellenbogen as the Owner. While the page on which Ellenbogen signed his name indicates Gramercy as the owner, Haverland contends that the agreement should be construed as a contract between Haverland and Ellenbogen.

Regarding the second counterclaim, unjust enrichment against both plaintiffs, Haverland contends that this has been pleaded in the alternative to the first counterclaim. If plaintiffs succeed in dismissing the first counterclaim, Haverland states that this counterclaim would be necessary as an alternative theory.

Haverland states that, if the court is inclined to grant discontinuance, such discontinuance should be with prejudice and conditioned upon plaintiffs' paying its costs and fees incurred in litigating this and the prior suit. Haverland also seeks a severance of its counterclaims. If the court grants discontinuance without prejudice, Haverland requests that its cross claims against Lehr be preserved.

In reply, plaintiffs deny any allegations of bad faith or evidence of prejudice, while insisting on the lack of merit in Haverland's counterclaims. Plaintiffs argue that Haverland has been paid in full for all of its services and that it is not entitled to any additional costs. They accuse Haverland of bad faith in imposing conditions for the discontinuance. Plaintiffs repeat their arguments for the dismissal of the counterclaims, arguing that the unjust enrichment counterclaim is invalid because its subject matter is governed by a written agreement, and it cannot otherwise stand as an alternative theory.

Lehr cross-moves for the dismissal of Haverland's cross claims. Lehr argues that these cross claims arise solely out of plaintiff's indemnification claim and must be dismissed if discontinuance is granted. Haverland's cross claims are based on contribution, indemnification and failure to procure insurance for Haverland. Like Haverland, Lehr requests that the discontinuance should be with prejudice, though it seeks the dismissal of the counterclaims with prejudice. If the discontinuance is without prejudice, Lehr requests that the counterclaims be dismissed without prejudice. If discontinuance is denied, Lehr requests that plaintiffs' claims against it should be dismissed.

CPLR 3217 (b) provides that the court determines whether a party seeking a discontinuance of its claim is entitled to one. While the determination upon a motion for a voluntary discontinuance is generally within the sound discretion of the court, parties ordinarily cannot be compelled to litigate, and, absent special circumstances, such as prejudice to adverse parties, discontinuance should be granted (see Burnham Serv. Corp. v. National Council on Compensation Ins., 288 AD2d 31, 32 [1st Dept 2001] ).

This action is currently at the pleading stage. Plaintiffs allege that they are entitled to reimbursement of funds that they paid to “injured parties,” due to design defects in various systems in their condominium, said defects caused by defendants. As Haverland asserted, plaintiffs commenced a prior action, alleging negligence and or malpractice, and breach of contract, which was discontinued because of the statute of limitations. In an action based on indemnification, the statute of limitations starts to run upon the date of payment which, in this case, is some time in September 2015, as alleged in the complaint. The statute of limitations for indemnification is six years and this action is, to date, not time barred (see CPLR 213).

Although plaintiffs claim that they sought a stipulation of discontinuance prior to moving for one, they state that Haverland refused to sign the stipulation and sought conditions which plaintiffs found unacceptable. Both plaintiffs and Haverland contend that each other's claims are lacking in merit. Haverland argues that it would be prejudiced if the court granted plaintiff's motion in its present state.

Plaintiffs commenced this action for common law indemnification. “Implied indemnity is a restitution concept which permits shifting of the loss because to fail to do so would result in the unjust enrichment of one party at the expense of the other (citations omitted)” (Mas v. Two Bridges Assoc., 75 NY2d 680, 690 [1990] ). “The principle of common-law, or implied indemnification permits one who has been compelled to pay for the wrong of another to recover from the wrongdoer the damages it paid to the injured party (citations omitted)” (17 Vista Fee Assocs. v. Teachers Ins. & Annuity Assn. of Am., 259 AD2d 75, 80 [1st Dept 1999] ). “The key element of a common-law cause of action for indemnification is not a duty running from the indemnitor to the injured party, but rather a ‘separate duty owed the indemnittee by the indemnitor (citations omitted)’ ” (Pimentel v. DeJesus, 53 AD3d 401, 401 [1st Dept 2008] ).

Plaintiffs here have adequately pled a cause of action in common-law indemnification. Plaintiffs also have a right to discontinue litigation, and discontinuance is usually without prejudice. One of plaintiffs' arguments against Haverland's counterclaims is that they are without merit. The breach of contract counterclaim is allegedly based on the terms of the 2008 amended agreement, which grants Haverland the option of suing the owner in the event that the owner commences an action against Haverland. Haverland refers to a provision in the 2003 amended agreement which expressly provides Haverland with a 15% flat fee for construction costs on the fourth and fifth floor of the condominium. Both sides have acknowledged this document as an amendment to the original 2002 agreement. This document had not been rescinded or altered at the time of the 2008 amended agreement, and thereafter. Haverland alleges that it has not been paid in full until it receives this payment.

When parties set down their agreement in a clear, complete document, their writing should be enforced according to its terms (see HGCD Retail Servs., LLC v. 44-45 Broadway Realty Co., 37 AD3d 43, 49 [1st Dept 2006] ). “ ‘Courts are obliged to interpret a contract so as to give meaning to all of its terms (citations omitted)’ ” (Bruckmann, Rosser, Sherrill & Co., L.P. v. Marsh USA, Inc., 87 AD3d 65, 70 [1st Dept 2011] ).

As written, it certainly seems that the agreement provides a basis for the relief sought by Haverland. Regarding whether the agreement binds Ellenbogen individually rather than Gramercy, the two agreements executed prior to the amended 2008 agreement do not indicate that Ellenbogen was acting on behalf of Gramercy. The amended 2008 agreement refers to Ellenbogen as the Owner, but his signature on the agreement indicates that he signed on behalf of Gramercy. In determining whether the person signing an agreement may be held liable in his individual capacity, his signature must be understood in light of the entire agreement (see Wormser, Kiely, Galef & Jacobs, LLP v. Frumkin, 125 AD3d 516, 517 [1st Dept 2015] ). This particular agreement, if considered in combination with the previous agreements, would lead one to understand that Ellenbogen was the owner rather than Gramercy. Moreover, it has long been the rule that ambiguities in an agreement will be resolved against the party preparing or presenting it, here, plaintiffs (see Wormser at 517). At this stage, Haverland has adequately stated its counterclaim for breach of contract against Ellenbogen. If Ellenbogen is deemed the sole party to the agreements, the unjust enrichment counterclaim would be inapplicable to him for obvious reasons. If Gramercy is deemed the sole party to the agreements, the unjust enrichment counterclaim would be inapplicable to it.

The court will grant plaintiffs a discontinuance of its claim without prejudice. The court will sever the counterclaims, finding that the relief sought by Haverland to be independent of the indemnification claim. Thus, the counterclaims can survive without the main claim and can be prepared for trial upon the discontinuance of said claim.

In considering Lehr's cross motion, which seeks dismissal of Haverland's cross claims against it, which are based on indemnification and contribution in light of plaintiff's indemnification claim, the court shall grant the cross motion and also dismiss Lehr's cross claims against Haverland. The dismissal of all the cross claims are without prejudice.

Accordingly, it is

ORDERED that plaintiffs' motion for discontinuance of its indemnification claim is granted without prejudice; and it is further

ORDERED that plaintiffs' motion to dismiss defendant Michael Haverland Architect, P.C.'s counterclaims with prejudice is denied; and it is further

ORDERED that the counterclaims are hereby severed; and it is further

ORDERED that defendant Lehr Associates Consulting Engineers LLP's cross motion for the dismissal of Michael Haverland Architect, P.C.'s cross claims is granted to the effect that all cross claims by defendants are dismissed without prejudice and Lehr is dismissed from this action without prejudice.

Robert R. Reed, J.