Little Nest Community Nursery LLC v. 501 Church LLC, 1/29/2016 (Demarest, J.)

Breach of Contract; Fraud; Diversion of Business Opportunities; Unjust Enrichment; CPLR 3212(b)

By: Madeline Collins | Staff Writer

Plaintiff Little Nest Community Nursery LLC (“Plaintiff”) owned and operated an early childhood preschool for children. Plaintiff’s principal and sole member, Kathleen Fink (“Fink”), signed a lease to rent a commercial space to operate a preschool from Defendant 501 Church LLC (“Defendant”). The commercial space was undergoing construction work at the time the lease was signed. Plaintiff met with Defendant’s manager (“Koptiev”), who allegedly informed her that the necessary construction work could be performed to the property on or before September 2013 in the hopes of obtaining a certificate of occupancy from the New York City Department of Buildings (the “DOB”). Since she did not have the certificate of occupancy, Fink was unable to schedule the required inspection by the Fire Department, and, therefore, could not complete her application for a license to use the space commercially.  Later, Defendant began demolition and construction and put a new roof on the building.

Fink later informed Koptiev that the newly installed roof was leaking, which prevented her from acquiring a certificate of occupancy. As a result, Fink was prohibited from opening the preschool. Once the repairs were made, Fink then received a final certificate of occupancy. Fink was subsequently issued a license and permit to operate the preschool on the property. Later, however, Fink informed Defendants that the roof was leaking again and plumbing had failed in the bathrooms. Defendants informed Fink that they would remedy the leaking problem, but failed to do so.

Fink commenced a lawsuit seeking monetary damages for fraud, breach of contract, diversion of business opportunities, and unjust enrichment on the basis that Defendant misrepresented the building completion date, but, ultimately, failed to repair problems with the plumbing and roofing. Fink alleged that Defendants’ conduct constituted an unlawful diversion of business opportunities, and that this conduct has caused it to suffer damages. Fink also alleged that defendants had been unjustly enriched, causing it to suffer damages. Defendants moved for  summary judgement on all four causes of action on the basis that the building completion date and the procedure for repairs were represented accurately in the lease.

The Court granted Defendants’ summary judgment motion because there were no material issues of fact. First, the Court held that Plaintiff’s claim of fraud was unsubstantiated because the lease between Fink and Defendant specifically for any representations or agreements as to the usability of the. Fraud is found to have occurred where a defendant makes material misrepresentations and omissions of fact, knowing that such misrepresentations and omissions are false when made, and that the plaintiff relied upon those misrepresentations and omissions, and where the plaintiff suffered damages as a result. (See Danann Realty Corp. v Harris, 5 NY2d 317, 320-321 (1959)). Here, the lease further provided that the only repairs Defendants were responsible for making to the property were structural repairs.. The Court further held that Plaintiff’s breach of contract claim was premised on the same facts as the fraud claim and should, therefore, be dismissed.

Second, Plaintiff’s claim for diversion of business opportunities was wholly inapplicable to landlord-tenant disputes. To successfully plead a claim for diversion of business opportunity, a plaintiff must prove that a director, officer, or other individual who occupied a fiduciary position in relation to a corporation, precluded the plaintiff from diverting the corporation, an opportunity in which the corporation has an interest or tangible expectancy, or property that is deemed an asset of the corporation, in violation of the duty of loyalty. (CPLR 3212(b)). Here, the action involved a landlord and tenant dispute regarding obligations under a commercial lease, and the pleading failed to state that improper means were employed for the purpose of injuring the plaintiff. Lastly, Plaintiff’s claim for unjust enrichment was inapplicable because there was a written contract between the parties. To plead a claim for unjust enrichment, a plaintiff must prove that the defendant benefitted at the plaintiff’s expense, and that equity and good conscience require restitution. (CPLR 3212(b)). However, where parties have executed a valid and enforceable written contract governing a particular subject matter, recovery on a theory of unjust enrichment for events arising out of that subject matter is ordinarily precluded. Here, the lease between the plaintiff and the defendant was a valid and enforceable contact which governed the subject matter of plaintiff’s claim.

Little Nest Community Nursery LLC v. 501 Church LLC, 1/29/2016 (Demarest, J.)


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