Title: James Sykes v. RFD Third Avenue 1 Associates, LLC

State: new-york

Issuer: New York Appellate Court

Document:

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This opinion is uncorrected and subject to revision before
publication in the New York Reports.
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No. 155  
James Sykes et al.,
            Appellants,
        v.
RFD Third Avenue 1 Associates, 
LLC, et al.,
            Defendants,
Cosentini Associates, LLP,
            Respondent.
Jeffrey R. Metz, for appellants.
Richard E. Lerner, for respondent.
SMITH, J.:
We hold that an action for negligent misrepresentation
must be dismissed where the complaint does not allege that the
misrepresentations were made with knowledge that plaintiffs would
rely on them.
Cosentini Associates, a mechanical engineering firm,
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No. 155
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was hired to design the heating, ventilation and air conditioning 
systems for a Manhattan condominium.  Plaintiffs, who bought an
apartment in the building, claim that Cosentini designed the
systems negligently, with the result that their apartment was too
cold in winter and too hot in summer.  They brought claims
against Cosentini for breach of contract, professional
malpractice, fraud and negligent misrepresentation.  It is now
undisputed that the first two of those claims are barred by the
statute of limitations, and that plaintiffs have not pleaded a
valid fraud claim.  Only the claim for negligent
misrepresentation is now before us.
That claim is based on statements made in the offering
plan given to plaintiffs before they purchased their apartment. 
The plan contained descriptions of the heating and air
conditioning systems, saying among other things that they were
capable of maintaining certain indoor temperatures in hot and
cold weather.  Plaintiffs allege that these statements can be
attributed to Cosentini; that Cosentini was negligent in making
them; that the statements were false; and that plaintiffs relied
on them in purchasing their apartment.
Supreme Court denied Cosentini's motion to dismiss the
claim.  The Appellate Division, with two Justices dissenting,
reversed, holding that plaintiffs had failed to allege a
relationship between themselves and Cosentini of the kind that is
necessary in a negligent misrepresentation case.  Plaintiffs
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No. 155
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appeal to this Court as of right, pursuant to CPLR 5601 (a), and
we now affirm.  
It has long been the law in New York that a plaintiff
in an action for negligent misrepresentation must show either
privity of contract between the plaintiff and the defendant or a
relationship "so close as to approach that of privity"
(Ultramares Corp. v Touche, 255 NY 170, 182-183 [1931] [Cardozo,
Ch.J.]; see Glanzer v Shepard, 233 NY 236 [1922] [Cardozo, J.]). 
In Credit Alliance Corp. v Arthur Anderson & Co. (65 NY2d 536,
551 [1985]), an action against a firm of accountants, we listed
"certain prerequisites" that "must be satisfied" before the
necessary relationship will be found to exist:
"(1) the accountants must have been aware
that the financial reports were to be used
for a particular purpose or purposes; (2) in
the furtherance of which a known party or
parties was intended to rely; and (3) there
must have been some conduct on the part of
the accountants linking them to that party or
parties, which evinces the accountants'
understanding of that party or parties'
reliance."
We have made clear since Credit Alliance that these requirements
do not apply to accountants only -- indeed, we have applied them
in an action against engineering firms (Ossining Union Free
School Dist. v Anderson LaRocca Anderson, 73 NY2d 417, 424
[1989]).  
Plaintiffs' claim here fails the second branch of the
Credit Alliance test: plaintiffs have not sufficiently alleged
that they were a "known party or parties," as Credit Alliance
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No. 155
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requires.  While Cosentini obviously knew in general that
prospective purchasers of apartments would rely on the offering
plan, there is no indication that it knew these plaintiffs would
be among them, or indeed that Cosentini knew or had the means of
knowing of plaintiffs' existence when it made the statements for
which it is being sued.
The words "known party or parties" in the Credit
Alliance test mean what they say.  That is confirmed by Westpac
Banking Corp. v Deschamps (66 NY2d 16 [1985]), decided a few
months after Credit Alliance.  There the plaintiff, Westpac, had
made a bridge loan to a borrower, Turnkey, that was unable to
repay it.  Westpac sued an accounting firm, Seidman, for
negligently certifying Turnkey's financial statements.  Westpac
alleged that, when Seidman made the certification, it knew that a
bridge lender would rely on it, and that it knew or could have
known that Westpac was a possible bridge lender.  We held that
this was not enough:
"Westpac claims only that it was one of a
class of 'potential bridge lenders,' to which
class as a whole Seidman owed a duty, and
that it should be considered a 'known party'
because it was as of the date of the
certification a substantial lender to
Turnkey, and 'thus a prime candidate for a
bridge loan.'  This is not, however, the
equivalent of knowledge of 'the identity of
the specific nonprivy party who would be
relying upon the audit reports' (Credit
Alliance Corp. v Andersen & Co., 65 NY2d, at
p 554, supra)."
(Id. at 19).
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No. 155
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Westpac was, if anything, a stronger case for the
plaintiff than this one.  Here, it is not even alleged that
Cosentini knew or had the means of knowing that plaintiffs were 
possible purchasers of an apartment.  Since Cosentini did not
know "the identity of the specific nonprivy party who would be
relying," the complaint falls short of satisfying the Credit
Alliance test.  Board of Managers of Astor Terrace Condominium v
Schuman, Lichtenstein, Claman & Efron (183 AD2d 488 [1st Dept
1992]), relied on by the Appellate Division dissenters, is, as
the Appellate Division majority pointed out, inconsistent with
Credit Alliance and our cases applying it.  
Accordingly, the order of the Appellate Division should
be affirmed, with costs. 
*   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *   *
Order affirmed, with costs.  Opinion by Judge Smith.  Chief Judge
Lippman and Judges Ciparick, Graffeo, Read, Pigott and Jones
concur.
 
Decided October 19, 2010