Court Opinion

ID: 2800753
Source: CourtListenerOpinion
Date Created: 2015-05-14 14:10:17.125597+00
Date Added: 2024-06-11T09:25:11.025007
License: Public Domain

State of New York
                   Supreme Court, Appellate Division
                      Third Judicial Department
Decided and Entered: May 14, 2015                      518848
________________________________

BLACK BEAR FUEL OIL, LTD.,
                    Appellant,
      v                                     MEMORANDUM AND ORDER

SWAN LAKE DEVELOPERS LLC et al.,
                    Respondents.
________________________________

Calendar Date:   February 11, 2015

Before:   McCarthy, J.P., Egan Jr., Devine and Clark, JJ.

                             __________

      Orseck Law Offices, PLLC, Liberty (Gerald Orseck of
counsel), for appellant.

      Kalter Kaplan Zeiger & Forman, Woodbourne (Terry S. Forman
of counsel), for respondents.

                             __________

Egan Jr., J.

      Appeal from an order of the Supreme Court (LaBuda, J.),
entered October 11, 2013 in Sullivan County, which denied
plaintiff's motion for summary judgment in lieu of complaint.

      In May 2007, plaintiff, which owned and operated a fuel oil
and kerosene delivery business from its premises located at 32
Stanton Corners Road in the Town of Liberty, Sullivan County,
sold its business to Darren Mapes for $425,000. Mapes, in turn,
incorporated under the name Jus-Sar Fuel, Inc., and Jus-Sar
thereafter leased the physical premises from plaintiff for $1,500
per month. As part and parcel of the sale of the business,
plaintiff executed a covenant not to compete, wherein it agreed,
among other things, that it would not – for a period of five
years – own or operate a fuel delivery business or otherwise
                              -2-                518848

engage in conduct that competed with Jus-Sar's business within a
50-mile radius of the business premises. According to Mapes,
plaintiff thereafter violated the covenant not to compete when,
in or about August 2008, plaintiff's president, Angela Streppone,
and her associate, Henry Hulst, began handing out business cards
advertising Polar Bear Fuel Oil, Inc. – a corporation allegedly
formed by one of plaintiff's former employees and purportedly
operated out of Hulst and Streppone's residence.

      In the interim, in September 2007, defendant Swan Lake
Developers LLC purchased the Stanton Corners Road premises –
consisting of a residence, an office and two garages – from
plaintiff for $450,000. The underlying mortgage was guaranteed
by defendant George Kaufman and, in conjunction with this sale,
Jus-Sar's lease was assigned to Swan Lake. According to
defendants' brief, the parties were aware – at the time that Swan
Lake purchased the premises – of outstanding code enforcement
issues with respect thereto.

      Beginning in July 2009, individuals identified as "Angela"
and "Hank" began filing complaints with the Town of Liberty
relative to the premises now owned by Swan Lake – contending,
among other things, that the premises were being utilized without
the required certificates of occupancy. Thereafter, in November
2009, plaintiff and Swan Lake entered into a settlement agreement
and, the following month, executed a subordination and
modification agreement, pursuant to the terms of which plaintiff
agreed to subordinate its 2007 mortgage to a new mortgage in the
amount of $150,000. Although not entirely clear from the record,
the new mortgage apparently was designed to enable Swan Lake to
pay off its indebtedness to plaintiff – amounting to $155,000 –
pursuant to an agreed-upon payment schedule commencing on
December 1, 2012 and, further, to undertake the repairs and
renovations required in order to bring the premises into
compliance with the local building code. The subordination
agreement was guaranteed solely by defendant Yitzchok Kaufman,
and the corresponding settlement agreement expressly provided
that "[t]he covenants, representations, warranties, and
agreements . . . of the parties hereto shall survive the
execution and delivery of this [a]greement."
                              -3-                518848

      According to George Kaufman, Swan Lake thereafter retained
an engineering firm to address and resolve the outstanding code
enforcement issues – both for the purpose of complying with
settlement/subordination agreements and "also [to] finalize
arrangements between Swan Lake . . . and Jus-Sar for the
continued rental of the premises and its prospective purchase by
Jus-Sar for the amount of $300,000." Apparently dissatisfied
with the resulting proposal, Mapes decided to hire his own
engineer. In the interim, however, according to both George
Kaufman and Mapes, Hulst and Streppone continued to file repeated
code enforcement complaints, which ultimately resulted in the
issuance of a cease and desist order.1 Such order, in turn, led
to Jus-Sar vacating the Stanton Corners Road premises and the
resulting loss of Swan Lake's tenant and prospective buyer. The
corresponding loss of income, according to George Kaufman, led to
Swan Lake's failure to make the December 2012 payment required by
the settlement/subordination agreements.

      Thereafter, in April 2013, plaintiff commenced this action
by moving for summary judgment in lieu of complaint (see CPLR
3213) – alleging that defendants failed to make the required
payments. Defendants opposed the requested relief and asserted
counterclaims sounding in tortious interference with business
relations, breach of the implied covenant of good faith and fair
dealing and prima facie tort. Supreme Court denied plaintiff's
motion, deemed plaintiff's motion papers to be a complaint and
directed defendants to interpose their answer and counterclaims
within 20 days. This appeal by plaintiff ensued.

      We affirm. Preliminarily, inasmuch as the subordination
agreement giving rise to this action was guaranteed solely by
Yitzchok Kaufman, plaintiff is not entitled to summary judgment
against George Kaufman, as the latter bears no obligation to
plaintiff under the terms of that agreement. As to the remaining

    1
        Although Mapes' affidavit predates the execution of the
settlement/subordination agreements in late 2009, the chronology
of events set forth in, among other things, the affidavit
tendered by George Kaufman suggests that the misdeeds undertaken
by Hulst and Streppone continued after that time.
                                -4-              518848

defendants, we agree with Supreme Court that the subject
counterclaims are inextricably intertwined with the underlying
settlement/subordination agreements, thereby precluding an award
of summary judgment (see GTE Automatic Elec. v Martin's Inc., 127
AD2d 545, 547 [1987]; compare Stevens v Phlo Corp., 288 AD2d 56,
56 [2001]). Notably, both the affidavit tendered by George
Kaufman and the affirmation offered by one of defendants'
attorneys, which references a December 2010 letter authored by
the attorney,2 delineate actions undertaken by plaintiff
following the execution of the relevant agreements that,
according to defendants, resulted in the loss of their tenant,
otherwise impaired their rights and/or ability to utilize the
subject property and ultimately led to their inability to comply
with the terms of the subordination agreement. Under these
circumstances, plaintiff's motion for summary judgment in lieu of
complaint was properly denied.

        Devine and Clark, JJ., concur.

McCarthy, J.P. (concurring in part and dissenting in part).

      Plaintiff was entitled to summary judgment against
defendants Swan Lake Developers LLC and Yitzchok Kaufman because
defendants' allegations and submissions fail to state defenses or
counterclaims that could offset plaintiff's entitlement to
payment pursuant to the settlement/subordination agreements. The
majority decision recognizes that defendants' allegations are
factually intertwined with the subject contractual agreements,
and concludes, apparently on that basis, that plaintiff's motion
for summary judgment seeking payment pursuant to those agreements

    2
        The attorney's affirmation essentially incorporated the
provisions of a December 2010 letter that he authored, wherein he
summarized, among other things, plaintiff's conduct following the
execution of the subject agreements. As such affirmation was
"subscribed and affirmed by him to be true under the penalties of
perjury," it has "the same force and effect as an affidavit"
(CPLR 2106 [a]) and may, together with other proof in the record,
be properly considered in opposition to plaintiff's motion.
                              -5-                518848

was properly denied. However, the majority fails to explain how
defendants' allegations and submissions support their alleged
defense and counterclaims. Inasmuch as defendants' factual
allegations and evidence do not support a legal basis to provide
them any relief, I respectfully dissent.

      Defendants opposed plaintiff's motion for summary judgment
pursuant to CPLR 3213 on the grounds of intertwined defenses and
counterclaims of breach of the implied covenant of good faith and
fair dealing, tortious interference with business relations and
prima facie tort. As to defendants' contract defense, the
implied covenant of good faith and fair dealing did not impose an
obligation on plaintiff to remain silent as to unlawful use of
the subject premises notwithstanding defendants' claim that said
use was necessary to obtain the funds required to pay plaintiff.
While all contracts formed under this state's laws contain an
implicit covenant of good faith and fair dealing, that covenant
only makes enforceable "promises which a reasonable person in the
position of the promisee would be justified in understanding were
included" in an agreement (511 W. 232nd Owners Corp. v Jennifer
Realty Co., 98 NY2d 144, 153 [2002] [internal quotation marks and
citations omitted]; accord Ochal v Television Tech. Corp., 26
AD3d 575, 576 [2006], lv dismissed 7 NY3d 741 [2006]; see Gizara
v New York Times Co., 80 AD3d 1026, 1027 [2011]). Given that the
agreements are silent with respect to the use of the premises in
violation of the relevant building code, reasonable actors in
defendants' position would not be justified in understanding that
plaintiff had agreed to not report its unlawful use.
Accordingly, the terms and covenants of the subject agreements
did not bar plaintiff from reporting the ongoing use of the
premises in violation of the relevant building code. Even if
this were not the case, the specific implied covenant that
defendants propose – an agreement intended to capture some
private profit through the evasion of building code compliance –
is void as contrary to this state's public policy (see Riverside
Syndicate, Inc. v Munroe, 10 NY3d 18, 23 [2008]; see generally
Town Law §§ 130 [1], 138). Accordingly, defendants failed to
allege facts that could sustain a defense to their contractual
obligations.
                              -6-                518848

      Defendants' factual allegations also fail to make out
causes of action for tortious interference with business
relations or prima facie tort. Defendants allege that
plaintiff's tortious acts consisted of its employees handing out
business cards for a newly formed fuel delivery business and
reporting building code violations in an attempt to put Jus-Sar
Fuel, Inc. – a competitor in the fuel delivery industry – out of
business. These factual allegations lead to a single reasonable
conclusion that plaintiff was acting, at least in part, out of
economic self interest. A party acting out of economic self
interest does not commit tortious interference with business
relations or prima facie tort (see Carvel Corp. v Noonan, 3 NY3d
182, 189 [2004]; 10 Ellicott Sq. Ct. Corp. v Violet Realty, Inc.,
81 AD3d 1366, 1368 [2011], lv denied 17 NY3d 704 [2011]; Lawrence
v Union of Orthodox Jewish Congregations of Am., 32 AD3d 304, 305
[2006]; Besicorp, Ltd. v Kahn, 290 AD2d 147, 150 [2002], lv
denied 98 NY2d 601 [2002]; Quail Ridge Assoc. v Chemical Bank,
162 AD2d 917, 919 [1990], lv dismissed 76 NY2d 936 [1990]).

      Having concluded that defendants failed to raise any
defenses or counterclaims that could offset plaintiff's
entitlement to payment pursuant to the subject agreements,
plaintiff is entitled to summary judgment granting it relief
against Swan Lake and Yitzchok Kaufman (see Riverside Inn Real
Estate Partnership, LP v Niagara Gorge Jet Boating, Ltd., 34 AD3d
1328, 1329 [2006], lv denied 8 NY3d 807 [2007]; Stevens v Phlo
Corp., 288 AD2d 56, 56 [2001]).1 As per the terms of the
settlement/subordination agreements, plaintiff is entitled to
recover $155,000 with interest at 12% per year from December 29,
2009.

    1
        I agree with the majority that defendant George Kaufman
had no contractual obligation to plaintiff and that, therefore,
summary judgment was properly denied as to him.
                        -7-                  518848

ORDERED that the order is affirmed, with costs.

                       ENTER:

                       Robert D. Mayberger
                       Clerk of the Court