VARIATIONS ON A THEME: SECOND DEPARTMENT DISMISSES COUNTERCLAIM FOR NEGLIGENT CONSTRUCTION AS DUPLICATIVE OF DEFENDANT’S BREACH OF CONTRACT COUNTERCLAIM

• Posted on: May 14 2021

This Blog frequently highlights cases analyzing the viability of fraud claims when contract claims are also made.  See, e.g., [here], [here], [here], [here], [here], [here].  In Michael Davis Construction, Inc. v. 129 Parsonage Lane, LLC, decided on May 12, 2021, the Second Department dismissed defendant’s negligent construction counterclaim as duplicative of its breach of contract counterclaim.  

A review of the underlying complaint (available from court’s electronic file) reveals that plaintiff, a general contractor, entered into a contract for the renovation of an existing house owned by defendant.  A dispute arose between the parties and plaintiff agreed to give defendant a $400,000 credit and complete the work for $75,000.  Defendant rebuffed plaintiff’s demand for the $75,000 payment upon substantial completion of the work.  In its answer, defendant asserted, inter alia, an affirmative defense alleging breach of contract because “[p]laintiff failed to satisfactorily perform or complete its obligations under its agreement with [defendant] and therefore the claims are barred as a result of breach of contract.”  In addition, defendant, alleging numerous deficiencies with plaintiff’s work and based thereon, asserted counterclaims sounding in breach of contract (first), negligent construction (second), breach of warranty (third), fraud in the inducement (fourth) and negligent misrepresentation (fifth).  In each counterclaim defendant sought damages “in excess of $1,500,000”, in addition to punitive damages of $2,000,000.

Supreme court granted plaintiff’s motion to dismiss defendant’s second, third, fourth and fifth counterclaims and the demand for punitive damages.  On appeal, the Second Department modified supreme court’s order to the extent of denying the motion to dismiss with respect to the third counterclaim (breach of warranty) only; the remainder of the order was affirmed.

In affirming the dismissal of the negligent construction counterclaim, the Court found it to be duplicative of the breach of contract counterclaim because a breach of contract counterclaim “is not to be considered a tort unless a legal duty independent of the contract itself has been violated.”  (Quoting Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 389 (1987).)  The legal duty so alleged “must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract.”  Id.  

The Clark-Fitzpatrick Court, in applying the facts of that case to the relevant law, stated:

Here, plaintiff has not alleged the violation of a legal duty independent of the contract. In its cause of action for gross negligence, plaintiff alleges that defendant failed to exercise “due care” in designing the project, locating utility lines, acquiring necessary property rights, and informing plaintiff of problems with the project before construction began. Each of these allegations, however, is merely a restatement, albeit in slightly different language, of the “implied” contractual obligations asserted in the cause of action for breach of contract. Moreover, the damages plaintiff allegedly sustained as a consequence of defendant’s violation of a “duty of due care” in designing the project were clearly within the contemplation of the written agreement, as indicated by the design change and adjusted compensation provisions of the contract. Merely charging a breach of a “duty of due care”, employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim.

Clark-Fitzpatrick, 70 N.Y.2d at 390 (citations omitted).

In reaching its decision, the Michael Davis Court also relied on Board of Managers of Beacon Tower Condominium v. 85 Adams Street, LLC., 136 A.D.3d 680 (2^nd Dep’t 2016), in which the Court stated:

A legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship, and in such instances, it is policy, not the parties’ contract, that gives rise to a duty of care. The nature of the injury, the manner in which the injury occurred, and the resulting harm are all relevant factors in considering whether claims alleging breach of contract and tort may exist side by side.

(Citations omitted.)

Because the Michael Davis Court found that the counterclaims failed to “allege facts that would give rise to a duty owed to the defendant that is independent of the duty imposed by the parties’ agreement,” defendant was essentially “seeking the contractual benefit of its bargain with plaintiff, which cannot be obtained through a counterclaim sounding in tort.”

The Michael Davis Court also affirmed the dismissal of the fraud in the inducement counterclaim because “the allegations which form the basis of the counterclaim alleging fraud in the inducement are the same as those underlying the counterclaim alleging breach of contract. The defendant’s allegation that the plaintiff fraudulently represented that it would install all soundproofing and thermal insulation on the project amounted only to a misrepresentation of the intent or ability to perform under the contract.  (Citations and internal quotation marks omitted.)

As to the affirmance of the dismissed negligent misrepresentation counterclaim, the Michael Davis Court stated:

A claim alleging negligent misrepresentation requires the party asserting the claim to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the other party to impart correct information; (2) that the information was incorrect; and (3) reasonable reliance on the information.  When both are alleged, a negligent misrepresentation claim will be found to be duplicative of a breach of contract claim where the pleading fails to allege facts that would give rise to a duty that is independent from the parties’ contractual. Here, the allegations supporting the counterclaim alleging negligent misrepresentation are based solely on the contractual relationship between the parties.

(Citations omitted.)

Finally, the breach of warranty counterclaim was determined not to be duplicative of the contract counterclaim and was reinstated.  The express limited warranty upon which the counterclaim was based, was “an agreement that is independent of the parties’ original construction agreement” and “was executed by the plaintiff several years after the parties allegedly entered into their original construction agreement.”