Lead Opinion
OPINION OF THE COURT
The only issue on this appeal is whether plaintiffs have stated a claim for negligent misrepresentation. We hold they have not, because they have failed to allege a relationship between themselves and this defendant, the mechanical engineer for the building where plaintiffs purchased an apartment, that is close enough to approach privity. In particular, plaintiffs have failed to allege that they were known to defendant at the time of the alleged misrepresentation and have failed to allege some conduct on the part of defendant linking it to plaintiffs. Therefore, we reverse the order of the motion court.
RED Third Avenue 1 Associates, LLC (sponsor) retained defendant Cosentini Associates, LLP (Cosentini or defendant) in an Engineering Services Agreement, dated October 6, 1997, to prepare certain designs for the construction phase of the Empire Condominium in Manhattan. Under the agreement, Cosentini’s responsibilities included the mechanical design of the heating, ventilation and air conditioning (HVAC) systems. In addition, the agreement provided that Cosentini would sign off on the work performed and issue certifications that regulatory authorities required. However, defendant did not install or oversee the installation of the HVAC units. Nor did defendant prepare the condominium offering plan or the documents the offering plan contained. However, defendant admits that it provided the sponsor with information regarding the mechanical systems for the building for use in the offering plan. The offering plan appears to be dated April 27, 1999. Presumably, sometime before that point, defendant supplied the information for use in the offering plan. Cosentini claims it completed all its work on or about May 21, 2001 and did not perform additional work after that.
In July 2000, plaintiffs James and Ellen Sykes entered into a contract to purchase a penthouse apartment from the sponsor.
Accоrding to the complaint before the court, problems with the apartment became evident shortly after plaintiffs took occupancy. This included problems with the HVAC system. Plaintiffs were unable to maintain a comfortable temperature in the apartment in winter or summer regardless of the thermostat setting.
After their situation went unresolved, plaintiffs filed a seven-count complaint in September 2004 against Cosentini and other defendants, including the sponsor. The only claim plaintiffs asserted against Cosentini was for “common Law Fraud and misrepresentation.”
In December 2004, Cosentini moved to dismiss that complaint for failure to state a cause of action for fraud or negligent misrepresentation. The court granted Cosentini’s motion, dismissing the complaint as to Cosentini without prejudice because plaintiffs’ allegations were conclusory and failed to allege that Cosentini was in privity of contract with them or in “a relationship so close as to approach that of privity.”
In March 2006, plaintiffs filed a separate action against Cosentini, alleging breach of contract (based on the theory that plaintiffs were intended beneficiaries under the Engineering Services Agreement), professional malpractice and “Common Law Fraud and/or Negligent Misrepresentation.” Their cause of action for negligеnt misrepresentation, although combined with their fraud claim, relied only upon the offering plan and related marketing materials. Plaintiffs alleged that the offering plan and marketing documents promised “[functioning heating, ventilation and air conditioning systems meeting applicable governmental requirements for comfort and efficiency.” Plaintiffs claim that, contrary to the representations in the offering plan, the HVAC system did not meet applicable governmental requirements and that they were unable to maintain a comfortable temperature in the apartment. Plaintiffs also point out that the offering plan identified defendant as the mechanical еngineer for the construction phase of the building and touted defendant’s services to other buildings in Manhattan. Plaintiffs claim that “prospective purchasers (including [plaintiffs]) were expected to and would rely upon Cosentini’s reputation and expertise, as summarized in the Offering Plan.” Defendant has admitted that “[a]s the mechanical engineer for the project, Cosentini provided a description of the mechanical
Defendant moved to dismiss the entire complaint as against it. The motion court deemed plaintiffs’ cause of action for breach of contract to be a claim for professional malpractice and then dismissed professional malpractice as time-barred (
Plаintiffs’ negligent misrepresentation claim fails to allege a “special relationship,” i.e., “a relationship so close as to approach that of privity” (Parrott v Coopers & Lybrand,
Therefore, before a stranger to a contract can claim harm from negligent misrepresentation, there must be:
“(1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to thе relying party and evincing its understanding of that reliance” (Parrott,95 NY2d at 484 [citations omit*166 ted]; see also Securities Inv. Protection Corp. v BDO Seidman,95 NY2d 702 , 712 [2001] [no privity between Securities Investor Protection Corporation (SIPC) and accountants where accountants had not prepared audit reports for the specific benefit of SIPC, did not send them to SIPC and SIPC never read these reports]).
Accordingly, we have been circumspect when assessing privity (see e.g. Houbigant, Inc. v Deloitte & Touche,
“Although this rule first developed in the context of accountant liability, it has applied equally in cases involving other professions” (Parrott,
Notably, plaintiffs do not argue on this appeal that the Engineering Services Agreement between defendant and RED demonstrates defendant knew potential tenants would rely on the information defendant provided. Rather, to support their argument that privity exists, plaintiffs point to allegations that rely solely on the offering plan. Plaintiffs’ entire argument rests on the theory that: (1) because defendant supplied information about certain mechanics of the building, including the HVAC system, to the sponsor and the architect for use in the offering plan; and (2) because the offering plan mentions defendant as the mechanical engineering firm retained to prepare mechanical designs for the building, this somehow leaves defendant open to liability for negligent misrepresentation.
The alleged relationship between plaintiffs and this defendant is too attenuated to support a relationship approaching privity.
The second prong requires reliance by a “known party.” Plaintiffs completely failed to allege plaintiffs were “known” to defendant at the time of the alleged misrepresentation. Indeed, at the time it submitted information to the sponsor about the HVAC systеms for use in the offering plan (sometime prior to April 27, 1999), defendant would only have been aware in the most general way that some buyer would rely on that information to purchase a particular unit. This is clearly insufficient (see Bri-Den Constr. Co.,
Even if plaintiffs were a “known party,” the complaint remains insufficient because plaintiffs have failed tо allege linking conduct. Plaintiffs have not alleged, or even argued, that anything in the Engineering Services Agreement provides the necessary link to defendant. Plaintiffs do not allege that defendant had agreed to provide plaintiffs directly with information or point to any direct contact between the parties whatsoever
The dissent claims that the complaint is sufficient because: (1) Cosentini conceded that it provided a description of the HVAC system for use in the offering plan; and (2) the offering plan, “based upon representations clearly made by Cosentini to the sponsor,” states particulars about the HVAC system, including that the system “will be designed to maintain a temperature of 72 [degrees] F.” This argument would be more persuasive if the complaint actually said what the dissent has written. It doesn’t. We must judge the complaint as plaintiffs have drafted it, not as the dissent would draft it for them. Nor does the complaint delineate what conduct links defendant to plaintiffs. As stаted earlier, it is not enough that future purchasers were expected to rely on the offering plan (see Bri-Den Constr. Co.,
The cases plaintiffs cite, Board of Mgrs. of Alfred Condominium v Carol Mgt. (
We reject the dissent’s admonishment that we must follow Astor’s holding on negligent misrepresentation just because it is the law of this Court. Astor is in direct conflict with Court of
The dissent assumes that because this Court cited Astor in Castle Vil. Owners Corp. v Greater N.Y. Mut. Ins. Co. (
Moreover, Castle Village is so different from this case that its reliance on Astor says very little. The claim in Castle Village was for professional malpractice, rather than negligent misreрresentation, and involved the issue of whether the defendant could recover in contribution from another defendant in a third-party action. In that case, the engineer knew its work was critical to approval of a conversion plan, the engineer’s report was included in the offering plan, the engineer continued to inspect the site after Castle Village became the owner and Castle Village was an intended beneficiary of the contract between the engineer and the sponsor.
In contrast, here, none of these circumstances are present. Plaintiffs’ claim is for negligent misrepresentation and relies solely on defendаnt’s supplying information to the sponsor or
In addition, the dissent’s heavy reliance on Ossining is misplaced. In Ossining, as the dissent notes, there was direct contact between the plaintiff and the defendants. The Court of Appeals emphasized this factor to hold that plaintiff had stated a claim for negligent misrepresentation. Here, there аre no allegations of direct contact. Therefore it is difficult to discern how Ossining supports the dissent’s position.
The dissent appears to endorse the approach set forth in section 552 of the Restatement (Second) of Torts. That section extends the liability of professionals who supply information for the guidance of others to loss a class of generally intended recipients might suffer where the professional is aware there is a possibility those recipients might rely on his or her work. However, the Court of Appeals has expressly rejected this approach (see Credit Alliance Corp.,
Accordingly, the order of the Supreme Court, New York County (Richard F. Braun, J.), entered October 9, 2007, that, insofar as appealed from as limited by the brief, denied defendant Cosentini Associates, LLP’s motion to dismiss the negligent misrepresentation claim, should be reversed, on the law, with costs, the motion granted and the cause of action for negligent misrepresentation dismissed.
Notes
Indeed, the dissent fails to distinguish Bri-Den Constr. Co., a far more recent case than Astor, in which this Court upheld the dismissal of a complaint against a construction project’s architect because plaintiff was not a known party at the time of the misconduct, and otherwise fails to explain how plaintiffs were “known parties” rather than a class of potential parties within the parameters of New York law as the Court of Appeals has articulated it for us.
Dissenting Opinion
(dissenting). Because of the majority’s misplaced reliance upon Parrott v Coopers & Lybrand (
In this appeal in which the only remaining issue is a cause of action brought by the purchasers of a $4 million condominium penthouse atop the Empire Condominium on East 78th Street against Cosentini Associates, the mechanical engineering firm that designed the HVAC systems for the building, we all agree that plaintiffs’ negligent representation claim is not duplicative of their professional malpractice claim (see Sage Realty Corp. v Proskauer Rose,
In ordеr to state a cause of action for negligent misrepresentation, plaintiffs must allege awareness by Cosentini that the allegedly negligent misrepresentations were to be used for a particular purpose, reliance by a known party or parties in furtherance of that purpose and some conduct by Cosentini linking it to the party or parties and evincing its understanding of their reliance (Ossining Union Free School Dist. v Anderson LaRocca Anderson,
For present purposes, the facts asserted in plaintiffs’ submissions in opposition to Cosentini’s motion satisfy those prerequisites. Plaintiffs’ allegations of a “special relationship” with Cosentini, i.e., “a relationship so close as to approach that of privity,” are sufficient to state a cause of action for negligent misrepresentation (Board of Mgrs. of Astor Terrace Condominium v Schuman, Lichtenstein, Claman & Efron,
The majority finds the complaint insufficient because plaintiffs have failed to allege reliance by a known party on Cosentini’s alleged misrepresentations or conduct on the part of Cosentini linking it to the relying party. However, in support of
The motion court found that paragraphs 81-98 of the amended complaint state a cause of action for negligent misrepresentation (
In addition, the complaint alleges that both the sponsor and Cosentini understood that prospective purchasers such as plaintiffs were expected to and would rely upon Cosentini’s reputation and expertise as summarized in the offering plan, etc.; that plaintiffs relied upon the offering plan and marketing materials; that based on such reliance they bought their penthouse unit; that the selling agent represented that the contractors and workers “were of the best quality”; that the HVAC system was improperly sized and plaintiffs were unable to maintain temperatures in their unit as specified in the offering plan; and that plaintiffs were justified in their reliance on the representations that Cosentini would perform its work in a good and workmanlike manner.
Plaintiffs also argued in opposition to Cosentini’s motion that Cosentini entered into its contract with the sponsor with full knowledge that its HVAC design would be used in a luxury
The majority’s attempt to distinguish Astor Terrace is unpersuasive. Like the offering plan in Astor Terrace, which claimed that the architects and engineers in that case were the “best,” the offering plan in this case, in addition to touting its architect as “the architect of many of Manhattan’s most famous buildings [naming the Knickerbocker condominium on East 72nd Street, the Siena condominium on East 76th Street, and Metropolitan Tower on West 57th Street]”, describes Cosentini as having provided mechanical engineering for the ATT World Headquarters on 57th Street and Madison Avenue, and the Lever House at 390 Park Avenue. The offering plan also states that the plans and specifications had been prepared by such architects and engineers and that construction of the building, “including the individual Units and Common Elements,” would be completed substantially , in accordance with such plans and specifications.
Moreover, any reliance by the majority upon Parrott for a reversal in this case and its claim that Parrott indirectly rejected our decision in Astor Terrace, which they claim “is in direct conflict with Court of Appeals precedent,” is sadly misplaced. Significantly, as the Court stated in Parrott, it was not making new law, but merely reiterating what it had previously held time and time again, that is, in order to recover for pecuniary loss caused by negligent misrepresentation “there must be a showing that there was either actual privity of contract between the parties or a relationship so close as to approach that of privity” (
In Astor Terrace, this Court held that “ ‘recovery may be had for pecuniary loss arising from negligent representations where there is actual privity of contract between the parties or a relationship so close as to approach that of privity’ (Ossining Union Free School Dist.[,
The plaintiff in Astor Terrace “met these criteria by showing that the design and engineering defendants must have been aware that the substance of their reports would be distributed to and relied upon by prospective purchasers, that such reliance did occur, and that the conduct of such defendants sufficiently linked them to plaintiff and evinced their understanding of the unit purchasers’ reliance” (id.). “Of particular importance,” this Court found, was “the fact that the units were marketed as luxury condominiums with an emphasis on the fact that the sponsor had gathered the best engineers and architects to design and construct the building and provide for its amenities” (id. at 489-490).
The majority claims that Ossining Union Free School District is somehow distinguishable because in that case there was “direct contact” between the plaintiff and the defendants and the Court of Appeals emphasized that factor in holding that plaintiff had stated a claim for negligent misrepresentation. However, there is nothing in the Court’s opinion that indicates that “direct contact” was “emphasized” or weighed heavily in that holding. Direct contact was just one of several factors the Court considered in determining that the plaintiff had sufficiently alleged that “defendants were awаre—indeed, could not possibly have failed to be aware—that the substance of the reports they furnished would be transmitted to and relied upon by” the plaintiff (Ossining Union Free School Dist.,
That litigation arose from certain reports made by several engineers following tests done to determine the structural soundness of a high school annex. The school district had retained an engineering consultant which in turn hired two engineering firms to conduct the tests. Both engineers reported serious weaknesses in the concrete slabs that formed the building’s superstructure and the consultant informed the school district of those findings. After arranging for the use of other facilities at substantial expense, the school district hired a third independent expert who advised it that the previous conclusions of structural problems were based on faulty assumptions as to the type of concrete used. The school district
In reversing and reinstating the cause of action for negligent misrepresentation, a unanimous Court of Appeals (per Kaye, J.) recited the history of the courts’ long struggle to define the ambit of duty or limits of liability for negligence, which in theory could be endless, the rhetoric of which was couched in the concept of foreseeability. Since, in negligent misrepresentation cases, what is objectively foreseeable injury may be vast and unbounded and wholly disproportionate to a defendant’s undertaking or wrongdoing, courts, in reaching the policy judgment called “duty,” have invoked a concept of privity of contract as a means of fixing fair, manageable bounds of liability (id.). The Court then traced the history of the concept through Ultramares Corp. v Touche (
As previously noted, the Court found that the school district had satisfied those prerequisites by alleging “that through direct contact with defendants, information transmitted by Anderson [the consultant], and the nature of the work, defendants were aware—indeed, could not possibly have failed to be aware—that the substance of the reports they furnished would be transmitted to and relied on by the school district ... in [the] ongoing project” (id. at 425). The Court concluded that “[n]ot unlike the bean weighеrs in Glanzer [v Shepard,
Clearly, as the Court of Appeals found in Ossining Union Free School District and as we found in an identical situation in Astor Terrace, Cosentini, as evidenced by its concession that its descriptions of the HVAC systems it designed for the Empire
Obviously, since we are only at the pleading stage, discovery will or will not flesh out the allegations in the complaint; however, based upon the controlling case law and the specific allegations in the complaint, it cannot be said as a matter of law that plaintiffs have not sufficiently pleaded a cause of action for negligent misrepresentation.
To the extent that the majority feels that Parrott has indirectly rejected our holding in Astor Terrace, such conclusion is unpersuasive. Parrott involved a dispute over the fair market value of shares in a small privately held corporation. This Court dismissed a negligence claim brought by a former director, vice-president and minority shareholder against an accounting firm retained by the corporation to periodically value the company on a minority interest basis in connection with the sale or proposed sale of the corporation. At the time that plaintiff left the cоmpany, the corporation exercised its option to buy back his shares at the price fixed by the accountants. In affirming the grant of summary judgment dismissing the negligence claim, this Court (per Tom, J.) found no indication that plaintiff ever met or even communicated with the accountants, or that the accountants were even aware that plaintiff owned company stock or that the stock would be repurchased by the employer client at a value fixed by the accountants. In sum, it found, the accountants’ discharge of their routine responsibilities was completely unrelated to the corporation’s purchase of plaintiffs stock (Parrott v Coopers & Lybrand,
Justice Rosenberger, relying primarily upon Credit Alliance Corp., but also citing Astor Terrace among numerоus other cases, dissented in part and would have found that, at the least,
Without mentioning Astor Terrace, the Court of Appeals affirmed in a short opinion (per Wesley, J.) noting that it had “previously rejected a rule ‘permitting recovery by any “foreseeable” plaintiff who relied on [a] negligently prepared report, and [had] rejected even a somewhat narrower rule that would permit recovery where the reliant party or class of parties was actually known or foreseen’ but thе individual defendant’s conduct did not link it to that third party” (Parrott,
Catterson and Renwick, JJ., concur with Moskowitz, J.; Tom, J.E, and Andrias, J., dissent in a separate opinion by Andrias, J.
Order, Supreme Court, New York County, entered October 9, 2007, reversed, on the law, with costs, the motion granted and the cause of action for negligent misrepresentation dismissed.