United States: New York Court Of Appeals Update (November 2019)

The start of the 2019-2020 Term of the Court featured decisions on both criminal law (prosecutions failure to make requested pre-trial disclosures; and juror misconduct) and civil law (class action suit for fraudulent rents; duty to maintain sidewalks ; and liability of out-of-possession landlord).

People v Rong He

2019 NY Slip Op 07477

October 17, 2019

Question: Did the People violate defendant's rights to due process by failing to disclose, upon a pre-trial request, contact information about two witnesses.

Answer: Yes. The defenses investigation of the witnesses could have affected the outcome of the trial.

In Brady v Maryland, the United States Supreme Court held that the suppression by the prosecution of evidence favorable to an accused upon request violated due process where the evidence was material either to guilt or to punishment, irrespective of the good faith or bad faith of the prosecution. The Court of Appeals subsequently explained that “[t]he People, in their role as truth-seekers in criminal trials, have a broad obligation to disclose exculpatory evidence,’ but a mere breach of this duty does not offend the defendant’s due process rights unless all the components of a true Brady violation’ are established. A successful Brady claim thus rests on a showing that (1) the evidence was favorable to the defendant because it was either exculpatory or impeaching in nature; (2) the evidence was suppressed by the prosecution; and (3) prejudice arose because the suppressed evidence was material.

In this case, the People failed to fulfill their “broad obligation” of disclosure under Brady by failing to provide defendant with meaningful access to favorable witnesses. The owner of the nightclub where the crime occurred told the police that he saw two people approach one of the victims and strike him with a beer bottle, and even identified someone other than defendant as one of those assailants. Another witness arguably corroborated this description when he called 911. According to a sprint report, the caller claimed that two men “stated that they were going to come back with a gun when leaving location.” The accounts, if true, would have directly contradicted the People’s theory of the case, and therefore access to the witnesses who made them was clearly favorable to the defense.

The People objected to defendant’s pre-trial request for the direct disclosure of the witnesses’ contact information, and instead offered to provide the witnesses with defense counsel’s information. This approach would not have provided defendant with adequate means for defense counsel to investigate those witnesses’ statements. And, at the time of the request, the People did not bring forth any evidence that defendant presented a risk to the requested witnesses. Consequently, there was no apparent reason at that time for implementing protective measures or otherwise insulating the contact information from disclosure in the face of defendant’s clear “right . . . to discover a potentially material witness.

Accordingly, under the circumstances of this case, the People’s refusal to disclose the contact information, or to provide any means for defense counsel to contact the witnesses other than through the prosecution itself, was tantamount to suppression of the requested information.

The first two prongs of Brady being satisfied, the Court’s inquiry turned to whether the suppressed information was material. In New York, the test of materiality where the defendant had made a specific request for the evidence whether there is a reasonable possibility‘ that the verdict would have been different if the evidence had been disclosed. Both witnesses’ statements, if true, would have directly contradicted the People’s theory of the case that defendant was the sole perpetrator.

Although the People presented other evidence of defendant’s guilt, the only witness who identified defendant at trial initially told the police that he did not see the perpetrator’s face. Considering that the nightclub owner provided the police with the name of another possible assailant, and based on the other evidence presented at trial, it was clear that access at least to him could have allowed defendant to develop additional facts, which in turn could have aided him in establishing additional or alternative theories to support his defense. Given the substance of the nightclub owner’s statements and the nature of the People’s case, the Court of Appeals could not say that there was no “reasonable possibility” that the defense’s investigation of the witnesses would not have affected the outcome of defendant’s trial.

People v Neulander

2019 NY Slip Op 07521

October 22, 2019

Question: Whether the undisputed juror misconduct warranted a reversal of the judgment convicting Dr. Neulander of murder and evidence tampering.

Answer: The cumulative effect of the Juror's extreme deception and dishonesty compelled the Court to conclude that her improper conduct may have affected a substantial right of defendant.

In April 2015, a jury convicted Dr. Neulander of murdering his wife and tampering with physical evidence. Throughout the trial Juror 12 sent and received hundreds of text messages about the case. Certain text messages sent and received by Juror 12 were troublesome and inconsistent with the trial court’s repeated instructions not to discuss the case with any person and to report any attempts by anyone to discuss the case with a juror. Juror 12 also accessed local media websites that were covering the trial extensively. In order to hide her misconduct, Juror 12 lied under oath to the court, deceived the People and the court by providing a false affidavit and tendering doctored text message exchanges in support of that affidavit, selectively deleted other text messages she deemed “problematic,” and deleted her now-irretrievable internet browsing history.

Defendant moved, pursuant to CPL 330.30, to set aside the verdict based on juror misconduct. Upon conclusion of a fact-finding hearing, the trial court determined that Juror 12 consciously engaged in misconduct and prevarication, but nonetheless believed her misconduct did not render the trial unfair.

The Appellate Division, with two Justices dissenting, reversed the judgment and granted a new trial, with the majority observing that “every defendant has a right to be tried by jurors who follow the court’s instructions, do not lie in sworn affidavits about their misconduct during the trial, and do not make substantial efforts to conceal and erase their misconduct when the court conducts an inquiry with respect thereto."

The court of Appeals agreed that the extensiveness and egregiousness of the disregard, deception, and dissembling occurring here leave no alternative but to reverse the judgment of conviction and remit for a new trial and to affirm publicly the importance of juror honesty.

Under CPL 330.30, a verdict should be set aside if “improper conduct by a juror . . . may have affected a substantial right of the defendant and . . . was not known to the defendant prior to the rendition of the verdict.” Of course, “not every misstep by a juror rises to the inherently prejudicial level at which reversal is required automatically.” Under the extraordinary circumstances of this case, the Court concluded that Juror 12’s behavior “may have affected a substantial right of defendant.”

This was not a case of stray texts or inadvertent misstatements. The record plainly supported the findings of both lower Courts that Juror 12’s conduct disregarded the Court’s plentiful instructions as to outside communications and when such conduct was brought to light, the juror was deliberately and repetitively untruthful.

During the third day of jury deliberations, when the Court first examined Juror 12 as to whether she had violated the Court’s instructions concerning outside communications, she insisted that she had not, which later proved to be false. When, after the jury had rendered its verdict, an alternate juror advised the Court, by affidavit, that Juror 12 had engaged in improper conduct, Juror 12 secretly and selectively deleted numerous text messages which she believed to be “problematic,” and presented to the People the remaining portions of the text message exchanges as if they were complete recitations of the communications. Juror 12 thereby induced the People to submit to the Court her exculpatory affidavit, attaching the fabricated versions of her conversations with no indication that she had doctored them.

When, at the CPL 330.30 hearing, she was examined about her selective deletions, which were uncovered through a forensic examination of her cell phone, Juror 12 gave several answers evidencing a continued lack of candor. Although she deleted her entire internet browsing history and could not explain why, when confronted with evidence that she had accessed a website providing daily trial coverage, she testified that she read nothing about the trial and probably accessed the site to read an article on cheerleading. The People and defense counsel stipulated, however, that no such article appeared on that site during the relevant time. She several times accessed a second news website providing trial coverage, as to which she offered no explanation.

In this case, a sworn juror, when examined by the Court about the breadth of her outside communications was repeatedly and deliberately untruthful about the scope of that misconduct and affirmatively sought to conceal evidence of her misconduct. That extraordinary and dishonest behavior by a juror purposefully selected to be a fair and objective arbiter of the facts caused irredeemable injury to the judicial system and the public’s confidence in it.

“Jurors, of course, do not live in capsules” and cannot be isolated during their service from the outside world, including their friends and families. However, they must be expected, at the very minimum, to obey the admonishments of the trial Court, report attempts by others trying to influence their oath to be objective, and to be forthcoming during Court inquiries into their conduct as a juror.

Juror 12’s blatant disregard of the Court’s instructions, coupled with her purposeful dishonesty and deception when her actions and good faith as a juror came into question, vitiated the premise that Juror 12 was fair and impartial and lead the Court to the conclusion that a new trial was required.

On the record, the cumulative effect of Juror 12’s misconduct, deceit, and destruction of evidence — conduct which obfuscated the full extent of her misconduct — compelled the Court to agree with the Appellate Division that Juror 12’s “improper conduct may have affected a substantial right of defendant,” and, therefore, the trial Court abused its discretion in declining to set aside the verdict.

The People contended that even if Juror 12 engaged in misconduct, “that misconduct [was] significantly outweighed by the substantial proof of guilt presented at trial.” However, “[t]he right to a fair trial is self-standing and proof of guilt, however overwhelming, can never be permitted to negate this right.” The “public at large is entitled to the assurance that there shall be full observance and enforcement of the cardinal right of a defendant to a fair trial.” Affirming a conviction where a juror engaged in dishonesty of such magnitude would not discharge the Court's “overriding responsibility” to ensure the public’s confidence in the fairness of trials.

Maddicks v Big City Props., LLC

2019 NY Slip Op 07519

October 22, 2019

Question: Was dismissal of a class action complaint, alleging a scheme to fraudulently raise residential rents, proper at the pleading stage.

Answer: No. Common questions of fact existed as to liability even if damages were differentiated.

The Big City Portfolio, which consists of multiple apartment buildings located primarily in the Harlem neighborhood in Manhattan, is managed by Big City Realty Management, LLC. Individual corporate defendants own various buildings in the portfolio, and plaintiffs — who are current and former tenants in various buildings within the portfolio — suggested that those corporate entities were owned or controlled by a single holding company, Big City Acquisitions, LLC.

Tenants also alleged that owners, in an effort to extract additional value from those properties, engaged in “a clear pattern and practice of improper and illegal conduct.” The allegations of the complaint stated that the action was commenced “to end the illegal and fraudulent practices employed by [d]efendants over the course of [their] ownership and operation” of the buildings within the portfolio. That claim of illegality and fraud, tenants maintained, addressed a scheme to inflate rents over and above the amounts that were legally permitted. This was accomplished in four ways. Tenants alleged that owners executed their overcharge plan by:

• falsely reporting to the Division of Housing and Community Renewal that leases were rent-controlled pursuant to the J-51 program, when in fact those contracts were free-market compacts;
• misrepresenting and inflating the costs of individual apartment improvements (IAIs);
• repeatedly failing to register rental information as required by state and city law, thereby rendering it impossible to calculate the correct legal regulated rent; and
• inflating the fair market rent on apartments that exit rent-controlled status, by recording a rent price significantly higher than the preferential rent actually charged with respect to certain units.

Tenants argued that nearly all factual and legal issues raised in the complaint were common to each other and to members of the proposed class and sub-class, and that the statutory prerequisites to class certification would be satisfied and the lawsuit could be properly maintained as a class action. Tenants asserted six causes of action to be pursued by the proposed class and sub-class, sounding principally in the alleged violation of the Rent Stabilization Law and General Business Law § 349. They sought reformation of illegal leases to provide that the units subject to those agreements were subject to rent stabilization.

Before the appropriateness of the claims for class action could be tested, the owners moved to dismiss the amended class action complaint. They argued that tenants failed to state a cause of action for violation of General Business Law § 349, and that the class allegations failed as a matter of law.

Supreme Court granted the motion and dismissed the complaint. The Court “determine[d] conclusively from the facts alleged [therein] that, as a matter of law, there is no basis for class relief” based on its belief tenants relied “on several different theories of the manner in which [d]efendants inflated the rent” that each “require[] a fact-specific analysis [that] precludes class certification.”

On appeal, a divided Appellate Division modified Supreme Court’s order by denying that part of the motion seeking dismissal of the class action claims, except to the extent those allegations addressed the cause of action for violation of General Business Law § 349.

The Appellate Division concluded that the dismissal of the “remaining class allegations . . . at this early stage, before an answer was filed and before any discovery occurred, was premature.” The Court added that “[it did] not appear conclusively from the complaint that, as a matter of law, there is no basis for class action relief,” before rejecting the contention of the dissenters that the claims were fact-intensive and could only be determined through an examination of the evidence pertinent to each individual unit allegedly affected by owners’ misconduct. The conclusion that the class action claim should not be dismissed was based on the Appellate Division’s analysis of the complaint which spoke to “the setting of . . . improper rents [in the affected] apartments [as] part of a systematic effort by [Big City Acquisitions, LLC] to avoid compliance with the rent stabilization laws.”

The Court of Appeals shared the view that dismissal of class claims based on allegations of a methodical attempt to illegally inflate rents was premature.

The Court agreed with owners’ position that there was no per se bar to a pre-answer motion pursuant to CPLR 3211(a) seeking an order dismissing a class action allegation. Nothing in the CPLR provided that a class claim could not be dismissed, even at the pre-answer stage, for failure to state a cause of action.

Where an appeal arises from a motion to dismiss, the complaint “is to be afforded a liberal construction.” And the Court must “accept the facts as alleged as true, [and] accord tenants the benefit of every possible favorable inference.” The Court was also bound to “determine only whether the facts as alleged fit within any cognizable legal theory.”

The determination whether tenants had a claim that could be asserted as a class action turned on the application of CPLR 901. That section provided that “[o]ne or more members of a class may sue or be sued as representative parties on behalf of all” where five factors exist — sometimes characterized “as numerosity, commonality, typicality, adequacy of representation and superiority.” Of principal concern on the appeal was the “commonality” element, which inquired whether “there are questions of law or fact common to the class which predominated over any questions affecting only individual members.”

With respect to the commonality question, owners noted that, where damages among class members may differ, a class action may proceed only “if the important legal or factual issues involving liability are common to the class.”

Here, there was an element of truth to owners’ suggestion that the class claims — particularly those based on the alleged misrepresentation and inflation of the costs of improvements — might require separate proof with respect to each tenant. Along those lines, owners noted that the operative complaint alleged overcharges for inflated cost of improvements increases of various amounts — 136%, 97%, 82%, 104%, 113%, 33%, or 254% for various apartments — which they contended supported the idea that the alleged overcharges were separate wrongs to separate persons that did not form the basis for a class action.

The question presented was whether the Court was to look at the common basis for a damages claim or the degree of damage alleged? On the one hand, if, as owners suggested, the differences in the specific means of harm was considered — that is, if at this stage the Court contemplated nuances of how those overcharges allegedly were accomplished — then tenants might struggle to satisfy the factual component. On the other hand, as tenants noted, to focus on potential idiosyncrasies within the class claims — distinctions that speak to damages, not to liability — at this juncture would potentially be to reward bad actors who executed a common method to damage in slightly different ways.

Commonality was not to be confused with unanimity. Commonality cannot be determined by any mechanical test and the fact that questions peculiar to each individual may remain after resolution of the common questions was not fatal to the class action. Rather, “it is predominance, not identity or unanimity,’ that is the linchpin of commonality.” Here the complaint addressed harm effectuated through a variety of approaches but within a common systematic plan, and its class claims should not have been dismissed at this juncture.

GARCIA, J. (dissenting):

The complaint was originally brought on behalf of all current and former rent-stabilized tenants in over 20 apartment buildings in New York City, alleging a scheme designed to inflate rents. In upholding reinstatement of the class allegations, the majority failed to identify any possible questions of law or fact common to the class which could predominate over any questions affecting only individual members.

Judge Garcia agreed with the majority that, when it is clear from the face of a pleading and any supporting affidavits that a class cannot be certified, the class allegations in that pleading must be dismissed upon motion. A class action complaint and supporting affidavits must satisfy the plaintiff-friendly standards New York courts apply in the motion to dismiss context. Thus, they must allege facts that, when accepted as true and accorded the benefit of every possible favorable inference, indicated that class certification would be within the discretion of the trial court as a matter of law and there is a possible basis for class action relief. Put another way, the complaint and supporting affidavits must allege facts showing that a plaintiff could meet each of the CPLR 901(a) prerequisites following class discovery. If the complaint and any supporting affidavits do not allege such facts and a defendant files a motion to dismiss, the class allegations must be dismissed.

Permitting the dismissal of class allegations without prejudice at this stage of the proceedings served the general goals, preventing courts and litigants from needless costs — particularly those resulting from discovery — associated with class certification proceedings that have no chance of success. A contrary rule would tie the hands of the trial court in a way that undermined, rather than promoted, those objectives and frustrated the goal of efficiency central to class actions. An overly restrictive interpretation of trial court authority in this area would also impose class discovery on the party opposed to certification which, while often not as expensive or time-consuming as merits discovery, may nonetheless lead to significant costs;

Accordingly, when it is readily apparent from the face of a pleading and any supporting affidavits that the claims were not appropriate for class relief, trial courts have the freedom to grant motions to dismiss the class allegations.

Xiang Fu He v Troon Mgt., Inc.

2019 NY Slip Op 07643

October 24, 2019

Question: Section 7-210 of the Administrative Code of the City of New York imposes a non-delegable duty on certain real property owners to maintain City sidewalks abutting their land in a reasonably safe condition. Under that duty of care, an owner is liable for personal injury claims arising from the owner’s negligent failure to remove snow and ice from the sidewalk. The Code makes no exception for out-of-possession landowners. Does that duty apply with full force notwithstanding an owner’s transfer of possession to a lessee or maintenance agreement with a non-owner?

Answer: Defendants are not entitled to summary judgment as a matter of law due solely to the owners’ out-of-possession status.

Xiang Fu He sued the owners of a parcel of land in New York City for personal injuries arising from his alleged slip and fall on the sidewalk abutting the property. The complaint alleged that, while employed by a nonparty lessee of the building, Xiang suffered injuries after falling on ice that had accumulated due to negligent maintenance of the abutting sidewalk, owned by the City of New York.

Supreme Court denied the owners' motion for summary judgment dismissing the complaint, rejecting their arguments that out-of-possession landowners are not liable for personal injuries based on negligent sidewalk maintenance, and, under the lease terms, the lessee agreed to maintain the abutting sidewalks.

The Appellate Division reversed, granted the owners' motion for summary judgment, and dismissed the complaint, on the basis that the out-of-possession landowners had no contractual obligation to maintain sidewalks, and the presence of snow and ice did not constitute a significant structural or design defect for which the owners were responsible.

Xiang argued that section 7-210 displaced the applicable common law, imposing a nondelegable duty of care and shifting all liability for sidewalk-defect-related personal injuries from the City to owners of abutting property. He maintained that, since triable issues of fact remained as to the owners' liability regarding his personal injury claims, Supreme Court properly denied the motion.

The owners' countered that they were entitled to summary judgment because, when a lessee has agreed to keep the premises in good repair, an out-of-possession landowner retained liability only for structural defects inside the premises; and the lessee assumed liability for transient conditions, including those arising from sidewalk maintenance.

The Court of Appeals agreed with Xiang that the owners were subject to the nondelegable duty imposed by section 7-210, which exposed them to potential liability for injuries allegedly caused by their failure to properly remove snow and ice from the sidewalks abutting their property and that triable issues of fact preclude summary judgment for the owners.

Section 7-210 of the Administrative Code of the City of New York provides, in relevant part,

“a. It shall be the duty of the owner of real property abutting any sidewalk . . . to maintain such sidewalk in a reasonably safe condition.

1. Notwithstanding any other provision of law, the owner of real property abutting any sidewalk . . . shall be liable for any injury to property or personal injury . . . proximately caused by the failure of such owner to maintain such sidewalk in a reasonably safe condition. Failure to maintain such sidewalk in a reasonably safe condition shall include . . . the negligent failure to remove snow, ice, dirt or other material from the sidewalk. This subdivision shall not apply to one-, two- or three-family residential real property that is (i) in whole or in part, owner occupied, and (ii) used exclusively for residential purposes.”

By its terms, “[s]ection 7-210 unambiguously imposed a duty upon owners of certain real property to maintain the sidewalk abutting their property in a reasonably safe condition, and provides that owners are liable for personal injury that is proximately caused by such failure.” In other words, landowners are not strictly liable for personal injuries resulting from incidents on abutting sidewalks because section 7-210 adopts a duty and standard of care that accords with traditional tort principles of negligence and causation.

The owners did not dispute the requirements of section 7-210. Instead they urged the Court to hold that the duty of care and attendant civil liability did not apply. Essentially, they invited the Court to extend the out-of-possession landowner rule, under which landowners who have contracted out the responsibility for maintenance of their property do not assume liability for breach of that duty, to a duty to maintain premises owned by the City. This interpretation of section 7-210 disregarded the first-order rule that the “text is the clearest indicator of legislative intent and courts should construe unambiguous language to give effect to its plain meaning.”

Here, the Administrative Code was clear. Section 7-210 applied to every “owner of real property abutting any sidewalk” and made no distinction for those owners who were out of possession. The fact that this section expressly excluded certain owner-occupied properties from its reach demonstrated that the owners' reading was untenable because, if the City Council meant to exclude a class of owners, it knew how to do so.

Contrary to the plain reading, the owners’ interpretation would require the Court to assume the drafters meant something other than what they wrote and the City Council enacted section 7-210 anticipating that courts would insert language wholly absent from the provision, in violation of the established canon of construction that “[w]e are not at liberty to second-guess the Legislature’s determination, or to disregard—or rewrite—its statutory text.”

Read in context, the phrase “owner of real property” was clear and unambiguous and could not be read to exclude out-of-possession landowners, and so there was no need to resort to legislative history. Nonetheless, doing so confirmed that “owner” meant all owners, regardless of their out-of-possession status and whether the owner had contracted with the lessee or another to keep the sidewalk in reasonably safe condition.

Moreover, and contrary to the owners' assertion, a landowner’s duty under section 7-210 is an affirmative, nondelegable obligation. The purpose underlying the enactment was to incentivize the maintenance of sidewalks by abutting landowners in order to create safer sidewalks for pedestrians and to place liability on those who were in the best situation to remedy sidewalk defects. Accordingly, a nondelegable duty incentivized owners to make decisions that optimized the safety and proper care of sidewalks, reducing harm to third parties and litigation costs. This interpretation of the Code not only was mandated by the language and supported by the legislative history, but also promoted the City Council’s intent to place the duty squarely on the shoulders of those in the best position to maintain sidewalks in a reasonably safe condition and to insure against loss.

The owners' argument that a landowner could avoid liability by contracting with a lessee to maintain the sidewalks conflated a private covenant to maintain and repair property between parties to a leasehold agreement and whether that obligation may be delegated under the common law, with the duty imposed by section 7-210. Assuming the analytical framework for the common law out-of-possession landowner rule applied to the maintenance of abutting New York City-owned sidewalks, section 7-210 displaced the rule. However nothing in section 7-210 prevented a landowner from entering into a maintenance agreement with tenants and third parties. While an owner could shift the work of maintaining the sidewalk to another, the owner cannot shift the duty, nor exposure and liability for injuries caused by negligent maintenance, imposed under section 7-210.

In a motion for summary judgment, the moving party must “make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact.” If the moving party produces the required evidence, the burden shifts to the nonmoving party “to establish the existence of material issues of fact which require a trial of the action’.” Here, the owners challenged Xiang’s version of events and relied on credibility determinations that were not a proper basis for summary judgment. Therefore, as Supreme Court concluded, triable issues of fact existed regarding the manner in which the accident occurred and the presence of snow and ice.

Henry v Hamilton Equities, Inc.

2019 NY Slip Op 07642

October 24, 2019

Question: In Putnam v Stout, the Court of Appeals recognized a limited exception to the general rule that an out-of-possession landlord is not liable for injuries resulting from the condition of the demised premises where, among other things, the landlord “covenant[s] in the lease or otherwise to keep the land in repair.” The issue presented on the appeal was whether that exception applied to a regulatory agreement between defendants, as owners of the property, and the United States Department of Housing and Urban Development, as guarantor of the mortgage on defendants’ premises.

Answer: The regulatory agreement was not such a covenant. The Court declined to expand the exception in Putnam to those facts.

Carol Henry, a nurse, was injured when she allegedly slipped and fell on water that had leaked in through the roof and pooled on the top floor of a nursing home operated. by her employer, Grand Manor Nursing and Rehabilitation Center. Hamilton Equities Company and Suzan Chait-Grandt owned the property in which the nursing home operated. Hamilton Equities Inc. was the general partner of Hamilton Company. And Chait-Hamilton Management Corporation managed it.

In 1974, Hamilton Inc. entered into a lease agreement with Grand Manor’s predecessor for the soon-to-be-constructed nursing home facility. The lease stated that the tenant would, at its “sole cost and expense, maintain and keep all parts of the leased premises . . . in a good state of repair and condition.” Moreover, although Hamilton Inc. maintained the right to enter the facility to make repairs if the tenant failed to do so, the lease specified that it was not to be construed “as making it obligatory upon the part of [Hamilton Inc.] to make such repairs or perform such work.” Rather, the lease provided that Hamilton Inc. “shall not be required to maintain, repair or replace any part of the leased premises or any of its fixtures, furniture, machines, equipment or appurtenances.”

A 1978 amendment to the lease acknowledged that Hamilton Inc. would finance the project through the Federal Housing Administration. And, in the event of inconsistencies between the lease and any regulatory agreements related to this financing, the “regulatory agreements [would] prevail and govern the rights of the parties.”

Hamilton Company thereafter secured a mortgage from Regdor Corporation in connection with the construction of the facility; and the mortgage was insured by the FHA, which is part of HUD.

Henry's expert averred that the purpose of the regulatory agreement was to “protect both the physical asset, as well as the fiscal integrity of the property.” The regulatory agreement between Hamilton Company and HUD provided that Hamilton Company, as the owner, was required to “maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition.” Consequences of Hamilton Company breaching its duties under the regulatory agreement included HUD accelerating the indebtedness due, collecting rent from the nursing home, taking possession of the nursing home and applying for an injunction. The agreement stated that it was entered into “[i]n consideration of the endorsement for insurance by the Secretary” of HUD and that its requirements were “paramount and controlling as to the rights and obligations set forth and supersede[d] any other requirements in conflict therewith.”

The regulatory agreement required Hamilton Company to establish a “reserve fund” to be used for, among other things, “effecting replacement of structural elements and mechanical equipment” at the facility. As the mortgagee, Regdor controlled the reserve fund; however, “disbursements from such fund” could be made only “after receiving the consent in writing” of the Secretary of HUD.

The 1978 amendment to the lease also referenced the reserve fund. Although the “paramount and controlling” regulatory agreement required Hamilton Company to deposit approximately $4,100 per month into the reserve fund, the lease amendment provided that two-thirds of the required amount would be paid by the tenant and one-third would be paid by Hamilton Inc. The amendment to the lease also specified that “only Lessee” — i.e., Grand Manor — “may withdraw from such fund for the purposes for which such fund is established.” Consistent with its obligations under the lease to maintain the facility in a state of good repair and the dictates of the lease amendment providing that only Grand Manor could make withdrawals from the reserve fund established as a source to pay for the repairs, Grand Manor applied for and received HUD’s authorization for the release of money from the fund for the purpose of improving the facility’s fire alarm and sprinkler system.

There was nothing in the record to suggest that, for the period of approximately 30 years following construction of the property until Henry's accident, the Hamilton defendants ever made repairs to, or even visited, the property. HUD periodically inspected the facility, including in 2007, 2008, and 2009, and provided either Chait-Hamilton or Hamilton Company with summary reports after each inspection. The reports revealed that the facility required maintenance and repair work each year, with the 2007 and 2008 reports indicating that repairs were necessary due to water and mold damage. However, the 2009 inspection report indicated that the facility’s condition had significantly improved, resulting in the facility being excused from inspection for the next three years. Although none of the reports mentioned a roof leak, it was undisputed that Grand Manor hired contractors to repair roof leaks, once in 2009 and, again, in 2011 — shortly before Henry's accident.

Following her accident, Henry sued the owners and managers of the property, alleging that they were aware of leaks in the roof at the facility and failed to cure the defective condition for an unreasonable length of time.

The Hamilton defendants moved for summary judgment dismissing the complaint and all cross claims as against them on the ground that Henry had not established an exception to the general rule that out-of-possession landlords are not liable for the condition of the premises. In opposition, Henry countered that the regulatory agreement with HUD imposed on the Hamilton defendants a non-delegable duty in tort, in favor of third parties to maintain the facility, including the roof, and that defendants had actual notice of the facility’s defective condition through the HUD inspection reports.

Supreme Court, granted the motion and dismissed the complaint and all cross claims asserted against the Hamilton defendants. The court held that the Hamilton defendants were out-of-possession landlords and were entitled to the protection of the general rule that such landlords will not be liable for injuries caused by dangerous conditions on the leased premises. While the court recognized that an exception to the general rule existed when an out-of-possession landlord “is contractually obligated to make repairs and/or maintain the premises,” the court concluded that there was “no reasonable argument that the HUD regulatory agreement was designed to afford Grand Manor, as tenant, the benefits discussed in Putnam,” and that Henry did “not allege that Grand Manor, as tenant, was aware of the contractual obligation imposed by HUD or relied on it.”

The Appellate Division unanimously affirmed Supreme Court’s order concluding that inasmuch as “[t]he social policy considerations cited by the Court of Appeals in Putnam . . ., are promoted only where the landlord had a contractual obligation directly to the tenant,” the Hamilton defendants were not liable for the condition of the facility.

Landowners generally owe a duty of care to maintain their property in a reasonably safe condition, and are liable for injuries caused by a breach of this duty. The “duty is premised on the landowner’s exercise of control over the property, [because] the person in possession and control of property is best able to identify and prevent any harm to others’.” In contrast, a “landowner who has transferred possession and control [i.e., an out-of-possession landlord] is generally not liable for injuries caused by dangerous conditions on the property.” There are, however, exceptions.

In Putnam, “this Court relaxed the doctrine, imposing a duty to remedy dangerous conditions on a landlord who had contractually assumed the responsibility to make repairs,” at least in cases where the property owner made the covenant to repair directly with the tenant. Specifically, the Court adopted the rule set forth in the Restatement (Second) of Torts § 357 that a landlord “may be liable for harm caused to others on [the] land with the permission of the [tenant], on the basis of [a] contract to keep the premises in good repair” so long as three conditions are met: (1) the “lessor, as such, has contracted by a covenant in the lease or otherwise to keep the land in repair,'” (2) “the disrepair creates an unreasonable risk to persons upon the land which the performance of the lessor’s agreement would have prevented, and'” (3) the “lessor fails to exercise reasonable care to perform [the] contract'”[.]

Here, while the lease provided Hamilton Inc. with a right to reenter the premises to make repairs, it unequivocally placed the duty to maintain and repair the facility on Grand Manor. Thus, Henry can recover against defendants only if the exception set forth in Putnam applies to the HUD regulatory agreement, as incorporated into the lease amendment, insofar as that agreement required Hamilton Company to “maintain the mortgaged premises, accommodations and the grounds and equipment appurtenant thereto, in good repair and condition.” Henry relied on the Court’s statement in Putnam that the exception applies when the lessor ” has contracted by a covenant in the lease or otherwise to keep the land in repair’.” She argued that this language signified that the exception outlined in that case applied to any agreement made by the lessor, regardless of whether the agreement was directly with the tenant.

In Putnam, the Court of Appeals confirmed that the degree of control retained over the property by the landlord remained an important consideration. Indeed, a primary concern underlying Putnam was that a landlord’s promise to make repairs and reservation of the right to enter to perform those repairs would induce the tenant to forgo repair efforts that otherwise would have been made. Thus, it was the relationship between those two parties — the landlord and the tenant — as reflected in their agreements regarding the maintenance of the property, that drove the analysis.

Critically, the HUD regulatory agreement, as incorporated into the 1978 amendment to the lease, did not alter the contractual relationship between the Hamilton defendants and Grand Manor regarding control of the premises or replace Grand Manor’s contractual duty to perform maintenance and repairs at the facility. Although the terms of the HUD agreement were to supersede all other conflict requirements, the regulatory agreement did not conflict with, or absolve Grand Manor of, its responsibilities under the original lease. Indeed the amendment continued all terms from the lease that did not conflict with the regulatory agreement. Given the absence of a conflict on the issue of Grand Manor’s duties to make repairs, the HUD agreement, as incorporated into the lease amendment, was not a covenant that could be said to displace Grand Manor’s duties or alter the relationship between landlord and tenant in the manner contemplated by Putnam.

In that regard, an analysis of the Court’s rationale in Putnam for adopting the rule further indicated that the exception did not apply to (and should not be expanded to cover) the HUD regulatory agreement. In particular, the Putnam Court’s emphasis on the likelihood that the landlord’s promise to make repairs would induce the tenant to forgo repair efforts which it might otherwise have made clearly is not implicated by that agreement. The record reflects that Grand Manor regularly performed repairs (although perhaps negligently), including repairs to the alleged injury-causing roof condition in 2009, and retained a contractor to make further repairs to the roof two weeks before the accident. In addition, the regulatory agreement required monthly deposits into a reserve fund to be used for replacement of structural elements and mechanical equipment at the facility, and the 1978 amendment to the lease permitted only Grand Manor to withdraw money from the fund “for the purposes for which such fund is established.” Significantly, Grand Manor successfully sought HUD’s authorization for the release of money from this fund for the purpose of maintaining the facility’s sprinkler system, whereas nothing in the record suggests that defendants ever performed any repairs.

Thus, the “exception to the general rule” set forth in Putnam is inapplicable to the regulatory agreement, and the general rule applies — that is, the “landlord is not liable for conditions upon the land after the transfer of possession.” Indeed, adoption of Henry's proposed rule — that would require the Court to extend the exception set forth in Putnam to any agreement made by the lessor to make repairs — would mean that lessees could assume the sole obligation in a lease to maintain premises in good repair but avoid making repairs in reliance on a covenant later discovered between the land owner and a third party, a result not intended or supported by Putnam.

RIVERA, J. (dissenting).

When an out-of-possession property owner enters a federal regulatory agreement to fund a nursing home project that requires the owner to maintain the premises in good condition and repair, and when that agreement’s conditions are incorporated as superseding terms in the lease between the owner and the tenant, the owner should be subject to liability to persons lawfully on the premises for injuries proximately caused by negligent maintenance. That result flowed naturally from Putnam, which held that a property owner “may be liable for injuries to persons coming onto [the owner’s] land with the consent of [the] lessee solely on the basis of [the] owner’s contract or covenant to keep the premises in repair.” The Putnam rule is based on the Restatement (Second) of Torts and applies to an out-of-possession landowner who has delegated the primary duty to maintain the premises to a lessee or tenant, as was the case here.

The majority’s conclusion that the regulatory agreement—the terms of which are incorporated into and supersede the lease—had no effect on the leasehold relationship or the owner’s duty of care to the lessee and others on the property is contrary to property and contract law. It misunderstood basic elements of New York tort law. It also undermines the Congressional purpose of funding nursing home projects like defendants’—namely, to address an urgent need to provide housing and treatment to vulnerable populations unserved by the private market through increased funding for construction and maintenance of safe and affordable facilities.

The appeal turned on whether the Hamilton defendants owe Henry a duty of care based on their HUD agreement, as incorporated in the lease with Grand Manor. Judge Rivera answered that question in the affirmative because the relevant terms of the lease and HUD agreement plainly established that the Hamilton defendants covenanted with Grand Manor to abide by their promise to the federal government to maintain the premises in good repair and condition.

Henry’s expert, a former assistant to the Commissioner of the Federal Housing Administration during the time when the Hamilton defendants entered the HUD agreement, and who was responsible for similar nursing home projects, confirmed that the HUD agreement imposed upon the Hamilton defendants a nondelegable duty and ultimate responsibility to maintain the property in good repair.

Further, as noted in the amended lease, the HUD agreement mandated the owners’ establishment of a reserve fund, under the control of the mortgagee, to ensure a readily available source to pay for repairs.

Those terms, provisions, and conditions dictated, in accord with applicable federal statutes and regulations, how the Hamilton defendants must exercise their lessor responsibilities and obligations within the context of HUD’s ongoing federal oversight of the nursing home project, eventually run as the Grand Manor Nursing and Rehabilitation Center.

Applying these principles here, it was clear that, in accordance with the amended lease, the Hamilton defendants are liable to persons lawfully on the nursing home property for injuries proximately caused by negligent maintenance of the premises. Here, the amended lease incorporated by reference the original lease terms and conditions and became the new controlling leasehold document between the Hamilton defendants and Grand Manor. The amendment also stated that, in the event of an inconsistency, the federal regulatory agreement “will prevail and govern the rights of the parties.” The original lease term that Grand Manor was solely responsible for maintenance and repairs, now part of the amended lease, was thus superseded by the conflicting term in the HUD agreement that the Hamilton defendants were responsible for maintaining the property in good repair and condition.

The social policies identified in Putnam overall favored subjecting the Hamilton defendants to liability for negligent maintenance of the premises based on the HUD agreement. The first policy is grounded on the premise that a tenant may lack funds to make repairs. Here, there are significant costs associated with maintenance of this large nursing home facility and its surrounding premises. Given the potential expenses, HUD required defendant Hamilton Equities Company to make continuing contributions to a reserve fund for repairs. The Hamilton defendants also committed to contributing one-third of the monthly required payments to the reserve fund. In the event Grand Manor did not make repairs, the Hamilton defendants could request from HUD’s Secretary access to the reserve fund to pay for the repair costs. Nothing in the record suggested Grand Manor had the financial resources, absent the reserve fund, to pay for repairs without experiencing financial distress.

It was abundantly clear that the Hamilton defendants, Grand Manor, and HUD representatives were on notice of, and understood, several key aspects of this HUD arrangement: the owners could not proceed with the nursing home project absent federal backing that allowed them to secure the mortgage to build the nursing home; to secure this financing, the Hamilton defendants were required to enter an agreement with HUD, which subjected them to federal regulation and required that they make repairs and maintain the premises in good condition; the federal requirements and covenants set forth in the HUD agreement superseded prior and future conflicting terms and agreements; and the Hamilton defendants were ultimately responsible for negligent maintenance of the property by any person or entity charged with the actual physical repair work.

By permitting a landowner to avoid liability to those injured on the premises, the majority’s decision undermined the Congressional intent that federal taxpayer money be used to establish well-maintained and safe nursing homes for the most vulnerable members of our society who resided and received services at these facilities. It is wholly rational for society to hold a landowner to its promise that its facility will be kept in good condition, and if the landowner fails to do so, to subject such landowner to tort-based liability for third-party injuries proximately caused by the failure to maintain the premises. It is even more rational under the circumstances here, where the federal government imposed a duty upon the landowner to maintain and repair a nursing home as a condition of the federally insured funding project and the landowner’s continued oversight of the nursing facility. Given HUD’s mission to “reliev[e] the shortage of housing for elderly persons and to increase the supply of rental housing for elderly persons,” the Hamilton defendants “could properly be expected to assume certain obligations with respect to the safety of others.”

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.