EILEEN A. RAKOWER, J.
Plaintiff David Mitchell commenced this action to recover a $750,000 deposit from Defendant Steven Abrams based upon Abrams's alleged default on a personal guarantee. Presently before the Court are opposing motions by Mitchell and Abrams for summary judgment.
On June 29, 2007, Mitchell entered into a contract (the "Agreement") with Fountainhead Construction, LLC ("Fountainhead") for renovation work to be done at Plaintiff's penthouse, located at 45 East 66th Street in New York County (the "Project") for a total guaranteed maximum price of $3,082,578. Defendant Abrams was the managing member and principal owner of Fountainhead. Prior to the commencement of work by Fountainhead, Fountainhead and Abrams required that Mitchell pre-fund the Project with a deposit of $750,000. Mitchell agreed to do so, under specific conditions which were memorialized in a Letter Agreement between Mitchell and Abrams, individually and on behalf of Fountainhead, also dated June 29, 2007 ("The Letter Agreement"). The Letter Agreement provides, in relevant part, as follows:
The Owner (David Mitchell) will pre-fund a deposit of Seven Hundred and Fifty Thousand Dollars ($750,000) ("Deposit") to the Contractor (Fountainhead Construction, LLC), which Deposit will [be] used by Contractor to pay deposits on subcontracts and materials, and to fund Contractor's startup General Conditions Costs [defined at length in Section 9.3 of the Agreement] . . .
As a material inducement for the Owner to agree to this amendment of the Agreement, and by executing this letter agreement in the space provided below, Steve Abrams ("Guarantor") hereby grants a personal financial guarantee that the Deposit will be used solely for the benefit of the Project and that the Deposit will be fully credited to the Owner as described in the preceding paragraph. Without limitation, in the event that the Deposit is misused by Contractor, Contractor defaults under the Agreement or this letter agreement, any portion of the Deposit is paid to a Subcontractor that subsequently defaults, or the Owner is not credited with the full amount of the Deposit or does not otherwise receive the full benefit of the Deposit, and notwithstanding anything to the contrary in the Agreement, Guarantor (in addition to the Contractor) shall be personally liable to the Owner for the full amount of the Deposit. . .
Mitchell claims that Abrams violated the Letter Agreement (entitling him to return of the full amount of his deposit) in two respects: First, Mitchell claims that Fountainhead "misused" the deposit money by claiming $102,229.75 as "general conditions costs" for items which were not properly included as such in its first application for payment (Application No: DM-0001), dated June 30, 2007. Specifically, Plaintiff claims that Fountain's application of deposit monies toward payment for work described as "Fee" ($26,983.75); "Insurance" ($22,446.00); "Administrative requirements" ($3,750.00); and "Protection" ($49,050.00), was improper because these items do not qualify as "general conditions costs" under the Agreement. Mitchell claims that Fountainhead similarly misapplied deposit funds to non-general conditions cost items in its second and third applications for payment.
Second, Mitchell claims that Abrams is liable for the full amount of Mitchell's deposit because Fountainhead abandoned the Project when it walked off the job in July 2008. Plaintiff includes several affidavits in support of this contention. One is an affidavit from Thomas J. Deimastro, Treasurer and Vice President of Outdoor Installations, LLC ("Outdoor"). Deimastro states that Outdoor was subcontracted by Fountainhead to perform certain work on the Project and that, in July of 2008, "Fountainhead abandoned the Project and left the jobsite," leaving a sum of $14,222.78 due and owing for Outdoor's services. A copy of Outdoor's invoice to Fountainhead is attached to the affidavit. Deimastro further states that, "[b]efore Outdoor [] could do any further work on the [] Project we required that David Mitchell pay the sum of $12,000.00 covering the period from 10-03-07 through 06-01-2008."
Mitchell also submits an affidavit from Kim Oi Tiw of Polite Carpentry ("Polite"), another company which performed work on the Project. Kim states that Fountainhead abandoned the Project and left the job site in July 2008; and that it left a sum of $48,415.00 due and owing for Polite's services. Kim further states that before Polite could resume any work on the Project, Mitchell was required to pay the sum of $33,415.00.
In addition, Mitchell submits affidavits from Robert Thomas and Gokhan Serifoglu, Fountainhead's Site Super and Project Manager, respectively. Both individuals state that Fountainhead abandoned the Project in July of 2008 by leaving the job site without completing the Project. They further state that Mitchell was left with outstanding bills for subcontractors, suppliers, and others for work performed on the Project at Fountainhead's request.
Mitchell states that "[i]n the process of abandoning the Project, Fountainhead fired its employees and went out of business." Mitchell states that he subsequently hired certain former employees of Fountain directly, and that this arrangement was entirely separate from any agreement Mitchell had with Fountainhead.
Abrams, in support of his motion for summary judgment, submits the affidavit of Mark Carthew, Senior Associate of the Spector Group Architects ("SGA"). Carthew states that SGA was retained by Mitchell to provide architectural services with respect the Project. One of its duties under its contract with Mitchell was to review and certify Fountainhead's payment requisitions. In order to do this, SGA observed and reviewed the work performed by Fountainhead to ensure that the dollar amounts being requested by Fountainhead in its applications accurately accounted for the amount of labor and materials actually performed and/or supplied to the Project by Fountainhead. Carthew states that while SGA did not certify Fountainhead's first request for payment (Application No. DM-00001), SGA did review Fountainhead's second and third payment requests (Application Nos. DM-00002 and DM-00003), and certified both, advising Mitchell that payment of the amounts requested therein should be made to Fountainhead. Abrams notes that the $750,000 deposit was included in Fountainhead's second application in the "Work Completed-From Previous Application" column.
Abrams states that Mitchell paid Fountainhead's second request (in the amount of $226,980.44) in full, but did not make full payment on its third request, which was certified by SGA and sought $206,479.90. Instead, Mitchell only paid $100,000.00, leaving a remaining balance of $106,479.90 due to Fountainhead. Abrams claims that, by failing to pay Fountainhead's third request in full, Mitchell breached the Agreement. Accordingly, Abrams says, "Fountainhead thereafter stopped performing work since the Owner refused to pay the amount certified as due by his own Architect," and that "[s]ubsequently, Fountainhead ceased all business."
Abrams states in his affidavit that "[o]nce the deposit fund was earned by Fountainhead performing and supplying $750,000.00 worth of labor and materials, the personal guarantee was satisfied by me." As to the allegation that Fountainhead defaulted on the Agreement by abandoning the Project, Abrams states that "there was no default' by Fountainhead because the Owner voluntarily agreed to the take-over and completion of the project by Facet Construction (made up of former employees and a minority owner of Fountainhead) at a time when $106,479.90 was still due to Fountainhead." Abrams further argues that he cannot be found to have defaulted on the Agreement because Mitchell failed to serve a written notice of termination of the Agreement pursuant to Section 26.1 of the Agreement. Moreover, Abrams states in his affidavit that, after discussions to purchase Fountainhead broke down between Abrams and two Fountainhead minority shareholder-members, Mitchell and Abrams "agreed that Fountainhead would leave the project, and that Facet would assist in its completion." Abrams states that Facet "immediately went to work," and that the work has been completed.
The proponent of a motion for summary judgment must make a prima facie showing of entitlement to judgment as a matter of law. That party must produce sufficient evidence in admissible form to eliminate any material issue of fact from the case. Where the proponent makes such a showing, the burden shifts to the party opposing the motion to demonstrate by admissible evidence that a factual issue remains requiring the trier of fact to determine the issue. The affirmation of counsel alone is not sufficient to satisfy this requirement. (Zuckerman v. City of New York, 49 N.Y.2d 557 [1980]). In addition, bald, conclusory allegations, even if believable, are not enough. (Ehrlich v. American Moninger Greenhouse Mfg. Corp., 26 N.Y.2d 255 [1970]). (Edison Stone Corp. v. 42nd Street Development Corp., 145 A.D.2d 249, 251-252 [1st Dept. 1989]).
Here, the Court finds that Mitchell is entitled to summary judgment. Abrams claims that Fountainhead did not "misuse" Mitchell's deposit because it "earned" the entirety of the $750,000 by performing labor and supplying materials, the value of which were in fact in excess of the deposit. This argument ignores the fact that the Letter Agreement specifically provides that the "Owner shall be credited with the full amount of the Deposit by receiving a credit of Twenty-Five Percent (25%) against all line items in the Project Budget, and shall not be required to pay against any line item until such time that 25% of such line item has been completed and invoiced to Owner in Contractor's monthly Application for Payment, including without limitation line items for all trades, materials, General Conditions and Contractor's Fee." The methodology by which the deposit was to be credited was clearly set forth in the Guarantee. Certainly, until Three Million Dollars ($3,000,000) worth of work was itemized, it cannot be said that the full $750,000 deposit was properly exhausted.
Further, the amounts previously credited were not designated to reduce the amount due under the Guarantee. Notably, the Letter Agreement provides that Abrams shall be personally liable to Mitchell for the full amount of the deposit in the event that, inter alia,"the Deposit is misused by Contractor. . . or the Owner. . . does not receive the full benefit of the Deposit" (emphasis added).
The record demonstrates that Fountainhead abandoned the Project in July 2008, and thus defaulted under the Agreement. It is undisputed that Fountainhead stopped working on the project. Abrams states in his affidavit that Fountainhead stopped performing work on the Project "since [Mitchell] refused to pay the amount certified as due by his own Architect. Subsequently, Fountainhead ceased all business." He further claims that an agreement was reached between Mitchell, Facet, and himself, whereby Fountainhead would leave the Project, and Facet would resume Fountainhead's work and complete the Project.
With respect to Mitchell's alleged failure to pay in full Fountainhead's third payment request, Mitchell points to Section 25.1 of the Agreement. That section, titled "Continuation of Services during Dispute," provides that
The Contractor shall continue to perform its obligations hereunder, pursue prosecution of the Work and maintain the Project Schedule and the Guaranteed Maximum Price during any Claim, dispute or proceeding between the parties hereto as if such Claim, dispute or proceeding had not been instituted.
Accordingly, Fountainhead's performance on the Agreement was not excused by Mitchell's failure to pay in full Fountainhead's third payment request. As for Abrams's claim that the parties agreed to replace Fountainhead with Facet, Section 29.12 of the Agreement provides that "This Agreement may be modified only by an instrument signed by the Owner and the Contractor." Not only does Abrams not provide the Court with a written instrument modifying the Agreement and substituting Facet in Fountainhead's place, he does not claim that such a document even exists.
Abrams's reliance on Section 26.1 of the Agreement ("Termination by the Owner for Cause and Events of Default") is also misplaced. That section provides, in relevant part, that, in the event of a default by Fountainhead,
the Owner may serve written notice. . . upon the Contractor. . . terminating this Agreement on a specified date. The notice shall contain the reasons for termination, but shall not be effective to terminate this Agreement if the Contractor. . . cures all of the Events of Default stated in the notice prior to the date specified in the notice of termination.
Section 26.1 required that the Owner (Mitchell) give the Contractor (Fountainhead) notice of any default, and the opportunity to cure the default, prior to terminating the Agreement on the grounds of the Contractor's default. However, it is well settled that "[a] party will be relieved or discharged from the performance of futile acts or conditions precedent. . . upon the failure or refusal by a party to honor its obligations under their contract (Special Situations Fund III, L.P. v. Versus Tech., 227 A.D.2d 321 [1st Dept. 1996]) (see also Sunshine Steak, Salad & Seafood, Inc. v. W.I.M. Realty, Inc., 135 A.D.2d 891, 892 [3rd Dept. 1987]) ("where it becomes clear that one party will not live up to a contract, the aggrieved party is relieved from the performance of futile acts or conditions precedent"). Here, where Fountainhead not only stopped working, but ceased all business, a notice of default and an opportunity to cure would futile.
Wherefore it is hereby
ORDERED that defendant's motion for summary judgment is denied; and it is further
ORDERED that plaintiff's cross motion for summary judgment on the complaint herein is granted and the Clerk is directed to enter judgment in favor of plaintiff and against defendant in the amount of $750,000, together with interest at the rate of 9% per annum from the date of June 30, 2007 until the date of the decision on this motion, and thereafter at the statutory rate, as calculated by the Clerk, together with costs and disbursements to be taxed by the Clerk upon submission of an appropriate bill of costs.
This constitutes the decision and order of the court. All other relief requested is denied.
