Bill Morris in Legal/Financial on August 10, 2017
Aug. 10, 2017 — Courts rule that sponsor is responsible for faulty construction.
Construction defects can have a long shelf life. As the condominium board at 50 Madison Avenue has learned, the legal ramifications of faulty construction can live on for a decade, or more. But based on a new court ruling, this board has reason to hope that its long legal nightmare is finally over.
In a 2009 decision, an appellate court ruled that the sponsor – not the condo board – is responsible for repairing construction defects at 50 Madison Avenue. When the plaintiffs in that case brought a second suit, state Supreme Court judge Ellen Coin recently ruled that the condo board can’t be sued repeatedly over a single issue. Plaintiffs, she wrote, cannot advance “different theories based on the same factual allegations in different judicial proceedings.”
This saga began to unfold in 2005, during the construction boom that preceded the Great Recession, when Simon and Ludmilla Lorne purchased a seventh-floor apartment at 50 Madison Avenue for just over $3 million. The building is across the street from leafy Madison Square Park and close to the iconic Flatiron Building. The Lornes’ dream home quickly became a nightmare, though, when they realized the the concrete slab beneath their hardwood floors had not been properly leveled.
In 2007 the Lornes sued the sponsor, the manager, and the condo board over the construction defect, claiming, among other things, that the board was failing to meet its fiduciary duty. The sponsor acknowledged that the slab was faulty and tried to repair it. When the Lornes announced that they wanted to hire their own contractor to make the fix, the board demanded that they sign a standard alteration agreement. The Lornes countered that they were not altering their apartment, but bringing it up to the condition promised in the offering plan. The board insisted that the Lornes pay for the condo’s legal and engineering costs. They refused.
In 2009, the appellate division of the state Supreme Court, First Division, ruled in favor of the board: “It was not unreasonable for the board to require plaintiffs to adhere to the same rules that apply to all other unit-owners wishing to make structural repairs.” This was the court that ruled the sponsor – not the condo board – is responsible for repairing construction defects.
But the Lornes weren’t finished. They sued again in 2015, claiming the board was negligent in maintaining the building and making structural repairs. This resulted in Judge Coin’s dismissing the suit because it was based on the same allegations as the original suit.
“One of the things that makes this case notable is the fact that even though there were Department of Building violations against the condo board, that doesn’t matter for the claim that the board breached its fiduciary duty,” says Scott Pashman, an associate at the law firm of Adam Leitman Bailey, which defended the condo board.
Ethan Kobre, an associate at the law firm Schwartz Sladkus Reich Greenberg Atlas, represented the Lornes, and he insists that the two cases were different. “While the first case dealt with construction defects,” Kobre says, “the second case dealt with deterioration of the building, cracks in the concrete slab, and the board’s failure to maintain the building. We do plan to appeal.”
“The first (2007) decision was legally interesting,” says Adam Leitman Bailey, “but the second case was crazy. In the end, the court held that everything the Lornes are alleging now was alleged in the earlier case – and you can’t do that.”
Or, as Pashman puts it, “You only get one bite at the apple.”
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