Scott E. Mollen
Scott E. Mollen ()

Land Use—Food Town Failed to Obtain Injunctive Relief Against Landlord of a New Whole Foods Store—Alleged Misrepresentations to the NYC Dep’t of Buildings That a Project Was an “Alteration,” as Opposed to a New Building—Standing—Right to Challenge a Competitor’s Project

A plaintiff is the lessor of property and operates a Food Town supermarket. The defendant owns nearby property and is developing a commercial retail center (project) which will include a Whole Foods Market. In 2011, the defendant filed a Form ZRD1 with the NYC Department of Buildings (DOB), “seeking pre-approval” of the project’s construction plans as a “Type Alt-1, or major alteration, as opposed to a Type NB, or new building.” The defendant sought to convert two manufacturing use buildings into a single retail use building. If the project was characterized as a Type NB (as opposed to an Alt-1), it would “significantly increase the costs and complexities associated with the project.” The defendant’s architect stated that “[r]equiring a filing as a new building would eliminate the economic feasibility of the project as it is impossible to provide the then required parking for all the commercial floor area on the site or within 500′ of the site.” The DOB approved the defendant’s ZRD1 with certain conditions.

In November 2012, the defendant filed a second Form ZRD1 (ZRD1#2), “requesting a modification of the original ZRD1.” The 2012 application stated that during the prior 18 months, economic conditions in the local neighborhood improved enough that the neighborhood could now support additional retail space. Therefore, the defendant sought to add “the maximum as of right commercial bulk to the site as allowed.” The ZRD1#2 application stated that “the proposed plan would as qualify as an Alt-1,” because “no floor area would be removed” and “no exterior walls would be removed.” The DOB approved the ZRD1#2 with conditions. The DOB did not agree that the plan did not involve removal of any floor area. However, the DOB approved the plan “based upon the representation that no perimeter walls were to be removed.” The defendant thereafter filed the project as an Alt-1 and the DOB approved the application. The DOB issued a building permit for the project on or about Dec. 31, 2013. Construction began thereafter.

The plaintiff commenced the subject action in June 2016 against the defendant and the DOB. The plaintiff alleged that the defendant “made material misrepresentations about the scope and nature of the construction work in its DOB filings in order to obtain approval of the project as an Alt-1 as opposed to a Type NB development.” The complaint alleged that the defendant misrepresented in its ZRD1#2 application, “that no perimeter walls would be removed during the… project and…the DOB approved ZRD1#2 based upon this representation.” The complaint further alleged that during construction, “virtually all of the exterior walls of the existing buildings were demolished and rebuilt from scratch.” The complaint also alleged that the DOB was notified of such material misrepresentations, but had “failed to revoke the building permits… as required under applicable law.” The plaintiff had allegedly been damaged by the defendant’s actions since “it is located only 400 feet from the [project] and the approval of the project as an Alt-1 resulted in the construction of at least 100 fewer parking spaces than would have been required for a Type NB development.”

The plaintiff sought, inter alia, “special damages against [the defendant];” “a judgment declaring that [defendant's] filings contain material misrepresentations, that the [project] is in violation of the Zoning Law, and that the DOB failed to comply with its non-discretionary duty to revoke the building permits for the project;” “a mandatory injunction requiring that [defendant] remove and/or demolish any conditions at the [project] which are in violation of the Zoning Law and Building Code;” “a mandatory injunction requiring the DOB to revoke all permits issued in connection with this construction project;” “a permanent injunction enjoining the occupancy of the [project] until such time as [defendant] complies with all applicable rules, laws, and regulations;” and a finding that “[defendant] negligently failed to comply with Building Code §§27-363 and 27-257.”

In May 2016, the plaintiff moved for a preliminary injunction against the defendant “restraining and enjoining it from performing any construction work on, or continued occupancy of the [project] pending final determination” of the subject claims. The DOB cross-moved to dismiss the complaint. The court previously denied the motion for a preliminary injunction and found that the movant had “failed to make the required showing that it would be irreparably harmed in the absence of a preliminary injunction.” The court had also granted the DOB’s cross motion to dismiss the complaint against it. The defendant now moved to dismiss the complaint against it pursuant to CPLR 3211 (a)(1) and (7).

The court rejected the defendant’s argument that the plaintiff lacked standing. The plaintiff had to “show that it will suffer direct harm that is different from that of the public at large.” The defendant contended that “the only damages that plaintiff may sustain is loss of business due to economic competition, which is not the type of special damage that justifies the granting of an injunction.” The defendant argued that although the plaintiff was “entitled to a presumption of standing based upon its proximity to the [project], such presumption is wholly rebutted inasmuch as plaintiff is obviously motivated by the anticipated injury to its business as a result of Whole Foods occupying a space in the [project].”

The defendant also argued that the plaintiff cannot establish that the alleged zoning violation caused any depreciation in the value of its property. Additionally, the defendant asserted that the plaintiff failed to establish that it lacks an “adequate legal remedy,” since it sought monetary damages. The defendant also argued that “there is no justiciable controversy,” since the plaintiff failed to exhaust “its administrative remedies by challenging the permits and temporary certificates of occupancy issued by the DOB.”

The defendant further contended that the mandatory and permanent injunction claims should be dismissed since the “plaintiff cannot establish irreparable harm” or “any alleged damages it suffers are strictly financial in nature.” Finally, the defendant asserted that the plaintiff’s negligence claim based upon the alleged failure to comply Building Code §§27-363 and 27-257, must be dismissed since plaintiff failed to demonstrate or allege that such “statutes imposed a specific duty upon a party.”

The plaintiff countered that “there is no basis to dismiss its complaint under CPLR 3211 (a)(1) inasmuch as [defendant]… failed to submit any documentary evidence which would warrant dismissal.” The plaintiff noted that the defendant only submitted an architect affidavit and such affidavit “does not constitute documentary evidence for purposes of CPLR 3211 (a)(1).” The plaintiff also argued that “the court has already determined that it has standing in this action based upon its proximity to the [project]” and that a “ viable claim for special damages” may be “inferred by its close proximity to the [project].” Additionally, the plaintiff asserted that under prior case law, the availability of another legal remedy does not require the dismissal of its declaratory judgment cause of action.

Finally, the plaintiff contended that there is a justiciable controversy between the parties notwithstanding the defendant’s claim that the plaintiff failed to exhaust its administrative remedies before the DOB. The plaintiff argued that it did not commence this action to challenge the issuance of permits or certificates of occupancy. The plaintiff asserted that it commenced the action to challenge the defendant’s “deliberate actions in constructing the [project] in contravention of the permits and the representations it made to the DOB….”

The court held that the plaintiff had standing. The court explained:

Plaintiff has alleged that it is located in close proximity to the [project]. Thus, it may be inferred that [defendant's] alleged noncompliance with applicable Building Code and zoning provisions caused damages to plaintiff. Further, plaintiff’s allegations are sufficient to establish that it is within the zone of interest the statute protects. In particular, the parking space requirement for a Type NB building protects the interests of existing businesses in the area, such as plaintiff’s supermarket, against the reduction in available customer parking that would otherwise occur with the opening of the NB building. Accordingly, plaintiff has standing to commence this action.

The court further found that the defendant’s motion papers contained “no documentary evidence or legal arguments which support the granting” of relief based on CPLR 3211(a)(1) and therefore, denied the defendant’s motion to dismiss pursuant to CPLR 3211(a)(1).

Additionally, the court stated that there is “no merit” to the defendant’s contention that the special damages “claim must be dismissed based upon plaintiff’s failure to establish a depreciation in the value of its property.” Based on the “plaintiff’s proximity” to the project, “such damages may be inferred.” Therefore, the court denied the defendant’s motion to dismiss based on the failure to adequately plead special damages.

Moreover, because the plaintiff may have “an adequate remedy at law does not mandate the dismissal of its declaratory judgment claim.” Based on the plaintiff’s allegation that the defendant had removed perimeter walls of the existing structure and that the as built project “deviated materially” from defendant’s representations to the DOB, the court found that “there is a genuine legal controversy between the parties that exists outside of the administrative process before the DOB.” Thus, the court denied the defendant’s motion to dismiss the declaratory judgment claim on the grounds that there was no justiciable controversy.

The court then explained:

As a general rule, a mandatory injunction to remove or destroy a building is a drastic remedy which will only be granted if the benefit to the movant if the injunction were granted and the irreparable harm to the movant if the injunction were not granted substantially outweighs the injury to the party against whom the injunction is sought”…. Here, the complaint does not allege irreparable harm in the absence of an injunction, nor does it allege that the damages that plaintiff would sustain, in the absence of such an injunction, would substantially outweigh the damages that would be sustained by [defendant] if the now completed [project] was demolished.

Accordingly, plaintiff’s cause of action for a mandatory injunction must be dismissed.

The court also dismissed the cause of action for “a permanent injunction enjoining [defendant] from occupying the [project] until it complies with all applicable rules, laws, and regulations.” “A permanent injunction is a drastic remedy which may be granted only where the plaintiff demonstrates that it will suffer irreparable harm absent the injunction….” Here, the complaint failed “to adequately allege that plaintiff will sustain irreparable injury in the absence of an injunction or that monetary damages would be inadequate compensation.”

Finally, the court dismissed the claim that the defendant was negligent in failing to comply with Building Code §§27-363 and 27-257. “Building Code §27-363 specifies certain minimum distances between exits. Assuming that the completed [project] was in violation of this provision,” the plaintiff had failed to allege how “it would be impacted by such a violation or that its interests are within the zone interests protected by this provision.” Building Code §27-257 provides “that ‘occupancy group F-3 shall include buildings and spaces in which the persons assembled are physically active and do not have a common center of attention.’” Occupancy group F-3 includes, inter alia, “halls, galleries, gymnasiums, museums….” The court explained that such provision did not impose any “specific duty” upon the defendant and appeared to be inapplicable to the instant matter. Thus, the court dismissed the plaintiff’s claim for negligently failing to comply with those statutes.

Accordingly, the defendant’s motion to dismiss the plaintiff’s claim for special damages and for a judgment declaring that the defendant’s filings contain material misrepresentations, that the project is in violation of the Zoning Law and that the DOB failed to comply with its non-discretionary duty to revoke the building permits for the project was denied. However, the defendant’s motion to dismiss the plaintiff’s claims for a mandatory injunction to remove and/or demolish conditions at the project, for a mandatory injunction requiring the DOB to revoke all permits issued in connection with the construction project and for a permanent injunction enjoining the occupancy of the project until the defendant complies with all rules, laws and regulations and the plaintiff’s claim based on negligent failure to comply with Building Code §§27-363 and 27-257 was granted.

Comment: Food Town was apparently not happy to see a Whole Foods store open up in close proximity and exercised its right to challenge the Whole Foods’ landlord’s compliance with applicable zoning laws.

Generally, competitors do not violate anti-trust laws when they challenge the right of a competitor to open a nearby business. Under the “Noerr-Pennington Doctrine,” Eastern R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); United Mine Workers of Am. v. Pennington, 381 U.S. 657 (1965), competitors are permitted to lodge objections with governmental agencies with respect to a competitor’s alleged failure to comply with laws, rules and/or regulations. The public policy that underlies the Noerr-Pennington Doctrine is that it is often a competitor who has the economic incentive to investigate possible violations of law and the public benefits when violations of law are brought to the attention of public officials. The Noerr-Pennington Doctrine has a narrow exception which is generally referred to as the “sham” exception. Thus, a competitor is not shielded by anti-trust immunity if the complaint is a total “sham.”

Historically, rival supermarket chains, movie theatre chains, shopping center developers, etc. have retained land use experts, engineers, architects, lawyers and environmental experts, to scrutinize competitors’ land use applications in order to identify any “errors” and to monitor a competitor’s development to assure continuing compliance with law. Some competitors will seek anonymity by funding the efforts of a local community organization to oppose a project. Such competitor may perceive that courts may be more sympathetic to community groups, especially since many judges are subject to a public election process. They may also think that an “economic motive” somehow renders the opposition less worthy of consideration. Generally, courts will focus on whether there is a violation of the law or there is no violation of the law and not be impacted by who alleges the violation of law. However, court decisions have noted that there have been instances where public officials appear to have been influenced by “generalized community opposition.”

Additionally, when considering injunctive relief with respect to land use cases, courts often must consider whether a statute of limitations has expired or whether an opponent’s request for injunctive relief should be barred based on the doctrine of laches. Case law holds that generally, those opposed to a development project cannot sit back and watch a development proceed and wait until an advanced stage of the project to seek injunctive relief. Courts will also consider when a project’s opponents knew or reasonably could have known about a project and whether the opponents failed to conduct timely due diligence with respect to plans and specifications that were part of publicly available records of a government agency and could have been reviewed as part of an effort to conduct reasonable due diligence.

159-MP Corp. v. CAB Bedford, 509751/16, NYLJ 1202787696065, at *1 (Sup., KI, Decided April 28, 2017), Rothenberg, J.