Scott E. Mollen
Scott E. Mollen ()

Brokerage—Absent a Contractual Obligation, Real Estate Brokers Do Not Have Duty to Conduct Background Checks On Prospective Tenants—Plaintiff Alleged That Broker Represented That It Conducted a Background Check—Although No Duty to Investigate the Suitability of Prospective Tenant, If Broker Had Information That Materially Affected the Transaction, Such as a Criminal History, Broker Had a Duty to Disclose Such Information—Brokers Do Not Have a “Legal Duty to Provide Legal Advice” as to Municipal Leasing Requirements

AN OWNER SUED a real estate brokerage firm (broker). The owner had permitted the broker to show an apartment to prospective tenants. The tenants subsequently signed a lease with the owner. The owner alleged that the broker had assured the owner that the prospective tenants were “reputable” and that the broker “had performed a background check.” The tenants had moved into the apartment, but had allegedly failed to pay any rent. The owner had evicted the tenants.

The owner alleged that she had learned of the tenant’s “criminal past” and the broker had never informed it of such history, despite claiming to have performed a background check and vouching for the tenants’ “good reputation.” The owner further alleged that the broker never advised the owner of a municipal requirement for a rental permit. The owner asserted claims for “breach of fiduciary duty of due care,” “breach of fiduciary duty of undivided loyalty, breach of fiduciary duty of full disclosure,” “violation of a principal’s rights under New York Property Law §443″ and “breach of an implied covenant of good faith and fair dealing.” The owner sought damages for, inter alia, “unpaid rent, fuel, electric,…, as well as legal” fees.

On the broker’s CPLR §3211(a)(7) motion to dismiss, the court was required to, inter alia, accept “as true the facts as alleged in the complaint and affidavits” and was to determine only “whether the facts as alleged manifest any cognizable legal theory.” However, to the extent that “the allegations and facts are ‘inherently incredible’ or refuted by documentary evidence, the court may then reject” the allegations in the complaint. The court explained that:

New York Real Property Law (NYRPL) §443…details a real estate broker’s duties to a seller or landlord. It provides “a landlord’s agent has, without limitation, the following fiduciary duties to the landlord: reasonable care, undivided loyalty, confidentiality, full disclosure, obedience and duty to account”…. “In New York,… a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal”….A real estate broker… has “an affirmative duty not to act for a party with adverse interests unless consent is obtained from the principal after being provided with full knowledge of the facts”….When analyzing the existence of a fiduciary’s duties and its relationship with the principal, courts must review the communications and agreements made between the parties….

The owner alleged that the broker had breached its “fiduciary duty by failing to provide a thorough background check of the tenants.” The court dismissed that claim. There was “no specific contract between the parties detailing the duties and specifying an obligation to perform a background check. A… broker’s duties to its client are satisfied ‘when they produce[] ready, willing, and able tenants with whom the plaintiff executed a rental agreement’….It has a ‘duty not to conceal or misrepresent known facts, but [] it ha[s] no duty to investigate unknown facts….” Additionally, brokers do not have a “‘duty to investigate the prospective tenants to ascertain their suitability’” under municipal law. Although the owner had alleged that “there is a duty for a real estate broker to perform a background check,” the owner failed to cite any authority for that claim. Since there was no fiduciary duty to perform a background check, nor any contractual duty, the court dismissed the failure to perform a background check cause of action.

The owner had also alleged that the broker had breached its fiduciary duty by failing to advise the owner of the tenant’s “criminal record.” The owner alleged that the broker advised the owner that the broker had performed a background check on the tenants, had described the tenants as “reputable” and the owner “reasonably relied upon that information for the transaction.” The court held that if such allegations are true, then the broker had a duty to advise the owner of the result of the background check and “not hide any poor history.” “Although [broker] had no duty to investigate the suitability of the prospective tenants or corresponding legal details, if they had knowledge materially affecting the transaction,” such as whether the tenants had a “criminal history,” then the broker had “a duty to fully and truthfully disclose” such information.

The court then dismissed the claim based on the broker’s failure to advise the owner that the town had a “leasing permit requirement.” The court explained that real estate brokers are “not under ‘any obligation to act as [the landlord's] legal advisor regarding relevant provisions of the town code… governing house rentals….” The court noted that Real Estate Property Law §443(4)(b) neither imposed a duty upon the brokers “to investigate whether the premises had a valid rental permit” nor do brokers have a “legal duty to provide legal advice regarding the existence of municipal permit requirements.”

The court also dismissed the owner’s claim based on NYRPL §443, “as well as negligence and violation of an implied covenant,” since such allegations were “vague and arise out of the same facts” as other claims and was therefore duplicative. Finally, the court rejected the broker’s defense that the lease contained a provision waiving “general obligations concerning the property.” The court noted that the owner’s claims were “not based on tenants’ default, but rather on [brokers'] alleged wrongdoing.”

Omabegho v. The Corcoran Group, 654413/2016, NYLJ 1202795480381, at *1 (Sup., NY, Decided June 29, 2017), Cohen, J.

Land Use—Religious Land Use and Institutionalized Persons Act (RLUIPA)—Retaliation Claim Pursuant to 42 U.S.C. §1983—Plaintiffs Alleged Effort to Landmark Was Based on “Islamophobia”—Complaint Was Dismissed Because It Was Not “Ripe”

A PLAINTIFF Islamic Community Center and some of its members (plaintiff or plaintiffs) commenced an action against a city’s Landmark Preservation Board, the city and several municipal officials, asserting that the defendants violated the plaintiffs’ rights under the U.S. Constitution, the NYS Constitution, the Religious Land Use and Institutionalized Persons Act (RLUIPA), 42 U.S.C. §2000cc, the New York Civil Rights Law §40-c and N.Y. C.P.L.R. §7801, “by discriminating against plaintiffs on account of plaintiffs’ religious affiliation.” The plaintiffs had moved, inter alia, for a preliminary injunction and for leave to serve a supplemental complaint which was to add a claim of First Amendment retaliation under 42 U.S.C. §1983. The defendants moved to dismiss the complaint. The court granted the defendants’ motion to dismiss and denied the plaintiffs’ motions for a preliminary injunction and for leave to file a supplemental complaint.

The plaintiff was established by a group of Muslims “to provide religious services for their community.” They had purchased the subject property, “after some discussion with the city… regarding [plaintiff's] anticipated use of the property as a Mosque.”

Following the purchase of the property, the plaintiffs held “an open meeting” with a community group. The city had previously advised the plaintiff that the community group “had a history [of] opposing projects like [plaintiffs'].” Some attendees objected to using the property for a Mosque. The plaintiffs alleged that “its members have experienced… hostility from the public on various occasions.” They alleged that local police had visited the property “for undisclosed reasons,” dog waste had been found near the property, people looked at members “suspiciously as they walked by the property,” people had driven by the property “menacingly,” and people had used “derogatory curse words.” Additionally, opponents began an effort to designate the property as a landmark, allegedly as “a pretext… to prevent [plaintiff],… from building a Mosque.”

The community group submitted applications to the landmarks board to have the property designated as a landmark. The plaintiff had submitted a letter asserting that the application was deficient. The board placed the plaintiff’s letter in the record, but had not permitted the plaintiff “to present its position during the hearing.” The landmarks board approved the application “as complete and referred it to the planning board for an advisory recommendation and advice’….” The planning board recommended that “the property be designated as a landmark, which imposes burdens and restrictions on the property.” The planning board had noted that “another house of worship was unnecessary given the presence of other religious institutions in the area.”

The landmarks board then held a public hearing. The plaintiff appeared and argued that the property failed to satisfy the criteria set forth in the subject landmark law. They noted that for many years the property had been “allowed to fall into disrepair.” The landmarks board found that “the property was ‘illustrative of growth and development of the city and had unique architectural qualities,’ and recommended the designation of the property as a landmark.” The plaintiffs asserted that “other homes near the property” had “similar characteristics…, but have not been designated as landmarks.” Thereafter, the City Council Real Estate Committee held a hearing at which discussion was limited “to the property and the landmark criteria.” No “‘discussion or reference of the evident Islamophobia at play’” was permitted. Thereafter, the Real Estate Committee and the Council’s Rules Committee voted in favor of land marking.

The plaintiffs alleged that “[t]he landmark designation arbitrarily targeted [the plaintiff]” and the property’s designation as a landmark “ ‘establishes different standards for [p]laintiffs’ proposed and future renovations to the [p]roperty than those that have been applied, and will continue to be applied, to similar proposed land uses’ of other property owners.” The plaintiff had not alleged “any proposed or future renovations, or the process that plaintiffs would have to undergo to allow for such renovations.”

Additionally, the plaintiff had applied for and received “a property tax exemption from the city… based on its status as a non-profit religious organization and the property’s use for religious purposes.” However, the property tax exemption was thereafter revoked. The plaintiff appealed the revocation. The plaintiffs claimed that the city’s Board of Assessment Review (BAR), had requested information which had previously been provided and the BAR was harassing the plaintiff in order “to retaliate against them.” The BAR sustained the plaintiffs’ administrative complaint and upheld the renewal of the property’s tax exempt status.

The court denied the plaintiffs’ motion for leave to file a supplemental complaint, since it would be “futile” because the court lacked “subject matter jurisdiction” over the supplemental cause of action, a First Amendment retaliation claim under Section 1983.”

Generally, “federal district courts have subject matter jurisdiction over Section 1983 claims….” However, “[t]he principle of comity and the Tax Injunction Act, 28 U.S.C. §1341, bar the court from entertaining a Section 1983 claim that plaintiffs’ First Amendment rights were violated through the imposition of state taxes.” The plaintiffs argued that they had “not alleged any tax law issue or violation, [or] challenged the applicability of a state tax law” and they were not “seeking damages related to the collection of state taxes.”

The “Tax Injunction Act provides that ‘the district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under state law where a plain, speedy and efficient remedy may be had in the courts of such state.” Moreover, “in a damage action pursuant [to Section] 1983 alleging that in administering a tax the state has violated a party’s constitutional rights, principles of comity require the federal court to dismiss the claim.” Although the plaintiffs argued that their claim was “not ‘related the collection of state taxes,’ but rather is based on the revocation of tax exempt status,” the court failed “to see how this distinction matters.” The court explained that “[i]n either situation, the claim is that defendants administered the state tax system in a discriminatory way and therefore violated plaintiffs’ constitutional rights.”

The plaintiff had also alleged that by the city “‘revoking [p]laintiffs’ property tax exemption status,’” the city had retaliated and violated “plaintiffs’ First Amendment rights.” The court cited “[t]he repeated allegations of retaliatory revocation of tax exempt status” in finding that the claim was “unambiguously a tax law issue.” Thus, the court denied leave to file a supplemental complaint, because it lacked subject matter jurisdiction over plaintiffs’ supplemental claim “granting plaintiffs’ motion would be futile.”

The court then applied “the first prong of the analysis that the U.S. Supreme Court had articulated in Williamson County Regional Planning Commission v. Hamilton Bank, 473 U.S. 172 (1985),” to determine whether the case was ripe for decision. The “first prong” analysis, is also known as “the final-decision requirement” and requires that the plaintiff “obtain a final, definitive position as to the application of the relevant zoning law to the property from the municipal entity responsible for those laws.” A plaintiff may not “‘seek federal court review of a zoning ordinance or provision until it has submitted at least one meaningful application for a variance’ from the restrictions of the land-use laws.” Here, the plaintiffs had “not yet received a final decision with respect to the landmarking of the property.” The subject landmark law permits owners to “apply for a ‘certificate of appropriateness,’ and if the certificate is denied, it also provides for appellate review.” It further “provides that, if the certificate of appropriateness is denied in any respect, the owner may apply for relief based on economic hardship.”

The plaintiffs contended that “the court should apply the general ripeness analysis, rather than the specific ripeness analysis for land-use claims,” plaintiffs “need not seek a certificate of appropriateness or apply for economic hardship, because such steps would be futile,” “the ripeness inquiry does not apply when the claim is that the land-use restriction was imposed out of discriminatory animus” and “the matter is ripe because there is no justification for requiring plaintiffs to seek a certificate of appropriateness or economic hardship, as such a requirement would subject [plaintiffs] to additional delays, expenses, and uncertainty.”

The court rejected each such arguments. Under U.S. Court of Appeals for the Second Circuit authority, the traditional approach to a ripeness analysis is inapplicable “to land-use disputes, and instead ripeness is to be determined under the final-decision requirement set forth in Williamson County.” Although a plaintiff may avoid dismissal on the ripeness ground by demonstrating “the futility of pursuing administrative remedies, such as variances, re-applications, or appeals to zoning boards[,]… the futility exception does not discharge… ‘an owner’s obligation to file one meaningful development proposal.’” Thus, the court held that “the exception requires that at least one meaningful application be made in order to consider a claim ripe for adjudication.”

Here, the plaintiffs had “yet to apply for a certificate of appropriateness, appeal from an unfavorable ruling, or apply for economic hardship, and therefore the futility exception to the final-decision requirement is inapplicable.” In so holding, the court rejected the plaintiffs argument that ripeness inquiry is inapplicable “when the claim is that the land-use restriction was imposed out of discriminatory animus.” They opined that such position was contrary to “Second Circuit precedent.”

Finally, the plaintiffs had argued that the matter was ripe, because “there was ‘no justification for requiring [plaintiffs] to go” before the landmarks board or “the planning board to seek a certificate of appropriateness or economic hardship” before the subject court ruled on its claims. However, the court held that “Second Circuit precedent requires plaintiffs to take such action.” Accordingly, the court dismissed the complaint, without prejudice, because the claims were not ripe.

Comment: The plaintiff apparently did not want to or could not spend the money necessary to have experts prepare and submit a specific development plan and pursue a certificate of appropriateness and/or an economic hardship application, when they perceived that local officials were going to oppose any specific plan, based on their objection to the proposed use. The court believed that controlling precedent required such effort before it could conclude that further pursuit of necessary approvals would be “futile.”

Islamic Comm. Center For Mid Westchester v. City of Yonkers Landmark Preservation Board, 16 CV 7364, NYLJ 1202792096825, at *1 (SDNY, Decided June 28, 2017), Briccetti, J.