The Appellate Division Second Department Declined to Impute Liability to a Successor Sponsor of a Condominium for Construction Defects.

On October 7, 2020, the Appellate Division, Second Department in Bd. of Managers of Bayard Views Condo. v. FPG Bayard, LLC, 187 A.D.3d 697 (October 7, 2020) affirmed the dismissal of a breach of contract claim as against a successor sponsor’s entity, and their principals, for alleged construction defects that were pre-existing in the building.

In response to the Board commencing this action, the successor sponsor in Bayard moved to reopen a prior bankruptcy matter that was previously pending in the Bankruptcy Court of the Eastern District of New York and simultaneously moved to dismiss the complaint in State court. The bankruptcy court found that the successor sponsor was “protected from claims by the Board which were based on liability from conduct of the original sponsor committed prior to the bankruptcy reorganization plan, ‘including successor liability for faulty construction of the condominium.’”

Similarly, the Appellate Division in Bayard affirmed the dismissal of the action against the successor sponsor entity insomuch as its “liability is limited to that obligation, which it assumed post-bankruptcy” and only claims that arise from “punch-list items” that the successor sponsor specifically undertook to complete in accordance with the amendment to the offering plan that they filed.

Furthermore, the Appellate Division in Bayard also affirmed the dismissal of the claims as against the principals of the successor sponsor since they were pre-empted by the Martin Act. General Business Law Art. 23–A. The Appellate Division reasoned that since the alleged liability of the principals was premised solely on their signatures on an amendment to the Offering Plain, which were executed on behalf of the successor sponsor, and not in their respective individual capacity. The Appellate Division also noted that the Condominium did not plead any facts to support a basis to pierce the corporate veil, further warranting the dismissal as against the principals of the successor sponsor.