New York State Court of Claims

New York State Court of Claims

CD's v. THE STATE OF NEW YORK, #2002-001-112, Claim No. 99024, Motion No. M-65656


Synopsis


Defendant's motion for summary judgment pursuant to CPLR 3212 is granted.

Case Information

UID:
2002-001-112
Claimant(s):
CD's CORNER STORE CORP. and JOEL ABRAMS
Claimant short name:
CD's
Footnote (claimant name) :

Defendant(s):
THE STATE OF NEW YORK
Footnote (defendant name) :

Third-party claimant(s):

Third-party defendant(s):

Claim number(s):
99024
Motion number(s):
M-65656
Cross-motion number(s):

Judge:
SUSAN PHILLIPS READ
Claimant's attorney:
Kurzman, Eisenberg, Corbin, Lever & Goodman, LLPBy: Guy R. Fairstein, Esq., Of Counsel
Defendant's attorney:
Hon. Eliot Spitzer, NYS Attorney GeneralBy: Michael W. Friedman, Esq., Assistant Attorney General, Of Counsel
Third-party defendant's attorney:

Signature date:
December 5, 2002
City:
Albany
Comments:

Official citation:

Appellate results:

See also (multicaptioned case)



Decision

The following papers were read and considered on defendant's motion for summary judgment pursuant to CPLR 3212: Notice of Motion, dated August 13 and filed August 16, 2002; Affirmation of Michael W. Friedman, Esq., AAG, dated August 13 and filed August 16, 2002, with annexed Exhibits A-C; Affidavit in Opposition of Guy R. Fairstein, Esq., sworn to September 17 and filed September 18, 2002, with annexed Exhibits A-E; Claimant's Memorandum of Law, dated September 17 and received September 19, 2002; Reply Affirmation of Michael W. Friedman, Esq., AAG, dated September 23 and filed September 24, 2002, with annexed Exhibits A-C; Supplemental Affidavit of Guy R. Fairstein, Esq., sworn to November 12 and filed November 13, 2002; Affidavit of Joel Abrams, sworn to November 12 and filed November 13, 2002; and Verified Claim, dated September 22 and filed September 24, 1998, with annexed Exhibits A-B. Claimant Joel Abrams ("claimant") is the president, CEO and sole shareholder of claimant CD's Corner Store ("the store" or "business") (Verified Claim, dated September 22 and filed September 24, 1998, with annexed Exhibits A-B ["claim"], ¶ 1; Affirmation of Michael W. Friedman, Esq., AAG, dated August 13 and filed August 16, 2002, with annexed Exhibits A-C ["Friedman Aff."], Exh. C, 4).[1] In September 1996 he purchased the business from John Costello ("Costello") (Friedman Aff., Exh. C, 20), who had allegedly operated the store for a number of years, during which he was licensed by the New York State Division of the Lottery ("the Division") to operate a lotto terminal and, after it was instituted in 1995, to run the lottery game known as "Quick Draw" (see, Trump v Perlee, 228 AD2d 367) (claim, ¶¶ 4, 6).

The Division requires that any agent selling Quick Draw tickets, who is not licensed to sell alcoholic beverages on premises, "must have certified in writing that the premises comprise an area greater than 2,500 square feet" (21 NYCRR 2835.6; claim, ¶ 6). Although the store consisted of less than 1,000 square feet, Costello managed to obtain a license from the Division to sell Quick Draw tickets, evidently by misrepresenting to Division officials the square footage that he was leasing (claim, ¶¶ 8-9, 15-24; Affidavit in Opposition of Guy R. Fairstein, Esq., sworn to September 17 and filed September 18, 2002, with annexed Exhibits A-E ["Fairstein Aff."], Exh. D). Illustrative of Costello's deception is a purported lease modification whereby the Division was informed on November 9, 1995, after visiting the store and noting that its square footage was deficient, that the store's leased space had been increased to 2,600 square feet (see, Reply Affirmation of Michael W. Friedman, Esq., AAG, dated September 23 and filed September 24, 2002, with annexed Exhibits A-C ["Friedman Reply Aff."], Exhs. A-B).

Claimant purchased the store from Costello in September 1996, mistakenly believing that he would be able to continue selling Quick Draw tickets (Friedman Aff., Exh. C, 20).[2] He admitted at his deposition that prior to buying the store, he was not aware of the 2,500-square-foot regulation and that neither he, nor anyone on his behalf, had reviewed the Division's rules regarding the requirements for operating its games, including Quick Draw (id., at 25). Although not initially mentioned by claimant, his Quick Draw Sales Agent Application, dated August 23, 1996, also misrepresented the store's square-footage to the Division (see, Friedman Reply Aff., ¶ 13; Exh. C).[3]

Sometime after claimant took over the store, a representative of the Division's Security Unit appeared and surveyed the premises (claim, ¶ 33). Because the store's area did not exceed 2,500 square feet, claimant's ability to sell the Quick Draw game was suppressed on December 17, 1996 (claim, ¶¶ 34-39; Friedman Aff., Exh. A, 11-13).[4] This claim against defendant State of New York ("defendant" or "the State") ensued.

Portions of the claim appear to allege that the State was negligent in its investigation of Costello and that its consequent failure to uncover his fraud upon the Division harmed claimant (see, e.g., claim, ¶¶ 45-46, 49); however, in response to this motion for summary judgment claimant made clear that he intended to ground his action upon (1) the State's alleged negligence in failing to inform him that Costello's store did not exceed 2,500 square feet before he purchased the business (Fairstein Aff., ¶¶ 11-12; claim, ¶¶ 43-44, 47); and (2) an alleged breach of contract based on the New York State Lottery Sales Agent License Agreement that he executed on August 30, 1996 (Fairstein Aff., ¶ 11, 13; Exh. C; claim, ¶ 50).

In its motion for summary judgment, the State initially argued that the claim for damages on account of the State's alleged negligent investigation of claimant's predecessor does not state a cognizable cause of action (Friedman Aff., ¶¶ 8, 10, citing Blades v State of New York, Ct Cl, unreported decision filed Dec. 6, 2000, Collins, J., M-62314). After claimant responded that "[t]his is not an action based upon ‘negligent investigation'" (Fairstein Aff., ¶ 4), the State, by way of a reply affirmation, argued that the Division's discretionary determination that claimant's predecessor's (or thereafter claimant's) premises lacked the requisite square footage is cloaked with immunity and thus cannot form the basis for imposing liability upon the State (Friedman Reply Aff., ¶¶ 5-15). Deeming this argument improperly raised for the first time by way of response (see, e.g., Azzopardi v American Blower Corp., 192 AD2d 453), the Court exercised its discretion and adjourned the motion's return date in order to give claimant a fair opportunity to respond (see, Carlton Assocs. v Bayne, 191 Misc 2d 54, 57).

The Court agrees with defendant that the claim is precluded by the doctrine of sovereign immunity to the extent that it is premised upon the Division's suspension of claimant's license to sell the Quick Draw lottery game. The Division's discretionary determinations regarding the store's suitability to house the Quick Draw game, based on either claimant's or his predecessor's application, and the Division's actions taken thereafter to suppress the Quick Draw game because the store did not meet its square-footage requirement were fully governmental in nature and, thus, were entitled to immunity (see, Hilton Apothecary v State of New York, 165 Misc 2d 697, affd 231 AD2d 974, lv dismissed 89 NY2d 1024). Nor can claimant circumvent this immunity by casting this as an action for damages for tort or breach of contract.

The gravamen of claimant's tort claim is that the State negligently failed to disclose to him that his predecessor was operating the Quick Draw game in violation of the Division's rule regarding the requisite square footage. The threshold element for any cause of action premised on negligence is the existence of a duty (see, Lauer v City of New York, 95 NY2d 95, 100; Collins v State of New York, 162 Misc 2d 770, 774, affd 224 AD2d 273 [sine qua non of negligence is whether defendant owed claimant a duty of care in the first instance]), and it is for the Court to decide, as a matter of law, whether a legal duty exists based upon the particular circumstances of a given case (see, Sanchez v State of New York, ___ NY2d ___ [Nov. 21, 2002], slip opn p 5; Eiseman v State of New York, 70 NY2d 175, 187; Industrial Risk Insurers v Ernst, 224 AD2d 389, 390). Here, claimant essentially asks the Court to find that a duty exists on the part of the Division to monitor the sale of businesses engaged in selling Quick Draw tickets and to advise potential purchasers, before the transaction is consummated, of potential licensing compliance problems. As a matter of policy (see, Lauer v City of New York, supra, at 100; Eiseman v State of New York, supra, at 189-190) and as a practical matter, the Court cannot find that such a duty exists.

Moreover, the square-footage requirement for Quick Draw licensure is a matter of public record (see, 21 NYCRR 2835.6). Consequently, claimant must be held to have knowledge of the regulation's restrictions despite any purported failure on the part of the Division to advise him of them (see, Ramesar v State of New York, 224 AD2d 757, 759, lv denied 88 NY2d 811; Craft v Capital Dist. Regional Off Track Betting Corp., 107 AD2d 952, 954). Even assuming that some duty of disclosure existed, the Court is hard pressed to fathom how an alleged failure to disclose a published regulation, readily ascertainable upon reasonable investigation, could be deemed a breach of it.

Claimant's cause of action for alleged breach of contract similarly centers upon the State's alleged failure to disclose to him that the store's square footage was deficient, evidently in violation of the duty of good faith and fair dealing implied in all contracts (Fairstein Aff., ¶¶ 11, 13); however, the Court cannot find that the State breached either the license agreement itself or its duty of good faith and fair dealing.

First, as it pertains to claimant's ability to sell Quick Draw, the license agreement specifically reserves the Division's right to terminate the agreement if the agent "violates any provision of the Lottery Law or Lottery regulations" (Fairstein Aff., Exh. C, ¶ 7 [b] [8]). It is undisputed that the selling of Quick Draw at claimant's store violated the requirements of 21 NYCRR 2835.6, thus entitling the Division to terminate its license agreement with claimant (see, 21 NYCRR 2801.19 [a] [8]). Since the Division was led to believe that the store's premises consisted of 2,600 square feet by both claimant's predecessor's (Friedman Reply Aff., Exhs. A-B) and, later, claimant's license applications (Friedman Reply Aff., Exh. C), there was no breach of good faith or fair dealing on the part of the Division. On the contrary, claimant's application misstating the square footage of his business, standing alone, would arguably justify the termination of his license upon the grounds of "fraud, deceit [or] misrepresentation" (21 NYCRR 2801.19 [a] [4]).[5]

Based on the foregoing, the Court grants the State's motion and dismisses Claim No. 99024.

December 5, 2002
Albany, New York

HON. SUSAN PHILLIPS READ
Judge of the Court of Claims




[1]The store's claim has been assigned to claimant (claim, ¶ 1, Exh. A).
[2]Claimant settled a lawsuit against Costello in Supreme Court for a reduction in the business's purchase price from $220,000 to $150,000 (Friedman Aff., Exh. C, 13-14).
[3]In his reply, claimant states that the reference to 2,600 square feet in this application was made, he believes, by Costello and that he (claimant) made the entries on the second page of the application, accepting the entries made on the first page as true when he signed the document (Supplemental Affidavit of Guy R. Fairstein, Esq., sworn to November 12 and filed November 13, 2002, ¶ 12; Affidavit of Joel Abrams, sworn to November 12 and filed November 13, 2002).
[4]Since the square-footage requirement only pertains to the Quick Draw game, claimant is still able to sell Lotto and other online games from the store (Friedman Aff., Exh. C, 4, 23-24).
[5]Claimant's purported ignorance of the misrepresentation (see, n 3, supra) does not negate the Division's right to rely upon the information contained in his application: the Court must presume that claimant knew the application's contents before he signed and submitted it (see, generally, Metzger v Aetna Ins. Co., 227 NY 411, 416).