New York State Court of Claims

New York State Court of Claims


Case information

UID: 2010-032-505
Claimant short name: SMILEY
Footnote (claimant name) :
Footnote (defendant name) :
Third-party claimant(s):
Third-party defendant(s):
Claim number(s): 110284
Motion number(s):
Cross-motion number(s):
Claimant's attorney: Blatchly & Simonson, PC
By: Jon A. Simonson, Esq.
Defendant's attorney: Hon. Andrew M. Cuomo, NYS Attorney General
By: J. Gardner Ryan, Assistant Attorney General, Of Counsel
Third-party defendant's attorney:
Signature date: July 1, 2010
City: Albany
Official citation:
Appellate results:
See also (multicaptioned case)


The facts of this case have been subject to litigation over 18 years because, for the most part, defendants have refused to sufficiently comply with various court orders and agreements throughout the years. As a result, 22 years of claimants' 99-year leasehold have gone by without adequate septic and electricity. Defendants have offered various legal theories to several courts for their noncompliance, all of which have been rejected. This Court also rejects defendants' arguments and hereby determines that defendants are liable to claimants for breach of contract in an amount to be decided at a subsequent damages trial.


In the mid 1800s, claimants' ancestors founded a resort on Lake Minnewaska. It included two hotels, the Cliff House and Wildmere Cottage, on approximately 10,000 acres in Ulster County. Claimants are direct descendants of the original owners. In 1929, title to the resort was converted to a corporate ownership, George H. Smiley and Son, Inc. In the 1950s, control of the corporation was turned over to Kenneth Phillips, a longtime employee, and Lucille Phillips. Thereafter, in 1955, Phillips entered into an agreement with Alfred F. Smiley(1) and Ruth Smiley, creating preferred and common classes of stock (Exhibit 16). The preferred stock was retained by Alfred F. Smiley and Ruth H. Smiley, and the new agreement prevented the corporation from mortgaging the property for more than one year without the consent of two-thirds of the preferred shareholders. When the corporation wanted to borrow money, the bank disapproved the application because of the restriction. Therefore, on February 19, 1958 (Exhibit 17) and March 7, 1958 (Exhibit 18), the 1955 agreement was revoked and the Smileys' interest in the property changed from shareholders to holders of leasehold rights. Both agreements essentially provide that upon the death of the survivor of Alfred F. and Ruth H. Smiley, their descendants shall have the right to use Wildmere Cottage (Exhibits 4, 7) and five specific parcels of land within approximately 10,000 acres for 99 years at $1 per parcel per year. The March 7, 1958 agreement provides that the company shall provide adequate utilities at cost to the leaseholders (Exhibit 18, p 5, 3). The cottage was the home of three generations of Smileys. In 1971, the State gained title to a portion of the Lake Minnewaska property (Exhibit 19). The Smileys' leasehold rights were excluded from this appropriation. In 1987, the balance of the property was conveyed to defendants(2) subject to the Smileys' leasehold interest (Exhibit 20). Alfred F. Smiley died in 1975 and Ruth H. Smiley died in 1988. Thereafter, claimants met with the Director of the Palisades Interstate Park Commission to discuss the leasehold rights. On May 23, 1989, claimants were notified that the Commission and the State of New York did not recognize their leasehold interests (Exhibit 21).

Thereafter, 18 years of litigation ensued. In 1992, Supreme Court Ulster County issued a preliminary injunction reinstating the Smileys' rights (Exhibit 21). Defendants argued before that Court that a de facto appropriation of claimants' leasehold interests had occurred on May 23, 1989. Supreme Court rejected defendants' position stating: "There is no right to condemn land in excess of the need for public purposes and no more may be taken than is required for a particular public purpose [citation omitted] . . . Defendants have identified no public purpose served by repudiation of the 1958 agreements and made no showing of the necessity for the same"

(Exhibit 21).

That same year, the Court of Claims, upon a motion to dismiss, ruled that the 1958 agreements were valid and did not violate the Rule Against Perpetuities (Exhibit 22). The Court further ruled that the agreement consisted of conveyances and not personal service contracts that would not run with the land. This decision was upheld by the Appellate Division Third Department in 1994 (Exhibit 23).

In 1994 Supreme Court Ulster County issued another decision upon a motion for summary judgment defining the rights of claimants. In relevant part to the instant action, Supreme Court held: (1) that claimants' leasehold interests commenced on June 21, 1988, the date Ruth H. Smiley died, and shall expire on the 99th anniversary of that date; (2) defendants are restrained and enjoined from interfering in any manner with claimants' exclusive use of Wildmere Cottage; (2) defendants are restrained and enjoined from interfering in any manner with claimants' lawful use of utility lines and services, including electric and telephone service and water lines which previously serviced the Wildmere Cottage and five parcels; and (3) defendants were directed to reconnect and maintain electrical, telephone and other utility services as existed in favor of Wildmere Cottage at the time of the Smiley agreements with the Smileys paying for utility services they consumed.(3) Supreme Court specifically stated that the "State of New York, acting by and through the Palisades Interstate Park Commission, acquired its interest in the lands . . . subject to the rights conferred by the Smiley agreements." (Exhibit 25, 6).

In 1999 the Court of Claims action was settled, along with a motion in Supreme Court Ulster County for contempt for the State's failure to comply with the Supreme Court's prior order. A Stipulation of Settlement and Discontinuance and a Stipulation of Settlement and Lease Modification Agreement (Exhibit 27) were entered into between the parties. The Stipulation of Settlement and Discontinuance provides that the defendants shall pay to claimants the sum of $670,000.00. The Stipulation of Settlement and Lease Modification Agreement (Lease Modification) provides that claimants will surrender to defendants four parcels described in the March 7, 1958 agreement. As for electric and telephone, claimants agreed that Wildmere Cottage was already furnished with electric and telephone at the time of the Stipulation and that "Defendants have no further obligations in connection with such service. . ." and defendants will not "take any actions and will not authorize "third-parties [sic]" to take any actions, which shall interfere with Claimants' electric and telephone service to Wildmere . . ." (Exhibit 27, Lease Modification, p 6, 5). Mr. Smiley testified that at the time of the Stipulation, he had already hooked up his parcel to an electric line, and the absolution of defendants' responsibility to provide electricity only applied to the electricity on that parcel, not leading to it (TA:96).(4)

Defendants stipulated that it had partially constructed a septic system "designed to be suitable for the private residential use of Wildmere Cottage . . . Defendants represent that appropriate materials were used" (Exhibit 27, Lease Modification, p 5, 3). Defendants relinquished their portion of the Wildmere Cottage along with an area of land for claimants to operate and maintain a septic system at their own expense to support Wildmere Cottage. Defendants stipulated that they would pay an amount not to exceed $7,000.00 to complete the septic system (Exhibit 27, Lease Modification, pp 4, 5, 3). Defendants further stipulated that they would be liable for any repairs to the septic system and waterline installed by them or their agents which are required as a result of their deviation from the specifications of the Stipulation (Exhibit 27, Lease Modification, p 7, 6 [b]). The Stipulation further provided that "All repairs maintenance, upkeep and cost of utilities, including the septic system, waterline and pump house, for the Wildmere Parcel and its appurtenances shall be the sole responsibility and expense of Claimants" (Exhibit 27, Lease Modification, p 6, 6 [a]).

In November 2002, an ice storm occurred which took down substantial electric and telephone lines in Minnewaska State Park, including lines that serviced Wildmere Cottage. Power was not restored until April 2006 (TA:111). Representatives of the State met with claimants about these lines between the date of the ice storm and 2006, and acknowledged that they were meeting with Central Hudson Gas and Electric Company to work out the route of the new electric line and costs associated therewith (Exhibits 29, 32). Numerous assurances by the Palisades Interstate Park Commission, through letters and at meetings, were given to claimants that electricity would be restored (TA:98, 106; Exhibits 29-32). Claimants maintain that they were not informed that they were responsible for the electric lines running up the mountain until the instant claim was filed in this Court.

Over the years the State attempted to put in three septic systems near Wildmere Cottage. Before the Stipulations were entered into in 1999, a seepage pit system was put in for the State's portion of Wildmere Cottage (Exhibits 34, 54).(5) The Smiley side of the cottage was not hooked up to this system, nor was the Smiley family advised of it. Claimants' expert witness, Roger Gjone(6) , found the seepage pit system failed the soil percolation tests required by the Individual Residential Wastewater Treatment Systems Design Handbook (Handbook) (Exhibit 35).(7) Such Handbook requires that undisturbed soil absorb one inch of water in not less than one minute and not more than 60 minutes (Exhibit 35, p 8). All of the tests that he performed on the seepage pit took longer than 60 minutes, and therefore were unusable (TB:150). Exhibit 54, the as-built plans for the seepage pits, designed by a State employee, and checked by Scott Fish(8) , who testified as a professional engineer for defendants, indicate that the percolation rates were 11-15 minutes per inch. Mr. Gjone testified that the plans do not reflect the number and location of the percolation holes dug to carry out the tests, which would be ordinarily done pursuant to good engineering practice.

The seepage pits also failed other tests performed by Mr. Gjone. The concrete cylinders should have been 18 feet apart but were only four feet apart. Mr. Fish admitted this was in violation of the Code(9) (TA:209). The bottom of the seepage pit should have been on no less than three feet of virgin soil. These seepage pits were on bedrock. Further, each seepage pit should have had a direct line to a distribution box. Here, there were five seepage pits but only three were connected directly to the distribution box. Mr. Fish testified that this was in violation of the Handbook (TA:207, 208). The other two were connected to other seepage pits (Exhibit 55). Finally, Mr. Gjone injected green fluorescent dye into the septic system, which came to the surface of the seepage pit (Exhibit 37, pictures 27-30), an indication that the system would fail. Mr. Fish testified that although the State did not do a dye test, if dyed water surfaced, that would be an indication that the system failed (TA:206).

In 1996, the State began the construction of a second system, an aboveground system, which is normally built on soil with poor percolation (TA:184), again without consulting claimants. According to Mr. Gjone, there are three types of aboveground systems: a raised system, the Ulster fill system, and a mound system. Defendants' second system entailed an excavated line from Wildmere Cottage to a 2,000-gallon septic tank, and from there to a distribution box and laterals. From the laterals, which are perforated pipes, the effluent distributes through the ground. Mr Fish testified that Park Engineer Michael Tesick started the design of this system(10) . Mr. Fish and Mr. Tesick described this system first as a mound system (TA:183; TC:162), then as a raised bed system (TA:183). Mr. Fish admitted that he did not know the difference between the systems (TA:212). Mr. Gjone discourages the use of a mound system because it requires "dosing", which includes another tank after the septic tank with a level indicator. The second tank pumps water into the lateral when the water reaches a certain level. It is also limited to 4 laterals. The second system put in by the State had 5 laterals and no second tank (Exhibit 56), therefore according to Mr. Gjone, it could not be a mound system. Exhibit 39 indicates that the second system failed the percolation tests performed by the State. This system also failed the percolation tests performed by Mr. Gjone. Further, Mr. Gjone found that the laterals were not placed in a sufficient amount of fill, were not on the correct grade and were not placed within acceptable feet apart from one another. Mr. Tesick acknowledged that the results of the percolation tests violated the Handbook's requirements (TC:166, 180). Mr. Fish testified that various components of this system may have violated the Handbook (too many laterals, spacing of laterals, and the clay cap design) (TA:215, 216, 221), and the failure to put the results of the percolation tests on his drawing violated standard engineering practices (TA:215). Mr. Gjone testified that he believed the State was trying to build an Ulster fill system, a hybrid raised bed system, because the plans called for the use of a clay berm, which is required for such system. However, the laterals were not leveled properly for this system, were too long and were not spaced properly. It is this second system, which was never completed by the State, that is the system referenced in the Lease Modification Stipulation. Claimants obtained a price quote of $7,000.00 for the clay berm necessary to complete the system (TA:124). However, as noted in the foregoing, the system had other problems.

A third system consisted of a 10,000-gallon holding tank, a part of a plan for the State to put in a waste treatment facility upon the Minnewaska Park property. It was planned to serve a comfort station on the mountain and the Smiley residence (TA:197-198). Mr. Fish supervised the design of this system (TA:199). In 2004, the State ran a line from the 2,000-gallon septic tank from the second system to a manhole and then to a 10,000-gallon tank in 2007 (TC:169). Soon after its installation, water started accumulating in the tank. Over the course of three years, the State attempted to determine the cause of the infiltration by excavating the lines. At one point, the State dug up the Smiley front yard (Exhibits 44-48), without notice to the Smileys. The line to the Smiley residence had been broken. Mr Gjone thought this probably happened during the backfill process when the pipe was installed. Edward Dunnigan(11) , an engineer for the State, also thought that the pipe could have been broken by this process. The State also found extra breaks in the line and, according to Mr. Gjone who visited the property the day before this trial, there was still water in the 10,000-gallon tank. Mr. Gjone further testified that the third system was in violation of the Handbook (Exhibit 35), because holding tanks are only permissible when a waste treatment facility is being constructed; it is a temporary measure not permitted for residential use and should be equipped with an alarm system and a solenoid valve on the water service line to avoid overflows. Mr. Tesick and Mr. Fish testified that the State did not have the monies to finish the wastewater treatment facility and the use of a 10,000-gallon tank for eight years could be deemed temporary (TC:197, 200). Mr. Tesick was aware that the Smileys intended to use Wildmere Cottage as a residence, but he and Mr. Fish were unaware of any requirements for the use of an alarm or a solenoid valve. Throughout their testimony, Mr. Scott and Mr. Tesick, admitted that the various systems they designed violated New York State Health Department regulations and that although they overlooked various requirements, they thought that the Office of Parks, Recreation and Historic Preservation had the power not to comply with those regulations (TC:180-183).

In 2004, the instant claim was filed setting forth four causes of action: breach of contract, measured by diminution of the value of the Wildmere parcel by each day the septic and utility services were withheld; de facto taking and appropriation of claimants' leasehold rights; breach of warranty of habitability; and contempt. All but the first cause of action were dismissed by this Court upon summary judgment motion and cross motion by the parties (Smiley v Palisades Interstate Park Commission and State of New York, Ct Cl, January 9, 2009, Hard, J., Claim 110284, Motion Nos. M-75243, CM-75524 (UID # 2009-032-100).


In a cause of action for breach of contract, the following elements must be proved: the existence of a contract; plaintiff's performance under the contract; defendants' breach of the contract; and damages (JP Morgan Chase v J.H. Elec. of N.Y., Inc., 69 AD3d 802 [2d Dept 2010]). "[A] non-performing party is liable for any breach of contract, but the other party is discharged from further performance, and is entitled to substantial damages only where there is a material breach . . ." (23 Williston on Contracts 63:3 [4th ed]). Another way of speaking about the materiality of the breach is to refer to the breach as "total" (id.). "A 'total breach of contract' may occur by repudiation or by such a material failure of performance when due as to 'go to the essence' and frustrate substantially the purpose for which the aggrieved party entered into the contract" (id.). A significant factor to consider in determining whether a failure is material is if the injured party is deprived of a benefit he reasonably expected from the exchange (Restatement [Second] of Contracts 241 [1981]). "Generally, once a party to a contract has made a promise, that party must perform or respond in damages for its failure, even when unforeseen circumstances make performance burdensome. . ." (Kel Kim Corp. v Central Mkts, Inc., 70 NY2d 900 1987] [citations omitted]). Defenses are applied narrowly because the purpose of contract law is to allocate the risks that might affect performance, and that performance should be excused only in extreme circumstances (id.).

Supreme Court clearly found that defendant State of New York, acting through the Palisades Interstate Park Commission, acquired its interest in the Lake Minnewaska lands subject to the claimants' rights conferred by the 1958 agreements. Supreme Court also definitively found that the 1958 agreements require defendants to provide adequate utilities at cost, to refrain from interfering with claimants' use of utility lines and directing that any lines removed be reinstalled to provide utilities to claimants (Exhibit 25, 16 and 17). In 1999, the parties entered into the Stipulations for the settlement of two actions which were discontinued with prejudice. Although the Lease Modification Stipulation provided for a certain type of septic system to be built, the intent was to provide an adequate septic system pursuant to the Supreme Court order.

Stipulations of Settlement are favored by the Courts and not lightly set aside (see Hallock v State of New York, 64 NY2d 224, 230 [1984]). " 'A stipulation of settlement, particularly one made in open court, is to be strictly enforced, and a party will not be relieved from the consequences of a stipulation unless it establishes cause sufficient to invalidate a contract, such as fraud, collusion, mistake or accident' (Quality Ceramic Tile and Marble Co. v Cherry Val. Ltd. Partnership, 259 AD2d 607)" (Hauck v State of New York, Ct Cl, July 14, 2003, Ruderman, J., Claim No. 102861, Motion No. M-66921 [UID #2003-010-025]).

As for the septic system, defendants have clearly failed to comply with the 1958 agreements, the 1971 appropriation, the l987 conveyance, and the 1994 order of Supreme Court. Further, the terms of the 1999 Stipulation were never satisfied. The testimony of Mr. Fish and Mr. Tesick overwhelmingly establish that defendants negligently performed their tasks associated with the Stipulation. Mr. Fish and Mr. Tesick continuously demonstrated that they were not sufficiently skilled or knowledgeable to carry out the court mandates. The Court credits the testimony of claimants' expert, Roger Gjone, that the efforts of Mr. Fish and Mr. Tesick were substandard. The second septic system that they designed, the raised system, failed the required percolation tests, had improperly placed laterals and inadequate fill. They cut corners, deviated from acceptable engineering practices and blatantly ignored codes of the New York State Department of Health and the Ulster County Department of Health without obtaining a variance (TC:181). The third septic system had breaks in the line, which caused the system to fill with groundwater. Mr. Tesick admitted that this system should not be used by the Smiley family (TC:212). The failure to provide adequate utilities to claimants is not an unimportant omission. Such defect goes to the very essence of the 1971 appropriation and the l987 conveyance (Exhibits 19 and 20). The Smileys were to retain a leasehold interest so they could continue to enjoy the property. They have been unable to do so for 22 years of the 99-year leasehold because defendants will not provide them with services that Supreme Court found defendants took subject to. Inadequate systems do not relieve defendants from their obligation to fulfill their commitment to claimants. The Court hereby determines that a material breach of contract has occurred with respect to defendants' responsibilities regarding the septic system. The 1999 Stipulation did not abrogate or redefine defendants' obligations, as defendants appear to suggest in their posttrial brief. The Stipulation was an attempt to resolve the dispute regarding these basic obligations. Unfortunately, defendants did not complete construction of a septic system "suitable for the private residential use of Wildmere Cottage" (Exhibit 27, Lease Modification Stipulation, p 5, 3).

As for the electricity, defendants argue that once they hooked up Wildmere Cottage their obligations ended (Defendants' brief at p 28). Claimants learned of this new argument when this litigation was commenced. Previously, defendants' agents acted as if they were responsible for providing electricity to the Wildmere parcel (Exhibits 29 and 31). The intention of defendants from these documents is clear; defendants believed they had the responsibility to provide electricity to the Wildmere parcel (see Young v Zwack, Inc., 98 AD2d 913 (3d Dept 1983). The Court credits Alfred Smiley's testimony that the language in the Lease Modification Stipulation that Wildmere "is currently furnished with electricity and telephone service and that Defendants have no further obligations in connection with such service" (Exhibit 27, Lease Modification Stipulation, p 6, 5) as recognizing that at the time of entering into the Lease Modification Stipulation, Alfred Smiley had already installed new underground electric and telephone lines to Wildmere Cottage from the nearest utility pole (TA:65). The Court notes that defendants did not refute this with testimony at trial. Claimants were without electricity from the time of the ice storm in 2002 until April 2006. Based upon the 1958 agreements, the 1971 appropriation, the 1987 conveyance, the Supreme Court's 1994 order, and defendants' subsequent actions, this Court finds that defendants are responsible for the maintenance and repair of electrical lines running to Wildmere Cottage.

Defendants have raised an argument for the first time in their posttrial brief that claimants are entitled to reformation or rescission as a remedy, not damages.(12) Defendants argue that "[t]he intent of the parties to restore the cottage's septic service was not achieved according to the specifications set out in the stipulation . . . both the claimants and the State made a mistake of fact that the design was suitable for restoring the cottage to habitability" (Defendants' brief at pp 21-22). This Court does not have jurisdiction to award such equitable relief (Birnbaum v State of New York, Ct Cl, April 7, 2008, Ferreira, J., Claim No. 114418, Motion No. M-74317 [UID #2008-039-074]). However, even if it did, defendants have not adequately proved, by clear and convincing evidence, that both claimants and defendants entered into the contract itself under a mutual mistake of fact (see Schultz v Hourihan, 238 AD2d 818 [3d Dept 1997]). Further, defendants' late advancement of this argument, after the close of trial, is prejudicial to claimants (see Young v Zwack, Inc., 98 AD2d 913, supra).

Upon review of all the evidence, including the observation of all witnesses and an assessment of their demeanor, the Court hereby determines that defendants are liable for the failure to provide claimants with electricity from 2002-2006 and for the failure to install an adequate septic system for residential use at Wildmere Cottage. Damages will be determined at a subsequent trial. All motions not heretofore decided are denied.

Let interlocutory judgment be entered accordingly.

July 1, 2010

Albany, New York


Judge of the Court of Claims

1. Claimant, Alfred Brennan Smiley, is the grandson of Alfred F. Smiley.

2. The Palisades Interstate Park Commission took title on behalf of the State.

3. Supreme Court also held that the descendants of Alfred F. and Ruth H. Smiley were precluded from constructing new dwellings on the property. This determination was upheld on appeal, Payne v Palisades Interstate Park Commission, 226 AD2d 902 (3d Dept 1996).

4. References to trial transcripts shall be TA for November 17, 2009, TB for November 18, 2009, and TC for November 19, 2009.

5. At this point the Smileys had a leasehold interest in one half of the cottage.

6. Mr. Gjone worked for 25 years as an engineer for IBM, then obtained his professional engineer license in New York State in 1993. He designed all of the septic systems in the New York City watershed system.

7. This Handbook was produced by the New York State Department of Health. Mr. Gjone produced various parts of it at trial as Exhibit 35.

8. Mr. Fish, who was a State engineer assigned to the Palisades Interstate Park Commission at the time, only initialed the plans; he did not stamp them as a licensed professional engineer.

9. Various references were made to the "code". The Handbook was derived from the New York State Department of Health and the term "code" and "Handbook" appear to be used interchangeably by this witness throughout trial.

10. Mr. Fish approved his work (TA:187).

11. Mr. Dunnigan's testimony was obtained during an examination before trial (Exhibit 41).

12. Interestingly, defendants' counsel was on the receiving end of this argument in Hauck v State of New York, supra, where claimants' attorney sought to set aside the Stipulation of Settlement, based upon mutual mistake, after a hearing had been held and a stipulation entered into.