Georgoulis & Associates, PLLC v. Air Seal Insulation Systems, Inc. and Boorom Facilities Solutions, LLC, Case No. 51983/12, N.Y. Sup. Ct., N.Y. Co. (May 8, 2019)

A New York trial court dismissed all claims against CNC Coatings Corp. i/s/h/a Air Seal Insulations Systems, Inc. in a matter involving two separate actions arising from a fire at 45 Broadway, New York, New York. In the first action, 45 Broadway Owners LLC, et al. v. Chris Georgoulis and Associates, PLLC, (Action No. 1), the building owners and the tenant law firm each claimed that the other had breached a lease for office space in the building. The owners alleged that the law firm had wrongfully abandoned the office space, while the law firm counterclaimed that the owners breached the lease by failing to maintain a “first-class office building,” by failing to remedy the “strong smell of smoke” and noxious odors caused by the fire, and by failing to maintain an adequate fire safety plan. Hoping to offset the potential monetary damages it might owe to the owners in Action No. 1 (and barred by New York law from seeking contribution for breach of a lease from the third-party contractors, CNC and Boorom Facilities, LLC hired by the owners to perform work near the fire’s ignition source), the law firm initiated a second action, claiming that CNC and Boorom negligently installed insulation near a light fixture, causing the fire and forcing the law firm to abandon the office space (Georgoulis and Associates, PLLC v. Air Seal Insulation Systems, Inc. and Boorom Facilities Solutions, LLC (Action No. 2)).

In both its answers to defendants’ discovery demands and sworn statements offered in support of a motion to consolidate the two actions, the law firm essentially admitted that in Action No. 2 it was seeking to recover the same purely economic loss it was seeking to recover via its counterclaim in Action No. 1—the benefit of its bargain with the owners—from parties with which it was not in privity, CNC and Boorom. In addition, discovery revealed that the loss occurred over several months as the owners allegedly failed to cure material breaches of the lease.

The court found that none of the three recognized exceptions to the general rule that a contractual obligation does not give rise to a tort duty in favor of a third party applied in this case, and that CNC owed no duty to the law firm based on its contractual relationship with the owners to perform work at the building. Furthermore, the court found that the law firm’s claimed damages, moving costs, and lost billable hours arising from its forced relocation were economic and not recoverable through a negligence cause of action.

CNC Coatings Corp. i/s/h/a Air Seal Insulations Systems, Inc. was represented by partner Philip C. Silverberg and associate Michael T. Lynch.