FILED: KINGS COUNTY CLERK 11/30/2015 04:48 PM INDEX NO. 514527/2015 NYSCEF DOC. NO. 1 RECEIVED NYSCEF: 11/30/2015 UPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS ------------------------------------------------------------------x THE BOARD OF MANAGERS OF THE ONE THREE THREE CONDOMINIUM, -against- Plaintiff, WATER STREET REALTY GROUP LLC and YARON HERSHCO, Index No. SUMMONS Plaintiff designates Kings County as the place of trial. The basis of venue is the Kings - jurisdiction of the events at issue. Defendants. ------------------------------------------------------------------x TO THE ABOVE NAMED DEFENDANTS: YOU ARE HEREBY SUMMONED to answer the Complaint in this action and to serve a copy of your answer upon plaintiff s attorneys within twenty (20) days after the service of this Summons, exclusive of the date of service, or within thirty (30) days after completion of service where service is made in any other manner than by personal delivery within the State. In case of your failure to appear or answer, judgment will be taken against you by default for the relief demanded in the Complaint. Dated: New York, New York November 30, 2015 COZEN O CONNOR By: /s/ Tamar S. Wise Leni Morrison Cummins Tamar S. Wise Seth J. Zuckerman Cozen O Connor 277 Park Avenue New York, New York10172 (212) 883-4900
lcummins@cozen.com twise@cozen.com szuckerman@cozen.com Attorneys for Plaintiff The Board Of Managers of the One Three Three Condominium TO - Water Street Realty Group LLC 87-20 139 th Street Briarwood, NY 11435 Yaron Hershco c/o Water Street Realty Group LLC 87-20 139 th Street Briarwood, NY 11435 LEGAL\25072391\1 18508.0001.000/362977.000 2
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF KINGS -----------------------------------------------------x THE BOARD OF MANAGERS OF THE ONE THREE THREE CONDOMINIUM, Index No. /2015 Plaintiff, v. WATER STREET REALTY GROUP LLC and YARON HERSHCO, VERIFIED COMPLAINT Defendants. -----------------------------------------------------x Plaintiff, the Board of Managers of the One Three Three Condominium (the Board ), by and through its counsel, Cozen O Connor, as and for its Verified Complaint against Defendants Water Street Realty Group LLC (the Sponsor ) and Yaron Hershco sets forth and alleges as follows: INTRODUCTION 1. This action concerns the Defendants failure to construct the One Three Three Condominium, a luxury residential condominium building consisting of fifty two (52) residential units at 133 Water Street, Brooklyn, New York (the One Three Three Condominium or the Building ), in accordance with the relevant plans and specifications, prevailing standards in the trade, applicable law, and their own express contractual promises and representations. Defendants actions have caused among other damages a laundry list of defects in the Building that have required, currently require, and continue to require remediation or replacement, the cost of which should be borne entirely by the Defendants. 2. Despite repeated requests by unit owners and the Board of the One Three Three Condominium (the Unit Owners ), the Defendants have failed to take accountability for let C:\Users\twise\AppData\Local\Microsoft\Windows\INetCache\Content.Outlook\O2BWIJMT\ONE THREE THREE CONDO- Complaint.docx
alone remedy the extensive defects many of which were made clear to Sponsor, through its principal, prior to Sponsor s representations to the contrary. 3. As a result of Defendants actions, the Unit Owners have incurred significant remediation expenses and have suffered substantial losses to the value of their residences as well as the opportunity costs of channeling their money into fixing Defendants shoddy work on their Units rather than another home or investment. While total damages, including attorneys fees, will be discerned after a trial on the merits, reliable estimates of the cost of remediating or replacing known defects in materials and construction indicate that such damages alone are not less than $2 million. THE PARTIES 4. The Board of Managers of the One Three Three Condominium consists of the five (5) Members duly elected pursuant to Article III, Section 1 of the By-Laws of One Three Three Condominium. The Board is charged with governing the affairs of the Building, as agent of all Unit Owners. Its powers include operating and maintaining Building facilities and the provision of maintenance and repair services to the individual residential single-family units ( Units and each a Unit ) and common areas within the Building. 5. Upon information and belief, Water Street Realty Group, LLC, is a New York limited liability company with a principal place of business located at 139-27 Queens Boulevard, Briarwood, New York 11435. The Sponsor s sole member is Defendant, Yaron Hershco. 6. Upon information and belief, Yaron Hershco is an individual that resides in the State of New York. Mr. Hershco is the principal and sole member of the Sponsor. 2
FACTS I. Background on The One Three Three Condominium 7. The One Three Three Condominium is a luxury 52-residential unit condominium building located at 133 Water Street, Brooklyn, New York. 8. In order to promote and sell the Units, Defendants created, authored, certified, promoted and distributed to potential buyers and/or filed with governmental authorities, certain Offering Plans, Amendments to Offering Plans, Purchase Agreements, Declarations and By-Laws (collectively, the Offering Documents ). Pursuant to the Offering Documents, the Defendants stated that they would develop the Building into new-construction, residential units. Through the Offering Documents, the Defendants made a series of representations of material fact concerning the Building in an effort to induce potential purchasers to buy Units in the Building. Since the Building was not yet constructed at the time the Offering Documents were circulated, purchasers relied on the representations made by Defendants in the Offering Documents in deciding whether to purchase Units. 9. Moreover, Defendants obligated themselves to various representations and promises made in a Ninth Amendment to the Offering Plan and thereafter. The Ninth Amendment annexed an engineer report from Riverso Associates, Inc. ( RAI ), which outlined the known defects in the Building and to which the Defendants obligated themselves to remediate. 10. Upon information and belief, each of the Defendants caused various marketing materials to be made available to the public, including potential and actual purchasers of Units in order to attract potential purchasers and induce them to purchase Units, including through printed materials, media and the Internet. 3
11. Through the Offering Documents, marketing materials, and other communications, the Defendants represented the Building would be designed, built, installed and/or remediated according to the drawings and specifications, in a workmanlike manner, free from defects and in compliance with applicable law, codes and regulations. 12. Upon information and belief, these representations were false insofar as Defendants knew at the time these statements were made that Defendants did not intend to build, install, or remediate the Building in a workmanlike manner, free from defects and in compliance with applicable law, codes and regulations. 13. Defendants failed to disclose and, upon information and belief, purposely obscured the known defects, and successfully induced Unit Owners to enter into Purchase Agreements to purchase Units in justifiable reliance on Defendants false representations. Indeed, Unit purchasers were required to expressly acknowledge in the Purchase Agreement for their respective Units that they received and reviewed each of the Offering Documents and relied upon the same in making their respective purchases. 14. The Sponsor is the direct party to the Purchase Agreements and Offering Plans, including all of its Amendments, and defendant Hershco certified to and expressly adopted the representations in those documents upon executing the Certification by Sponsor annexed to the Offering Plan at Page 401. 15. After a successful sales campaign, the Sponsor sold its first Unit on June 18, 2012. 16. Upon information and belief, the Sponsor controlled the Board until September 2014, at which point control of the Board was transferred to the Unit Owners. 4
II. The Unit Owners Discover Defects and the Sponsor and Board Investigate. 17. Almost immediately after taking residence in the Units, the Unit Owners began experiencing conditions indicating that the design and construction of their individual Units and the Building were defective and not constructed in a skillful manner, in that the workmanship and materials used in the construction did not conform with the (i) the Offering Plan; (ii) applicable codes and laws; (iii) the plans and specifications filed with the New York City Department of Buildings; and (iv) industry standards. 18. Unit Owners complained to the Sponsor about the construction defects immediately upon moving into the Units. The Unit Owners complained by phone, email, and letter to the Sponsor and Mr. Hershco. 19. Unit Owners complained to the Sponsor-controlled Board about the construction defects immediately upon moving into the Units. 20. Upon information and belief, Water Street Realty Group, LLC retained RAI to prepare an existing conditions report for the Building. These findings were included in a report dated March 28, 2012 (the RAI Report ) pertaining to an inspection which occurred on March 6, 2012. 21. RAI engineers inspected the Building and found that metal panels on the wall façade were misaligned and that caulking work was performed in a sloppy and unsightly manner. RAI noted that improperly set and caulked wall panels can allow water infiltration. 5
22. RAI engineers inspected the roof of the Building and found that portions of the roof were not in compliance with the Offering Plan, which indicated that brick, concrete or composite pavers on sleepers be provided on the roof. RAI engineers noted that none were provided. 23. RAI engineers inspected the roof drains and found that coping joints at the parapet interior were partially open and should be sealed to prevent any water infiltration. RAI engineers also noted that there was no roof drain on the upper roof, which was necessary to prevent water infiltration to the apartments below. 24. RAI engineers also noted the lower roof of the Building was subject to pooling due to limited drainage and that standing water in the area could easily infiltrate the pitch pockets and allow a leak to cause damage below. 25. RAI engineers inspected the high parapet wall above the cooling towers and found a Grace Vycor Plus membrane to cover the inside wall of the parapet and the metal cap flashing. RAI noted that the joint between the Grace membrane and the parapet rolled roofing has gaps and is extremely sloppy and unprofessional. RAI further notes that the manufacturers of Vycor Plus specifics that it is not to be permanently exposed to sunlight and maximum recommended exposure time is 30 days. The material is inappropriate for the application used. 26. RAI engineers inspected the west side of the 12 th floor roof of the Building, which would need to be regulated by the New York City Department of Buildings and would have necessitated a building department permit. RAI noted that the wood material used is not fire resistant as required and segments of the rails could pose a potential hazard. 6
27. RAI engineers inspected the Boiler Room of the Building and noted there was staining at the ceiling east side, indicating there was a substantial leak. The finishes has not been fully restored and there were areas that needed to be patched and repaired. 28. RAI engineers inspected the interior of the Building and observed staining at the ceiling inside Apartment 12C, which correlated to the exterior wall panels that were offset. RAI engineers also inspected the Lobby and adjacent corridors and noted that cracks were visible in various location. The Offering Plan stated the floor of the building lobby will have texture ceramic tile with granite or slate. RAI noted that the finish was not in accordance with the Offering Plan. 29. Despite the RAI Report dated March 28, 2012, annexed to the Ninth Amendment, none of the deficiencies noted by RAI have been addressed by Sponsor. Instead, Defendants continued to market the Units and closed on the first ten Units on June 18 and 19, 2012 just a few short months after becoming aware of the defects as set forth in the RAI Report without disclosing that information. 30. Sponsor, through its principal, received copies of the RAI Report as demonstrated by its incorporation into and annexation to the Ninth Amendment. 31. More egregiously, the Ninth Amendment was filed with the OAG on June 20, 2012 the day after the first wave of closings. Thus, Sponsor in possession of the defects set forth in the RAI Report closed on ten Units without disclosing these defects and then filed documentation demonstrating its knowledge of these defects. 7
32. The Unit Owners and the Board continuously and regularly complained to the Sponsor about the construction defects as they experienced same. 33. In light of the scope of what the Unit Owners and the Board perceived to be substantial and serious construction defects affecting the Building, the Board commissioned Howard L. Zimmerman Architects PC ( HLZA ) to inspect and survey the Building and Units and draft a report identifying defects. 34. HLZA produced such report on or about May 15, 2015 (the HLZA Report ). Among other things, the HLZA Report revealed defects with respect to: roofing; steel frame; exterior walls; trash chute; firestopping; garage; boiler room; electrical; heating and air conditioning; ventilation; plumbing; fire protection; system balancing; toilet exhaust; the Units; and the Common Elements 35. Of these defects, the HLZA Report determined several to be conditions necessary to be remedied immediately. Many defects were also deemed to be code violations. HLZA also determined that many of the defects identified in the RAI Report and the 9 th Amendment had not been remediated. 8
36. Moreover, HLZA probed and discovered that the panels that were installed to the exterior of the Building punctured through the waterproofing membrane, thereby allowing leaks throughout the Building. 37. Thereafter, the Board attempted to meet and settle the claims with the Sponsor, but each attempt failed. 38. Defendants failure to construct and remediate the Building per their representations continues to cause Plaintiff damages. 39. The complained of leaks began immediately and continue to this day. 40. The damage to the Units and Building resulting from Defendants wrongful conduct will be determined at trial, but is in excess of $2 million. DEFENDANTS CONTRACTUAL OBLIGATIONS AND REPRESENTATIONS 41. At pages 64-66 of the Offering Plan, Sponsor listed 17 obligations it represented it would perform, including: Sponsor shall build and complete the Building in accordance with the building plans and specifications identified in the Plan. 42. Page 66 of the Offering Plan states as follows: The representations contained in paragraphs 1 through 17 of this Section shall survive delivery of the deed, as stated. All representations under the Plan, all obligations pursuant to the GBL, and such additional obligations under the Plan which are to be performed subsequent to the closing of each Unit, will survive delivery of the deed. 43. Page 67 of the Offering Plan sets forth a Warranty by Sponsor: 9
The Sponsor will promptly correct any material patent defects in the construction and/or renovation of the Building and the Units therein, or in the installation or operation of any mechanical equipment therein, due to substantially improper workmanship or material substantially at variance with the architectural plans and specifications. 44. Pursuant to the Warranty, Sponsor also obligated itself to correct any latent defects in the construction of the Building and the Units therein due to substantially improper workmanship or material substantially at variance with the architectural plans and specifications. 45. As noted in the Warranty, [t]he quality of construction shall be comparable to local standards customary in the particular trade and in accordance with the plans and specifications. 46. The Warranty continues, Regardless of limitations in the Warranty, Sponsor is obligated to construct the premises in accordance with all applicable codes, filed plans and specifications, and locally accepted building practices for items not covered by the codes." 47. The Purchase Agreement, which the Sponsor induced each and every Unit owner to enter into, and which is binding upon Sponsor, incorporates the Offering Documents by reference. See Purchase Agreement, p. 2. 48. Finally, Defendant Hershco signed the Certification by Sponsor and its principals, an executed copy of which is annexed to the Offering Plan at page 401. Specifically, Defendant Hershco certified under penalty of perjury and for the benefit of all persons to whom this offer is made that We are the sponsor and the principals of sponsor of the condominium offering plan for the captioned property. We understand that we have primary responsibility for compliance with the provisions of Article 23-A of the General Business Law, the regulations promulgated by the Department of Law in Part 20 and Part 22 and such other laws and regulations as may be applicable. 10
We have read the entire offering plan. We have investigated the facts set forth in the offering plan and the underlying facts. We have exercised due diligence to form a basis for this certification. We jointly and severally certify that the offering plan does, and that documents submitted hereafter by us which amend or supplement the offering plan will: (i) set forth the detailed terms of the transaction and be complete, current and accurate; (ii) afford potential investors, purchasers and participants an adequate basis upon which to found their judgment; (iii) not omit any material fact; (iv) not contain any untrue statement of a material fact; (v) not contain any fraud, deception, concealment, suppression, false pretense or fictitious or pretended purchase or sale; (vi) not contain any promise or representation as to the future which is beyond reasonable expectation or unwarranted by existing circumstances; (vii) not contain any representation or statement which is false, where I/we: (a) knew the truth; (b) with reasonable effort could have known the truth; (c) made no reasonable effort to ascertain the truth; or (d) did not have knowledge concerning the representation or statement made. This certification is made under penalty of perjury for the benefit of all persons to whom this offer is made. We understand that violations are subject to the civil and criminal penalties of the General Business Law and Penal Law. 49. Defendant Hershco executed this Certification in April 2006, and made these statements to each of the Unit Owners insofar as each Unit Owner expressly agreed that it had received the Offering Documents in advance of entering into the Purchase Agreements and relied on them in making their respective Unit purchases. 50. Upon information and belief, at the time each of the above-referenced statements were made, they were either known by the speaker to be false or the speaker lacked any present intention to actually perform the promise made in the statement. 11
51. The Ninth Amendment, signed by defendant Hershco on behalf of the Sponsor, specifically obligates the Defendants to perform the remediation work for the defects outlined in the RAI Report annexed to the Ninth Amendment. Specifically, Paragraph 4 of the Ninth Amendment states: The Sponsor has agreed to perform most of the recommended repairs and has indicated so to the Purchasers in a written response annexed to the end of the Report. 52. The Ninth Amendment continues: Specifically, the following work has been completed or will be completed to correct the deficiencies: (emphasis added) 1. Roof repairs have been made to correct leaks, which work is guaranteed by the contractor (see letter) 2. The panels on the façade will be examined, repaired or re-hung as necessary and the duct tape removed. 3. The sprinkler system has been upgraded as recommended (see letter) 4. Garage leaking pipes, exit sign and emergency lights have been done. 5. Sealing of openings in electrical conduits will be done. 6. Hot water piping has been insulated. 7. Pitched flues in garage will be done. 8. Fire dampers in boiler room and first floor, done, as well as balancing of air flow and installation of vibration isolators at domestic water booster pump. And installation of 4 masonry pad under the pump. 9. Additional duct work in garage will be done. 10. Sump pumps in gas room will be enclosed. 11. All existing violations have or will be cured and appropriate indemnifications issued at closing. The violations are expected to be cured by the end of June and any penalties paid at closing of the first eight units. 12
53. Paragraph 4 of the Ninth Amendment stated that [a]ll work to be done will be done within 120 days. (emphasis added) DEFENDANTS BREACHES OF OBLIGATIONS AND MATERIAL MISREPRESENTATIONS 54. Defendants failed to construct and/or remediate the Building and the Units therein in conformance with the (i) the Offering Plan and Purchase Agreement; (ii) applicable codes and laws; (iii) the plans and specifications filed with the New York City Department of Buildings; and (iv) industry standards. 55. Sponsor was aware of the construction defects before the first closing upon a Unit, but nevertheless continued to market and close Units. 56. Sponsor continued to market and sell Units in the Building after having received multitudinous complaints regarding serious construction deficiencies. Owners. 57. Sponsor omitted the known deficiencies to prospective purchasers and Unit of the Units. 58. The Sponsor marketed the building and the Units and induced the purchase of each 59. The Sponsor omitted material information regarding the ongoing construction issues from the purchasers. 60. The Sponsor failed to respond to demands from the Unit Owners and the Board to remediate the complained of defects, despite expressly obligating itself to do so in the Ninth Amendment. 13
THE SPONSOR IS THE ALTER EGO OF DEFENDANT HERSHCO 61. As set forth above, individual Defendant Yaron Hershco is the sole principal behind the Sponsor which has obligated itself to perform work it has failed to perform. 62. Defendant Hershco has been integral to the actions complained of herein in his capacity as principal of Sponsor and has enabled and will continue to enable Sponsor to evade liability for its actions. 63. Upon information and belief, the sole purpose of the entity structure and status of Water Street Realty Group, LLC is to shield Defendant Hershco from liability for actions like those complained of herein. 64. The Sponsor entity is a mere instrumentality and alter ego for Defendant Hershco and exists merely to advance his pecuniary interests while defrauding innocent purchasers. 65. Accordingly, Defendant Hershco is liable to Plaintiff jointly and severally, for the matters complained of herein against the Sponsor. 66. Additionally, Defendant Hershco executed the Sponsor s Certification annexed to the Offering Plan as well as the Ninth Amendment and the Amendment Filing Form. FIRST CAUSE OF ACTION BREACH OF CONTRACT CONSTRUCTION DEFECTS (against all Defendants) 67. Plaintiff hereby repeats and realleges each and every allegation previously set forth with the same force and effect as if fully set forth herein. the Building. 68. The Sponsor entered into Purchase Agreements with each and every Unit Owner in 14
69. Those Purchase Agreements, which incorporate by reference the Offering Plan, are valid and binding contracts. 70. The Unit Owners have fully performed their respective obligations under those Purchase Agreements, including all conditions precedent set forth therein. 71. Plaintiff has also complied with any and all obligations, conditions precedent and/or notification requirements to which it is bound. 72. The Sponsor materially breached its obligations under the Purchase Agreements and the Offering Plan, including all of its amendments, by, among other things, failing to: (i) construct the Building or the Units, including the materials, equipment and fixtures installed or to be installed therein, substantially in accordance with the Offering Plan and the plans and specifications; (ii) correct any defects in the construction of the Building, including the Common Areas and Units, or in the installation or operation of any mechanical equipment, as required under the Offering Plan; (iii) construct the Building in accordance with the Building Plans filed with the City of New York, all applicable zoning and building laws, codes, ordinances and regulations, the requirements as to materials and workmanship of the Building Department of the City of New York and the requirements of various lending institutions that made mortgage loans to facilitate the purchase of the Units; or (iv) perform adequately to deliver a quality of construction comparable to local standards customary in the particular trade as set forth in the Offering Plan and Purchase Agreements and in accordance with the plans and specifications. 73. For example, as the result of Defendants failure to perform, the Board was forced to undertake and pay for out of pocket emergency remediation of water leaks. The costs of this remediation as well are damages for which Defendants are liable. 15
74. The Sponsor s material breaches of the Purchase Agreement and Offering Plan, including all of its amendments, resulted in substantial damages to the Building and Units as set forth in more detail in the HLZA Report and, in turn, the Plaintiffs and the Unit Owners in an amount to be proven at trial, but in any event not less than $2 million. SECOND CAUSE OF ACTION BREACH OF EXPRESS WARRANTY (against all Defendants) 75. Plaintiff hereby repeats and realleges each and every allegation previously set forth with the same force and effect as if fully set forth herein. the Building. 76. The Sponsor entered into Purchase Agreements with each and every Unit Owner in 77. Those Purchase Agreements, which incorporate by reference the Offering Plan, are valid and binding contracts. 78. The Unit Owners have fully performed their respective obligations under those Purchase Agreements, including all conditions precedent set forth therein. 79. Plaintiff has also complied with any and all obligations, conditions precedent and/or notification requirements to which it is bound. 80. The Purchase Agreements and the Offering Plan set forth warranties owed by the Sponsor to the Unit Owners. 81. Sponsor materially breached its warranty obligations to the Unit Owners by failing to correct, repair, or replace any and all defects relating to the construction of the Building, 16
Common Elements, or the Units, that resulted from materials or improper workmanship substantially at variance with the plans and specifications. 82. The Sponsor s material breaches of the Purchase Agreement and Offering Plan resulted in substantial damages to the Building and Units as set forth in more detail in the HLZA Report and, in turn, the Plaintiff and the Unit Owners in an amount to be proven at trial, but in any event not less than $2 million. THIRD CAUSE OF ACTION NEGLIGENCE (against all Defendants) 83. Plaintiff hereby repeats and realleges each and every allegation previously set forth with the same force and effect as if fully set forth herein. 84. Defendants owed Plaintiff a duty to protect it and the Unit Owners from the damage incurred by reason of the property damage to the Building and the Units. 85. As set forth herein, Defendants breached this duty by failing to construct and remediate the Building per their representations and the applicable law. 86. Defendants breach was the proximate cause of Plaintiff s injury. 87. As a result of Defendants breach, Plaintiff has suffered injury in an amount not less than $2 million. WHEREFORE, it is respectfully requested that an order and judgment be made and entered, jointly and severally against all the Defendants, 17
A. with respect to the first cause of action, awarding Plaintiff damages in an amount to be proven at trial, but not less than $2 million; B. with respect to the second cause of action, awarding Plaintiff damages in an amount to be proven at trial, but not less than $2 million; C. with respect to the third cause of action, awarding Plaintiff damages in an amount to be proven at trial, but not less than $2 million; D. awarding Plaintiff its attorneys fees and costs of this action; E. awarding Plaintiff prejudgment interest at the maximum legal rate; and F. granting Plaintiff any other further relief as this Court may deem just and proper. Dated: New York, New York November 30, 2015 COZEN O CONNOR By: /s/ Tamar S. Wise Leni Morrison Cummins Tamar S. Wise Seth J. Zuckerman 277 Park Avenue New York, New York 10172 Tel: (212) 883-4900 Attorneys for Plaintiff 18