Vincenzo Cirillo et al., Plaintiffs, v. Slomin's Inc., Defendant

LEXSEE 768 N.Y.S.2D 759

 

 *Vincenzo Cirillo et al., Plaintiffs, v. Slomin's Inc., Defendant.*

 

 *INDEX NO.: 9516/02 *

 

 *SUPREME COURT OF NEW YORK, NASSAU COUNTY *

 

 *196 Misc. 2d 922; 768 N.Y.S.2d 759; 2003 N.Y. Misc. LEXIS 855*

 

 *June 15, 2003, Decided*

 

   *JUDGES: *PRESENT: HON. F. DANA WINSLOW, JUSTICE.

 

 *OPINIONBY: *F. Dana Winslow

 

 *OPINION: * [**761] [*924]

 

F. Dana Winslow, J.

 

Defendant's motion to dismiss the complaint pursuant to CPLR 3211 is

determined as follows.

 

This is an action for fraud, negligence and breach of warranty in connection

with the installation and operation of an alarm system by Slomin's Inc. in

the home of plaintiffs Vincenzo and Concetta Cirillo. The Slomin's system

purchased by plaintiffs provided for central station monitoring, which

contemplated the transmission of a signal from the alarm system via the

telephone lines in the event of a break-in. On or about June 27, 1998,

plaintiff [**762] Vincenzo Cirillo entered into four written contracts with

Slomin's: the retail installment agreement, central station five-year

monitoring agreement, security system service plan, and addendum for

Slomin's [***2] wireless key FOB system (collectively, the contracts).

Plaintiffs

allege that, in purchasing the alarm system and entering into the contracts,

they relied on the following representations made by Slomin's sales agent

Howard S. Goldberg and/or contained in the written promotional materials

provided to plaintiffs prior to the execution of the contracts:

 

That plaintiffs were purchasing a "top of the line" alarm system, guaranteed

to keep their home safe from intruders.

 

That the said alarm system was "hooked" into a central monitoring station

operated and maintained by defendant and that, in the event of intrusion,

the alarm system would "go off" automatically.

 

That response time, in the event of an emergency, would be less than five

minutes.

 

That the system was fail-safe in that, if the phone wires in the junction

box were cut, the alarm would automatically "trip," alerting the central

monitoring station and the police would respond within minutes.

 

That, to Goldberg's "knowledge," in the three years immediately preceding

the installation of the said alarm system at plaintiffs' home, there had not

been any successful burglaries of homes that [***3] had a similar system

installed by defendant.

 

[*925] That the defendant, its employees, agents and servants, were experts

in the installation, maintenance and operation of central station alarm

systems, and that they were the "best" on Long Island, if not in the State

of New York, in the installation, maintenance and operation of such

stations.

 

On January 6, 2002, the plaintiffs' home was burglarized, at which time the

home telephone lines were cut. Plaintiffs maintain that either the alarm

system failed to transmit a signal or defendant's central monitoring agents

failed to appreciate it. In either event, plaintiffs assert, the police were

not notified until plaintiffs returned home and called them from a

neighbor's telephone. Plaintiffs allege that they sustained substantial loss

as a result of the burglary and the failure of Slomin's to timely notify the

police.

 

Plaintiffs commenced this action in April 2002, asserting claims of fraud,

negligence and breach of warranty. Defendant now moves to dismiss pursuant

to CPLR 3211 (a) (1) and (7) on the ground that all causes of action are

barred by the express terms of the contracts. In particular, defendant

refers to the merger clauses, [***4] disclaimers of representations and

warranties, exculpatory clauses and limitation of liability or liquidated

damages clauses contained in the contracts.

 

[HN1] In ruling upon a motion to dismiss, the court must accept the facts

alleged as true and accord plaintiffs the benefit of every possible

favorable inference. (*Leon v. Martinez,* 84 N.Y.2d 83, 614 N.Y.S.2d 972,

638 N.E.2d 511 [1994].) The complaint is to be construed liberally. The

court may not address the merits of the complaint or any of its factual

allegations, but must determine only whether the alleged facts fit within

any cognizable legal theory. (*Id.*; *P.T. Bank Cent. Asia v. ABN Amro Bank

N.V.*, 301 A.D.2d 373, 754 N.Y.S.2d 245 [2003].) "[D]ismissal is warranted

only if the documentary evidence conclusively establishes a defense to the

asserted [**763] claims as a matter of law * * * [T]he criterion is whether

the proponent of the pleading has a cause of action, not whether he has

stated one." (*Leon v. Martinez, supra* at 88 [internal quotation marks

omitted]; *see also* *Steiner v. Lazzaro & Gregory,* 271 A.D.2d 596, 706

N.Y.S.2d 157 [2000].)

 

Courts generally refrain from disturbing arm's length transactions, and

[***5] where the language of a contract is unambiguous, it is generally

enforced according to its terms. (*Symbol Tech. v. Datamax Corp.,* 274

A.D.2d 386, 710 N.Y.S.2d 613 [2000].) The contracts at issue here articulate

an unambiguous intent to negate or limit [*926] Slomin's liability in almost

every circumstance, and, on their face, present a defense to plaintiffs'

claims. However, New York courts have long recognized certain circumstances,

including but not limited to fraud, in which even the most flawlessly

drafted contract provisions may be subject to judicial scrutiny, and even

avoided, in the interest of justice or sound public policy. The question is

whether such circumstances exist here.

 

I. Fraud/Misrepresentation

 

The court shall first consider whether plaintiffs have a claim for fraud,

and the legal effect upon such claim of the contractual provisions

purporting to bar liability. [HN2] To establish a prima facie case of fraud,

the plaintiff must show that (1) the defendant made a material

representation of fact that was false; (2) the defendant knew that the

representation was false and made it with intent to deceive (scienter); (3)

the plaintiff justifiably [***6] relied upon defendant's misrepresentation;

and (4) the plaintiff suffered some loss or harm as a result of such

reliance. (*P.T. Bank Cent. Asia v. ABN Amro Bank N.V., supra* at 250;* Roth

& Co. v. Gourmet Pasta*, 277 A.D.2d 293, 715 N.Y.S.2d 78 [2000]; *Giurdanella

v. Giurdanella,* 226 A.D.2d 342, 640 N.Y.S.2d 211 [1996].)

 

Defendant asserts that plaintiffs' fraud claim is insufficiently pleaded.

Specifically, defendant argues that plaintiffs have failed to allege

scienter, i.e., that Goldberg, Slomin's sales agent, knew that his

statements were false and that he made them with intent to deceive. [HN3] A

fraud claim must be stated with sufficient particularity; that is, "the

circumstances constituting the wrong shall be stated in detail." (CPLR 3016

[b].) However, "neither CPLR 3016 (b) nor any other rule of law requires a

plaintiff to allege details of the asserted fraud that it may not know or

that may be peculiarly within the defendant's knowledge at the pleading

stage." (*P.T. Bank Cent. Asia v. ABN Amro Bank N.V., supra* at 377.) "CPLR

3016 (b) 'requires only [***7] that the misconduct complained of be set

forth in sufficient detail to clearly inform a defendant with respect to the

incidents complained of and is not to be interpreted so strictly as to

prevent an otherwise valid cause of action in situations where it may be

"impossible to state in detail the circumstances constituting a fraud."'" (*

Id.,* quoting *Lanzi v. Brooks,* 43 N.Y.2d 778, 780, 402 N.Y.S.2d 384, 373

N.E.2d 278 [1977].)

 

Here, plaintiffs' fraud claim is based upon the alleged representation by

Goldberg that the system would transmit an alarm signal to the central

monitoring station even if the telephone lines were cut. For purposes of

this motion to dismiss, the court must assume that Goldberg did, in fact,

[*927] make such representation. Given that Slomin's moving papers concede

that the system was *not* designed to work in such circumstances, Goldberg's

alleged representation must have been false at the time it was made. Although

plaintiffs do not claim that Goldberg knew it was false, plaintiffs need not

speculate as to the extent of Goldberg's knowledge, as such facts are

[**764] peculiarly within defendant's knowledge at this stage of the

proceedings. Further, knowledge [***8] of falsity is not indispensable, if

fraud also includes reckless misstatement and "the pretense of knowledge

when knowledge there is none." (*Ultramares Corp. v. Touche,* 255 N.Y. 170,

179, 174 N.E. 441 [1931] [Cardozo, Ch. J.].) As plaintiffs are entitled to

the benefit of every favorable inference for purposes of this motion, it can

be inferred from the context of the alleged statement that Goldberg intended

to induce plaintiffs to purchase the Slomin's alarm system and monitoring

service, and that Goldberg, at minimum, assumed a pretense of knowledge in

trying to conclude the sale. The court concludes that the facts alleged in

the complaint are sufficient to put defendant on notice of the misconduct

complained of, and thus are sufficient to withstand dismissal on the basis

of CPLR 3016 (b).

 

Defendant also argues that plaintiffs are barred from asserting a fraud

claim because the only fraud alleged relates to a breach of contract. (*See*

*Page v. Muze, Inc.*, 270 A.D.2d 401, 705 N.Y.S.2d 383 [2000].) The Court of

Appeals has held that

 

[HN4] "[A] simple breach of contract is not to be considered a tort unless a

legal duty independent of the [***9] contract itself has been violated. This

legal duty must spring from circumstances extraneous to, and not

constituting elements of, the contract, although it may be connected with

and dependent upon the contract." (*Clark-Fitzpatrick, Inc. v. Long Island

R.R. Co.,* 70 N.Y.2d 382, 389, 521 N.Y.S.2d 653, 516 N.E.2d 190 [1987]

[citations omitted].)

 

[HN5] To maintain a fraud action in a contractual setting, the plaintiff

must allege "(1) a legal duty separate and apart from the contractual duty

to perform; (2) a fraudulent representation collateral or extraneous to the

contract; or (3) special damages proximately caused by the fraudulent

representation that are not recoverable under the contract measure of

damages." (*Bell Sports v. System Software Assoc.*, 45 F. Supp. 2d 220, 227

[1999] [internal quotation marks omitted].) *

 

 * In its memorandum of law, Slomin's incorrectly cites *Bell Sports,

supra*as holding that all three criteria must be satisfied in order to

maintain a

fraud action. The court has reviewed the case and notes that the

requirements are stated in the disjunctive, meaning that satisfaction of any

one of them is sufficient to sustain the action.

 

 [***10] [*928] The court determines that the alleged representations by

Goldberg are neither collateral nor extraneous to the contract, insofar as

they relate to and elaborate upon the nature of the system and service to be

provided. However, it is the very essential nature of these representations,

particularly the representation that the system would operate even if the

telephone lines were cut, that persuades the court that Slomin's had a legal

duty to plaintiffs, separate and apart from the contractual duty to provide

the system and service it promised. The court finds that Slomin's had a

legal duty to speak truthfully and accurately about the system it offered,

and to disclose any material limitations in the system that would not be

apparent to the purchaser. That is, Slomin's had an affirmative duty to tell

plaintiffs that the system would *not* operate if the telephone lines were

cut.

 

[HN6] In the context of fraudulent concealment case law, New York courts

have acknowledged that a duty to disclose material information may arise

absent a fiduciary relationship. "Under the 'special facts' doctrine, a duty

to disclose arises 'where one party's superior knowledge of essential facts

renders [***11] a transaction without disclosure inherently unfair.'" (*Swersky

v. Dreyer & Traub*, 219 A.D.2d 321, 327, 643 N.Y.S.2d 33 [1996] [citations

omitted]; *see also* [**765] *Cohen Agency v. Perlman Agency, *114

A.D.2d930, 495

N.Y.S.2d 408 [1985]; *Young v. Keith,* 112 A.D.2d 625, 492 N.Y.S.2d 489

[1985].) A seller with superior knowledge has a duty to disclose facts, not

available to the purchaser, that would affect the purchaser's conduct in the

transaction. (*Striker v. Graham Pest Control Co., *179 A.D.2d 984, 578

N.Y.S.2d 719 [1992]; *Young v. Keith, supra*.) The duty to disclose arises

where nondisclosure would "le[a]d the person to whom it was or should have

been made to forego action that might otherwise have been taken for the

protection of that person." (*Strasser v. Prudential Sec.*, 218 A.D.2d 526,

527, 630 N.Y.S.2d 80 [1995], quoting *Caracci v. State of New York,* 203

A.D.2d 842, 844, 611 N.Y.S.2d 344 [1994].)

 

Upon the facts alleged in this case, the court can infer that Slomin's had

superior knowledge regarding the capabilities of its own alarm system, which

[***12] knowledge was unavailable to plaintiffs through ordinary inspection,

and which was material to the plaintiffs' decision to enter into the

contracts with Slomin's or to forego alternatives that might have provided

more effective or complete protection. This superior knowledge gives rise to

a duty to disclose which, in turn, supports a cause of action [*929] for

fraud in the event of its breach, either by nondisclosure or by

misrepresentation. It remains incumbent upon plaintiffs to prove that this

duty was breached. As shall be discussed hereafter, defendant maintains that

the contracts adequately disclose the system's limitations and negate any

reliance upon Goldberg's representations. However, for purposes of the

instant discussion, the court determines that a fraud action is not

precluded by virtue of its being interposed in a contractual setting, given

that a distinct legal duty exists, apart from performance under the

contract. (*Cf.* *Sommer v. Federal Signal Corp.*, 79 N.Y.2d 540, 583

N.Y.S.2d 957, 593 N.E.2d 1365 [1992] [fire alarm company had duty of

reasonable care independent of contractual obligations, arising from the

nature of its services and its relationship with [***13] its customer,

insofar as it performed a service "affected with significant public

interest"].)

 

Defendant next argues that plaintiffs have effectively extinguished their

fraud claim by continuing to subscribe to Slomin's alarm plan as well as its

heating and air-conditioning plans. However, [HN7] ratification of a

transaction after discovery of a fraud may extinguish a right to rescission,

but it does not extinguish a claim for monetary compensation for injuries

resulting from the fraud. (*Clearview Concrete Prods. Corp. v. S. Charles

Gherardi, Inc.*, 88 A.D.2d 461, 453 N.Y.S.2d 750 [1982].) Although in some

circumstances ratification will undercut a plaintiff's claim of reliance (*see

id.*; *Champion Titanium Horseshoe, Inc. v. Wyman-Gordon Inv. Castings,

Inc., *925 F. Supp. 188 [1996], in this case, the fact that plaintiffs

continue to do business with Slomin's does not necessarily negate the claim

that plaintiffs relied upon certain representations in choosing to do

business with them initially. Plaintiffs may show that upon learning the

true nature of the system, they chose to continue with Slomin's out of

economic or practical expedience, and/or they found [***14] other means to

supplement their protection. That is not to say that they would have chosen

Slomin's in the first instance, had they known that the system could be

easily deactivated. The court determines that, in this case, reliance is not

defeated by ratification, as a matter of law, but that plaintiffs have the

burden to prove reliance in the context of such ratification.

 

The court turns to the contract provisions that purport to bar liability.

Each contract contains a provision substantially as follows:

 

[**766] "FULL AGREEMENT; SEVERABILITY. This agreement constitutes the full

understanding of the parties and there are no oral Agreements,

understandings [*930] or representations between the parties. This Agreement

may not be amended or modified except in writing signed by both parties. Should

any provision of this Agreement be deemed void, the remaining parts shall

not be affected."

 

Defendant argues that this merger clause, together with the parol evidence

rule codified at General Obligations Law § 15-301, bar any claim based upon

alleged oral representations. However, [HN8] the parol evidence rule and

such general merger clauses exclude extrinsic evidence to contradict or vary

the terms of a written instrument [***15] in the context of a suit to *

enforce* an oral representation. Both are "ineffectual to exclude evidence

of fraudulent representations" in an action to rescind a contract or to

recover loss sustained as a result of fraudulent inducement. (*Sabo v.

Delman,* 3 N.Y.2d 155, 161, 164 N.Y.S.2d 714, 143 N.E.2d 906 [1957].)

 

Defendant further argues that the contracts contain specific disclaimers

that do not fall within the rule articulated in *Sabo v. Delman (supra)*,

and that, consequently, defeat plaintiffs' claim. [HN9] The *Sabo* rule,

that fraud in the inducement vitiates a contract, is subject to exception. If

a "plaintiff has, in the plainest language announced and stipulated that it

is not relying on any representations as to the very matter as to which it

now claims it was defrauded[, s]uch a specific disclaimer destroys the

allegations in plaintiff's complaint that the agreement was executed in

reliance upon these contrary * * * representations." (*Danann Realty Corp.

v. Harris,* 5 N.Y.2d 317, 320-321, 184 N.Y.S.2d 599, 157 N.E.2d 597 [1959];

*see also* *Citibank, N.A. v. Plapinger*, 66 N.Y.2d 90, 495 N.Y.S.2d 309,

485 N.E.2d 974 [1985] [where [***16] the agreement declared that defendants'

guarantee was "absolute and unconditional" and irrespective of the validity

of any other agreement, defendants could not rely on the defense that they

were fraudulently induced to sign the guarantee by the oral promise of an

additional line of credit].) The specific disclaimer clause will be given

effect particularly where it limits the authority of the agent to make

extrinsic representations, and thus puts the plaintiff on notice that the

agent's statements may not be relied upon. (*See* *Danann Realty Corp. v.

Harris, supra* at 321-322, citing *Ernst Iron Works v. Duralith Corp., *270

N.Y. 165, 171, 200 N.E. 683 [1936].)

 

In the case at bar, all of the contracts provide: "The salesman has no

authority to change any terms or make representations other than contained

in this Agreement, and the buyer represents that none have been made to or

relied upon by the Buyer." Section 8 of the service plan provides, in

relevant part: [*931] "Customer acknowledges that * * * Slomin's has made no

representations * * * and that customer has not relied upon any

representations * * *." Section 7 of the monitoring agreement states, in

relevant [***17] part: "Subscriber acknowledges that * * * Slomin's has made

no representations or warranties and that subscriber has not relied upon any

representations * * *."

 

However, these disclaimer clauses appear to be no more than a reiteration of

the general disclaimer contained in the merger clause, with the possible

exception of the denial of the salesman's authority. The clauses disclaim

reliance upon any oral representation, and do not identify any particular

subject matter, let alone the very matter as to which plaintiffs claim they

were defrauded. In *Danann,* the disclaimer clause enumerated specific

matters (e.g., the physical condition, rents, leases, expenses, operation or

any other matter related to the subject premises) as to [**767] which the

purchaser disclaimed reliance and certified that he had made independent

investigation. The alleged oral misrepresentations concerned one of these

very matters (the operating expenses and profits).

 

More troubling is the language contained in section 7 of the service plan

and substantially reiterated on the back of the installment agreement:

"Slomin's makes no representation or warranty that the alarm system or that

services supplied by Slomin's may [***18] not be circumvented, compromised

or defeated or that the alarm system or services will in all cases provide

the protection for which they were intended." This disclaimer is specific as

to its subject matter, and Goldberg's representation to the effect that the

system would not be compromised by cutting the telephone wires falls within

its scope.

 

Nonetheless, the rule in *Danann* should not be rigidly or automatically

applied with respect to any of the disclaimers cited above. Keeping in mind

that "opinions must be read in the setting of the particular cases and as

the product of preoccupation with their special facts" (*Danann Realty Corp.

v. Harris, supra* at 322, quoting *Freeman v. Hewit,* 329 U.S. 249, 252, 91

L. Ed. 265, 67 S. Ct. 274 [1946]), this court finds that the

*Danann*holding is not controlling in the instant circumstances. Both

*Danann Realty Corp. v Harris* and *Citibank, N.A. v Plapinger* addressed

transactions between sophisticated business people, negotiated at arm's

length. The Court in *Danann* emphasized that the facts allegedly

misrepresented were matters not peculiarly within the defendant's knowledge,

[***19] and that the other party had the means available to him of knowing,

"by the exercise of ordinary intelligence, the truth or the real quality of

the subject of the [*932] representation." (*Id.* at 322.) In such

circumstances, the asserted reliance upon such representations could not be

considered justifiable. The Court opined that the complaining party must be

held to his own representation, namely, that there were no oral

representations made to him about the particular subject matter. Underlying

this rule, and the parol evidence rule in general, is the rationale that

claims based upon oral representations are inherently unreliable.

 

The instant situation, however, contemplates a consumer sales transaction,

in which the merchant provides to the consumer a boiler plate contract form

on a nonnegotiable basis. In such context, the consumer must be afforded

more protection, and the reality of his contractual statements must be

examined more closely. (*Cf.* *Gentile v. Garden City Alarm Co.*, 147

A.D.2d124, 130, 541

N.Y.S.2d 505 [1989] [in a negligence action against a burglar alarm company,

wherein defendant allegedly misled plaintiffs as to the protection being

[***20] provided, the Second Department cited with approval the lower

court's strict scrutiny of the transaction on grounds that this was a

"consumer transaction in which the plaintiffs were presented with a

non-negotiable pre-printed form contract"].)

 

With respect to the issue of justifiable reliance, the *Danann* dissent

admonishes:

 

"In the realm of fact it is entirely possible for a party knowingly to agree

that no representations have been made to him, while at the same time

believing and relying upon representations which in fact have been made and

in fact are false but for which he would not have made the agreement. To

deny this possibility is to ignore the frequent instances in everyday

experience where parties accept * * * and act upon agreements containing * *

* exculpatory clauses in one form or another, but where they do so,

nevertheless, in reliance upon the honesty of supposed friends, the

plausible [**768] and disarming statements of salesmen, or the customary

course of business. To refuse relief would result in opening the door to a

multitude of frauds and in thwarting the general policy of the law." (*Danann

Realty Corp. v. Harris, supra* at 324 [Fuld, J., dissenting], [***21] quoting

*Bates v. Southgate*, 308 Mass. 170, 182, 31 N.E.2d 551, 558 [1941].)

 

This argument is more compelling here, in the context of a consumer sales

transaction, than in the context of the business [*933] transaction that

took place in *Danann.* A consumer's reliance upon the representations of

the seller's sales agent may be justifiable, especially with respect to

technical matters (such as the capabilities of an alarm system), presumably

within the agent's expertise, which are incapable of independent

verification by the consumer. This is true, even in the presence of a boiler

plate clause in the sales contract denying the agent's authority to speak. Upon

whom or what else is the consumer supposed to rely? The merchant presumably

trains and presents its salespersons to consumers for purposes of providing

them with information about the company's product or service. Such merchant

cannot be permitted to escape all responsibility for the information

provided simply by including a disclaimer of authority in a form contract. It

cannot cloak its agents with authority on the one hand, and then deny it on

the other.

 

This case provokes the following questions: Is the consumer's [***22] claim,

innately, any less reliable than the purported disclaimer of reliance? The

consumer must sign the contract if he wants to obtain the product or

service, and ordinarily must adopt it wholesale, without opportunity to

negotiate as to particular provisions. Can the consumer really be said to

"represent" a state of facts (i.e., that no oral representations were made

to him), by virtue of his acquiescent signature? What if such state of facts

is rendered untrue by the acts of the merchant's sales agent? In such

circumstances, the consumer's claim that he relied upon the sales agent's

oral representations is no more inherently unreliable than the compulsory

boiler plate disclaimer. To reflexively disallow parol evidence on the basis

of such disclaimer is to reward the ingenuity of draftsmen at the expense of

sound public policy, and to invite sales agents, armed with impenetrable

contracts, to lie to their customers. Here, the danger of fraudulent claims

is outweighed by the danger of unrestrained fraud against the consumer.

 

[HN10] In the limited context of such consumer sales transactions, a better

rule is to examine the plaintiff's claims on a case-by-case basis to

determine their reliability. [***23] If the allegations state with

particularity the oral representations relied upon, together with contextual

facts, in sufficient detail to permit the court to gauge their inherent

credibility, then the plaintiff should be permitted to go forward with his

proof, notwithstanding the existence of a specific disclaimer in the

contract form. The plaintiffs here have satisfied that test. Note that, in

its motion papers, Slomin's never denies that Goldberg actually made the

statements attributed to him. Thus, not only are plaintiffs' allegations

[*934] credible, but they are also unrefuted. In these circumstances, to

dismiss the action on the basis of the disclaimer clause would require the

court to ignore reality in favor of a contractual myth. The court finds that

the disclaimers of reliance contained in the contracts do not shield

Slomin's from liability and do not prevent plaintiff from proving fraud in

the inducement.

 

Defendant asserts that the element of reliance is defeated, nonetheless,

because the contracts adequately notify purchasers [**769] of the system's

limitations. As discussed above, the installment agreement and service plan

suggest that the system may be "compromised" or "circumvented. [***24] " The

monitoring agreement disclaims liability for losses arising from

"interruption of service due to * * * telephone line failure" or the failure

of any public or private carrier service which prevents the signals from

reaching the central monitoring center. Defendant maintains that these

provisions "clearly and unambiguously state that the alarm may be

circumvented by cutting the telephone lines and that Slomin's is not

responsible for any losses resulting from a burglary executed by cutting

telephone lines." (Reply mem of law at 7.)

 

The court disagrees. The installment agreement does not clarify *how* the

system may be compromised or circumvented. Certainly other means may be

contemplated, such as gaining access through an unprotected entryway. The

monitoring agreement's reference to interruption of telephone service brings

to mind a telephone wire felled by a storm, rather than cut by a burglar, or

widespread service outages. At best, the clauses, contained in separate

agreements, would have to be pieced together like a puzzle to reach the

conclusion asserted by defendant. Furthermore, the provisions cited by

defendant, even if clear in the abstract, are rendered ambiguous [***25] by

Goldberg's alleged explicit statement that the alarm signal would be

triggered even if the telephone lines were cut. The court finds that these

contractual provisions do not so clearly and sufficiently apprise plaintiffs

of the system's limitations that they negate plaintiffs' justifiable

reliance, as a matter of law, upon Goldberg's contrary representations.

 

Finally, defendant asserts that exculpatory clauses contained in the

contracts bar all of plaintiffs' claims, including the fraud claim.

According to defendant, the contracts expressly provide that Slomin's is not

liable for losses sustained in a burglary resulting from the cutting of

telephone lines. Defendant cites the disclaimer provisions quoted above and

several other [*935] clauses which, essentially, provide that Slomin's shall

not be responsible for damage or loss resulting from telephone line failure,

interruption of telephone service or causes beyond Slomin's control.

 

Assuming, without deciding, that these clauses cover the situation in which

the telephone line is cut by a burglar, they nonetheless do not exculpate

the defendant from its own fraud. [HN11] Whereas an exculpatory clause is

enforceable against claims of ordinary [***26] negligence, such clauses are

unenforceable with respect to claims of reckless or intentional conduct, as

a matter of public policy. (*Sommer v. Federal Signal Corp.*, 79 N.Y.2d 540,

554, 583 N.Y.S.2d 957, 593 N.E.2d 1365 [1992] [fire alarm company cannot

restrict liability for conduct "evincing a reckless disregard for its

customers' rights"].) If the alleged misrepresentations are first proven,

then ultimately shown to be merely negligent, as opposed to reckless or

intentional, then the exculpatory clauses will apply to defeat this claim.

 

In short, the court finds no basis, at this stage of the proceedings, to

dismiss the fraud cause of action. Plaintiffs are entitled to discovery and

to attempt to prove their claim.

 

II. Negligence

 

Plaintiffs' second cause of action asserts that Slomin's was negligent in

the manner in which it installed, operated, tested and maintained the alarm

system. Although, generally, there is no cause of action for negligent

performance of a contract (*see, e.g.*, *City of New York v. 611 W. 152nd

St.,* 273 A.D.2d 125, 710 N.Y.S.2d 36 [2000]; *Fluhr v. Goldscheider*, 264

A.D.2d 570, [**770] 695 N.Y.S.2d 30 [1999], New York courts have

[***27] recognized

that a distinct duty of care exists in connection with the provision and

monitoring of alarm systems. (*See, e.g.*, *Sommer v. Federal Signal Corp.,

supra*; *Gentile v. Garden City Alarm Co.*, 147 A.D.2d 124, 541 N.Y.S.2d 505

[1989].) Nonetheless, in addition to the exculpatory clauses discussed

above, the contracts contain provisions that expressly disclaim liability

resulting from Slomin's negligent performance or failure to perform under

the contracts. (*See* installment agreement § 8; monitoring agreement § 6

[D]; service plan § 7.) These exculpatory clauses are enforceable to the

extent that they preclude claims based upon ordinary negligence. (*Sommer v.

Federal Signal Corp., supra*.) For the negligence cause of action to

survive, plaintiffs would have to allege conduct that is grossly negligent

or "evinces a reckless indifference to the rights of others." (*Id.* at

554.)

 

Plaintiffs have failed to allege conduct which rises to the level of gross

negligence with respect to the installation, operation, [*936] testing and

maintenance of its alarm system. (*See* *Aphrodite Jewelry v. D&W Cent. Sta.

Alarm Co.*, 256 A.D.2d 288, 681 N.Y.S.2d 305 [1998]; [***28] *Feldman Furs

v. Jewelers Protection Servs.*, 134 A.D.2d 171, 520 N.Y.S.2d 760 [1987].)

Even if they had, such conduct could not be found to be the cause of

plaintiffs' loss. No matter how carefully the system was installed, operated

or maintained, it would have failed to transmit an alarm upon the severance

of the telephone wire.

 

In the same cause of action plaintiffs also allege a negligent failure to

inform plaintiffs that the system would not transmit an alarm signal if the

wires were cut, and a negligent failure to "take steps necessary" to cause

an alarm signal to be given even if the wires were cut. This sounds like a

defective products claim, as it alleges a breach of duty to cure or to

disclose what it presumes to be a dangerous design defect, i.e., that the

system could be rendered inoperative by a simple procedure.

 

Generally, there is no tort recovery for economic loss (i.e., other than

physical damage to persons or property) resulting from the failure of a

product to perform as intended. (*Schiavone Constr. Co. v. Mayo Corp.,* 56

N.Y.2d 667, 451 N.Y.S.2d 720, 436 N.E.2d 1322 [1982], *revg on dissenting *

[***29]* op below* 81 A.D.2d 221, 439 N.Y.S.2d 933 [1981].) In a case

arising out of the burglary of a jewelry store, the Fourth Department held

that the theft of inventory and damage to store fixtures, if attributable to

the failure of the burglary alarm system, were nonetheless purely economic

losses, not recoverable under a negligence or strict products liability

theory. (*See* *Arell's Fine Jewelers v. Honeywell, Inc.,* 170 A.D.2d 1013,

566 N.Y.S.2d 505 [1991].)

 

More recently, however, the Third Department upheld a tort claim based upon

a defective fire alarm. In *La Barre v. Mitchell *(256 A.D.2d 850, 852, 681

N.Y.S.2d 653 [1998]), the Court considered factors including the nature of

the defect, the manner in which the damages arose and the resulting harm to

determine whether the "safety-insurance policy of tort law or the

expectation-bargain protection policy of warranty law" was applicable to the

particular claim. The Court determined that a defectively designed alarm may

be considered an inherently dangerous product. It reasoned that the failure

of a fire alarm system to perform its intended function could have

catastrophic consequences and that "a design creating an unreasonable risk

of failure [***30] in such a system would render it dangerous and

defective." (*Id.*, at 852.)

 

Although the *Arell's* claim arose out of a defective burglar alarm and the

*La Barre* [**771] case concerned a defective fire alarm, this court

nonetheless finds the holding and rationale in *La Barre* more closely

applicable to the facts alleged here. In [*937] *Arell's* the burglary

occurred in a place of business. The Court noted that the losses resulted

only from the failure of the burglary alarm to perform as intended and not

from any accidental occurrence. A loss of inventory and fixture damage may

be characterized as a business loss, not implicating any physical safety

concerns. However, a burglary in the home poses a risk to personal safety,

and the theft of personal property and/or damage to the home may constitute

more than purely economic loss. As in *La Barre,* the "safety-insurance"

policy of tort law is applicable. In such circumstances, the harm to the

homeowner is not just that the system fails to perform as intended, but that

the security of the home and the safety of its occupants are compromised.

 

Further, in *Arell's* the defendant was an alarm manufacturer with [***31] whom

the plaintiff had no relationship. In the instant case, defendant sold and

installed the alarm system, and provided ongoing monitoring and maintenance

services to plaintiffs. This court finds that a duty to warn the homeowner

of the vulnerability of the alarm system arises independently out of the

general duty of due care that accompanies the ongoing contractual

relationship between the homeowner and the alarm company. (*See* *Sommer v.

Federal Signal Corp., supra*; *see also* *DCR, Inc. v. Peak Alarm Co.*, 663

P.2d 433 [Utah 1983] [Utah court held that alarm company had duty, arising

out of general duty of due care, to warn store owner that the system could

be rendered inoperative by a simple deactivating technique well known to

criminals].)

 

This court finds that a burglar alarm system installed in a person's home,

which is easily deactivated by a simple, well-known technique, may be

considered an inherently dangerous product, requiring, at minimum, a full

and clear disclosure to the homeowner of the system's limitations. A

homeowner's resulting losses cannot be deemed purely economic as a matter of

law, although the nature and extent of such damages [***32] still must be

proven. This finding is limited to the instant circumstances, where the

defendant is the seller of such alarm system and maintains an ongoing

relationship with the homeowner. The court does not decide whether a

manufacturer owes a corresponding duty to the homeowner.

 

In addition to damages, plaintiffs also must prove that defendant breached

its duty to disclose. However, to the extent such breach, if proved,

constitutes ordinary negligence, such claim is barred by the exculpatory

clauses contained in the contracts. In addition to the provisions cited

above, the [*938] contracts specifically disclaim liability for losses due

to product failure or inadequacy, and for special or consequential damages

resulting from a burglary. For plaintiffs' claim to survive, defendant's

failure to disclose the alarm system's limitations must rise to the level of

gross negligence or intentional conduct. As discussed above, the allegations

in the complaint, if proved, could support a finding of gross negligence or

intentional misrepresentation in the context of a fraudulent inducement

claim. There is no reason why the alleged conduct could not also be found to

constitute gross negligence in the [***33] context of an alternate theory of

liability, namely, the breach of an ongoing duty of due care. Accordingly,

the negligence cause of action is sustained to the extent that it alleges a

grossly negligent failure to warn of or cure the alarm system's limitations.

 

III. Breach of Warranty

 

Plaintiffs' third, fourth and fifth causes of action are for breach of

warranty under [**772] article 2 of the Uniform Commercial Code. Specifically,

plaintiffs allege a breach of the implied warranty of merchantability (UCC

2-314), the implied warranty of fitness for a particular purpose (UCC 2-315)

and certain express warranties, allegedly contained in Goldberg's

representations and/or Slomin's promotional materials (UCC 2-313), as set

forth above. Defendants assert that (i) insofar as the contracts call for

Slomin's to provide services, the UCC does not apply because it only applies

to the sale of goods, and (ii) the contracts expressly exclude all such

warranties.

 

The court need not consider the extent to which article 2 applies in light

of its determination that the contracts [***34] effectively bar all claims

for breach of warranty. Each of the contracts contains a statement, in all

capitals, under a bold heading, to the effect that Slomin's makes no express

or implied warranties as to any matter whatsoever, including any warranty of

merchantability or fitness for a particular purpose. As these clauses

specifically mention "merchantability" and are sufficiently conspicuous as a

matter of law, the implied warranties of merchantability and fitness are

effectively excluded. (*See* UCC 2-316 [2]; *Sky Acres Aviation Servs., v.

Styles Aviation, *210 A.D.2d 393, 620 N.Y.S.2d 442 [1994]; *Carbo Indus. v.

Becker Chevrolet,* 112 A.D.2d 336, 491 N.Y.S.2d 786 [1985]; *Pennsylvania

Gas Co. v. Secord Bros.*, 73 Misc. 2d 1031, 343 N.Y.S.2d 256 [1973].)

 

With respect to the claim for breach of express warranty, plaintiffs have

failed to identify any written statement contained in the promotional

materials that can be said to constitute a warranty. Plaintiffs base their

fifth cause of action, [*939] essentially, upon Goldberg's alleged oral

representation that the system would transmit an alarm signal [***35] even

if the telephone wires were cut. This oral statement contradicts the merger

clause and the provisions of the contracts which specifically disclaim

express warranties. Accordingly, proof of this statement is barred by the

parol evidence rule codified at UCC 2-202. (*See* *Sky Acres Aviation Serv.

v. Styles Aviation, supra*;* Sunkyong Am. v. Beta Sound of Music Corp.,* 199

A.D.2d 100, 605 N.Y.S.2d 62 [1993].) The rule in *Sabo v. Delman (supra)*,

that allows introduction of parol evidence to prove fraud in the inducement,

does not apply in the context of a breach of warranty claim. The

*Sabo*court expressly acknowledged that use of parol evidence to

contradict a

writing is prohibited where a person seeks to *enforce* an oral

representation or promise relating to the subject matter of the contract. (*Cf.

Keene Corp. v. Bogan*, 1990 WL 1864, 1990 U.S. Dist. LEXIS 220 [SD NY, Jan.

11, 1990].)

 

IV. Monetary Damages

 

Finally, Slomin's argues that, even if Slomin's may be found liable on any

theory of liability set forth in the complaint, plaintiffs' claim for money

damages is barred by the contracts. The addendum [***36] limits Slomin's

obligations pertaining to the alarm equipment to the repair and replacement

of such equipment, and expressly disclaims liability for special and

consequential losses arising out of a burglary. Each of the other contracts

clearly and unambiguously limits Slomin's liability, providing that Slomin's

shall not, under any circumstances, be required to pay more than $250. However,

as a result of this order, the only surviving causes of action are for fraud

and gross negligence. The Court of Appeals has determined that [HN12]

clauses limiting the amount of damages are treated the same as exculpatory

clauses in general, that is, both are enforceable against ordinary

negligence claims, but are unenforceable against claims of gross negligence

or intentional misconduct. (*Sommer v. Federal *[**773]* Signal Corp, supra*.)

Thus, Slomin's liability for monetary damages is neither barred nor limited

by the clauses cited above.

 

In accordance with the foregoing discussion, it is ordered that defendant's

motion to dismiss pursuant to CPLR 3211 is granted in part to the extent

that plaintiffs' breach of warranty (third, fourth and fifth) [***37] causes

of action are dismissed. The motion is denied in part to the extent that

plaintiffs' fraud (first) cause of action and negligence (second) cause of

action are sustained, to the extent set forth above.