WEIDEN LAKE PROP. OWNERS ASSN., INC. v. KLANSKY3885/09.

2011 NY Slip Op 51581(U)

WEIDEN LAKE PROPERTY OWNERS ASSOCIATION, INC., Plaintiff,
v.
JEFF A. KLANSKY AND CABOT OIL & GAS CORPORATION, Defendants.

Supreme Court, Sullivan County.
Decided August 18, 2011.
John V. Janusas, Esq., Rourke Fine & Janusas, 3 Maple Street, Liberty, New York 12754, Attorneys for plaintiff.
Jeffrey Kaplan, Esq., Kalter, Kaplan, Zeiger & Forman, 47 North Main Street, PO Box 186, Ellenville, New York 12428, Attorneys for defendant Klansky.
Steven T. Halperin, Esq., Halperin & Halperin, P.C., 18 East 48th Street, New York, New York 10017, Attorneys for defendant Cabot Oil & Gas Corporation.

JAMES P. GILPATRIC, J.

In this action for a judgment declaring the rights and legal relations of the parties (CPLR 3001), plaintiff Weiden Lake Property Owners Association, Inc. (POA) seeks summary judgment enforcing the restrictive covenants contained in the deed of defendant Jeff A. Klansky, a homeowner in the Weiden Lake Community and member of the POA. Specifically, plaintiff seeks a declaration prohibiting the exploration and drilling for natural gas and other hydrocarbons on, in or under lands owned by Klansky within the Weiden Lake Community, pursuant to a lease between Klansky and defendant Cabot Oil and Gas Corporation. Klansky opposes the motion and cross-moves for summary judgment dismissing the complaint and dismissing the cross-claim of defendant Cabot. Defendant Cabot opposes the motion and Klansky's cross-motion. Cabot also cross-moves for summary judgment dismissing the complaint, or in the alternative rescinding the lease between Klansky and Cabot, or in the alternative permitting Cabot to amend its answer and cross-claims to add two additional cross-claims. Plaintiff opposes both cross-motions regarding dismissal of the complaint and takes no position on recision of the lease or any other alternative relief sought as between the defendants. Klansky opposes the cross-motion of Cabot regarding recision of the lease.

On a summary judgment motion, the movant must establish by sufficient evidence in admissible form that the opposing parties' position has no merit in order to warrant the court to direct judgment in his or her favor as a matter of law (see Bush v St. Claire's Hospital, 82 N.Y.2d 738, 739 [1993]; Winegrad v New York University Medical Center, 64 N.Y.2d 851, 853 [1985]). To defeat the motion the opponent must show the existence of triable issues of fact (see CPLR 3212[b]; Zuckerman v City of New York, 49 N.Y.2d 557, 562 [1980]). In making the determination the court must construe the facts in a light most favorable to the non-moving party, so as not to deprive that party of its day in court (see Martin v Briggs, 235 A.D.2d 192 [1st Dept 1997]).

The Weiden Lake Community is a residential subdivision located in the Town of Tusten, Sullivan County, New York. Each real estate parcel in the Community comprises between two acres and one hundred acres. The Community also contains an approximately 70 acre body of water known as Weiden Lake, which is for the exclusive benefit of the POA property owners and members. The POA was formed in 1999 for the purpose of overseeing and managing the Community and maintaining the Weiden Lake and dam. Defendant Klansky purchased a 66.17-acre parcel in the Community, designated as lot 25, by deed dated March 27, 2007.

Each parcel in the Community, including lot 25 owned by Klansky, is subject to the Protective Covenants as appear on the Weiden Lake Subdivision — Phase I, Final Plat, filed on November 9, 1999 in the Sullivan County Clerk's Office as Map 8-231; the Weiden Lake Subdivision — Phase II, Final Plat, filed on October 17, 2000 in the Sullivan County Clerk's Office as Map 8-368B; as well as on the deeds issued by the original developer, Sumner of New York, Inc. Protective Covenants, subdivision (t), directs that the covenants shall run with the land and shall be binding on Sumner of New York, Inc. and all persons claiming under it. The Klansky deed references "Lot 25 as shown on a certain map entitled, "Weiden Lake Subdivision, Phase I", dated October 13, 1999, last revised November 2, 1999 in Map Cabinet No.8 as Plats No. 230 through 238." Although the Klansky deed does not expressly contain the Protective Covenants, the prior deeds in the Klansky chain of title do. Klansky's chain of title includes a prior deed from Sumner of New York, Inc.

The restrictive covenants (as shown on the subdivision plat as subdivisions (b), (o) and (t); and also set forth as numbers 2, 15 and 20, respectively, on the prior deeds) at issue herein are:

b. The premises conveyed shall be used for single family homes, of not less than 1,000 square feet of living space; agricultural and/or recreational use only. One dwelling per parcel except for lot No.44 which has two existing dwellings. All uses to be in compliance with the Town of Tusten local laws in effect. o. No commercial fishing enterprise or fee based boat launching facilities or any other commercial uses will be allowed on the premises. t. The protective covenants are to run with the land and shall be binding on Sumner of New York, Inc. and all persons claiming under it....

The Protective Covenants may be enforced by Sumner of New York, Inc., Weiden Lake Property Owners Association, Inc., the Town of Tusten, or the owner of any parcel within the subdivision.

By lease dated July 3, 2008, between Klansky as lessor and defendant Cabot as lessee, Klansky granted Cabot the exclusive rights to "explore for, drill for, produce and market oil, gas and other hydrocarbons" from Klansky's lot 25 for a term of five years.

Plaintiff asserts that covenants b. and o. prohibit the use of Klansky's parcel for the commercial uses of exploration, drilling and production and marketing of oil, natural gas and other hydrocarbons.

Defendants argue that, as a matter of law, covenant (b) pertains solely to the requirement for one single family home per lot, and its size; and that covenant (o) is to be read strictly as prohibiting commercial fishing and boating uses.

The Court finds the language of covenant (b) to be clear and unambiguous in restricting the use of the parcels in the Community to single family residential, agricultural or recreational use only. Rather than diminishing the restricted usage language, as Cabot argues, the addition of the size of dwellings, prescribed to be at least 1,000 square feet (on a minimum 2-acre lot), bespeaks an intent of the original developer to maintain quality community standards conducive to residential/recreational uses.

Restrictive covenants must be construed most strictly against those seeking to enforce them (Buffalo Academy of Sacred Heart v Boehm Bros., 267 N.Y. 242). While it is a "canon of construction that the meaning of a word in a series of words is determined by the company it keeps' (242-44 E. 77th St., LLC v Greater NY Mut. Ins. Co., 31 A.D.3d 100, 103-104 [2006] [internal quotation marks and citation omitted])" (Fresh Del Monte Produce v Eastbrook Caribe A.V.V., 40 A.D.3d 415, 418 [1st Dept, 2007], the rule of ejusdem generis must yield to the original grantor's intent in establishing the restrictive covenant (see Matter of Lewis Family Farm, Inc. v New York State Adirondack Park Agency, 64 A.D.3d 1009, 1015 [2009]).

Here, the original grantor established two protective covenants addressed to the permitted uses of subdivision parcels. The first restricts the use of land to single family residences, agriculture and recreation. The second specifically prohibits the commercial uses associated with water activities related to recreational uses and generally prohibits "any other [emphasis supplied] commercial uses ... on the premises." When read in conjunction with the first restriction to single family residential, agricultural and recreational uses, the general ban of "any other commercial uses" must be construed to mean all other commercial uses. Additionally, the covenants do not restrict the prohibited uses to lots with lake frontage; rather, the words "on the premises" enlarges the prohibition to encompass more than the lake and lakefront areas commonly used in commercial fishing and boating operations and infers the ban on any commercial use of the entire premises.

Further, the Protective Covenants were filed in the Sullivan County Clerk's office at the time that the lease was entered into, as set forth in the subdivision plats and the prior deeds in the chain of title of the Klansky deed; and the Klansky deed referenced the subdivision plat. Both Klansky and Cabot were on record notice of the restrictive covenant against commercial uses on the property. In his deposition, Jeffrey Keim, regional land manager for Cabot responsible for approving leases, stated that Tom Calkins, Cabot's broker, called him prior to entering into the lease, told him of the restrictive covenants and asked permission to proceed with the lease; he also stated that he understood commercial use to mean generally any commercial venture for profit. Plaintiff provided the deposition and affidavit of its President stating that upon learning that oil and gas companies, and specifically Cabot, were soliciting oil and gas leases from homeowners in the Community, the POA Board passed a Resolution dated May 31, 2008 affirming that the Protective Covenants in the Weiden Lake subdivision prohibited commercial uses of the properties; and that the Resolution was sent to all property owners on or about June 2, 2008. Klansky also testified in his deposition that he was aware of the restrictive covenants and discussed them with Calkins prior to entering into the lease. The record discloses that both parties were represented by counsel when they negotiated and entered into the lease. Finally, paragraph 13 of the lease addendum expressly states that Klansky makes no representations as to the "permitted use(s) of the subject property and/or the legality of the use(s) contemplated in the annexed Oil and Gas Lease."

Accordingly, plaintiff has shown by the clear and convincing evidence, namely the clear and unambiguous language of the Protective Covenants, prohibiting the commercial use of Klansky's parcel, set forth in the filed and recorded subdivision plats, and the prior recorded deeds in Klansky's chain of title, as well as the reference to the subdivision plat in Klansky's deed, that it is entitled to summary judgment (see Cody v Anthony Fabiano and Sons, Inc., 246 A.D.2d 726 [1998]).

Defendants also argue that the action is premature because to date, Cabot has taken no action to exercise their rights under the five-year lease and the parties entered into a voluntary stipulation that Cabot would provide plaintiff with thirty days notice before taking any such action. However, judicial intervention is warranted where it is alleged that the acts of one party constitute a breach of duty or violation of law; in such an instance, the court may determine the rights and obligations of the parties (see New York Public Interest Research Group, Inc. v Carey, 42 N.Y.2d 527, 530-531 [1977]). Here, defendants have entered into a lease agreement which contemplates that Cabot may explore and drill for oil and natural gas (see Ibid.). Although Cabot maintains that it may not ever explore and drill, it is within Cabot's control to do so (see Id.). The Court's intervention in order to establish the legal rights of the parties will have the "immediate and practical effect of influencing their conduct" and promote conformance with the law (see Id.).

Klansky asserts that the purpose of the POA is to protect the assets of the corporation which are the lake and dam; and that, as his property is between 1 ½ to 2 miles from Weiden Lake, any activity by Cabot would have no impact on the lake or the dam. The record is devoid of expert evidence on the effect of exploration and/or drilling on the lake, dam or surrounding properties in the Community. Nevertheless, the Court need not reach this issue because the relevant Protective Covenants restrict all parcels in the subdivision, regardless of their proximity to the lake or the dam. Further, as stated in Protective Covenant (t), the POA has the authority to enforce the Protective Covenants, which benefit all property owners in the Community, not just the lake and dam.

Cabot also asserts that at the time of executing the lease, it was not aware of the May 31, 2008 Resolution; that Klansky alleges that he did not receive a copy of the Resolution; and that the Resolution was never made a public record. However, knowledge of the Resolution is immaterial to the issues herein. The Resolution merely reiterated the restriction on commercial use of the property as set forth in the relevant covenant. The Protective Covenants, as filed and recorded in the Sullivan County Clerk's office and as they are referenced in the Klansky deed and appear in the deeds, control in establishing the authorized uses and restrictions of use of the premises. Additionally, e-mails dated May 15 and 28, 2008 from Tom Rich to Tom Calkins, both agents of Cabot, disclose: 1) that Rich had read the restrictions; and 2) that Rich had spoken with the POA President, who advised him that it was the opinion of the POA's attorney that the protective covenants prohibited "drilling for gas." These e-mails demonstrate that prior to entering into the lease, Cabot was aware that the POA considered drilling for gas to be a violation of the protective covenants.

Neither defendant has raised an issue of fact requiring a trial (see Zuckerman v City of New York, supra). Accordingly, plaintiff is entitled to summary judgment declaring that the Protective Covenants prohibit the use of Klansky's premises for the uses set forth in the lease between Klansky and Cabot, including exploration, drilling, production and marketing of oil, natural gas and other hydrocarbons; and that defendants are permanently enjoined from exploring, drilling, producing and marketing oil, natural gas and other hydrocarbons from the Klansky premises.

The cross-motions of each defendant for summary judgment dismissing the complaint are rendered moot by this decision.

Klansky also seeks summary judgment dismissing the cross-claims of Cabot based on Cabot's allegations of unilateral and/or mutual mistake and on fraud in the inducement. Cabot seeks summary judgment on its first cross-claim based on lack of consideration.

Cabot has asserted two cross-claims against Klansky seeking rescission of the lease and return of the $99,255 signing bonus paid to Klansky. The first cross-claim alleges that if the Court declares that the Protective Covenants prohibit the leasing of the property for oil and gas exploration and drilling, then the lease was not supported by any consideration. On these motions, Cabot argues alternatively that it and Klansky entered into the lease under a mistake of law. Paragraph 13 of the lease addendum provides a disclaimer by Klansky as to the permitted uses of the property and states that the payments made to Klansly under the lease are non-refundable. The Consideration for Oil and Gas Lease, executed contemporaneously with the lease, states that "[s]ubject to Cabot Oil and Gas Corporation's approval of title," Cabot will pay Klansky the sum of $99,255 as consideration for entering into the lease. Cabot's representative, Jeffrey Keim, the Cabot representative responsible for approving leases, admits that he was aware of the Protective Covenants but interpreted them as meaning that only commercial fishing and boating uses were prohibited. The Rich/Calkins e-mails also demonstrate an awareness that the POA had consulted an attorney and read the restrictions as prohibiting the uses set forth in the lease.

The remedy of rescission lies in equity and is a matter of discretion (Symphony Space, Inc. v Pergola Properties, Inc., 88 N.Y.2d 466, 485 [1996]). CPLR 3005 provides that when relief against a mistake is sought, it shall not be denied merely because the mistake is one of law rather than fact. However, CPLR 3005 "does not permit a mere misreading of the law by any party to cancel an agreement" (Siegel/Conners, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3005, at 15, citing Symphony Space, Inc. v Pergola Properties, Inc., supra).

Here, the evidence clearly demonstrates that Cabot, a sophisticated business entity, made a calculated and knowing decision to enter into the lease, approve title and pay the signing bonus with full knowledge of the Protective Covenants and the POA's position. Therefore, it is not entitled to rescission of the lease under a mistake of law (cf Symphony Space, Inc. v Pergola Properties, Inc., supra [an option which violated the Rule against Perpetuities at the time the parties entered into the agreement did not entitle party to rescission on the ground that it acted under a mistake of law]).

Cabot's second cross-claim alleges fraud in the inducement in that Klansky allegedly failed to disclose the May 31, 2008 Resolution of the POA Board prior to entering into the lease with Cabot. The Court finds that Klansky has met his burden of establishing entitlement to summary judgment dismissing Cabot's second cross-claim by providing the Rich/Calkins e-mails evidencing Cabot's knowledge that the POA Board considered the Protective Covenants to prohibit the commercial uses of oil and gas exploration and production. Additionally, Klansky argues that paragraph 13 of the lease addendum, which states that Klansky makes no representations as to the "permitted use(s) of the subject property and/or the legality of the use(s) contemplated in the annexed Oil and Gas Lease," evidences the knowledge of each party to the lease that the Protective Covenants might be construed to prohibit oil and gas exploration and production. Cabot has not challenged the e-mails or offered any other evidence indicating fraud by Klansky which would raise an issue of fact (see Zuckerman v City of New York, supra).

Accordingly, Klansky's motion for summary judgment is granted to the extent that Cabot's first and second cross-claims are dismissed. Cabot's cross-motion for summary judgment on its first cross-claim is rendered moot.

Cabot's cross-motion for permission to file and serve a second amended answer with two additional cross-claims against Klansky for unjust enrichment and unilateral mistake and for mutual mistake is denied. It is well-established that leave to serve an amended pleading under CPLR 3025 (b) is left to the discretion of the court and is to be freely given provided there is no prejudice to the non-moving party and that there is merit to the proposed amendment (see Bombard v Central Hudson Gas and Electric Co., 205 A.D.2d 1018, 1019 [1994]). As fully set forth above, the record herein does not support the proposed amendment based on unjust enrichment and unilateral and mutual mistake of law (see Symphony Space, Inc. v Pergola Properties, Inc., supra).

The Court has considered all remaining arguments of defendants and finds them to be unsupported by fact and law.

Therefore, it is

ORDERED that plaintiff's motion is granted and plaintiff shall have judgment declaring that the Protective Covenants prohibit the use of Klansky's premises for the uses set forth in the lease between Klansky and Cabot, including exploration, drilling, production and marketing of oil, natural gas and other hydrocarbons; and it is further

ORDERED that defendants are permanently enjoined from exploring, drilling, producing and marketing oil, natural gas and other hydrocarbons from the Klansky premises; and it is further

ORDERED that defendant Klanksy's cross-motion is partly granted to the extent that the first and second cross-claims of defendant Cabot Oil & Gas Corporation are dismissed; and the cross-motion is otherwise denied. and it is further

ORDERED that defendant Cabot Oil and Gas Corporation's cross-motion is denied in all respects.

This shall constitute the decision and order of the Court. The original Decision & Order and all papers are being filed by this Court with the Supreme Court Clerk for transmission to the Ulster County Clerk's Office. The signing of this decision and order shall not constitute entry or filing under CPLR 2220. Counsel are not relieved from the provisions of that rule regarding filing, entry and notice of entry.

SO ORDERED.


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