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Attorney-in-Fact Used His Power to Create a Gift (by Deed) to Himself and/or Third Parties—Deed Declared Null and Void

The Fourth Department determined the deed purporting to transfer a life estate to the attorney-in-fact was null and void. Essentially, the attorney-in-fact used his power to make a gift to himself and/or third parties, which created an unrebutted presumption of impropriety:

It is well settled that “[a] power of attorney . . . is clearly given with the intent that the attorney-in-fact will utilize that power for the benefit of the principal” … . “The relationship of an attorney-in-fact to his principal is that of agent and principal . . . and, thus, the attorney-in-fact must act in the utmost good faith and undivided loyalty toward the principal, and must act in accordance with the highest principles of morality, fidelity, loyalty and fair dealing’ . . . Consistent with this duty, an agent may not make a gift to himself or a third party of the money or property which is the subject of the agency relationship” … . “In the event such a gift is made, there is created a presumption of impropriety [that can] be rebutted [only] with a clear showing that the principal intended to make the gift” …, or that the gift was in the principal’s best interest … . Borders v Borders, 2015 NY Slip Op 04022, 4th Dept 5-8-15

 

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120-Day Time Limit for Bringing a Summary Judgment Motion Properly Extended by Stipulation

The Fourth Department determined the 120-day time limit for making summary judgment motions (after the filing of a note of issue) was properly extended by stipulation.  The dissent felt that such a stipulation was invalid because it violated public policy: “While we agree with our dissenting colleague that the court was not required to accept the express stipulation of the parties to extend the 120-day deadline in CPLR 3212, we note that the court in fact did so in advance of the motion … . Moreover, unlike our dissenting colleague, we do not view the timing requirements applicable to motions for summary judgment as a matter of public policy that may not be affirmatively waived by a party …”. Bennett v St. John’s Home & St. John’s Health Care Corp., 2015 NY Slip Op 03952, 4th Dept 5-8-15

 

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Fraud Upon the Court Must Be Demonstrated by Clear and Convincing Evidence/Striking of Pleadings and Entering Default Judgment Against Offending Party Appropriate Under the Facts

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined the standard for demonstrating a party has committed fraud upon the court is “clear and convincing.”  Under the facts, the court determined that defendants' fraud upon the court had been demonstrated and that striking the pleadings and entering a default judgment against the defendants was appropriate:

We …conclude that in order to demonstrate fraud on the court, the non-offending party must establish by clear and convincing evidence that the offending “party has acted knowingly in an attempt to hinder the fact finder's fair adjudication of the case and his adversary's defense of the action” … . A court must be persuaded that the fraudulent conduct, which may include proof of fabrication of evidence, perjury, and falsification of documents concerns “issues that are central to the truth-finding process” … . Essentially, fraud upon the court requires a showing that a party has sentiently set in motion some unconscionable scheme calculated to interfere with the judicial system's ability impartially to adjudicate a matter by improperly influencing the trier or unfairly hampering the presentation of the opposing party's claim or defense … . A finding of fraud on the court may warrant termination of the proceedings in the non-offending party's favor … . For “when a party lies to the court and [its] adversary intentionally, repeatedly, and about issues central to the truth-finding process, it can fairly be said that [the party] has forfeited [the] right to have [the] claim decided on the merits” … . Therefore, once a court concludes that clear and convincing evidence establishes fraud on the court, it may strike a pleading and enter a default judgment.

We caution that dismissal is an extreme remedy that “must be exercised with restraint and discretion” … . Dismissal is most appropriate in cases like this one, where the conduct is particularly egregious, characterized by lies and fabrications in furtherance of a scheme designed to conceal critical matters from the court and the nonoffending party; where the conduct is perpetrated repeatedly and wilfully, and established by clear and convincing evidence, such as the documentary and testimonial evidence found here. Dismissal is inappropriate where the fraud is not “central to the substantive issues in the case” …, or where the court is presented with “an isolated instance of perjury, standing alone, [which fails to] constitute a fraud upon the court” … . In such instances, the court may impose other remedies including awarding attorney fees …, awarding other reasonable costs incurred … , or precluding testimony … . In the rare case where a court finds that a party has committed fraud on the court warranting dismissal, the court should note why lesser sanctions would not suffice to correct the offending behavior … . CDR Creances SAS v Cohen, 2014 NY Slip Op 03294, CtApp 5-8-14

 

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Former Parishioners Did Not Have Standing to Challenge Sale of Church Property Which Had Been Authorized by Supreme Court Pursuant to the Religious Corporation Law

The Third Department determined former parishioners of a church should not have brought an action for declaratory judgment contesting the church’s (court-ordered) authorization to sell church property pursuant to the Religious Corporation Law.  The proper procedure would have been to bring a motion to intervene pursuant to CPLR 5015 (a).  The  court went on to determine that the parishioners did not have standing to challenge the sale because they were not members of the religious corporation:

Plaintiffs’ action was an impermissible collateral attack on the authorization order. The proper procedure would have been to move to vacate that order pursuant to CPLR 5015, which permits “any interested person” to move for such relief (CPLR 5015 [a]), rather than commencing a second plenary action collaterally attacking an order in a prior action … . …

Additionally, Supreme Court properly dismissed the complaint because plaintiffs lack standing to challenge the sale of the property. Plaintiffs may have been members of the congregation or “ecclesiastical body” of St. Patrick’s, but that does not make them members of the religious corporation … . “Member” is defined for religious corporation purposes as “one having membership rights in a corporation in accordance with the provisions of its certificate of incorporation or by-laws” (N-PCL 102 [a] [9]; see Religious Corporations Law § 2-b [1]). Pursuant to the incorporation documents and bylaws of St. Patrick’s and the relevant statutes, St. Patrick’s is managed by a five-member board of trustees consisting of the diocesan bishop, the vicar general of the diocese, the rector of the church and two laypersons selected by the other trustees (see Religious Corporations Law §§ 90, 91)[FN3]. Religious Corporations Law § 5 “vests the custody and control of a religious corporation’s [*3]real property in the board of trustees” … . As plaintiffs are not members of the religious corporation, they lack standing to challenge decisions concerning the transfer of the corporation’s property … . Citizens for St Patrick’s v Saint Patrick’s Church of W Troy, 2014 NY Slip Op 03314, 3rd Dept 5-8-14

 

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Reports by Attorneys Which Relate to an Insurer’s Decision to Accept or Reject a Claim Are Discoverable—Reports by Attorneys Made After the Claim Is Rejected Are Not Discoverable

The Fourth Department determined the records generated by attorneys which related to an insurer’s decision whether to accept or reject a claim were discoverable as records made in the regular course of business—even if the records relate in part to potential litigation.  Records generated by attorneys after the claim was denied are privileged and not discoverable:

“It is well settled that [t]he payment or rejection of claims is a part of the regular business of an insurance company. Consequently, reports which aid it in the process of deciding which of the two indicated actions to pursue are made in the regular course of its business’ ” … . “Reports prepared by . . . attorneys before the decision is made to pay or reject a claim are thus not privileged and are discoverable . . . , even when those reports are mixed/multi-purpose’ reports, motivated in part by the potential for litigation with the insured” … . Here, the documents submitted to the court for in camera review constitute multi-purpose reports motivated in part by the potential for litigation with plaintiff, but also prepared in the regular course of defendant’s business in deciding whether to pay or reject plaintiff’s claim, and thus plaintiff is entitled to disclosure of those documents.  Lalka v Aca Ins. Co., 2015 NY Slip Op 03995, 4th Dept 5-8-15

 

Relation-Back Doctrine (Allowing Service of an Otherwise Time-Barred Amended Complaint) Explained

The Second Department determined the relation-back doctrine was properly applied to a second amended complaint which otherwise would have been time-barred. The court noted that the mistake in naming the correct party need not be excusable:

A party seeking the benefit of the relation-back doctrine must establish that (1) both claims arose out of the same conduct, transaction, or occurrence, (2) the new party is united in interest with the original defendant, and by reason of that relationship, can be charged with notice of the institution of the action and will not be prejudiced in maintaining his or her defense on the merits by virtue of the delayed assertion of those claims against him or her, and (3) the new party knew or should have known that, but for a mistake by the plaintiff as to the identity of the proper parties, the action would have been timely commenced against the new party … . The mistake need not be excusable for the relation-back doctrine to apply … . Castagna v Almaghrabi, 2014 NY Slip Op 03223, 2nd Dept 5-7-14

 

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Replevin and Order of Seizure (Asserting a Superior Right to Property) Explained

The Second Department, in determining an order of seizure had been properly granted, explained the law of replevin and an order of seizure:

“The action of replevin is essentially possessory in its nature.”… . “A cause of action sounding in replevin must establish that the defendant is in possession of certain property of which the plaintiff claims to have a superior right” … .

“An order of seizure is not a final disposition of a matter but is a pendente lite order made in the context of a pending action where the movant has established, prima facie, a superior right in the chattel” … . Pursuant to CPLR 7102, an application for an order of seizure must be supported by an affidavit that “clearly identif[ies] the chattel to be seized” and states, among other things, facts demonstrating “that the plaintiff is entitled to possession” of the chattel, that “the chattel is wrongfully held by the defendant,” and that “no defense to the claim is known to the plaintiff” (CPLR 7102[c]…). Southeast Fin LLC v Broadway Towing Inc, 2014 NY Slip Op 03254, 2nd Dept 5-7-14

 

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Court Can Not Use Its Contempt Power to Compel the District Attorney to Prosecute a Criminal Matter

The District Attorney did not wish to proceed with disorderly conduct prosecutions against persons who demonstrated in support of the Occupy Movement. The City Court judge handling the cases, however, ordered the district attorney to appear at a scheduled suppression hearing, threatening to exercise the court’s contempt powers if the district attorney did not appear. The district attorney appeared but informed the judge no witnesses would be called. When the judge persisted, again threatening to use the contempt powers, the district attorney brought an Article 78 proceeding seeking a writ of prohibition.  The writ was granted and the Court of Appeals affirmed.  Under the doctrine of separation of powers, only the district attorney can decide whether to prosecute.  The courts can not compel the prosecution of criminal actions:

“Prohibition is available to restrain an inferior court or Judge from exceeding its or his [or her] powers in a proceeding over which the court has jurisdiction” … . To demonstrate a clear legal right to the extraordinary writ of prohibition, a petitioner is required to show that the challenged action was “in reality so serious an excess of power incontrovertibly justifying and requiring summary correction” … .

“The concept of the separation of powers is the bedrock of the system of government adopted by this State in establishing three coordinate and coequal branches of government, each charged with performing particular functions” … . Under the doctrine of separation of powers, courts lack the authority to compel the prosecution of criminal actions … . Such a right is solely within the broad authority and discretion of the district attorney’s executive power to conduct all phases of criminal prosecution (see County Law § 700 [1]… ).

The courts below correctly determined that a trial court cannot order the People to call witnesses at a suppression hearing or enforce such a directive through its contempt powers. Any attempt by the Judge here to compel prosecution through the use of his contempt power exceeded his jurisdictional authority. It is within the sole discretion of each district attorney’s executive power to orchestrate the prosecution of those who violate the criminal laws of this State … . Matter of Soares v Carter, 2015 NY Slip Op 03879, CtApp 5-7-15

 

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Whether Plaintiff “Justifiably Relied” on Alleged Misrepresentations Is Not Generally a Question Which Can Be Resolved in a Motion to Dismiss for Failure to State a Cause of Action

Reversing the appellate division, over two-judge dissent, the Court of Appeals determined (in the context of a motion to dismiss for failure to state a cause of action) plaintiff had sufficiently pled “justifiable reliance” on the representations at issue. The complaint alleged defendant (Goldman Sachs) “fraudulently induced plaintiff to provide financial guaranty for a synthetic collateralized debt obligation (CDO), known as ABACUS. In its complaint, plaintiff alleges that defendant fraudulently concealed the fact that its hedge fund client …, which selected most of the portfolio investment securities in ABACUS, planned to take a “short” position in ABACUS, thereby intentionally exposing plaintiff to substantial liability; had plaintiff known this information, it would not have agreed to the guaranty.” The complaint further alleged defendant affirmatively misrepresented the role of the hedge fund in answer to plaintiff's questions. Those allegations were sufficient to survive a motion to dismiss:

To plead a claim for fraud in the inducement or fraudulent concealment, plaintiff must allege facts to support the claim that it justifiably relied on the alleged misrepresentations. It is well established that “if the facts represented are not matters peculiarly within the [defendant's] knowledge, and [the plaintiff] has the means available to [it] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, [the plaintiff] must make use of those means, or [it] will not be heard to complain that [it] was induced to enter into the transaction by misrepresentations” … . Moreover, “[w]hen the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. It cannot reasonably rely on such representations without making additional inquiry to determine their accuracy” … . Nevertheless, the question of what constitutes reasonable reliance is not generally a question to be resolved as a matter of law on a motion to dismiss … .  ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 2015 NY Slip Op 03876, CtApp 5-7-15

 

Plaintiff Cannot Be the Only Link between the Defendant and the Forum/Defendant’s “Minimum Contacts” with New York Not Demonstrated

The Second Department determined New York courts did not have subject matter jurisdiction in an action against a Texas physician who had treated plaintiff’s late mother when she resided in Texas and Florida.  The court explained the relevant analysis:

Where a motion is made to dismiss an action for lack of personal jurisdiction, it is the plaintiff who bears the ultimate burden of proving a basis for such jurisdiction … . A plaintiff relying on CPLR 302(a)(3)(ii) “must show that (1) the defendant committed a tortious act outside New York; (2) the cause of action arose from that act; (3) the tortious act caused an injury to a person or property in New York; (4) the defendant expected or should reasonably have expected the act to have consequences in New York; and (5) the defendant derived substantial revenue from interstate or international commerce” … . Once those elements are met, an assessment must then be made as to whether a finding of personal jurisdiction satisfies due process … .

Here, the plaintiff failed to establish that the defendant’s alleged tortious act — prescribing medication in Texas to the plaintiff’s mother while she was in Texas and in Florida — caused injury in New York … . Moreover, under the circumstances, the plaintiff failed to establish that the defendant expected or should reasonably have expected the act to have consequences in New York, or that the defendant “derive[d] substantial revenue from interstate . . . commerce” (CPLR 302[a][3][ii]). In addition, the plaintiff failed to establish that the defendant had the requisite “minimum contacts” with New York such that the prospect of defending a suit here comported with “traditional notions of fair play and substantial justice,” as required by the Federal Due Process Clause … .

On February 25, 2014, the Supreme Court of the United States rendered a decision refining the “minimum contacts” analysis set forth in International Shoe Co. (see Walden v Fiore, _____ US _____, 134 S Ct 1115). The Supreme Court determined that a “plaintiff cannot be the only link between the defendant and the forum. Rather, it is the defendant’s conduct that must form the necessary connection with the forum State that is the basis for its jurisdiction over him” (id. at 1122). Moreover, the Supreme Court held that, “[d]ue process requires that a defendant be haled into court in a forum State based on his own affiliation with the State, not based on the random, fortuitous, or attenuated’ contacts he makes by interacting with other persons affiliated with the State” … . Waggaman v Arauzo, 2014 NY Slip Op 03259, 2nd Dept 5-7-14

 

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