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A DEFAMATION COMPLAINT DISMISSED FOR FAILURE TO STATE A CAUSE OF ACTION LACKS A “SUBSTANTIAL BASIS IN LAW” WITHIN THE MEANING OF THE ANTI-SLAPP LAW (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Gonzalez, over a two-justice concurrence, determined the defendants were entitled to attorney’s fees pursuant to the anti-SLAPP law (see Civil Rights Law §§ 70-a, 76-a; CPLR 3211[g]-[h]). The plaintiffs sued defendant newspaper (The Daily Mail) alleging defamation and several related causes of action. Supreme Court dismissed the complaint for failure to state a cause of action. The defendants argued they were entitled to attorney’s fees pursuant to the anti-SLAPP law because the action did not have a “substantial basis in law.” The question on appeal was whether a complaint which was dismissed for failure to state a cause of action could still be said to have a “substantial basis in law” such that the defendants would not be able to recover their attorney’s fees.  The First Department answered “no:”

… [T]he “substantial basis” standard applicable under CPLR 3211(g) is more exacting than the liberal pleading standard applicable to ordinary CPLR 3211(a)(7) motions. Under the CPLR 3211(a)(7) standard, the question is whether a cognizable cause of action is manifested, presuming the complaint’s factual allegations to be true, and according the pleading the benefit of every possible favorable inference … . By contrast, a court reviewing the sufficiency of a pleading under CPLR 3211(g) must look beyond the face of the pleadings to determine whether the claim alleged is supported by substantial evidence … .

… [A] complaint which fails to state a claim under CPLR 3211(a)(7) necessarily lacks a “substantial basis in law” for purposes of CPLR 3211(g) … . * * *

… [Plaintiffs’] failure to meet the CPLR 3211(a) standard necessarily establishes their failure to meet the higher CPLR 3211(g) standard. Karl Reeves, C.E.I.N.Y. Corp. v Associated Newspapers, Ltd., 2024 NY Slip Op 01898, First Dept 4-9-24

Practice Point: A complaint which does not state a cause of action lacks a “substantial basis in law” within the meaning of the anti-SLAPP law. Therefore the defendants here were entitled to recover their attorney’s fees.

 

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THE COMPLAINT STATED CAUSES OF ACTION AGAINST AN ACCOUNTING FIRM FOR MALPRACTICE, FRAUD AND AIDING AND ABETTING BREACH OF A FIDUCIARY DUTY; BOTH MOTHER AND SON ARE OWNERS OF A RESTAURANT; IT WAS ALLEGED THE SON’S TAKING A LARGE SALARY AND RECEIVING MILLIONS IN LOANS AGAINST THE BUSINESS WERE DOCUMENTED BY THE ACCOUNTING FIRM BUT NOT DISCLOSED TO MOTHER (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Renwick, determined the malpractice, fraud and breach of fiduciary duty causes of action against defendant accounting firm should not have been dismissed. Both plaintiff Ellen and her son Kenneth are owners of a restaurant. The complaint alleged Kenneth was looting the restaurant by taking a large salary and talking out loans against the business without Ellen’s knowledge. It was alleged defendant accounting firm had a duty to inform Ellen of Kenneth’s financial dealings but did not. The accounting firm argued there was no duty-breach and no fraud because all of Kenneth’s financial activities were documented in the accountant’s records and in the business tax returns. The First Department simply held the complaint stated causes of action for accountant malpractice, fraud and aiding an abetting a breach of fiduciary duty:

Plaintiffs’ claims … are not that defendant was hired to discover Kenneth’s wrongdoing, but rather that information obtained by defendant during its business interactions with Kenneth and information used by defendant in order to prepare tax returns and financial statements put defendant on notice about the impropriety of Kenneth’s loans to himself such that defendant had a duty to inform plaintiffs of the questionable payments. The law is very clear that an agreement to perform unaudited services does not shield an accountant from liability because an accountant must perform all services in accordance with the standard of a reasonable accountant under similar circumstances, which includes reporting fraud that is or should be apparent … .

In addition, “[o]ne who aids and abets a breach of a fiduciary duty is liable for that breach as well, even if he or she had no independent fiduciary obligation to the allegedly injured party, if the alleged aider and abettor rendered ‘substantial assistance’ to the fiduciary in the course of effecting the alleged breaches of duty” … 1650 Broadway Assoc., Inc. v Sturm, 2024 NY Slip Op 01864, First Dept 4-4-24

Practice Point: An accounting firm has a duty to disclose fraud. Here the firm documented the potentially fraudulent financial activities of one of the owners of the restaurant but did not disclose those activities to the other owner. The allegations stated causes of action for accountant malpractice, fraud and aiding and abetting breach of a fiduciary duty.

 

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THE TURNOVER PETITION SEEKING REAL PROPERTY AND FUNDS TRANSFERRED TO DEFRAUD JUDGMENT CREDITORS SHOULD HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the turnover petition seeking real property and funds transferred by judgment debtors to defraud judgment creditors should have been granted:

CPLR 5225(b) “‘provides for an expedited special proceeding by a judgment creditor to recover money or other personal property belonging to a judgment debtor against a person in possession or custody of money or other personal property in which the judgment debtor has an interest in order to satisfy a judgment'” … . A proceeding pursuant to CPLR 5225(b) “may also be maintained ‘against a person who is a transferee of money or other personal property from the judgment debtor'” …

Pursuant to CPLR 5227, “a special proceeding may be commenced by a judgment creditor ‘against any person who it is shown is or will become indebted to the judgment debtor'” … . In a proceeding pursuant to CPLR 5227, the “judgment creditor stands in the judgment debtor’s shoes, and may enforce the obligations owed to the judgment debtor by the indemnifying party” … .

… [T]he judgment creditors offered sufficient evidence to establish that [respondent] Nancy Barrick transferred the Barrick estate to the Barrick Trust with actual intent to hinder, delay, and defraud present or future creditors pursuant to Debtor and Creditor Law former § 276 … …. Nancy Barrick transferred title to the Barrick estate without adequate consideration to a trust for which she and her brother served as the trustees while retaining control over and possession of the property.

… [T]he judgment creditors also offered sufficient evidence to establish that the conveyances from the RMP judgment debtors to the RMP transferees were made with actual intent to defraud present and future creditors pursuant to Debtor and Creditor Law former § 276. … [T]he transfers were made without adequate consideration and evinced a distinct course of conduct after incurring large debts to the judgment creditors to render the RMP judgment debtors insolvent … . Matter of Argyle Funds SPC, Inc. v Barrick, 2024 NY Slip Op 01806, Second Dept 4-3-24

Practice Point: The CPLR provides a mechanism called a turnover petition which allows a judgment creditor to obtain property fraudulently transferred by the judgment debtor.

 

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ALTHOUGH DEFENDANT RAISED A QUESTION OF FACT ABOUT PLAINTIFF’S CONTRIBUTORY NEGLIGENCE IN THIS REAR-END COLLISION CASE, DEFENDANT DID NOT RAISE A QUESTION OF FACT ABOUT HIS OWN LIABILTY; THE JUDGE SHOULD NOT HAVE DEEMED PLAINTIFF’S SUMMARY JUDGMENT MOTION PREMATURE (SECOND DEPT).

The Second Department, reversing Supreme Court in this rear-end collision case, determined that although defendant raised a question of fact about whether plaintiff was contributorily negligent, defendant did not raise a question of fact about the defendant-driver’s liability. In addition, plaintiff’s motion for summary judgment should not have been deemed premature:

… [T]he defendants submitted an affidavit from the defendant driver, in which he stated that he was “not fully responsible” for the accident. The defendant driver also averred that the traffic light had turned green and that the plaintiff had moved forward and then suddenly stopped, causing the defendant driver to strike the rear of the plaintiff’s vehicle despite his efforts to stop his vehicle. This evidence raised a triable issue of fact as to whether the plaintiff was comparatively at fault in the happening of the accident, thereby supporting the denial of that branch of her motion which was for summary judgment dismissing the affirmative defenses alleging comparative negligence … . However, since the defendants’ evidence related only to the plaintiff’s comparative fault, the defendants failed to raise a triable issue of fact in opposition to that branch of the plaintiff’s motion which was for summary judgment on the issue of liability on the cause of action alleging negligent operation of a motor vehicle … .

Furthermore, the Supreme Court erred in determining that the plaintiff’s motion was premature. “[W]hile a party is entitled to a reasonable opportunity to conduct discovery in advance of a summary judgment determination, [a] party contending that a summary judgment motion is premature must demonstrate that discovery might lead to relevant evidence or that the facts essential to justify opposition to the motion were exclusively within the knowledge and control of the movant” … . Here, the defendants had personal knowledge of the relevant facts, and their mere hope or speculation that evidence might be uncovered during discovery was an insufficient basis for denying the plaintiff’s motion …. Martin v Copado-Esquivel, 2024 NY Slip Op 01804, Second Dept 4-3-24

Practice Point: In a rear-end collision case, the fact that defendant raises a question of fact about plaintiff’s contributory negligence does not preclude granting plaintiff summary judgment on the issue of defendant’s liability.

Practice Point: Here, where the facts of the rear-end collision were within defendant’s personal knowledge, plaintiff’s motion for summary judgment should not have been dismissed as premature.

 

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THE BANK IN THIS FORECLOSURE ACTION FAILED TO PROVIDE THE ORIGINAL LOAN DOCUMENT AND THE LOST NOTE AFFIDAVIT WAS INSUFFICIENT; THE MOTION FOR A DEFAULT JUDGMENT SHOULD HAVE BEEN DENIED, CRITERIA EXPLAINED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the bank’s motion for a default judgment in this foreclosure action should not have been granted because the original loan document was not provided and the lost note affidavit was insufficient:

A plaintiff moving for leave to enter a default judgment against a defendant must submit proof of service of the summons and complaint, proof of the facts constituting the claim, and proof of the defendant’s failure to answer or appear … . Pursuant to UCC 3-804, “[t]he owner of an instrument which is lost, whether by destruction, theft or otherwise, may maintain an action in his [or her] own name and recover from any party liable thereon upon due proof of his [or her] ownership, the facts which prevent his [or her] production of the instrument and its terms.” Here, the plaintiff failed to set forth the facts that prevented the production of the original home equity line of credit agreement … . The lost note affidavit submitted by the plaintiff in support of its motion, inter alia, for leave to enter a default judgment against the defendants failed to state when the search for the credit agreement occurred, did not identify who conducted the search for the credit agreement, or explain when or how the credit agreement was lost … . JPMorgan Chase Bank, N.A. v Morton, 2024 NY Slip Op 01802, Second Dept 4-3-24

Practice Point: Here in this foreclosure action, in moving for a default judgment the bank did not provide the original loan document and did not provide a sufficient lost note affidavit. The motion should have been denied, criteria explained.

 

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IF THE STATUTE OF LIMITATIONS DEFENSE IS NOT RAISED BY A PARTY IT IS WAIVED AND CANNOT BE ASSERTED, SUA SPONTE, BY A JUDGE; IN ADDITION, A JUDGE CANNOT DECIDE A MOTION ON A GROUND NOT RAISED BY THE PARTIES (SECOND DEPT).

The Second Department, reversing Supreme Court, determined a judge, sua sponte, cannot raise the statute of limitations defense. If it is not raised by the parties, it is waived:

The statute of limitations is an affirmative defense that is waived by a party unless it is raised either in a responsive pleading or by motion prior to the submission of a responsive pleading … . “‘A court may not take judicial notice, sua sponte, of the applicability of a statute of limitations if that defense has not been raised'” … .

Here, none of the defendants answered the complaint, and the record does not show that any defendant made a pre-answer motion that raised the statute of limitations … . Therefore, a statute of limitations defense was waived. Moreover, even if the defense was not waived, no defendant opposed the instant motion, and the issue of the statute of limitations was not raised on the motion. Thus, the Supreme Court improperly determined the motion on a ground not raised by the parties … . Associates First Capital Corp. v Roth, 2024 NY Slip Op 01789, Second Dept 4-4-24

Practice Point: The stature of limitations defense cannot be raised, sua sponte, by a judge. If it is not raised by a party it is waived.

Practice Point: A judge cannot not based a motion-decision on a ground not raised by the parties.

 

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THE THIRD DEPARTMENT DETERMINED THE NEW YORK STATE UNIFORM FIRE PREVENTION AND BUILDING CODE PROVIDES SUFFICIENT STANDARDS AND MECHANISMS FOR ENFORCEMENT OF THE CODE PROVISIONS; A TENANT WHOSE BUILDING WAS DECLARED UNSAFE AFTER ORDERS TO REMEDY DEFECTS WERE IGNORED BY THE LANDLORD BROUGHT A PETITION FOR A WRIT OF MANDAMUS TO COMPEL THE SECRETARY OF STATE TO STRENGTHEN CODE ENFORCEMENT STANDARDS AND MECHANISMS; THE PETITION WAS DENIED (THIRD DEPT).

The Third Department, in a full-fledged opinion by Justice McShan, over a two-justice dissent, determined that the regulations associated with the enforcement of the NYS Uniform Fire Prevention and Building Code (Uniform Code) are adequate. Petitioner, a former tenant in a building which was ultimately declared unsafe after several orders to remedy building-defects were ignored by the landlord, brought a petition for a writ of mandamus requiring the NYS Secretary of State to provide standards for the enforcement of the Uniform Code. The petition was dismissed after an exhaustive discussion of the relevant regulations and enforcement standards and mechanisms. The opinion is too detailed to fairly summarize here. Matter of Clements v New York Secretary of State, 2024 NY Slip Op 01756, Third Dept 3-28-24

 

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DISPUTES ABOUT ENCROACHMENTS ON EASEMENTS RESOLVED; UNCLEAN HANDS AND LACHES DEFENSES REINSTATED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Moulton, modifying Supreme Court, determined the unclean hands and laches defenses should not have been dismissed in this complicated case resolving the removal of encroachments from easements. The case is too complex and entails too much minutia to fairly summarize. 214 Lafayette House LLC v Akasa Holdings LLC, 2024 NY Slip Op 01762, First Dept 3-28-24

 

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THE DEFENDANT SCHOOL DID NOT ELIMINATE TRIABLE QUESTIONS OF FACT ABOUT WHETHER IT HAD CONSTRUCTIVE NOTICE OF THE TEACHER’S ABUSIVE PROPENSITIES; THE NEGLIGENT HIRING AND NEGLIGENT SUPERVISION CAUSES OF ACTION IN THIS CHILD VICTIMS ACT CASE SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversing Supreme Court in this Child Victims Act case, determined the negligent hiring and negligent supervision causes of action against defendant school stemming from a teacher’s alleged abuse of plaintiff-student should not have been dismissed. There was a question of fact about whether the school district had constructive notice of the teacher’s abusive propensities:

… [G]iven the frequency of the alleged abuse, which occurred over a three-year period, and always occurred inside the same classroom during the school day, the defendants did not eliminate triable issues of fact as to whether they should have known of the abuse … . Additionally, the defendants failed to eliminate triable issues of fact as to whether their supervision of the teacher or the plaintiff was not negligent, in light of, among other things, the teacher was on “probationary” status during the relevant period, the special education lessons during which the alleged abuse occurred were one-on-one and behind closed doors, the plaintiff testified at his deposition that the school principal “never came in” or “checked” on him during the lessons, and only a single observation report from Columbus Avenue Elementary School is available in the teacher’s employment file during the relevant period. MCVAWCD-DOE v Columbus Ave. Elementary Sch., 2024 NY Slip Op 01703, Second Dept 3-27-24

Practice Point: Here the defendant school did not eliminate questions of fact about whether it had constructive notice of the teacher’s abusive propensities in this Child Victims Act case. The alleged abuse took place often behind closed doors when the teacher, who was on probation, was alone with the plaintiff.

 

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COURTS HAVE THE POWER TO LIMIT THE REACH OF OVERLY BROAD RESTRICTIVE COVENANTS IN COMMERCIAL CONTRACTS (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Connelly, affirming Supreme Court, discussed in detail the courts’ power to limit the reach of overly broad restrictive covenants in commercial contracts. Here the plaintiff and defendant collaborated for decades in the design and manufacture of fabrics to be used in solar shades. Upon terminating the contractual arrangement, the question became whether the restrictive covenants in the contract are enforceable. Because the opinion addresses the issues in the context of motions to dismiss, most of the findings were preliminary and must await a more complete record. But the Second Department did conclude courts have the power to limit the enforcement of overly broad restrictive covenants in commercial contracts, short of re-writing the contract:

This appeal requires us to analyze the factors to consider when evaluating whether a restrictive covenant in an ordinary commercial contract is enforceable. Although there is a dearth of New York state case law on this issue, we agree with those courts that have analyzed these types of covenants under a rule of reason, considering (1) whether the covenant protects a legitimate business interest; (2) the reasonableness of the geographic scope and temporal duration; and (3) the degree of hardship upon the party against whom the covenant is enforced.

This appeal also requires us to consider whether courts have the power to sever and grant partial enforcement of overly broad restrictive covenants in ordinary commercial contracts. Because the Court of Appeals has held that courts have such power with regard to overly broad restrictive covenants in employment agreements (see BDO Seidman v Hirshberg, 93 NY2d 382, 395), we similarly hold that courts have the power to sever and grant partial enforcement of overly broad restrictive covenants in ordinary commercial contracts and may do so under the appropriate circumstances. Twitchell Tech. Prods., LLC v Mechoshade Sys., LLC, 2024 NY Slip Op 01744, Second Dept 3-27-24

Practice Point: Courts have to power to limit the reach of overly broad restrictive covenants in commercial contracts, criteria explained in depth.

 

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