You are here: / Contract Law
, ,

Fraud Cause of Action Against Merrill Lynch Re: Credit Default Obligations Sufficiently Pled/Disclaimers and Disclosures Did Not Preclude Claim of Fraud

The First Department determined a cause of action for fraud against Merrill Lynch had been sufficiently pled.  The underlying agreement related to credit default obligations (CDO’s).  The court noted that an unjust enrichment cause of action is not viable when the lawsuit is based on a written agreement:

…[The] factual allegations provide sufficient details to inform the …defendants … of the alleged fraudulent conduct, namely that the CDO was secretly designed by an undisclosed hedge fund, Magnetar, which was secretly placing massive short bets against the very same deals it was sponsoring. Defendants, however, argue that plaintiff cannot establish the element of reasonable reliance (an element of both affirmative misrepresentation and concealment) as a result of the disclosures and disclaimers for the Auriga CDO. We cannot agree.

The offering circular states, “All or most of the Collateral Debt Securities Acquired by the Issuer . . . will be Acquired from a portfolio of Collateral Debt Securities selected by the Collateral Manager . . . .” If Magnetar rather than 250 Capital was doing the selecting, the statement in the offering circular was misleading. The identity of the person selecting the collateral was material: The offering circular says, “The performance of the portfolio of Collateral Debt Securities depends heavily on the skills of the Collateral Manager in analyzing and selecting the Collateral Debt Securities.” * * *

Under the circumstances, it cannot be said that the disclaimers and disclosures in the offering circulars preclude a claim of fraud on the ground of a prior misrepresentation as to the specific matter, namely that the CDO’s collateral had been carefully selected by an independent collateral manager, in the interests of the success of the deal and for the benefit of Auriga’s long investors. Loreley Fin (Jersey) No 38 Ltd v Merrill Lynch …, 2014 NY Slip Op 03326, 1st Dept 5-8-14

Similar issues and result re: Citigroup in a full-fledged opinion by Justice Renwick.  Loreley Fin (Jersey) No 3 Ltd v Citigroup Global Mkts Inc, 2014 NY Slip Op 03358, 1st Dept 5-8-14

 

,

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

 

,

“Agreement to Agree” Insufficient to Sever a Joint Tenancy

The Third Department noted that a joint tenancy with right of survivorship can be severed by written agreement, but determined the email correspondence, which evinced the parties’ intent to sever the joint tenancy, did not accomplish the severance because material terms, including price, were not addressed: “Real Property Law § 240-c (3) (a) allows for the severance of a joint tenancy “pursuant to a written agreement of all joint tenants.” However, “a contract must be definite in its material terms in order to be enforceable” … . For this reason, an agreement to agree, where such terms are left to future negotiations, is unenforceable …”. Matter of Wyman (Riddle), 2015 NY Slip Op 03908, 3rd Dept 5-7-15

 

,

Contract to Share Commissions with Person Not Licensed to Sell Insurance is Illegal and Unenforceable

The Second Department determined an alleged oral agreement(with Tellkamp) to share commissions for the sale of insurance with plaintiff, who initially was not licensed to sell insurance, was unenforceable.  But, for those policies sold after plaintiff was licensed, he might be entitled to commissions under a quantum meruit theory.

At the time that the plaintiff allegedly contracted with Tellkamp and began providing services, the plaintiff was not licensed by the State of New York as an insurance broker or a licensed insurance agent appointed by Phoenix Life, and he was not licensed by the State of New Jersey as an insurance producer (see Insurance Law §§ 2103, 2104, 2112; NJ Stat Ann §§ 17:22A-29, 17:22A-28). Accordingly, he was not legally permitted to receive payment of insurance commissions, either directly from the insurers or indirectly from Tellkamp (see Insurance Law § 2114[a]; NJ Stat Ann § 17:22A-41; Ops Gen Counsel NY Ins Dept No. 07-05-23 [May 31, 2007]). The alleged contract was therefore illegal and is unenforceable … . Ziv v Tellkamp 2014 NY Slip Op 03261, 2nd Dept 5-7-14

 

, ,

Motion to Dismiss In Which Documentary Evidence Was Submitted—Court’s Role Is to Determine Whether Plaintiff Has a Cause of Action, Not Whether Plaintiff Has Stated a Cause of Action—Although the Complaint Alleged Interference With a Competitive Bidding Process Involving Public Entities, the Case Fit an Exception to the Rule that Competitive Bidding Issues Be Determined in an Article 78 Proceeding—It Was Alleged a Private Party (Defendant) Interfered with the Competitive Bidding Process

Reversing Supreme Court, the Third Department determined plaintiff had adequately pled a cause of action for tortious interference with contract. The plaintiff alleged that defendant subverted a bidding process for the installation of artificial turf at state and local schools. Usually competitive bidding cases are brought in an Article 78 proceeding against the relevant public entity. This case fit an exception to that rule because it was brought against a private party working with the public entities. There was also some question whether the proceeding was a motion to dismiss for failure to state a cause of action or a motion for summary judgment.  Because documentary evidence was submitted, the court’s role was to determine whether the plaintiff has a cause of action, not whether plaintiff has stated one:

…[S]ince the motion (made shortly after serving the answer and before disclosure) argued an absence of any legal viability of the alleged causes of action, Supreme Court did not err in treating the motion as a narrowly framed post-answer CPLR 3211 (a) (7) ground asserted in a summary judgment motion … . When dismissal is sought for failure to state a cause of action and, as here, plaintiff submits affidavits, “a court may freely consider [those] affidavits . . . and ‘the criterion is whether the proponent of the pleading has a cause of action, not whether he [or she] has stated one'” … .

Turning to the merits of the motion, “the laws requiring competitive bidding were designed to benefit taxpayers rather than corporate bidders and, thus, should be construed and administered with sole reference to the public interest” … . Therefore, the remedy for an alleged violation of the competitive bidding statutes typically involves a timely CPLR article 78 proceeding challenging the bidding process … . However, a narrow exception to the limited remedy may exist where a plaintiff does not seek relief from the public entity, but brings an action against someone working on behalf of the public entity in the competitive bidding process who allegedly engaged in egregious conduct unknown to the public entity aimed at intentionally subverting a fair process … . Allegations of restricting competition to artificial turf manufactured by A-Turf could be part of a cognizable claim under the narrow exception … . Chenango Contr., Inc. v Hughes Assoc., 2015 NY Slip Op 03903, 3rd Dept 5-7-15

 

, , ,

Once an Amended Complaint is Served the Action Must Proceed As if the Original Complaint Never Existed—A Summary Judgment Motion Based Upon an Affirmative Defense Asserted for the First Time in the Answer to the Amended Complaint Was Properly Brought, Even Though a Prior Summary Judgment Motion on the Same Ground Had Been Denied/Medical Billing Software, i.e., Intellectual Property, Is “Personal Property” Covered by General Obligations Law 5-903—The Automatic Renewal Provision of the Medical Billing Contract Was Therefore Void

The First Department, in a full-fledged opinion by Justice Gische, determined that an amended complaint supersedes the original complaint and an affirmative defense asserted in the answer to the amended complaint could be the basis of a summary judgment motion, even though the same ground was asserted in a prior, unsuccessful summary judgment motion. The substantive issue was whether billing software licensed to a doctor was “service … to or for … personal property” within the meaning of General Obligations Law 5-903 (2).  The court determined the billing software was covered by the General Obligations Law and, therefore, the automatic renewal provision in the contract between the software company and the doctor could not be enforced.  The “General Obligations Law” affirmative defense was not asserted in the original answer and a summary judgment motion based on the unpled affirmative defense had previously been denied:

We find that the second summary judgment motion, brought after the pleadings were amended on a substantive issue not previously decided by the court, was procedurally proper. “Once plaintiff served the amended complaint, the original complaint was superseded, and the amended complaint became the only complaint in the action. The action was then required to proceed as though the original pleading had never been served” … . Thus, defendant’s appeal from the prior order denying summary judgment became moot …, and “sufficient cause . . . exist[ed]” for his motion for summary judgment dismissing the amended complaint … . …

General Obligations Law § 5-903 does not define “personal property,” although it broadly defines “person” as “an individual, firm, company, partnership or corporation” and also states that its restrictions apply unless “the person receiving the service” is served with advanced notice calling its attention to the renewal clause in the contract (General Obligations Law § 5-903[2]). The statute does not require that the person own the “personal property” being serviced, and section 5-903 has been analyzed by courts in a variety of circumstances to determine its applicability. Personal property has been interpreted to include intellectual property as well as tangible personal property … . The purpose of the notice provision is to protect service recipients from the harm of unintended automatic renewals of contracts for consecutive periods … . Since § 5-903 is remedial in nature it is construed broadly … .

We find that the parties’ agreement was “for service . . . to or for . . . personal property” within the meaning of the General Obligations Law. The services provided were directly and inextricably related to the billing and medical records of the practice, which are personal property. Healthcare IQ LLC v Tsai Chung Chao, 2014 NY Slip Op 03216, 1st Dept 5-6-14

 

, , , ,

Supreme Court Should Not Have Determined the Mortgage Company Did Not Negotiate a Loan Modification in Good Faith Without a Hearing, and Could Not, Pursuant to the Contract Clause, Order the Mortgage Company to Enter a Loan Modification Agreement

After defendant, Ms Hepburn, failed to answer the summons and complaint in a mortgage foreclosure action, the plaintiff mortgage company moved for an order of reference (the appointment of a referee to compute the amount due).  Supreme Court denied the motion and, sua sponte, determined the mortgage company had not negotiated a loan modification in good faith (CPLR 3408), and directed the mortgage company to offer a loan modification within sixty days.  The Second Department determined Supreme Court should have granted the motion for an order of reference (which was not opposed), should not have made a finding the mortgage company failed to negotiate a loan modification in good faith without conducting a hearing, and could not, pursuant to the Contract Clause, order the mortgage company to enter a loan modification agreement:

The Supreme Court should not have, sua sponte, determined that the plaintiff failed to negotiate in good faith as required by CPLR 3408, and directed it, within sixty days, to offer a loan modification to Ms. Hepburn allowing her to assume the subject mortgage. “It is well-settled that an action to foreclose a mortgage is equitable in nature and triggers the equitable powers of the court” … . “Once equity is invoked, the court’s power is as broad as equity and justice require” … . A court “may impose a sanction sua sponte, but the party to be sanctioned must be afforded a reasonable opportunity to be heard” … .

Here, the only matter before the Supreme Court was the plaintiff’s motion for an order of reference. Without an evidentiary hearing or notice to the parties, the Supreme Court sua sponte determined that the plaintiff had not acted in good faith in its negotiations with Ms. Hepburn at settlement conferences, which were held over a 16-month period, and thereupon denied the plaintiff’s motion. Such procedure did not afford the plaintiff an opportunity to oppose the Supreme Court’s finding that it had not met it obligation to negotiate in good faith as required by CPLR 3408 or to oppose the imposition of sanctions … . Moreover, even if sanctions for failure to negotiate in good faith were appropriate in this matter, the Supreme Court erred in directing the plaintiff to, in effect, enter into a contract with Ms. Hepburn … . Such a sanction violates the Contract Clause of the United States Constitution … . PHH Mtge. Corp. v Hepburn, 2015 NY Slip Op 03817, 2nd Dept 5-6-15

 

,

Professional Reliability Exception to the Hearsay Rule (Re: Experts) Explained/Appropriate Date to Commence Prejudgment Interest in Breach of Contract Action Explained

The Fourth Department explained when an expert can rely on hearsay and when prejudgment interest should commence in a breach of contract action:

We reject defendant’s further contention that there was no evidentiary foundation for the testimony of plaintiffs’ damages expert, a construction cost estimator. It is well settled that” [o]pinion evidence must be based on facts in the record or personally known to the witness’ ” … . It is also well settled, however, that an expert is permitted to offer opinion testimony based on facts not in evidence where the material is ” of a kind accepted in the profession as reliable in forming a professional opinion’ ” … . “The professional reliability exception to the hearsay rule enables an expert witness to provide opinion evidence based on otherwise inadmissible hearsay, provided it is demonstrated to be the type of material commonly relied on in the profession’ ” … . Here, the expert’s damages testimony was based, in part, on measurements contained in a report that was not admitted in evidence, but those measurements were not otherwise disputed or challenged by defendant. Moreover, the expert testified that the information on which he relied was of the type relied on in his profession.

We agree with defendant, however, that the court erred in awarding prejudgment interest from April 18, 1990. The jury did not specify a date on which plaintiffs’ cause of action for breach of contract accrued and where, as here, “the precise date from which to fix interest is ambiguous, the date of commencement of the . . . action’ is an appropriate date to choose” … . We therefore modify the judgment by vacating the amount of prejudgment interest awarded from April 18, 1990 and providing that prejudgment interest is to commence from April 18, 1996, the date on which the action was commenced, to May 2, 2012, the date of the judgment. Caleb v Stevenson Envtl Servs Inc, 2014 NY Slip Op 03057, 4th Dept 5-2-14

 

, ,

Manufacturers Responsible for Packaging a Product Owed a Duty to Plaintiff Injured When the Packaging Failed Under Negligence, Strict Products Liability and Contractual Theories

Plaintiff was injured when the packaging of a product failed. The product was manufactured pursuant to a contract between plaintiff’s employer and one manufacturer, ABS. ABS contracted with a second manufacturer, Keystone, to nickel-plate the product.  Both manufacturers were responsible for aspects of the product’s packaging.  The Fourth Department determined that the manufacturers’ motions for summary judgment were properly denied. Both owed a duty to plaintiff under negligence and strict products liability theories. In addition, ABS owed a duty to the plaintiff as a third-party beneficiary of the contract with plaintiff’s employer. And Keystone owed a contractual duty to the plaintiff as well because, although there was no third-party beneficiary relationship, Keystone had launched an instrument of harm.  Filer v Keystone Corp., 2015 NY Slip Op 03628, 4th Dept 5-1-15

 

, , ,

Continuous Representation Doctrine Did Not Toll the Statute of Limitations for the Legal Malpractice Cause of Action/Fraud, Excessive Fees and Unjust Enrichment Causes of Actions Were Not Duplicative of the Legal Malpractice Cause of Action/Punitive Damages Claim Properly Pled

The First Department, in a full-fledged opinion by Justice Mazzarelli, in the context of a motion to dismiss for failure to state a cause of action, determined the continuous representation doctrine did not toll the statute of limitations for the legal malpractice cause of action, the fraud, excessive fees, and unjust enrichment causes of action were not duplicative of the legal malpractice action, and the demand for punitive damages properly survived dismissal. It was alleged that defendants-attorneys gave the plaintiffs bad advice re: a tax shelter and failed to inform plaintiffs of the close business ties between the attorneys and a firm which profited directly from the advice given plaintiffs. With regard to the continuous representation doctrine, the court explained that, in order to toll the statute, the representation must relate to the specific matter out of which the malpractice is alleged to have arisen—an on-going relationship on other matters does not toll the statute. The allegation that the defendants did not disclose their business relationship with the firm profiting from the legal advice was sufficient to support the fraud cause of action (as “non-duplicative”). The excessive fees and unjust enrichment causes of action were likewise not duplicative of the legal malpractice cause of action. The punitive damages claim was sufficiently pled because it alleged a wide-ranging scheme affecting many of defendants’ clients:

…[W]hile there was certainly the possibility that the need for future legal work would be required with respect to the tax strategy, plaintiffs could not have “acutely” anticipated the need for further counsel from defendants that would trigger the continuous representation toll. * * *

Defendants argue that, because the legal malpractice claim is time-barred, plaintiffs’ other claims arising out of the representation are also time-barred since they are merely duplicative of the malpractice cause of action. This contention derives from CPLR 214(6), which was enacted to prevent plaintiffs from circumventing the three-year statute of limitations for professional malpractice claims by characterizing a defendant’s failure to meet professional standards as something else, such as a breach of contract (for which there is a six-year statute of limitations) … . The key to determining whether a claim is duplicative of one for malpractice is discerning the essence of each claim … . * * *  Here, the essences of the fraud and malpractice claims are sufficiently distinct from one another that the court properly did not invoke the duplicative claims doctrine. * * *

The excessive fee and unjust enrichment claims are also not duplicative of the malpractice claim. The former is stated regardless of the quality of the work performed, so long as a plaintiff can reasonably allege that the fee bore no rational relationship to the product delivered … . Here, plaintiffs did so, since they asserted that defendants collected a $425,000 fee for a “cookie cutter” legal opinion. By the same logic, the unjust enrichment claim, which is predicated on the excessiveness of the $425,000 fee, also properly survived the motion to dismiss. * * *

…[P]laintiffs’ claim for punitive damages properly survived dismissal. Defendants’ conduct is alleged to have been directed at a wide swath of clients, and the first amended complaint sufficiently alleges intentional and malicious treatment of those clients as well as a “wanton dishonesty as to imply a criminal indifference to civil obligations” … .  Johnson v Proskauer Rose LLP, 2015 NY Slip Op 03626, 1st Dept 4-30-15

 

Categories

Sign Up for the Mailing List to Be Notified When the Site Is Updated.

  • This field is for validation purposes and should be left unchanged.

Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy