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MOTION TO AMEND THE COMPLAINTS IN THESE RESIDENTIAL MORTGAGE BACKED SECURITIES ACTIONS SHOULD HAVE BEEN GRANTED, COMPETING INTERPRETATIONS OF A CONTRACT SHOULD NOT BE DETERMINED AT THE MOTION-TO-DISMISS STAGE (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Richter, over a partial dissent, determined plaintiff’s (the Trustee’s) motion to amend its complaints in these residential mortgage backed securities actions should have been granted. The amendment sought to allege defendant breached the underlying contract by failing to notify the trustee of loan breaches. The majority found that the contract provision requiring notice was ambiguous. The dissent argued the contract was not ambiguous and did not require notification:

It is well settled that “[a] request for leave to amend a complaint should be freely given, and denied only if there is prejudice or surprise resulting directly from the delay, or if the proposed amendment is palpably improper or insufficient as a matter of law” … . “A party opposing leave to amend must overcome a heavy presumption of validity in favor of [permitting amendment]” … .

Judged by these standards, the motion court should have granted the Trustee’s motions for leave to file the amended complaints with respect to the express breach of contract claims based on DBSP’s (defendant’s) failure to notify the Trustee of the loan breaches … . It cannot be said, at this early stage of the proceedings, that these claims are “palpably improper or insufficient as a matter of law” … . Nor has DBSP asserted, let alone shown, that it would suffer any prejudice or surprise directly resulting from the delay. * * *

… [B]because the disputed provision is reasonably susceptible to more than one interpretation, “it cannot be construed as a matter of law, and dismissal . . . is not appropriate” … . LDIR, LLC v DB Structured Prods., Inc., 2019 NY Slip Op 03154, First Dept 4-25-19

 

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FINANCIAL DISCLOSURE AND A HEARING WERE NECESSARY TO DETERMINE WHETHER THE SEPARATION AGREEMENT WAS INVALID, SUPPORT AND MAINTENANCE AGREED TO BY PLAINTIFF WIFE WAS LESS THAN PLAINTIFF’S APARTMENT RENTAL (SECOND DEPT).

The Second Department, reversing Supreme Court, determined a hearing was necessary to determine whether a separation agreement was invalid (unconscionable). The plaintiff wife did not have an attorney when the agreement was negotiated, but she consulted an attorney who advised her the support and maintenance were not sufficient to meet her needs. The amount of support and maintenance agreed to was less than the monthly rental for plaintiff’s apartment:

Given that the agreement’s support provisions were insufficient to cover the rent for the marital residence and other basic needs of the plaintiff and the children, as well as the lack of financial disclosure regarding the value of the defendant’s business, condominium, and actual income, questions of fact existed as to whether the separation agreement was invalid, sufficient to warrant a hearing … .  Given the lack of any financial disclosure, the Supreme Court should have exercised its equitable powers and directed disclosure regarding the parties’ finances at the time the agreement was executed, to be followed by a hearing to test the validity of the separation agreement … . Mizrahi v Mizrahi, 2019 NY Slip Op 03040, Second Dept 4-24-19

 

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DISCLAIMER IN THE REAL ESTATE PURCHASE AND SALE CONTRACT PRECLUDED ACTIONS BASED IN FRAUD ALLEGING THE CONCEALMENT OF A RECURRING MOLD-CAUSING CONDITION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the causes of action alleging fraud in the concealment of a recurring mold-causing condition should have been dismissed. The real estate contract included a disclaimer which stated that plaintiffs relied upon their own inspection of the property and not any representations made by others:

“In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . In the context of real estate transactions, “New York adheres to the doctrine of caveat emptor and imposes no duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller or the seller’s agent which constitutes active concealment” … . “If however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property” … . “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor” … .

The presence of disclaimers in a written agreement may preclude a claim of common-law fraud by rendering any resulting reliance unjustified … . Moreover, a specific disclaimer of reliance on representations as to the condition of real property will generally bar related fraud-based claims … . Here, the contract of sale for the subject premises set forth,  a… lia, that the plaintiffs were “fully aware of the physical condition and state of repair of the Premises . . . based on [their] own inspection and investigation thereof,” and that they were “entering into this contract based solely upon such inspection and investigation and not upon any information . . . or representations . . . given or made by Seller or its representatives.” Comora v Franklin, 2019 NY Slip Op 02671, Second Dept 4-10-19

 

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ALLEGATIONS THAT A POSTNUPTIAL AGREEMENT WAS UNCONSCIONABLE SURVIVED THE MOTION TO DISMISS, THE SUBSTANTIVE AND PROCEDURAL CRITERIA FOR THE DISMISSAL OF COUNTERCLAIMS AND AFFIRMATIVE DEFENSES ALLEGING FRAUD, DURESS, COERCION AND UNCONSCIONABILITY DISCUSSED IN SOME DEPTH (SECOND DEPT).

The Second Department, modifying Supreme Court, dealt with the analytical criteria for motions to dismiss counterclaims and affirmative defenses in the context of a postnuptial agreement which was alleged to have been tainted by fraud, coercion, duress and unconscionability. The “unconscionable” allegations survived the dismissal motion. The decision covers all these substantive and procedural issues in some depth and cannot, therefore, be fairly summarized here:

An unconscionable agreement is “one such as no person in his or her senses and not under delusion would make on the one hand, and as no honest and fair person would accept on the other, the inequality being so strong and manifest as to shock the conscience and confound the judgment of any person of common sense” … . Because of the fiduciary relationship between spouses, postnuptial agreements “are closely scrutinized by the courts, and such agreements are more readily set aside in equity under circumstances that would be insufficient to nullify an ordinary contract”  … . “To warrant equity’s intervention, no actual fraud need be shown, for relief will be granted if the [agreement] is manifestly unfair to a spouse because of the other’s overreaching” … . “Although courts may examine the terms of the agreement as well as the surrounding circumstances to ascertain whether there has been overreaching, the general rule is that [if] the execution of the agreement . . . be fair, no further inquiry will be made'” … .

Here, at this stage of the action, the defendant’s pleadings, as amplified by his submissions in opposition to the plaintiff’s motion and in support of his cross motion … , are sufficient to allege both procedural and substantive unconscionability. Shah v Mitra, 2019 NY Slip Op 02739, Second Dept 4-10-19

 

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DEFENDANT STATED VALID COUNTERCLAIMS FOR FRAUDULENT INDUCEMENT, BREACH OF FIDUCIARY DUTY AND NEGLIGENT MISREPRESENTATION IN THIS BREACH OF CONTRACT ACTION, SUPREME COURT REVERSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant had stated counterclaims for fraudulent inducement, breach of a fiduciary duty, and negligent misrepresentation in this breach of contract action:

Sharbat’s [plaintiff’s] statements that he had “massive investors” who were prepared to invest in defendant and that he “had obtained high-value investors for [defendant] in Israel,” while partially hyperbolic, make concrete factual representations that go beyond mere puffery. Simply stated, Sharbat asserted that he had investors lined up and ready to go, when in fact he had none. Since plaintiffs were retained by defendant to bring investors in, these statements constitute misrepresentations of material facts for purposes of the fraudulent inducement counterclaim … . …

[The] allegations plead a broker-principal relationship sufficient to impose a fiduciary duty on plaintiffs vis-a-vis defendant … . Plaintiffs’ fiduciary role carried with it a duty to disclose material facts … . …

Defendant alleges that plaintiffs negligently misrepresented that they were able to represent it in obtaining investors and facilitating the issuance of securities to raise capital for it, that they were skilled in obtaining financing from “high-value investors,” that they “had qualified, high-value investors who were to invest in [defendant],” and that plaintiffs themselves were qualified to invest in defendant. … These allegations state a counterclaim for negligent misrepresentation … . Solomon Capital, LLC v Lion Biotechnologies, Inc., 2019 NY Slip Op 02621, First Dept 4-4-19

 

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THE EXCEPTION TO THE FAULTY WORKMANSHIP EXCLUSION IN THE FIRE INSURANCE POLICY APPLIED TO PRESERVE COVERAGE FOR ENSUING LOSS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the fire damage was covered under the policy:

Following an inspection of the property by a fire investigator and an electrical engineer, the defendant issued a letter to the plaintiffs’ claims adjuster disclaiming coverage for “building damage” on the grounds that “improper conditions” related to a junction box “were the direct cause of the fire and instant loss” and the policy specifically excluded coverage for faulty workmanship. … The exclusion provided, in relevant part, “[w]e do not insure for loss to property described in Coverages A and B caused by any of the following. However, any ensuing loss to property described [in] Coverages A and B not excluded or excepted in this policy is covered. . . c. Faulty, inadequate or defective: . . . (2) design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction . . . of part or all of any property, whether on or off residence premises.”

“Where a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk” … . Therefore, “an ensuing loss provision . . . provide[s] coverage when, as a result of an excluded peril, a covered peril arises and causes damage” … . …

We disagree with the Supreme Court’s determination that the plaintiffs did not establish, as a matter of law, that the exception to the faulty workmanship exclusion was applicable to preserve coverage for the damage to their property. The evidence in the record demonstrated that the fire occurred two years after the alleged faulty workmanship related to the junction box, and caused ensuing loss to property “wholly separate from the defective property itself” … . Fruchthandler v Tri-State Consumer Ins. Co., 2019 NY Slip Op 02502, Second Dept 4-3-19

 

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DEFENDANT’S REFUSING TO TESTIFY WAS DEEMED A VIOLATION OF THE WRITTEN COOPERATION AGREEMENT, HIS MOTION TO WITHDRAW HIS GUILTY PLEA WAS PROPERLY DENIED (CT APP).

The Court of Appeals, affirming the denial of defendant’s motion to withdraw his guilty plea, over an extensive two-judge dissent, determined that defendant’s refusal to testify against a person who had participated in a home invasion violated the written cooperation agreement:

As part of a plea agreement and in exchange for a favorable sentence, defendant entered into a written cooperation agreement whereby he promised to “cooperate completely and truthfully with law enforcement authorities, including the police and the District Attorney’s Office, on all matters in which his cooperation is requested, including but not limited to the prosecution of [defendant’s accomplices] on charges related to the murder of Jose Sanchez and the assault of [Sanchez’s brother].” Prior to entering into the cooperation agreement, defendant had confessed to his involvement in the Sanchez murder and assault, explaining that the crimes were retaliation for a prior invasion of defendant’s home by Sanchez and his associates, including Jose Marin. When defendant signed the agreement, he already had testified to Marin’s involvement in the home invasion before the grand jury in the Sanchez matter, and he also had assisted the police with their investigation of the home invasion by identifying Marin in a photo array. …

… [D]efendant’s refusal to testify against Marin violated the express terms of his cooperation agreement. The plain language of the agreement was objectively susceptible to but one interpretation … . County Court, therefore, did not abuse its discretion by denying defendant’s motion to withdraw his guilty plea based on his claimed subjective misinterpretation of the agreement or by concluding, to the contrary, that defendant reasonably understood that his cooperation in the Marin prosecution was required … . People v Rodriguez, 2019 NY Slip Op 02444, CtApp 4-2-19

 

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MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM IN THIS BREACH OF CONTRACT ACTION, BASED UPON DOCUMENTARY EVIDENCE, SHOULD NOT HAVE BEEN GRANTED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Manzanet-Daniels, reversing Supreme Court, determined the motion to dismiss based on documentary evidence should not have been granted in this breach of contract action. Plaintiff and defendant had entered a Share Purchase Agreement (SPA) in which plaintiff agreed to purchase defendant, Symbio, for between $100 and $110 million. The opinion is fact specific and cannot be fairly summarized here:

Plaintiff’s claims are not definitively contradicted by the documentary evidence. The record (to the extent there is one on this motion pursuant to CPLR 3211) demonstrates the existence of issues of fact concerning when plaintiff determined that there was a matter that might give rise to a right of indemnification so that it was required to give notice pursuant to section 8.03(a) of the parties’ contract. …

Further, defendants’ defense of a condition precedent is not conclusively established. Even if section 8.03(a) might be construed as a condition precedent (which is highly doubtful), there has been no showing regarding the materiality of the provision as would be necessary given that nonoccurrence of the condition would lead to a draconian forfeiture.  XI Lux Holdco S.A.R.L. v SIC Holdings, LLC, 2019 NY Slip Op 02437, First Dept 3-28-19

 

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NONPARTY SUBPOENA PROPERLY QUASHED BECAUSE IT DID NOT PROVIDE THE REASONS FOR THE REQUESTED DISCLOSURE, QUESTIONS OF FACT WHETHER STIPULATION OF SETTLEMENT WAS UNCONSCIONABLE AND WHETHER PLAINTIFF EXECUTED THE STIPULATION UNDER DURESS (SECOND DEPT).

The Second Department, modifying Supreme Court in this divorce action, determined: (1) the subpoena for a nonparty was defective because the reasons for the disclosure were not provided; (2) the stipulation of settlement was not demonstrated to be unconscionable as a matter of law; and (3) there were questions of fact whether the stipulation was signed under duress:

Pursuant to CPLR 3101(a)(4), a party may obtain discovery from a nonparty where the matter sought is material and necessary to the prosecution or defense of an action … . A party seeking discovery from a nonparty must apprise the nonparty of the circumstances or reasons requiring disclosure (see CPLR 3101[a][4] … ). Here, we disagree with the Supreme Court’s determination that the testimony sought from the nonparty was utterly irrelevant [the nonparty was a women with whom defendant allegedly had an affair]. However, we agree with the court’s determination that the subpoenas were defective since, among other things, the defendant failed to provide the nonparty with the required explanation of the circumstances or reasons requiring disclosure either on the face of the subpoenas or in any accompanying material (see CPLR 3101[a][4] … ). Accordingly, we agree with the court’s granting of the nonparty’s motion to quash the subpoenas. Gandham v Gandham, 2019 NY Slip Op 02069, Second Dept 3-20-19

 

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THE 30-DAY NOTICE PROVISION IN THE MORTGAGE DID NOT PRECLUDE ACCELERATING THE DEBT BY THE ALLEGATIONS IN THE FORECLOSURE COMPLAINT, SUPREME COURT SHOULD NOT HAVE NULLIFIED THE ACCELERATION (FIRST DEPT).

The First Department, reversing Supreme Court, determined Supreme Court should not have nullified the acceleration of the mortgage in this foreclosure action. Because acceleration was optional, the 30-day notice provision in the mortgage did not preclude acceleration by the allegations in the foreclosure complaint:

Supreme Court erred in nullifying plaintiff’s assignor’s acceleration in the prior action based on Section 22 of the mortgage which provides that the lender may accelerate the mortgage only if, inter alia, it has served defendant with a proper 30-day notice of default. Where the acceleration is optional as here, some affirmative action must be taken to evince the note holder’s election to accelerate … . Affirmative action can be in the form of a letter … or the commencement of a foreclosure action … . Plaintiff’s assignor accelerated the mortgage debt by commencing the prior action and stating in its complaint that “plaintiff elects herein to call due the entire amount secured by the mortgage(s).” Capital One, N.A. v Saglimbeni, 2019 NY Slip Op 01837, First Dept 3-14-19

 

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