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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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PROVISION IN MORTGAGE WHICH GAVE BORROWER RIGHT TO DE-ACCELERATE THE DEBT DID NOT PRECLUDE PLAINTIFF BANK FROM ACCELERATING THE DEBT BY FILING A SUMMONS AND COMPLAINT, FORECLOSURE ACTION TIME-BARRED (SECOND DEPT).

The Second Department, in a full-fledged opinion by Justice Miller, determined that a reinstatement provision in a mortgage which gives the borrower the option to de-accelerate the debt did not preclude the plaintiff bank from accelerating the debt, rendering the foreclosure action time-barred:

This appeal presents an issue of first impression for this Court. The plaintiff in this mortgage foreclosure action contends that it lacked the authority to exercise its contractual option to accelerate the maturity of the entire balance of the loan it seeks to recover. The plaintiff argues that it was prevented from validly accelerating the debt by virtue of a reinstatement provision in the subject mortgage which gives the borrower the option, under certain circumstances, to effectively de-accelerate the maturity of the debt. The plaintiff further argues that the statute of limitations did not begin to run until the borrower’s rights under the reinstatement provision in the subject mortgage were extinguished. * * *

… .[T]he defendant demonstrated that the subject mortgage provided the plaintiff with the right to require the defendant to immediately pay “the entire amount then remaining unpaid under the Note and [mortgage]” if the plaintiff first satisfied certain conditions set forth in the mortgage. The defendant’s evidentiary submissions established that the plaintiff complied with those conditions … , and then validly exercised its option to accelerate the entire remaining balance due under the note by filing the summons and complaint in the first foreclosure action in June 2010 … . Accordingly, since this action was not commenced until October 2016, the defendant established, prima facie, that the time in which to commence this action has expired (see CPLR 213[4]). * * *

… [T]the extinguishment of the defendant’s contractual right to de-accelerate the maturity of the debt pursuant to the reinstatement provision in paragraph 19 of the mortgage was not a condition precedent to the plaintiff’s acceleration of the mortgage … . Bank of N.Y. Mellon v Dieudonne, 2019 NY Slip Op 01732, Second Dept 3-13-19

 

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QUESTION OF FACT WHETHER GROSS NEGLIGENCE MIGHT OVERCOME A CONTRACTUAL LIMITATION ON LIABILITY (FIRST DEPT).

The First Department, reversing Supreme Court, determined there was a question of fact whether gross negligence might overcome a contractual limitation on liability. Here a bid on a highway project turned out to be more than $80 million short, which resulted in the withdrawal of the bid. The project was for a toll road, the toll to be paid to the builder of the road. The bid was low because the date of the beginning of construction, rather than the end of construction, was used to calculate the income from the toll. Gross negligence factors included, the firing of key personnel overseeing the creation of the bid, failure to follow company policy in reviewing the bid, and departure from industry standards:

It is well-settled that contractual limitations on liability are generally enforceable … . However, “public policy forbids a party from attempting to avoid liability for damages caused by grossly negligent conduct” … . Thus, a gross negligence claim will be sustained where a party’s conduct “evinces a reckless disregard for the rights of others or smacks’ of intentional wrongdoing” … . S.A. De Obras y Servicios, COPASA v Bank of Nova Scotia, 2019 NY Slip Op 01706, First Dept 5-12-19

 

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ATTORNEY HAD APPARENT AUTHORITY TO SIGN STIPULATION OF SETTLEMENT WHICH THEREFORE BOUND THE PLAINTIFF TO ITS TERMS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiff’s attorney had apparent authority to sign a stipulation of settlement which was therefore binding on plaintiff:

“A stipulation made by the attorney may bind a client even where it exceeds the attorney’s actual authority if the attorney had apparent authority to enter into the stipulation” … . Here, the plaintiff is bound by the settlement agreement signed by her former attorney. Even if the attorney lacked actual authority to enter into the settlement agreement on the plaintiff’s behalf, a finding that he had the apparent authority to do so is warranted by the facts … . The plaintiff’s former attorney participated in the mediation with the plaintiff’s knowledge and consent, and represented to the mediator and to defense counsel that a representative from his office had spoken with the plaintiff and obtained authority to settle the action for the sum of $150,000. Additionally, the law firm that employed the attorney who participated in the mediation was the plaintiff’s attorney of record in the action, and attorneys from that law firm signed and verified the summons and complaint and signed and certified a note of issue filed in the action … . Amerally v Liberty King Produce, Inc., 2019 NY Slip Op 01550, Second Dept 3-5-19

 

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COVENANT TO BUILD A WALKWAY LINKING PARTS OF A RESIDENTIAL COMMUNITY RAN WITH THE LAND AND WAS THEREFORE ENFORCEABLE BY THE HOMEOWNERS ASSOCIATION AGAINST A SUBSEQUENT PURCHASER OF THE PROPERTY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the plaintiff homeowners association (HOA) was entitled to enforce an agreement made with the prior owners of the residential community to construct a walkway linking the newly constructed area to the existing areas of the community. The walkway covenant was deemed to run with the land:

As stated by the Court of Appeals, “[i]n Neponsit [Neponsit Prop. Owners’ Assn. v Emigrant Indus. Sav. Bank, 278 NY 248] we articulated three conditions . . . that must be met in order for a covenant to run with the land: (1) it must appear that grantor and grantee intended that the covenant should run with the land; (2) it must appear that the covenant is one touching or concerning the land with which it runs; [and] (3) it must appear that there is privity of estate between the promisee or party claiming the benefit of the covenant and the right to enforce it, and the promisor or party who rests under the burden of the covenant” … . …

The contract entered into in 2000, and the 2002 Amendment, as well as the circumstances of the transaction, demonstrate that the grantor and grantee intended that the walkway covenant should run with the land, thus satisfying the first Neponsit condition … . Indeed, the walkway covenant was expressly deemed an “inducement” for the HOA to sell the property … . …

The second Neponsit condition, that the walkway covenant touches and concerns the land, is easily met here, since the walkway covenant requires construction of a walkway linking the property with the Bay Street Landing community, and construction of common amenities. Thus, it “directly affects the uses to which the land may be put and substantially affects its value” … .

The third Neponsit condition is satisfied by the undisputed facts establishing the requisite privity  … . Bay St. Landing Homeowners Assn., Inc. v Meadow Partners, LLC, 2019 NY Slip Op 01384, Second Dept 2-27-19

 

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