Fraud Archives - New York Appellate Digest

Civil Procedure, Contract Law, Foreclosure, Fraud

PLAINTIFFS’ ACTION ALLEGING BREACH OF AN ORAL CONTRACT REGARDING REPAYMENT OF A LOAN SECURED BY A NOTE AND MORTGAGE SHOULD HAVE BEEN DISMISSED AS BARRED BY THE STATUTE OF FRAUDS; THE FRAUD AND UNJUST ENRICHMENT CAUSES OF ACTION MUST BE DISMISSED AS DUPLICATIVE OF THE BREACH OF CONTRACT CAUSE OF ACTION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined plaintiffs’ action alleging breach of an alleged oral contract concerning the repayment of a loan secured by a note an mortgage should have been dismissed as barred by the statute of frauds. The fraud and unjust enrichment causes of action must also be dismissed as duplicative of the breach of contract cause of action:

The complaint alleged that contemporaneously with executing the note and mortgage, the plaintiffs and the defendant entered into an oral agreement providing, inter alia, that in exchange for assigning a contract to purchase certain real property to the defendant, the plaintiffs would be responsible for paying only the interest on the loan. The complaint, which asserted causes of action sounding in breach of contract, fraud, and unjust enrichment, sought, among other things, recovery of the settlement amount paid by the plaintiffs in the foreclosure action, less the amount of interest allegedly due pursuant to the oral agreement. The defendant moved pursuant to CPLR 3211(a) to dismiss the complaint. The Supreme Court denied the motion, and the defendant appeals.

Accepting the facts as alleged in the complaint as true, and according the plaintiffs the benefit of every possible inference, dismissal of the breach of contract cause of action should have been granted, since enforcement of the alleged oral agreement, ostensibly to modify the note and mortgage, is barred by the statute of frauds (see General Obligations Law §§ 5-703[1]; 5-1103 … ). Dismissal of the causes of action alleging fraud and unjust enrichment should also have been granted as they are duplicative of the unenforceable contractual cause of action and thus constitute an impermissible attempt to circumvent the statute of frauds … . Botanical Realty Assoc. Urban Renewal, LLC v Gluck, 2020 NY Slip Op 00099, Second Dept 1-8-20

January 8, 2020/0 Comments/by Bruce Freeman

Consumer Law, Fraud, Negligence, Negligent Misrepresentation

NEGLIGENT CONCEALMENT CAUSE OF ACTION AGAINST HOSPITAL ALLEGING THE FAILURE TO DISCLOSE BILLING PRACTICES SHOULD HAVE BEEN DISMISSED; GENERAL BUSINESS LAW 349 CAUSE OF ACTION PROPERLY SURVIVED (SECOND DEPT).

The Second Department determined the complaint did not state a cause of action for negligent concealment/misrepresentation, but did state a cause of action for violation of General Business Law 349. The plaintiff alleged defendant hospital failed to to disclose material facts about the hospital’s billing practices for emergency treatment:

As a threshold matter, while the parties appear to dispute whether the first cause of action should be characterized as one sounding in “negligent concealment” or “negligent misrepresentation,” this is a distinction without a difference. The gravamen of the plaintiff’s allegations are that the hospital negligently failed to disclose material facts to him concerning the hospital’s billing practices. This is a species of negligent misrepresentation based on the omission to disclose material facts … . As a general proposition, “a duty to speak with care exists when the relationship of the parties, arising out of contract or otherwise, [is] such that in morals and good conscience the one has the right to rely upon the other for information” … . Thus, “liability for negligent misrepresentation has been imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified” … . Contrary to the plaintiff’s contention, the fact that the parties are in a contractual relationship, without more, is insufficient to support the imposition of a duty to speak with care … .

While it cannot be doubted that the relationship between a physician and a patient is one of confidence and trust regarding matters of medical treatment … , we decline to hold that such relationship, and any duty to speak with care that may come with it, also extends to matters of billing having nothing to do with the rendition of medical treatment. …

… [W]e agree with the Supreme Court’s determination that the hospital was not entitled to summary judgment dismissing the General Business Law § 349 cause of action insofar as asserted against it. First, contrary to the hospital’s contention, it was engaged in consumer-oriented activity … . Second, it is possible to engage in deceptive trade practices through omissions as well as affirmative representations … , particularly where, as here, it is alleged that “the business alone possesses material information that is relevant to the consumer and fails to provide this information” … . Third, contrary to the hospital’s contention, there is a triable issue of fact as to whether the plaintiff suffered an injury under General Business Law § 349 … . Krobath v South Nassau Communities Hosp., 2019 NY Slip Op 08838, Second Dept 12-11-19

December 11, 2019/by Bruce Freeman

Accountant Malpractice, Corporation Law, Fraud

QUESTIONS OF FACT WHETHER THE ADVERSE INTEREST EXCEPTION TO THE IN PARI DELICTO DEFENSE APPLIES IN THIS ACCOUNTANT MALPRACTICE CASE (FIRST DEPT).

The First Department, reversing Supreme Court, determined questions of fact were raised about whether the adverse interest exception bars the in pari delicto defense in this accountant malpractice case:

In this accounting malpractice action, plaintiffs, the liquidators of several hedge funds, allege that defendants failed to uncover fraudulent activity by the funds’ investment managers. The issue before us is whether the adverse interest exception to the equitable defense of in pari delicto bars the defense in this case (see Kirschner v KPMG LLP, 15 NY3d 446 [2010]). We find that plaintiffs raised issues of fact as to the adverse nature of their interests vis-a-vis those of their agents, the funds’ investment managers, that preclude summary dismissal of the complaint on the ground of the in pari delicto defense.

“To come within the exception, the agent must have totally abandoned his principal’s interests and be acting entirely for his own or another’s purposes” ,,, . The exception is applied only where the fraud is committed “against a corporation rather than on its behalf” … . “So long as the corporate wrongdoer’s fraudulent conduct enables the business to survive — to attract investors and customers and raise funds for corporate purposes — this test is not met” … . Thus, we conclude that the mere continuation of a corporate entity does not per se constitute a benefit that precludes application of the adverse interest exception. …

… [R]eliance on speculation about the benefits to be derived from the continued existence of an entity is inconsistent with the analysis of the adverse interest exception in Kirschner. It may be possible in every case to construct a hypothetical scenario where the company teetering on the brink of insolvency because of its agent’s fraud meets with an opportune circumstance that allows it to resume legitimate business operations. Permitting such speculation would render the adverse interest exception meaningless. Further, an ongoing fraud and a continued corporate existence may harm a corporate entity: The agent may prolong the company’s legal existence so that he can continue to loot from it, as appears to have been the case here. Conway v Marcum & Kliegman LLP, 2019 NY Slip Op 07338, First Dept 10-10-19

October 10, 2019/by Bruce Freeman

Civil Procedure, Contract Law, Debtor-Creditor, Fraud

THE “PARTICULARITY” PLEADING-REQUIREMENTS FOR A FRAUD CAUSE OF ACTION DO NOT APPLY TO CAUSES OF ACTION ALLEGING A FRAUDULENT CONVEYANCE PURSUANT TO THE DEBTOR-CREDITOR LAW (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that, because a fraudulent conveyance action does not require an intent to defraud, the specificity requirement in the CPLR for pleading a fraud cause of action do not apply. Here plaintiff alleged the defective design and construction of a condominium:

Pursuant to Debtor and Creditor Law § 273, a conveyance that renders the conveyor insolvent is fraudulent as to creditors without regard to actual intent, if the conveyance was made without fair consideration (see Debtor and Creditor Law § 273 …). Pursuant to Debtor and Creditor Law § 274, a conveyance is fraudulent as to creditors without regard to actual intent when it is “made without fair consideration when the person making it is engaged or is about to engage in a business or transaction for which the property remaining in his [or her] hands after the conveyance is an unreasonably small capital” … . Section 270 of the Debtor and Creditor Law defines “creditor” as any “person having any claim, whether matured or unmatured, liquidated or unliquidated, absolute, fixed, or contingent.”

Here, the complaint’s fifth cause of action sufficiently states cognizable claims alleging fraudulent conveyances pursuant to Debtor and Creditor Law §§ 273 and 274. Since valid claims of violations of Debtor and Creditor Law §§ 273 and 274 do not require proof of actual intent to defraud, such claims are not required to be pleded with the particularity required by CPLR 3016(b) … . Further, the plaintiff sufficiently alleged that it is a creditor of the sponsor since it asserted a breach of contract cause of action against the sponsor, even though said cause of action was unmatured at the time of the alleged conveyances … . Board of Mgrs. of E. Riv. Tower Condominium v Empire Holdings Group, LLC, 2019 NY Slip Op 06587, Second Dept 9-18-19

September 18, 2019/by Bruce Freeman

Banking Law, Fraud, Uniform Commercial Code

BANK NOT LIABLE FOR PAYMENT RE: FRAUDULENT CHECKS SIGNED BY PLAINTIFF BUT ALTERED BY PLAINTIFF’S BOOKKEEPER TO PAY OFF HER CREDIT CARD BILLS (FIRST DEPT).

The First Department determined defendant bank (Citibank) and Citi Credit were not liable for cashing checks which were signed by plaintiff but which were altered by plaintiff’s bookkeeper to pay off her credit card bills. Plaintiff was notified of the fraud by Citibank:

Citibank’s actual knowledge of the fraud in February 2016 is, at this pleading stage, enough to sustain the claim of commercial bad faith that would render Citibank ineligible for the protection of UCC 3-405(1)(c) … , i.e., the “fictitious payee” or “padded payroll” defense … .

… UCC 3-405(1)(c) bars plaintiffs’ claims against Citi Credit. Nowhere in any of their papers — either the complaint or Dr. Weiser’s opposition affidavit — do plaintiffs allege other than conclusorily that Citi Credit, like Citibank a subsidiary of defendant Citigroup, Inc., had actual knowledge of the fraud. …

Although plaintiffs’ claims against Citibank are not barred by UCC 3-405(1)(c), they are barred by plaintiffs’ failure to satisfy a condition precedent to suit created by UCC 4-406(4) and Citibank’s checking account rules and regulations as set forth in its CitiBusiness Client Manual … . Plaintiffs failed, as required by the manual, to “notify us [Citibank] in writing within 30 days after we send or make available to you [plaintiffs] your account statement and accompanying items of any errors, discrepancies, or unauthorized transactions.” Weiser v Citigroup, Inc., 2019 NY Slip Op 06440, First Dept 9-3-19

September 3, 2019/by Bruce Freeman

Civil Conspiracy, Civil Procedure, Contract Law, Fraud

ALTHOUGH THERE IS NO CAUSE OF ACTION FOR CIVIL CONSPIRACY IN NEW YORK, THE ELEMENTS OF CONSPIRACY, INCLUDING OVERT ACTS, WERE PROPERLY PLED AS PART OF THE FRAUD CAUSE OF ACTION (FIRST DEPT).

The First Department, modifying Supreme Court, determined that, although there is no cause of action for civil conspiracy in New York, the conspiracy alleged here was validly pled as part of the fraud cause of action. The unjust enrichment cause of action should have been dismissed because there was no close relationship between the plaintiff and defendant. The complaint did not support the punitive damages claim because it did not allege defendants’ actions were aimed at the public or showed moral turpitude. The permanent injunction cause of action was validly pled because the injury cannot be fully compensated by money damages. The action stemmed from a failed partnership to develop a cure for rare genetic blood disorders:

The complaint states a cause of action for fraud by alleging that Sloan-Kettering knowingly misrepresented or omitted a material fact for the purpose of inducing plaintiff to rely upon it, that plaintiff justifiably relied on the misrepresentation or omission, and that plaintiff sustained injury … . …

… “[C]ivil conspiracy is not recognized as an independent tort in this State” … . Rather, the “allegations in the complaint herein charging conspiracy are deemed part of the remaining causes of action to which they are relevant” … . Here, the conspiracy charge remains as part of the fraud cause of action. …

… “[L]iability for fraud may be premised on knowing participation in a scheme to defraud, even if that participation does not by itself suffice to constitute the fraud” … . Allegations of conspiracy “serve to enable a plaintiff to connect a defendant with the acts of his co-conspirators where without it he could not be implicated” … .

… [P]laintiff sufficiently alleges overt acts …. …

… [T]he liability of a defendant as a conspirator for co-conspirators’ wrongful acts “does not necessarily depend upon his active participation in the particular overt acts” … . Moreover, once a conspiracy is established, all defendants are liable for each other’s acts in furtherance of the conspiracy … . Errant Gene Therapeutics, LLC v Sloan-Kettering Inst. for Cancer Research, 2019 NY Slip Op 05754, First Dept 7-23-19

July 23, 2019/by Bruce Freeman

Civil Procedure, Contract Law, Fraud

FRAUD IN THE INDUCEMENT CAUSE OF ACTION WAS NOT DUPLICATIVE OF THE BREACH OF CONTRACT CAUSE OF ACTION; MOTION TO DISMISS SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT).

The Second Department, reversing Supreme Court, determined defendants’ motion to dismiss the fraud cause of action should not have been granted. Supreme Court held the fraud action was duplicative of the breach of contract action:

“The essential elements of a cause of action for fraud are representation of a material existing fact, falsity, scienter, deception and injury” … . “Mere unfulfilled promissory statements as to what will be done in the future are not actionable as fraud and the injured party’s remedy is to sue for breach of contract” … . Where, however, it is alleged that the defendant made misrepresentations of present facts that were collateral to the contract and served as an inducement to enter into the contract, a cause of action alleging fraudulent inducement is not duplicative of a breach of contract cause of action … .

… [T]he cause of action alleging fraudulent inducement was not duplicative of the breach of contract cause of action. The first cause of action alleges that the defendants knowingly made false representations in … financial statements, which were collateral to the APA [asset purchase agreement], that these false statements were made in order to induce the plaintiff to enter into the APA, that the plaintiff would not have entered into the APA but for these false statements, and that the plaintiff was injured by this fraudulent conduct …. As the first cause of action alleges misrepresentations of present fact that were collateral to the APA and further alleges that these misrepresentations induced the plaintiff to enter into the APA, the court should have denied that branch of the defendants’ motion which was to dismiss the first cause of action. Did-it.com, LLC v Halo Group, Inc., 2019 NY Slip Op 05644, Second Dept 7-17-19

July 17, 2019/by Bruce Freeman

Civil Procedure, Contract Law, Debtor-Creditor, Fraud

FRAUD CAUSE OF ACTION, AS ALLEGED, IS NOT DUPLICATIVE OF THE ACTION FOR BREACH OF A LOAN GUARANTEE AND SHOULD NOT HAVE BEEN DISMISSED ON THAT GROUND (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff’s fraud cause of action was not duplicative on the action for breach of a loan guarantee and should not have been dismissed:

Plaintiff alleges that, as CEO of nonparty Karmaloop, Inc., defendant Gregory Selkoe solicited from plaintiff a bridge loan in the amount of $2,040,000. Plaintiff agreed, on condition that Selkoe personally guarantee the loan. Selkoe provided the personal guarantee, and also represented to plaintiff that he had previously given only one other personal guarantee, and that Karmaloop had never defaulted on any loan payment. Both of these representations were false, in that, unbeknownst to plaintiff, Selkoe had previously guaranteed a loan issued to another Karmaloop executive, and Karmaloop had defaulted on that loan.

The foregoing states a claim for fraudulent inducement, which is not duplicative of plaintiff’s claim for breach of the guarantee. Plaintiff does not allege that Selkoe misrepresented the intent to perform on the guarantee and underlying promissory note, which would render the fraud claim duplicative, but rather alleges that Selkoe misrepresented his and Karmaloop’s ability to perform … .

At this early juncture, we find that plaintiff should be “permitted to plead in the alternative (see CPLR 3014),” and its claim “for fraud, should not be dismissed as duplicative of the breach-of-contract cause of action” … . Man Advisors, Inc. v Selkoe, 2019 NY Slip Op 05483, First Dept 7-9-19

July 9, 2019/by Bruce Freeman

Election Law, Fraud

THE CANDIDATE SIGNED THE SUBSCRIBING WITNESS STATEMENT WHICH INDICATED EACH VOTER SIGNED THE DESIGNATING PETITION IN HIS PRESENCE, WHICH WAS NOT THE CASE, DESIGNATING PETITION WAS PROPERLY INVALIDATED BASED UPON THE CANDIDATE’S PARTICIPATION IN FRAUDULENT ACTIVITY (THIRD DEPT).

The Third Department determined the designating petition was properly invalidated because there was clear and convincing evidence the candidate (Subedi) participated in fraudulent activity:

Regarding the challenged signatures for which Subedi was the subscribing witness, it is undisputed that the voters did not subscribe their signatures in Subedi’s presence nor did they identify themselves to Subedi as the signatories. Notwithstanding the foregoing, Subedi signed the subscribing witness statement on each sheet containing the challenged signatures and attested that, “[e]ach of the individuals whose names are subscribed to this petition sheet . . ., subscribed the same in [his] presence . . . and identified himself or herself to be the individual who signed [the] sheet.” Subedi then filed the designating petition and did not notify the Board of any irregularity or otherwise correct his subscribing witness statement. Under these circumstances, we conclude that Supreme Court correctly determined that there was clear and convincing evidence of fraudulent conduct on the part of Subedi … .

We note that Subedi freely admits his error and contends that he was not trying to gain any unfair advantage. Fraud, however, does not require any proof of a “‘nefarious motive'” … . Matter of Burman v Subedi, 2019 NY Slip Op 04315, Third Dept 5-31-19

May 31, 2019/by Bruce Freeman

Election Law, Fraud

ONE FRAUDULENT SIGNATURE DID NOT CONSTITUTE CLEAR AND CONVINCING EVIDENCE THE DESIGNATING PETITION WAS PERMEATED BY FRAUD (THIRD DEPT).

The Third Department determined that Supreme Court properly declined to invalidate the entire designating petition after finding one signature should be invalidated:

Petitioner presented a witness who testified unequivocally that the signature on the petition attributed to her was not her own, noting that her name appears the way it does when her husband signs it. The witness’s husband also testified confirming that he had signed both his own name and that of his wife, which they both agreed was a common practice for them throughout their 40-year marriage. The subscribing witness who gathered the foregoing signatures, however, testified, with notable detail, that he recalled both the husband and the wife signing for themselves. William Nicholas, who had accompanied the subscribing witness but did not formally witness any signatures, gave similar, strikingly-specific testimony. Supreme Court credited the testimony of the husband and the wife and, while reticent to find that the subscribing witness and Nicholas had perjured themselves, rejected their version of events and thereby invalidated the subject signature. We perceive no reason not to give deference to those findings … . However, one fraudulent signature is not clear and convincing evidence that a designating petition is permeated with fraud … . Further, there was no evidence that [the candidate] herself participated in the procurement or submission of any fraudulent signature … . Matter of Overbaugh v Benoit, 2019 NY Slip Op 04261, Third Dept 5-30-19

May 30, 2019/by Bruce Freeman