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CAYMAN ISLANDS LAW APPLIES IN THIS FRAUDULENT CONVEYANCE ACTION, CRITERIA EXPLAINED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the motion to dismiss this fraudulent conveyance action should have been granted because Cayman Islands law applied and the cause of action was not adequately pled:

“In the context of tort law, New York utilizes interest analysis to determine which of two competing jurisdictions has the greater interest in having its law applied in the litigation” .. . “Given that fraudulent conveyance laws are conduct regulating,’ the law of the jurisdiction where the tort occurred will generally apply because that jurisdiction has the greatest interest in regulating behavior within its borders'” … . ” [T]he locus jurisdiction’s interests in protecting the reasonable expectations of the parties who relied on it to govern their primary conduct[,] and in the admonitory effect that applying its law will have on similar conduct in the future[,] assume critical importance . . . .” … . Further, as “the purpose of fraudulent conveyance laws is to aid creditors who have been defrauded by the transfer of property,” consideration of the residency of the parties, particularly the creditors, is also required to determine their reasonable expectations … . Applying these principles, the law of the Cayman Islands applies to petitioner’s fraudulent conveyance claim. Petitioner, who is the creditor allegedly injured by the fraudulent transfer of the funds at issue, is a Cayman Islands domiciliary. Moreover, petitioner is seeking the return of funds which were allegedly fraudulently transferred to Weston, also a Cayman Islands domiciliary. Additionally, the Cayman Islands has the greatest interest in protecting the reasonable expectations of its residents, both petitioner and respondent Weston, who relied on Cayman Islands law to govern their conduct. Although SIP, the transferor of the funds, is domiciled in Texas, and the bank account into which the funds were transferred is located in New York, it is the Cayman Islands that has the most significant contacts with the matter in dispute. Thus, Cayman Islands law should apply. Matter of Wimbledon Fund, SPC (Class TT) v Weston Capital Partners Master Fund II, Ltd., 2020 NY Slip Op 03279, First Dept 6-11-20

 

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ALTHOUGH THE REAL ESTATE PURCHASE AGREEMENT ALLOWED THE SELLER TO CANCEL THE CONTRACT IF SELLER COULD NOT CONVEY TITLE, THAT PROVISION REQUIRES THE SELLER TO ACT IN GOOD FAITH; THE COMPLAINT ALLEGED THE SELLER FALSELY CLAIMED TO BE THE SOLE OWNER OF THE PROPERTY WHEN IN FACT SHE OWNED 50%; THE SELLER’S MOTION TO DISMISS THE COMPLAINT SEEKING SPECIFIC PERFORMANCE SHOULD NOT HAVE BEEN GRANTED (SECOND DEPT). ​

The Second Department, reversing Surrogate’s Court, determined the motion to dismiss the complaint seeking specific performance of a real estate purchase agreement should not have been granted. Although the contract allowed the seller to refund the down payment and cancel the contract if the seller is unable to convey title, the seller must do so only in good faith and only if the buyers reject the defective title. Here the complaint alleged the seller fraudulently claimed she was the sole owner of the property, when in fact she owned only 50%:

“Where, as here, a contract for the sale of real property provides that in the event the seller is unable to convey title in accordance with the terms of the contract, the seller may refund the buyer’s down payment and cancel the contract without incurring further liability, that limitation contemplates the existence of a situation beyond the parties’ control and implicitly requires the seller to act in good faith'” … . Contrary to the Surrogate’s Court’s determination, the … complaint set forth cognizable causes of action sounding in breach of contract, fraud, and unjust enrichment, among other things, upon allegations that the seller wilfully failed to supply good and marketable title and rescinded the contract of sale even though the buyer and the appellants did not reject the defective title … . Matter of Valderrama, 2020 NY Slip Op 03236, Second Dept 6-10-20

 

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DESIGNATING PETITION PERMEATED BY FRAUD INVALIDATED; THREE JUDGE DISSENT (CT APP).

The Court of Appeals, in an opinion per curiam, reversing the Appellate Division, over a three-judge dissent, determined the designating petition was permeated by fraud and must be invalidated:

… [W]here appropriate, a court may … conclude that, “because of its magnitude[,]” fraud and irregularity established by clear and convincing evidence “so permeated’ the [designating] petition as a whole to call for its invalidation” … .

Based on the undisputed facts of this matter, which establish, among other things, “that 512 out of 944 signatures submitted in the [designating] petition are backdated to dates preceding the candidate’s receipt of the blank petition pages,” and that “14 of the 28 subscribing witnesses” swore that those signatures were placed on the designating petition before the blank petition pages were obtained from the printer (… cf. Election Law § 6-134 [3]), the lower courts should have concluded that this is one of those rare instances in which the designating petition is so “permeated” by fraud “as a whole as to call for its invalidation” … . Matter of Ferreyra v Arroyo, 2020 NY Slip Op 02994, CtApp 5-21-20

 

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EVIDENCE OF ALLEGED FRAUD IN THE ACKNOWLEDGMENT OF SIGNATURES WAS NOT SUFFICIENT TO SUPPORT THE INVALIDATION OF THE DESIGNATING PETITION (FOURTH DEPT). ​

The Fourth Department, reversing Supreme Court. determined respondent’s designating petition should not have been invalidated based on allegations of fraud in acknowledging signatures:

… [T]he court based its determination to invalidate the designating petition on the testimony of a single signatory, who stated that although respondent was the subscribing witness on the petition that she signed, her signature was actually witnessed by a younger man of a different race. While such evidence may warrant invalidation of a designating petition … , cross-examination of the signatory—during which she acknowledged signing four City Court petitions, including one for an individual whose description was similar to that of respondent—called her testimony on direct examination into question. …

… [W]e conclude that respondent’s apparent failure to administer to one signatory “an oath . . . calculated to awaken the conscience and impress the mind of the person taking it in accordance with his religious or ethical beliefs’ ” … did not, on its own, constitute evidence of fraud requiring invalidation of his designating petition … . Matter of Monto v Zeigler, 2020 NY Slip Op 02753, Fourth Dept 5-14-20

 

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PLAINTIFFS STATED A CAUSE OF ACTION FOR FRAUD AND PROPERLY ALLEGED A CIVIL CONSPIRACY (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiffs had, inter alia, stated a cause of action for fraud and properly alleged a related civil conspiracy. Plaintiffs are owners of commercial buildings and defendants included an employee of one of the plaintiffs and several contractors who did work for the plaintiffs. Plaintiffs alleged invoices for work were inflated and the excess payments were split among defendants. With respect to the fraud and civil conspiracy causes of action, the First Department wrote:

To state a cause of action for fraud, a plaintiff must allege “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages” … . Such a claim must be pleaded with particularity (CPLR 3016[b] …). “[A]ctual knowledge[, however,] need only be pleaded generally, [given], particularly at the prediscovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind” … . …

Here, we find that plaintiffs sufficiently pleaded fraud causes of action with the information available to them in a pre-discovery posture … . They alleged the creation and presentation for payment to plaintiffs of false, forged or inflated purchase orders; that defendants “knew that the work described on the bogus purchase orders or invoices and other contract forms was either falsely stated, overcharged or not provided, and knew that Plaintiffs would rely on these falsified or doctored purchase orders to make unwarranted payments”; that plaintiffs “relied on these purchase orders, invoices and other contract forms in making unnecessary payments to . . . defendants” to their detriment; that such reliance was “justifiable” and “reasonable”; and that plaintiffs were damaged as a result of defendants’ fraud. After discovery, plaintiffs can amplify their pleadings and defendants can renew their motions. But at this stage, plaintiffs should be allowed to probe defendants’ knowledge of the alleged fraudulent scheme. …

Although New York does not recognize an independent cause of action for civil conspiracy, allegations of civil conspiracy are permitted “to connect the actions of separate defendants with an otherwise actionable tort” … . To establish a claim of civil conspiracy, the plaintiff must demonstrate the primary tort, plus the following four elements: an agreement between two or more parties; an overt act in furtherance of the agreement; the parties’ intentional participation in the furtherance of a plan or purpose; and resulting damage or injury … . Plaintiffs pleaded the underlying fraud against defendants …, as well as an agreement that “[d]efendants acted in concert and conspired to defraud [p]laintiffs’ business.” As a result, plaintiffs were damaged because they paid monies to the defendants “for non-existent, unnecessary, and/or overpriced construction and maintenance services.” Cohen Bros. Realty Corp. v Mapes, 2020 NY Slip Op 01440, First Dept 3-3-20

 

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ALTHOUGH MOVING MONEY THROUGH A NEW YORK BANK IS ENOUGH TO CONFER PERSONAL JURISDICTION ON OUT-OF-STATE PARTIES, SUPREME COURT CORRECTLY HELD IT WAS NOT ENOUGH TO MAKE NEW YORK A CONVENIENT FORUM (FIRST DEPT).

The First Department determined that, although using a New York bank for an allegedly fraudulent transaction is sufficient to acquire personal jurisdiction over out-of-state parties, it does not necessarily follow that New York is a convenient forum. Supreme Court properly found New York was not a convenient forum in these actions involving individuals and corporations in Saudi Arabia and the United Arab Emirates, as well as a Swiss bank:

… [T]he court properly considered the following matters, among others: (1) none of the parties to either action is a New York citizen or resident or (if an entity) is formed under New York law or has its principal place of business in New York; … (2) the alleged conduct at issue primarily occurred in the UAE, Saudi Arabia and Switzerland, with the sole New York connection being the fleeting presence of the bribery funds at a nonparty New York correspondent bank while en route from the UAE to Switzerland; (3) the bulk of the relevant documentary evidence is located in the UAE, Saudi Arabia, Switzerland and BVI, and most witnesses are located outside New York and beyond New York’s subpoena power; (4) there is a likelihood that foreign substantive law will govern; (5) there are alternative fora available (Switzerland and the UAE) with greater connection to the subject matter; and (6) in the Pictet [bank] action, Switzerland has an interest in regulating the conduct of a bank operating within its borders … . …

As Supreme Court correctly recognized … “[o]ur state’s interest in the integrity of its banks . . . is not significantly threatened every time one foreign national, effecting what is alleged to be a fraudulent transaction, moves dollars through a bank in New York. . . . New York’s interest in its banking system is not a trump to be played whenever a party to such a transaction seeks to use our courts for a lawsuit with little or no apparent contact with New York” (Mashreqbank PSC v Ahmed Hamad Al Gosaibi & Bros. Co., 23 NY3d 129, 137 [2014] … ).

In accordance with Mashreqbank, this Court has declined to disturb the motion court’s discretionary determination that New York is not a convenient forum in cases where the sole connection to New York was the passage of wired funds through a correspondent bank in the state … . Al Rushaid Parker Drilling Ltd. v Byrne Modular Bldgs. L.L.C., 2020 NY Slip Op 01277, First Dept 2-25-20

 

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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

 

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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

 

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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

 

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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 requirements 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

 

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