Fraud Archives - New York Appellate Digest

Civil Procedure, Criminal Law, Fraud, Medicaid

ALTHOUGH THE TWO INDICTMENTS ALLEGED THE SAME MODUS OPERANDI FOR MEDICAID FRAUD, THE CHARGES INVOLVED DIFFERENT PARTIES AND TIME PERIODS; THE WRIT OF PROHIBITION SEEKING TO PRECLUDE PROSECUTION ON DOUBLE JEOPARDY GROUNDS DENIED OVER A DISSENT (FIRST DEPT).

The First Department, over a dissent, denied the writ of prohibition seeking to preclude a second prosecution for medicaid fraud on double jeopardy grounds. Although the alleged scheme to defraud was the same, the two indictments involved different parties and different time periods:

In essence, the wrongdoing charged in each indictment is the filing of fraudulent Medicaid reimbursement claims and related misconduct, such as payment of kickbacks. However, the indictments charge different specific criminal acts, which were perpetrated on different dates and over different time periods. Moreover, the indictments do not allege fraudulent billing of any of the same managed care organizations. While it appears that the different fraudulent acts charged in the two indictments had a similar modus operandi and were part of a common plan, this alone does not suffice to render them part of the same “criminal transaction” under CPL 40.10(2)(b) … . Matter of Dieffenbacher v Jackson, 2020 NY Slip Op 08015, First Dept 12-29-20

December 29, 2020/0 Comments/by Bruce Freeman

Family Law, Fraud, Real Estate, Trusts and Estates

PLAINTIFF, WHO WAS BORN TWO YEARS BEFORE HIS MOTHER AND FATHER WERE MARRIED, WAS A DISTRIBUTEE OF HIS FATHER’S ESTATE; IT HAS YET TO BE DETERMINED WHETHER DEFENDANT YOUSEF FRAUDULENTLY REPRESENTED HE WAS THE SOLE HEIR WHEN HE TRANSFERRED REAL PROPERTY TO DEFENDANT BASMANOV (FIRST DEPT).

The First Department determined plaintiff demonstrated he was a distributee of his father’s estate. Plaintiff was born two years before his parents married and both his father’s and mother’s names were on plaintiff’s birth certificate. The court noted that it has yet to be established whether defendant Yousef fraudulently represented himself as the sole heir of the estate when he transferred real property to defendant Basmanov:

Pursuant to Domestic Relations Law § 24, if a mother and father enter into a civil or religious marriage after the birth of their child, the child is legitimated for all purposes of New York law, even if the marriage is void or voidable (§ 24[1]). Therefore, such child automatically becomes a distributee of both birth parents, without any need to satisfy one of the paternity tests set forth in Section 4-1.2(a)(2) of the EPTL … .

Plaintiff was born in 1973, nearly two years before his parents subsequently married. At some point, the decedent-father’s name was placed on the plaintiff’s birth certificate, which, pursuant to Public Health Law § 4135(2) in effect at the time, required “the consent in writing of both the mother and putative father, duly verified, and filed with the record of the birth.” Pursuant to Public Health Law § 4103(2), “a certification of birth is prima facie evidence of the facts therein.” …

Defendant Basmanov’s argument that plaintiff failed to establish fraud necessary to warrant voiding the deeds by which defendant Yosef purported to transfer the decedent’s real property to himself, and then to her, is unavailing. Absent proof of fraud, a deed that purports to transfer more than the party owns is valid to the extent of transferring that party’s interest … ; however, it has yet to be established whether Yosef committed a fraudulent transfer by representing himself as the sole heir of the decedent’s estate in order to effectuate the transfer. Tiwary v Tiwary, 2020 NY Slip Op 07479, First Dept 12-10-20

December 10, 2020/by Bruce Freeman

Civil Procedure, False Claims Act, Fraud, Insurance Law

THE QUI TAM COMPLAINT ALLEGING INSURERS FAILED TO ACCURATELY REPORT UNCLAIMED LIFE INSURANCE PROCEEDS, TO WHICH THE STATE IS ENTITLED, IN VIOLATION OF THE NEW YORK FALSE CLAIMS ACT SHOULD NOT HAVE BEEN DISMISSED AND THE MOTION TO AMEND THE COMPLAINT TO SPECIFY THE FRAUD ALLEGATIONS SHOULD HAVE BEEN GRANTED (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff in this qui tam action should have been allowed to amend the complaint to specify the allegations of fraud against the defendant insurance companies. Unclaimed life insurance proceeds are supposed to escheat to the state. The lawsuit alleged the insurance companies had submitted false statements to the state to conceal the existence of life insurance proceeds to which the state is entitled, a violation of the New York False Claims Act (NYFCA). The First Department, in allowing the complaint to be amended to specify the fraud allegations, held that the 10-year statute of limitations applied to the filing of the alleged false reports:

… [P]laintiff adequately alleged that defendants knowingly filed false reports with the State which failed to identify escheatable life insurance proceeds. The complaint alleges that defendants’ recordkeeping was so haphazard — such as listing incorrect names, dates of birth, and Social Security numbers, or omitting one or more of those pieces of information altogether — that it amounted to reckless disregard for the truth or falsity of the reports that they submitted to the State (see State Finance Law § 188[3][a][iii]). In other circumstances, according to the complaint, defendants had actual knowledge that a policyholder was deceased, as evidenced by returned mail, customer call service logs, or demutualization payments separately escheated to the State, yet defendants nevertheless failed to disclose or escheat the deceased policyholder’s life insurance proceeds to the State (see State Finance Law § 188[3][a][i]). These allegations, if true, demonstrate that defendants “deliberately turn[ed] a blind eye to reporting errors and then attest[ed] that, to [their] knowledge, they d[id] not exist” … . Total Asset Recovery Servs. LLC v Metlife, Inc., 2020 NY Slip Op 07480, First Dept 12-10-20

December 10, 2020/by Bruce Freeman

Consumer Law, Debtor-Creditor, Fraud, Usury

THE DEFENDANTS IN THIS USURY, FRAUD AND DECEPTIVE BUSINESS PRACTICES ACTION FINANCED THE SALE OF JEWELRY OVER MANY MONTHS, MARKETING THE SALES AS A WAY FOR CONSUMERS TO IMPROVE THEIR CREDIT; THE MAJORITY HELD THE BUSINESS MET THE DEFINITION OF A “CREDIT SERVICES BUSINESS” WITHIN THE MEANING OF GENERAL BUSINESS LAW 458-H (FOURTH DEPT).

The Fourth Department, over a dissent, determined the cause of action which alleged defendants operated a “credit services business” within the meaning of General Business Law 458-h. The defendants financed the purchase of jewelry, claiming that such financing was a means of improving consumers’ credit record:

Plaintiff commenced this action alleging various claims for usury, common-law and statutory fraud, and deceptive business practices. …

A “credit services business” is defined as “any person who sells, provides, or performs, or represents that he can or will sell, provide or perform, a service for the express or implied purpose of improving a consumer’s credit record, history, or rating or providing advice or assistance to a consumer with regard to the consumer’s credit record history or rating in return for the payment of a fee” (§ 458-b [1]). According to the complaint, defendants “represent[]” that they “provide” a “service” to consumers—specifically, financing the purchase of jewelry—and defendants market such financing as a means “of improving [the] consumer’s credit record.” Put simply, defendants allegedly offer consumers the option of paying for jewelry over many months, and defendants allegedly advertise that financing option as a mechanism to improve the consumer’s credit. In exchange for that financing—i.e., the “service” contemplated by section 458-b (1)—defendants allegedly charge interest. Such interest, we conclude, constitutes a “fee” within the meaning of section 458-b (1). Thus, contrary to the court’s determination and the view of our dissenting colleague, the complaint sufficiently alleges that defendants’ business satisfies the statutory definition of a “credit services business” … . People v Harris Originals of Ny, Inc., 2020 NY Slip Op 06883, Fourth Dept 11-20-20

November 20, 2020/by Bruce Freeman

Civil Procedure, Foreclosure, Fraud, Judges

DEFENDANT’S MOTION TO VACATE THE DEFAULT JUDGMENT IN THIS FORECLOSURE ACTION GRANTED IN THE INTERESTS OF SUBSTANTIAL JUSTICE; THE EVIDENCE SUGGESTED DEFENDANT WAS THE VICTIM OF A SCHEME TO DEFRAUD; SUPREME COURT, HOWEVER, SHOULD NOT HAVE, SUA SPONTE, DISMISSED THE COMPLAINT (SECOND DEPT).

The Second Department determined defendant’s decedent’s (Renda’s) motion to vacate a default judgment in this foreclosure action should have been granted in the interests of substantial justice. There was evidence Renda was the victim of a scheme to defraud and foreclosure triggers the equitable powers of the court. Supreme Court should not have, sua sponte, dismissed the complaint, however:

… [W]e find that the defendant is entitled to vacatur of her default in the interests of substantial justice. “In addition to the grounds set forth in section 5015(a), a court may vacate its own judgment for sufficient reason and in the interests of substantial justice” … . “A foreclosure action 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” … .

Here, the evidence submitted strongly suggests that Renda was the victim of a scheme to defraud … .

… [T]he Supreme Court erred in, sua sponte, directing dismissal of the complaint. Here, there were no extraordinary circumstances warranting the sua sponte dismissal, and there is no indication that the court gave the parties an opportunity to be heard regarding the dismissal of the complaint … . Caridi v Tanico, 2020 NY Slip Op 06236, Second Dept 11-4-20

November 4, 2020/by Bruce Freeman

Civil Procedure, Contract Law, Fraud, Insurance Law, Negligence, Negligent Misrepresentation

PLAINTIFFS FOUND OUT WELL INTO THE CONTRACT FOR GAS-MAIN WORK THAT THE REQUESTED INSURANCE COVERAGE HAD NOT BEEN PROVIDED; THE DECLARATORY JUDGMENT CAUSE OF ACTION WAS PROPERLY DISMISSED BECAUSE IT DEPENDED ON A CIRCUMSTANCE THAT MAY NOT OCCUR; THE NEGLIGENT PROCUREMENT CAUSE OF ACTION WAS PROPERLY DISMISSED FOR LACK OF DAMAGES; THE BREACH OF CONTRACT CAUSE OF ACTION WAS SUPPORTED BY NOMINAL DAMAGES; THE FRAUD AND NEGLIGENT MISREPRESENTATION CAUSES OF ACTION WERE SUPPORTED BY A SPECIAL RELATIONSHIP WITH THE INSURANCE BROKER AND DETRIMENTAL RELIANCE (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the plaintiffs’ causes of action for declaratory relief and negligent procurement were properly dismissed but the causes of action for breach of contract and fraud and negligent misrepresentation should not have been dismissed. Plaintiffs contracted with Con Ed to work on a gas main and requested insurance coverage for the project from defendants. Well into the project plaintiffs learned that they were not insured and they procured coverage elsewhere for a much higher premium. The declaratory judgment cause of action sought a declaration that defendants would be responsible if plaintiffs are sued for damage done when plaintiffs were uninsured. Because that circumstance may never occur the declaratory judgment cause of action was properly dismissed. The negligent procurement cause of action was properly dismissed because there were no damages. The breach of contract cause of action should not have been dismissed because nominal damages will support it. The fraud and negligent misrepresentation causes of action should not have been dismissed because a special relationship between plaintiffs and the insurance broker had been sufficiently alleged:

” … Nominal damages allow vindication of those rights” … . … “[A]ctual damages are not an essential element” of a breach of contract cause of action … .

… “Where a special relationship develops between the broker and client, [the] broker may be liable . . . for failing to advise or direct the client to obtain additional coverage” … . “… [T]hree ‘exceptional situations’ … may give rise to such a special relationship: ‘(1) the agent receives compensation for consultation apart from payment of the premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on'” … . … The plaintiffs, at a minimum, claim to have suffered damages when they, on two occasions, made bids for long-term contracts to perform gas main repair work for Con Ed that were priced, in part, based on the defendants’ alleged misrepresentations as to the price of insurance coverage for that work. AB Oil Servs., Ltd. v TCE Ins. Servs., Inc., 2020 NY Slip Op 06232, Second Dept 11-4-20

November 4, 2020/by Bruce Freeman

Civil Procedure, Fraud

IN THIS FRAUD ACTION, PLAINTIFF COULD NOT DEMONSTRATE THE FRAUDULENT STATEMENTS WERE MADE IN ERIE COUNTY; THEREFORE THE PLACE OF DEFENDANT’S RESIDENCE, NEW YORK COUNTY, WAS PROPERLY DESIGNATED THE VENUE FOR THE ACTION (FOURTH DEPT).

The Fourth Department, in a full-fledged opinion by Justice Troutman, determined New York County was the proper venue for this fraud action because plaintiff did not demonstrate the fraudulent statements allegedly made by defendant were made in Erie County, as opposed to Cleveland, Ohio. Absent proof the statements were made in Erie County, the fact that defendant resides in New York County controlled:

… New York County is indisputably a proper county based upon defendant’s residence therein (see CPLR 503 [a]). Because none of the parties resides in Erie County, the sole question before the trial court was whether “a substantial part of the events or omissions giving rise to the claim occurred” in Erie County … . …

The legislature only recently added a provision to CPLR 503 (a) that allows venue based on the location of the events underlying the claim … , but the Federal Rules of Civil Procedure contain an identical provision (see 28 USC § 1391 [b] [2]), doubtless the model for the amended language in CPLR 503 (a). In determining whether venue is proper under that provision, the Second Circuit applies a two-part inquiry. First, the court must “identify the nature of the claims and the acts or omissions that the plaintiff alleges give rise to those claims” … . Second, the court must “determine whether a substantial part of those acts or omissions occurred in the district where suit was filed, that is, whether ‘significant events or omissions material to [those] claim[s] . . . have occurred in the district in question’ ” … . In a fraud claim, the act giving rise to the claim is the alleged making of the fraudulent statement … . Consistent with that, federal courts have found venue to be proper based upon “where the defendant allegedly made the fraudulent statements” … . …

Plaintiff … failed to show that material, fraudulent statements were made in Erie County … . Harvard Steel Sales, LLC v Bain, 2020 NY Slip Op 05635, Fourth Dept 10-9-20

October 9, 2020/by Bruce Freeman

Contract Law, Fraud, Negligence

PLAINTIFF HOMEOWNERS’ ACTION AGAINST THE INSURER FOR BREACH OF CONTRACT, FRAUD AND NEGLIGENCE SHOULD HAVE BEEN DISMISSED; PLAINTIFF ACKNOWLEDGED THE HOME WAS VACANT WHEN THE POLICY WAS PURCHASED AND AT THE TIME OF THE FIRE AND THE POLICY EXCLUDED COVERAGE FOR VACANT PROPERTY (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the insurer’s motion for summary judgment in this “disclaimed coverage” case should have been granted. Plaintiff homeowner acknowledged the home had been vacant and was vacant at the time of the fire. Plaintiff’s allegation that the insurance agent was aware the house was vacant when the policy was purchased was rejected because plaintiff was deemed to have read the policy (which excluded coverage for vacant property):

The defendants demonstrated, prima facie, that the policy only provided coverage if the premises were used as a residence by the plaintiffs and that the plaintiffs never resided at the premises during the policy period … . * * *

“The element of justifiable reliance is ‘essential’ to any fraud claim” … . Here, the defendants established, prima facie, that any reliance by [plaintiff] on an alleged misrepresentation made by [the insurance agent] was not justifiable since [plaintiff] testified that he received a copy of the policy when it was issued in August 2010, and again in 2011, when it was renewed … . …

The defendants made a prima facie showing of their entitlement to judgment as a matter of law dismissing [the negligence] cause of action by submitting evidence which demonstrated that [plaintiff] only made a general request for homeowner’s insurance, and did not specifically request coverage for premises that were not owner occupied … , and that no special relationship existed between the parties … . Waknin v Liberty Ins. Corp., 2020 NY Slip Op 05551, Second Dept 10-7-20

October 7, 2020/by Bruce Freeman

Evidence, Fraud, Insurance Law

EVIDENCE DID NOT ESTABLISH AS A MATTER OF LAW THAT THE INSURED’S WATER-DAMAGE CLAIM WAS FRAUDULENTLY INFLATED; INSURER WAS NOT ENTITLED TO SUMMARY JUDGMENT DISCLAIMING COVERAGE (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the defendant insurer (Allegany) did not present sufficient evidence an inflated water-damage claim to warrant disclaiming coverage. The insurer’s summary judgment motion should not have been granted:

Allegany failed to meet its initial burden on its motion of establishing as a matter of law that the claim was inflated … . A policy may be voided if the insured ” ‘willfully and fraudulently placed in the proofs of loss a statement of property lost which [the insured] did not possess, or has placed a false and fraudulent value upon the articles which [the insured] did own’ ” … . “Incorrect information is not necessarily tantamount to fraud or material misrepresentation as the insurer must tender ‘proof of intent to defraud—a necessary element to the defense’ ” … . ” ‘[U]nintentional fraud or false swearing or the statement of any opinion mistakenly held[, however,] are not grounds for vitiating a policy’ ” … .

… [A]lthough Allegany’s submissions in support of its motion demonstrate a disparity between the estimates of plaintiff’s contractor and Allegany’s assessor of the amount of damage and loss … , the submissions fail to establish fraudulent intent on the part of plaintiff … . Plaintiff’s proof of loss statement did not include duplicative items, unincurred expenses, or substantial sums of money that were unaccounted for … , and the disparity between the damage estimate of plaintiff’s contractor and the estimate of Allegany’s assessor is not “so grossly excessive as to constitute false swearing and misrepresentation” … . Magnano v Allegany Co-Op Ins. Co., 2020 NY Slip Op 05339, Fourth Dept 10-2-20

October 2, 2020/by Bruce Freeman

Contract Law, Fraud

THE RELEASE DID NOT APPLY TO THE ALLEGATIONS OF FRAUD IN THE INDUCEMENT AND THERE WAS A QUESTION OF FACT WHETHER PLAINTIFFS JUSTIFIABLY RELIED ON THE ALLEGED MISREPRESENTATIONS; THE FRAUD IN THE INDUCEMENT CAUSE OF ACTION SHOULD NOT HAVE BEEN DISMISSED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determine plaintiffs’ action for fraud in the inducement should not have been dismissed. The release did not require dismissal and there was a question of fact whether plaintiffs justifiably relied on the alleged misrepresentations:

… [D]efendants failed to meet their initial burden of establishing, as a matter of law, that the release barred plaintiffs’ claims that they were fraudulently induced to enter the liquidation agreement by misrepresentations that defendants made in violation of their obligations thereunder … . …

… [D]efendants’ own submissions establish that plaintiffs “made a significant effort to protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading”… , i.e., that [defendant] had no material liabilities beyond those disclosed in the financial statements and no circumstances existed that could reasonably be expected to result in such a material obligation. Thus, “[i]f plaintiffs can prove the allegations in the complaint, whether they were justified in relying on the warranties they received is a question to be resolved by the trier of fact” … . Dillon v Peak Envtl., LLC, 2020 NY Slip Op 05332, Fourth Dept 10-2-20