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THIS TENANT ACTION ALLEGING FRAUDULENT RENT OVERCHARGES AND VIOLATIONS OF THE NYC RENT STABILIZATION LAW AND CODE IS APPROPRIATE FOR A CLASS ACTION; THE MOTION FOR CERTIFICATION OF A CLASS ACTION SHOULD NOT HAVE BEEN DENIED (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the tenants’ motion for class certification in this action alleging fraudulent rent overcharges and violations of the NYC Rent Stabilization Law and Code should not have been dismissed:

CPLR 901(a) sets forth the five requirements for certification of a class action: “1. the class is so numerous that joinder of all members, whether otherwise required or permitted, is impracticable; 2. there are questions of law or fact common to the class which predominate over any questions affecting only individual members; 3. the claims or defenses of the representative parties are typical of the claims or defenses of the class; 4. the representative parties will fairly and adequately protect the interests of the class; and 5. a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” “These factors are commonly referred to as the requirements of numerosity, commonality, typicality, adequacy of representation and superiority” … . “[T]he court’s inquiry ‘vis-à-vis the merits is limited to a determination as to whether on the surface there appears to be a cause of action which is not a sham'” … .

… [T]he issue of whether the defendant overcharged tenants in violation of the rent stabilization laws pursuant to a fraudulent scheme predominates over the questions affecting the individual class members … . …

… [T]he plaintiffs demonstrated that they “will fairly and adequately protect the interests of the class” … . Because the plaintiffs’ attorneys had “assume[d] responsibility for litigation expenses, the [plaintiffs’] personal financial condition [was] irrelevant” … . The plaintiffs also demonstrated that a class action was the superior vehicle for addressing their allegations … . Abdelrazek v 12-15 Broadway Astoria, LLC, 2026 NY Slip Op 03283, Second Dept 5-27-26

Practice Point: Consult this decision for insight into how the criteria for a class action are applied to allegations of fraudulent rent overcharges.

 

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A MISREPRESENTATION OF PRESENT FACT, UNLIKE A MISREPRESENTATION OF FUTURE INTENT TO PERFORM UNDER A CONTRACT, WILL SUPPORT A FRAUDULENT INDUCEMENT CAUSE OF ACTION WHICH IS NOT DUPLICATIVE OF THE RELATED BREACH OF CONTRACT CAUSE OF ACTION (FIRST DEPT).

The First Department, reversing Supreme Court, determined the fraudulent inducement cause of action should not have been dismissed as duplicative of the breach of contract cause of action. The fraudulent inducement claim was based on an assertion of present fact. i.e., that the judgment debtor had sufficient capital to close on the property:

We reject defendants’ argument that the fraudulent inducement cause of action is duplicative of the breach of contract cause of action. “[A] misrepresentation of present fact, unlike a misrepresentation of future intent to perform under the contract, is collateral to the contract, even though it may have induced the plaintiff to sign it, and therefore involves a separate breach of duty” … . The alleged representations … that the judgment debtor had sufficient capital to close on the property were representations of present fact, not future intent to perform.

Similarly, we reject defendants’ argument that plaintiff seeks identical damages under the fraudulent inducement cause of action and the breach of contract cause of action. Under the circumstances of this case, at this early procedural stage plaintiff is entitled to maintain the fraudulent inducement claim in the alternative to the breach of contract claim … . This conclusion is especially true because the remedy available to plaintiff for fraudulent inducement under the “out-of-pocket rule” is not lost profits but rather “the actual pecuniary loss sustained as the direct result of the wrong” … . CSN Realty Corp. v Moussaieff, 2026 NY Slip Op 03228, First Deptt 5-21-26

Practice Point: Here the misrepresentation that the judgment debtor had sufficient funds to close was a misrepresentation of present fact which supported a fraudulent inducement cause of action distinct from the breach of contract cause of action.​

 

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IN THIS BREACH OF CONTRACT ACTION BROUGHT BY PLAINTIFF DONALD J TRUMP AGAINST MARY L TRUMP, DEFENDANT WAS ENTITLED TO DISCOVERY RELEVANT TO HER AFFIRMATIVE DEFENSE (FIRST DEPT).

The First Department, reversing Supreme Court, determined defendant’s discovery requests were relevant to her “fraudulent inducement” affirmative defense and should have been granted:

Plaintiff commenced this action against defendant for breach of the confidentiality provisions of a 2001 settlement agreement. In her answer, defendant asserted the affirmative defense of fraudulent inducement. Specifically, she alleged that she relied upon the valuation of certain assets set forth in the parties’ 2001 settlement agreement, and that those valuations were false. Defendant’s motion to compel seeks discovery of materials related to the valuations provided in the settlement agreement. Plaintiff bears the burden of establishing that the discovery sought by defendant, which relates to an affirmative defense of fraudulent inducement that plaintiff has not otherwise challenged in this action, is improper … .

Supreme Court improvidently exercised its discretion in denying defendant’s motion. CPLR 3101(a) directs “full disclosure of all matter material and necessary in the prosecution or defense of an action,” and is to be “interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening issues and reducing delay and prolixity” … . These principles entitle defendant to the requested discovery material to establish her affirmative defense … . Trump v Trump, 2026 NY Slip Op 02735, First Dept 4-30-26

Practice Point: Here in this breach of contract action, defendant was entitled to discovery relevant to her “fraudulent inducement” affirmative defense.

 

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ALTHOUGH A JURY TRIAL WAIVER IN A CONTRACT IS NOT ENFORCED WHERE A COUNTERCLAIM ASSERTS FRAUDULENT INDUCEMENT, HERE THE FRAUDULENT-INDUCEMENT COUNTERCLAIM SOUGHT RESCISSION OF THE CONTRACT, EQUITABLE RELIEF WHICH MUST BE TRIED BY THE COURT; THE MOTION TO STRIKE DEFENDANTS’ JURY-TRIAL DEMAND SHOULD HAVE BEEN GRANTED (FIRST DEPT).

The First Department, reversing the denial of plaintiff’s motion to strike defendants’ jury demand, determined defendants were not entitled to a jury trial on the counterclaims. Defendants asserted fraudulent inducement and sought rescission of the contract in addition to seeking damages as an alternative. Because rescission in equitable relief, a jury trial is not available:

… [D]efendants are not entitled to a jury trial on their counterclaims. Generally, a party asserting a fraudulent inducement claim may pursue a jury trial, notwithstanding the existence of a jury waiver clause, when that party primarily seeks money damages … . Here, by contrast, defendants’ counterclaims seek rescission of the contract and side letter agreement, with damages only sought in the alternative. As the Court of Appeals has held, “[a]ll issues pertaining to [an] equitable defense and counterclaim, whether matters of fact or law, [are] to be determined by the court under CPLR 4101” … and “[r]escission claims, of course, are equitable in nature” … . Accordingly, defendants’ counterclaims must be tried by the court, not a jury, by virtue of the equitable relief they seek. Penske v National Holding Corp., 2026 NY Slip Op 00978, First Dept 2-19-26

Practice Point: Where a cause of action seeks equitable relief, here rescission of a contract, it must be tried by the court, not a jury, even if damages are demanded in the alternative.

 

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THE FIRST DEPARTMENT RULED THAT PLAINTIFF-TENANTS DID NOT DEMONSTRATE, AS A MATTER OF LAW, THAT DEFENDANTS ENGAGED IN A FRAUDULENT SCHEME TO DEREGULATE APARTMENTS WHILE RECEIVING J51 TAX BENEFITS; THE COURT OF APPEALS REVERSED (CT APP).

The First Department, in a full-fledged opinion by Justice Kennedy, over a comprehensive, two-justice dissenting opinion, determined plaintiff-tenants did not demonstrate, as a matter of law, a fraudulent scheme on the part of the defendants re: deregulation of apartments while receiving J51 tax benefits. The Court of Appeal reversed and remitted:

From the First Department decision:

The issues presented on this appeal are (1) what is the appropriate base date rent for calculating damages and (2) whether the record before us sets forth evidence of a fraudulent scheme to deregulate the subject apartments to permit use of the default formula pursuant to Rent Stabilization Code (RSC) (9 NYCRR) § 2526.1(g). * * *

… [W]e conclude that the record before us did not establish evidence of a fraudulent scheme to deregulate the subject apartments as a matter of law, and that it was improper to utilize the default formula to calculate damages … . Aras v B-U Realty Corp., 2023 NY Slip Op 04917, First Dept 10-3-23

Reversed by the Court of Appeals: Aras v B-U Realty Corp., 2026 NY Slip Op 00637. CtApp 2-11-26

 

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THE ALLEGATIONS IN THE COMPLAINT SUPPORTED “PIERCING THE CORPORATE VEIL;” PLAINTIFF ALLEGED FUNDS OWED TO HER WERE DIVERTED TO RENDER THE CORPORATION JUDGMENT PROOF (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the cause of action alleging alter-ego liability should not have been dismissed. The court noted that New York does not recognize a separate cause of action to pierce the corporate veil, but in the context of a motion to dismiss, the issue is whether the facts fit any cognizable legal theory. Piercing the corporate veil is such a theory:

“Generally. . . piercing the corporate veil requires a showing that: (1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury” … .

Initially, “while fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice” … . “Allegations that corporate funds were purposefully diverted to make [the corporation] judgment proof . . . are sufficient to satisfy the pleading requirement of wrongdoing which is necessary to pierce the corporate veil on an alter-ego theory” … . When “legitimate business activity” is involved, we have sometimes required a plaintiff to allege that the dominator “engaged in th[e] conduct for the purpose of harming plaintiff” … . However, this requirement does not apply when “the defendant against whom alter ego liability [i]s asserted . . . commit[s] fraud and malfeasance” … .

In any event, giving plaintiff the benefit of all favorable inferences as required on a CPLR 3211(a)(7) motion, she alleges that [defendant] caused the … funds owed to her to be diverted … in order to circumvent payment of the funds owed to her, which would render her judgment against the [the corporation] “nothing more than a pyrrhic victory” … . This allegation satisfies the “fraud or wrong” requirement of piercing the corporate veil … . Cohen v Cohen, 2026 NY Slip Op 00192, First Dept 1-15-26

Practice Point: Consult this decision for insight into what type of “fraud or wrong” must be alleged in the complaint to support piercing the corporate veil.

 

 

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THE STATUTE OF LIMITATIONS FOR DECLARATORY JUDGMENTS DEPENDS ON THE UNDERLYING THEORY, FRAUD IN THIS CASE; AN AGREEMENT TO ASSIGN OR OBTAIN A MORTGAGE IS A CONTRACT INVOLVING AN INTEREST IN REAL PROPERTY AND IS SUBJECT TO THE STATUTE-OF-FRAUDS WRITING-REQUIREMENT (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined that certain causes of action in this dispute over ownership of real property should have been dismissed as time-barred or as violative of the statute of frauds:

“Actions for declaratory judgments are not ascribed a certain limitations period. The nature of the relief sought in a declaratory judgment action dictates the applicable limitations period” … . The statute of limitations for an action based upon fraud generally is six years from the date the cause of action accrued (see CPLR 213[8]). … [T]he first and second causes of action were untimely, as the amended complaint alleged that [defendant’s] fraud in obtaining those interests occurred more than six years before the commencement of this action … .

… Causes of action to impose a constructive trust upon real property and to recover damages for unjust enrichment are governed by a six-year statute of limitations, which begins to accrue at the time of the wrongful act giving rise to the duty of restitution … . … [Defendant’s] alleged fraudulent acquisition of ownership interests … occurred more than six years before the commencement of this action.

… The statute of frauds requires any contract transferring or creating an interest in real property to be in writing (see General Obligations Law § 5-703[1] …). Here, [the] … complaint alleged [defendants] breached their agreements to assign or obtain a mortgage in favor of the plaintiffs. A mortgage constitutes an interest in real property, and the agreements to transfer or obtain mortgages in favor of the plaintiffs, therefore, were required to be in writing. Hersko v Hersko, 2026 NY Slip Op 00120, Second Dept 1-14-26

Practice Point: The statute of limitations for a declaratory judgment is that which applies to the underlying theory. Here the six-year statute for fraud applied.​

Practice Point: An agreement to assign or obtain a mortgage is subject to the statute-of-frauds because a mortgage constitutes an interest in real property.

 

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TO PIERCE THE CORPORATE VEIL THE PLAINTIFF MUST DEMONSTRATE (1) THE OWNERS EXERCISED COMPLETE DOMINATION OF THE CORPORATION WITH RESPECT TO THE TRANSACTION AT ISSUE AND (2) THE DOMINATION WAS USED TO COMMIT A FRAUD OR WRONG AGAINST THE PLAINTIFF; HERE THERE WAS NO EVIDENCE THE TRANSACTION AT ISSUE WAS FRAUDULENT (CT APP).

The Court of Appeals, affirming the Appellate Division, over a three-judge concurrence, determined the complaint in this “pierce the corporate veil” action was properly dismissed because there was no evidence the recapitalization at issue was done to commit a fraud:

From the concurrence:

A court will disregard the corporate form and pierce the corporate veil when there is a showing by plaintiffs that: “(1) the owners exercised complete domination of the corporation in respect to the transaction attacked; and (2) that such domination was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury” … . Because the use of the corporate form to limit liability of owners is a legal and beneficial principle of corporations, those who seek to pierce the corporate veil bear a heavy burden … .

Here, [the] attempts to pierce the corporate veil fail to raise a triable issue on prong two. The … defendants met their initial burden on summary judgment to demonstrate that they did not abuse the privilege of doing business in the corporate form to perpetrate a wrong or injustice, and [plaintiff] failed to raise a triable issue of material fact in opposition. [Plaintiff] points to no evidence in the record that supports its claim that the 2006 recapitalization at issue was fraudulent. Cortlandt St. Recovery Corp. v Bonderman, 2025 NY Slip Op 07078, CtApp 12-18-25

Practice Point: This decision illustrates the two prongs of proof required to pierce the corporate veil: the owners must completely dominate the corporation with respect to the transaction at issue; and the transaction at issue must be fraudulent or wrongful with respect to the plaintiff.

 

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PLAINTIFF WIRED $300,000 TO AN ACCOUNT IN DEFENDANT BANK WHICH HAD BEEN SET UP BY A FRAUDSTER TO DEFRAUD PLAINTIFF; PLAINTIFF FAILED TO PLEAD A SPECIAL RELATIONSHIP WITH DEFENDANT BANK WHICH IS REQUIRED BEFORE A DUTY (OWED TO PLAINTIFF) TO ENFORCE ITS ANTI-FRAUD PROCEDURES ARISES; THE COMPLAINT THEREFORE SHOULD HAVE BEEN DISMISSED (CT APP).

The Court of Appeals, in a one-sentence memorandum decision which adopted the reasoning of the Second Department dissent by Justice Higgitt, reversed the Second Department’s ruling that the complaint adequately pled a special relationship between the bank and plaintiff and held that the bank’s motion to dismiss the complaint should have been granted. There must have existed a special relationship between defendant JPMorgan Chase Bank and plaintiff before a duty (owed to plaintiff) to enforce the bank’s anti-fraud procedures arises. Defendant David Tate had opened an account at a New Jersey Chase bank in the name of his business, Alchemy. Tate did not provide any personal identification or any corporate documentation to the bank. Plaintiff, thinking she was investing in Alchemy, wired $300,000 to the Alchemy account which was appropriated by Tate. As Justice Higgitt wrote in his dissent:

On this appeal, which involves an individual who was swindled when she authorized a wire transfer to the account of a fraudster, we are asked to determine whether New Jersey law recognizes a common-law duty on the part of a bank to an existing customer to exercise reasonable care before permitting a potential customer to open an account. I find that a duty to exercise such care exists only when a bank has a “special relationship” with its existing customer from which that duty should be deemed to flow. The amended complaint, however, fails to allege facts suggesting that a special relationship existed between plaintiff and defendant Bank. Therefore, defendant Bank’s CPLR 3211 (a) (7) motion should have been granted. Ben-Dor v Alchemy Consultant LLC, 2024 NY Slip Op 03797, Second Dept 7-11-24; Ben-Dor v Alchemy Consultant LLC, 2025 NY Slip Op 06538 CtApp 11-25-25

Practice Point: In New Jersey, to sue a bank for the wrongful conduct of a third party, here the use of a bank account to defraud plaintiff, the bank must owe plaintiff a special duty. Reversing the Second Department and adopting the reasoning of the dissent, the Court of Appeals held the complaint should have been dismissed because it did not adequately allege the existence of a special relationship between the bank and the plaintiff.

 

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SUPREME COURT PROPERLY APPLIED THE “PIERCE THE CORPORATE VEIL CRITERIA” AND ASSESSED DAMAGES FOR BREACH OF CONTRACT AGAINST THE DEFENDANT PARENT CORPORATION; THERE WAS A COMPREHENSIVE TWO-JUSTICE DISSENT (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Kapnick, over a comprehensive two-justice dissent, determined Supreme Court had properly applied the “pierce the corporate veil” criteria to assess damages for breach of contract against the defendant parent company:

“Because a decision to pierce the corporate veil in any given instance will necessarily depend on the attendant facts and equities, there are no definitive rules governing the varying circumstances when this power may be exercised” … . However, under the totality of the circumstances presented here, we conclude that plaintiffs met their heavy burden of showing that “[JAE] exercised complete domination of [J.A. Madison] in respect to the transaction attacked[,] [specifically the Consulting Agreement]” … . Thus, we will address the second prong of the test – namely, whether plaintiffs met their burden to show “that such domination was used to commit a fraud or wrong against the plaintiff[s] which resulted in plaintiff[s’] injury” … . * * *

“Wrongdoing in this context does not necessarily require allegations of actual fraud. While fraud certainly satisfies the wrongdoing requirement, other claims of inequity or malfeasance will also suffice … . Allegations that corporate funds were purposefully diverted to make it judgment proof or that a corporation was dissolved without making appropriate reserves for contingent liabilities are sufficient to satisfy the pleading requirement of wrongdoing which is necessary to pierce the corporate veil on an alter-ego theory … .

… The evidence presented at trial showed that JAE used its domination of J.A. Madison to commit a wrong against plaintiffs by stopping payments to plaintiffs under the Consulting Agreement, causing J.A. Madison to become judgment proof, and then by dissolving J.A. Madison after this action had already been commenced, making plaintiffs’ judgment against J.A. Madison nothing more than a pyrrhic victory. The fact that J.A. Madison may have initially been created for a legitimate purpose of operating a store selling Jonathan Adler merchandise and products does not change the analysis. Rich v J.A. Madison, LLC, 2025 NY Slip Op 04818, First Dept 8-28-25

Practice Point: Consult this opinion and the dissent for a comprehensive discussion of the criteria for piercing the corporate veil in the context of a breach of contract.

 

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