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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

 

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DESIGNATING PETITION PROPERLY INVALIDATED AND THE CANDIDATE’S NAME WAS PROPERLY STRUCK FROM THE PRIMARY BALLOT, THE CANDIDATE’S NAME APPEARED ON DESIGNATING PETITIONS FOR TWO DIFFERENT PUBLIC OFFICES WHICH PRESUMPTIVELY MISLED THE PUBLIC (SECOND DEPT).

The Second Department determined the designating petition was properly invalidated and the candidate’s name (Duffy) was properly removed from the primary ballot. The Second Department noted that the failure to include the index number on the order to show cause and the petition was a mistake which could be disregarded. The index number was on the request for judicial intervention which was served with the order to show cause and petition (CPLR 2001). The Second Department further noted that the petition met the strict pleading requirements for fraud by by virtue of the incorporation of another document (objections) by reference (CPLR 3016 (b) and 3014).:

… [T]he Supreme Court granted the petition to invalidate the petition designating Duffy as a candidate for Council Member and directed that Duffy’s name be removed from the primary ballot. The court found that Duffy and her agents did not intentionally seek to mislead enrolled party voters while gathering designating petition signatures, but that Duffy nevertheless knew that her name appeared simultaneously on two separate designating petitions for two different public offices, which presumptively misled enrolled voters as to which of the two public offices she was truly seeking. The court found that Duffy “failed to rebut this presumption by public action and/or filings in such a manner as to prevent election fraud.” * * *

… [T]he voters were misled, warranting the invalidation of the designating petition for Council Member. In circulating the designating petition for that office, Duffy deleted from the committee’s designating petition the name of a candidate who had been endorsed by the committee, substituted her name for the name of that candidate, and circulated the revised designating petition without the permission of Bouvier, whose name continued to appear on the designating petition. The designating petition, as altered and circulated, was “misleading in suggesting that the various candidates listed intended to run together” as a team … . While a single instance of adding another candidate’s name without consent, standing alone, has been found insufficient to warrant the invalidation of an entire designating petition … , this case involves much more than the mere addition of a name to a designating petition. Here, Duffy affirmatively altered an existing designating petition containing other names by substituting her own name in place of the name of a candidate who had been endorsed by the committee. Moreover, under the circumstances of this case, the problem of misleading voters was compounded by the simultaneous circulation of two designating petitions designating Duffy for two separate public offices … . Matter of Lynch v Duffy, 2019 NY Slip Op 04168, Second Dept 5-29-19

 

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COMPLAINT STATED A CAUSE OF ACTION FOR CONSTRUCTIVE FRAUD BUT THE HEIGHTENED PLEADING REQUIREMENTS FOR ACTUAL FRAUD WERE NOT MET (FIRST DEPT).

The First Department, in an action alleging members of defendant liability company fraudulently transferred funds from the LLC to the defendant members to render the LLC insolvent. The First Department determined the constructive fraud cause of action was sufficiently pled but  the allegations did not support an actual fraud cause of action:

… [T]he complaint implicitly alleges that a necessary element of fair consideration, i.e., good faith, was lacking when the transfers were made. …

However, the complaint fails to state a cause of action for actual fraud under Debtor and Creditor Law §§ 276 and 276-a. … [U]nlike the allegations supporting the constructive fraud claim, the allegations supporting the actual fraud claim are subject to the heightened pleading standard of CPLR 3016(b), and the allegations about fair consideration do not meet that standard, because they were made upon information and belief, and the source of the information was not disclosed … .

Nor does the complaint allege any other badges of fraud. Brennan v 3250 Rawlins Ave. Partners, LLC, 2019 NY Slip Op 03002, First Dept 4-23-19

 

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DISCLAIMER IN THE REAL ESTATE PURCHASE AND SALE CONTRACT PRECLUDED ACTIONS BASED IN FRAUD ALLEGING THE CONCEALMENT OF A RECURRING MOLD-CAUSING CONDITION (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that the causes of action alleging fraud in the concealment of a recurring mold-causing condition should have been dismissed. The real estate contract included a disclaimer which stated that plaintiffs relied upon their own inspection of the property and not any representations made by others:

“In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . In the context of real estate transactions, “New York adheres to the doctrine of caveat emptor and imposes no duty on the seller or the seller’s agent to disclose any information concerning the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller or the seller’s agent which constitutes active concealment” … . “If however, some conduct (i.e., more than mere silence) on the part of the seller rises to the level of active concealment, a seller may have a duty to disclose information concerning the property” … . “To maintain a cause of action to recover damages for active concealment, the plaintiff must show, in effect, that the seller or the seller’s agents thwarted the plaintiff’s efforts to fulfill his [or her] responsibilities fixed by the doctrine of caveat emptor” … .

The presence of disclaimers in a written agreement may preclude a claim of common-law fraud by rendering any resulting reliance unjustified … . Moreover, a specific disclaimer of reliance on representations as to the condition of real property will generally bar related fraud-based claims … . Here, the contract of sale for the subject premises set forth,  a… lia, that the plaintiffs were “fully aware of the physical condition and state of repair of the Premises . . . based on [their] own inspection and investigation thereof,” and that they were “entering into this contract based solely upon such inspection and investigation and not upon any information . . . or representations . . . given or made by Seller or its representatives.” Comora v Franklin, 2019 NY Slip Op 02671, Second Dept 4-10-19

 

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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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PLAINTIFF ENTITLED TO SUMMARY JUDGMENT ON THE FRAUD AND BREACH OF FIDUCIARY DUTY CAUSES OF ACTION, DEFENDANT PURCHASED THE PROPERTY FOR HERSELF WHILE ACTING AS PLAINTIFF’S REAL ESTATE BROKER (SECOND DEPT).

The Second Department determined plaintiff was entitled to summary judgment on the fraud and breach of fiduciary duty causes of action against defendant (Maureen), a real estate broker. The complaint alleged that Maureen purchased the property herself while acting as plaintiff’s broker:

“[A] real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal”… . “[I]n dealing with the principal, a real estate broker must act honestly and candidly, and the broker must disclose all material information that it may possess or obtain concerning the transactions involved”… . Moreover, “[w]here a broker’s interests or loyalties are divided due to a personal stake in the transaction or representation of multiple parties, the broker must disclose to the principal the nature and extent of the broker’s interest in the transaction or the material facts illuminating the broker’s divided loyalties” … . “A breach of this duty of loyalty by a real estate broker may constitute a fraud for which the broker is answerable in damages” … . Edwards v Walsh, 2019 NY Slip Op 01197, Second Dept 2-20-19

 

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ALLEGATIONS OF COMPENSABLE DAMAGES INSUFFICIENT, MOTION TO DISMISS FRAUD COMPLAINT SHOULD HAVE BEEN GRANTED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined the motion to dismiss fraud causes of action should have been granted because the allegation of compensable damages was deficient. “Plaintiff, a debt buying company, commenced this action alleging … [defendants] fraudulently induced it to purchase additional debt portfolios pursuant to its agreements with a third party by misrepresenting the terms of the financing arrangement secured by defendants to facilitate the purchase of such portfolios;”

“To allege a cause of action based on fraud, plaintiff must assert a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury’ ” … . ” The true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong’ or what is known as the out-of-pocket’ rule” … . “Under this rule, the loss is computed by ascertaining the difference between the value of the bargain which . . . plaintiff was induced by fraud to make and the amount or value of the consideration exacted as the price of the bargain’ ” … .

Here, we conclude that, even as supplemented by the affidavit of plaintiff’s president … , “plaintiff’s pleading is fatally deficient because [it] did not assert compensable damages resulting from defendants’ alleged fraud” … . With respect to the purchase of the subject portfolios, plaintiff received an interest therein worth more than the amount of its alleged investment … . Further, contrary to plaintiff’s contention, the allegation that it lost the enhanced collections on the portfolios that defendants purportedly told it that it could receive under the terms of the financing arrangement is a “quintessential lost opportunity, which is not a recoverable out-of-pocket loss”… . “Damages are to be calculated to compensate plaintiff[] for what [was] lost because of the fraud, not to compensate . . . for what . . . might have [been] gained . . . [T]here can be no recovery of profits which would have been realized in the absence of fraud” … . Southwestern Invs. Group, LLC v JH Portfolio Debt Equities, LLC, 2019 NY Slip Op 01035, Fourth Dept 2-8-19

 

COMPLAINT ALLEGING FRAUD AND RELATED CAUSES OF ACTION SHOULD NOT HAVE BEEN DISMISSED, CERTAIN CLAIMS WERE NOT TIME-BARRED AND PLAINTIFF’S RELIANCE UPON MISREPRESENTATIONS WAS SUFFICIENTLY ALLEGED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Singh, over a two-justice dissenting opinion, determined that the complaint alleging fraud and related causes of action should not have been dismissed. The lawsuit arose after a divorce. Wendy, the wife, was the executive director of Epiphany Community Nursery School, the plaintiff. The husband, defendant Hugh, an investment banker, handled certain financial transactions involving Epiphany:

There are two central issues on this appeal. The first involves the application of the statute of limitations. The second is whether plaintiff has pleaded the element of justifiable reliance to support its cause of action sounding in fraud pertaining to unauthorized bank transfers made by defendants between 2007 and 2013. We find the fraud claim relating to the bank transfers is not time-barred and that justifiable reliance has been sufficiently pleaded. Accordingly, we reinstate plaintiff’s fraud claims relating to the bank transfers. * * *

In determining whether justifiable reliance is sufficiently alleged, we consider two relevant circumstances: first, the existence of a relationship of trust or confidence and second, the superior knowledge or means of knowledge on the part of the person making the representation. …

… [T]he complaint alleges that Hugh went to great lengths to conceal the unauthorized transfers and therefore, Epiphany – and Wendy, in her capacity as Executive Director of Epiphany – could not have discovered the alleged fraud with reasonable due diligence … . In particular, Hugh “caused [Epiphany’s] bank statements to be diverted to the offices of Gruppo Levy and GLH” so that his fraudulent scheme would not be discovered. He also allegedly initiated these transfers at meetings with the employees of Gruppo Levy and GLH, not Epiphany. Additionally, he recorded the transfers as loans on the books and records, before offsetting them by services that were allegedly not provided so that Epiphany would not be alerted to the transfers. The complaint alleges that Hugh and Davie Kaplan’s actions prevented the public and government regulators from uncovering the fraud. Epiphany Community Nursery Sch. v Levey, 2019 NY Slip Op 00842, First Dept 2-5-19

 

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BREACH OF FIDUCIARY DUTY, FRAUD AND JUDICIARY LAW 487 ALLEGATIONS STEMMING FROM DEFENDANT LAW FIRM’S REPRESENTATION OF PLAINTIFF IN DIVORCE PROCEEDINGS DUPLICATED THE LEGAL MALPRACTICE ALLEGATIONS, THE COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Singh, determined that plaintiff’s legal malpractice, breach of fiduciary duty, fraud and Judiciary Law 487 causes of action against the law firm which represented her in divorce proceedings should have been dismissed. The opinion is fact-specific. The legal issues mentioned include: the breach of fiduciary duty allegations were identical to the legal malpractice allegations and therefore required the “but for” element of legal malpractice (which was missing), and the fraud and Judiciary Law 487 claims were identical and duplicated the legal malpractice allegations, requiring dismissal. Knox v Aronson, Mayefsky & Sloan, LLP,  2018 NY Slip Op 09030, First Dept 12-27-18

 

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COMPLAINT ALLEGED VALID CAUSES OF ACTION FOR AIDING AND ABETTING FRAUD AND AIDING AND ABETTING CONVERSION AGAINST A BANK WHICH PROVIDED A LETTER TO PLAINTIFF STATING DEFENDANT MAINTAINED ENOUGH IN HIS BANK ACCOUNTS TO COVER A POST-DATED CHECK FOR OVER $400,000 (FIRST DEPT).

The First Department, reversing Supreme Court, over a dissent, determined that plaintiff auction house stated causes of action for aiding and abetting fraud and aiding and abetting conversion against defendant bank HSBC. Defendant Stettner bid over $425,000 for antique jewelry and sought to pay with a post-dated check. At plaintiff’s request HSBC provided a letter attesting to Stettner’s good standing at the bank and stating that Stettner maintained a balance of between $1 and $20 million. Stettner’s check bounced. The dissent argued that the complaint did not allege the bank’s knowledge of the fraud and conversion:

“A plaintiff alleging an aiding-and-abetting fraud claim must allege the existence of the underlying fraud, actual knowledge, and substantial assistance” … . In turn, the elements of an underlying fraud are “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . …

Aiding and abetting conversion requires the existence of a conversion by the primary tortfeasor, actual knowledge, and substantial assistance… . “A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person’s right of possession” … . William Doyle Galleries, Inc. v Stettner, 2018 NY Slip Op 08743, First Dept 12-20-18

 

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