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FRAUDULENT INDUCEMENT CAUSE OF ACTION MUST BE BASED UPON MATTERS COLLATERAL TO THE CONTRACT, NOT THE BREACH OF PROVISIONS OF THE CONTRACT ITSELF (FIRST DEPT).

The First Department noted that contract provisions cannot be the bases for a fraudulent inducement cause of action. Only matters collateral to the contract will support fraudulent inducement:

Plaintiffs alleged six different bases for the fraudulent inducement claim. The alleged misrepresentations regarding assistance operating the preschool, the working fire alarm, and use of the stroller area, area near the kitchen, and upstairs gym, are all ” directly related to a specific provision of the contract,'” not collateral to the lease, and cannot be used to sustain a fraudulent inducement claim … . Plaintiffs properly pled a fraudulent inducement claim with respect to defendants materially misrepresenting that a 2004 letter of no objection was all plaintiffs would need, failing to disclose to plaintiffs that defendant intended to remove oversight over homeless individuals on the property, and fraudulently misrepresenting that homeless individuals were living on the property legally, when they were doing so illegally … . Plaintiffs properly pled that, as a result of these statements, which plaintiffs allege were made with the intention to deceive them, they signed the lease and developed the property … . Iken v Bohemian Brethren Presbyt. Church, 2018 NY Slip Op 04830, First Dept 6-28-18

FRAUD (FRAUDULENT INDUCEMENT CAUSE OF ACTION MUST BE BASED UPON MATTERS COLLATERAL TO THE CONTRACT, NOT THE BREACH OF PROVISIONS OF THE CONTRACT ITSELF (FIRST DEPT))/CONTRACT LAW (FRAUDULENT INDUCEMENT CAUSE OF ACTION MUST BE BASED UPON MATTERS COLLATERAL TO THE CONTRACT, NOT THE BREACH OF PROVISIONS OF THE CONTRACT ITSELF (FIRST DEPT))/LANDLORD-TENANT (LEASE, CONTRACT LAW, FRAUDULENT INDUCEMENT CAUSE OF ACTION MUST BE BASED UPON MATTERS COLLATERAL TO THE CONTRACT, NOT THE BREACH OF PROVISIONS OF THE CONTRACT ITSELF (FIRST DEPT))

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IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Garcia, over a partial dissent, determined certain aspects of defendant Countrywide’s motion for summary judgment against plaintiff insurer, Ambac, stemming from residential mortgage backed securities issued by Countrywide, were properly granted. Ambac’s argument that it need not demonstrate justifiable reliance or loss causation in support of its fraudulent inducement cause of action was rejected, as was Ambac’s argument that it was entitled to relief over and above that specified in the sole remedy clause, as well as attorney’s fees:

Public policy reasons support the justifiable reliance requirement. Where a “sophisticated business person or entity . . . claims to have been taken in,” the justifiable reliance rule “serves to rid the court of cases in which the claim of reliance is likely to be hypocritical” … . Excusing a sophisticated party such as a monoline financial guaranty insurer from demonstrating justifiable reliance would not further the policy underlying this “venerable rule.”

Likewise, there is no merit to Ambac’s argument that it need not show loss causation. Loss causation is a well-established requirement of a common law fraudulent inducement claim for damages. * * *

Ambac’s complaint fails to include breach of contract allegations beyond those that fall under the sole remedy provision … , and accordingly Ambac is limited to the repurchase protocol as the potential remedy for those claims. * * *

In New York, “the prevailing litigant ordinarily cannot collect . . . attorneys’ fees from its unsuccessful opponents. . . . Attorneys’ fees are treated as incidents of litigation, rather than damages. . . . The exception is when an award is authorized by agreement between the parties or by statute or court rule” … . … [T]his Court [has] held that a court “should not infer a party’s intention to waive the benefit of the rule unless the intention to do so is unmistakably clear from the language of the promise … . Ambac Assur. Corp. v Countrywide Home Loans, Inc., 2018 NY Slip Op 04686, CtApp 6-27-18

​INSURANCE LAW (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))/FRAUD  (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))/CONTRACT LAW  (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))/SECURITIES  (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))/RESIDENTIAL MORTGAGE BACKED SECURITIES  (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))/ATTORNEY’S FEES (IN THIS ACTION STEMMING FROM PLAINTIFF’S INSURING OF RESIDENTIAL MORTGAGE BACKED SECURITIES ISSUED BY DEFENDANT, PLAINTIFF WAS REQUIRED TO SHOW JUSTIFIABLE RELIANCE AND LOSS CAUSATION FOR ITS FRAUDULENT INDUCEMENT CAUSE OF ACTION, PLAINTIFF’S RECOVERY WAS LIMITED TO THAT DESCRIBED IN THE SOLE REMEDY PROVISION, AND PLAINTIFF WAS NOT ENTITLED TO ATTORNEY’S FEES (CT APP))

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PLAINTIFFS’ CONCLUSORY ALLEGATION OF FRAUD DID NOT DEFEAT THE AGREEMENT TO ARBITRATE (SECOND DEPT).

The Second Department determined the arbitration clause of the contract between plaintiffs and defendant was enforceable, despite the plaintiffs’ allegation of fraud in connection with the contract:

A party may not be compelled to arbitrate a dispute unless there is evidence which affirmatively establishes that the parties clearly, explicitly, and unequivocally agreed to arbitrate the dispute… . Under both federal and New York law, unless it can be established that there was a grand scheme to defraud which permeated the entire agreement, including the arbitration provision, a broadly worded arbitration provision will be deemed separate from the substantive contractual provisions, and the agreement to arbitrate may be valid despite the underlying allegation of fraud … .

The broad arbitration clause in the 2014 agreement, together with the other provisions of the 2014 agreement, demonstrate that the plaintiffs explicitly and unequivocally agreed to arbitrate the matters that are the subject of this action. In addition, the plaintiffs’ bare conclusory assertions of fraud failed to establish that any alleged fraud was part of a grand scheme that permeated the entire agreement, including the arbitration clause … . Zafar v Fast Track Leasing, LLC, 2018 NY Slip Op 04774, Second Dept 6-27-18

ARBITRATION (CONTRACT LAW, FRAUD, PLAINTIFFS’ CONCLUSORY ALLEGATION OF FRAUD DID NOT DEFEAT THE AGREEMENT TO ARBITRATE (SECOND DEPT))/CONTRACT LAW (ARBITRATION, PLAINTIFFS’ CONCLUSORY ALLEGATION OF FRAUD DID NOT DEFEAT THE AGREEMENT TO ARBITRATE (SECOND DEPT))/FRAUD (ARBITRATION, CONTRACT LAW, PLAINTIFFS’ CONCLUSORY ALLEGATION OF FRAUD DID NOT DEFEAT THE AGREEMENT TO ARBITRATE (SECOND DEPT))

CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT).

The First Department determined the civil enforcement complaint stated causes of action under the Executive Law and the General Business Law for fraudulent practices in advertising Internet speeds and reliable access to online content:

Defendants make official disclosures about broadband speeds (actual speeds measured according to a testing protocol on the modems of consumers deemed representative) in accordance with the federal rule [Transparency Rule, 47 CFR 8.3]. The complaint alleges that defendants’ use of their official disclosures in consumer advertisements is misleading, because other statements in the advertisements give consumers the false impression that the disclosed speeds represent speeds that consumers can expect to experience on their devices, including wireless devices, consistently … . The Transparency Rule does not preempt state laws “that prevent fraud, deception and false advertising” … .

The court correctly determined that the complaint’s allegations about the advertisements’ representations of speeds “up to” a certain level state a cause of action … . Issues of fact exist as to whether defendants delivered the advertised speed levels consistently.

The court correctly declined to dismiss claims based on allegations about network quality and reliability on the ground that some of the language in the advertisements is mere puffery, because other statements in the advertisements are not mere puffery and are actionable … . People v Charter Communications, Inc., 2018 NY Slip Op 04644, First Dept 6-21-18

​CONSUMER LAW (INTERNET, CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT))/FRAUD  (INTERNET, CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT))/ADVERTISING (CONSUMER LAW, INTERNET,  CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT))/INTERNET (CONSUMER LAW, CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT))/CIVIL ENFORCEMENT ACTION (INTERNET, CIVIL ENFORCEMENT COMPLAINT BROUGHT BY THE ATTORNEY GENERAL STATED CAUSES OF ACTION AGAINST DEFENDANT INTERNET SERVICE PROVIDER ALLEGING FRAUDULENT AND DECEPTIVE PRACTICES CONCERNING THE ADVERTISING OF BROADBAND SPEEDS AND ACCESS TO ONLINE CONTENT (FIRST DEPT))

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SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT).

The Second Department determined plaintiff’s action for conversion and breach of a fiduciary duty was timely. Plaintiff was the beneficiary of a structured settlement with payments which were to begin in 1998 and continue for the rest of his life. Defendant, who was the custodian of the structured settlement while plaintiff was minor, did not inform the plaintiff of the settlement and used the funds for her own purposes. The Second Department held that conversion sounds in fraud. Therefore the six-year statute of limitations applied and the statute did not begin to run until plaintiff became aware of fraud in 2013:

Contrary to the defendant’s contentions, since the cause of action for conversion is based upon fraud, it is governed by the statute of limitations period for fraud set forth in CPLR 213(8) … . The limitations period for fraud under CPLR 213(8) also applies to the breach of fiduciary duty causes of action inasmuch as the allegations of fraud are essential to those claims … .

Pursuant to CPLR 213(8), “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” “A cause of action based upon fraud accrues, for statute of limitations purposes, at the time the plaintiff possesses knowledge of facts from which the fraud could have been discovered with reasonable diligence'” … .

Here, the plaintiff established that he could not, with reasonable diligence, have discovered the fraud until 2013, when he learned for the first time that he was the beneficiary of a structured settlement from which he was entitled to receive millions of dollars in monthly and periodic lump-sum payments. Monteleone v Monteleone, 2018 NY Slip Op 04317, Second Dept 6-13-18

​FRAUD (STATUTE OF LIMITATIONS, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/CONVERSION  (STATUTE OF LIMITATIONS, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/CIVIL PROCEDURE (STATUTE OF LIMITATIONS, FRAUD, CONVERSION, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/STATUTE OF LIMITATIONS (FRAUD, CONVERSION, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/FRAUD (STATUTE OF LIMITATIONS, CONVERSION, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/CONVERSION (STATUTE OF LIMITATIONS, FRAUD,  SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))/CPLR 213 (STATUTE OF LIMITATIONS, FRAUD, CONVERSION, SIX YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIES TO A CONVERSION ACTION, ALTHOUGH THE FRAUD BEGAN IN 1998 PLAINTIFF COULD NOT HAVE BECOME AWARE OF IT UNTIL 2013, PLAINTIFF’S ACTION IS TIMELY (SECOND DEPT))

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THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge DiFiore, over an extensive two-judge concurring opinion and an extensive dissent, determined that some of the claims in this deceptive-practices/fraud action involving residential mortgage backed securities may not be time-barred. The Appellate Division had held both the General Business Law (Martin Act) and Executive Law claims were subject to the three-year statute of limitations for statutory violations and were therefore untimely. The Court of Appeals agreed the Martin Act claims were time-barred but ruled the Executive Law claims may not be time-barred if they are based entirely on the elements of common law fraud subject to a six-year statute of limitations:

… [T]he Martin Act imposes numerous obligations — or “liabilities” — that did not exist at common law, justifying the imposition of a three-year statute of limitations under CPLR 214(2). The broad definition of “fraudulent practices,” as repeatedly amended by the Legislature and interpreted by the courts, encompasses “wrongs” not cognizable under the common law and dispenses, among other things, with any requirement that the Attorney General prove scienter or justifiable reliance on the part of investors. * * *

… [W]hile the lower courts concluded that a six-year statute of limitations applied to defendants’ Executive Law § 63(12) claim — regardless of whether the specific elements of common law fraud had been made out — that holding was not correct. Rather, it is necessary to examine whether the conduct underlying the Executive Law § 63(12) claim amounts to a type of fraud recognized in the common law and, if so, the action will be governed by a six-year statute of limitations … . Although the parties raised various arguments with respect to this question, not all the issues were addressed or resolved by the lower courts. A remittal — which permits consideration of the question in the current procedural posture — is therefore appropriate. If it is determined that the prima facie elements of a common law cause of action were made out in this case, the Attorney General will be obliged to demonstrate each such element at the proof stage or the claim will be subject to dismissal as time-barred. People v Credit Suisse Sec. (USA) LLC, 2018 NY Slip Op 04272, Ct App 6-12-18

CIVIL PROCEDURE (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/STATUTE OF LIMITATIONS (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/SECURITIES  (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/RESIDENTIAL MORTGAGE BACKED SECURITIES  (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))FRAUD (RESIDENTIAL MORTGAGE BACKED SECURITIES, STATUTE OF LIMITATIONS, THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/CPLR 213  (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/CPLR 214 (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/GENERAL BUSINESS LAW (MARTIN ACT, THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/EXECUTIVE LAW (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))/MARTIN ACT  (THE MARTIN ACT CLAIMS IN THIS DECEPTIVE PRACTICES ACTION INVOLVING RESIDENTIAL MORTGAGE BACKED SECURITIES ARE TIME-BARRED UNDER THE THREE-YEAR STATUTE OF LIMITATIONS FOR STATUTORY VIOLATIONS, BUT THE EXECUTIVE LAW CLAIMS MAY NOT BE TIME-BARRED IF THEY ARE BASED SOLELY ON THE ELEMENTS OF COMMON LAW FRAUD SUBJECT TO THE SIX-YEAR STATUTE OF LIMITATIONS (CT APP))

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DEFENDANT’S ALLEGED FAILURE TO REPAY MONEY PAID BY PLAINTIFFS PURSUANT TO A CONTRACT WHICH HAD BEEN TERMINATED STATED A CAUSE OF ACTION FOR CONVERSION, FRAUD IN THE INDUCEMENT CAUSE OF ACTION PROPERLY DISMISSED BECAUSE IT WAS BASED UPON NON-ACTIONABLE FUTURE EVENTS AND NON-ACTIONABLE OPINION ON THE PART OF THE DEFENDANT (FIRST DEPT).

The First Department determined plaintiffs’ cause of action for conversion should not have been dismissed and the cause action for fraud in the inducement was based upon non-actionable future conduct or events and non-actionable opinion. Plaintiffs hired defendant for extensive renovation work. Plaintiffs terminated the contract based upon defendant’s allegedly fraudulent requests for payment which were not used for the claimed purposes. When plaintiffs terminated the contract they demanded the return of $400,000 of the $840,000 they had paid. Defendant returned only about $85,000 and did not provide an accounting:

When plaintiffs terminated the contract mid-construction and demanded a return of $400,000 of the $840,000 they had paid, defendant allegedly returned only $84,622.65, without providing an accounting, and allegedly diverted the balance of such monies to his personal use. These allegations sufficiently state a cause of action for conversion … .

Plaintiffs’ cause of action alleging fraud in the inducement was properly dismissed, as it is founded upon non-actionable promises of future conduct or events, rather than present fact … and non-actionable opinion of defendant as to his entity’s resources and capability of undertaking the luxury renovation work sought by plaintiffs … . Yablon v Stern, 2018 NY Slip Op 03650, First Dept 5-22-18

​CONTRACT LAW (DEFENDANT’S ALLEGED FAILURE TO REPAY MONEY PAID BY PLAINTIFFS PURSUANT TO A CONTRACT WHICH HAD BEEN TERMINATED STATED A CAUSE OF ACTION FOR CONVERSION, FRAUD IN THE INDUCEMENT CAUSE OF ACTION PROPERLY DISMISSED BECAUSE IT WAS BASED UPON NON-ACTIONABLE FUTURE EVENTS AND NON-ACTIONABLE OPINION ON THE PART OF THE DEFENDANT (FIRST DEPT))/CONVERSION (DEFENDANT’S ALLEGED FAILURE TO REPAY MONEY PAID BY PLAINTIFFS PURSUANT TO A CONTRACT WHICH HAD BEEN TERMINATED STATED A CAUSE OF ACTION FOR CONVERSION, FRAUD IN THE INDUCEMENT CAUSE OF ACTION PROPERLY DISMISSED BECAUSE IT WAS BASED UPON NON-ACTIONABLE FUTURE EVENTS AND NON-ACTIONABLE OPINION ON THE PART OF THE DEFENDANT (FIRST DEPT))/FRAUD IN THE INDUCEMENT (DEFENDANT’S ALLEGED FAILURE TO REPAY MONEY PAID BY PLAINTIFFS PURSUANT TO A CONTRACT WHICH HAD BEEN TERMINATED STATED A CAUSE OF ACTION FOR CONVERSION, FRAUD IN THE INDUCEMENT CAUSE OF ACTION PROPERLY DISMISSED BECAUSE IT WAS BASED UPON NON-ACTIONABLE FUTURE EVENTS AND NON-ACTIONABLE OPINION ON THE PART OF THE DEFENDANT (FIRST DEPT))

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ALTHOUGH A PARTY WHO SIGNS AN AGREEMENT IS USUALLY DEEMED TO HAVE READ IT, A RELATIONSHIP OF TRUST AND CONFIDENCE BETWEEN THE PARTIES MAY ALLOW ONE PARTY TO RELY ON THE ASSURANCES OF THE OTHER, A CERTIFIED BUT UNSIGNED TRANSCRIPT OF A DEPOSITION WAS ADMISSIBLE BECAUSE IT HAD BEEN TIMELY MAILED TO OPPOSING COUNSEL (FIRST DEPT).

The First Department determined, although the usual rule is one who signs an agreement is deemed to have read it, the rule may not apply when there is a relationship of trust and confidence between the parties and reliance on the assurances of a party (here the parties to a trust agreement were father and son). Plaintiff alleged he was fraudulently induced to sign the agreement. The court noted that a certified, unsigned transcript of a deposition was admissible because the transcript had been mailed to opposing counsel more than 60 days before the motion was brought:

Plaintiff’s claim … is that defendant led him to believe that the documentation that defendant presented for his signature (a trust agreement and two deeds) was for the conveyance of [one condominium unit] only. In fact, the paperwork provided for the conveyance of [two condominium units] to the trust. Ordinarily a person is bound by the terms of an instrument he or she signs, and may not claim to have justifiably relied on false representations concerning the contents of a document that he or she failed to read without valid excuse … . In this case, however, whether this principle applies to bar plaintiff’s fraudulent inducement claim … cannot be determined as a matter of law because plaintiff alleges that he and defendant, his son, had a relationship of trust and confidence … . Tsai Chung Chao v Chao, 2018 NY Slip Op 03620, First Dept 5-17-18

​CONTRACT LAW (ALTHOUGH A PARTY WHO SIGNS AN AGREEMENT IS USUALLY DEEMED TO HAVE READ IT, A RELATIONSHIP OF TRUST AND CONFIDENCE BETWEEN THE PARTIES MAY ALLOW ONE PARTY TO RELY ON THE ASSURANCES OF THE OTHER, A CERTIFIED BUT UNSIGNED TRANSCRIPT OF A DEPOSITION WAS ADMISSIBLE BECAUSE IT HAD BEEN TIMELY MAILED TO OPPOSING COUNSEL (FIRST DEPT))/FRAUD (FRAUDULENT INDUCEMENT, ALTHOUGH A PARTY WHO SIGNS AN AGREEMENT IS USUALLY DEEMED TO HAVE READ IT, A RELATIONSHIP OF TRUST AND CONFIDENCE BETWEEN THE PARTIES MAY ALLOW ONE PARTY TO RELY ON THE ASSURANCES OF THE OTHER, A CERTIFIED BUT UNSIGNED TRANSCRIPT OF A DEPOSITION WAS ADMISSIBLE BECAUSE IT HAD BEEN TIMELY MAILED TO OPPOSING COUNSEL (FIRST DEPT))/CIVIL PROCEDURE (A CERTIFIED BUT UNSIGNED TRANSCRIPT OF A DEPOSITION WAS ADMISSIBLE BECAUSE IT HAD BEEN TIMELY MAILED TO OPPOSING COUNSEL (FIRST DEPT))/DEPOSITIONS (A CERTIFIED BUT UNSIGNED TRANSCRIPT OF A DEPOSITION WAS ADMISSIBLE BECAUSE IT HAD BEEN TIMELY MAILED TO OPPOSING COUNSEL (FIRST DEPT))

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ALTHOUGH THE DEFENDANT DIRECTORS ON THE BOARD OF GEROVA DID NOT RESIDE OR DO BUSINESS IN NEW YORK, OTHER GEROVA DEFENDANTS PARTICIPATED IN THE FRAUDULENT SCHEME IN NEW YORK, THEREBY PROVIDING A SUFFICIENT BASIS FOR LONG-ARM JURISDICTION (FIRST DEPT).

The First Department, in a memorandum decision that does not lay out the facts, determined that, although the defendant directors on the board of Gerova did not reside or do business in New York, other Gerova defendants participated in the fraudulent scheme in New York thereby providing a sufficient basis for long-arm jurisdiction (the decision doesn’t indicate what “Gerova” is):

The Supreme Court properly concluded that defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York (CPLR 302[a][2]…). Defendants were directors on Gerova’s board during most of the time when Gerova was involved in a fraudulent scheme. The amended complaint details the conspiracy to commit fraud using Gerova, the agreements … to loot Wimbledon (plaintiff), and Wimbledon’s resulting insolvency … . Although defendants did not reside or do business in New York, other Gerova defendants were in New York or interacted regularly with New York, including one of the masterminds of the fraudulent scheme … . Regarding their overt acts in furtherance of the conspiracy, defendants’ approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of “hush money” to ignore certain red flags at Gerova, and their failure to correct misrepresentations or disclose material information to the public sufficed at this stage. Although defendants did not mastermind the conspiracy, their receipt of “hush money” allows the reasonable inference that they exerted “control” to the extent that the fraud could not have been accomplished without their acquiescence to the proxy and other misconduct … . Wimbledon Fin. Master Fund, Ltd. v Weston Capital Mgt. LLC, 2018 NY Slip Op 02903, First Dept 4-26-18

​CIVIL PROCEDURE (ALTHOUGH THE DEFENDANT DIRECTORS ON THE BOARD OF GEROVA DID NOT RESIDE OR DO BUSINESS IN NEW YORK, OTHER GEROVA DEFENDANTS PARTICIPATED IN THE FRAUDULENT SCHEME IN NEW YORK, THEREBY PROVIDING A SUFFICIENT BASIS FOR LONG-ARM JURISDICTION (FIRST DEPT))/LONG-ARM JURISDICTION  (ALTHOUGH THE DEFENDANT DIRECTORS ON THE BOARD OF GEROVA DID NOT RESIDE OR DO BUSINESS IN NEW YORK, OTHER GEROVA DEFENDANTS PARTICIPATED IN THE FRAUDULENT SCHEME IN NEW YORK, THEREBY PROVIDING A SUFFICIENT BASIS FOR LONG-ARM JURISDICTION (FIRST DEPT))/FRAUD (CIVIL PROCEDURE, JURISDICTION, CONSPIRACY ALTHOUGH THE DEFENDANT DIRECTORS ON THE BOARD OF GEROVA DID NOT RESIDE OR DO BUSINESS IN NEW YORK, OTHER GEROVA DEFENDANTS PARTICIPATED IN THE FRAUDULENT SCHEME IN NEW YORK, THEREBY PROVIDING A SUFFICIENT BASIS FOR LONG-ARM JURISDICTION (FIRST DEPT))/CONSPIRACY (CIVIL PROCEDURE, LONG-ARM JURISDICTION, FRAUDULENT SCHEME, ALTHOUGH THE DEFENDANT DIRECTORS ON THE BOARD OF GEROVA DID NOT RESIDE OR DO BUSINESS IN NEW YORK, OTHER GEROVA DEFENDANTS PARTICIPATED IN THE FRAUDULENT SCHEME IN NEW YORK, THEREBY PROVIDING A SUFFICIENT BASIS FOR LONG-ARM JURISDICTION (FIRST DEPT))

, ,

COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT).

The Second Department determined the plaintiffs had stated causes of action against the sellers (the Lyubarskys) of a condominium for fraudulently concealing mold and water damage in the condominium and in the common areas. The complaint also alleged plaintiffs’ attorney committed malpractice in representing them in the purchase. The court explained the how the doctrine of caveat emptor (buyer beware) relates to the allegations in the complaint:

“New York adheres to the doctrine of caveat emptor and imposes no liability on a seller for failing to disclose information regarding the premises when the parties deal at arm’s length, unless there is some conduct on the part of the seller 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 responsibilities fixed by the doctrine of caveat emptor” … .

Here, accepting the facts alleged in the complaint as true and according the plaintiff the benefit of every possible favorable inference… , the complaint sufficiently states a cause of action to recover damages for fraud on the theory that the Lyubarskys actively concealed defects throughout the common areas of the condominium building. The complaint alleges that the Lyubarskys took several steps to hide the existence of leaks and mold damage including, inter alia, claiming that they had lost the key to the storage area in the cellar which was assigned to the subject condominium, and removing and replacing damaged sheetrock from the cellar and the parking area. These allegations, if true, might have thwarted the plaintiff’s efforts to fulfill her responsibilities imposed by the doctrine of caveat emptor with respect to the common areas of the building … . Razdolskaya v Lyubarsky, 2018 NY Slip Op 02817, Second Dept 4-25-18

​REAL ESTATE (COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))/FRAUD (REAL ESTATE, COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))/CAVEAT EMPTOR  (REAL ESTATE, COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))/NEGLIGENCE (ATTORNEYS, REAL ESTATE, COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))/LEGAL MALPRACTICE (REAL ESTATE,  COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))/ATTORNEYS (REAL ESTATE, MALPRACTICE, COMPLAINT STATED A CAUSE OF ACTION AGAINST THE SELLERS OF A CONDOMINIUM FOR FRAUDULENTLY CONCEALING MOLD AND WATER DAMAGE IN THE CONDOMINIUM AND COMMON AREAS, THE COMPLAINT ALSO STATED A MALPRACTICE CAUSE OF ACTION AGAINST THE BUYERS’ ATTORNEY (SECOND DEPT))

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