Fraud – Page 16 – New York Appellate Digest

THE EXPENSE OF DEFENDING AN ACTION WHICH STEMMED FROM AN ATTORNEY’S MISREPRESENTATION CAN MEET THE INJURY REQUIREMENT OF A JUDICIARY LAW 487 ACTION (FIRST DEPT).

The Second Department determined the expense required to defend an action that resulted from an attorney’s misrepresentation can meet the injury requirement of a Judiciary Law 487 cause of action:

Judiciary Law § 487 imposes civil and criminal liability on any attorney who “(1) [i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or, (2) [w]ilfully delays his client’s suit with a view to his own gain”… . A plaintiff may state a Judiciary Law § 487 cause of action by relying upon a defendant’s intentional deceit during the course of an underlying action … . A cause of action alleging a violation of Judiciary Law § 487 must be pleaded with specificity … and is “focuse[d] on the attorney’s intent to deceive, not the deceit’s success” … . Accordingly, although injury to the plaintiff is an essential element of a Judiciary Law § 487 cause of action … , “recovery of treble damages under Judiciary Law § 487 does not depend upon the court’s belief in a material misrepresentation of fact in a complaint”… . Rather, because defending the action is a result of the misrepresentation, a party’s legal expenses in defending the lawsuit may be treated as the proximate result of the misrepresentation … . Betz v Blatt, 2018 NY Slip Op 02444, Second Dept 4-11-18

ATTORNEYS (JUDICIARY LAW 487, THE EXPENSE OF DEFENDING AN ACTION WHICH STEMMED FROM AN ATTORNEY’S MISREPRESENTATION CAN MEET THE INJURY REQUIREMENT OF A JUDICIARY LAW 487 ACTION (FIRST DEPT))/JUDICIARY LAW 487 (ATTORNEYS, THE EXPENSE OF DEFENDING AN ACTION WHICH STEMMED FROM AN ATTORNEY’S MISREPRESENTATION CAN MEET THE INJURY REQUIREMENT OF A JUDICIARY LAW 487 ACTION (FIRST DEPT))/FRAUD (ATTORNEYS, JUDICIARY LAW 487, THE EXPENSE OF DEFENDING AN ACTION WHICH STEMMED FROM AN ATTORNEY’S MISREPRESENTATION CAN MEET THE INJURY REQUIREMENT OF A JUDICIARY LAW 487 ACTION (FIRST DEPT))

April 11, 2018

Contract Law, Fiduciary Duty, Fraud

FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT).

The First Department determined the defendants’ counterclaims against their attorney, David, stated causes of action for fraud, fraud in the inducement, breach of fiduciary duty and breach of contract. Defendants alleged that David’s assurances led defendants to sign joint venture agreements to their detriment without carefully reading them. The court noted that, although David was not a signatory to the agreements, the forum selection clauses applied to him because of his relationship with the defendants, as expressed in an email:

The allegations of the complaint state a cause of action for fraudulent inducement … . The well settled principle relied on by David that a party claiming fraudulent inducement cannot be said to have justifiably relied on a representation negated by the plain terms of the contract they signed does not apply here, since his alleged assurances and fraud were the very cause of defendants’ failure to review the documents carefully. As it was reasonable for defendants to rely on the advice of counsel, we also reject David’s arguments premised on the plain language of the agreements that defendants admit they did not read carefully.

Defendants’ allegations describing their attorney-client relationship with David state a cause of action for breach of fiduciary duty. For example, they allege that he served as their attorney for years, both before and during the instant transaction, negotiating unrelated contracts and handling unrelated lawsuits and trusts and estates matters.

While in support of the fraudulent inducement claim defendants allege that the agreements were “brought about by fraud,” because, inter alia, David held himself out as their attorney and caused them to sign unfavorable agreements that he drafted, in contrast, in support of the fraud claim defendants focus on events following the execution of the agreements, namely, David’s “scheme to manufacture a bogus default” of the loan so as to seize valuable collateral without paying for it. These allegations state a cause of action for fraud … . Suttongate Holdings Ltd. v Laconm Mgt. N.V., 2018 NY Slip Op 02424, First Dept 4-10-18

FRAUD (FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT))/CONTRACT LAW (FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT))/FORUM SELECTION CLAUSE (FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT))/ATTORNEYS (FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT))/FIDUCIARY DUTY, BREACH OF (ATTORNEYS, FORUM SELECTION CLAUSE APPLIES TO NONSIGNATORY ATTORNEY BASED UPON ATTORNEY’S RELATIONSHIP WITH THE PARTIES, PARTIES’ FAILURE TO CAREFULLY READ THE AGREEMENTS BLAMED ON ATTORNEY’S FRAUDULENT ASSURANCES, FRAUD, FRAUD IN THE INDUCEMENT, BREACH OF FIDUCIARY DUTY AND BREACH OF CONTRACT ALLEGATIONS AGAINST ATTORNEY STATED CAUSES OF ACTION (FIRST DEPT))

April 10, 2018

Civil Procedure, Contract Law, Debtor-Creditor, Fraud

FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the fraudulent conveyance allegations, which were made “upon information and belief,” were insufficient, and the tortious interference with contract allegations were insufficient because there was no allegation the contract would not have been breached but for the defendant’s conduct:

Plaintiff alleges that defendants engaged in a fraudulent scheme to transfer and dispose of the assets of several related entities (the judgment debtors) in order to thwart plaintiff’s ability to collect debts owed by those entities, including judgments in two related actions.

The actual fraudulent conveyance claims, under the common law and Debtor and Creditor Law (DCL) § 276, should be dismissed because plaintiff failed to allege fraudulent intent with the particularity required by CPLR 3016(b) … . The key allegations were made “[u]pon information and belief,” without identifying the source of the information … . Moreover, the timing of the allegedly fraudulent transfers – beginning two years before the judgment debtors incurred the subject debts – undermines the claim of fraudulent intent… .

The constructive fraudulent conveyance claims pursuant to DCL 273, 274, and 275 should be dismissed because plaintiff failed to sufficiently allege that the transfers were made without fair consideration, as the relevant allegations were all made “[u]pon information and belief”…

Because the viability of the claims under DCL 276-a, 278, and 279 depends on the viability of the other fraudulent conveyance claims, these claims should likewise be dismissed.

The tortious interference claim should be dismissed because plaintiff failed to sufficiently allege that the contract “would not have been breached but for’ the defendant’s conduct” .. . The relevant allegations were vague and conclusory and supported by “mere speculation” … . Carlyle, LLC v Quik Park 1633 Garage LLC, 2018 NY Slip Op 02436, First Dept 4-10-18

DEBTOR-CREDITOR (FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/FRAUD (DEBTOR-CREDITOR, FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/FRAUDULENT CONVEYANCES (DEBTOR-CREDITOR, FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/CONTRACT LAW (TORTIOUS INTERFERENCE, FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/TORTIOUS INTERFERENCE WITH CONTRACT (FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/CIVIL PROCEDURE (FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/CPLR 3016 (DEBTOR-CREDITOR, FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/UPON INFORMATION AND BELIEF (COMPLAINT, (FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/COMPLAINT (UPON INFORMATION AND BELIEF, FRAUDULENT CONVEYANCE, TORTIOUS INTERFERENCE WITH CONTRACT, AND DEBTOR-CREDITOR LAW CAUSES OF ACTION INSUFFICIENTLY PLED, COMPLAINT SHOULD HAVE BEEN DISMISSED (FIRST DEPT))

April 10, 2018

Civil Procedure, Fraud, Medical Malpractice, Negligence

MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT).

The Fourth Department, reversing Supreme Court, determined that plaintiff’s medical malpractice cause of action based upon a cancer misdiagnosis was time-barred. The misdiagnosis was made before the statute of limitations for cancer misdiagnosis was changed (it now runs from when the plaintiff knew or should have known of the misdiagnosis). The court rejected the attempt to extend the statute of limitations by asserting fraud-related causes of action based upon the malpractice and alleged concealment of the misdiagnosis:

Defendants … contend that plaintiff failed to state a cause of action for fraud or fraudulent concealment, and that they are not estopped from invoking the statute of limitations against plaintiff’s medical malpractice cause of action. We agree. “The elements of a cause of action for fraud in connection with charges of medical malpractice are knowledge on the part of the physician of the fact of his [or her] malpractice and of [the] patient’s injury in consequence thereof, coupled with a subsequent intentional, material misrepresentation by [the physician] to [the] patient known by [the physician] to be false at the time it was made, and on which the patient [justifiably] relied to his [or her] damage’ ” … . “The damages resulting from the fraud must be separate and distinct from those generated by the alleged malpractice” … . Additionally, “a defendant may be estopped to plead the [s]tatute of [l]imitations where [the] plaintiff was induced by fraud, misrepresentations or deception to refrain from filing a timely action”… . However, “without more, concealment by a physician or failure to disclose his [or her] own malpractice does not give rise to a cause of action in fraud or deceit separate and different from the customary malpractice action, thereby entitling the plaintiff to bring his [or her] action within the longer period limited for such claims” … . Forbes v Caris Life Sciences, Inc., 2018 NY Slip Op 02086, Fourth Dept 3-23-18

NEGLIGENCE (MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))/MEDICAL MALPRACTICE (MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))/FRAUD (MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))/CIVIL PROCEDURE (STATUTE OF LIMITATIONS, MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))/STATUTE OF LIMITATIONS (CANCER MISDIAGNOSIS, MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))/CANCER MISDIAGNOSIS (STATUTE OF LIMITATIONS, MEDICAL MALPRACTICE ACTION BASED UPON CANCER MISDIAGNOSIS PRIOR TO THE RELEVANT AMENDMENT OF THE STATUTE OF LIMITATIONS WAS TIME-BARRED, FRAUD-RELATED CAUSES OF ACTION BASED UPON THE MEDICAL MALPRACTICE REJECTED (FOURTH DEPT))

March 23, 2018

Civil Procedure, Contract Law, Fiduciary Duty, Fraud

PLAINTIFF ALLEGED CONTINUING BREACHES OF CONTRACT, AIDING AND ABETTING FRAUD, NEGLIGENT MISREPRESENTATION AND AIDING AND ABETTING BREACH OF FIDUCIARY DUTY FOR THE DURATION OF THE DEBT-RIDDEN WORKERS’ COMPENSATION TRUST, WHICH WAS TERMINATED 25 DAYS BEFORE THE EXPIRATION OF THE SIX YEAR STATUTE OF LIMITATIONS, THOSE CAUSES OF ACTION SHOULD NOT HAVE BEEN DISMISSED (THIRD DEPT).

The Third Department, modifying Supreme Court, determined the causes of action for breach of contract, aiding and abetting fraud and negligent misrepresentation, and aiding and abetting a breach of fiduciary duty should not have been dismissed as time barred. The underlying suit is based on the allegation that defendant insurance broker was on the board of a Workers’ Compensation trust, which plaintiff had joined, and which was $82 million in debt. The Third Department held that the six-year statute of limitations applied to all the (above-described) causes of action and the complaint alleged continuing breaches throughout the period of membership in the trust, which terminated 25 days before the expiration of the statute of limitations (i.e., the six-year period before the suit was brought extended back to March 24, 2008, and the trust was terminated on April 17, 2008):

… [T]he amended complaint alleges continuing contractual obligations on the part of defendant and specifies that the various acts and omissions constituting the breaches occurred “[t]hroughout the entire course of [p]laintiff’s membership in the [t]rust.” Deeming these allegations as true and according them every favorable inference, as we must … , we conclude that defendant failed to make the requisite prima facie showing that plaintiff’s breach of contract claim is time-barred in its entirety … . …

[P]laintiff’s causes of action for negligent misrepresentation and aiding and abetting fraud are timely insofar as they allege conduct occurring [during the 25 day window]. …

… [W]e disagree with Supreme Court’s conclusion that the entirety of plaintiff’s aiding and abetting breach of fiduciary duty claim is governed by a three-year statute of limitations. Because plaintiff does not seek equitable relief, a six-year statute of limitations period applies to a breach of fiduciary duty cause of action if “an allegation of fraud is essential to” such claim … . While a claim of fraud generally requires an affirmative misrepresentation, “fraud may also result from a fiduciary’s failure to disclose material facts when the fiduciary had a duty to disclose and acted with the intent to deceive” … . Krog Corp. v Vanner Group, Inc., 2018 NY Slip Op 00876, Third Dept 2-8-18

February 8, 2018

Contract Law, Fraud

FRAUDULENT INDUCEMENT AND DEMAND FOR PUNITIVE DAMAGES SHOULD NOT HAVE BEEN DISMISSED IN THIS BREACH OF CONTRACT ACTION, PLAINTIFF ALLEGED AIR AMBULANCE WAS NOT EQUIPPED WITH PROPER EQUIPMENT AND PERSONNEL (FIRST DEPT).

The Second Department determined plaintiff’s fraudulent inducement cause of action and the punitive damages demand should not have been dismissed. Plaintiff contracted with defendants to transport his brother by air ambulance from Puerto Rico to New York. Plaintiff alleged no respiratory therapist was on the plane and the plane was not equipped with advanced life support equipment:

The Supreme Court erred in granting that branch of the defendants’ cross motion which was for summary judgment dismissing the cause of action alleging fraudulent inducement. Contrary to the court’s determination, the cause of action alleging fraudulent inducement was not duplicative of the breach of contract cause of action, as it alleged that the defendants made misrepresentations of present fact that were collateral to the contract and served as an inducement to enter into the contract … .Contrary to the defendants’ contention, they failed to establish, prima facie, that their alleged misrepresentations of fact were not false and, therefore, not misrepresentations at all … .

The Supreme Court also erred in granting that branch of the defendants’ cross motion which was for summary judgment dismissing so much of the complaint as sought to recover punitive damages. The defendants failed to make a prima facie showing that they did not engage in conduct having a high degree of moral culpability which manifested a conscious disregard for the rights of others or conduct so reckless as to amount to such disregard … . Greenberg v Meyreles, 2017 NY Slip Op 08351, Second Dept 11-20-17

FRAUD (CONTRACT, FRAUDULENT INDUCEMENT, PUNITIVE DAMAGES, FRAUDULENT INDUCEMENT AND DEMAND FOR PUNITIVE DAMAGES SHOULD NOT HAVE BEEN DISMISSED IN THIS BREACH OF CONTRACT ACTION, PLAINTIFF ALLEGED AIR AMBULANCE WAS NOT EQUIPPED WITH PROPER EQUIPMENT AND PERSONNEL (FIRST DEPT))/CONTRACT LAW (FRAUDULENT INDUCEMENT, PUNITIVE DAMAGES, FRAUDULENT INDUCEMENT AND DEMAND FOR PUNITIVE DAMAGES SHOULD NOT HAVE BEEN DISMISSED IN THIS BREACH OF CONTRACT ACTION, PLAINTIFF ALLEGED AIR AMBULANCE WAS NOT EQUIPPED WITH PROPER EQUIPMENT AND PERSONNEL (FIRST DEPT))/PUNITIVE DAMAGES (CONTRACT, FRAUDULENT INDUCEMENT AND DEMAND FOR PUNITIVE DAMAGES SHOULD NOT HAVE BEEN DISMISSED IN THIS BREACH OF CONTRACT ACTION, PLAINTIFF ALLEGED AIR AMBULANCE WAS NOT EQUIPPED WITH PROPER EQUIPMENT AND PERSONNEL (FIRST DEPT))

November 20, 2017

Attorneys, Civil Procedure, Evidence, Fraud

ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT).

The Second Department noted that an action alleging attorneys adduced false testimony in a prior court proceeding must be brought as a motion to vacate the judgment in the prior case, not as a new action:

Generally, a party who has lost an action as a result of alleged fraud or false testimony cannot collaterally attack the judgment in a separate action against the party who adduced the false evidence, and the plaintiff’s remedy lies exclusively in moving to vacate the judgment … . Under an exception to that rule, a separate action may be commenced where the alleged perjury or fraud in the underlying action was “merely a means to the accomplishment of a larger fraudulent scheme” … which was “greater in scope than the issues determined in the prior proceeding” … .

Here, the moving defendants established their prima facie entitlement to summary judgment dismissing the causes of action alleging fraud, aiding and abetting fraud, violation of Judiciary Law § 487, and prima facie tort insofar as asserted against them by demonstrating that the plaintiffs are merely attempting to collaterally attack an order issued in the underlying action. In opposition, the plaintiffs only raised conclusory and unsubstantiated allegations that the moving defendants’ fraud in the underlying action was “merely a means to the accomplishment of a larger fraudulent scheme” … . DeMartino v Lomonaco, 2017 NY Slip Op 07706, Second Dept 11-8-17

CIVIL PROCEDURE (FRAUD, ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT))/FRAUD (FRAUD, ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT))/ATTORNEYS (FRAUD, ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT))/FALSE TESTIMONY (ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT))EVIDENCE (FALSE TESTIMONY, FRAUD, ALLEGATION THAT LAW FIRM ADDUCED FALSE EVIDENCE IN A PROCEEDING MUST BE ASSERTED IN A MOTION TO VACATE THE JUDGMENT IN THAT PROCEEDING, NOT AS A NEW ACTION (SECOND DEPT))

November 8, 2017

Corporation Law, Fraud

CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT).

The Second Department, reversing Supreme Court, determined that defendant (Cina), an officer of defendant corporation (Artisan), could be held personally liable for his tortious acts. Supreme Court had held the corporate structure insulated Cina from personal liability. It was alleged Cina misrepresented that limestone had been stolen, inducing plaintiff to purchase replacement limestone:

“A director or officer of a corporation does not incur personal liability for its torts merely by reason of his [or her] official character” … , and thus, cannot be liable for torts “attributable to the corporation if he [or she] did not participate in and was not connected with the acts in any manner” … . However, ” [a] corporate officer who participates in the commission of a tort may be held individually liable, regardless of whether the officer acted on behalf of the corporation in the course of official duties and regardless of whether the corporate veil is pierced'” … .

Here, the Supreme Court incorrectly directed the dismissal of the causes of action alleging conversion and fraud insofar as asserted against Cina on the ground that there was “no basis on which to pierce the corporate veil.” The complaint adequately alleged that Cina participated in the act allegedly constituting conversion by asserting that Cina arranged to have the replacement limestone delivered to [another party] instead of the plaintiff, and that he participated in the alleged fraud by knowingly misrepresenting the facts regarding the delivery of the original limestone, with the intent of inducing the plaintiff’s detrimental reliance. That Cina’s alleged conduct may have been committed “on behalf of the corporation in the course of official duties” does not prevent liability from being imposed upon him … . North Shore Architectural Stone, Inc. v American Artisan Constr., Inc., 2017 NY Slip Op 06655, Second Dept 9-27-17

CORPORATION LAW (CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/INTENTIONAL TORTS (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/FRAUD (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/CONVERSION (CORPORATE OFFICERS, PERSONAL LIABILITY, CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))/OFFICERS (CORPORATE OFFICER COULD BE PERSONALLY LIABLE FOR CONVERSION AND FRAUD, CAUSES OF ACTION AGAINST THE OFFICER PERSONALLY SHOULD NOT HAVE BEEN DISMISSED AS SHIELDED BY THE CORPORATE STRUCTURE (SECOND DEPT))

September 27, 2017

Contract Law, Fraud

CONTRACT ALLEGATIONS DUPLICATED FRAUD ALLEGATIONS, FRAUD CAUSE OF ACTION SHOULD HAVE BEEN DISMISSED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Friedman, over a dissenting opinion, determined the fraud cause of action should have been dismissed as duplicative of the breach of contract cause of action. The action is between two telecommunications companies. The allegations involve the responsibility for payment for fraudulent phone calls. Plaintiff (Cronos) alleged the contract required defendant (XComIP) to indemnify it for fraudulent calls. The complaint stated a cause of action for breach of contract. However, the fraud allegations were based on speculation about defendant’s intent, i.e., that defendant entered into the contract with the intention to avoid paying for fraudulent calls:

Cronos’s fraud cause of action falls short under the principle that a fraud claim is not stated by allegations that simply duplicate, in the facts alleged and damages sought, a claim for breach of contract, enhanced only by conclusory allegations that the pleader’s adversary made a promise while harboring the concealed intent not to perform it. This Court has held numerous times that a fraud claim that “ar[ises] from the same facts [as an accompanying contract claim], s[eeks] identical damages and d[oes] not allege a breach of any duty collateral to or independent of the parties’ agreements” is subject to dismissal as “redundant of the contract claim”… . Thus, where a fraud claim was supported by allegations that the defendants had “misrepresented . . . their intentions with respect to the manner” in which they would perform their contractual duties, we dismissed the fraud claim as duplicative of the plaintiffs’ contract claim because the fraud claim was “based on the same facts that underlie the contract cause of action, [was] not collateral to the contract, and d[id] not seek damages that would not be recoverable under a contract measure of damages” … .

… Cronos’s fraud claim is duplicative of its claim for breach of contract, inasmuch as the only fraud alleged is XComIP’s unkept promise to perform certain of its preexisting obligations under the parties’ contract (as alleged by Cronos), for which Cronos seeks exactly the same damages as are sought under the rubric of the claim for breach of contract. Based on Cronos’s own allegations, Cronos’s fraud claim is plainly redundant of its breach-of-contract cause of action. Cronos Group Ltd. v XComIP, LLC, 2017 NY Slip Op 06515, 1st Dept 9-19-17

CONTRACT LAW (FRAUD, CONTRACT ALLEGATIONS DUPLICATED FRAUD ALLEGATIONS, FRAUD CAUSE OF ACTION SHOULD HAVE BEEN DISMISSED (FIRST DEPT))/FRAUD (CONTRACT ALLEGATIONS DUPLICATED FRAUD ALLEGATIONS, FRAUD CAUSE OF ACTION SHOULD HAVE BEEN DISMISSED (FIRST DEPT))

September 19, 2017

Civil Procedure, Fiduciary Duty, Fraud

PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED.

The Second Department, reversing Supreme Court, determined the motion to dismiss the fraud-based complaint for lack of personal jurisdiction over defendant, whose domicile was Florida, should not have been granted. Relevant funds were deposited in the escrow account for defendant’s New York law firm and those funds were alleged to have been converted in New York:

… [T]he plaintiffs made a prima facie showing that the defendant, a Florida domiciliary, transacted business in New York and that the plaintiffs’ claims arose from those transactions so as to establish that jurisdiction was proper under CPLR 302(a)(1)… . Accepting the plaintiffs’ allegations as true and construing the allegations in the light most favorable to the plaintiffs, they demonstrated prima facie that the defendant purposefully availed himself “of the privilege of conducting activities” in New York, “thus invoking the benefits and protections of its laws” … . Contrary to the defendant’s contention, his alleged contacts with New York amounted to more than mere communications … . The defendant allegedly utilized Sommer & Schneider’s New York escrow account to further the alleged fraudulent investment scheme by directing the plaintiffs to deposit the funds for investment deals into the escrow account, by acting as the agent for the purported investment deals, and by using and allowing Joel to use the investment money deposited in the escrow account for personal expenses … . As to the second prong of the CPLR 302(a)(1) analysis, the plaintiffs’ allegations demonstrated prima facie that the defendant’s activities in New York had an articulable nexus or substantial relationship to the plaintiffs’ claims … . The plaintiffs’ claims against the defendant of fraud, conversion, breach of fiduciary duty, and unjust enrichment turned entirely on the defendant’s use of the New York escrow account to facilitate his fraudulent investment scheme … .

The plaintiffs also made a prima facie showing that the defendant committed tortious acts within New York, as the defendant is alleged to have converted funds held in New York … . Nick v Schneider, 2017 NY Slip Op 04285, 2nd Dept 5-30-17

CIVIL PROCEDURE (LONG ARM JURISDICTION, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)/JURISDICTION (CIVIL PROCEDURE, LONG ARM JURISDICTION, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)/LONG ARM JURISDICTION (FRAUD, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)/FRAUD (CIVIL PROCEDURE, LONG ARM JURISDICTION, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)/CONVERSION (CIVIL PROCEDURE, LONG ARM JURISDICTION, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)/INTENTIONAL TORTS (CONVERSION, CIVIL PROCEDURE, LONG ARM JURISDICTION, PLAINTIFF, INTER ALIA, ALLEGED THE FLORIDA DEFENDANT IN THIS FRAUD-BASED ACTION DEPOSITED RELEVANT FUNDS IN A NEW YORK LAW FIRM ESCROW ACCOUNT AND CONVERTED THOSE FUNDS, DEFENDANT’S MOTION TO DISMISS FOR LACK OF PERSONAL JURISDICTION SHOULD NOT HAVE BEEN GRANTED)

May 30, 2017