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PLEADING REQUIREMENTS FOR A LAUNDRY LIST OF FRAUD-RELATED CAUSES OF ACTION SUCCINCTLY ILLUSTRATED.

The Second Department, in the context of motions to dismiss, motions for injunctions, and motions for sanctions, described the pleading requirements for the following causes of action: preliminary injunction, permanent injunction, breach of fiduciary duty, fraud, aiding and abetting fraud, constructive trust, conspiracy to commit a tort, fraudulent conveyance, unjust enrichment and conversion. Swartz v Swartz, 2016 NY Slip Op 08390, 2nd Dept 12-14-16

 

CIVIL PROCEDURE (PLEADING REQUIREMENTS FOR A LAUNDRY LIST OF FRAUD-RELATED CAUSES OF ACTION SUCCINCTLY ILLUSTRATED)/FRAUD PLEADING REQUIREMENTS FOR A LAUNDRY LIST OF FRAUD-RELATED CAUSES OF ACTION SUCCINCTLY ILLUSTRATED)

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SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63.

The First Department, over an extensive dissent, determined that fraud-related actions against defendant Credit Suisse (stemming from the sale of residential mortgage-backed securities [RMBS]) were governed by the six-year, not three-year statute of limitations. The actions were brought pursuant to the Martin Act and Executive Law 63(12). Those statutes were deemed to have codified common law causes of action. Therefore the six-year statute (CPLR 213), not the three-year statute (CPLR 214) applies:

Where claims are “to recover upon a liability . . . created or imposed by statute” (CPLR 214[2]), and the liability, although akin to common-law causes, “would not exist but for [the] statute” … , the three-year statute of limitations of CPLR 214(2) applies … . In contrast, where a statute “merely codifies and affords new remedies for what in essence is a common-law … claim[,]” CPLR 214(2) does not apply and “the Statute of Limitations for the statutory claim is that for the common-law cause of action which the statute codified or implemented”(id. at 208).

In the complaint, the Attorney General alleges, inter alia, that defendants’ fraud was their failure to abide by their representations that they had carefully evaluated and would continue to monitor the quality of the loans underlying their RMBS, and that they would encourage loan originators to implement sound origination practices. Instead, defendants routinely ignored defects discovered in their due diligence reviews and did not seek to influence originators to utilize appropriate origination practices, choosing instead to misuse their quality control process to obtain significant monetary settlements from originators, which defendants improperly kept for themselves. People v Credit Suisse Sec. (USA) LLC, 2016 NY Slip Op 08339, 1st Dept 12-13-16

 

CIVIL PROCEDURE (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/SECURITIES (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/FRAUD (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/CRIMINAL LAW (SECURITIES FRAUD, SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/EXECUTIVE LAW 63 (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/MARTIN ACT (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)/STATUTE OF LIMITATION (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63),RESIDENTIAL MORTGAGE-BACKED SECURITIES (SIX YEAR STATUTE OF LIMITATIONS APPLIES TO FRAUD ACTIONS AGAINST DEFENDANT BANK RELATING TO THE SALE OF RESIDENTIAL MORTGAGE-BACKED SECURITIES BROUGHT PURSUANT TO THE MARTIN ACT AND EXECUTIVE LAW 63)

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SPECIFICITY REQUIRED FOR A FRAUD CAUSE OF ACTION IS TEMPERED WHEN THE DETAILS ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE DEFENDANT.

The Second Department, in affirming the denial of a motion to dismiss a cause of action for fraud, noted that the specificity required for a fraud complaint is tempered when the details are exclusively within the knowledge of the defendant:

A plaintiff asserting a cause of action alleging fraud is required to plead with particularity (see CPLR 3016[b]…). When, however, the operative facts are “peculiarly within the knowledge of the party” alleged to have committed the fraud, it may be impossible at the early stages of the proceeding for the plaintiff to detail all the circumstances constituting the fraud … . Thus, as the Court of Appeals has held, the pleading requirement of CPLR 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud'” … . Instead, the pleading requirement will be deemed to have been met “when the facts are sufficient to permit a reasonable inference of the alleged conduct” … . Bibbo v Arvanitakis, 2016 NY Slip Op 08194, 2nd Dept 12-7-16

FRAUD (SPECIFICITY REQUIRED FOR A FRAUD CAUSE OF ACTION IS TEMPERED WHEN THE DETAILS ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE DEFENDANT)/CIVIL PROCEDURE (MOTION TO DISMISS, FRAUD, SPECIFICITY REQUIRED FOR A FRAUD CAUSE OF ACTION IS TEMPERED WHEN THE DETAILS ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE DEFENDANT).DISMISS, MOTION TO (CIVIL, FRAUD, SPECIFICITY REQUIRED FOR A FRAUD CAUSE OF ACTION IS TEMPERED WHEN THE DETAILS ARE EXCLUSIVELY WITHIN THE KNOWLEDGE OF THE DEFENDANT)

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MISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE.

The First Department, in a full-fledged opinion by Justice Richter, determined (1) plaintiff’s misrepresentation cause of action was properly dismissed because of a lack of specificity in the allegations, (2) the cause of action should not have been dismissed with prejudice, (3) and the specificity provided in the appellate briefs may support an amended complaint. Plaintiff, a stock insurance company, alleged it was induced to insure collateralized debt obligations (CDO’s) by misrepresentations made by Bear Stearns:

[P]laintiff CIFG Assurance North America, Inc., a stock insurance company, alleges that Bear Stearns & Co. Inc., a predecessor of defendant J.P. Morgan Securities LLC, made material misrepresentations that induced CIFG to provide financial guaranty insurance in connection with two collateralized debt obligations (CDOs). According to CIFG, Bear Stearns had on its books a large number of high-risk residential mortgage-backed securities (RMBSs), and embarked on a scheme to rid itself of these toxic assets by offloading them into the two CDOs, and marketing the CDOs’ securities to investors. * * *

… [T]he claim should not have been dismissed with prejudice, but rather, CIFG should be given the opportunity to replead. A request for leave to amend a complaint should be “freely given, and denied only if there is prejudice or surprise resulting directly from the delay, or if the proposed amendment is palpably improper or insufficient as a matter of law” … . CIFG Assur. N. Am., Inc. v J.P. Morgan Sec. LLC, 2016 NY Slip Op 08029, 1st Dept 11-29-16

 

INSURANCE LAW (STOCK INSURANCE, MISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE)/SECURITIESMISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE/FRAUD (MISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE)/COLLATERALIZED DEBT OBLIGATIONS (MISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE)/RESIDENTIAL MORTGAGE-BACKED SECURITIES  (MISREPRESENTATION CAUSE OF ACTION AGAINST BEAR STEARNS RE COLLATERALIZED DEBT OBLIGATIONS AND RESIDENTIAL MORTGAGE-BACKED SECURITIES SHOULD NOT HAVE BEEN DISMISSED WITH PREJUDICE)

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ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED (NOT THE CASE HERE).

The Second Department, finding that a cause of action for aiding and abetting breach of contract does not exist, explained the elements of aiding and abetting fraud. The court further found that the arbitration clause was not invalidated by the allegations of fraud in the inducement:

There is no cause of action for aiding and abetting a breach of contract … . To recover for aiding and abetting fraud, the plaintiff must plead “the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud” … . “Substantial assistance” requires an affirmative act on the defendant’s part … . “[T]he mere inaction of an alleged aider or abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff” … . * * *

The plaintiffs contend that the arbitration agreement is invalid because it was fraudulently induced. However, a broad arbitration provision is separable from the substantive provisions of a contract such that the agreement to arbitrate is valid even if the substantive provisions of the contract were induced by fraud … . “The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was part of a grand scheme that permeated the entire contract'” … . “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” … . Markowits v Friedman, 2016 NY Slip Op 07932, 2nd Dept 11-23-16

 

FRAUD (ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)/CONTRACT LAW (ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)/ARBITRATION (WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)

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CAUSES OF ACTION FOR BOTH CONSTRUCTIVE AND ACTUAL FRAUDULENT CONVEYANCE STATED, ELEMENTS DESCRIBED.

The First Department determined the complaint stated causes of action for both constructive and actual fraudulent conveyance. The facts are too complex to summarize here, but the nature of the transactions is revealed in the following excerpts:

The complaint states a cause of action for constructive fraudulent conveyance against Globe Institute, the Rabinovich defendants and 878 LLC by alleging that the conveyance of Globe Institute’s assets to 878 LLC was made without the exchange of “fair consideration,” since the transaction could be viewed as resulting in part of the value of Globe Institute’s assets being paid to its shareholders indirectly, suggesting bad faith (see Debtor and Creditor Law § 272[a]). Further, while the asset purchase agreement provided for 878 LLC to assume certain liabilities of Globe Institute and to make future conditional payments to Globe Institute’s shareholders, in opposition to the motion, plaintiff presented supplementary evidence that the consideration was not a “fair equivalent” for the valuable assets transferred (see id.). The complaint also adequately alleges that the transaction rendered Globe Institute insolvent (Debtor and Creditor Law § 273) and was accomplished while Globe Institute was engaged in business (Debtor and Creditor Law § 274), and that Globe Institute and the Rabinovich defendants were aware that the transaction would prevent Globe Institute from fulfilling its obligations under its guarantee of rental payments due under Globe Alumni’s lease … .

The cause of action for actual fraudulent conveyance under Debtor and Creditor Law § 276 is also adequately pleaded against Globe Institute, the Rabinovich defendants, and 878 LLC. Although the transaction was conducted at arm’s length, plaintiff has sufficiently alleged ” badges of fraud,'” i.e., “circumstances so commonly associated with fraudulent transfers that their presence gives rise to an inference of intent,'” including (1) the parties’ structuring of the transaction so that the sole consideration promised to Globe Institute, aside from 878 LLC’s assumption of certain of Globe Institute’s liabilities, was a $1.35 million payment directly to its shareholders, the Rabinovich defendants, rather than to Globe Institute itself, (2) the exclusion of Globe Institute’s guarantee of the lease agreement from the list of assumed liabilities, although the parties knew that Globe Institute would be left as a corporate shell as result of the transaction and would therefore be unable to honor any future liabilities, (3) inadequate consideration, and (4) the transaction’s having been outside the usual course of business and hastily closed over the course of only a few days, while other potential buyers required a much longer due diligence period … . 172 Van Duzer Realty Corp. v 878 Educ., LLC, 2016 NY Slip Op 05957, 1st Dept 9-8-16

DEBTOR-CREDITOR LAW (CAUSES OF ACTION FOR BOTH CONSTRUCTIVE AND ACTUAL FRAUDULENT CONVEYANCE STATED, ELEMENTS DESCRIBED)/FRAUD  (CAUSES OF ACTION FOR BOTH CONSTRUCTIVE AND ACTUAL FRAUDULENT CONVEYANCE STATED, ELEMENTS DESCRIBED)/FRAUDULENT CONVEYANCE (CAUSES OF ACTION FOR BOTH CONSTRUCTIVE AND ACTUAL FRAUDULENT CONVEYANCE STATED, ELEMENTS DESCRIBED)

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SOPHISTICATED INVESTOR DID NOT STATE A CAUSE OF ACTION FOR FRAUD.

The First Department, in a full-fledged opinion by Justice Gische, recalling and vacating a prior decision and order dated May 31, 2016, determined plaintiff did not state a cause of action for fraud. Plaintiff, a sophisticated investor, procured a majority interest in DuCool, a manufacturer of heating and cooling equipment. The plaintiff, in a share purchase agreement, acknowledged the speculative nature of the investment. And plaintiff was given full access to DuCool’s records prior to the purchase:

Where a cause of action is based in fraud, “the complaint must allege misrepresentation or concealment of a material fact, falsity, scienter on the part of the wrongdoer, justifiable reliance and resulting injury” … . Furthermore, where the plaintiff is a sophisticated party, “if the facts represented are not matters peculiarly within the [defendant’s] knowledge, and the [plaintiff] has the means available to [it] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, [the plaintiff] must make use of those means, or [it] will not be heard to complain that [it] was induced to enter into the transaction by misrepresentations” … . Circumstances constituting fraud must be set forth in a complaint in detail (CPLR 3016[b]). MP Cool Invs. Ltd. v Forkosh, 2016 NY Slip Op 05944, 1st Dept 9-1-16

FRAUD (SOPHISTICATED INVESTOR DID NOT STATE A CAUSE OF ACTION FOR FRAUD)/SECURITIES (SOPHISTICATED INVESTOR DID NOT STATE A CAUSE OF ACTION FOR FRAUD)/CORPORATION LAW (SOPHISTICATED INVESTOR DID NOT STATE A CAUSE OF ACTION FOR FRAUD)

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FRAUD ALLEGATIONS RELATED TO SALE OF DEFECTIVE RESIDENTIAL MORTGAGE BACKED SECURITIES SUFFICIENT TO WITHSTAND MOTION TO DISMISS.

The First Department determined plaintiff had sufficiently alleged fraud and aiding and abetting fraud in connection with defendants’ sale of defective residential mortgage backed securities (RMBS):

Defendants argue that in order to establish justifiable reliance, plaintiffs were required to allege that they sought additional information from defendants about the truthfulness of the representations made in the offering documents or that they requested the loan files for the loans underlying the RMBS. The level of due diligence advocated by defendants requires a prospective purchaser to assume that the credit ratings assigned to the securities were fraudulent and to verify them through a detailed retracing of the steps undertaken by the underwriter and credit rating agency. We do not require this heightened due diligence standard to support justifiable reliance in a pleading concerning such sales of securities by prospectus … .

… The element of scienter, that is, the requirement that the defendant knew of the falsity of the representation being made to the plaintiff, is, of course, the element most likely to be within the sole knowledge of the defendant and least amenable to direct proof” … . All that is required to defeat a motion to dismiss a fraud claim for lack of scienter is “a rational inference of actual knowledge” … . The allegations that defendants were informed about defects in the loans they were securitizing because they obtained this information through their own due diligence are sufficient to plead scienter … .  IKB Intl. S.A. v Morgan Stanley, 2016 NY Slip Op 05779, 1st Dept 8-11-16

FRAUD (FRAUD ALLEGATIONS RELATED TO SALE OF DEFECTIVE RESIDENTIAL MORTGAGE BACKED SECURITIES SUFFICIENT TO WITHSTAND MOTION TO DISMISS)/SECURITIES (FRAUD ALLEGATIONS RELATED TO SALE OF DEFECTIVE RESIDENTIAL MORTGAGE BACKED SECURITIES SUFFICIENT TO WITHSTAND MOTION TO DISMISS)/RESIDENTIAL MORTGAGE BACKED SECURITIES (FRAUD ALLEGATIONS RELATED TO SALE OF DEFECTIVE RESIDENTIAL MORTGAGE BACKED SECURITIES SUFFICIENT TO WITHSTAND MOTION TO DISMISS)

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AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES. 

The Second Department, reversing Supreme Court, determined that the letter of intent constituted merely “an agreement to agree” which could not support breach of contract, breach of the covenant of good faith and fair dealing, promissory estoppel or fraud causes of action:

 

The letter of intent provided that parties “shall negotiate to arrive at mutually acceptable Definitive Agreements” regarding the potential joint venture and loan. The letter of intent further provided that the parties “each reserve the right to withdraw from further negotiations at any time if, in the sole judgment of either or both, it is in either Party’s best interest to do so, without further liability or obligation to the other.” * * *

The Supreme Court should have granted the defendants’ motion pursuant to CPLR 3211(a) to dismiss the complaint, as documentary evidence, in the form of the letter of intent, utterly refuted the plaintiff’s factual allegations, thereby conclusively establishing a defense as a matter of law … . ” [I]t is rightfully well settled in the common law of contracts in this State that a mere agreement to agree, in which a material term is left for future negotiations, is unenforceable'” … . Here, the letter of intent demonstrated that the plaintiff’s allegations of breach of contract related to a mere agreement to agree … . Further, causes of action sounding in promissory estoppel and fraud require reasonable reliance on an alleged promise or misrepresentation … . Here, in light of the language of the letter of intent, any reliance on the defendants’ alleged promises and representations would, as a matter of law, have been unreasonable … . Finally, the language of the letter of intent utterly refuted the plaintiff’s allegations regarding an alleged breach of the covenant of good faith and fair dealing … . New York Military Academy v NewOpen Group, 2016 NY Slip Op 05706, 2nd Dept 8-3-16

 

CONTRACT LAW (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)/AGREEMENT TO AGREE (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)/LETTER OF INTENT (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)/COVENANT OF GOOD FAITH AND FAIR DEALING (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)/PROMISSORY ESTOPPEL (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)/FRAUD (AGREEMENT TO AGREE UNENFORCEABLE UNDER BREACH OF CONTRACT, BREACH OF COVENANT OF GOOD FAITH, PROMISSORY ESTOPPEL AND FRAUD THEORIES)

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LABORATORY WHICH TESTS URINE FOR THE PRESENCE OF DRUGS DID NOT OWE A DUTY TO A TESTEE TO FOLLOW REGULATIONS NOT RELATED TO THE SCIENTIFIC TESTING PROCEDURE; FRAUD CAUSE OF ACTION CANNOT BE BASED ON THE RELIANCE OF A THIRD-PARY, AS OPPOSED TO THE PLAINTIFF, UPON A MISREPRESENTATION.

The Court of Appeals, in a full-fledged opinion by Judge Abdus-Salaam, over two dissenting opinions, determined: (1)  a laboratory (LabCorp) which tests urine for the presence of drugs did not owe a duty of care to a testee based upon the violation of a federal regulation which did not involve a scientific testing procedure; and (2), a fraud cause of action against the laboratory could not be based upon a third party’s, as opposed to the plaintiff’s, reliance upon a misrepresentation.  Here plaintiff, a physician and a pilot, was selected for a random drug test. Plaintiff could not produce enough urine for the test and left the laboratory, returning the next day. Under Federal Aviation Administration (FAA) regulations, plaintiff’s leaving the laboratory constituted a refusal to take the test. The FAA revoked plaintiff’s airman certificates and his authority to conduct FAA mandated pilot examinations. A court ultimately restored plaintiff’s certificates and examination authority. In his lawsuit against the laboratory, plaintiff alleged: (1) the laboratory was negligent in not informing him of the procedures and rules surrounding the inability to provide a urine sample; and (2) a laboratory employee (Montalvo) misrepresented to the FAA that plaintiff was uncooperative during the test.

… [I]n Landon (22 NY3d 1) we held that a drug testing laboratory can be liable to a test subject under the common law for negligent testing of a biological sample. We decline to extend Landon’s reasoning to impose a duty upon a laboratory to test subjects that requires the laboratory to adhere to aspects of the federal regulations and guidelines that do not implicate the scientific integrity of the testing process. * * *

Plaintiff alleges fraud against LabCorp, contending that Montalvo, LabCorp’s employee, made false statements to the FAA investigators, which they relied on to plaintiff’s detriment. Specifically, plaintiff points to Montalvo’s statement to the FAA investigators that plaintiff was on his cell phone and uncooperative during the test, making it impossible to warn him of the consequence of leaving the testing site without giving a sample, which statement the FAA relied on in revoking plaintiff’s airman certificates. We hold that under New York law, such third-party reliance does not satisfy the reliance element of a a fraud claim. Pasternack v Laboratory Corp. of Am. Holdings, 2016 NY Slip Op 05179, CtApp 6-30-16

 

NEGLIGENCE (LABORATORY WHICH TESTS URINE FOR THE PRESENCE OF DRUGS DID NOT OWE A DUTY TO A TESTEE TO FOLLOW REGULATIONS NOT RELATED TO THE SCIENTIFIC TESTING PROCEDURE); DRUG-TESTING (LABORATORY WHICH TESTS URINE FOR THE PRESENCE OF DRUGS DID NOT OWE A DUTY TO A TESTEE TO FOLLOW REGULATIONS NOT RELATED TO THE SCIENTIFIC TESTING PROCEDURE)/LABORATORIES (DRUG-TESTING, NEGLIGENCE, LABORATORY WHICH TESTS URINE FOR THE PRESENCE OF DRUGS DID NOT OWE A DUTY TO A TESTEE TO FOLLOW REGULATIONS NOT RELATED TO THE SCIENTIFIC TESTING PROCEDURE)/FRAUD (FRAUD CAUSE OF ACTION CANNOT BE BASED ON THE RELIANCE OF A THIRD-PARY, AS OPPOSED TO THE PLAINTIFF, UPON A MISREPRESENTATION)

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