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Candidate Designating Petition Deemed Invalid Due to Fraud (Unwitnessed Signatures)

The Second Department determined a candidate-designating petition was invalid because the subscribing witness did not in fact witness all of the signatures on the petition. The petition was invalid with respect to the candidate who was aware of the fraud, and the candidates who were not aware of the fraud (because there were not enough signatures after the invalid signatures were struck):

A candidate’s designating petition will be invalidated on the ground of fraud where there is a showing that the entire designating petition is permeated with fraud … , or where the candidate has participated in, or is chargeable with, knowledge of the fraud… , even if there are a sufficient number of valid signatures on the remainder of the designating petition … .

Here, the Supreme Court determined that Shapiro, the subscribing witness with respect to 147 signatures, had fraudulently and knowingly signed and submitted false witness statements, and that Spring [one of the candidates] was a party to the fraud. * * * . Moreover, we agree with the court’s determination that Shapiro fraudulently and knowingly signed and submitted false witness statements . Therefore, the court correctly determined that Spring participated in, and was chargeable with knowledge of, the fraud, and properly granted that branch of the petition which was to invalidate the designating petition as to him … .

However, since the Supreme Court determined that Shapiro’s witness statements on the contested sheets were false, the court erred in denying those branches of the petition which were to invalidate the designating petition as to the other two candidates, Perillo and Milner … .  Shapiro was the subscribing witness with respect to 147 of the 343 total signatures, and her false witness statements render those signatures invalid. Although Perillo and Milner did not engage in candidate fraud, the invalidation of 147 of the 343 collected signatures leaves them with an insufficient number of valid signatures. Thus, the designating petition should have been invalidated with respect to all three candidates … . Matter of Sgammato v Perillo, 2015 NY Slip Op 06630, 2nd Dept 8-19-16

 

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Flaws in Causes of Action Stemming from the Alleged Breach of a Joint Venture Agreement Explained

In an action stemming from the alleged breach of a joint venture agreement, the Second Department, in the context of a motion to dismiss for failure to state a cause of action, went through each cause of action and, where dismissal was appropriate, noted the pleading failure. The joint venture cause of action did not allege a mutual promise to share the losses. The constructive trust cause of action did not allege a confidential or fiduciary relationship. The fraud allegations were not collateral to the terms of the alleged joint venture and no out-of-pocket losses were alleged. The tortious interference with contract cause of action did not allege the intentional procurement of a breach of the joint venture agreement. The accounting cause of action did not allege that a demand for an accounting was made. The Second Department noted that the motion to amend the complaint to cure some of the defects should have been granted. With respect to the criteria for determining a motion to dismiss for failure to state a cause of action where documentary evidence supporting the motion is submitted, the court explained:

“A motion pursuant to CPLR 3211(a)(1) to dismiss the complaint on the ground that the action is barred by documentary evidence may be granted only where the documentary evidence utterly refutes the plaintiff’s factual allegations, thereby conclusively establishing a defense as a matter of law” … .

In considering a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), “the court must accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” … . A court may consider evidentiary material submitted by a defendant in support of a motion to dismiss pursuant to CPLR 3211(a)(7) … . When evidentiary material is considered on a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), and the motion has not been converted to one for summary judgment, “the criterion is whether the [plaintiff] has a cause of action, not whether he [or she] has stated one, and, unless it has been shown that a material fact as claimed by the [plaintiff] to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it . . . dismissal should not eventuate”… . Mawere v Landau, 2015 NY Slip Op 06317, 2nd Dept 7-29-15

 

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Specific Disclaimers Indicating No Information Extrinsic to the Written Contract Was Relied Upon Precluded Fraud in the Inducement Cause of Action/Summary Judgment on Promissory Note Precluded—Breach of Contract Cause of Action Was Intertwined with Promissory Note

In a decision addressing many other issues, the Second Department determined specific disclaimers in the contract indicating nothing extrinsic to the contract was relied upon by the parties precluded any claim alleging fraudulent inducement.  The court also noted that plaintiff was not entitled to summary judgment on a promissory note because the note was intertwined with the breach of contract cause of action:

“While a general merger clause is ineffective to exclude parol evidence of fraud in the inducement, a specific disclaimer destroys the allegations in [a] plaintiff’s complaint that the agreement was executed in reliance upon . . . contrary oral [mis]representations'” … . In support of this branch of their motion, [defendant] relied upon the contract, which provides that [defendant] made no representation or warranty, either express or implied, as to the assets sold, [defendant’s] business, or “any matter or thing affecting or relating to this agreement, except as specifically set forth in this agreement.” The contract also indicates that it contains all of the terms agreed upon between the parties and that it was entered into after full investigation. Such clauses are sufficiently specific to bar the [plaintiffs] from claiming that they were fraudulently induced into entering the contract because of certain oral misrepresentations … . * * *

Although the breach of a related contract generally cannot defeat a motion for summary judgment on an instrument for money only, that rule does not apply where the contract and instrument are intertwined … . Here, the action to recover damages for breach of contract is sufficiently intertwined with the action to recover on the promissory note, such that denial of summary judgment to enforce the promissory note and personal guaranty was proper … . Oseff v Scotti, 2015 NY Slip Op 06123, 2nd Dept 7-15-15

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“Special Facts Doctrine” as Applied to Fraud Allegations Explained

In an action stemming from the alleged breach of an Asset Purchase Agreement (APA), the First Department explained the applicability of the “special facts doctrine” to the related fraud allegations. There was a defense verdict. The issue was raised on appeal by the plaintiffs because the trial judge refused to instruct the jury on the special facts doctrine, an error the First Department deemed harmless. The court offered a clear description of the doctrine:

… [P]laintiffs claimed that defendants had a duty to disclose certain documents concerning alleged adverse contract information. The “special facts” doctrine holds that “absent a fiduciary relationship between parties, there is nonetheless a duty to disclose when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair” … . As a threshold matter, the doctrine requires satisfaction of a two-prong test: that the material fact was information peculiarly within the knowledge of one party and that the information was not such that could have been discovered by the other party through the exercise of ordinary intelligence … . Greenman-Pedersen, Inc. v Berryman & Henigar, Inc., 2015 NY Slip Op 06091, 1st Dept 7-14-15

 

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A Misrepresentation Which Is the Subject of a Provision in a Contract May Be the Basis for a Distinct Fraud Cause of Action Which Is Not Duplicative of the Breach of Contract Cause of Action

The First Department, over a dissent, determined that misrepresentations supported both a claim for breach of contract and a claim for fraud in the inducement. The facts of the case are laid out in the dissent and are not summarized here. The misrepresentations involved the alleged failure to disclose an audit prior to the sale of a company which, plaintiff alleged, induced plaintiff to pay more than the company was worth. The majority offered a clear explanation of the legal requirements for a distinct fraud (tort) cause of action which is not duplicative of the related breach of contract cause of action:

It is axiomatic that in order to state a claim for fraudulent inducement, “there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury” … . In the context of a contract case, the pleadings must allege misrepresentations of present fact, not merely misrepresentations of future intent to perform under the contract, in order to present a viable claim that is not duplicative of a breach of contract claim … . Moreover, these misrepresentations of present fact must be “collateral to the contract and [must have] induced the allegedly defrauded party to enter into the contract … . Therefore, “[a]s a general rule, to recover damages for tort in a contract matter, it is necessary that the plaintiff plead and prove a breach of duty distinct from, or in addition to, the breach of contract” … . * * *

… [The] representations were … warranted to be accurate at the time the contract was entered into and made for the purposes of inducing the plaintiffs to purchase those loans. They were designed to be relied on to arrive at an accurate value of the loans, and the value of the company being purchased here. These misrepresentations did not merely evince “an insincere promise of future performance [but were] instead . . . misrepresentation[s] of then present facts that were collateral to the contract, and thus plaintiff sufficiently alleged a cause of action sounding in fraud” … .Wyle Inc. v ITT Corp., 2015 NY Slip Op 05877, 1st Dept 7-7-15

 

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Pleading Requirements for Unjust Enrichment and Fraud Not Met

The Second Department determined the complaint against defendant bank alleging unjust enrichment and fraud was properly dismissed for failure to state a cause of action. The action stemmed from a foreclosure sale.  After the property had been sold, the judgment of foreclosure and sale was vacated because the bank did not properly serve process on one of the parties. The full amount paid for the property was refunded to the plaintiff.  The plaintiff then sued for unjust enrichment claiming the bank collected banK fees and interest.  Re: unjust enrichment: the complaint failed to allege the bank had been enriched at plaintiff’s expense. And the plaintiff sued for fraud alleging the bank knew it had failed to properly serve one of the parties at the time it prosecuted the foreclosure action.  Re: fraud: the complaint included only conclusory allegations of fraud without out the requisite supporting factual allegations. The Second Department explained:

The elements of a cause of action to recover for unjust enrichment are “(1) the defendant was enriched, (2) at the plaintiff’s expense, and (3) that it is against equity and good conscience to permit the defendant to retain what is sought to be recovered” … . “The essential inquiry in any action for unjust enrichment or restitution is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered” … .

Here, the plaintiff merely alleged in the amended complaint that U.S. Bank was “unjustly enriched in that it collected bank fees and interest.” Even accepting these allegations in the amended complaint as true, the amended complaint failed, as a matter of law, to sufficiently allege that U.S. Bank was enriched at the plaintiff’s expense … . * * *

“The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages” … . All of the elements of a fraud claim “must be supported by factual allegations containing the details constituting the wrong” in order to satisfy the pleading requirements of CPLR 3016(b)… .

Here, the amended complaint consisted of conclusory allegations regarding U.S. Bank’s knowledge that it had commenced and prosecuted the underlying foreclosure action without properly effecting service on all of the necessary parties. Furthermore, the facts alleged in the amended complaint do not give rise to a reasonable inference that U.S. Bank had knowledge of, or participated in, the alleged fraud … . GFRE, Inc. v U.S. Bank, N.A., 2015 NY Slip Op 05640, 2nd Dept 7-1-15

 

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An Assignment of a Note, Which Was Silent About Whether the Assignment of the Right to Bring a Tort Action Was Included, Did Not, Under New York Law, Include the Right to Bring a Tort Action

The Court of Appeals, in a full-fledged opinion by Judge Stein, determined the assignment of a note, which was silent about whether the assignment included the right to bring a tort action, did not include such a right. Therefore the Second Circuit’s certified question whether the assignee of the note had standing to sue Morgan Stanley for fraud was answered in the negative. The case arose out of the collapse in value of sub-prime residential mortgage-backed securities. The court explained the relevant New York law:

To be sure, fraud claims are freely assignable in New York … . It has long been held, however, that the right to assert a fraud claim related to a contract or note does not automatically transfer with the respective contract or note … . Thus, where an assignment of fraud or other tort claims is intended in conjunction with the conveyance of a contract or note, there must be some language — although no specific words are required — that evinces that intent and effectuates the transfer of such rights … . Without a valid assignment, “only the . . . assignor may rescind or sue for damages for fraud and deceit” because “the representations were made to it and it alone had the right to rely upon them” … . Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. v Morgan Stanley & Co., Inc., 2015 NY Slip Op 05591, CtApp 6-30-15

 

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Defendant’s Employee Had “Apparent Authority” to Act on Behalf of Defendant Insurance Agency—Plaintiff Justifiably Relied on the Apparent Authority When It Purchased a Fake Policy from Defendant’s Employee–Plaintiff Entitled to Partial Summary Judgment on the Fraud Cause of Action

The Fourth Department, over a two-justice dissent, determined plaintiff was entitled to summary judgment on its fraud cause of action against defendant insurance agency.  An employee of the insurance agency issued a fake workers’ compensation policy to the plaintiff. The Fourth Department found that the actions of the insurance agency provided the employee with “apparent authority” to issue the policy and the plaintiff justifiably relied on that apparent authority.  The relevant law was succinctly explained:

“In an action to recover damages for fraud, the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by [the maker], made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury” … . It is undisputed that the insurance policy purportedly issued by AIG was false, and thus plaintiff established that a false representation was made that was known to be false by defendant’s employee. Defendant contends, however, that the justifiable reliance element was not met because it cannot be liable for the acts of its employee, and plaintiff’s reliance on the alleged “apparent authority” of defendant’s employee was not reasonable.

It is axiomatic that “[t]he mere creation of an agency for some purpose does not automatically invest the agent with apparent authority’ to bind the principle without limitation . . . An agent’s power to bind his [or her] principal is coextensive with the principal’s grant of authority” … . “Essential to the creation of apparent authority are words or conduct of the principal, communicated to the third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction. The agent cannot by his [or her] own acts imbue himself [or herself] with apparent authority. Rather, the existence of “apparent authority” depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal — not the agent’ . . . Morever, a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable” … . Here, plaintiff contacted defendant seeking workers’ compensation coverage, and defendant assigned its employee who specialized in plaintiff’s type of business to assist plaintiff. We therefore conclude that plaintiff established that it reasonably relied upon the authority of defendant’s employee to act for defendant. Regency Oaks Corp. v Norman-Spencer McKernan, Inc., 2015 NY Slip Op 04959, 4th Dept 6-12-15

 

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An Unconditional Guaranty of Payment of a Another’s Obligations Is Enforceable by Summary Judgment In Lieu of a Complaint In New York, Even In the Face of an Allegation the Underlying Judgment Was the Result of Collusion and Fraud

The Court of Appeals, in a full-fledged opinion by Judge Rivera, determined an unconditional guaranty (re: payment of corporate debts) was a proper basis for summary judgment in lieu of a complaint, notwithstanding defendant’s (unsupported) allegation the underlying judgment was the result of collusion and fraud.  An unconditional guaranty is enforceable in New York, even where it is alleged the guaranty itself was the product of fraud:

Guarantees that contain language obligating the guarantor to payment without recourse to any defenses or counterclaims, i.e., guarantees that are “absolute and unconditional,” have been consistently upheld by New York courts * * *.

This Court has acknowledged the application of these absolute guarantees even to claims of fraudulent inducement in the execution of the guaranty … .* * *

Here, defendant personally guaranteed the obligations owed by Agra Canada under the Purchase Agreement, as well as obligations owed by Agra USA. Moreover, defendant specifically agreed that his “liability under this Guaranty shall be absolute and unconditional irrespective of (1) any lack of validity or enforceability of the agreement; . . . or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Seller (Agra Canada) or a guarantor.” By its plain terms, in broad, sweeping and unequivocal language, the Guaranty forecloses any challenge to the enforceability and validity of the documents which establish defendant’s liability for payments arising under the Purchase Agreement, as well as to any other possible defense to his liability for the obligations of the Agra businesses. Cooperatieve Centrale Raiffeisen-Boerenleenbank, B.A. v Navarro, 2015 NY Slip Op 04753, CtApp 6-9-15

 

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Question of Fact Whether Plaintiff Was Fraudulently Induced to Sign a Release—Relevant Law Explained

The Second Department determined plaintiff raised a triable issue of fact concerning whether plaintiff was fraudulently induced to sign a release re: a potential personal-injury action. The release was signed three days after the accident when the plaintiff was still on pain medication and it was alleged the insurance adjuster told her the offered funds were for plaintiff’s “inconvenience” and not to compensate for her injuries.  The court explained relevant law:

” A release is a contract, and its construction is governed by contract law'” … . “Generally, a valid release that is clear and unambiguous on its face constitutes a complete bar to an action on a claim which is the subject of the release absent fraudulent inducement, fraudulent concealment, misrepresentation, mutual mistake or duress'” … .

“A signed release shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release'” … . “A plaintiff seeking to invalidate a release due to fraudulent inducement must establish the basic elements of fraud, namely a representation of a material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury'” … . Moreover, there is a requirement that a release covering both known and unknown injuries be ” fairly and knowingly made'” … . Powell v Adler, 2015 NY Slip Op 04466, 2nd Dept 5-27-15

 

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