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Statutes of Limitations for Actions Stemming from the Alleged Fraudulent Transfer of Real Property Explained

The Second Department determined plaintiff’s actions, which stemmed from the allegation defendant had acquired a deed to his property by fraud, were timely. The court explained the statutes of limitations for actual and constructive fraud, breach of fiduciary duty, actions to quiet title, conversion by fraud, money had and received, and constructive trust. In essence, actions which have an equitable component are governed by a six-year statute of limitations:

The statute of limitations for a cause of action alleging a breach of fiduciary duty does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated … . * * *

The statute of limitations for a cause of action sounding in breach of fiduciary duty is dependent on the relief sought. The Court of Appeals ruled in IDT Corp. v Morgan Stanley Deal Witter & Co. (12 NY3d at 139):

“New York law does not provide a single statute of limitations for breach of fiduciary duty claims. Rather, the choice of the applicable limitations period depends on the substantive remedy that the plaintiff seeks. Where the remedy sought is purely monetary in nature, courts construe the suit as alleging injury to property’ within the meaning of CPLR 214(4), which has a three-year limitations period. Where, however, the relief sought is equitable in nature, the six-year limitations period of CPLR 213(1) applies. Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8)” (citations omitted).

Since the plaintiff’s right to the subject property is in issue, awarding damages would not be adequate. Therefore, the six-year statute of limitations for causes of action sounding in equity should be applied … . Since the second and third causes of action accrued in 2006, when the defendants allegedly acted contrary to their fiduciary obligations, to the plaintiff’s detriment, those causes of action, interposed four years later in 2010, are not time-barred.

The first cause of action, to quiet title pursuant to RPAPL article 15, is not time-barred, since the plaintiff was seized or possessed of the premises within 10 years before the commencement of the action and is in essence seeking a determination that the quitclaim deed which he executed in 2003 was part of a mortgage transaction, and not a conveyance of title (see CPLR 212[a]; Real Property Law § 320…).

The fourth cause of action, alleging conversion based upon fraud, is not time-barred, since it is governed by the statute of limitations set forth in CPLR 213(8) … .

The fifth cause of action, seeking damages for money had and received …, is equitable in nature and, therefore, the applicable statute of limitations is six years … . Since the defendants’ receipt of money occurred in 2006, and the action was commenced in 2010, the cause of action is not time-barred. Similarly, the sixth cause of action, sounding in unjust enrichment, is equitable in nature, and is not time-barred … .

The seventh cause of action alleging a constructive trust is equitable in nature and governed by a six-year statute of limitations … . The elements of a cause of action to impose a constructive trust are (1) a confidential or fiduciary relationship, (2) a promise, (3) a transfer in reliance thereon, and (4) unjust enrichment … . The cause of action accrued on the date of the “wrongful transfer” of the subject property … . Loeuis v Grushin. 2015 NY Slip Op 01926, 2nd Dept 3-11-15

 

 

 

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Questions of Fact Existed Re: Whether Plaintiffs Were Entitled to Rely on Defendant’s Assurances Dog Was Not Aggressive

Plaintiff was seriously injured by a dog procured from defendant after defendant had assured plaintiffs the dog (Brutus) was not aggressive. The Third Department determined plaintiffs were entitled to rely on defendant’s assurances, in spite of three minor biting incidents when the dog was in plaintiffs’ possession:

Defendants argue that because Brutus bit plaintiffs three times prior to the attack that is the subject of the complaint, plaintiffs could not have reasonably relied on defendants’ representations as to the dog’s behavior and cannot state a claim for fraudulent or negligent misrepresentation. Defendants also argue that those causes of action must fail because plaintiffs could have learned of Brutus’ aggressive nature with due diligence. We are not persuaded. In order to establish their claims for negligent and fraudulent misrepresentation, plaintiffs must demonstrate that they justifiably relied on defendants’ misrepresentations … . Here, plaintiffs allege that they would not have adopted Brutus if they had been told the truth regarding his prior owner’s reason for turning him over to the Center. Plaintiffs also allege that, after the three biting incidents, they sought the assistance of trainers to deal with what they perceived as a minor issue. Plaintiffs, who have experience owning and training animals, note that the three prior bites did not break the skin and were far different from the aggressive nature of the later attack. Plaintiffs only learned about Brutus’ prior history when they were able to track down the prior owner by posting flyers and they submitted affidavits from the prior owner and her friend regarding their experiences with Brutus and their intent to have him euthanized when they took him to the Center. Under these circumstances, issues of fact exist as to whether plaintiffs reasonably relied on defendants’ misrepresentation and whether plaintiffs could have discovered Brutus’ dangerous nature with due diligence … . Lawrence v North Country Animal Control Ctr., Inc., 2015 NY Slip Op 01846, 3rd Dept 3-5-15

 

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Plaintiff Could Not Show Justifiable Reliance Upon Alleged Misrepresentations in a Stipulation

The Second Department determined the plaintiff, who was seeking to vacate portions of a so-ordered stipulation in a custody matter, failed to show the stipulation was the result of fraud.  In particular, plaintiff failed to show justifiable reliance upon any alleged misrepresentation because attachments to the stipulation reflected the actual facts:

As the party seeking to set aside the stipulation, the plaintiff had the burden of showing that the stipulation was the result of fraud … . “A cause of action alleging fraud requires a plaintiff to establish a misrepresentation or omission of material fact which the defendant knew was false, that the misrepresentation was made to induce the plaintiff’s reliance, the plaintiff’s justifiable reliance on the misrepresentation or material omission, and a resulting injury” … .

In light of the attachments provided with the stipulation, the plaintiff failed to establish the element of justifiable reliance. Where the plaintiff ” has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations'” … . Cervera v Bressler, 2015 NY Slip Op 02441, 2nd Dept 3-25-15

 

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Because the Landlord Engaged in Fraud, the Four-Year Rent-Overcharge Statute of Limitations Runs Back Four Years from When the Rent Overcharge Action Was Brought/Criteria for Collateral Estoppel Explained (Not Met Here)/Question of Fact Re: Piercing Corporate Veil

The Court of Appeals, in a full-fledged opinion by Judge Read, over a dissent, determined that the four-year statute of limitations in rent-overcharge actions, where the landlord engaged in fraud, does not begin to run when the first overcharge payment is made, but rather extends back four years from when the overcharge action is brought.  Here there was evidence the landlord used a fictitious tenant and rent to justify the rent charged the tenants.  The landlord argued the tenants’ action was time-barred because it was brought more than four years after the first overcharge payment was made. In addition to the statute-of-limitations ruling, the Court of Appeals held the collateral estoppel doctrine was not correctly applied by the courts below and there was a question of fact whether the corporate veil should be pierced due to the principal’s control over the corporate-landlord and the principal’s fraudulent acts:

Julie Conason (Conason) and Geoffrey Bryant (Bryant) (collectively, tenants) are the rent-stabilized tenants of an apartment in a residential building in Manhattan. Megan Holding LLC (Megan) is the building’s owner and tenants’ landlord. … Conason asserted an overcharge claim against Megan in April 2009, almost five and one-half years after she occupied the apartment under a vacancy lease. The principal issue on this appeal is whether CPLR 213-a’s four-year statute of limitations completely bars this claim. Because of the unrefuted proof of fraud in the record, we conclude that section 213-a merely limits tenants’ recovery to those overcharges occurring during the four-year period immediately preceding Conason’s rent challenge, and that the lawful rent on the base date must be determined by using the default formula devised by the New York State Division of Housing and Community Renewal (DHCR or the agency) … . * * *

CPLR 213-a fixes a four-year statute of limitations for claims of residential rent overcharge; specifically, this provision states that

“[a]n action on a residential rent overcharge shall be commenced within four years of the first overcharge alleged and no determination of an overcharge and no award or calculation of an award of the amount of any overcharge may be based upon an overcharge having occurred more than four years before the action is commenced. This section shall preclude examination of the rental history of the housing accommodation prior to the four-year period immediately preceding the commencement of the action” (emphasis added) (CPLR 213-a; see also Rent Stabilization Law [Administrative Code of City of NY] § 26-516 [a] [2]; Rent Stabilization Code [9 NYCRR 2520.6 [f]; 2526.1 [a] [2]). * * *

Collateral estoppel comes into play when four conditions are fulfilled:

“(1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits” … . … . …

Civil Court’s findings of fraud are not entitled to preclusive effect because two of the four prerequisites for collateral estoppel are unmet: the issues in Civil Court (breach of the warranty of habitability) and Supreme Court (evidence of fraud sufficient to render the rent on the base date unreliable) are not identical (the first condition), and findings of fraud were not necessary to support the judgment entered on the April 8th order, which awarded tenants rent abatement on account of Megan’s breach of the warranty of habitability and directed Megan to remedy code violations (the fourth condition). Conason v Megan Holding LLC, 2015 NY Slip Op 01553, CtApp 2-24-15

 

Cause of Action for Fraudulent Concealment Must Allege a Basis for the Existence of a Duty to Disclose

In affirming the dismissal of a cause of action alleging fraudulent concealment (no basis for a duty to disclose was alleged), the Second Department explained the required elements:

To properly plead a cause of action for fraud, a plaintiff must allege all of the following requisite elements: (1) the defendant made a misrepresentation or a material omission of fact which was false and which the defendant knew to be false; (2) the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it; (3) the plaintiff justifiably relied on the misrepresentation or material omission; and (4) injury … . To sustain a cause of action for fraudulent concealment, the plaintiff must further allege a fifth element, namely, that the defendant had a duty to disclose the material information … . Bannister v Agard, 2015 NY Slip Op 01408, 2nd Dept 2-18-15

 

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Landlord Not Entitled to Reformation of a Lease—Landlord Had Failed to Use Due Diligence Before Signing and Did Not Notice a Deletion Made by Plaintiff—Plaintiff Was Not Obligated to Highlight the Deletion

The First Department determined defendant landlord, sophisticated in business matters, was not entitled to reformation of a lease. The landlord had signed the agreement after the provision capping what the landlord would pay for renovations made by the tenant was deleted.  The renovations ended up costing nearly a year’s rental income. Plaintiff’s failure to “highlight” the deletion did not constitute fraud:

Defendant landlord failed to demonstrate that it was entitled to reformation of the lease amendment providing that it would reimburse plaintiff tenant the total cost of its alterations, rather than a capped amount as had been set forth in drafts circulated during negotiations over the renewal lease. Defendant’s failure to read the final document before signing it precludes its claim of unilateral mistake induced by fraud based on plaintiff’s failure to highlight its deletion of the portion of the provision capping the reimbursement amount, before presenting it to defendant’s in-house counsel for defendant’s signature … . Contrary to this sophisticated defendant’s contention, the justifiability of its reliance does not present an issue of fact barring summary disposition … . Even assuming an obligation to conduct pre-contractual negotiations in good faith in appropriate circumstances, such as would enable a party to rely on the adverse party negotiating in good faith and to assume that there are no new changes to earlier drafts unless the change is highlighted, defendant’s claim for reformation based on the allegation of fraud cannot stand. Defendant simply may not justifiably rely on the absence of such highlighting for its failure to fully review the final version of this four-page document before signing it, especially since the change is on the first page. US Legal Support Inc v Eldad Prime LLC, 2015 NY Slip Op 01386, 1st Dept 2-17-15

 

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Battery Cause of Action Based Upon the Complete Absence of Consent or Fraudulently Induced Consent Is Not Duplicative of a Dental Malpractice Allegation—Criteria Explained/Questions of Fact Raised Re: the Deceptive Business Practices Cause of Action—Some of the Criteria Explained

The Fourth Department determined the cause of action for battery was not duplicative of the cause of action for dental malpractice because it was based upon the allegations consent to the procedure was completely absent or was fraudulently induced.  In addition, there were questions of fact re: the deceptive business practices cause of action:

…[T]he cause of action asserting the complete absence of consent and/or fraudulently induced consent for treatment is properly treated as one for battery rather than for dental malpractice, and it is not duplicative of the dental malpractice cause of action … . “It is well settled that a medical professional may be deemed to have committed battery, rather than malpractice, if he or she carries out a procedure or treatment to which the patient has provided no consent at all’ ” … . The court properly denied that part of the … defendants’ motion with respect to the battery cause of action, inasmuch as they failed to meet their initial burden of establishing that they “did not intentionally engage in offensive bodily contact without plaintiff’s consent”… . …

A cause of action for deceptive business practices under section 349 “requires proof that the defendant engaged in consumer-oriented conduct that was materially deceptive or misleading, causing injury” … . Even assuming, arguendo, that the … defendants met their initial burden by establishing that the underlying transaction was private in nature and the allegedly deceptive acts were not aimed at the public at large …, we conclude that plaintiff’s submissions raised issues of fact concerning whether the … defendants engaged in a scheme to place profits before patient care, which allegedly included fraudulent practices that impacted consumers at large beyond a particular dentist’s treatment of an individual patient … . Matter of Smiles, 2015 NY Slip Op 01362, 4th Dept 2-13-15

 

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Only Out-of-Pocket Damages Allowed in Fraud Action (Re: a Real Estate Purchase Agreement)

The Third Department affirmed a judgment in favor of the plaintiffs stemming in large part from the fraudulent representation (re: a property information sheet) that a septic system, which failed, was “new.” The court noted the out-of-pocket rule for damages based upon fraud (lost profits/rents, etc. not recoverable):

[D]efendants’ realtor prepared a property information sheet — to be given to prospective buyers — bearing the notation, “Septic system totally new — le[a]ch field totally replaced — new 5000 gallon holding tank,” as well as the general qualification that “all information [was] deemed reliable but not guaranteed.” …[P]laintiffs … entered into a purchase and sale contract for the property. The contract, which reflected a purchase price of $545,000 and indicated that the buildings on the premises would be sold “as is,” also contained a waivable septic system contingency. Plaintiffs ultimately did not avail themselves of this contingency–a decision purportedly based, in part, upon plaintiffs’ belief that the property contained a new septic system. * * *

…[T]he case law makes clear that where, as here, a cause of action for fraud has been asserted, “[t]he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong or what is known as the ‘out-of-pocket’ rule. . . . Damages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained. Under the out-of-pocket rule, there can be no recovery of profits which would have been realized in the absence of fraud” … . Revell v Guido, 2015 NY Slip Op 00411, 3rd Dept 1-15-15

 

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Questions of Fact Raised About Whether Sellers’ Representations on the Condition Disclosure Statement Claiming No Water-Related Problems on the Property Violated Real Property Law 462, 465, Constituted Fraud, and Constituted Breach of Contract

The Fourth Department determined the sellers’ representations on the condition disclosure statement created questions of fact about whether sellers violated Real Property Law 462 and 465, whether the sellers committed fraud, and whether the sellers breached the sales contract.  The sellers indicated on the condition disclosure statement that they had experienced no problems with standing water and water seeping into the basement.  There was evidence the sellers were aware of the existence of such water problems when they indicated on the form there had been none:

Real Property Law § 462 (1) requires sellers of residential real property to “complete and sign a property condition disclosure statement” and to provide such statement to a prospective buyer “prior to the signing by the buyer of a binding contract of sale.” Real Property Law § 462 sets forth the disclosure form, which instructs the seller to complete the form based upon his or her “ACTUAL KNOWLEDGE,” and contains the seller’s certification that “THE INFORMATION IN THIS PROPERTY CONDITION DISCLOSURE STATEMENT IS TRUE AND COMPLETE TO THE SELLER’S ACTUAL KNOWLEDGE AS OF THE DATE SIGNED BY THE SELLER.” Where a seller provides a property condition disclosure statement and “willful[ly] fail[s] to perform the requirements” set forth in article 14 of the Real Property Law “[such] seller shall be liable for the actual damages suffered by the buyer in addition to any other existing equitable or statutory remedy” (Real Property Law § 465 [2]). * * *

… [W]e conclude that plaintiff raised an issue of fact with respect to whether defendants knowingly misrepresented a material fact, i.e., the property’s history of flooding and standing water, on the property condition disclosure statement … . We likewise conclude that plaintiff raised an issue of fact with respect to whether he justifiably relied on defendants’ alleged misrepresentations … . * * *

Although the provisions of a contract for the sale of real property are generally merged in the deed and therefore extinguished upon the closing of title …, that rule does not apply ” where the parties have expressed their intention that [a] provision shall survive delivery of the deed’ ” … . Here, the contract provides that “[a]ny claim arising from failure to comply with Paragraph[] 5 [of the contract],” which encompasses defendants’ representations in the property condition disclosure statement, “shall survive for 2 years after the Closing or cancellation of this Contract” … . In any event, we note that “the merger doctrine [is] inapplicable where, as here, there exists a cause of action based upon fraud” … . Sicignano v Dixey, 2015 NY Slip Op 00054, 4th Dept 1-2-15

 

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Heightened Pleading Requirements for Fraud Not Met

The First Department determined that plaintiff’s fraud cause of action was properly dismissed for failure to meet the heightened pleading requirements:

Plaintiff has not satisfied the heightened pleading standard for a fraud claim under CPLR § 3016(b) because it failed to identify any of the allegedly, false representations that [defendant] made with the then present intent to induce plaintiff’s investment in the project. Moreover, the fraudulent inducement claim duplicates the breach of contract claim because plaintiff has not alleged any representation that is collateral to the contract … . “A fraud-based claim is duplicative of breach of a contract claim when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract.” MMCT LLC v JTR Coll Point LLC, 2014 NY Slip Op 08103, 1st Dept 11-20-14

 

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