The First Department noted that if a contractual representation or warranty is false when made, a claim for breach accrues at the time of the execution of the contract, even if the contract states that the “effective date” is earlier. US Bank NA v DLJ Mtge Capital Inc, 2014 NY Slip Op 07093, 1st Dept 10-21-14
Re: an elevator-maintenance contract, the Second Department explained when a fraud cause of action must be dismissed in the context of a breach of contract action:
We find unpersuasive the plaintiff’s contention that the Supreme Court erroneously granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(1) to dismiss the fifth cause of action, which alleged fraud. “Where a claim to recover damages for fraud is premised upon an alleged breach of contractual duties, and the allegations with respect to the purported fraud do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie” … . Here, the complaint and the accompanying affidavits alleged that the individual defendants made knowingly false statements that the subject elevators would be promptly repaired and properly maintained, and that any governmental violations that were issued with regard to them would be resolved and closed. However, the parties’ agreement, as referenced by the defendants in support of their motion, “conclusively established that the alleged fraudulent misrepresentations at issue were not collateral or extraneous to the contract. Rather, the alleged misrepresentations amounted only to a misrepresentation of the intent or ability to perform under the contract” … . Renaissance Equity Holdings LLC v Al-An El Maintenance Corp, 2014 NY Slip Op 06570, 2nd Dept 10-1-14
The First Department, in a full-fledged opinion by Justice Gische, with one exception, affirmed Supreme Court’s dismissal of defendant’s (Lipper’s) cross-claims because the cross-claims were deemed derivative claims by a shareholder, not direct, individual claims. Lipper alleged damages stemming from the overvaluation of Lipper’s hedge fund assets by defendant Pricewaterhouse Coopers. In addition to the “derivative versus direct claim” issue, the court briefly discussed the “out of pocket” damages rule re: the fraud and negligent misrepresentation claims stemming from Lipper’s payment of gift taxes based upon the overvalued assets given to his daughters:
It is black letter law that a stockholder has no individual cause of action against a person or entity that has injured the corporation. This is true notwithstanding that the wrongful acts may have diminished the value of the shares of the corporation, or that the shareholder incurs personal liability in an effort to maintain the solvency of the corporation …, or that the wrongdoer may ultimately share in the recovery in a derivative action if the wrongdoer owns shares in the corporation … . An exception exists, however, where the wrongdoer has breached a duty owed directly to the shareholder which is independent of any duty owing to the corporation … . This is a narrow exception, and Lipper’s cross claim must be factually supportable by more than complaints that conflate his derivative and individual rights … . In addition, Lipper may not obtain a recovery that otherwise duplicates or belongs to the corporation … .
Recognizing the difficulty in determining whether a claim is direct or derivative in the recent case of Yudell v Gilbert (99 AD3d 108 1st Dept [2012]), this court adopted the test developed by the Supreme Court of Delaware in Tooley v Donaldson, Lufkin & Jenrette, Inc. (845 A2d 1031, 1039 [Del 2004]) as a common sense approach to resolving such issues. We held that the Delaware test is consistent with existing New York State law. In order to distinguish a derivative claim from a direct one, the court considers “(1) who suffered the alleged harm (the corporation or the suing stockholders, individually); and (2) who would receive the benefit of any recovery or other remedy (the corporation or the stockholders individually)” … . If there is any harm caused to the individual, as opposed to the corporation, then the individual may proceed with a direct action … . On the other hand, even where an individual harm is claimed, if it is confused with or embedded in the harm to the corporation, it cannot separately stand… . * * *
…[W]e find that recoupment of [gift] taxes paid violates New York’s out-of-pocket damages rule applicable to both the fraud and negligent misrepresentation cross claims Lipper has asserted … . Pursuant to the New York rule, recovery is denied where it leaves the claimant in a better position than the claimant would have been in the absence of wrongdoing … . Lipper contends that he would not have made the gifts to his daughters if he had known the true value of his holdings. The payment of taxes was a consequence of making that gift. The relief he seeks would put him in a better financial position than had the claimed wrongdoing not occurred … . Serino v Lipper,2014 NY Slip Op 06551, 1st Dept 9-30-14
The Fourth Department determined defense counsel in a personal injury trial should have been allowed to cross-examine plaintiff about possible fraud in plaintiff’s income tax returns. A new trial was ordered. The Fourth Department noted that defense counsel would have been bound by plaintiff’s answers and could not have introduced extrinsic evidence:
Here, based on his reading of IRS Publication 51 and plaintiff’s federal tax returns, defendant’s attorney had a good faith basis to ask plaintiff about the propriety of her filing status. Moreover, if plaintiff had improperly filed federal tax returns as head of household in order to receive a tax credit to which she was not entitled, it raises the possibility that she may have committed tax fraud. We conclude that evidence that plaintiff may have committed tax fraud has “some tendency to show moral turpitude to be relevant on the credibility issue” …. Although it is true, as plaintiff points out, that, because of the collateral evidence rule, defendant’s attorney would have been bound by plaintiff’s answers concerning her federal tax returns without “refuting [those] answers by calling other witnesses or by producing extrinsic evidence” (Prince, Richardson on Evidence § 6-305 [Farrell 11th ed]…), we nevertheless conclude that defendant’s attorney should have been allowed to ask the questions … . Young v Lacy, 2014 NY Slip Op 06417, 4th Dept 9-26-14
The First Department determined the complaint sufficiently alleged a cause of action for negligent misrepresentation and laid out the criteria, including a “special relationship” close to privity:
To properly assert a claim on a theory of negligent misrepresentation, a plaintiff must plead: “(1) that the existence of a special or privity-like relationship imposed a duty on the defendant to impart correct information to the plaintiff; (2) that the imparted information was actually incorrect; and (3) that the plaintiff reasonably relied on the information” … .
As to the first element, a court will find a special relationship if the record supports “a relationship so close as to approach that of privity” … or, stated another way, the “functional equivalent of contractual privity” … . Under this standard, before liability for negligent misrepresentation may attach in favor of a third party, there must be: (1) an awareness by the maker of the statement that the statement is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance… . North Star Contr Corp v MTA Capital Constr Co, 2014 NY Slip Op 06238, 1st Dept 9-18-14
In finding the allegations in the complaint insufficient, the Second Department explained the elements of causes of action for fraud, money had and received, and unjust enrichment:
The elements of a cause of action based on fraud are “a representation of 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” … . The misrepresentation may be in the form of an omission of a material fact … . Although the question of what constitutes reasonable reliance is usually fact-intensive …, where the plaintiff alleges only that the defendant omitted a material fact when making a representation to another party, the plaintiff has failed to state a cause of action against either the representor or the representee … . * * *
“The essential elements of a cause of action for money had and received are (1) the defendant received money belonging to the plaintiff, (2) the defendant benefitted from receipt of the money, and (3) under principles of equity and good conscience, the defendant should not be permitted to keep the money”… . * * *
In a cause of action to recover damages for unjust enrichment, “[a] plaintiff must show that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered” … . The plaintiff, in his complaint, did not identify any money that was retained … at his expense and, in any event, “[a]lthough privity is not required for an unjust enrichment claim, a claim will not be supported if the connection between the parties is too attenuated” … . Lebovits v Bassman, 2014 NY Slip Op 06061, 2nd Dept 9-10-14
The Second Department determined that plaintiff’s representation to the insurance carrier that the property was a two-family dwelling, when it actually was a three-family dwelling, was a material misrepresentation justifying rescission of the policy:
“To establish the right to rescind an insurance policy, an insurer must show that its insured made a material misrepresentation of fact when he or she secured the policy” … . “A misrepresentation is material if the insurer would not have issued the policy had it known the facts misrepresented” … . “To establish materiality as a matter of law, the insurer must present documentation concerning its underwriting practices, such as underwriting manuals, bulletins, or rules pertaining to similar risks, that show that it would not have issued the same policy if the correct information had been disclosed in the application” … . * * *
…[T]he defendant submitted an affidavit from its underwriting manager and its “Homeowners Selection Rules,” which showed that it would not have issued the same policy if the application had disclosed that the subject premises was a three-family dwelling … . Lema v Tower Ins Co of NY, 2014 NY Slip Op 05162, 2nd Dept 7-9-14
The Third Department determined that plaintiff’s fraud cause of action could not go forward because plaintiff sought only lost profits as damages. Also dismissed and briefly discussed were “conspiracy to commit fraud (not a valid separate cause of action),” prima facie tort and a demand for punitive damages:
Plaintiff’s cause of action alleging fraud requires “a misrepresentation or omission of a material fact known to be false and made with the intent to deceive, as well as justifiable reliance and damages” … . * * * “The true measure of damage [for fraud] 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 for fraudulent acts should “compensate plaintiffs for what they lost because of the fraud, not for what they might have gained” … . As plaintiff does not dispute that it seeks only the lost profit it anticipated earning as a result of conveying the property to BLP, defendants are entitled to summary judgment dismissing the first cause of action … .
Plaintiff’s second cause of action alleging a conspiracy to commit fraud must also be dismissed because “‘a mere conspiracy to commit a [tort] is never of itself a cause of action'” … . Plaintiff’s third cause of action for prima facie tort “requires a showing of an intentional infliction of harm, without excuse or justification, by an act or series of acts that would otherwise be lawful” … . Significantly, “[s]uch acts must be motivated solely by malevolence” … . Plaintiff … makes no claim that defendants were motivated even in part by malevolence. As for plaintiff’s fourth cause of action for declaratory relief, it too must be dismissed as entirely unnecessary under the circumstances here … .
Nor, in light of our determination that plaintiff failed to establish its causes of action for fraud and prima facie tort, is this a case for punitive damages. There is no basis upon which to conclude that defendants’ conduct “‘evince[s] a high degree of moral turpitude and demonstrate[s] such wanton dishonesty as to imply a criminal indifference to civil obligations'” … . Route 217, LLC v Greeg, 2014 NY Slip Op 04998, 3rd Dept 7-3-14
The Second Department determined plaintiff had stated causes of action for breach of contract and fraud. The complaint alleged plaintiff had agreed to forego compensation for his construction and managerial work for defendant in return for a stake in defendant’s business. The complaint further alleged defendant, after plaintiff had done the work, terminated the relationship without paying plaintiff:
The essential elements for pleading a cause of action to recover damages for breach of contract are the existence of a contract, the plaintiff’s performance pursuant to the contract, the defendant’s breach of his or her contractual obligations, and damages resulting from the breach … . According the plaintiff the benefit of every possible favorable inference, the complaint alleged that the defendants breached the parties’ agreement and that, as a result, the plaintiff was entitled to recover its normal fees and compensation for the subject work. …
“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” … . Where the gravamen of the alleged fraud does not arise from the mere failure of a promisor to perform his or her obligations under a contract, but arises from a promisor’s successful attempts to induce a promisee to enter into a contractual relationship despite the fact that the promisor harbored an undisclosed intention not to perform under the contract, a proper cause of action sounding in fraud may be stated. “[A]; false statement, promissory in nature, may be deemed the statement of a material existing fact, because it falsely represents the [declarant’s]; state of mind and the state of his [or her]; mind is a fact'” … . “There is no doubt that a misrepresented intention to perform a contract may constitute actionable fraud” … , and “a statement of present intention is deemed a statement of a material existing fact, sufficient to support a fraud action” … .
Here, viewing the complaint in the light most favorable to the plaintiff, the third cause of action alleged that the defendants made a promise to give the plaintiff an equity stake in the maple syrup venture if the plaintiff agreed to forego its normal fees and compensation for the subject work, that the defendants made that promise while harboring an undisclosed intention never to give the plaintiff such an equity stake, and that the plaintiff detrimentally relied on the defendants’ representation of intent by performing the subject work for them. These allegations were sufficient to state a cause of action sounding in fraud. Neckles Bldrs Inc v Turner, 2014 NY Slip Op 03668, 2nd Dept 5-21-14
The First Department reversed Surrogate’s Court and determined that releases restricting decedent’s power of appointment were not procured by constructive fraud (as a matter of law) and were enforceable. The releases allowed decedent to exercise powers of appointment re: a trust only in favor of a descendant. Decedent’s wife was the beneficiary of a codicil, executed by the decedent after the execution of the releases, which purported to award her 25% of the trust plus the income from 75% of the trust for life. In finding the wife had not raised a question of fact about whether the releases were procured by constructive fraud, the court wrote:
The principles underlying the concept of constructive fraud are of long-standing duration:
“It may be stated as universally true that fraud vitiates all contracts, but as a general thing it is not presumed but must be proved by the party seeking to relieve himself from an obligation on that ground. Whenever, however, the relations between the contracting parties appear to be of such a character as to render it certain that they do not deal on terms of equality but that either on the one side from superior knowledge of the matter derived from a fiduciary relation, or from an overmastering influence, or on the other from weakness, dependence, or trust justifiably reposed, unfair advantage in a transaction is rendered probable, there the burden is shifted, the transaction is presumed void, and it is incumbent upon the stronger party to show affirmatively that no deception was practiced, no undue influence was used, and that all was fair, open, voluntary and well understood. This doctrine is wellsettled.” …
“To avoid a release on the ground of fraud, a party must allege every material element of that cause of action with specific and detailed evidence in the record sufficient to establish a prima facie case … . “In the absence of a fiduciary relationship between the parties to the release, the party seeking to avoid the release bears the burden of proving such fraud or other vitiating circumstances”… . Moreover, a release should “not be treated lightly” and “should never be converted into a starting point for renewed litigation” except in cases of “grave injustice” and then, only under “the traditional bases of setting aside written agreements” … . * * *
It is well established that a “party who signs a document without any valid excuse for having failed to read it is conclusively bound by its terms” … . The record is devoid of any excuse, let alone a valid excuse, for failing to read the release prior to signing it … . * * * “[T]o hold a release forever hostage to legal afterthoughts basically vitiates the nature of the release” … .
Matter of Aoki v Aoki, 2014 NY Slip Op 03433, 1st Dept 5-13-14
Copyright © 2026 New York Appellate Digest, Inc.
Site by CurlyHost | Privacy Policy