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Allegations of a “Conspiracty to Commit Fraud” Survived a Motion for Summary Judgment/Conspiracy Allegations Must Connect Individual Defendants with an Actionable Underlying Tort

The Second Department determined Supreme Court properly refused to grant summary judgment in favor of an attorney in an action based upon serious allegations of malpractice in connection with a real estate transaction.  Amony other allegations, it was claimed that the attorney allowed an employee to pose as him and caused the plaintiffs to (unknowingly)  sign documents accepting the premises as is. In affirming Supreme Court’s finding that a question of fact had been raised about the “conspiracy to commit fraud” allegations, the Second Department explained the nature of a civil conspiracy:

“New York does not recognize civil conspiracy to commit a tort . . . as an independent cause of action” … . However, “a plaintiff may plead the existence of a conspiracy in order to connect the actions of the individual defendants with an actionable, underlying tort and establish that those actions were part of a common scheme” … . “The allegation of conspiracy carries no greater burden, but also no less, than to assert adequately common action for a common purpose by common agreement or understanding among a group, from which common responsibility derives. Therefore, under New York law, [i]n order to properly plead a cause of action to recover damages for civil conspiracy, the plaintiff must allege a cognizable tort, coupled with an agreement between the conspirators regarding the tort, and an overt action in furtherance of the agreement. A bare conclusory allegation of conspiracy is usually held insufficient”… . Blanco v Polanco, 2014 NY Slip Op 02735, 2nd Dept 4-23-14

 

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​Monetary Award to Compensate Fraud Victims Ordered by a Czech Court in a Criminal Fraud Prosecution Entitled to Enforcement in New York as a “Foreign Country Judgment”

The First Department, in a full-fledged opinion by Justice Tom, determined a judgment in a Czech criminal proceeding ordering a monetary award to compensate fraud victims was entitled to recognition in New York pursuant to CPLR 5301(b) (a matter of first impression):

CPLR 5301(b) defines a “foreign country judgment” as “any judgment of a foreign state granting or denying recovery of a sum of money, other than a judgment for taxes, a fine or other penalty, or a judgment for support in matrimonial or family matters.” The judgment sought to be enforced in this case provides restitution …, directing … the criminal defendant, to pay a specific sum as “compensation for damages to the victim” of his scheme to defraud. Clearly, the judgment is not one for taxes or support obligations; nor is it a fine. Thus, the question is whether a judgment providing compensation to a crime victim (here, a victim of criminal fraud) should be regarded as a “penalty” and denied enforcement.

Where, as here, the purpose of a monetary judgment is to compensate the victim for actual damages, it represents “reparation to one aggrieved” … . Harvardsky Prumyslovy Holding AS -V Likvidaci v Kozeny, 2014 NY Slip Op 02250, 1st Dept 4-1-14

 

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Inexperience or Lack of Sophistication Does Not Toll the Statute of Limitations Re: the Discovery of Fraud/The Test for When the Fraud Should Have Been Discovered in an Objective One

The First Department determined the action alleging the fraudulent churning of trades by an employee of Morgan Stanley was untimely.  The plaintiff argued that plaintiff’s inexperience and lack of sophistication should toll the statute of limitations re: the discovery of the fraud.  The court explained that when the fraud should have been noticed is determined by an objective test:

“The test as to when fraud should with reasonable diligence have been discovered is an objective one,” and the duty of inquiry arises “where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he [or she] has been defrauded” … . Apt v Morgan Stanley DW Inc, 2014 NY Slip Op 01541, 1st Dept 3-11-14

 

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Question of Fact Whether Deed Procured by Fraud and Whether Mortgagee Had Notice of the Potential Fraud

The Second Department determined a question of fact had been raised about whether a property transfer was procured by fraud.  If so, the deed and the related mortgage would be void with respect to the mortgagee/incumbrancer (Wells Fargo).  There was evidence the mortgagee was on notice about the possible fraud and there was evidence of fraud in the factum:

Real Property Law § 266 protects the “title of a purchaser or incumbrancer for a valuable consideration, unless it appears that he [or she] had previous notice of the fraudulent intent of his [or her] immediate grantor, or of the fraud rendering void the title of such grantor.” Thus, a mortgagee is not protected in its title if it had previous notice of potential fraud by the immediate seller, or knowledge of facts which put it on inquiry notice as to the existence of a right in potential conflict with its own … . A mortgagee has a duty to inquire when it is aware of facts that would lead a reasonable, prudent lender to inquire into the circumstances of the transaction at issue … . A mortgagee who fails to make such an inquiry is not a bona fide incumbrancer for value … . Here, Wells Fargo’s submissions contain information regarding the plaintiff’s possession of the property that put it on inquiry notice as to the plaintiff’s potential right to the property … . Thus, Wells Fargo failed to establish its prima facie entitlement to judgment as a matter of law on the issue of whether it lacked notice of a potential fraud … . Real Property Law § 266 also does not protect a bona fide incumbrancer for value where there has been fraud in the factum, as the deed is void and conveys no title … . Such a conveyance conveys nothing, and a subsequent bona fide incumbrancer for value receives nothing … . Here, Wells Fargo failed to establish its prima facie entitlement to judgment as a matter of law on the issue of whether the subject deeds are void ab initio on the ground of fraud in the factum … . Williams v Mentore, 2014 NY Slip Op 01449, 2nd Dept 3-5-14

 

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Motion to Vacate Pursuant to CPLR 5015 Should Have Been Granted On “Subject Matter Jurisdiction” and “Fraud Upon the Court” Grounds

In a full-fledged opinion by Justice Centra, the Fourth Department determined Wells Fargo had either perpetrated a fraud upon the court or failed to reveal all the facts to the court which granted a nunc pro tunc order adding a second parcel to a foreclosure action. The Fourth Department noted that Wells Fargo knew the foreclosure action did not relate to the second parcel and therefore knew the nunc pro tunc order purporting merely to correct a mistake should not have been granted:

First, we agree … that the court … should have granted the motion to vacate the nunc pro tunc order because the court … was without subject matter jurisdiction to issue the nunc pro tunc order (see CPLR 5015 [a] [4]). Wells Fargo moved for the nunc pro tunc order pursuant to CPLR 2001, which provides that a “court may permit a mistake, omission, defect or irregularity . . . to be corrected, upon such terms as may be just, or, if a substantial right of a party is not prejudiced, the mistake, omission, defect or irregularity shall be disregarded.” The court erred in granting the nunc pro tunc motion because Wells Fargo was not seeking to correct a mere ministerial or clerical mistake… . * * *

…[W]e agree … that the court … also should have granted the motion to vacate the nunc pro tunc order based on “fraud, misrepresentation, or other misconduct of an adverse party” (CPLR 5015 [a] [3]…).. In its nunc pro tunc motion, Wells Fargo asserted that the “common address” of 124-128 East Main Street contained both Parcel No. 1 and Parcel No. 2. Wells Fargo failed to advise the court …., however, that the metes and bounds descriptions of the two parcels are different. Wells Fargo does not dispute that, “when there is a discrepancy between the street address and the legal description of a piece of real property, the legal description controls” … . Wells Fargo also failed to advise the court of the second mortgage that encumbered Parcel No. 2, which, as noted earlier, was executed on the same date as the first mortgage. Further, Wells Fargo failed to advise the court that there was a two-family dwelling on Parcel No. 1 and a separate four-family dwelling on Parcel No. 2. Had Wells Fargo made the court aware of those facts, the court may have realized that there was no clerical error in omitting Parcel No. 2 from schedule A. Wells Fargo Bank NA … v Podeswik…, 81, 4th Dept 2-14-14

 

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Documentary Evidence Can Be Considered In CPLR 3211(a)(7) Motion to Dismiss/Disclaimer Not Specific Enough to Preclude Fraud Cause of Action

In a full-fledged opinion by Justice Renwick, with a concurring opinion by Justice DeGrasse, the First Department determined that arbitration could not be compelled in the absence of a specific, written agreement and a fraud cause of action against Goldman Sachs based upon the sale of mortgage-backed securities to the plaintiff hedge fund could go forward. The court concluded that documentary evidence submitted by the defendant in support of a motion to dismiss pursuant to CPLR 3211(a)(7) was properly considered by Supreme Court, and the disclaimer relied upon by the defendant was not specific enough to warrant dismissal of the fraud cause of action:

A CPLR 3211(a)(7) motion may be used by a defendant to test the facial sufficiency of a pleading in two different ways. On the one hand, the motion may be used to dispose of an action in which the plaintiff has not stated a claim cognizable at law. On the other hand, the motion may be used to dispose of an action in which the plaintiff identified a cognizable cause of action but failed to assert a material allegation necessary to support the cause of action. As to the latter, the Court of Appeals has made clear that a defendant can submit evidence in support of the motion attacking a well-pleaded cognizable claim … When documentary evidence is submitted by a defendant “the standard morphs from whether the plaintiff has stated a cause of action to whether it has one”… . * * *

The law is abundantly clear in this state that a buyer’s disclaimer of reliance cannot preclude a claim of justifiable reliance on the seller’s misrepresentations or omissions unless (1) the disclaimer is made sufficiently specific to the particular type of fact misrepresented or undisclosed; and (2) the alleged misrepresentations or omissions did not concern facts peculiarly within the seller’s knowledge … . Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter… . Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc, 2014 NY Sliip Op 00587, 1st Dept 1-30-14

 

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“Undue Influence” and “Fraud” Criteria Explained Re: Objections to Probate of a Will

The Second Department, in affirming Surrogate’s Court’s dismissal of objections to the probate of a will, explained the criteria for a demonstration of “undue influence” and “fraud:”

“An objectant contesting the admission of a propounded instrument to probate based on the alleged exercise of undue influence must show that the influence exercised amounted to a moral coercion, which restrained independent action and destroyed free agency, or which, by importunity which could not be resisted, constrained the testator to do that which was against his free will and desire, but which he was unable to refuse or too weak to resist'” … . “An objectant seeking to establish that a will is the product of fraud has the burden of proving by clear and convincing evidence that the proponent of the will knowingly made false statements to the testator to induce him or her to make a will which disposed of property in a manner different from that in which the testator would otherwise have disposed of the property” … . The petitioners demonstrated their prima facie entitlement to judgment as a matter of law by showing, among other things, that the will had been duly executed, that the decedent possessed testamentary capacity, and that no undue influence or fraud had been exercised upon the decedent … . In opposition, the objectants failed to submit any evidence, beyond conclusory allegations and speculation, that the petitioners actually exercised undue influence over the decedent or that any fraudulent statements were made to the decedent, that the proponents of the made statements they knew to be false, or that any such statements caused the decedent to change his will… . Matter of Mele, 2014 NY Slip Op 00512, 2nd Dept 1-29-14

 

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Conveyance from Mother to Son Not Made in “Good Faith” and Therefore Was Constructively Fraudulent

In a full-fledged opinion by Justice Tom, the First Department determined that a conveyance of an apartment from mother to son, after an arbitration award against the mother, was not done in “good faith” and therefore constituted a constructively fraudulent conveyance under Debtor and Creditor Law sections 273-a and 278:

The Debtor and Creditor Law identifies two indicia of “fair consideration” for conveyed property: the adequacy of what is given in exchange for it and “good faith.” With regard to value, § 272(a), governing a conveyance made in exchange for the property, provides for the receipt of something that is “a fair equivalent therefor,” and § 272(b), governing an antecedent debt or present advance, applicable herein, provides for an “amount not disproportionately small as compared with the value of the property.” * * *

“Fair consideration” under Debtor and Creditor Law § 272 is not only a matter of whether the amount given for the transferred property was a “fair equivalent” or “not disproportionately small,” which the parties vigorously dispute, but whether the transaction is made “in good faith,” an obligation that is imposed on both the transferor and the transferee … . The determination of whether such obligation has been met is one that rests on the circumstances of the individual matter … . Sardis v Frankel, 2014 NY Slip Op 00080, 1st Dept 1-7-14

 

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Five-Month Delay in Notifying Carrier Not Justified by Insured’s Belief Lawsuit Was Fraudulent

The Third Department determined, as a matter of law, that defendant’s failure to notify the insurance carrier of a personal injury lawsuit for nearly five months justified the carrier’s denial of coverage.  The court noted that defendant’s belief the lawsuit was fraudulent was not a “good-faith belief of nonliability;”

“Where a policy of liability insurance requires that notice of an occurrence be given ‘as soon as practicable,’ such notice must be accorded the carrier within a reasonable period of time. The insured’s failure to satisfy the notice requirement constitutes a failure to comply with a condition precedent which, as a matter of law, vitiates the contract” … .  Although “there may be circumstances where the insured’s failure to give timely notice is excusable, . . . [t]he insured bears the burden of establishing the reasonableness of the proffered excuse” … .  In this regard, the reasonableness of the insured’s excuse – although generally presenting a question of fact for a jury … – “may be determined as a matter of law where the evidence, construing all inferences in favor of the insured, establishes that the belief was unreasonable or in bad faith” … .

Here, defendant made a prima facie showing of its entitlement to judgment as a matter of law based upon plaintiff’s nearly five-month delay (August 2008 to January 2009) in notifying defendant of the underlying personal injury action …, and plaintiff failed to tender sufficient proof to raise a question of fact as to the reasonableness of such delay.  Plaintiff’s personal belief that the guest’s lawsuit was fraudulent is not the equivalent of “a good-faith belief of nonliability” … . Vale…v Vermont Mutual Insurance Group, 515999, 3rd Dept 12-5-13

 

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Questions of Fact Existed About Whether Mortgage Lender Was Aware of Underlying “Foreclosure Rescue Scam”

In a full-fledged opinion by Justice Acosta, the First Department determined questions of fact existed about whether a mortgage loan (to Henry) was issued (by “Accredited”) with knowledge of fraud underlying the transaction.  Accredited alleged it was an “encumbrancer for value.”  After noting Accredited failed to submit evidence of its alleged “encumbrancer for value” status in admissible form (no official or certified title search was submitted), the First Department addressed evidence of Accredited’s knowledge of the underlying fraud:

Even assuming that defendants had established bona fide encumbrancer status, they would not be entitled to summary judgment because plaintiff has set forth evidence that defendants had notice of the underlying fraud.  * * *

…Accredited approved a $500,000 loan to Henry—a “buyer” who had no intention of purchasing a home and appears to have been coerced into attending the closing—without any proof that he had an ability to repay it. Indeed, the record is devoid of evidence to suggest that Accredited examined Henry’s paystubs, tax returns, or credit history before approving his loan application. These suspicious aspects of the transaction present issues of fact pertaining to Accredited’s knowledge of the foreclosure rescue scam.

The faulty appraisal also raises an inference that Accredited had notice of the underlying fraud. Although Accredited reduced the loan amount after becoming aware of the overstated appraisal, the fact that the initial appraisal was overstated would lead a reasonably prudent lender to investigate further to determine whether the prospective borrower was involved in a transaction free of fraud.  * * * Miller-Francis v Smith-Jackson, 2013 NY Slip Op 07821, 1st Dept 11-21-13

 

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