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CAUSES OF ACTION ALLEGING BREACH OF FIDUCIARY DUTY DO NOT ACCRUE UNTIL THE FIDUCIARY DUTY IS OPENLY REPUDIATED; CAUSES OF ACTION FOR CONVERSION BASED UPON FRAUD ARE TIMELY SIX YEARS FROM THE CONVERSION OR TWO YEARS FROM DISCOVERY OF THE CONVERSION; THE RELEVANT CAUSES OF ACTION HERE, THEREFORE, SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined causes of action alleging defendant Filardo, plaintiff car dealership’s employee, used fraudulent schemes to steal funds from plaintiff over a period of years, should not have been dismissed on statute of limitations grounds, and/or on the ground the causes of action were not adequately pled:

The plaintiff asserted causes of action against Filardo for breach of fiduciary duty (first cause of action), breach of the duty of loyalty (second cause of action), faithless servant doctrine (third cause of action), conversion (fifth cause of action), fraudulent concealment by fiduciary (sixth cause of action), and promissory estoppel (ninth cause of action), and causes of action against both defendants for aiding and abetting fraud (fourth cause of action), civil conspiracy (seventh cause of action), fraud and deceit (eighth cause of action), unjust enrichment (tenth cause of action), money had and received (eleventh cause of action), and fraud by non-disclosure (twelfth cause of action). …

“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” … Here, the plaintiff alleged that its relationship with Filardo was not terminated until November 2017, and there is no allegation that Filardo openly repudiated his employment obligations prior to that time … .

… [W]hen the allegations of fraud are essential to a cause of action alleging conversion based upon actual fraud, the cause of action is governed by the limitations period for fraud set forth in CPLR 213(8). That statute provides that, in an action based upon fraud, “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it” … .Star Auto Sales of Queens, LLC v Filardo, 2022 NY Slip Op 01476, Second Dept 3-9-22

Practice Point: The statute of limitations for breach of fiduciary duty does not start running until the fiduciary openly repudiates the duty.

Practice Point: The statute of limitations for conversion based upon fraud is six years from the conversion or two years from discovery of the conversion.

 

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THE FLORIDA DEFENDANTS ADVERTISED THROUGH A NATIONWIDE WEBSITE; THE NEW YORK PLAINTIFFS SOLICITED THE CONTRACT WITH DEFENDANTS; PLAINTIFFS DID NOT MAKE OUT A PRIMA FACIE CASE OF EITHER GENERAL OR SPECIFIC (LONG-ARM) JURISDICTION OVER DEFENDANTS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the plaintiffs did not make out a prima facie case of general or specific (long-arm) jurisdiction over the Florida defendants in this breach of contract and fraud action. Through email correspondence the New York plaintiffs entered a contract for the creation of a “Dating App” for which plaintiffs allegedly paid $100,000. Plaintiff alleged defendants never provided the Dating App and sued in New York. The jurisdiction over the breach of contract action was analyzed under the general jurisdiction criteria, and jurisdiction over the fraud (tort) action was analyzed under the specific jurisdiction (long-arm) criteria:

In opposing the separate motions of [defendants], the plaintiffs asserted that jurisdiction over both defendants was proper pursuant to CPLR 301 and 302(a)(1) and (3). “Under modern jurisprudence, a court may assert general all-purpose jurisdiction or specific conduct-linked jurisdiction over a particular defendant”… . Contrary to the plaintiffs’ contention, they did not make a prima facie showing of personal jurisdiction … . The complaint itself establishes that [the individual defendant] is domiciled in Florida and that [the corporate defendant] was incorporated in and has its principal place of business in Florida … . Further, the facts alleged, even if established, do not support a conclusion that [defendant corporation’s] contacts with New York were so “continuous and systematic” …  as to render it “essentially at home” in New York … .

Specific jurisdiction over a defendant is obtained through New York’s long-arm statute, CPLR 302. * * *

“The CPLR 302(a)(1) jurisdictional inquiry is twofold: under the first prong the defendant must have conducted sufficient activities to have transacted business in the state, and under the second prong, the claims must arise from the transactions” … . …

The affidavits … establish that [the corporate defendant] advertises its services nationwide through a website that is not specifically directed toward New York residents or businesses. It is undisputed that the plaintiff … initiated the contact between the parties and solicited the defendants’ services in designing the Dating App. Contrary to the plaintiffs’ contention, [the corporate defendant’s] website does not constitute transacting business within the State. Fanelli v Latman, 2022 NY Slip Op 00849, Second Dept 2-9-22

 

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THE COMPLAINT DID NOT STATE A CAUSE OF ACTION FOR FRAUD IN THE INDUCEMENT, AS OPPOSED TO AN INSINCERE PROMISE OF FUTURE PERFORMANCE; ALTHOUGH THE ISSUE WAS RAISED IN REPLY AND WAS NOT RAISED BELOW, IT WAS CONSIDERED ON APPEAL BECAUSE IT WAS DETERMINATIVE, DID NOT ALLEGE NEW FACTS, AND COULD NOT HAVE BEEN AVOIDED IF RAISED BELOW (FIRST DEPT). ​

The First Department, reversing (modifying) Supreme Court, determined the complaint did not support a cause of action for fraud in the inducement. Plaintiff ordered an artistic silk floral display but rejected it when delivered on the ground the display did not match what plaintiff ordered. Defendants refused to refund the money. Although the inadequacy of the fraud in the inducement allegations was first raised in reply, the First Department considered it because it was determinative, did not allege new facts and could not have been avoided if raised below:

As for the fraud in the inducement claim, defendants challenged this claim in their reply brief in Supreme Court. While, normally, arguments set forth for the first time in reply should not be considered … , this Court will consider this argument as it is determinative, does not allege new facts, and is a legal argument on the face of the record that would not have been avoidable if raised in defendants’ moving brief below, and because the record is sufficient to resolve the issue … . Here, plaintiff merely alleged that defendants “grossly misrepresented the quality and nature of the Decorations” to induce plaintiff into retaining them and compensating them, and the representations were false when made. This simply alleges “an insincere promise of future performance under the contract, which is insufficient to plead fraud” … . As such, the fraud in the inducement claim is dismissed. Newport E. Inc. v Sviba Floral Decorators, Inc., 2022 NY Slip Op 00819, First Dept 2-8-22

 

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COMPLAINT ALLEGATIONS OF A FRAUDULENT CONVEYANCE MADE “UPON INFORMATION AND BELIEF” DO NOT STATE A CAUSE OF ACTION (FIRST DEPT).

The First Department, reversing Supreme Court, determined “upon information and belief” complaint allegations of a fraudulent conveyance did not state a cause of action:

The complaint fails to state a cause of action for constructive fraudulent conveyance under former Debtor and Creditor Law §§ 273 and 274 … . Defendants are members of S. Land Development LLC (S. Land), which previously held title to real property and against which plaintiff obtained a money judgment in 2019 in a related action. Plaintiff alleges that defendants transferred or otherwise encumbered S. Land’s assets, rendering it insolvent and precluding plaintiff from being able to collect on the judgment. However, since the allegations are made “upon information and belief,” the complaint does not sufficiently allege that any transfers were made without fair consideration or rendered S. Land insolvent … . L&M 353 Franklyn Ave. LLC v Steinman, 2022 NY Slip Op 00724, First Dept 2-3-22

 

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PLAINTIFF WAS ACQUITTED OF CHARGES STEMMING FROM THE ALLEGED APPROPRIATION OF INSURANCE PROCEEDS DUE OTHER BENEFICIARIES AND THEN SUED TWO INSURANCE COMPANIES; THE CAUSES OF ACTION FOR BREACH OF CONTRACT, CONVERSION AND BREACH OF FIDUCIARY DUTY DID NOT ACCRUE UPON ACQUITTAL AND WERE THERFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the causes of action that did not require plaintiff’s innocence in a criminal matter were time barred. Plaintiff was acquitted of charges stemming from the allegation she appropriated life insurance proceeds which were due to other beneficiaries. Plaintiff then sued two insurance companies alleging breach of contract, breach of fiduciary duty, conversion, and aiding and abetting breach of a fiduciary duty. None of those causes of action accrued upon plaintiff’s acquittal. All were therefore time-barred:

Contrary to … the court’s conclusion, those causes of action did not accrue at the time the criminal proceeding terminated. The termination of a criminal proceeding is relevant for claims for malicious prosecution and legal malpractice arising out of a criminal proceeding … . For those claims, a plaintiff is required to make a showing of innocence, and thus the claims do not accrue until the plaintiff can assert the element of his or her innocence on the criminal charges … . Plaintiff here does not need to assert her innocence on the criminal charges as an element of the causes of action for breach of contract, conversion, and breach of fiduciary duty … . Morrow v Brighthouse Life Ins. Co. of NY, 2021 NY Slip Op 07373, Fourth Dept 12-23-21

 

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THE INSURER PRESENTED EVIDENCE THE BOARD’S RULING THAT THE INSURER WAS THE RESPONSIBLE CARRIER WAS BASED UPON FRAUDULENT DOCUMENTATIOIN; IT WAS ABUSE OF DISCRETION TO DENY THE INSURER’S APPLICATION FOR REVIEW (THIRD DEPT).

The Third Department, reversing the Workers’ Compensation Board, determined the Board abused its discretion when denying an insurer’s (Everest’s) application for a review of a ruling that the insurer was the responsible carrier. That ruling was plausibly argued to have been based upon fraudulent documentation:

… [T]he proof submitted by Everest in support of its administrative appeal strongly suggests that the certificate of insurance provided to the Board was not authentic, and, based upon the limited record before us, the certificate appears to have been an important, if not the only, factor in the WCLJ’s [Workers’ Compensation Law Judge’s] decision as to Everest. In other words, Everest has brought to the Board’s attention the strong possibility that it has issued a decision based perhaps entirely upon fraudulent documentation. … Under these facts, “[i]t is not an adequate answer to say that this kind of determination is usually discretionary” … , and, in our view, the very purpose of the discretion afforded to the Board is to grant relief in circumstances such as these … . … [W]e find that the Board abused its discretion in denying Everest’s application for review … . Matter of Salinas v Power Servs. Solutions LLC, 2021 NY Slip Op 07321, Third Dept 12-23-21

 

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THE AIDING AND ABETTING FRAUD AND JUDICIARY LAW CAUSES OF ACTION WERE PRECLUDED BY THE NOERR-PENNINGTON DOCTRINE; THE FRAUDULENT INDUCEMENT CAUSE OF ACTION DID NOT ALLEGE RELIANCE (SECOND DEPT).

The Second Department determined the aiding and abetting fraud and Judiciary Law 487 causes of action were barred by the Noerr-Pennington doctrine (see Mine Workers v Pennington, 381 US 657; Eastern Railroad Presidents Conference v Noerr Motor Freight, Inc., 365 US 127), and the complaint did not state a cause of action for fraudulent inducement:

“The Noerr-Pennington doctrine protects the right under the First Amendment to the United States Constitution to petition the government for governmental action, including through litigation and activity incidental to litigation” … . …

… Supreme Court properly concluded that the causes of action alleging that the defendants aided and abetted fraud and violated Judiciary Law § 487 were barred by the Noerr-Pennington doctrine. The Noerr-Pennington doctrine applied to these causes of action insofar as they were based upon litigation and activities that were incidental to litigation, and the pertinent allegations did not fit within either the “sham” or the “corruption” exceptions to the Noerr-Pennington doctrine … . …

Where a cause of action is based upon misrepresentation or fraud, “the circumstances constituting the wrong shall be stated in detail” (CPLR 3016[b]). Here, the allegations in the complaint failed to sufficiently allege justifiable reliance, and therefore failed to state a cause of action for fraudulent inducement … . Louie’s Seafood Rest., LLC v Brown, 2021 NY Slip Op 06167, Second Dept 11-10-21

 

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THE GRANTOR WAS NOT THE SOLE HEIR OF THE TITLE HOLDER; THEREFORE THE DEED PURPORTING TO TRANSFER A 100% INTEREST IN THE PROPERTY WAS VOID AB INITIO (SECOND DEPT).

The Second Department determined a deed was null and void because the grantor was not the sole heir of the title holder:

By a deed dated July 25, 2012, Colie Gallman, Jr., alleged to be the sole heir of Lillian Hudson, purportedly transferred his 100% interest in certain real property owned by Hudson to the defendant. In January 2015, the plaintiff commenced this action against the defendant seeking a judgment declaring that the July 25, 2012 deed is null and void. * * *

A misrepresentation in a deed that the seller of the property is the sole heir of the holder of the title to the property renders the conveyance void ab initio … . Here, the evidence and affidavits submitted by the plaintiff to the Supreme Court during the course of motion practice in this action established that Colie Gallman, Jr., was not the sole heir of Hudson as of the date of the subject deed, and thus, the deed purporting to convey all of the interest in the subject property is void ab initio … . In opposition, the defendant failed to raise a triable issue of fact. 23A Vernon, LLC v Oneal, 2021 NY Slip Op 05017, Second Dept 9-22-21

 

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IN THIS “RESIDENTIAL MORTGAGE BACKED SECURITIES” AND “COLLATERALIZED DEBT OBLIGATION” ACTION, PLAINTIFF RAISED QUESTIONS OF FACT ABOUT WHETHER DEFENDANTS’ FRAUD, AS OPPOSED TO THE 2008-2009 FINANCIAL CRISIS, CAUSED PLAINTIFF’S LOSS, AND WHETHER AN OMISSION ON DEFENDANTS’ PART WAS AN ACTIONABLE MISREPRESENTATION; SUPREME COURT REVERSED (FIRST DEPT).

The First Department, reversing Supreme Court, over an extensive dissent, determined defendants’ motion for summary judgment in this “residential mortgage backed securities (RMBS)” and “collateralized debt obligation (CDO)” fraud action should not have been granted. The plaintiff raised questions of fact whether defendants’ fraud, as opposed to the 2008-2009 financial crisis, caused plaintiff’s loss, and whether an omission on defendants’ part constituted an actionable misrepresentation:

“The empirical evidence shows that Magnetar deals in general, and Auriga in particular, performed worse than other mezzanine CDOs issued during the same period.” For example, the [plaintiff’s] expert noted, “Magnetar deals experienced events of default [‘EODs’] on average approximately four months faster than other mezzanine CDO bonds issued in 2006 and 2007” and Auriga “failed 175 days earlier than the average mezzanine non-Magnetar deal.” The expert further explained, “[a]ll 26 mezzanine Constellation deals experienced an [EOD.] This 100 percent EOD rate contrasts with an EOD rate of 82 percent . . . among non-Magnetar subprime CDOs issued in 2006 and 2007. The difference between these two EOD rates . . . is statistically significant.” * * *

With regard to lack of justifiable reliance on misrepresentations, the other ground on which the motion court granted summary judgment, plaintiff’s fraud claim depends both on an affirmative representation (that Auriga’s collateral manager would independently select the collateral) and an omission or concealment (that defendants structured Auriga to facilitate Magnetar’s net-short strategy). * * *

… [T]o the extent plaintiff relies on an omission, its claim is not barred. … [T]he omission in the instant action came from defendants … . Loreley Fin. (Jersey) No. 28, Ltd. v Merrill Lynch, Pierce, Fenner & Smith Inc., 2021 NY Slip Op 04413, First Dept 7-15-21

 

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THE DESIGNATING PETITIONS INCLUDED THE NAMES OF CANDIDATES WHO DID NOT AGREE TO BE LISTED; THE PETITIONS WERE THEREFORE PROPERLY INVALIDATED ON THE GROUND OF FRAUD (SECOND DEPT).

The Second Department determined Supreme Court properly invalidated appellants’ designating petitions because they included the names of candidates who did not consent to be listed on the petitions:

… [A] designating petition will be invalidated upon a showing that the entire petition is permeated with fraud … . Here, the petitioners demonstrated by clear and convincing evidence that the designating petitions of the appellants … were permeated with fraud, as it is undisputed that those designating petitions included the names of several candidates who never affirmatively agreed to be listed thereon, and the hearing evidence amply supported the Supreme Court’s determination that their inclusion was intentional and designed to mislead others. Thus, these designating petitions were properly invalidated on the ground of fraud … . Matter of Ariola v Maio, 2021 NY Slip Op 03988, Second Dept 6-17-21

 

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