Collateral Estoppel and Failure To Plead Fraud With Particularity: A One, Two Punch

• Posted on: Oct 9 2023

By: Jeffrey M. Haber

In Gold v. Rothfeld, 2023 N.Y. Slip Op. 05006 (2d Dept. Oct. 4, 2023) (here), the Appellate Division, Second Department affirmed the dismissal of a fraud complaint on two grounds: collateral estoppel and failure to plead fraud with particularity. We examine the decision and the principles underpinning the holding below.

The Requirement To Plead Fraud With Particularity

To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, 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.”[1] The claim must be pleaded with particularity.[2] Conclusory allegations will not suffice.[3] Neither will allegations based on information and belief.[4] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[5]

The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). Under CPLR § 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[6]  To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud.

Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc., the Court of Appeals held that CPLR § 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.”[7] Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.”[8] Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct.[9]

Collateral Estoppel

The doctrine of collateral estoppel prevents a party from relitigating an issue that was “raised, necessarily decided and material in the first action,” provided the party had a full and fair opportunity to litigate the issue.[10] The doctrine applies when: “(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.”[11]

Collateral estoppel “is a doctrine intended to reduce litigation and conserve the resources of the court and litigants and it is based upon the general notion that it is not fair to permit a party to relitigate an issue that has already been decided against it.”[12] The doctrine is an equitable defense “grounded in the facts and realities of a particular litigation, rather than rigid rules.”[13] The proponent of collateral estoppel has the burden of demonstrating “the identicality and decisiveness of the issue,” while the opponent has the burden of establishing “the absence of a full and fair opportunity to litigate the issue in [the] prior action or proceeding.”[14]

In New York, the CPLR specifically recognizes collateral estoppel as a basis for dismissal.[15] It is also an affirmative defense under the CPLR.[16]

Gold v. Rothfeld

In Gold, plaintiff brought an action for damages against defendant, claiming fraud and conspiracy to commit fraud. In particular, plaintiff claimed damages in connection with certain alleged improprieties in, among other things, the preparation of certain estate planning instruments for his mother, Grace K. Gold, and father, Eugene Gold, the administration of their estates, and communications with him regarding the foregoing.

Background

On November 8, 2011, Grace died, survived by Eugene and their three children (plaintiff, Cheryl Gold and Amy Gold Kaufman). Under Grace’s last will and testament, dated February 4, 2011, Eugene was appointed executor of the estate.

Among other things, Grace created a trust in her will that provided income to Eugene during his lifetime, and which was to terminate (and did terminate) upon Eugene’s death. Grace’s will also provided, in pertinent part, that Eugene had a limited power of appointment over the corpus of the trust exercisable in favor of one or more of Grace’s descendants.

On November 15, 2011, plaintiff signed a waiver and consent to the probate of Grace’s will.

Eugene died on November 8, 2013, leaving a last will and testament and codicils for which Cheryl was the nominated executor. With respect to the trust, Eugene’s will provided, among other things, that $2 million was to be distributed to Cheryl and Amy each, with the balance to be distributed to Eugene’s descendants per stirpes. Eugene’s will also contained an in terrorem clause.[17]

After Cheryl sought to probate Eugene’s will, plaintiff sought to rescind his previously filed waiver and consent with respect to Grace’s will and moved to stay the probate of Eugene’s will, based on his assertion, inter alia, that Grace lacked capacity at the time she executed her will and that her will was the product of undue influence.

In a decision dated July 31, 2014, the Surrogate’s Court determined, in pertinent part, that plaintiff failed to show that Grace lacked capacity at the time she executed her will or that she was subject to undue influence.

Thereafter, plaintiff petitioned the Surrogate’s Court for, inter alia, letters of limited administration with respect to Grace’s estate, based upon his assertions that Grace lacked capacity and was subject to undue influence at the time she executed the subject trust and a settlement agreement with the Internal Revenue Service. Cheryl and Amy moved, inter alia, for summary judgment dismissing the amended petition. The Surrogate’s Court granted the the branch of the motion to dismiss the amended petition and denied plaintiff’s demand for an order compelling an accounting without prejudice to renewal at a later date.

On November 10, 2017, plaintiff commenced the action in Supreme Court. Defendant moved to dismiss the complaint with prejudice. That motion was withdrawn after plaintiff filed an amended complaint.

In the amended, plaintiff alleged, in sum and substance, that defendant made material representations that were false regarding Eugene’s intention to exercise certain powers of appointment under Grace’s will, and the impact that would occur to plaintiff’s rights by executing the waiver and consent for probate; false and misleading testimony offered by defendant during his examination in the probate proceeding of Eugene’s will; knowing and willful participation in false and misleading statements and submissions made by co-counsel to the Surrogate’s Court in order to induce the court to amend the probate decree; knowingly false material representations to deceive plaintiff; reliance by plaintiff to his detriment on defendant’s advice regarding the non-exercise of certain powers of appointment, the impact of executing the waiver and consent prepared by the defendant; reliance on defendant’s representations as an officer of the court, who was required to refrain from engaging with plaintiff and, instead, advise him to retain independent counsel; the prohibition on ex parte communications with the Surrogate’s Court and the prohibition on obtaining substantive relief without providing the plaintiff with notice and an opportunity to be heard; damages plaintiff sustained because of the waiver of plaintiff’s right to conduct examinations in the estate of Grace; and by increased and unnecessary legal fees related to the foregoing.

Defendant filed a new motion to dismiss pursuant to CPLR § 3211(a)(1), CPLR § 3211(a)(5) and CPLR § 3211(a)(7). Among other things, defendant argued that the allegations in the amended complaint concerned acts that were previously decided by the Surrogate’s Court and therefore barred by the doctrine of collateral estoppel and the cause of action for fraud was not sufficiently pleaded with specificity.

The Motion Court’s Decision and Order

The motion court held that the action was barred by the doctrine of collateral estoppel “because this action [was] essentially no different from the plaintiff’s prior attempts to vacate his waiver and consent in the Surrogate’s Court.”[18] “Distilled to its essence,” said the motion court, “the complaint amounts to nothing more than a rehashing of the same theory of fraudulent misrepresentations and conspiracy which was explicitly considered and rejected by the Surrogate’s Court as well as the Second Department.”[19]

The motion court held that “plaintiff failed to show that he did not have a full and fair opportunity at the Surrogate Court proceedings or subsequently at the Appellate Division to litigate the matters alleged herein.”[20] Accordingly, the motion court concluded that the fraud claim was barred on collateral estoppel grounds.

The motion court also held that plaintiff failed to state a fraud cause of action. The motion court explained that plaintiff failed to plead any of the elements of the claim, stating “plaintiff has not identified any specific instances of misconduct or any misrepresentation by the defendant.…” The motion court also explained that plaintiff “failed to properly plead the elements of misrepresentation of a material fact and justifiable reliance with specificity.”[21] Moreover, said the motion court, “plaintiff has not, and cannot plead identifiable, actionable damages.”

Plaintiff appealed. As noted, the Second Department affirmed.

The Second Department’s Decision

As to the dismissal on collateral estoppel grounds, the Court held that the motion court “properly concluded that so much of the fraud cause of action as was predicated upon allegations that the defendant made misrepresentations to induce the plaintiff to sign a waiver and consent to the probate of Grace’s will and concerning Grace’s personal property was barred by the doctrine of collateral estoppel.”[22] The Court explained that “[t]hose allegations were raised by the plaintiff in a petition he filed in the Surrogate’s Court, seeking to rescind the waiver and consent, and, after a full and fair opportunity to litigate, were necessarily decided against him in a 2014 order of that court granting dismissal of the petition.”[23]

Regarding the dismissal of the fraud claim for failing to state a claim, the Court held that the motion court properly granted the motion.[24] The Court explained that the “amended complaint … failed to sufficiently allege recoverable, nonspeculative damages with respect to the allegations that the defendant made certain misrepresentations regarding the plaintiff’s inheritance in November 2011.” [25] The Court also explained that plaintiff “failed to sufficiently set forth the alleged misrepresentations made, and justifiable reliance thereon, concerning the defendant’s purported participation in a fraudulent scheme in September 2016.[26]

Takeaway

In a prior article, we quoted Stephen King as saying “the truth is in the details. No matter how you see the world …, the truth is in the details.” (Here.) We said that the “quote fairly sums up the pleading requirement that all plaintiffs must satisfy when alleging a fraud.” The reason: courts require plaintiffs to provide sufficient details of the alleged misconduct to support a reasonable inference that the allegations of fraud are true. For this reason, conclusory allegations will not suffice. Plaintiffs must describe the “who, what, when, where, and how” of the fraud, or “the first paragraph of any newspaper story.”[27]  In the absence of such detail, as in Gold, even under the reasonable inference standard of the CPLR, plaintiff could not maintain a fraud claim.

As discussed above, the collateral estoppel doctrine will preclude a party from relitigating an issue that has been previously decided against him/her in a prior proceeding where he/she had a full and fair opportunity to litigate such issue. In Gold, both the motion court and the Second Department found that plaintiff’s amended complaint was simply a reiteration of the same theory that was litigated, considered, and rejected by the Surrogate’s Court and the Second Department. Since plaintiff had a full and fair opportunity to be heard in those proceedings, the courts dismissed the action on collateral estoppel grounds.

________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).

[2] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009).

[3] Id.

[4] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”).

[5] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).

[6] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).

[7] Id. at 491 (internal quotation marks and citation omitted).

[8] Id. at 492.

[9] Id.

[10] E.g., Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 349 (1999).

[11] Conason v. Megan Holding, LLC, 25 N.Y.3d 1, 17 (2015) (internal quotation marks omitted).

[12] Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 455 (1985)

[13] Buechel v. Bain, 97 N.Y.2d 295, 303 (2001).

[14] Ryan v. New York Tel. Co., 62 N.Y.2d 494, 501 (1984).

[15] See CPLR § 3211(a)(5).

[16] See CPLR § 3018(b).

[17] An in terrorem clause is a provision in a will that prohibits a beneficiary from disputing any provisions of a will. People use such clauses to discourage challenges to a will and avoid long probate proceedings. Under an in terrorem clause, a beneficiary’s interest or inheritance under the will is revoked if the beneficiary violates the clause. Most states enforce in terrorem clauses, though they are disfavored and subject to strict construction, such that they do not grant or hold absolute authority over the distribution of the testator’s interests. Many states limit the enforceability of in terrorem clauses to ensure beneficiaries can challenge fraudulent conduct or other conduct against public policy. In New York, for example, courts have held that in terrorem clauses that attempt to preclude a beneficiary from questioning the eligibility or conduct of a fiduciary are not enforceable as against public policy and the intentions of the testator. For a more in-depth discussion of in terrorem clauses, see here (from where the foregoing discussion is taken).

[18] Citations omitted.

[19] See Matter of Gold, 170 A.D.3d 1174 (2d Dept. 2014).

[20] Citation omitted.

[21] Citations omitted.

[22] Slip Op. at *1.

[23] Id. (citations omitted).

[24] Id.

[25] Id.

[26] Id. (citations omitted).

[27] United States ex rel. Lubsy v. Rolls-Royce Corp., 570 F.3d 849, 853 (7th Cir. 2009) (internal quotation marks omitted).