Defendant Barred From Adding a Counterclaim for Fraud Because the Claim Was Deemed Patently Devoid of Merit

• Posted on: Jan 8 2025

By: Jeffrey M. Haber

CPLR 3025(b) provides, in pertinent part, that “[a] party may amend his or her pleading … at any time by leave of court or by stipulation of all parties.” Importantly, CPLR 3025(b) provides that “[l]eave [to amend] shall be freely given.…” Thus, “unless the proposed amendment would unfairly prejudice or surprise the opposing party, or is palpably insufficient or patently devoid of merit,” the motion for leave to amend should be granted.[1]

Prejudice may be found where “the nonmoving party has been hindered in the preparation of its case or has been prevented from taking some measure in support of its position.”[2] “Prejudice is more than the mere exposure of the party to greater liability” as “there must be some indication that the party has been hindered in the preparation of the party’s case or has been prevented from taking some measure in support of its position.”[3] Conclusory statements of prejudice cannot defeat a motion to amend a pleading.[4]

The burden of demonstrating prejudice or surprise “falls upon the party opposing the motion.”[5] In opposing the motion, the nonmovant may not dispute the factual allegations in the proposed amended pleading. Contesting the merits of the amendment is improper on a motion for leave to amend.[6]

An amendment will not cause surprise when the causes of action alleged in the amended pleading are based on the facts and circumstances already pleaded or already known by the non-moving party.[7] For this reason, new theories of liability pertaining to the facts and circumstances already in controversy will not bar a motion to amend.[8]

Further, delay in and of itself is not enough to defeat a motion for leave to amend. For this reason, “[m]ere lateness is not a barrier” to amendment, absent prejudice.[9] “It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine.”[10] As the New York Court of Appeals recognized, “absent prejudice, courts are free to permit amendment even after trial.”[11]

“The determination whether to grant leave to amend a pleading is within the court’s discretion, and the exercise of that discretion will not lightly be disturbed.”[12] Thus, “[a] party opposing leave to amend ‘must overcome a heavy presumption of validity in favor of [permitting amendment].’”[13]

In Breton v. Dishi, 2025 N.Y. Slip Op. 00039 (1^st Dept. Jan. 7, 2025) (here), the issue of prejudice was considered by the Appellate Division, First Department in the context of a motion to amend an answer. In Breton, defendant moved to amend his answer to interpose a counterclaim for fraud. As discussed below, the Court held that the proposed counterclaim was patently devoid of merit.

Breton v. Dishi

[Eds. Note: the factual discussion comes from the record on appeal, the motion court’s decision and order and the First Department’s decision.]

Breton is an action to recover for personal injuries that plaintiff allegedly suffered on property that was owned by defendant. Plaintiff alleged that she was struck by a falling ceiling in an apartment located at a building owned by defendant.

Defendant moved to amend his answer to interpose a counterclaim alleging fraud by plaintiff. Defendant alleged that: (1) the accident did not occur as plaintiff alleged; (2) even if the accident occurred as alleged, plaintiff did not suffer the injuries alleged in the action; (3) knowing that the accident did not occur as alleged and that plaintiff did not suffer the injuries she claimed, plaintiff nevertheless commenced the action seeking to recover damages from defendant; and (4) plaintiff knowingly brought the action based on facts, claims, and statements that she knew were false with the intention of inducing defendant to settle the action.

Plaintiff opposed the motion, claiming the proposed counterclaim was prejudicial. Plaintiff contended that defendant presented an improper malicious prosecution counterclaim in the guise of a fraud counterclaim. Plaintiff reasoned that there had been no termination of the civil proceeding in favor of defendant, nor had there been a trial and that by allowing the amendment of defendant’s answer to include the proposed counterclaim would have a chilling effect on litigation.

Plaintiff further argued that defendant had not alleged fraud with sufficient particularity such as defendant’s failure to allege how he relied on any purported misrepresentations or omissions to his detriment and damages.

Finally, plaintiff maintained that allowing the amendment was prejudicial because, among other things: (1) defendant’s proposed amendment was post note of issue and post-appeal; and (2) defendant failed to provide a reasonable excuse for the late amendment.

The motion court denied the motion.

Addressing the question of prejudice by the proposed counterclaim, the motion court held that “defendant ha[d] established that the amendment to [his] answer ha[d] merit and that plaintiff [would] not be prejudiced by [the] relief requested.” The motion court explained that “[b]oth plaintiff and defendant were aware of the factual allegations upon which th[e] motion was predicated in or about April 2021,” when “defendant submitted [his] summary judgment motion” and when the motion court issued its “Amended Decision in September 2021[,] which dismissed plaintiff’s complaint.” The motion court noted that for various intervening procedural reasons, “defendant did not submit the instant application until August 2023.” Though defendant did not have an excuse for the delay, the motion court rejected plaintiff’s timeliness objection, stating that defendant’s allegations about how the accident occurred and whether plaintiff sustained the injuries she alleged had “not changed since the summary judgment motion.”

Moreover, said the motion court, the proposed counterclaim would not “require discovery as plaintiff was aware of defendant’s position and the plaintiff ha[d] not shown how [she] would be prejudiced or surprised or what discovery if any [she] would need from defendant.” The motion court further held that “the amendment [would] not hinder plaintiff’s preparation for trial or change her position because she will not be surprised as she is already aware of defendant’s allegations.” Finally, the motion court “rejected outright” “plaintiff’s conclusory statement that defendant’s fraud claim [was] merely one for malicious prosecution.”

Plaintiff appealed. The First Department unanimously reversed.

The Court held that “Supreme Court should have denied the motion to amend.”[14] The Court explained that “the counterclaim fail[ed] to plead the essential element of justifiable reliance with sufficient particularity.”[15] “To show reliance, a party must demonstrate that [it] was induced to act or refrain from acting to [its] detriment by virtue of the alleged misrepresentation or omission.”[16] In that regard, “[t]he [party] must show a belief in the truth of the representation and a change of position in reliance on that belief.”[17]

Looking at the record, the Court found that it was “clear that defendant ha[d] not, in fact, relied on plaintiff’s alleged misrepresentations, but instead ha[d] denied them in his answer and throughout the litigation.”[18]

Finally, the Court held that defendant did not “plead damages with sufficient particularity.”[19] Defendant “alleg[ed] only that he ha[d] incurred significant sums in defending the action.”[20] The Court noted that “[t]o the extent defendant [was] claiming that he ha[d] been damaged by having incurred litigation costs as a result of plaintiff’s pursuing a fraudulent or frivolous claim, his remedy would be to seek sanctions under CPLR 8303-a.”[21] However, said the Court, “that provision [did] not support an independent cause of action.”[22]

Takeaway

As readers of this Blog know, most of the cases we examine concerning the justifiable reliance element of a fraud claim involve whether the aggrieved party had the means to discover “the true nature of the [challenged] transaction by the exercise of ordinary intelligence” and whether the aggrieved party “fail[ed] to make use of those means.”[23] Breton is different from those cases because the issue before the Court was whether defendant could demonstrate that he was induced to act or refrain from acting to his detriment by virtue of the alleged misrepresentation or omission.[24] As discussed, defendant could not do so because his own pleading and litigation position demonstrated that he did not hold “a belief in the truth of the representation[s]” claimed to be false and did not “change [his] position in reliance on that belief.”[25]

Breton also underscores the importance of pleading every element of a fraud claim with particularity. The requirement that a fraud claim be pleaded with particularity can be found in CPLR 3016(b). Under CPLR 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[26] 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. The plaintiff must also identify his/her damages with particularity. As explained by the Court in Breton, damages in the form of litigation costs do not meet this requirement.

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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] Cirillo v. Lang, 206 A.D.3d 611, 612 (2d Dept. 2022) (citations omitted).  See also Greene v. Esplanade Venture P’ship, 36 N.Y.3d 513, 526 (2021); Matter of Chustckie, 203 A.D.3d 820, 822 (2d Dept. 2022); Toiny, LLC v. Rahim, 214 A.D.3d 1023, 1024 (2d Dept. 2023) (citations omitted).

[2] Cirillo, 206 A.D.3d at 612 (citation, internal quotation marks, and brackets omitted).

[3] Kimso Apartments, LLC v. Gandhi, 24 N.Y.3d 403, 411 (2014) (citations, internal quotation marks and brackets omitted).

[4] See Petion v. New York City Health & Hosps. Corp., 175 A.D.3d 519, 520 (2d Dept. 2019).

[5] Toiny, 214 A.D.3d at 1024 (citation and internal quotation marks omitted); see also, Kimso, 24 N.Y.3d at 411 (citations).

[6] See Lucido v. Mancuso, 49 A.D.3d 220, 227 (2d Dept. 2008) (“[A] plaintiff seeking leave to amend the complaint is not required to establish the merit of the proposed amendment in the first instance”); Sample v. Levada, 8 A.D.3d 465, 467–468 (2d Dept. 2004) (“[t]he legal sufficiency or merits of a proposed amendment to a pleading will not be examined unless the insufficiency or lack of merit is clear and free from doubt”).

[7] See, e.g., Bamira v. Greenberg, 256 A.D.2d 237, 239 (1st Dept. 1998).

[8] See, e.g., Harding v. Filancia, 144 A.D.2d 538, 540 (2d Dept. 1988); Matter of Smith, 104 A.D.2d 445, 448 (2d Dept. 1984).

[9] Edenwald Contr. Co. v. City of New York, 60 N.Y.2d 957, 959 (1983); see also Granieri v. Ryder Truck Rental, Inc., 112 A.D.2d 189, 190 (2d Dept. 1985); Matter of Chustckie, 203 A.D.3d at 822.

[10] Shields v. Darpoh, 207 A.D.3d 586, 587 (2d Dept. 2022) (internal quotation marks and citations omitted).

[11] Kimso, 24 N.Y.3d at 411 (citations omitted).

[12] AFBT-II, LLC v. Country Vill. on Mooney Pond, Inc., 21 A.D.3d 972, 972 (2d Dept. 2005) (citations omitted).

[13] McGhee v. Odell, 96 A.D.3d 449, 450 (1st Dept. 2012) (quoting Otis Elevator Co. v. 1166 Ave. of Americas Condo., 166 A.D.2d 307, 307 (1st Dept. 1990))

[14] Slip Op. at *1.

[15] Id. (citing CPLR 3016(b); Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009)).

[16] Ginsburg Dev. Cos., LLC v. Carbone, 134 A.D.3d 890, 892 (2d Dept. 2015) (internal quotation marks omitted).

[17] Nabatkhorian v. Nabatkhorian, 127 A.D.3d 1043, 1044 (2d Dept. 2015).

[18] Slip Op. at *1 (citing Republic of Kazakhstan v. Chapman, 217 A.D.3d 515, 517 (1st Dept. 2023); Dashdevs LLC v. Capital Mkts. Placement, Inc., 210 A.D.3d 525, 526 (1st Dept. 2022)).

[19] Id.

[20] Id. (citing Makhnevich v. Board of Mgrs. of 2900 Ocean Condominium, 217 A.D.3d 630, 632 (1st Dept. 2023)).

[21] Id.

[22] Id. (citing Calastri v. Overlock, 125 A.D.3d 554, 555 (1st Dept. 2015)).

[23] Rosenblum v. Glogoff, 96 A.D.3d 514, 515 (1st Dept. 2012).

[24] Ginsburg Dev. Cos., 134 A.D.3d at 892.

[25] Nabatkhorian, 127 A.D.3d at 1044. As noted, defendant controverted the truthfulness of the statements that he claimed were false. Thus, by denying the falsity of the statement he could claim to have relied on the statement to his detriment. E.g., Republic of Kazakhstan, 217 A.D.3d at 517.

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