Fraud: Assignment of Claims, Statute of Limitations, and Disclaimers

Print Article

Posted on: Jan 25 2026

In BH 336 Partners LLC v. Sentinel Real Estate Corp., 2026 N.Y. Slip Op. 00305 (1st Dept. Jan. 22, 2026), the Appellate Division, First Department, modified an order denying in part a motion to dismiss a complaint containing fraud and fraudulent‑inducement claims arising from Plaintiffs’ purchases of five Manhattan buildings. Plaintiffs alleged that Defendants orchestrated an illegal deregulation scheme that inflated property values through fraudulent individual apartment improvements and misrepresentations about rent‑regulation status. The motion court denied dismissal, finding the claims were not time-barred, standing, justifiable reliance, scienter, and particularity adequately pleaded, and holding the disclaimer in the purchase agreement was too general. On appeal, the First Department modified the order, dismissing the claims by most Plaintiffs as time-barred because a 2019 complaint filed by the New York Attorney General placed them on inquiry notice of the alleged fraud. However, the Court upheld standing for the remaining Plaintiffs, finding broad assignment language and surrounding circumstances permitted a factfinder to infer that the fraud claims were transferred. The Court also rejected the disclaimer argument.

Plaintiffs alleged that Defendants defrauded them in connection with their purchase of five Manhattan apartment buildings (the “Properties”) between April 2016 and August 2017.[1]

The Complaint alleged that Sentinel and its affiliates fraudulently induced Plaintiffs to purchase the Properties by concealing an unlawful deregulation scheme. According to Plaintiffs, Sentinel directed Newcastle to supervise the illegal deregulation of rent‑regulated units. Newcastle allegedly engaged favored contractors to perform apartment renovations and intentionally inflated the costs of these improvements to justify removing units from rent regulation. Plaintiffs contended that this scheme produced artificially inflated valuations for the Properties at the time of sale.

Plaintiffs further asserted that Defendants misrepresented the legal status of the apartment units, DHCR registrations, Individual Apartment Improvements (“IAIs”), rent rolls, and lease documentation. They alleged that Sentinel representatives relied on DHCR rent roll reports and provided leases and riders that were fraudulent because they falsely characterized illegally deregulated units as free‑market apartments. Plaintiffs maintained that they justifiably relied on these representations and would not have purchased the Properties had the true regulatory status been disclosed. Plaintiffs alleged that Defendants knowingly made these misstatements, intending that Plaintiffs would rely on them.

Between 2015 and 2017, Heritage entered into purchase contracts with the Seller Defendants, later assigning the contracts to Plaintiffs at closing. Assignments were executed by Aryeh and, for one property, by Charles M. Yasskey. After the closings, all Seller Defendants were voluntarily dissolved.

Plaintiffs claimed they first learned of Sentinel’s deregulation scheme in March 2023, when the New York Attorney General (“AG”) and DHCR notified them that various units must be re‑regulated. The AG’s earlier investigation resulted in a July 11, 2022 Assurance of Discontinuance, which made detailed findings regarding the deregulation practices; Plaintiffs incorporated those findings into their Complaint. They also referenced a separate AG civil enforcement action against former Newcastle Head of Operations, David Drumheller, who allegedly received contractor kickbacks to support inflated renovation costs.

Plaintiffs commenced the action on August 9, 2023, asserting claims for fraud and fraudulent inducement, including rescission. Defendants moved to dismiss, arguing lack of standing, statute of limitations, contractual reliance disclaimers, and failure to state a claim.

The Moving Defendants argued that all Plaintiffs except 113 West lacked standing because only 113 West directly purchased a Property; the remaining Plaintiffs received assignments of Heritage’s purchase contracts. These Defendants contended that the assignee Plaintiffs could not assert fraud or fraudulent‑inducement claims because they were not the original purchasers and the assignments did not expressly transfer tort claims. Plaintiffs countered that privity was unnecessary for a fraudulent‑misrepresentation claim and that they effectively purchased the Properties directly, as the purchase contracts included express riders acknowledging that the Seller Defendants permitted assignment to related entities.

A defendant moving for dismissal for lack of standing bears the burden of making a prima facie showing that the plaintiff lacks standing.[2] A plaintiff needs “only to raise a triable issue of fact as to its standing” to defeat such a motion, without needing to affirmatively establish its standing.[3]

In New York, fraud claims are freely assignable, although the right to assert such claims does not automatically transfer with the conveyed contract.[4] To effectuate the assignment of fraud claims, there must be “some explicit language evidencing the parties’ intent to transfer broad and unlimited rights and claims.”[5] The “[l]ack of privity is not a viable defense to a fraud claim.”[6]

The motion court held that Defendants failed to satisfy their burden of showing that the assignee Plaintiffs lacked standing. The motion court explained that the parties to the purchase contracts specifically contemplated assignment in each agreement’s respective Seller’s Rider. In fact, noted the motion court, the assignments were broadly worded to convey “all . . . right, title and interest” of the purchasers in the respective purchase contracts. Moreover, noted the motion court, the assignments were made between closely related entities, with the same person signing on behalf of the purchaser-assignors and the assignees.

The Moving Defendants next argued that Plaintiffs’ claims were time-barred with respect to three of the five Properties: 845 West 180 Street, 220 Wadsworth Avenue, and 643 West 171st Street. These Defendants maintained that under either the six-year accrual part of the statute or the discovery rule, Plaintiffs’ fraud claims were time-barred.

In New York, the statute of limitations for fraud is “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.”[7] “

On a motion to dismiss a fraud claim based on the two-year discovery rule, a defendant must make a prima facie case that a plaintiff was on inquiry notice of its fraud claims more than two years before it commenced the action.[8] Should the movant make its prima facie case, “[t]he burden then shifts to the plaintiff to establish that even if it had exercised reasonable diligence, it could not have discovered the basis for its claims before that date.”[9] This is a “mixed question of law and fact, and, where it does not conclusively appear that a plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred, the cause of action should not be disposed of summarily on statute of limitations grounds.”[10]

The inquiry as to whether a plaintiff could have discovered the alleged fraud with reasonable diligence “turns on whether the plaintiff was possessed of knowledge of facts from which [the fraud] could be reasonably inferred.”[11] A duty of inquiry arises “where the circumstances are such as to suggest to a person of ordinary intelligence the probability” that they have been defrauded.[12] Should the party “[omit] that inquiry when it would have developed the truth, and shuts [its] eyes to the facts which call for investigation, knowledge of the fraud will be imputed to” the party.[13] “[P]ublic reports and lawsuits of alleged fraud are sufficient to put a plaintiff on inquiry notice of fraud.”[14]

The motion court held that under the six-year portion of the statute of limitations, the fraud claims as to the three Properties in questions were barred: “As the sale of the three Properties closed between April and September 2016, the motion court held that the fraud claims related to those sales accrued outside of the six-year statute of limitations.”

Regarding the discovery rule, the motion court held that there were issues of fact as to whether the Drumheller complaint placed Plaintiffs on inquiry notice as to fraud claims arising out of their purchase of 845 West 180th Street, 220 Wadsworth Avenue, and 643 West 171st Street. The Moving Defendants argued that Plaintiffs were on notice of any alleged fraud at the Properties in June 2019, when the AG’s office emailed their counsel a copy of the Drumheller complaint. According to the Moving Defendants, the Drumheller complaint “specifically discusse[d] [properties] including 336 Fort Washington Avenue” and outlined the fraudulent deregulation scheme that formed the basis of Plaintiffs’ allegations in the action.

In holding that there were issues of fact, the motion court distinguished the allegations in the Drumheller complaint with those in the action. In that regard, the motion court found that the allegations in the Drumheller complaint focused solely on the misconduct of Drumheller and certain Newcastle employees, specifically that they accepted kickbacks from favored contractors in exchange for inflating renovation costs. Nothing in that complaint, noted the motion court, alleged or suggested that Drumheller acted at the direction of senior personnel at Newcastle, Sentinel, or any affiliated entity, nor that Sentinel or its affiliates orchestrated or participated in the scheme. The single reference to Sentinel, said the motion court, merely noted that many buildings managed by Newcastle were “or [had] been owned by single purpose entities controlled by others, including Sentinel,” a statement that did not imply Sentinel’s involvement or knowledge. The motion court went on to say that the Drumheller complaint repeatedly emphasized that the misconduct benefitted Drumheller personally, not Newcastle, Sentinel, or the Sentinel‑controlled entities that owned the buildings, including the Seller Defendants. Accordingly, concluded the motion court, the thrust of the Drumheller complaint was fundamentally different from the fraud claims asserted in the action.

The Moving Defendants also maintained that the Complaint failed to state a cause of action for fraud because Plaintiffs disclaimed reliance on extracontractual representations, or, in the alternative failed adequately to plead justifiable reliance. The motion court denied the motion on the basis of disclaimer.

The motion court found that the disclaimer in the purchase contracts was general, not specific.[15] The motion court, therefore, rejected the Moving Defendants’ claim that the disclaimer disclaimed any alleged misrepresentations about the rent regulation status of units. Even if the disclaimer was sufficiently specific, said the motion court, the misrepresentations alleged by Plaintiff “concern[ed] facts peculiarly within” Defendants’ knowledge, namely the scheme whereby Sentinel-affiliated entities deregulated certain units at the Properties and their concealment thereof.[16]

Finally, the motion court held that the Complaint adequately pleaded justifiable reliance and due diligence, crediting allegations that Plaintiffs conducted lease audits and had no reason to suspect fraudulent IAI adjustments. The Moving Defendants contended that Plaintiffs failed to plead reliance, scienter, material misstatements, or particularity, arguing that they neither performed diligence nor alleged Defendants’ knowledge or involvement in any misconduct. The motion court, however, found scienter sufficiently alleged: the pleaded facts – Sentinel’s value‑enhancement strategy, Newcastle’s renovation oversight, inflated IAI costs, deregulation of units, and subsequent sales – supported an inference of the Moving Defendants’ actual knowledge. The motion court also rejected the arguments that only omissions were alleged or that the Complaint lacked particularity, noting its identification of specific Sentinel representatives, the documents provided (DHCR rent rolls, leases, riders), and the timing of events (during due diligence), among other things.

On appeal, the Appellate Division, First Department, modified the order, on the law, to dismiss all claims against Defendant as time-barred, except for those asserted by EZ Wadsworth Partners LLC and BH 336 Partners LLC, and otherwise affirmed.

The Court held that the motion court erred in finding issues of fact with regard to the Moving Defendants’ motion dismiss on statute of limitations grounds. The Court explained that the “time-barred plaintiffs” could not “rely on their lack of awareness of the fraud to take advantage of the two-year discovery period under CPLR 213(8), as they were placed on inquiry notice no later than June 20, 2019, when the Office of the New York Attorney General forwarded their attorneys a copy of a complaint in People v David Drumheller.”[17] The Court noted that the “complaint alleged that David Drumheller, an employee of Newcastle, along with contractors and other Newcastle employees, artificially inflated the renovation costs of various units in apartment buildings throughout New York City owned by Sentinel affiliates.”[18] “[T]hat complaint,” said the Court, alleged that “Drumheller did so to fraudulently deregulate the units.”[19] Thus, held the Court, “[a]lthough the complaint mentioned only one of the buildings plaintiffs purchased in passing, the complaint otherwise stated that Newcastle managed 2,500 apartments; that Drumheller was critical to Newcastle’s practice of deregulating rent-stabilized units; and that Drumheller caused hundreds of such units to be fraudulently deregulated.”[20]

Accordingly, concluded the Court, “plaintiffs’ awareness of the possibility of the fraudulent scheme involving buildings they purchased from Sentinel-controlled entities placed on plaintiffs a duty to investigate the fraud, even if plaintiffs had no reason at the time to believe that Sentinel or Newcastle was involved.”[21] “Plaintiffs did not engage in such an investigation,” said the Court.[22]

Regarding the assignment, the Court held that the motion court “was correct in holding that defendants did not meet their burden on a motion to dismiss to establish that the remaining plaintiffs lacked standing.”[23] “As the Supreme Court found, the parties to the original purchase contracts specifically contemplated that the assignment would be a part of the transaction, and the assignments were broadly worded to convey ‘all . . . right, title and interest’ of the purchasers in the respective purchase contracts.”[24] As such, said the Court, “[a] factfinder could find the requisite intent to transfer fraud claims under these circumstances.”[25]

The Court noted that “[i]n the presence of sufficiently broad assignment language, courts are permitted to assess the circumstances of the surrounding assignment to discern if the parties intended to transfer fraud claims.”[26] This holistic approach, said the Court, was consistent with the approach of other courts.[27] The Court cited to Banque Arabe Et Internationale v. Md. Nat. Bank, 57 F.3d 146, 151-153 (2d Cir. 1995), as an example.[28] In Banque Arabe, the Second Circuit held that a recitation in an assignment agreement transferring “all of [the predecessor party’s] rights, title and interest” in a “transaction” was sufficient to transfer a fraud claim upon analyzing the underlying circumstances.

The Court also distinguished the case from other actions with similarly broad assignment language in which the Court found that the fraud claims had not been assigned.[29] The Court explained that those “cases did not involve a situation like here, where it [was] alleged that the original purchasers were, in effect, the same as the assignee plaintiffs, with the same person signing on behalf of the purchaser-assignors and the assignees.”[30] “Instead,” said the Court, the other cases dealt “with the post-facto assignment of rights under a contract entered into between the assignee and a third party, where the intention of the assignor would be more difficult to discern.”[31]

Finally, the Court held that Plaintiffs “did not disclaim reliance based on the general disclaimer included in the contract, which made no mention ‘to the particular type of fact misrepresented or undisclosed,’ which were ‘peculiarly within the seller’s knowledge.’”[32]

Takeaways

BH 336 Partners offers several important lessons for parties litigating fraud claims. First, it reaffirms that standing to assert fraud may pass through assignment when the assignment language is broad, and the surrounding circumstances indicate an intent to transfer all rights. Thus, where related entities orchestrate a transaction, and the same individuals sign on both sides, a factfinder may reasonably infer an intent to assign fraud claims.

Second, BH 336 Partners underscores the difficulties overcoming the application of the statute of limitations in the face of publicly available information in fraud cases. While fraud claims may be brought within six years of accrual or two years from discovery, the two‑year discovery rule is triggered once a plaintiff is placed on inquiry notice. The AG’s 2019 complaint, sent to Plaintiffs’ counsel in 2019, was deemed sufficient to alert Plaintiffs to the possibility of fraud, even though the complaint did not directly implicate the exact Properties at issue in BH 336 Partners.

Finally, BH 336 Partners illustrates that general contractual disclaimers do not bar fraud claims where the alleged misrepresentations concern facts peculiarly within the seller’s knowledge. In BH 336 Partners, because Defendants allegedly orchestrated a concealed deregulation scheme, Plaintiffs could not have discovered the truth through ordinary diligence, and the generic disclaimer found in the purchase contracts lacked the specificity required to defeat reliance as a matter of law.

______________________________

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] Plaintiffs, BH 336 Partners LLC, EZ Wadsworth Associates LLC, 220 MMM Partners LLC, LIV Hudson Heights LLC, 643 Bar Partners LLC, 113 West LLC (“113 West”), 2576 Flatbush Ave Realty LLC, and Roe Gem II LLC, are entities owned and controlled by non‑party Michael Aryeh and his company, Heritage Realty LLC (“Heritage”). Defendant Sentinel Real Estate Corporation (“Sentinel”) is a real estate investment company affiliated with the other defendants, including the single‑purpose entities that owned the Properties prior to the sales (the “Seller Defendants”) and defendant Newcastle Realty Services, LLC (“Newcastle”), the Properties’ managing agent during that period. Defendant GRF, a Delaware corporation affiliated with Sentinel, served as manager for 854 West 180 Limited Partnership.

[2] DLJ Mtge. Capital v. Mahadeo, 166 A.D.3d 512, 513 (1st Dept. 2018).

[3] Id., citing Deutsche Bank Trust Co. Ams. v. Vitellas, 131 A.D.3d 52, 59-60 (2d Dept. 2015).

[4] SureFire Dividend Capture, LP v. Industrial & Commercial Bank of China Fin. Servs. LLC, 216 A.D.3d 584 (1st Dept. 2023), quoting Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys. V. Morgan Stanley & Co., Inc., 25 N.Y.3d 543, 545 (2014).

[5] Commonwealth of Pa. Pub. Sch. Employees’ Retirement Sys., 25 N.Y.3d at 545.

[6] Shafran v. Kule, 159 A.D. 2d 263, 264 (1st Dept. 1990); see also Ramsarup v. Rutgers Casualty Ins. Co., 98 A.D.3d 494, 495 (2d Dept. 2012).

[7] CPLR 213(8).

[8] Epiphany Community Nursery Sch. v. Levey, 171 A.D.3d 1, 7 (1st Dept. 2019).

[9] Id.

[10] Berman v. Holland & Knight, LLP, 156 A.D.3d 429, 430 (1st Dept. 2017) (internal quotation and citation omitted).

[11] Norddeutsche Landesbank Girozentrale v. Tilton, 149 A.D.3d 152, 164 (1st Dept. 2017) (quotations omitted).

[12] Id., quoting Gutkin v. Siegal, 85 A.D. 3d 687, 688 (1st Dept. 2011).

[13] Id.

[14] Aozora Bank, Ltd. v. Deutsche Bank Sec. Inc., 137 A.D.3d 685, 689 (1st Dept. 2016), citing CIGFG Assur. N. Am., Inc. v. Credit Suisse Sec. (USA) LLC, 128 A.D.3d 607, 608 (1st Dept. 2015).

[15] Loreley Fin. (Jersey) No. 3 Ltd. v. Citigroup Global Mkts. Inc., 119 A.D.3d 136, 143 (1st Dept. 2014).

[16] Id.; see also Steinhardt Group, Inc. v. Citicorp, 272 A.D.2d 255, 257 (1st Dept. 2000).

[17] Slip Op. at *1.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] Id. (citations omitted).

[23] Id.

[24] Id.

[25] Id.

[26] Id. (citation omitted)

[27] Id.

[28] Id.

[29] Id. (citing cases).

[30] Id.

[31] Id.

[32] Id., quoting Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014).

Tagged with: Assignment, Business Litigation, Commercial Litigation, Disclaimer of Reliance, Discovery Rule, Fraud, Statute of Limitations