Fraud Notes: Duplication, Failure to Identify Misrepresentations of Fact, and Fraudulent Concealment

• Posted on: Aug 24 2023

By: Jeffrey M. Haber

On August 23, 2023, the Appellate Division, Second Department issued two decisions that briefly touched upon fraud causes of action: Hershman v. Bank of N.Y. Mellon, 2023 N.Y. Slip Op. 04369 (2d Dept. Aug. 22, 2023) (here), and Hillary Dev., LLC v. Security Title Guar. Corp. of Baltimore, 2023 N.Y. Slip Op. 04370 (2d Dept. Aug. 23, 2023) (here).

In Hershman, the Court affirmed the dismissal of a fraud claim for failure to state a claim, and in Hillary, the Court reversed the denial of a motion to dismiss fraud claims in a third-party action for, among other things, failure to allege an omission upon which the third-party plaintiff relied.

Hershman v. Bank of N.Y. Mellon  

In Hershman, plaintiff brought suit to recover damages for breach of contract and fraud in connection with a note that was secured by a mortgage on real property located in Tarrytown, New York (the “Property”).

Plaintiffs executed the note in September 2005, which, as noted, was secured by a mortgage on the Property. In May 2016, the Bank of New York Mellon (“BNYM”), as the mortgagee’s alleged successor-in-interest, commenced an action to foreclose the mortgage (the “foreclosure action”). BNYM alleged, inter alia, that plaintiffs defaulted in making mortgage payments beginning on April 1, 2014.

In December 2019, plaintiffs sued BNYM and the Bank of America (together, the “defendants”) to recover damages for breach of contract and fraud. Plaintiffs alleged, among other things, that on October 28, 2013, defendants, for the first time, paid real estate taxes on the Property which were not yet due. Plaintiffs further alleged that, starting on January 1, 2014, defendants unilaterally increased plaintiffs’ monthly mortgage payments to include escrow payments for real estate taxes, which was in breach of an agreement by which plaintiffs were to make no escrow payments if plaintiffs paid the real estate taxes. 

Defendants moved, pursuant to CPLR 3211(a), to dismiss the operative complaint. 

In an order dated March 10, 2021, the motion court, inter alia, granted those branches of defendants’ motion to dismiss the causes of action alleging breach of contract and fraud. 

Plaintiffs appealed.

As noted, the Second Department affirmed.

The Court held that plaintiffs’ fraud claim duplicated their breach of contract claim: “Here, the allegations which form the basis of the cause of action alleging fraud are the same as those underlying the breach of contract cause of action.”

The Court also held that plaintiffs failed to satisfy two of the elements of a fraud claim – a material misrepresentation upon which plaintiff justifiably relied: “Moreover, the plaintiffs failed to allege or provide details of any material misrepresentation made by the defendants or the plaintiffs’ justifiable reliance thereon.”

“Accordingly,” concluded the Court, the motion court “properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(7) to dismiss the cause of action alleging fraud for failure to state a cause of action.”

Hillary Developer, LLC v. Security Title Guarantee Corp. of Baltimore 

Hillary was an action, inter alia, to recover damages for breach of contract. Relevant to today’s article was the fraudulent concealment claim that was asserted by defendant, third-party plaintiff, Naomi Cohen-Tsedek (“Cohen-Tsedek” or “third-party plaintiff”).

On November 18, 2014, third-party plaintiff obtained a judgment against Steven Browd (“Browd”) in the amount of $269,145 (the “subject judgment”). The subject judgment was docketed with the County Clerk on the same date. At that time, Browd, also known as “Shraga Browd,” together with his wife, Sheyna Browd (“Sheyna”), owned certain real property located in Queens, New York (the “subject premises”).

In 2019, Browd, under the name Shraga Browd, and his wife sold the subject premises to Hillary Developer, LLC (“plaintiff”). The subject judgment was not satisfied from the proceeds of the sale.

Subsequently, upon learning that the subject premises had since been sold to a different buyer at a sheriff’s auction to satisfy the subject judgment, plaintiff commenced an action against, among others, Browd, Sheyna, and Cohen-Tsedek, as well as Security Title Guarantee Corporation of Baltimore (“Security Title”), the company which had issued plaintiff a title insurance policy with regard to its purchase of the subject premises. Plaintiff alleged that, at the time it purchased the subject premises, it did not know about the subject judgment.

Third-party plaintiff interposed an answer that included, inter alia, third-party causes of action to recover damages for fraudulent concealment and prima facie tort asserted against SSS Settlement Services, LLC (“SSS Settlement”), which had acted as Security Title’s agent with regard to Security Title’s issuance of the title insurance policy. Third-party plaintiff alleged that, among other things, SSS Settlement had concealed the existence of the subject judgment and that Browd was also known as Shraga Browd.

SSS Settlement moved, pursuant to CPLR 3211(a), to dismiss the third-party causes of action to recover damages for fraudulent concealment and prima facie tort insofar as asserted against it. Third-party plaintiff opposed the motion. In an order dated March 30, 2021, the motion court denied SSS Settlement’s motion. SSS Settlement appealed.

The Second Department reversed.

The Court held that third-party plaintiff failed to satisfy two of the elements of her fraudulent concealment claim – a material omission upon which the plaintiff justifiably relied: “Cohen-Tsedek failed to allege, inter alia, any material omission of fact by SSS Settlement or that she relied upon any such material omission.”

The Court also held that third-party plaintiff failed to allege that “SSS Settlement owed her a duty to disclose the material information.”

“Accordingly,” concluded the Court, the motion court “should have granted SSS Settlement’s motion pursuant to CPLR 3211(a) to dismiss the third-party causes of action to recover damages for fraudulent concealment … insofar as asserted against it.”

Footnotes

1. Slip Op. at *1 (citations omitted).
2. To state a claim for fraud, a plaintiff must allege “a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006). “Absent any of the elements, plaintiff does not have a prima facie case.” Id.
3. Slip Op. at *1.
4. Id.
5. As discussed in note 2, above, to state a claim for fraud, a plaintiff must allege “a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.” Global Mins. & Metals, 35 A.D.3d at 98. To sufficiently plead a cause of action to recover damages for fraudulent concealment, a plaintiff must also allege “that the defendant had a duty to disclose the material information.” Bannister v. Agard, 125 A.D.3d 797, 798 (2d Dept. 2015).
6. Slip Op. at *2.
7. Id.
8. Id.

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.