Jurisdictional Defects and The Dismissal of Fraud-Based Claims on Limitations Grounds

• Posted on: Apr 6 2025

By: Jeffrey M. Haber

On April 3, 2025, the Appellate Division, First Department considered an appeal of the dismissal of a complaint involving the disputed authenticity of a painting (the “Work”) by the deceased artist Cy Twombly (“Twombly”). In Grosso v. Cy Twombly Found., 2025 N.Y. Slip Op. 02007 (Apr. 03, 2025) (here), the Court unanimously affirmed the motion court’s dismissal of a complaint brought by the child of a parent who purchased works of art, including the Work, from Twombly in the 1960s. As discussed below, the Court held that, among other things, the motion court did not have personal jurisdiction over defendant and that plaintiff could not assert his fraud and negligent misrepresentation claims against defendant because they were time-barred.

The Rules Governing the Exercise of Personal Jurisdiction

New York courts may exercise general jurisdiction over a defendant under the United States Constitution or under CPLR 301 if the defendant is domiciled in the state or has “continuous and systematic” contacts with New York which are substantial enough to render the defendant at home in New York.[1] Activities undertaken by an individual defendant in the state on behalf of a corporate entity do not confer personal jurisdiction over the individual defendant.[2]

A court may exercise general jurisdiction over a defendant under an alter ego theory, where there is complete domination to commit fraud or a wrong against plaintiff.[3] “Factors to be considered” in making the determination include:

the disregard of corporate formalities; inadequate capitalization; intermingling of funds; overlap in ownership, officers, directors and personnel; common office space or telephone numbers; the degree of discretion demonstrated by the allegedly dominated corporation; whether dealings between the entities are at arm’s length; whether the corporations are treated as independent profit centers; and the payment or guaranty of the corporation’s debts by the dominating entity.[4]

“No one factor is dispositive.”[5]

Courts may also exercise jurisdiction over a non-domiciliary if it has long-arm jurisdiction over the defendant under CPLR 302 (i.e., specific jurisdiction) and the exercise of such jurisdiction comports with due process.[6]

For a court to exercise jurisdiction under CPLR 302 (a) (1), the “attachment to New York must be (1) purposeful; and (2) there must be a substantial relationship between the New York transaction of business and the claim asserted.”[7] “Purposeful activities are defined as those with which a defendant, through volitional acts, avails itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.”[8] A court can exercise jurisdiction even in the absence of physical presence if “the defendant on his [or her] own initiative … project[s] himself [or herself] into this state to engage in a sustained and substantial transaction of business.”[9] Where the defendant acts through an agent, the “plaintiff must convince the court that [the New York actors] engaged in purposeful activities in th[e] State in relation to [the] transaction for the benefit of and with the knowledge and consent of [the defendant] and that [the defendant] exercised some control over [the New York actors].”[10]

A court may exercise personal jurisdiction if a defendant commits a tortious act outside the state which causes injury to person or property in the state, other than a cause of action for defamation of character arising from the act, if he “(i) regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered, in the state, or (ii) expects or should reasonably expect the act to have consequences in the state and derives substantial revenue from interstate or international commerce.”[11]

To challenge the court’s jurisdiction over the person, the defendant must make a motion pursuant to CPLR 3211(a)(8). CPLR 3211(a)(8) authorizes dismissal of “one or more causes of action asserted … on the ground that … the court has not jurisdiction of the person of the defendant.” “On a motion pursuant to CPLR 3211 (a) (8) to dismiss for lack of personal jurisdiction, the party asserting jurisdiction has the burden of demonstrating satisfaction of statutory and due process prerequisites.”[12] A plaintiff meets this burden by presenting affidavits and relevant documents.[13]

Rules Governing the Statute of Limitations for Fraud and Fraud-Based Claims

A party seeking dismissal of a pleading on statute of limitations grounds must make a motion pursuant to CPLR 3211(a)(5). Under this provision of the CPLR, “a defendant must establish, prima facie, that the time within which to sue has expired.”[14] “Once that showing has been made, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled, an exception to the limitations period is applicable, or the plaintiff actually commenced the action within the applicable limitations period.”[15]

Under New York law, an action based upon fraud must be commenced within six years of the date the cause of action accrued, or within two years of the time the plaintiff discovered or could have discovered the fraud with reasonable diligence, whichever is greater.[16] The cause of action accrues when “every element of the claim, including injury, can truthfully be alleged”,[17] “even though the injured party may be ignorant of the existence of the wrong or injury.”[18]

Determining when accrual occurs is not easy and often contested. So too is the determination of when the plaintiff discovered or could have discovered the fraud.

In New York, “plaintiffs will be held to have discovered the fraud when it is established that they were possessed of knowledge of facts from which it could be reasonably inferred, that is, inferred from facts which indicate the alleged fraud.”[19] “[M]ere suspicion will not constitute a sufficient substitute” for knowledge of the fraud.[20] “Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.”[21]

Moreover, where the circumstances suggest to a person of ordinary intelligence the probability that s/he has been defrauded, a duty of inquiry arises, and if s/he fails to undertake that inquiry when it would have developed the truth and shuts his/her eyes to the facts which call for investigation, knowledge of the fraud will be imputed to him/her.[22] The test as to when fraud should with reasonable diligence have been discovered is an objective one.[23] Thus, while it is true that New York courts will not grant a motion to dismiss a fraud claim where the plaintiff’s knowledge is disputed, courts will dismiss a fraud claim when the alleged facts establish that a duty of inquiry existed and that an inquiry was not pursued.[24] “The burden of establishing that the fraud could not have been discovered before the two-year period prior to the commencement of the action rests on the plaintiff, who seeks the benefit of the exception.”[25]

Grosso v. Cy Twombly Foundation

In 2011, defendant, a private foundation formed in 2005 with the aim of fostering the study and preservation of Twombly’s works, confirmed in writing (signed by the Foundation’s President, defendant Nicola Del Roscio (“Del Roscio”)) “that the Work would be included in a publication intended to be part of a comprehensive catalogue of Twombly’s works of art (the “Catalogue RaisonnÉ”). The Catalogue RaisonnÉ was published in 2013 without including the Work.

Plaintiff consigned the Work to Phillips Auctioneers LLC (“Phillips”) and received a $1.5 million advance against proceeds from Phillips pursuant to written agreements. In January 2019, Phillips and plaintiff signed an addendum to the Agreement reaffirming the terms of the sale and recording the accrual of interest as of January 2019. Phillips scheduled the Work for sale at an auction in 2019 and contacted the Foundation about the Work prior to the sale.

Plaintiff alleged that defendants made false statements to Phillips about the Work and plaintiff. Plaintiff eventually discovered that defendants communicated to Phillips through defendant David Baum (“Baum”) that “there was no doubt” that the Work was a fake and [plaintiff] was aware of this fact when he consigned the Work to Phillips.” Baum also informed Phillips that “the Foundation had been shown this work before, and that there is a specific reason why the work is not in the catalogue RaisonnÉ.”

In an action involving plaintiff and Phillips,[26] Baum testified that “Cy Twombly himself declared the work to be fake.”

Plaintiff alleged that the Foundation claimed that the Work was a fake because a “Gian Piero Grosso” believed to be plaintiff’s father, submitted the Work for authentication (“Submission”) through a Vienna gallery and Twombly reviewed the Work and declared it to be inauthentic. The Foundation also had in its possession an envelope (in which the Submission was kept) which had the handwritten inscription “falso dice Cy” which translates in English to “false says Cy”. The Foundation believed this to be proof that Twombly himself reviewed the Submission and declared the Work to be inauthentic.

Plaintiff challenged these claims and alleged that the Foundation’s statements to Phillips were demonstrably false because ‘Gian Piero Grosso’ was not plaintiff’s father, the handwriting on the envelope is of an unknown person and not Twombly and Twombly saw the Work in-person at Grosso’s residence and never communicated that the Work was a fake or in any way indicated that he was not the creator of the Work.

Plaintiff alleged that through their actions and false statements, defendants “intended to convince Phillips that the Work was not authentic, sought to impermissibly interfere with Mr. Grosso’s business relationship and Agreement with Phillips and induced Phillips into withdrawing the Work from sale.” Plaintiff further alleged that defendants procured a criminal record evidencing a conviction of a ‘Pier Franco Grosso’ in Italy and shared it with Phillips claiming it to be a criminal record for Grosso.

Plaintiff claimed that due to defendants’ false statements and actions, the Work was not sold and plaintiff in March 2020 was publicly branded as having owned and fraudulently consigned a fake artwork to Phillips.

Plaintiff filed the action against defendants on July 11, 2022, alleging the following causes of action: (i) tortious interference with business relationships (Count I); (ii) defamation (Count II); (iii) prima facie tort (Count III); (iv) fraud (Count IV); (v) injurious falsehood (Count V); (vi) product disparagement (Count VI); and (vii) negligent misrepresentation (against the Foundation in the alternative) (Count VII).

Baum and the Foundation moved pursuant to CPLR 3211(a)(1), (5) and (7) to dismiss the complaint in its entirety. Del Roscio moved pursuant to CPLR 3211(a)(8) to dismiss the complaint against him in its entirety, and in the alternative pursuant to CPLR 3211(a)(1)(5) and (7) if the motion court determined that it had jurisdiction over him. The motion court granted the motions (here).

Regarding personal jurisdiction, the motion court found that, under CPLR 301, Del Roscio was “not domiciled in New York and [did] not have continuous or systematic contacts with New York which would render him at home in New York.” The motion court explained that “[h]e does not regularly conduct business on behalf of the Foundation from New York and in any event, activities undertaken on behalf of the Foundation would not confer personal jurisdiction over Del Roscio.” The motion court rejected plaintiff’s contention that the motion court acquired “general jurisdiction over Del Roscio by virtue of the Foundation’s general presence in New York.”

The motion court also rejected plaintiff’s alter ego theory for exercising jurisdiction. “None of [the] factors [discussed above] exist here,” said the motion court. The motion court found plaintiff’s assertions that Del Roscio was the “key decision maker”, “an integral part of the day-to-day activities of the Foundation”, “the primary individual associated with the Foundation or [Twombly] who provides information about whether an artwork attributed to [Twombly] will be included in any of [Twombly’s] catalogues raisonne” to be conclusory and an insufficient basis upon which the motion court could find that Del Roscio was the Foundation’s alter ego. Further, the motion court found that plaintiff “failed to allege much less demonstrate that Del Roscio used the Foundation’s corporate form to perpetuate fraud on plaintiff.”

The motion court also held that it did not have jurisdiction over Del Roscio under CPLR 302(a) (1) because the authentication of the Work, which was the only act by Del Roscio that had a substantial relationship with the claims in the action was performed in Italy. The motion court rejected plaintiff’s argument “that Del Roscio projected himself into the State through telephone calls and emails with Baum and other employees of the Foundation.”

Finally, the motion court held that plaintiff failed to satisfy the requirements of CPLR 302(a)(3). The motion court found that Del Roscio did not regularly conduct or solicit business (on his account) or derive substantial revenue from goods used or consumed or services rendered in New York. The motion court concluded that “Del Roscio’s business contacts with New York [were] limited to his role as the President of the Foundation.”

Turning to the statute of limitations, the motion court held that plaintiff was on notice of the alleged misrepresentations more than two years before he commenced the action: “[Plaintiff] also does not contest the fact that it knew that the Catalogue RaisonnÉ was published in 2013 without including the Work.” The motion court rejected plaintiff’s contention that his claims were timely because “he believed that the Catalogue RaisonnÉ could be supplemented in the future.” “Even if [plaintiff] believed that the Catalogue RaisonnÉ could be supplemented in due course,” said the motion court, “it was incumbent upon him to exercise reasonable diligence and inquire of the Foundation when the Catalogue RaisonnÉ would be supplemented to include the Work.” “Despite his knowledge of the significance of being included in a Catalogue RaisonnÉ for an artwork’s authenticity and consequent[ ] marketability,” reasoned the motion court, “[plaintiff] made no effort to contact the Foundation and inquire about the inclusion of the Work in any forthcoming … catalogue RaisonnÉs.” Accordingly, the motion court held that plaintiff was inquiry notice of the alleged fraud.

On appeal, the First Department affirmed.

The Court held that the motion court “properly found that defendant Del Roscio, the president of defendant Cy Twombly Foundation, was not individually subject to either general or specific jurisdiction in New York.”[27] The Court found that the “record indicate[d] that Del Roscio live[d] in Italy, perform[ed] his work for the Foundation from Italy, and ha[d] not visited New York since 2020.”

The Court found that plaintiff’s allegations were speculative, and affirmed the motion court’s refusal to give “weight to plaintiff’s speculation that Del Roscio must have conducted business in New York and possibly attended Twombly exhibitions in New York.”

Moreover, the Court found that plaintiff ignored the rule that “a nondomiciliary ‘does not subject himself, individually, to the CPLR 301 jurisdiction of our courts … unless he is doing business in our State individually,’ as opposed to the business he is conducting on behalf of a corporation.”[28] The Court also found “Plaintiff’s conclusory assertions that Del Roscio [was] subject to general jurisdiction in New York as the Foundation’s alter ego” to be “unavailing”.[29]

Further, the Court held that the motion court “properly dismissed the claims against the Foundation and Baum on the basis that each claim was time-barred and/or failed to state a cause of action.”[30] The Court noted that “[b]oth the fraud and negligent misrepresentation claims were based on defendants’ purported false authentication of the work in 2011 and defendants’ failure to include it in the Catalogue RaisonnÉ in 2013.”[31] The Court further noted that “Plaintiff [did] not dispute that he knew in 2013 —nine years before this case was filed — that the relevant volume of the Catalogue RaisonnÉ was published without including the [W]ork, which was contrary to defendants’ alleged promise.”[32] Thus, concluded the Court, “plaintiff’s claims were untimely when he brought them in 2022 because he was at least on inquiry notice of defendants’ purported fraud and misrepresentations, which is when the statute of limitations began to run.”[33]

________________________________

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] Daimler AG v. Bauman, 571 U.S. 117, 126, 134, 139; IMAX Corp. v. Essel Group, 154 A.D.3d 464, 465-466 (1st Dept. 2017).

[2] IMAX, 154 A.D.3d at 466 (internal citation omitted).

[3] Matter of Morris v. New York State Dept. of Taxation and Fin., 82 N.Y.2d 135 (1993).

[4] Fantazia Intern. Corp. v. CPL Furs New York, Inc., 67 A.D.3d 511, 512 (1st Dept. 2009).

[5] Id.

[6] D & R Glob. Selections, S.L. v. Bodega Olegario Falcon Pineiro, 29 N.Y.3d 292 (2017).

[7] Silverman v. Minify, LLC, 2016 N.Y. Slip Op. 30046 (U) *5 (Sup. Ct., N.Y. County 2016)

[8] C. Mahendra (N.Y.), LLC v. Nat’l Gold & Diamond Ctr., Inc., 125 AD3d 454, 457 (1st Dept. 2015) (internal quotations and citations omitted).

[9] Silverman, 2016 N.Y. Slip Op. 30046 (U) *8 (internal quotations and citations omitted).

[10] Coast to Coast Energy, Inc. v. Gasarch, 149 A.D.3d 485, 486-487 (1st Dept. 2017) (internal quotation marks and citation omitted).

[11] CPLR 302(a)(3).

[12] Matter of James v. iFinex Inc., 185 A.D.3d 22, 28-29 (1st Dept. 2020) (citation omitted).

[13] Coast to Coast Energy, 149 A.D.3d at 486.

[14] Flintlock Constr. Servs., LLC v. Rubin, Fiorella & Friedman, LLP, 188 A.D.3d 530, 531 (1st Dept. 2020) (citations omitted).

[15] Id.

[16] CPLR § 213(8). See also Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (2009); Carbon Capital Mgmt., LLC v. Am. Express Co., 88 A.D.3d 933, 939 (2d Dept. 2011).

[17] Carbon Capital Mgmt., 88 A.D.3d at 939 (citation and alterations omitted).

[18] Schmidt v. Merchants Despatch Transp. Co., 270 N.Y. 287, 300 (1936).

[19] Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957).

[20] Id.

[21] Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978).

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

[23] Id. (citation and internal quotation marks omitted).

[24] See Shalik v. Hewlett Assocs., L.P., 93 A.D.3d 777, 778 (2d Dept. 2012).

[25] Celestin v. Simpson, 153 A.D. 3d 656, 657 (2d Dept. 2017).

[26] Phillips filed a complaint against plaintiff, alleging, among other things, breach of contract and fraud arising out of plaintiff’s consignment of the Work to Phillips.

[27] Slip Op. at *1 (citations omitted).

[28] Id. at *1-*2 (quoting Laufer v. Ostrow, 55 N.Y.2d 305, 313 (1982)).

[29] Id. at *2.

[30] Id.

[31] Id.

[32] Id.

[33] Id. (citing Aozora Bank, Ltd. v. Credit Suisse Group, 144 A.D.3d 437, 438-439 (1st Dept. 2016), lv. denied, 28 N.Y.3d 914 (2017)).