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Pleading Reasonable Reliance Is “Always Nettlesome”

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  • Posted on: Dec 4 2023

By: Jeffrey M. Haber

In TD Bank, N.A. v. Keenan, 2023 N.Y. Slip Op. 06158 (2d Dept. Nov. 29, 2023) (here), the Appellate Division, Second Department examined the often “nettlesome” question of whether a plaintiff claiming fraud has satisfied the justifiable reliance element of the claim.

As readers of this Blog know, we often write about fraud cases where the primary issue for the court to consider is the justifiable reliance element of the claim. We do so because of the importance of pleading and proving justifiable reliance. As noted by the New York Court of Appeals, it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim.1

Determining whether a plaintiff justifiably relied on a misrepresentation or omission is “always nettlesome” because it is so fact intensive.2 Recognizing this difficulty, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.”3 Where the falsity of a representation could have been ascertained by reviewing “publicly available information,” courts have not hesitated to dismiss a fraud claim because of the failure to satisfy the justifiable reliance element.4 

Sophisticated parties also have a heightened responsibility to inquire of the truth. They must use due diligence and take affirmative steps to protect themselves from misrepresentations by employing whatever means of verification are available at the time. Such means include obtaining a prophylactic provision in a contract or other writing or making an additional inquiry into the representation.5 If they fail to do the foregoing, their complaint will be dismissed.6 

Against this background, we examine TD Bank, N.A. v. Keenan.

TD Bank, N.A. v. Kennan

Defendant Kevin Keenan (“K. Keenan”) and his wife Courtney Keenan (“C. Keenan” and together with K. Keenan, the “Defendants”) acquired property in Garden City, N.Y. on November 2, 2002 (the “Property”). Several years later, TD Bank procured a mortgage on the Property in exchange for a Home Equity Line of Credit (“HELOC”), which it advanced to K. Keenan.

On September 12, 2014, Defendants sold the Property to the Allabashis for $1,150,000. The Allbashis purchased the Property in part by a $475,000 loan, which was secured by a mortgage, they obtained from Luxury Mortgage Corp. (“Luxury Mortgage”). In conjunction with that sale, Stewart Title Insurance Company (“Stewart Title”) issued title insurance policies to the Allabashis, as the owners of the Property, and to Luxury Mortgage Corp, as the lender.

K. Keenan allegedly drew, and made payments, on the line of credit up to and including the spring of 2016. On April 20, 2016, K. Keenan defaulted on HELOC, a year and a half after the Property had been sold by Defendants to the Allabashis. 

On September 30, 2016, TD Bank commenced an action, seeking to foreclose on its mortgage and recover the balance outstanding on the HELOC. The Allabashis and Luxury Mortgage’s successor Bank United, N.A. filed claims under their title insurance policies with Stewart Title. Thereafter, TD Bank settled its claims against the Allabashis and Bank United, based upon Stewart Title’s payment of a negotiated sum to it. TD Bank delivered the original HELOC and its mortgage along with an allonge in Stewart Title’s favor to Stewart Title and stipulated to Stewart Title’s substitution as the plaintiff in the action. TD Bank sought to have Stewart Title substituted as the plaintiff in the action since it held the HELOC and the mortgage. In addition, TD Bank executed a discharge of the accompanying mortgage, which had been recorded in the County’s land records. 

Stewart Title sought to amend the complaint to discontinue the foreclosure claim and to add a breach of contract claim against K. Keenan. Stewart Title also sought to add C. Keenan as a defendant and to interpose claims for fraudulent misrepresentation and unjust enrichment against both Defendants.

With regard to the fraud claim, Stewart Title alleged that Defendants made materially false statements in the closing affidavits that they executed in connection with the title insurance policies it issued to the Allabashis and Luxury Mortgage. Among other things, Defendants represented that they had no knowledge of any “claims, rights, liens, encumbrances and defects in title except those set forth in the title report,” that they knew of “no other financing which [would] affect the property,” and that they “ha[d] not extended any Instrument that [was] not disclosed by the … title report.”

Defendants further represented and acknowledged that they executed the affidavits “to induce Stewart Title” to remove certain possible exceptions to title set forth in the title report and to issue the policy of title insurance covering the Property knowing that Stewart Title would rely on their statements. Finally, they represented that they were unaware of any judgment, encumbrance, lien or claim of right to the Property, except as shown in the title report. Notably, Defendants represented that in the event that there were any open credit line mortgages affecting the Property, they canceled their right to draw against them and directed that any such mortgage be satisfied of record. 

Stewart Title alleged that C. Keenan knew of the HELOC and the accompanying mortgage despite not having been a party to them when she executed the affidavits.

Defendants opposed the amendment, claiming, among other things, that Plaintiff failed to plead fraud with particularity, the fraud claim duplicated the breach of contract claim and Plaintiff failed to plead justifiable reliance.7

The motion court denied the motion to amend. Although the motion court found that Plaintiff satisfied the particularity requirement of CPLR § 3016, Plaintiff failed to plead justifiable reliance. 

The motion court explained that because the HELOC and mortgage were recorded and publicly available long before Stewart Title extended its title insurance policies, Plaintiff could have protected itself with reasonable diligence: “‘[S]uch information was readily verifiable through public records and there could be no justifiable reliance on the misrepresentations.’”8 Therefore, concluded the motion court, the proposed claim for fraudulent misrepresentations was “patently lacking in merit.”

On appeal, the Second Department modified the order to allow the amendment.

In a pithy opinion, the Court held that “in light of the multiple written and sworn misrepresentations allegedly made by the defendant Kevin Keenan and his wife, Courtney Keenan, and relied upon by the plaintiff, it cannot be said that a cause of action alleging fraud against the Keenans, including the element of the plaintiff’s reasonable reliance, is patently insufficient or palpably devoid of merit.”9


Though not stated in its opinion, it appears that the Court was persuaded by Plaintiff’s argument that the truth concerning the alleged misrepresentations could not have been ascertained simply by looking at the public record. In its briefs on appeal, Plaintiff argued that whether the HELOC was paid down was peculiarly within the knowledge of Defendants. Plaintiff maintained that Defendants, as the only parties to 2014 sale of the Property, knew whether K. Keenan paid the HELOC down to zero or requested that TD Bank close the HELOC. Therefore, simply because the TD Bank mortgage was open of record at the time of the 2014 sale of the Property did not mean that Stewart Title could have learned the truth of the representations in the closing affidavits. 

Moreover, Plaintiff maintained that even if the payment and HELOC closure status were verifiable from the public land records, as the motion court held, Stewart Title sought to protect itself from fraud by obtaining written representations in the affidavits from Defendants that the HELOC was paid down and closed and, therefore, had no obligation to conduct any further inquiry as to the veracity of Defendants’ representations. In DDJ Mgmt., LLC v. Rhone Group L.L.C., the Court of Appeals held that obtaining written representations and warranties suffices to show that an alleged victim of fraud exercised the “means available to him [or her] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation.”10 In particular, the Court held: “We decline to hold as a matter of law that plaintiffs were required to do more—either to conduct their own audit or to subject the preparers of the financial statements to detailed questioning” where “they obtained representations and warranties to the effect that nothing in the financials was materially misleading.”11 

Again, though not stated in the TD Bank opinion, it appears that the Court was persuaded by this argument as well.


  1. Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018).
  2. DDJ Mgt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted).
  3. Curran, Cooney, Penney v. Young & Koomans, 183 A.D.2d 742, 743) (2d Dept. 1992). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959).
  4. E.g., HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 195 (1st Dept. 2012); see also Churchill Fin. Cayman, Ltd. v. BNP Paribas, 95 A.D.3d 614 (1st Dept. 2012).
  5. ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043, 1045 (2015); DDJ Mgmt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 154 (2010) (holding that in contract negotiations between sophisticated parties, justifiable reliance element sufficiently alleged where plaintiff “has gone to the trouble” of insisting on warranties in the written agreement that certain facts were true).
  6. See, e.g., HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 194-95 (1st Dept. 2012).
  7. The motion court held that the fraud claim was not duplicative of the breach of contract claim because it did not relate to the failure to perform under the insurance policy. Instead, Plaintiff’s fraud claim was based on alleged misrepresentation made in applying for the policy.
  8. Citing Fartello v. Checkmate Holdings, LLC, 82 A.D.3d 437, 438 (1st Dept. 2011) (citation omitted).
  9. Slip Op. at *1.
  10. Feldman v. Byrne, 210 A.D.3d 646, 649 (2d Dept. 2022.
  11. DDJ Mgmt., 15 N.Y.3d at 154.

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.

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