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Second Department Addresses Proximate Cause Element of Fraud Claim, Finding Issues of Fact Sufficient to Deny Summary Judgment Motion

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  • Posted on: Oct 3 2019

In New York, to plead (and prove) a fraud claim, a plaintiff must demonstrate the following: “a misrepresentation or a material omission of fact which was false and known to be false by the defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” Pasternack v. Laboratory Corp. of Am. Holdings, 27 N.Y.3d 817, 827 (2016) (internal citations and quotation marks omitted). Today, this Blog looks at the injury element of a fraud claim; in particular, whether the injury was proximately caused by the alleged fraud.

It is well settled that loss causation or proximate causation is “[a]n essential element” of a fraud claim. Laub v. Faessel, 297 A.D.2d 28, 31 (1st Dept. 2002). Therefore, a plaintiff alleging a fraud claim must “demonstrate that a defendant’s misrepresentations were the direct and proximate cause of the claimed losses.” Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 151 A.D.3d 83, 86 (1st Dept. 2017), aff’d, 31 N.Y.3d 569 (2018), quoting Vandashield Ltd. v. Isaacson, 146 A.D.3d 552, 553 (1st Dept. 2017) (internal quotation marks omitted). To do so, “[a] plaintiff must show both that [the] defendant’s misrepresentation induced [the] plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentations directly caused the loss about which [the] plaintiff complains (loss causation).” Id., quoting Laub, 297 A.D.2d at 31.

Notably, “[t]here may be more than one proximate cause of a plaintiff’s injuries.” Santaiti v. Town of Ramapo, 162 A.D.3d 921, 926 (2d Dept. 2018). For this reason, a plaintiff asserting a fraud cause of action must “show that the [fraud] was a substantial cause of the events which produced the injury.” Derdiarian v. Felix Contr. Corp., 51 N.Y.2d 308, 315 (1980).

“Where the acts of a third person intervene between the defendant’s conduct and the plaintiff’s injury, the causal connection is not automatically severed.” Id. at 315. “In such a case, liability turns upon whether the intervening act is a normal or foreseeable consequence of the situation created by the defendant’s [fraud].” Id.; Turturro v. City of New York, 28 N.Y.3d 469, 484 (2016). “This is true even where the intervening acts of a third party may be characterized as intentional, reckless, or criminal.” Id.; Nallan v. Helmsley-Spear, Inc., 50 N.Y.2d 507, 520-521 (1980).

Accordingly, although “an intervening intentional or criminal act will generally sever the liability of the original tort-feasor,” the principle “has no application when the intentional or criminal intervention of a third party or parties is reasonably foreseeable.” Kush v. City of Buffalo, 59 N.Y.2d 26, 33 (1983); Turturro, 28 N.Y.3d at 484. More generally, “[a]n intervening act may not serve as a superseding cause, and relieve an actor of responsibility, where the risk of the intervening act occurring is the very same risk which renders the actor” liable for fraud. Derdiarian, 51 N.Y.2d at 316; Hain v. Jamison, 28 N.Y.3d 524, 531 (2016).

On the other hand, “[i]f the intervening act is extraordinary under the circumstances, not foreseeable in the normal course of events, or independent of or far removed from the defendant’s conduct, it may well be a superseding act which breaks the causal nexus.” Derdiarian, 51 N.Y.2d at 315. “As with determinations regarding proximate cause generally, ‘[b]ecause questions concerning what is foreseeable and what is normal may be the subject of varying inferences,’ whether an intervening act is foreseeable or extraordinary under the circumstances ‘generally [is] for the fact finder to resolve.’” Turturro, 28 N.Y.3d at 484, quoting Derdiarian, 51 N.Y.2d at 315.

With the foregoing principles in mind, this Blog looks at Designer Limousine, Inc. v. Authority Transp., Inc., 2019 N.Y. Slip Op. 07049 (2d Dept. Oct. 2, 2019) (here).

Designer Limousine, Inc. v. Authority Transp., Inc.

Plaintiff, Designer Limousine, Inc. (“Designer”), is a limousine company that operated a fleet of buses and other vehicles for hire in New York. Plaintiff, Kenneth Caldwell (“Caldwell”), was Designer’s principal. On several occasions in late 2011 and early 2012, Defendant, Michael Cassano (“Cassano”), who was in the business of conducting automobile damage appraisals, appraised damage to and the cost of repairing certain of Designer’s vehicles in connection with claims for coverage Designer made to its insurer.

In March 2016, Plaintiffs commenced the action alleging, inter alia, that Cassano had falsely inflated the damage amounts he reported in his appraisals as part of a scheme to defraud Designer’s insurer. Plaintiffs alleged that Cassano’s fraudulent conduct caused Designer’s insurance premiums to increase exponentially and, in turn, forced the company to discontinue operations.

Cassano moved for summary judgment dismissing, inter alia, the fraud cause of action against him. Cassano argued, among other things, that his alleged fraudulent conduct was not a proximate cause of Plaintiffs’ claimed losses, and that an August 2012 fatal accident involving one of Designer’s buses and the impact of the accident on the business constituted superseding causes of Plaintiffs’ claimed losses, thereby relieving him of any liability.

The motion court denied the portion of Cassano’s motion for summary judgment dismissing the fraud cause of action asserted against him. Cassano appealed.

The Second Department affirmed, holding that the motion court correctly found issues of fact surrounding the issue of proximate causation. Slip Op. at *1. In that regard, the Court held that Cassano “failed to demonstrate that the events subsequent to the alleged fraud relating to the August 2012 accident constituted superseding causes relieving him of liability for the plaintiffs’ claimed losses.” Id.

The Court also rejected Cassano’s contention that Plaintiffs failed to “adequately alleg[e] definite, measurable out-of-pocket damages resulting from his alleged fraud.” Id.

Takeaway

Loss causation is a well-established requirement of a common-law fraud claim for damages. Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569, 580-581 (2018). “Central to the notion of proximate cause is the idea that a person is not liable to all those who may have been injured by his conduct, but only to those with respect to whom his acts were ‘a substantial factor in the sequence of responsible causation,’ and whose injury was ‘reasonably foreseeable or anticipated as a natural consequence.’” First Nationwide Bank v. Gett Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994). Thus, if the fraud causes no loss (e.g., the loss was not reasonably foreseeable or was the result of a superseding event), then the plaintiff suffered no damages. Ambac Assur., 31 N.Y.3d at 580-581.  

Since the determination of loss causation turns upon questions of foreseeability and “what is foreseeable and what is normal may be the subject of varying inferences,” the issue is left for the fact finder to resolve. Kriz v. Schum, 75 N.Y.2d 25, 34 (1989), quoting Derdiarian, supra at 315. In Designer Limousine, the Second Department held that proximate causation should be left for the jury to decide because Cassano failed to establish, as a matter of law, that Plaintiffs’ damages were unforeseeable or that Plaintiffs’ damages were the result of superseding causes that severed any nexus between Cassano’s alleged fraud and Plaintiffs’ damages.

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