Second Department Tackles Judiciary Law § 487 and Common Law Fraud Claims in a Dispute Arising from a Transaction to Purchase Real Property

• Posted on: Mar 28 2019

On March 27, 2019, the Appellate Division, Second Department, issued a decision involving charges of fraud and fraud on the court. In Sammy v. Haupel, 2019 N.Y. Slip Op. 02372 (2d Dept. Mar. 27, 2019) (here), the Court was asked to consider the dismissal of claims arising under, inter alia, Judiciary Law § 487 and common law fraud. As discussed below, the Court affirmed the dismissal of both claims.

Sammy arose from a transaction to purchase real property located in Queens, New York. In connection with the transaction, Plaintiff hired Expedient Title, Inc. (“Expedient”) to perform “title closing” services, including issuing title insurance. Expedient was an authorized agent of First American Title Insurance Company (“First American”). Through Expedient, First American issued a title insurance policy to Plaintiff.

On May 31, 2007, the transaction closed, though, according to Plaintiff, Expedient failed to file the deed immediately thereafter. This made a difference because the seller subsequently re-sold the property to South Ozone Park Realty (“South Ozone”). Before Plaintiff could file her deed, South Ozone filed its deed. Thereafter, South Ozone commenced an action against Plaintiff to quiet title of the subject premises.

As a result of the foregoing, Plaintiff made a claim under the title insurance policy she had with First American. First American disclaimed coverage partially because Plaintiff had executed a general release in favor of Expedient, First American and their agents. Plaintiff alleged, however, that the general release was fraudulent and did not provide a basis to disclaim coverage.

Plaintiff commenced an action in the Supreme Court, Queens County, against First American, Expedient, and Robert Tambini (“Tambini”), who was the vice-president of Expedient in connection with the denial of her claim (the “claim denial action”). Tambini and Expedient retained Wilson Elser Moskowitz Edelman & Dicker, LLP to serve as counsel in the action. First American retained DelBello Donnellan Weingarten Wise & Wiederkehr, LLP to do the same. Plaintiff alleged that the defendants knew that Plaintiff had been defrauded in the sale of the property and that their reliance on the general release (as an affirmative defense) was improper because the release was itself fraudulent.

In the action before the Second Department, Plaintiff sued the lawyers and the law firms at which they were employed on the grounds that, in connection with the claim denial action, they knew she had been defrauded and that the affirmative defense they asserted relating to the general release was based on a fraud. Plaintiff maintained that the continued assertion of the affirmative defense constituted a pattern of deceitful conduct that was intended to thwart and/or delay the resolution of the claim and line the pockets of the Defendants with legal fees. Plaintiff asserted causes of action against Defendants for violation of Judiciary Law § 487, fraud, filing of a false instrument, tortious interference, and offering a false instrument for filing in the first degree. Defendants moved to dismiss the Judiciary Law, fraud and tortious interference causes of action.

The motion court granted the motion and the Second Department affirmed.

Judiciary Law § 487

Judiciary Law § 487 imposes civil and criminal liability on any attorney who “(1) [i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or, (2) [w]ilfully delays his client’s suit with a view to his own gain.” Judiciary Law § 487; see Gumarova v. Law Offs. of Paul A. Boronow, P.C., 129 A.D.3d 911 (2d Dept. 2015); Betz v. Blatt, 160 A.D.3d 696, 698 (2d Dept. 2018). A plaintiff pleading a cause of action alleging a violation of Judiciary Law § 487 must do so with specificity. Betz, 160 A.D.3d at 698; Putnam County Temple & Jewish Ctr., Inc. v. Rhinebeck Sav. Bank, 87 A.D.3d 1118, 1120 (2d Dept. 2011).

Judiciary Law § 487 “focuses on the attorney’s intent to deceive, not the deceit’s success.” Amalfitano v. Rosenberg, 12 N.Y.3d 8, 14 (2009). Accordingly, although injury to the plaintiff is an essential element of a Judiciary Law § 487 cause of action seeking civil damages (see Klein v. Rieff, 135 A.D.3d 910, 913 (2d Dept. 2016)), “recovery of treble damages under Judiciary Law § 487 does not depend upon the court’s belief in a material misrepresentation of fact in a complaint.” Amalfitano, 12 N.Y.3d at 15. A party’s legal expenses in defending the lawsuit may be treated as the proximate result of the misrepresentation. Id.

Against the foregoing, the motion court dismissed the claim.  The Second Department affirmed, finding that Plaintiff “failed to set forth ‘with specificity,’ either in her complaint or in her papers opposing the motions, how the defendants knew or should have known that she did not sign the release upon which they relied in asserting affirmative defenses on behalf of their clients in the claim denial action.” Slip Op. at *2 (citation omitted). The Court noted that “[e]ven if the plaintiff had sufficiently pleaded th[e] allegation,” she nevertheless “‘failed to allege sufficient facts to establish that the [ ] defendants intended to deceive the court’ or the plaintiff.” Id. (citations omitted). The Court concluded that Plaintiff’s allegations of attorney intent were conclusory and “not sufficient to state a cause of action alleging a violation of Judiciary Law § 487.” Id.

Fraud

As readers of this Blog know, to state a claim for fraud, “the plaintiff must prove a misrepresentation or a material omission of fact which was false and known to be false by 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.” Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996). In addition, the plaintiff must plead the elements of the claim with particularity. Nabatkhorian v. Nabatkhorian, 127 A.D.3d 1043, 1044 (2d Dept. 2015).

Relevant to the Court’s decision was the element of reliance. While this Blog has often written about the element of reliance in the context of whether it was justifiable, in Sammy, the focus was also on the issue of whether such reliance was induced by the acts or omissions of the defendants. Thus, the Court’s focus was on whether Sammy “demonstrated that [she] was induced to act or refrain from acting to [her] detriment by virtue of the alleged misrepresentation or omission.” Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1998) (internal quotation marks and brackets omitted).

In affirming the dismissal of the fraud claim, the Second Department found that Plaintiff “failed to allege facts that would support an inference that asserting affirmative defenses based on the plaintiff’s purported release constituted knowing ‘misrepresentation or a material omission of fact which was false.’” Slip Op. at *2 (citations omitted). The Court also found that Plaintiff “failed to allege facts that would support the element of justifiable reliance.” Id. The Court reasoned that “[g]iven that the plaintiff alleged that she did not sign the release, she could not also claim to have believed that the affirmative defense of release was true, nor could she claim to have ‘change[d her] position in reliance on that belief.” Id. at **2-3, citing Nabatkhorian, 127 A.D.3d at 1044. “Moreover,” noted the Court, “the alleged statements – the assertion of an affirmative defense – ‘were undertaken in the course of adversarial proceedings and were fully controverted,’ further undermining any claim of reliance by the plaintiff.” (citation omitted).

Takeaway

As the Court of Appeals observed in Amalfitano, Section 487 “is not a codification of a common-law cause of action for fraud.” 12 N.Y.3d at 14.  Notwithstanding, application of the statute shares an important similarity with a fraud claim – the requirement to plead attorney intent with particularity. As noted above, to recover for fraud, a plaintiff must plead each element of the claim with particularity. In Sammy, the plaintiff was unable to meet this pleading requirement for her Judiciary Law and fraud claims.

Tagged with: Business Litigation, Commercial Litigation, Fraud, Fraud and Deceit, Judiciary Law § 487, Pleading with Particularity