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Wills, Promises to Perform, Representations to Third Parties and Loss Causation

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  • Posted on: Dec 8 2021

By: Jeffrey M. Haber

As readers of this Blog know, one of the elements of a fraud claim is reliance. In the typical case, the defendant makes a false or misleading statement directly to the plaintiff, which the plaintiff claims to rely on. In the less frequent case, the misrepresentation of fact is made to a third party that relied on the alleged fraudulent statement. The question is whether, in that circumstance, a plaintiff can state a fraud cause of action, despite the absence of direct reliance by the plaintiff on the alleged misrepresentation? 

In Pasternack v. Laboratory Corp. of Am. Holdings, 27 N.Y.3d 817 (2016), the New York Court of Appeals held that third-party reliance does not satisfy the reliance element of a fraud claim unless the third party “acted as a conduit to relay the false statement to plaintiff, who then relied on the misrepresentation to his detriment.”1 In other words, the alleged misrepresentation or omission does not need to be made directly to the plaintiff so long as the statement was made with the intent that it be communicated to the plaintiff by a third party and the plaintiff relied on the representation or omission to his or her detriment.

[Ed. Note: this Blog examined fraud and third-party reliance here.]

When the plaintiff alleges fraud, he or she must show that the misrepresentation or omission was the direct and proximate cause of the claimed losses.2 In other words, a plaintiff must show causation. “To establish causation, [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 plaintiff complains (loss causation).”3 

Transaction causation is often the easier of the two prongs to satisfy, while loss causation is typically more difficult. As noted by the Appellate Division, First Department in Laub: “[r]egardless of whether plaintiff could establish that he was induced by the alleged misrepresentations to follow [defendant’s] recommendations on purchases of equities, plaintiff’s claims must fail because he has not alleged or produced any evidence that those misrepresentations directly and proximately caused his investment losses.”4 

As noted above, the loss causation prong demands a showing that the misrepresentation or omission directly and proximately caused the plaintiff to take action or no action at all.5 As the Court of Appeals noted in Pasternack, “the tort of fraud is intended to protect a party from being induced to act or refrain from acting based on false representations.”6 

[Ed. Note: this Blog examined causation issues, here, here, here, and here.]

Finally, the plaintiff must allege that the misrepresentation or omission was more than, a promise of future intent to perform some act. He or she must show that the misrepresentation or omission is one of existing fact made to induce action or inaction on his or her part.7 

[Ed. Note: this Blog examined cases involving promises to perform in the future, here, here, and here.]

The foregoing principles were addressed in Buff v. Nemeth, 2021 N.Y. Slip Op. 32532(U) (Sup. Ct., N.Y. County Dec. 1, 2021) (here).

Buff involved a dispute over the estate of defendant’s husband, Alfred M. Buff (“decedent”). According to plaintiff, defendant allegedly used her will to induce her late husband “to execute his own estate planning documents in a manner favorable to [defendant]” and detrimental to plaintiff and her brother. 

Background

Plaintiff is the decedent’s daughter. The decedent was married to defendant at the time of his death on July 4, 2018. According to plaintiff, in January 2013, defendant and the decedent met with an estate planning attorney. At that time, the decedent intended to provide for defendant in the manner in which she was accustomed during their marriage, with the remainder of the estate to pass to plaintiff and her brother.

In July 2013, defendant executed a will containing a provision that “she would segregate assets and create a special account upon [her husband’s] death to which she would add all sums received from [her husband], and that upon her death those sums would revert to” plaintiff and her brother. 

In May 2018, the decedent executed a will, which provided defendant with an annual income of $80,000 and lifetime occupancy of the decedent’s Manhattan apartment. In addition, the decedent left an investment account to defendant, which held approximately $1.5 million. The account was jointly held by the decedent and defendant, even though defendant never contributed to the account. Plaintiff maintained that as a result of the “representation” defendant made in her 2013 will about segregating assets, the decedent did not move the money into the trust he had established. Defendant closed the joint investment account in September 2019. Plaintiff alleged that defendant did not assure her the money had been segregated as provided in defendant’s will.

After defendant’s husband died, and during settlement discussions concerning estate proceedings to probate his will, plaintiff requested that defendant sign a document to bind her to the terms of her 2013 will. Defendant declined to do so, allegedly stating that she could devise her own will as she saw fit and was not contractually obligated to dispose of her husband’s or her own estate in any particular manner. 

Plaintiff brought suit, claiming that, among other things, defendant executed her will in 2013 solely to induce the decedent to execute his will in a way most favorable to her. Plaintiff further claimed that defendant had no intention of keeping the alleged promise(s) made to her late husband that she would either create a special account to segregate his estate and/or pass along his estate to plaintiff and her brother upon her passing.

Defendant moved to dismiss the complaint. The Court granted the motion.

The Court’s Decision

First, the Court observed that the alleged false statement was not made to plaintiff but, rather, to her father, the decedent. The Court said that even assuming the statement was made to the decedent with the intent that it be passed along to plaintiff, the fraud claim nevertheless failed to state a claim. The reason, said the Court, was because plaintiff “failed to allege that she relied on the misrepresentation to her detriment.”8 The Court explained that plaintiff failed to plead loss causation in that the complaint did not “contain allegations of plaintiff’s action or inaction, i.e., what she did or would have done but for the fraud.”9

Second, the Court found that the alleged misrepresentations were, “at most, promises of future intent rather than misrepresentations of existing fact made to induce action or inaction on her part.”10 “Indeed,” said the Court, “plaintiff, as a potential beneficiary under defendant’s 2013 Will, enjoys only ‘only expectancy interests and not vested legal rights.’”11

Thus, the Court dismissed the fraud claims.


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.

Footnotes

  1. Id. at 828.
  2. Friedman v. Anderson, 23 A.D.3d 163, 167 (1st Dept. 2005).
  3. Laub v. Faessel, 297 A.D.2d 28, 31 (1st Dept. 2002).
  4. Id. at 31.
  5. Vandashield Ltd v. Isaacson, 146 A.D.3d 552 (1st Dept. 2017).
  6. Pasternack, 27 N.Y.3d at 828. 
  7. Connaughton v. Chipotle Mexican Grill, Inc., 135 A.D.3d 535, 537-38 (1st Dept. 2016), aff’d, 29 N.Y.3d 137 (2017) (holding that a fraud claim is not actionable where “the allegations at best suggest that” the “plaintiff might suffer injury” “depending on the future actions of [defendants]”).
  8. Slip Op. at *5.
  9. Id.
  10. Id. (citation and internal quotation marks omitted). Under New York law, “[t]o fulfill the element of misrepresentation of material fact, the party advancing the claim must allege a misrepresentation of present fact rather than of future intent.” Perella Weinberg Partners LLC v. Kramer, 153 A.D.3d 443, 449 (1st Dept. 2017) (citation omitted). “General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.” Id. (citation omitted). 
  11. Id. (citations omitted).
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