logo

Source: www.nyfraudclaims.com

A well-known element of a cause of action for fraud is that plaintiff reasonably relied upon a representation that the defendant made to the plaintiff or someone else acting as a conduit to plaintiff.  Reliance by a third-party, not the plaintiff, is insufficient to prove the element of reliance.  See my post.

Under New York Judiciary Law Section 487, an attorney can be held liable to a party to litigation for deceiving the court.  In relevant part, NY Jud. Law § 487 provides:

An attorney or counselor who:

1. Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; …

2.    Is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.

Can such deceit also form the basis of a claim for common law fraud?  The Appellate Division, Second Department, recently found in New York Tile Wholesale Corp. v Thomas Fatato Realty Corp. ,2017 NY Slip Op 06538 (2d Dep’t Decided on September 20, 2017) that it cannot, to the extent that the plaintiff alleges that the attorneys’ alleged misrepresentations were relied upon solely by the court.

The New York Court of Appeals decided in Pasternack v. Laboratory Corporation of America Holdings, 2016 N.Y.Slip.Op. 05179 (June 30, 2016) that a plaintiff cannot establish the reliance element of a fraud claim under New York law by showing that a third party relied on a defendant’s false statements – even if allegedly resulting in injury to the plaintiff.  See my post.

Plaintiff in New York Tile alleged that the lawyer and law firm representing the adverse party asserted a “phony defense” that was relied upon by both the lower court and the Appellate Division in an earlier decision in the case.  Plaintiff then attempted to allege causes of action against the attorney and law firm under NY Jud. Law § 487 and for common fraud based upon the assertion of the phony defense.  The lower court dismissed both of these claims and the Second Department affirmed.

The Second Department rejected the claims under NY Jud. Law § 487 because plaintiff failed to allege sufficient facts to prove the defendant attorney intended to deceive anyone or that plaintiff sustained any damages as a result of any deception.

As to the common law fraud claim, the Second Department ruled:

Furthermore, New York Tile failed to state a cause of action to recover damages for fraud insofar as asserted against the respondents. ” The elements of a cause of action sounding in fraud are a material misrepresentation of an existing fact, made with knowledge of the falsity, an intent to induce reliance thereon, justifiable reliance upon the misrepresentation, and damages’” (Cruciata v O’Donnell & McLaughlin, Esqs., 149 AD3d 1034, 1035, quoting Introna v Huntington Learning Ctrs., Inc., 78 AD3d 896, 898). Here, New York Tile failed to allege that it reasonably relied on any misrepresentations made by the respondents, who represented the defendants in Action No. 1 (see Cascardo v Stacchini, 100 AD3d 675, 676). Further, New York Tile could not state a cause of action sounding in fraud based on its allegation that “[t]he Courts relied upon the [respondents’] misrepresentations,” as a claim of third-party reliance requires an allegation that the third party “acted as a conduit to relay [any] false statement[s] to [the] plaintiff, who then relied on the misrepresentation[s] to [its] detriment” (Pasternack v Laboratory Corp. of Am. Holdings, 27 NY3d 817, 828; see Bynum v Keber, 135 AD3d 1066, 1068; Briarpatch Ltd., L.P. v Frankfurt, Garbus, Klein & Selz, P.C., 13 AD3d 296, 297). Here, there is no allegation that the courts acted [*3]as a conduit to relay the alleged misrepresentations to New York Tile.

The Second Department thereby applied the known rule rejecting third-party reliance to reject the attempt to create a common law fraud claim from the context of a claim under NY Jud. Law § 487.