Failure to State a Cause of Action – Use of Affidavits

Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc., 115 A.D.3d 128, 980 N.Y.S.2d 21 [1st Dept., 2014]
Liberty Affordable Hous., Inc. v Maple Ct. Apts., ___ AD3d ___, ___ NYS2d ___, 2015 NY Slip Op 00003 [4th Dept., 2015]
In these cases the First and Fourth Departments addressed whether or not the Court of Appeals intended, in Miglino v Bally Total Fitness of Greater N.Y., Inc., to change a long-standing construction of the role of evidence on a motion to dismiss for failure to state a cause of action. On such a motion, is the question limited to whether the pleading alleges a cause of action within its four corners, or can the movant submit evidentiary proof sufficient to show that something alleged to be a fact is not a fact at all?
In Rovello v Orofino Realty Co., the Court of Appeals held that a movant may submit evidence to attack the sufficiency of a pleading, and that where the evidence conclusively establishes that the pleader has no cause of action, the motion may be granted. In 2013, however, the Court included this language, in Miglino v Bally Total Fitness of Greater N.Y., Inc.:

“In this case, though, Bally has moved to dismiss under CPLR 3211 (a) (7), which limits us to an examination of the pleadings to determine whether they state a cause of action. Further, we must accept facts alleged as true and interpret them in the light most favorable to plaintiff; and, as Supreme Court observed, plaintiff may not be penalized for failure to make an evidentiary showing in support of a complaint that states a claim on its face (see Rovello v Orofino Realty Co., 40 NY2d 633, 635 [1976] [as long as a pleading is facially sufficient, the plaintiff is not obligated to come forward with claim-sustaining proof in response to a motion to dismiss unless the court treats the motion as one for summary judgment and so advises the parties]).”

Did this language change the law as established in Rovello? Note that the language seems to limit CPLR 3211 (a)(7) motions to a consideration of the allegations only, limiting evidentiary submissions to the situation where the motion court has advised the parties that it was converting the motion to summary judgment, a holding clearly contrary to Rovello. On the other hand, it cites Rovello for this seeming holding, without in any way stating that it was altering it.
Both the First and Fourth Departments held that Miglino made no change. Rather, they construed Miglino as holding, consistently with Rovello, that the defendant’s submissions there were not conclusive enough to justify dismissal on evidentiary submissions, and therefore the inquiry was limited to the facial sufficiency of the complaint.
The First Department majority, in Basis Yield, noted that the motion to dismiss under CPLR 3211 (a)(7), can be used to test the complaint in two ways: either that the pleader has not stated facts to make out a cognizable cause of action, or that while a well-pleaded cognizable claim has been stated, there is evidence which shows that the pleader in fact has no cause of action.
As the court stated:

“When documentary evidence is submitted by a defendant “the standard morphs from whether the plaintiff stated a cause of action to whether it has one” (John R. Higgitt, CPLR 3211 [A] [7] and [A] [7] Dismissal Motions—Pitfalls and Pointers, 83 NY St BJ 32, 33 [2011] [emphasis omitted]; John R. Higgitt, CPLR 3211 [A] [7]: Demurrer or Merits-Testing Device?, 73 Albany L Rev 99, 110 [2009]). . . . [I]f the defendant’s evidence establishes that the plaintiff has no cause of action (i.e., that a well-pleaded cognizable claim is flatly rejected by the documentary evidence), dismissal would be appropriate.”

So, in Basis Yield, the First Department majority held that despite the plaintiff’s well-pleaded allegations of fraud, the defendant Goldman Sachs was not precluded from documentary submissions attempting to show that there could have been no reliance on Goldman’s supposed misrepresentations, and hence that the plaintiff did not actually have a cause of action. There was a concurrence, which raised the argument that Miglino had ruled out such submissions. The majority rejected this view without, however, analyzing Miglino directly. In the event, the court held that the submissions were not conclusive, and affirmed so much of Supreme Court’s order as denied the dismissal of the fraud claim.
Liberty Affordable Housing was a real property specific performance action, and the issue was whether the plaintiff had in fact been ready, willing and able to perform on the law date. The defendant’s evidentiary submissions were intended to show that the plaintiff had been unable to perform, that the contract had been terminated, and that any further dealings between the parties created no new contract. Plaintiff’s argument was that these submissions were improperly considered under Miglino.
The Fourth Department squarely addressed the question of whether Miglino had worked a change in the law. In Rovello, the Court of Appeals relied on CPLR 3211 (c), which unmistakably provides that trial courts may consider affidavits on motions to dismiss. The Court held that affidavits would be dispositive on a motion to dismiss for failure to state a cause of action only where they “conclusively” show that the pleader has no cause of action. The responding party, however, could use evidence to show that there was indeed a cause of action, albeit “inartfully pleaded”.
In the Fourth Department’s view, the Court of Appeals’ positive citation to Rovello in the midst of the language purportedly overruling Rovello, shows that it intended nothing of the kind. The holding in Miglino is properly understood as applying the Rovello framework: the defendant’s submissions were not “categorically inadmissible” on the dismissal motion, simply too inconclusive to warrant dismissal.
Accepting the defendant’s evidentiary submissions, then, the Fourth Department held that the defendant conclusively showed that the contract between the parties had been terminated, and dismissed the specific performance claim.