Matter of People ex rel. Schneiderman v Trump Entrepreneur Initiative. LLC, ___ AD 3d ___, 2016 NY Slip Op 01430 [1st Dept., 2016]

Let’s resist the impulse to snarkiness, and stick to the legal issues. Yes, this is the one involving serious allegations of fraud against Donald Trump in one of his business ventures. The proceeding was commenced in August, 2013, well before Trump became an actual, and now a leading, presidential candidate, and so any claim of a political witch-hunt must go by the board. A detailed rundown of the Attorney General’s allegations is unnecessary for our discussion, and in any event has been done better than I could by Eric Turkewitz on his NY Personal Injury Blog.

Whether those claims can be substantiated is not the issue here. The actual issue here, once the nature of the action is properly understood, is in fact a rather simple limitations question of which period governs: When the Attorney General sues over a fraud, under the authority of Executive Law § 63(12), does the claim involve a “liability, penalty or forfeiture created or imposed by statute” (CPLR 213 (2), 3-year period), or one of the six-year periods of CPLR 214? This is resolved by well-established principles, as will be seen.

As a threshold matter, however, the Appellate Division reconsidered one of its recent precedents, found it to be erroneous, and overruled it. We’ll look at that aspect of the case first, and then look directly at the limitations issue.

All we need know of the petition is that the Attorney General alleged numerous fraudulent and improper practices against Donald Trump individually and several of his namesake business entities. The fraud allegations were framed in separate causes of action: first under the Attorney General’s statutory authority pursuant to Executive Law § 63(12), and as common-law fraud. Common-law fraud, of course, carries a six-year limitations period, and there is no issue as to the timeliness of those claims.

The issues concern the Executive Law cause of action. First, whether it is properly pleaded as an independent cause of action, and assuming that it is, whether it carries a limitations period different from the common-law fraud claims.

Supreme Court dismissed the cause of action, finding on constraint of the Appellate Division decision in People v Charles Schwab & Co., Inc., 109 AD3d 445 [1st Dept., 2013] that it may not be pleaded as an independent cause of action. We must start, therefore, with the language of Executive Law § 63(12), which states:

“12. Whenever any person shall engage in repeated fraudulent or illegal acts or otherwise demonstrate persistent fraud or illegality in the carrying on, conducting or transaction of business, the attorney general may apply . . . for an order enjoining the continuance of such business activity or of any fraudulent or illegal acts, directing restitution and damages . . . and the court may award the relief applied for or so much thereof as it may deem proper. The word “fraud” or “fraudulent” as used herein shall include any device, scheme or artifice to defraud and any deception, misrepresentation, concealment, suppression, false pretense, false promise or unconscionable contractual provisions.”

In State v Cortelle, 38 N.Y.2d 83 [1975], the Attorney General sought to enjoin the respondents from a scheme of obtaining title to distressed real property under false pretenses, and to dissolve the corporate entities through which they acted. The issue was the same as ultimately arose in Trump, whether the cause of action was one “created or imposed by statute,” subject to a three-year limitations period under CPLR 214(2), or whether it was subject to the six-year catch-all provision of CPLR 213. The Court of Appeals found that the State’s right to enjoin such conduct and to dissolve the corporate entities extended back to the common-law. That it had since been codified by statute did not mean that it was “created or imposed” by statute. CPLR 214(2) therefore did not apply, and the applicable period was the six-year catch-all.

The Court’s opinion includes this language:

“The [Executive Law and BCL] did not ‘make’ unlawful the alleged fraudulent practices, but only provided standing in the Attorney-General to seek redress and additional remedies for recognized wrongs which pre-existed the statutes. Statutory provisions which provide only additional remedies or standing do not create or impose new obligations. . . .That the statutes authorizing the Attorney-General to bring this action appear to be or are new to the law is not dispositive. As applied to the allegations in this case, they create no new claims but only provide particular remedies and standing in a public officer to seek redress on behalf of the State and others. Moreover, the kind of wrong the Attorney-General seeks to redress is not a new one to the decisional law but a now rather old and common type of fraud.” State v Cortelle Corp., 38 NY2d 83, 85-86 [1975]

This said nothing about whether the Attorney General could bring an independent Executive Law claim, but concerned only whether the specific claim had been “created or imposed” by the Executive Law.

In the 2013 Charles Schwab decision, the First Department considered claims of securities fraud brought by the Attorney General, including a cause of action under Executive Law § 63(12). The First Department dismissed the Executive Law cause of action, citing Cortelle for the proposition that the Executive Law “does not create independent claims”. Cortelle, as we have seen, does not support that proposition.

Of course, just because an independent Executive Law § 63(12) cause of action isn’t precluded by Cortelle doesn’t mean that it is viable. The viability of such a cause is shown by other Appellate Division cases, which have allowed for independent fraud claims under § 63(12), including at least one holding that the language of the statute requires proof of neither scienter nor reliance, further supporting the conclusion that the Attorney General is not limited to common-law fraud claims. (People v American Motor Club, 179 AD2d 277, 283 [1st Dept., 1992], app. dism. 80 NY2d 893 [1992]; see also People v Greenberg, 95 A.D.3d 474, 483 [1st Dept., 2012], aff’d 21 N.Y.3d 439 [2013])

The First Department thus concluded that the decision in Charles Schwab had been based on a misreading of Cortelle, and was erroneous. Seeing no reason to allow the error to languish in the law, furnishing precedent for further erroneous decisions, the First Department overruled it. The Attorney General may, indeed, claim allege independent fraud causes of action under both the Executive Law and common-law fraud.

Finally addressing the limitations issue directly, the First Department found that the rationale of Cortelle was controlling. That is, Executive Law § 63(12) neither creates nor imposes a new liability or penalty for fraudulent conduct, but simply gives the Attorney General standing to sue. The claim is therefore not subject to the three-year period of CPLR 214(2), but rather to the six-year residual period of CPLR 213(1). The first cause of action was therefore timely.

A similar situation arose in 2014, in regard to the attorney-deceit statute, Judiciary Law §487. In Melcher v Greenberg Traurig, the Court of Appeals held that while the roots of this claim originated in the First Statute of Westminster (in 1275!) the claim entered New York law as part of our common law, at the creation of the country in 1776, when both English statutory and common law were adopted by common consent. Thus, what appears to be a statutory cause of action really isn’t, and the three-year period doesn’t control. As with the Executive Law cause of action in Trump, the controlling period is the six-year residual period.

Faison v Lewis, 25 N.Y.3d 220, 10 N.Y.S.3d 185 [2015]

            In a 4-3 decision, the Court of Appeals held here that claims challenging conveyances or encumbrances based on a forged deed are not subject to statutes of limitations.

            The claim here was that the interest of plaintiff’s decedent, her father Percy Lee Gogins, had been purportedly conveyed to his sister and niece, the defendants Dorothy and Tonya Lewis, by means of a forged deed, recorded in 2001. Plaintiff clearly knew of the claimed forgery as early as 2002, when she commenced an action to set aside the deed. That first action was dismissed for lack of capacity, since plaintiff was not at that time the administrator of Gogins’ estate. In 2009, the defendant Tonya Lewis over $269,000 from Bank of America, secured by a mortgage against the property. By August of 2010, plaintiff had been made administrator of Gogins’ estate, and commenced this action against Dorothy Lewis, Tonya Lewis, Bank of America and others, to declare both the deed and mortgage null and void as based on a forged deed. The defendants raised limitations defenses, and moved to dismiss. The plaintiff cross-moved to strike the defenses.

            A forged deed is void ab initio, that is, void in its inception, it is a legal nullity and conveys no interest at all in the property it purports to transfer. It follows that the holder of such a document has no interest in that property, and a mortgage granted to that holder also conveys no interest in the property. So much is settled law. (Marden v Dorthy, 160 N.Y. 39 [1899])

            The nullity of a forged deed must be distinguished from the status of a deed which was obtained by fraud. A deed obtained by fraud in the inducement is voidable and not void, and unless and until it is set aside it does transfer title to the fraudulent grantee, who may in turn convey an interest to a purchaser in good faith. (Marden v Dorthy, 160 N.Y. at 50)

            The majority in Faison held that the nullity of the void deed led to the conclusion that no limitations period applied. The forged deed being void, its “legal status cannot be changed, regardless of how long it may take for the forgery to be uncovered.”[3] Specifically, a forged deed cannot be regarded as simply a fraud, governed by CPLR 213 (8), even though that contains an extension for delayed discovery of the fraud. The Court analogized the situation of a forged deed with that of an illegal contract, also void in its inception, which carries no limitations period. (see, Riverside Syndicate, Inc. v. Munroe, 10 N.Y.3d 18 [2008]) The mere passage of time, or the expiration of a limitations period, cannot have the effect of validating what the law has expressly rejected.

            The dissent would have held that the discovery provisions of CPLR 213 (8) provide a sufficiently long period in which to discover and challenge a forged deed as well as a merely fraudulent one, and that the interests of protecting interests in property against stale claims mandated its applicability here.

Walton v Strong Mem. Hosp.

___ NY3d ___, 2015 NY Slip Op 04786 [2015]

The Court of Appeals has just issued this significant opinion reviewing its major precedents concerning the foreign-object rule in medical malpractice cases, arriving at the factors determining when a given object may qualify for the discovery rule codified in CPLR 214-a, and when it must be excluded as a “fixation device.”

Recall that where a med mal action is based on the discovery of a foreign object in the patient’s body, the statute allows for an extension of the limitations period, for a year after the discovery. Excepted from consideration as “foreign objects” are chemical compounds, fixation devices, and prosthetic aids or devices. Defendants will argue for a broad definition of these terms, thus narrowing the category of foreign objects subject to the discovery rule. Plaintiffs, of course, take the opposite tack.

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Malay v City of Syracuse,

___ NY3d ___, 2015 NY Slip Op 04164

CPLR 205(a) allows a litigant a six-month extension of the limitations period in which to re-commence an action when suit was in fact timely commenced, but terminated for a reason other than a final judgment on the merits (there are a few other exclusions, not relevant here). In calculating the end point of the extension, it is of course essential to fix the date the first action terminated. The question presented to the Court of Appeals here was where to fix the termination date where the order of dismissal was appealed as of right, but the appeal was dismissed for failure to perfect.

Plaintiff originally sued in federal court, combining federal civil rights claims and state negligence claims. The federal claims were dismissed on September 30, 2011, and the District Court declined to retain jurisdiction over the state-law claims. Plaintiff appealed as of right to the Second Circuit, but failed to perfect her appeal. The Second Circuit dismissed the appeal effective July 10, 2012. The failure to perfect was intentional, the plaintiff having decided that she could proceed to trial in the state courts more quickly than she could prosecute her appeal in the Second Circuit. She commenced her action in Supreme Court, Onondaga County, on June 25, 2012. That is to say, her state court action was untimely if the federal action terminated with the District Court’s dismissal order, but timely if it terminated with the dismissal of the appeal.

The Court of Appeals held that the termination date, for purposes of CPLR 205 (a), was the date of dismissal of the appeal, and the state court action had therefore been commenced within the extension period.

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Martens v St. Luke’s-Roosevelt Hosp. Ctr.,

___ AD3d ___, ___ NYS3d ___, 2015 NY Slip Op 04199 [1st Dept., 2015]

In this medical malpractice case, the defendant moved for summary judgment on limitations grounds, and the plaintiff opposed, claiming a continuous course of treatment.

In June of 2002, the defendant Dr. Wu diagnosed certain growths as fibroids. Between then and September, 2009, the plaintiff and Dr. Wu agreed to monitor the fibroids instead of removing them. When the plaintiff returned for follow-up visits, Dr. Wu asked about the fibroids, monitoring them through the use of ultrasound and physical examinations. When the plaintiff eventually decided to remove the fibroids through surgery, she consulted with Dr. Wu. The plaintiff did not, however, return for follow-up visits each year, due to work and travel.

Unfortunately, the growths were cancerous tumors instead of fibroids, and plaintiff sued for the misdiagnosis.

Dr. Wu’s motion was to dismiss so much of plaintiff’s claim as concerned treatment earlier than December 4, 2007. The plaintiff’s showing of the facts recited, however, was sufficient to raise a triable issue of fact as to whether there had been a continuous course of treatment running from the initial diagnosis of fibroids, and so the motion was properly denied.

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Melcher v Greenberg Traurig, LLP,

23 N.Y.3d 10, 988 N.Y.S.2d 101 [2014]

The Court of Appeals here revisits the ancient history behind the attorney-deceit statute, Judiciary Law § 487, to determine the applicable statute of limitations for claims arising under it. Since that statute imposes treble damages for claims arising out of attorney deceit, one might consider that such claims are to recover on a liability or penalty created or imposed by statute, and hence subject to the three-year limitations period of CPLR 214 (2).

The Court held, however, that the cause arises from New York common law and therefore falls within the six-year catch-all limitations period of CPLR 213 (1). This action, commenced more than three years after the allegedly deceitful acts, but less than six years, was therefore held to be timely.

There is an important caveat for claims asserted as part of legal malpractice actions, which I will discuss at the end. Read More

Red Zone LLC v Cadwalader, Wickersham & Taft LLP,

118 A.D.3d 581, 988 N.Y.S.2d 588 [1st Dept., 2014], lv. app. gtd., ___ NY3d ___, ___ NYS2d ___, 2014 N.Y. Slip Op. 90722 [2014]
This the third of a three-part series of recent cases illustrating the continuous representation toll in legal malpractice actions. Here, the period of representation was held to continue despite the completion of the specific task for which the defendant firm had been hired, and the passage of some two years before the next consultation between the client and the firm. It also illustrates the specific rationale for the rule: the client looked to the firm to attempt to avoid or ameliorate the effects of the alleged malpractice.
When plaintiff attempted a takeover bid for Six Flags, Inc., its financial advisor was UBS Securities LLC. The defendant law firm had represented plaintiff in its negotiations with UBS, and drafted an agreement which aimed, in part, at capping UBS’s fees. Plaintiff wanted to cap UBS’ fees at $2 million unless it was successful in obtaining more than 51% of Six Flags’ voting shares. It thought the agreement did that, but UBS successfully sued plaintiff for $10 million in fees. When that action reached the First Department, the court rejected the argument that the agreement capped the fee.
The agreement was drafted and executed in 2005. There were no consultations between the plaintiff and the defendant firm from then until 2007, when it became involved in the litigation between plaintiff and UBS. Defendant, although it did not represent plaintiff in the litigation with UBS, continued to render legal advice during the course of the litigation, conferring with plaintiff and its trial counsel and sharing documents. The court viewed this relationship as defendant’s attempt to correct its malpractice in drafting an ambiguous agreement by preventing UBS from demanding and receiving a fee in excess of $2 million. That being so, the continuous representation doctrine applied and tolled the limitations period.
The fact of the two-year gap in representation did not rule out a continuing representation, as there was no need for plaintiff to consult with defendant during that period, and the defendant firm did not notify the plaintiff that the representation had ended.

Farage v Ehrenberg, ___ AD3d ___,

996 NYS2d 646, 2014 NY Slip Op 07977 [2d Dept., 2014]

This is the second in a three-part series concerning the continuous representation toll in legal malpractice cases. The issue here was where to fix the end of the representation, and hence the end of the toll and the commencement of the limitations period. The precise question was whether the representation necessarily extended until the date a Change of Attorney form was filed, or whether it had ended at some earlier date. The Court held that the determination was fact-specific, but that an earlier date could indeed be established, and an earlier date had in fact had been established here. The action was therefore dismissed as time-barred.

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24 N.Y.3d 320, ___ NYS2d ___, 2014 NY Slip Op 07291 [2014]
            The litigation over the estate of Sylvan Lawrence lasted twenty-two years, from 1983 to 2005. The opposing sides were the decedent’s widow and children, and his executor, his former business partner. Fifteen years into the litigation, the decedent’s widow made gifts of over a million dollars each to three of the partners of the firm representing her and her children, and of $400,000 to the firm itself. At the end of the litigation, the widow sought to compel the attorneys to return the gifts. The attorneys raised the defense of limitations, and the widow relied on the continuous representation toll to avoid it.

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