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Fraud Claim Dismissed Due To Documentary Evidence Refuting The Allegations Of Wrongdoing

  • Posted on: Apr 6 2017

of-court documents, such as emails and text messages. Readers of this Blog know that such documents have been used by the courts to determine contract formation. (Here.) But, what about the use of such documents to dismiss a complaint? Can emails and text messages be used for that purpose?

In New York, in addition to seeking dismissal of a pleading for failure to state a cause of action, a party may seek dismissal on the ground that “a defense is founded upon documentary evidence.” CPLR 3211(a)(1). The CPLR does not define the type of documents contemplated by Section 3211(a)(1). Consequently, the courts in New York “have grappled with the issue of what writings do and do not constitute documentary evidence ….” Amsterdam Hospitality Group, LLC v Marshall-Alan Assoc., Inc., 120 A.D.3d 431 (1st Dept. 2014).

Despite the struggle, New York appellate courts have settled on a framework to decide whether out-of-court evidence submitted in support of a CPLR 3211(a)(1) motion qualifies as “documentary evidence” – the documents must be “unambiguous, authentic, and undeniable”. Granada Condominium III Assn. v. Palomino, 78 A.D.3d 996, 996-997 (2d Dept. 2010) (internal quotation marks omitted). See also Goshen v. Mutual Life Ins. Co. of N.Y., 98 N.Y.2d 314, 326 (2002) (holding that “the documentary evidence [must] utterly refute[] plaintiff’s factual allegations, conclusively establishing a defense as a matter of law.”).

With this framework in mind, the question remains, are emails and text messages the type of documents that suffice under CPLR 3211(a)(1)?  In Amsterdam Hospitality Group, the First Department affirmed the denial of a motion to dismiss claims for fraudulent and negligent misrepresentation under CPLR 3211(a)(1), concluding that the emails submitted by the defendant in support of the motion were not sufficiently conclusive to “utterly refute” the plaintiff’s factual allegations:

The emails in this particular case, aside from being not otherwise admissible, are not able to support the motion to dismiss. The “documentary evidence” here . . . do not, standing on their own, conclusively establish a defense to the claims set forth in the complaint. While they may indicate that Bowd put [plaintiff] on notice of potential employment restrictions, other letters indicate that Bowd had, in fact, accepted the offer of employment days before he sent the emails in question. Because defendant has not “negated beyond substantial question” the allegation of reasonable reliance, and the submissions raise factual issues concerning the circumstances and communications underlying plaintiff’s hiring of Bowd, it cannot be concluded that plaintiff has no causes of action for fraudulent and negligent misrepresentation.

More recently, the First Department had the opportunity to decide whether emails and correspondence constitute “documentary evidence” for purposes of a motion to dismiss under CPLR 3211(a)(1). In Kany v. Kany, 2017 NY Slip Op 02158 (1st Dep’t Mar. 23, 2017), the First Department unanimously affirmed the dismissal of fraud claims in which the plaintiff sought to rescind a matrimonial settlement agreement, based upon, among other things, a defense based upon documentary evidence.

The case arose from a matrimonial settlement between Heather Kany (the plaintiff) and Steven Kany (the defendant). The plaintiff attempted to void the settlement by claiming that the defendant had not adequately disclosed his entitlement to supplemental retirement benefits, thereby fraudulently inducing her to agree to waive any claim to such benefits. The motion court granted the defendant’s motion to dismiss pursuant to CPLR 3211(a)(1) and (7) and/or for summary judgment 3212.

The plaintiff appealed and the First Department affirmed.

In affirming the dismissal under CPLR 3211(a)(1), the Court found that the plaintiff’s claim concerning the defendant’s retirement benefits were “flatly refuted” by the emails and written correspondence submitted by the defendant: “The allegation that the supplemental retirement benefits were fraudulently concealed from plaintiff is also flatly refuted by the emails and written correspondence submitted on defendant’s motion, many by plaintiff herself.”

In addition to the documentary evidence, the Court found that dismissal was appropriate on other grounds, namely waiver and statute of limitations. Regarding waiver, the Court found an explicit waiver provision in the settlement agreement to be dispositive: “Pursuant to the agreement, plaintiff waived any and all right and claim to ‘any participation or interest that [defendant] may now or in the future have in any retirement plan.’” In light of this provision, the Court concluded that the plaintiff “assumed the risk that at the time the agreement was executed defendant had an interest in a retirement plan of which she was not aware.”

The Court also noted that the settlement agreement included a disclaimer provision in which the plaintiff acknowledged she had performed her own investigation and was not relying on the defendant to make full disclosures: “[P]laintiff ‘specifically acknowledged that she had made her own independent investigation of defendant’s business affairs and was waiving further disclosure.’” Citing DiSalvo v Graff, 227 A.D.2d 298 (1st Dept. 1996).

Finally, the Court found that other written disclosures about potential retirement benefits started the statute limitations for fraud to run. Under CPLR 213(8), “the time within which the action [for fraud] must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it.” Thus, the two-year limitation period had expired because the plaintiff was on notice of the alleged fraud: “Since, at the very least, the disclosures in defendant’s net worth statement and in the benefits booklet issued by his employer put plaintiff on inquiry notice that defendant was entitled to supplemental retirement benefits, the complaint is time-barred.” Citations omitted.

Takeaway

Motions to dismiss under CPLR 3211(a)(1) can be a powerful tool for seeking early dismissal of claims that may not be susceptible to a motion to dismiss based solely on a failure to state a cause of action. However, CPLR 3211(a)(1) is not a substitute for a summary judgment motion.  As Kany illustrates, the circumstances must be appropriate and the email correspondence must be irrefutable. Otherwise, further factual development is required and the motion should be denied.

Kany is also instructive because it demonstrates the importance of specific written disclaimers and waivers in contracts to guard against future claims of fraud, and the importance of acting on suspicions of fraud as soon as they are realized.

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