Commercial Division Blog

Posted: October 7, 2014 / Categories Commercial, Fraud/Misrepresentation

Fraud Claim Reinstated When Inaction Based on Fraudulent Statements Could be Presumed

On October 2, 2014, the First Department issued a decision in Fidelity National Title Insurance Co. v. NY Land Title Agency LLC, 2014 NY Slip Op. 06649, reinstating a fraud claim that the trial court had dismissed.

In Fidelity National Title Insurance, the First Department reinstated a plaintiff's fraud cause of action. In that claim, the "plaintiff title insurer . . . alleged fraud based on defendants' failure to report a mortgage . . . in the certificate of title or title policy, and their misrepresentation that the insured mortgage would be a first position lien encumbering the property." The First Department held, with respect to detrimental reliance, that the plaintiff's inaction was sufficient basis for a fraud claim, explaining:

To show reliance, [the plaintiff] must demonstrate that it was induced to act or to refrain from acting to its detriment by virtue of the alleged misrepresentation or omission. At this stage, [the plaintiff] has sufficiently alleged that it was induced to refrain from taking steps to protect its interests, to its detriment, as a direct result of defendants' failures to provide the certificate of title and disclose the Arbor mortgage prior to issuing the policy. The complaint alleges that in response to defendants' belated request for authorization, Fidelity expressly raised the issue of the defendants' omission of the Arbor mortgage on the certificate of title. This suggests that defendants' earlier omissions and failures to disclose the Arbor mortgage did in fact induce [the plaintiff] to refrain from taking steps to protect its interests. Indeed, the motion court itself recognized that the failure to transmit the certificate of title to [the plaintiff] until after the policy had been improperly issued, proximately caused [the plaintiff's] losses and denied [the plaintiff] the opportunity to cure the title problems or change the terms of the policy before it was issued.

[The plaintiff] relied upon defendant NY Land Title, its policy-issuing agent, and Land Title Associates, which ordered or obtained the title search, to determine whether there were any other pre-existing encumbrances on the property so as to assist it in determining whether, and under what conditions, to issue a title policy. Indeed, we have found, under similar circumstances, that the element of reliance should be presumed.

(Internal quotations and citations omitted) (emphasis added).

This decision touches on the difficulty of pleading reliance when the reliance causes the plaintiff to refrain from acting.