In a fact pattern that could have come from a bar exam, Justice Bannon dissects the fraud-discovery-statute of limitations issues arising from a real-estate fraud scheme which is said to have involved attorneys, lenders, borrowers and developers.

D. Penguin Bros., Ltd. v City Natl. Bank  2017 NY Slip Op 31926(U)  September 8, 2017
Supreme Court, New York County  Docket Number: 158949/2014 is about some lenders who lost a large amount of money.

“The plaintiffs served the complaint in Action No. 1 on January 20, 2016, and the complaint in Action No. 2 on May 26, 2015, alleging that the defendants improperly diverted approximately $10 million rightfully belonging to the plaintiffs from numerous real estate investment accounts and escrow accounts maintained for the plaintiffs’ benefit. The Williams defendants moved to dismiss the complaint as against them (Action No. 1, SEQ 002) and Spiegelman moved to dismiss the complaint against him (Action No. 2, SEQ 002) but, by orders dated July 26, 2016, and July 20, 2016, respectively, the defendants were permitted to withdraw the motions when the plaintiffs filed amended complaints in both actions during the pendency of the motions.

The amended complaint in Action No. 1 asserts 52 causes of action and the amended complaint in Action No. 2 asserts 78 causes of action alleging, inter alia, conversion, fraud, forgery, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence, professional malpractice, and breach of contract, and also seeking an accounting.

The amended complaints allege that, in 2005 and 2008, the plaintiffs were induced to invest $4,500,000 with the defendants by false representations that the defendants were going to develop residential buildings for inclusion in federally subsidized housing programs, and that several of the defendants forged deeds and various approvals required from municipal agencies to falsely show the plaintiffs that closings on the sales of the buildings were effected in 2009, and that municipal approvals were acquired thereafter. The amended complaints further alleged that the Williams defendants and Spiegelman misappropriated the invested and escrowed funds without ever entering into actual development agreements or obtaining necessary governmental approvals. The plaintiffs also assert that Spiegelman, on behalf of the Williams defendants and himself, obtained unauthorized loans in the plaintiffs’ names in the sum of $2,200,000, and pocketed the loan proceeds, leaving the plaintiffs responsible for repayment. The plaintiffs aver that the defendants provided them with forged and fraudulent memoranda, thus concealing their scheme from the plaintiffs, and that the plaintiffs did not discover the thefts until February 3, 2011. ”

“”Under res judicata, or claim preclusion, a valid final judgment bars future actions between the same parties on the same cause of action.” Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 347 (1999); see Matter of Reilly v Reid, 45 NY2d 24 (1978). As a general rule, New York applies a “transactional approach” to analyzing the doctrine of res judicata, so that “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy.” O’Brien v Syracuse, 54 NY2d 353, 357 (1981). ” “Since the prior federal court actions were dismissed for failure to state a claim under federal law, and the federal court declined to exercise supplemental jurisdiction over the pendent state-law causes of action, and thus not on the merits, the causes of action asserted here against the Williams defendants, save NBUF, as well as the causes of action asserted against Spiegelman, are not barred by res judicata. See Bielby v Middaugh, 120 AD3d 896 (4th Dept. 2014). The plaintiffs correctly contend that the dismissal of the state-court action against NBUF on the ground that it was time-barred does not have a res judicata effect upon the causes of action asserted against the remaining Williams defendants or Spiegelman because the statute of limitations defense was personal to NBUF and there was no privity between NBUF and the other Williams defendants. See Israel v Wood Dolson Co., 1 NY2d 116 (1956); see also John J. Kassner & Co., Inc. v City of New York, 46 NY2d 544 (1979). “