On December 6, 2012, New York partner Robert Modica and senior counsel Joseph Salvo prevailed on a pre-answer motion to dismiss in the Supreme Court of New York, Queens County on behalf 6395 Austin Owners Corp. and ABM Management Corp. (“The Cooperative Board”).
The plaintiff is the owner of a residential cooperative apartment, which he purchased from the Cooperative Board. The apartment became available for purchase because one of the Defendant's in the action - a former owner of the apartment - had failed to pay monthly maintenance fees, which resulted in foreclosure of the apartment.
At Plaintiff's closing, the Defendant/Former Owner executed and submitted an Affidavit of Lost Stock Certificate and/or Proprietary Lease concerning the apartment. In reality, however, the Defendant/Former Owner fraudulently pledged the stock certificate and proprietary lease as collateral for a loan to himself and his corporation in the amount of $600,000 from Defendant Bank. After Plaintiff had purchased the cooperative apartment, Defendant Bank sought to foreclose on the apartment after the Defendant/Former Owner failed to make payments on the loan. Plaintiff sued the Cooperative Board for neglecting to exercise due diligence in uncovering the fraudulent acts of the Defendant/Former Owner. We moved to dismiss the complaint on the grounds that the Cooperative Board had no duty to uncover the Defendant/Former Owner’s fraudulent acts, and even if a duty was owed, the proximate cause of Plaintiff's injuries were the fraudulent acts of the Defendant/Former Owner.
In a decision entered in early December 2012, the Honorable Bernice D. Siegal granted our motion to dismiss in its entirety. Judge Siegal’s decision echoed our argument that the Cooperative Board had no reason to believe the Defendant/Former Owner's Affidavit of Lost Stock Certificate and/or Proprietary Lease was fraudulent. Further solidifying this argument was the fact that the Defendant Bank never contacted the Cooperative Board when the Defendant/Former Owner applied for his loan with the apartment as collateral. Additionally, Judge Siegal found that the Defendant/Former Owner's "fraudulent activities could be considered an intervening act, which could be "deemed a superseding cause and ....serve to relieve defendant[s] of liability when the act is of such an extraordinary nature."