I often receive inquiries regarding what people loosely refer to as “fraud on the court.” This general topic can encompass a variety of subjects. Generally speaking, it is useful to understand the basic concepts that can be considered under this notion of “fraud on the court.” There are three relevant categories to distinguish:
1. Common Law Fraud. This is the “tort” comprising a civil cause of action with an array of remedies and special benefits and requirements, allowing the claimed victim of the fraudulent conduct to sue the accused defrauder to rescind (undo) transactions or recover damages.
2. Fraud on the Court. This is a judicial-made concept (developed by judges through case law decisions, or common law) under which judges use their inherent discretion and authority to impose sanctions on parties to litigation who act deceitfully to undermine the integrity of the judicial process.
3. New York Judiciary Law Section 487. This is a specific statute created by the legislature directed at attorneys in litigation (pending lawsuits) who act deceitfully with an intent to deceive the court or a party to a lawsuit, creating both criminal and civil penalties.
Here are the basic distinctions of each of the above:
Judiciary Law 487
The statute that applies strictly to attorneys in litigation – Judiciary Law Section 487 – is different from the cause of action for fraud. The statute provides:
An attorney or counselor who:
-
- Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or,
- Wilfully delays his client’s suit with a view to his own gain; or, wilfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for,
Is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.
This statute only applies to attorney conduct in actual litigation, i.e., while a lawsuit is pending, not to any conduct before or after the lawsuit. See Bill Birds, Inc. v Stein Law Firm, P.C., 35 NY3d 173 (2020).
In Amalfitano v Rosenberg, 12 NY3d 8 (2009), the Court of Appeals clarified that Judiciary Law 487 is distinct from “a tort claim for fraud.” In that case, the court ruled that the intended deceit perpetrated by an attorney in litigation need not be successful in actually deceiving anyone, including the court, for the penalties of the statute to apply. The Court explained, while “under New York common law, ‘[t]o maintain an action based on fraudulent representations . . . in tort for damages, it is sufficient to show that the defendant knowingly uttered a falsehood intending to deprive the plaintiff of a benefit and that the plaintiff was thereby deceived and damaged’ (Channel Master Corp. v Aluminium Ltd. Sales, 4 NY2d 403, 406-407 [1958] [emphasis added]),” “Judiciary Law § 487 does not derive from common-law fraud.” The Court continued: “Rather, section 487 is a unique statute of ancient origin in the criminal law of England. The operative language at issue—‘guilty of any deceit’—focuses on the attorney’s intent to deceive, not the deceit’s success.”
Thus, the concept of “reasonable reliance” applicable to the tort of fraud does not apply in the Judiciary Law 487 context. “In other words, liability under the statute does not depend on whether the court or party to whom the statement is made is actually misled by the attorney’s intentional false statement.” Bill Bird, 35 NY3d at 178 (citing Amalfitano).
While Judiciary Law 487 is a specific statute, the Court of Appeals has found that the six-year statute of limitations of CPLR 213(1) applies rather than the three-year period for statutory claims in CPLR 214(2). See Melcher v Greenberg Traurig, LLP, 23 NY3d 10 (2014).
Fraud on the Court
Fraud on the court also differs from the tort of common law fraud as the traditional elements of the cause of action for fraud need not be established in order for the court to impose sanctions. And it is broader than Judiciary Law 487 because it applies to parties to the litigation themselves, not just to the attorneys.
The Court of Appeals in CRD CrÉances S.A.S. v Cohen, 23 NY3d 307 (2014) rendered a comprehensive and informative decision concerning the origins and scope of this judicial-made concept of “fraud on the court.” The Court noted that “a court has inherent power to address actions which are meant to undermine the truth-seeking function of the judicial system and place in question the integrity of the courts and our system of justice.” The Court further explained:
Fraud on the court involves wilful conduct that is deceitful and obstructionistic, which injects misrepresentations and false information into the judicial process “so serious that it undermines . . . the integrity of the proceeding” (Baba-Ali v State of New York, 19 NY3d 627, 634 [2012] [citation and quotation marks omitted]). It strikes a discordant chord and threatens the integrity of the legal system as a whole, constituting “a wrong against the institutions set up to protect and safeguard the public” (Hazel-Atlas Glass Co. v Hartford-Empire Co., 322 US 238, 246 [1944]; see also Koschak v Gates Constr. Corp., 225 AD2d 315, 316 [1st Dept 1996] [“The paramount concern of this Court is the preservation of the integrity of the judicial process”]).
Accordingly, the Court concluded that “where a court finds, by clear and convincing evidence, conduct that constitutes fraud on the court, the court may impose sanctions including, as in this case, striking pleadings and entering default judgment against the offending parties to ensure the continuing integrity of our judicial system.” Nevertheless, the Court cautioned that dismissal of a case is an extreme remedy, providing guidance for the sanctions to be imposed (citations omitted):
Dismissal is most appropriate in cases like this one, where the conduct is particularly egregious, characterized by lies and fabrications in furtherance of a scheme designed to conceal critical matters from the court and the nonoffending party; where the conduct is perpetrated repeatedly and wilfully, and established by clear and convincing evidence, such as the documentary and testimonial evidence found here. Dismissal is inappropriate where the fraud is not “central to the substantive issues in the case” …, or where the court is presented with “an isolated instance of perjury, standing alone, [which fails to] constitute a fraud upon the court” … . In such instances, the court may impose other remedies including awarding attorney fees …, awarding other reasonable costs incurred …, or precluding testimony. In the rare case where a court finds that a party has committed fraud on the court warranting dismissal, the court should note why lesser sanctions would not suffice to correct the offending behavior … .
New Third Department Case
In Williams v Scafidi, 2022 NY Slip Op 03161 (3d Dep’t Decided May 12, 2022), the Appellate Division, Third Department, rendered an informative decision with a comprehensive analysis affirming the striking of defendant’s answer based upon her alleged fraudulent conduct in the litigation.
In Williams, a fundamental issue was whether funds that plaintiff gave to defendant were loans or a gift. Defendant produced a letter she claimed plaintiff signed confirming that the funds in question were a mere gift. At deposition, defendant testified that plaintiff signed the letter. Plaintiff then hired a handwriting expert, who concluded that the signature was “cut and pasted” from a will plaintiff signed. Defendant then changed her testimony at a second deposition and reiterated at trial to claim that plaintiff told her to take his signature from his will and place it into the letter. Clearly a bizarre and wholly unbelievable story.
The lower court struck defendant’s answer in light of the apparent fabricated letter and subsequent incredible and deceptive explanation. The Third Department affirmed, ruling:
Whether the purchase of the Fulton County property was a loan or a gift was a central issue in this litigation and, if the May 2018 letter had been credited as true and accurate, it would have established defendant’s defense to plaintiff’s claim regarding the transaction as a matter of law. It would have also called into question plaintiff’s testimony about the nature of the car purchase agreement. In light of defendant’s contradictory and incredulous testimony regarding the May 2018 letter and the circumstances surrounding the change in her story, clear and convincing evidence established that defendant not only falsified this document, but then knowingly committed perjury by testifying to its validity during her depositions and repeating such testimony at trial. Supreme Court found her testimony “utterly absurd” and we agree. On this record, Supreme Court properly found that defendant committed a fraud upon the court, warranting the imposition of sanctions (see CDR CrÉances S.A.S. v Cohen, 23 NY3d at 321; Hall v Integrity Real Estate Props., Inc., 124 AD3d 1270, 1271 [2015]; compare JNG Constr., Ltd. v Roussopoulos, 170 AD3d 1136, 1141 [2019]; Bessa v Anflo Indus., Inc., 148 AD3d 974, 976 [2017]). We recognize that striking defendant’s answer was a drastic remedy, but conclude that Supreme Court acted within its discretion and struck an appropriate balance by holding defendant accountable for her willful and repeated conduct, while leaving the counterclaims intact (see CRD Créances S.A.S. v Cohen, 23 NY3d at 318; 317 W. 97 Assoc. v Dannenberg, 159 AD2d 245, 245-246 [1990]; compare Melcher v Apollo Med. Fund Mgt. L.L.C., 105 AD3d 15, 21, 24 [2013]).[FN5]
Commentary
Fraudulent conduct can result in a vast array of remedies in our judicial system. It is important to understand the scope of the various rules and remedies depending upon the context and nature of the fraud. As explained above, these include the civil claim, or “tort,” of fraud, statutory provisions under Judiciary Law Section 487 applied to attorneys, and inherent judicial authority to impose sanctions for fraudulent behavior in litigation. Some or all of these concepts may apply in any given situation, but proper presentation of the respective claims and proof is essential.