Readers of this Blog know that when the New York Court of Appeals weighs in on fraud-related issues, I listen (and write).
The latest installment is the Court’s decision in the case of Golobe v Mielnicki, 2025 NY Slip Op 01670 (NY Decided on March 20, 2025).
The Court rejected an attempt to fashion a fraud claim out of alleged misstatements or omissions that were not actually known to be false when made (or omitted) and not conveyed (or concealed) to the alleged injured party. In such circumstances, the Court agreed with both lower courts that the necessary elements of scienter and reliance were missing. Even the dissenting judge agreed there was no evidence of fraudulent intent.
Facts of Golobe
The context of the decision in Golobe was a battle over a decedent’s estate, but the legal issues were not limited solely to traditional estate principles—extending into fraud, breach of fiduciary duty and adverse possession.
The foundational factual scenario involved some wild twists and turns, so a bit of concentration will be required. Here goes: The decedent (let’s refer to her as “Aunt”) died intestate. Her nephew (the plaintiff in the case, here referred to as “Nephew”) applied for and became the Administrator of the estate. Nephew informed the Surrogate’s Court that his father (“Father”), Aunt’s brother, was her only surviving heir. An attorney and friend who had known the family for decades testified that Aunt’s other brother (“Uncle”) had predeceased her by six or seven years. Among other things, it was thought (perhaps assumed) that Uncle had died before Aunt because he was ten years older than her and she was 85 years old when she died.
The Surrogate’s Court found that Father was Aunt’s sole distribute. Father renounced his interest in favor of his son, Nephew. Nephew then possessed and maintained a three-story building in New York City (“Premises”) owned by Aunt at her death. (Nephew had known about the Premises all along but misrepresented to the Surrogate Court the net worth of the estate by omitting the Premises. The dissenting judge found this misrepresentation significant, but the Court of Appeals did not find it relevant to the legal issues presented.)
Contrary to what Nephew advised the Surrogate Court, which it had accepted, when Aunt died, her other brother, Uncle, was still alive. He therefore should have inherited a one-half interest in Aunt’s estate, including the Premises. It was undisputed that until 2018 when Nephew sought to sell the Premises and a title search discovered that Uncle had actually been alive at Aunt’s death, Nephew did not know that Uncle had survived Aunt. After discovering the error, Nephew brought this action claiming that he had acquired sole ownership of the Premises through adverse possession. Uncle (who subsequently died) had a successor—a Trust—which was the defendant in the relevant action. The Trust counterclaimed for fraud and breach of fiduciary duty based on Nephew’s conduct as administrator of Aunt’s estate.
Both sides in the action moved for summary judgment. Nephew won on all issues. The lower court declared Nephew the sole owner of the Premises and dismissed the Trust’s claims for fraud and breach of fiduciary duty. The Appellate Division affirmed, holding that Nephew had established his sole ownership of the Premises through adverse possession. The First Department also affirmed the dismissal of the Trust’s counterclaims, holding that the Trust “failed to establish [Nephew]’s scienter as to any misstatement or [the Trust’s] own reliance on any misstatement made to . . . Surrogate’s Court” on the fraud counterclaim, and failed to show that Nephew had a fiduciary duty, as administrator of the estate, to “conduct an extraordinary search to confirm the death of a potential distributee.”
The Court of Appeals affirmed.
No Scienter or Reliance on Fraud Claim
There were issues and arguments in the case as to whether Nephew had done an adequate enough search and due diligence to ascertain whether there were any other heirs of Aunt’s estate, and specifically whether Uncle had actually predeceased her. The Court of Appeals found that Nephew was entitled to and did reasonably rely on the attorney’s testimony and the fact that Uncle would have been 95 years old at Aunt’s death. Thus, the Court determined Nephew had not breached his fiduciary duty as Administrator.
In support of its fraud counterclaim, the Trust argued in essence that Nephew “fraudulently concealed from the Trust and its successors in interest (to whom Nephew had a fiduciary duty as a co-tenant in common) the fact that they were co-tenants in common with a one-half interest in the Premises, in part by recklessly having incorrect representations made on his behalf to the Surrogate’s Court that he was the sole heir to his Aunt, which Nephew had reason to know were not true, and the Trust and its successors in interest relied upon Nephew’s concealment by not asserting their rights with respect to their one-half interest in the Premises as co-tenant(s) in common sooner. As a direct result of Nephew’s fraudulent concealment, the Trust and its successors in interest have not received the benefits of the Premises for nearly thirty years.”
The Court of Appeals started its analysis of the fraud counterclaim with a handy recitation of the standards and principles of fraud (which undoubtedly will be cited as the most recent pronouncement on the subject):
There are five elements of fraud: (1) “a misrepresentation or a material omission of fact” (Pasternack v Laboratory Corp. of Am. Holdings, 27 NY3d 817, 827 [2016]), (2) “which is either untrue and known to be untrue or recklessly made” (Jo Ann Homes at Bellmore, Inc. v Dworetz, 25 NY2d 112, 119 [1969]), (3) “made for the purpose of inducing the other party to rely upon it,” (4) “justifiable reliance of the other party on the misrepresentation or material omission,” and (5) injury (Pasternack, 27 NY3d at 827). Indirect communication can establish a fraud claim if “the statement was made with the intent that it be communicated to the plaintiff and that the plaintiff rely on it” (id. at 828).
Of course, while the Court repeated that omissions of fact can be actionable as fraud, there must be special circumstances to impose such a duty to disclose. See Concealing or Failing to Disclose Material Information: When is it Actionable in Fraud?
The Court of Appeals then rather succinctly rejected any attempt to garner a cause of action for fraud out of the Nephew’s mistaken assertion (or belief) that his Father was the sole heir to Aunt’s estate. (While not explicitly noted, the Court necessarily rejected the argument that Nephew was reckless in omitting or concealing the true facts.) The Court of Appeals thus found there was no evidence of fraud, as follows:
Summary judgment is warranted because there is no triable issue of fact as to either scienter or reliance. The parties agree that [Nephew] did not know of the Trust’s interest until 2018, at the earliest. He could not, therefore, have intended the Trust or its predecessors to rely on any statement or omission he made. The Trust and its predecessors were equally in the dark, and there is no evidence that they relied on any statement or omission made by [Nephew]. Although the dissent is written to imply that [Nephew] acted fraudulently, the dissent agrees that the Trust has not established fraud [because the element of fraudulent intent was lacking].
The Court of Appeals then proceeded with a very detailed analysis of the law of adverse possession, which is informative and worth reading for those who deal with such issues.
Commentary
As I have explained in this Blog, while the cause of action for fraud has powerful remedies, each and every element of the claim must be established by clear and convincing evidence in order to prevail. In the Golobe case, each of the courts—the trial court, the First Department, and the Court of Appeals—firmly found that the elements of the claim were not supported by the evidence, warranting summary judgment dismissing the fraud counterclaim. In particular, scienter, or fraudulent intent, could not be established where the true situation had not actually been known when the facts were misstated. While the Court of Appeals indicated that the Trust was “equally in the dark,” and therefore did not rely on any misstatement or omission made by Nephew, implicit in that finding is that Nephew was not reckless in ascertaining the true facts, and had not breached any duty to discover and report the true facts.