While the most basic principles of jurisprudence dictate that sympathy should not determine the outcome of a litigated matter, judges, after all, are human beings too.  I have seen many court decisions adjudicating fraud claims that appear to have applied the governing legal principles a bit more flexibly where the fraudulent conduct is egregious and/or the consequences are rather devastating.  In the end, that may be what justice requires.

Both the lower court, and now the Appellate Division, Third Department, have shown judicial compassion in a gut wrenching case involving a horrendous limousine accident that resulted in the tragic death of all 17 passengers and driver of the limousine as well as two pedestrians.  The recent decision was rendered by the Third Department in Cavosie v Hussain, 2023 NY Slip Op 01925 (3d Dep’t Decided April 13, 2023).

Cavosie Facts

The catastrophic events underlying the case were widely reported and truly shocking.  A group of family and friends seeking to enjoy a trip to Cooperstown hired a stretch limousine to transport them. The limousine was barreling down a steep hill when the brakes allegedly failed, causing the fatal and tragic crash at the bottom of the hill.   An investigation after the accident allegedly revealed failings in the registration, inspection, maintenance and operation of the limousine. Plaintiffs, administrators of the estates of those killed in the crash, brought the actions against, among other defendants, the owner of the limousine, his company, and Mavis Discount Tire Inc., among other Mavis entities (collectively Mavis), which performed certain maintenance on the limousine, and particularly its braking system, and purportedly inspected it and issued a New York State Department of Motor Vehicle (DMV) inspection certificate prior to the accident.

Mavis moved to dismiss the entire action against it, arguing that it owed no duty in tort to any of the plaintiffs.  Given the tragic facts of the case, that was a tough argument to win. More particularly, Mavis argued that its relationship with the limousine company was strictly contractual and that it did not have any legal duty to those who were killed in the crash.  Mavis also argued that plaintiffs had not adequately alleged a claim of fraud.  The lower court denied Mavis’s motion in its entirety, and the Third Department affirmed.

The Third Department first addressed the circumstances under which a legal tort duty could be imposed notwithstanding the contractual relationship involved:

“Because a finding of negligence must be based on the breach of a duty, a threshold question in tort cases is whether the alleged tortfeasor owed a duty of care to the injured party” (Espinal v Melville Snow Contrs., 98 NY2d 136, 138 [2002] [citations omitted]; see Vogle v North Country Prop. Mgt., LLC, 170 AD3d 1491, 1492 [3d Dept 2019]). The Mavis store’s maintenance and inspection of the limousine arose out of contractual arrangements with the Hussain defendants, and “a contractual obligation, standing alone, will generally not give rise to tort liability in favor of a third party” (Espinal v Melville Snow Contrs., 98 NY2d at 138; see Buckley v 18 E. Main St., LLC, 199 AD3d 1283, 1284 [3d Dept 2021]). However, there are “three situations in which a party who enters into a contract to render services may be said to have assumed a duty of care — and thus be potentially liable in tort — to third persons: (1) where the contracting party, in failing to exercise reasonable care in the performance of his [or her] duties, launches a force or instrument of harm; (2) where the plaintiff detrimentally relies on the continued performance of the contracting party’s duties[;] and (3) where the contracting party has entirely displaced the other party’s duty to maintain the premises safely” … .

After finding that the plaintiffs satisfied the first exception, the Third Department went on to analyze whether the second exception—involving detrimental reliance—applied as well.  That analysis was also relevant to the fraud claims.  (Plaintiffs in each of the actions asserted separate claims of fraud against Mavis, alleging that it misrepresented that the limousine was “roadworthy” and fit for driving, including by issuing the required DMV inspection sticker.)

The Third Department found the second exception did apply as well:

We further find that, at this early procedural stage, plaintiffs have also adequately pleaded a duty under the second Espinal exception with respect to the limousine’s passengers. Plaintiffs allege that the Mavis store knew, and intended, that issuing the unauthorized DMV inspection sticker would communicate to potential customers of the Hussain defendants that the limousine was roadworthy and thus induce them to seek its services. It is further alleged that the decedents believed the limousine to have been duly inspected, and that, without such assurance of safety, they would not have agreed to ride in the vehicle on the day of the crash.

Fraud Claims Summarily Sustained

As to the fraud claims, Mavis argued that plaintiffs did not adequately allege the element of reasonable reliance on any misrepresentations allegedly made by Mavis, asserting that plaintiffs did not claim to have known about the DMV inspection sticker or rely on anything represented by Mavis in hiring the limousine company to rent the limo.  The Third Department rather summarily and without specific discussion rejected Mavis’s arguments and sustained the fraud claims:

We further find that, by virtue of the same allegations [as quoited above], plaintiffs have pleaded, with the requisite particularity (see generally CPLR 3016 [b]; Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491-492 [2008]), a claim for fraudulent misrepresentation (see Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 178 [2011]; see also Pasternack v Laboratory Corp. of Am. Holdings, 27 NY3d 817, 828 [2016]) and aiding and abetting fraud (see State of N.Y. Workers’ Compensation Bd. v Wang, 147 AD3d 104, 120 [3d Dept 2017]).

Fraud Principles

While the decisions of the lower court and the Third Department only addressed the allegations of the complaints, which they were obligated to accept as true on a motion to dismiss the pleading, it does appear that plaintiffs will have a challenge in establishing by clear and convincing evidence the element of reliance to support the underlying fraud claims.  In addition, although not addressed in the motion or the decisions, plaintiffs may face obstacles in seeking damages under the fraud causes of action.  In each of the complaints, the plaintiffs sought damages for personal injuries, anguish and the like.  Damages for personal injuries are not recoverable in actions for fraud.  See my post:  “Damages Limited to Pecuniary Loss Resulting from Fraud, not ‘Pain and Suffering.’” But interestingly, to the extent plaintiffs are seeking damages for wrongful death, under New York law, those damages are limited under the statute (EPTL 5-4.3), to pecuniary (economic) loss of the survivors (and punitive damages if proven).  Query whether the court will find that the pecuniary damages recoverable for fraud include the “pecuniary” damages available under EPLT 5-4.3.