The following e-filed papers read herein: NYSCEF Doc Nos. MS 4 98-111, 154 MS 5 113-151, 155-158 Decision & Order Upon the foregoing papers, defendants’ motion for summary judgment dismissing the complaint, and plaintiffs’ cross-motion for summary judgment, or alternatively, partial summary judgment on liability, are decided as follows: Background Pyotr Yadgarov (“Yadgarov”), on behalf of plaintiffs, negotiated a loan of $2.625 million with defendant the Federal Savings Bank (“FSB”). The loan was to be secured by multiple properties. However, Yadgarov and FSB’s representative, defendant Dennis Raico (“Raico”), purportedly had an oral agreement that the mortgage would not be recorded against four of these properties. At the loan closing, FSB’s counsel indicated the mortgage would be recorded against all properties. Yadgarov called Raico, who reiterated the mortgage would only be recorded against one property. Yadgarov proceeded with the loan closing and signed a loan agreement, a tax law section 255 affidavit, a promissory note, and a mortgage and security agreement. However, FSB later recorded the mortgage against all properties, violating the alleged oral agreement between Yadgarov and Raico. Despite efforts to rectify this, plaintiffs assert that no action was taken by FSB to remove the mortgage from the other properties. On July 21, 2017, plaintiffs commenced this action against defendants. On November 15, 2017, plaintiffs amended the complaint and asserted four causes of action against defendants: (a) breach of contract; (b) fraudulent inducement against FSB; (c) fraudulent inducement against Raico; and (d) breach of the implied covenant of good faith and fair dealing. Plaintiffs alleged the following damages as a result of defendants’ recording: (a) a technical default on a first loan obtained from a non-party, W Financial Fund, on one property; (b) being unable to obtain construction financing with regard to one property due to defendants’ recording, thus delaying the project; (c) being unable to sell one property; and (d) payment of release fees and attorneys’ fees related to the release of the mortgage from two properties. Defendants moved to dismiss the complaint based on multiple grounds, and on December 5, 2017, the court (Ash J.) granted defendant’s motion and dismissed the complaint in its entirety. The Appellate Division reversed as to the fraudulent inducement claims against both FSB and Raico by decision and order dated October 20, 2021. On May 20, 2022, the case was restored to the Court’s calendar upon plaintiffs’ application. On January 31, 2023, plaintiffs filed a note of issue. In the conference order dated February 6, 2023, the Court directed the parties to file dispositive motions within 60 days after filing of the note of issue. On April 3, 2023, defendants moved under motion sequence four, for summary judgment dismissing the two claims for fraudulent inducement. On May 11, 2023, plaintiffs cross-moved, under motion sequence five, for summary judgment on defendants’ liability on the two claims. Defendants’ summary judgment motion In support of their motion, defendants argue that there is no admissible evidence that either FSB or Raico made a false misrepresentation of material fact. Defendants assert that FSB never made any oral representation to plaintiffs. Defendants submit that the record demonstrates that Yadgarov negotiated the terms and conditions of the loan with Raico only. Additionally, defendants anticipate that plaintiffs’ principal evidence supporting their claims would be an audio recording and transcript of the telephone conversion with Raico during the loan closing. Defendants contend that such evidence is inadmissible because the recording was obtained in violation of CPLR 4506 without Raico’s knowledge or consent, and plaintiffs failed to demonstrate the evidence is genuine and that it has not been altered. Even if the evidence was admissible, defendants argue that it was not reasonable or justifiable for plaintiffs to rely upon it when the oral misrepresentation directly contradicted the terms of the written agreements executed by plaintiffs. Defendants submit that the loan agreement, mortgage and security agreement and tax law section 255 affidavit all clearly state that the mortgage will be recorded against all properties. Additionally, that the mortgage and security agreement specifically provides that the contract will not be changed or terminated orally. Defendants assert that recording of mortgages is their routine practice. Moreover, defendants argue that plaintiffs have not sustained any damages. Defendants submit that plaintiffs had a loan agreement with W Financial Fund, and the contract expressly precludes additional mortgages regardless of whether such mortgages are recorded or not. Defendants contend that plaintiffs violated a term of that loan by obtaining a second mortgage on the property. Further, defendants argue that the Court’s enforcement of the oral agreement between Yadgarov and Raico would violate public policy because the intent behind the oral agreement was to deprive W Financial Fund, as the first mortgagee, notice of plaintiffs’ subsequent mortgage on the property, which is a violation of law and fraud. In opposition, plaintiffs argue that defendants fail to establish their prima facie right to summary judgment. Plaintiffs contend that their recording of the telephone conversation is not eavesdropping under CPLR 4506(a). Plaintiffs further contend that they demonstrate the genuineness and authentication of the evidence by providing attestation, and the evidence is also admissible under the party admission exception to the hearsay rule. Additionally, that Raico fails to deny the conversation occurred, or allege that the transcript is inaccurate. Plaintiffs assert that when they recognized the loan documents did not explicitly provide that the mortgage would not be recorded against the properties as orally agreed to by Raico, they immediately called Raico. Plaintiffs submit that the evidence demonstrates that Raico reiterated to them that “[b]ut we are not placing a hard lien on anything, except for the two-family,” “[w]e don’t place a lien on anything except for the subject property,” and “you will not be in technical default.” Additionally, that Raico further represented to plaintiffs that FSB’s closing attorney does not work for FSB or file lien documents for FSB, and that the loan documents were sent directly to FSB’s post-closing department and would not be filed against additional properties. Plaintiffs contend that the contradictory terms in the loan documents cannot defeat their reasonable or justifiable reliance on Raico’s oral misrepresentation because the misrepresented facts lie solely within defendants’ knowledge, and they may not invoke a disclaimer or merger in contracts to preclude evidence of oral misrepresentation. Moreover, plaintiffs argue that the merger clause included in the loan documents prohibiting plaintiffs from relying on oral representation is general, rather than specific, and is ineffective to exclude parol evidence of fraudulent inducement. Further, plaintiffs argue that defendants’ argument on public policy is baseless. Plaintiffs submit that the loan was used to pay off the first mortgage with W Financial Fund and defendants knew that W Financial Fund had concerns about the loan. Additionally, that W-Financial Fund was involved with the negotiation process and communicated directly with Raico. In reply, defendants assert that at no time during this litigation, except for now, did plaintiffs attempt to authenticate the evidence. Additionally, that there is no basis to say that the evidence is accurate because Raico testified that he does not recall this conversation. Defendants contend that plaintiffs bypass a definition under the CPLR 4506 providing that Raico, as a sender or receiver of a telephonic communication, may move to suppress the contents of the recorded communication because he did not consent to the recording. Moreover, defendants argue that plaintiffs signed the loan documents with the understanding of the provisions contained within, and plaintiff signed the tax law section 255 affidavit attesting that the mortgage would, in fact, be recorded. Further, defendants submit that the record is clear that it was plaintiffs’ decision to violate the loan agreement with W Financial Fund by obtaining a second mortgage on the property. Plaintiffs’ summary judgment motion In support of their cross-motion, plaintiffs argue that defendants fraudulently induced them into accepting a mortgage by promising to not record the mortgage against certain properties. Plaintiffs assert that they advised Raico of a condition precedent to accepting the loan, which is the mortgage cannot be recorded against certain properties. Thus, plaintiffs contend that Raico knew that the representation he made was false and material. Plaintiffs further assert that Raico promised to them that FSB would not record the mortgage on all properties on several occasions, including during the loan closing. Additionally, plaintiffs argue that Raico’s communications demonstrate that he knew plaintiffs would rely on his false representation. Plaintiffs submit that Raico referred to the mortgage as being a “soft second.” Plaintiffs further submit Raico’s testimony that he did not know “for a fact” whether FSB recorded all mortgages that it granted, and that “I’m not in the closing department, but if I were to assume, I would assume that all mortgages are recorded.” Moreover, plaintiffs argue that their reliance on Raico’s false representation is justifiable and reasonable because (a) they negotiated the terms of the loan exclusively with Raico; (b) there were no other means for them to learn of FSB’s post-closing practice; and (d) Raico, as a senior vice president and loan officer of FSB, held himself as having superior knowledge concerning FSB’s practice. Plaintiffs contend that they exercised all means available to protect themselves against any false representations. Further, plaintiffs argue that FSB is liable for Raico’s false representation based on principal-agent relationship. Plaintiffs assert that Raico was FSB’s agent and FSB presents no evidence to show that Raico did not have actual or apparent authority to bind FSB to the terms of the loan. Additionally, that Raico received a commission and FSB received a profit from Raico’s false representation. In opposition, defendants argue that plaintiff’s cross-motion should be stricken because it is untimely and procedurally improper. Defendants submit that the conference order dated February 6, 2023 directs the parties to file summary judgment motions by April 3, 2023, but plaintiffs filed their cross-motion on May 11, 2023. In addition, defendants argue that plaintiffs did not allege a principal-agent relationship between FSB and Raico anywhere in their pleadings or demonstrate the existence of such relationship. Specifically, that there is no evidence that FSB allowed Rico to act on its behalf with respect to the alleged false representation on the loan terms. In reply, plaintiffs argue that an untimely cross-motion for summary judgment may be considered by the Court where, as here, a timely motion for summary judgment was made on nearly identical grounds. In addition, plaintiffs argue that based on the record, Raico had express and implied authority on behalf of FSB. Plaintiffs submit that Raico’s express authority is demonstrated by the company emails he used with signature blocks including FSB’s logo, address, phone number and website link. Plaintiffs further submit that Raico, during deposition, confirmed multiple times that he was employed by FSB and his job was to gather information for FSB on prospective borrowers. Additionally, that Raico’s testimony was confirmed by defendants’ answer as well as the testimony of another witness. Discussion On a motion for summary judgment, it is the moving party’s burden to establish its prima facie entitlement to judgment as a matter of law by presenting sufficient evidence demonstrating the absence of any material questions of fact (Zuckerman v. City of New York, 49 NY2d 557 [1980]). Once a prima facie case has been established, the burden shifts to the party opposing the motion to demonstrate the existence of a material issue of fact (id.). Mere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient to defeat a motion for summary judgment (id.). To prevail on a claim for fraudulent inducement, a plaintiff must establish the misrepresentation of a material fact, which was known by the defendant to be false and intended to be relied on when made, and that there was justifiable reliance and resulting injury (Ventur Group, LLC v. Finnerty, 68 AD3d 638 [1st Dept 2009]). Here, as a preliminary matter, the Court will consider plaintiffs’ untimely cross-motion as a timely motion for summary judgment since it was made on nearly identical grounds (Grande v. Peteroy, 39 AD3d 590 [2d Dept 2007], as amended (Dec. 18, 2007)). In such circumstances, the issues raised by the untimely cross-motion are already properly before the court and thus, the nearly identical nature of the grounds may provide the requisite good cause (see CPLR 3212[a] ) to review the untimely cross motion on the merits (Homeland Ins. Co. of New York v. Natl. Grange Mut. Ins. Co., 84 AD3d 737 [2d Dept 2011]). Based on the evidence submitted, defendants failed to conclusively establish that they did not fraudulently induce plaintiffs into entering the contacts by misrepresenting to them that the mortgage would only be recorded against one property. As a preliminary matter, the recorded telephone conversation between Yadgarov and Raico does not violate CPLR 45061 and is admissible because it was obtained with consent of either the caller or receiver of the communication (see CPLR 4506(1), (2); People v. Powers, 42 AD3d 816 [3d Dept 2007]). Based on the transcript of the recording and other evidence, plaintiffs established that Raico knowingly made a material misrepresentation that FSB would not record the mortgages against certain properties, which plaintiffs relied on and sustained damages as a result. Regarding plaintiffs’ contention on FSB’s vicarious liability for Raico’s material misrepresentation, a corporation must be responsible for the acts of its authorized agents even if particular acts were unauthorized since the principal is generally better suited than a third party to control the agent’s conduct (Schwartz v. WFG Natl. Tit. Ins. Co., 192 AD3d 713 [2d Dept 2021]). A principal-agent relationship may be established by evidence of the consent of one person to allow another to act on his or her behalf and subject to his or her control, and consent by the other so to act (Time Warner City Cable v. Adelphi Univ., 27 AD3d 551 [2d Dept 2006]). The record establishes that FSB and Raico had a principal-agent relationship since Raico is an employee of FSB and held himself out as senior vice president of FSB. Defendants having failed to meet their initial burden to demonstrate that they did not make a material misrepresentation, their motion for summary judgment dismissing the claims for fraudulent inducement is denied. Turning to plaintiffs’ summary judgment motion on liability, based on the evidence, plaintiffs established a prima facie claim for fraudulent inducement. In opposition, defendants raised a triable issue of fact regarding whether plaintiffs’ reliance was justifiable or reasonable. The issue of reasonable reliance is an essential element of a fraud claim and is not subject to summary disposition (Brunetti v. Musallam, 11 AD3d 280 [1st Dept 2004]). Therefore, plaintiffs’ summary judgment motion is also denied. Dated: June 29, 2023
