No Deceit, No Defeat: Commercial Division Enforces Broad General Release
February 08, 2024
A recent decision from Justice Fidel Gomez of the Bronx County Commercial Division, 1125 Morris Ave. Realty LLC v Title Issues Agency LLC, reminds us to closely review the language of general releases as New York courts continue to enforce such releases however broad in scope absent any fraud or wrongful conduct. Failure to do so may not only result in the waiver of certain future claims but also the imposition of sanctions.
Background
Plaintiff 1125 Morris Ave. Realty LLC (“Plaintiff”) obtained a mortgage loan (“2014 Mortgage”) on a property located at 1125 Morris Avenue, Bronx, New York (the “Property”). Defendants Kofman and Lowenthal represented the lender in the transaction. Kofman and Lowenthal transferred the loan proceeds to Defendant Title Company (the “Title Company”) to hold such proceeds in escrow until certain taxes and water/sewer charges for the Property had been settled with the City. Plaintiff thereafter obtained additional mortgages in order to pay off the 2014 Mortgage.
Following the payoff and satisfaction of the 2014 Mortgage, in July 2016 Plaintiff executed a broad general release discharging Defendants Kofman and Lowenthal as well as the Title Company (collectively the “Defendants”) from all “claims and demands whatsoever from the beginning of the world to the day of the date of this RELEASE.”
Plaintiff commenced an action against Defendants alleging, among other things, that Defendants committed fraud by failing to pay Plaintiff’s outstanding tax, water, and sewer charges for the Property, despite assuring Plaintiff that the loan proceeds would be used to satisfy the liens on the Property. Plaintiff further alleged that the Title Company only partially paid out the liens, and that only a portion of the loan proceeds were returned to Plaintiff.
Analysis
Defendants sought to dismiss the complaint under CPLR § 3211(a)(1), and Plaintiff opposed the dismissal to the extent that Defendants sought to dismiss Plaintiff’s fraud claim. The court found Plaintiff’s fraud claim to be without merit and dismissed the entire complaint with prejudice.
First, Plaintiff’s fraud claim accrued from when the loan funds were escrowed with the Title Company in November 2014. Plaintiff tried to argue that it discovered the fraud in August 2022. The court rejected Plaintiff’s argument because, at a minimum, Plaintiff was aware of the alleged fraud when it later refinanced the Property in June 2016. As such, even if the alleged fraud occurred in November 2014 or June 2016, the action was still time-barred by the clear language of the release stating that all claims against the Defendants are barred through July 3, 2016 – the date of its execution.
Second, the court rejected Plaintiff’s attempt to invalidate the release on the basis that Plaintiff’s owner, who executed the release on its behalf, “did not know what he was signing, had no legal representation in connection therewith, and because the release was one of many documents he was asked to sign.” The court found no evidence of fraud or wrongful conduct, stating that “any claim … that the party did not understand what he/she signed is not a legally cognizable defense.” The court further reasoned that a party cannot claim “that he/she was fraudulently induced into signing [a contract] merely because the document alleged was nestled among a series of documents … or because it was represented that the document was a routine document.”
Sanctions
In addition to the dismissal of Plaintiff’s complaint, the court imposed sanctions on Plaintiff’s counsel.
Immediately after the complaint was filed, Defendants’ counsel had informed Plaintiff’s counsel that its action was barred by the applicable statute of limitations, but Plaintiff nevertheless continued its action. The court noted that it was or should have been clear to Plaintiff’s counsel that when the complaint was filed, the applicable statute of limitations barred all of Plaintiff’s claims and that its action was barred by the release executed by Plaintiff. As such, the court found it proper to impose sanctions on Plaintiff’s counsel and ordered Plaintiff to reimburse Defendants for the costs and legal fees associated in defending this action.
Takeaway
Attempting to show that a release should be invalidated is a substantial burden, requiring proof of fraud or wrongdoing. Failure to carefully review the language of releases may result not only in the waiver of the parties’ right to commence specific and/or future claims, but also can result in costly sanctions against a party attempting to invalidate the release based on specious arguments.