The Second Department Reinforces a Fundamental Precept of Fraud Litigation: Reliance by the Plaintiff Is Required

By: Jeffrey M. Haber

By: Jeffrey M. Haber

One element of a fraud claim under New York law is justifiable reliance. A plaintiff must allege not only that a material misrepresentation was made, but also that the plaintiff actually relied upon that misrepresentation to its detriment. Reliance by a third party is insufficient. In ANS 1 Corp. v. Yosef, 2026 N.Y. Slip Op. 04918 (2d Dept. Aug. 12, 2026), the subject of today’s article, the Appellate Division, Second Department, reaffirmed that fundamental precept,[1] holding that fraud and civil conspiracy claims could not be maintained against a law firm where the complaint failed to allege that the plaintiffs themselves relied on the alleged misrepresentations. Instead, the only alleged reliance was by the purchaser of the property at issue, a pleading defect that proved fatal to both the fraud claim and the derivative claim for civil conspiracy to commit fraud.

Background

The dispute arose from the October 2021 sale of real property owned by ANS 1 Corp. The plaintiffs alleged that the transaction occurred without the consent of the company’s shareholder, who claimed to hold a 50% ownership interest pursuant to a shareholder agreement dated July 1, 2019. They further alleged that the defendant law firm, which represented the corporation in connection with the sale, knew of the shareholder’s ownership interest and the requirement that he consent to the transaction.

According to the amended complaint, defendant falsely represented that he was the sole owner of the property and had authority to complete the sale. Based on those allegations, plaintiffs asserted causes of action sounding in fraud and civil conspiracy to commit fraud against, among others, the law firm.

The law firm moved to dismiss the fraud-based claims under CPLR 3211(a). The Supreme Court denied the motion. On appeal, the Second Department modified that determination and dismissed the fraud and conspiracy claims against the firm.

The Second Department’s Ruling

The Court began its substantive discussion by articulating the elements of a fraud claim under New York law: “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.”[2] The Court then addressed the issue on appeal: whether plaintiffs justifiably relied on the alleged misrepresentation.

Although the amended complaint alleged that defendant falsely represented that he was the sole owner of the property, the Court found that the amended complaint contained no allegations showing that plaintiffs actually relied upon that representation. Instead, said the Court, plaintiffs alleged the opposite.[3] According to the amended complaint, the corporation’s shareholder maintained that he possessed an ownership interest in the corporation.[4] The amended complaint therefore did not allege that plaintiffs accepted or acted upon defendant’s statements: “the only party who relied on [defendant’s] alleged misrepresentation in any way was the purchaser of the subject property ….”[5] That fact was fatal to plaintiffs’ fraud claim because New York law requires reliance by the plaintiff asserting the fraud claim, not reliance by a third party.[6] 

“Since the amended complaint failed to connect the actions of [the law firm] ‘to a cognizable cause of action to recover damages for fraud,’” concluded the Court, “the [Supreme Court] should have granted those branches of [the law firm’s] motion which were pursuant to CPLR 3211(a)(7) to dismiss the second and sixth causes of action, alleging fraud and civil conspiracy to commit fraud, respectively, insofar as asserted against it.”[7] 

Regarding the civil conspiracy claim, New York does not recognize civil conspiracy as an independent cause of action. Rather, conspiracy allegations are merely a vehicle through which a plaintiff may connect various actors to an underlying tort.[8] Because plaintiffs failed to adequately plead fraud, there was no viable underlying tort to support a claim for civil conspiracy to commit fraud.[9] Accordingly, the conspiracy claim was dismissed as well.[10]

Takeaway

ANS 1 is a reminder that courts will closely examine whether a fraud claim alleges each required element, particularly justifiable reliance. Fraud claims often focus on the alleged falsity of a representation and the defendant’s intent (i.e., scienter), but ANS 1 demonstrates that those allegations are insufficient unless the plaintiff also alleges that it relied on the misrepresentation and suffered damages as a result. Where the complaint instead alleges that the plaintiff knew the truth, disputed the representation, or otherwise did not act in reliance upon it, the claim is vulnerable to dismissal.

Equally important, the Court reaffirmed that reliance by a third party cannot substitute for reliance by the plaintiff. In ANS 1 Corp., the alleged misrepresentation concerned ownership and authority to sell the property, but the amended complaint alleged that the purchaser, rather than the plaintiffs themselves, relied on those statements. The Court held that such allegations do not satisfy the reliance element of fraud under New York law. As a result, even assuming the alleged misrepresentation was made, the fraud claim could not survive because the complaint failed to connect that misrepresentation to any justifiable reliance by the plaintiffs.

The decision also reinforces the well-settled principle that civil conspiracy is not an independent cause of action in New York. Allegations of conspiracy merely serve to link multiple actors to an otherwise viable underlying tort. Consequently, where the underlying fraud claim is deficient, a claim for civil conspiracy to commit fraud necessarily fails as well. The Court’s dismissal of both causes of action illustrates the principle that a conspiracy claim “stands or falls” with the underlying tort upon which it is based.[11]

Finally, ANS 1 Corp. highlights the value of a pre-answer motion to dismiss under CPLR 3211(a)(7) when a complaint fails to plead essential elements of a fraud claim. Rather than permitting the parties to engage in costly discovery into disputed factual issues concerning the property transaction and shareholder agreements, the Second Department focused on the threshold pleading requirements and dismissed the claims because the complaint failed to allege a legally cognizable theory of reliance.

__________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________

[1] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018).

[2] Slip Op. at *2, quoting Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009), and citing Nabatkhorian v. Nabatkhorian, 127 A.D.3d 1043, 1043-1044 (2d Dept. 2015). 

[3] Id.

[4] Id. at 2-3 (“the allegations [in the amended complaint] were that [the corporation’s shareholder] consistently asserted his alleged interest in ANS …”). 

[5] Id. at *3.

[6] Pasternack v. Laboratory Corp. of America Holdings, 27 N.Y.3d 817, 829 (2016); New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp., 153 A.D.3d 1351, 1354 (2d Dept. 2017).

[7] Id., quoting Mohammad v. Rehman, 236 A.D.3d 892, 894 (2d Dept. 2025); and citing Philip S. Schwartzman, Inc. v. Pliskin, Rubano, Baum & Vitulli,  215 A.D.3d 699, 703 (2d Dept. 2023); McSpedon v. Levine, 158 A.D.3d 618, 621 (2d Dept. 2018).

[8] Philip S. Schwartzman, Inc., 215 A.D.3d at 703; Nabatkhorian, 127 A.D.3d at 1044.

[9] Slip Op. at *3.

[10] Id.

[11] Nabatkhorian, 127 A.D.3d at 1044.In ANS 1 Corp. v. Yosef, 2026 N.Y. Slip Op. 04918 (2d Dept. Aug. 12, 2026), the subject of today’s article, the Appellate Division, Second Department, reaffirmed that fundamental precept,[1] holding that fraud and civil conspiracy claims could not be maintained against a law firm where the complaint failed to allege that the plaintiffs themselves relied on the alleged misrepresentations. Instead, the only alleged reliance was by the purchaser of the property at issue, a pleading defect that proved fatal to both the fraud claim and the derivative claim for civil conspiracy to commit fraud.

Background

The dispute arose from the October 2021 sale of real property owned by ANS 1 Corp. The plaintiffs alleged that the transaction occurred without the consent of the company’s shareholder, who claimed to hold a 50% ownership interest pursuant to a shareholder agreement dated July 1, 2019. They further alleged that the defendant law firm, which represented the corporation in connection with the sale, knew of the shareholder’s ownership interest and the requirement that he consent to the transaction.

According to the amended complaint, defendant falsely represented that he was the sole owner of the property and had authority to complete the sale. Based on those allegations, plaintiffs asserted causes of action sounding in fraud and civil conspiracy to commit fraud against, among others, the law firm.

The law firm moved to dismiss the fraud-based claims under CPLR 3211(a). The Supreme Court denied the motion. On appeal, the Second Department modified that determination and dismissed the fraud and conspiracy claims against the firm.

The Second Department’s Ruling

The Court began its substantive discussion by articulating the elements of a fraud claim under New York law: “a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.”[2] The Court then addressed the issue on appeal: whether plaintiffs justifiably relied on the alleged misrepresentation.

Although the amended complaint alleged that defendant falsely represented that he was the sole owner of the property, the Court found that the amended complaint contained no allegations showing that plaintiffs actually relied upon that representation. Instead, said the Court, plaintiffs alleged the opposite.[3] According to the amended complaint, the corporation’s shareholder maintained that he possessed an ownership interest in the corporation.[4] The amended complaint therefore did not allege that plaintiffs accepted or acted upon defendant’s statements: “the only party who relied on [defendant’s] alleged misrepresentation in any way was the purchaser of the subject property ….”[5] That fact was fatal to plaintiffs’ fraud claim because New York law requires reliance by the plaintiff asserting the fraud claim, not reliance by a third party.[6] 

“Since the amended complaint failed to connect the actions of [the law firm] ‘to a cognizable cause of action to recover damages for fraud,’” concluded the Court, “the [Supreme Court] should have granted those branches of [the law firm’s] motion which were pursuant to CPLR 3211(a)(7) to dismiss the second and sixth causes of action, alleging fraud and civil conspiracy to commit fraud, respectively, insofar as asserted against it.”[7] 

Regarding the civil conspiracy claim, New York does not recognize civil conspiracy as an independent cause of action. Rather, conspiracy allegations are merely a vehicle through which a plaintiff may connect various actors to an underlying tort.[8] Because plaintiffs failed to adequately plead fraud, there was no viable underlying tort to support a claim for civil conspiracy to commit fraud.[9] Accordingly, the conspiracy claim was dismissed as well.[10]

Takeaway

ANS 1 is a reminder that courts will closely examine whether a fraud claim alleges each required element, particularly justifiable reliance. Fraud claims often focus on the alleged falsity of a representation and the defendant’s intent (i.e., scienter), but ANS 1 demonstrates that those allegations are insufficient unless the plaintiff also alleges that it relied on the misrepresentation and suffered damages as a result. Where the complaint instead alleges that the plaintiff knew the truth, disputed the representation, or otherwise did not act in reliance upon it, the claim is vulnerable to dismissal.

Equally important, the Court reaffirmed that reliance by a third party cannot substitute for reliance by the plaintiff. In ANS 1 Corp., the alleged misrepresentation concerned ownership and authority to sell the property, but the amended complaint alleged that the purchaser, rather than the plaintiffs themselves, relied on those statements. The Court held that such allegations do not satisfy the reliance element of fraud under New York law. As a result, even assuming the alleged misrepresentation was made, the fraud claim could not survive because the complaint failed to connect that misrepresentation to any justifiable reliance by the plaintiffs.

The decision also reinforces the well-settled principle that civil conspiracy is not an independent cause of action in New York. Allegations of conspiracy merely serve to link multiple actors to an otherwise viable underlying tort. Consequently, where the underlying fraud claim is deficient, a claim for civil conspiracy to commit fraud necessarily fails as well. The Court’s dismissal of both causes of action illustrates the principle that a conspiracy claim “stands or falls” with the underlying tort upon which it is based.[11]

Finally, ANS 1 Corp. highlights the value of a pre-answer motion to dismiss under CPLR 3211(a)(7) when a complaint fails to plead essential elements of a fraud claim. Rather than permitting the parties to engage in costly discovery into disputed factual issues concerning the property transaction and shareholder agreements, the Second Department focused on the threshold pleading requirements and dismissed the claims because the complaint failed to allege a legally cognizable theory of reliance.

__________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________

[1] Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018).

[2] Slip Op. at *2, quoting Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009), and citing Nabatkhorian v. Nabatkhorian, 127 A.D.3d 1043, 1043-1044 (2d Dept. 2015). 

[3] Id.

[4] Id. at 2-3 (“the allegations [in the amended complaint] were that [the corporation’s shareholder] consistently asserted his alleged interest in ANS …”). 

[5] Id. at *3.

[6] Pasternack v. Laboratory Corp. of America Holdings, 27 N.Y.3d 817, 829 (2016); New York Tile Wholesale Corp. v. Thomas Fatato Realty Corp., 153 A.D.3d 1351, 1354 (2d Dept. 2017).

[7] Id., quoting Mohammad v. Rehman, 236 A.D.3d 892, 894 (2d Dept. 2025); and citing Philip S. Schwartzman, Inc. v. Pliskin, Rubano, Baum & Vitulli,  215 A.D.3d 699, 703 (2d Dept. 2023); McSpedon v. Levine, 158 A.D.3d 618, 621 (2d Dept. 2018).

[8] Philip S. Schwartzman, Inc., 215 A.D.3d at 703; Nabatkhorian, 127 A.D.3d at 1044.

[9] Slip Op. at *3.

[10] Id.

[11] Nabatkhorian, 127 A.D.3d at 1044.