Opinion
June 13, 1967
Judgment in favor of the plaintiffs unanimously reversed, on the law and on the facts, with $50 costs to the defendant-appellant, and the complaint dismissed. The plaintiffs recovered $740,000 compensatory damages and $1,000,000 in punitive damages after trial before the court without a jury in an action for intentional falsehood. (See 50 Misc.2d 860.) A contract dispute between the corporate plaintiff and the defendant resulted in settlement agreements. Subsequently, the Internal Revenue Service conducted an investigation of plaintiffs' 1949 tax treatment of the transactions and inquiry was made of defendant respecting the true nature of the settlement agreements with the plaintiff corporation and its officers. At the trial the plaintiffs endeavored to prove that the defendant instead of telling the truth regarding the underlying elements of the settlement agreements, indicated only its own treatment of the agreements and gave misleading information to the Revenue Service and to a Federal Grand Jury which resulted in criminal and civil proceedings against them for tax fraud. The criminal proceedings were held to be barred by the Statute of Limitations and the indictment was dismissed ( United States v. Montgomery, 158 F. Supp. 267). The civil proceedings resulted in a finding by the Tax Court in favor of all the plaintiffs, except Baker who was in poor financial status at the time and had accepted a consent judgment, that the Commissioner had failed to establish fraud by clear and convincing evidence (T.C. Memo. 1964-124). The record fails to establish by preponderant proof that defendant maliciously or with the intention to harm plaintiffs, in response to official questioning and inquiries by Federal officers and governmental agencies, gave false and misleading information concerning the parties' agreements. The record is also lacking adequate and sufficient proof that it was the misleading information of the defendant which initiated the Government inquiry and led to the institution of the criminal and civil proceedings against plaintiffs. In view of our dismissal of the complaint it is unnecessary to treat of the question of damages. We must observe, however, that while we had previously ordered that special damages must be pleaded ( 7 A.D.2d 441; 8 A.D.2d 808; 9 A.D.2d 620), the trial court, relying upon Morrison v. National Broadcasting Co. ( 24 A.D.2d 284) awarded plaintiffs $550,000 general compensatory damages for the harm which generally and logically flowed from the defendant's conduct. The Court of Appeals on May 16, 1967 ( 19 N.Y.2d 453) reversed the order of this court in Morrison and held that the complaint therein would have to be dismissed for failure to allege special damages with sufficient particularity and that in any event the cause of action for intentional falsehood fell within the ambit of tortious injury sounding in defamation and was barred by the one-year Statute of Limitations applicable to libel and slander.
Concur — Stevens, J.P., Steuer, Tilzer, McNally and McGivern, JJ.