DLJ Mortgage Capital, Inc., Appellant,v.Thomas Kontogiannis, et al., Defendants, Chicago Title Insurance Company, Inc., et al., Respondents.

Brief

N.Y.November 13, 2013

To Be Argued by: MICHAEL J. SCHWARZ New York County Clerk’s Index No. 104675/10 New York Supreme Court Appellate Division – First Department   DLJ MORTGAGE CAPITAL, INC., Plaintiff-Respondent, – against – THOMAS KONTOGIANNIS, GEORGIA KONTOGIANNIS, LISA DIPINTO a/k/a LISA KONTOGIANNIS a/k/a LISA POLLATOS, ANNETTE APERGIS, CHLOE KONTOGIANNIS, ADAM DIPINTO, ELIAS APERGIS, JOHN T. MICHAEL, JONATHAN RUBIN, MICHAEL A. GALLAN, ESQ., TED DOUMAZIOS, ESQ., THOMAS F. CUSAK, III, ESQ., STEPHEN P. BROWN, ESQ., STEPHEN A. MARTINI, CARMINE CUOMO, COASTAL CAPITAL CORPORATION d/b/a THE MORTGAGE SHOP d/b/a CLEARLIGHT MORTGAGE, EDGEWATER DEVELOPMENT, INC., GROUP KAPPA CORP., LORING ESTATES LLC, PARKVIEW FINANCIAL CENTER, INC. d/b/a PARKVIEW FINANCIAL, INC. d/b/a PARKVIEW CENTER, INC., CLEAR VIEW ABSTRACT LLC, TRIUMPH ABSTRACT, INC., BOND & WALSH CONSTRUCTION COMPANY, INTERAMERICAN MORTGAGE CORP., HALIFAX GROUP LLC, PLAZA REAL ESTATE HOLDINGS, INC. and WASHINGTON TITLE INSURANCE COMPANY, INC., Defendants, CHICAGO TITLE INSURANCE COMPANY, INC. and UNITED GENERAL TITLE INSURANCE COMPANY, INC., Defendants-Appellants, DOE’s 1 through 100 inclusive, Defendants. REPLY BRIEF FOR DEFENDANT-APPELLANT UNITED GENERAL TITLE INSURANCE COMPANY, INC. DELBELLO DONNELLAN WEINGARTEN WISE & WIEDERKEHR, LLP Attorneys for Defendant-Appellant United General Title Insurance Company, Inc. One North Lexington Avenue White Plains, New York 10601 (914) 681-0200 mjs@ddw-law.com Printed on Recycled Paper TABLE OF CONTENTS TABLE OF AUTHORITIES ............................................................. iii PRELIMINARY STATEMENT ........................................................... ! ARGUMENT ................................................................................. 3 I. The Amended Complaint does not Plead Sufficient Facts to Hold UGT Accountable Under a Conspiracy Theory .......................... .3 II. DLJ Concedes that Liability Cannot be Founded Upon the Theories of Actual Authority and/or Respondeat Superior ............. 4 III. UGT Fails to Plead Fact to Hold UGT Accountable for the Alleged Fraud of Clear View Under the Theory of Apparent Authority ........................................................................ 5 a. The Amended Complaint Fails to Plead a Claim for Liability Predicated on the Theory of Apparent Authority ................... 6 b. DLJ Cannot Establish Reasonable Reliance On Clear View's Purported Apparent Authority ............................ l3 c. The Facts, as Alleged by DLJ, Demonstrate That Clear View Completely Abandoned the Object of its Alleged Agency by Actively Participating in the Massive Mortgage Fraud .................................................................... 13 d. As a Matter of Law, UGT is not Liable for the Acts of Clear View and/or Doumazious, Ostensibly Committed as Agents For Chicago Title and/or Washington Title .............. 20 IV. DLJ has Failed to Plead a Viable Cause of Action of Fraud Against UGT .................................................................. 24 A. DLJ Fails to Specifically Plead any Fraudulent Misrepresentation or Omission of Material Fact by Clear View to DLJ ........................................................ 24 B. DLJ's Claimed Reliance was not Reasonable ........................ 25 C. DLJ's Willful Disregard of Clear "Red Flags" Bars it From Pursuing its Fraud Based Claims ...................................... 29 CONCLUSION ............................................................................... 34 11 TABLE OF AUTHORITIES 150 Beach J2dh Street, Inc. v. Washington Brooklyn L.P., 39 A.D.3d 722 (2d Dept. 2007) .................................................... 11 Aarons Fifth Avenue, Inc. v. Ins. Co. ofN Am., 52 A.D.2d 855 (2d Dept. 1976) ..................................................... 8 Adams v. Labaton, Sucharow & Rudolf LLP, 07 Civ. 7017,2009 WL 928143 (S.D.N.Y. Mar. 20, 2009) ...................... 9 Adler v. Helman, 169 A.D.2d 925 (3d Dept. 1991) .............................................. 14, 15 Brookfield Clothes, Inc. v. Tandler Textiles, Inc., 78 A.D.2d 841 (1st Dept. 1980) ................................................... 11 Chubb & Son Inc. v. Consoli, 283 A.D.2d 297, (1 st Dept. 2001) ................................................. 15 Citibank v. Chicago Title Ins. Co., 214 A.D.2d 212 (1st Dept. 1995) .................................................. 27 DDJ Mgmt., LLC v. Rhone Group LLC, 15 N.Y.3d 147 (2010) .............................................................. 31 Duane Thomas LLC, v. 62 Thomas Partners, LLC, 300 A.D.2d 52 (1st Dept. 2002) .............................................. .30, 32 Federal Ins. Co. v. Diamond Kamvakis & Co. Inc., 144 A.D.2d 42 (1st Dept. 1989) .................................................... 6 Ford v. Unity Hospital, 32 N.Y.2d 464 (1973) ................................................................ 6 Gilbert Frank Corp. v. Federal Ins. Co., 91 A.D.2d 31 (1st Dept. 1983) ..................................................... 8 111 Goldman Sachs Mortg. Co. v. Natixis Real Estate Capital Inc., 602359/07, 2008 WL (N.Y. Sup. Ct. Apr. 30, 2008) ............................ 8 Hallock v. State of New York, 64 N.Y.2d 224 (1984) .......................................................... 6, 13 Harriss v. Tams, 258 N.Y. 229 (1932) ................................................................ 22 Kirschner v. KPMG LLP, 15 N.Y.3d 446 (2010) ................................................. .14, 18, 19, 20 Luna/ Realty, LLC v. DiSanto Realty, LLC, 88 A.D.3d 661 (2d Dept. 2011) .............................................. .31, 32 Leonard v. Gateway II, LLC, 68 A.D.3d 408 (1st Dept. 2009) ................................................... 28 Marshall v. Marshall, 73 A.D.3d 870 (2d Dept. 2010) ..................................................... 6 Matter of Allstate Ins. Co. v. Perez, 157 A.D.2d 521 (1st Dept. 1990) .................................................. 21 McGarry v. Miller, 158 A.D.2d 327 (1st Dept. 1990) ................................................... 7 Meyerson v. Lawyers Title Ins. Corp., 39 A.D.2d 190 (1st Dept. 1972) .................................................... 11 Parlato v. Equitable Life Assurance Soc. Of U.S., 299 A.D.2d 108 (1st Dept. 2001) ........................................... 4, 17, 18 Prudential Ins. Co. of America v. National Bank of Commerce in New York, 227 N.Y. 510 (1920) ................................................................ 15 UST Private Equity Investors, Inc. v. Salomon Smith Barney, 228 A.D.2d 87 (1st Dept. 2001) .................................................... 30 lV Valassis Commun., Inc., v. Weimer, 304 A.D.2d 448 (1st Dept. 2003) ................................................. 28 Vanship Holdings Ltd. V. Energy Infrastructure Acquisition Corp., 65 A.D.3d 405 (1st Dept. 2009) .................................................... 1 Weldon v. Rivera, 301 A.D.2d 934 (3d Dept. 2003) ................................................... .4 Wells Fargo Home Mortg., Inc v. Hiddekel Church of God, Inc., 11911/02,2004 WL 258144 (Sup. Ct. Kings Count Feb. 10, 2004) ........ .15 Zalmanov v. Shabat, LLC, No. 10857/11, 2012 WL 255761 (Sup. Ct. Kings County Jan. 16, 2012) ..... 9 Zigabarra v. Falk, 143 A.D.2d 901 (2d Dept. 1988) .............................................. 7, 9, 13 OTHER STATUTUES: CPLR 3211 ............................................................................ passim CPLR 3016 .............................................................................. passim v Defendant-Appellant United General Title Insurance Company ("UGT"), by its attorneys, DelBello Donnellan Weingarten Wise & Wiederkehr, LLP, respectfully submits this Reply Brief in further support of its appeal from the Order of the Honorable Charles E. Ramos, Justice of the Supreme Court, New York County (the "Order"), which denied UGT's motion to dismiss the Amended Complaint (the "Amended Complaint") of Plaintiff-Respondent DLJ Mortgage Capital, Inc. ("DLJ" or "Respondent"), pursuant to CPLR 3211 (a)( 1 ), CPLR 3211 ( a)(7), and CPLR 30 16(b ). 1 PRELIMINARY STATEMENT DLJ seeks to recover $50 million in damages allegedly sustained as a result of a "massive" mortgage fraud conspiracy. DLJ alleges it was duped by Coastal into purchasing approximately 95 fake mortgages on the secondary market. That scheme was allegedly masterminded by Kontogiannis (who allegedly controlled Coastal), and carried out by those loyal to him, including, without limitation, Clear View. UGT is not alleged 1 Unless indicated differently herein, all capitalized terms are intended to have the same meaning as set forth in UGT's opening Brief. References to UGT's opening Brief are noted as "UGT Br." References to DLJ's answering Brief are noted as "DLJ Br." References to Chicago Title's opening Brief are noted as "Chicago Br." 1 to have possessed knowledge of, participated in, or benefitted from the purported conspiracy. DLJ claims that UGT is liable for its (DLJ's) damages by reason of unsubstantiated acts and omissions of Clear View, without even alleging facts sufficient to give rise to a claim of apparent authority, or conspiracy liability. Furthermore, DLJ's Amended Complaint fails to adequately plead a claim for fraud because it does not specifically plead any material misstatements (or omissions) of fact made by Clear View (or UGT) to DLJ. Moreover, the undisputed proof belies any claim that DLJ' s reasonable reliance under the circumstances, especially given the fact that the alleged Commitments, which DLJ acknowledges are pre-closing documents by their nature, are dated after the settlement (closing) date of the loans they allegedly insured. The lower court erred in denying UGT's motion to dismiss the Amended Complaint. Therefore, the lower court's Order should be reversed, and the Amended Complaint dismissed with prejudice. 2 ARGUMENT POINT I THE AMENDED COMPLAINT DOES NOT PLEAD SUFFICIENT FACTS TO HOLD UGT ACCOUNTABLE UNDER A CONSPIRACY THEORY The Amended Complaint seeks to hold UGT liable for an alleged "conspiracy" to defraud DLJ into purchasing "bogus" mortgages on the secondary market, a conspiracy orchestrated by Kontogiannis (and Coastal) and carried out by those loyal to him (including Clear View). However, the Amended Complaint fails plead sufficient facts to hold UGT liable for the alleged conspiracy. Specifically, the Amended Complaint fails to allege that UGT: • entered into an agreement with any of the "Conspiracy Defendants" to cooperate or be a part of the alleged scheme to sell bogus mortgages to DLJ. • committed one or more "overt acts" in furtherance of the alleged conspiracy. • was a knowing and intentional participant in the alleged . conspiracy. See UGT Br., pp. 17-20. 3 DLJ's Brief shirks UGT's arguments, and does not specifically address (or dispute) the pleading requirements for establishing a conspiracy claim. Likewise, DLJ does not dispute that its pleading lacks the necessary elements to establish conspiracy liability vis-a-vis UGT, a defect recognized, but erroneously disregarded, by the lower court. (SeeR. at 39- 40). Accordingly, the Order should be reversed, and the Amended Complaint dismissed, for failure to plead conspiracy liability as against UGT. See UGT Br., pp. 17-20. POINT II DLJ CONCEDES THAT LIABILITY CANNOT BE FOUNDED UPON THE THEORIES OF ACTUAL AUTHORITY AND/OR RESPONDEAT SUPERIOR UGT is not liable for the purported (but unsubstantiated) fraudulent acts or omissions of Clear View under the theories of actual authority and/or respondeat superior. See UGT Brief, pp. 22-27. Having failed to address the point, DLJ concedes it. See Weldon v. Rivera, 301 A.D.2d 934, 935 (3d Dept. 2003) (party conceded opposing party's argument by failing to address it in its brief on appeal). Apparently, DLJ has chosen to abandon any claim it attempted to plead based upon actual authority and/or respondeat superior liability, (see 4 DLJ Br., p. 13)2, electing to proceed solely upon its claim that UGT is allegedly accountable for the purported acts of Clear View based upon the theory of apparent authority. See id., pp. 13-14. Accordingly, and for the reasons previously stated by UGT in its opening brief, and cogently argued by co-appellant Chicago Title (see Chicago Br., pp. 19-28), the lower court erred in denying UGT's motion to dismiss the Amended Complaint to the extent it purports to plead claims based upon actual authority and/or respondeat superior. POINT III UGT FAILS TO PLEAD FACT TO HOLD UGT ACCOUNTABLE FOR THE ALLEGED FRAUD OF CLEAR VIEW UNDER THE THEORY OF APPARENT AUTHORITY As noted above, DLJ has limited its theory of liability to apparent authority. See DLJ Br., p. 13. However, the Amended Complaint fails to plead a claim predicated upon apparent authority. Therefore, the Order of the lower court should be reversed, and the Amended Complaint dismissed as against UGT. 2 Specifically, DLJ states that "[a]s for the doctrines of respondeat superior and actual authority, these theories are irrelevant and should be disregarded since DLJ does not seek to hold [UGT and Chicago Title} liable on either of these theories." DLJ Br., p. 13 (emphasis added). 5 a. The Amended Complaint Fails To Plead A Claim For Liability Predicated On Apparent Authority "' [A ]pparent authority' is not automatically available to the injured third party to bind the principal." Federal Ins. Co. v. Diamond Kamvakis & Co. Inc., 144 A.D.2d 42, 45 (1st Dept. 1989). See also, Ford v. Unity Hospital, 32 N.Y.2d 464, 472-73 (1973). "[E]ssential to the creation of apparent authority are words or conduct of the principal, communicated to a third party, that give rise to the appearance and belief that the agent possesses authority to enter into a transaction." Hallock v. State of New York, 64 N.Y.2d 224, 231 (1984). See also, Marshall v. Marshall, 73 A.D.3d 870, 871 (2d Dept. 2010). Apparent authority is only a viable theory of vicarious liability where, unlike here, there is a factual showing of misleading statements or conduct by the principal directed at the third claiming apparent authority, (see Federal Ins. Co. v. Diamond Kamvakis & Co. Inc., 144 A.D.2d 42, 45-46 (1st Dept. 1989) ("existence of 'apparent authority' depends upon a factual showing that the third party relied upon the misrepresentation of the agent because of some misleading conduct on the part of the principal-not the agent."). Moreover, apparent authority may only be found where the third 6 party's reliance upon the agent's alleged authority is shown to be reasonable. See Zigabarra v. Falk, 143 A.D.2d 901, 902 (2d Dept. 1988) ("a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable."). Claims based on apparent authority should be dismissed where, as here, the complaint fails to allege any words or conduct by the principal directed to the third party claiming apparent authority. See Zigabarra, 143 A.D.2d at 902 (affirming dismissal pursuant to CPLR 3211(a) where the complaint failed to allege words or conduct by the alleged principal directed at the third party). See also, McGarry v. Miller, 158 A.D.2d 327, 328 (1st Dept. 1990) ("a principal is not liable for the acts of an agent in excess of any actual authority unless it is demonstrated that the party reasonably relied on such misrepresentations because of some misleading conduct on the part of the principal. Since neither Mutual Benefit nor M & M had any contact with plaintiff, no such showing can be made.")( citation omitted). DLJ fails to allege any false or misleading communication made by UGT to DLJ upon which DLJ could have relied. DLJ concedes, as it must, that it had absolutely no communications with UGT (or Clear View) prior to DLJ's acquisition of the loan files for the Subject Loans. The first time DLJ 7 actually communicated with UGT concernmg the Subject Loans and Commitments was many years after DLJ purchased the Loan Files from Coastal Capital, when it filed its notice of claim with UGT. (SeeR. at 726- 734). Because there are no allegations establishing that UGT had any contact with DLJ whatsoever prior to or at the time DLJ acquired the Subject Loans, DLJ's claim of apparent authority must be dismissed for failure to state a claim. DLJ argues that the issue of apparent authority is factual in nature, and that its Amended Complaint sets forth sufficient allegations to raise a "material issue of fact" as to "Doumazious "' purported apparent authority to act on behalf of UGT. (See DLJ Br., pp. 15-16).3 This argument is without merit. The issue presented is not the scope of Clear View's apparent authority but whether DLJ pleaded sufficient facts to establish a 3 DLJ's reliance upon dicta in Gilbert Frank Corp. v Federal Ins. Co., 91 A.D.2d 31 (1st Dept. 1983) and Aarons Fifth Avenue, Inc. v. Ins. Co. of N Am., 52 A.D.2d 855 (2d Dept. 1976) is misplaced. Both Gilbert Frank and Arrons primarily involved motions to dismiss on limitations grounds, rather than motions to dismiss for legal insufficiency. Furthermore, the court in Aarons was apparently not asked to consider the sufficiency of a claim based upon a theory of apparent authority. Goldman Sachs Mortg. Co. v. Natixis Real Estate Capital Inc., 602359/07, 2008 WL 1999522 (N.Y. Sup. Ct. Apr. 30, 2008) is also inapposite. The complaint in that action, unlike this action, pled words or conduct by the alleged principal (Natixis) to the third party claiming apparent authority (GSMC) which may give rise to a claim of apparent authority, especially given the prior dealings between the parties in similar transactions. No such allegations are found in the Amended Complaint. 8 claim of apparent authority in the first place. Absent allegations of words and conduct communicated by UGT to DLJ to create the appearance of apparent authority, there is no basis for a claim of apparent authority. See pp. 6-8, supra. Dismissal of a claim predicated apparent authority is appropriate on a pre-answer motion to dismiss where, as here, the pleading fails to allege facts sufficient to state a claim. See, e.g., Zigabarra, 143 A.D.2d at 902 (affirming dismissal pursuant to CPLR 3211(a)). See also, Zalmanov v. Shabat, LLC, No. 10857/11, 2012 WL 255761 (Sup. Ct. Kings County Jan. 16, 2012) (Demarest, J.) (dismissing claim based upon apparent authority pursuant to CPLR 3211(a)) ("Plaintiff does not allege that Schwartz made any sort of representation about Jusewitz's authority to repurchase plaintiffs interest in Shabat on her behalf.") (citation omitted); Adams v. La baton, Sucharow & Rudolf LLP, 07 Civ. 7017, 2009 WL 928143, at *4 (S.D.N.Y. Mar. 20, 2009) (dismissing claim pursuant to Rule 12(b)(6) where it failed to plead any words or conduct by the principal communicated to the third party sufficient to create the appearance of authority). The lower court erred in denying UGT's motion to dismiss. 9 DLJ argues it has alleged a "myriad of facts and circumstances" which purportedly show that Clear View was "cloaked" with "apparent authority," making reference to an alleged issuing agent agreement between UGT and Clear View, as well as its claim that UGT allegedly provided Clear View with blank title insurance documentation, manuals and/or policies. See DLJ Br., pp. 16-18. None of the referenced documents demonstrate the existence of "apparent authority" for Clear View to act on UGT's behalf with respect to the subject transactions. Because none of the documents referred to by DLJ constitute words or conduct communicated by UGT to DLJ, the claimed "facts and circumstances" simply do not support of theory of liability based on apparent authority. DLJ claims that Clear View may have prepared and/or issued reports and/or commitments of title in the past, and that Clear View allegedly held itself out as an agent of UGT, as "proof' of apparent authority. (See DLJ Br., p. 16). DLJ's claim is wholly irrelevant because Clear View's purported acts as an alleged agent cannot be used to establish apparent authority.4 The 4 DLJ claims that the Commitments identify Doumazious of Clear View as the person to whom title clearance questions are to be directed, and create the appearance of authority. The referenced statement is contained in the purported report of title, which was allegedly prepared by Clear View, not UGT. (R. at 431-32, 442, 916, 934). Therefore, the statements in the report cannot be used to establish a basis for apparent authority. 10 law clearly provides that the facts giving rise to claim for apparent authority may not originate from the agent, but must instead come from the principal itself. See Brookfield Clothes, Inc. v. Tandler Textiles, Inc., 78 A.D.2d 841, 842 (1st Dept. 1980) ("The representations, declarations or conduct of the agent are not proof of authority."). See also, 150 Beach J2dh Street, Inc. v. Washington Brooklyn L.P., 39 A.D.3d 722, 723 (2d Dept. 2007) ("An agent cannot by his own acts imbue himself with apparent authority."). DLJ relies heavily on Meyerson v. Lawyers Title Ins. Corp., 39 A.D.2d 190 (1st Dept. 1972), to argue that it has sufficiently stated a claim for liability predicated upon a theory of apparent authority. DLJ's reliance on Meyerson is misplaced. In Meyerson, unlike here, the plaintiff had direct communications with Lawyers Title Insurance Corporation (the alleged principal), by contacting Lawyers Title by phone. The proof also demonstrated that Lawyers Title provided the plaintiff with a title number, specifically represented to the plaintiff that Rosen (the alleged agent) was its agent for the transaction in question, and referred the Plaintiff to Rosen with questions relating to an alleged title report. See id., 39 A.D.2d at 192. No such facts or circumstances are alleged herein, and DLJ clearly concedes that it had absolutely no communication with UGT concerning Clear View, 11 its alleged authority to act on behalf of UGT in connection with the subject transaction, and/or the Commitments referenced in the Amended Complaint. Finally, to the extent DLJ intimates in self-serving fashion that the so- called doctrine of innocents is applicable, (See DLJ Br., p. 20), DLJ' s terse argument is nothing more than a "red herring." That doctrine does not cure the facial deficiencies in DLJ' s pleading, but even if it did (although it does not) DLJ is not "innocent" party vis-a-vis UGT. DLJ is a substantial and sophisticated player in the acquisition, pooling and sale of mortgages on the secondary market. DLJ obligated itself to purchase the Subject Loans prior to performing any meaningful due diligence relative to the loans, allegedly based upon representations allegedly made by Coastal Capital, and its due diligence agent (LaSalle). Furthermore, it is clear that DLJ's loss, if any, was caused by DLJ's failure to review the online ACRIS system to confirm whether its mortgages had been recorded, and its unverified assumption that the loans were protected by policies of title insurance (when in actuality, they were not). Finally, if DLJ would have conducted any meaningful review the documents it would have seen that the Commitments, which DLJ concedes are pre-closing documents, are dated months after the alleged date 12 of settlement (closing) for the loans they allegedly insured. DLJ is not as "innocent" as it will have this court believe. b. DLJ Cannot Establish Reasonable Reliance On Clear View's Purported Apparent Authority DLJ also has an obligation to establish that its reliance on Clear View's supposed apparent authority was reasonable given the circumstances. (See UGT Br., pp. 27-28). See Hallock, 64 N.Y.2d at 231. See also, Zigabarra, 143 A.D.2d at 902 ("a third party with whom the agent deals may rely on an appearance of authority only to the extent that such reliance is reasonable."). Since it is conceded that DLJ had absolutely no communications or dealings with UGT concerning Clear View's authority to act on UGT's behalf prior to the acquisition of the Subject Loans, it cannot legitimately claim that its actions were reasonable under the circumstances. The lower court erred in denying UGT's motion to dismiss the Amended Complaint. c. The Facts, As Alleged By DLJ, Demonstrate That Clear View Completely Abandoned The Object Of Its Alleged Agency By Actively Participating In The Massive Mortgage Fraud DLJ argues that the purported knowledge and actions of Clear View should be imputed to UGT, and that UGT should be held accountable for 13 the actions of Clear View even if Clear View's acts were less than admirable, principally relying upon Kirschner v. KPMG LLP, 15 N.Y.3d 446 (2010), and Parlato v. Equitable Life Assurance Soc. Of U.S., 299 A.D.2d 108 (1st Dept. 2001). (See DLJ Br., pp. 21-24).5 There are several problems with DLJ's argument. First, as discussed above, DLJ has failed to plead a basis for liability predicated upon a theory of apparent authority. See Point III(a) and (b), supra. As such, the Court need not consider DLJ's argument. Second, there can be no meritorious dispute that where, as here, an agent completely abandons the object of his agency, and acts entirely for himself or another, he ceases to be an agent, and the principal is not liable for the acts of the agent. See, e.g., Adler v. Helman, 169 A.D.2d 925, 926 (3d Dept. 1991) ("When an agent abandons the object ofhis agency and acts for himself, by committing a fraud for his own exclusive benefit, he ceases to act within the scope of his employment and, to that extent, ceases to act 5 Contrary to DLJ's intimations, (DLJ Br., p. 18), UGT does not rely upon the language of Parlato in its Brief. Parlato is inapposite, and UGT places no reliance upon that case. 14 as agent.").6 Prudential Ins. Co. of America v. National Bank of Commerce in New York, 227 N.Y. 510, 515 (1920) ("When an agent abandons the object of his agency and acts for himself by committing a fraud for his own exclusive benefit, he ceases to act within the scope of his employment, and to that extent ceases to act as agent"); Chubb & Son Inc. v. Consoli, 283 A.D.2d 297, 298 (1st Dept. 2001) ("The adverse agent rule ... relieves a principal of liability when the agent totally abandons the principal's interests and acts entirely for his or another's purposes.") (holding that "Addesa did abandon Chubb's interests since his actions caused Chubb to pay more than was reasonable for the claims."); Wells Fargo Home Mortg., Inc. v. Hiddekel Church ofGod, Inc., 11911/02, 2004 WL 258144, at *6 (Sup. Ct. Kings Count Feb. 10, 2004) ("pursuant to the 'adverse agent' rule, a principal is relieved of liability for an agent's acts when the agent "totally 6 DLJ's attempt to distinguish the case of Adler v. Helman is unavailing. (See DLJ Br., p. 18, n. 4). First, this Court did not "expressly reject" the holding of Adler in the case of Parlato. Second, there is nothing in the Adler decision to support DLJ's self-serving claim that the case "appears to be based upon respondeat superior." Adler is clearly on point, and certainly stands for the proposition that a principal will not be held accountable for the acts of a reputed agent where, as here, the agent abandons the object of their agency committing a fraud solely for themselves or another. 15 abandons the principal's interests and acts entirely for his or another's purposes.'"). Based upon the facts alleged by DLJ there is no question that Clear View completely abandoned the object of its agency to UGT by participating in a scheme designed solely to benefit Kontogiannis, and entities controlled by him, and their alleged co-conspirators, (R. at 444, 447,935-36, 939), and to "ensure that the Kontogiannis Enterprise" and "Coastal Capital" would "make a profit" from the sale of the fraudulent loan. (R. at 444, 935-36). Furthermore, DLJ pleads that Clear View did "none of the[] things" it was required to do as an alleged agent ofUGT, (R. at 432, 437), and further concedes that UGT received no benefit as a result of the transactions in issue because no premiums were collected or paid for title insurance (R. at 21 ). Finally, DLJ even argues in its Brief that the "very purpose" of the alleged scheme was not to benefit UGT through the sale or solicitation of title insurance products, but instead: to create fraudulent mortgages and supporting documentation through mortgage originator (and defendant below) Coastal and the other co-conspirators, and sell the mortgages on the secondary market so that the co-conspirators (including Doumazious) could reap profits from such sales. (See DLJ Br., p. 32). 16 The facts alleged establish that Clear View completely abandoned UGT's interests by acting in the manner alleged. Therefore, the lower court erred in denying UGT's motion to dismiss. DLJ argues, without citation to any authority, that the cases discussing the adverse agent rule allegedly "suggest that it is relevant to the doctrines of respondeat superior and in pari delicto, and not to the doctrine of apparent authority." (See DLJ Br., p. 25). DLJ's argument is simply without merit. The "adverse agent" rule identified above (see pp. 14-16, supra) is a well-recognized exception to the general agency rule that the acts or words of an agent may be imputed to its principal, and there appears to be no case limiting its application only to instances involving claims of actual authority, respondeat superior, or in pari delicto (and certainly, none of the cases cited by DLJ limit its application in the manner suggested by DLJ). Third, the principal cases relied upon by DLJ to support its argument are, to borrow a phrase used by DLJ, "easily distinguishable." The Parlato case, unlike this case, concerned the issue of whether the principal's failure to notify its existing customer of the termination of an investment agent (with whom the customer had dealt with for years) may 17 provide a basis for holding the principal liable to the customer even though the agent's actual authority had been terminated. That issue simply is not present in this action. The legal issue here is whether DLJ pleads a viable claim against UGT predicated upon the doctrine of apparent authority where there are no allegations to establish that UGT communicated with, or otherwise mislead, DLJ in any fashion. Settled authority establishes that DLJ's allegations fail to state a claim for apparent authority. Parlato is inapposite. Furthermore, in Parlato, and unlike this case, there was a substantial course of dealing between the Plaintiff (Parlato) and the defendant principal as well as its reputed agent. Parlato, 299 A.D.2d at 114, 116-17. Such a course of dealing is not alleged in the Amended Complaint. Finally, in Parlato this Court held that a second plaintiff (Parlato's sister, Perry) had no claim based upon apparent authority since she had no prior dealing or communications with the principal (like DLJ in this case). See id. Likewise, DLJ's reliance on Kirschner is misplaced. In Kirschner, the president and CEO of a corporation orchestrated a succession of loans which concealed hundreds of millions of dollars of uncollectible debt from the public and regulators thus creating a false-positive picture of the 18 corporation's financial condition. See id. at 457-58. The issue there was whether the "adverse interest exception" applied to the misconduct of that "corporate insider." See id. at 462 (emphasis added). See also id. at 467 (explaining that corporate officer' s/insider' s interests are "often deliberately aligned with the corporation's interests"). Ultimately, the Court held that the corporate officer's fraudulent conduct may be imputed to the corporation. The Kirschner holding was limited to the imputation of a corporate officer's acts to the corporation itself, which has no relevance here. See id. at 465 ("Corporations are not natural persons. [O]fnecessity, [they] must act solely through the instrumentality of their officers or other duly authorized agents. A corporation must, therefore, be responsible for the acts of its authorized agents even if particular acts were unauthorized ... Like a natural person, a corporation must bear the consequences when it commits fraud") (quotations and citations omitted). Unlike in Kirschner -- where the Court was specifically addressing liability of a corporation for its "corporate acts" (id. at 466) caused by a corporate insider -- Clear View was not a corporate officer or employee of UGT (and is not alleged to be), nor was its conduct considered (or alleged) to be a "corporate act" of UGT. Clear View is alleged to be a limited agent ofUGT, whose limited authority was confined 19 to and defined by the terms of its alleged agency contract with UGT. The facts alleged simply do not fall within the purview of Kirschner. Accordingly, the lower court erred in denying UGT's motion to dismiss the Amended Complaint. 7 d. As A Matter Of Law, UGT Is Not Liable For The Acts Of Clear View And/Or Doumazious, Ostensibly Committed As Agents For Chicago Title And/Or Washington Title As argued by UGT in its Brief, UGT is not accountable for the alleged fraud committed by Clear View (and Doumazious) and/or Triumph, in their purported capacity as agents for Chicago and/or Washington Title, or the alleged issuance of policies and/or certificates of title on behalf of those companies.8 See UGT Br. pp. 30-31. DLJ claims that this purely legal argument, which is founded solely upon the facts as alleged by DLJ in 7 The claimed fact that there may, or may not be, an indemnity provision in the alleged UGT issuing agent agreement with Clear View (See DLJ Br., p. 24) is wholly irrelevant to the issues before this Court, which concerns the sufficiency of DLJ's claims of apparent authority, conspiracy liability and fraud. 8 As alleged in DLJ's Amended Complaint, Triumph acted as Washington Title's agent for 24 of the 95 transactions, that Clear View acted as Washington Title's agent for 27 of the 95 transactions, and that Clear view allegedly acted as Chicago Title's agent for 18 of the 95 transactions. (R. at 443, 934-35). Clear View is only alleged to have been UGT's agent for 13 of the 95 transactions. See id The remaining nine (9) transactions apparently do not involve any alleged agent ofUGT, Washington Title or Chicago Title. 20 its pleading and the applicable to law, cannot be considered by this Court. See Plain. Br. pp. 26-29. DLJ's argument is without merit. While arguments and claims not raised in the trial court generally will not be considered on appeal, as long as the issue is determinative, and the record on appeal is sufficient to permit review, an appellate Court may consider a new legal argument raised for the first time on appeal. See Vanship Holdings Ltd. v. Energy Infrastructure Acquisition Corp., 65 A.D.3d 405, 408 (1st Dept. 2009) ("So long as the issue is determinative and the record on appeal is sufficient to permit our review, we may consider a new legal argument raised for the first time in this Court). See also, Matter of Allstate Ins. Co. v. Perez, 157 A.D.2d 521, 523 (1st Dept. 1990). Clearly, this Court has the power to consider UGT's pure legal argument, which will be determinative of DLJ's claim to the extent it seek to hold UGT accountable for the acts of Clear View (and Triumph) which were allegedly committed in its (their) capacity as purported agent(s) for Chicago Title and/or Washington Title. DLJ identifies no controlling precedent to hold UGT accountable for the acts of Clear View which DLJ specifically alleges were committed in its (and Triumph's) purported capacity as limited agent for Chicago Title 21 and/or Washington Title, presumably because none exists. The rule is well- settled, no liability may be imposed upon an alleged principal where, as here, the agent acts are alleged to be outside the scope of their actual or apparent authority. See Harriss v. Tams, 258 N.Y. 229, 236 (1932) ("No obligation can be imposed upon [a] principal by the act of an agent outside of his real or apparent authority"). DLJ cannot legitimately claim that Clear View, by issuing certificates of title and/or policies of title insurance for Chicago Title and/or Washington Title, was purporting to act as the actual or apparent agent of UGT, a separate legal entity. Furthermore, DLJ apparently concedes that UGT is not responsible for the purported acts of Triumph, which entity is not even alleged to be an agent of UGT (and which clearly was not an agent of UGT). (See R. at 759-762). Accordingly, the Amended Complaint should be dismissed to the extent DLJ seeks to hold UGT accountable for the purported fraud of Clear View and/or Triumph as the reputed agent for Chicago Title and/or Washington Title. Without squarely addressing UGT's argument, DLJ claims that UGT should be held accountable for the acts of Clear View because "a party who knowingly and actively participates in a conspiracy is equally liable for all 22 of the actions ... of each of his/her/its co-conspirators." (See DLJ Br. p. 27). The problem with DLJ's argument, as noted by UGT in its opening Brief, (see UGT Br., pp. 17-21), and above (see Point I, supra), is that DLJ's pleading fails to allege a basis for conspiracy liability against UGT. The identified facial deficiencies mandate dismissal of the Amended Complaint to the extent it purports to assert a claim for conspiracy liability as against UGT. See id. Finally, DLJ claims that UGT should be held accountable for the entire conspiracy arguing that if UGT had adequately "policed" Clear View (and/or Doumazios), then UGT allegedly would have allegedly uncovered the massive fraud that had been perpetrated. (See DLJ Br., p. 28). DLJ's new factual claim (that UGT allegedly did not "police" Clear View") is not only specious, self-serving, and unsupported by the Record, it is wholly irrelevant as the issue here is the sufficiency of DLJ' s claims of fraud, conspiracy and apparent authority. 23 POINT IV DLJ HAS FAILED TO PLEAD A VIABLE CAUSE OF ACTION OF FRAUD AGAINST UGT A. DLJ Fails To Specifically Plead Any Fraudulent Misrepresentations Or Omission Of Material Fact By Clear View To DLJ As noted in UGT's opening Brief, the Amended Complaint fails to identify, with any degree of particularity, any misstatements (or omissions) of material fact made by Clear View (or Doumazious) to DLJ. (See UGT Br., 32-38). The reasons for this is manifest, DLJ had no communications with Clear View (or Doumazious), having acquired the Subject Loans on the secondary market, allegedly from Coastal Capital. The only alleged communications involved communications between DLJ, Coastal Capital (which is not alleged to be an agent of UGT), and LaSalle (which is not alleged to be UGT's agent). Because the Amended Complaint is devoid of any specific allegations of misrepresentations (or omissions) made by Clear View (or UGT) to DLJ, with the degree of particularity required by CPLR § 3016(b), it should have been dismissed for failure to state a claim. DLJ argues that it has stated a claim for fraud because its pleading is allegedly "filled with allegations, based upon evidence in admissible form, 24 reflecting Doumazios' numerous material misrepresentations," specifically referencing pages 430 and 434 of the Record. However, nowhere in the referenced Record pages, or for that matter the Amended Complaint generally, are there any specific allegations concerning any purported representations and/or omissions of fact made by Clear View (or Doumazious) to DLJ, because DLJ had no communications with Clear View (or Doumazious).9 The only parties with whom DLJ communicated were Coastal Capital and LaSalle, DLJ's due diligence agent. (See R. at 450). Clearly, the Amended Complaint fails to plead a claim of fraud, as it fails to plead a material element of a fraud cause of action (misrepresentations and/or omissions of fact by Clear View to DLJ). B. DLJ'S Claimed Reliance Was Not Reasonable DLJ alleges that it relied upon the Commitments contained in the Loan Files it purchased from Coastal Capital when making its decision to purchase the Subject Loans. (R. at 499-500). Likewise, DLJ acknowledges in its Brief that it relied upon, among other things, the Commitments and 9 It should be further noted that page 434 of the Record does not make reference to Clear View and/or Doumazious, but only makes reference to defendant Brown and Triumph (see id.), who are alleged to be agents of Washington Title only. (SeeR. at 438). 25 HUD-1 Settlement Statements, in making its assumption that the Subject Loans were legitimate, (see DLJ Br., p. 35), the same documents upon which UGT' s motion was based. Those documents, on their face, eviscerate any claim of reasonable reliance by DLJ. Indeed, the dates set forth on the alleged Commitments (which DLJ concedes is a pre-closing document, (see DLJ Br., p. 9) are months after the date of settlement (or closing) of the loan it allegedly insures, as evidenced by the alleged HUD-1 statements. (See R. at 650, 677, 680, 701, 703, 723). The clear facial irregularity in the documents refutes any claim of reliance therein. While DLJ argues that these documents, among others, create "indicia of title and legitimacy," it concedes (as it must) that the Commitments, on their face, make no representation to DLJ concerning the so called legitimacy of the transaction, and no representation that title insurance had been procured. (R. at 650, 680, 703). That is not the purpose of a title commitment. (See UGT Br., pp. 40-41 ). The Commitments merely indicated UGT' s willingness to issue a policy of title insurance, upon the satisfaction of certain conditions, including, without limitation, the payment of a policy premium (a condition which DLJ concedes was not met). !d. The law is well settled, a lender, such as DLJ, is not entitled to rely upon a 26 commitment for title insurance. Citibank v. Chicago Title Ins. Co., 214 A.D.2d 212, (1st Dept. 1995). (See also, UGT Br., pp. 40-42). DLJ now argues that its fraud claim is not based upon what is actually contained in the Commitments, claiming "it does not matter what the documents said." (DLJ Br., p. 36, n. 9), but rather, their claim is based on the "existence" of the Commitments in the Loan Files. Based upon the presence of Commitments in the Loan Files, DLJ assumed that "legitimate" closings had taken place and title insurance had been procured. Id. Assuming, arguendo, that Clear View issued the Commitments, as alleged, the mere "existence" of the unmarked Commitments in the Loan Files, however, did not amount to a misrepresentation by Clear View that a closing had taken place, that title had been paid for and/or exists, or that the loan transactions in question were "legitimate." In fact, the Commitments make no representation that a closing will take place, or that the mortgage loan is "legitimate" or enforceable, (see R. at 650, 680, 703), which again, is not the purpose of a commitment. (See UGT Br., pp. 38-40). Likewise, the 27 Commitments make no representation that msurance has actually been procured. 10 !d. DLJ further argues that the lower court's Order should be affirmed because the issue of whether DLJ reliance is factual in nature and is no subject appropriate for resolution under CPLR 3211(a). (See DLJ Br., pp. 34, 37). Contrary to Plaintiffs intimations, however, dismissal may be granted in appropriate circumstances, such as here where the documents refute any claim of reliance. See, e.g., Valassis Commun., Inc., v. Weimer, 304 A.D.2d 448, 449 (1st Dept. 2003) (granting motion to dismiss under CPLR 3211(a)). See also, Leonard v. Gateway II, LLC, 68 A.D.3d 408, 409 (1st Dept. 2009) (the plaintiff "cannot claim reasonable reliance on provisions in the Offering Plan that she never saw and apparently never asked to see.") (affirming dismissal of a fraud claim). 10 DLJ now argues that it relied upon "recertification commitments" in purchasing the Subject Loans. DLJ's argument is misleading as the only document DLJ points to in support of this statement is a certificate of title issued by Washington Title, which is not a party to this appeal (and which is now in liquidation). Furthermore, the claim against DLJ does not allege that Clear View issued "recertification commitments," but rather, only alleges that preliminary commitments were issued by Clear View. (See R. at 499-503, 1000-1004). The only relevant documents for purposes of this appeal are the alleged UGT Commitments, which are unmarked and dated months after the closing of the subject loans. (SeeR. at 650, 677, 680, 701, 703, 723). 28 Here, the documentary proof - specifically, the HUD-1 Settlement Statements and Commitments themselves - utterly refute DLJ's claims of reliance. Dismissal is proper under the circumstances C. DLJ's Willful Disregard Of Clear "Red Flags" Bars It From Pursuing Its Fraud Based Claims Without question, the Loan Files for the Subject Loans contained obvious "red flags" which DLJ apparently chose to ignore during its due diligence process. There is no question that Loan Files did not contain title insurance policies. It is also undisputed that the Loan Files, upon which DLJ supposedly relied, only contained unmarked Commitments, which make no representation that a closing has taken place, or that a policy has been secured. Third, unmarked pre-closing Commitments are actually dated months after the closing date indicated on the HUD-1 forms. Finally, there was no proof of recording in the Loan Files, and a simple search of the publically available records on the New York County City Register's Office "ACRIS" system would have revealed to DLJ that the underlying deeds and mortgages had not been recorded. Recognizing these failures, DLJ puts forth two arguments to justify its due diligence shortcomings. First, DLJ argues that the question of its due 29 diligence and reasonable reliance is a factual inquiry not properly determined on a motion to dismiss. (DLJ. Br., p. 38). However, courts frequently grant dismissal on the pleadings in circumstances, as here, a sophisticated party's has committed due diligence failures. See UST Private Equity Investors, Inc. v. Salomon Smith Barney, 288 A.D.2d at 88, 773 N.Y.S.2d at 386 (affirming grant of motion to dismiss fraud claim and explaining that "[i]f plaintiffs had requested and carefully reviewed these documents during their due diligence, they would have been apprised of the clearance issue before making their investment decision. Accordingly, plaintiffs cannot claim to have justifiably relied on the statements ... "); Duane Thomas LLC v. 62 Thomas Partners, LLC, 300 A.D.2d 52, 53 (1st Dept. 2002) (dismissing fraud claim since plaintiff could have discovered the defect "by making additional relevant inquiries and exercising ordinary intelligence"). In denying the underlying motions, the trial court failed to consider the well-settled case law requiring dismissal of a fraud claim based upon on the pleadings in instances where, as here, the plaintiff's reliance is deemed patently unreasonable based upon its own due diligence failures. DLJ' s second argument is that its pleading alleges sufficient due diligence to satisfy its burden under New York law to establish reasonable 30 reliance. (See DLJ Br., p. 38-39). However, DLJ's alleged due diligence consisted of little more than a "facial" review of the documents it received from Coastal. Clearly, DLJS 's minimal due diligence was patently insufficient as it failed to uncover glaring inconsistencies within the Loan Files, such as the lack of loan policies of title insurance, or the fact that the Commitments were dated several months after the date of the alleged closing. Surely, a sophisticated lender, such as DLJ, should have recognized those deficiencies. DLJ Cites DDJ Mgmt., LLC v. Rhone Group LLC, 15 N.Y.3d 147 (20 1 0) and Lunal Realty, LLC v. DiSanto Realty, LLC, 88 A.D.3d 661 (2d Dept. 2011 ), for the proposition that by conducting some facial due diligence that DLJ was excused from making further inquiry into the transactions, notwithstanding the glaring inconsistencies and/or inadequacies in the Loan Files. The referenced cases, however, do not aid DLJ's argument. In DDJ Mgmt., plaintiff and defendant, sophisticated business entities, had numerous conversations throughout the negotiation process whereby plaintiff received assurances from defendant as to the alleged misrepresentations. Most critically, "plaintiffs made a significant effort to 31 protect themselves against the possibility of false financial statements: they obtained representations and warranties to the effect that nothing in the financials was materially misleading." !d. at 156 (emphasis added). The Court held that in light of these communications, representations and warranties received from the defendant concerning the transactions, the law did not obligate plaintiff to inquire further. !d. Similarly, in Luna/ Realty, as DLJ quotes in its Answering Brief, "plaintiffs received negotiated assurances as to the accuracy of the [statements]." (See DLJ. Br., p. 39). Here, not only did DLJ not receive any assurances, representations or warranties from UGT or Clear View concerning the transactions, but DLJ does not allege having a single communication, whether orally or in writing, with either UGT or Doumazios. All DLJ alleges to have done was conduct a "facial" review of the Loan Files through its custodian (LaSalle). New York law commands that, in light of the glaring "red flags" contained in the Loan Files, DLJ should have inquired further. See Duane Thomas LLC, 300 A.D.2d at 53. Indeed, had it made a simple phone call to UGT, DLJ would have been able to determine that no insurance existed for the Subject Loans. DLJ did not even undertake this modicum of due diligence. Accordingly, 32 DLJ is unable to establish reasonable reliance as a matter of law and its fraud claim against UGT must be dismissed with prejudice. 33 CONCLUSION Based upon the foregoing, and for the reasons previously stated in UGT's opening Brief, it is respectfully submitted that the UGT has set forth a sufficient basis to reverse the Order of the lower Court. The Court below was incorrect in denying UGT's motion to dismiss the Amended Complaint. Accordingly, the Order of the lower Court should be reversed in its entirety, and the Amended Complaint should be dismissed against UGT with prejudice and the Court should award such other and further relief as it deems just and proper. Dated: White Plains, New York September 13, 20 12 On the Brief Michael J. Schwarz, Esq. LeeS. Wiederkehr, Esq. 1365083.doc 50001920-261 Lee . 1ederkehr, Esq. Michael J. Schwarz, Esq. DelBello Donnellan Weingarten Wise & Wiederkehr, LLP Attorneys for Defendant-Appellant United General Title Insurance Company 1 North Lexington A venue - 11th Floor White Plains, New York 10601 (914) 681-0200 34 CERTIFICATE OF COMPLIANCE Pursuant to 22 NYCRR §600.10(d)(1)(v) the foregoing Brief was prepared on a computer using Microsoft Word. Type: A proportionally spaced typeface was used, as follows: Name of typeface: Times New Roman Point size: 14 Line spacing: Double Margins: The margins are one (1) inch on all sides. Word Count: The total number of words in this Brief, inclusive of point headings and footnotes and exclusive of pages containing the table of contents, table of citations, proof of service, certificate of compliance, or any authorized addendum containing statutes, rules, regulations, etc., is 6,990. Certificate ofCompliance.doc 50001920-261