Prestige Builder & Management LLC v. Safeco Insurance Co. of America
896 F. Supp. 2d 198
E.D.N.Y2012Background
- Prestige, a New York subcontractor, sues Triton Structural Concrete and Safeco under a payment bond for work on the NYC Parks Dept. Marcus Garvey Park amphitheater project.
- Prestige entered into two June 2010 contracts with Triton for stage framing and wood frame construction, and performed work from 2011; Triton regularly paid Prestige's invoices.
- During 2011, Triton employees allegedly certified to the Parks Dept. that no monies were due to laborers, including Prestige, despite Prestige being owed $134,927.66.
- On March 9, 2011, Wilson submitted Form 42 with false statements; on May 18, 2011, Gallegos submitted Form 44 with false statements; on May 25, 2011, Peterson submitted another Form 42 with false statements.
- As a result of these misrepresentations, the Parks Dept. paid Triton, including funds due to Prestige, and Prestige filed fraud claims against the individual Triton employees and a NY Finance Law § 137 claim against Safeco.
- Defendants moved to dismiss the fraud claims for lack of standing and failure to plead fraud; the court denied the motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Prestige has standing to sue for fraud | Prestige asserts third-party reliance to damages. | Prestige lacks injury; misrepresentations were to Parks Dept., not Prestige. | Third-party reliance doctrine applies; Prestige has standing. |
| Whether New York recognizes third-party reliance in fraud | NY historically allowed third-party reliance under Eaton lineage. | Modern NY cases limit third-party reliance or overrule Eaton. | Third-party reliance is good law in New York. |
| Whether the third-party reliance doctrine applies to the individual defendants | Defendants' misrepresentations caused Parks Dept. to pay Triton, injuring Prestige. | Claims target the Parks Dept., not Prestige directly. | Doctrine applies; Prestige may pursue fraud claims against Wilson, Gallegos, and Peterson. |
| Whether Prestige's fraud claims satisfy Rule 9(b) particularity | Facts alleged show intent and reliance; detailed pleadings supplied in background. | Need explicit intent and reliance by Prestige against each defendant. | Fraud claims meet Rule 9(b) particularity; intent can be inferred circumstantially. |
Key Cases Cited
- Buxton Mfg. Co. v. Valiant Moving & Storage, Inc., 239 A.D.2d 452 (2d Dep’t 1997) (fraud may exist when a false representation to a third party injures plaintiff)
- Rice v. Manley, 66 N.Y. 82 (N.Y. 1876) (third-party or indirect misrepresentation controls)
- Eaton, Cole & Burnham Co. v. Avery, 83 N.Y. 31 (N.Y. 1880) (third-party reliance authorized by old rule)
- Bruff v. Mali, 36 N.Y. 200 (N.Y. 1867) (third-party reliance accepted by NY Court of Appeals)
- Mandarin Trading, Ltd. v. Wildenstein, 16 N.Y.3d 173 (N.Y. 2011) (fraudulent omission case; distinguishes from third-party reliance)
- City of New York v. Smokes-Spirits.com, Inc., 541 F.3d 425 (2d Cir. 2008) (reliance element in NY fraud under third-party theory; evolving standards)
- Cement & Concrete Workers Dist. Council Welfare Fund v. Lotto, 148 F.3d 194 (2d Cir. 1998) (Second Circuit on reliance in NY fraud cases)
- O'Brien v. Argo Partners, Inc., 736 F. Supp. 2d 528 (E.D.N.Y. 2010) (district court recognized third-party reliance; affirmed in part)
- Chevron Corp. v. Donziger, 871 F. Supp. 2d 229 (S.D.N.Y. 2012) (federal court decline on New York third-party reliance split; adopts NYA position)