Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chipetine

Decision Date30 November 1995
Citation221 A.D.2d 284,634 N.Y.S.2d 469
Parties, 64 USLW 2416 MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., Plaintiff-Respondent, v. Bernard CHIPETINE, etc., Defendant-Appellant.
CourtNew York Supreme Court — Appellate Division

B.S. Maistrow, for plaintiff-respondent.

A. Winston, for defendant-appellant.

Before MURPHY, P.J., and ASCH, NARDELLI and MAZZARELLI, JJ.

MEMORANDUM DECISION.

Order of the Supreme Court, New York County (Myriam Altman, J.), entered December 28, 1993, which granted plaintiff's cross-motion for summary judgment on liability, denied defendant's motion for summary judgment, and imposed sanctions of $10,000 each on defendant and his counsel, payable to plaintiff's counsel, unanimously modified, on the law, to the extent of granting that branch of defendant's motion that sought dismissal of plaintiff's second cause of action as time barred and further modified, on the law, the facts, and in the exercise of discretion, by reducing the amount of the sanctions imposed on defendant and his counsel to $5,000 each, payable to the State Commissioner of Taxation and Finance and the Lawyers' Fund for Client Protection, respectively, and otherwise affirmed, with costs payable to plaintiff.

The salient facts are undisputed. In June 1982 defendant contracted with plaintiff to open an account for the Bernard Chipetine Profit Sharing Trust, an Employee Retirement Income Security Act pension plan, of which defendant is trustee. On or about March 25, 1986, plaintiff erroneously credited the account with 5,320 shares of Tyson Foods, Inc. An additional 5,320 shares were erroneously credited to the account after a stock split in April of 1986. In March 1987 defendant sold the 10,640 shares of Tyson for $324,958.12 and invested the proceeds in a money market fund with plaintiff. In April 1987 a 3-for-2 stock split occurred, leaving plaintiff short 15,960 shares.

In June 1987 defendant sold the money market shares and transferred the proceeds to another securities firm. In September 1989 plaintiff discovered the error, and had to cover its short position at a cost of $438,097.50. Defendant, while acknowledging the error, refused plaintiff's demand for reimbursement, having lost the bulk of the money in a failed business venture.

The IAS court did not err in sustaining plaintiff's first cause of action for fraud. While the elements of a cause of action for "actual" or active fraud include a knowing or reckless false representation of a material fact (Zaref v. Berk & Michaels, P.C., 192 A.D.2d 346, 348, 595 N.Y.S.2d 772) and there was no misrepresentation here, there was concealment by the defendant of plaintiff's erroneous transfer of stock. "The suppression of material facts which a person is in good faith bound to disclose is evidence of and equivalent to a false representation" (60 N.Y.Jur.2d, Fraud and Deceit, § 88). The defendant was in good faith bound to disclose an error of such monumental proportion, and therefore the absence of an active, purposeful misrepresentation is not fatal to the cause of action.

Furthermore, "[c]onstructive, or legal, fraud is an act done or omitted which amounts to positive fraud, or is construed as a fraud by the court because of its detrimental effect upon public interests and public or private confidence.... [C]onstructive fraud arises from a rule of public policy, or the confidential or fiduciary relationship sustained by one of the parties affected by the fraud toward the other" (60 N.Y.Jur.2d, Fraud and Deceit, § 2; see, Greenfield v. Greenfield, 123 N.Y.S.2d 19 [n.o.r. Sup.Ct., Kings Co., 1953]. In this case, what defendant accomplished by his concealment of the true facts, obviously known only to him, is arguably tantamount to grand larceny, and it is clearly against public policy. Thus, even if defendant were correct that "actual" fraud was not sufficiently pleaded, constructive or legal fraud was. Defendant's alternative argument regarding the fraud claim, that it cannot be pleaded along with breach of contract in the complaint, is devoid of merit, as the CPLR allows causes of action to be stated "regardless of consistency" (CPLR 3014).

However, we are constrained to agree with defendant, that the IAS court erred in granting plaintiff summary judgment as to liability on the second cause of action which alleged conversion. The Tyson shares were erroneously credited to the defendant's account on March 25, 1986. On March 27, 1987, defendant sold the shares for cash and deposited the cash in a money market...

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16 cases
  • In re Cardizem Cd Antitrust Litigation
    • United States
    • U.S. District Court — Eastern District of Michigan
    • October 15, 1999
    ...equity and good conscience to permit defendant to retain what is sought to be recovered." Merrill Lynch, Pierce, Fenner & Smith Inc. v. Chipetine, 221 A.D.2d 284, 286, 634 N.Y.S.2d 469, 471 (1995) (internal quotes and citation omitted). Because the unjust enrichment claim in the Sunshine Ph......
  • Newbro v. Freed
    • United States
    • U.S. District Court — Southern District of New York
    • January 9, 2006
    ...with the defendant, and whether defendant's conduct was `tortious or fraudulent'." Merrill Lynch, Pierce, Fenner & Smith v. Chipetine, 221 A.D.2d 284, 286-86, 634 N.Y.S.2d 469 (1st Dep't 1995). In moving for summary judgment, defendants do not contend that plaintiff has failed to establish ......
  • Sudul v. Computer Outsourcing Services, Inc., 94 Civ. 1518 (JGK).
    • United States
    • U.S. District Court — Southern District of New York
    • March 10, 1996
    ...element is satisfied if the representation is made with reckless disregard for its truth. Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chipetine, 634 N.Y.S.2d 469, 470 (1st Dep't 1995); Diduck v. Kaszycki & Sons Contractors, Inc., 974 F.2d 270, 276 (2d Cir.1992) (applying New York 10. Fra......
  • St. John's Univ. v. Bolton
    • United States
    • U.S. District Court — Eastern District of New York
    • December 10, 2010
    ...courts “will also look to see if defendant's conduct was tortious or fraudulent.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Chipetine, 221 A.D.2d 284, 286–87, 634 N.Y.S.2d 469 (1st Dep't 1995). Bolton and Spireas argue that St. John's has failed to identify any benefit it conferred on ......
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