Court Dismisses Fraud and Fiduciary Duty Claims as Duplicative of Contract, Sustains Fraudulent Inducement Claim

Posted: September 25, 2026 / Written by: Thomas A. Kissane / Categories Fraud/Misrepresentation, Fraudulent Inducement, Contracts, Fiduciary Duties

Court Dismisses Fraud and Fiduciary Duty Claims as Duplicative of Contract, Sustains Fraudulent Inducement Claim

On January 25, 2026, Justice Andrea Masley of the New York County Commercial Division granted in part a motion to dismiss counterclaims arising from an investment-advisory relationship, dismissed fraud and fiduciary-duty theories that duplicated the parties’ contract, and sustained a fraudulent-inducement theory based on alleged pre-contract misrepresentations. The case is Psalms Creative, LLC v. Beacon Investment Holdings LLC, Index No. 650934/2025.

Beacon alleged that Ariel Ovadia and Psalms Creative LLC were authorized to trade in Beacon’s investment accounts and were to receive commissions based on the profits generated. According to Beacon, monthly reports provided by plaintiffs omitted losses and overstated investment performance, causing Beacon to pay approximately $890,000 in commissions. Beacon asserted counterclaims including fraud, breach of fiduciary duty, unjust enrichment, tortious interference with business relations, conversion, breach of contract, breach of the implied covenant of good faith and fair dealing, and rescission and restitution under the Investment Advisers Act.

The Court distinguished between two components of Beacon’s fraud counterclaim. Beacon adequately alleged that plaintiffs misrepresented Ovadia’s trading skills and qualifications before Beacon retained them as investment advisers. Because those alleged misrepresentations concerned then-present facts, preceded the parties’ agreement, and allegedly induced Beacon to enter the relationship, the fraudulent-inducement counterclaim was collateral to the contract and survived. By contrast, Beacon’s counterclaim that plaintiffs subsequently falsified profit-and-loss reports to inflate their commissions duplicated its contract counterclaim because the agreement required plaintiffs accurately and honestly to report their trading activity. Slip op., pp. 5-8.

The Court also held that Beacon adequately alleged the existence of a fiduciary relationship. Plaintiffs acted as investment advisers and had significant discretion over Beacon’s accounts pursuant to a limited power of attorney. Nevertheless, the fiduciary-duty counterclaim was dismissed because the particular misconduct alleged—misreporting trading results, omitting losses, and demanding inflated performance fees—arose from the same facts and obligations underlying Beacon’s breach-of-contract counterclaim. Id., pp. 8-10.

The Court sustained Beacon’s counterclaim for tortious interference with business relations, finding sufficient allegations that plaintiffs made baseless accusations to the banks, and used pressure on Beacon’s banking relationships to seek additional payments. Id., pp. 11-13. The Court dismissed Beacon’s unjust-enrichment, conversion, implied-covenant, and Investment Advisers Act counterclaims as duplicative of or otherwise precluded by the contract counterclaim. Id., pp. 10-11, 13-16.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning fraud, fiduciary-duty, or contract claims in commercial disputes.