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Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: June 21, 2018

Fraud Claim Dismissed as Duplicative of Contract Claim

On June 5, 2018, Justice Sherwood of the New York County Commercial Division issued a decision in Board of Managers of 250 Bowery Condominium v. 250 VE LLC, 2018 NY Slip Op. 31168(U), dismissing a fraud claim as duplicative of a breach of contract claim, explaining:

Sponsor Defendants also move to dismiss the fifth cause of action alleging fraud and fraudulent inducement as against them. Plaintiff opposes the motion. To establish a fraud-based cause of action, the plaintiff must demonstrate a representation of a material existing fact, falsity, scienter, deception and injury. The false representation relied upon must relate to a past or existing fact, or something equivalent theret.

Sponsor Defendants argue that the fraud-based cause of action should be dismissed because it is duplicative of the breach of contract cause of action. A cause of action for fraud may be dismissed as duplicative of a cause of action for breach of contract when they both arise out of the same facts and allege the same damages. New York courts have held that fraud claims against
condominium sponsors and their members based on breaches of an offering plan and false certifications must be dismissed as duplicative of breach of contract claims.

Here, plaintiffs fraud-based cause of action against Sponsor Defendants arises from purported breaches of the Offering Plan and the certification. Moreover, the damages sought by plaintiff for the fraud claims are indistinguishable from those sought in the breach of contract claim. Plaintiff asserts that it does not merely allege that Sponsor Defendants were not sincere when they promised to perform under their respective contracts. Rather, plaintiff alleges that Sponsor Defendants made specific representations, in the offering plan, through other marketing materials and media, with the intent of inducing plaintiff unit owners to purchase their apartments without knowledge of the hidden and dangerous defects in the building.

However, plaintiff makes no argument as to how its fraud damages are different from its breach of contract damages claim. Therefore, plaintiffs fraud-based cause of action must be dismissed as duplicative of its breach of contract cause of action.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements such as the rule discussed here that a fraud claim cannot be based on a breach of contract. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.

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