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Fraud Standing: Can Fraud Claims Relating to Contracts be Assigned?

May 30, 2023Litigation & Dispute Resolution

Two recent decisions of the New York Appellate Division, First Department, address interesting principles concerning damages recoverable for fraud and who has the right to sue for underlying fraudulent conduct: SureFire Dividend Capture, LP v Industrial & Commercial Bank of China Fin. Servs. LLC, 2023 NY Slip Op 02841(1st Dep’t Decided May 25, 2023)(addressing fraud standing) and NMR e-Tailing LLC v Oak Inv. Partners, 2023 NY Slip Op 02830 (1st Dep’t Decided May 25, 2023)(pecuniary damages).

Pecuniary Damages

As I have chronicled, the type of damages recoverable in an action for fraud are known as “pecuniary damages.” The New York Court of Appeals in Connaughton v Chipotle Mexican Grill, Inc., 29 NY3d 137, 142 (2017) nicely summarized the law as follows:

In New York, as in multiple other states, “ ‘[t]he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong’ or what is known as the ‘out-of-pocket’ rule” (Lama Holding, 88 N.Y.2d at 421, quoting Reno v. Bull, 226 N.Y. 546, 553 [1919] ). Under that rule, “[d]amages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained…. [T]here can be no recovery of profits which would have been realized in the absence of fraud” (id. at 421, citing Foster v. Di Paolo, 236 N.Y. 132 [1923], AFA Protective Sys. v. American Tel. & Tel. Co., 57 N.Y.2d 912 [1982], and Cayuga Harvester, Inc. v. Allis–Chalmers Corp., 95 A.D.2d 5 [4th Dept 1983] ). Moreover, this Court has “consistent[ly] refus[ed] to allow damages for fraud based on the loss of a contractual bargain, the extent, and indeed … the very existence of which is completely undeterminable and speculative” (Dress Shirt Sales v. Hotel Martinique Assocs., 12 N.Y.2d 339, 344 [1963] ).

Read the full blog here.