Under New York law, fraud requires proof of “(1) a material misrepresentation or omission of fact, (2) knowledge of that fact’s falsity, (3) an intent to induce reliance, (4) justifiable reliance by the Plaintiff, and (5) damages.” Loreley Fin. (Jersey) No. 3 Ltd. v. Wells Fargo Secs., LLC, 797 F.3d 160, 170 (2d Cir. 2015).On the standards under FRCP 9(b), the Court explained:
Federal Rule of Civil Procedure 9(b) requires a plaintiff making a fraud claim to state the circumstances constituting the fraud with particularity. Eternity Glob. Master Fund Ltd. v. Morgan Guaranty Tr. Co. of New York, 375 F.3d 168, 187 (2d Cir. 2004). To plead fraud with sufficient particularity, a plaintiff must “detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent.” Id.In dismissing the fraud claim, the Court ruled:
Plaintiff argues that Defendant committed fraud when Mr. Highfill [defendant’ director of distribution] knowingly and falsely accused Plaintiff of taking discounts to which it was not entitled, and then threatening to terminate the Agreement if the Plaintiff did not repay the value of those discounts. (SAC ¶ 48.) It also contends that Defendant’s promise to allow Plaintiff to remain a distributor if it paid was fraudulent, for the Defendant truly intended to terminate the Agreement after repayment. (Id. ¶49-50, 52-53.)
Plaintiff’s fraud claims fail on a number of fronts.
First, with regards the fraudulent nature of Mr. Highfill’s representation that Plaintiff took improper discounts no facts are alleged to support that that the discounts were properly taken; the SAC contains only a conclusory allegation. Second, the claim that Defendant intended to terminate the Agreement despite its promise is duplicative of the breach of contract claim. To bring parallel fraud and breach of contract claims, a plaintiff must (1) demonstrate a legal duty separate from the duty under the contract; (2) identify a fraudulent misrepresentation that is collateral or extraneous to the contract or seek special damages that are not recoverable as contract damages. See Merrill Lynch & Co. v. Allegheny Energy, Inc., 500 F.3d 171, 183 (2d Cir. 2007). The SAC contains no allegations regarding these exceptions. In fact, its fraud claim is based on the same allegation as its breach of contract claim, i.e. that [defendant] promised not to terminate the agreement for at least six months to provide Plaintiff an opportunity to meet its sales obligations. Further, no special damages are claimed as Plaintiff seeks as damages on its fraud claim the same amount $282,391.00 that it paid back and seeks for its breach of contract claim.Commentary Courts are often critical of pleadings that do not help themselves in delineating the factual basis for the elements of a clam. Many complaints are botched up from the start because proper attention is not given to the elements of the claim in presenting and crafting the factual background. The K&G case is a representative example. The Court expressed little patience for the internal inconsistencies in the pleading itself as well as the content of the exhibits plaintiff attempted to rely upon. The fraud claim had no chance of surviving under these circumstances and was summarily dismissed at the pleadings stage, along with all of the other causes of action attempted to be alleged. Click here for Kevin Schlosser's Fraud Blog.
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