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US Supreme Court Decision in Kousisis Unlikely to Have Any Bearing on Damages Recoverable for Common Law Civil Fraud Claims under New York Law
I have commented often on the type of monetary damages that are recoverable in the context of a claim for fraud in a civil (as opposed to criminal) action. While there are other potential remedies for fraud, such as rescission of a transaction, when it comes to seeking actual monetary compensation allegedly resulting from fraudulent conduct, the courts of New York have determined that only so-called out-of-pocket “pecuniary” damages are recoverable. That essentially means that only actual monetary losses directly resulting from the fraud may be recovered—not things like (a) lost profits or what might have been “gained” in the absence of fraud; (b) “benefit of the bargain” type of damages, such as what might be recovered for breach of contract; or (c) compensation for alleged “pain and suffering” types of injuries. See generally Court Elaborates on Pecuniary Loss Damages for Fraud in M&A Deal; Damages Limited to Pecuniary Loss Resulting from Fraud, Not “Pain and Suffering.”
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] ).
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