Alleged Misrepresentation Regarding Future Performance Insufficient to Support Claim for Fraudulent Inducement

On July 8, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Gluck v. Rosania, 2019 NY Slip Op. 32085(U), holding that alleged misrepresentations regarding future performance were insufficient to support a claim for fraudulent inducement, explaining:

To state a claim for fraudulent inducement, the complaint must allege that the defendant intentionally made a material misrepresentation of fact in order to defraud or mislead the plaintiff, and that the plaintiff reasonably relied on the misrepresentation and suffered damages as a result. To fulfill the element of misrepresentation of material fact, the party advancing the claim must allege a misrepresentation of present fact rather than of future intent. General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.

Here, Gluck alleges that, to induce him to cooperate with the transfer of his Parkmerced interest and to sign the Agreement, Rosania promised that if and when market conditions improved, he would either sell of recapitalize Parkmerced so that Rosania could use those proceeds to honor his obligations to repay Gluck. Rosania allegedly never intended to perform the Agreement or this promise, as subsequent events have proved.

These allegations are insufficient to allege a misrepresentation of present fact made by Rosania that induced Gluck's detrimental reliance.

Gluck's argument that Rosania's promise is collateral to the Agreement, and is therefore sufficient to preserve his claim, is unavailing. Regardless of whether the promise was a collateral representation or made pursuant to the Agreement, Gluck alleges that Rosania lacked the intent to perform, which is clearly a statement of future intent and is thus not actionable. Accordingly, Gluck has failed to state a cause of action for fraudulent inducement.

(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.