Fraud Claim Cannot be Based on Alleged Intention Not to Perform Contract

On September 25, 2019, Justice Sherwood of the New York County Commercial Division issued a decision in Roy Food & Wine LLC v. Meregalli, 2019 NY Slip Op. 32875(U), dismissing a fraud claim based on an alleged misrepresentation of an intention to perform a contract, explaining:

To state a cause of action for fraud, a plaintiff must allege a representation of material fact, the falsity of the representation, knowledge by the party making the representation that it was false when made, justifiable reliance by the plaintiff and resulting injury.

In the complaint, the alleged misrepresentation is Meregalli and the Company not informing plaintiffs of the true amount of Meregalli's capital contribution (or the representation that the amount of contribution was higher than it really was). Defendants contend plaintiffs cannot show reasonable reliance because, due to their involvement in the business, they should have been aware of the state of things. Plaintiffs do not point to any actions they took in reliance on those representations. In their opposition, they claim the reliance was their decision to invest in the Company. That action was taken before Meregalli allegedly misrepresented his contributions, so statements about his having made those contributions could not have led to their investments.

If this claim is cast, instead, as a claim for fraud in the inducement, the alleged misrepresentation should be one of then-present fact, which would be extraneous to the contract and involve a duty separate from or in addition to that imposed by the contract and not merely a misrepresented intent to perform. Representations of opinion, even as to matters of fact, are not representations and are not actionable unless guaranteed. Plaintiffs have not alleged a misrepresentation of a then-present fact other than intent to perform, which could provide the basis for this claim. Accordingly, this claim shall be dismissed.

(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.