Cost of Litigation Does Not Satisfy Damages Element of Tort Claim

On April 9, 2020, the First Department issued a decision in CWCapital Invs. LLC v. CWCapital Cobalt VR Ltd., 2020 NY Slip Op. 02240, holding that the cost of litigation was insufficient to satisfy the damages element of a tort claim, explaining:

In the sixth cause of action, plaintiffs allege that OZ Management tortiously interfered with and caused Cobalt to breach the CMA and the indenture. The seventh and eighth causes of action allege that OZ Management fraudulently induced Galaxy to consent to the sale of notes from Merrill Lynch to the OZ Funds.

These claims fail for lack of damages, a required element of both torts. Although a plaintiff is not obligated to show, on a motion to dismiss, that it actually sustained damages, it must plead allegations from which damages attributable to defendant's conduct might be reasonably inferred.

Here, plaintiffs have failed to do so. They do not explain how they sustained damages as a result of Cobalt's designation of Carbolic as the new CCR. It is undisputed that the notice letters appointing Carbolic as the CCR were never given effect, the appointment of Carbolic was withdrawn, and CWCI continued operating as the CCR. Nor have plaintiffs shown how they were injured by the allegedly false representations about compliance with the FCPA. Because cognizable damages cannot be reasonably inferred, the sixth, seventh and eighth causes of action should be dismissed.

The only specific harm that plaintiffs point to is that they were allegedly forced to engage in costly litigation. However, it is well settled that attorneys' fees are not recoverable unless authorized by statute, court rule, or written agreement of the parties. Plaintiffs identify no such statute, court rule or agreement. The narrow exception involving litigation with a third party does not apply here. Cobalt is plaintiffs' present adversary, and it was also CWCI's adversary in the other litigations.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule discussed here that a fraud claim can seek only money lost through the fraud (out-of-pocket damages). Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.