Fraud Claim Cannot be Based on Lost Profits

On June 25, 2020, the First Department issued a decision in Arena Riparian LLC v. CSDS Aircraft Sales & Leasing Co., 2020 NY Slip Op. 03589, holding that a fraud claim cannot be based on lost profits, explaining:

The fraud-based claims should also be dismissed because plaintiffs have not adequately alleged actual pecuniary loss sustained as the direct result of defendants' alleged fraud. Instead, in their complaint, plaintiffs seek to recover lost profits they would have realized if they successfully completed the purchase of the aircrafts. However, plaintiffs cannot be compensated under a fraud cause of action for what they might have gained.

(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), not the profits the plaintiff hoped to have earned in the absence of the fraud. 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.