Fraud Notes: Alleging a Misrepresentation and Duplicative Damages

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Posted on: Oct 10 2025

In today’s Fraud Notes, we examine two cases involving principles familiar to readers of this Blog: the duplication doctrine and the requirement that plaintiffs plead sufficient facts to satisfy each element of a fraud claim.

In Emissions Reduction Corp. v. mCloud Tech. (USA) Inc., 2025 N.Y. Slip Op. 05457 (1st Dept. Oct. 7, 2025) (here), the Appellate Division, First Department affirmed the dismissal of plaintiff’s fraud claim on the grounds of duplication with plaintiff’s breach of contract claims. Emissions Reduction is notable because the Court held that the alleged fraud damages were not distinct from those sought by the breach of contract claim. As noted in previous articles (e.g., here), this focus on overlapping damages is common in the First Department.

In Brooklyn Tabernacle v. Thor 180 Livingston, LLC, 2025 N.Y. Slip Op. 05492 (2d Dept. Oct. 8, 2025) (here), the Appellate Division, Second Department affirmed the denial of defendants’ motion to dismiss, inter alia, plaintiff’s fraud claim, holding that plaintiff adequately satisfied the elements required to state a cause of action for fraud.

Emissions Reduction Corp. v. mCloud Tech. (USA) Inc.

Emissions Reduction arose from a $15 million loan by plaintiff to defendant, mCloud Tech. (USA) Inc. (“mCloud”), which plaintiff alleged was made due to fraudulent misrepresentations.

As alleged in the amended complaint, on March 11, 2022, one of the individual defendants sent plaintiff a draft press release stating that defendant mCloud Technologies Corp., the parent company of mCloud (Parent), “had signed an agreement to deliver its AssetCare for Connected Buildings solution to manage the energy efficiency of the Vail Buick Dealership in Bedford Hills, New York, the first of 15 planned installations for auto dealerships in New York state to help control rising energy costs in the electric vehicle (“EV”) era” and had “[s]igned LOIs [Letters of Intent] in place to connect 15 additional dealerships in New York with total expected value of more than $14 million.” Defendant allegedly told plaintiff that mCloud needed $15 million to deploy the first phase of its EV projects at those dealerships.

On March 28, 2022, in reliance on the draft press release, plaintiff claimed that it and mCloud executed a note, under which plaintiff loaned mCloud $5 million on or about the March 28 execution date, with the option for mCloud to request additional advances of up to $10 million. Shortly after the first advance, the individual defendants each allegedly represented that mCloud had used $4,926,199 of its $5 million advance from plaintiff to order equipment for EV dealership projects, and that it required the additional $10 million to further support the projects. Plaintiff advanced a further $10 million to mCloud upon those representations.

Plaintiff alleged that it subsequently discovered defendants’ representations to be false, and that the funds were used to pay another of mCloud’s lenders, compensate its executives, and inject funds into mCloud’s sister entities, as opposed to the purposes agreed upon in the note.

Plaintiff brought suit, asserting claims of fraudulent inducement against the individual defendants, mCloud, and Parent, and a breach of contract claim against mCloud. As relevant here, for each cause of action plaintiff sought the $15 million in principal, together with interest and certain costs associated with drafting and enforcing the note. In its fraud claims, plaintiff sought additional unspecified reputational, valuational, and auditing costs.

Defendants moved, inter alia, to dismiss plaintiff’s fraud claims. The motion court granted the motion. The First Department affirmed.

The Court held that “Plaintiff’s fraud claims against the individual defendants, … were correctly dismissed by the court below, as they sought damages duplicative of those recoverable on the breach of contract claim against mCloud.”[1]

“It has long been the rule [in New York] that parties may not assert fraud claims seeking damages that are duplicative of those recoverable on a cause of action for breach of contract.”[2] “Where all of the damages are remedied through the contract claim, the fraud claim is duplicative and must be dismissed.”[3] Requesting the same damages for fraud and breach of contract claims is a basis to dismiss the fraud claim as duplicative, including at the pleadings stage.[4]

The Court also rejected plaintiff’s argument that its fraud claim included reputational and valuational damages, finding that such allegations were “vague[ ]” and did “not constitute the ascertainable out-of-pocket pecuniary damages required to sustain the fraud claim.”[5]

In New York, a plaintiff alleging fraud can recover only the actual pecuniary loss sustained as a result of the misrepresentation or omission, i.e., the plaintiff’s out-of-pocket damages.[6] The rule prohibits the recovery of lost profits or lost business or investment opportunities,[7] as well as pain and suffering damages that are often sought in other tort actions.[8]

Brooklyn Tabernacle v. Thor 180 Livingston, LLC

Brooklyn Tabernacle involved the purchase of a condominium unit owned by plaintiff.

In March 2015, plaintiff, Brooklyn Tabernacle (hereinafter, the “church”), entered into a sale purchase agreement (hereinafter, the “SPA”) with defendant, Thor 180 Livingston, LLC (hereinafter, “Thor Livingston”), wherein Thor Livingston agreed to purchase a condominium unit owned by the church for $51 million. As part of the transaction, Thor Livingston agreed to obtain all governmental approvals to create, by subdivision, a new condominium unit (hereinafter, the “church unit”), consisting of a subterranean space and a portion of the first floor, and to reconvey the church unit to the church for no consideration within one year following the closing or, if the subdivision was not accomplished within one year, to enter into a long-term ground lease granting the church the same rights and benefits to which it would be entitled as the owner of the church unit. The sale closed in October 2015 (hereinafter, the “2015 closing”).

Following the 2015 closing, Thor Livingston allegedly waived its rights to perform shoring and footing work in the basement, and, relying on the waiver, the church expended millions of dollars renovating the church unit.

In July 2019, Thor Livingston delivered the deed to the church unit to the church (hereinafter, the “2019 closing”). Simultaneously, the parties executed a separate agreement defining Thor Livingston’s development rights in the condominium building wherein the church unit was located (hereinafter, the “development agreement”).

In August 2019, the church commenced the action against, among others, Thor Livingston and defendant, Thor Management Co., LLC (hereinafter together, the “Thor defendants”), inter alia, to recover damages for breach of contract and rescission of the development agreement due to fraud and duress. The church alleged that, after the 2015 closing, Thor Livingston delayed delivering the deed to the church unit to the church in order to extract concessions and payments that Thor Livingston was not entitled to under the SPA, including, among other things, the execution of the development agreement and the payment of Thor Livingston’s title insurance costs.

The Thor defendants moved, inter alia, pursuant to CPLR 3211(a) to dismiss the first, second, and sixth causes of action and so much of the third cause of action alleging fraud. The Thor Defendants maintained that, among other things, plaintiff failed to identify a misrepresentation and, therefore, did not satisfy all the elements of its fraud claim.

To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.”[9] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[10]

The Supreme Court, among other things, denied those branches of the motion. The Thor defendants appealed. The Second Department affirmed.

Regarding the fraud claims, the Court held that the motion court “properly denied” the motion.[11] The Court found that “the allegations in the amended complaint were sufficient to allege a material misrepresentation of fact, as the amended complaint alleged that (1), in the SPA, Thor Livingston falsely promised that it would imminently complete the subdivision and thereafter, would immediately reconvey the church unit to the church, (2) that Thor Livingston falsely represented that it waived its rights to perform shoring and footing work in the basement and thereafter, coerced the church into entering the development agreement, and (3) that Thor Livingston demanded certain concessions including, among other things, the payment of its title insurance costs.”[12]

Takeaway

Fraud claims must be based on damages that are distinct from those recoverable under a breach of contract. Emissions Reduction demonstrates that courts, especially in the First Department, will dismiss fraud claims that merely restate contractual damages.

Brooklyn Tabernacle reinforces the principle that to survive dismissal, each element of a fraud cause of action must be alleged. At issue in Brooklyn Tabernacle was the first element—the making of a misrepresentation or omission.

_____________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] Slip Op. at *1 (citing MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 165 A.D.3d 108, 114–15 (1st Dept. 2018) (citing Chowaiki & Co. Fine Art Ltd. v. Lacher, 115 A.D.3d 600, 600-601 (1st Dept. 2014) (dismissing fraud claim seeking duplicative damages even where the plaintiff sufficiently alleged breach of an independent duty owed them independent of the contract)).

[2] MBIA Ins., 165 A.D.3d at 114-115 (citing Mañas v. VMS Assoc., LLC, 53 A.D.3d 451, 454 (1st Dept. 2008)).

[3] Id.

[4] Mañas, 53 A.D.3d at 454; see also Triad Int’l Corp. v. Cameron Industries, Inc., 122 A.D.3d 531, 532 (1st Dept. 2014) (affirming dismissal of fraud claim because “plaintiff seeks the same compensatory damages for both [its fraud and contract] claims” and denying leave to amend because plaintiff’s new, “purported fraud damages are actually contract damages”).

[5] Id. (citing CKR Law LLP v. DiPaola, 209 A.D.3d 427, 428 (1st Dept. 2022) (unspecified reputational damages and lost revenue or profits are not sufficient to sustain a cause of action based on fraud) (citing Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996)).

[6] Reno v. Bull, 226 N.Y. 546 (1919); see also Continental Cas. Co. v. PricewaterhouseCoopers, LLP, 15 N.Y.3d 264 (2010). The damages recoverable under the out-of-pocket rule are intended to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained. Lama, 88 N.Y.2d at 421; see also Clearview Corp. v. Gherardi, 88 A.D.2d 461, 468 (2d Dept. 1982) (“the defrauded party is entitled solely to recovery of the sum necessary for restoration to the position occupied before the commission of the fraud”) (citations omitted).

[7] Foster v. Di Paolo, 236 N.Y. 132, 134 (1923).

[8] Williams v. Mann, 143 A.D.3d 813 (2d Dept. 2016).

[9] Lama, 88 N.Y.2d at 421.

[10] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).

[11] Slip Op. at *2.

[12] Id. (citing Vision Accomplished, Inc. v. Lowe Props., LLC, 131 A.D.3d 1163, 1164 (2d Dept. 2015)).

Tagged with: Breach of Contract, Business Litigation, Commercial Litigation, Duplicative Damages, Fraud