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Allegations That Defendant Lacked a General Intent to Perform Is Insufficient to Support Fraud Claim

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  • Posted on: Jan 18 2021

It has long been held that “promissory statements as to what will be done in the future are not actionable.” Adams v. Clark, 239 N.Y. 403, 410 (1925). However, when the promissory statement is “made with a preconceived and undisclosed intention of not performing it,” it becomes an actionable misrepresentation of existing fact. Sabo v. Delman, 3 N.Y.2d 155 (1957).

The foregoing principles have been examined by this Blog numerous times (e.g., here and here). In today’s article, we revisit them. In Kastin v. GEICO Gen. Ins. Co., 2021 N.Y. Slip Op. 00160 (2d Dept. Jan. 13, 2021) (here), the Appellate Division, Second Department affirmed the dismissal of plaintiff’s fraud claim on the grounds that he failed to allege a misrepresentation of existing fact.

Kastin arose from an automobile accident in which plaintiff allegedly sustained personal injuries. Plaintff sued the driver of the vehicle and later settled the action for the full coverages available. Thereafter, plaintiff bought suit against defendant, GEICO General Insurance Company, for the supplementary uninsured/underinsured motorist (“SUM”) benefits provided under his policy.

The complaint was filed after plaintiff sent a letter to defendant, demanding that it tender the full policy limit of $250,000 under the SUM endorsement. In a responsive letter, defendant stated that it was “willing to negotiate any claim in good faith,” and that “[u]pon completion of our review, we will contact you to discuss the merits of this case.”

About one month later, plaintiff commenced the action. Plaintiff asserted two causes of action: the first cause of action was premised upon an alleged breach of contract on the basis that did not immediately tender the entirety of the SUM coverages available; and the second cause of action alleged that defendant fraudulently promised to pay plaintiff’s underinsurance claim and refused to do so.

Defendant moved to dismiss the complaint. With regard to the fraud claim, defendant argued that plaintiff failed to establish the elements of a fraud action; in particular, defendant claimed that plaintiff failed to identify a material misrepresentation of existing fact known by defendant to be false at the time it was made. In essence, defendant argued that plaintiff merely alleged “[g]eneral allegations that … [it] entered into a contract with the intent not to perform.…” New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995).

The motion court granted the motion. Plaintiff appealed.

The Second Department affirmed, holding that “plaintiff failed to state a cause of action alleging fraud.” Slip Op. at *1. In so doing, the Court found that plaintiff merely alleged an intention not to perform: “Here, the plaintiff’s conclusory allegations that the defendant had no intention of paying the plaintiff the benefits owed under the policy are insufficient to state a cause of action alleging fraud.” Id. (citing New York Univ, 87 N.Y.2d at 318.

Takeaway

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.” Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). “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.” Perella Weinberg Partners LLC v. Kramer, 153 A.D.3d 443, 449 (1st Dept. 2017). As shown in Kastin, “[g]eneral allegations of lack of intent to perform are insufficient.” Id. Rather, the plaintiff must allege facts establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise. Id.; Meiterman v. Corp. Habitat, 173 A.D.3d 593, 594 (1st Dept. 2019).

Kastin stands as another example of a New York court distinguishing between a “promissory statement as to what will be done in the future,” which gives only rise to a breach of contract claim, and a false “representation of present fact,” which gives rise to an independent claim of fraudulent inducement. Topps Co., Inc. v. Cadbury Stani S.A.I.C., 380 F.Supp.2d 250, 265 (S.D.N.Y. 2005) (quoting Stewart v. Jackson & Nash, 976 F.2d 86, 89 (2d Cir.1992)).

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