Conclusory Allegations of Scienter Held Insufficient to State a Claim for Fraud

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Posted on: Feb 16 2025

“The elements of a cause of action for fraud require a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by plaintiff and damages. A claim rooted in fraud must be pleaded with the requisite particularity under CPLR 3016(b).”[1] The failure to satisfy each element will result in dismissal of the claim.

As this Blog has noted in several articles, many cases involving an alleged fraud often rise and fall on the scienter element of the cause of action.[2] To allege scienter, a plaintiff must allege with particularity that the defendant had an “actual intent to deceive, manipulate, or defraud.”[3] Scienter must be plead with “sufficient detail[]”; “conclusory statement[s] of intent” are insufficient.[4] To succeed, therefore, the plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.”[5]

Scienter is a very difficult element to plead. In fact, the scienter element is the hardest to plead because the evidence of intent most often rests solely with the defendant. Because of this difficulty, intent is often inferred from circumstantial evidence.[6]

In today’s article, we examine McNaughton v. 5 W. 14 Owners Corp., 2025 N.Y. Slip Op. 00831 (1st Dept. Feb. 13, 2025) (here), a case involving, among other claims, the scienter element of a fraud claim.

In McNaughton, plaintiff, a retired attorney, alleged that his prior attorneys engaged in legal malpractice when they failed to warn him that a New York court would lack personal jurisdiction over the defendants in a matter concerning the estate of plaintiff’s late sister and that the action would be dismissed for that reason if he filed it in New York rather than in Massachusetts.

In addition to the legal malpractice claim, plaintiff alleged that the former lawyers defrauded him by failing to advise plaintiff before he entered into the retainer agreement with the former lawyers that a New York court could not assert personal jurisdiction over the defendants in the estate matter. The former lawyers moved to dismiss. The motion court granted the motion. Plaintiff appealed.

The Appellate Division, First Department, unanimously affirmed.

The Court held that the motion court “properly dismissed the cause of action for fraud against” the former lawyers. The Court held that “plaintiff fail[ed] to adequately plead scienter, a necessary element of a cause of action for fraud, as against those defendants.”[7] The Court explained that plaintiff “offer[ed] no facts that would allow a court to infer that [the lawyer defendant] acted deliberately to deceive plaintiff.”[8] “Rather,” said the Court, “the complaint allege[d], in conclusory terms, that [the former lawyer] engaged in fraud and fraud in the inducement when he failed to advise plaintiff before he entered into the retainer agreement that the Supreme Court in New York could not assert personal jurisdiction over the defendants in the estate matter.”[9]

Since the scienter allegations were conclusory and devoid of any facts, the Court affirmed the dismissal of the fraud causes of action.

Takeaway

Scienter must be pleaded with particularity. Conclusory allegations, such as those in McNaughton, will not suffice. The plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.”[10] In McNaughton, as discussed above, plaintiff failed to plead any facts to support an inference of scienter.

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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] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009) (citations omitted).

[2] To find articles related to the scienter element of a fraud claim, visit the “Blog” tile on our website and enter “scienter” or any other related search term in the “search” box.

[3] Zutty v. Rye (NOR), 33 Misc. 3d1226(A), 2011 WL 5962804 at *11 (Sup. Ct., N.Y. Co. Apr. 15, 2011).

[4] Zanett Lombardier, Ltd. v. Maslow, 29 A.D.3d 495 (1st Dept. 2006) (citation omitted).

[5] Houbigant, Inc. v. Deloitte & Touche LLP, 303 A.D.2d 92, 93 (1st Dept. 2003).

[6] Pludeman v. N. Leasing Sys., Inc., 10 N.Y.3d 486, 488 (2008).

[7] Slip Op. at *2 (citing Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 178 (2011); Eurycleia Partners, 12 N.Y.3d at 559 (2009)).

[8] Id. (citing Pludeman, 10 N.Y.3d at 492; Eurycleia Partners, 12 N.Y.3d at 559)).

[9] Id.

[10] Houbigant, Inc. v. Deloitte & Touche LLP, 303 A.D.2d 92, 93 (1st Dep’t 2003).