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Duplication: If It Looks Like A Duck, Swims Like A Duck, and Quacks Like A Duck…

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  • Posted on: May 5 2021

“If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” This saying best describes the duplication of claims doctrine that this Blog often writes about – that is, the doctrine whereby a fraud claim will duplicate a contract claim when “the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract.” Mañas v. VMS Assoc., LLC, 53 A.D.3d 451, 453 (1st Dept. 2008) (quoting First Bank of Ams. v. Motor Car Funding, 257 A.D.2d 287, 291 (1st Dept. 1999)). As we have noted before (here), courts do not hesitate to dismiss fraud claims when they are merely contract claims “dressed in the garb of a fraud count.” Songbird Jet Ltd., Inc. v. Amax Inc., 581 F. Supp. 912, 924 (S.D.N.Y. 1984).  

A fraud-based cause of action may lie, however, where the plaintiff pleads a breach of a duty separate from a breach of the contract. Mañas, 53 A.D.3d at 453. “Thus, where the plaintiff pleads that it was induced to enter into a contract based on the defendant’s promise to perform and that the defendant, at the time it made the promise, had a ‘preconceived and undisclosed intention of not performing’ the contract, such a promise constitutes a representation of present fact collateral to the terms of the contract and is actionable in fraud.” Id. (quoting Deerfield Communications Corp. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 956 (1986)).

The Appellate Division, First Department recently addressed these issues in International Dev. Inst., Inc. v. Westchester Plaza, LLC, 2021 N.Y. Slip Op. 02746 (1st Dept. May 4, 2021).

International Development arose from a lease between the parties, whereby plaintiff leased the second floor of defendant’s building for the purpose of running a school. Plaintiff asserted a number of causes of action for, inter alia, breach of the lease, fraud, negligent misrepresentation, and unjust enrichment.

With regard to the fraud claim, plaintiff contended that defendant misrepresented that it would cooperate in obtaining the certificate of occupancy (“CO”), including by curing existing first-floor violations and carrying out the supporting work that defendant undertook to do (e.g., roof repair and electrical work). The First Department found that the claim duplicated the lease claims because it was simply a contention that “defendant never intended to perform its obligations under the lease.” Slip Op. at *1. Therefore, held the Court, the fraudulent misrepresentation claim should have been dismissed. Id.

For the same reason (e.g., plaintiff failed to allege the breach of any duty separate and apart from the contractual obligations under the lease), the Court held that the negligent misrepresentation claim should have been dismissed. Id. (citing Greenman-Pedersen, Inc. v. Levine, 37 A.D.3d 250 (1st Dept. 2007)).

[Ed. Note: Where “a legal duty independent of the contract itself has been violated[,]” or where the misrepresentation is “collateral or extraneous to the terms of the parties’ agreement,” a fraudulent inducement claim can stand side-by-side with “a simple breach of contract” claim.  Dormitory Auth. v. Samson Constr. Co., 30 N.Y.3d 704 (2018) (citation omitted).]

The Court also found that plaintiff’s fraudulent concealment claim should have been dismissed. Under that claim, plaintiff contended that defendant should have, but did not, disclose numerous existing first-floor violations, which made it impossible to use the premises as a school, as stated in the lease, or to obtain a CO. The Court found that “Plaintiff’s own submissions demonstrate[d] that the first-floor violations were numerous, long-standing (many dating back to the 1990s), and matters of public record.” Id.  As “a sophisticated party to an arm’s-length contract” in which “defendant expressly eschewed any warranties and presented the property for lease ‘as-is’”, “[i]t was incumbent on plaintiff to exercise full due diligence to ascertain all factors having a bearing on obtaining a CO,” said the Court. Id. Since “Plaintiff did not do so,” concluded the Court, it could not “assert any claim for fraudulent concealment.” Id. (citing Jana L. v. West 129th St. Realty Corp., 22 A.D.3d 274, 278 (1st Dept. 2005)).

[Ed. Note: When alleging fraud, sophisticated parties must show that they used due diligence and took affirmative steps to protect themselves from misrepresentations by employing what means of verification were available at the time. See, e.g., HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 194-95 (1st Dept. 2012).]

The Court further held that plaintiff’s unjust enrichment claim, which was based upon its fraud allegations, should have been dismissed as duplicative of the lease claims. Id. at *1-*2. The Court explained that, in addition to the absence of an independent duty, the damages sought by the unjust enrichment claim were not “distinct from the contract claim.” Id. at *2.  “In each case,” observed the Court, “plaintiff principally [sought] to recoup the value of the improvements.” Id.

[Ed. Note: As we noted in our article, titled “First Department Finds Fraud Claim Duplicative of Contract Claim Even Though Plaintiff Stated A Duty Independent of The Contract” (here), even where a plaintiff alleges a duty independent of the contract, courts will dismiss the fraud claim because the damages sought are the same as those sought by the contract claim. As we explained, the reason has to do with the purpose of the damages sought. MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 165 A.D.3d 108, 114 (1st Dept. 2018); Mañas, 53 A.D.3d at 454. Fraud damages are meant to redress a different harm than damages for breach of contract. The latter damages are meant to restore the nonbreaching party to as good a position as it would have been in had the contract been performed; the former damages are meant to indemnify losses suffered as a result of the fraud. MBIA, 165 A.D.3d at 114; Mañas, 53 A.D.3d at 454. Thus, where all the damages are remedied through the contract claim, the fraud claim is duplicative and must be dismissed. MBIA, 165 A.D.3d at 114. This is so even where the plaintiff sufficiently alleges breach of an independent duty owed them separate and apart from the contract. Id.].

Accordingly, concluded the Court, the unjust enrichment claims should have been dismissed as duplicative of the contract claims. Slip Op. at *2 (citation omitted).

Takeaway

The title of this article aptly describes the Court’s reasoning in International Development. As discussed, the Court was asked to examine fraud claims that were essentially indistinguishable from plaintiff’s contract claims. Under the duplication of claims doctrine, the fraud claims could not stand side-by-side with the lease (contract) claims.  As discussed above, plaintiff did not allege any representation that was collateral to the lease. Instead, plaintiff merely alleged that defendant was not sincere when it promised to perform under the lease. To the First Department, under those facts, the fraud-based claims duplicated the contract claims.

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