Failure to Plead Fraud with Particularity, A “Single Shot Transaction” and the Lemon Law

Print Article

Posted on: Dec 24 2023

In today’s article, we examine Eva Chen Fine Jewelry, Inc. v. Recovery Racing IX, LLC, 2023 N.Y. Slip Op. 06511 (2d Dept. Dec. 20, 2023) (here), a case involving common law fraud, New York’s lemon law and Section 349 of New York’s General Business Law (“GBL”).

In May 2014, plaintiff purchased a 2014 Maserati Ghibli from Maserati of Bergen County, an authorized Maserati dealership owned at the time by defendant Recovery Racing IX, LLC. The subject vehicle was used solely by plaintiff’s principal and only employee, Eva Chen (“Chen”). After seeking repairs with respect to the vehicle’s air conditioning system on six occasions, plaintiff commenced the action to recover damages pursuant to GBL §§ 198-a and 349, and for fraud and breach of contract.

Defendants moved for summary judgment dismissing the complaint. The motion court granted the motion.

The motion court held that Chen’s claim for relief under GBL § 198-a (New York’s Lemon Law) was “baseless because the Lemon Law only applies to consumers.” In the complaint, plaintiff, a corporation, purchased the car as a company car. Under GBL § 198-a, the purchaser of a motor vehicle must use the vehicle “primarily for personal, family or household purposes. If the vehicle is used primarily for commercial purposes, the statute does not apply.[1]

The motion court similarly held that the claim under GBL § 349 was without merit. To state a claim under GBL § 349, the plaintiff must plead and prove that the defendant “has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) [the] plaintiff suffered injury as a result of the allegedly deceptive act or practice.”[2]

“[P]arties claiming the benefit of [General Business Law § 349 (h)] must, at the threshold, charge conduct that is consumer oriented.”[3] “Private contract disputes, unique to the parties … [do] not fall within the ambit of the statute.”[4] The deceptive practices that GBL § 349 seeks to combat involve recurring transactions of a consumer type.[5] The practices at issue cannot be, in effect, a “single shot transaction”,[6] which is “tailored to meet the purchaser’s wishes and requirements.”[7]

The motion court found that Chen failed to allege any effect on consumers at large or to establish any injury suffered.

The motion court also dismissed plaintiff’s fraud cause of action for failure to plead fraud with particularity. Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[8] To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud. The motion court found that plaintiff failed to allege any misrepresentations or omissions with specificity.

On appeal, the Appellate Division, Second Department affirmed.

The Court held that “defendants established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 198-a, by demonstrating that the plaintiff was not a ‘consumer’ that would be entitled to relief under the statute.”[9] The Court noted that “defendants submitted evidence establishing that the vehicle was purchased, paid for, and insured in the name of the [corporation], and the [corporation] had claimed the vehicle as a 100% business use deduction on its corporate tax returns since the year the vehicle was purchased.”[10] Such evidence, and plaintiff’s failure to raise a triable issue of fact, sufficed to grant defendants’ motion for summary judgment.

The Court also held that defendants “established their prima facie entitlement to judgment as a matter of law dismissing the cause of action pursuant to General Business Law § 349.” The Court found that the alleged conduct attributed to defendants “did not constitute consumer-oriented conduct pursuant to General Business Law § 349.”[11] As shown in the record on appeal, the evidence demonstrated that Plaintiff’s complaints were specific to her vehicle (i.e., they were individualized concerns about the air conditioning system in Chen’s vehicle) and did not affect the general public or consumers at large.

Finally, the Court held that the motion court “properly granted that branch of the defendants’ motion which was for summary judgment dismissing the cause of action alleging fraud.”[12] The Court found that “plaintiff failed to plead fraud with specificity, as the complaint did not identify any specific material misrepresentation of fact, the person or entity who made such alleged misrepresentation, or any alleged knowledge of any party who made the misrepresentation of its falsity.”[13]

Takeaway

The courts have been steadfast in their holdings that a plaintiff must identify the alleged misrepresentation or omission upon which they relied to satisfy the first element of a fraud claim. Just last month, we wrote about Barlow v. Skroupa, 2023 N.Y. Slip Op. 05786 (1st Dept. Nov. 16, 2023) (here), in which the First Department affirmed the dismissal of a fraud claim because the plaintiffs failed to identify any misrepresentations of material fact uttered by any of the defendants. Eva Chen is another reminder that a plaintiff who does not allege a specific misrepresentation or omission will not survive a challenge to his/her fraud claim.

The courts have also been steadfast in their holding that a party claiming the benefit of GBL § 349 must allege conduct that is consumer oriented. This means that “[the] defendant’s acts or practices must have a broad impact on consumers at large.”[14] The deceptive practices GBL § 349 seeks to combat involve recurring transactions of a consumer type. Private transactions not of a recurring nature or without ramifications for the public at large are not a proper subject of a claim under GBL § 349. In Eva Chen, the only parties affected by the alleged deceptive practices were plaintiff and defendants. “A breach of a private contract affecting no one but the parties to the contract, whether that breach be negligent or intentional, is not an act or practice affecting the public interest.”[15] Thus, an action that involves a “single shot transaction,” such as the repair of a plaintiff’s vehicle, “which is tailored to meet the [plaintiff’s] wishes and requirements,” does not, without more, “constitute consumer-oriented conduct for the purposes of [BCL § 349].”[16]

[1] Colabella v. Europa Int’l, Inc., 168 A.D.2d 534 (2d Dept. 1990) (citation omitted).

[2] Aracena v. BMW of N. Am., LLC, 159 A.D.3d 664, 666 (2d Dept. 2018) (citation and internal quotation marks omitted).

[3] See, e.g., New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 320 (1995); Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 334 (1999); Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25 (1995).

[4] Oswego Laborers’ Local 214, 85 N.Y.2d at 25; see also New York Univ., 87 N.Y.2d at 320.

[5] Genesco Entertainment, a Div. of Lymutt Indus., Inc. v. Koch, 593 F. Supp. 743, 752 (S.D.N.Y. 1984).

[6] Id.

[7] New York Univ., 87 N.Y.2d at 321. See also North State Autobahn, Inc. v. Progressive Ins. Grp. Co., 102 A.D.3d 5, 12 (2d Dept. 2012).

[8] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).

[9] Slip Op. at *1 (citation omitted).

[10] Id. (citation omitted). In Parlato v. Chrysler Corp., 170 A.D.2d 442 (2d Dept. 1991), the Second Department held that a party is a “consumer” as defined under BCL § 198-a in relation to the actual manner of use of the vehicle, rather than to the technicalities of whether title is held in an individual or corporate name. A finding that the vehicle is “used primarily” for “personal, family, or household” purposes entitles the purchaser to “consumer” status, even if that purchaser is a corporation.

[11] Id. (citations omitted).

[12] Id.

[13] Id. (citing Nafash v. Allstate Ins. Co., 137 A.D.3d at 1090 (2d Dept. 2016); Brualdi v. IBERIA, Lineas Aereas de España, S.A., 79 A.D.3d 959, 960-961 (2d Dept. 2010); Dumas v. Fiorito, 13 A.D.3d 332 (2d Dept. 2004)).

[14] New York Univ., 87 N.Y.2d at 320; Oswego Laborers’ Local 214, 85 N.Y.2d at 25; see also North State Autobahn, 102 A.D.3d at 12.

[15] Genesco Entertainment, 593 F. Supp. at 752 (citation omitted).

[16] North State Autobahn, 102 A.D.3d at 12.

__________________________

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.