Please note our NYC address has changed, see the new address in the header or on the contact page of our website.
425 Broadhollow Road
Suite 417
Melville, NY 11747

631.282.8985
Freiberger Haber LLP
420 Lexington Avenue
Suite 300
New York, NY 10170

212.209.1005

Failure to Plead Loss Causation Spells Dismissal of Fraud, Negligent Misrepresentation and GBL 349(h) Claims

Print Article
  • Posted on: May 28 2020

In prior posts (e.g., here and here), we have discussed the importance of pleading loss causation in fraud and fraud-related actions. Where causation is an issue, the cases show that plaintiffs often have difficulty demonstrating the components necessary to withstand a motion to dismiss (e.g., here).

There are two components to the causation element: transaction causation and loss causation. “Transaction causation means that the violations in question caused the [plaintiff] to engage in the transaction in question.” AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 209 (2d Cir. 2000) (citation and internal quotation marks omitted). The term is often used by the courts synonymously with “but for” causation. Moore v. PaineWebber, Inc., 189 F.3d 165, 172 (2d Cir. 1999) (“To show transaction causation, the plaintiffs must demonstrate that but for the defendant’s wrongful acts, the plaintiffs would not have entered into the transactions that resulted in their losses.”) (citation omitted) (emphasis in original). Loss causation is “the causal link between the alleged misconduct and the economic harm ultimately suffered by [the] plaintiff.” Fin. Guar. Ins. Co. v. Putnam Advisory Co., 783 F.3d 395, 402 (2d Cir. 2015). It is synonymous with the proximate cause concept found in other tort cases and in the federal securities context. See Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 196-97 (2d Cir. 2003) (loss causation in common law fraud claims comparable to federal securities fraud claims); Laub v. Faessel, 297 A.D.2d 28, 31 (1st Dept. 2002) (“[l]oss causation is the fundamental core of the common-law concept of proximate cause”) (citations omitted). Both transaction causation and loss causation must be pleaded and proved to withstand a challenge from a defendant.

Whether the plaintiff satisfies the loss causation element requires a fact intensive analysis, making a decision on a motion to dismiss generally inappropriate. See Metro. Life Ins. Co. v. Morgan Stanley, 2013 WL 3724938, at *18 (Sup. Ct. N.Y. Cnty. June 8, 2013) (holding proximate cause was not an appropriate issue on a motion to dismiss); see also Schroeder v. Pinterest Inc., 133 A.D.3d 12, 26 n.7 (1st Dept. 2015) (noting that “issues of proximate cause are for the trier of fact….”). Notwithstanding, as noted, the cases show that plaintiffs often find their fraud and fraud-based causes of action dismissed because of the failure to plead and/or prove causation, and in particular loss causation.

In today’s article, we examine Minzer v. Barga, 2020 N.Y. Slip Op. 31458(U) (Sup. Ct. May 22, 2020) (here), a case involving claims sounding in, among others, fraud, negligent misrepresentation and consumer-oriented deceptive practices.

Minzer v. Barga

Background

Plaintiff, Daniel Minzer (Minzer”), alleged he was struck in the face by defendant, Angelo Barga (“Barga”), who was allegedly acting as a driver employed by defendants, Zwolf-NY, LLC (“Zwolf-NY”) and Uber Technologies (collectively, “Uber”), at the time of the incident. Plaintiff asserted that Uber’s online representations led him to believe that his safety was assured.

The incident occurred on February 24, 2018, when plaintiff allegedly requested a ride on the Uber application with a friend. Plaintiff’s friend wore a brace due to a knee injury. The Uber application assigned Barga as plaintiff’s driver. Once inside the vehicle, plaintiff asked Barga to make two stops. Barga allegedly became agitated and refused. After making a statement to the effect of “do you want to have a broken leg like your friend,” Barga exited the vehicle, walked to the back, and allegedly punched plaintiff on the right side of his face before driving away. Plaintiff was charged $10.40 for a ride that neither he nor his friend participated in.

Plaintiff filed suit. In his amended complaint, plaintiff set forth nine causes of action: (1) assault, (2) battery, (3) respondeat superior liability, (4) apparent authority liability, (5) negligent hiring, supervision, and retention, (6) fraudulent misrepresentation, (7) negligent misrepresentation, (8) breach of contract, and (9) violations of New York’s Deceptive Trade Practices Act, New York General Business Law (“GBL”) § 349. Defendants moved to dismiss. The Court granted the motion.

We look at the motion with respect to plaintiff’s sixth, seventh and ninth causes of action.

The Court’s Decision

The Court held that plaintiff did “not set forth … a reasonable basis … to determine that Uber’s alleged misrepresentations caused plaintiff’s loss or injury.” Slip Op. at *5. 

The Court noted that Minzer sufficiently pleaded “transaction causation as he claim[ed] he would not have chosen the service but for Uber’s safety promises.” Id. However, the Court found that there was nothing in the complaint to suggest that Uber’s representations about safety caused his injuries as opposed to the attack allegedly undertaken by Barga: “[n]othing in the pleading … suggests loss causation—i.e., that Uber’s alleged misrepresentations of safety, rather than Barga’s attack, directly caused plaintiff’s loss. Id. at *5-*6 (citing Greentech Research, LLC v. Wissman, 104 A.D.3d 540, 540 (1st Dept. 2013) and Laub, supra.).

In addition, the Court held that Minzer failed to plead his fraud and fraud-based claims with particularity. Slip Op. at *6.  The Court found that Minzer merely pleaded “that he was aware of Uber’s alleged safety promises.” Id.  He did not allege, said the Court, “how or when [he] came to possess this information, thereby failing the particularity requirement.” Id. Under CPLR § 3016(b), a plaintiff alleging fraud must state “‘the circumstances constituting the wrong’ with ‘specific facts with respect to the time, place, or manner of the defendant’s purported misrepresentations,’ as well as the specific words used by the defendant.” Id. (quoting CPLR § 3016(b) and Lanzi v. Brooks, 43 N.Y.2d 778, 780 (1977), and citing Brown v. Wolf Group Integrated Communications, Ltd., 23 A.D.3d 239 (1st Dept. 2005); Riverbay Corp. v. Thyssenkrupp N. Elevator Corp., 116 A.D.3d 487, 488 (1st Dept. 2014)). 

The Court found that Minzer’s GBL § 349 claim “suffer[ed] similar defects as the [fraud and negligent misrepresentation] claims.” Slip Op. at *6. In this regard, the Court found, relying on Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris USA Inc., 3 N.Y.3d 200, 207 (2004), that “Barga’s assault [was] the only direct cause of plaintiff’s injury.” Id. In Blue Cross, the Court of Appeals deemed causation too derivative when the plaintiff insurers’ losses resulted directly from smoking-related illnesses of their subscribers, rather than from the defendant tobacco companies’ products. 3 N.Y.3d at 207.  

Moreover, “[e]ven if plaintiff would not have suffered the injury but for Uber’s promises,” Minzer’s claim would still fail because “but for” causation is insufficient to “‘to state a claim for relief under §349(h).’” Id. (quoting City of New York v. Smokes-Spirits.Com, Inc., 12 N.Y.3d 616, 623 (2009)).

Takeaway

Plaintiffs alleging fraud must do so with particularity. This pleading requirement applies to each element of the fraud claim.  Minzer is a good reminder that a plaintiff can get to the finish line but not cross it because of a failure to satisfy one of the elements of his/her fraud claim. In Minzer, that element was causation. 

Although the causation element is inherently factual, it does not mean that courts will not dismiss a fraud claim because of the failure to plead and/or prove causation. In fact, as shown in Minzer, where the plaintiff fails to allege facts sufficient to support a reasonable inference that the causation allegations are true (Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559-60 (2009)), a fraud cause of action will be dismissed. For this reason, litigants alleging fraud should be mindful of the particularity requirements attendant to each element of the claim. As relevant in Minzer, this means providing allegations that show “the misrepresentations directly caused the loss about which [the] plaintiff complains.” Laub, 297 A.D.2d at 31. 

legal500
bnechmark
superlawyers
AVVO
Freiberger Haber LLP Footer Logo
Copyright ©2021 Freiberger Haber LLP | Disclaimer
Attorney advertisement | Prior results do not guarantee a similar outcome.
425 Broadhollow Road, Suite 417, Melville, NY 11747 | (631) 282-8985
420 Lexington Avenue, Suite 300, New York, NY 10017 | (212) 209-1005
Attorney Website by Zola Creative