Fraud: Failure to Identify a False Statement, Group Pleading and The Failure to Plead the Claim with Particularity

• Posted on: Nov 20 2023

By: Jeffrey M. Haber

In Barlow v. Skroupa, 2023 N.Y. Slip Op. 05786 (1st Dept. Nov. 16, 2023) (here), the Appellate Division, First Department affirmed the dismissal of a fraud claim because the plaintiffs failed to plead fraud with particularity, as required under CPLR § 3016(b), and identify any specific misrepresentations of material fact. We examine Barlow below. 

Plaintiffs, who were employees and consultants of Inspire Summits LLC (“Inspire”), doing business as Skytop Strategies (“Skytop”), originally brought the action alleging breach of contract by defendants Skytop and its owner Christopher Skroupa, in addition to other related claims. Following multiple amendments, plaintiffs added parties and causes of action, including, inter alia, fraud in connection with Skytop’s alleged failure to pay its employees and contractors, overcharging participants in its conferences, and related misconduct.

More specifically, the fraud claim was based on alleged misrepresentations about Skytop’s revenue, funding, and prospects and defendants’ nondisclosure of Skytop’s financial irregularities. Plaintiffs alleged that defendants misrepresented that they profited only from Skytop’s conferences and not from inducing employees, consultants, and vendors to provide services without payment and that Skytop possessed the financial ability to pay employees, was growing fast, and offered employees rapid growth.

Defendants David Katz (“Katz”) and Paula Luff (“Luff”) moved to dismiss all claims pleaded against them pursuant to CPLR § 3211(a)(7). Katz and Luff maintained that plaintiffs failed to allege that these defendants owed any duties to plaintiffs or made any misrepresentations on which plaintiffs reasonably relied and that the allegations otherwise lacked the required particularity for a fraud claim.

The motion court granted the motion.

The motion court found that plaintiffs engaged in improper group pleading by failing to distinguish among the various defendants regarding which misrepresentations and omissions each defendant made to each plaintiff, when the misrepresentations were made, and where the misrepresentations were made.¹ By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to a particular defendant, the motion court concluded that plaintiffs deprived defendants of the notice regarding “the material elements of each cause of action” to which defendants were entitled under CPLR § 3013. 

The motion court also held that by referring to all defendants together, plaintiffs failed to plead their fraud claim with the particularity required by CPLR § 3016(b).² 

As noted, the First Department affirmed.

The Court agreed with the motion court, finding that “plaintiffs failed to plead fraud with particularity as required under CPLR 3016(b).”³ The Court also found that plaintiffs failed “to identify any specific and material misrepresentation of fact by either Katz or Luff, and offered only general and conclusory allegations that they made “false representations” regarding Skytop’s revenues and its ability to pay wages and benefits.”⁴ As a result, concluded the Court, the motion court “properly dismissed [the fraud] claim.”⁵

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.”⁶ The claim must pleaded with particularity.⁷ Conclusory allegations will not suffice.⁸ Neither will allegations based on information and belief.⁹ If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.¹⁰ 

The requirement that a fraud claim be pleaded with particularity can be found in CPLR § 3016(b). Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”¹¹ 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.

Group pleading runs afoul of the particularity requirement. It also violates CPLR § 3013, which requires the pleader to provide the parties notice of the transactions or occurrences intended to be proved together with the material elements of the plaintiff’s cause of action or the defendant’s defense.

In Barlow, plaintiffs failed to comply with the foregoing principles. First, plaintiffs violated the group pleading prohibition “[b]y pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to [a] particular defendant[ ].” In doing so, “plaintiffs deprive[d] defendants of the notice regarding ‘the material elements of each cause of action’ to which defendants” were entitled under CPLR § 3013.

By group pleading their fraud claim, the plaintiffs in Barlow also failed to plead their claim with particularity. Courts routinely hold that a complaint, which asserts, in general terms, that all defendants engaged in the alleged misconduct, is insufficiently particular under CPLR § 3016(b).¹² 

Second, plaintiffs failed to identify any specific misrepresentation of material fact that either Katz or Luff had made to them. Instead, plaintiffs offered only general and conclusory allegations that defendants made “false representations” regarding Skytop’s revenues and its ability to pay wages and benefits.¹³ As such, plaintiffs were unable to satisfy the first element of a fraud claim: the making of a misrepresentation or omission of a material fact.

Footnotes

1. See Principia Partners LLC v. Swap Fin. Group, LLC, 194 A.D.3d 584, 584 (1st Dept. 2021).
2. El Toro Group, LLC v. Bareburger Group, LLC, 190 A.D.3d 536, 541 (1st Dept. 2021); Total Asset Recovery Servs. LLC v. Metlife, Inc., 189 A.D.3d 519, 523 (1st Dept. 2020).
3. Slip Op. at a*1 (citation omitted).
4. Id.
5. Id.
6. Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).
7. Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009).
8. Id.
9. See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015).
10. RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).
11. Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).
12. Total Asset Recovery Servs. LLC v. Metlife, Inc., 189 A.D.3d 519, 523 (1st Dept. 2020).
13. Slip Op. at *1 (citing Principia Partners, 194 A.D.3d at 584).

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.