Fraud Notes: Duplication in DuplicatePrint Article
- Posted on: Mar 7 2022
By: Jeffrey M. Haber
A common theme in commercial litigation is the assertion of a breach of contract claim and a fraudulent inducement claim. As readers of this Blog know, where both claims are asserted, more times than not, the fraud claim is dismissed under the duplication of claims doctrine. Stated simply, the doctrine provides that a fraud claim cannot stand side-by-side with a breach of contract claim when there is “a valid and enforceable written contract [that] govern[s] a particular subject matter” and the recovery sought arises out of the same facts and circumstances.1 However, 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 be litigated with “a simple breach of contract” claim.2
Today, we examine two cases issued from the Appellate Division, First Department, in which the duplication of claims doctrine served as a basis for the dismissal of the plaintiffs’ fraud claims. Land ‘N Sea Inc. v. Thread Counsel, 2022 N.Y. Slip Op. 01394 (1st Dept. Mar. 3, 2022) (here), and Inspirit Dev. & Constr., LLC v. GMF 157 LP, 2022 N.Y. Slip Op. 01390 (1st Dept. Mar. 3, 2022) (here).
Land ‘N Sea Inc. v. Thread Counsel
Land ‘N Sea involved a contract between Land ‘N Sea Inc. and Thread Counsel d/b/a Laws of Motion in connection with the manufacture of hospital gowns during the early stages of the COVID-19 pandemic. Defendant is a clothing supplier that contracted to supply a large volume of hospital gowns to New York State during the COVID-19 pandemic. Defendant hired plaintiff to manufacture the gowns using fabric supplied by defendant. The terms of the parties’ agreement were reflected in a series of purchase orders.
Plaintiff claimed that defendants, including Carly Bigi (“Officer”), the CEO of defendant Laws of Motion, misrepresented to plaintiff the protective level of the surgical gowns that Laws of Motion contracted to supply to New York State. Plaintiff claimed that defendant told New York State that Laws of Motion would provide the State with “Level 3 Surgical Gowns,” but that Laws of Motion had Land ‘N Sea manufacture “Class 1 non-surgical gowns” using the lower grade fabric provided by defendants. After the gowns were manufactured by plaintiff and ultimately rejected by New York State because the gowns were not of the protective level defendant had offered to the State, defendants failed to pay plaintiff’s invoices aggregating in excess of $1 million.
Following discovery, plaintiff filed an amended complaint, alleging that both defendants had fraudulently induced plaintiff to enter the contract for the manufacture of the hospital gowns. Defendants moved to dismiss.
The motion court held that the there was nothing in the allegations of the amended complaint that rose to the level of a claim of fraud against the Officer who, at all relevant times, was simply acting as a corporate officer of the corporate defendant. The motion court determined that plaintiff merely alleged corporate status without more as the basis for the fraudulent inducement claim against the Officer.3
The motion court also held that no basis existed to assert the fraudulent inducement claim against the corporate defendant: “Plaintiff’s fraud claims are based on the same facts as its breach of contract cause of action and plaintiff seeks the same damages on its fraud and breach of contract claims.”4
On appeal, the First Department affirmed.
The Court held that the motion court correctly dismissed the fraudulent inducement claim against defendants. As to the cause of action against the Officer, the Court noted that corporate officers may be held liable for fraud only if they participated in it. However, said the Court, the facts alleged in the complaint did not support the claim that the Officer misrepresented or omitted material facts with the intent to induce plaintiff to enter into purchase orders for surgical gowns that the Officer knew would not meet the State of New York’s required standards.
As to the cause of action for fraudulent inducement against the corporate defendant, the Court held that plaintiff failed to allege any duty separate from the one asserted in the contract claim. Further, explained the Court, the damages that plaintiff sought in the fraudulent inducement cause of action were the same as the ones it sought in the breach of contract cause of action. Under such circumstances, the fraud claim duplicated the breach of contract claim.
Inspirit Dev. & Constr., LLC v. GMF 157 LP
Inspirit arose from plaintiff’s work as general contractor for the renovation of a luxury residential condominium apartment located in New York City. Defendant owned the apartment.
Plaintiff allegedly performed the work poorly and failed to meet, among other things, the agreed-upon budget and/or schedule, and failed to remedy the cited deficiencies with its work. In addition, plaintiff’s President allegedly made knowingly false written certifications to defendant, claiming that plaintiff incurred costs and made payments to subcontractors that in fact had not been made. As a result of the alleged issues with plaintiff and its President, defendant terminated its contract with plaintiff.
Plaintiff filed suit claiming, among other things, breach of contract, quantum meruit, and unjust enrichment. Plaintiff also asserted claims against defendant’s representatives for negligence and tortious interference. Defendant filed counterclaims against plaintiff for breach of contract and a third-party claim against defendant’s president (“Officer”) for fraud. The parties each moved to dismiss all the claims except the parties’ competing breach of contract claims.
The motion court granted the motion to dismiss plaintiff’s claims for quantum meruit, unjust enrichment, and negligence, denied the motion to dismiss plaintiff’s tortious interference claims and granted the individual defendant’s motion to dismiss the fraud claim against him.
On appeal, the First Department held that the motion court correctly dismissed the negligence claim against defendant’s representatives on the grounds that the claim sought to enforce the contract between the parties. Quoting the Court of Appeals’ decision in Dormitory Authority of the State of N.Y. v. Samson Construction Co., the Court noted that plaintiff failed to identify a legal duty independent of the contract that had been violated: “[A] simple breach of contract is not to be considered a tort unless a legal duty independent of the contract … has been violated … Merely charging a breach of a duty of due care … does not, without more, transform a … breach of contract into a tort claim”.5
The Court explained that plaintiff’s alleged damages were the same as its contract damages; that is, plaintiff was “essentially seeking enforcement of [its] bargain”.6 This was especially true, noted the Court, since plaintiff’s “injury … was not personal injury or property damage; [and] there was no abrupt, cataclysmic occurrence”.7
Moreover, the Court held that defendant’s representatives did not owe a duty to plaintiff as non-signatories to the contract between the primary parties: “Polizzotto LLC — which contracted with [defendant] — owes no duty to plaintiff, a nonparty to that contract, and plaintiff has not shown that any of the exceptions to that rule applies.”8
As to the third-party fraud claim, the Court held that the motion correctly dismissed the complaint. The Court explained that the “the only fraud charged relate[d] to an alleged breach of contract”.9 In this regard, the Court noted that “[t]he invoices and certifications on which [defendant’s] fraud claim [was] based were clearly contemplated by the contract.”10 For this reason, concluded the Court, the fraud claim did “not allege breach of a duty independent from the parties’ agreement”.11
A fraud claim, which arises from the same facts, seeks identical damages and does not allege a breach of any duty collateral to or independent of the parties’ agreement, is duplicative of a contract claim. What constitutes “a legal duty independent of a contract” is not a question easily answered.12 In trying to answer the question, the courts make the distinction between a misrepresentation of intention and a misrepresentation of present fact.13 The former will result in dismissal, while the latter will not.14 The courts also look to the damages sought to ascertain if they are the same.15 In Land ‘N Sea and Inspirit, the plaintiffs could not demonstrate any exception to the doctrine. In each case, the courts found that plaintiffs merely alleged a breach of contract claim dressed up in the garb of a fraud cause of action.16
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.
- Clark-Fitzpatrick v. Long Is., 70 N.Y.2d 382 (1987).
- Dormitory Auth. v. Samson Constr. Co., 30 N.Y.3d 704 (2018) (citation omitted).
- Citing, Worthy v. New York City Hous. Auth., 21 A.D.3d 284, 288 (1st Dept. 2005) (noting, to attach individual liability on a corporate officer, “something more than the mere status of corporate officer must exist”) (citing, Michaels v. Lispenard Holding Corp., 11 A.D.2d 12, 14 (1st Dept. 1960)).
- Citing, Cronos Grp. Ltd. v. XComIP, LLC, 156 A.D.3d 54, 62-63 (1st Dept. 2017).
- Slip Op. at *2 (quoting, Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., 30 N.Y.3d 704, 711 (2018) (internal quotation marks and some emendations omitted).
- Id. (quoting, Sommer v. Federal Signal Corp., 79 N.Y.2d 540, 552 (1992)).
- Id. (quoting, Sommer, 79 N.Y.2d at 552).
- Id. at *1-*2 (citing, Church v. Callanan Indus., 99 N.Y.2d 104, 111 (2002)).
- Id. at *2 (quoting, Matter of Soames v. 2LS Consulting Eng’g D.P.C., 187 A.D.3d 490, 491 (1st Dept. 2020)).
- Id. at *3 (citations omitted).
- Cronos Grp., 156 A.D.3d at 56 (referring to the question as a “recurring” one).
- Id. at 63.
- Gosmile, Inc. v. Levine, 81 A.D.3d 77 (1st Dept. 2010).
- Mosaic Caribe, Ltd. v. AllSettled Group, Inc., 117 AD3d 421, 422-423 (1st Dept. 2014) (a fraud claim was insufficient as “duplicative of the breach of contract claim” because it sought “the same [compensatory] damages as the breach of contract claim”).
- Songbird Jet Ltd., Inc. v. Amax Inc., 581 F. Supp. 912, 924 (S.D.N.Y. 1984).