Fraud Notes: Justifiable Reliance, Particularity and Duplication
Print Article- Posted on: Mar 12 2025
By: Jeffrey M. Haber
In Imperium Blue Acquisition Partners, LLC v. Marathon Asset Mgt., L.P., 2025 N.Y. Slip Op. 01317 (1st Dept. Mar. 11, 2025) (here), the Appellate Division, First Department was asked to consider whether, among other things, plaintiffs satisfied the justifiable reliance element of a fraud claim. As discussed below, the Court held that plaintiffs failed to do so.
In Essential Home Remodeling, Inc. v. Rossin, 2025 N.Y. Slip Op. 01314 (1st Dept. Mar. 11, 2025) (here), the Appellate Division, First Department was asked to consider whether a fraud counterclaim satisfied the particularity requirements of CPLR 3016(b) and whether the claim duplicated the plaintiff’s breach of contract counterclaim. As discussed below, the Court held that the fraud counterclaim was conclusory, not particular, and duplicated the defendant’s breach of contract counterclaim.
[Eds. Note: This Blog has previously written about the elements of a fraud claim, the difficulties satisfying the justifiable reliance element of a fraud claim, and the duplication doctrine. To find articles related to the foregoing issues, visit the “Blog” tile on our website and enter “fraud”, “CPLR 3016(b)”, “pleading fraud with particularity”, “justifiable reliance”, or “duplication”, or any other related search term in the “search” box.]
Imperium Blue Acquisition Partners, LLC v. Marathon Asset Mgt., L.P.
Essential Home Remodeling involved an agreement by plaintiffs to purchase resort property in South Lake Tahoe, California. To finance the transaction, plaintiffs explored a number of lenders but ultimately chose defendants because the parties had executed similar transactions in the past. Because of that relationship, defendants promised to streamline the closing by re-using paperwork from the parties’ prior deals to forgo survey requirements, as it had done on prior deals.
After the parties reached a preliminary financing agreement, plaintiffs entered into the purchase agreement with the sellers, contracting to close the transaction on or before December 6, 2021. That same day, the parties signed a term sheet wherein defendants agreed to exercise best efforts to close the transaction on or before December 6, 2021. Plaintiffs gave defendants the required $75,000 good faith deposit as specified under the terms of the term sheet.
Thereafter, defendants requested from plaintiffs the surveys that they had allegedly promised not to require of plaintiffs. According to plaintiffs, defendants continued “piling on surprise requests” that deviated from both defendants’ representations to plaintiffs and the way that they had handled prior deals. Because plaintiffs found such requests to be unreasonable and a departure from defendants’ promises, plaintiffs sought to terminate the transaction.
In response, defendants allegedly insisted that they would “do everything in their power to make [the deal] work for [plaintiffs’] team.” Plaintiffs agreed to continue the transaction as long as defendants honored their word. After the parties agreed to continue the transaction, plaintiffs obtained the surveys allegedly demanded by the defendants at significant effort and expense.
According to plaintiffs, defendants advised them that the December 6 closing date would be impossible and proposed a January 22, 2022 closing date. Plaintiffs reminded defendants that a 2022 closing would be impossible because of their purchase agreement with the sellers. Although defendants told plaintiffs that it would be impossible to close, they allegedly told plaintiffs that the draft loan documents “should be out tomorrow.”
Plaintiffs maintained that rather than sending the loan agreement draft to them, defendants told them that it would be impossible to close by the end of the year. In response, plaintiffs sought to terminate the transaction for the second time. Defendants insisted that plaintiffs contact the sellers to obtain more time on the deal so that they could close. Plaintiffs contacted the sellers, who agreed to a one-week extension to December 13, but defendants indicated that they still could not commit to that date.
Thereafter, plaintiffs demanded a refund of their $75,000 good faith deposit. Defendants countered, offering to return $65,850 on the condition that plaintiffs release defendants from any and all future claims. Plaintiffs refused.
After the expiration of the exclusivity period between the parties, plaintiffs sought alternative financing, eventually obtaining a costly bridge loan. Plaintiffs then negotiated with the sellers to push the close date to December 30, 2021, which the sellers agreed to on the condition that plaintiffs make costly concessions.
On March 30, 2022, plaintiffs obtained financing from another non-party lender to pay off the bridge loan. According to plaintiffs, defendants’ delays were intentional and in bad faith. Plaintiffs claimed that defendants were only delaying the transaction because defendants had reached their maximum collateralized loan obligation limit for 2021 and therefore needed to push the closing out to 2022. Plaintiffs alleged that defendants had known all along that they would be unable to close the transaction by 2021 but made false promises to plaintiffs just to secure the transaction in the hopes of persuading plaintiffs to push the closing date out to 2022 when defendants’ loan limit would renew.
Plaintiffs brought the action to recover the $75,000 deposit they had paid to defendants for the loan, as well as damages in excess of $3 million that were allegedly caused by defendants’ acts and omissions. In that regard, plaintiffs asserted causes of action for: fraud; breach of good faith obligations; promissory estoppel; and breach of contract.
Defendants moved to dismiss the complaint.
Defendants argued that plaintiffs’ fraud claim should be dismissed because the parties had signed the term sheet, which stated that it was not a binding agreement.
In response, plaintiffs argued that defendants were misreading the complaint because plaintiffs were not basing their causes of action on defendants’ failure to complete the financing pursuant to the term sheet. Instead, plaintiffs argued, defendants’ repeated misrepresentations and omissions that they would “expedite the underwriting process, would reuse former documentation and omit certain conditions to do so, and would use best efforts to meet deadlines it did not have any intention of meeting” formed the basis of their complaint.
The motion court held that plaintiffs sufficiently alleged a claim for fraud – namely, defendants made omissions and misrepresentations that induced plaintiffs to initially secure a loan, when defendants were motivated to push the closing past December 2021, which caused plaintiffs injury.
The motion court further found that “[w]hile plaintiffs plead reasonable reliance on defendants’ misrepresentations in a general manner, it was sufficient to withstand a motion to dismiss at this pre-discovery stage.” Moreover, said the motion court, defendants’ alleged motive for pushing out the closing date was that defendants had maximized their loan obligation for the year. Such information, noted the motion court, was within defendants’ knowledge, which plaintiffs were ill-equipped to show at the pre-discovery stage.
The motion court also rejected defendants’ argument that the fraud claim duplicated plaintiffs’ breach of contract claim. The motion court reasoned that “if the term sheet is a non-binding contract, … , then it is not possible for the fraud claim to arise out of any contractual duty since there would be no contractual duty.”
On appeal, the Appellate Division, First Department unanimously reversed.
The Court held that “[p]laintiffs did not, as a matter of law, adequately allege the reasonable reliance element required to state causes of action for fraud and promissory estoppel.”[1] The Court found that the “relevant terms of the parties’ term sheet, including those allowing defendants to require all normal and customary due diligence items, including ‘survey’ reports, directly contradicted the alleged prior oral promises defendants made that they would use best efforts to close the financing by a certain date by expediting and streamlining the due diligence process.”[2]
“Nor could plaintiffs properly state their claims based on allegations of reasonable reliance on the promises or assurances defendants allegedly made after the signing of the term sheet and during the due diligence period,” said the Court, “as those alleged promises were made during the exclusivity period when plaintiffs were not entitled to work with other lenders.”[3] Plaintiffs could not have been induced by defendants’ assurances to continue to ‘tender a performance which [was] required as a part of a preexisting contractual obligation.’”[4]
Essential Home Remodeling, Inc. v. Rossin
Plaintiff commenced the action seeking damages resulting from defendants’ alleged breach of the parties’ construction contract for failing to fully compensate plaintiff for its labor, materials and services provided in renovating defendant’s residence. Defendant answered the complaint and interposed five (5) counterclaims arising primarily from her allegations that she suffered personal injuries from exposure to carbon monoxide, which defendant attributed to plaintiff’s installation of a gas oven and stove.
In defendant’s fifth counterclaim for fraud, defendant alleged the following:
Plaintiffs represented to Defendant Rachel Rossin that they were capable of performing the Services outlined in the contract. Based on Plaintiffs’ representations, Defendant Rachel Rossin hired Plaintiffs to perform the services on April 8, 2022. As of January 3, 2023, the Plaintiffs have refused and/or failed to perform all Services. As of January 3, 2023, the Plaintiffs have inadequately performed Services. Plaintiff falsely represented to Defendant that the Services would be completed within 12-15 working weeks, and that the services would be provided competently. Plaintiffs made the false representation above to deceive Defendant. Plaintiffs have taken over 38 working weeks and still have not completed the Services agreed upon in the Contract. The Plaintiffs agree to provide certain services, including but not limited to architectural plans, design plans, permits, and accurate electrical plans, but they failed to do so. Plaintiff relied upon the false representation above when it entered the Contract. The false representations above were material to the Contract and the Defendant’s willingness to enter the Contract. Had Plaintiffs not made the above false representations, the Defendant would not have entered the Contract.
Plaintiff moved to dismiss defendant’s fifth counterclaim for failure to state a cause of action and as being duplicative of defendant’s third counterclaim for breach of contract.
The motion court denied the motion, holding that the fraud cause of action was “pled with particularity, and alleged that the alleged fraudulent misrepresentations [were] relied upon by the defendant in deciding to enter into the contract with plaintiff.” The motion court also held that the fraud claim was “not duplicative of the breach of contract counterclaim.”
[Eds. Note: the foregoing factual discussion is derived from the parties’ briefs on appeal.]
On appeal, the Appellate Division, First Department unanimously reversed.
The Court held that the fifth counterclaim for fraud “was not pleaded with the particularity required under CPLR 3016(b), as it [made] only general and conclusory allegations that plaintiff entered into a contract while lacking the intent to perform it.”[5] The Court found that “[d]efendant plead[ed] no specific facts from which it may be reasonably inferred that plaintiff did not intend to abide by the specified timeline ‘at the time the promissory representation was made.”[6]
The Court also held that the fraud claim duplicated the breach of contract counterclaim: “The fraud counterclaim is also deficient because the same allegations underlie both the breach of contract and fraud causes of action.”[7] The Court explained that “[t]he only fraud alleged is that plaintiff falsely represented that it would complete the renovations on the timeline set forth in the contract, and a breach of contract claim cannot be converted into one for fraud merely by alleging that defendant did not intend to fulfill the contract.”[8] “In addition,” noted the Court, “the fraud counterclaim seeks the same damages as the breach of contract claim, apart from an unelaborated request for punitive damages in connection with the fraud claim.”[9]
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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.
[1] Slip Op. at *1.
[2] Id. (citations omitted).
[3] Id.
[4] Id. (quoting Megaris Furs v. Gimbel Bros., 172 A.D.2d 209, 212 (1st Dept. 1991), and citing Iberdrola Energy Projects v. Oaktree Capital Mgt. L.P., 231 A.D.3d 33, 44 (1st Dept. 2024)).
[5] Slip Op. at *1(citing New York Univ. v. Continental Ins. Co., 87 N.Y.2d 308, 318 (1995); Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 61 (1st Dept. 2017)).
[6] Id. (quoting Cronos, 156 A.D.3d at 71, and citing Barlow v. Skroupa, 221 A.D.3d 482, 483 (1st Dept. 2023)).
[7] Id. (citing Matter of Soames v. 2LS Consulting Eng’g, D.P.C., 187 A.D.3d 490, 491 (1st Dept 2020)).
[8] Id. (citing Non-Linear Trading Co. v. Braddis Assoc., Inc., 243 A.D.2d 107, 118 (1st Dept. 1998), and Cronos, 156 A.D.3d at 620).
[9] Id. (citations omitted).
