Group Pleading, Failure to Plead Fraud with Particularity and Duplication: A Dismissal Trifecta

• Posted on: Nov 27 2023

By: Jeffrey M. Haber

As we have often explained in the articles in which we have examined fraud claims, to withstand a motion to dismiss, the plaintiff must plead fraud with particularity as required under CPLR § 3106(b), cannot lump all the defendants together so that the plaintiff runs afoul of the group pleading prohibition, and cannot duplicate a breach of contract claim with the fraud claim. Lerman v. 2211 Third Ave. Mazal Holdings LLC, 2023 N.Y. Slip Op. 34092(U) (Sup. Ct., N.Y. County Nov. 16, 2023) (here), is another example of a plaintiff failing to comply with the foregoing.

Lerman began as a motion for summary judgment in lieu of complaint arising out of an agreement between plaintiff and 2211 Third Avenue Mazal Holdings LLC (“Holdings”) and was based on breach of a promissory note to repay a loan. Because the amount of interest could not be readily discerned, the case was converted to a plenary action. 

Plaintiff alleged that defendants fraudulently induced him to increase the amount, and extend the maturity date, of the loan. Plaintiff claimed that defendants Amir Hasid (“Hasid”) and HAP Investments LLC (“HAP”) made material misrepresentations about the financial condition of Holdings, including about the financial projections for the development of a property located at 2211 Third Avenue in New York City (the “Third Avenue Property”).

Plaintiff maintained that in December 2018, Holdings executed a promissory note evincing a $500,000.00 loan in connection with the Third Avenue Property. Plaintiff claimed that HAP fraudulently convinced him to increase his “investment” to $700,000.00 and execute a new promissory note showing this increased “investment”. The new note contained a maturity date of one year with an option to extend it another year (to December 2020). Plaintiff alleged that Hasid (on behalf of HAP) wrongfully convinced him to enter into this agreement. Plaintiff alleged that in December 2019, Holdings used its option and extended the maturity date to December 2020. Thereafter, Holdings failed to pay the balance due.

Defendants moved to dismiss the operative complaint. They claimed that the complaint contained confusing allegations about the various defendants in an attempt to pierce the corporate veil and hold all the defendants liable under the agreement plaintiff executed with Holdings. Defendants argued that plaintiff did not identify the allegedly fraudulent misrepresentations that were made to him in connection with the loan.

Defendants noted that various allegations asserted by plaintiff were made upon information and belief, including that both defendant 2211 Third Avenue Mazal LLC (“Mazal”) and HAP were controlling principals, members, and managers of Holdings. Defendants stressed that the complaint was bereft of sufficient details about the alleged fraud committed by defendants and how that affected plaintiff’s decision to loan money to Holdings.

In opposition, plaintiff submitted an affirmation in which he claimed that Hasid spoke with him on behalf of HAP to induce plaintiff to loan the money. Plaintiff claimed that Hasid provided him with financial projections for the building and assurances that the loan would be timely repaid. 

Plaintiff explained that Hasid informed him that defendant Eran Polack (“Polack”) was no longer involved with HAP (according to plaintiff, Polack was adjudged to be a fraudster in Israel). He claimed that he would not have invested without that assurance. Plaintiff contended that he started to become uneasy and demanded his money back after learning that Polack was still the CEO of HAP. Plaintiff admitted that he received $200,000.00 “from HAP and/or Mazal” and later received another $10,000.00.

The motion court granted the motion.

“To state a cause of action to recover damages for fraudulent inducement, there must be a knowing misrepresentation of material present fact, which is intended to deceive another party and induce that party to act on it, resulting in injury.”¹ The motion court found that plaintiff failed to satisfy the foregoing elements of a fraud claim.

First, the motion court found that plaintiff failed to identify any “specific actions [taken] by each defendant; instead, plaintiff engage[d] in a ‘group pleading’ that fail[ed] to sufficiently separate the allegations between each defendant.”² In other words, plaintiff failed to distinguish among the various defendants regarding which misrepresentations each defendant made to plaintiff, when the misrepresentations were made, and where the misrepresentations were made.³ By pleading the fraud claim against all defendants collectively, without any specification of the conduct charged to a particular defendant, the motion court concluded, without specifically stating as much, that plaintiff deprived defendants of the notice regarding “the material elements of each cause of action” to which defendants were entitled under CPLR § 3013.⁴ 

Second, the motion court held that plaintiff failed to plead his fraud claim with particularity.⁵ Under CPLR § 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”⁶ 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. 

In Lerman, the motion court found that plaintiff failed to allege the “misrepresentations and how they were a proximate cause of plaintiff’s decision to enter into the agreement with Holdings.”⁷ By doing so, plaintiff failed to identify any specific and material misrepresentation of fact by any of the defendants. 

Third, the motion court held that the fraud claims were duplicative of the breach of contract claim.⁸ In that regard, the motion court explained that in effect, plaintiff alleged “that defendants misrepresented whether or not Holdings would be able to repay the loan.”⁹ “[N]othing in plaintiff’s opposition (including plaintiff’s affirmation),” said the motion court, “detail[ed] what was false in the various projections or documents supplied to plaintiff as part of the negotiating process.”¹⁰

The motion court further noted that “[t]o the extent that plaintiff [was] alleging that future promises about the expected success of the building project were false, that [was] not an actionable basis for fraud.”¹¹ A plaintiff must allege misrepresentations of present fact, not merely misrepresentations of future intent to perform under a contract.¹² Under New York law, “[g]eneral allegations of lack of intent to perform are insufficient [to state a claim]; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.”¹³

In conclusion, the motion court made the following observations about plaintiff’s fraud claims:

The majority of plaintiff’s opposition claims that he loaned the money because he was provided with materials about future projections concerning the building project. But “mere puffery, opinions of value or future expectations” do not sustain a fraud claim based on alleged misrepresentations” (Sidamonidze v Kay, 304 AD2d 415, 416, 757 NYS2d 560 [1st Dept 2003]). To be sure, if an investor was convinced to invest and promised returns based on material misrepresentations, then that would state a claim based upon fraud. But, here, plaintiff was not an investor.

Instead, plaintiff was a lender – he loaned money to Holdings – and that loan was not secured by the property and there were no guarantors. And plaintiff received some (but not all) of what he claims he was owed. That renders the alleged misrepresentations as immaterial because the amount he was entitled to receive was not dependent on the success (or failure) of the building project or on which entity actually owned the property.¹⁴

Accordingly, the motion court dismissed the fraud claims against defendants.

Footnotes

1. 651 Bay St., LLC v. Discenza, 189 A.D.3d 952, 953-54 (2d Dept. 2020).
2. Slip Op. at *6.
3. See Principia Partners LLC v. Swap Fin. Group, LLC, 194 A.D.3d 584, 584 (1st Dept. 2021).
4. We note that by referring to all defendants together without differentiation, plaintiff failed to plead his fraud claim with the particularity required by CPLR § 3016(b). See 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).
5. Slip Op. at *6.
6. Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).
7. Slip Op. at *6.
8. Id.
9. Id.
10. Id.
11. Id. (citing GE Oil & Gas, Inc. v. Turbine Generation Servs., L.L.C., 168 A.D.3d 563, 564 (1st Dept. 2019) (noting, that a promise about a prediction or expectation cannot form the basis of a fraud claim arising out of a misrepresentation).
12. Wyle Inc. v. ITT Corp., 130 A.D.3d 438, 439–41 (1st Dept. 2015).
13. Perella Weinberg Partners LLC v. Kramer, 153 A.D.3d 443, 449 (1st Dept. 2017); see Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 71 (1st Dept. 2017).
14. Slip Op. at *8-*9.

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.