Information and Belief Allegations Do Not Suffice to State a Claim for Fraud

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Posted on: Feb 12 2024

In Rosenberg v. OSG, LLC, 2024 N.Y. Slip Op. 00691 (1st Dept. Feb. 8, 2024) (here), the Appellate Division, First Department underscored the insufficiency of pleading a fraud claim on information and belief. In affirming the dismissal of plaintiffs’ fraudulent inducement claim, the Court held that such pleading was “per se defective.”¹

Rosenberg is a class action arising out of plaintiffs’ participation in the Odyssey Study Group (“OSG”), which is run by Defendants OSG, LLC (“OSG, LLC”), the Individual Defendants, and, during her life, Sharon Gans Horn.

Plaintiffs, Stephanie Rosenberg (“Rosenberg”) and Marjorie Hochman (“Hochman”), alleged that they were members of OSG from 2005 until April 2019 and May 2016, respectively. They claimed that they joined OSG in 2005 after being told by members and leaders “that OSG would help improve their lives economically, physically, and spiritually.” Among other things, plaintiffs maintained that they were “coerced and tricked” by defendants into performing work for OSG, though, according to the motion court, plaintiffs did not specify the means by which they were coerced ad tricked, and that defendants lied to its members about the benefits of membership and the consequences of leaving the group.

Plaintiffs commenced the action on September 20, 2021, asserting seven causes of action. Relevant to this article, in their fifth cause of action, plaintiffs alleged that defendants fraudulently induced them to join OSG by misrepresenting the benefits of joining the group. Defendants moved to dismiss. The motion court granted the motion.

To state a claim for fraud in the inducement, a plaintiff must allege “a material misrepresentation of fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff, and damages.”² In addition, the plaintiff must “state[] in detail” “the circumstances constituting the wrong.”³ Conclusory allegations made upon information and belief are insufficient to “establish the necessary quantum of proof to sustain allegations of fraud.”⁴

The motion court held that plaintiffs failed to state a cause of action for fraud in the inducement, because they did not allege with sufficient particularity the details of the material misrepresentations made by defendants as required by CPLR 3016(b). The motion court noted that neither the complaint nor plaintiffs in their opposition to the motion specified which defendants made the misrepresentations⁵ and the details of the purported misrepresentations.

The motion court also held that plaintiffs failed to allege with sufficient particularity that they justifiably relied upon defendants’ alleged misrepresentations. The motion court found that the complaint “merely allege[d] that “[a]s a result of Defendants’ misrepresentation, Plaintiffs were led to believe that if they were asked to leave (or quit) they would suffer psychologically and emotionally” and state[d], in a conclusory manner, that they justifiably relied upon Defendants’ representations.” Further, the motion court found that plaintiffs failed to “specify the existence of a ‘relationship of trust or confidence’ between themselves and any Defendant at the time the alleged representations were made, the Defendants’ level of knowledge regarding the alleged falsity of the representations, or of the level of knowledge of the Defendants who made the representations.”⁶

Accordingly, the motion court dismissed plaintiffs’ fifth cause of action for fraudulent inducement.

On appeal, the First Department affirmed the dismissal, holding that “Plaintiffs’ fraud in the inducement claim [was] per se defective,” because it was alleged on information and belief.⁷

The Court also held, albeit in dicta,⁸ that plaintiffs failed “to sufficiently allege that they justifiably relied on any alleged misrepresentation.”⁹

Takeaway

We have often noted that conclusory allegations and allegations made on information and belief are insufficient to state a claim for fraud. Such allegations are considered defective because they are made without any supporting facts. As noted above, plaintiffs pleading fraud must comply with CPLR 3016(b) and state with particularity the facts and circumstances constituting the alleged fraud. Rosenberg is a good reminder, therefore, that not only is information and belief pleading insufficient but, as noted by the First Department, it is “per se defective.”¹⁰

Footnotes

Slip Op. at *1.
Carlson v. American Int. Grp., Inc., 30 N.Y.3d 288, 310 (2017) (quoting Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009) (internal quotation marks omitted)).
CPLR 3016(b); see also Carlson, 30 N.Y.3d at 310.
Weinberg v. Kaminsky, 166 A.D.3d 428, 429 (1st Dept. 2018) (quoting Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610,615 (1st Dept. 2015) (internal quotation marks omitted)).
The Court was referring to the prohibition against group pleading. Group pleading is the practice of grouping multiple defendants together in a complaint when they are alleged to have collectively committed the wrong complained of. Courts routinely dismiss a complaint that lumps together numerous defendants without differentiation on particularity grounds because each defendant is not informed of the wrongs he/she is alleged to have committed. [Eds. Note: This Blog wrote about the group pleading doctrine here, here, here, and here.]
Citing Epiphany Community Nursery Sch., 171 A.D.3d at 10.
Slip Op. at *1 (citing Weinberg v. Kaminsky, 166 A.D.3d 428, 429 (1st Dept. 2018), and Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015)).
“Dictum is an abbreviation of the Latin phrase ‘obiter dictum.’ As a legal term, a dictum is any statement or opinion made by a judge that is not required as part of the legal reasoning to make a judgment in a case.” Cornell University, LII Legal Information Institute (2022) (here).
Id. (citing Epiphany Community Nursery Sch. v. Levey, 171 A.D.3d 1, 9-10 (1st Dept. 2019)).
Slip Op. at *1.

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.