Plaintiff Pleads Scheme to Defraud Sufficient to Put Defendants on Notice of the Conduct of Which They are Accused, But Nevertheless Fails to Plead The Elements of Fraud with Particularity

• Posted on: Sep 28 2025

By: Jeffrey M. Haber

In CJS Indus. Inc. v. Dolce, 2025 N.Y. Slip Op. 05037 (1st Dept. Sept. 23, 2025 (here), plaintiff sued RS Custom Woodworking and its representatives for fraud after winning an arbitration award. Plaintiff alleged that defendants conspired to avoid payment by incorporating a new entity with a similar name between the initial and final arbitration awards. Plaintiff claimed the incorporation was part of a deliberate scheme to mislead and evade enforcement of the arbitration awards. However, both the motion court and the Appellate Division, First Department, found that plaintiff failed to plead fraud with the required particularity in compliance with CPLR 3016(b).[1] The courts held that the complaint lacked factual allegations showing a material misrepresentation, scienter, intent to induce reliance, justifiable reliance, and proximate causation. The only alleged misrepresentation cited was the entry of the new entity in the New York Secretary of State’s database, which showed the new entity was not involved in the original agreement or arbitration. As a result, the fraud claims were dismissed.

Background

On July 18, 2018, Plaintiff, CJS Industries, Inc., signed a Master Subcontractor Agreement (“Agreement”) with RS Custom Woodworking (“RS”). The Agreement contained an arbitration provision for the resolution of disputes arising between plaintiff and RS.

At some point, a dispute arose between the parties. Plaintiff commenced an arbitration against defendants before the American Arbitration Association in accordance with the Agreement (“Arbitration”). Defendants participated in the Arbitration with no objection and asserted counterclaims against plaintiff.

On or about September 2, 2020, the arbitrator issued an initial award in plaintiff’s favor. On October 29, 2020, the arbitrator modified the award to increase the total amount due plaintiff.

In the interim, on October 5, 2020, defendants incorporated a new entity known as RS Custom Woodworking, Inc. (“RS Inc.”). The incorporation was done between the initial arbitration award and the final award on October 29, 2020.

On or about December 22, 2020, plaintiff filed an Article 75 proceeding to confirm the arbitration award. The motion court confirmed the award and entered judgment against RS Inc., the newly formed entity. RS Inc. appealed the decision and order. The First Department reversed and vacated the judgment because it was unable to confirm an award against an entity that did not exist at the time the award was issued.

Plaintiff brought suit against defendants, asserting, inter alia, that defendants defrauded it by creating RS Inc. to avoid paying the initial award and subsequently the final award.

Defendants moved to, inter alia, dismiss pursuant to CPLR 3211(a)(1), (5), and (7). Plaintiff opposed the motion.

Defendants argued that the fraud-based claims should be dismissed because there were no facts supporting the alleged scheme to defraud, and that plaintiff named not only the wrong party in its action to confirm the arbitration award, but also pursued confirmation and judgment against a company that did not exist when the Agreement was made and the arbitration conducted.

Plaintiff opposed the motion, contending that the complaint provided factual details establishing the elements of a fraud claim. Plaintiff maintained that the complaint described defendants’ plan to defraud it and to avoid paying the initial award soon after losing the arbitration, that RS Inc. was incorporated between the initial and final arbitration award, that defendants knew there would be confusion between the two entities, that defendants intended for plaintiff to rely on the incorporation at the precise time plaintiff was working to confirm, and defendants induced plaintiff’s reliance on the incorporation as a means to avoid payment.

The Motion Court’s Decision

The motion court granted the motion to dismiss, holding that the complaint did not allege with factual specificity defendants’ purported improper actions/conduct. The motion court found that, among other things, “[p]laintiff merely allege[d] in conclusory terms that defendants ‘acted in furtherance of and took steps to effectuate their common plan, agreement and scheme to defraud…’, [and] that the alleged actions by defendants were fraudulent.” The motion court concluded that “[b]ased on plaintiff’s allegations, the court [could not] reasonably infer the fraudulent conduct that allegedly occurred between the various defendants.”

Plaintiff appealed.

The First Department’s Decision and Order

On appeal, the First Department unanimously affirmed.

The Court held that “[a]lthough the complaint [laid] out the alleged scheme sufficiently to put the parties on notice of the precise conduct of which they [were] accused, the complaint nonetheless fail[ed] to state the elements of a fraud claim.”[2] In New York, the elements of a fraud cause of action are: “[1] a material misrepresentation of a fact, [2] knowledge of its falsity, [3] an intent to induce reliance, [4] justifiable reliance by the plaintiff and damages”.[3]  Additionally, the plaintiff must plead that the fraud was the proximate cause of the claimed losses.[4]

The Court found that “[t]he only misrepresentation to which plaintiff points [was] the entry [of incorporation] in the Secretary of State’s database.”[5] “However,” noted the Court, “as defendants point[ed] out, that entry lists the date of RS Custom Woodworking, Inc.’s incorporation, October 5, 2020, indicating that it was not the same entity that entered into an agreement with plaintiff in 2018 or participated in an arbitration hearing in August 2020.”[6]

The Court also held that “[p]laintiff’s allegations of scienter [were] … lacking.”[7] The Court reasoned that plaintiff could not show an intent to deceive because “RS Custom Woodworking, Inc. immediately and expressly stated in its answer in the confirmation proceeding that it was not the entity against which the arbitration award had been granted.”[8]

Moreover, the Court held that “[b]ecause plaintiff knew it had sued the wrong party almost immediately, but continued with the confirmation proceeding, it failed to plead proximate or loss causation.”[9]

Takeaway

CJS Indus. reinforces the principle that fraud claims must be pled with particularity. General allegations or conclusory statements about the elements of a scheme are insufficient. Plaintiffs must clearly articulate each element of fraud—misrepresentation, knowledge of falsity, intent, reliance, and damages—with specific facts.

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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] This BLOG has written numerous articles addressing CPLR 3016(b) and the failure to plead fraud with particularity. To find such articles, please see the BLOG tile on our website and search for “CPLR 3016(b)”, “failure to plead fraud with particularity”, “fraud”, “elements of fraud”, or any other commercial litigation issue that may be of interest you.

[2] Slip Op. at *1.

[3] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009).

[4] Ambac Assur. Corp. v. Countrywide Home Loans, Inc., 151 A.D.3d 83, 86 (1st Dept. 2017).

[5] Slip Op. at *1.

[6] Id.

[7] Id.

[8] Id.

[9] Id.

Tagged with: Business Litigation, Commercial Litigation, CPLR 3016(B), Failure to Plead Fraud with Particularity, Fraud, Fraud and Deceit