Proposed Amendment to Prayer for Relief Based on Unrealized Profits Incurred as Result of Alleged Fraud Violates the Out-Of-Pocket Damages Rule

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Posted on: Nov 19 2025

In Sire Spirits, LLC v. Beam Suntory, Inc., 2025 N.Y. Slip Op. 06297 (1st Dept. Nov. 18, 2025), the Appellate Division, First Department affirmed the denial of a motion to amend a complaint seeking damages for “diminution of enterprise value” due to the alleged fraud. Under CPLR 3025(b), leave to amend is freely given unless the amendment is prejudicial or patently meritless. However, New York’s fraud damages rule limits recovery to out-of-pocket losses—the actual pecuniary loss caused by the fraud—not speculative gains or lost profits. As discussed below, Sire’s proposed amendment effectively sought unrealized profits by reframing them as diminished business value, violating the out-of-pocket damages rule. The Court held that such damages were legally insufficient and barred as a matter of law, emphasizing that fraud claims cannot include potential earnings or enterprise valuation.

Applicable Rules of The Road

Amended Pleadings

CPLR 3025(b) provides, in pertinent part, that “[a] party may amend his [or her] pleading … at any time by leave of court or by stipulation of all parties.”[1] Importantly, CPLR 3025(b) provides that “[l]eave [to amend] shall be freely given.…” Thus, “unless the proposed amendment would unfairly prejudice or surprise the opposing party, or is palpably insufficient or patently devoid of merit,” the motion for leave to amend should be granted.[2]

Prejudice may be found where “the nonmoving party has been hindered in the preparation of its case or has been prevented from taking some measure in support of its position.”[3] “Prejudice is more than the mere exposure of the party to greater liability” as “there must be some indication that the party has been hindered in the preparation of the party’s case or has been prevented from taking some measure in support of its position.”[4] The burden of demonstrating prejudice or surprise “falls upon the party opposing the motion.”[5] Conclusory statements of prejudice cannot defeat a motion to amend a pleading.[6]

An amendment will not cause surprise when the causes of action alleged in the amended pleading are based on the facts and circumstances already pleaded or already known by the non-moving party.[7] For this reason, new theories of liability pertaining to the facts and circumstances already in controversy will not bar a motion to amend.[8]

Delay in-and-of-itself is not enough to defeat a motion for leave to amend. For this reason, “[m]ere lateness is not a barrier” to amendment, absent prejudice.[9] “It must be lateness coupled with significant prejudice to the other side, the very elements of the laches doctrine.”[10] As the Court of Appeals recognized, “absent prejudice, courts are free to permit amendment even after trial.”[11] Thus, where a case has not proceeded to meaningful discovery, the amendment of a pleading will not prejudice a defendant.[12] Moreover, the mere passage of time, without “consequential” prejudice, separate and apart from the delay, is insufficient to defeat a motion for leave to amend.[13] Even unexcused lateness, without prejudice, will not bar amendment.[14]

“The determination whether to grant leave to amend a pleading is within the court’s discretion, and the exercise of that discretion will not lightly be disturbed.”[15] Thus, “[a] party opposing leave to amend ‘must overcome a heavy presumption of validity in favor of [permitting amendment].’”[16]

Fraud Damages

To allege a cause of action based on fraud, plaintiffs must assert “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.[17] To withstand a motion to dismiss, plaintiffs must satisfy each element of the claim.

Generally, plaintiffs are allowed to recover only their out-of-pocket damages – that is, the actual pecuniary loss sustained as the direct result of the alleged fraud.[18] Under the out-of-pocket damages rule, plaintiffs may recover what they lost because of the fraud, not what they might have gained had there been no fraud.[19] In other words, plaintiffs cannot recover the profits that would have been realized in the absence of the fraud. For that reason, plaintiffs cannot recover damages for fraud based on the loss of a contractual bargain, “the extent, and, indeed the very existence of which is completely undeterminable and speculative.”[20]

To determine whether the plaintiff sustained out-of-pocket losses, courts employ a two-part test.[21] First, the plaintiff must show the actual value of the consideration it received.[22] Second, the plaintiff must prove that the defendant’s fraudulent inducement directly caused the plaintiff to agree to deliver consideration that was greater than the value of the received consideration.[23] The difference between the value of the received consideration and the delivered consideration constitutes the plaintiff’s out-of-pocket damages.[24]

Sire Spirits, LLC v. Beam Suntory, Inc.

[Eds. Note: The factual background comes from the briefing on appeal.]

Sire brought the action in 2023, against defendants for, among other claims, fraud. Initially, Sire sought “all monetary losses” due to the fraud, punitive damages, attorneys’ fees, and costs. The motion court dismissed the requests for punitive damages, attorneys’ fees, and costs with prejudice. The First Department affirmed.[25]

As fact discovery was approaching its conclusion, Sire informed defendants, through an expert witness disclosure, that it intended to seek damages for “[l]loss of sales and profits and disruption of business growth.” In response, Defendants Beam Suntory Inc. and Jim Beam Brands Co. (collectively, “Beam”) sought leave to file an early summary judgment motion, explaining that damages based on lost profits, lost opportunities, and the like were not permitted under New York’s “out-of-pocket” damages rule.

Looking to avoid unnecessary motion practice, the motion court urged the parties to stipulate that with respect to the fraud claims, Sire was limited to out-of-pocket damages. Thereafter, Sire stipulated that “lost profits” and “lost business opportunities” damages were not available on its fraud claims.

Sire moved to amend its complaint. Sire proposed adding two paragraphs to its complaint, alleging that the fraud “fundamentally disrupted” Sire’s business and caused Sire’s business’s value “to be diminished” by “millions of dollars.” Sire also sought to add a request for damages based on the “diminution” of its “enterprise value.”

Beam opposed the motion, arguing that damages based on estimates of what revenues Sire might have earned but for the fraud violated New York law – e.g., damages that plaintiffs alleging fraud cannot recover under the out-of-pocket rule.[26]

The motion court denied the motion, holding, in part:

plaintiffs attempt to repackage barred lost profits damages by relabeling it “diminution of value” does not pass muster. Whatever plaintiff calls these damages, they are still based on the potential value the company could have realized absent the defendants’ alleged misconduct. As the court has previously held in this matter, fraud claims are limited to recovery of the actual pecuniary loss. One cannot recover for potential lost earnings on a fraud theory.[27]

On appeal, the First Department unanimously affirmed.

The Court held that “Plaintiffs’ proposed amendment to the prayer for relief in its pleading, which sought recovery based on profits not realized as a result of the alleged fraud, violated the out-of-pocket damages rule.”[28] The Court explained that “Plaintiffs fail[ed] to explain how expert discovery would have availed them, because the [motion] court ruled as a matter of law based on plaintiffs’ own characterization of their damages.”[29] “Accordingly,” said the Court, “the proposed amendment was palpably insufficient, and the [motion] court properly denied it.”[30]

Takeaway

Sire serves as a reminder to practitioners and litigants that leave to amend may be freely given but within reason. Under CPLR 3025(b), courts generally grant leave to amend pleadings unless the amendment causes unfair prejudice or is palpably insufficient or patently devoid of merit. In Sire, the Court determined that the proposed amendment was patently devoid of merit because Sire could not recover “diminution in value” damages under the out-of-pocket damages rule.

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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 examined motions to amend under CPLR 3025(b) on numerous occasions, including: Amended Pleadings Under CPLR 3025(b); The Court of Appeals Makes a Ruling on “the Proper Scope of the Trial Court’s Discretion to Grant Leave to Amend a Complaint Under CPLR 3025(b)”; and Defendant Barred From Adding a Counterclaim for Fraud Because the Claim Was Deemed Patently Devoid of Merit.

[2] Cirillo v. Lang, 206 A.D.3d 611, 612 (2d Dept. 2022) (citations omitted). See also Greene v. Esplanade Venture P’ship, 36 N.Y.3d 513, 526 (2021); Matter of Chustckie, 203 A.D.3d 820, 822 (2d Dept. 2022); Toiny, LLC v. Rahim, 214 A.D.3d 1023, 1024 (2d Dept. 2023) (citations omitted).

[3] Cirillo, 206 A.D.3d at 612 (citation, internal quotation marks, and brackets omitted).

[4] Kimso Apartments, LLC v. Gandhi, 24 N.Y.3d 403, 411 (2014) (citations, internal quotation marks and brackets omitted).

[5] Toiny, 214 A.D.3d at 1024 (citation and internal quotation marks omitted); see also Kimso, 24 N.Y.3d at 411 (citations).

[6] See Petion v. New York City Health & Hosps. Corp., 175 A.D.3d 519, 520 (2d Dept. 2019).

[7] See, e.g., Bamira v. Greenberg, 256 A.D.2d 237, 239 (1st Dept. 1998).

[8] See, e.g., Harding v. Filancia, 144 A.D.2d 538, 540 (2d Dept. 1988); Matter of Smith, 104 A.D.2d 445, 448 (2d Dept. 1984).

[9] Edenwald Contr. Co. v. City of New York, 60 N.Y.2d 957, 959 (1983); see also Granieri v. Ryder Truck Rental, Inc., 112 A.D.2d 189, 190 (2d Dept. 1985); Matter of Chustckie, 203 A.D.3d at 822.

[10] Shields v. Darpoh, 207 A.D.3d 586, 587 (2d Dept. 2022) (internal quotation marks and citations omitted).

[11] Kimso, 24 N.Y.3d at 411 (citations omitted).

[12] Janssen v. Inc. Vill. of Rockville Ctr., 59 A.D.3d 15, 24 (2d Dept. 2008); see also Seda v. New York City Housing Auth., 181 A.D.2d 469, 470 (1st Dept. 1992); 558 Seventh Ave Corp. v. Times Sq. Photo, Inc., No. 653090/2020, 2023 WL 360630, at *1 (Sup. Ct., N.Y. County Jan. 18, 2023).

[13] Granieri, 112 A.D.2d at 190.

[14] See Holchendler v. We Transp., Inc., 292 A.D.2d 568, 569 (2d Dept. 2002); Hilltop Nyack Corp. v. TRMI Holdings Inc., 275 A.D.2d 440, 441 (2d Dept. 2000).

[15] AFBT-II, LLC v. Country Vill. on Mooney Pond, Inc., 21 A.D.3d 972, 972 (2d Dept. 2005) (citations omitted).

[16] McGhee v. Odell, 96 A.D.3d 449, 450 (1st Dept. 2012) (quoting Otis Elevator Co. v. 1166 Ave. of Americas Condo., 166 A.D.2d 307, 307 (1st Dept. 1990)).

[17] Lama Holding Co. v. Smith Barney, 88 N.Y.2d 413, 421 (1996) (citations omitted).

[18] This Blog wrote about the out-of-pocket rule on numerous occasions, including: Out-of-pocket Fraud Damages: Proof Required to Determine the Value of Restricted Securities; Out-Of-Pocket Damages, Intent to Deceive and The Business Judgment Rule; First Department Affirms Dismissal of Fraud Claim Because Damages Alleged Were Speculative; and Damages in a Holder Claim Found to Be Too Speculative For Recovery.

[19] Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 142-43 (2017) (quoting, Lama, supra) (internal quotations omitted)).

[20] Id.

[21] Kumiva Grp., LLC v. Garda USA Inc., 146 A.D.3d 504, 506 (1st Dept. 2017).

[22] Id.

[23] Id.

[24] Id.

[25] Sire Spirits, LLC v. Beam Suntory, Inc., 227 A.D.3d 630, 632 (1st Dept. 2024).

[26] Sapienza v. Becker & Poliakoff, 173 A.D.3d 640 (1st Dept. 2019) (quotation marks and brackets omitted).

[27] Connaughton, 29 N.Y.3d at 142-43; see also Rondeau v. Houston, 224 A.D.3d 616, 617 (1st Dept. 2024).

[28] Slip Op. at *1.

[29] Id.

[30] Id.

Tagged with: Business Litigation, Commercial Litigation, CPLR 3025(b), Fraud, Motion to Amend, Out-of-Pocket Damages