Second Department Considers A Contract Dispute Claimed to Be Dressed Up in the Language of Fraud

• Posted on: Jun 25 2020

It is well settled that a plaintiff may not “dress up a breach-of-contract claim as a fraud claim.” Cohen v. Koenig, 25 F.3d 1168, 1173 (2d Cir. 1994) (internal quotation marks omitted). In prior posts, we referred to this principle as the duplication of claims doctrine (here, here and here). 

In order for a tort claim to be actionable, there must be “a legal duty independent of the contract” that “has been violated.” Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382, 389 (1987) (citations omitted).  This duty “must spring from circumstances extraneous to, and not constituting elements of, the contract, although it may be connected with and dependent upon the contract.” Id. In other words, “where the damages alleged were clearly within the contemplation of the written agreement . . . [m]erely charging a breach of a ‘duty of due care,’ employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim.” Dormitory Auth. of the State of N.Y. v. Samson Constr. Co., 30 N.Y.3d 704, 711 (2018) (internal quotation marks omitted) (quoting Clark-Fitzpatrick, 70 N.Y.2d at 390).

Similarly, “where … a claim to recover damages for fraud is premised upon an alleged breach of contractual duties and the supporting allegations do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie.” McKernin v. Fanny Farmer Candy Shops, 176 A.D.2d 233, 234 (2d Dept. 1991); see also Yenrab, Inc. v. 794 Linden Realty, LLC, 68 A.D.3d 755, 757 (2d Dept. 2009); Heffez v. L & G Gen. Constr., Inc., 56 A.D.3d 526, 527 (2d Dept. 2008). 

In Oceanview Assoc., LLC v. HLS Bldrs. Corp., 2020 N.Y. Slip Op. 03519 (2d Dept. June 24, 2020) (here), the Appellate Division, Second Department considered the foregoing principles in affirming two orders issued by the motion court dismissing plaintiff’s causes of action to recover damages for negligence and fraud in an otherwise contract action.

Oceanview was an action to recover damages for, inter alia, breach of contract arising from an allegedly defectively constructed parapet wall on the roof of a multi-unit residential building. The building was constructed in 2002. Plaintiff discovered the allegedly defective parapet wall in 2016. Plaintiff sued, among others, the defendant, HLS Builders Corp., which had served as the general contractor and superintendent of construction on the project, and its president, Henry Landsman (together, the “Landsman defendants”). Plaintiff asserted causes of action for, inter alia, breach of contract, negligence, and fraud.

The Landsman defendants moved pursuant to CPLR § 3211(a) to dismiss the complaint. In an order dated October 11, 2018, the motion court, among other things, dismissed the negligence and fraud causes of action on the grounds that the allegations underlying those claims were the same as the allegations underpinning the breach of contract claim. Plaintiff moved for leave to renew, inter alia, its opposition to the motion to dismiss the fraud cause of action. In an order dated March 18, 2019, the motion court denied the motion on the ground that plaintiff did not offer any reasonable justification for failing to present the new facts on the prior motion. Plaintiff appealed both orders.

The Court affirmed both orders.

First, the Court held that plaintiff did not allege facts that would give rise to a duty independent of the duty imposed by the parties’ contract. Slip Op. at *2. Consequently, plaintiff could not “transform [its] simple breach of contract into a tort claim.” Id. (quoting Dormitory Auth., 30 N.Y.3d at 711).

Second, the Court held that the fraud claim was duplicative of plaintiff’s breach of contract claim. Id. The Court found that the allegations upon which the fraud cause of action “were based were the same as those underlying” the breach of contract cause of action “and amounted to nothing more than a failure to perform under the contract.” Id. (citing Fromowitz v. W. Park Assoc., Inc., 106 A.D.3d 950, 951-952 (2d Dept. 2013) (“Where a claim to recover damages for fraud is premised upon an alleged breach of contractual duties, and the allegations with respect to the purported fraud do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie.”)). Under such circumstances, said the Court, a fraud claim does not lie. Id.

Takeaway

As indicated by the title of this post, a contract dispute cannot be dressed up in the language of fraud. Thus, where “a claim to recover damages for fraud is premised upon an alleged breach of contractual duties and the supporting allegations do not concern representations which are collateral or extraneous to the terms of the parties’ agreement, a cause of action sounding in fraud does not lie.” McKernin, 176 A.D.2d at 234. In Oceanview, plaintiff did not allege a duty independent of the duty to perform under the construction contract. As such, under the duplication of claims doctrine, its tort claims were dismissed.