Sparse Allegations of Material Misrepresentations and An Insincere Promise to Perform Under a Contract Held Not Sufficient to State a Claim for Fraud and Fraudulent Inducement

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Posted on: Mar 19 2025

To state a claim for fraud, a plaintiff must allege “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.”[1] The claim must pleaded with particularity.[2] Conclusory allegations will not suffice.[3] Neither will allegations based on information and belief.[4] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[5]

The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). 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.

Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc., the Court of Appeals held that CPLR 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.”[7] Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.”[8] Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct.[9]

As noted, a plaintiff pleading fraud must identify a misrepresentation or a material omission of fact. The misrepresentation must be a misrepresentation of present fact; it cannot be a misrepresentation of future intent to perform under the contract.[10] Thus, a fraud claim that is premised on a misrepresentation of a prior or existing fact will not be dismissed “as an insincere promise of future performance.”[11]

The foregoing principles were considered by the Appellate Division, First Department in Cedar Capital Mgt. Group Inc v. Lillie, 2025 N.Y. Slip Op. 01569 (1st Dept. Mar. 18, 2025) (here).

Cedar Capital involved allegations of fraud, among others, in connection with the investment of significant sums of money in debentures

Plaintiffs alleged that they relied on defendants to purchase debentures in EHG Ltd. and EHG LLC,[12] that plaintiffs wired defendants significant amounts of money in connection with these purchases, that defendants promised plaintiffs monthly returns on their investments, and that plaintiffs only received a fraction of the money to which they were entitled.

In addition, plaintiffs alleged that they later settled their disputes with EHG Ltd. and EHG LLC but due to the dissolution of these defendants and several London affiliates of EHG LLC and Gulf Atlantic,[13] plaintiffs only received $130,000 of the millions of dollars that defendants agreed to pay in settlement of the claim. Collectively, plaintiffs sought a minimum of $30,000,000, along with attorneys’ fees, expenses, costs, disbursements, and interest.

Plaintiffs commenced the action on November 4, 2020. Certain defendants moved to dismiss the complaint, which the motion court denied. Plaintiffs thereafter moved for leave to amend the complaint, which was granted.

The amended complaint (the “complaint”) pleaded 26 causes of action. Relevant to today’s article are the first nine causes of action, which asserted claims for fraud and fraudulent inducement.

Defendants moved to dismiss the complaint on various grounds. Regarding the fraud claims, the motion court granted the motion.

The motion court held that although the complaint sufficiently alleged fraudulent representations about a trading and investment concept, it nevertheless failed to allege, with sufficient particularity, the specific false representations made by the charged defendants to plaintiffs. Among other deficiencies, the motion court held that plaintiffs engaged in improper group pleading,[14] finding that they credited every alleged false representation made by one defendant to every other defendant, collectively, as their alter ego. Such pleading, said the motion court, failed to satisfy CPLR 3013 and 3016(b).[15]

The motion court also held that the fraud claims were based on non-actionable predictions or expectations. In that regard, the motion court noted that the first through seventh causes of action were predicated upon alleged false representations that an investment in EHG Ltd. or EHG LLC would generate high monthly returns, with the First Bucket PPMs projected to yield a 2% monthly return and an estimated 0-6% return on the principal and the Second Bucket PPMs projected to yield a 94% monthly return. However, said the motion court, “[c]laims based upon defendants’ projections of returns on investment are not actionable because such projections are merely statements of prediction or expectation.”[16]

The motion court further held that the representations in the eighth and ninth causes of action – i.e., plaintiffs would be paid the distributions earned under the First and Second Bucket PPMs to induce them to enter into the Settlement and that defendant falsely represented that payments on the First Bucket and Second Bucket PPMs were forthcoming – were nothing more than insincere promises to perform. Such representations, concluded the motion court, could not support a fraud claim.[17]

Finally, the motion court held that the fraud claims were duplicative of the breach of contract claims. “A fraud claim should also be dismissed where it seeks damages identical as those recoverable on a breach of contract claim,” said the motion court.[18] The motion court found that the eighth and ninth causes of action for fraud related to the Settlement sought damages of $25 million, and the twelfth through sixteenth causes of action sought $25 million in damages for a breach of the Settlement. Accordingly, the first through ninth causes of action were dismissed as duplicative of the breach of contract claims.

On appeal, the First Department unanimously affirmed.

The Court held that the motion court “properly dismissed the fraud-based claims against all defendants.”[19] First, the Court found that plaintiffs failed to satisfy the particularity requirements of CPLR 3016(b): “The sparse allegations of material misrepresentations, which are focused on a characterization of the purported investments being a ‘scam’ rather than a legitimate investment opportunity, were not sufficiently particular to allege fraud.”[20] Second, the Court found that the fraud claims were based on “nothing more than an insincere promise to perform under a contract.”[21] The Court explained that “the allegations underlying the fraud causes of action state only that defendants made general promises to meet payment obligations.” Third, the Court held that the fraud claims duplicated the breach of contract claims because “the fraud claims seek damages identical to those recoverable for breach of contract.”[22]

[Eds. Note: As readers of this Blog know, we often write about cases addressing various aspects of fraud claims. The issues discussed today are the subject of numerous articles. To find articles related to the elements of a fraud claim, the particularity requirement for pleading a fraud claim, and the duplication of claims doctrine visit the “Blog” tile on our website and enter the search term most applicable to your interest in the “search” box, e.g., “misrepresentation of present fact,” “insincere promise,” “group pleading,” and “duplication.”]

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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] Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).

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

[3] Id.

[4] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”).

[5] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).

[6] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).

[7] Id. at 491 (internal quotation marks and citation omitted).

[8] Id. at 492.

[9] Id.

[10] GoSmile, Inc. v. Levine, 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed, 17 N.Y.3d 782 (2011).

[11] First Bank v. Motor Car Funding, Inc., 257 A.D.2d 287, 292 (1st Dept. 1999) (citations omitted); Springut Law PC v. Rates Technology, Inc., 157 A.D.3d 645, 646 (1st Dept. 2018).

[12] Defendants Enterprise Holdings Group Ltd. a/k/a Enterprise Holdings Group, Ltd. (“EHG Ltd.”) and Enterprise Holdings Group LLC (“EHG LLC”).

[13] Defendant Gulf Atlantic Traders, LLC (“Gulf Atlantic”).

[14] Principia Partners LLC v. Swap Fin. Group, 194 A.D.3d 584, 584 (1st Dept. 2021); Aetna Cas. & Surety Co. v. Merchants Mut. Ins. Co., 84 A.D.2d 736, 736 (1st Dept. 1981).

[15] See Jonas v. National Life Ins. Co., 147 A.D.3d 610, 612 (1st Dept. 2017) (dismissing a fraud claim where the defendants were “impermissibly lump[ed] together”); Barlow v. Skroupa, 76 Misc. 3d 587, 591 (Sup. Ct., N.Y. County 2022), aff’d, 217 A.D.3d 620 (1st Dept. 2023) (citing Principia Partners, 194 A.D.3d at 584); Cortlandt St. Recovery Corp. v. Hellas Telecom., S.A.R.L., 47 Misc. 3d 544, 572 n.11 (Sup. Ct., N.Y. County 2014), mod., 142 A.D.3d 833 (1st Dept. 2016), aff’d, 31 N.Y.3d 30 (2018) (conclusory alter ego allegations and group pleading insufficient to plead fraud).

[16] Quoting ESBE Holdings, Inc. v. Vanquish Acquisition Partners, LLC, 50 A.D.3d 397, 398 (1st Dept. 2008); Dorfman Org. v. Greater NY Mut. Ins. Co., 279 A.D.2d 437, 437 (1st Dept. 2001), lv. dismissed, 96 N.Y.2d 822 (2001) (assertion that a new account would be profitable was nonactionable opinion or puffery).

[17] Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 64-65 (1st Dept. 2017) (fraud claim dismissed where the complaint failed to identify a promise collateral or extraneous to the parties’ contract).

[18] Quoting Cronos, 156 A.D.3d at 65, and citing MBIA Ins. Corp. v. Credit Suisse Sec. (USA) LLC, 165 A.D.3d 108, 114 (1st Dept. 2018).

[19] Slip Op. at *1.

[20] Id. (citing CPLR 3016(b); Orange Orch. Props. LLC v. Gentry Unlimited, Inc., 191 A.D.3d 609, 609 (1st Dept. 2012)).

[21] Id. (citing Springut Law,157 A.D.3d at 646; ID Beauty S.A.S. v. Coty Inc. Headquarters, 164 A.D.3d 1186, 1186 (1st Dept. 2018)).

[22] Id. (citing Cronos, 156 A.D.3d at 63-64).