Statements of Opinion Found Insufficient to Support a Fraud Cause of Action

• Posted on: Jan 11 2019

The elements of a common law fraud claim are well known to readers of this Blog: to wit, a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff, and damages. Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (2009). While the justifiable reliance and intent to deceive elements are frequently the focus of a defendant’s challenge, the falsity element can be front and center too, especially where, as in CC Pay Operations Ltd. v. Alokush, 2019 N.Y. Slip Op. 30048(U) (Sup. Ct. N.Y. Cnty. Jan. 2, 2019) (here), the alleged misstatements are claimed to be nothing more than mere expressions of opinion.

Statements of Opinion Are Inactionable Under New York Law

To allege a viable claim of fraudulent inducement, a plaintiff must allege misrepresentations of present facts, rather than expressions of opinion or promises of future conduct. “Statements that ‘express expectations about the future rather than presently existing, objective facts’ are [ ] statements of opinion.” In re Aratana Therapeutics Inc. Sec. Litig., No. 17 CIV. 880 (PAE), 2018 WL 2943743, at *15 (S.D.N.Y. June 11, 2018) (quoting Fialkov v. Alcobra Ltd., No. 14 CIV. 09906 (GBD), 2016 WL 1276455, at *6 (S.D.N.Y. Mar. 30, 2016)). Statements of opinion are not sufficient to support a fraud claim. SeeRenaissance Equity Holdings v. Al-An Elevator Maint. Corp., 121 A.D.3d 661, 664 (2d Dept. 2014); Yablon v. Stern, 161 A.D.3d 594, 594-95 (1st Dept. 2018) (plaintiffs cause of action alleging fraud in the inducement was properly dismissed, as it was founded upon “non-actionable promises of future conduct or events, rather than present fact, and non-actionable opinion of defendant as to his entity’s resources and capability of undertaking the luxury renovation sought by plaintiffs.”); Lax v. Design Quest, N.Y., Ltd., 101 A.D.3d 431, 431 (1st Dept. 2012) (noting that “Plaintiffs’ fraud in the inducement claim was based on the alleged misrepresentation by defendants of their expertise and licensing.”).

CC Pay Operations Ltd. v. Alokush

Background

In February 2018, Plaintiff, CC Pay Operations Ltd. (“CC Pay”) and Defendants, Ahmad Alokush (“Alokush”) and Ahmadeus LLC (“Ahmadeus”), entered a Software Development and Maintenance Agreement (the “Agreement”), pursuant to which Ahmadeus was to develop a web platform for CC Pay that would permit individuals to purchase “CafeCoin,” a cryptocurrency.

According to Plaintiff, Defendants represented that they were “skilled and competent and capable of designing a professional website.” Slip op. at *2. CC Pay alleged that, contrary to those representations, Defendants “had no proficiency in website design.” Id. Had it “known that Ahmadeus could not design a website,” CC Pay said that “it would not have retained Ahmadeus.” Id.

CC Pay commenced the action against Defendants, alleging breach of contract, fraudulent inducement, conversion and unjust enrichment.

Defendants moved to dismiss Plaintiff’s cause of action for fraudulent inducement. The Court granted the motion.

The Court’s Decision

As an initial matter, the Court found that CC Pay’s allegations were insufficiently particular to state a claim for fraudulent inducement: “CC Pay’s generalized allegations regarding Defendants’ representations as to their skill and ability to perform under the Agreement are not sufficient to state a cause of action for fraudulent inducement.” Slip op. at *3.

Turning to the falsity element of the claim, the Court found that the challenged statements (e.g., representations about an individual’s “ability to perform a task”) were “not misrepresentations of verifiable objectivefacts but rather statements concerning their ability or intent to perform ….” Slip op. at *3 (orig’l emphasis). Such statements, held the Court, “are not sufficient [to] support a fraud claim.” Id. (citing MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287, 292 (1st Dept. 2011)).

Finally, the Court noted that to the extent the fraudulent inducement claim was based on false assurances of performance, such allegations “sounds in contract, not in fraud” and, therefore, were duplicative of CC Pay’s breach of contract claim: “If CC Pay can establish that Ahmadeus failed to satisfy its obligations under the Agreement, its claim sounds in contract, not in fraud.” Slip op. at *4 (citing Cronos Grp. Ltd v. XComIP, LLC, 156 A.D.3d 54, 56 (1st Dept. 2017) (“We hold that the cause of action for fraud, to the extent it is based on allegations that the defendants gave false assurances that they would perform a contractual obligation, should have been dismissed on the ground that it is duplicative of the contract claim and is not supported by allegations of specific facts giving rise to an inference that defendants did not intend to honor their assurances when they were made.”)).

Takeaway

A plaintiff alleging fraud must do so with particularity. SeeCPLR 3016(b); Eurycleia Partners, 12 N.Y.3d at 559. This means that each element of the claim must be plead with particularity. Id. A plaintiff will meet this burden when the facts in the complaint “permit a reasonable inference of the alleged conduct.” Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008). As shown in CC Pay, Plaintiff failed to satisfy its burden of demonstrating falsity.

CC Payis instructive because it highlights the differences between misstatements of fact and expressions of opinion. As noted, Plaintiff alleged that Defendants made misstatements about “their skill and ability to perform under the Agreement….” Slip op. at *3. Since “an individual’s opinion about … her or his ability to perform a task is not an actionable fraud” (id.), the Court suggested that there might have been another route Plaintiff could have taken. In this regard, the Court noted that CC Pay “reference[d] specific factual representations contained on the Ahmadeus website indicating that it performed work for other specified ‘prestigious’ companies such as Goldman Sachs.” Id. at **3-4. The implication being that such statements were verifiably objective. While the Court’s suggestion raises a question about the actionability of those statements, the lesson of CC Payrests on the distinction raised by the Court – that is, misstatements of present or historical fact are actionable, while expressions of opinion are not.

Tagged with: Commercial Litigation, Expression Of Opinion, Fraud, Fraudulent Inducement, Misstatement Of Present Fact