New York does not let a plaintiff turn a broken contract into a fraud. A fraud claim that restates the same facts as the contract claim is duplicative and gets dismissed. Removing it takes the punitive damages exposure out of the case, and frequently takes the individual defendants out with it.
The pattern is familiar to anyone who has read a commercial complaint. There is a contract. There is an allegation that the other side did not do what it promised. And then there is a fraud cause of action asserting that the promise was a lie when it was made, usually with a demand for punitive damages attached.
Why is the fraud claim there at all?
For leverage. A contract claim is worth the contract’s value. A fraud claim is worth that plus punitive damages, plus a longer limitation period, plus the ability to name the individuals who signed and spoke rather than only the corporate entity. It is added because of what it does to settlement pressure, not because of what it adds to the merits.
What does New York require for a fraud claim to stand beside a contract claim?
One of three things, and none of them is satisfied by simply saying the promise was insincere. The plaintiff must show a legal duty separate from the contractual duty, or a fraudulent misrepresentation collateral or extraneous to the contract, or special damages that are caused by the misrepresentation and not recoverable as contract damages.
Law: Clark-Fitzpatrick, Inc. v. Long Is. R.R. Co., 70 N.Y.2d 382 (1987); Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13 (2d Cir 1996).
Is “he never intended to perform” enough?
Generally no. An allegation that a contracting party secretly intended to break the contract at the moment of signing is treated as a restatement of the breach, not as a separate wrong. Without a duty, a representation, or damages outside the contract, that allegation does not save the claim.
Kill the fraud claim and the punitive damages go with it. Very often so do the individual defendants.
What else can the claim be attacked with?
Particularity. Fraud must be pleaded in detail in New York — the specific statements, who made them, when, and why they were false. General allegations that the defendants misrepresented their intentions do not meet the standard, and a fraud claim can be dismissed on that ground alone even where it is not duplicative.
Law: CPLR 3016(b).
When is a fraud claim genuinely separate?
When the lie is about something other than the promise. A misstatement of a company’s financial condition made to induce the contract, a concealed fact the defendant had a duty to disclose, a fiduciary relationship that existed independently of the agreement — these can support fraud alongside a contract claim. Recognising which kind you are facing decides whether the motion is worth making.
What this means for you
Read the fraud cause of action against the breach cause of action, side by side and paragraph by paragraph. If the same conduct appears in both, and the damages sought are the same money, the claim is duplicative and belongs in a motion to dismiss. That motion narrows the case, protects the individuals, and changes what the plaintiff can realistically ask for at the settlement conference.
Keep reading
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Before founding Prencipe International, Joe practiced at the top law firms in the world, including Freshfields Bruckhaus Deringer, Baker McKenzie, Morgan Lewis & Bockius, and served at the U.S. Securities and Exchange Commission. He has spent his career on high-stakes disputes and transactions for businesses that cannot afford to lose. When a New York business owner gets sued, he answers the same day and is on the docket within the week.
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