Court Opinion

ID: 9878576
Source: CourtListenerOpinion
Date Created: 2023-09-27 17:26:29.079847+00
Date Added: 2024-06-11T07:47:38.160050
License: Public Domain

Kahn, J.
(dissenting in part). While I otherwise concur with the majority’s disposition of this appeal, I would affirm the order appealed from to the extent that it denied dismissal of the portion of plaintiff’s fraud cause of action based upon the allegations that defendant Jay Adams made false promises to a principal of plaintiff Cronos to reverse charges related to fraudulent calls, as I believe that aspect of the fraud claim to have been sufficiently pleaded, at this preliminary stage, to survive a motion to dismiss. Therefore, I respectfully dissent in part.
To the extent that the fraud claim is based on allegations that Adams, an executive of XComlP, misrepresented to Dinor Adam V. Levi, the chief operating officer of plaintiff Cronos, that plaintiff would not be liable for the fraudulent calls, the complaint alleges facts permitting a reasonable inference that he did so for the purpose of inducing plaintiff to continue allowing defendants to use plaintiff’s services (see Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). Where an appeal involves an order deciding a motion *76to dismiss, the complaint is afforded a liberal construction, all factual allegations in the complaint are deemed true and the plaintiff is entitled to all favorable inferences (Leon v Martinez, 84 NY2d 83, 87 [1994]). Here, the complaint alleges that on two occasions, Adams made misrepresentations to plaintiff’s representative Levi that the dispute would be resolved in plaintiff’s favor and that plaintiff would not need to compensate defendant XComlP for the fraudulent calls. The allegation that, on both occasions, XComlP billed plaintiff for the fraudulent calls immediately following these misrepresentations by Adams, viewed most favorably to plaintiff, suffices, on this motion to dismiss, to allege that Adams knew that the statements were false when he made them.
Adams’s alleged assurances to Cronos that it would not have to pay demonstrate defendant Adams’s intent to induce plaintiff’s reliance on his assurances. The allegation that plaintiff continued to allow XComlP to use plaintiff’s voice termination services after plaintiff’s representative received Adams’s assurances establishes plaintiff’s justifiable reliance upon those assurances at a time when plaintiff had no reason not to take Adams at his word, especially following the first occasion on which defendant Adams allegedly gave those assurances to plaintiff. As a result, XComlP allegedly incurred further charges owing to plaintiff of $54,926.84. Thus, plaintiff has pleaded fraud with sufficient particularity as to Adams (see 12 NY3d at 559).
Furthermore, Adams may be held personally liable on the portion of the fraud claim in question, notwithstanding his position as an officer of a limited liability company, because he is alleged to have personally participated in the commission of a tort in furtherance of company business (see Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]; 277 Mott St. LLC v Fountainhead Constr. LLC, 83 AD3d 541, 542 [1st Dept 2011]; Rothstein v Equity Ventures, 299 AD2d 472, 474 [2d Dept 2002]).
Moreover, under the doctrine of in pari delicto, the portion of the fraud claim involving Adams’s allegedly false promises may be imputed to XComlP unless the “adverse interest” exception to imputation exists, in which the executive or agent has “totally abandoned his principal’s interests and [is] acting entirely for his own or another’s purposes” (New Greenwich Litig. Trustee, LLC v Citco Fund Servs. [Europe] B.V., 145 AD3d 16, 23 [1st Dept 2016], quoting Kirschner v KPMG LLP, 15 NY3d *77446, 465, 466 [2010] [internal quotation marks omitted]). Under the circumstances alleged here, where Adams’s assurances permitted XComlP to continue to have the benefit of plaintiff’s services without paying for them, and where he was not acting entirely for his own purposes, the adverse interest exception does not apply, however. Thus, the portion of the fraud claim should not be dismissed as to either Adams or XComlP.
The aspect of the fraud claim alleging that Adams made false promises to Cronos is not duplicative of the breach of contract claim. In order for a fraud claim to be duplicative of a breach of contract claim, the fraud claim must be “based on the same facts that underlie the contract cause of action, [must] not [be] collateral to the contract, and [must] not seek damages that would not be recoverable under a contract measure of damages” (Financial Structures Ltd. v UBS AG, 77 AD3d 417, 419 [1st Dept 2010]).
With respect to the first Financial Structures prong, whether both claims are based on the same facts, here, the breach of contract claim makes no clear reference to the false promises made by Adams to Levi and Cronos to remove the disputed charges for the fraudulent calls, while the fraud claim clearly includes them. Therefore, viewing the complaint most favorably to plaintiff, the fraud claim is not based on the same facts that underlie the contract cause of action.
With regard to the second Financial Structures prong, whether the fraud claim is not collateral to the contract, we have explained that, in a case involving allegations of both breach of contract and fraud, “[a] misrepresentation of present fact is collateral to [a] contract and supports a separate claim for fraud” (American Media, Inc. v Bainbridge & Knight Labs., LLC, 135 AD3d 477, 478 [1st Dept 2016], citing Deerfield Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956 [1986] [“a promise . . . made with a preconceived and undisclosed intention of not performing it, . . . constitutes a misrepresentation ... of present fact” collateral to, not duplica-tive of, a breach of contract claim (citations and internal quotation marks omitted)]).
Here, tellingly, the portion of the fraud claim in question alleges that, on two occasions, following Adams’s promises to Cronos that XComlP would remove the disputed charges for the fraudulent calls, ‘XComlP immediately offset the amount of fraudulent charges against legitimate use charges incurred *78by XComlP for Cronos’ [s]ervices.” Based upon these allegations of two instances of immediate billing of Cronos by XComlP following Adams’s assurances to the contrary, it is readily inferable that Adams made these promises with the preconceived and undisclosed intention of not performing them. At the very least, at the time of the second instance of immediate billing of Cronos for disputed charges following Adams’s promises that such charges would be removed, Adams clearly would have made the promises to Cronos, while harboring no intention of honoring them. As Adams’s alleged promises constituted misrepresentations of present fact rather than mere insincere promises of future performance, the alleged misconduct here is collateral to the contract (see Deerfield, 68 NY2d at 956; American Media, 135 AD3d at 478; GoSmile, Inc. v Levine, 81 AD3d 77, 81 [1st Dept 2010], lv dismissed 17 NY3d 782 [2011]).
The majority bases its conclusion that Adams’s alleged assurances to Cronos are not collateral to the contract on its view that these alleged promises are nothing more than promises made on behalf of XComlP to fulfill its preexisting contractual obligation to indemnify Cronos for expenses arising from fraudulent calls in accordance with section 9 of the agreement. As the majority concedes, section 9 also states that each party to the agreement is obligated to pay invoices from the other party, even if the invoices are for charges related to fraudulent calls. Given the ambiguity of section 9 of the agreement as to whether each party is responsible for payment of fraudulent invoices from the other party, or is entitled to indemnity from the other party, there is no basis upon which this Court can presently determine whether XComlP had any preexisting contractual obligation to reverse its charges (see New York Univ. v Pfizer Inc., 151 AD3d 42, 48 [1st Dept 2017] [“because section 9⅛ language ... is ambiguous, we cannot determine on this motion to dismiss that either party’s interpretation of the agreement controls as a matter of law”]). Where, at the pleading stage of the proceedings, there are undeveloped issues concerning a breach of contract claim due to the ambiguity of a contractual provision, it is premature to dismiss another claim, such as the portion of the fraud claim in question here, as duplicative, and both claims should be permitted to stand (Demetre v HMS Holdings Corp., 127 AD3d 493, 493-494 [1st Dept 2015]).
Thus, as in these recent cases, as well as in Deerfield, the promises allegedly made by Adams cannot, at this juncture, be *79said to have been demonstrably based upon any preexisting contractual obligation. Therefore, when viewed in the light most favorable to plaintiff, Adams’s promises were collateral to the contract (see Deerfield, 68 NY2d at 956).
In this case, the analysis to be performed under the second prong of the Financial Structures rubric in order to determine whether the fraud claim is duplicative necessarily involves determining the nature of Adams’s intent in making promises to Cronos, as may be reasonably inferred from the factual allegations presented. Thus, although the principles governing whether claims are duplicative are separate and distinct from those governing whether an intent to defraud on the part of a defendant (in this case, Adams) may reasonably be inferred from the factual allegations presented, application of those two sets of principles necessarily converge in this case, with the principles governing reasonable inference of intent being applied in furtherance of one step of the overall inquiry as to whether the portion of the fraud claim in question is duplica-tive.
In reaching the conclusion that Adams’s promises were not collateral to the agreement, the majority’s reliance on Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank (99 AD3d 554 [1st Dept 2012]) and Castellotti v Free (138 AD3d 198 [1st Dept 2016]), is misplaced. Neither Fairway nor Castellotti involved an ambiguous contractual provision that called into question whether the defendant who allegedly made a false or insincere promise had a preexisting contractual obligation to perform what was promised. Here, by contrast, as discussed above, the ambiguous provisions of section 9 of the agreement, if construed in the light most favorable to plaintiff, would mean that defendants XComlP and Adams were under no preexisting contractual obligation to perform the false promises allegedly made by Adams, thereby rendering those false promises collateral to the agreement.
Moreover, this is not a case where the alleged promises made by a defendant (in this case, Adams) are not indicative of “a present intention to deceive” because the complaint does not “allege facts to show that the defendant [Adams], at the time the promissory representation was made, never intended to honor or act on his statement” (Non-Linear Trading Co. v Braddis Assoc., 243 AD2d 107, 118 [1st Dept 1998] [internal quotation marks omitted], quoting Lanzi v Brooks, 54 AD2d 1057, 1058 [3d Dept 1976], affd 43 NY2d 778 [1977]). Rather, viewed *80in the light most favorable to plaintiff, the allegation of the immediate billing of Cronos by XComlP on both occasions following Adams’s assurances to the contrary, and the ambiguity in paragraph 9 of the agreement, which could be construed as imposing no preexisting contractual obligation upon defendants, establish Adams’s intention not to honor his promises, which were collateral to the agreement, at the time he made them (cf. Non-Linear, 243 AD2d at 118).
Our decision in First Bank of Ams. v Motor Car Funding (257 AD2d 287 [1st Dept 1999]), cited by the majority, supports this position. There, both breach of contract and fraud claims had been alleged but the fraud claim had been dismissed, and this Court reinstated the fraud claim on the ground that the defendants’ alleged misrepresentations about loans purchased under the agreement in question constituted “statement [s] of present fact” (id. at 292, 294). In Tesoro Petroleum Corp. v Holborn Oil Co. (108 AD2d 607 [1st Dept 1985], appeal dismissed 65 NY2d 637 [1985]), also cited by the majority, where the complaint had alleged both breach of contract and fraud claims; we affirmed the dismissal of the fraud claim because that claim was based solely upon the plaintiff’s allegations that the defendants falsely promised to perform “future acts” pursuant to the terms of the contract (Tesoro, 108 AD2d at 607). Here, by contrast, the promises made by Adams to Cronos, as alleged by plaintiff, misrepresented Adams’s contemporaneous plans, which were immediately effected. From the allegation that Adams’s assurances were followed by the immediate billing of Cronos for the fraudulent calls, it may be reasonably inferred that Adams never harbored the slightest intention of honoring his promise to reverse the charges to Cronos for those calls. Additionally, as noted, whether or not Adams’s statements related to his preexisting obligations under the contract cannot be determined at this juncture.
In maintaining that Cronos’s prolonged reliance on Adams’s promises over a period of approximately IV2 months, as demonstrated by Cronos’s permitting XComlP continued access to Cronos’s services, indicates that Cronos regarded Adams’s promises as promises to perform future acts, the majority conflates two separate and distinct elements of fraud. On the one hand, there is the element of intent to defraud, which is a matter of the intent of the alleged defrauder (in this case, Adams), not of the allegedly defrauded plaintiff (in this case, Cro-nos). On the other hand, there is the element of reliance, which *81is a matter of whether the allegedly defrauded plaintiff believes a false promise to be true and acts accordingly. Put otherwise, in determining whether, in this case, Adams’s assurances were promises of future rather than contemporaneous acts, the determination is not governed by Cronos’s perception of the meaning of those promises. Rather, it is governed by what Adams’s intentions were in making them.
The third Financial Structures prong examines whether the damages sought under the fraud claim would not be recoverable under a contract measure of damages. As the majority correctly points out, the $54,926.84 sought in the fraud claim is included within the $89,085.24 sought on the breach of contract claim, and therefore may also be recoverable under a contract measure of damages. Nonetheless, because Financial Structures requires that all three of its criteria be satisfied in order for a fraud claim to be duplicative of a breach of contract claim, and because the portion of the fraud claim in question here does not meet two out of the three Financial Structures criteria, it is not duplicative of the breach of contract claim in this case.
Accordingly, I would affirm the order of Supreme Court to the extent that it denied defendants’ motion to dismiss that portion of plaintiff’s fourth cause of action, for fraud, alleging that Adams had made false promises to a principal of plaintiff.
Richter and Kapnick, JJ., concur with Friedman, J.P.; Kahn, J., dissents in part in a separate opinion.
Order Supreme Court, New York County, entered August 17, 2016, should be modified, on the law, and otherwise affirmed, without costs.