Lead Opinion
OPINION OF THE COURT
This appeal presents, among other issues, the recurring question of whether the facts alleged in the complaint give rise to claims for both breach of contract and fraud. 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. Because the remaining portion of the fraud cause of action is otherwise legally insufficient, that claim should have been dismissed in its entirety, although we find that the motion to dismiss was correctly denied as to the contract claim and, in part, the account stated claim. In reaching these conclusions, we explore the issues raised by the pleading of causes of action for contract and fraud based on substantially the same set of facts.
Plaintiff Cronos Group Limited and defendant XComlP, LLC are both companies in the business of supplying wholesale telecommunications services. Defendant Jay Adams is
Section 4 of the RNCSA, entitled “Billing and Payment,” as amended as of October 2, 2014, provides for billing every seven days, with payment due within seven days of the date of the invoice, and for a charge of 1.50% per month for late payments. In addition, section 4 provides:
“In the event that charges due are not paid in full by the Due Date, each Party shall have the right to suspend all or any portion of the Services to the other Party after giving one (1) business day’s prior notice . . . until such time as the other Party has paid in full all charges then due including late charges. . . . Further, each Party reserves the right to offset the other Party’s invoice for Services in an amount corresponding to any undisputed amount owed but not received by the Due Date.”
Section 5 of the RNCSA, entitled “Billing Adjustments,” provides, in pertinent part:
“Any request for a billing adjustment must be made in good faith and in writing within seven (7) days of receipt of the invoice in question. Any such request shall include detailed documentation to establish the basis for any adjustment. Documentation to be provided shall include, without limitation, the country, number of minutes and/or rate that is subject to dispute and may include [call detail records] to be provided by the disputing Party in a form acceptable to the responding Party. Subject to each Party’s rights under Section 26, the responding Party will determine, in its sole discre*58 tion whether any adjustment shall be made and any such adjustments will be credited against the next periodic invoice. If the responding Party, in its sole discretion, denies the billing dispute, the disputing Party agrees to pay the disputed amount with the next scheduled remittance. . . . If a request for a billing adjustment or credit is not made in writing within this seven (7) day period, the charges are deemed valid and each Party waives its rights to any credits, offsets, or adjustments with regard to them.”
Section 9 of the RNCSA, entitled “Responsibilities of the Parties,” provides:
“Each Party is solely responsible for collecting its charges to its customers for services it offers them utilizing the other Party’s network and for preparing and mailing invoices to these customers. The Parties will indemnify each other from all costs, expenses, claims, or actions arising from allegedly fraudulent calls carried for each other through the Services. Each Party is responsible for payment of the total invoice amount from the other Party regardless of whether its customers pay for those calls or they are allegedly fraudulent calls. However, nothing contained in this Agreement prohibits either Party from immediately taking action to prevent fraudulent calls.”
Section 26 of the RNCSA provides that the agreement is “in all respects governed by the laws of the State of New York, without regard to choice of laws.” Section 27 designates New York City as the venue for the resolution of any disputes arising from the RNCSA, and further provides that “[attorneys [sic] and paralegal fees, expert fees and costs shall be paid to the prevailing Party.”
The complaint alleges that, by email messages sent on October 22 and December 4, 2015, Cronos notified XComlP that Cronos had been informed by two of its customers (in the first case, a Portugese retail service provider; in the second, a German retail service provider) of fraudulent calls that had gone from Cronos’s network to XComIP’s IPRNs, thereby automatically generating charges to Cronos’s account with
In January 2016, Cronos commenced this action against XComlP and Adams, asserting the following eight causes of action: (1) breach of contract; (2) declaratory judgment; (3) account stated; (4) fraud; (5) quantum meruit; (6) conversion; (7) tortious interference with advantageous business relations; and (8) unjust enrichment. The fraud and tortious interference claims are asserted against both XComlP and Adams; the remaining claims are asserted against XComlP only. In lieu of answering, XComlP and Adams moved to dismiss the complaint pursuant to CPLR 3211 (a) (1), (7); 3016 (b) and 3013. Supreme Court denied the motion in its entirety. XComlP and Adams have appealed.
We turn first to the cause of action for breach of contract. In support of its contract claim, Cronos alleges, in sum, that, in refusing to annul the charges for the fraudulent calls, XComlP breached its obligation to “indemnify” Cronos against the costs
In support of its contention that Cronos’s contract claim should be dismissed as legally insufficient, XComlP argues that the indemnification provision of section 9 of the RNCSA, on which Cronos relies, entitles each party to be indemnified by the other only against “claims made by third-parties [sic] arising from allegedly fraudulent calls” (as stated in XComIP’s appellate brief). Cronos, on the other hand, construes section 9 to relieve each party of the obligation to pay for fraudulent calls transmitted over the other party’s network. Supreme Court correctly discerned an ambiguity in section 9, in that Cronos’s construction finds support in the second sentence of the section, while XComIP’s construction finds support in the third sentence. Because section 9 of the RNCSA, on its face, is reasonably susceptible of more than one interpretation, the provision cannot be construed as a matter of law, the documentary evidence on which XComlP relies does not conclusively dispose of Cronos’s claim, and dismissal under CPLR 3211 (a) (1) and (7) is not appropriate (see New York Univ. v Pfizer Inc., 151 AD3d 42, 44 [1st Dept 2017]; US Bank N.A. v Lightstone Holdings LLC, 103 AD3d 458, 459 [1st Dept 2013]; Telerep, LLC v U.S. Intl. Media, LLC, 74 AD3d 401, 402 [1st Dept 2010]; Fortis Fin. Servs. v Fimat Futures USA, 290 AD2d 383, 383 [1st Dept 2002]).
XComlP also argues that the cause of action for breach of contract is barred by Cronos’s failure to abide by the procedures of the above-quoted section 5 of the RNCSA, which requires that a request for a “billing adjustment” be submitted in writing, with supporting documentation, within seven days of receipt of the invoice in question. However, to the extent Cro-nos’s construction of section 9 ultimately prevails, it is section
Having established that the motion to dismiss was correctly denied as to the contract claim (a determination on which this bench is unanimous), we turn to the fraud cause of action.
One prong of the fraud cause of action is based on the allegation that XComlP somehow orchestrated the fraudulent calls for which Cronos was charged.
In the other prong of the fraud cause of action, Cronos alleges that XComlP, by giving Cronos oral assurances that Cro-nos would not be required to pay for the illegitimate calls, fraudulently induced Cronos to allow XComlP to continue to use Cronos’s network, thereby accruing charges that XComlP intended not to pay based on the offset for the charges to Cro-nos for the fraudulent calls. With regard to XComIP’s intent, it is alleged that XComlP “intentionally mislead [sic] Cronos (from November 4, 2015 to December 17, 2015) into believing that these disputed charges would be removed.” Further, “[i]n reliance on these false promises of resolving the disputed amounts, . . . Cronos continued to allow XComlP to use Cro-nos’[s] voice termination services, incurring charges that XComlP would owe Cronos.” The loss alleged to have resulted from this fraud, for which the claim seeks recovery, is the same loss alleged in the breach of contract cause of action—XComIP’s nonpayment of $54,926.84 of charges for the use of Cronos’s network, against which XComlP offset the charges for the fraudulent calls. For the reasons set forth below, we conclude that these allegations do not state a cause of action for fraud (see New York Univ. v Continental Ins. Co., 87 NY2d 308, 318 [1995] [“General allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support the (fraud) claim”]; Rocanova v Equitable Life Assur. Socy. of U.S., 83 NY2d 603, 614 [1994] [“a contract action cannot be converted to one for fraud merely by alleging that the contracting party did not intend to meet its contractual obligations”]).
Initially, Cronos’s fraud cause of action falls short under the principle that a fraud claim is not stated by allegations that simply duplicate, in the facts alleged and damages sought, a claim for breach of contract, enhanced only by conclusory allegations that the pleader’s adversary made a promise while harboring the concealed intent not to perform it. This Court has held numerous times that a fraud claim that “ar[ises] from
As should be apparent from the foregoing, the fraud cause of action adds to the contract cause of action only the allegation that XComlP gave Cronos insincere oral assurances that
Moreover, as the dissent concedes, the fraud claim seeks recovery solely for one of the very same losses at issue in the contract claim (the charges for the fraudulent calls), and both claims seek compensatory damages for that loss in the very same principal dollar amount, to the penny (see Mosaic Caribe, 117 AD3d at 422-423 [a fraud claim was duplicative because it sought “the same (compensatory) damages as the breach of contract claim”]; Havell Capital, 84 AD3d at 589 [a fraud claim was duplicative of a contract claim where, inter alia, the two claims “sought identical damages”]; Coppola, 288 AD2d at 42 [affirming the dismissal of a fraud claim that, inter alia, “did not allege any damages . . . that would not be recoverable under a contract measure of damages”]; Tesoro Petroleum, 108 AD2d at 607 [same]).
The dissent argues that the fraud claim is not duplicative of the contract claim because the two claims are somehow not “based on the same facts” (.Financial Structures, 77 AD3d at
In Fairway Prime Estate Mgt., LLC v First Am. Intl. Bank (99 AD3d 554 [1st Dept 2012]), the plaintiff (Fairway) received a commitment letter from the defendant hank (FAIB) to lend funds to finance a development project. Fairway’s owner alleged that FAIB, to induce him to sign an agreement to extend FAIB’s time to make the loan, had “assured him that defendant would go forward with the Loan, if he signed the document [i.e., the extension agreement] on behalf of plaintiff” (id. at 556 [internal quotation marks and brackets omitted]). Ultimately, FAIB did not lend the funds, and Fairway sued for breach of contract and fraud. On Fairway’s appeal from the order granting FAIB’s motion to dismiss the complaint, we modified to reinstate the contract claim but affirmed the dismissal of the fraud claim as duplicative of the contract claim (id. at 557,
We do not take issue with the dissent’s point that making a promise to do something in the future, while harboring an undisclosed intention to break that promise when the time comes to perform, constitutes a misrepresentation of an existing fact (see Deerfield Communications Corp. v Chesebrough-Ponds, Inc., 68 NY2d 954, 956 [1986]). What the dissent loses sight of, however, is that, under our case law, where the promised performance is an obligation of the promisor under an enforceable contract between the parties, and the only damages sought are those recoverable for a breach of contract, allegations of such an “insincere promise” (Castellotti v Free, 138 AD3d 198, 211 [1st Dept 2016]) are redundant of a claim for breach of the parties’ contract and, therefore, do not state a cause of action for fraud.
The rule that an insincere promise to perform a contractual obligation is not actionable as fraud—absent which contract claims would be routinely pleaded in the alternative as fraud—
“To say that a contracting party intends when he enters into an agreement not to be bound by it is not to state ‘fraud’ in an actionable area, but to state a willingness to risk paying damages for breach of contract. . . . Implicit in the policy sanctioning the formalization of contractual undertakings is precaution against an existing intention not to be bound by the agreement as well as a future change of mind about being bound by it. Actionable relief hangs on breach; and . . . relief does not lie for fraud resting on an intention not to perform” (id.).
The Court of Appeals’ decision in Deerfield Communications Corp. v Chesebrough-Ponds, Inc. (68 NY2d 954 [1986]), upon which the dissent mistakenly relies, is not to the contrary. The false promise held to be actionable as fraud in Deerfield was a promise that had not been included in the terms of the parties’ written agreement.
The dissent draws a distinction between different ways of expressing the concept of a false promise, that is to say, a promise made while the promisor intended not to keep it. Thus, the dissent states that the promises XComlP allegedly made “while harboring no intention of honoring them . . . constituted misrepresentations of present fact rather than mere insincere promises of future performance.” The distinction here drawn by the dissent between promises made “while harboring no intention of honoring them,” on the one hand, and “mere insincere promises of future performance,” on the other hand, cannot withstand scrutiny and, so far as we are aware, has not
Similarly unsound is the dissent’s attempt to distinguish Te-soro Petroleum on the ground that the defendants in that case “falsely promised to perform ‘future acts’ ” (quoting 108 AD2d at 607). In Tesoro Petroleum, just as in this case, the plaintiff alleged in its fraud claim that the defendants had “misrepresented their intent to perform as promised” in the parties’ contract (id.), and we held that these allegations were “redundant” of the contract claim (id.). The dissent cannot distinguish this case from Tesoro Petroleum by referring to XComIP’s allegedly misrepresented intentions as “contemporaneous plans.” Assuming the truth of Cronos’s allegations, when XComlP assured Cronos that “the dispute would be resolved in Cronos’[s] favor” (emphasis added), and “promise[d] to ‘handle’ or ‘deal with’ the problem” (emphasis added), XComlP was representing that the charges would be removed in the future, not that they were being removed at that very moment. Indeed, it is clear from the complaint itself that Cronos understood XComIP’s assurances to be promises of future conduct. Cronos specifically alleges—as it must to support a fraud claim—that it relied on XComIP’s assurances that the charges would ultimately be reversed by “continuing] to allow XComlP to use Cronos’[s] voice termination services.”
Although Cronos itself does not make this argument, the dissent takes the position that the fraud cause of action should be sustained in the event the aforementioned ambiguity in section 9 of the RNCSA is ultimately resolved in favor of XComlP,
Moreover, the dismissal of the fraud cause of action is required on the ground that it is “based upon a statement of future intention [but fails to] allege facts to show that the defendant, at the time the promissory representation was made, never intended to honor or act on [its] statement” (Laura Corio, M.D., PLLC v R. Lewin Interior Design, Inc., 49 AD3d 411, 412 [1st Dept 2008] [internal quotation marks omitted]), a principle implicit in the Court of Appeals’ aforementioned statement that “[g]eneral allegations that defendant entered into a contract while lacking the intent to perform it are insufficient
“Absent a present intention to deceive, a statement of future intentions ... is not actionable on the grounds of fraud. A complaint based upon a statement of future intention must allege facts to show that the defendant, 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 and citation omitted], quoting Lanzi v Brooks, 54 AD2d 1057, 1058 [3d Dept 1976] [further noting that “any inference drawn from the fact that the expectation did not occur is not sufficient to sustain the plaintiff’s burden of showing that the defendant falsely stated his intentions”], affd 43 NY2d 778 [1977]).
The dissent apparently does not dispute the principle that, where a fraud claim is based upon an alleged false promise, the plaintiff is required to plead specific facts from which it may be reasonably inferred that the defendant did not intend to keep the promise when it was made (see CPLR 3016 [b] [in pleading a fraud cause of action, “the circumstances constituting the wrong shall be stated in detail”]). The dissent, however, believes that the fraud claim before us meets this standard because the complaint alleges that XComlP “immediately offset the amount of fraudulent charges against legitimate use charges incurred by XComlP for Cronos’[s] Services” (emphasis added). In our view, the word “immediately” cannot bear the weight the dissent places upon it.
To begin, although Cronos obviously knows when it received the allegedly wrongful billing, the complaint does not allege how much time passed between XComIP’s alleged misrepresentations that Cronos would not be charged for the fraudulent calls and the appearance of those charges on bills. But more fundamentally, the claim that XComIP’s wrongful conduct was the initial billing for the fraudulent calls (billing that was presumably generated automatically), rather than the ultimate refusal to reverse the charges in accord with the alleged promises to Cronos, is at odds with Cronos’s own account of how the parties operated under their agreement.
The complaint alleges that section 9 of the RNCSA—the provision that XComlP allegedly breached by refusing to reverse
“[T]his type of provision [referring to section 9] is specifically tailored to internet[-]based telecommunications and IPRN/IPRS services. Specifically, telecommunication services are carried by multiple different carriers before finally being delivered to an end user (‘terminated’) by a carrier (in the case of IPRN/IPRS usage, the terminating party would be the service provider, such as [XComlP]). Parties can only be assured that they are paid by those with whom they are in privity of contract. Therefore, agreements often require the party using the service to pay up-front, regardless of whether the traffic paid for was real or fraudulent. The remedy for a party forced to pay up-front for calls that later turn out to be fraudulent (which is common in telecommunications) is to seek indemnification from the party they paid for the usage” (emphasis added).
To the same effect, Levi, the chief operating officer of Cronos, explains in his opposition affidavit that he understood that Cronos was required to pay XComIP’s charges for the fraudulent calls “immediately,” and that section 9 of the RNCSA (as interpreted by Cronos) required XComlP subsequently to indemnify Cronos for those charges:
“It is the nature of the telecommunications business that all providers who generate income by charging other providers (and not end users) must be paid immediately, since they in turn have costs to cover. The purpose of indemnity is to force the party benefiting [sic] from the fraud to pay back the party aggrieved by it; however, because of the custom mentioned above, indemnity cannot be used as an immediate defense to payment. . . . The very nature of indemnity is we must pay the initial charge, and then be covered for it later” (paragraph numbers and paragraph breaks omitted).
Thus, Cronos, by its own account, contemplated that it would initially be billed for the fraudulent calls, but expected that the charges would ultimately be reversed pursuant to its request.
In arguing that scienter may be inferred from the vague allegation that Cronos was billed for the fraudulent calls “immediately,” the dissent completely ignores the fact that, under Cronos’s own interpretation of the parties’ agreement, the initial billing for the calls was completely consistent with the contract. The dissent also ignores the fact that Cronos itself, based on its own allegations, did not understand the “immediate” billing to have been inconsistent with the assurances alleged to have constituted the fraud. Given that the parties’ written agreement, the allegations of the complaint and Cro-nos’s own appellate arguments establish that the “immediate” billing for the fraudulent calls was consistent with both the contract and the alleged oral assurances that the charges would be reversed, we fail to see how scienter can be inferred from that billing—which, given that the relevant events took place in 2015, was no doubt generated automatically. One cannot infer that XComlP did not intend to honor its alleged assurances from an act that was completely consistent with those assurances, as pleaded by Cronos itself.
Finally, we turn to the six causes of action we have not yet discussed. The complaint states a cause of action for an account stated only with respect to $34,158.40 of the charges at issue, as to which XComlP is alleged never to have raised an objection. The remaining amount at issue ($54,926.84), having been disputed when XComlP offset it against the charges to Cronos for the allegedly fraudulent calls, cannot support an account stated claim (see Fleming v Vassallo, 43 AD3d 278, 278-279 [1st Dept 2007]). The five remaining claims should have been dismissed. Because plaintiff has an adequate legal remedy for breach of contract, the cause of action for a declaratory judgment should be dismissed (Singer Asset Fin. Co., LLC v Melvin, 33 AD3d 355, 358 [1st Dept 2006]). Similarly, because
Accordingly, the order of the Supreme Court, New York County (Barry Ostrager, J.), entered August 17, 2016, which denied defendants’ motion to dismiss the complaint, should be modified, on the law, to grant the motion as to the causes of action for a declaratory judgment, fraud, quantum meruit, conversion, tortious interference with business relations, and unjust enrichment, and as to the cause of action for an account stated to the extent of $54,926.84 of the charges at issue, and otherwise affirmed, without costs.
. The complaint alleges that IPRNs are similar to 900 numbers in the United States. Thus, the caller to an IPRN incurs a premium charge upon reaching the number.
. The October 22 notification concerned more than 14,000 calls that were made to XComIP’s IPRNs in Madagascar and the Maldives on October 20 and 21, 2015. The December 4 notification concerned 13,906 calls that were made to XComIP’s IPRNs in Guinea-Bissau during the period from November 11 through November 18, 2015. In each case, the customer involved attributed the calls to unknown third-party hackers who had illegitimately gained access to the customer’s network. The complaint also alleges that, in each case, Cronos notified XComlP of the fraudulent calls on the same day that Cronos received notice of the fraud from its customer.
. For the same reason, also unavailing is XComIP’s reliance on the provision of section 5 that the disposition of a request for a billing adjustment is committed to the “sole discretion” of the “responding Party.”
. The remaining causes of action will be addressed at the end of this opinion.
. Specifically, the complaint alleges, “Upon [unspecified] information and belief,” that XComlP “authorized, procured or otherwise caused the unknown hackers to place these illegal calls.”
. The complaint’s failure to “state[ ] in detail” (CPLR 3016 [b]) facts from which XComIP’s complicity in the hacking could reasonably be inferred is not remedied by the opposition affidavit submitted by Cronos’s chief operating officer, Dinor Adam V. Levi. Levi fails to adduce sufficient facts from which it could reasonably be inferred that XComlP orchestrated the particular fraudulent calls at issue in this dispute.
. See e.g. MMCT, LLC v JTR Coll. Point, LLC, 122 AD3d 497, 499 (1st Dept 2014) (“A fraud-based cause of action is duplicative of a breach of contract claim when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract” [internal quotation marks omitted]); Mosaic Caribe, Ltd. v AllSettled Group, Inc., 117 AD3d 421, 422-423 (1st Dept 2014) (a fraud claim was insufficient as “duplicative of the breach of contract claim” because it sought “the same [compensatory] damages as the breach of contract claim”); Laurel Hill Advisory Group, LLC v American Stock Transfer & Trust Co., LLC, 112 AD3d 486, 487 (1st Dept 2013) (affirming the dismissal of a fraud counterclaim that was “based on the same facts that underl[ay] the contract counterclaim, [was] not collateral to the contract and d[id] not call for damages that would not be recoverable under a contract theory’); Linea Nuova, S.A. v Slowchowsky, 62 AD3d 473, 473 (1st Dept 2009) (a fraud claim duplicated a contract claim where the alleged misrepresentation “merely assur[ed] plaintiff that [the defendant] would comply with its contractual obligation and no additional duty was allegedly breached” and “plaintiff sought no damages that were not also recoverable under its breach of contract theory”); RGH Liquidating Trust v Deloitte & Touche LLP, 47 AD3d 516, 517 (1st Dept 2008), Iv dismissed 11 NY3d 804 (2008) (fraud claims were “properly dismissed as duplicative of [the plaintiff’s] breach of contract claim, since they [we] re based on alleged
. While the complaint demands a larger principal amount ($89,085.24) of damages on the breach-of-contract cause of action than the principal amount sought on the fraud claim ($54,926.84), the recovery sought on the contract claim includes the same $54,926.84 of outstanding charges for allegedly fraudulent calls that the fraud claim seeks to recover. That Cronos’s contract claim alleges an additional breach of contract, based on other conduct, for which additional damages are sought, does not change the fact that the fraud claim, in its entirety, duplicates the portion of the contract claim based on XComIP’s refusal to annul the $54,926.84 in charges for the fraudulent calls.
. In fact, the contract cause of action arguably does contain a reference to XComIP’s alleged assurances that the disputed charges would be annulled. Paragraph 72 of the complaint, which is part of the cause of action for breach of contract, states: “By purposely delaying their investigation of these fraudulent calls, promising to re-open the matter, and then refusing to indemnify Cronos for these calls, XComlP breached the Agreement.”
. See also Metropolitan Transp. Auth. v Triumph Adv. Prods., 116 AD2d 526, 527-528 (1st Dept 1986) (dismissing a fraud claim against the president of a corporation alleged to have breached its contract with the MTA on the ground that “only a breach of the representation of performance implicit in making the bid . . . and a subsequent assurance of performance by [the president]” were alleged, which allegations were “redundant in light of the first cause of action for breach of contract against the corporate defendant” [emphasis added]); cf. Bridgestone/Firestone, 98 F3d at 19 (holding that pleadings and evidence that the defendants “knowingly and falsely represented to [the plaintiff] that [the indebted defendant] intended to remit all sums due and owing to [the plaintiff] under the [preexisting] Collection Agreement” were legally insufficient to support a judgment for fraud under New York law [internal quotation marks omitted]).
. Deerfield, involved an oral promise by the buyer of certain inventory not to resell the merchandise in certain territories, which restriction was not set forth in the parties’ integrated written agreement (68 NY2d at 956).
. As this Court has previously recognized (see Coppola, 288 AD2d at 42; J.E. Morgan Knitting Mills v Reeves Bros., 243 AD2d 422, 423 [1st Dept 1997]; Big Apple Car v City of New York, 234 AD2d 136, 138 [1st Dept 1996]), the fraud alleged in Graubard Mollen Dannett & Horowitz v Moskovitz (86 NY2d 112 [1995]) was—like the fraud in Deerfield, but unlike the alleged fraud here—extraneous to the parties’ agreement. Also inapposite are three cases of this Court cited by the dissent, in which the fraud claims were not based on alleged misrepresentations of the defendants’ intentions to perform their contractual obligations in the future (see American Media, Inc. v Bainbridge & Knight Labs., LLC, 135 AD3d 477, 477-478 [1st Dept 2016] [the defendant allegedly misrepresented "the capitalization of Bainbridge and the existence of an $850,000 account receivable”]; GoSmile, Inc. v Levine, 81 AD3d 77, 80 [1st Dept 2010] [“plaintiff alleged that defendant lied to plaintiff when he represented and warranted that he had never breached and was not currently in breach” of an earlier agreement], lv dismissed 17 NY3d 782 [2011]; First Bank of Ams. v Motor Car Funding, 257 AD2d 287, 292 [1st Dept 1999] [“plaintiff’s fraud claim is premised on allegations that defendants misrepresented various pertinent facts about the individual loans that plaintiff purchased”]).
. Similarly, in his opposition affidavit, Cronos’s chief operating officer states that “[XComIP’s] promises were relied on by and induced Cronos to continue giving [XComlP] access to its services, as well as allowing Cronos clients to use [XComlP’s] IPRNs.”
. We also note that the case the dissent cites in support of this argument actually stands for the opposite proposition (see Demetre v HMS Holdings Corp., 127 AD3d 493, 493-494 [1st Dept 2015] [affirming the dismissal of a fraud claim as “duplicative of the breach of contract claim,” although the provision of the agreement on which the contract claim was based was “ambiguous”]; accord Global Funding Group, 2017 WL 1944194, *4, 2017 US Dist LEXIS 71446, *10, *12-13 [in a case governed by New York law, denying a motion to dismiss the claims for breach of contract on the ground that the relevant contractual provisions were “ambiguous” while dismissing the fraud claim “because it restfed] entirely upon allegations that defendants did not intend to comply with the terms of the contract” and “d [id] not allege any misrepresentations collateral or extraneous to the contract”]).
. We disagree with the dissent’s statement that an issue exists as to whether XComIP’s “assurances were promises of future rather than contemporaneous acts.” By definition, a promise is always of future conduct.
Dissenting Opinion
(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
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
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
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
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
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
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.
Order Supreme Court, New York County, entered August 17, 2016, should be modified, on the law, and otherwise affirmed, without costs.