Fraud Standing: Can Fraud Claims Relating To Contracts Be Assigned?
Published date | 25 July 2023 |
Subject Matter | Corporate/Commercial Law, Litigation, Mediation & Arbitration, Criminal Law, Contracts and Commercial Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud |
Law Firm | Meyer Suozzi English & Klein |
Author | Mr Kevin Schlosser |
Two recent decisions of the New York Appellate Division, First Department, address interesting principles concerning damages recoverable for fraud and who has the right to sue for underlying fraudulent conduct: SureFire Dividend Capture, LP v Industrial & Commercial Bank of China Fin. Servs. LLC, 2023 NY Slip Op 02841(1st Dep't Decided May 25, 2023)(addressing fraud standing) and NMR e-Tailing LLC v Oak Inv. Partners, 2023 NY Slip Op 02830 (1st Dep't Decided May 25, 2023)(pecuniary damages).
Pecuniary Damages
As I have chronicled, the type of damages recoverable in an action for fraud are known as "pecuniary damages." The New York Court of Appeals in Connaughton v Chipotle Mexican Grill, Inc., 29 NY3d 137, 142 (2017) nicely summarized the law as follows:
In New York, as in multiple other states, " '[t]he true measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the wrong' or what is known as the 'out-of-pocket' rule" ( Lama Holding, 88 N.Y.2d at 421, quoting Reno v. Bull, 226 N.Y. 546, 553 [1919] ). Under that rule, "[d]amages are to be calculated to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what they might have gained.... [T]here can be no recovery of profits which would have been realized in the absence of fraud" ( id. at 421, citing Foster v. Di Paolo, 236 N.Y. 132 [1923], AFA Protective Sys. v. American Tel. & Tel. Co., 57 N.Y.2d 912 [1982], and Cayuga Harvester, Inc. v. Allis-Chalmers Corp., 95 A.D.2d 5 [4th Dept 1983] ). Moreover, this Court has "consistent[ly] refus[ed] to allow damages for fraud based on the loss of a contractual bargain, the extent, and indeed ... the very existence of which is completely undeterminable and speculative" ( Dress Shirt Sales v. Hotel Martinique Assocs., 12 N.Y.2d 339, 344 [1963] ).
Fraud Standing
The factual scenario raising fraud standing issues'that is, who can sue to recover such pecuniary damages'is as follows: A party invests in a certain venture or makes a loan of some sort and receives a note back from the borrower and then sells, transfers and/or assigns the rights from those contractually-based transactions to another party. Can the party who acquires those rights then seek remedies for fraud claims related to or arising from the contractually-assigned transactions? That is an issue of standing to sue.
As the Court of Appeals explained in Commonwealth of Pennsylvania Pub. School Employees' Retirement Sys. v Morgan...
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