Pleading Fraud in the State of New York - An Overview
The legal elements needed to plead a viable claim for fraud and/or conspiracy to commit fraud in New York State and Federal courts.
Elements of Common Law Fraud ClaimTo state a common law claim for fraud under New York law, a plaintiff must allege that (1) the defendant made a material false representation; (2) the defendant intended to defraud the plaintiff thereby; (3) the plaintiff reasonably relied upon the representation; and, (4) the plaintiff suffered damage as a result of such reliance. Alternatively, a fraud cause of action may be predicated on acts of concealment where the defendant had a duty to disclose material information.
Pleading Requirements - Federal CourtThe rules of pleading in Federal court usually require only 'a short and plain statement' of the plaintiff's claim for relief; however, averments of fraud must be alleged with particularity. See, e.g., In re PXRE Group, Ltd., Sec. Litig., 600 F. Supp.2d 510, 524 (S.D.N.Y. 2009) quoting Fed. R. Civ. P. 8, 9(b)); see also, ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98-99 (2d Cir. 2007). The language of Rule 9(b) "is cast in terms of the conduct alleged, and is not limited to allegations styled or denominated as frauds or expressed in terms of the constituent elements of a fraud cause of action." Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004). "This pleading constraint serves to provide a defendant with fair notice of a plaintiff's claim, safeguard his reputation from improvident charges of wrongdoing, and protect him against strike suits." Id.
In order to satisfy Rule 9(b) of the Federal Rules of Civil Procedure, a plaintiff must "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and, (4) explain why the statements were fraudulent." See Rombach, 355 F.3d at 170 (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)); see also ATSI, supra. "Allegations that are conclusory or unsupported by factual assertions are insufficient." Id. Moreover, "[w]here multiple defendants are asked to respond to allegations of fraud, the complaint should inform each defendant of the nature of his [or her] participation in the alleged fraud." See, e.g., DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987); see also Mills, 12 F.3d at 1175 (holding, inter alia, that Rule 9(b) is not satisfied where the complaint vaguely attributes alleged fraudulent statements to unspecified defendants).
Civil Conspiracy to Defraud - Elements of Claim & Pleading RequirementsNew York does recognize a cause of action for conspiracy to commit fraud. The elements of such a claim include: (1) an agreement between two or more parties; (2) an overt act in furtherance of the agreement; (3) the parties' intentional participation in the furtherance of a plan or purpose; and, (4) resulting damage or injury.
To adequately plead a claim for conspiracy to commit fraud under New York law, and in addition to pleading the underlying fraud, a plaintiff must demonstrate: "(1) an agreement among two or more parties; (2) a common objective; (3) acts in furtherance of the objective; and, (4) knowledge." See, e.g., JP Morgan Chase, 406 F. Supp. 2d 247, 259 (S.D.N.Y. 2005), (quoting Filler v. Hanvitt, Nos. 01 Civ. 9510, 02 Civ. 8251, 2003 U.S. Dist. LEXIS 15950, 2003 WL 22110773, at *2 (S.D.N.Y. Sept. 12, 2003)). A claim for conspiracy to commit fraud must be pleaded with the specificity necessary to satisfy Rule 9(b) (as set forth more fully above).
Statute of LimitationsPursuant to Section 213(8) of the CPLR, the statute of limitations governing fraud claims asserted under New York law is "the greater of six years from the date the cause of action accrued or two years from the time the plaintiff ... discovered the fraud, or could with reasonable diligence have discovered it." See N.Y.C.P.L.R. 213(8). Once a plaintiff has notice of the fraud "he is charged with whatever knowledge an inquiry would have revealed." Koch v. Christie’s Intl. PLC, 785 F.Supp.2d 105, 118 (S.D.N.Y. 2011); Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 461 (S.D.N.Y. 2009).
Whether or not a claim alleging fraud or a conspiracy to commit fraud has been timely asserted hinges on the underlying facts and circumstances of each particular case, the relevant inquiries being not only what was, but what reasonably should have been, known by the aggrieved party at all times material.