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HOTEL CONSTRUCTORS, INC. v. SEAGRAVE CORP.

October 14, 1983

HOTEL CONSTRUCTORS, INC., and WTC HOTEL CORPORATION, Plaintiffs, against THE SEAGRAVE CORPORATION, VISTA RESOURCES, INC., WESTERN VISTA CORP., and HERBERT J. KIRSHNER, Defendants.


The opinion of the court was delivered by: CARTER

CARTER, District Judge

Defendant Seagrave Corp. has moved under F.R.Civ.P. 12(b)(6) for an order dismissing plaintiffs' second through eighth claims for relief for failure to state claims upon which relief may be granted. Defendants Vista Resources, Inc., Western Vista Corp. (the "Vista" defendants) and Herbert J. Kirshner have joined in Seagrave's motion and the Vista defendants have also asserted independent grounds for dismissing the fifth, sixth and eighth claims with respect to them. For the reasons that follow, defendants' motions are denied in their entirety. Plaintiffs are ordered to submit a supplemental pleading clarifying their fourth and sixth claims within ten days of the filing of this opinion.

 PRELIMINARY STATEMENT

 Plaintiff WTC Hotel Corp. leased space at the World Trade Center in New York City in order to build what is now the Vista International Hotel. Plaintiff Hotel Constructors, Inc. ("HCI") served as the contractor on the construction project. Acting as an agent for HCI, Morse/Diesel, the project construction manager, entered into a subcontract with the Flour City Architectural Metals Corp. Flour City was to erect the exterior or "curtain wall" of the hotel. Plaintiffs' first claim for relief, the sufficiency of which defendants do not challenge here, alleges that Flour City caused extensive delays in construction, thereby breaching the subcontract and damaging plaintiffs. Seagrave and the Vista defendants are, respectively, the present and former owners of Flour City. Defendant Kirshner was the chief executive officer of Flour City and Western Vista and president of Vista Resources.

 Plaintiffs' second claim charges fraud in the inducement of the subcontract, alleging that defendants did not intend to adhere to the terms of the subcontract at the time they entered into it. The third and fifth claims allege fraud in the inducement of two modifications of the same subcontract, the first calling for payment of an additional $750,000 and the second for an additional $100,000 payment to defendants. Plaintiffs contend that defendants never intended to meet the performance schedules to which they promised to adhere in exchange for the two additional payments. Plaintiffs' fourth and sixth claims allege that the $750,000 and $100,000 payments were induced not by fraud, but by negligent misrepresentations. The seventh and eighth claims assert that these same payments were made under duress, defendants having threatened to cease their work on the hotel if plaintiffs refused to pay. Defendants move to dismiss each of these claims.

 THE FRAUD CLAIMS

 Defendants first challenge the sufficiency of the three fraud claims by arguing that plaintiffs have merely alleged that defendants failed to perform the promises contained in the subcontract and subsequent modifications.A cause of action for fraud can only be based upon the misrepresentation of a present or past fact. The mere failure to keep contractual promises of future acts will not sustain an action for fraud. Cranston Print Works Co. v. Brockmann International A.G., 521 F. Supp. 609, 614 (S.D.N.Y. 1981) (Conner, J.); Wegman v. Dairylea Co-op., Inc., 50 A.D.2d 108, 376 N.Y.S.2d 728, 734 (4th Dep't. 1975), appeal dismissed, 38 N.Y.2d 918, 382 N.Y.S.2d 979, 346 N.E.2d 817 (1976). The New York courts have long recognized, however, that an action for fraud will lie if the promisor did not intend to keep his promise at the time he made it. His present intent is the fact misrepresented. Plum Tree, Inc. v. N.K. Winston Corp., 351 F. Supp. 80, 85 (S.D.N.Y. 1972) (Gurfein, J.); Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, 143 N.E.2d 906 (1957). Plaintiffs here have alleged not only that defendants failed to keep their contractual promises, but that they made those promises "with the undisclosed intention not to perform...." Sabo v. Delman, 164 N.Y.S.2d at 717; Complaint PP27, 37, 51. *fn1"

 A purely conclusory allegation that defendants never intended to perform, standing alone, could not convert a claim for breach of contract into one for fraudulent inducement to contract, Cranston Print Works Co. v. Brockmann International A.G., supra; Stanat Manufacturing Co. v. Imperial Metal Finishing Co., 325 F. Supp. 794, 796 (E.D.N.Y. 1971); Hertz Commercial Leasing Corp. v. LMC Data, Inc., 73 Misc.2d 1009, 343 N.Y.S.2d 689, 693 (N.Y. Civ. Ct. 1973), but plaintiffs have also alleged facts which, if proven, may substantiate the claims of fraud. Plaintiffs maintain that on each occasion that defendants made promises with respect to their work on the hotel, they already had so many previous contractual commitments requiring them to do similar work on other projects that they could not possibly have intended to perform as promised.This latter contention is itself not merely conclusory, but supported by more detailed allegations. Complaint PP23, 24, 25, 32, 33. *fn2" In short, plaintiffs allege facts indicating that defendants made contractual promises despite their awareness of their inability to perform, and thus, that defendants could not have intended to live up to their commitments at the time they made them. Such allegations state a cause of action for fraud. E.g., Channel Master Corp. v. Aluminium Limited Sales, Inc., 4 N.Y.2d 403, 176 N.Y.S.2d 259, 151 N.E.2d 833 (1958); see Restatement (Second) of Torts § 530, Comment d (1977); see also, Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737 (2d Cir. 1979); Coolite Corp. v. American Cyanamid Co., 52 A.D.2d 486, 384 N.Y.S.2d 808 (1st Dep't. 1976); Terris v. Cummiskey, 11 A.D.2d 259, 203 N.Y.S.2d 445 (3rd Dep't. 1966).

 Defendants' second contention is that plaintiffs have not pleaded fraud with the particularity required by F.R.Civ.P. 9(b). Rule 9(b) requires the pleader to specify precisely what statements were made, when, where and by whom they were made, in what manner the plaintiff was misled, and what the defendant obtained as a consequence. Barclays Bank of New York v. Goldman, 517 F. Supp. 403, 415 (S.D.N.Y. 1981) (Cannella, J.); Todd v. Oppenheimer & Co., Inc., 78 F.R.D. 415, 420-21 (S.D.N.Y. 1978) (Haight, J.). The pleading must apprise the defendant of the claim against him and of the acts which allegedly constitute the fraud. Felton v. Walston & Co., Inc., 508 F.2d 577 (2d Cir. 1974).

 Plaintiffs' allegations of fraud meet this standard. The third and fifth claims detail the allegedly fraudulent misrepresentations, assert that defendant Kirshner made them and specify when and where he did so. Complaint PP34, 35, 49, 50. *fn3" Plaintiffs allege that they were misled as to defendants' intention to perform their promises and that the fraud was designed to induce plaintiffs to make the $750,000 and $100,000 payments. Plaintiffs' second claim specifies no representations other than those made in the subcontract itself, but contractual representations can themselves be fraudulent. Perma Research & Development Co. v. Singer Co., 410 F.2d 572 (2d Cir. 1969); Government of India v. Cargill, Inc., 445 F. Supp. 714, 719 (S.D.N.Y. 1978) (Tenney, J.). As in the third and fifth claims, plaintiffs allege that they were misled as to defendants' intent. The purpose of the alleged fraud was to induce plaintiffs to sign the subcontract, which was worth $3,6000,000 to defendants. Plaintiffs' assertion that the challenged representations were fraudulent is not, as defendants argue, merely conclusory, but is, as noted above, supported by allegations of facts which, if true, may lead to the conclusion that fraud has been committed. Complaint PP23, 24, 25, 32, 33. *fn4" Robertson v. National Basketball Association, 67 F.R.D. 691, 695 (S.D.N.Y. 1975) (Carter, J.). Thus, plaintiffs have been fully informed of the exact nature of the fraud claimed and the demands of Rule 9(b) have been satisfied. Tood v. Oppenheimer, supra.

 Finally, defendants argue that plaintiffs' fraud claims must be dismissed because, as a matter of law, plaintiffs cannot demonstrate the requisite reliance on the alleged misrepresentations. Prior to the representations alleged in the third and fifth claims to have misled plaintiffs, two employees of defendants notified a representative of HCI's agent, Morse/Diesel, that defendants had many contractual commitments that would interfere with the work at the hotel. Complaint PP32, 33. *fn5" Since the theory underlying plaintiffs' fraud claims is that defendants had so many other contractual commitments to do work similar to that required at the hotel that they could not have intended to keep their promises to plaintiffs, if plaintiffs already knew of those commitments, defendants argue, they could not have been misled by defendants' misrepresentations.

 Defendants' argument is not without force.If plaintiffs had "complete and true knowledge of the facts" supposedly misrepresented, they would have no grounds for claiming fraud. Rosenbloom v. Adams, Scott & Conway, Inc., 521 F. Supp. 372, 390 (S.D.N.Y. 1981) (Cooper, J.), aff'd, 688 F.2d 816 (2d Cir. 1982). However, reading the complaint "in the light most favorable to plaintiff[s], and with every doubt resolved in [their] behalf," 5 Wright & Miller, Federal Practice and Procedure: Civil § 1357 (1969), the court cannot find that plaintiffs necessarily had such knowledge. See, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S. Ct. 1683, 40 L. Ed. 2d 90 (1974).

 The court cannot, at this stage in the litigation, determine whether the information communicated to plaintiffs' agent so fully apprised plaintiffs of the extent and implications of defendants' other commitments, that plaintiffs could not, as a matter of law, have relied on defendant Kirshner's subsequent representations of defendants' intention to perform. In the cases cited by defendants, the plaintiffs were inquestionably completely aware of the exact facts they claimed had been misrepresented to them. In 200 East End Ave. Corp. v. General Electric Co., 5 A.D.2d 415, 172 N.Y.S.2d 409 (1st Dep't. 1958), aff'd, 6 N.Y.2d 731, 185 N.Y.S.2d 816, 158 N.E.2d 508 (1959), the engineer employed by the plaintiff building owner was fully aware of the capabilities of the air conditioning system that plaintiff claimed to have bought because of a misrepresentation as to the system's capabilities. In Young v. Karol, 83 Misc.2d 859, 373 N.Y.S.2d 949 (App. Term 2d and 11th Dist. 1975), the plaintiff claimed to have bought a home in reliance on a representation that it was connected to the sewer system. The evidence showed that plaintiff knew that it was not connected at the time of the closing. This case, at this stage, is simply not as clear. Precisely what was known to plaintiffs and what conclusions they should have drawn from their knowledge are questions that cannot be resolved on the basis of the complaint alone. While the evidence may show ...


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