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GELER v. NATIONAL WESTMINSTER BANK USA

August 20, 1991

IDA GELER, ISRAEL GELER, AND YACOF GELER, PLAINTIFFS,
v.
NATIONAL WESTMINSTER BANK USA, DEFENDANT AND THIRD-PARTY PLAINTIFF, V. HOWARD GLUCKMAN, AS ADMINISTRATOR OF THE LAST WILL AND TESTAMENT OF SUSANA A/K/A SHOSHANA GHITELMAN, THIRD-PARTY DEFENDANT. NATIONAL WESTMINSTER BANK USA, PLAINTIFF, V. HOWARD GLUCKMAN, AS ADMINISTRATOR OF THE LAST WILL AND TESTAMENT OF SUSANA A/K/A SHOSHANA GHITELMAN, IDA GELER, ISRAEL GELER, AND YACOF GELER, DEFENDANTS.



The opinion of the court was delivered by: Robert L. Carter, District Judge.

  OPINION

The facts of this case are set forth in the court's amended opinion of May 2, 1991, with which familiarity is assumed. Geler v. National Westminster Bank USA, 763 F. Supp. 722 (S.D.N.Y. 1991) (Carter, J.). Ida, Israel and Yacof Geler (the "Gelers") have now moved to amend their complaint against National Westminster Bank USA (the "Bank") in No. 90 Civ. 6840, to allege fraud, conversion, breach of the duty of good faith and fair dealing, and breach of fiduciary duty.

Leave to amend a complaint is to be "freely given when justice so requires." Rule 15(a), F.R.Civ.P. However, such leave may be denied when the proposed amendment would be futile. See Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230, 9 L.Ed.2d 222 (1962); Friedman v. New York City Dep't of Hous. & Dev. Admin., 688 F. Supp. 896, 899 (S.D.N.Y. 1988) (Carter, J.), aff'd w/o op., 876 F.2d 890 (2d Cir. 1989), cert. denied, ___ U.S. ___, 110 S.Ct. 2570, 109 L.Ed.2d 752 (1990). For the reasons stated hereafter, the Gelers' attempt to transform their breach of contract action into a tort action is legally insufficient on its face. Leave to amend is therefore denied.

I. THE FRAUD CLAIM

The Gelers correctly state that tortious conduct is "no less a tort because it has its genesis in [a] contract." Meyers v. Waverly Fabrics, 65 N.Y.2d 75, 80 n. 2, 479 N.E.2d 236, 239 n. 2, 489 N.Y.S.2d 891, 894 n. 2 (1985). The existence of a contract is not a shield from liability for separately actionable tortious conduct. See, e.g., Niagara Mohawk Power Corp. v. Stone & Webster Eng'g Corp., 725 F. Supp. 656, 666 (N.D.N.Y. 1989). The facts pleaded by the Gelers, however, do not state a claim for fraud.

In order to succeed on a fraud claim under New York law, the plaintiff must prove, by clear and convincing evidence, that the defendant made a material false representation of fact, that the defendant knew the representation to be untrue or made it with reckless disregard of its truth or falsity, that the defendant made the representation with the intent to deceive the plaintiff and to induce the plaintiff to part with or refrain from obtaining something of value, that the plaintiff reasonably relied on the representation, and that this reliance resulted in damage to the plaintiff. See Katara v. D.E. Jones Commodities, Inc., 835 F.2d 966, 970-71 (2d Cir. 1987); Simcuski v. Saeli, 44 N Y2d 442, 453-54, 377 N.E.2d 713, 719, 406 N.Y.S.2d 259, 265 (1978); Jo Ann Homes at Bellmore, Inc. v. Dworetz, 25 N.Y.2d 112, 119, 250 N.E.2d 214, 217, 302 N.Y.S.2d 799, 803 (1969); Pappas v. Harrow Stores, Inc., 140 A.D.2d 501, 504, 528 N YS.2d 404, 407 (2d Dep't 1988).

The gist of the Gelers' allegations of fraud, contained in paragraph 40 of the amended complaint, is that the Bank misrepresented the ownership of the certificate of deposit and withheld or fabricated evidence in connection with this litigation. It is doubtful whether the alleged acts constitute material misrepresentations of fact.

Even assuming, however, that the alleged acts are material misrepresentations of fact, the Gelers' failure to plead detrimental reliance is fatal to their fraud claim. In their proposed amended complaint, the Gelers allege that

  [b]y reason of the Bank's capricious refusal to
  meet its obligations to plaintiffs with respect
  to the July 1988 Certificate and by reason of the
  enumerated acts of misrepresentation and
  concealment, the plaintiffs have been deprived of
  the principal amount due under the certificate,
  $489,761.68 plus accrued interest,. . . . have
  incurred substantial legal fees and disbursements
  . . . and have suffered the ongoing diminution in
  the quality of their daily lives and their
  enjoyment of same. . . .

Proposed Amended Complaint ¶ 41. However, it is obvious that the Gelers' failure to obtain the funds allegedly due under the certificate is entirely the result of the bank's refusal to pay them those funds. The Gelers do not allege that they relied on the putative misrepresentations in any way. Moreover, any such reliance could not possibly be the cause of any injury that the Gelers suffered on account of the Bank's failure to pay them the sum due under the certificate, because the Bank could have refused, justifiably or unjustifiably, to pay the Gelers whether or not they believed the supposed misrepresentations.

As the New York Court of Appeals observed in Brick v. Cohn-Hall-Marx Co., 276 N.Y. 259, 11 N.E.2d 902 (1937),

  The claim of the plaintiffs is based upon the
  contract; in other words, if the defendant owes
  the plaintiffs any money it is because of the
  agreement. . . . Whether the defendant
  deliberately refused to make payment, thus
  breaching its contract, or whether through
  neglect it made false statements, or whether it
  deliberately made false statements, the action of
  the plaintiffs is based upon the contract,
  without which they would have no claim at all.

Id. at 263-64, 11 N.E.2d at 904; see also Triangle Underwriters, Inc. v. Honeywell, Inc., 604 F.2d 737, 746-47 (2d Cir. 1979) (construing Brick). Thus, the alleged fraud is not "extraneous to the contract," Brick, supra, 276 N.Y. at 264, 11 N.E.2d at 904; that is, it does not involve a violation of an "independent duty," Luxonomy Cars, Inc. v. Citibank, N.A., 65 A.D.2d 549, 550, 408 N.Y.S.2d 951, 954 (2d Dep't 1978), and the action remains one for breach of contract.

The Gelers also maintain that they "have incurred substantial legal fees and disbursements in an effort to cause the Bank to honor its certificate of deposit." It is elementary, however, that under the American rule, legal fees are not ordinarily recoverable as an element of damages. See, e.g., Humphrey v. Columbia Records, 124 F.R.D. 564 (S.D.N.Y. 1989) (Carter, J.). If the Bank's position ...


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