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