| Connaughton v Chipotle Mexican Grill, Inc. |
| 2016 NY Slip Op 00273 [135 AD3d 535] |
| January 19, 2016 |
| Appellate Division, First Department |
[*1]
| Kyle Connaughton, Appellant, v ChipotleMexican Grill, Inc., Respondents. |
Kaiser Saurborn & Mair, P.C., New York (Daniel J. Kaiser of counsel), forappellant.
Messner Reeves LLP, New York (Jean-Claude Mazzola of counsel), forrespondents.
Order, Supreme Court, New York County (Shirley Werner Kornreich, J.), enteredJanuary 29, 2014, which granted defendants Chipotle Mexican Grill, Inc. and StevenElls's motion to dismiss the complaint asserting claims for fraudulent inducement andunjust enrichment, affirmed, without costs.
Plaintiff, a well-known chef, alleges that in 2010 he sold his concept of a fast foodrestaurant chain serving ramen cuisine to defendants Chipotle Mexican Grill, Inc., and itsfounder and CEO, Steven Ells.[FN*] Plaintiff was then hired as an at-willemployee to bring the concept to fruition. He was compensated through an employmentcontract providing a base salary and the promise that after working with defendants forthree years on the project, he would receive a substantial amount of equity in the form ofcompany stock. By its terms, plaintiff was restricted from working on ramen-relatedprojects other than with defendants.
The complaint indicates that a considerable amount of work was done over the nextyear and a half. At the end of his first year, plaintiff received a full annual bonus andadditional stock grants. Defendants informed him that the plan was to open the newrestaurants in 2012. A lease was signed in September 2012 for a Manhattan-basedflagship store.
In October 2012 plaintiff claims he learned from other Chipotle executives that in2008 Ells had entered into a confidential agreement with David Chang, the owner ofMomofuku Noodle Bar, to develop a ramen restaurant concept. Chang worked on thedesign for what ultimately became defendants' Washington D.C. flagship ramen cuisinerestaurant called ShopHouse. However, the Chang-Ells agreement, containingnondisclosure provisions that have remained in force, fell apart when the parties wereunable to agree on financial terms. Although Chang never agreed that his design workcould be used for ShopHouse, according to the Chipotle executives, Ells "simplyconverted" Chang's work, without payment, to open ShopHouse. The Chipotleexecutives stated that Momofuku would sue Chipotle once Ells opened the ramenrestaurant that plaintiff had developed.
Plaintiff confronted Ells with this information. Ells did not deny the previousbusiness dealings. Instead, he "stunned" plaintiff by ordering him to proceed with theramen concept, even knowing "it would end in litigation." Shortly thereafter, inNovember 2012, defendants terminated plaintiff's employment. Officially, he wasterminated on the ground that he was engaged in outside work, which plaintiff disputes,and because Ells had lost confidence in the ramen project.
The complaint alleges two causes of action against defendants: fraudulentinducement and unjust enrichment. In sum, it alleges that defendants fraudulentlyinduced plaintiff to work with them by purposefully withholding the existence of thenondisclosure agreement and earlier [*2]businessagreement with Momofuku, material facts which defendants had a duty to reveal.According to the complaint, had plaintiff known of the defendants' prior dealings withChang, plaintiff would never have accepted employment with Chipotle because theMomofuku agreement "substantially impacted [plaintiff's] ability to implement his ownramen concept with Mr. Ells." The complaint supposes that during the back and forthdiscussions with defendants during the development of the concept, the Chipotle staffmust have communicated information and ideas that had originally come fromMomofuku, thus violating the nondisclosure agreement, and also creating the appearancethat plaintiff had stolen Momofuku's ramen concept. It also alleges that defendantsreceived the benefit of his ramen concept without compensating him for it, as he did notreceive the promised company stock. Plaintiff seeks compensatory damages in the formof a sum equal to his claimed Chipotle equity and his lost business opportunities. He alsoseeks punitive damages.
Plaintiff now appeals the dismissal of his complaint pursuant to CPLR 3211 (a)(7).
To state a legally cognizable claim of fraudulent inducement based on amisrepresentation or omission, the complaint must allege that the defendant intentionallymade a material misrepresentation of fact in order to defraud or mislead the plaintiff, andthat the plaintiff reasonably relied on the misrepresentation and suffered damages as aresult (see Oxbow CalciningUSA Inc. v American Indus. Partners, 96 AD3d 646, 650 [1st Dept 2012]; see also Eurycleia Partners, LP vSeward & Kissel, LLP, 12 NY3d 553, 559 [2009]).
Unlike our dissenting colleagues, we conclude that the motion court properlydismissed the claim for fraudulent inducement. Curiously, plaintiff's complaint positswhat would be his defense to any potential litigation brought by Chang had he goneforward with defendants' plans and fully carried out the ramen restaurant concept. Inparticular, it reveals that plaintiff has not been accused of stealing Chang's andMomofuku's ramen concept and that his professional reputation has not been tarnished.Plaintiff does not dispute that he received his agreed-upon salary and an annual bonus.He received what he contracted for in the employment agreement and has no ground toallege wrongful termination.
The facts alleged, even when viewed in a light most favorable to plaintiff, do notgive rise to a reasonable inference that he sustained calculable damages based ondefendants' actions. Plaintiff's employment was at will, and he has no claim of reasonablereliance on representations concerning continued employment (see Meyercord v Curry, 38AD3d 315, 316-317 [1st Dept 2007]; Tannehill v Paul Stuart, Inc., 226AD2d 117 [1st Dept 1996]). Any claim that he was deprived of the promised Chipotlestock cannot succeed, given that is undisputed that the express terms of the parties'agreement required him to be an employee for three years. Nor can he seek damagesbased on the alleged profits that would have been realized had there been no fraud. Whena claim sounds in fraud, the measure of damages is governed by the "out-of-pocket" rule,which states that the measure of damages is "indemnity for the actual pecuniary losssustained as the direct result of the wrong" (Lama Holding Co. v Smith Barney,88 NY2d 413, 421 [1996]; seeRather v CBS Corp., 68 AD3d 49, 58 [1st Dept 2009], lv denied 13NY3d 715 [2010] [explaining that under Lama Holding Co., plaintiff Rather was"required to plead that he had something of value, was defrauded by CBS intorelinquishing it for something of lesser value, and that the difference between the twoconstituted (his) pecuniary loss"]). In other words, damages are calculated to compensateplaintiffs for what they lost because of the fraud, not for what they might have gained inthe absence of fraud (Lama Holding Co. at 421). Additionally, plaintiff's claimthat he would have received better remuneration had he partnered with a different entityis inherently speculative and would require any factfinder to engage in conjecture (seeGeary v Hunton & Williams, 257 AD2d 482, 482 [1st Dept 1999]).
The dissent suggests that the pleadings sufficiently support a reasonable inferencethat defendants' conduct may cause plaintiff compensable damages, in particular,that plaintiff may suffer injury to his professional reputation, and incur futurelegal expenses defending himself. However, "[t]he true measure of damage is indemnityfor the actual pecuniary loss sustained as the direct result of the wrong" (LamaHolding Co. v Smith Barney at 421 [internal quotation marks and citation omitted;emphasis added]). The loss is computed by ascertaining the "difference between thevalue of the bargain which a plaintiff was induced by fraud to make and the amount[*3]or value of the consideration exacted as theprice of the bargain" (Lama Holding Co. at 421 [internal quotation marks andcitation omitted; emphasis added]). There are no allegations here that lead to theinference that plaintiff's reputation has been damaged, or that he has accrueddefense-related legal fees, or has endured any other type of compensable injury.
For instance, in Caruso,Caruso & Branda, P.C. v Hirsch (41 AD3d 407 [2d Dept 2007]), cited bythe dissent, the proposed counterclaim complaint alleged that in the underlyingmatrimonial action, the law firm should have filed a notice of pendency as to severalproperties that the matrimonial court had directed be transferred from the husband intothe wife's name, when also directing that judgment in the divorce action was to besettled. Before judgment was entered, the properties became subject to bankruptcyproceedings brought by the husband and a family trust; the bankruptcy court held that thewife's interest in the properties never vested. The Second Department ruled that thewife's proposed amended counterclaim complaint sufficiently suggested that she hadsuffered damages attributable to the law firm's alleged malpractice (41 AD3d at409-410).
Here, in contrast, the allegations at best suggest that, depending on the future actionsof Chang and Momufuko, plaintiff might suffer injury. Not only is there no suggestion orindication that actual pecuniary damages were sustained (see Hanlon v MacfaddenPubls., 302 NY 502, 510 [1951] [a claim of actual injury or damage is an essentialelement in a claim of fraud]), but the complaint does not allege facts from which actualdamages can be inferred (cf. Black v Chittenden, 69 NY2d 665, 668 [1986][elements of fraud claim were sufficiently pleaded, and damages could be inferred byallegations of deterioration to the bowling alleys and the need for extensive repairs,despite assurances that the lanes were in good shape, and the damage was not visible toan untrained eye]).
The dissent posits that plaintiff should be entitled to pursue nominal damages. Wenote that plaintiff himself made no such claim in his complaint and did not advance suchan argument either in the motion court or on appeal. Nor do we agree that plaintiff is orwould be entitled to nominal damages (see Kronos, Inc. v AVX Corp., 81 NY2d90, 95, 96 [1993] [declining to "import( )" the legal fiction of nominal damages fromcontract law into a tort claim, because "(i)n tort . . . there is no enforceableright until there is loss," and a claim of nominal damages when no loss has accrued"wrest(s) the cause of action (in tort) from its traditional purposes—thecompensation of losses—and (uses it) to vindicate nonexistent oramorphous inchoate rights"]). To the extent Clearview Concrete Prods. Corp. v S.Charles Gherardi, Inc. (88 AD2d 461, 470 [2d Dept 1982]), cited by our dissentingcolleagues, holds otherwise, we choose not to follow it. To the extent the nineteenthcentury cases, Pryor v Foster (130 NY 171, 178 [1891]) and Northrop vHill (57 NY 351, 354 [1874]), hold otherwise, we believe the current rule is thatvoiced in Kronos.
Plaintiff only alleges that he will suffer injury in the future. This is "undeterminableand speculative," and such claims are not compensable (Lama Holding Co. at422, citing Dress Shirt Sales v Hotel Martinique Assoc., 12 NY2d 339, 344[1963]; see Goldsmith v Fight For Sight, 251 AD2d 120, 120 [1st Dept1998]).
Because plaintiff has not sufficiently alleged damages, we need not address thedissent's analysis of whether the alleged facts satisfy the "superior knowledge" exceptionto the general rule that when one alleges fraud based on an omission, the complaint mustalso allege the existence of a fiduciary relationship requiring disclosure of the unknownfacts, here the existence of the nondisclosure agreement with Chang (see Cobalt Partners, L.P. v GSCCapital Corp., 97 AD3d 35, 42-43 [1st Dept 2012]; Dembeck v 220 Cent. Park S.,LLC, 33 AD3d 491, 492 [1st Dept 2006]). In short, plaintiff's failure toadequately plead actual damages is fatal to his cause of action sounding in fraudulentinducement.
The court properly dismissed the unjust enrichment claim because the parties had awritten contract (Pappas vTzolis, 20 NY3d 228, 234 [2012]), and plaintiff has received compensation andbonuses for the period he was employed pursuant to the contract (see Meghan Beard, Inc. vFadina, 82 AD3d 591 [1st Dept 2011]). Concur—Moskowitz, Richterand Feinman, JJ.
Acosta, J.P., and Saxe, J., dissent in part in a [*4]memorandum by Saxe, J., as follows: This case illustratesthe consequences of getting ensnared in a web of deceit by embarking upon a businessrelationship with parties who possess important information that they do not share withregard to risks of the enterprise. This appeal raises the issues of whether plaintiff's statusas an at-will employee precludes him, as a matter of law, from bringing a claim againstdefendants for fraudulent inducement, and exactly what must be alleged to support aninference of damages.
Defendant Chipotle Mexican Grill, Inc. franchises chain Mexican restaurants acrossthe nation; codefendant Steven Ells is its founder and CEO. Plaintiff Kyle Connaughton,who was employed by Chipotle, appeals from an order granting defendants' motionpursuant to CPLR 3211 to dismiss his complaint for fraudulent inducement and unjustenrichment.
For purposes of this appeal, we must accept as true the facts as alleged in thecomplaint, accord the plaintiff the benefit of every possible favorable inference, anddetermine whether the alleged facts fit within any cognizable legal theory (see Gabrielv Therapists Unlimited, 218 AD2d 614, 615 [1st Dept 1995]). According to thecomplaint, plaintiff is a well-known chef who has worked for some of the mostprestigious restaurants in the world. In 2010, plaintiff conceived of and begandeveloping an idea for a fast food restaurant chain that would serve ramen noodleproducts. Chipotle expressed interest in the concept, and in November 2010 plaintiff metwith Ells. During their initial meeting, plaintiff described his ramen restaurant concept toElls, who expressed significant interest in the idea. In the following weeks, plaintiffprepared a confidential business plan under the registered domain name "RamenYokocho," conceived around the existing service platform of the Chipotle Mexican Grillrestaurants: fast food restaurants that serve high-quality food. On November 20, 2010,plaintiff submitted his plan to Ells.
Between November 2010 and January 2011, plaintiff and Ells met and discussed themenu, the service platform, and plaintiff's ideas generally regarding a ramen restaurant,and on January 2, 2011, Ells formally extended an exclusive offer by which Chipotlewould proceed with plaintiff's ramen concept. Plaintiff obtained counsel to represent himin the ensuing negotiations.
The proposal Ells conveyed was that plaintiff would be compensated for the conceptthrough an employment contract in which he would be paid a base salary as well asequity in the form of Chipotle company stock, to be paid out annually pursuant to a setschedule over his years there, as long as plaintiff remained employed by Chipotle on theramen project. Although initially plaintiff was not interested in that proposal, when Ellstold him that the contemplated stock grants required that he be an employee, plaintiffagreed. Plaintiff signed the employment contract in February 2011.
A letter from Ells to plaintiff dated January 24, 2011 provides details of theemployment agreement; it states that plaintiff's employment with Chipotle was at willand that both parties retained the option of ending the employment at any time, with orwithout notice or cause. A "Restricted Stock Units Agreement" signed in February 2011states that the granting of stock to plaintiff "shall not be construed as granting to[plaintiff] any right with respect to continuance of employment with the Company" andthat "the right of the Company to terminate plaintiff's employment with it at any time(whether by dismissal, discharge, retirement or otherwise) is specifically reserved by theCompany and acknowledged by plaintiff." Plaintiff was given the title of "CulinaryDirector," a new position. His name and likeness were used in marketing materials forboth Chipotle and the ShopHouse brand, the name given to the anticipated ramen noodlerestaurant.
Plaintiff continued developing the ramen concept for Chipotle throughout 2011. InDecember 2011, he and a development team toured Japan to visit ramen restaurants andingredient suppliers to prepare for the project. In February 2012, plaintiff received hisfirst annual review from Ells, which was "entirely positive." He received his full bonus,and additional stock grants. Ells told plaintiff that this was the year to open the ramenrestaurants. In [*5]May 2012, plaintiff returned to Japan,along with the development team and Ells, to visit ramen restaurants and suppliers. Uponhis return to the U.S., plaintiff began working more intensively on the ramen concept. InSeptember 2012, a lease was executed for a potential flagship ramen noodle restaurant tobe located on 12th Street at University Place in Manhattan.
Plaintiff alleges that in October 2012, he first learned that Chipotle had a priorbusiness relationship with David Chang, the owner of a restaurant called MomofukuNoodle Bar, concerning a similar ramen concept. Specifically, plaintiff alleges, sometime that month he had dinner at Momofuku Noodle Bar with Mark Crumpacker, ChiefMarketing Officer of Chipotle, and Tim Wildin, Chipotle's New Concept DevelopmentDirector, to taste food and meet Momofuku's outgoing head chef, whom plaintiff hadproposed as a possible hire for Chipotle's ramen restaurants. During that dinner,Crumpacker confided in plaintiff that Chipotle would not hire any former Momofukuemployees, and that Momofuku would sue Chipotle when it opened the ramen restaurant,but that Ells had decided to proceed with plaintiff's concept anyway.
Specifically, plaintiff learned from Crumpacker that in 2008, Ells had entered into aconfidential business deal with David Chang, under which Chang agreed to develop aramen restaurant concept like the one plaintiff was developing. In conjunction with thatdeal, Ells had signed a nondisclosure agreement which required him to maintain asconfidential the details of Chang's ramen concept, including menus and other businessdevelopment ideas. Further, Chang had worked on the design for a Dupont Circleproperty that later became a flagship ShopHouse restaurant, the name Chipotle gave to itsramen noodle restaurant. According to plaintiff, he was informed by Crumpacker thatChang never consented to the use of his design work for the opening of ShopHouse, anddid not authorize the use of any of his confidential work with Chipotle for the purpose ofopening a ramen restaurant, but that Chipotle nevertheless converted Chang's work for itsown use.
After learning the foregoing information in October 2012, plaintiff confronted Ellsconcerning Chipotle's prior agreement with Chang. Ells did not deny the preexistingbusiness dealings, but simply ordered plaintiff to proceed with the ramen concept.Plaintiff was concerned that by continuing to work with Chipotle to open the ramenrestaurant, he would become a party to a lawsuit that would be brought by David Changand Momofuku. On November 17, 2012, Ells terminated plaintiff's employment, and thisaction followed.
The crux of plaintiff's fraudulent inducement claim against defendants is that byfailing to disclose to plaintiff Chipotle's prior business relationship with Chang beforeplaintiff and Ells entered into their business relationship, Ells omitted a material fact thatwould substantially impact plaintiff's ability to successfully implement his ramenconcept. Plaintiff reasons that Ells and other Chipotle staff, while exchanginginformation and ideas with him during the collaborative process, had conveyedinformation to him that had been communicated to them by David Chang. Therefore, anyimplementation by plaintiff of his ramen concept while employed by Chipotle wouldmake plaintiff an active participant in the violation of the nondisclosure agreementbetween Chipotle and Momofuku. Further, if plaintiff implemented his ramen concept atChipotle despite its prior business dealings with Chang, his professional reputationwould be ruined, and he could never escape the accusation that he had stolen Chang'sramen concepts.
It is plaintiff's position that if Chipotle's prior business dealings with Momofuku hadbeen disclosed, plaintiff could have properly weighed the offered business opportunityand decided whether he could realistically pursue his ramen proposal to a successfulconclusion with Chipotle. He asserts that he "would never have accepted employmentwith Chipotle" if defendants had disclosed the material fact of their prior dealings withChang.
As to his unjust enrichment claim, plaintiff alleged that Chipotle had been unjustlyenriched, as it had "received the benefit of plaintiff's ramen concept and has notcompensated him for it."
Defendants' motion to dismiss the complaint pursuant to CPLR 3211 was granted, onthe ground that plaintiff's status as an "at will" employee precluded the claims, and thatplaintiff's claimed damages were speculative. The majority here agrees.
[*6] With respect to plaintiff's cause of action for unjustenrichment, I agree. The doctrine of unjust enrichment does not apply where a contractgoverns the subject matter (Pappas v Tzolis, 20 NY3d 228, 234 [2012]). Inasmuch asplaintiff had a contract with defendants providing for compensation for his work, whichcompensation he received for the period in which he worked for them, no cause of actionfor unjust enrichment lies (seeMeghan Beard, Inc. v Fadina, 82 AD3d 591 [1st Dept 2011]; Mackie v LaSalle Indus., 92 AD2d 821 [1st Dept 1983]).
However, as to the claim for fraudulent inducement, I reject defendants' argumentthat it is deficient; the absence of either an affirmative misrepresentation or a fiduciaryduty does not absolutely foreclose such a claim in this instance.
To state a claim for fraudulent inducement, a plaintiff must allege "amisrepresentation or a material omission of fact which was false and known to be falseby defendant, made for the purpose of inducing the other party to rely upon it, justifiablereliance of the other party on the misrepresentation or material omission, and injury"(Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]). If fraud isclaimed based on an omission, as opposed to affirmative misrepresentation of materialfact, the complaint must normally allege the existence of a fiduciary or confidentialrelationship (see MandarinTrading Ltd. v Wildenstein, 16 NY3d 173, 179 [2011]; Cobalt Partners, L.P. v GSCCapital Corp., 97 AD3d 35, 42-43 [1st Dept 2012]).
However, this Court has recognized the existence of an alternative basis for allowingfraud claims to proceed based on omissions, even in arm's length transactions in theabsence of a fiduciary or confidential relationship, "where one party's superiorknowledge of essential facts renders a transaction without disclosure inherently unfair"(see e.g. P.T. Bank Cent. Asia, N.Y. Branch v ABN AMRO Bank N.V., 301AD2d 373, 378 [1st Dept 2003]), when the party with special knowledge knows that theother party would act differently if possessed of that knowledge (see Swersky vDreyer & Traub, 219 AD2d 321 [1st Dept 1996]). For instance, inSwersky, the plaintiffs alleged that they had purchased shares of stock of QMAXTechnology Group, following negotiations between Swersky and defendant HowardMorse on behalf of QMAX, but that Morse had failed to inform Swersky during theirnegotiations that QMAX had granted Morse an option for 100,000 of the type of ESOPshares Swersky sought but Morse said were unavailable. This Court reinstated theplaintiffs' fraudulent concealment claim based on those allegations.
The allegations here are sufficient to support a claim that defendants possessed"superior knowledge" with regard to material information regarding Chipotle's priorbusiness dealings with Chang, including the existence of a nondisclosure agreement, andwithheld such information in order to induce plaintiff to accept the offered position withChipotle.
Defendants rely on the argument that the superior knowledge doctrine is inapplicablewhere the undisclosed material information was discoverable by the plaintiff through the"exercise of ordinary intelligence" (Jana L. v West 129th St. Realty Corp., 22 AD3d 274, 278[1st Dept 2005] [internal quotation marks omitted]); they contend that plaintiff couldhave discovered the truth through the simple expedient of asking defendants whetherthey had a previous agreement with anyone else. This argument does not warrantdismissal at this juncture. While it may seem, in hindsight, as if it would becommonplace to pose such a question, there is an issue of fact as to whether, in thiscontext, such a question would be expected of a person in plaintiff's position enteringinto such an agreement (see Black v Chittenden, 69 NY2d 665, 669 [1986]).
Plaintiff's at-will employment status does not preclude a claim for fraudulentinducement, since he is not claiming a violation of his employment contract, or seekingdamages arising from his termination.
A litigant with a fraud claim may seek damages consisting of the "actual pecuniaryloss sustained as [a] direct result of the wrong" (Lama Holding, 88 NY2d at 421).However, damages for fraud cannot be used to compensate a plaintiff for "profits whichwould have been realized in the absence of fraud" (id.). That is, "[d]amages are tobe calculated to compensate plaintiffs for what they lost because of the fraud, not tocompensate them for what they might have gained" (id.). Therefore, plaintiff maynot obtain damages based on the amount he could have realized had he followed throughto completion the creation of the ramen restaurant plan with some other, [*7]unencumbered restaurant group, rather than accepting theChipotle offer; that theory of damages amounts to an impermissible claim for profits thatwould have been realized in the absence of fraud.
However, damages need not be demonstrated at the pleading stage as long as thepossibility of damages may reasonably be inferred (see Caruso, Caruso & Branda, P.C. v Hirsch, 41 AD3d407, 410 [2d Dept 2007]). CPLR 3016 (b) only requires that "the circumstancesconstituting the wrong shall be stated in detail"; it does not require that a plaintiff'sdamages be stated in detail. In Lama Holding, it was clear from the pleadings thatthe plaintiff could not have suffered losses from the alleged fraud (88 NY2d at 422).Here, unlike in Lama Holding, we cannot pronounce with certainty at this stageof the litigation that plaintiff will suffer no compensable losses as a result of defendants'alleged fraud. A reasonable inference of general damages may be "implicit by the factsalleged" and does not need to be explicitly stated (see Kronos, Inc. v AVXCorp., 81 NY2d 90, 97 [1993]; see also Caruso, 41 AD3d 407). Here, it isimplicit from the allegations contained in the pleaded complaint, which must, accordingto law, be construed liberally, that the position in which plaintiff was placed due todefendant's conduct may cause him, or may have already caused him, compensabledamages, particularly the possibility of damage to his reputation, and perhaps even futurelegal expenses. By conceding that the allegations of the complaint allow an inference offuture injury, and yet definitively asserting that those same allegations do notallow an inference of present injury, the majority fails to construe the complaint liberallyand accord plaintiff every possible favorable inference as we are required to do (see511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144, 152 [2002]).
In addition, "when a party to a contract perpetrates a fraud he commits a wrong forwhich he is liable to the defrauded party in at least nominal damages, even though noactual damages be shown" (Pryor v Foster, 130 NY 171, 178 [1891];Northrop v Hill, 57 NY 351, 354 [1874]). Notwithstanding the conclusion inKronos, Inc. v AVX Corp. (81 NY2d at 95) that nominal damages are notavailable for tort claims, if a fraud plaintiff establishes at trial that he was defrauded, hemay be entitled to nominal damages even if he is unable to establish that he wasfinancially injured by the fraud (see Clearview Concrete Prods. Corp. v S. CharlesGherardi, Inc., 88 AD2d 461, 470 [2d Dept 1982]). Notably, the Court inKronos carved out an exception allowing nominal damages for fraud claims"when needed to protect an 'important technical right' " (81 NY2d at 95, 97), andthat exception was used to award nominal damages on a fraud claim in Imaging Intl. v Hell Graphic Sys.,Inc. (17 Misc 3d 1123[A], 2007 NY Slip Op 52120[U] [Sup Ct, NY County2007], affd 60 AD3d 450 [1st Dept 2009]). While this possibility does noteliminate the need to plead damages, it should encourage us to construe the allegations ofthe complaint as liberally as possible when considering whether plaintiff sufficientlypleaded damages.
Should plaintiff be unable to establish his damages claim at trial or on a summaryjudgment motion, that issue can be addressed at that juncture. But his allegations sufficeto establish the possibility of damages for the present purposes. I would therefore modifyin order to deny defendants' motion to dismiss the cause of action for fraudulentinducement.
Footnote *:All factual allegationsare taken from the complaint unless otherwise noted.