KRANTZ v. CHATEAU STORES OF CANADA LTD (1998)

Order, Supreme Court, New York County (Louise Gruner Gans, J.), entered April 17, 1998, which, to the extent appealed from, denied defendant's motion to dismiss the second cause of action for fraud pursuant to CPLR 3211(a)(7), unanimously reversed, on the law, without costs, the motion granted and the matter remanded for further proceedings on plaintiff's first cause of action for breach of contract.

Plaintiff Krantz entered into an agreement with defendant Chateau Stores of Canada, Ltd. to act as the merchandising consultant and buying director for defendant's New York City store.   According to plaintiff's complaint, the agreement provided that plaintiff would receive a bonus equal to 50% of the net profit of the New York City store for the fiscal year ending January 25, 1997.   The net profit was to be calculated by the Canadian head office upon consideration of overhead costs, and after deduction of plaintiff's consulting fee.

When defendant refused to pay plaintiff a bonus at the end of fiscal year 1997, plaintiff commenced the instant action.   Plaintiff's first cause of action alleged a breach of contract by defendant in refusing to pay the bonus as provided by the terms of the agreement.   The second cause of action for fraud alleged that although defendant's books and records for the New York City store showed a $250,000 net profit for the 1997 fiscal year, defendant “created and delivered to him” a false and misleading statement purporting to show a $165,000 net loss for the same period.   Plaintiff requested $100,000 in compensatory damages on the breach of contract cause of action, and $100,000 in compensatory and punitive damages on the fraud cause of action.

Defendant moved to dismiss both causes of action pursuant to CPLR 3211(a)(7).   The IAS court denied the motion in its entirety, but only the portion of the ruling relating to the fraud cause of action is challenged on this appeal.   In refusing to dismiss that cause of action, the IAS court found that the alleged fraud did not arise out of the same facts underlying the breach of contract, and that it alleged “a breach of duty that is collateral or extraneous to the parties' contract.”

 The fraud cause of action should have been dismissed.  “A cause of action for fraud does not arise when the only fraud charged relates to a breach of contract (see, Wegman v. Dairylea Coop., 50 A.D.2d 108, 113, 376 N.Y.S.2d 728, lv. dismissed 38 N.Y.2d 918, 382 N.Y.S.2d 979, 346 N.E.2d 817;  Miller v. Volk & Huxley, 44 A.D.2d 810, 355 N.Y.S.2d 605).”  (Tesoro Petroleum Corp. v. Holborn Oil Co., 108 A.D.2d 607, 484 N.Y.S.2d 834, appeal dismissed 65 N.Y.2d 637).   To plead a viable cause of action for fraud arising out of a contractual relationship, “the plaintiff must allege a breach of duty which is collateral or extraneous to the contract between the parties (see, Mastropieri v. Solmar Constr. Co., 159 A.D.2d 698, 553 N.Y.S.2d 187;  see also, Spellman v. Columbia Manicure Mfg. Co., 111 A.D.2d 320, 489 N.Y.S.2d 304).”  (Americana Petroleum Corp. v. Northville Industries Corp., 200 A.D.2d 646, 647, 606 N.Y.S.2d 906).

 Plaintiff's fraud cause of action fails here because the breach of duty alleged by him, namely, the false statement of defendant's net profits, was not collateral or extraneous to the contract (Metropolitan Transp. Auth. v. Triumph Advert. Productions, 116 A.D.2d 526, 527, 497 N.Y.S.2d 673 [fraud claim dismissed where allegations not extraneous to the contract and related only to the specifications thereof];  see also, Modell's N.Y. v. Noodle Kidoodle, 242 A.D.2d 248, 249, 662 N.Y.S.2d 24).   On the contrary, the issue of the amount of net profits was the crux of the breach of contract claim.   Moreover, with the exception of the unelaborated request for punitive damages on the fraud claim, plaintiff has not claimed any special damages proximately caused by the false representation that are not recoverable under the contract measure of damages.   This is further evidence that the causes of action are duplicative (id.;   see also, Tesoro Petroleum Corp. v. Holborn Oil Co., supra at 607, 484 N.Y.S.2d 834).

We also note the complete absence of any showing that plaintiff relied to his detriment on the defendant's alleged misrepresentation (see, Wall Street Transcript Corp. v. Ziff Commun. Co., 225 A.D.2d 322, 638 N.Y.S.2d 640).

MEMORANDUM DECISION.