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PLAINTIFF’S INABILITY TO SHOW ACTUAL OUT-OF-POCKET LOSS REQUIRED DISMISSAL OF THE FRAUDULENT-INDUCEMENT CAUSE OF ACTION.

The First Department, over a two-justice dissent, determined the complaint alleging fraudulent inducement was properly dismissed for failure to allege out-of-pocket damages. Plaintiff was hired as an at will employee to develop a ramen cuisine for defendant restaurant chain (Chipotle). Plaintiff subsequently learned defendant had entered an agreement with another chef to develop ramen cuisine, the deal had fallen apart and would probably end in litigation. Plaintiff alleged, had he known about the undisclosed agreement with another chef he would not have entered the agreement with Chipotle. Although it was anticipated at the outset plaintiff would work for defendant for three years, and thereafter be entitled to certain specified additional compensation, plaintiff was an at will employee and had been compensated for the work he completed before he was terminated. Therefore, the First Department held, plaintiff could not demonstrate the out-of-pocket loss required for a “fraudulent inducement” cause of action:

 

The facts alleged, even when viewed in a light most favorable to plaintiff, do not give rise to a reasonable inference that he sustained calculable damages based on defendants’ actions. Plaintiff’s employment was at will, and he has no claim of reasonable reliance on representations concerning continued employment … . Any claim that he was deprived of the promised Chipotle stock 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 damages based on the alleged profits that would have been realized had there been no fraud. When a 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 loss sustained as the direct result of the wrong” … . In other words, damages are calculated to compensate plaintiffs for what they lost because of the fraud, not for what they might have gained in the absence of fraud … . Additionally, plaintiff’s claim that he would have received better remuneration had he partnered with a different entity is inherently speculative and would require any factfinder to engage in conjecture … . Connaughton v Chipotle Mexican Grill, Inc., 2016 NY Slip Op 00273, 1st Dept 1-19-16

 

FRAUD (OUT-OF-POCKET DAMAGES REQUIREMENT)/DAMAGES (FRAUDULENT INDUCEMENT CAUSE OF ACTION MUST BE SUPPORTED BY ALLEGATIONS OF OUT OF POCKET LOSS)/CONTRACT LAW (FRAUDUENT INDUCEMENT CAUSE OF ACTION MUST BE SUPPORTED BY ALLEGATIONS OF OUT OF POCKET LOSS)/EMPLOYMENT LAW (FRAUDULENT INDUCEMENT, AT WILL EMPLOYEE CANNOT RECOVER AS DAMAGES COMPENSATION EMPLOYEE WOULD HAVE RECEIVED IN THE FUTURE BUT FOR THE FRAUD)

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