In today’s fraud notes, we examine two cases: K.M. v. Ursuline School of New Rochelle, 2025 N.Y. Slip Op. 04643 (2d Dept. Aug. 13, 2025) (here), and Three C, LLC v. City Settlement Serv., Inc., 2025 N.Y. Slip Op. 04678 (Aug. 13, 2025) (here).
Ursuline involved the failure to satisfy the elements of a fraud claim.[1] To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.”[2] The claim must pleaded with particularity.[3] Conclusory allegations will not suffice.[4] Neither will allegations based on information and belief.[5] If “sufficient factual allegations of even a single element are lacking,” then the claim must be dismissed.[6]
The requirement that a fraud claim be pleaded with particularity can be found in Section 3016(b) of the Civil Practice Law and Rules (“CPLR”). Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[7] To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud.
As noted, a plaintiff pleading fraud must identify a misrepresentation or a material omission of fact. The misrepresentation must be a misrepresentation of present fact; it cannot be a misrepresentation of future intent to perform under the contract.[8] The failure to plead a misrepresentation or omission will result in dismissal of the claim.
Three C involved the statute of limitations applicable to a claim of fraud.[9] Under New York law, “a fraud-based action must be commenced within six years of the fraud or within two years from the time the plaintiff discovered the fraud or could with reasonable diligence have discovered it, whichever is later”[10] “The inquiry as to whether a plaintiff could, with reasonable diligence, have discovered the fraud turns on whether the plaintiff was ‘possessed of knowledge of facts from which [the fraud] could be reasonably inferred.’”[11] “Generally, knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute.”[12] “‘Where it does not conclusively appear that a plaintiff had knowledge of facts from which the fraud could reasonably be inferred, a complaint should not be dismissed on motion and the question should be left to the trier of the facts.’”[13]
Three C, LLC v. City Settlement Service, Inc.
Three C involved a dispute between two brothers.[14] Defendant had performed private investigation work for the defendant attorneys. Through his work, defendant learned of an investment opportunity to purchase the inventory of Warwick Winthrop Silver, an entity owned by a client of one of the attorney defendants.
In connection with the opportunity, defendant approached plaintiff for a loan to purchase the inventory (primarily silver). On or about March 20, 2010, plaintiff, Three C LLC (“Three C”), and defendant, City Settlement Service Inc. (“City Settlement”) executed a promissory note (the “Note”) under which City Settlement was to repay $275,000 to Three C. The balance and interest on the Note was due September 20, 2010.
The Note stated that it was “secured by a UCC Filing against certain inventory owned by City Settlement Services, Inc.” Defendant allegedly represented to plaintiff that the silver would be sold by September 2020 for double the purchase price and that the short-term note would be paid. Defendants also told plaintiff that the UCC Filing referenced in the Note had been filed with the necessary authorities.
In July of 2010, plaintiffs provided defendants the $275,000 for the purchase of the silver.
According to plaintiffs, defendants failed to make payment by the required September 20, 2010 due date under the Note. In 2011, defendant made intermittent payments to plaintiff toward the balance due under the Note. Those payments totaled $120,000.00. The remaining balance due under the Note remained unpaid.
On or about July 8, 2016, plaintiffs commenced the action. Defendant moved to dismiss the Complaint. Supreme Court granted the motion as to five of the six causes of action asserted in the Complaint, with the sixth cause of action severed for a separate proceeding.
In 2020, plaintiff took defendant’s deposition, which, according to plaintiff, revealed additional facts warranting the filing of an amended complaint; namely, the purchase price for the silver was allegedly only $145,000, and not the $275,000 originally represented. Plaintiff alleged that he learned that defendant formed In Season Décor Corp. (“In Season”) to control the silver and deposit funds from sales of the silver. Defendant also allegedly paid himself from In Season’s bank account despite there being an outstanding balance on the Note. Deposition testimony from other defendants allegedly confirmed the foregoing.
With the information learned from discovery, plaintiffs filed an amended complaint on May 12, 2021 that re-inserted defendant as a named defendant and added In Season Décor Corp. as an additional party. The Amended Complaint included allegations that the purchase price for the silver was only $145,000, and that defendant improperly transferred the silver to In Season Décor Corp. from which he sold the silver and paid himself and one of the other defendants from the proceeds.
Defendants moved to dismiss the amended complaint, asserting, among other things, that the claims asserted in the amended complaint were time-barred under CPLR 3211(a)(5). Supreme Court dismissed all claims, but the fraud causes of action. Regarding the statute of limitations, Supreme Court held that there were issues of fact as to whether the two-year discovery rule applied, noting “the scheme to defraud [was] only discovered during deposition testimony on January 30, 2020 and the Amended Complaint was filed on May 12, 2021, within the two (2) years of Statute of Limitations.”
Defendants appealed. The Appellate Division, Second Department affirmed.
The Court held that “Supreme Court properly denied those branches of the defendants’ separate motions which were pursuant to CPLR 3211(a)(5) to dismiss the fraud causes of action insofar as asserted against each of them as time-barred.”[15] The Court explained that “[t]he facts presented … did not conclusively demonstrate, as a matter of law, that the alleged fraudulent conduct could have been discovered earlier in the exercise of reasonable diligence.”[16]
K.M. v. Ursuline School of New Rochelle
Defendant, Ursuline School of New Rochelle (“Ursuline”), operates an all-girls private school in New Rochelle. Plaintiff (the “mother”) enrolled her daughter (the “student”) at Ursuline in September 2020. In January 2022, the student was expelled from Ursuline for engaging in an off-campus physical altercation in May 2021.
Subsequently, the mother, as guardian for the student, commenced the action against Ursuline, asserting causes of action to recover damages for breach of contract, fraud, and breach of the implied covenant of good faith and fair dealing. Among other things, the mother alleged that Ursuline breached its obligations under a student-parent handbook that was distributed in September 2020 (the “Handbook”) by expelling the student for the off-campus incident.
The mother also alleged that Ursuline engaged in fraud by inducing her to enroll the student at Ursuline and that Ursuline breached the implied covenant of good faith and fair dealing by conducting an unfair investigatory process.
Regarding the fraud claim, the mother alleged that Ursuline misrepresented in its student/parent handbook its intention to: (i) perform its obligations in accordance with the teachings of Jesus Christ; (ii) allow students to learn from their mistakes; and (iii) nurture students’ emotional well-being. In support of her claim, the mother cited to two excerpts from the Handbook.
Plaintiff alleged that she relied on the statements in the Handbook when she apologized to the school for her involvement in the altercation.
Ursuline moved pursuant to CPLR 3211(a)(1) and (7) to dismiss the amended complaint. In an order dated June 30, 2022, Supreme Court granted Ursuline’s motion.
Regarding the fraud claim, the court held that “the Amended Complaint [did] not meet the heightened standard of particularity required to sustain a cause of action sounding in fraud.” “Simply alleging that Ursuline [had] not lived up to the standard of the teachings of Jesus Christ,” said the court, “does not satisfy the particularity requirement for a fraud claim.”
The court also held that “upon a close reading of the Amended complaint, the court [was] unable to make out any allegations which even suggest[ed] that Ursuline knowingly made any misrepresentation.” “In essence,” said the court, “Plaintiff argue[d] that Ursuline breached the terms of the Handbook by expelling her.” Noting that a plaintiff alleging fraud, “must prove a misrepresentation or a material omission of fact which was false and known to be false by defendant,”[17] the court found that “[t]he Amended complaint simply does not make out a knowing misrepresentation by Ursuline.”
The court further held that the mother failed to plead justifiable reliance. The court explained that the “[t]he portion of the Handbook which reads “[r]ooted in the truth and values of the teachings of Jesus Christ [was] an aspirational statement regarding the school’s Christian ethos.” The provision was not, held the court, “a catch-all provision totally negating disciplinary procedures.” “Nor,” said the court, was it “reasonable to rely on the excerpt which reads “[s]chool is a place to learn and we often learn from making mistakes after being afforded opportunities to correct mistakes.” “These two excerpts,” concluded the court, were “general expressions of Ursuline’s overall philosophy and [did] not render inoperative the specific disciplinary provisions of the Handbook.” “At best,” said the court, they were “statements indicating that Ursuline ha[d] discretion in how it dealt with disciplinary issues.”
Finally, the court held that the fraud claim duplicated the mother’s breach of contract claim. In that regard, the court noted that the fraud claim was based on Ursuline’s breach of contract “by not following the provisions of the Handbook.”
The mother appealed. The Appellate Division, Second Department affirmed.
The Court held that “the Supreme Court properly granted Ursuline’s motion pursuant to CPLR 3211(a) to dismiss the amended complaint.”[18] Focusing on the particularity requirement under CPLR 3016(b) and the first element of a fraud claim (i.e., a false statement), the Court held that “the mother’s bare and conclusory allegations [of fraud] failed to identify any specific misrepresentation of material present fact made by Ursuline.”[19]
Takeaway
The implications of Ursuline and Three C reflect two important aspects of fraud litigation: how fraud must be pleaded and when it can be pursued.
In Ursuline, the Court emphasized the particularity pleading requirements for fraud. The plaintiff’s reliance on broad, aspirational statements from a school handbook was insufficient. The Court made clear that fraud must be based on a false statement, not “bare and conclusory” allegations. Ursuline, therefore, serves as a cautionary reminder: plaintiffs must articulate fraud claims with particularity, detailing the “who, what, where, when, and how” of the alleged fraud, and must plead all elements of the claim. Otherwise, the claim risks dismissal at the outset.
Three C emphasized another aspect of pleading a fraud claim: application of the discovery rule. The Court affirmed the viability of the fraud claim under the two-year discovery rule, finding that there were issues of fact as to whether plaintiffs could have reasonably discovered the fraud absent the deposition that revealed key facts about the alleged fraudulent scheme. Three C underscores the point that the discovery of new evidence, which was not previously extant, may suffice to trigger the two-year discovery rule under CPLR 213(8). It also highlights the importance of discovery in uncovering hidden misconduct and reviving claims that might otherwise be time-barred.
[1] This Blog has written numerous articles addressing the elements of a fraud claim, including the failure to articulate a false and misleading statement and omission. To find such articles, please visit the Blog tile on our website and search for “misrepresentations”, or “failure to plead a misrepresentation”, or any other issue that may be of interest to you.
[2] Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996).
[3] Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009).
[4] Id.
[5] See Facebook, Inc. v. DLA Piper LLP (US), 134 A.D.3d 610, 615 (1st Dept. 2015) (“Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud.”).
[6] RKA Film Fin., LLC v. Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)). See also Gregor v. Rossi, 120 A.D.3d 447 (1st Dept. 2014).
[7] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).
[8] GoSmile, Inc. v. Levine, 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed, 17 N.Y.3d 782 (2011).
[9] This Blog has written numerous articles addressing the statute of limitations for fraud, including the discovery rule under CPLR 213(8). To find such articles, please visit the Blog tile on our website and search for “statute of limitations”, “discovery rule”, or “CPLR 213(8)”, or any other issue that may be of interest to you.
[10] Vilsack v. Meyer, 96 A.D.3d 827, 828 (internal quotation marks omitted); see CPLR 213(8).
[11] Sargiss v. Magarelli, 12 N.Y.3d 527, 532 (quoting Erbe v. Lincoln Rochester Trust Co., 3 N.Y.2d 321, 326 (1957)).
[12] Id. (internal quotation marks omitted).
[13] Id. (quoting Trepuk v. Frank, 44 N.Y.2d 723, 725 (1978)).
[14] The factual background for Three C comes from the briefs on appeal and the decision and order appealed from.
[15] Three C, Slip Op. at *2.
[16] Id. (citations omitted).
[17] Lama, 88 N.Y.2d at 421.
[18] Ursuline, Slip Op. at *3.
[19] Id. (citations omitted).
