When Fraud Is Not Redundant: The Intersection of Merger Clauses and Duplicative Claims Doctrine

By: Jeffrey M. Haber

Merger clauses and the duplication of claims doctrine often operate to limit the availability of fraudulent inducement claims alongside breach of contract claims. As a general matter, merger clauses are intended to preclude reliance on extrinsic representations, while the duplication of claims doctrine limits plaintiffs from recasting breach of contract claims as tort claims absent an independent legal duty. However, these doctrines are subject to important limitations: a merger clause will bar a fraudulent inducement claim only where it contains a sufficiently specific disclaimer of reliance on the particular misrepresentations at issue, and a fraud claim will not be deemed duplicative where it is predicated on misrepresentations of present fact collateral to the contract and implicating a distinct legal wrong.

Against this backdrop, we examine the Appellate Division, First Department’s decision in CSN Realty Corp. v. Moussaieff, 2026 N.Y. Slip Op. 03228 (1st Dept. May 21, 2026). In CSN Realty, the Court held that a general merger clause did not foreclose a fraudulent inducement claim based on alleged misrepresentations made by non-parties to the contract, and further concluded that the fraud claim was not duplicative of the breach of contract claim because it rested on representations of then-existing fact that allegedly induced plaintiff to enter into the transaction. The decision also reaffirmed that fraud claims may proceed in the alternative, even where overlapping damages are alleged, in light of the distinct remedial framework applicable to fraud. In doing so, CSN Realty underscores a more nuanced and fact-sensitive application of these doctrines, confirming that fraud is not duplicative where it alleges a separate inducement-based injury grounded in extra-contractual misrepresentations.

CSN Realty Corp. v. Moussaieff

In or around March 2018, defendants, Roy Moussaieff (“Roy”) and Yousef Althkefati (“Althkefati”), among others, formed 2252 Third Avenue, LLC (“2252 Third Avenue” of “judgment debtor”) as the vehicle through which they would acquire the property located at 2252 Third Avenue in New York, New York (the “Property”).[1] 

As the transaction took shape, Roy and Althkefati represented to plaintiff that 2252 Third Avenue had sufficient capital to complete the $12,000,000 purchase. In response to that assurance, plaintiff required that the parties’ agreement expressly reflect them. Accordingly, the transaction agreement (the “Contract”) included specific provisions, set forth in a negotiated rider, stating that 2252 Third Avenue had “adequate funds to close” and that its obligations were not contingent upon financing.

On March 19, 2018, the parties executed the Contract. Under its terms, plaintiff agreed to sell, and 2252 Third Avenue agreed to purchase, the Property for $12,000,000. 2252 Third Avenue was required to make a $600,000 down payment to be held in escrow, with the balance due at a closing scheduled for October 28, 2019.

Among other provisions, the Contract included a general merger clause.

As part of the Contract, the parties also entered into a rider (the “Rider”), which included a mortgage contingency clause and a general merger clause.

Roy signed the Contract on behalf of 2252 Third Avenue. Plaintiff signed the Contract allegedly in reliance on the representations concerning 2252 Third Avenue’s financial ability to perform.

Several months later, in or about October 2018, the parties entered into a first amendment to the Contract (the “First Amendment”). The amendment permitted 2252 Third Avenue to record a memorandum of contract against the Property, placing the transaction on public record. In exchange, $125,000 of the initial down payment was released from escrow to plaintiff. The recorded memorandum effectively signaled to the market that the Property was under contract.

As the original closing date approached, 2252 Third Avenue had not completed the purchase. In October 2019, the parties negotiated a further extension, resulting in a second amendment to the Contract (the “Second Amendment”). The Second Amendment extended the closing date to March 1, 2020 and imposed additional payment obligations in the event of further delay, including a $2,000,000 payment and ongoing monthly fees. The Second Amendment also authorized additional releases of escrowed funds and reaffirmed the remaining contractual terms.

2252 Third Avenue did not close by the extended March 1, 2020 deadline. Nor did it make the $2,000,000 payment or the monthly payments required under the Second Amendment.

After additional time passed without performance, on October 15, 2021, plaintiff issued a notice setting a time-of-the-essence closing for November 15, 2021. 2252 Third Avenue acknowledged the notice without objection. On the scheduled date, plaintiff appeared ready, willing, and able to complete the sale, but 2252 Third Avenue did not appear and did not tender performance. 2252 Third Avenue also did not pay the additional amounts that had accrued under the Second Amendment and did not remove the memorandum of contract from the Property.

On December 30, 2021, plaintiff commenced the action against 2252 Third Avenue for breach of contract. On August 28, 2023, the motion court entered judgment in plaintiff’s favor and against 2252 Third Avenue in the amount of $3,000,000, plus interest (the “Judgment”).[2]

Thereafter, in May 2024, plaintiff commenced the action, seeking to impose alter ego liability on the individual defendants, and alleging that Roy and Althkefati fraudulently induced plaintiff to enter into the Transaction. Defendants moved to dismiss the complaint. The motion court granted the motion.

On appeal, the Appellate Division, First Department, reversed.

The Court held that “Supreme Court should not have determined that the merger clause contained in the written contract barred plaintiff’s fraudulent inducement cause of action, which was interposed as against defendants Roy Moussaieff (Roy) and Yousef Althkefati.”[3] 

Under New York law, merger clauses are generally enforceable, but they will bar a fraudulent inducement claim only where the contract contains a sufficiently specific disclaimer of reliance on the particular misrepresentations at issue.[4]  By contrast, a merger clause that is general and makes no reference to the particular representations alleged, does not bar an otherwise adequately pleaded fraudulent inducement claim.[5] Moreover, a merger clause does not apply to the representations made by third parties to an agreement.[6] 

With these principles in mind, the Court held that “[o]n its face, the merger clause agreed to by plaintiff and nonparty 2252 Third Avenue, LLC (the 2252 Third Avenue, LLC),” did not “apply to the representations by Roy and Althkefati,” because they were not parties to the Contract.[7] 

The Court also “reject[ed] defendants’ argument that the fraudulent inducement cause of action [was] duplicative of the breach of contract cause of action.”[8] 

In New York, fraudulent inducement claims are not duplicative of contract claims where the plaintiff alleges “misrepresentations of present fact” that are “collateral to the contract” and which “induced [plaintiff] to enter into the contract.”[9] So long as the plaintiff alleges a wrong “separate from or in addition to the contract duty,” a misrepresentation is “collateral to the contract” – and therefore can give rise to a fraudulent inducement claim – even if “the same circumstances give rise to the … breach of contract claim.”[10] This principle holds true even where the “alleged misrepresentations breached [] warranties made in” the agreement at issue.[11] 

In CSN Realty, the Court found that the “alleged representations by Roy and Althkefati that the 2252 Third Avenue, LLC had sufficient capital to close on the [P]roperty were representations of present fact, not future intent to perform.”[12]

“Similarly, [the Court] reject[ed] defendants’ argument that plaintiff [sought] identical damages under the fraudulent inducement cause of action and the breach of contract cause of action.”[13] The Court explained that “[u]nder the circumstances of this case, at this early procedural stage plaintiff [was] entitled to maintain the fraudulent inducement claim in the alternative to the breach of contract claim.”[14] “This conclusion,” said the Court, was “especially true because the remedy available to plaintiff for fraudulent inducement under the ‘out-of-pocket rule’ [was] not lost profits but rather ‘the actual pecuniary loss sustained as the direct result of the wrong.’”[15]

Takeaway

CSN Realty highlights several nuanced takeaways about the interaction between merger clauses, fraudulent inducement, and the duplication of claims doctrine, particularly when viewed against the First Department’s broader jurisprudence.

At the outset, CSN Realty reinforces the principle that general merger clauses are of limited preclusive effect. Consistent with settled law, the Court held that only a specific disclaimer of reliance tied to the particular alleged misrepresentation will bar a fraudulent inducement claim. Boilerplate merger language is insufficient. Notably, regardless of their specificity, the Court reiterated the point that merger clauses do not extend to representations made by non-parties to the contract, which was the case in CSN Realty.

At the same time, the decision is notable because it departs from what is often a more restrictive approach taken by the First Department in analogous cases. In the First Department, fraud claims are frequently dismissed as duplicative where the damages sought in the fraud claim overlap with those recoverable for breach of contract. This is so even when the alleged misrepresentation is meaningfully distinct from the contractual undertaking – that is, the duty breached is independent of and collateral to the contract. CSN Realty represents, therefore, a more permissive application of the doctrine by making a distinction between lost profits and out-of-pocket damages.

CSN Realty also reaffirms the point that a fraud claim may proceed where it is based on misrepresentations of present fact. In CSN Realty, those representations were memorialized in a contractual warranty (e.g., the Rider). Such statements are treated as assertions of then-existing fact, not mere promises of future performance, and therefore can support an independent fraud claim.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

[1] The fact section of this article comes from the briefing on appeal.

[2] CSN Realty Corp v. 2252 Third Avenue LLC, Index No. 657221/2021 (Sup. Ct. N.Y. County).

[3] Slip Op. at *1.

[4] Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC, 19 A.D.3d 273, 275 (1st Dept. 2005); see also LibertyPointe Bank v. 75 E. 125th St., LLC, 95 A.D.3d 706, 706 (1st Dept. 2012).

[5] See Laduzinski v. Alvarez & Marsal Taxand LLC, 132 A.D.3d 164, 169 (1st Dept. 2015) (boilerplate merger clause did not bar fraudulent inducement claim because it “ma[de] no reference to the particular representations allegedly made here by [defendants]”).

[6] See Remediation Capital Funding LLC v. Noto, 147 A.D.3d 469, 471 (1st Dept. 2017).

[7] Slip Op. at *1, citing Remediation Capital, 147 A.D.3d  at 471.

[8] Id.

[9] Wyle Inc. v. ITT Corp., 130 A.D.3d 438, 439 (1st Dept. 2015); see also GoSmile, Inc. v. Levine, 81 A.D.3d 77, 81 (1st Dept. 2010); Laduzinski, 132 A.D.3d at 168-69; TIAA Global Invs. v. One Astoria Sq. LLC, 127 A.D.3d 75, 87 (1st Dept. 2015).

[10] Id. at at 440-41; MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287, 293 (1st Dept. 2011).

[11] Id.; VXI Lux Holdco, S.A.R.L. v. SIC Holdings, LLC, 194 A.D.3d 628, 630 (1st Dept. 2021); MBIA Ins. Corp., 87 A.D.3d at 294.

[12] Slip Op. at *1.

[13] Id.

[14] Id., citing Scarola Zubatov Schaffzin PLLC v. Dynamic Credit Partners, LLC, 210 A.D.3d 605, 607 (1st Dept. 2022); Shear Enters., LLC v. Cohen, 189 A.D.3d 423, 424 (1st Dept. 2020).

[15] Id., quoting Connaughton v. Chipotle Mexican Grill, Inc., 29 N.Y.3d 137, 142 (2017).