When Fraud Isn’t Duplicative of Breach of Contract

By: Jeffrey M. Haber

Under New York law, fraud claims are not duplicative of breach of contract claims when they are based on misrepresentations of present fact collateral to the contract, even if they seek the same damages. Applying that rule, the Appellate Division, First Department held in Metropolitan Partners Group Admin., LLC v. Nerney, 2026 N.Y. Slip Op. 02340 (1st Dept. Apr. 16, 2026), that plaintiff adequately pleaded both fraud and breach of contract claims arising from a $16 million secured loan to Schweizer RSG, LLC. Metropolitan alleged that the individual defendants overstated inventory values to induce the loan, then concealed defaults through accounting manipulation, asset diversion, and obstruction of enforcement efforts. The Court found the breach of contract claims sufficient because defendants allegedly acted in bad faith to interfere with Metropolitan’s rights, and held that the fraud claims, centered on inflated inventory representations, were independent of contractual performance obligations. Accordingly, the Court held that both claims could proceed side‑by‑side at the pleading stage.[1]

In 2022, Metropolitan Partners Group Administration, LLC and its affiliated funds (“Metropolitan”) agreed to provide secured financing to Schweizer RSG, LLC (“Schweizer”), a helicopter manufacturer then controlled by its Chairman and CEO. Metropolitan extended a $20 million credit facility, with $16 million funded at closing, based primarily on alleged representations that Schweizer’s inventory, pledged as collateral, was worth more than $56 million.

In connection with the loan, defendants provided inventory schedules and valuation materials during due diligence. Metropolitan alleged these materials were materially false. Metropolitan claimed that the inventory lists and valuations presented to Metropolitan to support the loan included non-existent parts.

Also, in connection with the loan, the individual defendants executed personal “Validity Guarantees.” These guarantees provided Metropolitan with full recourse if the guarantors acted in bad faith to impair Metropolitan’s rights as a lender, and indemnification for losses arising from fraud, misappropriation, or unauthorized use of collateral.

Shortly after the loan was funded in August 2022, Schweizer allegedly began violating financial covenants, including liquidity and EBITDA requirements. Metropolitan alleged that rather than disclose Schweizer’s true financial condition, the individual defendants engaged in a series of accounting manipulations designed to conceal defaults and avoid foreclosure. These included directing accountants to recognize deposits for incomplete helicopter sales as current revenue and recording expected payments long before cash was actually received.

Metropolitan further alleged that, while the loan was outstanding, the individual defendants diverted Schweizer funds and assets to a network of affiliated companies controlled by Schweizer’s CEO. According to Metropolitan, Schweizer and the RSG entities shared facilities, personnel, accounting systems, and banking access, enabling the improper transfer of cash and inventory away from Schweizer in violation of the loan documents.

Relying on the allegedly false financial information, Metropolitan entered into multiple forbearance agreements in 2023 and 2024, temporarily refraining from exercising its contractual remedies. Eventually, third‑party advisors and appraisers reportedly determined that Schweizer’s inventory values were materially overstated – information that Metropolitan claimed was never disclosed during the forbearance negotiations.

In early 2025, Metropolitan claimed that it had uncovered the alleged schemes and commenced litigation. It also exercised its contractual right to appoint a receiver over Schweizer. By that time, Schweizer reportedly lacked cash to meet payroll, had commingled assets with affiliates, and had sold inventory for short‑term liquidity, further impairing Metropolitan’s collateral.

Metropolitan asserted claims for breach of contract against the individual defendants, alleging bad-faith interference with its rights under the guarantees. It also asserted fraud claims, contending the loan was induced by false inventory representations and prolonged by intentional financial misstatements designed to delay enforcement.

Defendants moved to dismiss. The motion court denied the motion.

The First Department unanimously affirmed.

The Court held that “Plaintiffs sufficiently stated a cause of action for breach of contract against [the individual defendants] by alleging that those defendants breached valid guaranties that they gave to plaintiffs.”[2] The Court explained that the allegations were sufficient to state breach of contract claims because, as pleaded, the individual defendants engaged in conduct prohibited by their guaranties.[3] The Court noted that the full‑recourse provisions guaranteed against any bad‑faith acts that hindered or interfered with Metropolitan’s enforcement rights, and that plaintiffs alleged such interference through deliberate obfuscation of Schweizer’s books and records, providing false passwords to delay the receiver’s access to financial systems, and preparing materially inaccurate spreadsheets intended to mislead the lender.[4] The Court also found that plaintiffs adequately pleaded breaches of the indemnity guarantees by alleging that the individual defendants misappropriated or transferred collateral and willfully disposed of collateral after default.[5] The Court concluded that these allegations described conduct expressly covered by the guarantees and, therefore, sufficiently supported the breach of contract claims.[6]

The Court also held that the “fraud claims against [the individual defendant] and the RSG defendants were also sufficiently particular to satisfy CPLR 3016(b).”[7] The Court found that the “bulk of plaintiffs’ fraud claims rel[ied] on specific allegations that defendants misrepresented the value of Schweizer’s inventory in February 2022 to induce plaintiffs to make the loan.”[8] 

The Court further held that the fraud claims “were not duplicative to the breach of contract claims.”[9]

Courts apply the duplication doctrine when a plaintiff alleges a breach of contract claim and a fraud claim that arise from the same facts and circumstances. In that regard, a fraud claim will be deemed duplicative of a contract claim when the fraud claim arises from the same facts, seeks the same damages, and does not allege a breach of any duty collateral to or independent of the parties’ agreements.[10] Moreover, “[a] fraud-based claim [will be deemed to be] duplicative of a breach of contract claim when the only fraud alleged is that the defendant was not sincere when it promised to perform under the contract.”[11] Finally, “a plaintiff may maintain a fraud cause of action in the alternative to a breach of contract claim where the ‘fraud cause of action was collateral to the . . . contract . . . regardless of whether the causes of action sought the same damages.’”[12] 

The Court held that the fraud claims were not duplicative of the breach of contract claims because they were based on misrepresentations of present facts that were collateral to the parties’ contracts, not on a mere failure to perform contractual obligations. Specifically, the breach of contract claims arose from post‑loan conduct, including bad faith interference with Metropolitan’s enforcement rights and misappropriation of collateral, allegedly violating the guaranties’ full‑recourse and indemnity provisions. By contrast, the fraud claims centered primarily on pre‑closing misrepresentations, particularly allegations that defendants knowingly inflated the value of Schweizer’s inventory in February 2022 to induce Metropolitan to make the loan. Accordingly, the Court concluded that “plaintiffs [would] be permitted to pursue their fraud claims in addition to their breach of contract claims at this early stage of the litigation.”[13]

Takeaway

Metropolitan Partners offers a clear illustration of how New York courts distinguish fraud claims from breach of contract claims when both arise out of the same transaction. Although defendants often argue that fraud claims impermissibly duplicate contract claims, the Court emphasized that duplication turns on the duty breached and the conduct alleged, not on whether the claims arise from the same facts or seek similar relief.

The breach of contract claims in Metropolitan Partners were rooted in the guarantees themselves. The individual defendants allegedly violated express contractual provisions, particularly the full‑recourse clauses barring bad‑faith interference with enforcement rights and the indemnity clauses covering losses from misappropriation or unauthorized collateral transfers. These claims focused on post‑closing misconduct, including obstructing access to records, misleading a court‑appointed receiver, and diverting assets after default. In other words, the claimed wrongs constituted failures to comply with obligations defendants expressly undertook by contract.

The fraud claims rested primarily on alleged misrepresentations of present fact, most notably inflated inventory values, made before the loan closed to induce Metropolitan to extend credit and, later, to delay enforcement. The Court found that statements about existing inventory were not promises of future performance; they were factual assertions external to the contract itself. Because misrepresentations of present fact are collateral to contractual promises, they implicate an independent legal duty and may support a fraud claim notwithstanding the existence of comprehensive contractual agreements (i.e., where the parties later reduce their relationship to detailed written agreements).

Notably, the Court rejected duplication arguments even though the fraud and contract claims sought similar damages.[14] Overlapping remedies did not doom the fraud claims because the alleged fraud concerned inducement and concealment, while the contract claims addressed interference with contractual rights and misuse of collateral. As the Court explained, duplication analysis depends on whether the fraud is collateral to the contract, not on whether the same relief is ultimately at stake.

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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 and not on matters handled by the firm.

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[1] The factual discussion of the case comes from the parties’ briefs on appeal.

[2] Slip Op. at *1.

[3] Id.

[4] Id.

[5] Id.

[6] Id.

[7] Id. at *2. Under CPLR 3016(b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.” Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted). Conclusory allegations will not suffice. Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559-60 (2009).

[8] Id.

[9] Id.

[10] Havell Capital Enhanced Mun. Income Fund, L.P. v. Citibank, N.A., 84 A.D.3d 588, 589 (1st Dept. 2011). See also GoSmile, Inc. v Levine, 81 A.D.3d 77, 81 (1st Dept. 2010), lv. dismissed, 17 N.Y.3d 782 (2011).

[11] Manas v. VMS Assoc., LLC, 53 A.D.3d 451, 453 (1st Dept. 2008); see also Cronos Group Ltd. v. XComIP, LLC, 156 A.D.3d 54, 64-65 (1st Dept. 2017); HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 206 (1st Dept. 2012); Metropolitan Life Ins. Co. v. Noble Lowndes Intl., 192 A.D.2d 83, 88 (1st Dept. 1993).

[12] Slip Op. at *2 (quoting Scarola Zubatov Schaffzin PLLC v. Dynamic Credit Partners, LLC, 210 A.D.3d 605, 607 (1st Dept. 2022) and citing Shear Enters., LLC v. Cohen, 189 A.D.3d 423, 424 (1st Dept. 2020)).

[13] Slip Op. at *2.

[14] In the First Department, it is not uncommon for the Court to dismiss fraud claims as duplicative of contract claims where the damages overlap.