Delta Dallas Omega Corp. v. Wair Associates

Order, Supreme Court, New York County (Diane A. Lebedeff, J.), entered on or about September 12, 1991, which, to the extent appealed from, granted the motion of the plaintiff/counterclaim defendant-respondent Delta Dallas Omega Corp. to dismiss the second counterclaim of defendant/ *702counterclaim plaintiff-appellant Wair Associates, unanimously modified, on the law, to the extent of denying that part of the motion seeking to dismiss the second counterclaim for common law fraud, in its entirety and by reinstating so much of the second counterclaim alleging embezzlement and diversion of funds, and as so modified, the order is otherwise affirmed, without costs.

To the extent Wair Associates asserts that the Delta Dallas Omega Corp. counterclaim defendants failed to keep their promises as represented prior to execution of the written contract, overbilled or double-billed for labor and materials, used inferior materials, and failed to pay subcontractors, the IAS Court correctly determined that such claims relate to a breach of contract and do not amount to a cause of action for fraud (Gordon v Dino De Laurentiis Corp., 141 AD2d 435, 436). However, to the extent that it is alleged that the corporation or its principals embezzled or diverted funds for their own use or for purposes unrelated to the project, and that they acted to conceal this purported diversion, the second counterclaim adequately states a cause of action for fraud, and we modify to reinstate accordingly. (See, Apple Records v Capitol Records, 137 AD2d 50, 55.) Concur—Sullivan, J. P., Carro, Kupferman and Rubin, JJ.