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Current Developments in the Commercial Divisions of the
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Posted: June 8, 2016

A General Disclaimer of Collateral Representations Does Not Preclude All Fraud Claims

On May 25, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in PMC Aviation 2012-1 LLC v. Jet Midwest Group LLC, 2016 NY Slip Op. 30972(U), holding that a general disclaimer does not preclude all fraud claims.

In PMC Aviation, the plaintiff brought a variety of claims, including claims for fraudulent inducement, arising out of its business arrangements with the defendants relating to the operation of the plaintiff company. Among the plaintiff’s claims was that certain defendants “fraudulently induced their investment in [the plaintiff] by making a number of alleged material misrepresentations, including that they had “expertise in valuing, maintaining, servicing, and profitably disposing of aircraft through sales based on their past experience in the industry.” The defendants moved to dismiss the fraudulent inducement claim, arguing, among other things, that it was barred by Section 9.14 of the parties’ agreement, which provided that the agreement “contain[ed] the entire understanding between the parties hereto and supersede[d] any prior written or oral agreements between them regarding the same subject matter. There are no representations, agreements, arrangements or understandings, oral or written, between the parties relating to the subject matter of this Agreement which are not fully expressed in the Agreement.”

The court denied the motion to dismiss on this ground, explaining:

Defendants argue that the Operating Agreement’s integration clause, section 9.14, bars these fraud claims. They are wrong. A clause, such as section 9.14, that generally disclaims collateral representations, does not preclude a fraudulent inducement claim if such clause does not specifically disclaim the subject representations. As the First Department explained:

The law is abundantly clear in this state that a buyer’s disclaimer of reliance cannot preclude a claim of justifiable reliance on the seller’s misrepresentations or omissions unless (1) the disclaimer is made sufficiently specific to the particular type of fact misrepresented or undisclosed; and (2) the alleged misrepresentations or omissions did not concern facts peculiarly within the seller’s knowledge.

Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.

. . . Section 9.14 neither refers to the Krauses’ alleged representations about their industry experience and does not refer to the Aircraft valuations. It, therefore, does not bar Amur’s fraudulent inducement claim.

(Internal quotations and citations omitted) (emphasis added).

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