Commercial Division Blog

Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 26, 2015

Judiciary Law s. 487 Claim Can be Brought in Subsequent Action

On May 18, 2015, Justice Sherwood of the New York County Commercial Division issued a decision in Melcher v. Greenberg Traurig LLP, 2015 NY Slip Op. 30855(U), holding that a Judiciary Law s. 487 claim could be brought in an action other than the one in which the alleged misconduct occurred.

In Melcher, the plaintiff brought an action against the defendant law firm alleging violations of Judiciary Law Section 487. The law firm moved for summary judgment, arguing, among other things, that the plaintiff could not bring a Section 487 claim in a separate action. The court acknowledged that the courts have issued inconsistent decisions on this question, but ultimately refused to grant summary judgment based on this explaining:

Defendants argue that this action is barred by New York’s rule against claim splitting, citing Alliance Network LLC v Sidley Austin LLP, 43 Misc 3d 848 (Sup Ct, New York County 2014) (“The First Department has held that a party’s remedy for a violation of Section 487 stemming from an attorney’s actions in a litigation ‘lies exclusively in that lawsuit itself, . . . not a second plenary action”‘) quoting Yalkowsky v Century Apartments Assoc., 215 AD2d 214, 215 (1st Dept 1995). [The plaintiff] argues otherwise, relying on Amalfitano v Rosenberg, 12 NY3d 8 (2009) and Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15 (2014) (allowing this litigation to proceed and reversing the First Department decision granting a motion to dismiss on statute of limitations grounds).

In Alliance Network, Justice Bransten noted that the plaintiffs were filing motions for contempt, seeking to enforce an allegedly breached stipulation and raising allegations of deceit, and so should have sought their remedies in the cases in which the wrongdoing allegedly was committed. In reaching her decision, Justice Bransten relied on Yalkowsky, a case in which the plaintiff was seeking to collaterally attack an order of eviction issued by the Civil Court. In reaching its decision, the First Department explained that if the plaintiffs allegations were true, and the defendant attorney had made the false statements to the Civil Court, plaintiffs remedy lies exclusively in that lawsuit itself, i.e., by moving pursuant to CPLR 5015 to vacate the civil judgment due to its fraudulent procurement, not a second plenary action collaterally attacking the judgment in the original action. Justice Bransten also relied on Chibcha Restaurant Inc. v David A. Kaminsky & Assoc., P.C. (102 AD 3d 544 [1st Dept 2013]), and Seldon v Spinnell (95 AD3d 779 [1st Dept 2012]). The former case, like Yalkowsky, involved a collateral attack on a Civil Court Judgment. In the latter, the defendant was a party in the underlying action, rather than counsel, and Judiciary Law § 487 applies only to attorneys acting as such. It does not apply to parties in an action who also happen to be attorneys. Thus, none of the cases on which the decision in Alliance Network relies applies. Here, [the plaintiff] is not seeking to attack the judgment in the original action. He won that case. Now, [the plaintiff] is seeking damages for injuries he allegedly suffered due to alleged deceits committed in the Apollo Action. He is not seeking to collaterally attack the judgment in the Apollo Action. His claim in this case is not barred (see Kurman v. Schnapp, 73 AD3d 435 [1st Dept 2010]; Barrows v. Alexander, 78 AD3d 1693 [4th Dept 2010] [recognizing Judiciary Law § 487 cause of action in Kurman because the record in that case establishes that the defendant was acting in his capacity as an attorney when he engaged in the alleged deceitful conduct]; Pomerance v. McGrath, 124 AD3d 481, 485 [1st Dept 2015] [not improper for plaintiff to bring a Judiciary Law § 487 claim in this action even though it is based on alleged deceit in a prior action]; Chevron Corp. v. Danziger, 871 F Supp 2d 229, 261 [SDNY 2012] [denying motion to dismiss subsequent Judiciary Law § 487 claim for damages]; and Dupree v. Voorhees, 24 Misc 3d 396, 402 [Sup Ct, Suffolk County 2009].

(Some internal quotations and citations omitted). The decision here tries to reconcile conflicting decisions. This seems like a conflict that should be resolved by the Court of Appeals.

Posted: May 25, 2015

No Personal Jurisdiction Over Out-of-State Partner of Law Firm with New York Offices

On April 29, 2015, Justice Singh of the New York County Commercial Division issued a decision in Runberg, Inc. v. McDermott, Will & Emery LLP, 2015 NY Slip Op. 30739(U), dismissing claims against a out-of-state partner of a law firm with New York offices, explaining:

Under CPLR 301 a defendant is subject to jurisdiction in New York if the defendant is engaged in such a continuous and systematic course of doing business here as to warrant a finding of its presence in this jurisdiction. [The plaintiff] alleges that [the law firm] is indisputably subject to jurisdiction in New York due to [the law firm’s] permanent New York office with numerous attorneys and [the law firm’s] significant regular presence in New York. [The plaintiff] then alleges that because general jurisdiction is appropriate over [the law firm], general jurisdiction is appropriate over [the out-of-state partner] because he is a partner at [the law firm]. Defendants correctly argue that the fact that [the out-of-state partner] is a partner at [the law firm] is insufficient to establish jurisdiction under CPLR 301.

New York partnership law imposes liability on a partner of a foreign limited liability partnership only for acts in New York performed by that individual partner. Each partner, employee or agent of a foreign limited liability partnership who performs professional services in this state on behalf of such foreign limited liability partnership shall be personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by him or her or by any person under his or her direct supervision and control while rendering such professional services in this state.

[The out-of-state partner] did not communicate with [the plaintiff] while [the plaintiff] was in New York. [The out-of-state partner] also did not solicit [the plaintiff’s] business in New York. Instead, [the out-of-state partner] provided legal services from Washington D.C. in connection with a patent application submitted to the United States Patent and Trademark Office in Virginia on behalf of a client whose principal place of business was located in Pennsylvania or New Jersey. [The out-of-state partner] did not perform any of the alleged negligent acts in New York, as would be required by New York partnership law in order to establish liability over [him].

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

Posted: May 24, 2015

Court Explains Difference Between Civil and Criminal Contempt

On April 23, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Pensmore Investments, LLC v. Gruppo, Levey & Co., 2015 NY Slip Op. 30650(U), analyzing the standards for civil and criminal contempt.

In Pensmore Investments, the plaintiff sought to collect a judgment and obtain judgment collection-related discovery. It moved to hold two individuals with an interest in the judgment debtor (“Hugh” and “Wendy”) in civil and criminal contempt. The court denied the motion, explaining:

The instant contempt motion turns on the separate standards for civil and criminal contempt. Civil contempt has as its aim the vindication of a private party to litigation and any sanction imposed upon the contemnor is designed to compensate the injured private party for the loss of or interference with the benefits of the mandate. A defendant may be held in civil contempt when there is clear and convincing evidence that defendant knowingly disobeyed clear and unequivocal orders of the court. A hearing is not required to hold a party in civil contempt when there is no question of fact that a court order was knowingly violated.

Moreover, although the line between the civil and criminal contempt may be difficult to draw in a given case and the same act may be punishable as both a civil and a criminal contempt, the element which escalates a contempt to criminal status is the level of willfulness associated with the conduct. That being said, the purposes of civil contempt and criminal contempt differ. Civil contempt is designed not to punish but, rather, to compensate the injured private party or to coerce compliance with the court’s mandate; a criminal contempt, on the other hand, involves an offense against judicial authority and is utilized to protect the integrity of the judicial process and to compel respect for its mandates. Unlike civil contempt, the aim in a criminal contempt proceeding is solely to punish the contemnor for disobeying a court order, the penalty imposed being punitive rather than compensatory. To hold a party in criminal contempt, a hearing must be held and a willful disobedience of a court order must be proved beyond a reasonable doubt. Pursuant to Judiciary Law § 751, a party held in criminal contempt can be jailed for up to 30 days.

Plaintiff seeks criminal contempt. Plaintiff avers that only jail time will cause Hugh and Claire to take their obligations to plaintiff and the court seriously. While this may be true, at this juncture, the court will not order such a harsh remedy. Nor will the court hold either of them in civil contempt. While defendants are testing the limits of the court’s patience, the record on this motion does more to justify veil piercing than contempt since most of the money used to fund GLH appears to have come from Claire’s personal funds. But for Claire using her own money, GLH would not be able to pay its expenses, such as its payroll. None of the challenged transfers appear to have made it substantially more difficult for plaintiff to collect its judgment. The proper remedy is not contempt; it is veil piercing. Once GLH’s debt can be collected from whichever defendant has its cash, plaintiff can finally be made whole.

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

Posted: May 23, 2015

Court Enforces Contract That Violates Statute

On May 11, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Grape Solutions, Inc. v. Majestic Wines, Inc., 2015 NY Slip Op. 30770(U)), granting summary judgment to the plaintiff in an action for breach of a wine distribution contract notwithstanding that the terms of the contract may have violated a New York statute.

The plaintiff in Grape Solutions, a New Jersey-based wine wholesaler, entered into an oral contract with the defendant, a New York wholesaler that had a license to sell alcohol to retailers in New York. Under the terms of the contract, the plaintiff shipped wine directly to the defendant’s customers without passing through the defendant’s warehouse. The defendant collected payments from the customers, which it was supposed to pass on to the plaintiff, less a $5 fee for each case sold. The plaintiff sued the defendant for failing to remit the customer ‘payments. In opposing the plaintiff’s motion for summary judgment, the defendant argued that the contract was “illegal” and unenforceable, inasmuch as it provided for the plaintiff to sell wine directly to New York retailers without a license required by the New York Alcoholic Beverage Control Law.

The court rejected the illegality defense and granted summary judgment to the plaintiff. Justice Kornreich noted that the fact that a contract may violate a statute does not automatically render it unenforceable as between the parties to the contract:

Contracts which violate statutory provisions are, as a general rule, unenforceable on public policy grounds where the statute which is violated is enacted to protect the public health and safety. However, if the statute does not provide expressly that its violation will deprive the parties of their right to sue on the contract, and the denial of relief is wholly out of proportion to the requirements of public policy the right to recover will not be denied. Courts generally enforce the contract where there are other regulatory sanctions and statutory penal ties in place to redress violations of the law.

To constitute a valid defense to an action on a contract, the alleged illegality must be central to or a dominant part of the plaintiff’s whole course of conduct in performance of the contract. The illegality defense is inapplicable where it would result in a substantial forfeiture to one party while allowing the other party, who has already reaped the benefit of the transaction, to avoid the corresponding obligation. This is particularly true where the two parties are equally culpable with respect to the illegal conduct. Forfeitures by operation of law are disfavored where the party who is alleged to have breached the contract is attempting to improperly use public policy as a sword for personal gain rather than a shield for the public good. Thus, once the party seeking such enforcement has performed his obligations, the court should consider the quality of the illegality, the extent of public harm, the relative guilt of the parties, and the cruelty of the forfeiture involved in a denial of remedy.

(Internal quotations and citations omitted) (emphasis added). Here, the court observed: (1) the ABCL does not preclude suits based on contracts that violate the statute, and instead imposes penalties on violations; (2) the alleged illegality did not undermine the stated purpose of the statute (i.e., to facilitate collection of taxes and to prevent the sale of alcohol to minors); (3) the defendant participated in (and benefited from) the alleged illegality; and (4) the “conduct was not so ‘gravely illegal and immoral’ as to bar recovery as a matter of public policy.” Accordingly, Justice Kornreich rejected the illegality defense.

Posted: May 22, 2015

Contract Negotiated in New York Does Not Support Assertion of Jurisdiction When Claims Are Not for Breach of that Contract

On May 11, 2015, Justice Kornreich of the New York County Commercial Division issued a decision in Stevenson v. AMP Solar Group, Inc., 2015 NY Slip Op. 30771(U), dismissing foreign defendants for lack of personal jurisdiction.

In Stevenson, the plaintiff brought claims against a New York resident and several persons and entities located in Canada relating to a consulting agreement. The defendants moved to dismiss. The court granted the Canadian defendants’ motion to dismiss on personal jurisdiction grounds, explaining:

It is undisputed that the defendants asserting jurisdictional arguments are located in Canada and do not continually and systemically do business in New York. General jurisdiction, therefore, does not exist over them under CPLR 301.

[The plaintiff], thus, must establish specific jurisdiction. New York’s long-arm statute, CPLR 302, provides for specific jurisdiction over out-of-state defendants when plaintiff’s cause of action arises from one of four circumstances. [The plaintiff] argues that two of these circumstances arc present First, [the plaintiff] asserts that jurisdiction exists under CPLR 302(a)(1), which provides jurisdiction over a non-domiciliary that transacts any business within the state or contracts anywhere to supply goods or services in the state. CPLR 302(a)(l) is a single act statute and proof of one transaction in New York is sufficient to invoke jurisdiction, even though the defendant never enters New York, so long as the defendant’s activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted.

[The plaintiff] avers that his allegations that the Agreement was negotiated in New York and that he attended meetings in New York are sufficient to confer jurisdiction under CPLR 302(a)(1). [The plaintiff] is wrong. If [the plaintiff] was asserting a claim arising under the Agreement, jurisdiction may well exist (although such a claim would be subject to mandatory arbitration). [The plaintiff’s] claims, however, have nothing to do with the Agreement itself or its effectuation. Rather, [the plaintiff] is claiming that his alleged co-shareholders, through the actions of Ezekiel and Rogers, breached their fiduciary duties to Yallingup by failing to transfer certain profits from AMP Inc. to Yallingup.

Such a claim has nothing to do with New York. The facts underlying this claim are unrelated to the parties’ activities that allegedly occurred in New York. The profits, if any, would have come from business that took place exclusively within Canada and the allegations concern the proper distribution of profits between Canadian companies. The events that took place in New York only relate to (1) the circumstances of the agreement governing [the plaintiff’s] consulting services; and (2) the work [the plaintiff] allegedly performed to earn his Yallingup equity. Claims arising from either of these sets of events might give rise to jurisdiction under CPLR 302(a)(1) because there is a nexus between the events in New York and the alleged wrongdoing. Here, however, the wrongdoing, if any occurred, merely implicates violations of Canadian fiduciary duty law between parties outside of New York.

Yallingup is a Canadian company, and its internal affairs are governed by Canadian, not New York, law. New York, moreover, has no nexus to the subject disputes nor an interest in the outcome. [The plaintiff], after all, is not even a New York resident. Though the complaint contains factual allegations concerning events in New York, none of the events giving rise to the claims actually pleaded look place in New York. Jurisdiction under CPLR 302(a)(l), therefore, does not exist.

Nor is there jurisdiction under CPLR 302(a)(2), which applies when an out-of-state defendant commits a tortious act in New York. Again, the actual alleged wrongdoing – failure to transfer profits from AMP, Inc. to Yallingup — took place in Canada. Though Stevenson baldy claims wrongdoing occurred in New York, he does not identify any such wrongdoing. He, again, relies on the contract negotiations and his consulting work in New York, but neither of those form the basis of his derivative claims. Personal jurisdiction, consequently, does not exist.

(Internal quotations and citations omitted) (emphasis added). This decision shows the pitfalls of not having a clear theory of personal jurisdiction over foreign defendants before bringing an action.

Posted: May 21, 2015

Breach of Contract Inextricably Intertwined With Promissory Note Sufficient to Defeat Motion for Summary Judgment in Lieu of Complaint on the Note

On May 13, 2015, the Second Department issued a decision in Montecalvo v. Cat E., LLC, 2015 NY Slip Op. 04103, affirming the denial of a motion for summary judgment in lieu of complaint based on the breach of a related contract.

In Montecalvo, the plaintiff brought “an action to recover on a promissory note and personal guaranty,” which it “commenced by motion for summary judgment in lieu of complaint.” The Second Department affirmed the denial of the motion, explaining:

While, generally, the breach of a related contract cannot defeat a motion for summary judgment on an instrument for money only, that rule does not apply where the contract and the instrument are inextricably intertwined. The defendant Cat East, LLC, had previously commenced an action to recover damages against the plaintiff, alleging that the plaintiff breached an operating agreement. That action was inextricably intertwined with the instant action, which was commenced by the plaintiff to recover on a promissory note and personal guaranty. Indeed, the actions have already been joined for trial. Moreover, the promissory note refers to the operating agreement for the purpose of defining certain terms set forth in the note, and the promissory note and personal guaranty are referred to in, and appended as exhibits to, the operating agreement.

(Internal quotations and citations omitted) (emphasis added). A motion for summary judgment in lieu of complaint is a powerful tool, but as this decision shows, its scope is limited in a variety of ways.

Posted: May 19, 2015

Qui Tam Under False Claims Act Triggers Professional Liability Policy Exclusion For Claims “Brought By Or On Behalf Of” The Federal Government

On April 30, 2015, the First Department issued a decision in Certain Underwriters at Lloyd’s v. Huron Consulting Group, Inc., 2015 NY Slip Op. 03608, holding that a private qui tam under the False Claims Act constitutes an action “on behalf of” the federal government for purposes of a coverage exclusion under a professional liability policy.

In Certain Underwriters at Lloyd’s, a professional liability insurer brought a declaratory judgment action, seeking a declaration that it had no duty to provide a defense to its insured, a defendant in a False Claims Act qui tam alleging excessive Medicare and Medicaid billing. The insurer relied on a policy exclusion precluding coverage for any “Damage, Penalties or Claim in connection with or resulting from any claim . . . [b]rought by or on behalf of . . . any federal, state, local or foreign governmental entity.” Justice Scarpulla of the New York County Commercial Division found this exclusion inapplicable, and granted summary judgment to the insured, reasoning that the exclusion did not apply to qui tam actions brought by private parties in which the government does not intervene. The First Department disagreed, explaining:

The motion court incorrectly determined that the “Exclusion N” was inapplicable because the underlying qui tam lawsuit was brought by a private party, not a governmental entity operating in an official or regulatory capacity. An action brought under the False Claims Act may be commenced in one of two ways. First, the federal government itself may bring a civil action against a defendant (31 USC § 3730[a]). Second, as is the case here, a private person, or “relator” may bring a qui tam action “for the person and for the United States Government,” against the defendant, “in the name of the Government”. Under such circumstances, the government may elect to intervene, and if it
recovers a judgment, the relator receives a percentage of the award. If the government declines to intervene, as in the case here, the relator may pursue the action and may receive as much as 30 percent of any judgment rendered.

While relators indisputably have a stake in the outcome of False Claims Act qui tam cases that they initiate, the Government remains the real party in interest in any such action. . . .

Moreover, in considering the issue of relator standing, the Supreme Court of the United States has determined that a relator’s interest in a qui tam suit is one as the partial assignee of the claims of the United States, but it has observed that the injury, and therefore, the right to bring the claim belongs to the United States. In short, while the False Claims Act permits relators to control the False Claims Act litigation, the claim itself belongs to the United States.

Because the United States is the real party in interest in a qui tam action under the False Claims Act, the “Exclusion N” bars coverage for the underlying action.

(Some citations omitted.)

Posted: May 18, 2015

Court of Appeals Addresses Standard for Pleading “Justifiable Reliance” In Commercial Fraud Cases

On May 7, 2015, the Court of Appeals issued a decision in ACA Financial Guaranty Corp. v. Goldman, Sachs & Co., 2015 NY Slip Op. 03876, addressing an issue that has divided the lower trial and appellate courts: the standard for pleading “justifiable reliance” in the context of commercial fraud claims.

As the Court noted in ACA Fin., to plead a cause of action for fraud, a plaintiff “must allege facts to support the claim that it justifiably relied on the alleged misrepresentations.” However, precisely what must be pled to satisfy that requirement has been a point of contention among the lower courts. We previously blogged about this issue here, and in particular noted a trend in which “New York County Commercial Division Justices have usually denied motions to dismiss and for summary judgment in fraud cases, rejecting arguments from defendants that justifiable reliance was not sufficiently pled or that material issues of fact did not exist with respect to justifiable reliance, and the First Department usually reversed these decisions.” ACA Fin. came to the Court of Appeals in precisely that posture: Justice Kapnick (then of the New York County Commercial Division, and now a Justice of the Appellate Division) denied defendant’s motion to dismiss plaintiff’s fraud claim for failure to plead justifiable reliance, and the First Department reversed and dismissed the complaint. The Court of Appeals in a memorandum decision joined by six Judges reversed the Appellate Division and reinstated the complaint.

The plaintiff in ACA Fin. brought suit against Goldman, Sachs, “alleging that defendant fraudulently induced plaintiff to provide financial guarantee for a synthetic collateralized debt obligation (CDO), known as ABACUS.” In particular, ACA Financial alleged that Goldman “fraudulently concealed the fact that its hedge fund client Paulson & Co., which selected most of the portfolio investment securities in ABACUS, planned to take a ‘short’ position in ABACUS, thereby intentionally exposing plaintiff to substantial liability.” Observing that “the question of what constitutes reasonable reliance is not generally a question to be resolved as a matter of law on a motion to dismiss,” the Court of Appeals held that plaintiff’s allegations that it “sought assurances from defendant about Paulson’s role in ABACUS,” and that “defendant affirmatively misrepresented to plaintiff that Paulson would be the equity investor in ABACUS,” were sufficient, at the pleading stage, to allege “reasonable reliance.”

Judge Read dissented, arguing that ACA Financial did not plead justifiable reliance because it failed to take “an obvious and easy step” to uncover the truth – i.e., it did not “simply ask[] Paulson directly what its investment position was in ABACUS.” In her view this “failure to consult a source of information that might have revealed the alleged fraud” was fatal to the claim. Judge Read also found ACA Financial’s reliance on Goldman’s informal “assurances” insufficient because it did not insist on any formal representation and warranty concerning Paulson’s role, which it could have done “if assurance that Paulson was taking a net long position in ABACUS was as critical to ACA’s commercial decisionmaking as it now claims.”

Sophisticated parties alleging fraud in commercial cases face a due diligence requirement that may prove fatal to their claims even at the pleading stage. However, if the First Department follows the Court of Appeals’ lead in ACA Fin., it may prove easier for plaintiffs to survive a motion to dismiss on justifiable reliance grounds.

Posted: May 17, 2015

Decision Analyzes Elements of Claim for Fraud

On March 16, 2015, Justice Bransten of the New York County Commercial Division issued a decision in Shareholder Representative Services LLC v. Sandoz Inc., 2015 NY Slip Op. 50326(U), analyzing the elements of a claim for fraud.

In Shareholder Representative Services, the plaintiff brought an action on multiple theories relating the the merger of Oriel Therapeutics, Inc. with Sandoz Inc. The defendants moved to dismiss. The court analyzed the motion as it applied to the plaintiff’s fraud claim as follows:

To plead a claim for fraud under New York law, [the plaintiff] must allege: a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages. The pleading requirements of CPLR 3016(b) are a matter of procedure, governed by the law of the forum.

. . .

Turning to the first element of fraud, Plaintiff points to two purported misrepresentations in the Complaint — that Aeropharm was a “state of the art” facility and that Aeropharm was able to receive the equipment necessary to begin production of the Product immediately. The first statement originally was made in the offer letter and then in-person by a representative of Sandoz AG to Oriel’s “Principal Shareholders,” while the second was a “false impression” created by Defendants’ “state of the art” representation. Neither statement suffices to state a material misrepresentation.

Defendants’ purported misrepresentation that the Aeropharm facility was “state of the art” is a nonactionable statement of opinion, which cannot provide the basis for a fraud claim.

Next, Plaintiff does not plead in its Complaint that any individual actually stated that Aeropharm was able to receive the equipment necessary to begin production of the Product immediately. Neither the offer letter nor the near-identical oral statement alleged to have been made during merger negotiations by Daniel Salvadori contains the statement that Aeropharm was “ready to receive equipment necessary” for the manufacture of the drug.

Instead, Plaintiff contends that Defendants’ failure to disclose Aeropharm’s readiness was a fraudulent omission. However, an omission is only actionable as fraud where there is something akin to a fiduciary duty between the parties. No such relationship is alleged here. Instead, the Complaint alleges facts consistent with an arm’s length business relationship between the former shareholders and Defendants.

Nonetheless, Plaintiff asserts that Defendants had a duty to disclose the operational status of Aeropharm under New York’s “special facts” doctrine. The “special facts” doctrine requires satisfaction of a two-prong test: that the material fact was information peculiarly within the knowledge of the defendant, and that the information was not such that could have been discovered by the plaintiff through the exercise of ordinary intelligence. The Jana L. Court further noted that if the other party has the means available to him of knowing he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.

Even assuming for the sake of argument that the readiness of Aeropharm was peculiarly within Defendants’ knowledge, the status of the plant could have been discovered through the use of ordinary intelligence. Plaintiff alleges that the former shareholders were told that they could not inspect the plant during the due diligence process due to the production of another drug at the time. However, Plaintiff does not allege that the former shareholders asked any questions to assess the readiness of the plant or that it requested another inspection after it purportedly was denied access. Therefore, Plaintiff has not alleged that the former shareholders made use of the means available to them to discover Aeropharm’s readiness.

. . .

Next, to satisfy the scienter element of its fraud claim, [the plaintiff] alleges that the purported misrepresentations cited above were false when made and that Sandoz AG and its agents intended to induce the former shareholders to enter into the Merger Agreement based upon their misrepresentations and omissions. While Plaintiff makes this broad statement, [the plaintiff] does not plead any facts from which to infer that Defendants knew at the time that the statements were false or made with the intent to deceive.

Moreover, [the plaintiff’s] allegations are made collectively as to all Defendants. Under CPLR 3016(b), a fraud claim must be pleaded with particularity, and the circumstances constituting the alleged wrong must be stated in detail. [The plaintiff’s] group pleading falls far short of this mark.

. . .

Likewise, [the plaintiff] fails to plead reliance with the requisite particularity. The Complaint does not allege that the offer letter was sent to the former shareholders, nor does it assert that the alleged oral misrepresentations were made to any of the former shareholders, aside from the two “Principal Shareholders” identified. As a result, [the plaintiff] has not pleaded facts sufficient to set forth reliance on these alleged misrepresentations by the former shareholders, as the shareholders not present for the alleged oral misrepresentations and not in receipt of the offer letter cannot be alleged to have relied on representations they never received.

(Internal quotations and citations omitted) (emphasis added). You can use this decision as a road map of common pitfalls in pleading fraud.