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Posted: June 18, 2017

Fraud Claim Can Be Based on Breach of Contractual Warranties

On May 31, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Aegean Marine Petroleum Network Inc. v. Hess Corp., 2017 NY Slip Op. 31179(U), holding that a claim for fraud can be based on breach of a contractual warranty, explaining:

Under New York law, the plaintiff may plead a fraud claim, as well as a contract claim, if it alleges a misrepresentation of present fact, unlike a misrepresentation of future intent to perform under the contract. Hess argues that Aegean’s fraud claim must be dismissed as duplicative of its breach of contract claim because the alleged misrepresentation is a breach of an express representation in the PSA between the parties. Aegean opposes, arguing that, in understating costs and overstating revenues in Schedule 8, Aegean’s express representation was false and misleading, and under New York law, that alleged misrepresentation may form the basis of a separate fraud claim. Recently, in Wyle Inc. v ITT Corp., 130 A.D.3d 438 (1st Dep’t 2015), the First Department held that a plaintiff may assert a fraudulent inducement claim and a breach of contract claim, even where a fraud claim is based on a breach of contractual warranties notwithstanding the existence of a breach of contract claim. In reaching this conclusion, the court cited First Bank of Americas v Motor Car Funding, Inc., 257 A.D.2d 287, 292 (lst Dep’t 1999), in which plaintiff claimed that defendant intentionally misrepresented material facts about various present facts so that they would appear to satisfy these warranties. Similarly, here, Aegean alleges that in Schedule 8, Hess made several fraudulent representations about its business, i.e., omitting certain costs and/or including Port Reading in Schedule 8. These alleged misrepresentations may form both a claim for breach of the warranties in the PSA, and fraud in the inducement.

(Internal quotations and citations omitted).

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