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Current Developments in the Commercial Divisions of the
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Posted: April 29, 2017

Fraudulent Inducement Claim Dismissed For Failure to Allege Due Diligence

On April 7, 2017, Justice Bransten of the New York County Commercial Division issued a decision in Drummond Decatur & State Properties, LLC v. 10500 Drummond Road Partners LP, 2017 NY Slip Op. 30727(U), dismissing a fraudulent inducement claim for failure adequately to allege due diligence, explaining:

A representation of present facts is collateral to the contract and therefore involves a separate breach of duty. Accordingly, Plaintiffs fraudulent inducement claim is not duplicative of the breach of contract claim. However, Plaintiff fails to allege its reliance on Defendants’ alleged misrepresentation was reasonable, as is required to allege fraud under New York law. Plaintiff merely provides conclusory allegations that it reasonably relied on Defendants’ representations without alleging facts or evidence indicating that its reliance was reasonable. Plaintiff does not allege it conducted due diligence inspections of the properties prior to the Closing. Moreover, as a condition precedent to Closing under the Agreement, Defendants were required to hire a licensed roof company to inspect and repair the roof of each property, and provide a five year guarantee as to the continued use of the roofs. Plaintiff concedes Defendants never provided the roof guarantee at Closing, yet; Plaintiff nevertheless purchased the Properties without it. Plaintiff does not allege, nor does the Court find, Plaintiffs reliance on Defendants’ representation was reasonable. Therefore, Defendants’ motion to dismiss the fraudulent inducement claim is granted.

(Internal quotations and citations omitted).

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