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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: May 3, 2014

No Fraud Without Justifiable Reliance on Alleged Misrepresentation

On May 1, 2014, the First Department issued a decision in Mosaic Caribe, Ltd. v. AllSettled Group, Inc., 2014 NY Slip Op. 03024, dismissingĀ a fraud claim because the alleged reliance was not justifiable.

In Mosaic Caribe, the First Department affirmed the denial of the plaintiff’s motion to amend. Among the issues the First Department addressed was whether the plaintiff had “sufficiently allege[d] justifiable reliance on [the defendant’s alleged] misrepresentation.” The First Department agreed that the plaintiff had not done so, explaining:

Plaintiff, who agreed to purchase the policy at issue at least a year after the alleged misrepresentation, should have sought verification of ownership of the policy before agreeing to purchase it for $3 million. Plaintiff cannot credibly claim that it had no available means of verification, as such information would have been available from defendant or the proposed defendants had plaintiff requested it.

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

This decision serves as a reminder that the justifiable reliance element of a fraud claim exists and–particularly for sophisticated commercial parties–the courts will not overlook it.

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