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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: November 28, 2015

Plaintiff Fails to Plead Fraud Claim Under Special Facts Doctrine

On October 9, 2015, Justice Ramos of the New York County Commercial Division issued a decision in ZFI Endowment Partners, L.P. v. Goldin, 2015 NY Slip Op. 32203(U), dismissing a fraud claim because plaintiff had not alleged facts sufficient to excuse its lack of due diligence under the special facts doctrine, explaining:

[The plaintiff] admits that it does not have a fiduciary relationship and that it is not in privity with the AM Defendants. However, [the plaintiff] argues that the AM Defendants had a duty to disclose the Omissions pursuant to the special facts doctrine, which provides that when one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair.

As a threshold matter, the doctrine requires satisfaction of a two-prong test: that the material fact was information peculiarly within the knowledge of the AM Defendants, and that the information was not such that could have been discovered by [the plaintiff] through the exercise of ordinary intelligence. [The plaintiff] fails to alleges facts sufficient to satisfy the test.

[The plaintiff] admits that it did not conduct any due diligence . . . because it contends that it is not customary practice to evaluate the custodian in participation investments. The law is clear that [the plaintiff] had at the very least, a duty to inquire.

(Internal quotations and citations omitted) (emphasis added). The court further held that the information was not solely in the defendant’s control, and thus the plaintiff had other means to discover it.

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