Commercial Division Blog
No Negligent Misrepresentation Claim From Arm's Length Transaction Between Sophisticated Parties
On November 26, 2013, the First Department issued a decision in Zohar CDO 2003-1 Ltd. v. Xinhua Sports & Entertainment Ltd., 2013 N.Y. Slip Op. 07860, affirming a decision finding that there was no "special relationship" between the parties in an arm's length commercial transaction.
In Zohar, the trial court dismissed a negligent misrepresentation claim, holding that there was no special relationship between the parties. The First Department affirmed, writing:
Where, as here, sophisticated parties expressly state in their heavily negotiated agreement that they are dealing at arm's-length, such a disclaimer bars a claim for negligent misrepresentation, because it precludes a finding of a special relationship. . . . That defendant had superior knowledge of her company's business and finances is not the type of special knowledge or expertise that will support this claim.
(Internal quotations and citations omitted).
Zohar illustrates, among other things, the value of contract language relating to due dilligence and the arm's length nature of a transaction. Such language may often seem like boilerplate, but it exists just for situations such as this.