Commercial Division Blog

Posted: September 29, 2017 / Categories Commercial, Fraud/Misrepresentation

Fraudulent Inducement Claims Dismissed on Summary Judgment: No Reasonable Reliance

On September 15, 2017, Justice Sherwood of the New York County Commercial Division issued a decision in SFR Holdings Ltd. v. Rice, 2017 NY Slip Op. 31974(U), dismissing a fraudulent inducement claim on summary judgment for lack of reasonable reliance, explaining:

To prove fraudulent inducement to contract, a plaintiff must demonstrate the misrepresentation of a material fact, which was known by the defendant to be false and intended to be relied on when made, justifiable reliance and resulting injury. Plaintiffs have not demonstrated the element of justifiable reliance. Where, as here, the plaintiffs arc sophisticated investors, they bore a duty to exercise ordinary diligence and conduct an independent appraisal of the risk that they were assuming. A plaintiff cannot claim reliance where the documentary evidence establishes that he had accepted the risk of a speculative investment based on his independent investigation and without reliance on any representations by the defendant. Here, there can be no disputing that plaintiffs are investment funds with significant resources, understood the investment market and, therefore, arc sophisticated investors.

The written agreements executed by plaintiffs, or their predecessors-in-interest, and defendants include merger and disclaimer clauses that operate to bar the fraudulent inducement claim. Where the party alleging fraud has made its own specific representation indicating that it is not relying on the alleged inducement it is foreclosed from establishing its asserted reliance on the ground that it has misrepresented its true intention.

(Internal quotations and citations omitted).