Commercial Division Blog
Trial Court Properly Declined to Decide Issue of Reasonable Reliance on Summary Judgment
On December 17, 2019, the First Department issued a decision in Norddeutsche Landesbank Girozentrale v. Tilton, 2019 NY Slip Op. 08965, holding that a trial court properly declined to decide the question of a plaintiff's reasonable reliance on summary judgment, explaining:
Summary judgment is precluded by issues of fact as to whether plaintiffs' losses were proximately caused by defendants' alleged fraud.
Further, the facts do not present the rare circumstance in which the issue of reasonable reliance can be resolved at the summary judgment stage of a fraud case. It is true that New York law imposes an affirmative duty on sophisticated investors to protect themselves from misrepresentations made during business acquisitions by investigating the details of the transactions and the business they are acquiring and that when the party to whom a misrepresentation is made has hints of its falsity, a heightened degree of diligence is required of it. However, in a prior appeal in this case, this Court found that much of the information and disclosures that defendants contend triggered a duty of inquiry beyond the inquiry that plaintiffs undertook can be interpreted in a myriad of ways and does not facially clash with plaintiffs' position that, even having some knowledge that the Funds had an equity component to them, they could not have known before the SEC proceeding the extent to which defendants used plaintiffs' investment to acquire and control the Portfolio Companies, or otherwise had an obligation, based on that evidence, to further investigate. In the instant motion, defendants did not cite any evidence that surfaced thereafter in discovery that would warrant a different conclusion.
Similarly, the evidence adduced in discovery as to plaintiffs' knowledge that the Zohar Funds included equity interests in distressed companies does not eliminate issues of fact as to whether the information plaintiffs had was sufficient to place them on inquiry notice of the alleged fraud before May 2013, and therefore does not permit a conclusion as a matter of law that the fraud claim is barred by the statute of limitations.
(Internal quotations and citations omitted).
Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule that a sophisticated businessperson's reliance on a false statement must be reasonable. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.