Commercial Division Blog

Posted: January 19, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Category Commercial

Fraud Claim Barred Where Contract Expressly Disclaimed Reliance on Alleged Misrepresentation

On November 4, 2021,  Justice Emerson of the Suffolk County Commercial Division issued a decision in Arco Acquisitions, LLC v Tiffany Plaza LLC, 2021 NY Slip Op 51039(U), holding that a fraud claim is barred where a contract made between sophisticated parties expressly disclaimed reliance on the alleged false representation. . .

Here, the parties are sophisticated business people, and their agreement is the result of negotiations between them. The substance of the plaintiff's allegations is that the defendants misrepresented that there were no tenants in arrears in order to inflate the rent roll and increase the value of the property. These allegations clearly track the language used in the disclaimer, which specifically includes "leases" and "tenancies." The court finds that, like the disclaimer language in Dannan, the disclaimer language in this case is sufficient to estop the plaintiff from claiming that it entered into the agreement because of fraudulent representations. As the Court of Appeals noted, to hold otherwise would be to say that itis impossible for two businessmen dealing at arm's length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact (Dannan , supra a t323).

Contrary to the plaintiff's contentions, the facts that were allegedly misrepresented were not matters peculiarly within the defendants' knowledge, and the plaintiff had the means available to it of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation (Id. at 322). The plaintiff does not allege, nor does the record reflect, that the defendants prevented the plaintiff from contacting the tenants prior to the closing to determine the accuracy of the rent roll and tenant-estoppel certificates (cf., 651Bay St., LLC v Discenza, 189 AD3d 952, 954). Accordingly, the first cause of action for fraud is dismissed.

In the absence of a viable claim for fraud, the second cause of action for aiding and abetting fraud and the third cause of action for piercing the corporate veil (which, in any event, is not a cause of action) also fail. Accordingly, they are dismissed.

The attorneys at Schlam Stone & Dolan frequently litigate issues related to claims of fraud in commercial contracts.  Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding a fraud claim related to commercial contracts.

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