Commercial Division Blog

Posted: February 23, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Categories Commercial, Contracts, Fraud/Misrepresentation, GBL 349

Plaintiff Cannot Claim Fraud Despite Concealment Where Party’s Action Was Consistent with SLA

On January 27, 2022, Justice Borrok of the New York County Commercial Division issued a decision in HOV Servs., Inc. v ASG Tech. Group, Inc., 2022 NY Slip Op 30299(U), granting defendant’s motion to dismiss claims for fraudulent inducement and violation of GBL § 349 and denying plaintiff’s affirmative defense of fraud where plaintiff alleged, among other things, that defendant concealed its belief that plaintiff was in violation of the Overlapping Customer Restriction in the SLA:

To state a cause of action for fraudulent inducement, a party must allege an intentional material misrepresentation, intent to defraud, reasonable reliance, and damages ( Connaughton v Chipotle Mexican Grill, Inc., 135 AD3d 535, 537 [1st Dept 2016], affirmed 29 NY3d 137 [2017]). An omission does not constitute fraud unless there is a fiduciary relationship between the parties (Cobalt Partners, L.P. v GSC Capital Corp., 97 AD3d 35, 42 [1st Dept 2012]). HOV fails to allege that such a relationship existed here, and, as such, the cause of action for fraudulent inducement must be dismissed.

HOV' s cause of action for breach of GBL § 349 must also be dismissed. As discussed above, the complaint is based on conduct arising out the SLA, an agreement negotiated between two sophisticated parties. That the conduct may have affected HOV's customers does not rise to consumer-oriented conduct implicating GBL § 349. Therefore, the GBL § 349 cause of action must also be dismissed.

Similarly, the Court rejected plaintiff’s affirmative defense of fraud:

HOV' s affirmative defense of fraud, like its cause of action for fraudulent inducement, is based on ASG' s omission that HOV was in violation of the Overlapping Customer Restriction and fails for the reasons stated above. 

HOV alleges an affirmative defense of waiver of the Overlapping Customer Restriction because ASG did not provide customer lists or information to HOV to allow HOV to determine which customers might be subject to the Overlapping Customer Restriction and concealed from HOV that it believed HOV was in violation of the Overlapping Customer Restriction. This defense fails because ASG was not obligated, contractually or otherwise, to provide such information to HOV. As discussed above, ASG may however be estopped from asserting claims based on Exhibit E.

Courts generally will not infer obligations that were not negotiated by sophisticated parties. Companies protect their interests with well-drafted contracts that address the concerns and needs particular to their business.  Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client would like assistance with a transactional or business litigation matter.