Court Grants Motion To Dismiss Fraudulent Inducement Counterclaim As Contradicted By A Negotiated Representation In Agreement

Posted: April 23, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Commercial, Motion to Dismiss, Fraud/Misrepresentation

Court Grants Motion To Dismiss Fraudulent Inducement Counterclaim As Contradicted By A Negotiated Representation In Agreement

On April 1, 2025, Justice Joel M. Cohen granted plaintiff’s motion to dismiss certain counterclaims, including one for fraudulent inducement. World Host Group US, Inc. v. O’Cloud Ventures, LLC, Index No. 654128/2023. The Court explained:

Here, O’Cloud alleges that WHG falsely represented to O’Cloud that it had independently calculated the Agreed-Upon EBITDA; that it was satisfied with the results of its own independent investigation and evaluation during due diligence; that WHG knew its calculation of earnings was inconsistent with O’Cloud’s calculation, but knowing O’Cloud wanted to close the transaction quickly and had other potential purchasers, WHG falsely represented to O’Cloud that it had reached the same valuation to induce O’Cloud to enter the APA, resulting in damage to O’Cloud who was later forced to sell to another buyer at a lower price.

Even assuming this claim is pleaded with sufficient particularity, its core allegations are inconsistent with the express terms of the APA O’Connor claims it was induced to sign. The APA states that “[i]n making the decision to enter into this Agreement and to consummate the Transactions, except for its reliance on the Seller Party’s representations in Article III, Purchaser has (a) relied on its own independent due diligence investigation and evaluation of the Acquired Assets. . . .” (NYSCEF 27 § 4.6 [emphasis added]). Article III is titled “Representations and Warranties of Seller Parties” and includes representations by Seller about its financial information (NYSCEF 27, Art. III, §3.7). This agreed-upon language undermines O’Cloud’s assertion that its agreement to the transaction was predicated on its understanding that WHG was not relying on O’Cloud’s financial information. O’Cloud cites to no caselaw that suggests a viable claim of fraudulent inducement that contradicts a negotiated representation in the contract, and the Court is not inclined to sustain such a claim here.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning fraudulent inducement.