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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: December 9, 2018

Fraud Claim Dismissed Because Plaintiff’s Alleged Reliance Was Not Reasonable

On November 28, 2018, Justice Schecter of the New York County Commercial Division issued a decision in Tall Tower Capital LLC v. Stonepeak Partners, LP, 2018 NY Slip Op. 33024(U), dismissing a fraud claim because the plaintiff’s alleged reliance was not reasonable, explaining:

To allege a cause of action based on fraud, plaintiff must assert a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury. Whether a party’s reliance is justified is often a question of fact not amenable to resolution on a motion to dismiss. In certain situations, however, it is question of law that can be determined from the pleadings.

Stonepeak’s fraud claims are dismissed for lack of justifiable reliance. A sophisticated plaintiff cannot establish that it entered into an arm’s length transaction in justifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the means of verification that were available to it. This rule applies where the falsity of a representation could have been ascertained by reviewing publicly available information.

The status of the Florida injunction was a matter of public record and could have been independently ascertained by Stonepeak. Stonepeak does not contend otherwise. Stonepeak does not allege that it took any steps to verify whether Denton’s questionnaire response regarding the status of the lawsuit was accurate. Hence, Stonepeak’s claim to have been fraudulently induced to continue working on the Clear Channel deal in reliance on that representation must be dismissed because such reliance is not justifiable due to Stonepeak’s own lack of due diligence. Stonepeak’s negligent misrepresentation claims are dismissed for the same reason.

(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 jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.

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