Court Rejects Plaintiff’s Attempt to Void Release Based on Fraud
Print Article- Posted on: Jan 5 2026
By: Jeffrey M. Haber
It is well settled that a “valid release constitutes a complete bar to an action on a claim which is the subject of the release.”[1] “[A] release that, by its terms, extinguishes liability on any and all claims arising in connection with specified matters is deemed to encompass claims of fraud relating to those matters, even if the release does not specifically refer to fraud and was not granted in settlement of an actually asserted fraud claim.”[2]
A party may move to dismiss a pleading, pursuant to CPLR Rule 3211(a)(5), where the language of a release clearly and unambiguously covers the subject matter of the action.[3] In that case, “the signing of a release is a ‘jural act’ binding on the parties.”[4] However, a release may be invalidated for any of “the traditional bases for setting aside written agreements, namely, duress, illegality, fraud, or mutual mistake.”[5]
Although a defendant has the initial burden of establishing that it has been released from any claims, a signed release “shifts the burden of going forward . . . to the [plaintiff] to show that there has been fraud, duress or some other fact which will be sufficient to void the release.”[6]
When fraud is the basis of the motion, the party seeking to invalidate a release must “establish the basic elements of fraud, namely a representation of material fact, the falsity of that representation, knowledge by the party who made the representation that it was false when made, justifiable reliance by the plaintiff, and resulting injury.”[7] The mere nondisclosure of potential future transactions (which had not been finalized) or financial upside is not sufficient.[8] “[A] party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.”[9] As the Court of Appeals observed, “[w]ere this not the case, [then] no party could ever settle a fraud claim with any finality.”[10]
In Crane v. WP Strategic Holdings, LLC, 2025 N.Y Slip Op. 52064(U) (Sup. Ct., Albany County Sept. 10, 2025), the court dismissed a complaint, holding the action was barred by a broad, unconditional release the parties signed after arm’s-length negotiations with independent counsel.[11] As discussed below, the release expressly covered all claims, known or unknown, including those related to ownership and future sales. Plaintiff failed to demonstrate that the alleged nondisclosure of a pending sale constituted a separate fraud sufficient to undo the enforceability of the release.
In February 2024, plaintiffs entered into discussions with the managing member of WP Strategic Holdings, LLC (“WP”) to partner together for the purchase of a Delaware corporation known as Crane Special Papers North America, Inc. (“CSPNA”).[12] Plaintiffs each contributed $300,000 towards the acquisition, with the funds deposited into an escrow account maintained by the parties’ transactional counsel. In exchange for their contribution of capital, each plaintiff would receive 10% of CSPNA’s stock.
On March 14, 2024, the parties closed the transaction (“Closing”). During the Closing, WP allegedly informed plaintiffs that, to facilitate the expeditious purchase of CSPNA’s stock, the stock purchase agreement memorializing the transaction would show WP as the purchaser of the stock. Defendants allegedly represented that the parties would later document the fact that each plaintiff was the 10% owner of CSPNA’s stock. Plaintiffs alleged that, in reliance on the statements and representations defendants made during the Closing, plaintiffs authorized the release of the $600,000 held in escrow for the purchase of the CSPNA shares.
Plaintiffs alleged that, a few days later, in response to an inquiry from counsel regarding the allocation of the CSPNA shares, WP’s managing member acknowledged in writing that plaintiffs’ investment resulted in a 20% ownership interest in CSPNA. Notwithstanding, said plaintiffs, defendants failed to deliver their stock certificates.
Plaintiffs alleged that unbeknownst to them, on March 6, 2024, and prior to the Closing, WP was negotiating with Perfect Cube LLC d/b/a Decree Company of Raleigh, North Carolina (“Decree”) to sell CSPNA to Decree for approximately $9,750,000.” On May 17, 2024, Decree and WP executed a letter of intent (“LOI”) for the transaction.
After signing the LOI, defendants allegedly changed their position with respect to plaintiffs’ ownership interests in CSPNA. On May 28, 2024, after plaintiffs inquired about the lack of documentation, defendant allegedly informed plaintiffs that the parties “had different views on, among other things, their ownership interests in [CSPNA] and that their short- and long-term goals were no longer aligned.” WP offered to return the $600,000 in capital contributed by plaintiffs, together with an additional $60,000 “to address any inconvenience.”
Plaintiffs agreed to defendant’s proposal because the amount offered was allegedly close to the amount they had been led to believe was the value of CSPNA (e.g., $3 million). However, defendants allegedly did not inform plaintiffs that WP had already entered into the LOI on May 17, 2024, to sell the stock of CSPNA for $9,750,000. Plaintiffs maintained that they would have been entitled to $975,000 of that amount as 10% shareholders.
On June 3, 2024, WP presented plaintiffs with a proposed Agreement and Mutual Release (the “Release”), which defendants allegedly insisted plaintiffs sign as a condition of receiving $330,000 each. Plaintiffs shared the proposed Release with their counsel. After several rounds of revisions, plaintiffs, WP, CSPNA, and WP’s managing member signed the Release. As a result, each plaintiff received $330,000.
The Release provided that plaintiffs would release, among others, WP’s managing member, CSPNA, and WP, “jointly and severally, from any and all claims, rights, causes of action, suits, debts, dues, units, shares, stock, interests, sums of money, . . . , and all liability and obligations for the same, in law or in equity, whether contingent or fixed, known or unknown, . . . that [plaintiffs] ever had, now have, or hereafter . . . may have . . . by reason of any matter, cause or thing, from the beginning of the world until the date of this [Release].”
Plaintiffs affirmatively represented that they “entered into th[e] [Release] of their own free will and accord, [had] received independent legal counsel and review of th[e] [Release], and they [had] not been promised any additional future consideration with respect to the transactions contemplated by th[e] [Release].” Plaintiffs further acknowledged the unconditional nature of the Release and expressly recognized the prospect that WP “could sell the CSPNA Shares at any time in the future” without accounting to plaintiffs for the profits.
About one month later, on July 3, 2024, Decree acquired CSPNA through a merger for a purchase price of $9,750,000.
In January 2025, Decree’s principal supplied plaintiffs with documents showing that WP’s managing member had been negotiating the sale of CSPNA to Decree in March 2024.
Plaintiffs commenced the action on March 26, 2025, alleging that defendants breached their agreement “to issue stock certificates and documentation . . . to evidence [plaintiffs’] collective 20% ownership of the [CSPNA] stock . . . , as previously agreed upon [with WP’s managing member], because they were actively negotiating and preparing to sell the stock” to Decree.
Plaintiffs further alleged that defendants failed to inform them that defendants “had been negotiating with Decree . . . or that [defendants] had entered into the [LOI].” “Plaintiffs alleged that defendants violated their fiduciary duties to plaintiffs by deliberately withholding information regarding the LOI.
Plaintiffs sought to set aside the Release as the product of fraud, arguing that they would not have signed the Release if they had known that defendants “negotiated a sale of [CSPNA] for [$9.75 million].” Plaintiffs also sought to recover 20% of the $9.75 million paid by Decree for CSPNA, together with interest and punitive damages, under theories sounding in fraud, breach of fiduciary duty, unjust enrichment, constructive trust, and breach of contract.
Defendants moved to dismiss the complaint under CPLR 3211 (a) (1), (5) and (7), arguing that all of plaintiffs’ causes of action were foreclosed by the clear and unambiguous language of the Release, which was negotiated and signed by commercial parties represented by counsel.
The motion court granted the motion.[13]
The motion court held that “defendants [had] demonstrated, prima facie, that plaintiffs’ claims [were] barred by the Release.”[14] The motion court explained that “following the parties’ inability to agree on the terms by which plaintiffs would acquire an interest in CSPNA, plaintiffs ‘knowingly and voluntarily’ released defendants from any liabilities or obligations, ‘whether contingent or fixed, known or unknown,’ for ‘shares, stock, interests [or] sums of money.’”[15] “Thus,” said the motion court, “the Release encompasse[d] unknown fraud claims, thereby precluding a claim of fraudulent inducement ‘unless the release was itself induced by a separate fraud.’”[16]
The motion court found that “[n]o such separate fraud ha[d] been identified.”[17] “The claim of fraudulent inducement” said the motion court, was “based on defendants’ alleged fiduciary concealment of information concerning the LOI and the potential sale of CSPNA to Decree…, but this [was] just an extension of plaintiffs’ over-arching complaint: that defendants refused to accord them the rights and privileges attendant to an ownership interest in CSPNA, notwithstanding [WP’s] express promises of the same.”[18] “In essence,” concluded the motion court, plaintiffs were “‘asking to be relieved of the release on the ground that they did not realize the true value of the claims they were giving up.’”[19]
The motion court further held that even if plaintiffs had adequately identified a separate fraud, their claim that they were fraudulently induced to sign the release would still fail.[20] The motion court found that plaintiffs failed to allege justifiable reliance on the alleged fraud.[21]
The motion court explained that plaintiffs were “sophisticated businesspeople who were represented by their own separate counsel at pertinent times …, including during arm’s-length negotiations with defendants’ counsel over the terms of the Release.”[22] The motion court said that plaintiffs were on notice that the parties’ “short- and long-term goals were no longer aligned.”[23] “In fact,” noted the motion court, “defendants’ suspicious and ‘unresponsive nature after the March 14, 2024, Zoom Meeting,’ led one of plaintiffs’ advisors to recommend that they accept defendants’ settlement proposal because he believed that “[defendants’ were] being untruthful.”[24]
The motion court concluded that “[d]espite all of the[ ] red flags, settlement negotiations conducted at arm’s length through separate counsel, and a proposed Release that recognized WP’s right to sell CSPNA shares ‘at any time’ without accounting to plaintiffs…, plaintiffs made no inquiry concerning the value of their claimed interest in CSPNA or the reasons for defendants’ ‘abrupt[]’ change in position.”[25] “Plaintiffs did not inquire about the status of CSPNA’s business, the prospects for a sale of CSPNA’s stock, or the value of their claimed 20% ownership interest,” said the motion court.[26] “Instead,” noted the motion court, “plaintiffs ‘knowingly and voluntarily’ executed the Release based on their ‘belief’ that the $660,000 they would receive from defendants was ‘relatively close’ to the market value of the interest they claimed in CSPNA. In so doing, plaintiffs disregarded overt conduct on the part of defendants clearly evincing a breakdown in the relationship and an adversarial posture, including a clear statement that defendants no longer viewed the parties’ interests as being aligned.”[27]
Accordingly, the motion court dismissed the complaint, concluding that plaintiffs failed “to conduct any diligence as to the value of their released claims,” thereby “conclusively defeat[ing] the allegation that they reasonably and justifiably relied upon defendants’ silence regarding the non-binding LOI and other information bearing on the value of their claimed interest in CSPNA.”[28]
Takeaway
Crane reinforces critical principles with regard to the enforceability of releases. First, courts will enforce broad releases, including the release of known and unknown fraud claims, when the release is clear and unambiguous. Second, to void a release, a party must show a separate fraud, not just nondisclosure of facts tied to the released dispute. Finally, when trying to negate the force and effect of a release based on fraud, the party opposing the motion must demonstrate the elements of a fraud claim, including the exercise of justifiable reliance.
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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.
[1] Centro Empresarial Cempresa S.A. v AmÉrica MÓvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011); Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006).
[2] Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V., 76 A.D.3d 310, 319 (1st Dept. 2010), aff’d, 17 N.Y.3d 269, 276 (2011).
[3] Centro, 17 N.Y.3d at 276; Luxury Travel Coach v. 4020 Assoc., Inc., 241 A.D.2d 443, 443 (2d Dept. 1997).
[4] Booth v. 3669 Delaware, 92 N.Y.2d 934, 935 (1998), quoting Mangini v. McClurg, 24 N.Y.2d 556, 563 (1969).
[6] Id., quoting Fleming v. Ponziani, 24 N.Y.2d 105, 111 (1969).
[7] Id., quoting Global Mins., 35 A.D.3d at 98.
[8] Chadha v. Wahedna, 206 A.D.3d 523, 524 (1st Dept. 2022).
[9] Centro, 17 N.Y.3d at 276, citing Centro, 76 A.D.3d at 318; see also Bellefonte Re Ins. Co. v. Argonaut Ins. Co., 757 F.2.d 523, 527-528 (2d Cir. 1985); Avnet, Inc. v. Deloitte Consulting LLP, 187 A.D.3d 430, 431 (1st Dept. 2020).
[10] Id.
[11] Over the years, this Blog has examined numerous cases involving the enforceability of releases. Among the articles examining releases are: Releases and Fraudulent Inducement, General Release That Was Entered Because of Defendant’s Fraudulent Misrepresentations Held Not To Be Enforceable, and Release in Settlement Agreement Bars Class Action To Recover Damages For Certain Rent Overcharges.
[12] The factual discussion comes from the motion court’s decision and the allegations in plaintiffs’ complaint.
[13] Plaintiffs appealed the motion court’s order.
[14] Slip Op. at *4.
[15] Id.
[16] Id., quoting Centro, 17 N.Y.3d at 277.
[17] Id.
[18] Id. (record citations omitted).
[19] Id., quoting Centro, 17 N.Y.3d at 277 (internal quotation marks omitted).
[20] Id. at *5.
[21] Id.
[22] Id. (record citations omitted).
[23] Id. at *6.
[24] Id.
[25] Id. (record citation omitted).
[26] Id. (citations and footnote omitted).
[27] Id. (record citation omitted).
[28] Id. at *7 (footnote omitted).
Tagged with: Business Litigation, CPLR 3211(a)(5), Fraud, General Release
