Disclaimer of Liability and No Reliance on Representation Clauses Revisited

• Posted on: Mar 15 2021

It has long been the law in New York that a party’s disclaimer of reliance on extra-contractual representations and omissions will not preclude a fraudulent inducement claim unless: (1) the disclaimer is specific to the fact alleged to be misrepresented or omitted; and (2) the alleged misrepresentation or omission does not concern facts peculiarly within the knowledge of the non-moving party. Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 323 (1959); MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011). “Accordingly, only where a written contract contains a specific disclaimer of responsibility for extraneous representations, that is, a provision that the parties are not bound by or relying upon representations or omissions as to the specific matter, is a plaintiff precluded from later claiming fraud on the ground of a prior misrepresentation as to the specific matter.” Basis Yield, 115 A.D.3d at 137.

[Ed. Note: this Blog previously examined no reliance or disclaimer causes, for example here and here.]

On March 11, 2021, the Appellate Division, First Department affirmed the dismissal of a fraudulent inducement claim because of the existence of an integration or merger clause and a “no representations” clause in which the defendants disclaimed liability for any extra-contractual representations. D’Artagnan, LLC v. Sprinklr Inc., 2021 N.Y. Slip Op. 01479 (1st Dept. Mar. 11, 2021) (here).

D’Artagnan involved an action to recover the money that plaintiff paid to license an integrated software platform provided by defendant Sprinklr Inc. According to the complaint, defendant allegedly deceived plaintiff by representing that defendant’s software would allow plaintiff to directly target its marketing to specific Facebook and Instagram users.

As a result, on or about June 2, 2017, the parties entered into a license, a master services agreement, and a statement of work (“SOW”) (collectively, the “Contract”). The master services agreement contained a general merger clause which provided that, “[t]his Agreement together with each Order Form and/or SOW is the entire agreement between the parties relating to this subject matter, and supersedes … all prior or contemporaneous understandings of the parties related thereto.” The master services agreement also contained a no representation clause, which provided that, “[n]o party has been induced to enter into this Agreement by, nor is any party relying on, any representation or warranty outside those expressly stated in this Agreement.” Following payment by plaintiff but prior to the use of defendant’s services or platform, plaintiff allegedly discovered that it could not target potential customers individually and directly through certain social media channels.

Plaintiff then commenced the action. The first cause of action called “for a declaration that no agreement was entered into between [the parties] because there was no meeting of the minds as to the material terms of the agreement.” The second cause of action for fraud alleged that defendant “misrepresented the capabilities of its platform and failed to disclose its limitations.” The third cause of action alleged a violation of the New Jersey Consumer Fraud Act. The fourth cause of action sought relief for negligent misrepresentation. The fifth cause of action alleged breach of contract, claiming that defendant’s “failure to provide plaintiff with the ability to target specific customers and direct advertisements to these particular customers on Facebook and Instagram constitute[d] a breach of the contract.” The sixth cause of action sought relief for unjust enrichment.

Defendant moved to dismiss. The motion court granted the motion (here).

The motion court found that “defendant did not represent to plaintiff that its software could directly target Facebook and Instagram users.” “In fact,” said the motion court, “defendant made the opposite representation.” The motion court pointed to a May 9, 2017 email, sent one month before the parties executed the Contract, in which defendant “explicitly state[d] that Facebook and Instagram’s privacy policies prevented direct targeting on Facebook and Instagram platforms.”

The motion court also held that the merger clause barred the fraud and negligent misrepresentation causes of action.

[Ed. Note: A merger clause is a provision in a contract that declares the writing to be the complete and final agreement between the parties. In New York, the courts have required the parties to specify the agreements and matters being merged or integrated into their agreement. See Hobart v. Schuler, 55 N.Y.2d 1023, 1024 (1982).

This Blog previously examined merger clauses and no reliance agreements here.]

On appeal, the Appellate Division, First Department unanimously affirmed.

In a short and concise decision, the Court held that “Plaintiff’s second, third and fourth causes of action were … correctly dismissed.” Without discussion, the Court agreed with the motion court’s conclusion that the merger clause barred the tort-based claims. Slip Op. at *2. (“In addition to a general merger clause, …” plaintiff’s claims were “not viable.”).

The Court specifically cited to the “No Additional Representation” clause in the Contract as a basis for barring the tort-based claims. The Court explained that the no-reliance clause specifically “disclaim[ed] liability and responsibility for any extra-contractual representation”, such as the one in which defendant allegedly represented that its software could directly target Facebook and Instagram users. Id. (citing WT Holdings Inc. v. Argonaut Group, Inc., 127 A.D.3d 544, 544 (1st Dept. 2015); Natoli v. NYC Partnership Hous. Dev. Fund Co., Inc., 103 A.D.3d 611, 613 (2d Dept. 2013)). The Court explained that “section 10.8 of the master services agreement” specifically provided that plaintiff “had not been ‘induced to enter into [the master services agreement] . . . nor [was] [plaintiff] relying on, and representation or warranty outside those expressly stated in [the master service agreement].’” Id. “In light of this specific agreement,” concluded the Court, “plaintiff’s claims sounding in fraud and negligent misrepresentation based upon parol evidence contained in the parties’ emails [were] not viable.” Id.

Takeaway

In Danann Realty, the Court of Appeals noted that “specific disclaimer[s] destroy[] the allegations in the complaint that the [subject] agreement was executed in reliance upon contrary oral representations.” 5 N.Y.2d at 320-21. D’Artagnan reiterates this basic principle of law. As the First Department observed, the contractual disclaimer at issue was specific to the matter at hand and directly addressed the subject of the alleged misrepresentation. Consequently, the contract provision at issue was specific enough to preclude the fraud and negligent misrepresentation claims.