Failure To Read Relevant Documents Prevents Claim Of Justifiable Reliance

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Posted on: Oct 4 2023

As readers of this Blog know, one of the elements of a fraudulent inducement claim is “justifiable reliance.” The New York Court of Appeals has emphasized the importance of the justifiable reliance element, noting that it is a “fundamental precept” of a fraud claim and is critical to the success of such a claim.¹

Determining whether a plaintiff justifiably relied on a misrepresentation or omission, however, is “always nettlesome” because it is so fact-intensive.² Recognizing this difficulty, the courts look to whether the plaintiff exercised “ordinary intelligence” in ascertaining “the truth or the real quality of the subject of the representation.”³ Where the falsity of a representation could have been ascertained by reviewing “publicly available information,” courts have not hesitated to dismiss a fraud claim because of the failure to satisfy the justifiable reliance element.⁴

The same is true with regard to documents that a party signs, such as contracts, offering plans, and private placement memoranda. “A party who signs a document without any valid excuse for not having read it is ‘conclusively bound’ by its terms.”⁵ When that happens, the plaintiff’s failure to read the document prevents him/her from establishing justifiable reliance.⁶

In Dille v. Zoelle LLC, 2023 N.Y. Slip Op. 04923 (1st Dept. Oct. 3, 2023) (here), the Appellate Division, First Department examined the foregoing principles in affirming the dismissal of a complaint alleging fraudulent inducement.

Dille involved the purchase a condominium unit. Plaintiff entered into a contract of sale to purchase the unit for $19,000,000 from Zoelle. Plaintiff alleged that she agreed to purchase the unit in reliance upon extra-contractual representations made by Zoelle that the building had a full-time doorman.

As noted by the Court, “the building has a doorman physically present during the daytime hours of each day, and a virtual doorman for the remaining hours that a doorman is not physically present on site.”⁷ Plaintiff alleged that a full-time doorman, who was physically present, was material to her decision to enter into the contract to purchase the unit. As a consequence of the alleged misrepresentations, plaintiff refused to close the transaction, declaring the contract null and void and seeking a return of the $1,900,000 down payment that was made under the contract of sale.

Zoelle moved to dismiss the complaint pursuant to CPLR §§ 3211(a)(1)⁸ and (7). Zoelle also sought an order directing that the escrowee immediately release the contract deposit of $1.9 million.⁹ Among other things, Zoelle argued that the existence of a virtual doorman could have been discovered by plaintiff by reading the condominium offering plan, which was available to plaintiff and which provided that there was a virtual doorman during certain hours of operation. The motion court granted the motion (here).

The motion court found “that [the] condominium offering plan, which was undisputedly available to the plaintiff, establishe[d] a complete defense as to plaintiff’s fraud claims.” The motion court noted that “there [was] no requirement in the contract [of sale] that the subject premises have a doorman, let alone a full-time doorman.” As such, the motion court held that plaintiff failed to satisfy the justifiable reliance element of her fraudulent inducement claim.

On appeal, as noted, the First Department affirmed.

The Court found that “[t]he documentary evidence utterly refutes plaintiff’s allegations that she justifiably relied upon defendants’ alleged misrepresentations regarding the building’s doorman services.”¹⁰ The Court explained that “[t]he condominium’s offering plan outlined the physical doorman hours versus the virtual doorman hours, and the sale contract provides that the ‘Purchaser has examined or has waived the examination of … the offering plan, all amendments to the offering plan, the Declaration, the By-Laws and the House Rules.’”¹¹ The Court also noted that the contract of sale provided “that the purchaser has inspected or waived inspection of the premises, and that the seller is not bound by any representations as to the premises made by its employees or agents unless such representations were specifically made part of the contract of sale.”¹² The contract of sale “did not,” said the Court, “contain any provision addressing expected doorman services.”

The Court “reject[ed] plaintiff’s claims … that defendants’ representatives concealed the existence of a virtual doorman during plaintiff’s pre-contract inspections of the premises, and that the virtual doorman service was within defendants’ peculiar knowledge.”¹³ “Due diligence by plaintiff,” said the Court, “would have discovered the doorman arrangement at the building, particularly given that the information was set forth in the condominium offering plan and given that under the terms of the contract, plaintiff bore the risk of failing to review that document.”¹⁴ Finally, the Court noted that plaintiff did not allege that she “made a specific inquiry into the doorman services during [her] inspection of the premises or at any time before entering into the contract.”¹⁵

[This Blog examined a fact scenario similar to Dille here.]

Takeaway

To demonstrate reliance, a plaintiff must demonstrate that he/she relied upon the alleged misrepresentation to his/her detriment. Such reliance must be “justifiable” and “reasonable.”¹⁶ Thus, as noted above, where a party has the means to discover “the true nature of the transaction by the exercise of ordinary intelligence and fails to make use of those means, he cannot claim justifiable reliance on defendant’s misrepresentations.”¹⁷

In Dille, plaintiff could not demonstrate reasonable reliance on the alleged misrepresentations about the existence of a full-time doorman because, among other things, she failed to read the offering plan. As noted by the Court, the disclosures in the offering plan, and the terms of the contract, made it unreasonable to rely on any statement concerning the existence of a full-time doorman. The law is settled that “a party will not be excused from his failure to read and understand the contents of a [relevant document].”¹⁸ For this reason, “the signer of a written agreement is conclusively bound by its terms unless there is a showing of fraud, duress or some other wrongful act on the part of any party to the contract.”¹⁹ In Dille, there was no evidence of such conduct.

Footnotes

Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018).
DDJ Mgt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted).
Curran, Cooney, Penney v. Young & Koomans, 183 A.D.2d 742, 743) (2d Dept. 1992). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959).
E.g., HSH Nordbank AG v. UBS AG, 95 A.D.3d 185, 195 (1st Dept. 2012); see also Churchill Fin. Cayman, Ltd. v. BNP Paribas, 95 A.D.3d 614 (1st Dept. 2012).
Ferrarella v. Godt, 131 A.D.3d 563, 567-568 (2d Dept. 2015) (quoting Gillman v. Chase Manhattan Bank, 73 N.Y.2d 1, 11 (1988)); see also Sorenson v. Bridge Capital Corp., 52 A.D.3d 265, 266 (1st Dept. 2008).
Stortini v. Pollis, 138 A.D.3d 977, 978 (2d Dept. 2016); Sorenson, 52 A.D.3d at 266.
Slip Op. at *1.
A motion to dismiss pursuant to CPLR § 3211(a)(1) (i.e., that the action is barred by documentary evidence) may be granted only where the documentary evidence utterly refutes a plaintiff’s factual allegations, and conclusively establishes a defense as a matter of law. See Goshen v. Mutual Life Ins. Co. of New York, 98 N.Y.2d 314, 327 (2002). Judicial records, as well as documents reflecting out-of-court transactions, such as mortgages, deeds, contracts, and any other papers, the contents of which are “essentially undeniable,” qualify as “documentary evidence” in the proper case. Fontanetta v. Doe, 73 A.D.3d 78 (2d Dept. 2010). This Blog examined CPLR § 3211(a)(1) here and here, for example.
The other defendants also moved to dismiss the complaint.
Slip Op. at *1 (citations omitted).
Id.
Id. This Blog previously examined “no reliance” clauses and “disclaimers”, such as the one referenced above, here, here, and here.
Id.
Id. (citations omitted).
Id. at *1-*2.
Daly v. Kochanowicz, 67 A.D.3d 78, 91 (2d Dept. 2009).
Rosenblum v. Glogoff, 96 A.D.3d 514, 515 (1st Dept. 2012).
Johnson v. Thruway Speedways, 63 AD2d 204, 205 (3d Dept. 1978) (citation omitted).
Columbus Trust Co. v. Campolo, 110 A.D.2d 616, 617, aff’d, 66 N.Y.2d 701 (1985).

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.