Fraudulent Inducement and The Independent Contractor Agreement

• Posted on: Jul 9 2025

By: Jeffrey M. Haber

In Wilburger v. Ava Labs, Inc., 2025 N.Y. Slip Op. 51072(U) (Sup. Ct., N.Y. County July 3, 2025) (here), plaintiff sued defendant for breach of contract, unjust enrichment, and fraudulent inducement related to unpaid compensation for services rendered under an Independent Contractor Agreement. Plaintiff alleged that he worked over 2,300 hours between 2019 and 2023, including tasks beyond the scope of the agreement, and was promised payment in AVAX cryptocurrency tokens. After initially receiving 100,000 AVAX tokens, plaintiff claimed he was owed an additional 150,000 tokens, based on various agreements and assurances by defendant’s executives.

Thereafter, plaintiff signed two additional agreements with defendant, which, according to plaintiff, included conditions for receiving the tokens and treated receipt of the tokens as options rather than earned compensation. Plaintiff claimed that he was misled into signing these agreements based on repeated assurances that the foregoing terms were legal formalities and that the tokens had already been earned. The court found plaintiff’s allegations sufficiently detailed to support a fraudulent inducement claim and denied defendant’s motion to dismiss the fraudulent inducement claim with respect to the agreements. In so holding, the court permitted plaintiff to rely on parol evidence to support his claim because there was no disclaimer in the agreements that negated his allegations of reliance.

Background Facts

Plaintiff brought the action defendant, asserting claims in connection defendant’s purported failure to compensate plaintiff for services rendered pursuant to an independent contractor agreement.

Defendant is a New York City-based company that offers an open-source framework to businesses for developing decentralized finance applications and blockchain solutions through its platform known as Avalanche. To facilitate development on this framework, defendant uses a cryptocurrency token called AVAX as its basic unit of account.

To build its branding and corporate identity, defendant Labs contracted with plaintiff in 2019 pursuant to an Independent Contractor Agreement (the “ICA”). Plaintiff agreed to render services to defendant in exchange for a lump sum payment of $3,800.00 at the end of the engagement and/or “a mutually agreed upon fixed lump sum payment” for any “extra requests” deemed “out of the scope of” the ICA’s enumerated services. Upon termination of the ICA, defendant was obligated to pay, within 30 days, all amounts due and owing to plaintiff for services actually performed.

Between 2019 and 2023, Wilburger devoted more than 2,300 hours to expand defendant’s community outreach and provided, at defendant’s request, an array of services that were outside scope of the ICA. In exchange for the additional services, defendant agreed to compensate plaintiff with AVAX tokens. An initial compensation of AVAX tokens occurred in or around April 2020, when defendant, via one of its subsidiaries, offered plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.33 per token through a contract dated April 12, 2020 (the “April 12 Agreement”). The next month, on May 20, 2020, plaintiff wired $33,000 USD Coin (“USDC”) and received 100,000 AVAX tokens in return. Plaintiff alleged that beyond this transfer, defendant used a series of agreements and amendments to deprive him of an additional 150,000 AVAX tokens purportedly due and owing to him.

Initially, on May 15, 2020, defendant, via one of its subsidiaries, granted plaintiff the right to acquire 100,000 AVAX tokens at a rate of $0.50 per token. This amount was increased to 150,000 AVAX tokens. A few days later, on May 19, 2020, plaintiff was presented with an agreement titled “Proposed Changes to your Consultant Agreement,” which amended the ICA (the “May 19 Amendment”).

Under the May 19 Amendment, Section 3 of Exhibit A of the ICA would be amended to provide that plaintiff would “be granted a one-time right to purchase 150,000 AVA Mainnet tokens.” Section 3 of Exhibit A was further amended to state that plaintiff’s tokens would “vest in 25% of the Restricted Tokens after 12 months of continuous service, and the balance [would] vest in equal monthly installments over the next 36 months of continuous service.” Plaintiff maintained that, notwithstanding the inclusion of the terms “right to purchase” and “continuous service” in the May 19 Amendment, he was assured by defendant that he had already earned the 150,000 AVAX tokens and that, according to defendant’s Chief Operating Officer (“COO”), the inclusion of the term “continuous service” was “just legalese” and “largely irrelevant”. Based on the representations, plaintiff signed the May 19 Amendment.

On June 7, 2020, after plaintiff received his compensation of 100,000 AVAX tokens, defendant allegedly agreed, via chat communication between Wilburger and the COO, that plaintiff would—through “a discount of 33% on the current sale” of AVAX tokens and a $17,000 USDC “credit” to “top off” plaintiff’s initial $33,000 USDC investment—be entitled to 150,000 AVAX tokens that would “unlock[] at the investor schedule.” In that same communication, the COO also indicated that defendant would offer plaintiff “an additional 90k tokens on top of the contract,” which would “unlock[] at the employee 4 year vesting schedule.” Defendant then purportedly later agreed, again via chat communication, to increase the additional 90,000 AVAX tokens to 100,000 AVAX tokens. Hence, plaintiff averred, defendant, through the COO, had reiterated that it was granting him 150,000 AVAX tokens, with 50,000 AVAX tokens still outstanding, and confirmed that plaintiff would receive an additional 100,000 AVAX tokens in compensation for his services. In other words, plaintiff maintained that he was promised a total of 250,00 AVAX tokens from defendant and, to date, he had received only 100,000 of them.

Plaintiff alleged that he was repeatedly assured by defendant’s Chief Executive Office (“CEO”), its Head of Strategy and Operations, and additional personnel, that his acquisition of the outstanding 150,000 AVAX tokens “had been conclusively secured” in exchange for plaintiff’s professional contributions and USDC payments. Yet, by September 16, 2020, according to plaintiff, defendant had still not transferred to plaintiff the remaining 150,000 AVAX tokens that were promised by the COO. Instead, said plaintiff, defendant presented plaintiff with a document titled the Antarctica, Inc. 2020 Equity Incentive Plan (the “Antarctica Agreement”).

Under the terms of the Antarctica Agreement, defendant, through Antarctica, would grant plaintiff the option to acquire 150,000 AVAX tokens. This option would “vest with respect to one-forty-eighth (1/48th) of the covered Shares on the 12-month anniversary of the Vesting Commencement Date and then as to an additional one-forty-eighth (1/48th) of the covered Shares on each subsequent month thereafter for the next forty-seven months.” Like the May 19 Amendment, plaintiff’s option to purchase AVAX tokens was subject to his “continuous service”.

Upon receiving the Antarctica Agreement, plaintiff allegedly expressed various concerns, including the fact that the 150,000 AVAX tokens that he was still owed were now seemingly being converted into an option. In response to these alleged concerns, defendant purportedly told plaintiff that (1) plaintiff had already earned the 150,000 AVAX tokens “with [his] labor,” (2) there would be no need for plaintiff to purchase the AVAX tokens, and (3) the Antarctica Agreement was nothing more than a recordkeeping formality. Although he continued to have questions about the Antarctica Agreement, plaintiff signed the agreement on September 21, 2020, purportedly under pressure from defendant.

On October 28, 2023, defendant terminated the ICA without cause. Yet, despite its repeated assurances, claimed plaintiff, defendant has, to date, never issued any of the remaining 150,000 AVAX tokens purportedly owed to plaintiff. Hence, plaintiff maintained, defendant had failed to pay him all amounts due and owing under the ICA for services actually performed. Plaintiff further maintained that defendant’s failure to issue the remaining 150,000 prevented him from earning valuable “staking” rewards in an amount of at least 69,650 AVAX tokens.

The Court’s Ruling

Plaintiff brought the lawsuit, alleging, breach of contract, unjust enrichment and fraudulent inducement. Defendant moved to dismiss the fraud claim – e.g., misrepresentations by defendant that induced him to sign the May 19 Amendment and Antarctica Agreement. The court denied in part and granted in part the motion.

Noting that the complaint was “not a model of clarity,” the court held that “all of the required elements of a fraudulent inducement claim are present.”[1] The court found that, although plaintiff “apparently recognized that the terms of [the May 19 Amendment and the Antarctica Agreement] were at odds with [defendant’s] unconditional promise to compensate him with the remaining 150,000 AVAX tokens he was owed …. [defendant] … repeatedly assured [plaintiff] that all of his AVAX tokens were already earned and that the May 19 Amendment and Antarctica Agreement were nothing more than mere formalities that had no actual bearing on his earned compensation.”[2] “Thus,” explained the court, “relying on [defendant’s] assurances, [plaintiff] executed these two agreements.”[3] “Eventually,” further explained the court, defendant “terminated [plaintiff’s] contractual relationship under the ICA and, contrary to its prior representations, used the May 19 Amendment and the Antarctica Agreement as a basis to deny compensating [plaintiff] with his remaining 150,000 AVAX tokens.”[4] “Consequently,” concluded the  court, “as alleged, [defendant’s] repeated assurances proved to be false.

[Eds. Note: Under CPLR 3016 (b), the circumstances constituting fraud must be stated with sufficient detail “to permit a reasonable inference of the alleged conduct.”[5]  To satisfy the particularity requirement, the plaintiff must allege such facts as the time, place, and content of the defendant’s false representations, as well as the details of the defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result. Put another way, the complaint must identify the “who, what, where, when and how” of the alleged fraud.

Notwithstanding, in Pludeman v.Northern Leasing Systems, Inc., the Court of Appeals held that CPLR 3016(b) “should not be so strictly interpreted as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud.”[6] Therefore, at the pleading stage, a complaint need only “allege the basic facts to establish the elements of the cause of action.”[7] Thus, as noted, a plaintiff will satisfy CPLR 3016(b) when the facts permit a “reasonable inference” of the alleged misconduct.[8]]

The court rejected defendant’s argument that plaintiff’s “fraudulent inducement claim must be dismissed because he … failed to establish justifiable reliance.”[9] Defendant argued that plaintiff improperly relied on the extra-contractual statements and assurances to contradict the express terms of the May 19 Amendment and Antarctica Agreement.[10]

Under New York law, a party is generally not permitted to introduce extrinsic evidence to vary or add to the terms of a contract.[11] However, “where the complaint states a cause of action for fraud, the parol evidence rule is not a bar to showing the fraud” unless the agreement between the parties expressly disclaims reliance on the particular misrepresentation underlying the fraud claim.[12]

Against the foregoing principles, the court found that defendant “fail[ed] to identify any specific disclaimer of reliance on the at-issue alleged misrepresentations made by [defendant].”.[13] “For this reason,” explained the court, “there [was] no basis at the pleading stage to conclude that, as a matter of law, it was unreasonable for [plaintiff] to rely on [defendant’s] extra-contractual misrepresentations to support his fraudulent inducement claim in connection with his execution of the May 19 Amendment and Antarctica Agreement.”[14]

[Eds. Note: In New York, a party’s disclaimer of reliance cannot 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.[15] “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.”[16]]

Notwithstanding the foregoing ruling, the court reached a “a different conclusion … with respect to [plaintiff’s] other purported claim … that he was fraudulently induced to transfer $50,000 USDC in exchange for a promise to transfer 150,000 AVAX tokens.”[17] “As a preliminary matter,” noted the court, “although the Complaint does reference [plaintiff’s] transfer of $50,000 USDC …, he failed to plead any facts, let alone with specificity, suggesting that this transfer was the product of fraud or even the basis of a fraud claim.”[18] “Therefore,” concluded the court, “even if [plaintiff] were asserting this particular claim as part of his Third Cause of Action, it was not pleaded with any sufficient amount of particularity to survive a motion to dismiss.”[19]

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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] To state a claim for fraudulent inducement, a plaintiff must allege “(1) a misrepresentation or an omission of material fact which was false and known to be false by the defendant, (2) the misrepresentation was made for the purpose of inducing the plaintiff to rely upon it, (3) justifiable reliance of the plaintiff on the misrepresentation or material omission, and (4) injury.” CANBE Props., LLC v. Curatola, 227 A.D.3d 654, 656 (2d Dept. 2024).

[2] Slip Op. at *5.

[3] Id.

[4] Id.

[5] Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (citation omitted).

[6] Id. at 491 (internal quotation marks and citation omitted).

[7] Id. at 492.

[8] Id.

[9] Slip Op. at *5-*6.

[10] Id. at *6.

[11] See generally NAB Constr. Corp. v. Consolidated Edison Co. of NY, Inc., 222 A.D.2d 381, 381 (1st Dept. 1995).

[12] See Danann Realty Corp v. Harris, 5 N.Y.2d 317, 320 (1959); International Bus. Machs. Corp. v. GlobalFoundries US Inc., 204 A.D.3d 441, 442 (1st Dept. 2022) (permitting use of parol evidence to establish fraudulent inducement claim where “the various contracts’ merger clauses [were] general, vague, and merely omnibus statements”); Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Wise Metals Group, LLC, 19 A.D.3d 273, 275 (1st Dept. 2005) (holding that “only where the parties expressly disclaim reliance on the particular misrepresentations is extrinsic evidence barred” for purposes of a fraudulent inducement claim).

[13] Slip Op. at *6.

[14] Id. (citations omitted).

[15] Basis Yield Alpha Fund [Master] v. Goldman Sachs Group, Inc., 115 A.D.3d 128, 137 (1st Dept. 2014). See also Danann Realty, 5 N.Y.2d at 323; MBIA Ins. Corp. v. Merrill Lynch, 81 A.D.3d 419 (1st Dept. 2011).

[16] Basis Yield, 115 A.D.3d at 137.

[17] Slip Op. at *7.

[18] Id.

[19] Id. (citation omitted). The court noted that “even assuming the allegations underlying [the] specific theory of fraud was sufficiently particular, the claim would still be dismissed as currently framed because, as [defendant] aptly note[d], ‘a mere failure to perform’ a promise is ‘insufficient to sustain a cause of action alleging fraud.”” Id. (citing Cavalry Invs., LLC v. Household Automotive Fin. Corp., 8 A.D.3d 317, 318 (2d Dept. 2004)).

Tagged with: Disclaimer of Reliance, Fraud, Fraudulent Inducement, parol evidence, Particularity