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Publicly Available Information Undermines Plaintiff’s Claim of Justifiable Reliance on Alleged Misrepresentation

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  • Posted on: Dec 12 2018

As readers of this Blog know, one of the elements of a fraud claim is “justifiable reliance.” In Ambac Assurance Corp. v. Countrywide Home Loans, Inc., 31 N.Y.3d 569 (2018), the New York Court of Appeals 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.

Determining whether a plaintiff justifiably relied on a misrepresentation or omission, however, is “always nettlesome” because it is so fact-intensive. DDJ Mgt., LLC v. Rhone Group L.L.C., 15 NY3d 147, 155 (2010) (internal quotation marks omitted). 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.” Curran, Cooney, Penney v. Young & Koomans, 183 A.D.2d 742, 743) (2d Dept. 1992) (“if the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations.”) (citation and internal quotation marks omitted). See also Danann Realty Corp. v. Harris, 5 N.Y.2d 317, 322 (1959).  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. 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).

Satisfying the foregoing rules is even more difficult where the plaintiff is a sophisticated individual or entity, as the court in Tall Tower Capital LLC v. Stonepeak Partners, LP, 2018 N.Y. Slip Op. 33024(U) (here), recently held. [Ed. Note: This Blog recently wrote about the difficulties encountered by a sophisticated party in satisfying the justifiable reliance element of a fraud claim. Here.]


Tall Tower arose from an alleged breach of a Confidentiality and Non-Circumvention Agreement between the plaintiff, Tall Tower Capital LLC, and the defendant, Stonepeak Partners, LP, pursuant to which the parties agreed “to pursue jointly potential transactions in the wireless communications industry.” The Agreement required exclusivity on potential deals that the parties were jointly pursuing and prohibited them from circumventing this exclusivity arrangement. Tall Tower alleged that between January and November 2014, while the parties were pursuing a potential transaction in which they would acquire and manage Clear Channel telecommunications assets, Stonepeak began breaching the Agreement when it partnered with Vertical Bridge to bid on and acquire the assets. Vertical Bridge won the bid in December 2014.

Tall Tower brought suit against Stonepeak, alleging only one cause of action: breach of the Confidentiality and Non-Circumvention Agreement. Stonepeak answered the complaint and asserted three counterclaims, one of which was for fraudulent inducement.

The counterclaims were based on the fact that two Tall Tower executives working with Stonepeak on the Clear Channel deal – Dale West, the CEO; and David Denton, the President – were enjoined by a Florida court from working in the broadcast tower industry due to restrictive covenants in contracts with their former employer (“Richland”). Denton and West resigned from Richland in January 2012. Thereafter, they formed Tall Tower. Richland sued Denton, West, and Tall Tower in a Florida state court to enforce the restrictive covenants and sought a preliminary injunction in May 2012. By order dated October 1, 2012, the Florida trial court denied the motion for preliminary injunction. Thus, when Tall Tower and Stonepeak first started working on the Clear Channel deal in early 2014, there was no legal impediment to Denton and West working on the deal.

However, on March 12, 2014, a Florida appellate court reversed and remanded to the trial court to hold further proceedings to consider whether an injunction should be issued. On remand, the trial court issued an injunction on September 22, 2014, making it legally impermissible for Denton and West to continue working on the Clear Channel deal.

Stonepeak claimed that Tall Tower made misrepresentations about the Florida proceedings to induce it to continue working on the Clear Channel deal. Stonepeak claimed that Tall Tower knew that Stonepeak would stop working with it if Stonepeak knew that Denton and West were legally prohibited from working on the deal. Since the proposed deal with Clear Channel was a leaseback – where Denton and West would be managing Clear Channel’s former assets after they were leased back to it – Clear Channel would balk at the deal with Tall Tower if Denton and West could not manage the assets. Stonepeak also alleged that Tall Tower’s other representations about the expertise of Tall Tower and its executives were false or misleading in light of the status of the Richland lawsuit and its effect on the ability of Denton and West to work on the Clear Channel deal. After Stonepeak became aware of the September 2014 injunction, it sought to preserve its bid with Clear Channel by working with another potential asset manager.

Tall Tower moved to dismiss the counterclaims.

The Court’s Decision

The Court granted the motion to dismiss, finding that Stonepeak, a sophisticated entity, did not satisfy the justifiable reliance element of its fraud counterclaim. In particular, the Court noted that since the underlying predicate for Stonepeak’s fraud claim was Denton and West’s purported ability to work on the Clear Channel deal, it could have learned the truth about the representation and the status of the Florida lawsuit by checking the public docket. Thus, it could not have reasonably relied on any statement about the proceeding and Denton and West’s ability to work on the deal:

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. [Citations omitted.]


In a prior “takeaway”, this Blog wrote the following:

In Ambac, the Court of Appeals sent a strong message to sophisticated parties claiming fraud: if the person or entity has the means of knowing, by the exercise of ordinary intelligence, the truth of the subject of the alleged false representation, that person or entity must make use of those means, or he/she/it will not be heard to complain that he/she/it was the victim of fraud. Thus, where a person or entity, especially a sophisticated one, does not verify and investigate the truthfulness of assurances and representations, or is lax in doing so, the claim should be dismissed for failing to satisfy the justifiable reliance element.

In Tall Tower, the Court heeded this message.

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