The Cost of Overpromising: Lessons on Misrepresentations in Contract Negotiations

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Posted on: Feb 16 2026

Under New York law, fraudulent inducement and common‑law fraud arise when a party is misled into entering a contract or taking action because of another’s misrepresentations or omissions. To establish fraudulent inducement, a plaintiff must show a material misrepresentation or omission of fact, known to be false when made, and intended to induce reliance, that the plaintiff justifiably relied on, and that caused resulting injury. While fraudulent inducement focuses on deceptive conduct occurring in connection with contract formation, common‑law fraud applies more broadly whenever deceptive conduct causes damages.

When dealing with a claim of fraudulent inducement, and in particular the falsity element of the claim, New York courts distinguish between actionable misstatements of present fact, such as assertions about existing capabilities, expertise, or historical data, from non‑actionable puffery and promises of future performance.[1]

Fraud may also be based on omissions when there is a duty to speak and the withheld information is peculiarly within the knowledge of the defendant and not otherwise discoverable with reasonable diligence.

Considered by the courts to be “nettlesome,”[2] the justifiable reliance element is often the most difficult element for plaintiffs to satisfy.[3] Whether a plaintiff justifiably relied on a misrepresentation or omission is a fact-intensive inquiry.[4] Courts evaluate reasonableness contextually, considering factors such as the parties’ sophistication, the nature of the misrepresented facts, and whether the truth was uniquely within the defendant’s knowledge or otherwise not discoverable through ordinary diligence.

Remedies for fraudulent behavior include out‑of‑pocket damages, limited to actual pecuniary loss, and the equitable remedy of rescission, which is available when fraud goes to the essence of the agreement. Rescission treats the contract as voidable at the option of the defrauded party and seeks to restore the status quo ante by requiring each side to return the consideration exchanged. It is particularly appropriate where damages alone cannot fully remedy the harm caused by the fraudulent inducement of the contract.

The foregoing principles were applied in Shiplion, LLC v. Bauble Bar, Inc., 2026 N.Y. Slip Op. 30336(U) (Sup. Ct., N.Y. County Jan. 28, 2026). In ShipLion, the motion court granted summary judgment on defendant’s counterclaims for fraudulent inducement, fraud, and rescission after finding that plaintiff and its founder secured a consulting agreement through materially false and misleading statements. The motion court determined that plaintiff had misrepresented its expertise, claimed it employed former UPS and FedEx pricing specialists, touted proprietary analytical software, and presented specific, calculated shipping‑cost savings that lacked factual support. It also failed to disclose a critical limitation: plaintiff could not negotiate directly with UPS or FedEx despite repeatedly suggesting it could. The motion court found that defendant reasonably relied on plaintiff’s misrepresentations in entering the agreement, and testimony established that it would not have contracted with plaintiff had the truth been disclosed. Concluding that the misrepresentations went to the heart of the bargain and rendered the contract voidable, the motion court rescinded the agreement to restore the parties to their pre‑contract positions. In doing so, the motion court ordered plaintiffs to return the money that defendant had paid.

ShipLion, LLC v. Bauble Bar, Inc.

Background

Defendant is an e‑commerce jewelry retailer that ships customer orders through UPS, FedEx, and DHL. Beginning in 2019 and continuing through 2022, plaintiffs repeatedly solicited defendant’s business by asserting that they had identified significant potential shipping‑cost savings and by representing that they possessed specialized expertise, including a team of former UPS and FedEx pricing specialists, proprietary analytical software, and benchmarking tools capable of optimizing defendant’s carrier rates.

In November 2022, defendant entered into a three‑year Transportation Services Consulting Agreement under which plaintiffs would assist in carrier negotiations. Although the Agreement allowed either side to interface with carriers, defendant later learned that UPS and FedEx would not negotiate with third‑party consultants. Defendant’s CEO testified that defendant would not have entered the Agreement had this limitation been disclosed. Unable to communicate directly with those carriers, plaintiffs provided defendant with negotiation scripts, containing language plaintiffs’ employees described as awkward or overly aggressive, and instructed defendant to conceal plaintiffs’ involvement.

Notwithstanding plaintiffs’ behind the scenes approach with UPS and FedEx, plaintiffs stated they could negotiate directly with DHL. In doing so, plaintiffs relied on an outside consultant who recommended presenting defendant with rates inflated by roughly five percent before seeking further reductions. Defendant was not informed of this approach. After shifting substantial volume to DHL pursuant to plaintiffs’ strategy, defendant experienced operational and financial difficulties due to DHL’s weight‑class structure and service capabilities, resulting in higher costs and reduced efficiency.

Defendant terminated the Agreement in June 2023, asserting fraudulent inducement based on misstatements regarding plaintiffs’ expertise, projected savings, and negotiating capabilities. Plaintiffs filed suit in August 2023 seeking, among other things, declaratory relief, contract damages, unjust enrichment, and a preliminary injunction. The motion court denied the application for an injunction and dismissed the unjust enrichment claim in February 2024. Defendant answered and later amended its counterclaims. Both parties moved for summary judgment after discovery closed in April 2025.

On January 28, 2026, the motion court granted defendant summary judgment on its fraudulent inducement, fraud, and rescission counterclaims, ordered plaintiffs jointly and severally to return $86,324.96 with interest, dismissed defendant’s GBL §§ 349–350 claims, and dismissed all remaining claims and counterclaims.

The Court’s Decision

The motion court found that defendant “established its prima facie entitlement to summary judgment on its counterclaims for fraudulent inducement, fraud, and rescission (first, tenth, and thirteenth) and that [plaintiff] … failed to raise disputed issues of fact requiring a trial.”[5]

The motion court explained that the “summary judgment record [was] clear that [plaintiff] was aware during its relentless pursuit of [defendant]’s business that it was unable to directly negotiate on [defendant]’s behalf with UPS and FedEx but failed to disclose that fact to defendant until after the Agreement was signed.”[6] “It was only on December 14, 2022[,]” said the motion court, “that [the individual plaintiff] emailed [defendant’s Director of Sourcing, Logistics, and Operations] admitting that (1) UPS and FedEx have policies prohibiting [plaintiff] from directly communicating and negotiating with them and (2) [plaintiff could] only negotiate directly with DHL because DHL [did] not have a policy preventing interactions with third-party consultants.”[7]

The motion court further found that “based on the summary judgment record” plaintiff “misled” defendant “as to material facts in order to induce [defendant] to enter into the Agreement.”[8] In that regard, the motion court explained that plaintiff “repeatedly touted its superior knowledge and skill and its ability to obtain savings for [defendant], which (plaintiff knew) relied heavily on FedEx and UPS for shipping its products.”[9] “Although the parties’ Agreement indicate[d] flexibility as to whether [defendant] or [plaintiff] would negotiate with carriers,” said the motion court, “[plaintiff] failed to disclose that it could not negotiate with UPS and FedEx. In those circumstances, [plaintiff]’s known inability to communicate directly with those major carriers constituted deception as to a material fact.”[10]

Significantly, the motion considered plaintiff’s representations to be misstatements of present fact, not puffery or statements of future performance. The motion explained that “the record reflect[ed] that starting in 2019 and again from July 2022 to October 2022, [individual plaintiff] repeatedly made specific representations regarding [plaintiff]’s calculation of between $120,000 to $1.2 million in available shipping cost savings that [went] beyond mere puffery.”[11]

The motion court noted that [plaintiff] [had] not produced any record evidence that the specific savings estimates that [the individual plaintiff] identified for [defendant] while negotiating the Agreement were based on any documented analyses or other tangible support.”[12] The motion court concluded that “the record indicate[d] that [plaintiff]’s repeated and specific representations regarding calculated savings based on retaining [plaintiff] were simply false and misleading.”[13]

The motion court rejected plaintiff’s contention that defendant “realized some savings by shipping with DHL.”[14] The motion court explained that plaintiff’s “representations made prior to signing the Agreement were not predicated upon moving all or most shipping away from UPS and FedEx, which the record show[ed] offered services [defendant] required.”[15] “Moreover,” said the motion court, “the record indicate[d] that [defendant] also incurred significant costs to overcome DHL’s deficiencies and lost services that offset any alleged savings from [plaintiff].”[16]

Finally, the motion court found that plaintiff did not have the expertise that was represented: “during negotiations [the individual plaintiff] represented that [plaintiff] had a ‘team of former FedEx & UPS pricing specialists’ and [plaintiff] would use ‘their decades of experience’ and knowledge to save [defendant] money. The record reflects that [plaintiff] did not in fact have any such experience.”[17] In short, the motion court held that “[t]here [was] no evidence in record that [plaintiff] in fact had or brought to bear on [defendant]’s behalf the experienced ‘team’ it aggressively touted in inducing [defendant] to enter into the Agreement.”[18]

Regarding reliance, the motion court observed that defendant’s CEO “testified without contradiction that if [the individual plaintiff] had not misrepresented [plaintiff]’s true capabilities and told [defendant] about the Prohibition, then [defendant] would not have considered entering into an agreement with [plaintiff].”[19]

The motion court also held that defendant “demonstrated entitlement to summary judgment on its fraud counterclaim against [the individual plaintiff], who made many of the representations described” in the decision.[20] “Contrary to [plaintiff]’s argument,” said the motion court, “there [was] substantial evidence in the record regarding [the individual plaintiff]’s specific conduct, including his representations of cost savings and omissions about [plaintiff]’s ability to negotiate.”[21]

As to a remedy, the motion court found “that rescission (and restitution) [was] the appropriate remedy.”[22] The motion court held that defendant was “entitled to recover the $86,324.96 payment made by [defendant] to [plaintiff] under the Agreement.”[23]

Finally, the motion court dismissed defendant’s claims under Sections 349 and 350 of the General Business Law.[24] The motion court held that defendant had “not identified any other consumers allegedly misled by [plaintiff] or conduct that extend[ed] beyond the contractual relationship between [defendant] and [plaintiff].”[25] “Instead,” explained the motion court, [defendant]’s allegations relate[d] solely to its own commercial dealings with [plaintiff] in the context of negotiating the Agreement.”[26]

Takeaway

ShipLion reinforces several core principles of New York law, offering an example of how courts analyze misrepresentations made during contract negotiations. The decision underscores that specific, factual claims about present expertise, capabilities, analytics, or calculated savings are actionable misrepresentations, not mere sales puffery, when they are unsupported. The motion court emphasized that plaintiff’s statements, such as claiming to employ former UPS and FedEx pricing specialists, relying on proprietary software, and identifying quantified savings based on purported analysis, were presented as concrete facts. Because plaintiff could not substantiate these assertions, they satisfied the element of material misrepresentation.

ShipLion also highlights the significance of omissions of information uniquely within a party’s knowledge. Plaintiff’s failure to disclose its known inability to negotiate directly with UPS and FedEx, despite representing that it could assist in negotiating carrier contracts, was central to the motion court’s finding. Because defendant had no way to discover this limitation with reasonable diligence before contracting, it would not have engaged plaintiff had the truth been known.

A third key takeaway is the motion court’s application of rescission as the appropriate remedy for fraudulent inducement. The motion court’s decision affirms that when fraud undermines the essence of the bargain, the contract may be unwound entirely, restoring the parties to their pre‑contract positions. The motion court’s order requiring plaintiff and its founder to return all fees paid reflects New York’s commitment to using rescission to eliminate the effects of fraud rather than measuring speculative expectancy damages.

In sum, ShipLion serves as a reminder that New York courts scrutinize representations made during commercial negotiations, distinguish sharply between actionable facts and non‑actionable puffery, and will impose rescission when misstatements strike at the heart of the agreement.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions and not on matters handled by the firm.

[1] We examined non-actionable puffery and statements of future performance in numerous articles, including: Puffery and the Misstatement That Wasn’t; So Many Fraud Issues. So Little Space to Write About Them; First Department Affirms Dismissal of Fraud Claim Because The Plaintiff Had The Wherewithal to Protect Herself But Failed To Do So; Misrepresentations Concerning Intent Not to Perform Are Not The Same As Misrepresentations Concerning The Ability to Perform For Duplication Purposes; Fraud Notes: First Department Talks About Misrepresentations of Fact and Justifiable Reliance; Fraud Notes: Duplication, Failure to Identify Misrepresentations of Fact, and Fraudulent Concealment; The Actionability of Corporate Puffery and Statements of Opinion; and Sparse Allegations of Material Misrepresentations and an Insincere Promise to Perform Under a Contract Held Not Sufficient to State a Claim for Fraud and Fraudulent Inducement.

[2] DDJ Mgt., LLC v. Rhone Group L.L.C., 15 N.Y.3d 147, 155 (2010) (internal quotation marks omitted).

[3] We have examined the justifiable reliance element of a fraud claim on numerous occasions, too many to list here. To find such articles, please visit the Blog tile on our website and search for “reliance,” “justifiable reliance,” or any other issue that may be of interest to you.

[4] Id.

[5] Slip Op. at *16.

[6] Id.

[7] Id.

[8] Id. at *17.

[9] Id.

[10] Id., citing United Nat. Bank v. Ettinger, 59 A.D.2d 584, 586 (3d Dept. 1977) (“there was also deception since the representation was peculiarly within defendants’ knowledge and plaintiff necessarily relied thereon”).

[11] Id.

[12] Id. at *18.

[13] Id.

[14] Id.

[15] Id.

[16] Id. at *18-*19.

[17] Id. at *19.

[18] Id.

[19] Id. at *17.

[20] Id. at *19.

[21] Id. at *19-*20, citing Pludeman v. N. Leasing Sys., Inc., 10 N.Y.3d 486, 491 (2008) (“[C]orporate officers and directors may be held individually liable if they participated in or had knowledge of the fraud, even if they did not stand to gain personally”).

[22] Id. at *20. “The elements of a claim for rescission based on fraud are misrepresentation, concealment or nondisclosure of a material fact; an intent to deceive; and an injury resulting from justifiable reliance by the aggrieved party.” Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991) (applying New York law).

[23] Id.

[24] Id. at *22. “To successfully assert a claim under General Business Law § 349(h) or § 350, ‘a plaintiff must allege that a defendant has engaged in (1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.’” Koch v. Acker, Merrall & Condit Co., 18 N.Y.3d 940, 941 (2012). “[T]he consumer-oriented element precludes a GBL § 349 claim based on ‘[p]rivate contract disputes, unique to the parties’” Himmelstein, McConnell, Gribben, Donoghue & Joseph, LLP v Matthew Bender & Co., Inc., 37 N.Y.3d 169, 177 (2021); see also Deutsche Bank Natl. Tr. Co. as Tr. for Am. Home Mtge. Assets Tr. 2006-5 v. Marino, 234 A.D.3d 587, 589 (1st Dept. 2025) (“Conduct must extend beyond a particular contractual relationship, because ‘the consumer-oriented element precludes a General Business Law § 349 claim based on private contract disputes, unique to the parties.’”).

[25] Id.

[26] Id.

Tagged with: Business Litigation, Commercial Litigation, Fraud, Justifiable Reliance, Misrepresentation Of Existing Fact, Misrepresentations of Present Fact, Puffery, Rescission