Another Reason Why Many Business Fraud Claims Fail Under New York Law April 12, 2010

Following up on my earlier post, “Why Many (If Not Most) Business Fraud Claims Are Dismissed By New York’s Courts,” an April 9 decision from a New York County trial judge that is scheduled to appear in tomorrow’s New York Law Journal sets forth a very important – and common – reason that so many business fraud claims are dismissed: because these claims were already waived by contract.

Before getting to the “meat” of the  New York trial court’s decision in MBIA Insurance Corp. v. Merrill Lynch, some perspective is in order: when is the last time anyone saw two more unlikeable parties on the opposite ends of a lawsuit? On the one hand, you have an insurance company,  and on the other, a bank that stands accused of issuing misleading information that led to losses in the billions of dollars?

Anyway, I digress.

While the facts of this particular case are not surprising, or unfortunately, unique, the court’s decision is useful as a reminder why many business fraud claims fail under New York law. In rejecting the plaintiff insurer’s business fraud claims that were centered on their contention that they were not required to do their own forensic analysis – or actively guard itself against a fraud by the defendant – before entering into an agreement with the defendant, the court stated as follows:

“In Citibank, N.A. v. Plapinger, 66 N.Y.2d 90 (1985), the Court of Appeals set down the now-familiar doctrine that a specific (rather than general) disclaimer in a guarantee bars the guarantor’s claim for fraud in the inducement, where the guarantor specifically disclaimed reliance on the very information which it now claims caused it to be misled. The Court in Plapinger further held that a clause declaring the agreement absolute and unconditional, and containing a waiver of affirmative defenses, ‘reinforces’ the specificity of the disclaimer.”

In other words, the court held that if you sign an agreement that essentially says in bold print: you’re a  big boy, and you have to do your own investigation and research before you choose to buy, then you had better be prepared to live with the consequences of the decision not to perform your own due diligence.

Jonathan Cooper is a New York Business Litigation and New York Commercial Litigation Lawyer with a focus on New York breach of contract and New York business fraud claims before the Nassau, Queens, Brooklyn, Bronx, Westchester and Suffolk County courts of New York State. For more information, feel free to contact his Long Island office at 516-791-5700.

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