Why Fraudulent Concealment Claims Are So Tough to Win in New York June 3, 2010

Under New York law, when a seller deliberately hides information that is critical to the buyer’s decision to invest or not to invest, this is generally referred to as “fraudulent concealment.” A word of caution is in order, however: this type of claim is particularly challenging because in addition to the traditional elements of proof required in a fraud case (including intent to defraud and reasonable reliance),  a plaintiff alleging fraudulent concealment must also demonstrate that the defendant had a special, or fiduciary, relationship with the plaintiff that imposed upon the defendants a duty to disclose material information. Albion Alliance Mezzanine Fund, L.P. v. State Street Bank and Trust Co., 8 Misc. 3d 264, 269 (Sup. Ct., NY Co. 2003), aff’d 2 AD3d 162 (1st Dep’t 2003).

The difficulties with this type of claim do not end there.

In many instances, the parties have executed a detailed agreement that contains a disclaimer stating that the purchaser is not relying upon any of the seller representations, which often will sound the death knell to any claim that the plaintiff/purchaser reasonably relied upon the seller’s representations. “[W]here a party specifically disclaims reliance upon a representation in a contract, that party cannot, in a subsequent action for fraud, assert it was fraudulently induced to enter into the contract by the very representation it has disclaimed.” Grumman Allied Indus. Inc. v. Rohr Indus., Inc., 748 F.2d 729, 734-35 (2d Cir. 1984); see also, Danann Realty Corp. v. Harris, 5 NY2d 317 (1959).

Not surprisingly, there are exceptions to this rule as well, such as where the concealment pertains to matters that were exclusively within the defendants’ knowledge, and could only have been discovered by the plaintiff through great difficulty (this topic will hopefully be the subject of a separate article that I intend to publish shortly).

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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