Fraudulent Inducement Claim Fails When Agreement Makes No False Representations and Makes Clear That Not All Material Information is Being Disclosed

On October 5, 2021, the First Department issued a decision in Silver Point Capital Fund, L.P. v. Riviera Resources, Inc., 2021 NY Slip Op. 05312, holding that a fraudulent inducement claim fails when the agreement on which it is based makes no misrepresentations and makes clear that not all material information is being disclosed, explaining:

Plaintiffs’ fraud-based claims are barred by the release in the letter agreement dated August 6, 2019 executed by the parties. Information regarding a planned asset sale and distribution, clearly and unambiguously falls within the scope of this release.

The Letter Agreement sets forth the types of information that were potentially not being disclosed in sufficient detail to enable plaintiffs to make an informed decision as to whether or not to execute the release. Further, defendant did not make any misleading partial disclosures.

The “peculiar knowledge” doctrine does not apply; plaintiffs are sophisticated parties that were aware that they were not provided with full information but nonetheless agreed to go forward with a transaction without either demanding access to the omitted information or assurances in the form of representations and warranties. For the same reason, the special facts doctrine also does not apply.

Even if the parties are in a fiduciary relationship, this does not invalidate the release, which was negotiated in the context of an arm’s-length business transaction.

Plaintiffs’ fraudulent inducement claim fails because plaintiffs did not allege a separate fraud from the subject of the release and because they could not have justifiably relied on the alleged oral misrepresentation in view of the express no-additional-representations clause in the Letter Agreement.

Plaintiffs cite no authority for their suggestion that the contractual release at issue is against public policy. It is irrelevant that New York recognizes a criminal offense for false pretenses larceny, in which a defendant omits to tell his counterparty that he is wrongfully trading on the basis of insider information; defendant informed plaintiffs that it might have access to material, nonpublic information, and plaintiffs waived their right to disclosure thereof.

(Internal quotations and citations omitted).

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