Court Upholds Fraud Claim for Failure to Disclose Based on Special Facts Doctrine

On July 15, 2023, Justice Masley of the New York County Commercial Division issued a decision in DIRECTV, LLC v. Nexstar Broadcasting, Inc., 2023 NY Slip Op. 32446(U), upholding a fraud claim for failure to disclose based on the special facts doctrine, explaining:

DIRECTV maintains that Nexstar had a duty to disclose that WHAG would lose its NBC affiliation on two grounds. First, DIRECTV characterizes Nexstar’s repeated flaunting of WHAG’s NBC affiliation as an actionable half-truth, and that Nexstar had a duty to disclose the full facts of that affiliation. Second, DIRECTV contends that Nexstar’s possession of superior knowledge regarding WHAG’s NBC affiliation triggered a duty to disclose. Nexstar posits that it had no duty of disclosure under either the special facts doctrine or the misleading partial disclosure doctrine.

When a claim for fraud is predicated upon an act of concealment or an omission, the plaintiff must establish the same elements for fraud and also show that the defendant had a duty to disclose material information but failed to do so.. An affirmative duty of disclosure arises when the parties are in a confidential or fiduciary relationship. Therefore, absent a confidential or fiduciary relationship, there is no duty to disclose, and a defendant’s mere silence, without identifying some act of deception, does not constitute a concealment actionable as fraud.

The parties do not dispute that they did not enjoy the type of confidential, fiduciary relationship that would trigger a duty of disclosure. Nevertheless, an affirmative duty of disclosure may arise in the absence of a fiduciary relationship under the special facts doctrine or where a party makes a misleading partial disclosure.

A misleading partial disclosure gives rise to a claim for fraud when a party is dependent upon the defendant for relevant facts, and if the withheld facts are proven to have been material. Indeed, once a party has undertaken to mention a relevant fact to the other party it cannot only give half of the truth, particularly where only a partial or ambiguous statement has been made.

As applied here, Nexstar had a duty to disclose based on a misleading partial disclosure. The record shows that Nexstar represented that WHAG was an NBC affiliate but withheld the additional information that the affiliation with NBC would terminate on June 30, 2016 and would not be renewed. By email dated May 22, 2015, Burakoff asked Sook and Ryder for a full Station list as DIRECTV had questions regarding changes from the 2011 Agreement. Ryder responded four days later with a Station list, writing the list reflects the two new affiliations which are effective July 1. The Station list included WHAG as an
NBC affiliate. In further correspondence about the Stations DIRECTV was transmitting, Ryder clarified that one Station may be part of the Agreement due to a possible transfer to a new owner. No mention was made of any changes related to WHAG in this email correspondence. Despite Nexstar’s alleged hope that NBC would reconsider its decision to end its affiliation with WHAG, the NBC Agreement definitively states that Nexstar and NBC agreed the affiliation would not be extended, and Nexstar was aware of this fact. Nexstar never disclosed this fact even though it repeatedly represented that WHAG was an NBC affiliate in a top market. This representation could conceivably give rise to a false impression that WHAG would remain an NBC affiliate throughout the Agreement’s term.

Moreover, such information would have likely affected DIRECTV’s conduct in the transaction in hand.. WHAG lost its Network affiliation within one year of the Agreement’s effective date, yet DIRECTV continued to pay the Unlaunched License Fee at the Network rate even though it was not required to pay License Fees for unaffiliated, independent stations. Thus, Nexstar’s representation that WHAG was an NBC affiliate was only as good as far as it went and was accompanied with such a suppression of facts as made it convey a misleading impression.. As such, Nexstar’s omission of a key fact related to WHAG’s affiliation with NBC is arguably an actionable half-truth.

The special facts doctrine is also applicable, as information about WHAG was material to the transaction, and the end date for WHAG’s affiliation is not information about WHAG that is easily or readily ascertainable with reasonable diligence. Under the special facts doctrine, a duty to disclose arises where one party’s superior knowledge of essential facts renders a transaction without disclosure inherently unfair. The party invoking the doctrine must demonstrate that the material fact was information peculiarly within the knowledge of the other party, and the information was not such that could have been discovered by the party invoking the doctrine through the exercise of ordinary intelligence.

Here, information pertaining to the expiration date on the NBC Agreement was within Nexstar’s superior knowledge, and, as explained earlier, such information could not have been obtained from the publicly filed documents. The two articles discussing the loss of WHAG’s NBC affiliation were published in February 2016, several months after the Agreement was executed. Furthermore, although DIRECTV had a duty to inquire, it is unclear whether Nexstar would have disclosed that information as Ryder testified that such information is confidential.

(Internal quotations and citations omitted).

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