On November 4, 2021, Justice Emerson of the Suffolk County Commercial Division issued a decision in Arco Acquisitions, LLC v. Tiffany Plaza LLC, 2021 NY Slip Op. 51039(U), holding that disclaimers in a purchase agreement barred a fraud claim, explaining:
The parties’ agreement provides in pertinent part as follows:
5.1 Except as is expressly set forth in this Agreement to the contrary, Purchaser is expressly purchasing the Property in its existing condition “AS IS, WHERE 1S, AND WITH ALL FAULTS” with respect to all facts, circumstances, conditions and defects existing on the date of this Agreement. Seller has no obligation to determine or correct any such facts, circumstances, conditions or defects or to compensate Purchaser for same. Seller has specifically bargained for the assumption by Purchaser of all responsibility to investigate the Property, Laws and Regulations, Rights, Facts, Condition, Leases, Open Permits and Violations and of all risk of adverse conditions existing on the date of this Agreement and has structured the Purchase Price and other terms of this Agreement in consideration thereof. Purchaser has, as of the date hereof, undertaken all such investigations and review of the Property, Laws and Regulations, Rights, Facts, Condition, Leases, Open Permits, Violations or Tenancies, as Purchaser deems necessary or appropriate under the circumstances as to the status of the Property and based upon this Agreement, Purchaser is and will be relying strictly and solely upon such inspections and examinations and the advice and counsel of its own consultants, agents, legal counsel and officers, and Purchaser is and will be fully satisfied that the Purchase Price is fair and adequate consideration for the Property, and by reason of all of the foregoing, subject to the terms and conditions hereof, Purchaser assumes the full risk of any loss or damage occasioned by any fact, circumstance, condition or defect existing on the date of this Agreement and pertaining to this Property.” (emphasis added)
This case is on all fours with Danann Realty Corp. v Harris (5 NY2d 317). In that case, the purchaser of a lease on a building sought damages for fraud, claiming that it had entered into the contract of sale as a result of the selling defendants’ false representations as to the operating expenses of the building and as to the profits to be derived from the investment. The contract, however, contained the following clause:
The Purchaser has examined the premises agreed to be sold and is familiar with the physical condition thereof. The Seller has not made and does not make any representations as to the physical condition, rents, leases, expenses, operation or any other matter or thing affecting or related to the aforesaid premises, except as hereinspecifically set forth, and the Purchaser hereby expressly acknowledges that no such representations have been made, and the Purchaser further acknowledges that it has inspected the premises and agrees to take the premises ‘as is’* * * It is understood and agreed that all understandings and agreements heretofore had between the parties hereto are merged in this contract, which alone fully and completely expresses their agreement, and that the same is entered into after full investigation, neither party relying upon any statement or representation, not embodied in this contract, made by the other. The Purchaser has inspected the buildings standing on said premises and is thoroughly acquainted with their condition.
After noting that a general and vague merger clause is ineffective to exclude parol evidence to show fraud in inducing the contract, the Court of Appeals went on to say that the plaintiff’s fraud claim was barred by its express disclaimer in the contract of any reliance on the specific representation:
Plaintiff has in the plainest language announced and stipulated that it is not relying on any representations as to the very matter as to which it now claims it was defrauded. Such a specific disclaimer destroys the allegations in plaintiff’s complaint that the agreement was executed in reliance upon these contrary oral representations.
Dannan, therefore, stands for the principle that, when parties to an agreement have expressly allocated risks, the judiciary shall not intrude into their contractual relationship.
When a fraud claim has been dismissed, the disclaimer has been sufficiently specific to match the alleged fraud. Thus, the Danann rule operates when the substance of the disclaimer provisions tracks the substance of the alleged misrepresentations. When the contracting parties are sophisticated business people and the disclaimer clause is the result of negotiations between them, the specificity requirement is more relaxed.
Here, the parties are sophisticated business people, and their agreement is the result of negotiations between them. The substance of the plaintiff’s allegations is that the defendants misrepresented that there were no tenants in arrears in order to inflate the rent roll and increase the value of the property. These allegations clearly track the language used in the disclaimer, which specifically includes leases and tenancies. The court finds that, like the disclaimer language in Dannan, the disclaimer language in this case is sufficient to estop the plaintiff from claiming that it entered into the agreement because of fraudulent representations. As the Court of Appeals noted, to hold otherwise would be to say that it is impossible for two businessmen dealing at arm’s length to agree that the buyer is not buying in reliance on any representations of the seller as to a particular fact.
Contrary to the plaintiff’s contentions, the facts that were allegedly misrepresented were not matters peculiarly within the defendants’ knowledge, and the plaintiff had the means available to it of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation. The plaintiff does not allege, nor does the record reflect, that the defendants prevented the plaintiff from contacting the tenants prior to the closing to determine the accuracy of the rent roll and tenant-estoppel certificates. Accordingly, the first cause of action for fraud is dismissed.
(Internal quotations and citations omitted).