On October 17, 2023, Justice Ruchelsman of the Kings County Commercial Division issued a decision in TC Servs. USA Inc. v. Ideal Home Health Inc., 2023 NY Slip Op. 33635(U), dismissing a fraudulent inducement claim for lack of due diligence, explaining:
To successfully plead on a claim of fraudulent inducement, it must be shown that there was a knowing misrepresentation of material present facts; which were intended to deceive another party and induce that party to act on it, resulting in injury. However, the party alleging the fraudulent inducement is expected to exercise ordinary diligence and may not claim to have reasonably relied on a defendant’s representations or silence where he or she has means available to him or her of knowing; by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation. Therefore, where the party can verify the representations with due diligence there can be no cause of action for fraudulent inducement.
The fraud in the inducement counterclaim alleges that ‘plaintiff represented that it provided specialized skills and expertise in obtaining ERTC that could not be performed by Defendant in the ordinary course of its business. The counterclaim alleges that in fact no such specialized skill was required and thus the plaintiff induced the defendant to agree to the unnecessary contract.
However, the existence of the ERTC and the manner in which they could be obtained were matters of public record. Thus, the defendant could have easily referred to such information to determine whether it was necessary to hire the plaintiff. The defendant argues that, in truth, at the time. the agreement was entered on October 7, 2021 it had no way of knowing it could obtain any of the credits without hiring plaintiff. However, the Internal Revenue Service guidance all predates the contract entered into between the parties and surely, with ordinary intelligence, the defendant could have discovered whether it could have engaged in the process itself.
Next, the defendant argues that even if that guidance was available, the plaintiff never informed the defendant of the risks of seeking ERTC. The specific risks the defendant references is essentially the fact that taxes are required to be paid upon receipt of any credits and tax returns filed, therefore, required amendments. However, that can hardly be classified as a risk. Rather, the fact taxes had to be paid upon receipt of any credits merely means the credit was thereby reduced. That is not a risk whereby the omission of that information amounts to fraud. The defendant may have an argument that the amount owed to the plaintiff should be reduced accordingly and this issue may be appropriate as a defense to the exact amount sought by plaintiff. Of course, the strength of that argument will: depend on the language of the agreement entered between the parties. Indeed, further discovery will clarify that issue if at all. In any event a minimization of a credit received can hardly be termed a risk sufficient to create a claim of fraudulent representation.
Therefore, since the defendant could have easily discovered the nature of plaintiff’s work arid whether in fact such work was of an expert nature~ or even required at all, the motion seeking to dismiss this counterclaim is granted.
(Internal quotations and citations omitted).