Challenging Releases And Settlements Based On Fraudulent Inducement Is A Challenge

• Published date: 28 February 2022
• Subject Matter: Litigation, Mediation & Arbitration, Criminal Law, Trials & Appeals & Compensation, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Meyer Suozzi English & Klein
• Author: Mr Kevin Schlosser

In my July 8, 2019 post, I reviewed the law on challenging releases and settlements based upon alleged claims of fraud and fraudulent inducement. This is an update, reporting on two new decisions, one by the First Department, and the other by the Third Department, upholding the releases/settlements, and rejecting the fraud claim. Relevant excerpts of each decision are set forth below, followed by my original post.

First Department Decision

Sodhi v IAC/InterActive Corp., 2022 NY Slip Op 00067 (1^st Dep't Decided Jan. 6, 2022):

The releases in the settlement letters bar plaintiffs' claims for breach of contract, breach of the implied covenant, and fraud arising from the alleged misrepresentation of the value of the units (see Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 98 [1st Dept 2006], lv denied 8 NY3d 804 [2007]).

In addition, plaintiffs may not invalidate their releases by claiming they were fraudulently induced to enter into them. This new theory of liability, raised for the first time in plaintiffs' opposition papers, should not be considered (see Price v City of New York, 172 AD3d 625, 628-629 [1st Dept 2019], appeal dismissed 34 NY3d 989 [2019]). However, even if we were to consider this argument, we would find it unavailing, as the alleged misrepresentations made to the senior participant regarding the units' value did not constitute a "separate fraud" from the subject of the release (Centro Empresarial Cempresa S.A. v AmÉrica MÓvil, S.A.B. de C.V., 17 NY3d 269, 277, 280 [2011]; Kafa Invs., LLC v 2170-2178 Broadway, LLC, 39 Misc 3d 385, 390-393 [Sup Ct, NY County 2013], affd 114 AD3d 433 [1st Dept 2014], lv denied 24 NY3d 902 [2014]).

Third Department Decision

Myristica, LLC v Camp Myristica, Ltd., 2022 NY Slip Op 00089 (3d Dep't Decided Jan. 6, 2022)

"A stipulation of settlement placed on the record by counsel in open court is binding, all the more so when, as here, the parties contemporaneously confirm their acceptance on the record" (Birches at Schoharie, L.P. v Schoharie Senior Gen. Partner LLC, 169 AD3d 1192, 1194 [2019] [citations omitted]; see CPLR 2104). "To be enforceable, an open court stipulation must contain all of the material terms and evince a clear mutual accord between the parties" (Birches at Schoharie, L.P. v Schoharie Senior Gen. Partner LLC, 169 AD3d at 1194 [internal quotation marks and citations omitted]). "When a stipulation meets these requirements, as it does here, courts should construe it as an independent contract subject to settled principles of contractual interpretation [and] . . . courts should not disturb a valid stipulation absent a showing of good cause such as fraud, collusion, mistake or duress or unless the agreement is unconscionable" (McCoy v Feinman, 99 NY2d 295, 302 [2002] [citations...