Omissions Can Amount To Fraud: Duty To Disclose To Avoid Misleading Impressions

• 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 last post, I explained that even omissions can form the basis of fraud claims under a number of circumstances, and therefore the New York Martin Act has not preempted claims of fraud that are based upon omissions to the extent they existed at common law apart from the required disclosures under the Martin Act.

The Appellate Division, First Department, has just rendered a decision relying upon one of the grounds for establishing a fraud claim even without alleging an affirmative misrepresentation of fact. In DirectTV, LLC v Nexstar Broadcasting, Inc., 2021 NY Slip Op 06539 (1^st Dep't Decided Nov. 23, 2021), the First Department sustained a fraud claim based upon the misleading partial disclosure doctrine.

Duty to Disclose

In my post "Fraud Claim Can be Based on Duty to Disclose Even Without Special Relationship," I commented upon the decision in The Plumbing Supply, LLC v. ExxonMobil Oil Corp., 14 CV 3674 (S.D.N.Y 2017), which nicely summarized the law concerning the duties that arise to make truthful disclosures in order to clear up false impressions. In Plumbing, the Court explained:

"Under New York law, to state a claim for fraud a plaintiff must demonstrate: (1) a misrepresentation or omission of material fact; (2) which the defendant knew to be false; (3) which the defendant made with the intention of inducing reliance; (4) upon which the plaintiff reasonably relied; and (5) which caused injury to the plaintiff." Wynn v. AC Rochester, 273 F.3d 153, 156 (2d Cir. 2001) (citing Lama Holding Co. v. Smith Barney, Inc., 88 N.Y.2d 413, 421 (1996)). An omission is fraudulent "only if the non-disclosing party has a duty to disclose." Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1478, 1483 (2d Cir. 1995). A duty to disclose arises if, among other things, "one party makes a partial or ambiguous statement that requires additional disclosure to avoid misleading the other party." Id. (internal quotation marks omitted).

The Court in Plumbing then found that the plaintiff adequately alleged both the concealment and the duty to disclose:

[Plaintiff] also pleads [Defendant's] alleged misleading omissions with particularity. According to the [complaint], while negotiating the Agreement, [Defendant's] vice president never disclosed what [Defendant] knew about the Gulf station's role in contaminating [plaintiff's property] even though [Defendant's] Phase 1 report indicated the Gulf station played no role. While reporting on [Defendant's]...