Fraud Claims Don’t Get Past Go: Alleged Lost Profits Not Recoverable, No Justifiable Reliance and Alleged Misrepresentations Not Material

A new decision of the Appellate Division, First Department (Burden v Pamplona Capital Mgt. LLP, 2025 NY Slip Op 02716 (1^st Dep’t Decided May 6, 2025) affirmed the dismissal of an amended complaint, agreeing with the New York County Commercial Division (Schecter, J.) that the fraudulent inducement claims of the sophisticated plaintiffs did not stand a chance.

The transaction at issue was a bit of a twist from the usual fraud scenario. Typically, it is the buyer in an acquisition transaction who claims the seller somehow misrepresented material facts or information that thereby induced the buyer to acquire the assets, or some other interest, in the selling entity. In Burden, however, plaintiffs sold a controlling interest in their own company, called Logicworks, an internet service provider. At the heart of the alleged fraud was plaintiffs’ claim that the acquiring defendants failed to reveal or otherwise misrepresented “that defendant entities were merely a ‘front for powerful Russian oligarchs.’”

More specifically, plaintiffs asserted “that Logicworks’ value was immediately harmed upon defendants’ acquisition because the Russian oligarchs’ near-complete ownership and full control of defendants subjected Logicworks to various risks” that allegedly reduced its value.

On defendants’ motion to dismiss the amended complaint, Justice Schecter of the Commercial Division seemed to take of a page out of Supreme Court Justice Potter Stewart’s book, in effect, observing during oral argument that she knows what a fraud claim looks like and this one simply did not amount to cognizable fraud. See the transcript of the decision.

Read full blog post here.