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More on Challenging Releases for Alleged Fraud

Dec 19, 2023Litigation & Dispute Resolution

Two recent decisions address, once again, attempts to avoid fully-executed written releases by claiming fraudulent inducement. Both decisions reversed the court below, with different results. The Appellate Division, First Department’s decision in Columbia Consultants, LLC v Danucht Entertainment, LLC, 2023 NY Slip Op 06439 (1st Dep’t Decided Dec. 14, 2023) rejected all efforts to rescind the release based upon the broad language of the release, including a disclaimer of reliance on alleged representations of the releasee. On the other hand, the Appellate Division, Second Department’s decision in Israel v Progressive Cas. Ins. Co., 2023 NY Slip Op 06357 (2d Dep’t Decided on Dec. 13, 2023) allowed a challenge to the release to go forward, rejecting a motion to dismiss.

For some background on these issues, I refer the reader to my post “Challenging Releases and Settlements Based on Fraudulent Inducement is a Challenge,” where I explain and update the basic principles. Also, the Topic Heading “Release” collects more of the relevant cases.

Danucht Decision

In Danucht, the First Department got right to the heart of the issue by reversing the Commercial Division’s decision to allow a fraud claim to proceed in the face of a release. The First Department found the more comprehensive standard language of the release to be sufficient to cover the claim of fraud, even though the release did not directly encompass claims of fraud as to the release itself:

Plaintiffs released their claim that they had been fraudulently induced to enter into the settlement agreement and release. The release covers all claims (with certain exceptions that are not relevant to this appeal), whether “known or unknown, foreseen or unforeseen, matured or unmatured, suspected or unsuspected, . . . arising out of or relating to” the purchase agreements, the businesses covered by the purchase agreements, and the dispute between the parties concerning their obligations thereunder. This is broad enough to cover plaintiffs’ fraud claim (see e.g. Centro Empresarial Cempresa S.A. v AmÉrica MÓvil, S.A.B. de C.V., 17 NY3d 269, 277 [2011]; Sodhi v IAC/InterActive Corp., 201 AD3d 451 [1st Dept 2022]; Avnet, Inc. v Deloitte Consulting LLP, 187 AD3d 430, 431 [1st Dept 2020]).

Read the full blog here.