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Reliance not Reasonable: Another Fraudulent Inducement Claim Bites the Dust

Dec 27, 2023Litigation & Dispute Resolution

As I have chronicled, attempted civil fraud claims are particularly vulnerable to getting dismissed in the early stages of cases if the court finds that the party seeking to claim fraud did not justifiably or reasonably rely on the alleged fraudulent statements in sustaining damages. See, e.g., Fraud Claims Must be Dismissed for Lack of Reasonable Reliance; First Department Continues to Affirm Dismissal of Fraud Claims Based Upon Lack of Justifiable Reliance; Fraud Claims Can be Summarily Dismissed Where Reasonable Reliance is Lacking.

Courts can be particularly unforgiving if information was available to uncover the alleged fraudulent misrepresentations before the claimant changed its position in reliance on the false statements. A recent decision rendered by the Appellate Division, Fourth Department, provides a stark example in affirming the dismissal of an attempt to rescind a divorce settlement agreement where the wife had information that would have uncovered the husband’s allegedly false representations: Van Ostrand v Latham, 2023 NY Slip Op 06629 (4th Dep’t Decided Dec. 22, 2023).

Van Ostrand

Plaintiff-wife and defendant-husband entered into a settlement of a divorce action. In the written settlement agreement, the husband denied “any financial wrongdoing ‘with regard to assets involving investments made over the course of the marriage, including but not limited to a total of 20 gold ingots which [defendant] represents were sold by him to finance the construction of an addition to the former marital residence.’ That section further provided that defendant ‘represents that 20 ingots was the total quantity purchased and no ingots remain.’”

Plaintiff subsequently sought to rescind the divorce settlement claiming the defendant defrauded her into signing it by misrepresenting the true state of affairs concerning the gold ingots. In particular, plaintiff alleged “that she obtained 53 invoices that reflected purchases of 120 gold ingots by defendant during the marriage, despite his representation that only 20 gold ingots ever existed. Plaintiff further alleged that she obtained various financial records showing that certain marital funds that defendant had exclusive control over were not accounted for, and she set forth in detail six different instances of missing funds. As a first cause of action, plaintiff asserted that defendant committed fraud by making a material misrepresentation of an existing fact in” the settlement agreement.

Read the full blog post here.