Defendant's Failure to Disclose its Business Plans Cannot be Basis for Fraud Claim

On December 14, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Transit Funding Associates LLC v. Capital One Equipment Finance Corp., 2017 NY Slip Op. 32631(U), holding that absent an independent duty to do so, a defendant could not be held liable for fraud for failing to disclose its business plans, explaining:

To state a cause of action for fraud, a plaintiff must allege misrepresentation or concealment of a material fact, falsity, scienter on the part of the wrongdoer, justifiable reliance and resulting injury. To allege an actionable misrepresentation, a plaintiff must specify statements of present material facts known to be false at the time they were made. To sufficiently allege scienter, the pleading should contain some rational basis for inferring that the alleged misrepresentation was knowingly made.

It is well established that, absent a fiduciary relationship between the parties, a duty to disclose arises only under the special facts doctrine where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair. The doctrine requires satisfaction of a two-prong test: that the material fact was information peculiarly within the knowledge of a party, and that the information was not such that could have been discovered by another party through the exercise of ordinary intelligence.

. . . Capital One has not adequately pled a cause of action for fraud in its amended complaint. The viability of a fraud claim based on Capital One's alleged failure to disclose its business plans depends on the application of the special facts doctrine. None of the newly discovered evidence supports the allegation that Capital One's knowledge of essential facts rendered the transaction without disclosure inherently unfair.

Even if Capital One entered into the August 2013 contract renewal with TFA with the knowledge that it may not continue in the Chicago medallion business in the future, such does not render the August 2013 renewal inherently unfair, nor does it render Capital One's decision to deny funding requests from TFA beginning in 2014 inherently unfair. Rather, pursuant to the contract, Capital One had the discretion to approve or deny requests for advances. TFA's dissatisfaction with Capital One's exercise of its discretion, and the eventual end of their contractual relationship, does not sufficiently provide a basis for a fraudulent concealment claim.

(Internal quotations and citations omitted) (emphasis added).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements such as the special facts doctrine at issue in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.