Merger Clause Defeats Fraudulent Inducement Claim

On February 6, 2020, Justice Schecter of the New York County Commercial Division issued a decision in Gottwald v. Sebert, 2020 NY Slip Op. 30347(U), holding that a merger clause defeated a fraudulent inducement claim, explaining:

Kesha's claim that she was fraudulently induced to enter into the KMI Agreement based on Gottwald's promise to renegotiate the contract if her first album was successful is not viable because a fraud claim cannot be predicated on a promise of future performance. Kesha does not claim that Gottwald misrepresented any then-present facts. To the extent the fraud is based on Gottwald's future promise being insincere, the lack of proof of scienter is fatal.

Additionally, the KMI Agreement sets forth that no one made any promise, representation or warranty whatsoever, express or implied, oral or written, not contained in the contract itself and that all understandings and agreements between the parties were merged into the contract which fully and completely expresses their agreement. Kesha therefore could not reasonably rely on any promise of future performance that was made before the agreement was signed but not included in the final contract.

(Internal quotations and citations omitted).

This decision touches on issues we frequently encounter in commercial litigation: whether and to what extent an oral agreement or oral modification to a written agreement are enforceable. As this decision shows, the answer sometimes is not a simple one. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding the enforceability of an oral agreement.