Fraud Claim Regarding Company's Legal Status Fails for Lack of Due Diligence; Status Was Available to Public on Government Website

On March 6, 2020, Justice Schecter of the New York County Commercial Division issued a decision in Next Fabrics, LLC v. Jomar Inc., 2020 NY Slip Op. 30693(U), holding that a fraud claim based on misrepresentations regarding a company's incorporation status failed for lack of due diligence because the company' status was publicly-available, explaining:

The fraud claim, which is based on Nevens misrepresenting that his business was conducted by Jomar instead of Table Linens, is infirm due to lack of justifiable reliance. A company's incorporation is a matter of public record in California. It is undisputed that a public corporation search on the website of the California Secretary of State (https://businessfilings.sos.ca.gov) would reveal that "Jomar, Inc." does not exist. Thus, plaintiff is charged with the knowledge that it was contracting with a nonexistent entity and cannot claim justifiable reliance. Moreover, because Table Linens itself would be liable under the Agreement anyway, plaintiff was not damaged by the alleged fraud and the claim is duplicative of the viable breach-of-contract cause of action.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules, including the rule that a sophisticated businessperson's reliance on a false statement must be reasonable. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.