Fraud Claims Dismissed for Failure to Perform Due Diligence

On December 15, 2020, the First Department issued a decision in MBF Clearing Corp. v. JPMorgan Chase Bank, N.A., 2020 NY Slip Op. 07504, dismissing fraud-based claims for lack of due diligence, explaining:

The fraudulent misrepresentation claims do not allege justifiable reliance on the alleged misrepresentations. Plaintiff, a sophisticated party, could readily have determined for itself whether the representations were false by exercising reasonable due diligence. As a self-styled long-established and well-regarded commodities future commission merchant, required by the Commodities Futures Trading Commission (CFTC) to hold its customers' assets in customer segregated accounts, plaintiff is presumably familiar with the requirements related to such accounts. Plaintiff could have made inquiries when defendants represented to it that there was no need for a customer segregation acknowledgment letter for Account x2069 because it would be linked to, and a sub-account of, plaintiff's existing Account X0253 for which a segregation letter had been obtained. However, rather than take simple measures to ensure its compliance with CFTC regulations, plaintiff relied on the representations that the segregation letter for Account X0253 would cover Account X2069.

The fraudulent concealment claims allege that defendants unilaterally changed the titling and labeling of Account x2069, thereby surreptitiously converting the account from a customer segregated account to a non-segregated account. Even assuming defendants had a duty to disclose the change in title, these claims must be dismissed. Plaintiff admitted that it failed to read defendants' monthly paper statements reflecting the name change based on the unreasonable excuse that was a high-volume institutional customer that banked electronically.

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

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.