Merger and No-Additional-Representations Clause Bars Claim for Fraudulent Inducement

On November 29, 2022, Justice Barry Ostrager of the New York County Commercial Division issued a decision in Eastern Effects v. 3911 Lemmon Ave. Assoc., 2022 N.Y.L.J. LEXIS 2408, dismissing a fraudulent inducement claim on the ground that it was barred by a merger and no-additional-representations clause, explaining:

The Court also dismisses the Fourth Cause of Action claiming that the Landlord fraudulently induced the Tenant to enter into the Settlement Agreement. The claim centers around alleged representations regarding the timing of the EPA-mandated remediation work, plaintiff's right to compensation for vacating the Premises and for lost business during its time out of possession, and Landlord's duty to make repairs. However, in the merger clause in Section 28 of the Settlement Agreement, the Tenant expressly disclaimed reliance on any representations made outside the four corners of the Agreement. That section states that:

This Agreement contains the entire understanding among the Parties and supersedes any prior written or oral agreements between them, [*6] respecting the subject matter of this Agreement. Except as otherwise expressly provided in this Agreement, there are no representations, agreements, arrangements, or understandings, oral or written, between the Parties relating to the subject matter of this Agreement that are not fully set forth herein.

Thus, the broad merger clause, when read in the context of the Settlement Agreement as a whole, bars the Tenant's reliance on any prior written or oral representations regarding the issues addressed in the Settlement Agreement and thereby bars plaintiff's fraudulent inducement claim which depends on those very same representations. The Tenant's argument that the merger clause is too general to serve as a bar lacks merit because the clause refers back to specific terms in the Agreement that directly implicate the alleged representations. Also, the fraudulent inducement claim is duplicative of the contract claim in the same manner as discussed in the analysis of the declaratory judgment claim. Further, allegations amounting to nothing more than a contention that a party never intended to perform its contractual obligations are insufficient to state a fraud based claim which seeks the same [*7] damages as the contract claim. See, e.g., Cronos Grp. Ltd. v. XComIP, LLC, 156 AD3d 54 (1st Dep't 2017).

A merger and no-additional-representations clause will typically be insufficient to bar a claim for fraudulent inducement. But when the clause specifically addresses the specific misrepresentations or omissions at issue, it may. The attorneys at Schlam Stone & Dolan regularly litigate the sufficiency of a merger or no-additional-representations clause as it relates to a fraud claim. So contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning these types of clauses.