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Why Winning a Fraudulent Concealment Case in New York is So Hard

 

As a sub-category, or perhaps a closely related cousin of the breach of fiduciary duty, is a claim for fraudulent concealment. Frequently, these types of claims arise in the real estate context, where the buyer professes ignorance of significant defects in the property that only become apparent after the purchase, and as a result, the buyer tries to either undo the deal retroactively (in legalese, "rescission"), or at the least get an order from the court compelling the seller to compensate them for their damages.

 

Let me be very blunt: these claims are VERY tough to win in New York.

 

There are two (2) primary reasons for this:

 

(1) Nearly all of these contracts have provisions whereby the buyer purchases the property "AS IS." As some of New York's appellate courts have stated, “[W]here a party specifically disclaims reliance upon a representation in a contract, that party cannot, in a subsequent action for fraud, assert it was fraudulently induced to enter into the contract by the very representation it has disclaimed.” Grumman Allied Indus. Inc. v. Rohr Indus., Inc., 748 F.2d 729, 734-35 (2d Cir. 1984); see also, Danann Realty Corp. v. Harris, 5 NY2d 317 (1959).

 

(2) If the buyer fails to do his "homework," his fraudulent conveyance claim will be dead on arrival. Stated differently, "[I]f the facts represented are not matters peculiarly within the party's knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations." DDJ Mgt., LLC v. Rhone Group L.L.C., 15 NY3d 147, 154 [2010].