A recent decision from New York County Commercial Division Justice Joel M. Cohen highlights the hurdles that defendants face in trying to assert a fraudulent inducement defense to a breach of contract claim. Justice Cohen’s decision also reinforces the potential benefits plaintiffs can enjoy by moving for partial summary judgment early, before fact discovery is completed.
In Thomas O’ Connor v. Society Pass Incorporated, Index No. 656938/2019 (Sup. Ct., N.Y. Cty. filed Dec. 27, 2023), plaintiff claimed that the defendant had breached a common stock purchase warrant agreement by failing to sell shares after plaintiff had validly exercised his right to purchase under the agreement. Even before the plaintiff sat for a deposition, plaintiff moved for partial summary judgment on the breach of contract claim, which the Court granted.
Just under two months after the Court handed down its summary judgment decision, the plaintiff was deposed. At that deposition, defendant’s counsel elicited testimony from plaintiff to the effect that “he believed a Call Agreement . . . he entered into with Defendant’s Chief Executive Office[r] . . . was not enforceable.” (Id. at 2.)
On the basis of that admission, the defendant made a motion for two forms of relief in an effort to undo the damage of the summary judgment decision: (i) a motion for leave to amend defendant’s answer to add a fraudulent inducement defense to the breach of contract claim, arguing that the plaintiff’s deposition testimony showed that he “fraudulently induced Defendant to enter several related contracts, including the Warrant” that was the subject of the breach-of-contract claim; and (ii) a motion to renew the summary judgment opposition pursuant to CPLR 2221(e), on the grounds that the plaintiff’s deposition testimony furnished “new facts not offered on the prior motion that would change the prior determination.”
The Court denied both parts of the motion.
As to the motion to amend, the Court reasoned that the plaintiff’s “subjective belief or opinion that the Call Agreement is not enforceable was not a representation of fact and is therefore insufficient to serve as the basis of a fraudulent inducement defense.” Id. at 3-4 (citing Raytheon Co. v AES Red Oak, LLC, 37 AD3d 364, 364 [1st Dept 2007]).
As to the motion to renew, the Court repeated that the “new facts” in the deposition testimony would not have changed the prior determination (because they would not support a fraudulent inducement defense). In any event, the Court said, the defendant had failed to offer a reasonable justification for introducing the new facts because, while the specific deposition testimony was not known at the time of the summary judgment briefing, the other surrounding facts—like “[t]he Call Agreement, Warrant and checks used by Plaintiff O’Connor to exercise his rights under the Warrants”—were known and could have been raised.
Besides showcasing the difficulty in establishing a fraudulent inducement defense, O’Connor highlights the benefits plaintiffs can reap by moving for partial summary judgment before fact discovery is substantially completed. That early grant of summary judgment put the defendant in O’Connor on its back foot, and the later discovered testimonial evidence was not enough to undo the damage, even through a motion to amend or renew.