New York City has long been the center of business and commerce, not only in the country but in the entire world. Because of this, New York has a long legal history of business litigation and case law regarding several business torts. Among the most common of these torts is fraud. Fraud may be committed throughout the course of business dealings, for example, during contract disputes and negotiations as well as during the purchase and sale of assets.[1] Claims of fraud may take several forms, but in this article, we will discuss fraud via negligent misrepresentation. What is negligent misrepresentation? Negligent misrepresentation occurs when one party makes an inaccurate or deceptive statement when negotiating, and the false or deceptive statement is used to persuade the innocent person into entering into a contract.
New York courts have established that “a claim for negligent misrepresentation requires the plaintiff to demonstrate
- The existence of a special or privity-like relationship imposing a duty on the defendant or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff;
- That the imparted information was incorrect; and
- Reasonable reliance on that information.”[2]
In order to prove a claim for negligent misrepresentation, the plaintiff must show that there was a relationship between plaintiff and defendant in which a duty was owed. Oftentimes, this duty is created through a contractual obligation, or if no contract exists, when there is a traditionally recognized fiduciary or confidential relationship between parties.[3] Without an existing contract, some of the relationships that would allow for a claim of negligent misrepresentation to be brought are of that between clients and attorneys, accountants, and in some cases even professional consultants.[4] The policy reason for needing a contractual or fiduciary duty in order to prevail on a claim for negligent misrepresentation is that it restricts liability to specific relationships. These are relationships where one party is put in a position of higher trust in comparison to an ordinary arm’s length business dealing or transaction.
Intent to defraud the plaintiff or misrepresent facts is not necessary to succeed on this claim. Unlike common law fraud, there must have only been a false statement or misrepresentation made by the defendant to the plaintiff, which the plaintiff then relied on and acted upon.[5] No intent is necessary because the contractual and/or fiduciary duty that is essential to this claim creates a legal duty in lieu of intent.[6] Liability for negligent misrepresentation exists where a defendant possesses unique or specialized expertise which the plaintiff would reasonably rely on.[7] Because of this imbalance in knowledge, courts have found it just that the plaintiff should recover damages when a defendant provides a plaintiff with faulty information. If this duty is not protected and enforced by the courts, then no duty would exist in the first place. Thus, it is necessary to protect such rights of the plaintiff, to also protect the legitimacy of both contractual, fiduciary, and confidential relationships.
It is important that you are aware of the legal hurdles and dangers that may await your business. For help navigating business torts, contracts, and prospective dealings, contact KI Legal’s knowledgeable corporate governance attorneys so our team can help protect your business and interests. Call (212) 404-8644 or submit a contact form on our website at kilegal.com today.
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[1] Omid H. Nasab, 2022 in New York Business Litigation 469–489, 476 (2022).
[2] J.A.O. Acquisition Corp. v. Stavitsky, 863 N.E.2d 585, 587 (2007).
[3] Parrot v. Cooper & Lybrand, LLP, 741 N.E.2d 506, 508 (2000).
[4] See Ossining Union Free Sch. Dist. v. Anderson, 539 N.E.2d 91 (1989) (finding that engineering consultants were liable for negligent misrepresentation regarding their analysis on the structural integrity of a building).
[5] See J.A.O. Acquisition Corp. (2007).
[6] See Nasab (2022).
[7] Id.