• Beware of Claims of Fraud Arising Out of a Breach of a Representation and Warranty in a Written Contract
  • August 13, 2015 | Author: Jeremy E. Deutsch
  • Law Firm: Norris McLaughlin & Marcus, P.A. A Professional Corporation - New York Office
  • Parties selling businesses make representations and warranties in the purchase agreements as a matter of course. Such representations and warranties are usually intended to provide the beneficiary with some post-closing recourse against the maker if the statements turn out to be false. The recourse is usually a breach of contract claim, and the measure of damages for a breach of contract claim is well understood in New York. However, the Appellate Division, First Department, in Wyle, Inc. v. ITT Corp., 2015 NY Slip Op 05877 (1st Dept. July 7, 2015), recently sustained a complaint and held that a breach of a representation or warranty can give rise to a claim for fraudulent misrepresentation in addition to the claim for breach of contract. Fraud claims in New York can be game changers for defendants since they carry with them the possibility of punitive damage awards. Generally, a fraud claim on a misrepresentation of a contractual warranty is subject to dismissal on the ground that it is duplicative of the contract claim, but that may be changing in New York given this Wyle decision. However, this case did draw a long and well-reasoned dissent. The case grew out of post-closing litigation involving the purchase of a defense contractor that earned most of its money from contract work for the federal government.