Release

Arfa v Zamir, 2011 NY Slip Op 04719 (Ct. App. 2011)

In June 2005, plaintiffs Rachel Arfa and Alexander Shpigel executed a general agreement with defendant Gadi Zamir regarding management of their real estate business. The agreement contained a provision in which each party released the others and their related entities from, "any and all claims, demands, actions, rights, suits, liabilities, interests and causes of action, known and unknown, which they have ever had, have or may now have, which in any way pertain to or arise from any matters, facts, occurrences, actions or omissions which occurred prior to" the date of the contract. This general release, which plaintiffs allege was part of a negotiated agreement meant to ease an antagonistic relationship and keep Zamir "from destroying the value of the real estate portfolio," prevents plaintiffs from now bringing an action for fraud based on misrepresentations predating it.

Plaintiffs have failed to allege that the release was induced by a separate fraud (see Centro Empresarial Cempresa S.A., et. al. v América Móvil, S.A.B. de C.V., et al., ___ NY3d ___ [decided ____ ]). Additionally, they have failed to allege that they justifiably relied on Zamir's fraudulent misstatements in executing the release. By their own admission, plaintiffs, who are sophisticated parties, had ample indication prior to June 2005 that defendant was not trustworthy, yet they elected to release him from the very claims they now bring without investigating the extent of his alleged misconduct (see Centro, ____ NY3d at ___; DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d 147, 153-154 [2010]). Dismissal of plaintiffs' fraud cause of action is therefore appropriate.

Centro Empresarial Cempresa S.A. v America Movil, S.A.B. de C.V., 2011 NY Slip Op 04720 (Ct. App. 2011)

Having executed this release, plaintiffs cannot now claim that defendants fraudulently misled them regarding the value of their ownership interests in TWE unless the release was itself induced by a separate fraud. The fraud described in the complaint, however, falls squarely within the scope of the release: plaintiffs allege that defendants supplied them with false financial information regarding the value of Conecel and TWE, and that, based on this false information, plaintiffs sold their interests in TWE and released defendants from claims in connection with that sale. Thus, as the Appellate Division observed: "plaintiffs seek to convert the 2003 release into a starting point for new . . . litigation, essentially asking to be relieved of the release on the ground that they did not realize the true value of the claims they were giving up" (Centro, 76 AD3d at 317).

That the parties had a fiduciary relationship does not alter our conclusion. It is true that Telmex, as a majority shareholder in a closely held corporation, owed a fiduciary duty to plaintiffs, minority shareholders (see Fender v Prescott, 64 NY2d 1077, 1079 [1985]). Telmex was therefore required to "disclose any information that could reasonably bear on plaintiffs' consideration of [its purchase] offer" (Dubbs v Stribling & Assoc., 96 NY2d 337, 341 [2001]).

A sophisticated principal is able to release its fiduciary from claims — at least where, as here, the fiduciary relationship is no longer one of unquestioning trust — so long as the principal understands that the fiduciary is acting in its own interest and the release is knowingly entered into (see Alleghany Corp., 333 F2d at 333 ["There is no prerequisite to the settlement of a fraud case that the (fiduciary) defendant must come forward and confess to all his wrongful acts in connection with the subject matter"]; Consorcio Prodipe, S.A. de C.V., 544 F Supp 2d at 191). To the extent that Appellate Division decisions such as Littman v Magee (54 AD3d 14, 17 [1st Dept 2008]), Blue Chip Emerald v Allied Partners Inc. (299 AD2d 278, 279-280 [1st Dept 2002]), and Collections v Kolber, 256 AD2d 240, 241 [1st Dept 1998]) suggest otherwise, they misapprehend our case law. Plaintiffs here are large corporations engaged in complex transactions in which they were advised by counsel. As sophisticated entities, they negotiated and executed an extraordinarily broad release with their eyes wide open. They cannot now invalidate that release by claiming ignorance of the depth of their fiduciary's misconduct.

In addition to failing to allege that the release was induced by a separate fraud, plaintiffs have failed to allege that they justifiably relied on defendants' fraudulent statements in executing the release. As we recently reiterated:

"If 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, 153-154 [2010], quoting Schumaker v Mather, 133 NY 590, 596 [1892]).

Here, according to the facts alleged in the complaint, plaintiffs knew that defendants had not supplied them with the financial information necessary to properly value the TWE units, and that they were entitled to that information. Yet they chose to cash out their interests and release defendants from fraud claims without demanding either access to the information or assurances as to its accuracy in the form of representations and warranties. In short, this is an instance where plaintiffs "have been so lax in protecting themselves that they cannot fairly ask for the law's protection" (id. at 154).