| Ventur Group, LLC v Finnerty |
| 2009 NY Slip Op 09544 [68 AD3d 638] |
| December 22, 2009 |
| Appellate Division, First Department |
| Ventur Group, LLC, Respondent, v Diane Finnerty et al.,Appellants. |
—[*1] Smith Campbell, LLP, New York (Thomas M. Campbell of counsel), forrespondent.
Order, Supreme Court, New York County (Bernard J. Fried, J.), entered February 24, 2009,which, to the extent appealed from as limited by the briefs, denied defendants' motion forsummary judgment dismissing the claims for fraudulent inducement and for breach of acontractual best-efforts clause, and the demand for punitive damages, unanimously reversed, onthe law, with costs, and the motion granted. The Clerk is directed to enter judgment dismissingthe complaint.
After engaging in almost a year of discussions, plaintiff entered into a purchase agreement toacquire the assets of two investment advisory firms (Wealth Management and AssetManagement), which were owned by defendant Finnerty. Under the agreement, these assetsconsisted of management agreements with clients, which could not be assigned without consent.It further provided that "there can be no assurance that Client Consent can or will be obtainedwith respect to any Management Agreement or any particular number of ManagementAgreements," and no adjustment to the purchase price would be made as a result of failure toobtain client consent.
For purposes of the appeal, defendants do not dispute that Finnerty knowinglymisrepresented that she had the primary relationship with—and "owned"—theclients of Wealth Management, when in fact those clients had been brought to the firm by anemployee, George Graf, who had developed the client relationships over a period of more than20 years. Plaintiff further alleges that Finnerty misrepresented Graf's importance to the business,and that even though plaintiff had requested a meeting with him, Finnerty refused to scheduleone until after the agreement was executed. Shortly after that meeting, Graf resigned fromWealth Management and solicited his clients, 80% of whom left with him.
In order to prevail on a claim for common-law fraudulent inducement, a plaintiff mustestablish "the misrepresentation of a material fact, which was known by the defendant to be falseand intended to be relied on when made, and that there was justifiable reliance and resultinginjury" (Braddock v Braddock, 60AD3d 84, 86 [2009]). Defendants do not challenge the motion court's conclusion that thealleged misrepresentations are collateral to the contract, and thus the fraud claim is not barred bythe merger clause in the agreement. Instead, they contend that the claim fails because plaintiffcannot demonstrate justifiable reliance. Although the issue of [*2]justifiable reliance is generally a question of fact that is notamenable to summary resolution (seeBrunetti v Musallam, 11 AD3d 280, 281 [2004]), we have held that "[a]s a matter oflaw, a sophisticated plaintiff cannot establish that it entered into an arm's length transaction injustifiable reliance on alleged misrepresentations if that plaintiff failed to make use of the meansof verification that were available to it" (UST Private Equity Invs. Fund v Salomon SmithBarney, 288 AD2d 87, 88 [2001]).
Here, even though its ability to review client agreements was limited due to securitiesregulations governing confidentiality, plaintiff, a financial advisor represented by counsel,proceeded without asking to see any employment contracts or speaking to Graf, who wasdesignated in the agreement as a "key employee" and had not insisted on including protectiveprovisions therein. Having failed to make any effort to verify Finnerty's representationsconcerning her client relationships and Graf's role in the business, plaintiff cannot demonstratejustifiable reliance on the misrepresentations (see Valassis Communications v Weimer,304 AD2d 448 [2003], appeal dismissed 2 NY3d 794 [2004]; Stuart Lipsky, P.C. vPrice, 215 AD2d 102, 103 [1995]).
Moreover, plaintiff has not shown evidence sufficient to raise an issue of fact as to whetherFinnerty breached her obligation to use best efforts to obtain consents from the WealthManagement clients, or that any particular client was lost as a result of such breach (seeLexington 360 Assoc. v First Union Natl. Bank of N. Carolina, 234 AD2d 187, 191-192[1996]). More likely, any loss of clients was a result of plaintiff's lack of relationship with them.Concur—Sweeny, J.P., Catterson, Renwick, Freedman and Abdus-Salaam, JJ.