When a business deal goes bad, it has to be someone’s fault, right? And if it is someone’s fault then that someone should have to pay the other participants in the deal who lost money, particularly where that someone has not been completely honest about the risks involved, right? Not always, and not where the business investor who is sophisticated enough to have known better should have been asking the right questions from the beginning, but simply failed to do so because that investor was a little too greedy.
That is what a federal district court ruled in applying New York law to a case we handled where our client because of a failed business venture was counter-sued by one of the participants for fraud and damages for all of the supposed money the participant would have made but for our client’s alleged misrepresentations concerning its experience and skills. See Street-Works Development LLC v. John Richman; 13 CV 774 (VB), SDNY, decided February 4, 2015.
The particular context of the case concerned whether the defendant in his counterclaims against our client and against individual members of the client had sufficiently and adequately plead fraud under New York law. In his pleadings, the defendant specifically let the court know just how sophisticated he was by claiming that “he had been the developer on real estate projects since he left graduate school”; had “partnered with high net-worth individuals”; and “successfully orchestrated over $3 Billion of real estate projects nationwide”. Given such experience and skill, the Court held that the defendant could have investigated the experience and background of the members, but since he failed to do so he could not have plausibly relied on the representations of our clients. Continue reading