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IN AN ACTION ALLEGING FRAUDULENT INDUCEMENT, WHETHER THE PLAINTIFF REASONABLY RELIED ON THE ALLEGED MISREPRESENTATION IS USUALLY A QUESTION OF FACT WHICH CANNOT BE RESOLVED IN A MOTION TO DISMISS FOR FAILURE TO STATE A CAUSE OF ACTION (SECOND DEPT).

The Second Department, reversing (modifying) Supreme Court, determined the complaint stated a cause of action for fraudulent inducement. Plaintiff radiologist alleged defendant induced him to open a radiology practice which, plaintiff said, already had a patient-referral system in place. Plaintiff alleged that, after expending funds to open the practice, he learned he would have to pay for the referrals and he shut the practice down. The appellate court held that whether plaintiff reasonably relied on the alleged misrepresentation usually is a question of fact for the jury:

Regarding reasonable reliance on a misrepresentation of a material fact, the “plaintiff is expected to exercise ordinary diligence and may not claim to have reasonably relied on a defendant’s representations [or silence] where he [or she] has means available to him [or her] of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation” … .

The “question of what constitutes reasonable reliance is always nettlesome because it is so fact-intensive” …  The resolution of the issue of whether a plaintiff reasonably relied on a defendant’s misrepresentation in support of a cause of action alleging fraud in the inducement is ordinarily relegated to the finder of fact … . … [P]laintiffs adequately stated a cause of action to recover damages for fraudulent inducement insofar as the determination of the reasonableness of [plaintiff-radiologist’s] reliance on [defendant’s] alleged misrepresentations concerning, among other things, the source of the … patient referrals itself entailed a question of fact not appropriate for summary disposition as a matter of law. Feldman v Byrne, 2022 NY Slip Op 06113, Second Dept 11-2-22

Practice Point: In an action for fraudulent inducement, whether the plaintiff’s reliance on the alleged misrepresentation was reasonable is a difficult issue which usually raises a question of fact for the jury and therefore cannot be summarily resolved in a motion to dismiss for failure to state a cause of action.

 

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