Asset purchase agreements (APAs), stock acquisitions and other high-end purchase and sale transactions are fertile ground for potential fraud claims. The typical scenario: The buyer pays a boatload of money for assets, stock or other interests in a business or goods, and then discovers after the transaction closes that what it bought is not what it anticipated or wanted. The buyer claims that the seller was not truthful or candid in some way in describing or presenting the subject of the purchase, amounting to some form of fraudulent misrepresentation.
Especially where sophisticated parties are involved, courts set a rather high bar for establishing these types of fraud claims. (See the cases commented upon in my topic heading “Sophisticated Parties.”) The cases show that the language contained in the transactional documents is key. If the buyer is truly relying upon or anticipating the existence of particular attributes of the subject of the purchase, it is essential to document the precise description and relevant representations of the accuracy of the information pertaining to the purchased items. These are often referred to extensively in the contract itself as well as in accompanying “schedules” that itemize the relevant subject. Especially where there is some suspicion on the nature of the subject of the contractual purchase, courts often want to see what they call “prophylactic” language protecting the buyer and its assumptions, including express contractual representations and warranties. See, e.g., Global Mins. & Metals Corp. v Holme, 35 A.D.3d 93 (1st Dep’t 2006). But see ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d 1043 (2015)(“prophylactic” language not “required” in that transaction).
On the other hand, the seller is interested in limiting any post-closing claims that the purchased items were somehow misrepresented, mischaracterized, or otherwise not what the buyer expected. This is where disclaimers and contractual limitations are essential to head-off subsequent fraud claims. See,e.g., Broad Disclaimers Doom Fraud Claims Relating to M&A Transaction and Topic Heading “Disclaimers.”
A new decision of the Appellate Division, First Department, relies upon these principles in granting summary judgment dismissing attempted fraud claims by a sophisticated party to an APA (Skyview Capital, LLC v Conduent Business Servs., LLC, 2025 NY Slip Op 03291 (1st Dep’t Decided June 3, 2025).
Skyview Decision
The APA in Skyview involved plaintiff’s purchase of “customer care call centers and customer care contracts, called ‘Liberty.’” Among other things, plaintiff claimed that defendants had concealed and/or misrepresented certain financial forecasts relating to the assets purchased. The First Department held that the contractual disclaimers barred these claims:
Skyview’s fraud claim asserting that Conduent should have disclosed the Q3 reforecast, while not duplicative of the contract claims, should have been dismissed. The July 2018 management presentation, sent to Skyview from Conduent’s investment banker, said that Conduent had no duty to update it. In addition, both the initial asset purchase agreement (initial APA) and amended asset purchase agreement (APA) state Skyview “ha[d] made its own evaluation of the adequacy and accuracy of all estimates, projections, [and] forecasts furnished” to it. These disclaimers are specific enough to bar Skyview’s fraud claim (see e.g. HSH Nordbank AG v UBS AG, 95 AD3d 185, 201 [1st Dept 2012]; see also Permasteelisa, S.p.A. v Lincolnshire Mgt., Inc., 16 AD3d 352, 352 [1st Dept 2005]).
The First Department bolstered this holding by also finding plaintiff buyer did not establish it justifiably relied on any alleged misrepresentation since it failed to act prudently to investigate the facts and protect itself:
In addition, Skyview, a sophisticated party, cannot show justifiable reliance on misrepresentations, as it “failed to make use of the means of verification that were available to it” (Ventur Group, LLC v Finnerty, 68 AD3d 638, 639 [1st Dept 2009] [internal quotation marks omitted]; see also Global Mins. & Metals Corp. v Holme, 35 AD3d 93, 100 [1st Dept 2006], lv denied 8 NY3d 804 [2007]). Under the initial APA, Skyview had access to Conduent’s books and records from September 28, 2018 until February 1, 2019. It could have tested the prediction of $461 million in revenue for 2018 against such books and records. Furthermore, on October 16, 2018, Conduent sent Skyview a forecast of $439.4 million for 2018, which is much lower than the $461 million forecast (and also lower than the Q3 reforecast of $446 million).
Finally, the First Department rejected plaintiff’s attempt to find solace in the “special facts” doctrine, ruling that plaintiff had the means of learning relevant information itself:
Sprint’s plans were [*2]not peculiarly within Conduent’s knowledge; Skyview could have inquired with Sprint about its repatriation plans (see LMM Capital Partners, LLC v Mill Point Capital, LLC, 224 AD3d 504, 505, 508 [1st Dept 2024] [the plaintiff could have directly contacted the customers of the business it wanted to acquire]). In fact, Conduent and Skyview met with Sprint months before Skyview signed the final APA.
Commentary
Fraud claims by sophisticated parties face judicial scrutiny, especially in highly negotiated arms-length transactions memorialized with contractual provisions. As shown by the decision in Skyview, strategic disclaimers in the transactional contracts are key to heading off subsequent fraud claims against the seller, especially where the buyer had the means of documenting or otherwise learning any information deemed relevant to the purchase decision.