Sillam v. Labaton Sucharow LLP

Background

Gerard Sillam and Aldric Saulnier sued Labaton Sucharow LLP, Christopher J. Keller, and Lawrence A. Sucharow. The plaintiffs alleged that Labaton had agreed to pay referral-related fees for clients referred by Sillam. After earlier settlements in 2009, the parties signed a Universal Settlement Agreement in 2015. That agreement broadly released claims against Labaton and its partners, agents, and representatives.

The plaintiffs alleged that Keller sent five sworn declarations between 2011 and 2015 stating that Labaton had not been retained by referred clients. They alleged that those statements were false because Labaton had represented referred clients, including in connection with filing claims and other litigation. The plaintiffs said they relied on the declarations when agreeing to the 2015 settlement and its release. They asserted fraudulent inducement, negligent misrepresentation, and aiding and abetting fraudulent inducement.

Court’s Analysis

The court applied the standard for a motion to dismiss, under which well-pleaded factual allegations are treated as true and must make the claim plausible. It concluded that the plaintiffs adequately alleged fraudulent inducement against Labaton and Keller. The alleged sworn statements could qualify as material misrepresentations, and the questions whether Labaton represented referred clients and whether particular work fell within the parties’ agreements could not be resolved at this stage. The court also found that the plaintiffs plausibly alleged reasonable reliance and damages.

The court rejected the argument that the Universal Settlement Agreement’s release automatically barred the fraudulent-inducement claim. Under the law the parties agreed applied, a release may be avoided when it was obtained through fraud. Because the plaintiffs adequately pleaded that they were fraudulently induced to enter the 2015 settlement, the court allowed that claim to proceed.

The court reached a different conclusion on negligent misrepresentation. It held that the broad release covered that claim and could not be avoided on the allegations presented. The court also held that the plaintiffs failed to plead aiding and abetting fraudulent inducement against Sucharow because they did not allege facts showing that he had actual knowledge of the alleged fraud or substantially assisted it. The court stated that constructive knowledge—that is, information Sucharow might reasonably have been expected to know—was not enough.

Disposition

Judge Colleen McMahon granted in part and denied in part the defendants’ motion to dismiss. The court dismissed Counts II and III in their entirety and denied the motion insofar as Count I was concerned. In the court’s substantive discussion and conclusion, the surviving claim was fraudulent inducement against Labaton and Keller; the negligent-misrepresentation and aiding-and-abetting claims did not survive. The opinion contains internal numbering inconsistencies about which count corresponds to some claims, but its stated outcome identifies the fraudulent-inducement claim as proceeding and the other two claims as dismissed.