Peter A. Lauricella (Partner-Albany, NY) and Kadeem O. Wolliaston (Associate-Albany, NY) obtained an affirmance from the New York Supreme Court, Appellate Division, Third Department, upholding the dismissal of a complaint alleging fraud and breach of fiduciary duty arising from the sale of a closely held business. The plaintiffs sought over $2 million in damages. 

In the underlying matter, Crane et al.v. WP Strategic Holdings, LLC, the plaintiffs sought to rescind a negotiated agreement and release after learning that the acquired company was later sold to a third party for substantially more than its purchase price. The plaintiffs alleged that Wilson Elser’s clients fraudulently concealed ongoing sale negotiations, arguing that the release should be set aside based on fraud, breach of fiduciary duty, and the special facts doctrine.

The Third Department unanimously affirmed the Albany County Supreme Court's dismissal of the complaint, holding that the attorney-negotiated release was clear, unambiguous, and enforceable. Relying on the New York Court of Appeal’s decision in Centro Empresarial Cempresa S.A. v. América Móvil, S.A.B. de C.V., the court reiterated that a party seeking to avoid a release must identify a fraud that is separate and distinct from the subject matter of the release itself. Because the plaintiffs’ allegations concerned the value of the ownership interest they had agreed to relinquish, rather than a separate fraud inducing execution of the release, their claims were barred as a matter of law.

The court also rejected the plaintiffs’ contention that they were owed fiduciary duties as shareholders, holding that the language of the parties' Agreement and Mutual Release expressly acknowledged that no agreement had been reached regarding the terms under which the plaintiffs would hold ownership interest in the company. As a result, the plaintiffs were not shareholders when they executed the release, and no fiduciary duty arose. In so holding, the court confirmed that recital provisions in an agreement may properly be considered to determine the parties’ intent and the contract’s purpose when evaluating documentary evidence under CPLR 3211.

Finally, the Third Department held that the plaintiffs failed to establish justifiable reliance, noting that they were sophisticated businesspersons represented by independent counsel, were aware that the company could be sold at any point in the future before signing the release, and nevertheless chose to proceed without seeking additional protections or conducting further inquiry. Under those circumstances, the plaintiffs assumed the business risk of entering into the settlement and could not later invalidate the release on the basis of alleged nondisclosure. The court likewise rejected the plaintiffs’ reliance on the “special facts” doctrine, concluding that the alleged information could not support rescission where the plaintiffs failed to exercise ordinary intelligence in protecting their interests.

The decision reinforces New York’s strong public policy favoring the enforcement of negotiated releases and provides important guidance for businesses resolving ownership and investment disputes. It also underscores that sophisticated parties represented by counsel cannot later avoid broad settlement agreements absent allegations of a separate, independent fraud or reasonable reliance sufficient to invalidate the release.