ARE-East River Science Park, LLC v. New York City Health & Hospitals Corp.

The federal district court for the Southern District of New York dismissed a developer’s fraudulent inducement claim against New York City Health and Hospitals Corporation and New York City Economic Development Corporation (together, the City) for allegedly falsely representing the finality of design criteria for a flood protection system in connection with a planned building on the East Side of Manhattan. The developer alleged that it relied on statements and omissions by the City in letters, draft contractual provisions, and oral statements that misrepresented that the design criteria in an October 2020 report were final. The court first found that one of the defendants’ alleged misstatements and all but one of the alleged omissions were not pled with sufficient particularity as required under Federal Rule of Civil Procedure 9(b). In its review of the remaining alleged misstatements and omission, the court concluded that the allegations did not establish that the City represented that the October 2020 report was “final and exclusive” and that any such belief the developer might have formed “was clearly contradicted by other statements made by the City.” The court further found that the developer’s reliance on the alleged misrepresentations was unreasonable as a matter of law. In addition to finding that the developer did not establish the elements of fraudulent inducement, the court also found that the developer did not demonstrate a fraudulent misrepresentation that was “collateral or extraneous” to the contract as required by the Second Circuit’s decision in Bridgestone/Firestone v. Recovery Credit Services. The court also dismissed the developer’s claim that the City breached the implied covenant of good faith and fair dealing by demanding the developer abide by new design criteria for the flood protection system. The court denied leave to amend. A declaratory judgment claim remained pending.

The developer of a commercial life science facility along the East River in Manhattan filed a lawsuit in the federal district court for the Southern District of New York alleging that New York City Health and Hospitals Corporation (H+H) and New York City Economic Development Corporation (EDC) had engaged in a fraudulent scheme to induce the developer into committing to incorporate a floodwall into a new building’s foundation. The complaint alleged that the defendants had determined after Superstorm Sandy that it was “imperative” to construct the floodwall and that the developer had agreed to cooperate with the defendants to integrate the floodwall into the new building’s foundation. The developer alleged that H+H and EDC concealed from it that floodwall design criteria were not final, that construction of the facility would be delayed for years, and that the developer would not be reimbursed for its floodwall-related costs. The developer alleged that it had sustained tens of millions of dollars in damages and millions of dollars in lost profits and had been denied “the benefits and fruits of its contractual option.” The complaint asserted causes of action for fraudulent inducement or, alternatively, breach of contract.