“Nothing Is Changed”: Justifiable Reliance in a Family Business Battle

By: Jeffrey M. Haber

In closely held family businesses, trust often substitutes for formalities. This phenomenon was on display in Homapour v. 3M Props., LLC, 2026 N.Y. Slip Op. 04371 (1st Dept. July 9, 2026), where the formality of “read-before-you-sign” was tested. The dispute centered on allegations that a managing member repeatedly presented family members with signature pages detached from amended LLC operating agreements while assuring them that “nothing had changed.” Although signatories generally are bound by documents they sign, the Appellate Division, First Department recognized that a different analysis should apply when the signer places trust in a fiduciary. Because the managing member allegedly owed duties of loyalty and candor to the minority members, the Court concluded that questions of justifiable reliance, one of the elements of a fraudulent inducement claim, could not be resolved as a matter of law and instead warranted further consideration by the finder of fact.

Background

Homapour arose from a long-running and contentious family dispute involving a vast portfolio of New York City real estate holdings worth hundreds of millions of dollars. The dispute centered on a network of family-owned limited liability companies that own residential and commercial properties throughout Manhattan. After years of litigation, many of the parties sought summary judgment on several claims alleging self-dealing, fiduciary misconduct, fraud, and professional wrongdoing.

Plaintiff, along with her sister and father, held minority ownership interests in numerous family real estate entities. Her brother served as the managing member of many of those companies and exercised significant control over their operations and finances. According to plaintiff, the brother treated company funds as a personal bank account, using LLC assets to pay for a wide range of personal expenses, and expenses associated with personal relationships.

According to plaintiff, during a family meeting in November 2014 family, the brother acknowledged using company funds for personal expenditures. One year later, she filed suit, asserting both individual and derivative claims on behalf of the family entities.

Relevant to today’s article, plaintiff sued her brother for fraud. Plaintiff alleged that her brother induced her to sign amended operating agreements by falsely assuring her that the revisions were insignificant, when in fact they materially expanded his authority. According to plaintiff, the amendments permitted the brother to compensate himself, reduced managerial liability, and restricted the remedies available to minority members. Plaintiff claimed that defendant presented only signature pages and discouraged substantive review of the documents, leading her to believe that the amendments were merely administrative or estate-planning related.

The Lower Court Ruling

Addressing the motions for summary judgment, the motion court found the evidentiary record insufficient to sustain plaintiff’s fraud claim. While New York law recognizes that a party may sometimes rely on representations made by a person occupying a position of trust or confidence, the motion court concluded that plaintiff failed to provide evidence that defendant misrepresented the contents of the agreements plaintiff signed.

The motion court noted that plaintiff admitted she generally did not read the operating agreements before signing them. Although she testified that family practice often involved presenting only signature pages, she was unable to recall specific misstatements concerning most of the challenged agreements. With respect to the December 2012 signing ceremony at which several important amendments were executed, for example, plaintiff testified that there was essentially no discussion regarding the documents and that nothing about them was explained to her.

As a result, the motion court held that plaintiff could not establish the element of justifiable reliance necessary to prove fraud. The motion court, therefore, concluded that plaintiff failed to create a triable issue of fact sufficient to defeat summary judgment.

The First Department Decision

On appeal, the First Department modified the order.

The Court held that the fraud cause of action should not have been dismissed.[1] The Court explained that plaintiff “attested that [defendant] fraudulently induced her to sign the unilaterally amended Family LLC operating agreements by, among other things, presenting ‘just a signature page’ with no accompanying document.”[2] The Court noted that plaintiff “averred that ‘[w]henever I inquired about what I was asked to sign, [defendant’]s response was always that “nothing is changed” and that he just needed my signature and that I was never given the full document to review.’”[3] Additional testimony from the father, said the Court, showed that “the operating agreements were ‘created or amended to incorporate significantly favorable terms for [defendant],’ that [the father] never agreed to these changes and that [the father] was never provided with the entire document.”[4]

Although “a person is bound by the terms of an instrument he or she signs, and may not claim to have justifiably relied on false representations concerning the contents of a document that he or she failed to read without valid excuse,” explained the Court,[5] “[g]iven the fiduciary relationship between [plaintiff] and [defendant], there [was] a question of fact as to whether [plaintiff] justifiably relied on [defendant’]s misrepresentations as to the agreements she signed.”[6] In other words, whether the “read-before-you-sign” rule “applie[d] to bar plaintiff’s fraud claim against [defendant] [could not] be determined as a matter of law because [defendant] had fiduciary obligations to [plaintiffs] as the managing member of several limited liability companies of which they were nonmanaging members.”[7] 

Takeaway

The First Department’s treatment of plaintiff’s fraud claim highlights an exception to the “read-before-you-sign” rule. While courts generally presume that a person who signs a document without reading it is bound by its terms, that principle is not absolute. Where the person seeking the signature owes fiduciary duties to the signer, the question of whether reliance on oral representations was justified may become one for the factfinder rather than a matter that can be resolved on summary judgment.

The decision also highlights the risks that arise in family-owned businesses. Family members often rely on personal trust and informal practices rather than the safeguards commonly employed in arm’s-length commercial transactions. When family relationships overlap with fiduciary responsibilities, courts may recognize that reliance on a relative’s representations can be fundamentally different from reliance in an ordinary business deal.

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________

[1] Slip Op. at *1.

[2] Id.

[3] Id. (internal quotations modified).

[4] Id.

[5] Id. at *2, quoting Tsai Chung Chao v. Chao, 161 A.D.3d 564, 565 (1st Dept. 2018).

[6] Id.

[7] Id.