Sophisticated Parties, Justifiable Reliance, and a Signed Release: A Roadmap to Dismissal

By: Jeffrey M. Haber

New York strongly favors the enforcement of releases. Courts routinely recognize that a valid release serves an important purpose by bringing certainty and finality to disputes, allowing parties to resolve claims and move forward without the threat of future litigation. Indeed, broadly worded releases are often enforced according to their terms, even when they encompass claims that were unknown or unanticipated at the time the agreement was executed. For businesses and litigants alike, the release is one of the most effective tools for managing risk and achieving closure.

Notwithstanding, New York courts have long held that a release may be set aside where it was procured through fraud, misrepresentation, concealment, or other inequitable conduct. The law recognizes that while parties are generally free to allocate risk through contract, a release cannot be used as a shield for deceptive conduct that induced the agreement itself. As a result, disputes frequently arise over whether a release reflects a knowing and voluntary surrender of claims or whether it was obtained through misrepresentations, omissions, or active concealment of material facts.

The relationship between releases and fraud presents a recurring theme in New York jurisprudence. On one hand, courts seek to uphold the parties’ contractual intent and preserve the certainty that releases are intended to provide. On the other, courts are reluctant to enforce agreements that are the product of fraud. The outcome often turns on questions concerning the language of the release, the sophistication of the parties, the existence of non-reliance provisions, the nature of the alleged misrepresentations, and whether the purported fraud is distinct from the subject matter of the released claims.

In today’s article, we examine, through Crane v. WP Strategic Holdings, LLC, 2026 N.Y. Slip Op. 04806 (3d Dept. July 30, 2026), how New York courts navigate these principles.

Crane v. WP Strategic Holdings, LLC

Crane involved descendants of the founders of Crane & Co. who negotiated with defendants to acquire a stationery business that had passed through several corporate ownership changes before being offered for sale in 2024.

Crane & Co., Inc. was founded in 1801 as a paper manufacturer and has long operated in that capacity, although with multiple corporate changes occurring over the last decade. In 2015, the company’s internal stationery business — Crane Special Papers North America, Inc. (hereinafter CSPNA) — became an entirely employee-held company. In 2018, that entity was acquired by Mohawk Fine Papers, Inc., and the assets of Mohawk were subsequently sold to a foreign company, Fedrigoni Group, in 2024. Shortly thereafter, Fedrigoni decided that it would seek to sell CSPNA. Plaintiffs — descendants of the founder of Crane & Co. who had remained employed by CSPNA through these structural changes — began negotiations with defendants for the joint purchase of CSPNA from Fedrigoni.

The parties agreed to purchase CSPNA for $3 million, with plaintiffs contributing $600,000 of the purchase price and defendants contributing the remaining $2.4 million. Soon thereafter, plaintiffs agreed that defendant would singularly purchase CSPNA, with plaintiffs’ ownership interests to be determined later. Therefore, WP purchased CSPNA for $3 million.

Following the purchase, the business relationship between the parties deteriorated. On May 28, 2024, defendants advised plaintiffs that they did not wish to move forward in the joint venture and offered to return plaintiffs’ capital investment with an additional $60,000 to account for any personal costs incurred. This arrangement was conditioned on the execution of an agreement and release that relinquished plaintiffs from all ownership of CSPNA and released all parties from any claims, both known and unknown. After negotiations regarding the terms of the release, during which versions were exchanged between counsel for each party, plaintiffs, with the advice of counsel, executed the release in early June 2024.

In relevant part, the release provided that each party released the other from “all claims, rights, causes of action, suits, debts, dues, units, shares, stock, interests, sums of money . . . and all liability . . . known or unknown.” All affirmed that they “entered into th[e] [a]greement of their own free will and accord, have received independent legal counsel and review of th[e] [a]greement, and they have not been promised any additional future consideration with respect to the transactions contemplated by th[e] [a]greement.” The release specified, among other things, that defendant was permitted to sell CSPNA at any point in the future. One month later, defendant sold CSPNA to an outside company for $9.75 million — more than three times the value the parties had negotiated months before.

Plaintiffs brought the action in March 2025, claiming fraud and breach of fiduciary duty and seeking, among other things, to set aside the release. Additionally, plaintiffs sought payment in the amount of $975,000, which, according to them, represented the value of their individual 10% alleged shares in CSPNA at the time of the subsequent sale. In lieu of filing an answer, defendants moved to dismiss the complaint on the basis that the release the parties had executed following the breakdown in negotiations barred the action. Supreme Court agreed, granted defendant’s motion, and dismissed the complaint. Plaintiffs appealed.

The Appellate Division, Third Department, affirmed.

As an initial matter, the Court found the release to be clear and unambiguous, and that, by its terms, plaintiffs knowingly and voluntarily released defendants of the claims asserted against them — specifically, the claim that defendants fraudulently induced them into accepting payment and executing the release by the failure to disclose the existence of the impending third-party sale of CSPNA.[1]  Because plaintiffs’ signature on the release was clear and unambiguous, the Court held that it was “a binding and jural act” that allowed defendants to satisfy their prima facie burden of establishing that the release barred the claims and, therefore, shifted the burden to plaintiffs to establish valid grounds for rescission.[2] 

In New York, “a party that releases a fraud claim may later challenge that release as fraudulently induced only if it can identify a separate fraud from the subject of the release.”[3] “[A] general release executed even without knowledge of a specific fraud effectively bars a claim or defense based on that fraud.”[4] 

The Court held that plaintiffs could not establish fraud based on defendants’ alleged failure to disclose material information because the fiduciary duty on which their fraud theory depended did not exist. Plaintiffs argued that defendants owed them a duty of disclosure arising from their purported status as shareholders of CSPNA. The release, however, established that defendant had acquired all of CSPNA’s stock, that plaintiffs’ capital contributions would only entitle them to shares on terms to be negotiated later, and that the parties had never reached agreement on those terms. Communications after the acquisition similarly showed that the parties were still negotiating the percentage ownership plaintiffs might receive and other material aspects of their relationship. Accordingly, plaintiffs possessed only a prospective right to acquire shares, not an actual ownership interest. Because they were not shareholders when they executed the release, defendants owed them no fiduciary duty, and plaintiffs’ fraud claim failed. “As plaintiffs were not shareholders at the time of the execution of the release,” said the Court, “defendants did not owe plaintiffs a fiduciary duty.” [5]

The Court also held that “[p]laintiffs’ separate claim that they were fraudulently induced into entering the release … fail[ed] for lack of justifiable reliance.”[6] The Court noted that “plaintiffs executed the release on the advice of counsel, despite that counsel’s stated belief that defendants were being untruthful and unresponsive.”[7] Additionally, said the Court, plaintiffs had hints of falsity through “an email sent to plaintiffs and their counsel,” in which defendant expressed his belief “that CSPNA could trade at a substantially higher value than they had negotiated.”[8] “The foregoing, as well as defendants’ reluctance to issue plaintiffs their negotiated-for shares, the sudden change in defendants’ willingness to do business with plaintiffs and the release specifically permitting defendants to sell CSPNA at any time were all indications that something was amiss,” observed the Court.[9] “Yet,” concluded the Court, “despite these indicators, plaintiffs failed ‘to make further inquiry or insert appropriate language in the agreement for [their] protection’ and, as such, they ‘willingly assumed the business risk that the facts may not be as represented.’”[10]

Takeaways

Crane reinforces New York’s strong policy favoring the enforcement of broad releases negotiated by sophisticated parties represented by counsel. Once a defendant produces a clear and unambiguous release covering known and unknown claims, the burden shifts to the plaintiff to establish a legally recognized basis for rescission. A release is not easily undone simply because subsequent events make the bargain appear unfavorable in hindsight.

Crane also underscores the high bar New York courts impose on parties seeking to avoid a release on grounds of fraud. Under New York law, a plaintiff who has released fraud claims cannot later challenge the release unless the plaintiff can identify a fraud that is separate and distinct from the subject of the release itself. The mere discovery of previously unknown facts, or the realization that the opposing party obtained a better outcome than anticipated, will not suffice to invalidate a broad release.

Equally significant is the Court’s treatment of fiduciary-duty-based fraud claims. The plaintiffs attempted to establish fraud through an alleged failure to disclose material information, arguing that defendants owed them fiduciary duties as shareholders. The Court rejected that argument, finding that plaintiffs never became shareholders. Their capital contributions gave them only a prospective right to acquire stock on terms that remained unresolved. Because no ownership interest existed when the release was executed, no fiduciary duty arose, and the nondisclosure theory failed at its foundation.

Crane further demonstrates the importance of justifiable reliance in fraud cases. Even where a plaintiff suspects that information is being withheld or that a transaction may be more valuable than represented, New York law expects sophisticated parties to protect themselves through inquiry, diligence, and contractual safeguards. Here, plaintiffs executed the release despite alleged concerns about defendants’ candor, despite being represented by counsel, and despite possessing several indications that a larger opportunity may have existed. Under those circumstances, the Court concluded that plaintiffs assumed the risk that the facts were different from what they believed.

The Court’s reasoning serves as a reminder that unexplained changes in position, reluctance to provide information, or suspicious circumstances may create a duty to investigate rather than a right to rely. Where hints of falsity exist, a party – especially a sophisticated one – who proceeds without further inquiry may later find it difficult to establish justifiable reliance, an essential element of fraud.

From a transactional perspective, the case highlights the importance of documenting ownership rights before capital is invested. Plaintiffs’ claims failed in part because they never secured a definitive agreement granting them an ownership interest in the acquired business. Expectations regarding future ownership, no matter how strongly held, may not create the legal rights necessary to support fiduciary-duty claims.

Finally, Crane illustrates a broader lesson frequently seen in New York commercial litigation: courts distinguish between a bad bargain and a legally actionable fraud. The fact that defendants purchased a company for $3 million and sold it only weeks later for $9.75 million may have made plaintiffs regret the settlement they accepted, but a bad deal alone is not a basis to rescind a release. Absent a separate fraud, a fiduciary duty to disclose, or justifiable reliance on a misrepresentation, New York courts will generally hold sophisticated parties to the agreements they freely negotiated and signed.

__________________________________

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 *2, citing Silver Point Capital Fund, L.P. v. Riviera Resources, Inc., 198 A.D.3d 432, 432-433 (1st Dept. 2021); Avnet, Inc. v. Deloitte Consulting LLP, 187 A.D.3d 430, 431 (1st Dept. 2020); see also Treistman v. Ulster County Socy. for Prevention of Cruelty to Animals, 235 A.D.3d 1144, 1145 (3d Dept. 2025), lv. denied, 44 N.Y.3d 1020 (2025).

[2] Id. at *3, citing Booth v. 3669 Delaware, 92 N.Y.2d 934, 935 (1998); Global Mins. & Metals Corp. v. Holme, 35 A.D.3d 93, 98 (1st Dept. 2006), lv. denied, 8 N.Y.3d 804 (2007); see also Stevens v. Town of Chenango (Forks), 167 A.D.3d 1105, 1106 (3d Dept. 2018).

[3] Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011); see Columbia Consultants, LLC v. Danucht Entertainment, LLC, 222 A.D.3d 479, 480 (1st Dept. 2023); Avnet, 187 A.D.3d at 431.

[4] Centro Empresarial Cempresa S.A. v. AmÉrica MÓvil, S.A.B. de C.V., 76 A.D.3d 310, 318 (1st Dept. 2010) (internal quotation marks, brackets and citations omitted), aff’d, 17 N.Y.3d 269 (2011).

[5] Slip Op. at *3 (citations omitted).

[6] Id., citing Centro, 17 N.Y.3d at 276.

[7] Id. at *4.

[8] Id.

[9] Id.

[10] Id., citing LLM Capital Partners, LLC v. Mill Point Capital, LLC, 224 A.D.3d 504, 507-508 (1st Dept. 2024) (internal quotation marks and citation omitted); see Silver Point Capital, 198 A.D.3d at 433.