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Fraud Claim Not Barred by Contractual Nonrecourse Provision but Fails to Allege Detrimental Reliance
A recent decision of the New York Appellate Division, First Department (Iberdrola Energy Projects v Oaktree Capital Mgt. L.P., 2024 NY Slip Op 03798 (1st Dep’t Decided July 11, 2024), analyzed a contractual nonrecourse provision and determined that it did not bar fraud claims, but found that the fraud claim was insufficiently pled because a contracting party cannot establish detrimental reliance from continuing to perform its required contractual obligations.
Oaktree
The factual foundation of the decision in Oaktree was bit convoluted, but the First Department succinctly summarized the situation presented as follows:
On this appeal we are asked to ascertain the scope of a nonrecourse provision in a contract between two sophisticated commercial actors relating to the construction of a power plant, and, relatedly, the extent to which certain nonparties to the contract (defendants here) are insulated from liability by virtue of that provision. We agree with the motion court that the nonrecourse provision bars the majority of plaintiff’s claims against defendants, and that plaintiff’s fraud claim, which would otherwise have survived the nonrecourse provision, was not sufficiently pleaded.
In connection with the power plant at issue, defendants created a limited partnership entity (“Footprint”) to construct the plant (they were replacing a coal power plant with a gas generated plant). Plaintiff was hired as the project’s engineering, procurement, and construction contractor. The contract between plaintiff and Footprint had a “nonrecourse” provision that provided as follows:
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