Summary of a Recent
Judicial
Development in
Renewable Energy
Fraudulent Inducement Claim against Biofuel Manufacturer Is Dismissed
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Global Energy and Management, LLC v. Xethanol Corp., No. 07 Civ. 11049(NRB), 2009 WL 464449 (S.D.N.Y. Feb. 24, 2009), the United States District Court for the Southern District of New York held that a plaintiff's complaint for false inducement failed to state a claim because it did not explain how the defendant's statements were false.
Background
Global Energy brought this action against Xethanol for fraudulent inducement, alleging that Xethanol claimed it could "manufacture cellulosic ethanol (ethanol made from garbage and wood) in a commercially profitable manner," that it "owned patents and other technology from which it could manufacture ethanol from bio-mass in a profitable manner," and that it was "currently producing" six million gallons of ethanol per year. Id. at *1. Based on those assertions, which were allegedly "false and known by defendants to be false when they were made," Global Energy entered into a partnership with Xethanol to construct and operate ethanol production facilities that ultimately resulted in a $250,000 loss to Global Energy. Id. at *1-2. Xethanol moved to dismiss for failure to state a claim. Id. at *2.
Analysis and Holdings
The court explained that to state a claim for fraudulent inducement under New York law, a plaintiff must allege: "(1) a representation of a material fact; (2) that was untrue; (3) that was known to be untrue or made with reckless disregard for the truth; (4) that was offered to deceive another or induce him to act; (5) upon which that other party relied to its injury." Id. (citing Aetna Cas. and Sur. Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 580 (2d Cir.2005)). "Further, in alleging fraudulent inducement, a party must state the circumstances 'with particularity.'" Id. (citing Fed. R. Civ. p. 9(b); Aetna Cas., 404 F .3d at 580)). The court agreed with Xethanol's argument that Global Energy's complaint did not set forth how Xethanol's statements were fraudulent, despite Global Energy's three chances to amend the complaint. Id. Therefore, the court granted Xethanol's motion to dismiss with leave to amend, and ordered Global Energy to pay Xethanol $5,000 in attorney fees. Id. at *4.
The case was decided on February 24, 2009.