Cryptocurrency customer can’t sue software developer for fraud

Customer and Developer entered a software development and maintenance agreement dated February 28, 2018. Under the software development and maintenance agreement, Developer was to develop a web platform for Customer that would permit individuals to purchase a cryptocurrency.

According to Customer, Developer represented it was skilled and competent and capable of designing a professional website.  Customer alleged that, contrary to those representations, Developer had no proficiency in website design. It alleged that had Customer known that Developer could not design a website, it would not have retained Developer.

Moreover, according to Customer, Developer manufactured a dispute over money with Customer, and used that dispute as a pretext for breaching the software development and maintenance agreement.  Customer alleged that Developer quit without delivering any of the requested software and kept $68K that it had already received.

For its part, Developer asserted that it performed or substantially performed all its obligations under the software development and maintenance agreement, but Customer refused to pay all amounts due under the agreement.

This dispute ended up in a New York state court. Customer sued Developer for breach of the software development and maintenance agreement, but also for fraud. Developer asked the court to throw out the fraud claim because Customer’s allegations even if true didn’t amount to fraud. The court agreed with Developer.

In order to state a claim of fraudulent inducement, Customer must allege that Developer intentionally made a material misrepresentation of fact in order to defraud or mislead Customer, and that Customer reasonably relied on the misrepresentation and suffered damages as a result.

Generally, Customer’s opinion about the caliber of work to be performed by Developer or Developer’s ability to perform a task is not fraud. Developer’s statements that Developer was skilled and competent and capable of designing a professional website were not misrepresentations of verifiable objective facts but rather statements concerning Developer’s ability or intent to perform. These Developer statements do not amount to fraud.

The court noted, however, that Customer alleged that Developer made specific factual representations in its website that Developer performed work for other specified prestigious companies such as Goldman Sachs. These were the type of representations if not true could make out a fraud claim, but Customer did not allege that those Developer factual representations were false.

This case is referred to CC Pay Operations Ltd. v. Alokush, Docket No. 653002/2018, Motion Seq. Nos. 001, 002, Supreme Court, New York County, (January 2, 2019). https://scholar.google.com/scholar_case?case=8724220917456737726&q=blockchain&hl=en&scisbd=2&as_sdt=2006

Comment. The lawsuit is not over. Customer also has a claim against Developer for breach of the software development and maintenance agreement. Customer must prove that Developer failed to satisfy its obligations under the software development and maintenance agreement.

By John McCauley: I help people start, grow, buy and sell their businesses.

Email: jmccauley@mk-law.com

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