Key Points

  • The Fourth Department unanimously set aside a settlement between a car dealership and its former salesman and reinstated the dealership's complaint against him.
  • The court held that the written, signed settlement was a CPLR 2104 stipulation that could be set aside only on a clear and convincing showing of fraud under Centro Empresarial Cempresa S.A. v. América Móvil.
  • Because the settlement did not incorporate the employee confidentiality agreement's definitions, the court gave 'confidential' and 'proprietary' their plain dictionary meanings.
  • Customer-specific pricing and financing records the salesman produced in discovery fell within those meanings, making false his warranty that he held none of the dealer's confidential or proprietary information.
  • The court declined to dismiss the appeal even though the record contained only part of the documents, because meaningful review of the legal issues was not impossible.

A New York appeals court on Nov. 13 threw out a settlement between a car dealership and a former salesman and revived the dealership's lawsuit against him, holding that he had falsely promised in the deal that he held none of the dealer's confidential information.

The Appellate Division, Fourth Department, ruled unanimously in an unsigned memorandum decision in Robert Basil Motors Inc. v. Ball. The five-justice panel modified an Erie County Supreme Court order that had refused to set the agreement aside, concluding that the dealer had proved fraud after the salesman, James P. Ball, produced thousands of pages of documents in discovery months after he signed.

The ruling turned on how the court read the words "confidential" and "proprietary" in Ball's settlement warranty. Because the settlement did not incorporate the definitions in his employee confidentiality agreement, the panel gave the words their dictionary meanings and held that dealership records of customer pricing and financing fell within them. As a result, the release the dealer gave in exchange for that warranty no longer bars its claims.

According to the decision, the dealer's predecessors in interest bought the assets of Ball's own car dealership and signed employment and confidentiality agreements with him. They then employed him as a salesperson for about nine years. After he left, they sued, alleging that he "diverted business to his new employer by making use of confidential information that he had either sold to plaintiffs as goodwill or acquired through his employment with plaintiffs." Ball counterclaimed, alleging that they had failed to pay him bonus commissions.

In the settlement, dated March 21, 2023, Ball represented and warranted that he was not "in possession of any of [plaintiffs'] proprietary and/or confidential information," copies or originals of any documents reflecting the goodwill he had sold, or "any information copied from, or extracted from, any documents reflecting" that goodwill. Relying on those statements, the dealer's side released all of its claims against him.

Several months later, Ball produced the documents as part of discovery on his counterclaims. The dealer's side moved to set aside the settlement for fraudulent inducement and to reinstate its complaint. Justice Emilio Colaiacovo denied the motion in an order entered March 19, 2025.

On appeal, the panel first held that the agreement was a stipulation under CPLR 2104 because it was in writing and signed by the parties or their lawyers. It then set out a demanding standard for undoing one. "Stipulations of settlement are favored by the courts and are not lightly set aside," the panel wrote, quoting a 1999 Second Department decision. Quoting the Court of Appeals, it added that courts "should not disturb a valid stipulation absent a showing of good cause such as fraud, collusion, mistake or duress."

Under the Court of Appeals' 2011 decision in Centro Empresarial Cempresa S.A. v. América Móvil, a party seeking to void a release for fraud must prove a material misrepresentation, its falsity, the maker's knowledge that it was false, justifiable reliance and resulting injury. The panel held that the dealer's side had to establish those elements "by clear and convincing evidence."

The appellant had argued that the employee confidentiality agreement's definition of the phrase "confidential and proprietary" controlled. The panel disagreed on that point, holding that those terms "were not incorporated into the terms of the settlement agreement, either by reference or by attachment." It turned instead to Merriam-Webster, which defines "confidential" as "intended for or restricted to the use of a particular person, group, or class" and "proprietary" as "used, made, or marketed by one having the exclusive legal right."

Under those meanings, the panel agreed with the appellant that Justice Colaiacovo erred in finding that the documents were not confidential or proprietary. Ball's production included documents "that were generated and maintained by plaintiffs' employees and that contained detailed information about the customers, including customer-specific pricing information for the vehicles sold and financing information," the court wrote.

The panel then addressed each element of fraud. It held that the dealer's side had established that Ball's warranty was material and false, and that Ball knew it was untrue when he made it or that it was at least "recklessly made." The dealer's side was "justified in relying on the representation without further inquiry," the court held, and "they were damaged by the false representation inasmuch as they were induced to give up their claim against defendant."

Before reaching the merits, the panel addressed a gap in the appellate record. The appellant, Robert Basil Motors Inc., which does business as Robert Basil Buick GMC Cadillac, succeeded the original plaintiffs shortly after the notice of appeal was filed. It included in the record only some of the documents Ball disclosed, which the trial court appears to have reviewed in camera, or privately. Ball had argued that the appeal should be dismissed for that reason.

The panel declined to dismiss, writing that it did not need to "inasmuch as meaningful appellate review of . . . the legal issues is not 'impossible' " on the record before it, quoting a 2022 decision of its own.

The panel consisted of Justice Montour, presiding, and Justices Ogden, Greenwood, Nowak and Skinner.

Jeremy M. Amar-Dolan of Phillips Lytle LLP in Buffalo represented the dealer. Frank J. Jacobson of the Law Office of Ralph C. Lorigo in West Seneca represented Ball.

The court granted the dealer's motion in part, set aside the settlement and reinstated the complaint against Ball. It otherwise affirmed Justice Colaiacovo's order, without costs. The decision does not address the status of Ball's bonus-commission counterclaims. The Law Reporting Bureau has marked the decision as uncorrected and subject to revision before publication in the Official Reports.