Rattagan (2024) rewired when a party owes a concealment duty -- it now requires a pre-existing transactional relationship. Walks through what that means for deal lawyers who assumed a non-binding LOI meant no duty, and what facts now make or break the concealment claim at demurrer.

The "Subject to Definitive Agreement" Clause and the Rattagan Trap: Why Your Non-Binding LOI Still Has a Duty to Disclose

You are in the middle of a deal. The LOI is signed. The parties have agreed it is "non-binding" and "subject to execution of a definitive agreement." Your client believes the preliminary stage means no legal obligations have attached yet. Then the deal falls apart, and the other side files a fraud complaint alleging your client concealed material facts during negotiations. The concealment count survives demurrer. Here is why that happens — and how to prevent it.

The Demurrer

What the Law Requires

A concealment claim requires, first and foremost, a duty to disclose. Without it, there is no fraud — only an omission. The California Supreme Court's 2024 decision in Rattagan v. Uber Technologies, Inc. (2024) 17 Cal.5th 1, 44-45 provides the controlling framework: five categories of relationship give rise to a duty to disclose.

The five Rattagan categories are: (1) a duty imposed by statute; (2) a fiduciary or confidential relationship; (3) the defendant had exclusive knowledge of facts the plaintiff could not have discovered; (4) the defendant made a partial representation that became misleading without the omitted facts; and (5) the defendant actively concealed the fact. For categories 3 through 5, Rattagan adds a critical structural requirement: there must be a preexisting transactional relationship between the parties. The concealment must have occurred within an ongoing relationship — not in the transaction that first created the relationship.

This is where the LOI context creates a specific trap. Parties negotiating toward a definitive agreement typically have some prior dealing — a vendor relationship, a licensing arrangement, a referral history — that predates the current deal. If that prior relationship exists, the Rattagan preexisting-relationship requirement is satisfied, and a concealment duty can attach during the LOI phase even though the LOI itself is expressly non-binding. The non-binding label governs enforceability of the commercial terms; it does not extinguish duties that arise from the relational substrate under which the negotiations are occurring.

In B2B commercial disputes, the most commonly invoked Rattagan category is category 3 — exclusive knowledge. LiMandri v. Judkins (1997) 52 Cal.App.4th 326, 336-337 remains the foundational authority for the exclusive-knowledge analysis. Courts sustain demurrers where the complaint invokes exclusive knowledge without alleging the specific informational gap: what did the defendant know that the plaintiff could not have discovered, how did the defendant know it, and why was the plaintiff unable to discover it despite reasonable diligence? Generic "defendant had exclusive knowledge" allegations fail.

What the Corpus Shows

Concealment claims against counterparties in LOI and pre-closing negotiation contexts appear with regularity in the corpus. Courts apply the Rattagan framework sequentially: duty threshold first, specificity second. A claim that fails the duty step does not reach specificity.

The duty analysis in LOI-stage cases turns heavily on the nature of the parties' prior relationship. Where the complaint alleges only that the parties were negotiating for the first time — no prior contracts, no ongoing vendor relationship, no history — courts frequently find that the preexisting-relationship requirement for categories 3 through 5 is not met, and the concealment count fails at the duty threshold. Where the complaint alleges a prior commercial relationship that the LOI was designed to extend or modify, courts are more likely to find the threshold satisfied and move to the specificity question.

Partial-representation claims under category 4 have been sustained in LOI contexts where the moving party made affirmative representations about a material fact — the financial condition of the business, the status of regulatory approvals, the state of pending litigation — and omitted information that made those representations misleading. The non-binding nature of the LOI does not insulate against liability for partial representations made during the process.

What Counsel Does

If you are the moving party:

Identify which Rattagan category the complaint relies on. Do not assume — read the pleading carefully. Plaintiffs often plead multiple categories without labeling them.
Attack the preexisting-relationship requirement for categories 3 through 5. If the complaint does not allege a relationship that predates the current LOI negotiation, argue that no duty arose.
For exclusive-knowledge claims (category 3), show specifically that: (a) the information was available to the plaintiff through reasonable diligence, (b) the complaint does not allege what the plaintiff could not have discovered and why, or (c) no transactional relationship existed at the time of the alleged omission.
If the complaint pleads multiple concealment theories, isolate each one and attack the duty threshold for each separately. A plaintiff who fails on two of three theories faces leave to amend only as to the viable theory.
Make the duty argument before the specificity argument. If you win on duty, specificity is irrelevant and the court need not reach it.

If you are the opposing party:

Plead the Rattagan duty category explicitly and by name. Courts applying a two-step analysis should not have to infer which category you are invoking.
Plead the preexisting relationship with specificity: how long did it exist, what was its nature, and how does the LOI negotiation arise from or occur within that relationship?
For exclusive-knowledge claims, use Rattagan's checklist as your template: what was omitted, why the defendant was aware it was material, why the plaintiff could not have discovered it, when the disclosure obligation arose, and what action the plaintiff took in reliance on the omission.
For partial-representation claims, identify the affirmative statement made during negotiations and the specific fact that made it misleading when omitted. Quote the representation from the LOI, the term sheet, or the communications in which it appeared.
The non-binding label is not a defense to your concealment claim. Brief it preemptively if you anticipate that argument.

This article is for educational purposes only and is not legal advice. All frameworks and sample language should be reviewed by a licensed attorney and adapted to your particular client, case, and situation.