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Current Developments in the Commercial Divisions of the
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Posted: January 23, 2018

Company Cannot Sue its President and Sole Shareholder for Fraud; Defendant’s Knowledge of the Fraud is Imputed to the Company

On January 18, 2018, the First Department issued a decision in Doral Fabrics, Inc. v. Gold, 2018 NY Slip Op. 00342, holding that a company could not sue its president and sole shareholder for fraud, explaining:

The second step of the scheme, the sham loan of the diverted funds to plaintiff Doral Fabrics, Inc., would fulfil the requirements of fraud but for the fact that the decedent was the president and sole shareholder of Doral at the time of the loan; as such, his knowledge is imputed to it. Thus, Doral cannot have been deceived; it knew that the loan was a sham. Contrary to plaintiffs’ claim, there is record support for defendants’ argument that the decedent was Doral’s sole shareholder at the relevant time.

(Internal quotations and citations omitted) (emphasis added).

Commercial litigation frequently involves fraud-based claims. Such claims have special pleading requirements or rules such as the one at issue in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client think you have been defrauded, or if someone has accused you or a client of defrauding them.

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