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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: April 23, 2016

Motion to Dismiss Based on Testimony in Other Actions Denied; Questions of Fact Remain

On March 11, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Veleron Holding v. Morgan Stanley, 2016 NY Slip Op. 30594(U), refusing to dismiss claims based on testimony given by a party in another action.

The dispute in Veleron Holding related to an investment in a Canadian automotive parts manufacturer. One of the defendants moved to dismiss the plaintiff’s fraud claim “on the ground that testimony in a recent federal insider trading trial is incompatible with the fraud claim asserted in the complaint.” The court denied the motion, explaining:

The trial testimony does not definitively resolve the relevant inquiry, namely, whether at the time RM transmitted the Guaranty to BNP, RM intended that the Guaranty would not be legally effective. Obviously, if RM did not think it was guaranteeing anything, it could not establish the element of actual reliance. The record on this motion is devoid of any RM witness making such a judicial admission. To be sure, it would be reasonable to conclude that the testimony of RM’s witnesses raise a reasonable inference that after it issued the Guaranty, RM immediately had regrets and sought a way out of it. A reasonable finder of fact might also conclude that RM’s conduct on October 2, 2008 is sufficient circumstantial evidence of its intent on October 1. After all, Moldazhanova basically admitted that she thought the Guaranty was not legally binding on October 2, but stayed silent in her conversations with the banks to permit them to operate under the false impression (in her view) of its validity. Ultimately, as we know, such a strategy did not prove fruitful for RM since the arbitrator eventually held that the Guaranty is enforceable. Consequently, that RM may have acted deviously on the day after the Guaranty was issued is of no moment at this juncture. Nor is it dispositive that RM’s witnesses may have perjured themselves in the arbitration and the Federal Action by being less than forthright about the actions of RM’ s board. Regardless of the veracity of Moldazhanova’s testimony about her views on October 2; neither she nor any other RM witness expressly testified about RM’s intent as to the validity of the Guaranty when it was transmitted on October 1. To the extent Morgan Stanley asks this court to view Moldazhanova’s testimony with a fair degree of skepticism and simply find her not to be a credible witness, such a determination would be improper on this motion to dismiss.

(Internal quotations and citations omitted).

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