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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: November 16, 2019

Aiding and Abetting Fraud Claim Fails for Lack of Evidence of Substantial Assistance

On October 29, 2019, Justice Masley of the New York County Commercial Division issued a decision in Vincent V Hodes Family Irrevocable Trust v. Advance Entertainment LLC, 2019 NY Slip Op. 33233(U), holding that an aiding and abetting fraud claim failed for lack of evidence of substantial assistance in the alleged fraud, explaining:

In order to plead properly a claim for aiding and abetting fraud, the complaint must allege: (1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud. Actual knowledge of the fraud may be averred generally.

Substantial assistance exists where (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated. A plaintiff must plead a claim for aiding and abetting fraud with specificity pursuant to CPLR 3016 (b) and is not made out simply by allegations which would be sufficient to state a claim against the principal participants in the fraud. However, actual knowledge need only be pleaded generally, cognizant, particularly at the pre-discovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind, and an intent to commit fraud is to be divined from surrounding circumstances.

Here, plaintiff asserts, in the affidavit of Vincent V. Hodes, grantor of the plaintiff-trust, that it was informed by counsel that Molner drafted the agreement underlying the fraud allegedly perpetrated by the Meli Defendants, a ticket purchase contract between defendant AE and nonparty Ambassador Theatre Group Ltd. (ATG).

While Mainer’s actual knowledge and substantial assistance may, perhaps, be inferred as to other transactions, the court declines to infer those elements on the basis of plaintiffs conclusory statements, lacking factual detail or other support relating to the fraud underlying this action, that Molner’ drafted the ATG agreement. Hodes’s statements that emails attached to the pleading in another action consolidated with this action for only the purposes of joint discovery and trial are not presently before the court and, in any event, those emails all pertain to other transactions and pre-date the underlying ATG transaction by six months to more than a year. Further, plaintiff makes no nonconclusory assertion that Molner was aware of the ATG transaction or substantially assisted the Meli Defendants in carrying out the ATG fraud., Accordingly, the motion is denied as to the aiding and abetting fraud cause of action without prejudice to a new motion.

(Internal quotations and citations omitted).

Commercial litigation frequently involves fraud-based claims. In New York, a defendant also can be held liable for aiding and abetting a fraud, which is what is at issue in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.

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