Commercial Division Blog
Motion Court Should Not Have Denied Motion to Amend
On August 16, 2017, the Second Department issued a decision in Fox Paine & Co., LLC v. Houston Casualty Co., 2017 NY Slip Op. 06163, reversing the denial of a motion to amend, explaining:
In the absence of prejudice or surprise to the opposing party, leave to amend a pleading should be freely granted unless the proposed amendment is palpably insufficient or patently devoid of merit. The determination to permit or deny amendment is committed to the sound discretion of the trial court.
Here, the Supreme Court improvidently exercised its discretion in denying those branches of the plaintiffs' motion which were for leave to amend the complaint to add factual allegations to the causes of action alleging fraud, breach of fiduciary duty, and aiding and abetting a breach of fiduciary duty. The proposed amendments were not palpably insufficient or patently devoid of merit.
The Supreme Court also improvidently exercised its discretion in denying that branch of the plaintiffs' motion which was to add a cause of action alleging aiding and abetting fraud. To recover for aiding and abetting fraud, the plaintiff must plead the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud. Substantial assistance requires an affirmative act on the defendant's part. In the proposed second amended complaint, the plaintiffs alleged underlying fraud, the defendants' knowledge of the fraud, and the defendants' substantial assistance in the achievement of the fraud. The Supreme Court should have granted leave to add a cause of action alleging aiding and abetting fraud, since it was not palpably insufficient or devoid of merit and there was no prejudice to the defendants.
However, the Supreme Court properly denied that branch of the motion which was to add a cause of action alleging conspiracy to commit fraud, since that proposed cause of action was duplicative of the proposed cause of action alleging aiding and abetting fraud.
(Internal quotations and citations omitted) (emphasis added).