Commercial Division Blog

Posted: December 14, 2020 / Categories Commercial, Fraud/Misrepresentation

Plaintiff Adequately Alleged Aid and Abetting Fraud Where Defendant Allegedly Devised Scheme That Was Used to Deceive Plaintiff

On December 1, 2020, the First Department issued a decision in Bankers Conseco Life Ins. Co. v. KPMG LLP, 2020 NY Slip Op. 07128, holding that a plaintiff had adequately alleged aiding and abetting fraud, explaining:

We find that the motion court erred in dismissing plaintiffs' claim for aiding and abetting fraud. The complaint adequately alleged an underlying fraud, actual knowledge of the fraud and, substantial assistance. The complaint adequately alleges that defendant had actual knowledge of the fraudulent scheme of nonparties Beechwood Re, Ltd., the Platinum hedge fund, and the individuals associated therewith.

The complaint adequately alleges substantial assistance by alleging that defendant enabled the fraud to proceed by coming up with the demand note scheme and providing a letter about Beechwood Re's capitalization and that plaintiffs would not have entered into transactions with Beechwood Re if defendant had not lent it credibility.

The motion court ruled that defendant's valuation letter did not amount to substantial assistance because it lacked information sufficient for reliance by plaintiff. Assuming, arguendo, that reliance is required for aiding and abetting (as opposed to fraud), the question of what constitutes reasonable reliance is not generally to be resolved as a matter of law on a motion to dismiss. Unlike Churchill Fin. Cayman, Ltd. v BNP Paribas (95 AD3d 614 [1st Dept 2012]), relied upon by defendant, this is not a case where defendant was merely silent and there is no indication that Beechwood Re's capitalization was a matter of public record. Finally, in Churchill, the plaintiff was specifically advised in the Confidential Information Memorandum of certain unspecified litigation. There was no similar red flag here.

(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 if you or a client have a question regarding a fraud-based claim.