Commercial Division Blog

Posted: December 20, 2023 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Seth D. Allen, Joshua Wurtzel, Channing J. Turner / Categories Leave to Amend, Fraud/Misrepresentation, Conversion, Summary Judgment

Motion for Leave to Amend Denied Where Proposed Third Amended Complaint Fails to Correct Defects of Prior Complaints

On October 30, 2023, Justice Andrew Borrok, of the New York County Commercial Division issued a decision in Kirschenbaum v De Baets, Index No. 653287/2019, 2023 NY Slip Op 33880(U), denying Plaintiff’s motion for leave to amend to file a third amended complaint where the proposed amendments were palpably insufficient and proposed claims that failed as a matter of law.  The Court explained:

A claim for fraud requires a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff, and damages (Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]). In the Prior Decision, this Court dismissed the claim sounding in fraud because the plaintiff failed to (i) plead with particularly facts that permit a reasonable inference of fraudulent misconduct and (ii) allege any facts to show that he reasonably relied on any of the alleged misrepresentations (NYSCEF Doc. No. 69, at 8). The TAC suffers from the same infirmities. The additional representation provided as a predicate for this claim is that the plaintiff was told to pay for his investment in Securitize using his digital currency (NYSCEF Doc. No. 157 iJ 67). The TAC does not allege that this representation was false or that the plaintiff relied on this representation in making his investment in Securitize or how this caused damage. Thus, the claim sounding in fraud fails.

A claim for conversion requires (i) the plaintiff's possessory right or interest in the property and (ii) the defendant's dominion over the property or interference with it, in derogation of the plaintiff's rights (Colavito v NY Organ Donor Network, Inc., 8 NY3d 43, 49-50 [2006]). In the Prior Decision, the Court dismissed this claim because the plaintiff failed to "explain how his invested funds were subject to any obligation to be returned and whether such obligation was conferred by contract or another manner" (NYSCEF Doc. No. 69 at 10). The TAC also does not allege any obligation on behalf of the defendants to return the funds that were invested in Securitize, i.e., a possessory interest in the alleged converted property. Thus, this claim also fails.

Inasmuch as the TAC proposes claims that fail as a matter of law, it is palpably insufficient and the motion for leave to amend is denied (McGhee, 96 AD3d at 450).

The Court further granted defendants’ motion for summary judgment on the remaining cause of action “because there are no material issues of [f]act which warrant a trial.”

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning motions for leave to amend, or claims for fraud or conversion.