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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: February 1, 2019

Complaint Found to State Aiding and Abetting Fraud Claim Against Law Firm

On January 24, 2019, the First Department issued a decision in Gansett One, LLC v. Husch Blackwell, LLP, 2019 NY Slip Op. 00531, holding that a plaintiff had stated a claim for aiding and abetting fraud against a law firm, explaining:

The complaint states a claim for aiding and abetting fraud. Contrary to defendants’ contention, the complaint adequately alleges that Nezami fraudulently induced plaintiffs to invest in his companies via various misrepresentations and omissions. It also sufficiently alleges that defendants had actual knowledge of the fraud. The complaint alleges that Carter was the one who came up with the idea of disguising Nezami’s embezzlement from his companies as “loans” or “draws,” that she and/or other lawyers at Husch Blackwell drafted promissory notes and security agreements documenting these supposed loans, that it was due to Carter’s advice that the loans/draws were not included on the financial statements shown to plaintiffs, and that Carter was present at one or more meetings where it was specifically said that plaintiffs should not be told of Nezami’s embezzlement lest they fail to invest or withdraw their investments. Finally, the complaint sufficiently alleges substantial assistance; it alleges that defendants drafted the very purchase agreements by which plaintiffs bought membership interests from Nezami — agreements that, it is alleged, contained misrepresentations.

(Internal citations omitted).

Commercial litigation frequently involves fraud-based claims. And in New York, a defendant also can be help 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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