FRAUDULENT CONVEYANCES Nassau Academy of Law CLE Live ...

302 B.R. 760 Page 2302 B.R. 760(Cite as: 302 B.R. 760)[7] Banks and Banking 10052k100 Most Cited CasesComplaint's extensive recitation of circumstances thatallegedly caused lender to suspect that borrower'sprincipals were fraudulently overstating its sales,including borrower's failure to comply with reportingrequirements set forth in loan agreement, was insufficient,standing alone, to satisfy "actual knowledge"standard for aiding and abetting claim under NewYork law.[8] Fraud 30184k30 Most Cited CasesAssertions that defendant who allegedly aided andabetted primary violator's breach of fiduciary dutyharbored well-founded but unconfirmed suspicions ofprimary violator's wrongdoing are insufficient to satisfy"actual knowledge" standard for aiding and abettingclaim under New York law, simply because,with benefit of hindsight, those suspicions turned outto be correct.[9] Banks and Banking 10052k100 Most Cited CasesAllegations in borrower's complaint, that lender thatprovided financing for borrower's business, uponlearning that debtor's principals had overstated borrower'ssales by fabricating false accounts receivable,had not gone public with this information, but hadrequired borrower to promptly repay its debt tolender with proceeds from sale of subordinated notes,thereby enabling borrower's principals to continuelooting millions of dollars from borrower, sufficientlyalleged lender's knowledge of this looting, as requiredunder New York law to state claim for aidingand abetting alleged looting; lender's knowledge thatborrower, a private company, was inflating its revenuesby reporting sales to defunct companies or companiesin wholly unrelated fields supported inferenceof lender's actual knowledge of this looting, especiallyin light of other allegations in complaint, suchas those regarding lender's investigation of borrower'spayments to its principals.[10] Fraud 30184k30 Most Cited CasesUnder New York law, "knowing participation" elementof aiding and abetting claim requires more thandefendant's knowledge of primary violation; to stateclaim, plaintiff must allege some form of participationby alleged aider and abetter in primary wrongdoing.[11] Fraud 30184k30 Most Cited CasesUnder New York law, defendant may be held liablefor participating in another's breach of fiduciary dutyif defendant provided substantial assistance to primarywrongdoer.[12] Fraud 30184k30 Most Cited CasesUnder New York law, "substantial assistance" offiduciary breach may be found, of kind sufficient tohold defendant liable for aiding and abetting thatbreach, where defendant affirmatively assists, helpsconceal or, by virtue of failing to act when requiredto do so, enables breach of fiduciary duty to proceed.[13] Fraud 30184k30 Most Cited CasesInaction by alleged aider and abetter in failing to investigateor to alert third parties of another's breachof fiduciary duty will not constitute "substantial assistance,"of kind sufficient under New York law toimpose aiding and abetting liability, unless allegedaider and abettor owes some fiduciary duty directlyto plaintiff; existence of primary violator's duty,without more, will not suffice.[14] Fraud 30184k30 Most Cited CasesUnder New York law, defendant may be liable asaider and abetter for inducing or encouraging fiduciaryto breach his duties to another, even though defendantdoes not directly assist in commission of underlyingwrong. Restatement (Second) of Torts §876.[15] Banks and Banking 10052k100 Most Cited CasesWhile allegations in borrower's complaint were sufficientto support inference of lender's actual knowledgeof alleged fiduciary breaches by borrower'sprincipals, in fraudulently overstating borrower'ssales in order to secure financing while they continuedto loot borrower of its assets, allegations in complaint,that lender had not gone public with this information,but had required borrower to promptlyrepay its debt to lender with proceeds from sale of© 2009 Thomson Reuters. No Claim to Orig. US Gov. Works.