Outside Inhouse Lawyer Blog : New York & Seattle Corporate Dispute Lawyer & Attorney : Grace M. Healy : Outside counsel : King County, Tacoma, Bellevue

i obtained a copy of last week's decision in the Coyotes' bankruptcy case, which has been reported as denying the sale of the franchise so that it can be promptly moved to Hamilton, Ontario.  Here is a quick take:

• it gives the lawyers a road map of the bankruptcy judge's concerns so they know what to address from now on;
• the best interests of the creditors -- not the combatants' ego -- are what count in bankruptcy;
• the NHL better come up with a good reason if it's not going to approve a sale to PSE Sports (Jim Balsillie); and
• the franchise is bleeding money in Arizona -- and it looks like this has been the case at least since it moved to its new arena.

The league argues that it is concerned that debtor might be using bankruptcy to circumvent its rules -- not a big shock to anyone who ever represented a creditor.

PACER, the federal court system for obtaining documents, is not my favorite service.

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I don’t post blog entries with great regularity because I try to limit myself to things that in-house counsel or clients might find interesting.  But, I do look every day for things of interest.  Today, I hit gold – three interesting cases from the NY Court of Appeals.  Good thing as I probably won’t be posting anything for at least the next week and a half.  I was tempted to schedule the posts, but, if the law is out there….

Here is the third and final post of the day.

Two of today’s Court of Appeals decisions deal with the pleading requirements for fraud.  They offer a comparison of when the court is prepared to state that fraud has been adequately pled. 

In the first, Eurycleia Partners, LP v. Seward & Kissel, LLP   the court found that plaintiffs failed to plead fraud because the facts did not support an inference that defendant knew of the falsity of statements in an offering memorandum.  The court stated: “the strength of the requisite inference of fraud will vary based upon the and context of each case.”  Given that language, it is will be a rare fraud claim that won’t warrant a motion to dismiss. The court also took particular notice of the fact that the manager of the hedge fund – who had pled guilty to securities fraud – had supplied the plaintiffs with much of the factual basis for the claim. 

In a second case, Sargiss v. Magarelli, the court ruled that an inference of fraud was present in the pleading.  The complaint alleged that, in a 1998 divorce proceeding, the husband misrepresented his financial worth – he claimed that he had transferred a significant interest in a business to his brother.  After the former  husband’s death, his daughter came across documents strongly suggesting that he hadn’t really made the transfer.

The court found – based upon the documents – that  the fraud claim against the decedent’s estate, was stated with adequate particularity.  In addition, there was an adequate inference of fraud against his brother and the company; if the transfer wasn’t, in fact, made, the brother – who controlled the company – necessarily knew about it and was part of the scheme. 

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A lot of NY lawyers representing limited partnerships will sleep a little bit better tonight.  In Eurycleia Partners, LP v. Seward & Kissel, LLP, the NY Court of Appeals ruled today that they do not owe a fiduciary duty to individual limited partners.  The court analogized the relationship of counsel to limited partners with that of the relationship of corporate ounsel to  shareholders -- and noted that it is well settled that a corporation’s attorneys do not represent shareholders or employees.

The decision also affirmed the dismissal of fraud and aiding and abetting claims against the fund’s lawyers.  More about that in my next post.
 

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For me, a big part of a discussion regarding whether or not to litigate is figuring out whether there will be anything to collect.  Today, in Koheler v. The Bank of Bermuda, Ltd,  the New York Court of Appeals answered a certified question that might make you lean toward litigation. The decision extends the reach of a judgment creditor.  Provided that a judgment garnishee is subject to New York personal jurisdiction, the garnishee can be ordered to turn over property of a judgment debtor that the garnishee controls even though the property is outside of the state, or the country.  Since New York is a banking center, this could have a long reach.

The case was filed in the Southern District of New York in 1993 by an out of state judgment creditor who sought stock certificates or assets of a judgment debtor.  The certificates were held in Bermuda by the Bank of Bermuda Limited, which was served through the Bank of Bermuda (New York) Ltd., allegedly a subsidiary or agent.

The District Court ordered the Bank to turn the certificates, or money sufficient to pay the judgment, over to the judgment creditor in 1993. Personal jurisdiction was litigated for ten years. Finally, in 2003, Bank of Bermuda, Ltd consented to personal jurisdiction.

This case appears to have a life span reminiscent of Jarndyce v. Jarndyce, and today’s opinion most probably won’t end it -- there is a three judge dissent that asserts that the majority holding may be unconstitutional.  Meanwhile, if a judgment debtor or even a potential defendant has assets in a bank that is related to a bank located in New York, it bears consideration.

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