Two NY Court of Appeals Cases Illustrate Standard for Pleading Fraud
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.
