FKB successfully obtained a pre-answer dismissal on a Fed. R. Civ. P. 12(b)(6) motion to dismiss from United States District Judge Paul A. Engelmayer in the United States District Court of the Southern District of New York of allegations of breach of Judiciary Law § 487, fraudulent conveyance, and breach of fiduciary duty based on alleged “misrepresentations” in an underlying contractual dispute.

In the underlying litigation in New York state court, Plaintiff sought to recover damages from a telecommunications company for breach of contract. After litigation began in the underlying litigation, the communications company sold its assets to a second communications company pursuant to an asset purchase agreement. FKB’s client represented both telecommunications companies in the underlying litigation, which is still on-going, but did not represent either company in negotiations over the asset purchase agreement. Seeking to hold FKB’s client responsible, Plaintiff alleged that the asset sale rendered the first communications company judgment-proof. Plaintiff’s complaint alleged violation of N.Y. Judiciary Law § 487, fraudulent conveyance under N.Y. Debtor and Creditor Law § 273-a and common law, and aiding and abetting breach of fiduciary duty.

In the motion to dismiss, FKB argued that New York law establishes that Plaintiff is not entitled to set forth a separate plenary action alleging a Judiciary law § 487 claim while the underlying litigation is still ongoing because the allegations are not larger in scope than the issues decided in the underlying state action. Additionally, FKB argued that Plaintiff’s claims for breach of fiduciary duty and fraudulent conveyances otherwise fail as a matter of law as FKB’s client only represented the communications companies in litigation and were not transferors or transferees of the asset sale.

In opposition, the Plaintiff attempted to conflate the doctrine of collateral estoppel and the doctrine against separate plenary actions for violations of Judiciary Law § 487 while the underlying litigation is ongoing. In addition, the Plaintiff attempted to assert for the first time that FKB’s client conspired with both telecommunications companies to facilitate the alleged fraudulent transfer of assets and that FKB’s client received payments for the representation.

On August 21, 2018, the Hon. Paul A. Engelmayer, USDJ, granted FKB’s motion to dismiss Plaintiff’s complaint with prejudice, accepting FKB’s argument that Plaintiff failed “to allege a fraudulent scheme greater in scope than the issues adjudicated in the New York proceeding,” necessary to assert a violation of Judiciary Law §487. Specifically, Judge Engelmayer agreed that Plaintiff’s “complaint ‘contains no nonconclusory allegations that the alleged misconduct was … a means to the accomplishment of a larger fraudulent scheme greater in scope than the issues determined in the prior proceeding’” (citing Little Rest Twelve, Inc. v. Zajic, 27 N.Y.S.3d 142, 143 (1st Dep’t 2016)).

As to Plaintiff’s  fraudulent conveyance cause of action, Judge Engelmayer agreed with FKB’s position that no claim for fraudulent conveyance could lie against FKB’s clients because they were neither transferors nor transeferees of any the telecommunications company’s property and further that the claim was not adequately pleaded in any event as the allegations are entirely conclusory, as was the claim for aiding and abetting breach of fiduciary duty.

If you have any questions about this decision, or the defense of attorneys in general, please contact A. Michael Furman, Rachel Aghassi or Spencer Richards.