FKB’s Rachel Aghassi and Asher Kest successfully obtain two pre-answer dismissals of complaint and amended complaint for tortious interference with contract and fraud claims against national law firm defendant in the commercial division of the Supreme Court, New York County. Plaintiffs financed a corporate asset litigation with a $1,000,000 note in exchange for 60% of settlement or judgment. The financial relationship between Plaintiffs and the corporate entity broke down over the course of litigation, leading to a dispute over the settled funds held by the defendant law firm on behalf of its client, the corporate entity. As a result, the settlement funds were distributed to the corporation’s principals, and the financer brought suit against the corporation, its officers, and the law firm, FKB’s client, in New York County Supreme Court’s Commercial Division for $5 million in alleged damages.

Plaintiffs allege causes of action against FKB’s law firm client for (1) breach of fiduciary duty arising from their role as escrow agent; (2) breach fiduciary duty arising from their alleged role as Plaintiffs’ counsel; (3) accounting; (4) violation of Judiciary Law §487; (5) fraudulent conveyance under Debtor-Creditor Law §276; (6) aiding and abetting fraudulent conveyance under Debtor-Creditor Law §§275 and 276; (7) conversion; (8) forfeiture of fees; (9) fraudulent concealment; and (10) fraud in the inducement.  

FKB filed a motion to dismiss, and Plaintiffs cross-moved to amend the complaint to include transcripts of the recordings. Justice Andrew Borrok granted FKB’s motion to dismiss the complaint granted in part, but allowed Plaintiffs to replead only the tortious interference with contract claim.  In doing so, Justice Borrok agreed with FKB’s argument that Plaintiffs did not maintain an attorney-client relationship with FKB’s client nor were Plaintiffs the beneficiaries to the escrow agreement that FKB’s client had with the corporate entity and therefore FKB’s client did not owe Plaintiffs a fiduciary duty.  Justice Borrok also agreed that Plaintiffs could not allege that FKB’s client committed a fraudulent conveyance by virtue of a portion of the settlement being used to pay their attorneys’ fees. Further, since FKB’s client was not a party to the litigation financing agreement between Plaintiffs and the corporate entity, FKB’s client was not bound to pay Plaintiffs’ attorneys’ fees as provided in the agreement.

After Plaintiffs amended the complaint, FKB moved to dismiss the 90-page amended Complaint, which sought damages of $750,000 due to alleged tortious interference and associated attorneys’ fees, as well as punitive damages of $5,000,000. Justice Borrok then granted FKB’s motion to dismiss in full, finding that, as FKB argued, despite the financing agreement, Plaintiffs could not assert they were the law firm’s client. The Court further agreed with FKB that the corporation’s settlement had provided full remuneration to Plaintiffs, and that the legal fees expended by Plaintiff were not recoverable, despite the American Rule exception for fraud. Finally, Justice Borrok agreed with FKB’s argument that Plaintiffs were not damaged in that they eventually received all the funds they were entitled to under the financing agreement.