BANKERS CONSECO LIFE INSURANCE COMPANY v. KPMG LLP (2020)

Orders, Supreme Court, New York County (O. Peter Sherwood, J.), entered April 21 and 22, 2020, which, to the extent appealed from as limited by the briefs, granted defendant's motion pursuant to CPLR 3211(a)(7) to dismiss the claim for aiding and abetting fraud, unanimously reversed, on the law, without costs, and the motion denied.

We find that the motion court erred in dismissing plaintiffs' claim for aiding and abetting fraud.  The complaint adequately alleged an underlying fraud, actual knowledge of the fraud and, substantial assistance (see Oster v. Kirschner, 77 A.D.3d 51, 55, 905 N.Y.S.2d 69 [1st Dept. 2010] ).  The complaint adequately alleges that defendant had actual knowledge of the fraudulent scheme of nonparties Beechwood Re, Ltd., the Platinum hedge fund, and the individuals associated therewith (see Gansett One, LLC v. Husch Blackwell, LLP, 168 A.D.3d 579, 580, 93 N.Y.S.3d 276 [1st Dept. 2019];  William Doyle Galleries, Inc. v. Stettner, 167 A.D.3d 501, 504, 91 N.Y.S.3d 13 [1st Dept. 2018];  Weinberg v. Mendelow, 113 A.D.3d 485, 488, 979 N.Y.S.2d 29 [1st Dept. 2014];  AIG Fin. Prods. Corp. v. ICP Asset Mgt., LLC, 108 A.D.3d 444, 446, 969 N.Y.S.2d 449 [1st Dept. 2013] ).

The complaint adequately alleges substantial assistance by alleging that defendant enabled the fraud to proceed by coming up with the demand note scheme and providing a letter about Beechwood Re's capitalization and that plaintiffs would not have entered into transactions with Beechwood Re if defendant had not lent it credibility (see William Doyle, 167 A.D.3d at 504, 91 N.Y.S.3d 13;  Weinberg, 113 A.D.3d at 488, 979 N.Y.S.2d 29).

The motion court ruled that defendant's valuation letter did not amount to substantial assistance because it lacked “information sufficient for reliance by plaintiff.”  Assuming, arguendo, that reliance is required for aiding and abetting (as opposed to fraud), the question of what constitutes reasonable reliance is not generally to be resolved as a matter of law on a motion to dismiss (ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043, 1045, 10 N.Y.S.3d 486, 32 N.E.3d 921 [2015] ).  Unlike Churchill Fin. Cayman, Ltd. v. BNP Paribas, 95 A.D.3d 614, 944 N.Y.S.2d 116 (1st Dept. 2012), relied upon by defendant, this is not a case where defendant was merely silent and there is no indication that Beechwood Re's capitalization was a matter of public record.  Finally, in Churchill, the plaintiff was specifically advised in the Confidential Information Memorandum of certain unspecified litigation.  There was no similar red flag here.