MURPHY v. PHG FUNDING LLC (2026)

Amended order, Supreme Court, New York (Andrew S. Borrok, J.), entered October 7, 2025, which denied the motion of defendants PHG Funding LLC, Pfifebridge Inc., John Thomas, and Todd Jorn for leave to file an amended answer, counterclaims, and third-party complaint against proposed third-party defendants Steven Nigro and Phoenix Asset Recovery Services LLC, unanimously affirmed with costs.

Plaintiff Kevin Murphy brought this action in connection with a settlement among Murphy, defendants, and former defendant Steven Nigro relating to defendants' failure to make payments on certain notes acquired by Murphy from defendant PHG Funding LLC for $750,000 in 2009.  To settle Murphy's claims, the parties ultimately agreed that defendants and Nigro would pay Murphy $1,228,307.42 for his initial investment and purported profits through April 1, 2012, with semi-annual interest accruing, which defendants intended to fund by pledging revenue from defendant Pfifebridge Inc.'s interest in a life insurance policy portfolio which the parties refer to as the “Tiger Capital” payment.

On or about April 1, 2012, in connection with the settlement, the parties executed an amended note, a guarantee and pledge agreement, and the limited liability company agreement of proposed third-party defendant Phoenix Asset Recovery Services LLC (PARS).  Under the PARS operating agreement, the parties agreed in relevant part that “assignment of the income stream generated by the Tiger Capital Asset will be deemed to be the capital contribution of Nigro and the Company will issue to Nigro Class A Units.”  Paragraph 7.1(b)(iii) further stated in relevant part that the Tiger Capital payment would be credited “first to the Nigro Deficit Account until that account has a zero balance;  and the remainder to be paid 100% the Nigro capital account.”  According to defendants, the intent was for them— jointly and severally— to use their class A units in PARS to pay their debt to Murphy, but they did not establish how many class A shares each member was required to contribute personally, resulting in a purported windfall to Nigro arising from the side agreement with Murphy described below.

On or about April 16, 2016, defendants made a payment of $1,118,208 under the amended note and paid an additional $100,000 in August 2016, but they did not pay the balance due at maturity on December 31, 2017.  As relevant here, defendants allege that beginning in February 2016 and continuing through April 2016, Murphy and Nigro conspired to pay Murphy the Tiger Capital payment in full while fraudulently concealing that they agreed that Murphy would return $400,000 from the Tiger Capital proceeds to Nigro.  They accomplished this transaction via payments made on April 4, 2016 and August 10, 2016, which Murphy purportedly concealed by issuing K–1 statements from PARS showing only the $1,218,208 payment and not the $400,000 payment to Nigro.

The motion court providently denied defendants' motion for leave to amend their answer to assert counterclaims against Murphy and to assert a third-party complaint against Nigro and PARS based on the above facts.  Although the proposed amended pleadings add significantly more detail to the allegations the motion court's April 15, 2024 order previously determined to be devoid of merit, the facts alleged are still palpably insufficient to state claims for affirmative relief (see Goolsby v City of New York, 236 AD3d 404, 405 [1st Dept 2025] ).  Leave to replead would be futile because defendants have not identified any allegations that would cure the palpable insufficiency of their proposed counter- and third-party claims (see Walsam 316 v 316 Bowery Realty Corp., 226 AD3d 628, 630 [1st Dept 2024] ).

With respect to the breach of contract counterclaim against Murphy and the third-party claim against Nigro, the motion court correctly observed that defendants have not adequately alleged how any of the settlement documents were breached, given that the PARS agreement expressly calls for the Tiger Capital payment to constitute Nigro's capital contribution (see 34–06 73, LLC v Seneca Ins. Co., 39 NY3d 44, 52 [2022] ).  The motion court accurately identified the central dispute to be whether all of defendants' payments on the amended note were properly credited to them, which relates to the calculation of damages rather than a claim for affirmative relief in their favor.

Turning to the fraud claims, defendants have not identified any misrepresentation of fact by Murphy or Nigro, individually or on behalf of PARS, nor any justifiable reliance by defendants on any fact that they could not have discovered with diligence to support a claim for fraud (see Ambac Assur.  Corp. v Countrywide Home Loans, Inc., 31 NY3d 569, 580 [2018] ).  The amended pleadings also fail to state that defendants took any action or refrained from acting as a result of their purported reliance on any purported misstatement leading to an injury (id. at 580–581).  Additionally, the proposed fraud claims are duplicative of the contract claims (see Cronos Group Ltd. v XComIP, LLC, 156 AD3d 54, 62–63 [1st Dept 2017] ).

Defendants cannot circumvent the insufficiency of the contract claim against Nigro by recasting it in terms of unjust enrichment.  Although defendants allege that Nigro was unjustly enriched by the payment from Murphy, and that Murphy should have credited the entire Tiger Capital payment to all defendants, the PARS operating agreement expressly governs that transaction and provides for that result, rendering unjust enrichment unavailable (see Walsam 316, 226 AD3d at 629).

The breach of fiduciary duty counterclaim and third-party claims fail because they are “based on the same facts and seek essentially identical damages” as the failed breach of contract claims (Gawrych v Astoria Fed. Sav. & Loan, 148 AD3d 681, 684 [2d Dept 2017] ).  Contrary to defendants' contention, the proposed conversion claim is also duplicative of the contract claim (see e.g. Abarrotes Mixteca Corp., Inc. v Brisk, 234 AD3d 425, 427 [1st Dept 2025] ).

The proposed conversion claim against PARS also lacks merit because defendants did not have a superior right to the Tiger Capital payment over Nigro or PARS under the parties' agreements (see Berkovits v Berkovits, 190 AD3d 916, 917 [2d Dept 2021] ).  Rather, PARS was the intended recipient of the Tiger Capital payment to facilitate the settlement, rendering the proposed third-party conversion claim against it inapt.

Finally, the common-law indemnification counterclaim and third-party claim fail because defendants are being sued for their own alleged wrongdoing sounding in breach of contract rather than on a theory of vicarious tort liability, as is generally the basis for asserting a claim for common-law indemnification (see 63rd & 3rd NYC LLC v Advanced Contr.  Solutions, LLC, 223 AD3d 447, 448 [1st Dept 2024] ).

We have considered defendants' remaining contentions and find them unavailing.