On October 14, 2022, Justice Chan of the New York County Commercial Division issued a decision in AOG, LLC v. KIND Operations Inc., 2022 NY Slip Op. 33544(U), examining the defenses of setoff and recoupment:
Regarding that part of the seventh affirmative defense seeking relief in the nature of setoff, the court notes that the defense applies where the claims are mutual, i.e. owed between the same persons in the same right but do not have to rise out of the same transaction. In the absence of any basis for finding AOG is indebted to KIND, the defense of setoff is inapplicable.
In contrast, the defense of recoupment does not require mutual debts; instead, the money sought to be recouped must arise out of the same transaction as the claim. Here, the record contains sufficient evidence that the money KIND seeks to recoup based on its payment to suppliers arises out the same transaction as AOG’s claim for breach of contract based on KIND’s failure to pay the TruFood Invoices to sustain its recoupment defense. As KIND has a viable defense for recoupment, AOG’s motion for partial summary judgment must be denied.
(Internal quotations and citations omitted).