On July 21, 2023, Justice Reed of the New York County Commercial Division issued a decision in Merchant Factors Corp. v. Crush Apparel & Accessories Inc., 2023 NY Slip Op. 50755(U), holding that an aiding and abetting fraud claim failed because it was not pled with particularity, explaining:
To state a cause of action for aiding and abetting fraud, the complaint must allege: (1) the existence of an underlying fraud; (2) knowledge of this fraud on the part of the aider and abettor; and (3) substantial assistance by the aider and abettor in achievement of the fraud. Aiding and abetting fraud must be pleaded with the specificity sufficient to satisfy CPLR 3016 (b).
As to the second element, actual knowledge of the fraud is required. The First Department has instructed that actual knowledge need only be pleaded generally, cognizant, particularly at the prediscovery stage, that a plaintiff lacks access to the very discovery materials which would illuminate a defendant’s state of mind.
With respect to the third element, substantial assistance exists where (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor proximately caused the harm on which the primary liability is based. The mere inaction of an alleged aider or abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff.
As indicated above, the court holds that the amended complaint adequately alleges a cause of action for fraudulent misrepresentation. Nevertheless, Merchant has failed to plead substantial assistance with particularity. Indeed, the amended complaint only makes conclusory allegations that the Kraiem defendants assisted in, allowed, and/or concealed the assignment of fabricated receivables to Merchant and failed to notify Merchant that the receivables were fabricated despite knowing that Merchant relied upon the receivables in advancing monies to Crush Apparel. Absent a fiduciary duty or some other independent duty owed by the Kraiem defendants to plaintiff, this allegation is insufficient. Aiding and abetting fraud is not made out simply by allegations which would be sufficient to state a claim against the principal participants in the fraud. Therefore, defendants are entitled to dismissal of the eleventh cause of action.
(Internal quotations and citations omitted).