857 F. Supp. 2d 419
S.D.N.Y.2012Background
- Receiver filed suit against Law Firm Defendants (Cohen, Certilman, Lum) and Cobalt Principals for investor fraud and related conduct.
- 2008 Dismissal Order held Receiver lacked standing under Wagoner rule to sue third parties for fraud against a bankrupt corporation.
- 2009 Partial Dismissal Order reconsidered; Receiver had standing for certain claims (legal malpractice, aiding/abetting conversion, breach of contract/ fiduciary duties, and a conversion/unjust enrichment claim against Cohen).
- Kirschner decisions (Kirschner I–IV) and stay of discovery were central to whether adverse-interest exception could apply; Kirschner III restricted the broad reading of In re CBI Holding Co.
- Court granted reconsideration in part, then addressed choice of law; concluded different states’ law govern different defendants’ claims (CT for Cohen, NY for Certilman, NJ for Lum) and that standing depends on applicable law.
- Lum Defendants’ NJ affidavit-of-merit issue was resolved with denial of dismissal and nunc pro tunc extension; leave to replead against Certilman denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Kirschner III change controlling law on standing? | Kirschner III clarified adverse-interest limits but did not overrule CBI wholesale. | Kirschner III constitutes an intervening change that undermines Receiver's broad reading of CBI. | Kirschner III invalidated the broad CBI reading; reconsideration warranted. |
| What law governs each defendant's claims? | Receiver argues NY law governs all; alternatively, distinct states should apply. | Cohen/Lum defendants: NY law controls; but choice-of-law analysis required; estoppel discussed. | Connecticut governs Cohen, New Jersey governs Lum, New York governs Certilman. |
| Does the Receiver have standing to sue each defendant under the chosen law? | Under Connecticut/NJ law, Receiver has standing to sue Cohen/Lum; under NY law, not for Certilman. | Standing should be evaluated under applicable law; prior determinations should not trap claims. | Receiver has standing for Cohen and Lum under CT/NJ law; lacks standing against Certilman under NY law. |
| Is the Lum affidavit of merit required and timely filed? | Late filing permitted due to extraordinary circumstances; extension sought nunc pro tunc. | Affidavit of merit required under NJ law; timely filing strict; potential dismissal for noncompliance. | Court denied dismissal for Lum but granted cross-motion nunc pro tunc extension; extraordinary circumstances found. |
| Should Receiver be granted leave to replead Certilman claims? | Amendment may cure standing issues. | Amendment would be futile without resolving standing under NY law. | Leave to replead against Certilman denied. |
Key Cases Cited
- Wagoner, 944 F.2d 114 (2d Cir. 1991) (standing limitation for bankrupts in fraud actions)
- In re CBI Holding Co., 529 F.3d 432 (2d Cir. 2008) (adverse-interest and total abandonment discussion)
- Kirschner v. Grant Thornton LLP, 626 F.3d 673 (2d Cir. 2010) (Kirschner IV; refined adverse-interest framework)
- Kirschner v. KPMG LLP, 590 F.3d 186 (2d Cir. 2009) (Kirschner II; questions certified to NY Court of Appeals)
- Kirschner v. Grant Thornton LLP, 15 N.Y.3d 446 (N.Y. 2010) (Kirschner III; adverse-interest exception requires no corporation benefit)
- Reider v. Arthur Andersen, LLP, 784 A.2d 464 (Conn. 2001) (CT test for in pari delicto and sole-actor considerations)
- NCP Litig. Trust v. KPMG LLP, 187 N.J. 353 (N.J. 2006) (NJ stance on adversary in pari delicto and corporate benefit)
- Hubbard v. Reed, 168 N.J. 387 (N.J. 2001) (common knowledge exception to affidavit requirement)
- Oster v. Kirschner et al., 77 A.D.3d 51 (N.Y. App. Div. 1st Dept. 2010) (affirmed allegations supporting knowledge/substantial assistance)