Krys v. Pigott
749 F.3d 117
| 2d Cir. | 2014Background
- SPhinX Funds (Cayman Islands) were managed by PlusFunds; SPhinX used segregated portfolio companies to protect assets across portfolios, including SMFF.
- Refco, including Refco LLC and Refco Capital Markets (RCM), allegedly conducted a massive fraud by diverting customer assets and concealing losses, leading to Refco’s 2005 bankruptcy.
- AMENDED COMPLAINT alleges RTLs (round-trip loans) arranged by Refco controlled entities, where RTLs moved funds to RGHI to create a receivable and then unwound the transaction to conceal insolvency.
- RTL Participants, including Liberty Corner and Ingram Micro, allegedly provided loans guaranteed by Refco and purportedly had various incentives to participate, even though the loans were allegedly tainted and lacked legitimate business purpose.
- District court dismissed claims against Liberty Corner and Ingram Micro under Rule 12(b)(6) for lack of knowledge, adopting the Special Master’s conclusion that the complaint failed to plead actual knowledge.
- The district court later certified a partial final judgment under Rule 54(b) dismissing only Liberty Corner and Ingram Micro; the court’s reasoning was reviewed for abuse of discretion on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plaintiffs pled actual knowledge for aiding and abetting fraud | Krys/MacInnis contend RTL participants knew of fraud and aided it | Liberty Corner/Ingram Micro argue no actual knowledge pleaded, only vague suspicions | Dismissal affirmed; lack of actual knowledge pleaded |
| Whether plaintiffs pled actual knowledge for aiding and abetting breach of fiduciary duty | Plaintiffs allege knowledge of fiduciary breach and substantial assistance | Defendants argue no actual knowledge of breach | Dismissal affirmed; no adequate knowledge pleaded |
| Whether the court properly entered a Rule 54(b) partial final judgment | Partial judgment was prematurely certified | Judgment appropriate given lack of overlap with remaining claims | Affirmed; certification proper |
| Whether leave to amend should have been granted given deposition evidence | Maggio deposition could cure pleading deficiencies | Amendment would be futile; no knowledge shown | Denied; no abuse of discretion |
Key Cases Cited
- Lerner v. Fleet Bank, N.A., 459 F.3d 273 (2d Cir. 2006) (actual knowledge required for aiding and abetting fraud)
- Oster v. Kirschner, 77 A.D.3d 51 (1st Dep't 2010) (aiding-and-abetting requires actual knowledge and substantial assistance)
- National Westminster Bank USA v. Weksel, 124 A.D.2d 144 (1st Dep't 1987) (constructive knowledge not enough for aiding and abetting; need actual knowledge)
- Kaufman v. Cohen, 307 A.D.2d 113 (1st Dep't 2003) (aiding and abetting requires actual knowledge)
- Devaney v. Chester, 813 F.2d 566 (2d Cir. 1987) (Rule 9(b) knowledge may be pleaded generally but with factual context)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard; exclude mere conclusory statements)
- Twombly v. Bell Atlantic Corp., 550 U.S. 544 (U.S. 2007) (bare allegations not enough; must plead plausible facts)
- Curtiss-Wright Corp. v. General Electric Co., 446 U.S. 1 (U.S. 1980) (leaves certification decisions to district court; abuse review is narrow)
- United States v. Ebbers, 458 F.3d 110 (2d Cir. 2006) (conscious avoidance is a high standard for knowledge)
- Kennedy v. Venrock Associates, 348 F.3d 584 (7th Cir. 2003) (fraud involving knowledge; require particularized pleading in some contexts)