97 A.D.3d 590
N.Y. App. Div.2012Background
- Parklex Associates, Inc. (the Parklex corporation) sold the partnership's sole asset for about $55,000,000 and distributed proceeds to partners while Deutsch directed $23,080,351.63 to an FAL Associates, LLC account.
- Claimants sued Deutsch and related entities for breach of fiduciary duty and conversion; a TRO barred secreting or wasting funds in Parklex accounts.
- Deutsch opened an account for Parklex at RBC Capital, transferring $6,104,173.86 in June 2006 and then $4,604,173.86 to Collateral Acquisition, LLC on June 27, 2006.
- Deutsch later opened DB Partners I, LLC at RBC Capital and wire-transferred about $20,035,823.80 of JP Morgan Chase proceeds into that account.
- Claimants subpoenaed RBC Capital; RBC complied with the first subpoena and, after denial of the second, complied with the second subpoena; in May 2007, a collateral-for-credit arrangement was agreed among DB Partners, RBC Capital, and the Bank for a $17,000,000 line, and a judgment by confession was entered for the claimants in July 2009 totaling $15,574,599.
- In September 2009, the turnover proceeding sought turnover of the entire DB Partners balance (including collateral) on the theory that the Bank and RBC Capital had notice of adverse claims under UCC 8-105(a)(2); the Supreme Court held RBC Capital could be attributed knowledge for willful blindness, but the Bank could not be.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Bank had notice of an adverse claim under UCC 8-105(a)(2) | Pl seeks turnover claiming Bank had notice. | Deutsch/Bank contends no notice by Bank; RBC Capital alone. | No Bank notice; collateral stayed with Bank. |
| Whether RBC Capital's notice can be imputed to the Bank for willful blindness | Pl argues knowledge of RBC Capital should be imputed to Bank. | Bank and RBC Capital are separate entities with independent duties. | No imputation; no willful blindness by Bank. |
Key Cases Cited
- S.E.C. v Credit Bancorp, Ltd., 386 F.3d 438 (2d Cir. 2004) (willful blindness test limits duty to inquire)
- Global-Tech Appliances, Inc. v SEB, S.A., 563 U.S. _ (U.S. 2011) (willful blindness defined; deliberate avoidance of information)