Scher Law Firm, LLP v. DB Partners I, LLC
948 N.Y.2d 335
| N.Y. App. Div. | 2012Background
- Fred Deutsch, president of Parklex Associates, Inc., led Parklex as general partner of Parklex Associates and sold the partnership’s sole asset for about $55,000,000.
- After closing on May 8, 2006, sale proceeds were distributed to partners; Deutsch directed $23,080,351.63 to FAL Associates, LLC at JPMorgan Chase Private Banking.
- Claimants sued for breach of fiduciary duty and conversion; a TRO enjoined secrecy and wasting funds in accounts used by the partnership and Parklex entities.
- In June 2006, Deutsch opened a Parklex corporation account at RBC Capital Markets; transfers included $6,104,173.86 in and $4,604,173.86 to Collateral Acquisition, LLC.
- In July 2006, Deutsch opened a DB Partners I, LLC account at RBC Capital and wire-transferred about $20,035,823.80 of the JP Morgan Chase proceeds.
- A 2007 agreement among DB Partners, RBC Capital, and the Bank pledged the DB Partners balance at RBC Capital as collateral for a $17,000,000 Bank line of credit; in 2009 claimants obtained a judgment by confession totaling $15,574,599; in 2009 a turnover proceeding sought turnover of the collateral; the Supreme Court held RBC Capital lacked notice/sufficient basis for a duty of further inquiry and that the Bank did not owe such duty; the Bank’s collateral was properly awarded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bank had notice of an adverse claim under UCC 8-105(a)(2). | Claimants argue RBC’s knowledge suffices or is imputable to the Bank. | Bank argues no notice and separate duties; no willful blindness by Bank. | No notice to Bank; no imputed knowledge; collateral properly awarded to Bank. |
| Whether RBC Capital’s notice can be imputed to the Bank for purposes of 8-105(a)(2). | Claimants contend RBC’s notice should be attributed to Bank. | Bank and RBC Capital are separate entities with independent due diligence. | No imputation of RBC’s notice to Bank; Bank not liable for adverse claim. |
Key Cases Cited
- SEC v. Credit Bancorp, Ltd., 386 F.3d 438 (2d Cir. 2004) (willful blindness test for notice of adverse claims under UCC)
- Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. _ (Supreme Court 2011) (willful blindness is narrower than negligence; deliberate avoidance of knowing facts)