787 N.Y.S.2d 234 | N.Y. App. Div. | 2004
This is an action brought by an entity created by the Bankruptcy Court to pursue claims for the benefit of the corporate debtor’s estate, where the chapter 11 confirmed plan assigned the debtor’s claims to plaintiff. Many of the creditors are noteholders subject to a 1993 trust indenture. Plaintiff alleges that former officers and directors of the debtor and its subsidiaries caused the debtor to engage in prohibited transactions that constituted defaults under the indenture, with the complicity of and subsequent cover-up by the accountants who were required to certify to the trustee whether there had been defaults.
The motion court properly found that there was jurisdiction
Contrary to defendants’ contention, plaintiff has standing to bring this action (see Semi-Tech Litig., LLC v Bankers Trust Co., 272 F Supp 2d 319 [2003]; In re Ben Franklin Retail Stores, Inc. [Steinberg v Kendig], 225 BR 646, 649-650 [Bankr Ct, ND Ill 1998]). Our decision in Barnes v Hirsch (215 App Div 10 [1925], affd 242 NY 555 [1926], cert denied 273 US 709 [1926]), which was decided before revisions to the bankruptcy laws and which, in distinction to the present case involving an assignment by the Bankruptcy Court to a specially created entity, involved assignments by the individual creditors to the trustee, does not compel a different result.
Fraud was pleaded against the accountants with sufficient particularity (see Houbigant, Inc. v Deloitte & Touche, LLP., 303 AD2d 92, 97-98 [2003]; see also e.g. Franklin High Income Trust v APP Global, Ltd., 7 AD3d 400 [2004]) and was sufficiently stated (see e.g. Knight Sec., L.P. v Fiduciary Trust Co., 5 AD3d 172 [2004]). The representations by the issuer of the auditors’ certificates were chargeable, on theories of conspiracy and aiding and abetting fraud, to accounting firms that had prepared accounting materials with the knowledge and expectation that they would be incorporated into the audit work and certificates of the issuer. They were chargeable, at this pleading juncture, to Ernst & Young International, despite its position that the Ernst & Young entities are not an actual partnership, based on its representations (see Partnership Law § 27; Royal Bank & Trust Co. v Weintraub, Gold & Alper, 68 NY2d 124, 128-129 [1986]). We find that the required element of proximate cause was sufficiently alleged.
However, the motion court should have dismissed the claim for breach of fiduciary duty against director Gnat, who was no
On the other hand, the causes of action for negligent misrepresentation and malpractice against Ernst & Young (Ontario) should not have been dismissed. The privity necessary to support these claims was sufficiently alleged, i.e., that the accountants were aware the indenture trustee and noteholders would reasonably rely on their representations for a particular purpose and that the accountants engaged in conduct evincing their understanding of that reliance (see Securities Inv. Protection Corp. v BDO Seidman, L.L.P., 95 NY2d 702, 711 [2001]).
We have considered the parties’ other contentions for affirmative relief and find them unavailing. Concur—Tom, J.E, Mazzarelli, Friedman, Gonzalez and Sweeny, JJ.