Providing Legal Advice to Person Accused of Fraud Insufficient to Support Aiding and Abetting Claim

On April 23, 2020, Justice Cohen of the New York County Commercial Division issued a decision in Space Race, LLC v. Alabama Space Science Exhibit Commn., 2020 NY Slip Op. 31299(U), holding that providing legal advice to a person accused of fraud is an insufficient basis for a claim of aiding and abetting fraud, explaining:

Allegations that a law firm provided routine professional services to a primary fraudster is not sufficient to establish a claim for aiding and abetting. As noted above, the legal position asserted by counsel in opposing confirmation of the arbitration award - i.e., that the Barnhart decision warranted a renewed attempt to assert sovereign immunity - was by no means frivolous. Indeed, it likely would be counsel's professional obligation as a zealous advocate to raise a potentially dispositive defense based on a change in the law, leaving for the court to decide if her or his client is entitled to the benefit of such a change.

(Internal citations omitted).

Commercial litigation frequently involves fraud-based claims. In New York, a defendant also can be held liable for aiding and abetting a fraud, which is what is at issue in this decision. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have a question regarding a fraud-based claim.