February 24, 2017
Panel Allows Fraud Case Against Tilton to Proceed
Mark Hamblett, New York Law Journal
February 23, 2017
The case by private investors alleging fraud against Lynn Tilton and Patriarch Partners to the tune of tens of millions of dollars can go forward following a decision Thursday by the Appellate Division, First Department.
A divided court affirmed Manhattan Supreme Court Justice Eileen Bransten’s 2016 decision dismissing a claim against Tilton for negligent misrepresentation. The panel also upheld Bransten’s refusal to dismiss a claim of fraudulent misrepresentation in the handling of two funds by the defendants.
Tilton, who is awaiting results of a U.S. Securities and Exchange Commission civil enforcement action, is accused of offering collateralized debt obligations (CDOs) that investors claim were not, in fact, CDOs at all, but de facto private equity funds that Tilton used to obtain controlling positions in the portfolio companies.
One defense argument was that the plaintiffs had plenty of reason to know their investments had an equity component. On Thursday, the majority said that, even if the plaintiffs had some knowledge, it was plausible, at this early stage of the litigation, they could not have known the extent of the equity investments.
Justice Angela Mazzarelli wrote the opinion, with Justices Paul Feinman and Judith Gische concurring. Justices Richard Andrias and David Saxe dissented
in part, with Andrias writing an opinion.
Depositions in the case, Norddeutsche Landesbank Girozentrale v. Tilton, 651695/15 2205, are set to begin soon, with a trial scheduled for 2018.
Partners Michael Fay and Jenny Kim and associate Chris Sprengle of the Houston firm Berg & Androphy represent the plaintiffs.