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ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED (NOT THE CASE HERE).

The Second Department, finding that a cause of action for aiding and abetting breach of contract does not exist, explained the elements of aiding and abetting fraud. The court further found that the arbitration clause was not invalidated by the allegations of fraud in the inducement:

There is no cause of action for aiding and abetting a breach of contract … . To recover for aiding and abetting fraud, the plaintiff must plead “the existence of an underlying fraud, knowledge of the fraud by the aider and abettor, and substantial assistance by the aider and abettor in the achievement of the fraud” … . “Substantial assistance” requires an affirmative act on the defendant’s part … . “[T]he mere inaction of an alleged aider or abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff” … . * * *

The plaintiffs contend that the arbitration agreement is invalid because it was fraudulently induced. However, a broad arbitration provision is separable from the substantive provisions of a contract such that the agreement to arbitrate is valid even if the substantive provisions of the contract were induced by fraud … . “The issue of fraud in the inducement affects the validity of the arbitration clause only when the fraud relates to the arbitration provision itself, or was part of a grand scheme that permeated the entire contract'” … . “To demonstrate that fraud permeated the entire contract, it must be established that the agreement was not the result of an arm’s length negotiation, or the arbitration clause was inserted into the contract to accomplish a fraudulent scheme” … . Markowits v Friedman, 2016 NY Slip Op 07932, 2nd Dept 11-23-16

 

FRAUD (ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)/CONTRACT LAW (ELEMENTS OF AIDING AND ABETTING FRAUD EXPLAINED, WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)/ARBITRATION (WHEN FRAUD IN THE INDUCEMENT CAN INVALIDATE AN ARBITRATION CLAUSE EXPLAINED)

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