Moore Charitable Found. v. PJT Partners, Inc.

40 N.Y.3d 150

217 N.E.3d 8

195 N.Y.S.3d 436

The MOORE CHARITABLE FOUNDATION, et al., Appellants,

v.PJT PARTNERS, INC., et al., Respondents, et al., Defendant.

No. 52

Court of Appeals of New York.

Decided June 13, 2023

Susman Godfrey L.L.P., New York City (Stephen Shackelford Jr., William Christopher Carmody, Mark Musico, Nicholas C. Carullo, Stephanie Nicole Spies and Russell Rennie of counsel), for appellants.

Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York City (Aidan Synnott, Amy L. Barton and Shane D. Avidan of counsel), for respondents.

OPINION OF THE COURT

CANNATARO, J.

On this appeal, we assess the sufficiency of a cause of action pleaded against an investment bank for its negligent supervision and retention of an employee. Plaintiffs—a charitable foundation and its affiliate—allege that defendants’ negligent supervision of their employee resulted in him defrauding them of $25 million under the guise of his employment, as part of a scheme to cover up mounting personal trading losses and embezzlements.

We hold that it was error to dismiss plaintiffs’ negligence claim at the pleading stage. Contrary to the lower courts’ conclusions, the complaint adequately alleged that defendants were on notice of the employee's propensity to commit fraud prior to his interactions with plaintiffs and their resulting losses. Nor can we agree that defendants’ duty of supervision ran only to their "customers." We accordingly reverse the order of the Appellate Division and reinstate plaintiffs’ claim.

I.

When reviewing a motion to dismiss for failure to state a claim, a court must give the complaint a liberal construction, accept the allegations as true, and, providing plaintiffs with the benefit of every favorable inference, examine the adequacy of the pleadings (see Cortlandt St. Recovery Corp. v. Bonderman, 31 N.Y.3d 30, 38, 73 N.Y.S.3d 95, 96 N.E.3d 191 [2018] ; AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 5 N.Y.3d 582, 591, 808 N.Y.S.2d 573, 842 N.E.2d 471 [2005] ; Goshen v. Mut. Life Ins. Co., 98 N.Y.2d 314, 326, 746 N.Y.S.2d 858, 774 N.E.2d 1190 [2002] ). "Whether a plaintiff can ultimately establish its allegations is not part of the calculus in determining a motion to dismiss" ( EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19, 799 N.Y.S.2d 170, 832 N.E.2d 26 [2005] ). We therefore accept the following allegations as true for purposes of this appeal.

Defendants PJT Partners, Inc. (PJT) and Park Hill Group, LLC (Park Hill) are, respectively, an investment bank and a division thereof which provides global alternative asset advisory and fundraising services. In 2013, Park Hill hired Andrew Caspersen to manage its "secondaries" business, which involved "facilitating the purchase, sale, or restructuring of ownership interests in certain kinds of investment vehicles, such as private equity or hedge funds" (Compl.¶ 17). Caspersen was hired primarily to start a new business line focusing on "fund recapitalization" work, specifically by "representing private equity fund managers who were interested in offering liquidity to their investors" (id. ¶ 18).

In furtherance of that goal, defendants gave Caspersen significant authority. They authorized him to solicit potential clients over telephone and email, to use defendants’ brand names and resources to market their services, and to engage with clients throughout the solicitation and negotiation process. Indeed, defendants encouraged Caspersen to act as the primary or sole point of contact for clients on his deals, including with respect to the transmission of invoices. Caspersen was also given access to virtual data rooms in which defendants stored confidential documents related to their deals.

Caspersen was a successful and high-performing employee who brought in a substantial amount of work for defendants. Over time, however, Caspersen began to display signs of "dangerous and destructive behaviors" (id. ¶ 25). For example, he would engage in "excessive high-risk securities trading" from personal accounts during work hours, and "would obsessively monitor his positions, often checking the value of his holdings every few minutes ... using a variety of devices, including the computer and/or communication devices supplied to him by" defendants (id. ¶ 26). Caspersen also allegedly "began drinking to excess during the work day," meaning that he would frequently "arriv[e] at the office in the morning only after having consumed one or more Bloody Marys," "typically consume 10 to 15 alcoholic drinks each day, mostly during business hours," and hold meetings with colleagues while inebriated (id. ¶ 27).

Nonetheless, in 2014, Caspersen landed a major deal for defendants involving the recapitalization of a private equity fund managed by Irving Place Capital (Irving Place). Defendants’ role in the transaction was to find a new investor interested in buying out the fund's existing equity holders. Caspersen pitched the opportunity to Coller Capital, which agreed to serve as the lead buyer in the transaction at a price of $500 million. The transaction closed in August 2015, at which time Irving Place was to pay defendants a deal fee of $8.1 million. When the time came, however, Caspersen intercepted and diverted that fee to himself. He did so by sending a fake Park Hill invoice to Irving Place, directing that company to transfer the fee into an account created and controlled solely by Caspersen. Irving Place followed those instructions and paid the fee to Caspersen's account. Caspersen used the stolen $8.1 million fee to purchase securities on his personal account, which promptly lost all of their value.

One month after the closing, in September 2015, employees from defendants’ "back office" asked Caspersen about the missing fee. Caspersen falsely responded that the fee would not be paid until a "stub closing" was complete.¹ The complaint pleads that defendants "knew or should have known" that this explanation was false because they were "handling the Irving Place transaction, and knew or should have known that there was no stub closing on the deal" (id. ¶ 35). The complaint further pleads that Caspersen's explanation was "implausible and transparently false" because "[t]ypically, when there was a stub closing on a deal, which was rare, [defendants] would nevertheless receive [their] fee in connection with the primary closing" and only a "pro rata portion of the fee, attributable to the undisclosed ‘stub’ part of the deal" would be deferred in connection with the stub closing (id. ¶¶ 36–37). Nonetheless, defendants did not challenge Caspersen's explanation or immediately inquire further about the delayed payment.

Caspersen understood that as the end of the year approached, defendants would likely insist on receiving the $8.1 million fee; accordingly, he devised a scheme to obtain replacement funds from plaintiff The Moore Charitable Foundation (the Foundation) and use them to pay what defendants were owed. In October 2015, Caspersen contacted the Foundation "using a legitimate PJT email address" and offered it "an opportunity to invest in a security with a risk-free 15% rate of return" (Compl.¶ 41). In subsequent communications, Caspersen told the Foundation that the opportunity related to the Irving Place transaction, which he falsely stated had not yet closed. More specifically, Caspersen "claimed that he was syndicating an $80 million loan that he had agreed to make to Coller Capital in order to help facilitate the closing of the transaction," and that he was soliciting investors in that financing (id. ). To support the validity of the transaction, Caspersen used his PJT email account to send the Foundation a real annual financial report for Irving Place, obtained from defendants’ data room, which bore a Park Hill watermark. The Foundation ultimately agreed to contribute $25 million in financing.

In November 2015, Caspersen used his PJT email account to send wire instructions to the Foundation. The instructions were written on Park Hill letterhead and directed that the funds be sent to a special purpose vehicle (SPV) created and controlled by Caspersen but named to appear like an Irving Place-affiliated entity. Over the next few days, Caspersen again used his PJT email address to send the Foundation a promissory note, security agreement, and letter from the SPV, all bearing the signature of "John Nelson," a fictitious authorized signatory for Irving Place.

The Foundation transferred the $25 million to the SPV account through plaintiff Kendall JMAC. The complaint pleads that plaintiffs did so based on their "reasonable reliance on the strong reputation of [defendants] as well as Caspersen's position there" (id. ¶ 46). Within days, Caspersen transferred $8.1 million from the SPV account to defendants, "making it appear" that Irving Place was finally paying the missing deal fee (id. ¶ 47). Caspersen transferred the remainder of plaintiffs’ $25 million financing to his personal account, where he used the funds to engage in speculative securities trading that eventually resulted in losses of approximately $14.5 million.

Caspersen maintained his ruse for several months by making fake interest payments to the Foundation on the fake promissory note. In March 2016, however, the Foundation discovered the fraud when its representative asked to speak with John Nelson and discovered that no such person existed. Later that year, Caspersen entered a plea of guilty in federal court to securities and mail fraud charges and was sentenced to a four-year term of imprisonment. Although ordered to pay restitution to plaintiffs, Caspersen has not done so.

Plaintiffs eventually commenced this action against defendants to recover their losses, asserting causes of action against defendants for negligent supervision and retention, conversion, and fraud. Defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7) and 3016(b). As relevant here, Supreme Court dismissed plaintiffs’ cause...