United States: First Department Affirms Commercial Division Ruling That Facts Arising After Litigation Commences Cannot Save An Otherwise Deficient Claim

In the case BDCM Fund Adviser, L.L.C. v Zenni, 2012 NY Slip Op 06384 (1st Dep't Sept. 27, 2012), the First Department unanimously upheld a decision by Justice Eileen Bransten of the Commercial Division dismissing the claims of plaintiffs BDCM Fund Adviser L.L.C., Black Diamond Capital Management Holdings, L.L.C., and Stephen H. Deckoff (collectively "plaintiffs") for unfair competition and disparagement.

According to Justice Bransten's June 22, 2011 trial court decision, Index No. 602116/2008, James Zenni ("Zenni") and Stephen Deckoff co-founded the plaintiff entities. Zenni eventually chose to leave to start a competing asset management fund. In 2008, Plaintiffs sued Zenni and his new group of funds (collectively referred to as "defendants") for, among other things, common law disparagement and unfair competition. In 2011, Plaintiffs moved to amend the complaint to add:

Defendants opposed the motion to amend and cross-moved to dismiss the original complaint. Plaintiffs opposed the cross-motion to dismiss, but did not dispute that the original complaint was inadequate — plaintiffs instead argued that the new allegations made in their proposed amended complaint bolstered the claims enough to survive a motion to dismiss. Justice Bransten denied plaintiffs' motion to amend and granted defendants' cross-motion to dismiss the disparagement and unfair competition claims from the original complaint. Plaintiffs appealed.

The First Department affirmed Justice Bransten, finding that dismissal of the disparagement and unfair competition claims was proper. The First Department specifically held that "facts that arise post-complaint may not be used to validate an otherwise insufficiently-pleaded complaint." In this case, the allegations in the original complaint failed to make out claims for either unfair competition or disparagement, and the complaint could not be bolstered by the new allegations (which the First Department found to be vague and conclusory in any event).

Two additional points are worth noting in this decision. First, the First Department affirmed that an affidavit that raises new facts for the first time in support of reply papers is improper. Second, there was a preclusion order issued by the Judicial Hearing Officer ("JHO") in the case which precluded plaintiffs from presenting certain evidence regarding their disparagement claims on the grounds that "plaintiffs failed to submit proper interrogatory responses despite multiple conferences and orders from the JHO." Judge Bransten denied a motion by plaintiffs to review and vacate the preclusion order. The First Department found that because the claims were dismissed, the motion to vacate was moot, but nonetheless noted that the issuing of such a preclusion order under the circumstances was not an abuse of discretion.

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