[*2]This is an action by a group of lenders who allege that they were fraudulently induced to loan $40 million to a now-bankrupt auto parts company, American Remanufacturers Holdings, Inc. ("ARI"). Specifically, they allege that the persons and entities who owned and controlled the ARI, together with an accounting and auditing firm, conspired to falsify ARI's financial records and otherwise misrepresent and conceal its actual prospects. Defendants Scott Duncan, John Jendrzejewski and the Quilvest Defendants ^[FN1] now separately move to dismiss for lack of personal jurisdiction (CPLR 3211[a][8]) and for failure to state a claim and/or plead fraud with sufficient particularity (CPLR 3211[a][7] and 3016[b]). The Rhone/TCR Defendants ^[FN2] and defendant PricewaterhouseCoopers LLP ("PwC") separately move to dismiss for failure to state a claim and upon documentary evidence (CPLR 3211[a][1] and [7]), with the Rhone Defendants additionally alleging a lack of particularity (3016[b]).

THE COMPLAINT

The following statement of facts summarizes the key allegations of the 129-page complaint and related documentary evidence.

Parties

Plaintiffs DDJ Total Return Loan Fund, L.P. ("DDJ Total"), GMAM Investment Funds Trust II ("GMAM") and Airlie Opportunity Master Fund, Ltd. ("Airlie") are the investment funds that advanced the $40 million in loan proceeds at issue in this action. Plaintiffs DDJ Capital Management, LLC ("DDJ") is a capital management firm that acted as the agent for the three lenders. DDJ also manages DDJ Total and GMAM.

The borrower, non-party ARI, was the second largest remanufacturer of automotive parts in the United States. ARI was formed in 2003 when two groups of private equity investment firms, the Rhone Defendants and the Quilvest Defendants, merged their competing remanufacturing companies into a single joint enterprise. Rhone and Quilvest exercised equal [*3]control over ARI pursuant to various agreements by which they were paid to manage ARI's affairs.

Pursuant to those agreements, Rhone and Quilvest each paid two of their executives (defendants M. Steven Langman and Robert W. Chambers from Rhone, and defendants Willem F.P. De Vogel and J. William Uhrig from Quilvest) to serve as directors of ARI. They also assigned a Rhone employee (defendant Dulac) and a Quilvest employee (defendant Duncan), to assist these executives in the management of ARI. ARI's chief executive officer (non-moving defendant Larry A. Pavey) and chief financial officer (defendant Jendrzejewski} reported to the Rhone and Quilvest executives and employees, as did defendant PwC, ARI's outside auditor.

The Alleged Scheme to Defraud Defendant Lenders

The Complaint alleges that at the end of 2003, Rhone and Quilvest decided to seek additional financing because the merger had not produced the anticipated results and ARI was in need of additional funds for working capital and to repay existing debts. However, as experienced investment professionals, they knew that no lender would advance ARI funds in its existing financial condition. Accordingly, plaintiffs allege, at the direction of the Rhone and Quilvest executives and employees who were managing the company, ARI pursued a scheme to falsify its records, misrepresent its prospects and otherwise mislead the plaintiffs into making millions of dollars in loans.

The Retention of Jefferies & Company

The plan allegedly started when ARI, Rhone and Quilvest

contacted the New York investment of bank Jefferies & Company. Inc. ("Jefferies") in late 2003 for assistance in obtaining $90 million in new loans. Uhrig and Pavey made the initial contact, but in 2004 Chambers and his assistant, Dulac, began communicating with the bank and became the main source of the information about ARI that Jefferies would furnish to prospective lenders. Jendrzejewski signed the engagement letter between Jefferies and ARI at Chambers' direction, a letter which represented that ARI would not provide any untrue or misleading information for Jefferies to provide to lenders. Although Jefferies commenced work earlier, the engagement letter was not signed until August 26, 2004 because Langman, Chambers and their lawyer were negotiating for terms similar to those in other agreements between Jefferies and Rhone.

The Solicitation of the Lenders

In June 2004, Jefferies prepared materials to solicit three loans totaling $90 million, including the $40 million loan at issue here (identified as "Senior Secured Term Loan B"). Between June 14 and 30, 2004, Chambers, Dulac and Pavey supplied Jefferies with information and edited and approved materials for Jefferies' planned July 2004 Presentation to lenders. Langman, Pavey and Jendrzejewski received copies of those communications with Jefferies regarding the presentation. Langman, Chambers and Dulac identified themselves in e-mails to Jefferies as acting "as executives of Rhone Group."

Plaintiffs allege that the July 2004 Presentation falsely represented the health of ARI's business and the quality of its executive leadership. Specifically, it represented that ARI was stable and growing; that ARI presented low risk and a strong credit profile; that ARI's reported earnings before interest, taxes, depreciation and amortization ("EBITDA") was estimated to [*4]grow to $20 million for 2004; and that ARI's growth and success were due to the skill and performance of its top executives, particularly Pavey as CEO and Jendrzejewski as CFO. In fact, the complaint asserts, ARI was in a downward spiral; Pavey and his executive team were engaged in a reckless sales campaign that was destroying the company's profitability and cash flow; and they were failing to manage whatever cash they had on hand. Furthermore, in internal corporate communications, Pavey and deVogel had both admitted that ARI was troubled and that failures by its senior management had severely strained its standing with its creditors and customers and endangered the company's financial well-being.

On July 1, 2004, Jefferies solicited DDJ and Airlie to participate in the prospective loans by sending them copies of the July 2004 Presentation and following up with conference

calls. In a July 8, 2004 conference call with DDJ Vice President Jackson Craig, Chambers and Jendrzejewski reiterated the allegedly false representations of the July 2004 Presentation, and on August 18, Chambers and Pavey called Craig to convey an "upbeat picture of ARI" and falsely represented that ARI's liquidity was excellent.

At around the same time, Jefferies and various ARI representatives (as yet unnamed) participated in a conference call with Airle Managing Director Jeremy Bloomer. Airlie decided that ARI's reported EBITDA of $4.4 million for previous twelve months could not justify the proposed loan, and that such a loan would be too risky until ARI's EBITDA rose to the level of its 2004 projections.

The Alleged Coercion of ARI'S Auditor

In November 2004, PwC, ARI's outside auditor, decided to immediately end its relationship with ARI after concluding that to continue would be too risky because ARI was in a rapidly disintegrating, debilitated financial condition and its records were undependable. PwC's resignation threatened the proposed financing because, if discovered, it would alert the prospective lenders to ARI's financial problems, and because Jefferies had assured the lenders that they would receive an unqualified report on ARI's 2003 financial statements by an independent auditor. After PwC partner Andrew MacWilliam called Chambers on December 2, 2004 to advise him of PwC's decision to resign, Chambers pressured MacWilliam to reverse the decision. The complaint alleges that Chambers advised MacWilliam that relationships with accounting firms were maintained at the "Rhone level" and that PwC would lose $7 million in annual revenue attributable to Rhone-controlled companies if it resigned as auditor. Langman also reminded MacWilliam of the revenue generated by the Rhone companies in an e-mail.

On December 3, 2004, Chambers sent an e-mail to Langman, Dulac, Uhrig, Duncan and Pavey relating PwC's expressed concerns about ARI's financial instability and describing Chambers attempt to persuade PwC to remain as auditor. Duncan replied to Chambers (with copies to Langman, Dulac, Uhrig and Pavey) that he would review the amount PWC's annual revenue from the Three Cities Research companies with an eye toward increasing the auditor's cooperation. PwC thereafter reversed its decision to resign and joined in the efforts of Rhone and Quilvest to obtain financing for ARI.

The Decision to Replace ARI's Chief Financial Officer

In mid-December 2004, PwC's MacWillam advised Langman,

Chambers, Dulac, Uhrig and Duncan that ARI's CFO, Jendrzejewski, and its comptroller were incompetent and asked that ARI replace them. While they agreed to do so, they decided to conceal the replacements from the lenders until the loans were funded. Accordingly, ARI [*5]retained an executive search firm to find a new CFO on a confidential basis.

The Alleged Falsification of ARI'S Accounting Records

In the fourth quarter of 2004, those in control of ARI realized that the company would be unable to report a 2004 EBITDA sufficient to secure financing without falsifying ARI's financial records. Jendrzejewski believed that he could create a false EBITDA by, among other things, causing ARI to reverse various reserves and allowances taken the previous year. On October5, 2004, Jendrzejewski first instructed the comptroller to employ this device. In response, she stated that she had "personal ethical issues" because it was fraudulent, non-GAAP accounting that could result in litigation. Nevertheless, she agreed to comply on the condition that Jendrzejewski take full responsibility.

In a December 2004 visit to ARI's Anaheim facility, where ARI's comptroller had her office, Duncan advised an ARI vice president that it was necessary for ARI to show 2004 EBITDA of at least $19 million to obtain the new loans that company was seeking. On January 4, 2005, Chambers cautioned Jendrzejewski not to permit ARI's reserves to adversely affect the EBITDA need for the financing. On January 6, after Jendrzejewski assured Chambers that he would do what was necessary, Chambers e-mailed Jefferies to report that ARI's EBITDA would be close to $20

million for 2004.

Also that month, Jendrzejewski asked the comptroller to estimate by what degree ARI's EBITDA might be increased if the company wiped out reserves for excess inventory after one year and took reserves only for items that remained unsold after two years. The comptroller sent an e-mail on January 14 indicating that the EBITDA increase would be $7.4 million. Jendrzejewski immediately forwarded her e-mail to Pavey and instructed her to change the books.

On January 17, 2005 and on February 9, 2005, ARI's executive vice president told Duncan that the company's reserves were being changed to manipulate earnings, and that while knew it was necessary to secure financing wanted to make sure that everyone understood the financial implications of such conduct. Duncan told him not to worry about it. On February 18, 2005, the executive vice president sent an e-mail to Pavey, Jendrzejewski and Duncan, reminding them that the reserve adjustments had the effect of misstating ARI's 2004 earnings.

On March 3, 2005, the comptroller sent an e-mail to Jendrzejewski and ARI's executive vice president (with a copy Brian Johnson, ARI's new CFO), enclosing a chart that detailed the $10 million in increased EBITDA resulting from the restating of ARl's inventory reserves. The executive vice president forwarded the e-mail to Duncan and Pavey. The comptroller also prepared a chart for Jendrzejewski to use in a weekly management meeting the following day. At that meeting, Jendrzejewski and Pavey reviewed and discussed with Duncan and Chambers the changes that they had made to the reserves and the effect of those changes upon ARl's reported EBITDA.

The Decision to Replace ARI's Chairman

At a February 2005 board meeting in New York, Pavey warned that ARI was so cash-starved that it could not survive much longer without additional contributions from Rhone and Quilvest. Langman (who attended the meeting with Chambers, Uhrig and Duncan) blamed Pavey for the company's poor performance and stated that ARI's owners would not invest more. Although Pavey asserted that the proposed loans from third parties would not alleviate ARI's grave financial condition, Langman insisted that getting the new financing was a top priority. [*6]After Pavey left the meeting, the others decided to replace him as chairman after the loans were secured. Uhrig called ARI's former chairman to ask him to return to the company as Pavey's replacement.

The Replacement of ARI's Chief Financial Officer

In February 2005, ARI hired Brian Johnson ("Johnson") to replace Jendrzejewski as CFO following interviews with Pavey, Duncan, Chambers, Langman and Uhrig. Although Johnson was to start on March 1, 2005, they told him that because ARI was in the process of obtaining new loans, they did not want the lenders

to know that Jendrzejewski was being replaced, and that ARI would continue to hold Jendrzejewski out as CFO until the loans closed. On February 28, 2005, Pavey instructed a subordinate that there was to be no press release or announcement to the public that Johnson had been hired.

The Alleged Misrepresentations To The Plaintiffs

On December 1, 2004, Jefferies sent Craig of DDJ a copy of a 2003 draft audit report prepared by PwC and a copy of a nearly finalized credit agreement. On December 9, 2004, Chambers, Dulac and Pavey met with Craig and represented that ARI was "trending" toward a $20 million EBITDA "run rate" for 2004. They also discussed the PwC draft audit report, but made no mention of

their efforts to pressure PwC to remain as ARI's auditor despite PwC's concern about the company's financial condition and recordkeeping.

On January 10, 2005 Jefferies sent Airlie loan solicitation materials of PwC's 2003 draft audit report. Over the next two days, Chambers and Dulac participated in updating the July 2004 Presentation so that it could be sent to Airlie in advance of a scheduled conference call. At Chambers' direction, Dulac sent Jefferies a schedule that represented that ARI's reported 2004 EBITDA was estimated to be $17.8 million. Dulac and Chambers approved the final version of the updated presentation, entitled the "January 2005 Presentation to Investors" (the "2005 Presentation") which Jefferies sent to Airlie on January 13, 2005.

Plaintiffs allege that the 2005 Presentation contains numerous misrepresentations. Specifically, they assert that despite ARI's financial deterioration over the previous six months, the Presentation stated that the market for ARI's products was "stable and attractive" and that customers were placing "increasing demands" for "large order quantities." Furthermore, the Presentation asserted that the lenders could put their faith in ARl's "experienced management team," notwithstanding that the decision to replace Jendrzejewski that had already been made. The Presentation also claimed that ARI

produced "stable revenues and EBITDA;" that ARI employed "low risk growth opportunities;" that ARI presented a "strong credit profile" because the aggregate of the proposed loans was only approximately four times the company's 2004 adjusted EBITDA and because the value of the ARI collateral assets would be

one and one-half times the amount of the loans. Finally, the Presentation estimated ARI's 2004 EBITDA as $17.8 million,

more than five times the $3.4 million reported for 2003. At the conference call with Airlie on January 13, 2005, Chambers, Dulac, Pavey and Jendrzejewski discussed the 2005 Presentation with Airlie executive Wesley Seifer and repeated the alleged misrepresentations contained therein.

The Lenders' Tentative Commitments [*7]

In late January 2005, Jefferies informed DDJ and Airlie that each of them could subscribe to half of the $40 million Senior Secured Term Loan B. The lenders gave tentative commitments to participate in the loans subject, inter alia, to their satisfaction with the final loan documents and the receipt of an unqualified 2003 ARI audit report by PwC.

ARI's Allegedly False 2004 Financial Statements

On March 2, 2005, Dulac, at Chambers' direction, e-mailed ARI's unaudited financial statements for 2004 to Craig at DDJ.

Plaintiffs alleged that the statements falsely represented

that ARI's reported 2004 EBITDA was $16.9 million (or $22.1 million after adjustment for non-recurring and extraordinary expenses). Approximately $10 million of the $16.9 million EBITDA had been created by the manipulation of ARI's reserves.

On March 4, 2005, Dulac sent ARI's 2004 financial statements to Jefferies. On March 9, 2005, after Dulac approved some minor changes, Jefferies sent the statements to Craig at DDJ and to Bloomer at Airlie.

PwC's 2003 Audit Report

In March 2005, PwC was preparing to issue its final 2003 audit report (the "2003 Audit Report") for ARI's lenders. One of the final steps was to evaluate whether there was a need to include a "going concern" qualification that would state that "there is substantial doubt regarding the ability of [ARI] to continue as a going concern" Such a qualification would have eliminated ARI's chances of obtaining the new loans. At Langman's insistence, PwC issued an unqualified audit report on ARl's 2003 financial statements, allegedly without making a good faith going concern evaluation. On March 21, 2005, the day before the loan closing, Dulac sent documents to the PwC to justify the omission of a going concern qualification, including a summary of ARI's allegedly false and inflated 2004 EBITDA estimates and its unrealistic four year financial projection.

The Board of Directors And Shareholders Resolutions

Shortly before the March 22, 2005 loan closing, members of ARl's board of directors (Langman, Chambers, Uhrig, deVogel and Pavey) and ARI' s shareholders adopted resolutions in which they approved the specific provisions of the proposed loan documents and authorized Jendrzejewski to execute them. The resolutions were approved through the agents that had been appointed at the time of the 2003 merger. Accordingly, Rhone Capital (of which Langman and Chambers were principals and executives) approved the Resolutions as agent for the Rhone shareholders, and Three Cities Research (of which Uhrig and deVogel were senior executives) approved the Resolutions as agent for the Quilvest shareholders.

The Credit Agreement approved by ARI contained a series of representations and warranties. In it, the company warranted that ARI's 2003 audited financial statements and 2004 unaudited

financial statements were prepared in accordance with GAAP consistently applied throughout the periods covered and that they presented fairly the company's financial position; that the company's projections for the four years beginning January 1, 2005 were prepared in light of past operations and were believed to be reasonable and fair; that between December 31, 2003 and the closing date no event had occurred which could reasonably be expected to have a material adverse effect on the company's business, assets, operations, prospects or financial condition or its ability to repay any of the loans. ARI also represented that none of the information in the credit agreement or related documents contained any untrue statement of [*8]material fact, or omitted any material fact necessary to make the statements not misleading.

The Loan Closing

Jendrzejewski executed the Credit Agreement on March 21, 2005 and sent it to ARI's California counsel for transmission to the New York law office in which the closing was to occur the next day. He also signed a number of related loan documents, including an Officer's Certificate and Secretary's Certificates for each ARI entity and a Letter of Direction for the disbursement of the funds through the Bank of New York. The Officer's Certificate reiterated the representation that no event or condition had occurred since 2003 which could have a material adverse effect on ARI and that ARI's projections were good faith and reasonable estimates. In all of the various documents, Jendrzejewski represented himself as CFO, even though he had been replaced weeks earlier.

The closing was consummated and the proceeds were disbursed after New York counsel confirmed that the fully executed loan documents had been received and after DDJ, as agent for the lenders, confirmed that it had received a copy of PwC's unqualified 2003 Audit Report.

ARI's Bankruptcy

On March 30, 2005, eight days after the loan closing, Jendrzejewski reported that the new financing had actually lowered ARI's cash availability, that ARI was nearly out of cash and that the situation was "serious." The complaint alleges that the Rhone and Quilvest Defendants then decided to minimize their exposure by shifting all the blame to Pavey and Jendrzejewski. To this end, on May 4, 2005, Chambers called Craig to inform him that ARI's liquidity was "very tight" and announce that Pavey and Jendrzejewski were being fired, pretending that the financial manipulation and mismanagement of ARI's finances had not been discovered until after the loans were made.

One week later, with the assistance of various defendants, ARI's new executives issued a report for the lenders. In it, they outlined ARl's poor sales practices and mismanagement of operations and finances during the fifteen months preceding the loans. The report also acknowledged that undisclosed accounting "changes" that had been made in 2004, again insisting that the problems had been caused solely by Pavey and Jendrzejewski and asserting that the wrongdoing had only recently beendiscovered.

On July 26, 2005, ARI's new executives issued another report which disclosed that ARI had drastically restated its 2004 Financial Statements. In particular, it reported that ARI's 2004 EBITDA, previously reported as positive $16.9 million, was actually negative $24.78 million, a difference of $41.54 million. On November 7, 2005, ARI filed bankruptcy in the United States Bankruptcy Court for Delaware. When ARI' s assets were liquidated early in 2006, plaintiffs lost their entire $40 million.

This action followed. The complaint sets forth seven causes of action. The first cause of action, for fraud, is asserted against all defendants except PwC, and alleges a conspiracy to fraudulently induce defendants to loan ARI $40 million by means of misrepresentation and willful concealment of material facts. The second cause of against, pled in the alternative to the first against the same defendants, claims that the loans were induced by way of negligent misrepresentation. The third cause of action is for accountant/auditor malpractice against PwC, and alleges various violations of the American Institute of Certified Public Accountants ("AICPA") Code of Professional Ethics and of Generally Accepted Auditing Standards ("GAAS") that are codified as U.S. Auditing Standards ("AU"). The fourth cause alternatively [*9]charges PwC with malpractice under Massachusetts law. The fifth accuses PwC of common law fraud in connection with alleged misrepresentations contained in the 2003 Audit Report, and the sixth alternatively pleads negligent misrepresentation. Finally, the seventh, plead alternatively to counts five and six, asserts negligent misrepresentation against PwC under Massachusetts law.

DISCUSSION

For the following reasons, the motions to dismiss of Duncan, Jendrzejewski and the Quilvest and Rhone Defendants are granted as to the second cause of action for claims for negligent misrepresentation and otherwise denied, and the motion of defendant PricewaterhouseCoopers, LLP is granted in its entirety. The Quilvest Defendants' motion to dismiss for lack of jurisdiction held in abeyance pending further clarification from the parties regarding whether service of process was effected upon those entities following the submission of the instant motions.

The Quilvest, Rhone and Individual Defendants

Motions to Dismiss

Jurisdiction Defendants Duncan and Jendrzejewski

Plaintiffs assert jurisdiction over defendants Duncan and Jendrzejewski, both Illinois residents, under CPLR 302(a)(1). That section "permits Supreme Court to exercise long-arm jurisdiction over a nondomiciliary where: (1) the defendant transacted business within the state and (2) the cause of action arose from that transaction of business" (Scheuer v Schwartz, 42 AD3d 314 [1st Dept 2007]). Although plaintiffs bear the ultimate burden of establishing personal jurisdiction, on a pre-answer motion they need only establish a prima facie case (Opticare Acquisition Corp. v Castillo, 25 AD3d 238 [2d Dept 2005]). In determining the question, the court must construe the pleadings and other evidentiary materials in the light most favorable to the plaintiff and resolve all doubts in favor of jurisdiction (Brandt v Toraby, 273 AD2d 429 [2d Dept 2000]).

CPLR 302(a)(1) is a "single act statute" and accordingly just "one transaction in New York can be sufficient to invoke jurisdiction" (Kreutter v McFadden Oil Corp., 71 NY2d 460, 467 [1988]); see, Deutsche Bank Securities, Inc. v Montana Bd. of Investments, 7 NY3d 65 [2006]). The court must consider the totality of circumstances (Liberatore v Calvino, 293 AD2d 217 [1st Dept 2002]), keeping in mind that "[j]urisdiction can be grounded on a combination of seemingly separate events, any one of which, standing alone, would be insufficient to confer jurisdiction" (M. Fabrikant & Sons, Inc. v Adrianne Kahn, Inc., 144 AD2d 264, 265-66 [1st Dept 1988]). Ultimately, "[t]he key inquiry is whether defendant purposefully availed itself of the benefits of New York's laws (Courtroom Television Network v Focus Media, Inc., 264 AD2d 351, 353 [1st Dept 1999], citing Parke-Bernet Galleries, Inc. v Franklyn, 26 NY2d 13, 19 [1970]).

Corporate officers or employees who actively participate in in-state meetings or negotiations or other discussions in furtherance of their company's transaction of business may be also individually subject to jurisdiction under the statute (see, Kreutter, supra; Semi-Tech Litigation, L.L.C. v Ting, 13 AD3d

85 [1st Dept 2004]); Giant Group, Ltd. v Arthur Andersen, LLP., 2 AD3d 189 [1st Dept 2003]; see, Ins. Co. of State of Pa. v CIGNA, 162 AD2d 390 [1st Dept 1990]). Moreover, jurisdiction may attach "even though the defendant never enters New York, so long as the defendant's [*10]activities here were purposeful and there is a substantial relationship between the transaction and the claim asserted" (Id.). A jurisdictional presence may be established by the assistance of electronic means including telephones, fax machines and e-mail (Fischbarg v Doucet, 38 AD3d 270 [1st Dept 2007]).

The complaint and supporting affidavit sufficiently support the exercise of jurisdiction over defendant Duncan. The pleadings reflect his participation in key meetings in New York relating to ARI's finances and personnel decisions at a time that he allegedly knew the company's books were being manipulated, and after he had allegedly promised to take measures to increase the auditor's "cooperation." Furthermore, plaintiffs have submitted an affidavit from deVogel, filed in connection with another litigation, indicating that Duncan spent the majority of his time working outside of Illinois, at TCR's office in New York and elsewhere, and Duncan maintained an e-mail address with a "tcr-ny.com" suffix. Duncan's alleged activities with respect to the loan in New York support a finding that he transacted business in the state, and the claims asserted in the action clearly arise from the work he performed. Accordingly, jurisdiction over him has been established under CPLR 302(a)(1).

Duncan's objections to jurisdiction are largely besides the point. While his affidavit minimizes his contacts with New York, generally denies knowledge of any misrepresentations or concealment, takes issue with plaintiffs' account of what was discussed at one of the meetings, and disputes the inferences that plaintiffs have drawn from certain e-mails and other documents, on a 3211(a)(7) motion, affidavits which "merely dispute some of the factual allegations of the complaint" cannot serve as the basis for dismissal (Skillgames, LLC v Brody, 1 AD3d 247, 251 [1st Dept 2003]; Tsimerman v Janoff, 40 AD3d 242 [1st Dept 2007]). Duncan has not proffered documentary or other evidence of the sort that "flatly contradicts" plaintiffs' claims (see, Rivietz v Wolohojian, 38 AD3d 301 [1st Dept 2007]) and his contrary testimony merely raises factual issues that must be resolved in favor of plaintiffs for the purposes of this motion.Jurisdiction over Jendrzejewski is similarly warranted. On behalf of ARI, he executed the engagement letter, governed by New York law, to secure Jefferies' services in New York. The retention of a New York agent to engage in loan or other financing activity constitutes the transaction of business in the state and confers jurisdiction upon the nondomiciliary principal (see, Kreutter, supra; Holmes v First Meridian Planning Corp., 155 AD2d 813 [3d Dept 1989]). Furthermore, Jendrezejewski communicated with Chambers in New York, providing financial information to be used in soliciting the financing. Finally, the credit agreement and related loan documents that Jendrzejewski executed contain New York choice of law provisions, a factor relevant to whether the "defendant availed himself of the protection of New York law," or "reasonably foresaw being sued in New York" (Black River Assocs. v Newman, 218 AD2d 273, 279 [4th Dept 1996]; see, CutCo Indus., Inc. v Naughton, 806 F2d 361 [1986]). Accordingly, although Jendrezejewski never physically entered the state, under the totality of the circumstances his efforts to procure the loans through New York intermediaries were substantial enough to constitute the transaction of business. Finally, with respect to both Duncan and Jendrezejewski, the court finds that their transaction of business and other contacts with this state meet the requirements of due process and that compelling them to litigate here would "not offend traditional notions of fair play and substantial justice" (Int'l Shoe Co. v Washington, 326 US 310, 316 [1945]).

Jurisdiction The Quilvest Entities

The three Quilvest Entities — Quilvest S.A., Quilvest American Equity Ltd., and Three [*11]Cities Holdings Limited - originally based their jurisdictional objections upon plaintiffs' attempt to effect service through a subsidiary (Quilvest U.S.A.) and various individuals allegedly authorized to accept process (Elan Schultz, Uhrig and deVogel). Prior to its time to respond to the instant motions, plaintiffs purported to make service under the Hague Convention. Plaintiffs' opposing papers both defended the original service and contended that the issue was moot in view of the later service. In reply, the Quilvest Entities renewed their objections to the original service and alleged that there were various infirmities in plaintiffs' service under the Hague Convention. Plaintiffs then applied for a 120-day extension of time to make a second attempt at service under the Hague Convention, which this court granted by order dated November 21, 2007.

By letter dated December 28, 2007, counsel for plaintiffs advised the court that pursuant to its order service had been effected upon two of the Quilvest Entities — Quilvest American Equity Ltd., and Three Cities Holding Limited. It is not clear at this juncture whether the third entity, Quilvest S.A., has been served, or whether defendants have additional objections to the service on the first two. Further clarification from the parties regarding the current status of service is needed to resolve this issue.

Fraud (Rhone, Quilvest and the Individual Defendants)

The motions to dismiss the claims for fraud are denied. A claim for fraud (or the fraudulent inducement of a contract) must allege "misrepresentation or concealment of a material fact, falsity, scienter by the wrongdoer, justifiable reliance on the deception, and resulting injury" (Zanett Lombardier, Ltd. v Maslow, 29 AD3d 495, 495 [1st Dept 2006]; see, Lama Holding Co. v Smith Barney Inc., 88 NY2d 413 [1996]). Although corporate officers may not be held liable for the mere negligent failure to discover misrepresentations made on the company's behalf, liability will attach if they participate in or have actual knowledge of the fraud (Polonetsky v Better Homes Depot, Inc., 97 NY2d 46 [2001]; People v Apple Health and Sports Clubs, Ltd., Inc., 80 NY2d 803 [1992]; Marine Midland Bank v John E. Russo Produce Co., Inc., 50 NY2d 31 [1980]).

Where fraudulent concealment is alleged, the plaintiff must additionally plead that the defendant had a duty to disclose (Dembeck v 220 Central Park South, LLC, 33 AD3d 491 [1st Dept 2006]). In the context of contractual negotiations where no fiduciary relationship exists between the parties, such a duty may nonetheless arise where the one party has special, superior knowledge not readily available to the other and knows that the other is acting on the basis of mistaken belief (see Donovan v Aeolian, 270 NY 267 [1936]; Williams v Sidley Austin Brown & Wood, L.L.P., 38 AD3d 219 [1st Dept 2007]; see also Jana L. v West 129th Street Realty Corp., 22 AD3d 274 [1st Dept 2005]; P.T. Bank Central Asia, 301 AD2d at 378 [under "special facts" doctrine, "a duty to disclose arises where one party's superior knowledge of essential facts renders a transaction without disclosure inherently unfair"][internal quotations and citations omitted]; Swersky v Dreyer and Traub, 219 AD2d 321 [1st Dept 1996]; Brass v Am. Film Techs., Inc., 987 F2d 142 [2d Cir 1993]). Additionally, a duty to disclose may be triggered where the defendant has communicated a half-truth or made some other misleading partial disclosure (see Williams, 38 AD2d at 220; Computer Possibilities Unlimited, Inc. v Mobil Oil Corp., 301 AD2d 70 [1st Dept 2002]; Junius Constr. Corp. v Cohen, 257 NY 393 [1931]).

Under the liberal pleading standard of CPLR 3211, the complaint sufficiently alleged a claim for the fraudulent inducement of the loan as against the Quilvest, Rhone and individual defendants. The pleadings describe a coordinated, conscious effort by defendants to manipulate [*12]ARI's records and to then mislead plaintiffs regarding the company's financial condition and prospects, and regarding the identity, competence and tenure of its management. The nature of the false information disseminated, defendants' knowledge of its falsity, plaintiffs' reliance and their resulting losses are adequately pled.

While CPLR 3016 requires that a claim alleging fraud must state the circumstances surrounding the allegations in detail (see Jered Contracting Corp. v NYC Transit Auth., 22 NY2d 187 [1968], the requirements of a fraudulent inducement claim are not so stringent as to compel the statement of the details of fraud that are beyond the plaintiff's knowledge (Id. at 194; see Houbigant, Inc. v Deloitte & Touche LLP, 303 AD2d 92 1st Dept 2003]; Lanzi v Brooks, 43 NY2d 778 [1977]). Rather, it "requires only that the misconduct complained of be set forth in sufficient detail to clearly inform a defendant with respect to the incidents complained of and is not to be interpreted so strictly as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting a fraud" (P.T. Bank Central Asia v ABN AMRO Bank N.V., 301 AD2d 373, 377 [1st Dept 2003][internal quotations and citations omitted]; see Kaufman v Cohen, 307 AD2d 113, 120 [1st Dept 2003]["(w)e disagree with the IAS court's holding that plaintiffs' fraud allegations failed to satisfy CPLR 3016(b) because they failed to specify the exact date, time or the precise contents of [defendant's] misrepresentations, nor indicated how they came to rely on [defendant's] statements"]).

The complaint sets forth a wealth of information regarding the interactions between the individual defendants in furtherance of the loan transaction, their communications regarding ARI's finances and their relationships with the various corporate entities. Although defendants criticize the complaint for assigning group liability for the alleged misrepresentations, rather than attributing particular statements to each defendant, that fault is not fatal. A complaint may be sustained even where the case for corporate defendants' knowledge and participation in the alleged fraud is a purely circumstantial one drawn from the inferences arising from their positions and responsibilities at the defendant companies (see Pludeman v Northern Leasing Systems, Inc., 40 AD3d 366, 367-68 [1st Dept 2007]["(a)t this early juncture, according plaintiffs' complaint the most favorable inferences, one can readily deduce, given the corporate positions and titles of the individual defendants, that these individuals actually operate the day-to-day business of the corporate defendant, and consequently were involved in or knew about the alleged fraudulent concealment of most of the lease

. . . [a]t this pre-discovery stage, plaintiffs are understandably unable to further state the details of the individual defendants' personal participation in, or actual knowledge of, the alleged concealment"]; see also Bernstein v Kelso & Co., Inc., 231 AD2d 314 [1st Dept 1997]).

Furthermore, regardless of whether it is possible to attribute direct statements to each and every defendant, the complaint describes the substantial assistance each defendant lent to the common scheme so as to impose shared liability for the communications to plaintiffs under an aiding and abetting theory (see Williams, 38 AD2d at 220; Houbigant, Inc., 303 AD2d at 100 [aiding and abetting claim "merely requires that the defendant affirmatively assisted, concealed, or failed to act when required to do so, in order to enable others' acts of fraud to proceed"). In view of the alleged joint responsibility for the representations, the complaint also states a claim for fraudulent concealment under the theory that defendants had a duty to disclose by reason of their superior knowledge of ARI's financial condition and personnel decisions (see P.T. Bank Central Asia, 301 AD2d at 378 [defendant had duty to disclose knowledge of overstated loan [*13]collateral]; JP Morgan Chase Bank v Winnick, 350 F Supp 2d 393, 396-98 [SDNY 2004][fraudulent concealment claim upheld where borrower's loan application made representations about revenues from certain sales transactions but "omitted the material fact that the transactions in question were shams" that "were entered solely in order to create the appearance of revenue to inflate the (borrower's) Consolidated EBITDA]").

Beyond challenging the elements of the fraud claims, defendants argue that the warranties against false or misleading information in the Credit Agreement relegate plaintiffs to a breach of contract action. However, because "[a] warranty is not a promise of performance, but a statement of present fact . . . a fraud claim can be based on a breach of contractual warranties notwithstanding the existence of a breach of contract claim [First Bank of Americas v Motor Car Funding, Inc., 257 AD2d 287, 292 [1st Dept 1999]; In re CINAR Corp. Securities Litigation, 186 F Supp 2d 279 [EDNY 2002]["(i)t simply cannot be the case that any statement, no matter how false or fraudulent or pivotal, may be absolved of its tortious impact simply by incorporating it verbatim into the language of a contract"]). Defendants' further argument that the fraud claims are defeated by an express "no-reliance" clause in the Credit Agreement is misguided, insofar as the referenced provision purports to insulate only Jefferies, as the lenders' agent, from liability for any errors or misrepresentations in the materials it transmitted.

Negligent Misrepresentation

The motions to dismiss the claims for negligent representation are granted. "A claim for negligent misrepresentation requires the plaintiff to demonstrate (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information (J.A.O. Acquisition Corp. v Stavitsky, 8 NY3d 144, 148 [2007]; see Parrott v Coopers & Lybrand, 95 NY2d 479 [2000]). The failure to plead a fiduciary or similar relationship between the parties is generally fatal to the claim (Rivas v Amerimed USA, Inc., 34 AD3d 250 [1st Dept 2006]) particularly in the context of an arm's-length relationship between a borrower and a lender (Korea First Bank of NY v Noah Enterprises, Ltd., 12 AD3d 321 [1st Dept 2004]; River Glen Assocs., Ltd. v Merrill Lynch Credit, 295 AD2d 274 [1st Dept 2002]; Fab Industries, Inc. v BNY Financial Corp., 252 AD2d 367 [1st Dept 1998]; Banque Nationale de Paris v 1567 Broadway Ownership Assocs., 214 AD2d 359 [1st Dept 1995]). Notwithstanding plaintiffs' demonstration, in the context of their fraudulent concealment claims, that defendants had a duty to speak by virtue of their superior knowledge of certain facts, they have not pled a fiduciary relationship with defendants giving rise to a similar duty (see Goldfine v DeEsso, 309 AD2d 895 [2d Dept 2003][dismissing negligent representation claim for failure to plead fiduciary relationship despite finding duty to disclose by virtue of fraudulent omission]).

PriceWaterHouseCoopers' Motion to Dismiss

PwC's motion to dismiss is granted. Plaintiffs do not assert that the 2003 Audit Report contained any false information regarding ARI's financial condition. Rather, it is undisputed that the report accurately represented that the company was in serious financial straits. Accordingly, regardless of whether the report contained other misrepresentations or violated accounting standards, the complaint does not adequately allege that plaintiffs' losses were proximately caused by the accountant's misconduct or that plaintiffs reasonably relied on the report in making the loans.

A claim for accounting malpractice, negligence or related misconduct "requires proof that there was a departure from accepted standards of practice and that the departure was a [*14]proximate cause of the injury" (D.D. Hamilton Textiles, Inc. v Estate of Mate, 269 AD2d 214 [1st Dept 2000]; Kristina Denise Enterps., Inc. v Arnold, 41 AD3d 788 [2d Dept 2007]). Even where it is established that the defendant departed from generally accepted accounting standards, liability will not attach absent a causal link between the malpractice and the damages (Herbert H. Post & Co. v Sidney Bitterman, Inc., 219 AD2d 214 [1st Dept 1996]). Proximate cause, rather than mere "but for" causation is required (In re Parmalat Securities Litigation, 501 F Supp 2d 560 [SDNY 2007] and the plaintiff must allege that the misconduct was a "substantial factor" in causing the loss (Willberry Corp. v Schwartz, 29 AD3d 899 [2d Dept 2006]).

Misrepresentations unrelated to the financial condition of the company or investment under consideration - such as misrepresentations regarding the competence or independence of the defendant or third party recommended by the defendant — cannot be deemed the proximate cause of a loss even if they had some role in inducing plaintiff's investment (see Willbury Corp., supra; Friedman v Anderson, 23 AD3d 163 [1st Dept 2005]; Laub v Faessel, 297 AD2d 28 [1st Dept 2002]). Thus, mere allegations that the accountant violated some accounting procedure or standard under GAAS will not give rise to an actionable claim, absent some showing of falsity in the underlying financial statements (see, e.g., In re Ramp Corp. Sec. Litig., 2006 WL 2037913, *8 [SDNY 2006]["(w)ithout a material false statement in the company's financial statements, the quality of the audit performed by (the accounting firm) is immaterial"]).

The complaint alleges that PwC committed malpractice, fraud and or/negligence by issuing an audit report containing false and misleading representations. Specifically, it alleges that the 2003 Audit Report (1) falsely asserted that PwC conducted the audit in compliance with applicable professional standards; (2) falsely asserted that PwC conducted the audit in an independent manner; and (3) failed to include a warning that ARI might

not be able to continue as a going concern. In opposing PwC's motion, plaintiffs further assert that the audit report failed to identify subsequent events in 2004 in 2005 which materially affected ARI's financial condition.

None of these allegations state a cognizable claim. There is no dispute that the 2003 Audit Report accurately reflected ARI's financial condition for the year ending December 31, 2003, and that the financial statements were prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). Plaintiffs do not allege that they were in any way misled by the report's representations regarding the company's performance for that particular year. Accordingly, plaintiffs' numerous allegations that PwC gave its imprimatur to the loan transaction while concealing the fact that it has forfeited its independence in violation of AU § 220 and other auditing standards are irrelevant.

With respect to the absence of a "going concern" qualification, plaintiffs have failed to identify a violation of GAAS. Under AU § 341.02, "[t]he auditor has a responsibility to evaluate whether there is substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time, not to exceed one year beyond the date of the financial statements being audited." As the 2003 Audit Report was issued in March 2005, more than a year beyond the date of the relevant ARI financial statements, no going concern warning was required. The failure to include a going concern qualification beyond the mandated period does not constitute an actionable false statement or omission (see Pew v Cardarelli, 2005 WL 3817472, *9 (NDNY 2005, Schick v Ernst & Young, 808 F Supp 1097, 1103 (SDNY 1992);

In re Williams Sec. Litig., 496 F Supp 2d 1195, 1288 (ND Okla 2007]). Plaintiffs' reliance on AU §§ 9341.01-.02 is misplaced, as those sections governs only an auditor's obligation to [*15]eliminate a going-concern explanatory paragraph in response to a request to reissue an original report.

Plaintiffs' allegations regarding the PwC's failure to properly investigate or report subsequent events also fails to state a claim. Although AU § 560.01 requires an auditor to evaluate events and transactions "subsequent to the balance-sheet date but prior to the issuance of the financial statements, that have a material effect on the financial statements and therefore require adjustment or disclosure in the statements," plaintiffs have failed to explain how any entry in the 2003 Audit Report would have been subject to adjustment by PwC's review of ARI's 2004 and 2005 financial data. Although plaintiffs argue that their decision to make the loans would have beenaffected had PwC discovered the various problems with ARI's financial statements for the later years, they do not claim that those problems implicated the accuracy of the 2003 Audit Report or rendered any statement in it false or misleading. The 2003 Report did not purport to make any representation regarding ARI's 2004 and 2005 financials, which plaintiffs reviewed with the full knowledge that they were unaudited.

Finally, for related reasons, the complaint fails to sufficiently plead reliance (see Water St. Leasehold v Deloitte & Touche, 19 AD3d 183 [lst Dept 2005]); LaSalle Nat. Bank v Ernst & Young LLP, 285 AD2d 101 [1st Dept 2001]). As the complaint alleges, the 2003 Audit Report revealed that ARI was in extremely poor financial condition, and plaintiffs had expressly refused to provide financing to the company when they had earlier reviewed the same information. Rather, they relied upon the more favorable, but unaudited, financial statements provided without PwC's involvement.

Accordingly, it is hereby

ORDERED, that the motions to dismiss of defendants Scott Duncan, John Jendrzejewski, Quilvest S.A., Quilvest American Equity Ltd., Three Cities Holdings Limited, Rhone Group L.L.C., Rhone Capital I, L.L.C., Rhone Offshore Partners L.P., Rhone Partners L.P., CCT Loan Acquisition L.L.C., Car Component Technologies Delaware Holdings, LLC, Rhone Capital L.L.C., M. Steven Langman, Robert W. Chambers III, Alexander Dulac, Three Cities Research, Inc., Three Cities Fund II, L.P., Three Cities Offshore II, C.V., Willem F.P. de Vogel, and J. William Uhrig, are granted to the extent of dismissing the second cause of action and are otherwise denied, and it is further

ORDERED, that motion to dismiss the complaint for lack of personal jurisdiction by defendants Quilvest S.A., Quilvest American Equity Ltd. and Three Cities Holding Limited is held in abeyance pending further clarification from the parties regarding the subsequent service of process on those entities, and it is further

ORDERED, that the motion of PricewaterhouseCoopers LLP to dismiss is granted in its entirety, and all causes of action asserted against that defendant are severed and dismissed, and it is further

ORDERED, that the Clerk shall enter judgment accordingly,

and it is further

ORDERED, that the remainder of the action shall continue, and it is further [*16]

ORDERED, that the parties are directed to appear for a preliminary conference on _______, 2008 at 9:30 a.m. in Room 208.

Dated: April 24, 2008

Enter:

________________________

Helen E. Freedman J.S.C.