Key Points

  • The Appellate Division, Second Department, affirmed, with costs, the Westchester County Supreme Court's Sept. 17, 2024 order dismissing the complaint against PepsiCo under CPLR 3211(a).
  • The court held that substantial assistance, an element of aiding-and-abetting claims, requires an affirmative act, and that inaction qualifies only where the defendant owes a fiduciary duty directly to the plaintiff.
  • Erkman's allegations that PepsiCo refused to stop invoicing through a company controlled by the Sipahioglu defendants after being told of the scheme in 2011 failed to plead substantial assistance for either the fiduciary-duty or fraud aiding-and-abetting claim.
  • Conclusory allegations of actual knowledge, combined with allegations sufficient against the principal wrongdoers, do not by themselves establish substantial assistance.
  • The claims against the individual Sipahioglu defendants were not at issue on the appeal.

A New York appeals court on Oct. 7 upheld the dismissal of claims that PepsiCo Inc. helped two shareholders of a company called Ektam Kibris Ltd. pocket money through inflated invoices, ruling that the complaint did not show PepsiCo did anything that amounted to the "substantial assistance" required for an aiding-and-abetting claim.

A four-justice panel of the Appellate Division, Second Department, affirmed a Westchester County trial court's order dismissing the case against PepsiCo and awarded the company costs. The unsigned decision and order, in which Justices Colleen D. Duffy, Linda Christopher, Carl J. Landicino and Susan Quirk concurred, rejected an appeal by Erkman International Co. Ltd., a shareholder of Ektam.

The panel held that substantial assistance "requires an affirmative act on the defendant's part," and that "mere inaction can constitute substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff." Erkman's central theory was that PepsiCo kept invoicing through a company tied to the alleged schemers after it was told about the scheme, and the court found that theory insufficient to keep PepsiCo in the case.

Erkman sued both on its own behalf and derivatively, meaning on behalf of Ektam itself. Its complaint named PepsiCo and two individual defendants, Mehmet Melih Sipahioglu and Gungor Sipahioglu, whom the court referred to together as the Sipahioglu defendants. Erkman alleged that it and the Sipahioglu defendants were shareholders of Ektam and that the Sipahioglus "designed and carried out a fraudulent invoicing scheme that was facilitated by PepsiCo."

According to the complaint as summarized by the court, PepsiCo entered into a noncompete agreement beginning in 2002 with a company "surreptitiously owned and operated by the Sipahioglu defendants." Erkman alleged that the Sipahioglus inflated invoices that PepsiCo issued to Ektam through that intermediary company and kept the excess profits "unbeknownst to the minority shareholders of Ektam."

Erkman further alleged that when it discovered the scheme in 2011, it told PepsiCo. The complaint asserted that PepsiCo's refusal to stop invoicing through the Sipahioglu defendants' company amounted to aiding and abetting both their alleged fraud and their alleged breach of fiduciary duty to Erkman.

The complaint sought damages for fraud and breach of fiduciary duty against the Sipahioglu defendants and for aiding and abetting those wrongs against PepsiCo. PepsiCo moved to dismiss the claims against it under CPLR 3211(a), and Erkman opposed the motion. Justice Linda S. Jamieson of the Supreme Court in Westchester County granted the motion in an order dated Sept. 17, 2024, and Erkman appealed.

The panel began with the standard for such motions, under which a court must give the pleading a liberal construction, accept the complaint's allegations as true, "accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory."

Turning to the fiduciary-duty claim, the court said, "contrary to the plaintiff's contention," that the trial court properly dismissed it. A plaintiff asserting aiding and abetting a breach of fiduciary duty must allege, with particularity, both that the alleged aider knew of the misconduct and that it gave substantial assistance in carrying it out, the court wrote. It added that those elements must be pleaded with the specificity required by CPLR 3016(b).

Citing earlier decisions in Plymouth Capital, LLC v. Montage Fin. Group, Inc. and Baron v. Galasso, the panel set out the affirmative-act rule and its fiduciary-duty exception. It then concluded that Erkman "failed to sufficiently allege facts to show that PepsiCo provided substantial assistance to the Sipahioglu defendants with respect to their alleged breach of fiduciary duty to the plaintiff." The decision did not separately discuss whether PepsiCo owed any duty to Erkman.

The aiding-and-abetting fraud claim failed for similar reasons. Such a claim requires an underlying fraud, the aider's knowledge of it and substantial assistance in achieving it, the court said, again citing the affirmative-act requirement. The panel also invoked a rule from Matter of Woodson that "Conclusory allegations that the aider and abettor had actual knowledge of fraud, together with allegations that would be sufficient to state a claim against the principal participants in the fraud, are insufficient, without more, to establish substantial assistance."

Applying that rule, the court held that "the facts as alleged in the complaint are insufficient to show that PepsiCo substantially assisted the Sipahioglu defendants in the achievement of the alleged fraud." The decision did not describe in further detail which of Erkman's allegations fell short or why.

The panel disposed of the rest of the appeal in a single sentence, writing that "The parties' remaining contentions either need not be reached in light of our determination or are without merit." The decision did not identify those remaining arguments.

Lawyers for Erkman included Alexander D. Pencu of Meister Selig & Fein PLLC. PepsiCo was represented by Susan E. Galvao and Stephen J. Brown of Bleakley Platt & Schmidt, LLP.

The appeal concerned only the claims against PepsiCo; the trial court's order granted PepsiCo's motion to dismiss the complaint "insofar as asserted against it," and the claims against the Sipahioglu defendants were not before the panel. The decision, reported as 2026 NY Slip Op 05768, is uncorrected and subject to revision before publication in the Official Reports.