Key Points

  • The First Department unanimously reinstated conversion claims against JLRE4 LLC, JLRE 13th Street LLC and Shlomo Elia Investments Ltd., and money had and received claims against the two JLRE entities.
  • A $2 million wire remained specifically identifiable for conversion purposes even if it was commingled with other funds in the recipient's account.
  • The recipients' asserted lack of knowledge of the client's right to the money does not defeat a conversion claim, and the complaint in any event alleged that they knew or should have known the money was the client's.
  • Detrimental reliance and the discharge-for-value rule are affirmative defenses that are not grounds for dismissal at the pleading stage, and the former employee who made the transfer, as a joint tortfeasor, is not a necessary party.
  • Dismissal of the claims against the individual defendants, Jonathan Leifer and Shlomo Elia, was affirmed because the bank abandoned its appeal as to them.

A New York appeals court on Oct. 27 revived a Swiss bank's lawsuit to recover $2 million that a former employee allegedly took from a client's account without permission and wired to a company that used it to buy property in New York. The court held that the recipients' claim that they did not know the money belonged to the client was no reason to dismiss the case.

The Appellate Division, First Department, unanimously reinstated claims for conversion against three companies: JLRE4 LLC, JLRE 13th Street LLC and Shlomo Elia Investments Ltd., known as SEI. The panel of Justices Webber, Kapnick, Shulman, Pitt-Burke and Hagler also restored a claim for money had and received against the two JLRE companies.

The unsigned decision modified an order by Justice Jennifer G. Schecter of State Supreme Court in Manhattan, entered in October 2025, that had dismissed the claims. The ruling lets Hyposwiss Private Bank Genève SA, suing on behalf of its client Kadima Assets Limited, pursue the companies that received the money. The panel also held that defenses such as detrimental reliance cannot end the case at the pleading stage.

According to the decision, Abraham Amos Lugassy, a former Hyposwiss employee, began misappropriating clients' funds in the late 2000s. During Swiss criminal proceedings in 2024, the court wrote, Lugassy admitted to making fraudulent transfers, including the one at issue in the suit.

The complaint alleges that in April 2022, Shlomo Elia, acting for SEI, asked Lugassy to send $2 million from SEI's account to a Signature Bank account owned by JLRE4. Elia attached an agreement under which SEI would pay JLRE4 that sum in exchange for a percentage interest in real property in New York.

SEI's account allegedly did not hold enough money. Lugassy then opened a sub-account for Kadima, without Kadima's knowledge or consent, and wired $2 million of Kadima's funds to JLRE4, according to the complaint. A wire confirmation naming Kadima as the "Ordering Client" went to Ronen Shviki, Elia's son-in-law, whom the complaint describes as someone "who works with and/or does work for . . . SEI."

The bank also alleges that JLRE4's own Signature Bank records would identify Kadima as the counterparty to the transfer. JLRE4 then used the money to buy the property through JLRE 13th Street, the complaint alleges, and SEI and the JLRE companies received a share of the revenue the property generated.

The panel found that the complaint adequately alleged that Kadima had a possessory right to money wired from its own sub-account. The JLRE companies exercised control over the money by receiving it and buying the property, the court said, and SEI did so by using it to invest in the property.

Quoting its own 2022 precedent, the court found the funds specifically identifiable because they "constitute a specific sum . . . that is determinate, and reflects an ascertained amount." The panel said it did not matter that the $2 million would have been mixed with other JLRE money in the company's account, because the "limited transfer[]" of the sum "did not render the funds at issue no longer specifically identifiable."

"Defendants' asserted lack of knowledge of Kadima's right to the $2 million does not defeat the conversion claim," the panel held. "In any event, the complaint alleges that the corporate entity defendants knew or should have known that the money was Kadima's," the court added. It also found adequate the bank's allegation that demanding the money back before suing would have been futile.

On the money had and received claim, the court held that the complaint sufficiently alleged that the JLRE companies "received" and "benefitted from" Kadima's money. The companies had argued that equity and good conscience allowed them to keep it. The panel called those assertions "insufficient to warrant dismissal at the pleading stage given the allegations that they had notice that the funds came from Kadima rather than SEI." The court also observed that "the complaint does not allege that SEI was also a victim of Lugassy's fraud."

The companies also argued that they had relied on the transfer to their detriment, and they invoked the discharge-for-value rule. The panel classified both as affirmative defenses and held that they are "not grounds for dismissal at the pleading stage."

The court also refused to dismiss the suit because Lugassy was not named as a defendant. Citing CPLR 1001(a), the panel held that "a plaintiff is free to choose [its] defendants" among multiple wrongdoers and that "joint tortfeasors are not necessary parties to an action."

The dismissal of claims against two individuals, Jonathan Leifer and Shlomo Elia, stands. The panel held that the bank abandoned its appeal as to them by failing to raise any arguments about their individual liability in either of its appellate briefs.

The panel held, however, that the bank had not abandoned its claim against SEI by failing to argue personal jurisdiction in its opening brief. Justice Schecter had said at oral argument that there were "issues" concerning personal jurisdiction over SEI. That remark "did not amount to a holding on that ground, as the court's rationale for dismissal was that the complaint failed to state a claim on the merits," the panel wrote.

Lawyers for Hyposwiss included David Cooper of Quinn Emanuel Urquhart & Sullivan; the defendants were represented by Adam J. Stein of Stein Adler Dabah & Zelkowitz.

The case returns to State Supreme Court in Manhattan with the conversion claims against JLRE4, JLRE 13th Street and SEI restored, along with the money had and received claims against the two JLRE companies.