Citation Codes Equivalent Citations citation codes Docket Number Index No. 655678/24|Appeal No. 7271 M-332|Case No. 2025-03696| See more information ... Smart Summary Please sign up to generate summary. OPINION ORIGINAL PDF To access the original judgment, please Sign In or Subscribe. Brigade Cavalry Fund Ltd. v. Chirico Brigade Cavalry Fund Ltd. v Chirico 2026 NY Slip Op 06382 October 29, 2026 Appellate Division, First Department Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This decision is uncorrected and subject to revision before publication in the Official Reports. Brigade Cavalry Fund Ltd., et al., Plaintiffs-Respondents, v James M. Chirico, Jr., et al., Defendants-Appellants. Decided and Entered: October 29, 2026 Index No. 655678/24|Appeal No. 7271 M-332|Case No. 2025-03696| Before: Manzanet-Daniels, J.P., Shulman, Rodriguez, Higgitt, Rosado, JJ. Izower Lefton, LLP, Garden City (Ronald D. Lefton of counsel), for James M. Chirico, Jr., appellant. Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., New York (Reid M. Figel of counsel), for Kieran J. McGrath, appellant. Debevoise & Plimpton LLP, New York (Maeve O'Connor of counsel), for respondent. [*1] Order, Supreme Court, New York County (Melissa A. Crane, J.), entered on or about May 28, 2025, which, to the extent appealed from, denied defendants' motions to dismiss the complaint pursuant to CPLR 3211(a)(7), unanimously modified, on the law, to dismiss the fraud claims and so much of the claim based on the North Carolina Securities Act (NCSA) to the extent the statutory claim is based on defendants' financial projections, and otherwise affirmed, without costs. So much of the fraud claim as is based on financial projections is dismissed for lack of justifiable reliance, specifically the failure to perform adequate due diligence (see Rapaport v Strategic Fin. Solutions, LLC, 190 AD3d 657, 657-658 [1st Dept 20201]; Unique Goals Intl., Ltd. v Finskiy, 178 AD3d 626, 627 [1st Dept 2019]). Nonparty Brigade Capital Management, LP (Brigade), plaintiffs' investment manager, appears to have limited its due diligence to reviewing the financial statements of nonparties Avaya Inc. and Avaya Holdings Corp. (together, Avaya) and other publicly available materials and participating in calls with defendant McGrath, Avaya's chief financial officer. Under the operative investment agreement, Brigade could have requested non-publicly available materials to evaluate the strength of Avaya's business and the accuracy of its financial statements and guidance. However, Brigade did not allege that it availed itself of that contractual right or otherwise engaged in due diligence adequate for an actor of Brigade's sophistication. Plaintiffs' claim that the depth and breadth of their due diligence will come to light during discovery is unavailing because they do not need discovery to gather facts as to their own due diligence (see HSH Nordbank AG v UBS AG, 95 AD3d 185, 197 n 8 [1st Dept 2012]). Brigade was not required to investigate Avaya's solvency because it was entitled to rely on the officer's solvency certificate issued by McGrath (see DDJ Mgt., LLC v Rhone Group L.L.C., 15 NY3d 147, 154 [2010] ["W]here a plaintiff has gone to the trouble to insist on a written representation that certain facts are true, it will often be justified in accepting that representation rather than making its own inquiry"]). However, so much of the fraud claim as is based on the officer's certificate fails for lack of sufficient allegations regarding scienter. [*2] A "plaintiff is . . . required to allege facts from which it is possible to infer defendants' knowledge of the falsity of their statements when they were made" (Cimen v HQ Capital Real Estate LP, 227 AD3d 587, 588 [1st Dept 2024] [internal quotation marks omitted]). Neither plaintiffs' allegation that on June 23, 2022, an Avaya executive wrote to its general counsel that "our understanding is that [an] assessment of goodwill and trade names for potential impairment is in- process and no conclusions have been reached at this time" nor the allegation that it issued a press release on June 28, 2022 estimating large non-cash impairment charges shows that McGrath knew on July 12 that his statement about Avaya's solvency was false. First, there is nothing untoward about the assessment for potential impairment, which, according to Avaya's filings with the Securities and Exchange Commission, occurred every year. Second, the executive who made the first statement was not writing to McGrath. Finally, the executive qualified the statement by writing that "no conclusions have been reached at this time." That Avaya subsequently announced that the impairment would be so large as to render the company insolvent as of the date of the certificate does not mean McGrath knew on July 12 that Avaya was insolvent (see e.g. MP Cool Invs. Ltd. v Forkosh, 142 AD3d 286, 292 [1st Dept 2016], lv denied 28 NY3d 911 [2016]). To the extent plaintiffs claim that defendants can be liable for reckless disregard as to the truth of their statements when made, such a theory is not available against a non-auditor defendant (see Cimen, 227 AD3d at 587- 588). 1 Plaintiffs' attempt to tie Chirico to the certificate fails because its allegation that he "would . . . have been aware of and approved this certification" was made on "information and belief [which] is insufficient to state a fraud claim" as to Chirico (Cimen, 227 AD3d at 588 [ellipsis, internal quotation marks and brackets omitted]). The motion court correctly found that section 6.9 of the Investment Agreement does not bar plaintiffs' NCSA claim. That section provides that "[a]ll issues and questions . . . concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits hereto will be governed by" New York law. However, the NCSA claim does not concern the construction, validity, enforcement, or interpretation of the Investment Agreement or the exhibit thereto (see Twinlab Corp. v Paulson, 2000 WL 35534990 [Sup Ct, Suffolk County, May 23, 2000, No. 026050/1999], affd 283 AD2d 570 [2d Dept 2001]). Even if Avaya had sold notes to Brigade pursuant to an entirely different contract, defendants could still be liable under the NCSA for their oral representations and omissions. [*3] On the merits, so much of the claim under NCSA § 78A-56(a)(2) claim as is based on financial projections (as opposed to the officer's certificate) is dismissed. That section of the NCSA is based on section 12(2) of the federal Securities Act of 1933 (see Piazza v Kirkbride, 372 NC 137, 165 [2019]). Thus, federal cases are "persuasive authority" when interpreting the NCSA (see Piazza v Kirkbride, 246 NC App 576, 595 [2016], mod on other grounds 372 NC at 148). " [P]rojections of future performance not worded as guarantees are generally not actionable under the federal securities laws" (Skoog v Harbert Private Equity Fund, II, LLC, 2013 NCBC 17 ¶ 17, 2013 WL 1223396, *10, 2013 NCBC LEXIS 16, *43 [NC Business Ct, March 25, 2013, No. 12 CVS 406] [internal quotation marks omitted]). Additionally, plaintiffs did "not allege that [they] w[ere] denied the opportunity to investigate or that [they] could not have learned the true facts [relating to the financial projections] by exercise of reasonable diligence" (Hale v MacLeod, 294 NC App 318, 342 [2024], review allowed in part, denied in part 389 NC 662 [2026] [internal quotation marks omitted]). Our finding on this point applies to both defendants, because, even though Chirico limited his arguments in his opening brief to whether the NCSA claim was precluded by the Investment Agreement, plaintiffs had the opportunity to address the substantive issue of Avaya's financial projections since McGrath did raise that point in his opening brief. Thus, they are not prejudiced by Chirico's addressing the point for the first time in his reply brief. However, McGrath's argument about primary and secondary liability does not permit Chirico to argue, for the first time in his reply brief on appeal, that plaintiffs cannot sue him for secondary liability without suing Avaya for primary liability (see e.g. Simon v FrancInvest, S.A., 192 AD3d 565, 569 [1st Dept 2021] ["An argument raised for the first time in reply â when the other party has no chance to respond â should not be considered"], appeal dismissed 37 NY3d 1005 [2021]). "[I]n such circumstances an order to strike is the proper remedy" (State Farm Fire & Cas. Co. v LiMauro, 103 AD2d 514, 521-522 [1st Dept 1984], affd 65 NY2d 369 [1985]). [*4] McGrath is potentially liable under the NCSA for his own statements (see NNN Durham Office Portfolio 1, LLC v Highwoods Realty Ltd. Partnership, 2013 NCBC 12 ¶65, 2013 WL 625065, *14, 2013 NCBC LEXIS 11, *36-37 [Feb. 19, 2013, No. 12 CVS 3945], affd 261 NC App 185 [2018]), and plaintiffs have adequately pled that McGrath's statements were untrue. To the extent that McGrath contends that plaintiffs failed to plead secondary liability under section 78A- 56(c) because they failed to state a claim for primary liability under subsection (a)(2) as to him, he did not argue that plaintiffs utterly failed to state a primary liability claim; rather, he argued that the primary liability claim should have been dismissed to the extent that it was based on Avaya's financial projections. Thus, sub silentio, he conceded that there were parts of the primary liability claim that were not dismissible. M-332 â Brigade Cavalry Fund Ltd. v James M. Chirico Motion to strike part of Chirico's reply brief granted to the extent of striking arguments that were not made in McGrath's opening brief and arguments that do not directly respond to the arguments made in plaintiffs' opposition to the appeals. THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT. ENTERED: October 29, 2026 2