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WITH RESPECT TO A RESIDENTIAL COOPERATIVE, INDIVIDUAL MEMBERS OF THE BOARD OF DIRECTORS CAN BE SUED BY A SHAREHOLDER FOR BREACH OF A FIDUCIARY DUTY, BUT THE BOARD OF DIRECTORS IS NOT AMENABLE TO SUIT APART FROM A SUIT AGAINST THE CORPORATION (FIRST DEPT).

The First Department, reversing Supreme Court, in a full-fledged opinion by Justice Scarpulla, determined the board of directors of a residential cooperative is not amenable to a lawsuit separate and apart from a suit against the cooperative. Here plaintiff shareholder sued the board of directors for breach of fiduciary duty after the dismissal of a similar suit against the directors individually:

New York trial courts have explicitly held that a board of directors is not an entity that may be sued separately from the corporation … . * * *

Applying the Business Corporation Law … , the residential cooperative board of defendant … is not an entity with the capacity to sue and be sued separate and apart from the corporation on whose behalf it acts. * * *

While a shareholder cannot assert allegations of breach of fiduciary duty against a board of directors, a shareholder may assert the claim against the individual directors … . Here, plaintiff originally brought breach of fiduciary duty causes of action against fourteen of the individual board members and the corporation … . Those causes of action were largely dismissed, and plaintiff may not simply replace those parties with “the board” to revive those now dismissed claims. Tahari v 860 Fifth Ave. Corp., 2025 NY Slip Op 05584, First Dept 10-8-25

Practice Point: This opinion clarifies the law. The board of directors of a corporation is not amenable to suit for breach of a fiduciary duty separate and apart from a suit against the corporation. However, individual members of the board of directors may be sued for breach of a fiduciary duty.

 

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THE STATUTE OF LIMITATIONS FOR BREACH OF FIDUCIARY DUTY BEGINS TO RUN WHEN THERE HAS BEEN AN OPEN REPUDIATION OF FIDUCIARY OBLIGATIONS; HERE THERE HAS NOT BEEN SUCH AN OPEN REPUDIATION; THE STATUTE NEVER BEGAN TO RUN AND THE MOTION TO DISMISS THE SHAREHOLDER DERIVATIVE ACTION AS UNTIMELY SHOULD NOT HAVE BEEN GRANTED (THIRD DEPT).

The Third Department, reversing Supreme Court, determined that this shareholder derivative action, which alleged breach of fiduciary duty, should not have been dismissed as time barred. Open repudiation of the the fiduciary obligation, which triggers the running of the statute of limitations, never occurred:

To dismiss a cause of action pursuant to CPLR 3211 (a) (5) on the ground that it is barred by the applicable statute of limitations, a defendant bears the initial burden of demonstrating, prima facie, that the time within which to commence the action has expired” … . “[C]laims alleging a breach of fiduciary duty do not accrue until there is either an open repudiation of the fiduciary obligation or a judicial settlement of the account” … . This is so because, “absent either repudiation or removal, the aggrieved part[y] [is] entitled to assume that the fiduciary would perform his or her fiduciary responsibilities” … . “The party asserting the statute of limitations defense bears the burden of proof on the issue” … . “Open repudiation requires proof of a repudiation by the fiduciary which is clear and made known to the beneficiaries” … . “Where there is any doubt on the record as to the conclusive applicability of a [s]tatute of [l]imitations defense, the motion to dismiss the proceeding should be denied, and the proceeding should go forward” … .

Here, defendants did not proffer, or even assert, that they have openly repudiated their obligations as fiduciaries or that the relationship has otherwise terminated. Lambos v Karabinis, 2025 NY Slip Op 03367, Third Dept 6-5-25

Practice Point: Here there was never an open repudiation of fiduciary obligations so the statute of limitations on the breach-of-fiduciary-duty cause of action never began to run.

 

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PURSUANT TO THE “INTERNAL AFFAIRS” DOCTRINE, PLAINTIFF, A NEW YORK CORPORATION AND BENEFICIAL OWNER OF SHARES IN BARCLAYS, AN ENGLISH CORPORATION, DID NOT HAVE STANDING TO BRING A DERIVATIVE SUIT ON BEHALF OF BARCLAYS AGAINST OFFICERS AND MANAGERS OF A NEW YORK AFFILIATE OF BARCLAYS IN NEW YORK (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Cannataro, over a comprehensive dissenting opinion, determined that the Business Corporation Law (BCL)  (sections 626(a) and 1319(a)(2)) has not displaced the “internal affairs” doctrine, a choice-of-law rule providing that the substantive law of the place of incorporation governs disputes about the rights and relationships of corporate shareholders and managers. The Court of Appeals affirmed the lower courts’ rulings that plaintiff, a New York corporation and a beneficial owner of shares in England-based Barclays, did not have standing to sue, on behalf of Barclays, directors and officers of Barclays New York-based affiliate in New York:

The corporation at the center of this appeal is Barclays PLC (Barclays), a bank holding company incorporated under the laws of England and Wales and headquartered in London. Plaintiff Ezrasons, Inc. is a New York corporation and a beneficial owner of Barclays shares. In 2021, plaintiff commenced this action on behalf of Barclays against almost four-dozen current and former Barclays directors and officers and a New York-based affiliate, Barclays Capital Inc. (BCI). The complaint alleged that the individual defendants, aided and abetted by BCI, breached fiduciary duties owed to Barclays under English law, causing significant injuries to the company. * * *

Supreme Court granted defendants’ motion to dismiss the complaint, explaining that under the internal affairs doctrine, foreign law governs the question of whether a plaintiff has the right to sue corporate management on behalf of a foreign corporation. The court rejected plaintiff’s argument that the legislature intended to override that choice-of-law rule when it enacted sections 626 (a) and 1319 (a) (2) of the BCL, agreeing with four decades of case law holding that those provisions “simply confer[] jurisdiction upon New York courts over derivative suits on behalf of out-of-state corporations, but do[ ] not require application of New York law in such suits” … .

The Appellate Division unanimously affirmed, agreeing with Supreme Court that plaintiff lacks standing to pursue this shareholder derivative action on behalf of Barclays … . … [T]he Appellate Division rejected plaintiff’s argument that sections 626 (a) and 1319 (a) (2) displace the internal affairs doctrine and preclude application of English standing law … . Ezrasons, Inc. v Rudd, 2025 NY Slip Op 03008, CtApp 5-20-25

Practice Point: Business Corporation Law sections 626(a) and 1319(a)(2) do not displace the “internal affairs” doctrine which provides that the substantive law of the place of incorporation (England in this case) governs disputes about the rights and relationships of corporate shareholders and managers. Here a New York corporation which holds shares of an English corporation could not sue the officers and managers of a New York affiliate of the English corporation in New York.​

 

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THE ALLEGATION A PLASTIC SURGEON POSTED BEFORE AND AFTER PHOTOGRAPHS OF PLAINTIFF WITHOUT PERMISSION STATED A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY (THIRD DEPT).

The Third Department, reversing Supreme Court, in a full-fledged opinion by Justice Egan, determined plaintiff stated causes of action for both a violation of privacy pursuant to the Civil Rights Law, and breach of a fiduciary duty. Plaintiff alleged defendant plastic surgeon posted before and after photographs of the plaintiff without her consent. The breach of a fiduciary duty claim did not duplicate the violation of privacy claim. Physicians have a fiduciary duty not to disclose a patient’s medical records without authorization:

Plaintiff instead alleges that defendants all had a physician-patient relationship with her and that they breached a distinct duty arising out of that relationship by publicly disclosing photographs of her that had been taken in the course of treatment without her agreement … . “It is well established that a patient may maintain a cause of action for breach of fiduciary duty against his or her physician resulting from the physician’s unauthorized disclosure of the patient’s medical records,” broadly defined as essentially any information acquired by the physician that relates to the patient’s diagnosis or treatment, as such disclosure violates “the implied covenant of trust and confidence that is inherent in the physician patient relationship” … . A claim for breach of fiduciary duty, based as it is upon the well-established duty a physician owes to his or her patient as opposed to a purported right of privacy, may be viable where claims based upon a generalized invasion of privacy are not … . Perry v Rockmore, 2025 NY Slip Op 01141, Third Dept 2-27-25

Practice Point: Here the allegation defendant plastic surgeon posted before and after photographs of plaintiff stated distinct causes of action for a violation of privacy pursuant to the Civil Rights Law, and breach of fiduciary duty (unauthorized disclosure of medical records).

 

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WHERE THE ONLY RELIEF SOUGHT FOR BREACH OF FIDUCIARY DUTY IS MONEY DAMAGES, THE STATUTE OF LIMITATIONS IS THREE YEARS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the “breach of fiduciary duty” cause of action was subject to a three-year, not a six-year, statute of limitations and was time-barred:

“‘New York law does not provide a single statute of limitations for breach of fiduciary duty claims'” … . Rather, “[t]he statute of limitations for a cause of action sounding in breach of fiduciary duty is dependent on the relief sought” … . Generally, “[a] cause of action [alleging] breach of fiduciary duty is governed by a six-year statute of limitations where the relief sought is equitable in nature (see CPLR 213[1]), or by a three-year statute of limitations where the only relief sought is money damages (see CPLR 214[4])” … . “Moreover, where an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8)” … . “The statute of limitations for a cause of action alleging a breach of fiduciary duty does not begin to run until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated” … . Berejka v Huntington Med. Group, P.C., 2025 NY Slip Op 00942, Second Dept 2-19-25

Practice Point: Where the relief sought for breach of fiduciary duty is equitable, or where fraud is an essential element, the applicable statute of limitations is six years. Where the only relief sought is money damages, the applicable statute of limitations in three years.

 

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HERE AN ATTORNEY AND A CONTRACTOR WERE BUSINESS PARTNERS FOR YEARS AND RELIED ON EACH OTHER’S UNIQUE EXPERTISE; THERE WAS A QUESTION OF FACT WHETHER THE ATTORNEY BREACHED A FIDUCIARY DUTY BY TRANSFORMING THE PARTNERSHIP TO AN LLC WITHOUT INFORMING HIS FORMER PARTNER HE COULD NOT UNILATERALLY WITHDRAW FROM THE LLC; HERE THE CRITERIA FOR A STATUTORY DISSOLUTION OF THE LLC WERE MET (THIRD DEPT). ​

The Third Department, reversing (modifying) Supreme Court, determined there were questions of fact whether defendant attorney, Mazza, breached his fiduciary duty owned to plaintiff when forming a Limited Liability Company (LLC), and further determined that the cause of action seeking a statutory dissolution of the LLC should have been granted. Defendant Mazza and plaintiff were partners in a successful business for many years. It was alleged that when the partnership was transformed to an LLC by Mazza, Mazza did not inform plaintiff he could not unilaterally withdraw from of dissolve the LLC:

There is no dispute that a fiduciary relationship existed between plaintiff and Mazza before the LLC was formed. The record indeed reflects that plaintiff trusted Mazza, an attorney, to act on his behalf in executive matters related to the partners’ real estate business, and that Mazza resultingly acquired influence over plaintiff … . The close relationship between the two men, which spanned more than three decades and included Mazza’s prior representation of plaintiff, supports this conclusion. And although plaintiff was a skilled and seemingly successful contractor, he admittedly had no knowledge of the legal (and practical) implications of converting a partnership to an LLC and accordingly relied on Mazza’s expertise in that area. * * *

Limited Liability Company Law § 702 provides that “the supreme court . . . may decree dissolution of a limited liability company whenever it is not reasonably practicable to carry on the business in conformity with the articles of organization or operating agreement.” Although an alleged “deadlock” between the members of a limited liability company will not necessarily render it impracticable for the company to carry on its business … , upon careful review of the record we find that it does in the case at bar. Amici v Mazza, 2025 NY Slip Op 00259, Third Dept 1-16-25

Practice Point: Consult this decision for a detailed discussion the criteria for a fiduciary duty owed by one party to another in a business relationship.

Practice Point: Consult this decision for a discussion of the criteria for a statutory dissolution of an LLC.

 

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HERE ALLEGATIONS OF FRAUD WERE ESSENTIAL TO THE BREACH OF FIDUCIARY DUTY CAUSE OF ACTION; THEREFORE THE SIX-YEAR STATUTE OF LIMITATIONS FOR FRAUD APPLIED AND THE CAUSE OF ACTION WAS TIME-BARRED (SECOND DEPT). ​

The Second Department, reversing (modifying) Supreme Court, determined the six-year statute of limitations for fraud controlled the breach of a fiduciary duty cause of action (which was therefore time-barred):

… [T]he six-year statute of limitations governing actions based on fraud applies (see CPLR 213[8]). “‘[W]here an allegation of fraud is essential to a breach of fiduciary duty claim, courts have applied a six-year statute of limitations under CPLR 213(8)'” … . Here, the defendants alleged that Hollander was part owner of a limited liability company that competed directly with the defendants, that Hollander failed to disclose that alleged conflict, and that Hollander used confidential information obtained from the defendants to directly compete with them. The plaintiffs allegedly denied GFR and Friedman Group, LLC, the opportunity to purchase at least four specific properties and used trade secrets to compete with GFR and Friedman Group, LLC, on at least three specific properties. The allegations of fraud are thus essential to the breach of fiduciary duty counterclaim, and the six-year statute of limitations applies. South Shore Estates, Inc. v Guy Friedman Realty Corp., 2024 NY Slip Op 04156, Second Dept 8-7-24

Practice Point: Where allegations of fraud are essential to a breach of fiduciary duty cause of action, the six-year statute of limitations for fraud applies.

 

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DISPUTES INVOLVING THE INTERNAL AFFAIRS OF FOREIGN CORPORATIONS ARE RESOLVED UNDER THE LAW OF THE PLACE OF INCORPORATION (SCOTS LAW HERE); COURTS CAN TAKE JUDICIAL NOTICE OF THE FOREIGN LAW; HERE PLAINTIFFS STATED A CAUSE OF ACTION FOR BREACH OF FIDUCIARY DUTY UNDER SCOTS LAW (CT APP).

The Court of Appeals, reversing the Appellate Division, in a full-fledged opinion by Judge Singas, determined (1) in international business disputes involving the internal affairs of foreign corporations, the law of the place of incorporation (Scots law here) applies; (2) the court can take judicial of the foreign law; and (3) plaintiffs stated a cause of action for breach of fiduciary duty under Scots law:

Consistent with our precedent, we clarify that the substantive law of a company’s place of incorporation presumptively applies to causes of action arising from its internal affairs. Moreover, because of the important interests that the internal affairs doctrine represents, we decline to create any broad exceptions to that presumption. Rather, in order to overcome this presumption and establish the applicability of New York law, a party must demonstrate both that (1) the interest of the place of incorporation is minimal—i.e., that the company has virtually no contact with the place of incorporation other than the fact of its incorporation, and (2) New York has a dominant interest in applying its own substantive law … . * * *

CPLR 4511 gives courts “substantial flexibility in determining whether to take judicial notice of foreign law and ascertaining its content” … . As the statutory language notes, a court must take judicial notice of foreign law upon request and if the court is furnished with sufficient information to do so; otherwise, a court may take judicial notice of foreign law in its discretion … . * * *

Plaintiffs’ allegations—viewed in their most favorable light and according them every possible favorable inference—are sufficient to state a claim that the director defendants at least owed limited fiduciary duties to plaintiffs. Eccles v Shamrock Capital Advisors, LLC, 2024 NY Slip Op 02841, CtApp 5-23-24

Practice Point: Disputes involving the internal affairs of foreign corporation are resolved under the law of the place of incorporation (Scots law here).

Practice Point: Courts can take judicial notice of foreign law.

Practice Point: Here plaintiffs stated a cause of action for breach of fiduciary duty under Scots law.

 

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THE COMPLAINT STATED CAUSES OF ACTION AGAINST AN ACCOUNTING FIRM FOR MALPRACTICE, FRAUD AND AIDING AND ABETTING BREACH OF A FIDUCIARY DUTY; BOTH MOTHER AND SON ARE OWNERS OF A RESTAURANT; IT WAS ALLEGED THE SON’S TAKING A LARGE SALARY AND RECEIVING MILLIONS IN LOANS AGAINST THE BUSINESS WERE DOCUMENTED BY THE ACCOUNTING FIRM BUT NOT DISCLOSED TO MOTHER (FIRST DEPT). ​

The First Department, in a full-fledged opinion by Justice Renwick, determined the malpractice, fraud and breach of fiduciary duty causes of action against defendant accounting firm should not have been dismissed. Both plaintiff Ellen and her son Kenneth are owners of a restaurant. The complaint alleged Kenneth was looting the restaurant by taking a large salary and talking out loans against the business without Ellen’s knowledge. It was alleged defendant accounting firm had a duty to inform Ellen of Kenneth’s financial dealings but did not. The accounting firm argued there was no duty-breach and no fraud because all of Kenneth’s financial activities were documented in the accountant’s records and in the business tax returns. The First Department simply held the complaint stated causes of action for accountant malpractice, fraud and aiding an abetting a breach of fiduciary duty:

Plaintiffs’ claims … are not that defendant was hired to discover Kenneth’s wrongdoing, but rather that information obtained by defendant during its business interactions with Kenneth and information used by defendant in order to prepare tax returns and financial statements put defendant on notice about the impropriety of Kenneth’s loans to himself such that defendant had a duty to inform plaintiffs of the questionable payments. The law is very clear that an agreement to perform unaudited services does not shield an accountant from liability because an accountant must perform all services in accordance with the standard of a reasonable accountant under similar circumstances, which includes reporting fraud that is or should be apparent … .

In addition, “[o]ne who aids and abets a breach of a fiduciary duty is liable for that breach as well, even if he or she had no independent fiduciary obligation to the allegedly injured party, if the alleged aider and abettor rendered ‘substantial assistance’ to the fiduciary in the course of effecting the alleged breaches of duty” … 1650 Broadway Assoc., Inc. v Sturm, 2024 NY Slip Op 01864, First Dept 4-4-24

Practice Point: An accounting firm has a duty to disclose fraud. Here the firm documented the potentially fraudulent financial activities of one of the owners of the restaurant but did not disclose those activities to the other owner. The allegations stated causes of action for accountant malpractice, fraud and aiding and abetting breach of a fiduciary duty.

 

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IN THIS ACTION BY A PROPERTY OWNER WHO LOST THE PROPERTY TO FORECLOSURE: (1) THE JUDGE SHOULD NOT HAVE GRANTED DEFENDANT REAL ESTATE BROKERS SUMMARY JUDGMENT ON A GROUND NOT RAISED IN THE MOTION; AND (2) THE BREACH OF FIDUCIARY DUTY, BREACH OF REAL PROPERTY LAW 441-C, AND CONSTRUCTIVE TRUST CAUSES OF ACTION SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT).

The Second Department, reversed Supreme Court in this action against real state brokers who, plaintiff alleged, did not provide plaintiff with proper documentation for a short sale of plaintiff’s property. The short sale was not approved by the lender and plaintiff lost the property in foreclosure. The Second Department determined: (1) the judge should not have granted summary judgment to defendants on the ground plaintiff suffered no damages because that issue was not raised by defendants in the motion; (2) the breach of fiduciary duty cause of action should not have been dismissed; (3) the Real Property Law section 441-c action alleging defendants acted with “untrustworthiness and incompetency” should not have been dismissed; and (4) the constructive-trust cause of action should not have been dismissed:

A court is generally limited to the issues or defenses that are the subject of the motion … . * * *

“[I]t is well settled that a real estate broker is a fiduciary with a duty of loyalty and an obligation to act in the best interests of the principal” … . * * *

… [T]he causes of action pursuant to Real Property Law § 441-c(1)(a) and 19 NYCRR 175.4, alleging that they acted with “untrustworthiness and incompetency” in dealing with the plaintiff and the property [should not have been dismissed].. … [T]here exists a private right of action for such offenses … . Perez v Mendicino, 2024 NY Slip Op 01323, Second Dept 3-13-24

Practice Point: A judge does not have the authority to grant summary judgment on a ground not raised in the motion papers;

Practice Point: Real estate brokers owe a fiduciary duty to their clients.

Practice Point: There exists a private right of action for a violation of Real Property Law 441-c for a real estate broker’s “untrustworthiness and incompetency.”

 

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