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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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THE ALLEGATIONS OF DEFENDANTS’ CONDUCT DURING PHOTO SHOOTS OF PLAINTIFF-MODEL WHEN SHE WAS 16 AND 17 YEARS OLD MET THE “SEXUAL CONDUCT” CRITERIA FOR THE EXTENDED STATUTE OF LIMITATIONS UNDER THE CHILD VICTIMS ACT (CVA), THE COMPLAINT STATED CAUSES OF ACTION FOR INVASION OF PRIVACY PURSUANT TO CIVIL RIGHTS LAW SECTION 50 (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Higgitt, modifying Supreme Court in this Child Victims Act (CVA) action, determined: (1) the conduct alleged to have been committed by defendant modeling agency (Wilhelmina) and defendant-seller of sun tan products (Cal Tan) during photo shoots of plaintiff-model when she was 16 and 17 years old met the criteria for “sexual conduct” within the meaning of the extended statute of limitations under the CVA (CPLR  214-g); (2) New York has jurisdiction over the case against Cal Tan, even though the Cal Tan photo shoot took place in Mexico (plaintiff was a New York resident); (3) the negligent supervision and breach of fiduciary causes of action against Cal Tan were properly dismissed because no allegations supported a duty to supervise; (4) the negligent supervision and breach of fiduciary duty causes of action against Wilhelmina should not have been dismissed because no arguments in opposition were interposed; and (5) the invasion of privacy causes of action (Civil Rights Law section 50) against both defendants survived the motions to dismiss. The following allegations were deemed sufficient to meet the “sexual conduct” criteria for the applicability of the CVA’s extended statute of limitations:

Plaintiff’s allegations as to Cal Tan include that she was “instructed . . . to arch her back and look at the camera ‘sexy,’ ‘like a lover,’ and think about doing ‘naughty things with your boyfriend,'” and that the photographs generated from the photoshoot “included ones in which Doe was depicted topless with her back arched in a sexually suggestive pose; looking out to the sea in a sultry manner; in which she was completely topless and ‘naked in the water’; where she is posed suggesting a willingness to engage in sexual activity; and where Doe is standing on a roof, semi- or totally naked.”

As to Wilhelmina, plaintiff alleged that at one photoshoot, “[s]he was photographed in [see-through lingerie] with another girl, also wearing see-through lingerie, together in bed. Doe and the other underage model wore coy expressions, as if together they had been doing something naughty, or sexual;” at another photoshoot, where plaintiff was unclothed, she was “instructed . . . to look ‘innocent, but sexy’ for some photos, and like a ‘bad girl’ for others”; and that at a third photoshoot she “was made to sit nude on a bed with a white sheet covering part, but not all, of her breast and buttocks.” Doe v Wilhelmina Models, Inc., 2024 NY Slip Op 00969, First Dept 2-27-24\

Practice Point: This comprehensive opinion lays out the criteria for “sexual conduct” within the meaning of the extended statute of limitations under the Child Victims Act (CVA). Here allegations of defendants’ conduct during  photo shoots of plaintiff-model when she was 16 and 17 years old met the CVA sexual-conduct criteria.

 

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PURSUANT TO THE BUSINESS JUDGMENT RULE, INDIVIDUAL CONDOMINIUM BOARD MEMBERS MAY BE LIABLE FOR UNEQUAL TREATMENT OF SHAREHOLDERS IN THE ASSESSMENT OF COMMON CHARGES (SECOND DEPT). ​

The Second Department, reversing (modifying) Supreme Court, determined individual condominium board members could be liable under the business judgment rule for unequal treatment of shareholders with respect to the assessment of common charges:

“The business judgment rule is applicable to the board of directors of cooperative and condominium corporations” … . The rule provides that “a court should defer to a [condominium] board’s determination ‘[s]o long as the board acts for the purposes of the [condominium], within the scope of its authority and in good faith'” … . Unequal treatment of shareholders is sufficient to overcome the directors’ insulation from liability under the business judgment rule … , and a director who participates in the commission of a tort committed by the board may be held individually liable … .

Here, the complaint sufficiently alleged a cause of action sounding in breach of fiduciary duty against the individual defendants. The complaint also sufficiently alleged a cause of action sounding in fraud against the individual defendants to the extent that the plaintiff seeks damages for the overassessment of common charges … . 72 Poplar Townhouse, LLC v Board of Mgrs. of the 72 Poplar St. Condominium, 2024 NY Slip Op 00606, Second Dept 2-7-24

Practice Point: Here the complaint stated causes of action for breach of fiduciary duty and fraud against individual condominium board members for unequal treatment of shareholders in the assessment of common charges.

 

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​EMOTIONAL AND PSYCHOLOGICAL DAMAGES, AS OPPOSED TO PECUNIARY DAMAGES, WILL NOT SUPPORT AN ACTION FOR BREACH OF FIDUCIARY DUTY (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined emotional and psychological damages, as opposed to pecuniary damages, will not support an action for breach of fiduciary duty:

… [P]laintiffs proffered no evidence showing that Atesa [plaintiff] sustained pecuniary damages, and adduced proof identifying only emotional and psychological injuries. Contrary to plaintiffs’ contention, the allegations in the complaint that Atesa incurred financial expenses as a result of having to seek medical treatment and retain new counsel due to defendants’ alleged misconduct are insufficient to defeat summary judgment, absent any supporting evidentiary proof (see CPLR 3212[b] …). Plaintiffs’ contention that they could present such proof at trial is unavailing … . Because plaintiffs failed to raise a triable issue of fact as to whether recoverable damages were incurred, summary judgment dismissing the claim should have been granted … . Pacelli v Peter L. Cedeno & Assoc., PC, 2023 NY Slip Op 05448, First Dept 10-26-23

Practice Point: Emotional and psychological damages, as opposed to pecuniary damages, will not support an action for breach of fiduciary duty.

 

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EVERY CAUSE OF ACTION WAS ERRONEOUSLY DISMISSED AS TIME-BARRED; THE PROPER CRITERIA FOR DETERMINING THE CORRECT STATUTES OF LIMITATIONS DISCUSSED IN SOME DETAIL (SECOND DEPT).

​The Second Department, reversing Supreme Court, determined several causes of action including fraud, breach of fiduciary duty, breach of constructive trust, and breach of contract should not have been dismissed as time-barred:

“‘[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)'” … . * * * … [P]laintiffs discovered the alleged fraud in 2019 and the cause of action was timely commenced within two years. * * *

… [T]he statute of limitations on the cause of action for the imposition of a constructive trust did not begin to run until 2019, when [defendant] allegedly breached his promise … . …

“[I]n order to determine the statute of limitations applicable to an action for a declaratory judgment, a court must examine the substance of the action. Where it is determined that the parties’ dispute can be, or could have been, resolved in an action or proceeding for which a specific limitation period is statutorily required, that limitation period governs” … . * * *

… Supreme Court erred in concluding that the causes of action alleging fraud in the inducement and promissory estoppel are time-barred. The statute of limitations for those causes of action is six years … . …

The statute of limitations applicable to a breach of contract cause of action is six years (see CPLR 213[2]), “and begins at the time of the breach, even when no damage occurs until later, and even though the injured party may be ignorant of the existence of the wrong or injury” … . Statharos v Statharos, 2023 NY Slip Op 04226, Second Dept 8-9-23

Practice Point: Here the criteria for determining the applicable statute of limitations for breach of fiduciary duty, fraud, breach of constructive trust, declaratory judgment, promissory estoppel, fraud in the inducement and breach of contract are discussed in some detail.

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A CORPORATION (HERE A COOPERATIVE) DOES NOT OWE A FIDUCIARY DUTY TO THE SHAREHOLDERS; THE INDIVIDUAL BOARD MEMBERS MAY OWE A FIDUCIARY DUTY TO THE SHAREHOLDERS FOR INDIVIDUAL ACTIONS BUT NO ALLEGATIONS OF WRONGDOING BY BOARD MEMBERS WERE MADE (FIRST DEPT).

​The First Department, reversing (modifying) Supreme Court, noted that a corporation (or, in this case a cooperative) does not owe a fiduciary duty to its shareholders:

… [T]he second cause of action for breach of fiduciary duty as against the cooperative and the board member defendants also does not state a claim upon which relief may be granted. The cause of action cannot be sustained as against the cooperative “because a corporation owes no fiduciary duty to its shareholders” … . Furthermore, even assuming that the cause of action was addressed to the actions taken by the individual board member defendants, it “does not allege any individual wrongdoing by the members of the board separate and apart from their collective actions” taken in their capacity as board members … . Tahari v 860 Fifth Ave. Corp, 2023 NY Slip Op 01269, First Dept 3-14-23

Practice Point: A corporation does not owe a fiduciary duty to shareholders. Individual board members may owe a duty which would be breached by wrongdoing, not alleged here.

 

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THE COMPLAINT STATED CAUSES OF ACTION FOR BREACH OF FIDUCIARY DUTY, FRAUD, CONSTRUCTIVE FRAUD AND MUTUAL MISTAKE; PLAINTIFFS-PHYSICIANS ALLEGED THE FORMS THE EMPLOYER REQUIRED THEM TO SIGN CONSENTING TO THE DISTRIBUTION (TO THE EMPLOYER) OF THE PROCEEDS OF THE DEMUTUALIZATION OF THE MEDICAL MALPRACTICE INSURER WERE INVALID (FIRST DEPT).

The Frist Department, reversing (modifying) Supreme Court, determined the complaint by physicians against their employer/malpractice-insurance-policy-administrator stated causes of action for breach of fiduciary duty, fraud and mutual mistake. The dispute centers on whether the physicians or the employer which paid the malpractice insurance premiums are/is entitled to the proceeds when the insurer (MLMIC) demutualized. The employer had the physicians sign forms consenting to distributing the proceeds to the employer. The physicians allege the consent forms are invalid:

Plaintiffs allege that the forms by which they authorized MLMIC to distribute their demutualization proceeds to defendant are invalid because defendant obtained them in breach of its fiduciary duty, by fraud, or due to mutual mistake. If these forms are invalid, then the demutualization proceeds belong to plaintiffs … .

Transactions between a fiduciary and beneficiary are voidable if the fiduciary acts in its own interest and does not fully disclose all material facts … . Defendant is alleged not only to have withheld the policyholder information statement from plaintiffs, but to have significantly misrepresented their contents for its own gain. These allegations, which are not conclusively refuted by the documentary evidence, are sufficient to survive a motion to dismiss.

Fraud is another basis for rescinding the consent forms … . Plaintiffs also properly allege constructive fraud, because they were owed a fiduciary duty by defendant and so were “warranted to . . . relax the care and vigilance they would ordinarily exercise in the circumstances” … . …

Mutual mistake “may not be invoked by a party to avoid the consequences of its own negligence” … . For the purposes of this motion to dismiss, however, it cannot be said as a matter of law that plaintiffs were negligent … . Cordaro v AdvantageCare Physicians, P.C., 2022 NY Slip Op 05267, First Dept 9-27-22

Practice Point: The complaint adequately alleged the employer, which also served at the medical malpractice insurance policy administrator, breached a fiduciary duty owed to the plaintiffs-physicians by requiring them to consent to the distribution (to the employer) of the proceeds of the demutualization of the medical malpractice insurance carrier. The complaint also sufficiently alleged fraud, constructive fraud and mutual-mistake causes of action.

 

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A LEASE BETWEEN PLAINTIFF CORPORATION AND DEFENDANTS (ONE OF WHOM WAS A MEMBER OF PLAINTIFF’S BOARD) WAS NOT VOTED ON BY A MAJORITY OF DISINTERESTED DIRECTORS AND WAS THEREFORE VOIDABLE UNDER BUSINESS CORPORATION LAW 713(B); DEFENDANTS BREACHED THEIR FIDUCIARAY DUTY TO THE CORPORATION BY SUBLETTING THE LEASED PREMISES FOR A MUCH HIGHER RENT WITHOUT PLAINTIFF’S KNOWLEDGE (FIRST DEPT).

The First Department, reversing Supreme Court, determined plaintiff cooperative apartment corporation (HDFC) demonstrated defendants (one of whom was a member of plaintiff’s board) had entered a lease with plaintiff which was not voted upon by a majority of disinterested directors and was therefore voidable under Business Corporation Law 713(b). In addition plaintiff demonstrated defendants had breached their fiduciary duty to the corporation:

Plaintiff, a low-income cooperative apartment corporation (HDFC), established prima facie that the lease between plaintiff and defendants Thomas Green and A Cup of Harlem was not voted on by a majority of disinterested directors and is therefore voidable under Business Corporation Law § 713(b). A Cup of Harlem is a partnership between Thomas Green and Siwana Green, who are married. Siwana Green is a shareholder in the HDFC and a former officer and member of plaintiff’s board of directors. By lease dated April 1, 2004, while Siwana Green was one of three members of the board, plaintiff leased one of the two commercial spaces in the building to Thomas Green and A Cup of Harlem for a 99-year term, with a monthly rent of $700 for the entirety of the term and an option to extend the lease for a 10-year term at a rate of $800 per month. In support of its motion, plaintiff submitted a former board member’s affidavit that he was elected to a one-year term in February 2004, that he only learned of the lease in 2018, when Siwana Green was removed from the board, and that he never would have approved a lease with such “outlandish” terms. …

The record demonstrates that Siwana Green breached her fiduciary duty to plaintiff by diverting a corporate opportunity without plaintiff’s knowledge or consent and admittedly receiving more than $200,000 profit from the sublessee to whom, in March 11, 2009, Thomas Green sublet the leased premises at a monthly rent of $2,500 for a ten-year term, which was then renewed for a monthly rent of $2,800. 67-69 St. Nicholas Ave. Hous. Dev. Fund Corp. v Green, 2022 NY Slip Op 04087, First Dept 6-23-22

Practice Point: Here a low-rent lease between plaintiff corporation and defendants (one of whom was a member of plaintiff’s board) was voidable because the lease was not approved by a majority of disinterested directors. Defendants sublet the leased premises for a much higher rent without plaintiff corporation’s knowledge and thereby breached their fiduciary duty to the corporation.

 

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EACH TIME PLAINTIFF’S MARKETING DIRECTOR ENTERED A CONTRACT WITH A COMPANY IN WHICH THE DIRECTOR HAD AN OWNERSHIP INTEREST CONSTITUTED A SEPARATE WRONG UNDER THE CONTINUING WRONG DOCTRINE; THE COMPLAINT STATED CAUSES OF ACTION FOR FRAUD AND BREACH OF FIDUCIARY DUTY (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court, determined the continuing wrong doctrine applied to each time defendant hired Exit for video editing services within six years of filing the complaint. In addition, the complaint stated a cause of action for breach of a fiduciary duty:

This action arises from the conduct of plaintiff’s former director of marketing, Taufiq, in repeatedly contracting with Exit Editorial, Inc. (Exit), owned by Tristan Kneschke (together with Exit, the Exit defendants), for video editing services. Plaintiff claims that Taufiq falsely represented to it that he negotiated with Exit at arms length and that Exit’s prices were reasonable, when in fact its prices were well above market rate, he had an ownership interest in Exit, and he received a cash finder’s fee for each contract with Exit.

Plaintiff’s allegations and supporting affidavits were sufficient to permit an inference that a separate exercise of judgment, and thus a separate wrong, was committed each time Exit was hired, thereby enabling application of the continuing wrong doctrine … . * * *

The breach of fiduciary duty claim against Taufiq should be reinstated, as an agent has a duty to make full disclosure to its principal of any conflicts of interest and there is no requirement of justifiable reliance for such a claim … .Manipal Educ. Ams., LLC v Taufiq, 2022 NY Slip Op 02200, First Dept 3-31-22

Practice Point: An allegation that an employee entered contracts on behalf of his employer with a company of which the employee was a part-owner, without so informing his employer, supports causes of action for fraud and breach of fiduciary duty. Each contract constituted a separate wrong pursuant to the continuing wrong doctrine.

 

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THERE WAS A FIDUCIARY RELATIONSHIP BETWEEN THE PARTIES AS PARTNERS AND CO-OWNERS OF A BUSINESS, GIVING RISE TO AN ABSOLUTE RIGHT TO AN ACCOUNTING, NOTWITHSTANDING THE EXISTENCE OF AN ADEQUATE REMEDY AT LAW (FIRST DEPT).

The First Department, reversing (modifying) Supreme Court determined the petitioners were entitled to an accounting for a business, Ocinomled, Ltd., because there was a fiduciary relationship between the parties as partners and co-owners of Ocinomled:

This Court has held “whenever there is a fiduciary relationship between the parties . . . there is an absolute right to an accounting notwithstanding the existence of an adequate remedy at law” … . It is undisputed that there is a fiduciary relationship between the parties as partners and co-owners of Ocinomled. An equitable accounting is “designed to require a person in possession of financial records to produce them, demonstrate how money was expended and return pilfered funds in his or her possession” … . While it is clear that respondents produced the full books and records, and the Special Referee went through thousands of documents and reviewed numerous expert reports, this is insufficient …, particularly because respondents’ bookkeeping was described as inadequate, and sometimes nonexistent, and there was evidence respondents intentionally destroyed key financial data during the litigation. Matter of Grgurev v Licul, 2022 NY Slip Op 02088, First Dept 3-29-22

Practice Point: There is a fiduciary relationship between partners and co-owners of a business giving rise to an absolute right to an accounting, despite the existence of an adequate remedy at law.

 

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