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IN THIS CHILD VICTIM’S ACT PROCEEDING PLAINTIFF ALLEGED ABUSE BY A PRIEST AND TEACHER IN ELEMENTARY SCHOOL; PLAINTIFF ALLEGED THE SCHOOL WAS OVERSEEN BY DEFENDANTS PARISH AND DIOCESE; THE 2ND DEPARTMENT HELD THE BREACH OF FIDUCIARY DUTY CAUSE OF ACTION SHOULD HAVE BEEN DISMISSED BECAUSE THERE WAS NOTHING UNIQUE ABOUT THE RELATIONSHIP BETWEEN DEFENDANTS AND PLAINTIFF, AS OPPOSED TO THE RELATIONSHIPS WITH THE OTHER PARISHIONERS (SECOND DEPT).

The Second Department, reversing Supreme Court, determined the parish and diocese defendants’ motions to dismiss the breach of fiduciary duty cause of action in this Child Victims Act case should have been granted. Plaintiff alleged he was sexually abused when he was 10 in 1973 by a priest and teacher in elementary school. Plaintiff alleged the parish and the school were overseen by the diocese:

“[T]he elements of a cause of action to recover damages for breach of fiduciary duty are (1) the existence of a fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendants misconduct” … .. A cause of action to recover damages for breach of fiduciary duty must be pleaded with particularity under CPLR 3016(b) … .

“A fiduciary relationship exists between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation” … .Two essential elements of a fiduciary relationship are de facto control and dominance … .

Here, the amended complaint did not allege facts that would give rise to a fiduciary relationship between the plaintiff and the defendants. The amended complaint failed to allege facts that demonstrated that the plaintiff’s relationship with the defendants was somehow unique or distinct from the defendants’ relationships with other parishioners generally … . J. D. v Roman Catholic Diocese of Brooklyn, 2022 NY Slip Op 01766, Second Dept 3-16-22

Practice Point: Here the breach of a fiduciary duty cause of action against the parish and diocese which oversaw the elementary school where plaintiff allegedly was sexually abused was dismissed. There was nothing unique about the relationship between the defendants and plaintiff which set it apart from the relationships with the other parishioners.

 

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CAUSES OF ACTION ALLEGING BREACH OF FIDUCIARY DUTY DO NOT ACCRUE UNTIL THE FIDUCIARY DUTY IS OPENLY REPUDIATED; CAUSES OF ACTION FOR CONVERSION BASED UPON FRAUD ARE TIMELY SIX YEARS FROM THE CONVERSION OR TWO YEARS FROM DISCOVERY OF THE CONVERSION; THE RELEVANT CAUSES OF ACTION HERE, THEREFORE, SHOULD NOT HAVE BEEN DISMISSED (SECOND DEPT). ​

The Second Department, reversing Supreme Court, determined causes of action alleging defendant Filardo, plaintiff car dealership’s employee, used fraudulent schemes to steal funds from plaintiff over a period of years, should not have been dismissed on statute of limitations grounds, and/or on the ground the causes of action were not adequately pled:

The plaintiff asserted causes of action against Filardo for breach of fiduciary duty (first cause of action), breach of the duty of loyalty (second cause of action), faithless servant doctrine (third cause of action), conversion (fifth cause of action), fraudulent concealment by fiduciary (sixth cause of action), and promissory estoppel (ninth cause of action), and causes of action against both defendants for aiding and abetting fraud (fourth cause of action), civil conspiracy (seventh cause of action), fraud and deceit (eighth cause of action), unjust enrichment (tenth cause of action), money had and received (eleventh cause of action), and fraud by non-disclosure (twelfth cause of action). …

“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” … Here, the plaintiff alleged that its relationship with Filardo was not terminated until November 2017, and there is no allegation that Filardo openly repudiated his employment obligations prior to that time … .

… [W]hen the allegations of fraud are essential to a cause of action alleging conversion based upon actual fraud, the cause of action is governed by the limitations period for fraud set forth in CPLR 213(8). That statute provides that, in an action based upon fraud, “the time within which the action must be commenced shall be the greater of six years from the date the cause of action accrued or two years from the time the plaintiff or the person under whom the plaintiff claims discovered the fraud, or could with reasonable diligence have discovered it” … .Star Auto Sales of Queens, LLC v Filardo, 2022 NY Slip Op 01476, Second Dept 3-9-22

Practice Point: The statute of limitations for breach of fiduciary duty does not start running until the fiduciary openly repudiates the duty.

Practice Point: The statute of limitations for conversion based upon fraud is six years from the conversion or two years from discovery of the conversion.

 

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THE COMPLAINT SUFFICIENTLY STATED FACTS AMOUNTING TO A BREACH-OF-FIDUCIARY-DUTY CAUSE OF ACTION AGAINST DEFENDANT REAL ESTATE BROKER, DESPITE PLAINTIFF-SELLER’S CONSENT TO THE BROKER’S “DUAL AGENCY;” IT WAS ALLEGED THE BROKER WAS AWARE THE PROPERTY WAS TO BE SUBDIVIDED AND SOLD BY THE BUYERS FOR THREE TIMES THE PRICE AND SHE WOULD BE THE BUYERS’ BROKER FOR THE SUBSEQUENT SALES (FIRST DEPT). ​

The First Department, reversing Supreme Court, determined the complaint sufficiently stated a cause of action for breach of fiduciary duty by the defendant real estate broker, despite the plaintiff’s consent to the broker’s “dual agency:”

Although the complaint does not explicitly articulate a cause of action for breach of fiduciary duty, such a cause of action is manifest in its factual allegations, and the documentary evidence fails to utterly refute those allegations … . In connection with his sale of certain real property, plaintiff signed a disclosure form pursuant to Real Property Law § 443, giving his informed consent to a “dual agency with designated sales agent” relationship with defendants. The form states that a dual agent cannot give the seller or buyer “undivided loyalty.” Nevertheless, it does not relieve defendants from all fiduciary duty. The form states that defendant Nikki Carchedi, of defendant Stone House Properties, “is appointed to represent the seller in this transaction.” The complaint establishes a cause of action for breach of a fiduciary duty beyond the acknowledged “divided” duty by alleging that [defendant] Carchedi failed to disclose that she had a personal stake in the sale to the buyers, who planned to subdivide the property immediately after purchase and retain her as the broker for the sale of the subdivided parcels, and that they did so, listing the subdivided parcels for almost three times the price plaintiff received in his sale … . We also note plaintiff’s assertion that the agent representing the buyer was the son of Carchedi’s longtime client about whom plaintiff had expressed concern. Hahn v Stone House Props. LLC, 2022 NY Slip Op 01416, First Dept 3-8-22

​Practice Point: Even though breach-of-fiduciary-duty was not explicitly pled, the facts alleged stated a cause of action against defendant real estate broker.

Practice Point: Even though the seller signed a form consenting to the broker’s “dual agency,” the broker was not relieved of her fiduciary duty to the seller. Allegedly, the broker was aware the buyers were going to subdivide the property, sell it at three times the price, and that she would be the broker for the subsequent sales.

 

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ALTHOUGH THE TRUSTEE DID NOT PROVIDE AN ACCOUNTING, HE NEVER REPUDIATED HIS FIDUCIARY DUTIES; THEREFORE THE SIX-YEAR STATUTE OF LIMITATIONS FOR AN ACCOUNTING WAS NOT TRIGGERED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the cause of action for an accounting of a trust should not have been limited to the six years before the filing of the complaint. Although the trustee did not provide a requested accounting. the trustee did not openly repudiate his fiduciary duties, so the six-year statute of limitations was never triggered:

The statute of limitations for a cause of action seeking an accounting is six years (see CPLR 213 [1] … ). It is well settled that the limitations period begins to run only when ” ‘the trustee openly repudiates his [or her] fiduciary obligations’ ” and ” ‘a mere lapse of time is insufficient without proof of an open repudiation’ ” … . “The party seeking the benefit of the statute of limitations defense bears the burden of proof on the issue of open repudiation” … . Here, defendants “failed to sustain their burden of establishing that [defendant] had openly repudiated [his] fiduciary obligations to [plaintiffs] so as to start the statute of limitations clock” … . Although defendant failed to provide plaintiffs with an accounting, he never outright refused to do so. Further, defendant continued to conduct his duties as trustee by handling the taxes and expenses for the trust, and making the necessary disbursements to plaintiffs as beneficiaries. Thus, the cause of action for an accounting had not accrued at the time plaintiffs commenced this action. Massey-Hughes v Massey, 2021 NY Slip Op 07405, Fourth Dept 12-23-21

 

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PLAINTIFF WAS ACQUITTED OF CHARGES STEMMING FROM THE ALLEGED APPROPRIATION OF INSURANCE PROCEEDS DUE OTHER BENEFICIARIES AND THEN SUED TWO INSURANCE COMPANIES; THE CAUSES OF ACTION FOR BREACH OF CONTRACT, CONVERSION AND BREACH OF FIDUCIARY DUTY DID NOT ACCRUE UPON ACQUITTAL AND WERE THERFORE TIME-BARRED (FOURTH DEPT).

The Fourth Department, reversing (modifying) Supreme Court, determined the causes of action that did not require plaintiff’s innocence in a criminal matter were time barred. Plaintiff was acquitted of charges stemming from the allegation she appropriated life insurance proceeds which were due to other beneficiaries. Plaintiff then sued two insurance companies alleging breach of contract, breach of fiduciary duty, conversion, and aiding and abetting breach of a fiduciary duty. None of those causes of action accrued upon plaintiff’s acquittal. All were therefore time-barred:

Contrary to … the court’s conclusion, those causes of action did not accrue at the time the criminal proceeding terminated. The termination of a criminal proceeding is relevant for claims for malicious prosecution and legal malpractice arising out of a criminal proceeding … . For those claims, a plaintiff is required to make a showing of innocence, and thus the claims do not accrue until the plaintiff can assert the element of his or her innocence on the criminal charges … . Plaintiff here does not need to assert her innocence on the criminal charges as an element of the causes of action for breach of contract, conversion, and breach of fiduciary duty … . Morrow v Brighthouse Life Ins. Co. of NY, 2021 NY Slip Op 07373, Fourth Dept 12-23-21

 

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PLAINTIFFS DEMONSTRATED A DEMAND ON THE BOARD OF DIRECTORS TO PURSUE A DERIVATIVE ACTION WAS FUTILE; THE COMPLAINT ADEQUATELY ALLEGED BREACH OF FIDUCIARY DUTY, A CLAIM FOR WHICH NO DAMAGES NEED BE ALLEGED (FIRST DEPT).

The First Department, reversing Supreme Court, determined the requirement that a demand on the board of directors to pursue a derivative action was futile and therefore is excused. In addition, the complaint adequately alleged a breach of fiduciary duty:

Plaintiffs properly alleged demand futility as required under Business Corporation Law § 626 (c) by asserting that at least four out of seven of the members of derivative plaintiff/nominal defendant Xerox Holdings Corporation’s board of directors were controlled by Icahn, Xerox’s largest single shareholder, and thus lacked the independence to make an impartial decision on bringing suit … . * * *

… [T]he claim for breach of fiduciary duty was pleaded with the particularity required by CPLR 3016(b), as the complaint states that the Icahn defendants used confidential information about Xerox’s planned acquisition of HP Inc. to buy HP common shares before news of the acquisition became public and before HP’s stock price increased … . …

… [P]laintiffs’ claims do not fail for lack of damages, as damages “have never been considered to be an essential requirement for a cause of action founded on a breach of fiduciary duty” … . The function of an action for breach of fiduciary duty “is not merely to compensate the plaintiff for wrongs committed by the defendant but . . . to prevent them, by removing from . . . trustees all inducement to attempt dealing for their own benefit in matters . . . to which their . . . trust relates” … . Miami Firefighters’ Relief & Pension Fund v Icahn, 2021 NY Slip Op 06446, First Dept 11-18-21

 

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DEFENDANT ATTORNEY WAS UNABLE TO DEMONSTRATE PLAINTIFFS LEARNED OF DEFENDANT’S ALLEGED FRAUD MORE THAN TWO YEARS BEFORE THE ACTION WAS COMMENCED; THE STATUTE OF LIMITATIONS FOR THE UNJUST ENRICHMENT AND AIDING AND ABETTING BREACH OF FIDUCIARY DUTY IS SIX YEARS BECAUSE OF THE ALLEGATIONS OF FRAUD (FIRST DEPT).

The First Department determined the fraud, unjust enrichment and aiding and abetting breach of fiduciary duty causes of action were timely brought against defendant attorney. Defendant attorney represented a party who was found to have defrauded plaintiffs in an arbitration resulting in a $56,4 million judgment. Plaintiffs alleged the attorney’s participation in the fraud was not discovered until the arbitration proceedings:

The limitations period for fraud is the greater of six years from the date of the fraud or two years from the time when, with reasonable diligence, the plaintiff could have uncovered the fraud (CPLR 213[8] … ). In order to prevail, the defendant must show that there is no issue of fact under either prong. Here, defendant failed to show dispositively that plaintiffs were in possession of facts that would have triggered inquiry notice under CPLR 213(8) more than two years before the action was commenced … . …

Nor are plaintiff’s unjust enrichment or aiding and abetting breach of fiduciary duty claims time-barred. Both claims are subject to the six-year statute of limitations because they are based on allegations of actual fraud (CPLR 213[8] …). Sabourin v Chodos, 2021 NY Slip Op 03392, First Dept 5-27-21

 

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THE FIDUCIARY TOLLING RULE TOLLED THE STATUTE OF LIMITATIONS IN THIS CONSTRUCTIVE TRUST ACTION AGAINST AN EXECUTOR (WHO WAS REMOVED BY THE COURT) UNTIL THE SUCESSOR FIDUCIARY WAS APPOINTED (THIRD DEPT).

The Third Department, reversing Surrogate’s Court, determined the constructive trust action based upon alleged self-dealing by an executor who was removed by the court was not time-barred. The fiduciary tolling rule applied:

Under the fiduciary tolling rule, a claim alleging wrongful conduct by an individual in his or her fiduciary capacity does not accrue until there is an open repudiation of the fiduciary obligation or a judicial settlement of the fiduciary’s account … . This rule tolls the statute of limitations “for all misconduct committed by the fiduciary prior to repudiation of its obligation or termination of the [fiduciary] relationship” … since, absent either repudiation or removal, the aggrieved parties “were entitled to assume that the [fiduciary] would perform his [or her fiduciary] responsibilities” … , and it is highly unlikely that a sitting fiduciary would assert a constructive trust claim against himself or herself. …  Under this rule, the toll continues until a successor fiduciary is appointed … . Matter of George, 2021 NY Slip Op 03231, Third Dept 5-20-21

 

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PURSUANT TO THE SURROGATE’S COURT PROCEDURE ACT (SCPA), AN ADMINISTRATOR MAY BE SUSPENDED WITHOUT A PETITION OR ISSUANCE OF PROCESS FOR MISAPPROPRIATING ESTATE PROPERTY (SECOND DEPT).

The Second Department, reversing Surrogate’s Court, determined the motion to suspend the administrators of the estate should have been granted. The administrators had allowed the estate to languish for 20 years and there was evidence estate property had been misappropriated by one administrator:

Pursuant to SCPA 719, “the court may make a decree suspending . . . or revoking letters issued to a fiduciary from the court . . . without a petition or the issuance of process” where, among other things, “any of the facts provided in [SCPA] 711 are brought to the attention of the court” (SCPA 719[10] … . The circumstances set forth under SCPA 711 justifying “a decree suspending . . . or revoking those letters” include a fiduciary “having wasted or improperly applied the assets of the estate” … or having “removed property of the estate . . . without prior approval of the court” … . “The removal of a fiduciary pursuant to SCPA 711 and 719 is equivalent to ‘a judicial nullification of the testator’s choice and may only be decreed when the grounds set forth in the relevant statutes have been clearly established'” … . The grounds set forth under SCPA 711 may be clearly established “by undisputed facts or concessions, where the fiduciary’s in-court conduct causes such facts to be within the court’s knowledge, or where facts warranting amendment of letters are presented to the court during a related evidentiary proceeding” … . “Thus, revoking a fiduciary’s letters . . . pursuant to SCPA 719 will constitute an abuse of discretion ‘where the facts are disputed, where conflicting inferences may be drawn therefrom, . . . or where there are claimed mitigating facts that, if established, would render summary removal an inappropriate remedy'” … .

Here, the record contains undisputed evidence of conflict between the administrators, and evidence that the animosity between them has interfered with the expeditious administration of the decedent’s estate, which they have allowed to languish for nearly two decades … . Moreover, Menfus [one of the administrators] admitted … he executed a deed to one of the subject properties to himself, and permitted his father to live in the other property rent free. Matter of Steward, 2021 NY Slip Op 02395, Second Dept 4-21-21

 

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IT IS NOT CLEAR FROM THE CONTRACT WHETHER DEFENDANT TRUSTEE WAS TO PERFORM A MERELY MINISTERIAL FUNCTION OR A GATEWAY FUNCTION IN ACCEPTING ASSETS FOR THE TRUST FROM A NONPARTY WHICH WAS ACTING FRAUDULENTLY; THERE ARE QUESTIONS OF FACT ABOUT WHETHER THE DAMAGES ASSOCIATED WITH ACCEPTING NON-NEGOTIABLE ASSETS WERE DIRECT OR INDIRECT AND WHETHER A FIDUCIARY DUTY WAS BREACHED (FIRST DEPT).

The First Department, in a full-fledged opinion by Justice Mazzarelli, reversing Supreme Court, determined the breach of contract, breach of fiduciary duty action against defendant trustee, Wilmington, should not have been dismissed. Wilmington acted as a trustee for assets transferred to the trust by a nonparty. The contract stated Wilmington would be responsible only for its own negligence but also stated no non-negotiable assets were to be placed into the trust. The nonparty which transferred assets to the trust acted fraudulently and made risky investments rendering the trust assets out-of-compliance with state law. Plaintiff sued Wilmington for breach of contract and breach of fiduciary duty. Wilmington argued that any damages suffered by plaintiff from the assets transferred by the nonparty were indirect, not direct, and therefore barred by the trust agreements:

… [I]t can be argued that, in light of Wilmington’s promise not to accept nonnegotiable assets into the trusts, and to be responsible for its own negligence, maintaining the value of the assets in the trusts was inherent in the service Wilmington agreed to provide. Thus, there is merit to plaintiffs’ argument that when the assets proved not to be negotiable, they lost the benefit of their bargain and were entitled to recover as direct damages the diminution in value, and the concomitant costs of restoring the assets to negotiable status, such as professional fees. * * *

… [A]t this stage of the litigation, it is difficult to discern whether the parties contemplated that Wilmington would have to pay the damages sought by plaintiffs if it failed to perform under the trust agreements. Again, the agreements provided that Wilmington would be liable for “its own negligence,” which a reasonable factfinder could consider as recognition that Wilmington, if it did not perform its duties in accordance with a minimum level of care, would need to pay more than the nominal damages represented by its fee. * * *

Even though the breach of contract and breach of fiduciary duty claims involved the same conduct, the fiduciary duty claim alleges a breach of a noncontractual duty relating to the trustee’s independent duty to perform nondiscretionary ministerial duties with respect to the negotiability of assets. Thus, the fact that Wilmington’s failure to prevent nonnegotiable assets from entering the trusts breached both fiduciary and contractual duties does not bar plaintiffs from seeking damages related to the former … . Bankers Conseco Life Ins. Co. v Wilmington Trust, N.A., 2021 NY Slip Op 02355, First Dept 4-20-21

 

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