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Category: Fiduciary Duty

Commercial Division Analyzes Choice-of-Law on an Element-by-Element Basis in Upholding Claim for Aiding and Abetting Breach of Fiduciary Duty

In Wantickets RDM, LLC v. Eventbrite, Inc., No. 654277/2016, 2017 BL 261099 (Sup. Ct. Jul. 21, 2017), New York Commercial Division Justice Shirley Werner Kornreich denied defendant Eventbrite’s motion to dismiss plaintiff Wantickets’ claims for aiding and abetting breach of fiduciary duty, among other claims.  In doing so, she applied Delaware law to assess plaintiff’s allegations of an underlying breach of fiduciary duty and New York law to the remaining elements.[1]

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Commercial Division Flags Novel Issue of Reasonable Reliance In LLC Member Battle

In PMC Aviation 2012-1 LLC et al. v. Jet Midwest Group, LLC et al., No. 654047/2015, BL221447 (Sup. Ct. Jun. 21, 2017), Commercial Division Justice Shirley Kornreich denied a motion to dismiss a fraudulent inducement claim by an LLC member against its business partner.  The court found that it could not find any “controlling, on-point authority” on the issue of reasonable reliance at issue in the case. The case relates to the scope of due-diligence obligations of LLC members when they rely upon the representations of business partners concerning the affairs of a jointly owned company.

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Commercial Division Rejects Third-Party Claim as Derivative in Trusts’ Suit Concerning Upper West Side Beaux-Arts Building

Asserting a claim on behalf of a trust in the Commercial Division can be risky, as the party asserting the claim must establish that the claimed injury is independent of any injury to the trust, and that they are therefore not simply bringing a derivative claim.  Recently, in 1993 Trust of Joan Cohen v. Baum, No. 150058/2015, 2017 NY Slip Op 30894(U), 2017 N.Y. Misc. LEXIS 1667 (May 2).  Justice Shirley Werner Kornreich dismissed as derivative a third-party claim brought by a former trustee of two trusts against an individual who allegedly provided deficient tax advice to the trusts.  The court ruled that the former trustee was owed no duty by the third-party defendant individually and could no longer prosecute claims that belonged to the trusts.  Justice Kornreich also rejected the former trustee’s contribution claim against the tax adviser and another entity, explaining that those entities’ alleged wrongdoing was unrelated to the former trustee’s alleged wrongdoing, and thus did not make them subject to liability to the plaintiff for damages for the same injury.[1]

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Commercial Division Finds Restrictive Covenant Acceptable and Rejects Unpled Partnership Theory

On October 4, 2016, Justice Singh issued an order denying a defendant’s motion to dismiss a claim for breach of a restrictive covenant, finding that the covenant serves an acceptable purpose.  See Tarro v. McOsker, No. 653880/15, slip. op. (N.Y. Sup. Ct. Oct. 4, 2016).   The court also ruled that while it could not resolve a breach of fiduciary duty claim on a motion to dismiss, it would not entertain a new theory of duty that a plaintiff did not plead in his complaint.

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Commercial Division Reaffirms Distinction Between Direct Versus Derivative Claims Under Delaware Law

When can a shareholder bring a direct claim in the Commercial Division against a corporate officer under Delaware law?  On September 29, 2016, in Southern Advanced Materials LLC v. Abrams, No. 650773/2015, 2016 BL 331371 (Sup. Ct. N.Y. Cnty.), Justice Saliann Scarpulla of the Commercial Division ruled on a corporate officer’s motion to dismiss breach of contract and fraudulent inducement claims brought by a plaintiff shareholder.  In his ruling, Justice Scarpulla articulated the distinction between direct and derivative claims under Delaware law, and applied that law to four contract and fraud claims brought by a shareholder against corporate officer.  Justice Scarpulla’s opinion provides guidance to litigants addressing shareholder claims against corporate officers in the Commercial Division.

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    In Casey Capital, LLC v. Levy, the Commercial Division provides a cautionary tale for derivative shareholder plaintiffs alleging demand futility

    Activist investors are an increasing presence on the stock ledgers and in the boardrooms of public companies.  Since 2010, one in seven companies on the S&P 500 has faced an activist shareholder challenge.[1]  But activists can encounter pitfalls when they seek to challenge incumbents through derivative litigation, as illustrated by the recent Commercial Division decision in Casey Capital, LLC v. Levy, C.A. No. 652805/15, 2016 N.Y. Misc. LEXIS 3107 (N.Y. Sup. Ct. Aug. 19, 2016) (Scarpulla, J.).

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