In the famous case of Meinhard v Salmon, Justice Benjamin Cardozo wrote in lofty language that lawyers of maltreated business owners have loved to quote ever since that the duty of loyalty among closely-held business owners is exceedingly high:
“Not honesty alone, but the punctilio of an honor the most sensitive, is . . . the standard of behavior.”
Countless published decisions since cite Meinhard. Steeped in morality-laden language (no “morals of the marketplace” here), it is unsurprising that the tort of breach of fiduciary duty as expressed in Meinhard has become the workhorse of New York business divorce litigation.
Over the years, the common-law cause of action for breach of fiduciary duty has evolved into a remarkably versatile claim, encompassing a vast — almost limitless — range of conduct that can be characterized as misappropriation, self-dealing, waste, or disloyalty. Breach of fiduciary duty in New York also has a number of odd legal quirks, making it a powerful weapon in the petitioner / plaintiff’s arsenal when thoughtfully pled.
As just one example, the claim has not one, not two, but three potential statutes of limitations. If the claim seeks solely money damages, the limitations period is three years. But plead the claim as one seeking equitable relief, and the limitations period jumps from three to six years. Plead the claim as “fraud-based,” and the limitations period extends ever further – six years from the date of the fraud, or two years from when the fraud could have been discovered with reasonable diligence, whichever is longer.
A recent decision from a Rochester-based appeals court, Howard v Pooler, ___ AD3d ___, 2020 NY Slip Op 03347 [4th Dept June 12, 2020], highlights two other exceedingly useful aspects of the tort of breach of fiduciary duty: first, the availability of “disgorgement” of profits from one who breaches a fiduciary duty even in the absence of any actual damages as a result of the breach; and second, the potential for the non-breaching party to recover its attorneys’ fees prosecuting the fiduciary duty claim where the claim is pled derivatively on behalf of the entity. Continue Reading The Common-Law Tort of Breach of Fiduciary Duty: The Total Package