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Current Developments in the Commercial Divisions of the
New York State Courts
Posted: September 24, 2014

New York does not Follow the “Fiduciary Shield” Doctrine, so Corporate Officers’ Actions on Behalf of a Company can Form the Basis for Personal Jurisdiction over the Officer

On September 8, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Interventure 77 Hudson LLC v. Falcon Real Estate Investment Co. LP, 2014 NY Slip Op. 32401(U), denying a motion to dismiss.

In Interventure 77 Hudson, the underlying dispute concerns alleged mismanagement of a real estate portfolio. However, the motion at issue involved individual officers of the management company, who are being sued in their individual capacities for breach of fiduciary duty. These defendants moved to dismiss under, inter alia, the “fiduciary shield” doctrine, under which various states have held that actions of a corporation cannot be imputed to corporate officers for purposes of personal jurisdiction.

As the court explained, New York does not follow this doctrine:

Messrs. Hallengren’s and Miller’s main argument appears to be that jurisdiction over the individual officers of a corporation may not be based merely on jurisdiction over the corporation. Messrs. Hallengren and Miller misapprehend New York law and plaintiffs’ allegations.

New York has rejected the fiduciary shield doctrine for purposes of analyzing jurisdiction. See Kreutter v. McFadden Oil Corp., 71 N.Y.2d 460, 472 (1988). Jurisdiction can be exercised over officers for their actions on behalf of a company. The McFadden case is particularly instructive. In McFadden, an individual defendant (acting as a corporate agent) had not physically entered New York, but had acted on behalf of non-domiciliary corporations transacting business in New York, specifically the purported sale-leaseback of an oil rig with plaintiff. The court held that the agent represented two corporations during their participation in purposeful corporate acts in this State, and if he acted improperly in representing them, the fact that he acted for one or both of the corporations should not necessarily relieve him from responding to plaintiffs’ claims against him.

Accordingly, actions that the individual defendants took as corporate agents can be taken into account when deciding if New York can assert personal jurisdiction over them.

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