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Current Developments in the Commercial Divisions of the
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Posted: February 9, 2018

Separate Cause of Action for Accounting Permissible Under Delaware Law

On January 23, 2018, Justice Bransten of the New York County Commercial Division issued a decision in Ambase Corp. v. 111 W. 57th Sponsor LLC, 2018 NY Slip Op. 30160(U), holding that under Delaware law, it is permissible to assert a separate claim for an accounting, explaining:

Defendants maintain that the fourteenth cause of action for an accounting is improper because it seeks the equitable remedy of an accounting. Because Sponsor and Control are organized under Delaware law, this claim is governed by Delaware law. Defendants erroneously claim that because, under Delaware law, an accounting is an equitable remedy, it may not be maintained as a separate cause of action. The cases cited by defendants for this proposition do not support this conclusion. For example, in Albert v Alex Brown Mgt. Servs., Inc. . . . , the Delaware Court of Chancery merely notes that, because an accounting is an equitable remedy, it is necessary to look to the underlying claims before granting an: accounting. Likewise, in Rhodes v Silkroad Equity, LLC . . . , another case cited by defendants, the Court of Chancery declined to dismiss a cause of action for an accounting where it had sustained the underlying claims for which an accounting would be the form of relief.

Likewise, defendants’ contention that a claim for an accounting may not be maintained under Delaware law in the absence of a fiduciary duty is also not supported by the cases cited for that proposition. Pan Am. Trade & Inv. Corp. v Commercial Metals Co. . . . , the case upon which defendants base their contention, only states that, for an accounting to be appropriate, there must be either: (1) mutual accounts between the parties; (2) accounts must be all on one side but there are circumstances of great complication; or (3) there must be a fiduciary relationship between the parties that is the basis for defendant to render an account. Plainly, as members of a joint venture with defendants, plaintiffs are: entitled to an accounting if they establish their underlying claims. Accordingly, the motion to dismiss this claim is dismissed.

(Internal quotations and citations omitted).

An accounting is a common remedy in a business divorce (a break-up between the owners of a closely-held business). This is a big part of our practice. Indeed, Schlam Stone & Dolan partner Jeffrey M. Eilender and associate Lee J. Rubin were contributors to the recently-released 2017 Supplement to Litigating the Business Divorce by Kurt Heyman and Melissa Donimirski. Contact Jeffrey Eilender at jeilender@schlamstone.com or Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding a business divorce.

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