On August 20, 2020, Justice Masley of the New York County Commercial Division issued a decision in Storper v. WL Ross & Co., LLC, 2020 NY Slip Op. 32742(U), holding that a claim for an accounting may be made whenever a fiduciary relationship exists, explaining:
The right to an accounting is premised upon the existence of a confidential or fiduciary relationship and a breach of the duty imposed by that relationship respecting property in which the party seeking the accounting has an interest. The purpose of an equitable accounting is to require a fiduciary to show what he or she did with the principal’s property. If a plaintiff is successful in an accounting claim, in addition to returning the property, a fiduciary must return any profits generated by the use of the property.
In Mullin, the First Department held that notwithstanding that there is no cause of action for breach of fiduciary duty against any defendant except WL Ross & Co. LLC, the mere existence of a fiduciary relationship otherwise gives rise to a claim for an accounting. The Court made clear that:
this right, as distinguished from a claim for an accounting in which there is no fiduciary relationship, does not require a showing that there is no adequate remedy at law. It is automatic and springs from the fiduciary relationship itself. The plaintiff has alleged that all defendants have a fiduciary obligation to him.
Thus, Mullin represents a sufficient clarification of case law to support a motion for renewal. Mullin holds that a party is not required to demonstrate that it has an adequate remedy at law where there is a fiduciary relationship between the parties. Stated otherwise, the mere existence of a fiduciary relationship gives rise to a claim for an accounting. Therefore, a plaintiff is not required to have a valid breach of fiduciary duty claim against a defendant where the plaintiff alleges a fiduciary relationship. As a result, Mullin requires that the Prior Decision be modified to the extent of denying dismissal of plaintiffs’ accounting claims against WL Ross. Here, plaintiffs allege that WL Ross, as the managing member of the three derivative-plaintiff LLCs, owes a fiduciary duty to the LLCs and the non-managing members, including plaintiffs. Under Delaware law, the managers of an LLC owe fiduciary duties. Therefore, defendants’ motion to dismiss is denied as to WL Ross & Co.
(Internal quotations and citations omitted).
Fiduciaries have special duties and complex commercial litigation often involves allegations of a breach of those duties. We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of trustees and professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner John Lundin at email@example.com if you or a client have questions regarding such claims or appeals of such claims.
Click here to subscribe to this or another of Schlam Stone & Dolan’s blogs.