Commercial Division Blog
Breach of Fiduciary Claim Dismissed as Duplicative of Contract Claim Because it Was Based on Breach of Duties Assigned by Contract
On December 2, 2020, Justice Platkin of the Albany County Commercial Division issued a decision in Rockmore v. Plastic Surgery Assoc., LLP, 2020 NY Slip Op. 51461(U), dismissing a breach of fiduciary duty claim as duplicative of a breach of contract claim because it was based on the breach of duties set by contract, explaining:
It is well established that the same conduct which may constitute the breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by contract but which is independent of the contract itself. The Court's focus when presented with parallel claims for breach of contract and breach of fiduciary duty must be on whether a noncontractual duty was violated as opposed to those imposed consensually as a matter of contractual agreement.
Plaintiffs allege that the other partners of PSA owed fiduciary duties to JLR-PC independent of the specific terms of the Partnership Agreement, and defendants do not dispute this contention.
Nonetheless, a cause of action for breach of fiduciary duty which is merely duplicative of a breach of contract claim cannot stand. Thus, in Brooks v Key Trust Co. Natl. Assn. (26 AD3d 628 [3d Dept 2006], lv dismissed 6 NY3d 891 ), the Third Department upheld the dismissal of a claim for breach of fiduciary duty as duplicative, explaining:
Plaintiff's claim is based upon the same facts and theories as his breach of contract claim and the allegations underlying plaintiff's fiduciary duty claim are either expressly raised in plaintiff's breach of contract claim or encompassed within the contractual relationship by the requirement implicit in all contracts of fair dealings and good faith. As such, plaintiff has not set forth allegations that, apart from the terms of the contract, the parties created a relationship of higher trust than would arise from their contracts alone so as to permit a cause of action for breach of a fiduciary duty independent of the contractual duties.
Accordingly, a claim for breach of fiduciary duty must be dismissed where it fails to allege conduct by defendants in breach of a duty other than, and independent of, that contractually established between the parties.
The issue therefore becomes whether the Amended Complaint pleads any breaches of fiduciary duty that are independent of, and distinct from, the alleged breaches of the Partnership Agreement. While recognizing that there is some overlap, plaintiffs insist that the factual and legal theories underlying the claims are plainly distinct.
According to plaintiffs, the contractual claim is based on violations of the procedural consent, meeting and notice requirements of the Partnership Agreement, unauthorized deduction of $10,000 from JLR-PC's December distribution and the deduction of expenses for January 2019, the improper reduction in JLR-PC's Adjusted Basis under the BRA, which improperly increased JLR-PC's liability for additional pension contributions, and the failure to pay JLR-PC the redemption value of its partnership interest.
In contrast, the gravamen of Plaintiffs' breach of fiduciary duty claim is that from the time that Plaintiff JLR-PC provided notice of intention to withdraw, Defendants DMH-PC, SMG-PC, Hargrave and Gannon engaged in an intentional, concerted effort to (1) exclude Plaintiffs from participating in the management, business and affairs of PSA, (2) manage the business and affairs of PSA such that they shifted future practice liabilities to JLR-PC and (3) misappropriate JLR-PC's revenues and contributions to the Plan for their own benefit and use, through distribution of such revenues to themselves or diversion of such revenues to satisfy their own obligations.
The Court is unconvinced by plaintiffs' efforts to distinguish the factual underpinnings of their breach of fiduciary duty claim from the claim for breach of contract. Plaintiffs assert that the Partnership Agreement governs only the procedures to be followed in making partnership decisions whereas the claim for breach of fiduciary duty encompasses the substantive business and management decisions and actions taken by the other partners of PSA, but close review of the Amended Complaint shows that plaintiffs are, in fact, challenging PSA's substantive decisions and the financial responsibility for those decisions through their claim that defendants breached the Partnership Agreement.
. . .
For the reasons stated above, the Court concludes that the breaches of fiduciary duties pleaded with particularity in the Amended Complaint arise out of the parties' contractual relationship, as opposed to their fiduciary relationship. Thus, while conduct falling short of a breach of contract may constitute a breach of fiduciary duty in some cases, plaintiffs have not pleaded any such breaches with particularity. At best, the Amended Complaint offers conclusory allegations that extra-contractual duties were breached.
Inasmuch as the allegations underlying plaintiffs' breach of fiduciary duty claim are either expressly raised in plaintiffs' breach of contract claim or encompassed within the contractual relationship by the requirement of fair dealings and good faith, and the damages sought on both claims are essentially the same,[FN5] the branch of defendants' motion seeking dismissal of claim for breach of fiduciary duty as duplicative of plaintiffs' contractual claim must be granted.
(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 firstname.lastname@example.org if you or a client have questions regarding such claims or appeals of such claims.