Commercial Division Blog

Posted: April 27, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Category Unfair Competition

Fiduciary Relationship Exists Based on Longstanding Business and Personal Relationship with Plaintiff's Principals

In a Decision and Order dated March 10, 2022, in Four Five Capital LLC v. Schwartz, 2022 NY Slip. Op. 30795(U), Justice Andrew Borrok denied Plaintiff’s motion to dismiss a cause of action for unfair competition.  The Court explained: 

Mr. Schwartz is not entitled to dismissal of the cause of action for unfair competition because the allegations are that Four Five Capital (FFC) gave Mr. Schwartz non-public information that 824 Madison Avenue (the Property) was available for sale (Affidavit of Jason Silverstein, NYSCEF Doc. No. 22, ¶¶ 11-12) and the price which FFC was prepared to pay for such Property to Benchmark Real Estate Group (Benchmark). Despite Mr. Schwartz's arguments to the contrary, FFC had a reasonable expectation that Mr. Schwartz would keep the proprietary deal information confidential based upon his longstanding business and personal relationship with FFC's principals, during which FFC provided use of its office space, interne[t], phones, real estate software to Mr. Schwartz in exchange for his consultation and brokering of various deals which extended up until 2021 (Complaint, ¶¶ 12-13; Affidavit of Jason Silverstein, ¶¶ 3-6). Under these facts, it is clear that a special, continuous fiduciary relationship existed between Mr. Schwartz and FFC at the time the information including the price they were negotiating a contract for about the Property was conveyed to him. Instead of keeping this critically sensitive proprietary information private, Mr. Schwartz breached his fiduciary duty to FFC by giving this information to a competitor and encouraging them to purchase the Property for a few hundred thousand dollars more so that he would get paid a substantial commission.  (Complaint, ¶¶ 19-22, 25-27). This is sufficient to establish a claim for unfair competition (Macy's Inc. v Martha Stewart Living Omnimedia, Inc., 127 AD3d 48, 56, 6 N.Y.S.3d 7 [1st Dept 2015]. Mr. Schwartz's attempt to mis-characterize the relationship as a prior relationship where a broker has no continuous duty to his former clients simply misstates the facts as alleged. As discussed above, Mr. Schwartz was not merely a broker who had done prior deals with FFC. He was given special accommodation post-prior deals to use their office space, interne[t] service and other things during which time he allegedly misappropriated this critically sensitive information.

The attorneys at Schlam Stone & Dolan frequently litigate disputes concerning fiduciary duties and unfair competition.  Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such disputes.