Court Denies Motion To Dismiss Breach Of Fiduciary Duty Claims As Duplicative Of Breach Of Contract Claims

Posted: May 19, 2025 / Written by: Jeffrey M. Eilender, Thomas A. Kissane, Samuel L. Butt, Joshua Wurtzel, Channing J. Turner / Categories Motion to Dismiss, Commercial, Derivative Actions

Court Denies Motion To Dismiss Breach Of Fiduciary Duty Claims As Duplicative Of Breach Of Contract Claims

On March 31, 2025, Justice Melissa A. Crane denied defendants’ motion to dismiss plaintiff’s breach of fiduciary claims in G.O.C. Invs. Co. Inc. v. Boaz Bagbag, Index No. 650785/2024. Plaintiff claimed, in essence, that defendants fraudulently induced G.O.C. to invest millions of dollars to create two jointly owned companies but defendants improperly took funds belonging to or owed to the companies. As to the plaintiff’s breach of fiduciary duty claims, the Court explained:

The second and eleventh causes of action assert claims for breach of fiduciary duty. A breach of fiduciary is a tort that arises from a violation of a relationship of trust and confidence, such as that of an agent to his principal or a lawyer to his client (see Vione v. Tewell, 12 Misc 3d 973 [Sup Ct, NY County 2006]). The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, and misconduct by the defendant, resulting in damages (see Village of Kiryas Joel v. County of Orange, 144 AD3d 895, 898-899 [2d Dept 2016]). A fiduciary relationship requires a showing of a relation between two persons "when one of them is under a duty to act for or give advice for the benefit of another upon matters within the scope of the relation" (EBC I, Inc. v. Goldman Sachs & Co., 5 NY3d 11, 19 [2005]).

Here, the second cause of action alleges that BSD Leasing was entrusted with the right to manage the activities of UGRT Automotive and to carry out the intentions of the stockholders with respect to the company's business activities and development, and that BSD leasing breached fiduciary duties of loyalty and care to UGRT Automotive by misappropriating funds from UGRT Automotive (complaint ¶¶ 138 - 140). Specifically, defendants allegedly stole the $1,975,000 that GOC had previously invested in from UGRT Automotive (complaint ¶ 74). Some of the funds were transferred to BSD Leasing and some of the funds were transferred to Bagbag (complaint ¶¶ 75, 76).

Similarly, the eleventh cause of action alleges that BSD Tree was entrusted with the right to manage the activities of URGT One and to carry out the intentions of the stockholders with respect to the company's business activities and development, and that BSD Tree breached fiduciary duties of loyalty and care by misappropriating or engaging in self-dealing with funds belonging to or earmarked for URGT One, resulting in damages ( complaint ¶¶ 90 - 94, 107 - 108, 188 - 190). Both claims are asserted derivatively.

Defendants' sole argument in favor of dismissal is that the breach of fiduciary duty claims duplicate the breach of contract claims. Defendants are wrong. The allegations detail an extreme level of self-dealing and diversion of corporate funds that are sufficient to state a claim for breach of fiduciary duty (see Dar v. SAJ Transportation Ne. LLC, 235 AD3d 581, 583 (1^st Dep't 2025); see also Pokoik v. Pokoik, 115 AD3d 428 [1st Dep't 2014]). This is especially so given that the court has dismissed all claims for breach of contract.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning breach of fiduciary duties or derivative claims.