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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: September 22, 2018

Court Dismisses Claim for Equitable Accounting

On September 5, 2018, Justice Masley of the New York County Commercial Division issued a decision inĀ Storper v. WL Ross & Co., LLC, 2018 NY Slip Op. 32235(U), dismissing a claim for equitable accounting, explaining:

Plaintiffs have failed to plead facts sufficient to support a legally viable claim for an equitable accounting. To be entitled to an equitable accounting, a claimant must demonstrate that he or she has no adequate remedy at law. 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.

In the amended complaint, plaintiffs allege that defendants breached certain fiduciary duties by improperly paying, causing to be paid, receiving, or retaining management fees and by not disclosing such fees to plaintiffs. Thus, the damages allegedly suffered by plaintiffs are clearly monetary. Therefore, plaintiffs could be made whole by an award of monetary damages. Where monetary damages are available and will make the plaintiff whole, the plaintiff has an adequate remedy at law. Thus, plaintiffs’ factual allegations, if proven, demonstrate that plaintiffs have an adequate remedy at law, and, therefore, are not entitled to an equitable accounting.

The court notes that plaintiffs are entitled by the terms of the amended and restated limited liability corporation agreement (LLCA) for each GP to fully inspect and audit the GP’s financial books and records, including its bank balances. Therefore, the financial information for each GP may be obtained through pre-trial discovery if not produced as required by the LLCA.

Contrary to plaintiffs’ contention, the mere allegation of the existence of a fiduciary duty, without more, does not entitle them to an equitable accounting. A plaintiff must also demonstrate that he or she has no adequate remedy at law before a court may award an equitable accounting.

(Internal quotations and citations omitted).

This decision relates to a significant part of our practice: business divorce (a break-up between the owners of a closely-held business). Contact 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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