Joint Venture's Controlling Shareholder Liable for Aiding and Abetting Manager's Breach of Fiduciary Duty

On October 22, 2018, Justice Ramos of the New York County Commercial Division issued a decision in U-Trend N.Y. Inv. L.P. v. US Suite LLC, 2018 NY Slip Op. 32894(U), holding the controlling shareholder of a joint venture liable for aiding and abetting a manager's breach of fiduciary duty by failing to take action to prevent the manager's breach, explaining:

Under New York law, a fiduciary can be liable for substantial assistance when the fiduciary fails to act. The mere inaction of an alleged aider and abettor constitutes substantial assistance only if the defendant owes a fiduciary duty directly to the plaintiff. Aura had actual knowledge of 440 West's wrongdoing, provided substantial assistance to 440 West; and U-Trend suffered damages as a result.

Aura owed a fiduciary duty directly to U-Trend by virtue of being the controlling shareholder of the Joint Venture. Accordingly, Aura is liable for aiding and abetting Mr. Suky's breach of fiduciary duty by failing to remove Mr. Suky, failing to take control of the Property's bank accounts away from Mr. Suky, and failing to obtain reliable financial information for the Property.

(Internal quotations and citations omitted).

As this decision shows, fiduciaries have special, extra-contractual duties, including the duty to act to prevent harm to the persons or entities to which they owe a fiduciary duty. 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 jlundin@schlamstone.com if you or a client have questions regarding such claims or appeals of such claims.