Shareholders Did Not Breach Duty to Company by Operating Competing Companies

On July 10, 2019, the Second Department issued a decision in Laffey v. Laffey, 2019 NY Slip Op. 05521, holding that shareholders did not breach a duty to their company by operating competing companies, explaining:

Under the unusual circumstances presented, we agree with the Supreme Court's determination dismissing Emmett's counterclaim and cause of action alleging breach of fiduciary duty. The evidence presented at trial showed that each brother owned and operated his own real estate company well before acquiring the jointly owned businesses from their father. Even after acquiring the jointly owned businesses, the brothers—who never entered into a shareholders' agreement—openly continued for several years to own and operate their individual real estate businesses alongside the jointly owned businesses, often directly competing against one another and against the jointly owned businesses for listings and agents. In light of this history, the court dismissed the parties' respective allegations of breach of fiduciary duty, finding that the open and continued competition among the brothers—both before and after Emmett's purported removal from the jointly owned entities—did not amount to actionable misconduct.

(Internal citations omitted).

Fiduciaries have special duties, but the questions of whether a defendant is a fiduciary and what acts breach a fiduciary duty are sometimes complicated ones. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding such claims or appeals of relating to a fiduciary.