Landlord Not Entitled to Accounting from Tenant

On April 24, 2020, Justice Masley of the New York County Commercial Division issued a decision in 1101-43 Ave Acquisition LLC v. Rockstar Hotels LLC, 2020 NY Slip Op. 31424(U), holding that a landlord was not entitled to an accounting from a tenant or property manager, explaining:

Plaintiff cannot establish a likelihood of success with respect to its claim for an accounting. 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. A fiduciary relationship is created when one party is under a duty to act for, or give advice for the benefit of, another on matters within the scope of their relationship.

A fiduciary relationship is necessarily fact-specific, is grounded in a higher level of trust than normally present in the marketplace between those involved in arm's length business transactions. Generally, where parties have entered into a contract, courts look to that agreement to discover the nexus of the parties' relationship and the particular contractual expression establishing the parties' interdependency. If the parties do not create their own relationship of higher trust, courts should not ordinarily transport them to the higher realm of relationship and fashion the stricter duty for them. However, it is fundamental that fiduciary liability is not dependent solely upon an agreement or contractual relation between the fiduciary and the beneficiary but results from the relation.

Indeed, a fiduciary relationship does not exist between parties engaged in an arm's length business transaction, which is normally the situation between landlord and tenant. Demonstrating an arm's length business transaction without special circumstances such as control by one party of the other for the good of the other or the creation of an agency relationship is insufficient.

Plaintiff does not have a confidential or fiduciary relationship with defendants. The Lease outlines core responsibilities consistent with a relationship between a lessor and lessee and is bereft of any provisions that create a fiduciary duty. Additionally, the other relevant agreements also lack any provisions that create a fiduciary duty. Lastly, plaintiff has failed to demonstrate how the relationship of the parties created a fiduciary duty especially because defendants' obligation to collect revenues of the Hotel and pay them to certain accounts and creditors of plaintiff or the Hotel is precisely the arm-length business transaction that the relevant contracts memorialized. Therefore, plaintiff has failed to demonstrate the first prong necessary for a preliminary injunction to issue with respect to its accounting claim. Because plaintiff has not established the first prong, the court declines to discuss the other two requirements.

(Internal quotations and citations omitted).

Fiduciaries have special duties and complex commercial litigation often involves allegations of a breach of those duties. 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.