Counterclaims Timely Because They Related Back to Date of Complaint

On July 31, 2020, Justice Borrok of the New York County Commercial Division issued a decision in Office Group, Inc. v. Sinesio, 2020 NY Slip Op. 32527(U), holding that counterclaims were timely because they related back to the date the complaint was filed, explained:

A claim for breach of fiduciary duty requires (1) the existence of a fiduciary relationship, (2) misconduct by the fiduciary, and (3) damages directly caused by the fiduciary's misconduct. A claim grounded in breach of fiduciary duty must be pled with particularity pursuant to CPLR § 3016(b).

Here, Mr. Sinesio alleges that Ms. Horowitz breached her fiduciary duty by (i) failing to participate in the financial and administrative management of Office Group, (ii) causing Office Group to pay for unauthorized personal expenses in October 2016 without repaying the company, and (iii) reducing Mr. Sineso's share of Office Group's profits as a result. In his affidavit in opposition to the instant motion, Mr. Sinesio identifies three transactions between October 2016 to July 2017, which transactions allegedly consisted of personal expenses that Ms. Horowitz had paid through Office Group's checking account. Mr. Sinesio also pleads damages resulting from Ms. Horowitz's alleged wrongdoing as he claims to have personally covered Office Group's expenses without reimbursement. According every favorable inference as this court must on a motion to dismiss, Mr. Sinesio alleges misconduct by Ms. Horowitz with sufficient particularity to state a claim for breach of fiduciary duty.

As Mr. Sinesio seeks monetary damages for Ms. Horowitz's alleged breach of fiduciary duty, his claim is subject to a three-year limitation period.

Mr. Sinesio's initial counterclaims were not filed until December 18, 2019. However, inasmuch as Mr. Sinesio's breach of fiduciary duty claim concerns Ms. Horowitz's conduct in October of 2016, Mr. Sinesio correctly argues that the claim relates back to the date that the Complaint was filed on September 27, 2019 pursuant to CPLR § 203(d).

CPLR § 203(d) codifies the doctrine of equitable recoupment, which permits a defendant to assert an otherwise untimely counterclaim if it arises from or relates to the same transactions as alleged in the complaint. To invoke the doctrine, a defendant must show that an otherwise untimely defense or counterclaim arises from the transactions, occurrences, or series of transactions or occurrences alleged in the complaint. In other words, the counterclaim must arise from the same transactions or series of transactions.

Here, the Complaint alleges that, inter alia, Mr. Sinesio breached his fiduciary duties to Ms. Horowitz, deprived Ms. Horowitz of her salary and refused to compensate her fairly throughout 2016. At the pleading stage, this is sufficient for the court to conclude that the counterclaim arises out of the same series of events that forms the basis of the allegations in the Complaint. Significantly, Ms. Horowitz placed her 2016 compensation at issue in her Complaint, and Mr. Sinesio is, thus, also entitled to assert claims relating to her compensation and/or whether she wrongfully misused company funds to pay for her own personal expenses. As such, Mr. Sinesio's breach of fiduciary duty claim is timely under CPLR § 203(d) inasmuch as he seeks to assert claims that would have been timely as of the date of the Complaint, i.e., September 27, 2019. The branch of the Plaintiffs' motion to dismiss the first counterclaim for breach of fiduciary duty is denied.

(Internal quotations and citations omitted).

It is not unusual for the statute of limitations to be an issue in complex commercial litigation. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions regarding whether claims are barred by the statute of limitations.