Breach of Fiduciary Duty Claim Dismissed for Lack of Damages

On June 24, 2021, the First Department issued a decision in Besen v. Farhadian, 2021 NY Slip Op. 04080, dismissing a breach of fiduciary duty claim for lack of damages, explaining:

To state a claim for breach of fiduciary duty, plaintiffs must allege that (1) defendant owed them a fiduciary duty, (2) defendant committed misconduct, and (3) they suffered damages caused by that misconduct.

Besen has failed to adequately plead the damages that flow from any alleged breach of fiduciary duty. Besen argues that the purchase of the note and mortgage by Farhadian and Doshi through Jackson as part of a plan to commence a foreclosure proceeding against their own company, deprive the Company of a legal defense, abscond with the Company's sole asset as part of a rigged foreclosure process and generate default rate interest constituted self-dealing and bad faith.

However, as the amended complaint states, the loan was already an encumbrance on the property and needed to be paid off shortly. After the loan was assigned to Jackson, the creditor changed but it still needed to be paid off. Instead, the matter is now resolved, the property was not sold in a rigged process or at all, the debt has been paid, and the LLC still has the property as its asset. There is no allegation in the amended complaint that the LLC was required to pay a default interest rate. In short, aside from speculation, Besen does not allege any damage by the managing members' purchase of the note and mortgage.

(Internal quotations and citations omitted).

A key element in commercial litigation is proving damages. As this decision shows, the inability to show damages can be fatal to a claim. Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding proving damages.