Derivative Action Against Icahn Defendants Survived Motion to Dismiss Despite Absence of Damages

On November 18, 2021, the First Department, in Miami Firefighters' Relief & Pension Fund v Icahn, 2021 NY Slip Op 06446, unanimously reversed the decision of Justice Barry R. Ostrager granting defendants’ motion to dismiss the causes of action for breach of fiduciary duty and breach of contract in a derivative action brought against Icahn and other defendants for using confidential information about Xerox’s planned acquisition of HP Inc. to buy HP shares. The lower court granted the motion based on the Icahn defendants’ affidavit which purported to show a loss resulting from the relevant stock trades. The First Department explained that a loss does not foreclose the possibility that the Icahn defendants used Xerox confidential information to their advantage:

At this stage of the litigation, the claim for breach of fiduciary duty was pleaded with the particularity required by CPLR 3016(b), as the complaint states that the Icahn defendants used confidential information about Xerox's planned acquisition of HP Inc. to buy HP common shares before news of the acquisition became public and before HP's stock price increased. These allegations are sufficient to inform the Icahn defendants of the incidents said to underlie the breach of fiduciary duty claims (see Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 [2008]). Although the complaint does not state how the Icahn defendants [*2]allegedly misappropriated the confidential information, the facts that would support the breach of fiduciary duty and breach of contract claims are peculiarly within the Icahn defendants' knowledge. Thus, the appropriate course of action is to order discovery (id. at 491-492).

The complaint states a cause of action for breach of contract, as there is no requirement of heightened particularity in a contract claim (Vandashield Ltd. v Isaacson, 146 AD3d 552, 554 [1st Dept 2017]).

Contrary to the Icahn defendants' contention and the motion court's conclusion, plaintiffs' claims do not fail for lack of damages, as damages "have never been considered to be an essential requirement for a cause of action founded on a breach of fiduciary duty" (Diamond v Oreamuno, 24 NY2d 494, 498 [1969]). The function of an action for breach of fiduciary duty "is not merely to compensate the plaintiff for wrongs committed by the defendant but . . . to prevent them, by removing from . . . trustees all inducement to attempt dealing for their own benefit in matters . . . to which their . . . trust relates" (id. [internal quotation marks omitted]).

The attorneys at Schlam Stone & Dolan LLP frequently litigate claims for breach of fiduciary duty and breach of contract. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions about a case where an individual or company misused your confidential information.