Court Grants Motion To Dismiss Breach Of Fiduciary Claim For Failure To Allege Damages

On April 12, 2024, Justice Margaret A. Chan granted plaintiff’s motion to dismiss defendants’ counterclaims for breach of contract, unjust enrichment, and breach of fiduciary duty. Defendants in Murphy v. PHG Funding LLC et al., Index No. 656158/2021, alleged counterclaims arising out a settlement with plaintiff and transactions related thereto. As to defendants’ counterclaim for breach of fiduciary duty, the Court explained:

“To state a claim for breach of fiduciary duty, plaintiff must allege that ‘(1) defendant owed them a fiduciary duty, (2) defendant committed misconduct, and (3) they suffered damages caused by that misconduct’” (New York Mar. & Gen. Ins. Co. v Wesco Ins. Co., 213 AD3d 461, 462 [1st Dept 2023]). Furthermore, “a cause of action sounding in breach of fiduciary duty must be pleaded with particularity”' (id.).

Even with the most liberal construction, defendants’ fiduciary duty counterclaim fails because defendants did not plead any non-conclusory damages. Defendants merely alleged that they “have incurred harm and damages in an amount to be proven at trial due to Murphy's breaches of the fiduciary duty” (NYSCEF # 61 at 9 ,¶ 31). This does not suffice to support a cause of action.

Defendants also failed to plead the other elements with the required degree of particularity. There is no clear allegation of the source of the fiduciary duty, what that duty encompasses, or even how that duty was breached. As for misconduct, defendants argue that the breach was in “misus[ing] the LLC framework to ascribe federal tax liability to Jorn and Thomas for funds that he received on their behalf” (NYSCEF # 78 at 9), but much about that sentence makes no sense. Plaintiff would have received that money on his own behalf, not theirs. And as already discussed, the tax allegations are vague, conclusory, and general, containing no specifics about how the tax liability was avoided or how that breaches the duty. This counterclaim is dismissed.

The attorneys at Schlam Stone & Dolan frequently counsel clients regarding breach of contract, unjust enrichment, and breach of fiduciary duty. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.