Fiduciary Status, Diversion Of Funds And Damages Sufficiently Established To Support Summary Judgement On Fiduciary Breach Claim

On January 23, 2025, Justice Andrew Borrok granted plaintiffs summary judgment as to liability on fiduciary breach, reserving the issue of damages. Seaton v. Babad, Index No. 654196/2021.

Defendant Chiam Babad was alleged to have diverted millions of dollars from Park 121 Realty, LLC (Park), where he was managing member. Plaintiffs sued Babad, individually and as president and signatory of co-defendant Congregation Kahal Minchas Chinuch (Congregation) with whom he was alleged to have conspired, for breach of fiduciary duty, aiding and abetting the other’s fiduciary breaches, and negligence.

In granting summary judgment against Babad on Park’s fiduciary breach claim, the Court explained:

The plaintiffs have met their burden of coming forward with sufficient evidence to establish that (i) Mr. Babad, as a managing member himself, owed fiduciary duties to Park and its members, (ii) he breached those duties by inter alia engaging in self-dealing by advancing the interests of Congregation at the expense of Park, failing to even attempt to finance Park through institutional lenders at a reasonable rate of interest as required in the Operating Agreement (NYSCEF Doc. No. 256 § 14 [b]), and instead borrowing the money from Congregation, a corporation in his control, and (iii) this misconduct caused damages to Park.

Seaton v. Babad, p. 3. The Court reserved decision on damages pending submission from Park’s receiver, and/or trial. Id., p. 4, n.1.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning breach of fiduciary duties.