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Kaufman v. Cohen

Supreme Court of New York, Appellate Division, First Department

May 27, 2003, Decided ; May 27, 2003, Entered

2546

Opinion

 [*114]  [**161]   Gonzalez, J.

This appeal requires us to determine whether a three-year [*115]  or six-year statute of limitations applies to a cause of action by two partners against a third partner for breach of fiduciary duty arising from the misappropriation of a partnership [***2]  business opportunity where the complaint alleges, inter alia, actual fraud by the third partner and seeks both legal and equitable relief. As we find that a six-year statute of limitations and a discovery accrual rule applies to plaintiffs' breach of fiduciary duty claim, we find that cause of action to be timely. We further modify to reinstate plaintiffs'  [**162]  causes of action for fraud and an accounting.

On September 19, 1985 plaintiffs Gerald Kaufman and Stuart Seigel (plaintiffs) formed a partnership named SIG Partners (SIG) with defendant Irwin Cohen (Cohen). According to the written partnership agreement, SIG's purpose was to engage in business for profit, including but not limited to the development of a commercial property known as the Falchi Building, located at 31-02 47th Avenue, Long Island City, New York. SIG and a subsidiary of its financing partner, East River Savings Bank (East River), formed a limited partnership known as 31-02 47th Avenue Associates, L.P. (31-02). On December 22, 1986, 31-02 purchased the Falchi Building with a $15 million mortgage from East River.

Despite multiple refinancings, 31-02 was unable to make a commercial success of the building. In early [***3]  1992, 31-02 defaulted on its outstanding $30,250,000 mortgage, held at the time by Equitable Life Assurance Society of the United States (Equitable). In May 1992, Equitable commenced a foreclosure action, and 31-02 failed to answer the complaint or raise any objection to the foreclosure proceeding. Following entry of judgment of foreclosure, the sale of the Falchi Building was publicly noticed for October 27, 1993.

Plaintiffs allege that "at or about the time of the foreclosure action," Cohen represented to them that SIG's partnership interest in 31-02 could not be salvaged, was not worth salvaging and that they should let the interest lapse. Plaintiffs further allege that Cohen's representation was false, was known by Cohen to be false when made and that plaintiffs reasonably relied on Cohen's representation as a partner and fiduciary. 1 Plaintiffs claim that the falsity of Cohen's representation is demonstrated by the fact that, at the same time he made the [*116]  representation, he was secretly agreeing with new financial partners to reacquire the Falchi Building out of foreclosure at a substantial discount, and to the exclusion of plaintiffs.

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307 A.D.2d 113 *; 760 N.Y.S.2d 157 **; 2003 N.Y. App. Div. LEXIS 5918 ***

Gerald S. Kaufman et al., Appellants, v. Irwin B. Cohen et al., Respondents, et al., Defendants.

Prior History:  [***1]  Appeal from a judgment of the Supreme Court (Shirley Werner Kornreich, J.), entered April 15, 2002 in New York County, dismissing the amended complaint.

Disposition: Judgment affirmed in part and modified in part.

CORE TERMS

breach of fiduciary duty, cause of action, plaintiffs', statute of limitations, allegations, partnership, six-year, concealment, accounting, discovery, reacquire, aiding and abetting, limitations period, equitable, fiduciary, Holdings, fiduciary duty, constructive trust, actual fraud, misrepresentation, three-year, accrual, defendants', foreclosure, disclose, equitable estoppel, time-barred, damages, partner, entity

Business & Corporate Law, Causes of Action & Remedies, Breach of Fiduciary Duty, General Overview, Governments, Legislation, Statute of Limitations, Time Limitations, Limited Partnerships, Management Duties & Liabilities, Torts, Business Torts, Fraud & Misrepresentation, Civil Procedure, Pleadings, Heightened Pleading Requirements, Equitable Estoppel, Procedural Matters, Directors & Officers, Management Duties & Liabilities, Remedies, Equitable Accountings, Concerted Action, Civil Conspiracy, Estate, Gift & Trust Law, Trusts, Constructive Trusts