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Pappas v. Tzolis - 2012 NY Slip Op 8053, 20 N.Y.3d 228, 958 N.Y.S.2d 656, 982 N.E.2d 576

Rule:

Two key elements of conversion are: (1) a plaintiff's possessory right or interest in the property; and (2) the defendant's dominion over the property or interference with it, in derogation of plaintiff's rights.

Facts:

After the parties formed and managed a limited liability company (LLC), for the purpose of entering into a long-term lease on a building, numerous business disputes ensued. The first member took sole possession of the property and then bought the other members' interests in the LLC. The LLC then assigned the lease to a development company. The other members claimed that the first member breached his fiduciary duty to them by failing to disclose the negotiations with the company and filed claims  against the first member for breach of fiduciary duty, conversion, unjust enrichment, and fraud and misrepresentation. The trial court issued an order allowing the claims, and the first member appealed. The Appellate Division certified a question as to whether the trial court's order was properly made.

Issue:

Was the trial court's order properly made?

Answer:

No

Conclusion:

The order was reversed, the complaint was dismissed in its entirety, and the certified question was answered in the negative. The Court of Appeals found that the other members were sophisticated businesspeople represented by counsel. Moreover, as the parties' relationship had become so antagonistic that the other members could not reasonably regard the first member as trustworthy, and they could not prevail on their causes of action for breach of fiduciary duty, fraud, and misrepresentation. Because the first member had purchased the other members' interests in the LLC, there could be no interference with their property rights. Thus, the conversion claim had to be dismissed. Finally, as the sale of the other members' interests in the LLC was controlled by contracts, the unjust enrichment claim failed as a matter of law.

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