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Once a plaintiff establishes the existence of that relationship of trust and reliance by one party and dominance by the other, equity then raises a presumption of undue influence and casts upon the dominant party the burden to show affirmatively in the particular transaction entire fairness on his part and freedom of the other from undue influence.
Plaintiff Theodore Rosenthal had an agreement with defendant Robert Rosenthal, whereby plaintiff sold his interest in the family businesses back to the family. Plaintiff brought an action against defendant, claiming that defendant had wrongfully interfered with plaintiff’s advantageous business relations in the family enterprises, that he had violated a confidential relationship with plaintiff, and that defendant and his wide had violated their fiduciary obligations to plaintiff in the context of the Rosenthal family businesses. According to plaintiff, because of defendant’s breach of fiduciary obligations, he was improperly forced out of the family businesses and that he sold his share of those businesses at an unfairly low price. Defendant argued that his agreement with plaintiff constituted a full accord and satisfaction of all the claims plaintiff was asserting. During trial, the judge instructed the jury that in determining whether defendants had violated their fiduciary obligations, the jury should give to the reasoned exercise of business judgment by the defendant and his wife. The jury found that the agreement did not constitute an accord and satisfaction, that defendant and his wife violated their fiduciary obligations toward plaintiff, and that defendant had abused a confidential relationship with plaintiff. Defendant appealed.
To establish that defendant violated a confidential relationship with plaintiff in the operation of the Rosenthal family enterprise, plaintiff had to show the actual placing of trust and confidence in fact by him in defendant and a great disparity of position and influence between the parties to the relation. In this case, the court found no evidence in the record that would allow the jury rationally to find as an initial matter that during the years immediately preceding the sale of his interest in the family enterprise, plaintiff in fact had placed trust and reliance in his brother. Thus, the court vacated the jury’s findings that a confidential relationship existed and had been violated. The court also vacated the judgment on the remaining claim because the trial court judge so significantly misstated the business judgment rule. The court held that defendant was entitled to an instruction on the "substituted contract" theory of their affirmative defense of accord and satisfaction and remanded the matter.