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How You Can Breach a Fiduciary Duty in New York Even Without a Contract

 

There seems to be a misconception that only executives, or people with written agreements, can be found liable for breaching a fiduciary duty under New York law. Stated differently, absent a breach of contract, there can be no breach of a fiduciary duty.

 

This notion is particularly dangerous not only because it isn't true, but because the consequences can be rather steep financial liability for the party violating those fiduciary duties.

 

The truth is that you can have a breach of fiduciary duty - even absent a contract.

 

As one of New York's courts recently summarized the rule:

 

"Under New York law, 'conduct amounting to breach of a contractual obligation may also constitute the breach of a duty arising out of the relationship created by contract which is nonetheless independent of such contract." Bullmore v. Ernst & Young Cayman Islands, 846 N.Y.S.2d 145, 148 (1st Dept 2007). Defendants who owe fiduciary duties to a plaintiff "may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties," since in "these instances, it is policy, not the parties' contract, that gives rise to a duty of care." Sommer v. Federal Signal Corp., 593 N.E.2d 1365, 1369 (N.Y. 1992); Meyers v. Waverly Fabrics, Div. of F. Schumacher & Co., 479 N.E.2d 236, 239 n.2 (N.Y. 1985) (internal citations and quotations omitted) ("[I]t is plain that a contracting party may be charged with a separate tort liability arising from a breach of duty distinct from, or in addition to, the breach of contract…as when it springs from extraneous circumstances, not constituting elements of the contract as such although connected with and dependent upon it, and born of that wider range of legal duty which is due from every man to his fellow, to respect his rights of property and person, and refrain from invading them by force or fraud.')."

 

There is an important corollary to this rule, however:

 

"A "cause of action alleging breach of a fiduciary duty, which…is merely duplicative of a breach of contract claim, cannot stand." See, e.g., Hylan Elec. Contr., Inc. v. MasTec N Amer., Inc., 903 N.Y.S.2d 528, 530 (2d Dep't 2010)."

 

In other words, where a defendant owes no duty to the plaintiff outside of that created by the contract, a breach of fiduciary duty claim will not lie.