Continental Industries Group, Inc. V. Ustuntas: Revisiting Aiding And Abetting Breach Of Fiduciary Duty Claims

• Published date: 26 July 2023
• Subject Matter: Finance and Banking, International Law, Commodities/Derivatives/Stock Exchanges, International Trade & Investment
• Law Firm: Meyer Suozzi English & Klein
• Author: Mr Matthew A. Marcucci

Aiding and abetting breach of fiduciary duty claims are litigated frequently, and this blog has addressed them here and here. The Appellate Division, First Department, recently opined on aiding-and-abetting liability in Cont. Indus. Group, Inc. v. Ustuntas, 211 A.D.3d 601 (1st Dep't 2022). As the court's decision shows, aiding-and-abetting claims are readily susceptible to dismissal, so it is crucial for plaintiffs to allege every required element.

An aiding-and-abetting claim has three elements: (1) someone with fiduciary obligations to someone else breaches those obligations; (2) the defendant'i.e., the "aiding-and-abetting" party'knowingly induces or participates in the breach; and (3) the plaintiff suffers damages as a result of the breach. See Kaufman v. Cohen, 307 A.D.2d 113, 125 (1st Dep't 2003).

But aiding-and-abetting claims present an additional trap for the unwary. In pleading Element 2 above (knowing inducement or knowing participation), a plaintiff must allege that the defendant had actual knowledge of the fiduciary's breach. Simply alleging that the plaintiff knew or should have known about the breach will not suffice. As the court in Kaufman v. Cohen opined:

Although a plaintiff is not required to allege that the aider and abettor had an intent to harm, there must be an allegation that such defendant had actual knowledge of the breach of duty. Constructive knowledge of the breach of fiduciary duty by another is legally insufficient to impose aiding and abetting liability.

307 A.D.2d at 125 (emphasis added).

The First Department revisited this principle in the Ustuntas case, which this blog recently discussed in a different context here. Continental Industries Group ("CIG"), the plaintiff in this dispute, was a New York-based company engaged in the international trade of commodities such as chemicals and resins. Hakan Ustuntas, the defendant, worked for CIG. While in CIG's employ, Ustuntas became a shareholder of two additional entities: Plasmar, one of CIG's customers, and Marchem, Plasmar's "sister company." Subsequently, Ustuntas retired from CIG.

Thereafter, CIG sued Ustuntas alleging breach of fiduciary duty. CIG's core allegations were that Ustuntas took CIG's confidential and proprietary information, including CIG's supplier and customer information, and used that information for his benefit and for the benefit of Plasmar and Marchem. CIG argued that Plasmar and Marchem recruited Ustuntas...