Kofinas et al v. Fifty-Five Corporation et al

Filing 82

OPINION: Because plaintiffs have not alleged a pattern of misconduct directed at the public, plaintiff cannot recover punitive damages, so all claims for punitive damages are dismissed (though again these dismissals are, at this stage, without p rejudice). For these reasons, the Court, by order dated January 29, 2021, granted without prejudice defendants' motion to dismiss for failure to state a claim with respect to Counts Four and Six (tortious interference with contract and aiding and abetting the same) and all claims for punitive damages, and denied defendants' motions to dismiss in all other respects. SO ORDERED. (Signed by Judge Jed S. Rakoff on 2/16/2021) (rj)

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 1 of 22

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------x
GEORGE KOFINAS & MARIA KOFINAS,
:
:
Plaintiffs,
:
:
-v:
:
FIFTY-FIVE CORP., et al.,
:
:
Defendants.
:
:
-----------------------------------x

20-cv-7500 (JSR)
OPINION

JED S. RAKOFF, U.S.D.J.
George and Maria Kofinas lease three commercial units on the
ground

floor

of

Fifty-Five

cooperative in Manhattan.

Central

Park

West,

a

residential

Plaintiffs allege that the Board of

Directors of the cooperative were aware that water was leaking
into their units through cracks in the sidewalk and the foundation
walls.

Plaintiffs further allege that, against the advice of the

building architect, defendants pursued a quick-fix solution -sidewalk caulking and interior sealant -- rather than a more
durable solution like repairs to the sidewalk and foundation walls.
This left plaintiffs’ units vulnerable, plaintiffs’ claim, and the
leaks eventually returned, causing water damage and mold, and
requiring plaintiffs to close their business, a fertility clinic.
Meanwhile, plaintiffs allege, the cooperative spent millions of
dollars on luxuries for the residential tenants, like a roof
garden.
1

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 2 of 22

Plaintiffs filed this lawsuit against Fifty-Five Corporation,
the owner of the building, as well as the members of its Board of
Directors at the pertinent times and the building’s managing agent.
Plaintiffs bring six counts: breach of contract and negligence,
against the cooperative; breach of fiduciary duty and tortious
interference with contract, against the Board members; and aiding
and abetting the alleged breach of fiduciary duty and the alleged
tortious interference with contract, against the managing agent.
Now before the Court are defendants’ two motions to dismiss.
The

defendants

jurisdiction
defendants
plaintiffs’

contend

because
contend,

that
the

the

professional

the

Court

plaintiffs
alleged

lacks
lack

damages

corporation,

subject
standing

were

not

by

matter
since,

suffered

by

plaintiffs

personally. The defendants also contend that the Amended Complaint
does not state a claim against the individual defendants because
those defendants are protected by the business judgment rule and
by a New York doctrine that shields individual board members
against liability for a corporation’s alleged breach of contract.
Finally, defendants contend that the Amended Complaint fails to
adequately state its claim for punitive damages.
On January 29, 2021, by bottom-line order, the Court denied
the motion to dismiss for lack of subject matter jurisdiction,
granted the motion to dismiss for failure to state a claim with
respect to Count Four, Count Six, and all claims for punitive
2

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 3 of 22

damages, and otherwise denied the motions to dismiss. This Opinion
explains the reasons for that ruling.
BACKGROUND
The Amended Complaint, ECF No. 65 (“Am. Compl.”), contains
the following allegations, which the Court presumes to be true for
purposes of this motion only.
Plaintiffs George and Maria Kofinas jointly own the stock and
are the lessees of the Proprietary Leases allocable and appurtenant
to units 1B, 1C, and 1D/HW (the “Units”) at 55 Central Park West
(the “Building”), a residential cooperative owned by defendant
Fifty-Five Corp. (the “Corporation”).

Am. Compl. ¶¶ 36, 37.

Plaintiffs operate fertility clinics, laboratory centers, and
surgical centers in Manhattan, Brooklyn, and Staten Island.
¶ 36.

Plaintiffs reside in New Jersey.

Id.

Id. ¶¶ 36, 84.

Defendants Peter N. Greenwald, Jane Majeski, Paul J. “PJ”
Mode, Stephen Farinelli, Dr. Ronald Blum, David Hendin, Marc Lasry,
Robin Baum, Stewart Lipson, Sean Gallagher, Meredith Segal, David
Cudaback, Paula Dagen, Lauren Helm, Paula Wardynski, Jeffrey Levy,
and John Santoleri (the “Board Members”) were members of the Board
of Fifty-Five Corporation during the period covered by the Amended
Complaint.
Realty

Id. ¶¶ 12, 15-35.

Management

Corp.

Defendants Frederick Rudd and Rudd

(collectively,

the

“Managing

Agent”)

served as managing agent for the Building.

Id.

Defendants

defendants,

reside

in

--

or,

for
3

corporate

¶¶ 13-14.
are

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 4 of 22

incorporated and have their principal place of business in -- New
York.

Id. ¶¶ 12-35.

Plaintiffs purchased the Units in 2014 and 2015, planning to
combine the Units and renovate them into a single fertility clinic.
Id. ¶ 38.

The Units sit slightly below sidewalk level.

By October

2014, the Board Members had learned that water was penetrating
from under the Central Park West sidewalk into the Units, but they
did

not

tell

renovating

plaintiffs.

and

combining

Id.
the

¶¶

42-50.

Units,

discovered the water penetration.

and

Plaintiffs
their

began

contractors

Id. ¶¶ 52-57.

In or around October 2015, at plaintiffs’ request, John
Wender,

the

foundation
problem:

Building’s

walls

and

architect,

determined

that

inspected
there

was

the
a

exterior
structural

moisture from “perched water” three feet below the

sidewalk was seeping into the Units.

Id. ¶¶ 61-62.

The architect

advised the Managing Agent, Rudd, and at least one Board member,
Greenwald, that “re-caulking is cheap and quick” but “the water is
more likely subterranean.”

Id. ¶ 62 & Ex. F.

Wender explained,

“Short of tearing up the side walk, or elaborate injection systems,
an interior gutter is a possible fix.”

Id.

Plaintiffs allege that “the Corporation did not wish to
allocate the funds required to perform the necessary work to
permanently waterproof the Units because the Corporation preferred
to

allocate

the

money

to

other
4

projects,

including

a

lobby

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 5 of 22

renovation.”

Id. ¶ 57.

The architect therefore recommended that

plaintiffs apply Aquafin, a sealant, to the fertility clinic’s
interior walls as a temporary solution, and plaintiffs did so.
Id. ¶ 58.

The Board Members chose to allocate $9,500 to re-caulk

the sidewalk (the method the architect had described as “cheap and
quick”) but did not authorize more extensive repairs.

Id. ¶ 66.

At the same Board meeting, which several of the defendant Board
Members, as well as defendant Rudd, attended, the Board allocated
$250,000 to create a rooftop garden.

Id. ¶ 67 & Ex. H.

Around

that time, the Board allocated millions of dollars to a variety of
other capital improvement projects that would improve the quality
of life for residential unit owners, with no benefit to the
plaintiffs as commercial unit owners (e.g., a $1.5 million lobby
beautification project, a $300,000 new roof).

Id. ¶¶ 84, 106-108.

Plaintiffs finished merging and renovating the Units, and
their fertility clinic opened in February 2017.

By at least

December 2017, the Board Members learned that the structural steel
columns beneath the Units were degraded, and the Board hired an
engineer to investigate.

Id. ¶¶ 76-81.

In June 2018, at the

annual shareholder meeting, the Board Members reported to the
shareholders that a structural engineer determined that water was
rusting the columns, causing brick to separate; the Board Members
ordered that the columns be reinforced.

5

Id. ¶ 81.

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 6 of 22

The

temporary

sealant

that

plaintiffs

applied

to

their

interior walls eventually failed, and water penetrated the clinic
again in July 2019, causing buckling and squishing floors, odors,
water bugs, wet walls, and mold.

Id. ¶¶ 4, 86-91, 138-148.

In

October 2019, the Board Members directed an engineer to perform a
water

test.

Id.

¶

92.

Following

the

test,

the

engineer

recommended “removing the sidewalk flags along the building wall
to allow the foundation wall to be waterproofed and install[ing]
a new sidewalk to match [the] existing [one].”

Id. ¶ 93.

One of

the Board Member defendants, Greenwald, then promised plaintiff
George Kofinas that the building would undertake these repairs
immediately after the 2019 Thanksgiving Parade, id. ¶ 96, and the
November 2019 Board meeting minutes likewise report that “[p]lans
and specifications . . . for fixing the water penetration from the
sidewalk into the Fertility Clinic are in process,” id. ¶ 97
(emphasis deleted).
But those repairs never happened.

Id. ¶ 99.

Based on

“ongoing discussions between the Board and Rudd Management,” the
Board instead began the “New Façade Project,” ostensibly to address
“new and persistent leaks” in residential units on higher floors.
Id. ¶ 111 & Ex. L.

The New Façade Project and the sidewalk and

foundation repair were mutually exclusive because the New Façade
Project required a sidewalk bridge.

The Board told plaintiffs

that the sidewalk and foundation repairs would need to wait until
6

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 7 of 22

after the New Façade Project, repeatedly rejecting plaintiffs’
requests to reverse the sequencing.
In

February

2020,

the

Id. ¶¶ 102-104, 120.

Corporation

claimed

through

its

attorney Phyllis Weisberg that the leaks into the fertility clinic
were related to the façade and thus plaintiffs would benefit from
the New Façade Project.

Id. ¶ 116.

Plaintiffs allege that the

Board Members caused Weisberg to make this claim and that it was
false.

Id. ¶¶ 114-121.

Plaintiffs then instituted an Article 78

proceeding in New York Supreme Court, seeking to invoke their right
as shareholders to inspect certain records.

In August 2020, Board

Member

in

Greenwald

submitted

an

affidavit

that

proceeding,

averring that plaintiffs had caused the water penetration issues
and that, in any event, the issues had been cured; Weisberg
submitted

an

attorney

affirmation

penetration issues had been cured.

also

claiming

Id. ¶¶ 123-132.

the

water

Plaintiffs

allege that these statements were untrue and contradicted by, among
other things, Weisberg’s prior, February 2020 letter.
In February 2020, plaintiffs retained an indoor environmental
consultant, who confirmed the presence of elevated levels of mold
spores in the Units, including in the air conditioning ducts.
Plaintiffs closed the clinic to conduct internal repairs.
¶¶ 146-147.

Id.

Plaintiffs allege that this closure was caused by the

leaks and mold, not by the COVID-19 pandemic.

7

Id.

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 8 of 22

Plaintiffs filed this suit on September 14, 2020.

Defendants

moved to dismiss under Rule 12(b)(6) on November 20, 2020, ECF No.
62,

and

plaintiffs

filed

the

operative

Amended

Complaint

on

December 4, 2020, ECF No. 65. Defendants supplemented their motion
to dismiss to address the Amended Complaint on December 10, 2020,
ECF No. 66, and filed a second motion to dismiss under Rule
12(b)(1) on December 22, 2020, ECF No. 67.

Both motions to dismiss

are now fully briefed.
LEGAL STANDARDS
Under Article III, federal courts may exercise subject matter
jurisdiction only over actual cases and controversies.
III

standing

redressability.
47,

55

(2d

requires

injury-in-fact,

Article

causation,

and

Carter v. HealthPort Technologies, LLC, 822 F.3d

Cir.

2016).

District

courts

may

rely

upon

the

allegations of the complaint when assessing standing at the motion
to

dismiss

controverted

stage,

but

evidence

if

the

extrinsic

defendant
to

the

proffers

complaint,

material,
then

“the

district court will need to make findings of fact in aid of its
decision as to standing.”

Id. at 57.

On a motion to dismiss for failure to state a claim, a court
must accept all factual allegations as true and draw all reasonable
inferences in favor of the non-moving party. See, e.g., ATSI
Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
To withstand a motion to dismiss under Rule 12(b)(6), the plaintiff
8

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 9 of 22

must plead facts to state a claim for relief that is plausible on
its face.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

Dismissal

is inappropriate where a plaintiffs’ allegations are “enough to
raise a right to relief above the speculative level.”
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).

Bell

The Court

may consider exhibits to the operative complaint because “the
complaint is deemed to include any written instrument attached to
it as an exhibit.”

Chambers v. Time Warner, Inc., 282 F.3d 147,

152 (2d Cir. 2002).
ANALYSIS
I.

Lack of Subject Matter Jurisdiction
A.

Standing

The Court begins with the second motion to dismiss, which
argues that the Court lacks subject matter jurisdiction because
the Kofinas Fertility Group, P.C., a New York State Professional
Corporation that plaintiffs own, operated the fertility clinic
located in the Kofinas Units and is therefore, defendants argue,
“the real party in interest to the damages herein . . . and not
Plaintiffs in their individual capacities.”

Mem. in Support of

Second Mot. to Dismiss, ECF No. 67-12 (“Second MTD”), at 4.

While

lack of standing is not always the equivalent of lack of subject
matter jurisdiction, here, where jurisdiction is predicated on
diversity of citizenship, the two merge.

9

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 10 of 22

Because diversity jurisdiction is the sole constitutional
basis for this civil action, plaintiffs must plead standing under
both New York law and Article III of the Federal Constitution.
For present purposes, New York standing law is no stricter than
Article III.

See Saratoga Cty. Chamber of Commerce, Inc. v.

Pataki, 100 N.Y.2d 801, 812 (2003) (explaining that New York courts
“requir[e] that the litigant have something truly at stake in a
genuine controversy”); Siegel N.Y. Prac. § 136 (6th ed. 2020)
(“[Under New York law,] [o]rdinarily, only the most officious
interloper should be ousted for want of standing.”).

Thus, if

there is Article III standing, there is also standing under New
York law.
Article III standing requires that a plaintiff demonstrate
(1)

an

injury-in-fact

that

is

(2)

fairly

defendants and (3) redressable by the Court.

traceable

to

the

Carter v. HealthPort

Technologies, LLC, 822 F.3d 47, 55 (2d Cir. 2016).

Defendants do

not challenge the second and third elements, which are plainly
present:

if plaintiffs demonstrate that defendants wrongfully

delayed repairs, in violation of contractual obligations and/or
fiduciary duties, then plaintiffs have plausibly pleaded that the
subsequent water damage and/or business losses were caused by those
breaches.

And monetary damages would, of course, redress those

wrongs.

10

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 11 of 22

As to the first element -- injury in fact -- defendants devote
most of their brief to the argument that only Kofinas Fertility
Group, and not plaintiffs in their individual capacities, suffered
an injury in fact because “the property that was damaged appears
to have belong [sic] to the medical clinic and not Plaintiffs in
their individual capacity.”

Second MTD 10-11.

The

problem

with defendants’ argument is simple: the complaint alleges, and
defendants do not dispute, that plaintiffs (not Kofinas Fertility
Group) lease the Units, signed the contract that was allegedly
breached, and are the shareholders to whom a fiduciary duty is
allegedly owed.
Defendants argue that plaintiffs did not suffer the alleged
lost business income and have not proved that they paid for certain
alleged renovation work.

They invite the Court to wade into a

detailed debate concerning these various categories of damages.
However, that is an issue of fact to be resolved at a later stage
on a fuller record.

The question presented here is standing, and

it is not a close call.

Plaintiffs have alleged water damage to

the Units that they, not Kofinas Fertility Group, lease, and
defendants do not dispute, for present purposes, that plaintiffs
lease the Units or that water damage occurred.

The alleged damage

to real property in which plaintiffs hold an interest constitutes
injury in fact.

11

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 12 of 22

Accordingly, the Court denies defendants’ motion to dismiss
that claims that the Court lacks subject matter jurisdiction and/or
that plaintiffs lack standing.
B. Necessary Party
Although

defendants’

argument

is

written

in

terms

of

standing, defendants also point out several times that Kofinas
Fertility Group is a New York citizen.

That point is irrelevant

to standing, so the Court infers that defendants may also be
attempting to argue (though they did not explicitly do so) that
Kofinas Fertility Group is a necessary party pursuant to Federal
Rule of Civil Procedure 19(a)(1), and that its joinder would defeat
diversity.

Rule 19(a)(1) provides that a person is a necessary

party if:
(A) in that person’s absence, the court cannot accord
complete relief among existing parties; or
(B) that person claims an interest relating to the
subject of the action and is so situated that disposing
of the action in the person's absence may:
(i) as a practical matter impair or impede the
person's ability to protect the interest; or
(ii) leave an existing party subject to a
substantial risk of incurring double, multiple, or
otherwise inconsistent obligations because of the
interest.
The Second Circuit has explained that
[a] necessary party must be joined as a party to the
action unless joinder would deprive the court of subject
matter jurisdiction. In those circumstances, the court
must assess whether in equity and good conscience, the
12

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 13 of 22

action should proceed among the existing parties or
should be dismissed by considering the factors provided
in Rule 19(b).
Washington Nat’l Ins. Co. v. OBEX Grp. LLC, 958 F.3d 126, 134–35
(2d Cir. 2020) (internal quotation marks and citation omitted).
Kofinas Fertility Group is not a necessary party under either
Rule

19(a)(1)(A)

or

Rule

19(a)(1)(B).

With

regard

to

Rule

19(a)(1)(A), Kofinas Fertility Group’s presence is not necessary
for the Court to accord complete relief among the existing parties.
If plaintiffs prevail, then they, personally, may recover from
defendants;

their

ownership

of

a

professional

corporation

is

irrelevant.

Under Rule 19(a)(1)(B), Kofinas Fertility Group might

have “an interest” in these proceedings. But it has not “claim[ed]
an interest.” Fed. R. Civ. P. 19(a)(1)(B) (emphasis added). Under
the law of this Circuit, failure to claim an interest prevents the
Kofinas Fertility Group from being a necessary party under Rule
19(a)(1)(B).

See Washington Nat’l Ins. Co., 958 F.3d at 135

(explaining that the third party “must claim an interest for Rule
19(a)(1)(B)

purposes”)

(alterations

normalized

and

internal

quotation marks omitted); accord Peregrine Myanmar Ltd. v. Segal,
89 F.3d 41, 49 (2d Cir. 1996) (“[S]atisfying the second prong of
Rule 19(a) is ‘contingent [ ] upon an initial requirement that the
absent party claim a legally protected interest relating to the
subject matter of the action.’”) (quoting with approval Northrop

13

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 14 of 22

Corp. v. McDonnell Douglas Corp., 705 F.2d 1030, 1043 (9th Cir.
1983)).
Accordingly, this case can proceed without Kofinas Fertility
Group, and diversity remains complete.
II.

Failure to State a Claim
Defendants’ other motion to dismiss challenges Counts Three

through Six, arguing pursuant to Rule 12(b)(6) that they fail to
state a claim upon which relief can be granted.
were

filed

Corporation.

against

various

individual

These four claims

defendants,

not

the

Defendants’ brief is not a paragon of clarity, but

the Court discerns two overarching arguments.

First, defendants

contend that plaintiffs merely disagree with defendants’ ordinary
business judgments, so the business judgment rule protects the
Board Members against liability.

Second and relatedly, defendants

argue that the Board Members are protected by a New York doctrine
that shields Board Members from liability for alleged misconduct
undertaken in the Board Members’ capacities as Board Members.

The

Court considers these two arguments in turn.
A.

The Business Judgment Rule

The business judgment rule, which New York has long followed
with respect to corporate boards, applies also to decisions made
by the board of a residential cooperative.

The seminal case is

Levandusky v. One Fifth Ave. Apt. Corp., 75 N.Y.2d 530 (1990).
Levandusky established that, “[i]n the context of cooperative
14

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 15 of 22

dwellings, the business judgment rule provides that a court should
defer to a cooperative board's determination ‘[s]o long as the
board acts for the purposes of the cooperative, within the scope
of its authority and in good faith.’” 40 W. 67th St. Corp. v.
Pullman, 100 N.Y.2d 147, 153 (2003) (quoting Levandusky, 75 N.Y.2d
at 538).

Nevertheless, Levandusky is not a “rubber stamp,” and

courts have found that “arbitrary or malicious decision making or
decision making tainted by discriminatory considerations is not
protected by the business judgment rule.”
Inc., 99 A.D.3d 43, 48 (1st Dep’t 2012).

Fletcher v. Dakota,
Levandusky itself

recognized that “the broad powers of a cooperative board hold
potential

for

abuse

through

arbitrary

and

malicious

making, favoritism, discrimination and the like.”

decision

Levandusky, 75

N.Y.2d at 536.
The principal issue here is whether plaintiffs have plausibly
alleged “favoritism,” id., because in such cases New York courts
have declined to apply the protections of the business judgment
rule.

New York courts do not require allegations of self-dealing;

“pleading unequal treatment of shareholders will suffice” at the
motion to dismiss stage.

Bryan v. W. 81 St. Owners Corp., 186

A.D.2d 514, 515 (1st Dep’t 1992).
A First Department case, Louis & Anne Abrons Foundation, Inc.
v. 29 E. 64th St. Corp., 297 A.D.2d 258, 260 (1st Dep’t 2002), is
instructive.

In Louis & Anne Abrons Foundation, a residential
15

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 16 of 22

cooperative imposed a new subleasing fee, but the only unit that
was permitted to sublease in the first place was the commercial
unit.

Plaintiff, owner of the commercial unit, contended that it

was singled out for inferior treatment, and that the business
judgment rule should not apply.

The trial court granted summary

judgment for the defendants, but the First Department reinstated
the complaint, finding that “plaintiff has presented sufficient
evidence to raise a triable issue of fact as to whether the sublet
fee was imposed in bad faith and meant to solely impact plaintiff,”
thus preventing application of the business judgment rule.

Id. at

261.
Here, plaintiffs allege something similar: that the defendant
Board Members had known of leak issues in the Units since at least
2014, and that in 2015 the building’s architect reported that there
was a larger structural issue. Plaintiffs allege that, despite
this knowledge, the Board then chose to pursue projects to advance
the interests of residential shareholders, while not addressing a
substantial

structural

issue

affecting

plaintiffs.

Further,

plaintiffs allege that in 2019-2020, aware of increasingly serious
issues affecting plaintiffs’ Units (rusting steel support beams,
mold, and the like), the Board still advanced residential tenants’
interests over the interests of the plaintiffs -- even though,
plaintiffs

allege,

the

Board

characterized

the

residential

tenants’ leaks as “new,” unlike the plaintiffs’ longstanding and
16

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 17 of 22

increasingly

serious

leaks.

Following

Louis

&

Anne

Abrons

Foundation, and drawing all reasonable inferences in plaintiffs’
favor as the Court must at this stage, the Court holds that
plaintiffs

have

plausibly

alleged

that

defendants

allegedly

favored residential tenants over commercial tenants in bad faith.
Therefore, at this stage, the Court finds that the business
judgment rule does not bar plaintiffs’ claims.
B.

Board Members’ Acts in Scope of Employment

Counts Four and Five target only the Board Member defendants.
Those defendants seek dismissal of those claims, arguing that they
cannot be held liable because they took the challenged acts on
behalf of the Corporation and plaintiffs pleaded no independent
tortious acts.
Defendants claim that “Plaintiffs are required to plead with
specificity

independent

tortious

acts

by

each

individual

defendant.”

Supp. Mem. in Support of First Mot. to Dismiss, ECF

No. 66, at 11 (citing Pelton v 77 Park Ave. Condominium, 38 A.D.3d
1 (1st Dep’t 2006)).
part.

However, Pelton was overturned in pertinent

As the First Department later explained, “Pelton failed to

disentangle

the

principles

of

individual

corporate

director

liability in the breach of contract context (understood to provide
a shield against liability) from the principles applicable to tort
cases (where there is no such shield).”
99 A.D.3d 43, 50 (1st Dep’t 2012).
17

Fletcher v. Dakota, Inc.,

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 18 of 22

Given that New York courts apply this “shield” only against
contract claims, Counts Three and Four are not similarly situated.
Count Three (breach of fiduciary duty) alleges a tort, so “there
is no such shield.”

See id.

If defendants breached their

fiduciary duties, even while acting as agents of the corporation,
then

New

liability

York
do

principles

not

preclude

of

individual

plaintiffs’

corporate

recovery

director

against

them.

Therefore, Count Three states a legally sufficient claim (as does
Count Five, which charges the Managing Agent with aiding and
abetting the alleged breach of fiduciary duty).
However, Count Four seeks damages for tortious interference
with contract.

While tortious interference with contract is

nominally a tort, the gravamen of the tort is simply that the
defendant intentionally induced a third party to breach a known
contract, causing damages.

See Lama Holding Co. v. Smith Barney,

Inc., 88 N.Y.2d 413 (1996).

Here, that third party is the

Corporation, on whose behalf the Board Members were acting.

Under

these circumstances, New York principles of corporate liability
shield the Board Members from liability, absent allegations of
tortious conduct independent of the Board Members’ actions qua
Board Members.

See Fletcher, 99 A.D.3d at 50 (internal quotation

marks and citation omitted) (“[A] corporate officer will not be
held liable for inducing the breach of a contract between the
corporation and a third party if he committed no independent torts
18

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 19 of 22

or predatory acts . . . independent of that tort [of interference
with

contract].”).

Thus,

New

York

principles

of

corporate

liability bar the claim for tortious interference with contract.
For these reasons, Count Four fails to state a claim as a
matter of law, and the Court dismisses that claim.

Count Six

charges the Managing Agent with aiding and abetting the tortious
interference with contract alleged in Count Four.

Count Six is,

thus, derivative of Count Four and is also dismissed.
stage,

however,

plaintiffs

these

dismissals

theoretically

could

are

allege

without
facts

At this

prejudice,
in

an

as

amended

complaint that would cure the defects.
C.

Punitive Damages

Finally, defendants move to dismiss each count insofar as it
seeks punitive damages.

The parties’ citations to lower court

cases offer mixed authority regarding when punitive damages are
available under New York law.

These opinions reflect a broader

confusion in the New York case law. See generally Kevin Schlosser,
Clarifying Punitive Damage Confusion, N.Y.L.J. (Jan. 22, 2008).1
One

source

of

confusion

is

that

New

York

law

treats

differently a case sounding purely in tort and a case having “its
genesis in the contractual relationship between the parties.” New
York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 16 (1995).

Here,

Available
at
https://www.msek.com/publication/clarifyingpunitive-damage-confusion.
19
1

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 20 of 22

plaintiffs’ claims all have their genesis in the contractual
relationship between the plaintiffs, as lessees, and the Building,
as lessor.

See, e.g., Rocanova v. Equitable Life Assur. Soc. of

U.S., 83 N.Y.2d 603, 613

(1994) (applying the doctrine even though

“the conduct constituting, accompanying, or associated with the
breach of contract” included alleged fraud).
In a pair of opinions in 1994 and 1995, the New York Court of
Appeals clarified when punitive damages are available under New
York

law

in

cases

having

their

genesis

in

a

contractual

relationship:
[D]amages arising from the breach of a contract will
ordinarily be limited to the contract damages necessary
to redress the private wrong, but . . . punitive damages
may be recoverable if necessary to vindicate a public
right.
Punitive damages are available only in those
limited circumstances where it is necessary to deter
defendant and others like it from engaging in conduct
that may be characterized as “gross” and “morally
reprehensible,” and of “such wanton dishonesty as to
imply a criminal indifference to civil obligations[.]”
We set forth in the decision the pleading elements
required to state a claim for punitive damages as an
additional and exemplary remedy when the claim arises
from a breach of contract. They are: (1) defendant's
conduct must be actionable as an independent tort; (2)
the tortious conduct must be of the egregious nature set
forth in [Walker v. Sheldon, 10 N.Y.2d 401, 404-405
(1961)]; (3) the egregious conduct must be directed to
plaintiff; and (4) it must be part of a pattern directed
at the public generally.
New York Univ., 87 N.Y.2d at 315–16.
As noted, this Court finds that plaintiffs’ claims for breach
of fiduciary duty and for aiding and abetting the breach of
20

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 21 of 22

fiduciary duty survive the motion to dismiss, and defendants do
not challenge the claim for negligence at this stage.

Therefore,

as to each defendant, plaintiffs have plausibly alleged misconduct
that is “actionable as an independent tort.”
87 N.Y.2d at 316.

See New York Univ.,

However, plaintiffs’ allegations do not amount

to tortious conduct as “part of a pattern directed at the public
generally.”

See id.

While members of the public might arguably

be harmed by the alleged water damage if the fertility clinics
remained open, plaintiffs do not allege that defendants’ conduct
was “directed” at anyone other than plaintiffs, let alone “at the
public generally.”
Instead, plaintiffs argue that they need not show a public
wrong.

The First Department held in a 2003 case that a ”punitive

damages claim is viable in light of the tort cause of action for
breach

of

fiduciary

duty;

a

public

wrong

is

not

required.”

Kleinerman v. 245 E. 87 Tenants Corp., 105 A.D.3d 492, 493 (2013)
(citing Bishop v. 59 W. 12th St. Condominium, 66 A.D.3d 401 [1st
Dep’t 2009)).

The claims in Kleinerman and Bishop had their

genesis in a contractual relationship indistinguishable from the
relationship in this action, so these cited cases conflict with
Rocanova and New York University, the 1994 and 1995 Court of
Appeals cases cited above.

However, Kleinerman and Bishop neither

applied nor distinguished Rocanova and New York University, and,
more important, this Court has found no Court of Appeals case
21

Case 1:20-cv-07500-JSR Document 82 Filed 02/16/21 Page 22 of 22

overturning those precedents.

This Court is bound to follow

Rocanova and New York University, precedent issued by New York’s
highest court, rather than the contrary decisions of lower courts.
See TVT Records v. Island Def Jam Music Grp., 412 F.3d 82, 94 &
n.12 (2d Cir. 2005) (noting conflicting case law on this issue but
concluding that the rule articulated in Rocanova “has not been
changed by the Court of Appeals, and we have no reason to question
its continued vitality”).
Because plaintiffs have not alleged a pattern of misconduct
directed at the public, plaintiff cannot recover punitive damages,
so all claims for punitive damages are dismissed (though again
these dismissals are, at this stage, without prejudice).
For these reasons, the Court, by order dated January 29, 2021,
granted

without

prejudice

defendants’

motion

to

dismiss

for

failure to state a claim with respect to Counts Four and Six
(tortious interference with contract and aiding and abetting the
same) and all claims for punitive damages, and denied defendants’
motions to dismiss in all other respects.
SO ORDERED.
Dated:

New York, NY
February 16, 2021

_______________________
JED S. RAKOFF, U.S.D.J.

22