1. What Must a Business Prove to Establish a Breach?
A failed investment does not, by itself, establish misconduct. A claim generally requires a fiduciary relationship, a breach of the duty owed, and injury caused by that breach. Begin with the person's role, the beneficiary of the duty, and the transaction in question.
Identify the Duty and Questioned Conduct
Business Corporation Law (BCL) § 717 addresses directors' good-faith performance. BCL § 713 addresses interested-director transactions, where disclosure, approval, or fairness may matter. An unfavorable outcome alone does not establish disloyalty.
| Issue | What to Establish |
|---|---|
| Relationship | Who owed a duty, and to whom? |
| Conduct | What decision involved a conflict or misuse of assets? |
| Authorization | What disclosures and approvals preceded it? |
Relationship
- What to EstablishWho owed a duty, and to whom?
Conduct
- What to EstablishWhat decision involved a conflict or misuse of assets?
Authorization
- What to EstablishWhat disclosures and approvals preceded it?
Board resolutions and corporate governance records can show what directors disclosed before approving a transaction.
Show How the Conduct Caused Harm
For a damages claim, identify the alleged act and the resulting injury. Courts may defer to informed, good-faith decisions under the business judgment rule, but disloyal conduct requires different scrutiny.
- Identify the payment, contract, or business opportunity at issue.
- Trace the claimed financial effect to that specific conduct.
- Separate proven losses from speculation or ordinary business risk.
Even a substantial loss does not answer whether the decision-maker breached a duty. The facts surrounding the decision matter.
2. Which Records Can Establish Misconduct and Loss?
A questionable transfer may have an innocent explanation or reveal undisclosed self-dealing. Instead of relying on suspicion, reconstruct who authorized the transaction, where the funds went, and what the company received. Contemporaneous records help test competing explanations.
Trace Payments and Conflicts of Interest
Start with bank statements and accounting entries, then compare each transaction with approvals and business records. A missing invoice is a question to investigate, not proof of fraud.
- Preserve bank statements, invoices, ledgers, and payment instructions.
- Compare vendors and counterparties with disclosed personal interests.
- Retain emails, board minutes, and relevant contracts.
Repeated unexplained payments can raise a fiduciary dispute. Preserve original records and document their sources.
Separate Corporate Injury from Personal Injury
A shareholder may suffer financially when company value falls without holding a direct claim. Determine who suffered the primary injury and who would receive the requested recovery.
| Alleged Harm | Question to Resolve |
|---|---|
| Company money diverted | Does the claim belong to the company? |
| Individual right infringed | Is there a distinct personal claim? |
| Company declines to sue | Can a shareholder meet derivative-action rules? |
Company money diverted
- Question to ResolveDoes the claim belong to the company?
Individual right infringed
- Question to ResolveIs there a distinct personal claim?
Company declines to sue
- Question to ResolveCan a shareholder meet derivative-action rules?
Under BCL § 626, a derivative plaintiff generally must hold shares when suing and when the challenged transaction occurred, or acquire them by operation of law. The complaint must address board demand or why it was not made. Shareholder disputes may also involve distinct personal rights.
3. How Should a Fiduciary Duty Claim Proceed?
The choice of plaintiff, remedy, and filing date may determine whether a claim can proceed. Check these questions before drafting the complaint, particularly if the company itself suffered the loss. State fiduciary-duty claims differ from federal tax inquiries or securities-law proceedings, even when the same records are relevant.
Match the Remedy to the Filing Deadline
The filing deadline depends on the claim and the relief actually sought. In IDT Corp. .. Morgan Stanley Dean Witter & Co. (New York Court of Appeals, 2009), the court examined the substance of the remedy, not merely its label.
| Claim'S Substance | General Rule to Examine |
|---|---|
| Primarily monetary damages | Three years, CPLR § 214(4) |
| Genuinely equitable relief | Six years, CPLR § 213(1) |
| Fraud essential to the claim | Generally six years, with fraud-specific accrual rules under CPLR § 213(8) |
Primarily monetary damages
- General Rule to ExamineThree years, CPLR § 214(4)
Genuinely equitable relief
- General Rule to ExamineSix years, CPLR § 213(1)
Fraud essential to the claim
- General Rule to ExamineGenerally six years, with fraud-specific accrual rules under CPLR § 213(8)
Adding disgorgement to a damages claim does not automatically extend its deadline. Identify when injury occurred and assess any applicable tolling.
Check the Proper Court and Filing Route
Bronx County Supreme Court handles civil business disputes, but Commercial Division assignment is not automatic. Under 22 NYCRR § 202.70, the general monetary threshold is $75,000, subject to eligible case types and exceptions.
- Confirm venue, the proper claimant, and requested relief.
- Check current NYSCEF requirements for the case type.
- Preserve financial records and assess any derivative demand.
A breach of fiduciary duty claim also requires attention to the proper plaintiff and pleading requirements. For a derivative claim, apply BCL § 626 before filing.
4. Frequently Asked Questions
Can a tax preparer owe a fiduciary duty to a client?
Possibly, depending on the relationship and services undertaken. Preparing tax returns alone does not establish every fiduciary obligation a client might allege.
Is a broken contract automatically a fiduciary breach?
No. A contractual promise does not necessarily create an independent fiduciary duty. Courts consider whether the alleged misconduct is distinct from the contract claim.
Can a company seek profits obtained through self-dealing?
Potentially. Disgorgement or other equitable relief may be available depending on the misconduct and remedy sought. The facts and applicable law govern.
Does an IRS examination prove fiduciary misconduct?
No. Federal tax scrutiny does not establish a state-law breach. Relevant tax and accounting records may still help explain disputed financial transactions.
5. Discuss a Fiduciary Duty Dispute with SJKP Attorneys
When business funds are difficult to account for, start with the transaction records and the people who approved them. The important questions are who owed the duty, what conduct is disputed, and who may bring the claim.
SJKP's attorneys can review financial and governance documents, possible remedies, and filing requirements. Contact SJKP to discuss the transactions and records that need legal assessment.
20 Oct, 2026
