MEYER v. First Capital Real Estate Trust Inc., Nominal Defendant. (2024)

Order, Supreme Court, New York County (Andrea Masley, J.), entered April 25, 2023, which granted defendant's motion to dismiss the action as barred by the statute of limitations, unanimously affirmed, without costs.

Defendant acted as the dealer manager of an IPO for nominal defendant company.  Under the parties’ agreement and Financial Industry Regulatory Authority (FINRA) rules, defendant's compensation for organization and offering expenses, could not exceed 15% (including no more than 10% in underwriting fees) of the gross proceeds of the IPO. Defendant terminated the offering and the agreement in February 2016.  At that time, defendant was obligated to pay nominal defendant company any overage of those expenses.  Plaintiffs, as shareholders of nominal defendant company, commenced this derivative action in October 2022 to recover payment of the overage.  However, all causes of action in the plaintiffs’ complaint are barred by the statute of limitations.

The breach of contract claim accrued in February 2016 (Ely–Cruikshank Co. v. Bank of Montreal, 81 N.Y.2d 399, 402, 599 N.Y.S.2d 501, 615 N.E.2d 985 [1993]).  The same is true of the breach of fiduciary duty claim.  Contrary to plaintiffs’ contention, the breach of fiduciary duty claim was not tolled by the open repudiation doctrine, which only applies to claims for equitable relief (Cusimano v. Schnurr, 137 A.D.3d 527, 530, 27 N.Y.S.3d 135 [1st Dept. 2016]).  Moreover, defendant's fiduciary obligations ended when it terminated the agreement (Westchester Religious Inst. v. Kamerman, 262 A.D.2d 131, 691 N.Y.S.2d 502 [1st Dept. 1999]).  The same is true for plaintiffs’ claim for an equitable accounting.

There was only a single wrongful act here, i.e., the failure to pay the overage upon conclusion of the offering, which does not toll the limitations periods under the continuing wrong doctrine (Town of Oyster Bay v. Lizza Indus., Inc., 22 N.Y.3d 1024, 1031–1032, 981 N.Y.S.2d 643, 4 N.E.3d 944 [2013]).

Plaintiffs cannot assert for the first time on appeal a claim for a constructive trust (Haughton v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 278 A.D.2d 29, 30, 717 N.Y.S.2d 156 [1st Dept. 2000]).  In any event, the claim for a constructive trust also accrued upon defendant's failure to pay the overage when due, upon the conclusion of the offering in February 2016, and is similarly time-barred.