BEACH v. Vollero Beach Capital Partners et al., Defendants. (2024)

Orders, Supreme Court, New York County (Andrea Masley, J.), entered January 27, 2023, January 30, 2023, and May 9, 2023, which, insofar as appealed from as limited by the briefs, denied plaintiff's motion to dismiss defendant-counterclaim plaintiff Touradji Capital Management LP's faithless servant affirmative defense to the extent the defense is predicated on the claim that plaintiffs are not entitled to compensation or bonuses because of the alleged faithless conduct of plaintiff Beach using his work email account to send offensive nonwork related emails, and granted the motion to dismiss defendants’ breach of fiduciary duty counterclaim insofar as based on the alleged faithless conduct of sending the offensive emails, unanimously modified, on the law, to dismiss the faithless servant affirmative defense to the extent based on the conduct of sending the offensive emails, and otherwise affirmed, without costs.

Initially, the orders are presently appealable as a matter of right to the extent they, rather than making merely interlocutory evidentiary rulings concerning the admissibility of the offensive emails, made substantive legal rulings on plaintiffs’ dismissal motion seeking to limit the bases upon which defendants could assert the faithless servant affirmative defense and breach of fiduciary counterclaim.  These rulings addressed the merits of the controversy and affected substantial rights of the parties (see CPLR 5701[a][2][iv], [v];  Knafo v. Mount Sinai Hosp., 184 A.D.3d 478, 124 N.Y.S.3d 188 [1st Dept. 2020];  Wall St. Assoc. v. Brodsky, 295 A.D.2d 262, 263, 744 N.Y.S.2d 378 [1st Dept. 2002]).

Prior cases make clear that the faithless servant doctrine, which states that “an employee or agent who is faithless in the performance of his or her duties is not entitled to recover either salary or commission” (Two Rivs. Entities, LLC v. Sandoval, 192 A.D.3d 528, 529, 146 N.Y.S.3d 1 [1st Dept. 2021]), provides the basis for an affirmative defense or claim for breach of duty of loyalty “where the employee has acted directly against the employer's interests—as in embezzlement, improperly competing with the current employer, or usurping business opportunities” (Veritas Capital Mgt., L.L.C. v. Campbell, 82 A.D.3d 529, 530, 918 N.Y.S.2d 448 [1st Dept. 2011], lv dismissed 17 N.Y.3d 778, 929 N.Y.S.2d 80, 952 N.E.2d 1074 [2011];  see also Barasch & McGarry, PC v. Marcowitz, 219 A.D.3d 1242, 1242–1243, 195 N.Y.S.3d 480 [1st Dept. 2023];  Bluebanana Group v. Sargent, 176 A.D.3d 408, 107 N.Y.S.3d 667 [1st Dept. 2019]).

The type of faithless servant conduct alleged here with respect to the sending of the offensive emails cannot, as a matter of law, provide the basis for such a defense or claim.  Here, the emails by plaintiff Beach were part of a personal exchange between parties who were willing participants and do not rise to the level of faithless servant disloyal conduct that could be the basis for the affirmative defense or claim.

Accordingly, the court should have granted plaintiffs’ motions insofar as they sought dismissal of the faithless servant affirmative defense to the extent based on the conduct of sending the offensive emails.  Although allegations of faithless conduct may provide the basis for a breach of fiduciary duty claim or counterclaim, contrary to the trial court's ruling, even where, as here, the claim seeks to recover damages based exclusively on the employees’ compensation and not based on the harm caused to the employer (see e.g. Bluebanana, 176 A.D.3d at 409, 107 N.Y.S.3d 667;  Art Capital Group, LLC v. Rose, 149 A.D.3d 447, 52 N.Y.S.3d 85 [1st Dept. 2017];  Beach v. Touradji Cap. Mgt., LP, 144 A.D.3d 557, 563, 42 N.Y.S.3d 96 [1st Dept. 2016]), dismissal of the counterclaim based on the sending of the emails was properly granted for the same reasons discussed above.

We decline to address plaintiffs’ additional arguments for dismissing the affirmative defense or that seek to challenge other rulings in the orders that were evidentiary rulings not presently amenable to appeal.