An interesting and easily overlooked decision of the Appellate Division, First Department, shows just how flexible fiduciary duty claims can be. In Apollo Mgt., Inc. v. Cernich, 202 A.D.3d 527 (1st Dep’t 2022), the court allowed the plaintiffs to seek money damages on a fiduciary-duty theory of liability for misconduct that really fell under an entirely different legal theory altogether.
In this case, the court held that the plaintiffs could seek damages for the defendants’ misappropriation and misuse of their confidential information. Specifically, the plaintiffs could pursue recovery of the costs they incurred in developing that confidential information—even though they had not actually pled a specific “misappropriation of confidential information” cause of action. But the plaintiffs did plead a fiduciary duty claim, and the court deemed this claim sufficiently “intrinsically tied” to the underling misconduct. As a result, the plaintiffs were allowed to seek money damages for the defendants’ misappropriation and misuse of their confidential information—again, a legal theory they totally failed to plead—under the fiduciary duty theory that they actually did allege.
This bitter dispute arose when former employees of the prominent investment firm, Apollo Global Management (“Apollo”), purportedly set up a competing business, Caldera, while they were still Apollo employees. See Apollo Glob. Mgt., Inc. v. Cernich, 2021 N.Y. Slip Op. 31741(U), at 1 (Sup. Ct. N.Y. Co. May 19, 2021). These former Apollo employees, Siddiqui and Dang, allegedly used Apollo’s confidential information to further their establishment of Caldera. The defendants in this case, Cernich and Tseng, were executive-level employees of one of Apollo’s affiliates who purportedly aided and abetted Siddiqui’s and Dang’s misconduct by engaging in the “active concealment of those employees’ efforts,” among other things. Id.
Cernich allegedly helped Siddiqui and Dang set up Caldera and solicit Apollo investors by misappropriating Apollo’s confidential information, including retail pricing information, Apollo’s research reports, and a strategic plan for 2017 through 2021. Cernich also concealed Siddiqui’s and Dang’s misconduct by sending emails for them, scrubbing metadata from information sent to potential investors, and emailing Dang’s fiancée rather than Dang directly to avoid detection by Apollo. Tseng allegedly played a similar role including by scrubbing Dang’s name from an electronic document at Dang’s direction, and by secretly adding Dang to certain external Caldera telephone calls.
In its complaint, Apollo pleaded a cause of action against Cernich and Tseng for aiding and abetting Siddiqui’s and Dang’s breach of fiduciary duty. Cernich and Tseng moved to dismiss. In ruling on that motion, the lower court offered a helpful recitation of the basic elements of this aiding and abetting cause of action:
The elements of a claim for aiding and abetting a breach of fiduciary duty are: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach. One knowingly participates in the breach by providing substantial assistance to the primary violator as follows: (1) a defendant affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated.
Apollo Glob. Mgt., Inc., 2021 N.Y. Slip Op. 31741(U), at 9.
The lower court then moved on to a discussion of the damages that Apollo sought on this claim. Among other things, Apollo argued that it sustained damages consisting of “the costs of developing the confidential information that was stolen” and “the cost of investigating Mr. Dang’s wrongdoing.” Id. at 10. The lower court granted Cernich and Tseng’s motion to dismiss several aspects of Apollo’s aiding and abetting claim, but crucially left the claim in place insofar as it sought these precise categories of money damages: “[T]he Plaintiffs may pursue damages for the cost of developing Apollo’s confidential information and the costs of investigation to the extent that such damages are a natural consequence of the wrongful act.” Id. at 11.
The Appellate Division affirmed this aspect of the lower court’s decision, holding as follows:
Supreme Court properly determined that plaintiffs will be permitted to seek, among other things, compensatory damages in the form of recovery of their development costs of confidential information with respect to the aiding and abetting claims. While plaintiffs did not specifically allege a claim for aiding and abetting misappropriation of confidential information, their claims for aiding and abetting breach of fiduciary duty and fraud were intrinsically tied to the primary wrongdoers’ misappropriation of confidential information. Furthermore, the complaint sufficiently alleges that, by aiding and abetting the primary wrongdoers’ conduct, defendants diminished the worth of plaintiff’s confidential information by robbing it of the value of its confidentiality. Indeed, the law is settled that the person responsible for the injury must respond for all damages resulting directly from and as a natural consequence of the wrongful act.
Apollo Mgt., Inc., 202 A.D.3d at 527-28.
Thus, the Appellate Division allowed Apollo to seek recovery of the costs that it incurred in developing the confidential information that Siddiqui and Dang—with the assistance of Cernich and Tseng—misappropriated through their “clandestine” establishment of Caldera and solicitation of Apollo investors. Again, Apollo was allowed to pursue this recovery under the fiduciary duty-based theory of liability that it pled in the complaint, even though the harm Apollo sustained probably would have been better characterized under the distinct legal theory of misappropriation of confidential information.
In short, breach of fiduciary duty claims are flexible enough to encompass a wide variety of misconduct even where other theories of liability may be more appropriate. Plaintiffs should always consider whether a breach of fiduciary duty claim might salvage an otherwise defective complaint, and plead accordingly.