MCGUIRE, FRANK v. HUNTRESS, WILLIAM L. ( 2011 )

SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
318
CA 10-01165
PRESENT: SMITH, J.P., CARNI, LINDLEY, AND GORSKI, JJ.
FRANK MCGUIRE, ET AL., PLAINTIFFS,
AND MCGUIRE CHILDREN, LLC,
PLAINTIFF-RESPONDENT,
V MEMORANDUM AND ORDER
WILLIAM L. HUNTRESS, ACQUEST HOLDINGS, INC.,
ACQUEST DEVELOPMENT, LLC, ACQUEST GOVERNMENT
HOLDINGS OPP, LLC, ACQUEST GOVERNMENT HOLDINGS,
U.S. GEOLOGICAL, LLC, AND LINCOLN PARK
ASSOCIATES, LLC, DEFENDANTS-APPELLANTS.
(APPEAL NO. 2.)
HAGERTY & BRADY, BUFFALO (MICHAEL A. BRADY OF COUNSEL), FOR
DEFENDANTS-APPELLANTS.
MATTAR, D’AGOSTINO & GOTTLIEB, LLP, BUFFALO (KRISTA GOTTLIEB OF
COUNSEL), FOR PLAINTIFF-RESPONDENT.
Appeal from a judgment of the Supreme Court, Erie County (John M.
Curran, J.), entered January 19, 2010. The judgment dismissed the
amended complaint of plaintiff McGuire Children, LLC and the
counterclaim of defendants.
It is hereby ORDERED that the judgment so appealed from is
unanimously affirmed without costs.
Memorandum: Defendants appeal from a judgment following a
nonjury trial that dismissed the amended complaint of plaintiff
McGuire Children, LLC (McGuire Children) and dismissed defendants’
counterclaim for an award of attorneys’ fees against McGuire Children
based on the general release executed by plaintiffs. The court
determined, inter alia, that defendant William L. Huntress breached a
fiduciary duty that he owed to McGuire Children but that McGuire
Children failed to establish that they sustained any damages as a
result of that breach. We affirm.
The facts relevant to this appeal are essentially undisputed.
Beginning in 1997, Huntress and plaintiff Frank McGuire, personally
and through their various business entities, were involved in a series
of real estate ventures. The two formed a number of limited liability
companies that invested in property that was to be leased to the
federal government (hereafter, Government Property LLCs). McGuire
loaned Huntress the funds to purchase the properties, and Huntress was
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CA 10-01165
responsible for managing their development. A separate Government
Property LLC was formed for each project. In addition to being
entitled to repayment of the loans with interest, McGuire also
received equity interests in the Government Property LLCs. For estate
planning purposes, McGuire thereafter assigned his equity interests in
the Government Property LLCs to McGuire Children, an LLC owned by his
children. There were thus two members of the Government Property
LLCs: Huntress and McGuire Children.
By 2001, the Government Property LLCs were experiencing financial
difficulties, and some of the properties still had not been developed.
In October 2001, the parties reached an oral agreement whereby
Huntress would pay off the loans he obtained from McGuire with
interest and release McGuire from any obligations with respect to the
Government Property LLCs, in exchange for which Huntress would receive
McGuire Children’s equity interests in the Government Property LLCs.
Pursuant to that agreement, McGuire Children would receive nothing for
its equity interests in the Government Property LLCs. During that
time, Huntress was negotiating with a third party, iStar Financial
(iStar), to sell several of the Government Property LLCs in order to
obtain funds to satisfy the loans to McGuire. Huntress did not
disclose such negotiations to McGuire or McGuire Children, who were
not aware that iStar was interested in purchasing the properties.
Huntress thereafter closed his deal with McGuire and McGuire Children,
using funds loaned from iStar to pay off the loans from McGuire in
March 2002, on the same day that he closed his deal with iStar.
Plaintiffs executed a general release providing that, inter alia, if
any of them commenced a lawsuit against defendants concerning matters
covered by the release, such party would be liable for attorneys’ fees
and court costs incurred by defendants.
Upon learning of the deal between Huntress and iStar, plaintiffs
commenced this action for, inter alia, fraud and breach of fiduciary
duty. Following the liability portion of the bifurcated nonjury
trial, Supreme Court determined that, by failing to disclose his
dealings with iStar, Huntress breached a fiduciary duty that he owed
to McGuire Children. The court determined after the damages portion
of the bifurcated trial, however, that McGuire Children sustained no
damages as a result of that breach of fiduciary duty. The court also
dismissed defendants’ counterclaim for an award of attorneys’ fees
pursuant to the general release.
Defendants contend that the fiduciary duty that Huntress owed to
McGuire Children ceased in October 2001, when Huntress and McGuire
orally agreed that Huntress would buy out the equity interests of
McGuire Children, despite the fact that the deal did not close until
five months later, in March 2002. We reject that contention. As the
court properly determined, Huntress continued to owe fiduciary duties
to McGuire Children, as the minority member of the Government Property
LLCs, until those LLCs were actually dissolved (see Matter of
Beverwyck Abstract L.L.C., 53 AD3d 903; Madison Hudson Assoc. LLC v
Neumann, 44 AD3d 473, 482-483). The cases upon which defendants rely
in support of their contention are distinguishable because they
involve at-will agency and partnership relationships (see Beverwyck
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CA 10-01165
Abstract L.L.C., 53 AD3d at 904).
We reject the further contention of defendants that reliance is
an element of a cause of action for breach of fiduciary duty. The
elements of such a cause of action are “the existence of a fiduciary
duty, misconduct by the defendant[s] and damages that were directly
caused by the defendant[s’] misconduct” (Kurtzman v Bergstol, 40 AD3d
588, 590; see Colello v Colello, 9 AD3d 855, 859). We reject
defendant’s contention that the First Department in Littman v Magee
(54 AD3d 14) held otherwise. The court’s reference to a reliance
element in that case was only with respect to the plaintiff’s fraud
claim, not her claim for breach of fiduciary duty (see id. at 17). We
thus conclude that plaintiffs were not required to establish that, in
deciding to sell McGuire Children’s equity interests in the Government
Property LLCs, they relied on the assumption that Huntress was not
intending to sell the properties to a third party.
Finally, we conclude that the court properly determined that the
general release was voidable as a result of the breach of fiduciary
duty by Huntress. “ ‘[A] general release will not insulate a
tortfeasor from allegations of breach of fiduciary duty, where he has
not fully disclosed alleged wrongdoing’ ” (Littman, 54 AD3d at 17; see
Blue Chip Emerald v Allied Partners, 299 AD2d 278, 280). Indeed, it
would be unjust to allow a party who has committed a wrong to collect
attorneys’ fees from the party that has been wronged.
Entered: April 1, 2011 Patricia L. Morgan
Clerk of the Court