United States District Court, Southern District of New York
August 14, 2003
FEDERAL DEPOSIT INSURANCE CORPORATION AS RECEIVER OF FIRST NEW YORK BANK FOR BUSINESS, PLAINTIFF,
LAWRENCE BOBER, JOEL BOYARSKY, DALE COUDERT, NORMAN DANSKER, STEPHEN DEITZ, ROGER GIMBEL, MILTON KOFFMAN, STANLEY MUSS, LINDA WARREN A/K/A LINDA SELZER, MARTIN SIMON, CLAUDIO D'CHIUTIIS, DOROTHY ORR, ALAN AUFZIEN, SAM DOB, STUART HAMMERMAN, DAVID HIRSCH, DAVID JUSTIN, GEORGE LAX, SAM OOLIE, ELIOT ROBINSON, PAUL YANOWICZ AND ISRAEL ZALMANOV, DEFENDANTS
The opinion of the court was delivered by: John Martin Jr., District Judge
OPINION AND ORDER
The Federal Deposit Insurance Corporation ("FDIC"), as receiver of First New York Bank for Business ("the Bank"), brought this action against former directors of the Bank for breach of fiduciary duty, negligence, and gross negligence. The complaint alleges that the directors caused the Bank to make preferential insider loans in violation of the Bank's internal lending policy and federal and state laws and regulations.
The trial of this action ended when the jury was unable to reach a verdict. Thereafter, the Defendants renewed their motions for judgment as a matter of law. The Court held oral argument at which it rejected most of the Defendants' arguments [ Page 2]
and granted the motion of the Defendant Dansker to the extent of dismissing the claims relating to loans to entities which he controlled. The Court reserved decision with respect to the issue of causation with respect to losses suffered by the Bank on loans to Dansker entities that had been the subject of a September 1990 Exchange Agreement and loans to Chatwal entities where there had been a swap of the collateral after the allegedly improper loan approval.
In effect, the Defendants argue that the chain of causation from their improper approval of the extensions of credit was broken by events subsequent to their actions for which they are not liable. Analysis of this argument must start with the recognition that:
breaches of a fiduciary relationship in any context
comprise a special breed of cases that often loosen
normally stringent requirements of causation and
damages. See Northwestern Nat. Ins. Co. v. Alberts,
769 F. Supp. 498, 506 (S.D.N.Y. 1991) ("[A] plaintiff
alleging breach of fiduciary duty . . . is not
required to meet the higher standard of loss or
proximate causation."); Diduck v. Kaszycki & Sons
Contractors, Inc., 974 F.2d 270, 284 (2d Cir. 1992) (a
third party participating in a fiduciary's breach need
not profit from the breach and liability may attach
for acts or omissions that are a "substantial factor"
in the sequence of causation); Zackiva Communications
Corp. v. Horowitz, 826 F. Supp. 86, 88 (S.D.N.Y. 1993)
(to state a claim for a breach of fiduciary duty, "a
plaintiff need not allege damages to itself"); Diamond
v. Oreamuno, 24 N.Y.2d 494, 498, 301 N.Y.S.2d 78,
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81, 248 N.E.2d 910, 912 (1969) (a corporate fiduciary
entrusted with information may not appropriate that
asset for his own use even if he causes no injury to
Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537
, 543 (2d Cir. 1994).
The reason for this rule is found in the opinion of the Appellate Division First Department in Gibbs v. Breed, Abbott & Morgan, 271 A.D.2d 180, 188-89 (1994), which states:
the purpose of this type of action "is not merely to
compensate the plaintiff for wrongs committed . . .
[but also] `to prevent them, by removing from agents
and trustees all inducement to attempt dealing for
their own benefit in matters which they have
undertaken for others, or to which their agency or
trust relates' "(Diamond v. Oreamuno, 24 N.Y.2d 494,
498 [emphasis in original], quoting Dutton v.
Willner, 52 N.Y. 312, 319). However, the proponent of
a claim for a breach of fiduciary duty must, at a
minimum, establish that the offending parties' actions
were "a substantial factor" in causing an identifiable
loss (Millbank, Tweed, Hadley & McCloy v. Chan
Cher Boon, supra, at 543; see, 105 E. Second St.
Assocs. v. Bobrow, 175 A.D.2d 746 [awarding amount of
loss sustained by reason of the faithless fiduciary's
The evidence at trial was sufficient to prove that the Defendants' breach of their fiduciary duty with respect to the loans in question was "`a substantial factor' in causing an identifiable loss." The fact that intervening actions of the Bank may have affected the amount of that loss does not relieve the Defendants of their liability. Whether the 1990 Exchange [ Page 4]
Agreement or the collateral swap adversely impacted the amount that the Bank ultimately recovered on the loans in question were issues for the jury to decide.*fn1 Having proved that the Directors' breach of fiduciary duty set in motion a chain of events resulting in a loss to the Bank, Plaintiff satisfied its burden on the issue of loss causation. The Defendants are, of course, free to prove that other actions of the Bank with respect to these loans increased the amount of the loss and to argue to the jury that they are not liable for such excess.
For the foregoing reasons and for the reasons stated on the record at the argument of these motions, the motions of the Defendants for judgment as a matter of law are denied, except the motion of the Defendant Dansker for judgment dismissing as to him the claims relating to loans to entities that he controlled.*fn2