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Roslyn Union Free School District v. Michael Barkan

May 3, 2011

ROSLYN UNION FREE SCHOOL DISTRICT, APPELLANT,
v.
MICHAEL BARKAN, ET AL., DEFENDANTS, CAROL MARGARITIS, RESPONDENT.



The opinion of the court was delivered by: Graffeo, J.:

This opinion is uncorrected and subject to revision before publication in the New York Reports.

In this case, we are asked whether a three or six-year statute of limitations applies to causes of action for negligence and breach of fiduciary duty by a school district against a former member of the school board. We hold that the six-year limitations period in CPLR 213 (7) is applicable and, therefore, this action was timely commenced.

I

In September 2002, an accounting firm hired by plaintiff Roslyn Union Free School District discovered irregularities in the district's financial records. An audit revealed that Pamela Gluckin, the assistant superintendent for business, had stolen $223,000 from district accounts. The Roslyn Union Free School District Board of Education (the Board) was notified of Gluckin's misconduct and it decided to allow Gluckin to repay the misappropriated funds (along with attorney's fees and accounting costs) and retire. The Board, however, did not notify law enforcement authorities or state officials about Gluckin's criminal activities, nor did it publicly disclose her illegal conduct.

Unfortunately, the theft by Glucken turned out to be just one component of a long-running conspiracy to loot the school district's coffers. After Glucken left her post, information about additional missing funds surfaced and eventually a criminal investigation was undertaken by the Nassau County District Attorney's Office. In February 2004, Gluckin was arrested for grand larceny in the first degree for stealing more than $1 million from the school district. The investigation also implicated the school district's Superintendent (Frank Tissone) and an account clerk (Deborah Rigano, who was Gluckin's niece), and they too were arrested for grand larceny. An extensive forensic audit by the State Comptroller determined that, from 1998 through 2004, approximately $11 million had been misappropriated: Gluckin had stolen over $4.6 million; Tassone had taken more than $2.4 million; and Rigano had received about $300,000.*fn1 In total, various sums had been funneled to more than two dozen people.*fn2

In addition to the criminal prosecutions that emerged from these investigations, the school district initiated a lawsuit against former and current members of the Board for their allegedly lax management during the years the funds disappeared and their attempt to keep these illegal activities under wraps. The action was commenced in April 2005 under several theories of liability, including causes of action for breach of fiduciary duty and common-law negligence based on the Board's failure to identify and prevent the ongoing thievery or take further investigatory action after Gluckin's misappropriations were first discovered.*fn3 The complaint also asserted that the Board members should have implemented internal financial control policies and procedures to ensure reliable oversight and protection of the school district's assets.*fn4

Defendant Carol Margaritis was a member of the Board for approximately one year, beginning in 2000. Her departure from the Board occurred before Gluckin's criminal activities came to light. There are no allegations that Margaritis knew about the ongoing illegal scheme, benefitted from the theft of the school district's funds or received any portion of the stolen monies. Margaritis also did not participate in the Board's decision not to reveal Gluckin's initial thievery. Margaritis was, however, a member of the Board during a time period that funds were being stolen by school district employees.

Margaritis moved to dismiss the complaint against her, arguing that the causes of action were time-barred because the school district's claims were subject to the three-year statute of limitations in CPLR 214 (4) and the complaint was filed more than three years after she ceased being a school board member.

The school district countered that CPLR 213 (7) provided a six-year statute of limitations since the school district is, by definition, a municipal corporation that may sue a former board member to recover damages. Supreme Court agreed with Margaritis and dismissed the claims against her. The Appellate Division affirmed, reasoning that the three-year period set forth in CPLR 214 (4) was applicable (71 AD3d 660 [2d Dept 2010]). We granted leave to appeal (15 NY3d 702 [2010]) and now conclude that the causes of action for breach of fiduciary duty, negligence and declaratory judgment should be reinstated as timely.

II

This is an unusual case because it is rare for school districts to engage in litigation against the individuals who voluntarily seek election to serve on school boards. Such public service is commendable and a vital component of our state's legal and moral duty to educate its children. The filing of a lawsuit by a school district against the members of its school board is certainly a disincentive for attracting qualified candidates to perform this important civic function. Here, apparently, the school district responded to a particularly egregious set of facts involving severe financial mismanagement -- over $11 million was stolen from taxpayers in a criminal conspiracy operated by two high-ranking school district employees and certain members of the Board were allegedly complicit because they may have breached the duties that were entrusted to them to protect the school district's assets. The question before us is not whether any Board members bear a degree of responsibility for these losses, but whether the case against defendant Margaritis was timely filed.

Causes of action that seek monetary damages for injury to property are generally subject to a three-year statute of limitations (see CPLR 214 [4]; IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d 132, 139 [2009]). But CPLR 213 (7) extends the limitations period to six years for "an action by or on behalf of a corporation against a present or former . . . officer . . . to recover damages for waste or for an injury to property or for an accounting in conjunction therewith."*fn5 If the specific language of CPLR 213 (7) encompasses a particular claim, it supplants the general three-year rule of CPLR 214 (4). The issue here then distills to whether a school district is a "corporation" within the meaning of CPLR 213 (7), thereby providing a six-year statute of limitations for covered claims. We hold that it is.

We begin our analysis with the General Construction Law, which supplies the definitions of certain statutory terms used to interpret the language and purpose of a statute (see General Construction Law § 110). This Court has previously relied on the General Construction Law when considering the applicability of a statute of limitations (see Western Elec. Co. v Brenner, 41 NY2d 291, 293 [1977]; Empire Trust Co. v Heinze, 242 NY 475, 478-479 [1926]) and we again find it appropriate to do so.

General Construction Law § 65 (a) (1) defines the term "corporation" as referring to, among other entities, a "public corporation." A "public corporation," in turn, includes a "municipal corporation" under General Construction Law §§ 65 (b) (1) and 66 (1). And the term "municipal corporation," as defined in General Construction Law § 66 (2), expressly embraces a "school district." Because a school district is both a ...


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